<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FIRSTPLUS HOME LOAN TRUSTS
(Issuer with respect to the Securities)
FIRSTPLUS INVESTMENT CORPORATION
(Originator of the Trusts described herein)
(Exact name of Registrant as specified in its charter)
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NEVADA 75-2596063
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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3773 HOWARD HUGHES PARKWAY, SUITE 300N MICHAEL ORENDORF
LAS VEGAS, NEVADA 89109 C/O FIRSTPLUS INVESTMENT CORPORATION
(702) 866-2202 3773 HOWARD HUGHES PARKWAY, SUITE 300N
(Address, including zip code, and LAS VEGAS, NEVADA 89109
telephone number, including area (702) 866-2202
code, of Originator's principal (Name, address, including zip code,
executive offices) and telephone number, including
area code, of agent for service
with respect to the Registrant)
----------------------
COPIES TO:
RONALD M. MANKOFF, ESQ. MICHAEL B. THIMMIG, ESQ.
1250 MOCKINGBIRD LANE ANDREWS & KURTH L.L.P.
DALLAS, TEXAS 75247-4902 4400 THANKSGIVING TOWER
(214) 630-6006 DALLAS, TEXAS 75201
(214) 979-4400
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the
following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.[x]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Amount of
Proposed Title of Amount to Be Offering Price Per Maximum Aggregate Registration
Securities to be Registered Registered Unit(1) Offering Price (1) Fee (2)
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Asset Backed Securities $1,240,625,000 100% $1,240,625,000 $427,801.72
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(1) Estimated solely for the purpose of calculating the registration fee on
the basis of the proposed maximum offering price per unit.
(2) Previously paid to the Commission on September 9, 1996 in connection with
an Edgar filing that has been withdrawn.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PURSUANT TO RULE 429 OF THE GENERAL RULES AND REGULATIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, THE PROSPECTUS WHICH IS PART OF THIS
REGISTRATION STATEMENT IS A COMBINED PROSPECTUS RELATING ALSO TO $758,375,000 OF
SECURITIES REGISTERED UNDER REGISTRATION STATEMENT NO. 33-65373 AND REMAINING
UNISSUED AS OF THE DATE HEREOF AND TO $1,000,000 OF SECURITIES REGISTERED UNDER
REGISTRATION STATEMENT NO. 333-10451 AND REMAINING UNISSUED AS OF THE DATE
HEREOF. THE REGISTRATION FEES FOR THE SECURITIES REGISTERED UNDER REGISTRATION
STATEMENTS NO. 33-65373 AND NO. 333-10451 WERE PAID UPON THE FILING WITH THE
COMMISSION OF SAID REGISTRATION STATEMENTS.
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<PAGE> 2
INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus relating
to the offering of one or more series of Asset Backed Notes and/or Asset Backed
Certificates by various trusts created from time to time by FIRSTPLUS INVESTMENT
CORPORATION, and (ii) a form of Prospectus relating to the offering of one or
more series of Asset Backed Certificates by FIRSTPLUS INVESTMENT CORPORATION and
certain trusts, all of the beneficial ownership interest in which is owned by
FIRSTPLUS INVESTMENT CORPORATION.
<PAGE> 3
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* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT *
* AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL *
* OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF *
* THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, *
* SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1996
PROSPECTUS
FIRSTPLUS HOME LOAN TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
FIRSTPLUS INVESTMENT CORPORATION,
SELLER
FIRSTPLUS FINANCIAL, INC.,
TRANSFEROR AND SERVICER
The Asset Backed Notes (the "Notes") and the Asset Backed Certificates (the
"Certificates" and, together with the Notes, the "Securities") described herein
may be sold from time to time in one or more series (each, a "Series"), in
amounts, at prices and on terms to be determined at the time of sale and to be
set forth in a supplement to this Prospectus (a "Prospectus Supplement"). Each
Series of Securities, which may include one or more classes (each, a "Class") of
Notes and/or Certificates, will be issued by a trust to be formed with respect
to such Series (each, a "Trust"). Each Trust will be formed pursuant to either a
Trust Agreement (each, a "Trust Agreement") to be entered into among FIRSTPLUS
INVESTMENT CORPORATION, as Seller (the "Seller") and the owner trustee specified
in the related Prospectus Supplement (the "Owner Trustee") or a Pooling and
Servicing Agreement (each, a "Pooling and Servicing Agreement") to be entered
into among the Seller, FIRSTPLUS FINANCIAL, INC., as Servicer (the "Servicer")
and the trustee specified in the related Prospectus Supplement (the "Trustee").
If a Series of Securities includes Notes, such Notes of a Series will be issued
and secured pursuant to an Indenture between the Trust and the Indenture Trustee
specified in the related Prospectus Supplement (the "Indenture Trustee") and
will represent indebtedness of the related Trust. If a Series of Securities
includes Certificates, such Certificates of a Series will represent undivided
ownership interest in the related Trust. The related Prospectus Supplement will
specify which Class or Classes of Notes, if any, and which Class or Classes of
Certificates, if any, of the related Series are being offered thereby.
(Continued on next page)
See "ERISA Considerations" herein and in the related Prospectus Supplement
for a discussion of restrictions on the acquisition of Securities by "plan
fiduciaries."
BEFORE PURCHASING ANY OFFERED SECURITIES, PROSPECTIVE INVESTORS SHOULD
REVIEW THE INFORMATION SET FORTH HEREIN UNDER THE CAPTION "RISK FACTORS" AND
SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE
RELATED PROSPECTUS SUPPLEMENT.
EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, ANY NOTES OF
A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A SERIES REPRESENT
BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS
OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY, THE SELLER OR THE
SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is September 12, 1996
<PAGE> 4
(Continued from prior page)
The property of each Trust (the "Trust Property") will consist primarily of
a segregated pool (a "Loan Asset Pool") of one or more of the following mortgage
related assets (the "Loan Assets"): (i) pools (each, a "Mortgage Pool") of
single family (one- to four-unit) residential mortgage loans, timeshare mortgage
loans and loans evidenced by retail installment sales or installment loan
agreements that are secured by first or junior liens on real property (the
"Mortgage Loans"); and (ii) pools (each, a "Contract Pool") of loans evidenced
by retail installment sales or installment loan agreements, including loans
secured by new or used Manufactured Homes (as defined herein) that are not
considered to be interests in real property because such Manufactured Homes are
not permanently affixed to real estate ("Secured Contracts") and loans evidenced
by retail installment sales or installment loan agreements which are not secured
by any interest in real or personal property ("Unsecured Contracts" and,
together with the Secured Contracts, the "Contracts"). To the extent specified
in the related Prospectus Supplement, the Loan Assets may include Title I
Mortgage Loans and Title I Contracts. If specified in the related Prospectus
Supplement, the Trust Property for a Series of Securities may include the rights
or other ancillary or incidental assets (together with the Loan Assets,
collectively, the "Assets") that are intended (i) to provide credit enhancement
for the ultimate or timely distributions of proceeds from the Loan Assets to
holders of the Securities ("Securityholders") or (ii) to assure the servicing of
the Loan Assets. The Loan Assets will consist of loans for which the related
proceeds were used to finance (i) property improvements, (ii) the acquisition of
personal property such as home appliances or furnishings, (iii) debt
consolidation, (iv) the purchase or refinancing of single family residential
property, or (v) a combination of property improvements, debt consolidation and
other consumer purposes, which loans are marketed by the Transferor under the
name "BusterPlus(TM) Loans."
Each Class of Securities of a Series will represent the right to receive
specified payments in respect of collections of principal and interest on the
related Assets, at the rates, on the dates and in the manner described herein
and in the related Prospectus Supplement. If a Series includes multiple Classes
of Securities, the rights of one or more Classes of Securities to receive
payments may be senior or subordinate to the rights of one or more of the other
Classes of such Series. Distributions on Certificates of a Series may be
subordinated in priority to payments due on any related Notes of such Series to
the extent described herein and in the related Prospectus Supplement. A Series
may include one or more Classes of Notes and/or Certificates which differ as to
the timing and priority of payment, interest rate or amount of distributions in
respect of principal or interest or both. A Series may include one or more
Classes of Notes or Certificates entitled to distributions in respect of
principal with disproportionate, nominal or no interest distributions, or to
interest distributions, with disproportionate, nominal or no distributions in
respect of principal. The rate of payment in respect of principal of any Class
of Notes and distributions in respect of principal of the Certificates of any
Class will depend on the priority of payment of such Class and Certificates and
the rate and timing of payments (including prepayments, defaults, liquidations
and repurchases of Assets) on the related Assets. A rate of payment lower or
higher than that anticipated may affect the weighted average life of each Class
of Securities in the manner described herein and in the related Prospectus
Supplement. See "Risk Factors -- Effect of Prepayments on Average Life."
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters, as more fully described herein and in
the related Prospectus Supplement. See "Plan of Distribution" herein. There will
have been no public market for any Series of Securities prior to the offering
thereof. There can be no assurance that a secondary market will develop for the
Securities of any Series or, if it does develop, that such market will continue.
-ii-
<PAGE> 5
PROSPECTUS SUPPLEMENT
As further described herein, the Prospectus Supplement relating to each
Series of Securities offered thereby (the "Offered Securities") will, among
other things, set forth, as and to the extent appropriate: (i) a description of
each Class of such Offered Securities, including with respect to each such Class
the following (A) the applicable payment or distribution provisions, (B) the
aggregate principal amount, if any, (C) the rate at which interest accrues from
time to time, if at all, or the method of determining such rate, and (D) whether
interest will accrue from time to time on its aggregate principal amount, if
any, or on a specified notional amount, if at all; (ii) information with respect
to any other Classes of Securities of the same Series; (iii) the respective
dates on which payments or distributions are to be made; (iv) information as to
the Assets, including the Loan Assets and Credit Enhancement, constituting the
related Trust Property; (v) the circumstances, if any, under which the
Securities may be subject to redemption or early termination; (vi) additional
information with respect to the method of payment or distribution in respect of
such Offered Securities; (vii) the initial percentage ownership interest in the
related Trust to be evidenced by each Class of Certificates of such Series;
(viii) information concerning the Trustee (as defined herein) of the related
Trust; (ix) if the related Trust Property consists of Mortgage Loans or
Contracts, information concerning the Servicer and any Master Servicer (each as
defined herein) of such Mortgage Loans or Contracts; (x) information as to the
nature and extent of subordination of any Class of Securities of such Series,
including a Class of Offered Securities; and (xi) whether such Offered
Securities will be initially issued in definitive or book-entry form.
The actual characteristics of the Loan Assets relating to a Series will not
deviate in any material respect from the parameters specified in the related
Prospectus Supplement; provided, however, that if the characteristics described
therein materially differ from the actual characteristics, a supplement to such
Prospectus Supplement will be distributed.
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, referred to herein as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities to be offered from time to time pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, New
York, New York 10048. Copies of the Registration Statement may also be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a Web site on the Internet that contains reports, proxy and
information statements and other information regarding the Seller. The address
of such Web site is http://www.sec.gov.
-iii-
<PAGE> 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
of this Prospectus and prior to the termination of the offering of the
Securities shall be deemed to be incorporated by reference in this Prospectus.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Seller will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein or in any related Prospectus Supplement by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to the Seller at 3773 Howard Hughes Parkway, Suite
300N, Las Vegas, Nevada 89109 (Telephone: (702) 892-3772), Attention: Michael
Orendorf.
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<PAGE> 7
TABLE OF CONTENTS
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INTRODUCTORY NOTE.....................................................................
PROSPECTUS SUPPLEMENT................................................................. -iii-
AVAILABLE INFORMATION................................................................. -iii-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... -iv-
SUMMARY OF TERMS...................................................................... 1
RISK FACTORS.......................................................................... 8
Limited Liquidity and Fluctuation in Value from Market Conditions................... 8
General.......................................................................... 8
Lack of a Secondary Market....................................................... 8
Book Entry Registration.......................................................... 8
Limited Nature of Ongoing Information............................................ 8
Sensitivity to Fluctuations in Prevailing Interest Rates......................... 9
Limited Assets of the Trust......................................................... 9
Additions, Substitutions and Withdrawals of Assets............................... 9
Effect of Prepayments on Average Life............................................... 10
Effect of Prepayments on Yield...................................................... 11
Limitations of Credit Enhancement................................................... 11
Limitations Regarding Types of Losses Covered.................................... 11
Disproportionate Benefits to Certain Classes and Series.......................... 11
Limitations Regarding the Amount of Credit Enhancement........................... 12
Limitations on FHA Insurance for Title I Loans................................... 12
Limited Nature of Ratings........................................................... 13
Adverse Tax Consequences............................................................ 13
Original Issue Discount.......................................................... 13
Certain Factors Affecting Delinquencies, Foreclosures and Losses on Loan Assets..... 14
General.......................................................................... 14
Geographic Concentration......................................................... 14
Decline in Value of a Loan Asset................................................. 14
Limitations on Realizations of Junior Liens...................................... 14
Certain Legal Considerations of the Loan Assets.................................. 15
Risks Associated with Certain Loan Assets........................................... 15
No Hazard Insurance for Title I Mortgage Loans................................... 15
Contracts Secured by Manufactured Homes.......................................... 16
Unsecured Contracts.............................................................. 16
Consumer Protection Laws related to Contracts.................................... 16
Reliance on Management of Timeshare Units........................................ 16
Recharacterization of Sale of Loan Assets as Borrowing.............................. 17
Risks Relating to Indexed Securities................................................ 17
DESCRIPTION OF THE NOTES.............................................................. 18
General............................................................................. 18
Principal and Interest on the Notes................................................. 18
The Indenture....................................................................... 19
Modification of Indenture........................................................ 19
Events of Default; Rights upon Event of Default.................................. 19
Certain Covenants................................................................ 20
Annual Compliance Statement...................................................... 20
Indenture Trustee's Annual Report................................................ 20
Satisfaction and Discharge of Indenture.......................................... 20
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The Indenture Trustee............................................................... 22
Administration Agreement............................................................ 22
DESCRIPTION OF THE CERTIFICATES....................................................... 22
General............................................................................. 22
Distributions of Principal and Interest............................................. 23
POOL FACTORS AND TRADING INFORMATION.................................................. 23
CERTAIN INFORMATION REGARDING THE SECURITIES.......................................... 24
General............................................................................. 24
Fixed Rate Securities and Floating Rate Securities.................................. 25
Indexed Securities.................................................................. 25
Book-Entry Registration............................................................. 26
Definitive Securities............................................................... 29
THE TRUSTS............................................................................ 30
THE TRUSTEE........................................................................... 30
DESCRIPTION OF THE TRUST PROPERTY..................................................... 31
General............................................................................. 31
Mortgage Loans...................................................................... 32
Contracts........................................................................... 33
Additions, Substitution and Withdrawal of Assets.................................... 34
Pre-Funding Arrangements............................................................ 34
CREDIT ENHANCEMENT.................................................................... 36
General............................................................................. 36
Subordination....................................................................... 36
Overcollateralization............................................................... 37
Cross-Support....................................................................... 37
Guaranty Insurance.................................................................. 37
Mortgage Pool Insurance............................................................. 37
Special Hazard Insurance............................................................ 38
Reserve Funds....................................................................... 38
SERVICING OF THE LOAN ASSETS.......................................................... 39
Enforcement of Due-on-Sale Clauses.................................................. 39
Realization Upon Defaulted Loan Assets.............................................. 39
Waivers and Deferments of Certain Payments.......................................... 40
Subservicers........................................................................ 40
Removal and Resignation of Servicer................................................. 40
Advances............................................................................ 41
Servicing Procedures................................................................ 41
Mortgage Loans................................................................... 41
Contracts........................................................................ 42
Administration and Servicing Compensation and Payment of Expenses................... 42
THE SELLER............................................................................ 43
THE SERVICER AND THE TRANSFEROR....................................................... 43
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS.................................. 44
Sale and Assignment of Loan Assets.................................................. 44
Conveyance of Subsequent Loan Assets................................................ 46
Repurchase or Substitution of Loan Assets........................................... 46
Evidence as to Compliance........................................................... 47
List of Securityholders............................................................. 47
Administration of the Distribution Account.......................................... 47
</TABLE>
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Reports to Securityholders.......................................................... 48
Events of Default................................................................... 49
Rights Upon Event of Default........................................................ 49
Amendment........................................................................... 49
CERTAIN LEGAL ASPECTS OF THE LOAN ASSETS.............................................. 50
General Legal Considerations........................................................ 50
Mortgages........................................................................ 51
Cooperative Loans................................................................ 51
Foreclosure......................................................................... 52
Mortgages........................................................................ 52
Cooperative Loans................................................................ 53
Junior Liens..................................................................... 54
Right of Redemption.............................................................. 55
Anti-Deficiency Legislation and Other Limitations on Lenders..................... 55
Enforceability of Certain Provisions............................................. 56
Adjustable Rate Loans............................................................ 58
Environmental Legislation........................................................ 58
Truth in Lending Act................................................................ 58
Applicability of Usury Laws......................................................... 59
Soldiers' and Sailors' Civil Relief Act............................................. 59
The Title I Program................................................................. 60
General.......................................................................... 60
Requirements for Title I Property Improvement Loans and Contracts................ 63
Requirements for Title I Manufactured Home Contracts............................. 64
Title I Underwriting Requirements................................................ 66
Claims Procedures Under Title I.................................................. 66
No Rights of Securityholders Against FHA......................................... 67
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 68
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE....................................... 68
Tax Characterization of the Trust as a Partnership.................................. 68
Tax Consequences to Holders of the Notes............................................ 69
Treatment of the Notes as Indebtedness........................................... 69
OID, Indexed Securities, etc..................................................... 69
Interest Income on the Notes..................................................... 69
Sale or Other Disposition........................................................ 69
Foreign Holders.................................................................. 70
Backup Withholding............................................................... 70
Possible Alternative Treatments of the Notes..................................... 70
Tax Consequences to Holders of the Certificates..................................... 70
Treatment of the Trust as a Partnership.......................................... 70
Indexed Securities, etc.......................................................... 71
Partnership Taxation............................................................. 71
Discount and Premium............................................................. 72
Section 708 Termination.......................................................... 72
Disposition of Certificates...................................................... 72
Allocations Between Transferors and Transferees.................................. 72
Section 754 Election............................................................. 73
Administrative Matters........................................................... 73
Tax Consequences to Foreign Certificateholders................................... 73
Backup Withholding............................................................... 74
</TABLE>
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TRUSTS TREATED AS GRANTOR TRUSTS...................................................... 74
Tax Characterization of the Trust as a Grantor Trust................................ 74
Characterization................................................................. 74
Premium.......................................................................... 75
Stripped Notes and Stripped Coupons................................................. 75
Original Issue Discount.......................................................... 76
Market Discount.................................................................. 76
Premium.......................................................................... 77
Election to Treat All Interest as OID............................................ 77
Sale or Exchange of a Grantor Trust Certificate.................................. 77
Non-U.S. Persons................................................................. 78
Information Reporting and Backup Withholding..................................... 78
ERISA CONSIDERATIONS.................................................................. 78
LEGAL INVESTMENT MATTERS.............................................................. 79
PLAN OF DISTRIBUTION.................................................................. 80
USE OF PROCEEDS....................................................................... 80
LEGAL OPINIONS........................................................................ 80
INDEX OF TERMS........................................................................ 81
</TABLE>
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<PAGE> 11
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any Series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used herein are
defined elsewhere in this Prospectus on the pages indicated in the "Index of
Terms."
ISSUER........................ With respect to each Series of Securities, the
Trust to be formed pursuant to either a Trust
Agreement (as amended and supplemented from
time to time, a "Trust Agreement") among the
Seller and the applicable Owner Trustee for
such Trust (the "Trust" or the "Issuer") or a
Pooling and Servicing Agreement (as amended
and supplemented from time to time, the
"Pooling and Servicing Agreement") among the
Seller, the Servicer and the Trustee for such
Trust.
SELLER........................ FIRSTPLUS INVESTMENT CORPORATION (the
"Seller").
TRANSFEROR AND SERVICER....... FIRSTPLUS FINANCIAL, INC.("FFI" or the
"Transferor" or the "Servicer").
TRUSTEE....................... With respect to each Series of Securities that
is issued by a grantor trust, the Trustee
specified in the related Prospectus
Supplement.
OWNER TRUSTEE................. With respect to each Series of Securities that
is issued by an owner trust, the Owner
Trustee specified in the related Prospectus
Supplement.
INDENTURE TRUSTEE............. with respect to any applicable Series of
Securities that includes one or more Classes
of Notes, the Indenture Trustee specified in
the related Prospectus Supplement.
ADMINISTRATOR................. The entity or entities named as Administrator,
if any, in the related Prospectus Supplement
(the "Administrator"), will act as
administrator with respect to one or more
aspects related to any Loan Assets included
as Trust Property. The Administrator may be
an affiliate of the Seller and/or the
Servicer.
MASTER SERVICER............... If the related Trust Property consists of
Mortgage Loans or Contracts, the entity or
entities, if any, named as the master
servicer in the related Prospectus Supplement
(the "Master Servicer"), that will act as
master servicer with respect to such Mortgage
Loans or Contracts. The Master Servicer may
be an affiliate of the Seller and/or
Servicer.
THE NOTES..................... A Series of Securities may include one or more
Classes of Notes, which will be issued
pursuant to an Indenture between the Trust
and the Indenture Trustee (as amended and
supplemented from time to time, an
"Indenture"). The related Prospectus
Supplement will specify which Class or
Classes, if any, of Notes of the related
Series are being offered thereby.
To the extent specified in the related
Prospectus Supplement, Notes will be
available for purchase in denominations of
$1,000 and integral multiples thereof and
will be available in book-entry form only.
Noteholders will be able to receive
Definitive Notes
1
<PAGE> 12
only in the limited circumstances described
herein or in the related Prospectus
Supplement. See "Certain Information
Regarding the Securities -- Definitive
Securities."
To the extent specified in the related
Prospectus Supplement, each Class of Notes
will have a stated principal amount and will
bear interest at a specified rate or rates
(with respect to each Class of Notes, the
"Interest Rate"). Each Class of Notes may
have a different Interest Rate, which may be
a fixed, variable or adjustable Interest
Rate, or any combination of the foregoing.
The related Prospectus Supplement will
specify the Interest Rate for each Class of
Notes, or the method for determining the
Interest Rate.
With respect to a Series that includes two or
more Classes of Notes, each Class may differ
as to the timing and priority of payments,
seniority, allocations of losses, Interest
Rate or amount of payments of principal or
interest, or payments of principal or
interest in respect of any such Class or
Classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated portions
of the Trust Property.
In addition, a Series may include one or more
Classes of Notes entitled to (i) principal
payments with disproportionate, nominal or no
interest payments or (ii) interest payments
with disproportionate, nominal or no
principal payments.
To the extent specified in the related
Prospectus Supplement, the Seller, the
Servicer or a successor thereto may have an
option to purchase the Trust Property in the
manner and on the respective terms and
conditions as set forth in the related
Prospectus Supplement.
THE CERTIFICATES.............. A Series may include one or more Classes of
Certificates and may or may not include any
Notes. The related Prospectus Supplement will
specify which Class or Classes, if any, of
the Certificates are being offered thereby.
To the extent specified in the related
Prospectus Supplement, Certificates will be
available for purchase in a minimum
denomination of $1,000 and in integral
multiples thereof and will be available in
book-entry form only. Certificateholders will
be able to receive Definitive Certificates
only in the limited circumstances described
herein or in the related Prospectus
Supplement. See "Certain Information
Regarding the Securities -- Definitive
Securities."
To the extent specified in the related
Prospectus Supplement, each Class of
Certificates will have a stated Certificate
Balance specified in the related Prospectus
Supplement (the "Certificate Balance") and
will accrue interest on such Certificate
Balance at a specified rate (with respect to
each Class of Certificates, the "Pass Through
Rate"). Each Class of Certificates may have a
different Pass Through Rate, which may be a
fixed, variable or adjustable Pass Through
Rate, or any combination of the forego-
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ing. The related Prospectus Supplement will
specify the Pass Through Rate for each Class
of Certificates or the method for determining
the Pass Through Rate.
With respect to a Series that includes two or
more Classes of Certificates, each Class may
differ as to timing and priority of
distributions, seniority, allocations of
losses, Pass Through Rate or amount of
distributions in respect of principal or
interest, or distributions in respect of
principal or interest in respect of any such
Class or Classes may or may not be made upon
the occurrence of specified events or on the
basis of collections from designated portions
of the Trust Property.
In addition, a Series may include one or more
Classes of Certificates entitled to (i)
distributions in respect of principal with
disproportionate, nominal or no interest
distributions or (ii) interest distributions
with disproportionate, nominal or no
distributions in respect of principal.
If a Series of securities includes Classes of
Notes, distributions in respect of the
Certificates may be subordinated in priority
of payment to payments on the Notes to the
extent specified in the related Prospectus
Supplement. To the extent specified in the
related Prospectus Supplement, the Seller,
the Servicer or a successor thereto may have
an option to purchase the Trust Property in
the manner and on the respective terms and
conditions as set forth in the related
Prospectus Supplement.
THE TRUST PROPERTY............ As specified in the related Prospectus
Supplement, the property of each Trust (the
"Trust Property") will include Loan Assets
consisting of one or more of the following:
(i) a pool (a "Mortgage Pool") of single
family (one- to four-unit) residential
mortgage loans, including mortgage
loans that are secured by first or
junior liens on the related mortgaged
properties, timeshare mortgage loans
and loans evidenced by retail
installment sales or installment loan
agreements that are secured by first
or junior liens on real property
("Mortgage Loans"); and
(ii) a pool (a "Contract Pool") of loans
evidenced by retail installment sales
or installment loan agreements,
including loans secured by new or
used Manufactured Homes (as defined
herein) that are not considered to be
interests in real property because
such Manufactured Homes are not
permanently affixed to real estate
("Secured Contracts") and loans
evidenced by retail installment sales
or installment loan agreements which
are not secured by any interest in
real or personal property ("Unsecured
Contracts" and, together with the
Secured Contracts, the "Contracts").
The Trust Property may also include, or the
related Securities may also have the benefits
of, certain rights and other ancillary or
incidental assets (together with the Loan
Assets, collectively, the "Assets"), that are
intended (i) to enhance the likelihood of
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<PAGE> 14
ultimate or timely distributions of proceeds
from the Loan Assets to Securityholders,
including letters of credit, insurance
policies, guaranties, reserve funds or other
types of credit enhancement or any
combination thereof (the "Credit
Enhancement"), or (ii) to assure the
servicing of the Loan Assets, including
interest rate exchange agreements,
reinvestment income and cash accounts. The
Loan Assets will consist of loans for which
the related proceeds were used to finance (i)
property improvements, (ii) the acquisition
of personal property such as home appliances
or furnishings, (iii) debt consolidation,
(iv) the purchase or refinancing of single
family residential property, or (v) a
combination of property improvements, debt
consolidation and other consumer purposes,
which loans are marketed by the Transferor
under the name "BusterPlus(TM) Loans."
The Securities of any Series will be entitled
to payment only from the Trust Property and
any other Assets pledged or otherwise
available for the benefit of the holders of
such Securities as specified in the related
Prospectus Supplement.
The property of each Trust may also include
amounts on deposit in certain trust accounts,
including the related Collection Account,
Distribution Account and any Yield
Maintenance Account, Reserve Fund or other
account identified in the applicable
Prospectus Supplement.
A. Mortgage Loans........... As specified in the related Prospectus
Supplement for a Series, "Mortgage Loans" may
include: (i) loans secured by first liens on
one-to-four family residential properties;
(ii) loans secured by security interests in
shares issued by private, non-profit,
cooperative housing corporations
("Cooperatives") and in the related
proprietary leases or occupancy agreements
granting exclusive rights to occupy specific
dwelling units in such Cooperatives'
buildings; (iii) loans secured by junior
(i.e., second, third, etc.) liens on the
related mortgaged properties (which may be
evidenced by retail installment sales
contracts and installment loan agreements);
(iv) loans secured by timeshare estates
representing an ownership interest in common
with other owners in one or more vacation
units entitling the owner thereof to the
exclusive use of unit and access to the
accompanying recreational facilities for the
week or weeks owned; and (v) loans evidenced
by retail installment sales and installment
loan agreements that are secured by first or
junior liens on real property. See
"Description of the Trust
Property -- Mortgage Loans." Certain of the
junior lien Mortgage Loans may be
conventional (i.e., not insured or guaranteed
by a governmental agency) mortgage loans
("Conventional Mortgage Loans"), while other
junior lien Mortgage Loans that are property
improvement loans may be partially insured by
the Federal Housing Administration under the
Title I Program ("Title I Mortgage Loans").
The related Prospectus Supplement for a
Series will describe any Mortgage Loans
included in the related Trust and will
specify certain information regarding the
payment terms of such Mort-
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<PAGE> 15
gage Loans. See "Description of the Trust
Property -- Mortgage Loans."
B. Contracts................ As specified in the related Prospectus
Supplement for a Series, "Contracts" may
include: (i) loans evidenced by retail
installments sales or loan agreements,
including loans secured by new or used
Manufactured Homes (as defined herein) that
are not considered to be interests in real
property because such Manufactured Homes are
not permanently affixed to real estate
("Secured Contracts") and (ii) loans
evidenced by retail installment sales or
installment loan agreements which are not
secured by any interest in real or personal
property ("Unsecured Contracts"). See
"Description of the Trust
Property -- Contracts." Certain Contracts may
be conventional (i.e., not insured or
guaranteed by a governmental agency)
contracts (the "Conventional Contracts"),
while other Contracts may be partially
insured by the FHA under the Title I Program
(the "Title I Contracts"). The related
Prospectus Supplement for a Series will
further describe the type of Contracts, if
any, included in the related Trust. See
"Description of the Trust Property --
Contracts."
C. Pre-Funding
Arrangements.................. To the extent provided in the related
Prospectus Supplement for a Series, the
related Sale and Servicing Agreement or
Pooling and Servicing Agreement will provide
for a commitment by the related Trust to
subsequently purchase additional Loan Assets
("Subsequent Loan Assets") from the Seller
following the date on which the related
Securities are issued (a "Pre-Funding
Arrangement"). See "Description of the Trust
Property -- Pre-Funding Arrangements."
TRANSFER OF LOAN ASSETS....... On or before the date of initial issuance of a
Series of Securities (the related "Closing
Date"), the Seller will sell or transfer Loan
Assets having an aggregate principal balance
specified in the related Prospectus
Supplement as of the dates specified therein
(the "Cut-off Date") to a Trust pursuant to,
if the Trust is to be treated as an owner
trust, the related Sale and Servicing
Agreement among the Seller, the Servicer and
the Trust (as amended and supplemented from
time to time, the "Sale and Servicing
Agreement") or, if the Trust is to be treated
as a grantor trust for federal income tax
purposes, the related Pooling and Servicing
Agreement among the Seller, the Servicer and
the Trustee (as amended from time to time,
the "Pooling and Servicing Agreement").
The Loan Assets will have been (i) originated
by the Transferor in accordance with the
Transferor's underwriting criteria or (ii)
originated by the Transferor's correspondents
in accordance with the Transferor's
underwriting criteria and subsequently
purchased by the Transferor. The Loan Assets
to be sold by the Transferor to the Seller
and resold by the Seller to a Trust will be
selected based on the underwriting criteria
specified in the Sale and Servicing Agreement
or Pooling and Servicing Agreement, as
applicable, and described herein and in the
related Prospectus Supplement.
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<PAGE> 16
CREDIT ENHANCEMENT............ If and to the extent specified in the related
Prospectus Supplement, credit enhancement
with respect to a Trust or any Class or
Classes of Securities may include any one or
more of the following: subordination of one
or more other Classes of Securities, a
Reserve Fund, a Yield Maintenance Account,
overcollateralization, letters of credit,
credit or liquidity facilities, surety bonds,
guaranteed investment contracts, swaps or
other interest rate protection agreements,
repurchase obligations, cash deposits or
other agreements or arrangements with respect
to third party payments or other support. Any
form of credit enhancement may have certain
limitations and exclusions from coverage
thereunder and, if so, such limitations and
exclusions from coverage will be described in
the related Prospectus Supplement. See "Risk
Factors -- Limitations of Credit Enhancement"
and "Credit Enhancement."
TRANSFER AND SERVICING
AGREEMENTS.................... With respect to each Trust that will be treated
as an owner trust, the Seller will sell the
related Assets to such Trust pursuant to a
Sale and Servicing Agreement or a Pooling and
Servicing Agreement. The rights and benefits
of any Trust under a Sale and Servicing
Agreement will be assigned to the Indenture
Trustee as collateral for the Notes of the
related Series. The Servicer will agree with
such Trust to be responsible for servicing,
managing, maintaining custody of and making
collections on the Assets. If and to the
extent set forth in the related Prospectus
Supplement, FFI will undertake certain
administrative duties under an Administration
Agreement with respect to any Trust that has
issued Notes.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES................ Unless the Prospectus Supplement specifies that
the related Trust will be treated as a
grantor trust and, except as otherwise
provided in such Prospectus Supplement, upon
the issuance of the related Series of
Securities, Tax Counsel to such Trust will
deliver an opinion to the effect that for
federal income tax purposes (a) any Notes of
such Series will be characterized as debt and
(b) such Trust will not be characterized as
an association (or a publicly traded
partnership) taxable as a corporation. In
respect of any such Series, each Noteholder,
if any, by the acceptance of a Note of such
Series, will agree to treat such Note as
indebtedness, and each Certificateholder, by
the acceptance of a Certificate of such
Series, will agree to treat such Trust as a
partnership in which such Certificateholder
is a partner for federal income tax purposes.
Alternative characterizations of such Trust
and such Certificates are possible, but would
not result in materially adverse tax
consequences to Certificateholders.
If the Prospectus Supplement specifies that the
related Trust will be treated as a grantor
trust and except as otherwise provided in
such Prospectus Supplement, upon the issuance
of the related Series of Certificates, Tax
Counsel to such Trust will deliver an opinion
to the effect that such Trust will be treated
as a grantor
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<PAGE> 17
trust for federal income tax purposes and
will not be subject to federal income tax.
See "Certain Federal Income Tax Consequences"
for additional information concerning the
application of federal tax laws to the
Securities.
ERISA CONSIDERATIONS.......... A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or the Code should carefully review with its
own legal advisors whether the purchase or
holding of Securities could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code. See
"ERISA Considerations." To the extent
described in the Prospectus Supplement for a
Series, certain Classes of Securities of such
Series may not be transferred unless the
applicable Trustee and the Seller are
furnished with a letter of representation or
an opinion of counsel to the effect that such
transfer will not result in a violation of
the prohibited transaction provisions of
ERISA and the Code and will not subject the
applicable Trustee, the Seller, the Servicer,
the Master Servicer, if any, or the
Administrator, if any, to additional
obligations. If specified in the related
Prospectus Supplement, the United States
Department of Labor may have issued to the
Underwriter an administrative exemption for
certain Classes of Securities. See "Certain
Information Regarding the
Securities -- General" and "ERISA
Considerations."
LEGAL INVESTMENT MATTERS...... The Securities of each Series will not
constitute "mortgage related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") because, to
the extent specified in the related
Prospectus Supplement, a substantial number
of the Mortgage Loans will be secured by
liens on real estate that are not first
liens, as required by SMMEA. Accordingly,
many institutions with legal authority to
invest in "mortgage related securities" may
not be legally authorized to invest in the
Securities of any Series. Investors should
consult their own legal advisors in
determining whether and to what extent the
Securities of any particular Series
constitute legal investments for such
investors.
USE OF PROCEEDS............... Substantially all of the net proceeds from the
sale of a Series will be applied to the
simultaneous purchase of the Loan Assets
included in the related Trust or to reimburse
the amounts previously used to effect such
purchase, the costs of carrying the Loan
Assets until sale of such Series and to pay
other expenses connected with pooling the
Loan Assets and issuing such Series. See "Use
of Proceeds."
RATING........................ It is a condition to the issuance of each Class
of a Series specified as being offered by the
related Prospectus Supplement that the
Securities of such Class be rated in one of
the four highest rating categories
established for such Securities by a
nationally recognized statistical rating
agency (a "Rating Agency").
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<PAGE> 18
RISK FACTORS
In considering an investment in the Offered Securities of any Series,
investors should consider, among other things, the following risk factors and
any other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement.
LIMITED LIQUIDITY AND FLUCTUATION IN VALUE FROM MARKET CONDITIONS
General. The Offered Securities of any Series may have limited or no
liquidity. Accordingly, an investor may be forced to bear the risk of its
investment in any Offered Securities for an indefinite period of time.
Furthermore, except to the extent described herein and in the related Prospectus
Supplement, Securityholders will have no redemption rights, and the Offered
Securities of each Series are subject to early retirement only under certain
specified circumstances described in the related Prospectus Supplement.
Lack of a Secondary Market. There can be no assurance that a secondary
market for the Offered Securities of any Series will develop or, if it does
develop, that it will provide holders with liquidity of investment or that it
will continue for as long as such Offered Securities remain outstanding. The
Prospectus Supplement for any Series of Offered Securities may indicate that an
underwriter specified therein intends to establish a secondary market in such
Offered Securities; however, no underwriter will be obligated to do so. Any such
secondary market may provide less liquidity to investors than any comparable
market for securities that evidence interests in single-family mortgage loans.
To the extent provided in the related Prospectus Supplement, the Securities may
be listed on any securities exchange.
Book Entry Registration. To the extent specified in the related Prospectus
Supplement, persons acquiring beneficial ownership interests in the Securities
of any Series or Class will hold their Securities through DTC, in the United
States, or Cedel or Euroclear in Europe. Transfers within DTC, Cedel or
Euroclear, as the case may be, will be in accordance with the usual rules and
operating procedures of the relevant system. So long as the Securities are
Book-Entry Securities, such Securities will be evidenced by one or more
certificates registered in the name of Cede & Co., as the nominee of DTC, or
Citibank N.A. or Morgan Guaranty Trust Company of New York, the relevant
depositaries of Cedel and Euroclear, respectively, and each a participating
member of DTC. No Securityholder will be entitled to receive a definitive
certificate representing such person's interest, except in the event that
Definitive Securities are issued under the limited circumstances described
herein. See "Certain Information Regarding the Securities -- Book-Entry
Registration." Unless and until Definitive Securities for such Series are
issued, holders of such Securities will not be recognized by the Trustee or any
applicable Indenture Trustee as "Certificateholders", "Noteholders" or
"Securityholders", as the case may be (as such terms are used herein or in the
related Pooling and Servicing Agreement or related Indenture and Trust
Agreement, as applicable). Hence, until Definitive Securities are issued,
holders of such Securities will only be able to exercise the rights of
Securityholders indirectly through DTC (if in the United States) and its
participating organizations, or Cedel and Euroclear (in Europe) and their
respective participating organizations. See "Certain Information Regarding the
Securities -- Book-Entry Registration."
Since transactions in the Securities can be effected only through DTC,
Cedel, Euroclear, participating organizations, indirect participants and certain
banks, the ability of the beneficial owner thereof to pledge such Securities to
persons or entities that do not participate in the DTC, Cedel or Euroclear
system, or otherwise to take actions in respect of such Securities, may be
limited due to lack of a physical certificate representing such Securities.
Beneficial owners of Securities may experience some delay in their receipt
of distributions of interest of and principal since such distributions will be
forwarded by the Trustee or Indenture Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts of the beneficial owners thereof either
directly or indirectly through indirect participants.
Limited Nature of Ongoing Information. The primary source of ongoing
information regarding the Offered Securities of any Series, including
information regarding the status of the related Loan Assets and any Credit
Enhancement for such Offered Securities, will be the periodic reports to
Securityholders to be
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<PAGE> 19
delivered pursuant to the related Indenture or Pooling and Servicing Agreement
as described herein under the heading "Description of the Transfer and Servicing
Agreements -- Reports to Securityholders." There can be no assurance that any
additional ongoing information regarding the Offered Securities of any Series
will be available through any other source. The limited nature of such
information in respect of a Series of Offered Securities may adversely affect
the liquidity thereof, even if a secondary market for such Offered Securities
does develop.
Sensitivity to Fluctuations in Prevailing Interest Rates. Insofar as a
secondary market does develop with respect to any Series of Offered Securities
or Class thereof, the market value of such Offered Securities will be affected
by several factors, including the perceived liquidity thereof, the anticipated
cash flow thereon (which may vary widely depending upon the prepayment and
default assumptions applied in respect of the underlying Loan Assets) and
prevailing interest rates. The price payable at any given time in respect of
certain Classes of Offered Securities (in particular, a Class with a relatively
long average life, or a Class of Interest Only Securities or Principal Only
Securities) may be extremely sensitive to small fluctuations in prevailing
interest rates; and the relative change in price for an Offered Security in
response to an upward or downward movement in prevailing interest rates may not
necessarily equal the relative change in price for such Offered Security in
response to an equal but opposite movement in such rates. Accordingly, the sale
of Offered Securities by a holder in any secondary market that may develop may
be at a discount from the price paid by such holder. The Seller is not aware of
any source through which price information about the Offered Securities will be
generally available on an ongoing basis.
LIMITED ASSETS OF THE TRUST
The Offered Securities and Loan Assets for a Series will be guaranteed or
insured, if at all, to the extent specified in the related Prospectus
Supplement; otherwise neither the Offered Securities of any Series nor the Loan
Assets in the related Trust will be guaranteed or insured by the Seller, the
Servicer or any of their respective affiliates, by any governmental agency or
instrumentality or by any other person, and no Offered Security of any Series
will represent a claim against or security interest in the Trust for any other
Series. Accordingly, if the related Trust has insufficient assets to make
payments on a Series of Offered Securities, no other assets will be available
for payment of the deficiency, and the holders of one or more Classes of such
Offered Securities will be required to bear the consequent loss. To the extent
provided in the related Prospectus Supplement for a Series that consists of one
or more Classes of Subordinate Securities, on any Distribution Date in respect
of which losses or shortfalls in collections on the Loan Assets have been
incurred, all or a portion of the amount of such losses or shortfalls will be
borne first by one or more Classes of the Subordinate Securities, and,
thereafter, by the remaining Classes of Securities in the priority and manner
and subject to the limitations specified in such Prospectus Supplement. Because
distributions of principal on the Securities of a Series may, if provided in the
related Prospectus Supplement, be applied to outstanding Classes of such Series
in the priority specified in the related Prospectus Supplement, a deficiency
that arises after Securities of a Class of any such Series having higher
priority in payment have been fully or partially repaid will have a
disproportionately greater effect on the Securities of Classes of such Series
having lower priority in payment. The disproportionate effect of any such
deficiency is further increased in the case of Classes of Compound Interest
Securities of any Series because, prior to the retirement of all Classes of such
Series having higher priority in payment than such Compound Interest Securities,
interest is not payable, to the extent provided in the related Prospectus
Supplement, but is accrued and added to the principal of such Compound Interest
Securities.
Additions, Substitutions and Withdrawals of Assets. To the extent provided
in the related Prospectus Supplement for a Series, the Seller may, subsequent to
the issuance of such a Series, deliver additional Assets or withdraw Assets
previously included in the Trust for such Series, substituting assets therefore
or depositing additional Assets or withdrawing Assets previously deposited in a
Reserve Fund for such Series. The effect of delivery or substitution of other
Assets may be to alter the characteristics and composition of the Assets
underlying such Series, either of which may alter the timing and amount of
payments or distributions on, or the date of the final payment or distribution
in respect of, the Securities of such Series. See "Description of the Trust
Property -- Additions, Substitution and Withdrawal of Assets." Furthermore,
certain amounts on
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<PAGE> 20
deposit from time to time in certain funds or accounts constituting part of the
Trust Property for a Series, including the Distribution Account and any accounts
maintained as Credit Enhancement, may be withdrawn under certain conditions, if
and to the extent described in the related Prospectus Supplement, for purposes
other than the payment of principal of or interest on the related Series of
Securities.
EFFECT OF PREPAYMENTS ON AVERAGE LIFE
As a result of prepayments on the Loan Assets, the amount and timing of
payments or distributions of principal and/or interest on the Offered Securities
of the related Series may be highly unpredictable. Prepayments on the Loan
Assets in any Trust will result in a faster rate of principal payments on one or
more Classes of the related Series of Securities than if payments on such Loan
Assets were made as scheduled. Thus, the prepayment experience on the Loan
Assets in a Trust may affect the average life of one or more Classes of
Securities of the related Series, including a Class of Offered Securities. The
rate of principal payments on pools of mortgage loans and installment loan
contracts 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 interest rates borne
by the Loan Assets included in a Trust, then, subject to the particular terms of
the Loan Assets (e.g., provisions that prohibit voluntary prepayments during
specified periods or impose penalties in connection therewith) and the ability
of borrowers to obtain new financing, principal prepayments on such Loan Assets
are likely to be higher than if prevailing interest rates remain at or above the
rates borne by those Loan Assets. Conversely, if prevailing interest rates rise
significantly above the interest rates borne by the Loan Assets included in a
Trust, then principal prepayments on such Loan Assets are likely to be lower
than if prevailing interest rates remain at or below the interest rates borne by
those Loan Assets. In addition to fluctuations in prevailing interest rates, the
rate of prepayments on the Loan Assets may be influenced by changes and
developments in the types and structures of loan products being offered to
consumers within the mortgage banking and consumer finance industry and by
technological developments and innovations to the loan underwriting and
origination process.
Accordingly, there can be no assurance as to the actual rate of prepayment
on the Loan Assets in any Trust or that such rate of prepayment will conform to
any model described herein or in any Prospectus Supplement. As a result,
depending on the anticipated rate of prepayment for the Loan Assets in any
Trust, the retirement of any Class of Securities of the related Series could
occur significantly earlier or later, and the average life thereof could be
significantly shorter or longer, than expected.
In comparison to first lien single family mortgage loans, the Seller is not
aware of any reliable publicly available statistical information regarding the
rates of prepayment of loans such as the Loan Assets that is based upon the
historical loan performance of this segment of the mortgage banking and consumer
finance industry. In fact, this segment of the mortgage banking and consumer
finance industry has undergone significant growth and expansion, including an
increase in new loan originations, as a result of certain social and economic
factors, including recent tax law changes that limit the deductibility of
consumer interest to indebtedness secured by an individual's principal residence
and changes and developments in the types and structures of loan products being
offered to consumers. Therefore, no assurance can be given as to the level of
prepayments that the Loan Assets will experience. In fact, a number of factors
suggest that the prepayment experience of the Loan Assets may be significantly
different from that of any first lien Mortgage Loans with equivalent interest
rates and maturities.
Additional prepayment, yield and weighted average life considerations with
respect to a Series of Securities will be set forth in the related Prospectus
Supplement.
The extent to which prepayments on the Loan Assets included in any Trust
ultimately affect the average life of any Class of Securities of the related
Series will depend on the terms and provisions of such Securities. A Class of
Securities, including a Class of Offered Securities, may provide that on any
Distribution Date the holders of such Securities are entitled to a pro rata
share of the prepayments on the Loan Assets included in the related Trust that
are distributable on such date, to a disproportionately large share (which, in
some cases, may be all) of such prepayments, or to a disproportionately small
share (which, in some cases, may be none) of such prepayments. A Class of
Securities that entitles the holders thereof to a disproportionately large share
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<PAGE> 21
of the prepayments on the Loan Assets included in the related Trust increases
the likelihood of early retirement of such Class ("Call Risk") if the rate of
prepayment is relatively fast; while a Class of Securities that entitles the
holders thereof to a disproportionately small share of the prepayments on the
Loan Assets included in the related Trust increases the likelihood of an
extended average life of such Class ("Extension Risk") if the rate of prepayment
is relatively slow. To the extent described in the related Prospectus
Supplement, the respective entitlement of the various Classes of Securityholders
of such Series to receive payments (and, in particular, prepayments) of
principal of the Loan Assets included in the related Trust may vary based on the
occurrence of certain events (e.g., the retirement of one or more Classes of
Securities of such Series) or whether certain contingencies do or do not occur
(e.g., prepayment and default rates with respect to such Loan Assets).
A Series of Securities may include one or more Classes of scheduled
amortization Securities (each, a "Scheduled Amortization Security"), which will
entitle the holders thereof to receive principal distributions according to a
specified principal payment schedule. Although prepayment risk cannot be
eliminated entirely from any Class of Securities, a Class of Scheduled
Amortization Securities will generally provide a relatively stable cash flow so
long as the actual rate of prepayment on the Loan Assets included in the related
Trust remains relatively constant at the rate, or within the range of rates, of
prepayment used to establish the specific principal payment schedule for such
Securities. Prepayment risk with respect to a given pool of Loan Assets does not
disappear, however, and the stability afforded to Scheduled Amortization
Securities comes at the expense of one or more companion Classes of the same
Series (each, a "Companion Class"), any of which Companion Classes may also be a
Class of Offered Securities. In general, and as more specifically described in
the related Prospectus Supplement, a Companion Class may entitle the holders
thereof to a disproportionately large share of prepayments on the Loan Assets
included in the related Trust when the rate of prepayment is relatively fast,
and/or may entitle the holders thereof to a disproportionately small share of
prepayments on the Loan Assets included in the related Trust when the rate of
prepayment is relatively slow. As and to the extent described in the related
Prospectus Supplement, a Companion Class absorbs some (but not all) of the Call
Risk and/or Extension Risk that would otherwise belong to the related Scheduled
Amortization Securities if all payments of principal of the Loan Assets included
in the related Trust were allocated on a pro rata basis.
EFFECT OF PREPAYMENTS ON YIELD
A Series of Securities may include one or more Classes of Offered
Securities offered at a premium or discount. Yields on such Classes of
Securities will be sensitive, and in some cases extremely sensitive, to
prepayments on the Loan Assets included in the related Trust and, where the
amount of interest payable with respect to a Class is disproportionately large,
as compared to the amount of principal, as with a Class of Interest Only
Securities, a holder might fail to recover its original investment under some
prepayment scenarios. The extent to which the yield to maturity of any Class of
Offered Securities may vary from the anticipated yield will depend upon the
degree to which such Offered Securities are purchased at a discount or premium
and the amount and timing of distributions thereon. An investor should consider,
in the case of any Offered Security purchased at a premium, the risk that a
faster than anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield.
LIMITATIONS OF CREDIT ENHANCEMENT
Limitations Regarding Types of Losses Covered. The related Prospectus
Supplement for a Series of Securities will describe any Credit Enhancement
provided with respect thereto. Use of Credit Enhancement will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Credit Enhancement may not cover all potential losses
or delays; for example, Credit Enhancement may or may not cover loss by reason
of fraud or negligence by a mortgage loan originator or other parties. Any such
losses or delays not covered by Credit Enhancement may, at least in part, be
allocated to, or affect distributions to, one or more Classes of Offered
Securities.
Disproportionate Benefits to Certain Classes and Series. A Series of
Securities may include one or more Classes of Subordinate Securities (which may
include Offered Securities), if provided in the related
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Prospectus Supplement. Although subordination is intended to reduce the
likelihood of temporary shortfalls and ultimate losses to holders of the related
senior Securities, the amount of subordination will be limited and may decline
under certain circumstances. In addition, if principal payments on one or more
Classes of Offered Securities of a Series are made in a specified order of
priority, any related Credit Enhancement may be exhausted before the principal
of the later paid Classes of Offered Securities of such Series has been repaid
in full. As a result, the impact of losses and shortfalls experienced with
respect to the Loan Assets may fall primarily upon those Classes of Offered
Securities having a later right of payments. Moreover, if a form of Credit
Enhancement covers the Offered Securities of more than one Series and losses on
the related Loan Assets exceed the amount of such Credit Enhancement, it is
possible that the holders of Offered Securities of one (or more) such Series
will be disproportionately benefited by such Credit Enhancement to the detriment
of the holders of Offered Securities of one (or more) other such Series.
Limitations Regarding the Amount of Credit Enhancement. The amount of any
applicable Credit Enhancement supporting one or more Classes of Offered
Securities, including the subordination of one or more other Classes of
Securities, will be determined on the basis of criteria established by each
Rating Agency rating such Classes of Securities based on an assumed level of
defaults, delinquencies and losses on the Loan Assets and certain other factors.
There can be no assurance that the default, delinquency and loss experience on
such Loan Assets will not exceed such assumed levels. See "Credit Enhancement."
If the defaults, delinquencies and losses on such Loan Assets do exceed such
assumed levels, the holders of one or more Classes of Offered Securities will be
required to bear such additional defaults, delinquencies and losses. Regardless
of the form of Credit Enhancement provided with respect to a Series, the amount
of coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula.
Limitations on FHA Insurance for Title I Loans. The related Prospectus
Supplement will specify the number and percentage of the Title I Mortgage Loans
and/or Title I Contracts, if any, included in the related Trust that are
partially insured by the FHA pursuant to Title I Program. Since the FHA
Insurance Amount for the Title I Mortgage Loans and Title I Contracts is limited
as described herein and in the related Prospectus Supplement, and since the
adequacy of such FHA Insurance Amount is dependent upon future events, including
reductions for the payment of FHA claims, no assurance can be given that the FHA
Insurance Amount is or will be adequate to cover 90% of all potential losses on
the Title I Mortgage Loans and Title I Contracts included in the related Trust.
If the FHA Insurance Amount for the Title I Mortgage Loans and Title I Contracts
is reduced to zero, such loans and contracts will be effectively uninsured from
and after the date of such reduction. Under the Title I Program, until a claim
for insurance reimbursement is submitted to the FHA, the FHA does not review or
approve for qualification for insurance the individual Title I Mortgage Loan or
Title I Contract insured thereunder (as is typically the case with other federal
loan insurance programs). Consequently, the FHA has not acknowledged that any of
the Title I Mortgage Loans and Title I Contracts are eligible for FHA insurance,
nor has the FHA reviewed or approved the underwriting and qualification by the
originating lenders of any individual Title I Mortgage Loans and Title I
Contracts. See "Certain Legal Aspects of the Loan Assets -- The Title I
Program."
The availability of FHA Insurance reimbursement following a default on a
Title I Mortgage Loan or Title I Contract is subject to a number of conditions,
including strict compliance by the originating lender of such loan, the Seller,
the FHA Claims Administrator, the Servicer and any subservicer with the FHA
Regulations in originating and servicing such Title I Mortgage Loan or Title I
Contract, and limits on the aggregate insurance coverage available in the
Seller's FHA Reserve. For example, the FHA Regulations provide that, prior to
originating a Title I Mortgage Loan or Title I Contract, a Title I lender must
exercise prudence and diligence in determining whether the borrower and any
co-maker or co-signer is solvent and an acceptable credit risk with a reasonable
ability to make payments on the loan. Although the related Transferor will
represent and warrant that the Title I Mortgage Loans and Title I Contracts have
been originated and serviced in compliance with all FHA Regulations, these
regulations are susceptible to substantial interpretation. Failure to comply
with all FHA Regulations may result in a denial of FHA Claims, and there can be
no assurance that the FHA's enforcement of the FHA Regulations will not become
stricter in the future. See "Certain Legal Aspects of the Loan Assets -- The
Title I Program -- General."
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Because the Trust is not eligible to hold an FHA contract of insurance
under the Title I Program, the FHA will not recognize the Trust or the
Securityholders as the owners of the Title I Mortgage Loans or Title I
Contracts, or any portion thereof, entitled to submit FHA Claims. Accordingly,
neither the Trust nor the Securityholders will have a direct right to receive
insurance payments from the FHA. The Seller will contract with the Servicer (or
another person specified in the Prospectus Supplement) to serve as the
Administrator for FHA Claims (the "FHA Claims Administrator") pursuant to an FHA
claims administration agreement (the "FHA Claims Administration Agreement"),
which will provide for the FHA Claims Administrator to handle all aspects of
administering, processing and submitting FHA Claims with respect to the Title I
Mortgage Loans or Title I Contracts, in the name and on behalf of the Seller.
The Securityholders will be dependent on the FHA Claims Administrator to (i)
make claims on the Title I Mortgage Loans or Title I Contracts in accordance
with FHA Regulations and (ii) remit all FHA Insurance proceeds received from the
FHA in accordance with the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable. The Securityholders' rights relating to the
receipt of payment from and the administration, processing and submission of FHA
Claims by the Seller or any FHA Claims Administrator are limited and governed by
the related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, and the FHA Claims Administration Agreement and these functions are
obligations of the Seller and the FHA Claims Administrator, but not the FHA. See
"Certain Legal Aspects of the Loan Assets -- The Title I Program -- Claims
Procedures under Title I."
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a Class of Offered Securities
will reflect only its assessment of the likelihood that holders of such Offered
Securities will receive payments or distributions to which such Securityholders
are entitled under the related Indenture, Trust Agreement or Pooling and
Servicing Agreement. Such rating will not constitute an assessment of the
likelihood that principal prepayments on the Loan Assets will be made, the
degree to which the rate of such prepayments might differ from that originally
anticipated or the likelihood of early optional redemption or termination of the
Securities. Furthermore, such rating will not address the possibility that
prepayment of the Loan Assets at a higher or lower rate than anticipated by an
investor may cause such investor to experience a lower than anticipated yield or
that an investor that purchases an Offered Security at a significant premium
might fail to recover its initial investment under certain prepayment scenarios.
Hence, a rating assigned by a Rating Agency does not guarantee or ensure the
realization of any anticipated yield on a Class of Offered Securities.
The amount, type and nature of Credit Enhancement, if any, provided with
respect to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating a Class of Securities of such Series.
Those criteria are sometimes based upon an actuarial analysis of the behavior of
similar types of loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the data derived from a large pool of similar
types of loans will accurately predict the delinquency, default or loss
experience of any particular pool of Loan Assets. In other cases, such criteria
may be based upon determination of the values of the Mortgaged Properties or
other properties, if any, that provide security for the Loan Assets. However, no
assurance can be given that those values will not decline in the future. As a
result, the Credit Enhancement required in respect of the Offered Securities of
any Series may be insufficient to fully protect the holders thereof from losses
on the related Loan Assets. See "-- Limitations of Credit Enhancement" and
"Credit Enhancement."
ADVERSE TAX CONSEQUENCES
Original Issue Discount. Certain of the Offered Securities may be issued
with original issue discount for federal income tax purposes. A holder of a
Security issued with original issue discount will be required to include
original issue discount in ordinary gross income for federal income tax purposes
as it accrues, in advance of receipt of the cash, or a portion of the cash,
attributable to such income. Accrued but unpaid interest on the Compound
Interest Securities generally will be treated as original issue discount for
this purpose. At certain rapid Loan Asset prepayment rates, original issue
discount may accrue on certain Classes
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of Securities that may never receive payments or distributions of cash in
respect thereof, resulting in a loss to the related Securityholder. See "Certain
Federal Income Tax Consequences."
CERTAIN FACTORS AFFECTING DELINQUENCIES, FORECLOSURES AND LOSSES ON LOAN ASSETS
General. The payment performance of the Offered Securities of any Series
will be directly related to the payment performance of the Loan Assets included
as part of the related Trust. Set forth below is a discussion of certain factors
that will affect the full and timely payment of the Loan Assets included as part
of any Trust.
Geographic Concentration. Certain geographic regions of the United States
from time to time will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher rates of loss and
delinquency on mortgage loans generally. Any concentration of Loan Assets in
such a region may present risk considerations in addition to those generally
present for similar mortgage-backed or asset-backed securities without such
concentration.
Decline in Value of a Loan Asset. An investment in Securities secured by or
evidencing an interest in a pool of Mortgage Loans may be adversely affected by,
among other things, a decline in one-to-four family residential property values.
No assurance can be given that values of the Mortgaged Properties have remained
or will remain at the levels existing on the dates of origination of the related
Mortgage Loans. If the residential real estate market should experience an
overall decline in property values such that the outstanding balances of the
Mortgage Loans in a particular Mortgage Pool, and any other financing on the
Mortgaged Properties, become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, defaults and losses could be
higher than those now generally experienced with respect to similar types of
loans within the mortgage lending industry. To the extent that such losses are
not covered by applicable insurance policies, if any, or by any Credit
Enhancement as described in the related Prospectus Supplement, holders of
Securities secured by or evidencing interests in such Mortgage Loans will bear
all risk of loss resulting from defaults by borrowers and will have to look
primarily to the value of the related Mortgaged Properties for recovery of the
outstanding principal and unpaid interest of the defaulted Mortgage Loans. See
"Description of the Trust Property -- Mortgage Loans."
An investment in Securities secured by or evidencing interests in Contracts
may be affected by, among other things, a downturn in regional or local economic
conditions. These regional or local economic conditions are often volatile, and
historically have affected the delinquency, loan loss and repossession
experience of Contracts. To the extent that losses on Contracts are not covered
by applicable insurance policies, if any, or by any Credit Enhancement, holders
of the Securities secured by or evidencing interests in such Contracts will bear
all risk of loss resulting from default by borrowers and will have to look
primarily to the value of the underlying asset, if any, for recovery of the
outstanding principal and unpaid interest of the defaulted Contracts. See
"Description of the Trust Property -- Contracts."
Limitations on Realizations of Junior Liens. The primary risk with respect
to defaulted Mortgage Loans secured by junior liens is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related Mortgaged Property to satisfy fully both the related senior lien(s) and
the Mortgage Loan and that other insurance providing for reimbursement for
losses from such default (i.e., the FHA Insurance Amount for a Title I Mortgage
Loan) is not available. The claims of the related senior lienholder(s) will be
satisfied in full out of proceeds of the liquidation of the Mortgaged Property,
if such proceeds are sufficient, before the related Trust, as the junior
lienholder, receives any payments in respect of the defaulted Mortgage Loan. If
the Servicer or a Subservicer, if any, were to foreclose on any junior lien
Mortgage Loan, it would do so subject to any related senior lien(s). In order
for a junior lien Mortgage Loan to be paid in full at such sale, a bidder at the
foreclosure sale of such Mortgage Loan would have to both bid an amount
sufficient to pay off all sums due under the Mortgage Loan and the senior
lien(s) or purchase the Mortgaged Property subject to the senior lien(s). If
proceeds from a foreclosure and liquidation of the related Mortgaged Property
are insufficient to satisfy the costs of foreclosure and liquidation and the
amounts owed under the loans secured by the senior lien(s) and the junior lien
Mortgage Loan in the aggregate, the Trust, as the junior lienholder, will bear
(i) the risk of delay in distributions while a deficiency judgment (which may
not be available in certain jurisdictions) against the borrower is obtained and
realized and (ii) the risk of loss
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if the deficiency judgment is not obtained or realized. Any such delays or
losses will be borne by the Securityholders of a Series to the extent that such
delays or losses are not otherwise covered by amounts available from any Credit
Enhancement provided for the related Securities, as specified in the related
Prospectus Supplement. See "Certain Legal Aspects of the Loan
Assets -- Foreclosure -- Junior Liens."
Certain Legal Considerations of the Loan Assets. Applicable state laws
generally regulate interest rates and other charges that may be assessed on
borrowers, require certain disclosures to borrowers, and may require licensing
of the Seller, the Trustee, the Indenture Trustee, the Servicer, the
Administrator, if any, the Master Servicer, if any, and any Subservicer. In
addition, most states have other laws, public policies and general principles of
equity relating to the protection of consumers and the prevention of unfair and
deceptive practices which may apply to the origination, servicing and collection
of the Loan Assets. The Loan Assets may also be subject to federal laws,
including, if applicable, the following: (i) the federal Truth-in-Lending Act
and Regulation Z promulgated thereunder, which require certain disclosures to
the borrowers regarding the terms of the Loan Assets; (ii) the Real Estate
Settlement Procedures Act and Regulation X promulgated thereunder, which require
certain disclosures to the borrowers regarding the settlement and servicing of
the Mortgage Loans; (iii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit Protection
Act; (iv) the Fair Credit Reporting Act, which regulates the use and reporting
of information related to the borrower's credit experience; (v) the Federal
Trade Commission Preservation of Consumers' Claims and Defenses Rule, 16 C.F.R.
Part 433, regarding the preservation of a consumer's rights; (vi) the Fair
Housing Act, 42 U.S.C. 3601 et seq., relating to the creation and governance of
the Title I Program; (vii) the Home Ownership and Equity Protection Act; and
(viii) the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"). In addition, Federal and state environmental laws and regulations
may also impact the Servicer's or any Subservicer's ability to realize value
with respect to the Mortgaged Properties. See "Certain Legal Aspects of the Loan
Assets."
Depending on the provisions of applicable law and the specific facts and
circumstances involved, violations of these laws, policies and principles may
limit the ability of the Servicer or any Subservicer to collect all or part of
the principal of or interest on the Loan Assets, may entitle the borrower to a
refund of amounts previously paid, and, in addition, could subject the Servicer
or any Subservicer to damages and administrative sanctions. Further, violations
of state law can affect the insurability of the Title I Mortgage Loans and Title
I Contracts under FHA Regulations. See "Certain Legal Aspects of the Loan
Assets -- The Title I Program." If the Servicer or any Subservicer is unable to
collect all or part of the principal or interest on any Loan Asset because of a
violation of the aforementioned laws, public policies or general principles of
equity, payments on or distributions in respect of the Securities may be delayed
or the Trust may be unable to make all payments or distributions owed to the
Securityholders to the extent any related losses are not otherwise covered by
amounts available from any Credit Enhancement provided for the related Series of
Securities. Furthermore, depending upon whether damages and sanctions are
assessed against the Servicer, the Master Servicer, if any, or any Subservicer,
such violations may materially impact the financial ability of the Master
Servicer, if any, the Servicer or Subservicer to continue to act in such
capacity.
To the extent specified in the related Prospectus Supplement, the Seller
will be required to repurchase or replace any Loan Asset which, at the time of
origination, did not comply with applicable federal and state laws or
regulations.
RISKS ASSOCIATED WITH CERTAIN LOAN ASSETS
No Hazard Insurance for Title I Mortgage Loans. With respect to any Title I
Mortgage Loans, the FHA Regulations do not require that a borrower obtain title
or fire and casualty insurance as a condition to obtaining a property
improvement loan. With respect to both manufactured home contracts that are
Title I Contracts and property improvement loans that are Title I Mortgage
Loans, if the related Mortgage Property is located in a flood hazard area,
however, flood insurance in an amount at least equal to the loan amount is
required. In addition, the FHA Regulations do not require that the borrower
obtain insurance against physical damage arising from earth movement (including
earthquakes, landslides and mudflows) as a condition to
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obtaining a property improvement loan insured under the Title I Program.
Accordingly, if a Mortgaged Property that secures a Title I Mortgage Loan
suffers any uninsured hazard or casualty losses, holders of any Offered
Securities secured in whole or in part by Title I Mortgage Loans may bear the
risk of loss resulting from a default by the borrower to the extent such losses
are not recovered by foreclosure on the defaulted loans or from any FHA Claims
payments. Such loss may be otherwise covered by amounts available from the
credit enhancement provided for the Offered Securities, as specified in the
related Prospectus Supplement.
Contracts Secured by Manufactured Homes. The Secured Contracts will be
secured by security interests in Manufactured Homes that are not considered to
be real property because they are not permanently affixed to real estate.
Perfection of security interests in such Manufactured Homes and enforcement of
rights to realize upon the value of such Manufactured Homes as collateral for
the Secured Contracts are subject to a number of Federal and state laws,
including the Uniform Commercial Code as adopted in each state and each state's
certificate of title statutes. The steps necessary to perfect the security
interest in a Manufactured Home will vary from state to state. Because of the
expense and administrative inconvenience involved, the Servicer of a Secured
Contract will not amend any certificate of title to change the lienholder
specified therein from such Servicer to the applicable Trustee and will not
deliver any certificate of title to such Trustee or note thereon such Trustee's
interest. Consequently, in some states, in the absence of such an amendment, the
assignment to such Trustee of the security interest in the Manufactured Home may
not be effective or such security interest may not be perfected and, in the
absence of such notation or delivery to such Trustee, the assignment of the
security interest in the Manufactured Home may not be effective against
creditors of the Servicer or a trustee in bankruptcy of the Servicer. If any
related Credit Enhancement is exhausted and a Secured Contract is in default,
then recovery of amounts due on such Secured Contracts is dependent on
repossession and resale of the Manufactured Home securing such Secured Contract.
Certain other factors may limit the ability of the Servicer to realize upon the
Manufactured Homes or may limit the amount realized to less than the amount due.
Unsecured Contracts. The obligations of the borrower under any Unsecured
Contract included as part of the related Trust Property will not be secured by
an interest in the related real estate or otherwise, and the related Trust, as
the owner of such Unsecured Contract, will be a general unsecured creditor as to
such obligations. As a consequence, in the event of a default under an Unsecured
Contract, the related Trust will have recourse only against the borrower's
assets generally, along with all other general unsecured creditors of the
borrower. In a bankruptcy or insolvency proceeding relating to a borrower on an
Unsecured Contract, the obligations of the borrower under such Unsecured
Contract may be discharged in their entirety, notwithstanding the fact that the
portion of such borrower's assets made available to the related Trust as a
general unsecured creditor to pay amounts due and owing thereunder are
insufficient to pay all such amounts. A borrower on an Unsecured Contract may
not demonstrate the same degree of concern over performance of its obligations
under such Unsecured Contract as if such obligations were secured by a single
family residence owned by such borrower.
Consumer Protection Laws related to Contracts. Numerous federal and state
consumer protection laws impose requirements on lending under retail installment
sales contracts and installment loan agreements such as the Contracts, and the
failure by the lender or seller of goods to comply with such requirements could
give rise to liabilities of assignees for amounts due under such agreements and
claims by such assignees may be subject to set-off as a result of such lender's
or seller's noncompliance. These laws would apply to a Trustee as an assignee of
Contracts. The Seller will warrant that each Contract complies with all
requirements of law and, with respect to any Secured Contract, will make certain
warranties relating to the validity, subsistence, perfection and priority of the
security interest in each Manufactured Home securing such Secured Contract. A
breach of any such warranty that materially adversely affects the interests of
the Securityholders in any Contract would create an obligation of the Seller to
repurchase or replace such Contract unless such breach is cured.
Reliance on Management of Timeshare Units. Unlike most conventional
single-family residential properties, the value of a timeshare unit is
substantially dependent on the management of the resort property in which it is
located. Management of timeshare resort properties includes operation of a
reservation system, maintenance of the physical structure, refurbishing of
individual units, maintenance and management of
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common areas and recreational facilities, and facilitating the rental of
individual units on behalf of timeshare owners. In addition, timeshare units,
which are purchased for intervals of one or more specified weeks each year, are
marketed as the owner's purchase of future vacation opportunities rather than as
a primary residence, a second home or an investment. Accordingly, while
borrowers are obligated to make payments under their Mortgage Loans irrespective
of any defect in, damage to or change in conditions (such as poor management,
faulty construction or physical, social or environmental conditions) relating to
the timeshare properties, any such defect, damage or change in conditions could
result in delays in payment or in defaults by borrowers whose timeshare units
are affected.
RECHARACTERIZATION OF SALE OF LOAN ASSETS AS BORROWING
The Seller will agree in the Sale and Servicing Agreement or the Pooling
and Servicing Agreement that the transfer of the Loan Assets to the Trust is
intended as a valid sale and transfer of the Loan Assets to the applicable
Trustee for the benefit of the Securityholders. However, if the Loan Assets are
held to be property of the Seller or if for any reason the applicable Sale and
Servicing Agreement or Pooling and Servicing Agreement is held to create a
security interest in the related Loan Assets, the Seller will agree in such Sale
and Servicing Agreement or such Pooling and Servicing Agreement that such
transfer shall be treated as the grant of a security interest in the Loan Assets
to the applicable Trustee for the benefit of the Securityholders. Also, the
Seller will warrant that if the transfer of the Loan Assets by it is deemed to
be a grant of a security interest in the Loan Assets, the applicable Trustee
will have a perfected first-priority security interest therein. The Seller is
required to take all actions that are required under law to protect the Trust's
security interest in the Loan Assets. If the transfer of the Loan Assets to the
Trust is deemed to create a security interest therein, a tax or government lien
on property of the Seller arising before the Loan Assets came into existence may
have priority over the Trust's interest in such Loan Assets.
RISKS RELATING TO INDEXED SECURITIES
An investment in Securities indexed, as to principal, premium and/or
interest, to one or more values of currencies (including exchange rates and swap
indices between currencies), commodities, interest rates or other indices
entails significant risks that are not associated with similar investments in a
conventional fixed-rate debt security. If the interest rate of such a Security
is so indexed, it may result in an interest rate that is less than that payable
on a conventional fixed-rate debt security issued at the same time, including
the possibility that no interest will be paid, and, if the principal amount of
such a Security is so indexed, the principal amount payable on the related final
Distribution Date may be less than the original purchase price of such Security
if allowed pursuant to the terms of such Security, including the possibility
that no principal will be paid. The secondary market for such Securities will be
affected by a number of factors, independent of the characteristics of the Loan
Assets, structure of the cash flows and the value of the applicable currency,
commodity, interest rate or other index, including the volatility of the
applicable currency, commodity, interest rate or other index, the time remaining
to the maturity of such Securities, the amount outstanding of such Securities
and market interest rates. The value of the applicable currency, commodity,
interest rate or other index depends on a number of interrelated factors,
including economic, financial and political events. Additionally, if the formula
used to determine the principal amount, premium, if any, or interest payable
with respect to such Securities contains a multiple or leverage factor, the
effect of any change in the applicable currency, commodity, interest rate or
other index may be increased. The historical experience of the relevant
currencies, commodities, interest rates or other indices should not be taken as
an indication of future performance of such currencies, commodities, interest
rates or other indices during the term of any Security. The credit ratings
assigned to any Series or Class of Securities, in no way, are reflective of the
potential impact of the factors discussed above, or any other factors, on the
market value of the Securities. Accordingly, prospective investors should
consult their own financial and legal advisors as to the risks entailed by an
investment in such Securities and the suitability of such Securities in light of
their particular circumstances.
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DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more Classes of Notes
of the related Series will be issued pursuant to the terms of an Indenture, a
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The following summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Notes and the Indenture.
Unless otherwise specified in the related Prospectus Supplement, each Class
of Notes will initially be represented by one or more Notes, in each case
registered in the name of the nominee of DTC (together with any successor
depository selected by the Trust, the "Depository") except as set forth below.
Unless otherwise specified in the related Prospectus Supplement, the Notes will
be available for purchase in denominations of $1,000 and integral multiples
thereof in book-entry form only. The Seller has been informed by DTC that DTC's
nominee will be Cede, unless another nominee is specified in the related
Prospectus Supplement. Accordingly, such nominee is expected to be the holder of
record of the Notes of each Class. Unless and until Definitive Notes are issued
under the limited circumstances described herein or in the related Prospectus
Supplement, no Noteholder will be entitled to receive a physical certificate
representing a Note. All references herein and in the related Prospectus
Supplement to actions by Noteholders refer to actions taken by DTC upon
instructions from its participating organizations (the "DTC Participants") and
all references herein and in the related Prospectus Supplement to distributions,
notices, reports and statements to Noteholders refer to distributions, notices,
reports and statements to DTC or its nominee, as the registered holder of the
Notes, for distribution to Noteholders in accordance with DTC's procedures with
respect thereto. See "Certain Information Regarding the Securities -- Book-Entry
Registration" and "-- Definitive Securities."
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each Class of Notes of a given Series will be described in the
related Prospectus Supplement. The right of holders of any Class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other Class or Classes of Notes of such Series, as
described in the related Prospectus Supplement. See "Certain Information
Regarding the Securities -- General." Unless otherwise provided in the related
Prospectus Supplement, payments of interest on the Notes of such Series will be
made prior to payments of principal thereon. Each Class of Notes may have a
different Interest Rate, which may be a fixed, variable or adjustable Interest
Rate (and which may be zero for Principal Only Securities), or any combination
of the foregoing. The related Prospectus Supplement will specify the Interest
Rate for each Class of Notes of a given Series or the method for determining
such Interest Rate. See "Certain Information Regarding the Securities -- Fixed
Rate Securities and Floating Rate Securities." One or more Classes of Notes of a
Series may be redeemable in whole or in part under the circumstances specified
in the related Prospectus Supplement, including as a result of the Servicer's
exercising its option to purchase the related Loan Assets Pool.
One or more Classes of Notes of a given Series may have fixed principal
payment schedules, as set forth in such Prospectus Supplement. Holders of such
Notes would be entitled to receive as payments of principal on any given
Distribution Date the applicable amounts set forth on such schedule with respect
to such Notes, in the manner and to the extent set forth in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments
to Noteholders of all Classes within a Series in respect of interest will have
the same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement (each,
a "Distribution Date"), in which case each Class of Noteholders will receive its
ratable share (based upon the aggregate amount of interest due to such Class of
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Notes of such Series.
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In the case of a Series of Notes which includes two or more Classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such Class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
Class of Notes will be made on a pro rata basis among all the Noteholders of
such Class.
THE INDENTURE
Modification of Indenture. With respect to each Trust that has issued Notes
pursuant to an Indenture, the Trust and the Indenture Trustee may, with the
consent of the holders of a majority of the outstanding Notes of the related
Series, execute a supplemental indenture to add provisions to, change in any
manner or eliminate any provisions of, the related Indenture, or modify (except
as provided below) in any manner the rights of the related Noteholders.
Unless otherwise specified in the related Prospectus Supplement with
respect to a Series of Notes, without the consent of the holder of each such
outstanding Note affected thereby no supplemental indenture will: (i) change the
due date of any installment of principal of or interest on any such Note or
reduce the principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto or change any place of payment where or
the coin or currency in which any such Note or any interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of certain
provisions of the related Indenture regarding payment; (iii) reduce the
percentage of the aggregate amount of the outstanding Notes of such Series, the
consent of the holders of which is required for any such supplemental indenture
or the consent of the holders of which is required for any waiver of compliance
with certain provisions of the related Indenture or of certain defaults
thereunder and their consequences as provided for in such Indenture; (iv) modify
or alter the provisions of the related Indenture regarding the voting of Notes
held by the applicable Trust, any other obligor on such Notes, the Seller or an
affiliate of any of them; (v) reduce the percentage of the aggregate outstanding
amount of such Notes, the consent of the holders of which is required to direct
the related Indenture Trustee to sell or liquidate the Loan Assets if the
proceeds of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Notes of such Series; (vi)
decrease the percentage of the aggregate principal amount of such Notes required
to amend the sections of the related Indenture which specify the applicable
percentage of aggregate principal amount of the Notes of such Series necessary
to amend such Indenture or certain other related agreements; or (vii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
related Indenture with respect to any of the collateral for such Notes or,
except as otherwise permitted or contemplated in such Indenture, terminate the
lien of such Indenture on any such collateral or deprive the holder of any such
Note of the security afforded by the lien of such Indenture.
To the extent provided in the applicable Prospectus Supplement, the Trust
and the applicable Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders of the related
Series, for the purpose of, among other things, adding any provisions to or
changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not materially and adversely affect the interest of any
such Noteholder.
Events of Default; Rights upon Event of Default. With respect to the Notes
of a given Series, unless otherwise specified in the related Prospectus
Supplement, "Events of Default" under the related Indenture will consist of: (i)
a default for five days or more in the payment of any interest on any such Note;
(ii) a default in the payment of the principal of or any installment of the
principal of any such Note when the same becomes due and payable; (iii) a
default in the observance or performance of any covenant or agreement of the
applicable Trust made in the related Indenture and the continuation of any such
default for a period of 90 days after notice thereof is given to such Trust by
the applicable Indenture Trustee or to such Trust and such Indenture Trustee by
the holders of at least 25% in principal amount of such Notes then outstanding
acting together as a single class; (iv) any representation or warranty made by
such Trust in the related Indenture or in any certificate delivered pursuant
thereto or in connection therewith having been incorrect in a material respect
as of the time made, and such breach not having been cured within 30 days after
notice
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thereof is given to such Trust by the applicable Indenture Trustee or to such
Trust and such Indenture Trustee by the holders of at least 25% in principal
amount of such Notes then outstanding acting together as a single class; or (v)
certain events of bankruptcy, insolvency, receivership or liquidation of the
applicable Trust. However, the amount of principal required to be paid to
Noteholders of such Series under the related Indenture will generally be limited
to amounts available to be deposited in the Collection Account. Therefore,
unless otherwise specified in the related Prospectus Supplement, the failure to
pay principal on a Class of Notes generally will not result in the occurrence of
an Event of Default until the final scheduled Distribution Date for such Class
of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any Series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Unless otherwise specified in the
related Prospectus Supplement, such declaration may, under certain
circumstances, be rescinded by the holders of a majority in principal amount of
such Notes then outstanding.
If the Notes of any Series are due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust property, exercise
remedies as a secured party, sell the related Loan Assets or elect to have the
applicable Trust maintain possession of such Loan Assets and continue to apply
collections on such Loan Assets as if there had been no declaration of
acceleration. Unless otherwise specified in the related Prospectus Supplement,
however, such Indenture Trustee is prohibited from selling the related Loan
Assets following an Event of Default, other than a default in the payment of any
principal of or a default for five days or more in the payment of any interest
on any Note of such Series, unless (i) the holders of all such outstanding Notes
consent to such sale, (ii) the proceeds of such sale are sufficient to pay in
full the principal of and the accrued interest on such outstanding Notes at the
date of such sale or (iii) such Indenture Trustee determines that the proceeds
of Loan Assets would not be sufficient on an ongoing basis to make all payments
on such Notes as such payments would have become due if such obligations had not
been declared due and payable, and such Indenture Trustee obtains the consent of
the holders of 66 2/3% of the aggregate outstanding amount of such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under such Indenture
at the request or direction of any of the holders of such Notes, if such
Indenture Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to the provisions for indemnification and
certain limitations contained in the related Indenture, the holders of a
majority in principal amount of the outstanding Notes of a given Series will
have the right to direct the time, method and place of conducting any proceeding
or any remedy available to the applicable Indenture Trustee, and the holders of
a majority in principal amount of such Notes then outstanding may, in certain
cases, waive any default with respect thereto, except a default in the payment
of principal or interest or a default in respect of a covenant or provision of
such Indenture that cannot be modified without the waiver or consent of all the
holders of such outstanding Notes.
Unless otherwise specified in the related Prospectus Supplement, no holder
of a Note of any Series will have the right to institute any proceeding with
respect to the related Indenture, unless (i) such holder previously has given to
the applicable Indenture Trustee written notice of a continuing Event of
Default, (ii) the holders of not less than 25% in principal amount of the
outstanding Notes of such Series have made written request to such Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee, (iii)
such holder or holders have offered such Indenture Trustee reasonable indemnity,
(iv) such Indenture Trustee has for 60 days failed to institute such proceeding
and (v) no direction inconsistent with such written request has been given to
such Indenture Trustee during such 60-day period by the holders of a majority in
principal amount of such outstanding Notes.
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In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the related Notes or for the agreements of such Trust contained in the
applicable Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments upon
the Notes of the related Series and the performance or observance of every
agreement and covenant of such Trust under the Indenture, (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation, (iv) such Trust has been advised that the rating of the Notes or
the Certificates of such Series then in effect would not be reduced or withdrawn
by the Rating Agencies as a result of such merger or consolidation and (v) such
Trust has received an opinion of counsel to the effect that such consolidation
or merger would have no material adverse tax consequence to the Trust or to any
related Noteholder or Certificateholder.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Transfer and Servicing Agreements or
certain related documents with respect to such Trust (collectively, the "Related
Documents"), sell, transfer, exchange or otherwise dispose of any of the assets
of such Trust, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes of the related Series (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of such Notes because of the payment of
taxes levied or assessed upon such Trust, (iii) dissolve or liquidate in whole
or in part, (iv) permit the validity or effectiveness of the related Indenture
to be impaired or permit any person to be released from any covenants or
obligations with respect to such Notes under such Indenture except as may be
expressly permitted thereby or (v) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of such Trust or any part thereof,
or any interest therein or the proceeds thereof.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture, pursuant to any
Advances made to it by the Servicer or otherwise in accordance with the Related
Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture Trustee
under the related Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of certain indebtedness owing by such
Trust to the applicable Indenture Trustee in its individual capacity, the
property and funds physically held by such Indenture Trustee as such and any
action taken by it that materially affects the related Notes and that has not
been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
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THE INDENTURE TRUSTEE
The Indenture Trustee for a Series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any Series may resign
at any time, in which event the Issuer will be obligated to appoint a successor
thereto for such Series. The Issuer or Administrator may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue as
such under the related Indenture or if such Indenture Trustee becomes insolvent.
In such circumstances, the Issuer will be obligated to appoint a successor
thereto for the applicable Series of Notes. Any resignation or removal of the
Indenture Trustee and appointment of a successor thereto for any Series of Notes
will not become effective until acceptance of the appointment by such successor.
ADMINISTRATION AGREEMENT
If and to the extent specified in the related Prospectus Supplement, FFI,
in its capacity as administrator (the "Administrator"), will enter into an
agreement (as amended and supplemented from time to time, an "Administration
Agreement") with each Trust that issues Notes and the related Indenture Trustee
pursuant to which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture. To the extent
specified in the related Prospectus Supplement with respect to any such Trust,
as compensation for the performance of the Administrator's obligations under the
applicable Administration Agreement and as reimbursement for its expenses
related thereto, the Administrator will be entitled to a monthly administration
fee of such amount as may be set forth in the related Prospectus Supplement (the
"Administration Fee"), which fee will be paid by the Servicer.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more Classes of Certificates of the
related Series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement or Pooling and Servicing Agreement, as
applicable.
Unless otherwise specified in the related Prospectus Supplement and except
for the Certificates, if any, of a given Series purchased by the Seller, each
Class of Certificates will initially be represented by one or more Certificates
registered in the name of the nominee for DTC, except as set forth below. Unless
otherwise specified in the related Prospectus Supplement and except for the
Certificates, if any, of a given Series purchased by the Seller, the
Certificates will be available for purchase in minimum denominations of $1,000
and integral multiples thereof in book-entry form only. The Seller has been
informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Certificates of any Series that are
not purchased by the Seller. Unless and until Definitive Certificates are issued
under the limited circumstances described herein or in the related Prospectus
Supplement, no Certificateholder (other than the Issuer) will be entitled to
receive a physical certificate representing a Certificate. All references herein
and in the related Prospectus Supplement to actions by Certificateholders refer
to actions taken by DTC upon instructions from the Participants and all
references herein and in the related Prospectus Supplement to distributions,
notices, reports and statements to Certificateholders refer to distributions,
notices, reports and statements given, made or sent to DTC or its nominee, as
the case may be, as the registered holder of the Certificates, for distribution
to Certificateholders in accordance with DTC's procedures with respect thereto.
See "Certain Information Regarding the Securities -- Book-Entry Registration"
and "-- Definitive Securities." Any Certificates of a given Series owned by the
Seller or its affiliates will be entitled to equal and proportionate benefits
under the applicable Trust Agreement or Pooling and Servicing Agreement, except
that such Certificates will be deemed not to be outstanding for the purpose of
determining whether the requisite percentage of Certificateholders
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have given any request, demand, authorization, direction, notice, consent or
other action under the Related Documents (other than the commencement by the
related Trust of a voluntary proceeding in bankruptcy as described under
"Description of the Transfer and Servicing Agreements--Insolvency Event").
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of losses,
Pass Through Rate and amount of or method of determining distributions with
respect to principal and interest of each Class of Certificates will be
described in the related Prospectus Supplement. Distributions of interest on
such Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and will be made prior to distributions
with respect to principal of such Certificates.
Each Class of Certificates may have a different Pass Through Rate, which
may be a fixed, variable or adjustable Pass Through Rate (and which may be zero
for certain Classes of Certificates) or any combination of the foregoing. The
related Prospectus Supplement will specify the Pass Through Rate for each Cass
of Certificates of a given Series or the method for determining such Pass
Through Rate. See also "Certain Information Regarding the Securities -- Fixed
Rate Securities Floating Rate Securities." Unless otherwise provided in the
related Prospectus Supplement, distributions in respect of the Certificates of a
given Series that includes Notes may be subordinate to payments in respect of
the Notes of such Series as more fully described in the related Prospectus
Supplement. Distributions in respect of interest on and principal of any Class
of Certificates will be made on a pro rata basis among all the
Certificateholders of such Class.
In the case of a Series of Certificates which includes two or more Classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination thereof, of each such Class
shall be as set forth in the related Prospectus Supplement.
If and as provided in the related Prospectus Supplement, certain amounts
remaining on deposit in the Collection Account after all required distributions
to the related Securityholders have been made may be released to the Seller, FFI
or one or more third party credit or liquidity enhancement providers.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each Class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such Class of Notes indicating the remaining outstanding principal balance of
such Class of Notes, as of the applicable Distribution Date (after giving effect
to payments to be made on such Distribution Date), as a fraction of the initial
outstanding principal balance of such Class of Notes. The "Certificate Pool
Factor" for each Class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such Class of
Certificates indicating the remaining Certificate Balance of such Class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such Class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Notes, or the reduction of the Certificate Balance of the
applicable Class of Certificates, as the case may be. A Noteholder's portion of
the aggregate outstanding principal balance of the related Class of Notes is the
product of (i) the original denomination of such Noteholder's Note and (ii) the
applicable Note Pool Factor. A Certificateholder's portion of the aggregate
outstanding Certificate Balance for the related Class of Certificates is the
product of (a) the original denomination of such Certificateholder's Certificate
and (b) the applicable Certificate Pool Factor.
Unless otherwise provided in the related Prospectus Supplement with respect
to each Trust, the Noteholders, if any, and the Certificateholders will receive
reports on or about each Distribution Date concerning (i) with respect to the
Collection Period immediately preceding such Distribution Date, payments
received on the Loan Assets, the Pool Balance (as such term is defined in the
related Prospectus Supplement, the "Pool Balance"), each Certificate Pool Factor
or Note Pool Factor, as applicable, and various other items
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of information, and (ii) with respect to the Collection Period second preceding
such Distribution Date, as applicable, amounts allocated or distributed on the
preceding Distribution Date and any reconciliation of such amounts with
information provided by the Servicer prior to such current Distribution Date. In
addition, Securityholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "Description of the Transfer and Servicing Agreements -- Reports to
Securityholders."
CERTAIN INFORMATION REGARDING THE SECURITIES
GENERAL
To the extent provided in the related Prospectus Supplement, a Series may
include one or more Classes of Securities entitled only to (i) payments
allocable to interest ("Interest Only Securities"); (ii) payments allocable to
principal ("Principal Only Securities") and allocable as between scheduled
payments of principal and Principal Prepayments (as defined below); or (iii)
payments allocable to both principal (and allocable as between scheduled
payments of principal and Principal Prepayments) and interest. A Series of
Securities may include one or more Classes as to which distributions will be
allocated (i) on the basis of collections from designated portions of the Trust
Property, (ii) in accordance with a schedule or formula, (iii) in relation to
the occurrence of events, or (iv) otherwise, in each case as specified in the
related Prospectus Supplement. The timing and amounts of such distributions may
vary among Classes, over time or otherwise, in each case as specified in the
related Prospectus Supplement.
To the extent provided in the related Prospectus Supplement, one or more
Classes of Securities may provide for interest that accrues, but is not
currently payable ("Compound Interest Securities"). With respect to any Class of
Compound Interest Securities, if specified in the related Prospectus Supplement,
any interest that has accrued but is not paid on a given Distribution Date will
be added to the aggregate principal balance of such Class on that Distribution
Date.
To the extent provided in the related Prospectus Supplement, a Series of
Securities may include one or more Classes of Scheduled Amortization Securities
and Companion Securities. "Scheduled Amortization Securities" are Securities
with respect to which distributions of principal are to be made in specified
amounts on specified Distribution Dates, to the extent of funds available on
such Distribution Date. "Companion Securities" are Securities which receive
distributions of all or a portion of any funds available on a given Distribution
Date which are in excess of amounts required to be applied to distributions on
Scheduled Amortization Securities on such Distribution Date. Because of the
manner of application of distributions of principal to Companion Securities, the
weighted average lives of Companion Securities of a Series may be expected to be
more sensitive to the actual rate of prepayments on the Loan Assets in the
related Trust than will the Scheduled Amortization Securities of such Series.
To the extent provided in the related Prospectus Supplement, one or more
Series of Securities may constitute a Series of "Special Allocation Securities"
which may include Senior Securities, Subordinated Securities, Priority
Securities and Non-Priority Securities. As more fully described in the related
Prospectus Supplement for a Series of Special Allocation Securities, Special
Allocation Securities are Securities for which the timing and/or priority of
distributions of principal and/or interest may favor one or more Classes of such
Securities over one or more other Classes of such Securities. Such timing and/or
priority may be modified or reordered upon the occurrence of one or more
specified events. To the extent specified in the related Prospectus Supplement
for a Series of Special Allocation Securities, losses on the Assets included in
the related Trust may be disproportionately borne by one or more Classes of such
Series, and the proceeds and distributions from such Assets may be applied to
the payment in full of one or more Classes of such Series before the balance, if
any, of such proceeds are applied to one or more other Classes within such
Series. For example, Special Allocation Securities in a Series may be comprised
of one or more Classes of Senior Securities ("Senior Securities") having a
priority in right to distributions of principal and interest over one or more
Classes of Subordinated Securities ("Subordinated Securities"), to the extent
described in the related Prospectus Supplement, as a form of Credit Enhancement.
See "Credit Enhancement -- Subordination."
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Typically, Subordinated Securities of a Series will carry a rating by the rating
agencies rating the Securities of such Series lower than that of the Senior
Securities of such Series. In addition, one or more Classes of Securities of a
Series ("Priority Securities") may be entitled to a priority of distributions of
principal or interest from Assets included in the related Trust over another
Class of Securities of such Series ("Non-Priority Securities"), but only after
the exhaustion of other Credit Enhancement applicable to such Series. Priority
Securities and Non-Priority Securities nonetheless may be within the same rating
category.
FIXED RATE SECURITIES AND FLOATING RATE SECURITIES
Any Class of Securities (other than Principal Only Securities) may bear
interest at a fixed rate per annum ("Fixed Rate Securities") or at a variable or
adjustable rate per annum ("Floating Rate Securities"), as more fully described
in the applicable Prospectus Supplement. Each Class of Fixed Rate Securities
will bear interest at the applicable per annum Interest Rate or Pass Through
Rate, as the case may be, specified in the applicable Prospectus Supplement.
Unless otherwise set forth in the applicable Prospectus Supplement, interest on
each Class of Fixed Rate Securities will be computed on the basis of a 360-day
year of twelve 30-day months. See "Description of the Notes -- Principal and
Interest on the Notes" and "Description of the Certificates -- Distributions of
Principal and Interest."
INDEXED SECURITIES
To the extent so specified in any Prospectus Supplement, any Class of
Securities of a given Series may consist of Securities ("Indexed Securities") in
which the principal amount payable on the final Distribution Date for such Class
(the "Indexed Principal Amount") and/or the interest payable on any Distribution
Date is determined by reference to a measure (the "Index") which will be related
to the exchange rates of one or more currencies or composite currencies (the
"Index Currencies"); the price or prices of specified commodities; or specified
stocks, which may be based on U.S. or foreign stocks, on specified dates
specified in the applicable Prospectus Supplement, or such other price, interest
rate, exchange rate or other financial index or indices as are described in the
applicable Prospectus Supplement. Holders of Indexed Securities may receive a
principal amount on the related final Distribution Date that is greater than or
less than the face amount of the Indexed Securities depending upon the relative
value on the related final Distribution Date of the specified indexed item.
Information as to the method for determining the principal amount payable on the
related final Distribution Date, if any, and, where applicable, certain
historical information with respect to the specific indexed item or items and
special tax considerations associated with investment in Indexed Securities,
will be set forth in the applicable Prospectus Supplement. Notwithstanding
anything to the contrary herein, for purposes of determining the rights of a
holder of a Security indexed as to principal in respect of voting for or against
amendments to the related Trust Agreement, Indenture or Pooling and Servicing
Agreement, as the case may be, and modifications and the waiver of rights
thereunder, the principal amount of such Indexed Security shall be deemed to be
the face amount thereof upon issuance.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Security was issued and
permitted changes described in the applicable Prospectus Supplement), then such
Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason such Index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
shall be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of such independent calculation agent shall, in
the absence of manifest error, be binding on all parties.
The applicable Prospectus Supplement will describe whether the principal
amount of the related Indexed Security, if any, that would be payable upon
redemption or repayment prior to the applicable final scheduled Distribution
Date will be the Face Amount of such Indexed Security, the Indexed Principal
Amount of such
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Indexed Security at the time of redemption or repayment or another amount
described in such Prospectus Supplement. See "Risk Factors -- Risks Relating to
Indexed Securities."
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, each Class
of Securities offered hereby will be represented by one or more certificates
registered in the name of Cede, as nominee of DTC. Unless otherwise specified in
the related Prospectus Supplement, Securityholders may hold beneficial interests
in Securities through DTC (in the United States) or Cedel or Euroclear (in
Europe) directly if they are participants of such systems, or indirectly through
organizations which are participants in such systems.
No Securityholder will be entitled to receive a certificate representing
such person's interest in the Securities, except as set forth below. Unless and
until Securities of a Class are issued in fully registered certificated form
("Definitive Securities") under the limited circumstances described below, all
references herein to actions by Noteholders, Certificateholders or
Securityholders shall refer to actions taken by DTC upon instructions from DTC
Participants, and all references herein to distributions, notices, reports and
statements to Noteholders, Certificateholders or Securityholders shall refer to
distributions, notices, reports and statements to Cede, as the registered holder
of the Securities, for distribution to Securityholders in accordance with DTC
procedures. As such, it is anticipated that the only Noteholder,
Certificateholder or Securityholder will be Cede, as nominee of DTC.
Securityholders will not be recognized by the related Trustee as Noteholders,
Certificateholders or Securityholders as such terms will be used in the relevant
agreements, and Securityholders will only be permitted to exercise the rights of
holders of Securities of the related Class indirectly through DTC and DTC
Participants, as further described below.
Cedel and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel or
Euroclear participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary. However, each such cross-market transaction will require
delivery of instructions to the relevant European international clearing system
by the counterparty in such system in accordance with its rules and procedures
and within its established deadlines. The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its Depositary to take action to effect final settlement
on its behalf by delivering or receiving securities in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Cedel Participants and Euroclear Participants may
not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel participant on such business day. Cash received in Cedel or
Euroclear as a result of sales of Securities by or through a Cedel Participant
or a Euroclear Participant to a DTC Participant will be received with value on
the DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" 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 UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participating members ("DTC
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Participants") and to facilitate the clearance and settlement of securities
transactions between DTC Participants through electronic book-entries, thereby
eliminating the need for physical movement of certificates. DTC Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations which may include underwriters, agents or dealers with respect to
the Securities of any Class or Series. Indirect 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 DTC Participant,
either directly or indirectly (the "Indirect DTC Participants"). The rules
applicable to DTC and DTC Participants are on file with the Commission.
Unless otherwise specified in the related Prospectus Supplement,
Securityholders that are not DTC Participants or Indirect DTC Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Securities may do so only through DTC Participants and Indirect DTC
Participants. DTC Participants will receive a credit for the Securities on DTC's
records. The ownership interest of each Securityholder will in turn be recorded
on respective records of the DTC Participants and Indirect DTC Participants.
Securityholders will not receive written confirmation from DTC of their
purchase, but Securityholders are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC Participant or Indirect DTC Participant through which the
Securityholder entered into the transaction. Transfers of ownership interests in
the Securities of any Class will be accomplished by entries made on the books of
DTC Participants acting on behalf of Securityholders.
To facilitate subsequent transfers, all Securities deposited by DTC
Participants with DTC will be registered in the name of Cede, a nominee of DTC.
The deposit of Securities with DTC and their registration in the name of Cede
will effect no change in beneficial ownership. DTC will have no knowledge of the
actual Securityholders and its records will reflect only the identity of the DTC
Participants to whose accounts such Securities are credited, which may or may
not be the Securityholders. DTC Participants and Indirect DTC Participants will
remain responsible for keeping account of their holdings on behalf of their
customers. While the Securities of a Series are held in book-entry form,
Securityholders will not have access to the list of Securityholders of such
Series, which may impede the ability of Securityholders to communicate with each
other.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect DTC Participants and by DTC Participants and
Indirect DTC Participants to Securityholders will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of and interest on
the Securities. DTC Participants and Indirect DTC Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Securityholders.
DTC's practice is to credit DTC Participants' accounts on each Distribution
Date in accordance with their respective holdings shown on its records, unless
DTC has reason to believe that it will not receive payment on such Distribution
Date. Payments by DTC Participants and Indirect DTC Participants to
Securityholders 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
such DTC Participant and not of DTC, the related Indenture Trustee or Trustee
(or any paying agent appointed thereby), the Seller or the Servicer, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payment of principal of and interest on each Class of Securities to DTC will be
the responsibility of the related Indenture Trustee or Trustee (or any paying
agent), disbursement of such payments to DTC Participants will be the
responsibility of DTC and disbursement of such payments to the related
Securityholders will be the responsibility of DTC Participants and Indirect DTC
Participants. As a result, under the book-entry format, Securityholders may
experience some delay in their receipt of payments.
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DTC will forward such payments to its DTC Participants which thereafter will
forward them to Indirect DTC Participants or Securityholders.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Seller that it will take any action permitted to be
taken by a Securityholder only at the direction of one or more DTC Participants
to whose account with DTC the Securities are credited. Additionally, DTC has
advised the Seller that it will take such actions with respect to specified
percentages of the Securityholders' interest only at the direction of and on
behalf of DTC Participants whose holdings include undivided interests that
satisfy such specified percentages. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of DTC Participants whose holdings include such undivided interests.
Neither DTC nor Cede will consent or vote with respect to the Securities.
Under its usual procedures, DTC will mail an "Omnibus Proxy" to the related
Indenture Trustee or Trustee as soon as possible after any applicable Record
Date for such a consent or vote. The Omnibus Proxy will assign Cede's consenting
or voting rights to those DTC Participants to whose accounts the related
Securities are credited on that record date (which record date will be
identified in a listing attached to the Omnibus Proxy).
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 28 currencies, including United States dollars. Cedel
provides to Cedel Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedel interfaces with domestic markets in
several countries. As a professional depository, Cedel is subject to regulation
by the Luxembourg Monetary Institute. Cedel Participants are recognized
financial institutions around the world including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include any underwriters, agents or dealers with
respect to any Class or Series of Securities offered hereby. Indirect access to
Cedel is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic bookentry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 27
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include any
underwriters, agents or dealers with respect to any Class or Series of
Securities offered hereby. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Securities held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
withholding in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Considerations." Cedel or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Securityholder on behalf of a Cedel Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC, Cedel
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
DEFINITIVE SECURITIES
Unless otherwise specified in the related Prospectus Supplement, the Notes,
if any, and the Certificates of a given Series will be issued in fully
registered, certificated form ("Definitive Notes" and "Definitive Certificates",
respectively, and collectively referred to herein as "Definitive Securities") to
Noteholders or Certificateholders or their respective nominees, rather than to
DTC or its nominee, only if (i) DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Securities and
such Administrator or Trustee is unable to locate a qualified successor (and if
it is an Administrator that has made such determination, such Administrator so
notifies the Applicable Trustee in writing), (ii) the Seller or the
Administrator or Trustee, as applicable, at its option, elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default or a Servicer Default with respect to such Securities, holders
representing at least a majority of the outstanding principal amount of the
Notes or the Certificates, as the case may be, of such Series, acting together
as a single Class, advise the Applicable Trustee through DTC in writing that the
continuation of a book-entry system through DTC (or a successor thereto) with
respect to such Notes or Certificates is no longer in the best interest of the
holders of such Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee or Indenture Trustee will be required to
notify all applicable Securityholders of a given Series through Participants of
the availability of Definitive Securities. Upon surrender by DTC of the
definitive certificates representing the corresponding Securities and receipt of
instructions for re-registration, the applicable Trustee or Indenture Trustee
will reissue such Securities as Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the applicable Trustee or Indenture Trustee in
accordance with the procedures set forth in the related Indenture or the related
Trust Agreement or Pooling and Servicing Agreement, as applicable, directly to
holders of Definitive Securities in whose names the Definitive Securities were
registered at the close of business on the applicable Record Date specified for
such Securities in the related Prospectus Supplement. Such distributions will be
made by check mailed to the address of such holder as it appears on the register
maintained by the
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applicable Trustee or Indenture Trustee. The final payment on any such
Definitive Security, however, will be made only upon presentation and surrender
of such Definitive Security at the office or agency specified in the notice of
final distribution to the applicable Securityholders. The applicable Trustee or
the Indenture Trustee will provide such notice to the applicable Securityholders
not less than 15 nor more than 30 days prior to the date on which such final
distribution is expected to occur.
Definitive Securities will be transferable and exchangeable at the offices
of the applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
THE TRUSTS
With respect to each Series of Securities, the Seller will establish a
separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and in
the related Prospectus Supplement.
On the applicable Closing Date, the Seller will sell the Loan Assets to the
Trust as specified in the related Prospectus Supplement.
The Servicer will service the Loan Assets held by each Trust and will
receive fees for such services as specified in the related Prospectus
Supplement. To the extent specified in the related Prospectus Supplement, in
order to facilitate the servicing of the Loan Assets, the Seller and each
Trustee will authorize the Servicer to retain physical possession of the Loan
Assets held by each Trust and other documents relating thereto as custodian for
each such Trust.
The principal offices of each Trust that is not a grantor trust and the
related Owner Trustee will be specified in the applicable Prospectus Supplement.
THE TRUSTEE
As used herein, the term "Trustee" shall refer to the Indenture Trustee
with respect to a Series of Notes, the Owner Trustee under the applicable Trust
Agreement with respect to a Series of Certificates or the Trustee under the
applicable Pooling and Servicing Agreement with respect to a Series of
Certificates. The Trustee for each Trust will be specified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the related Securities is limited solely to the express obligations
of such Trustee set forth in the related Trust Agreement, Indenture or Pooling
and Servicing Agreement, as applicable. A Trustee may resign at any time, in
which event the Servicer, or its successor, will be obligated to appoint a
successor thereto. The Administrator of a Trust that is not a grantor trust and
the Servicer in respect of a Trust that is a grantor trust may also remove a
Trustee that ceases to be eligible to continue in such capacity under the
related Trust Agreement or Pooling and Servicing Agreement, as applicable, or
becomes insolvent. In such circumstances, the Servicer or, in the case of a
Series that includes Notes, the Administrator, as the case may be, will be
obligated to appoint a successor thereto. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by such successor.
Any commercial bank or trust company serving as Trustee may have normal
banking relationships with the Seller or the Servicer. In addition, the Trustee
will have the power and the responsibility for appointing co-trustees or
separate trustees of all or any part of the Trust relating to a particular
Series of Securities. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the Trustee by the applicable
Indenture, Trust Agreement or Pooling and Servicing Agreement shall be conferred
or imposed upon the Trustee and such separate trustee or co-trustee jointly, or
in any jurisdiction in which the Trustee shall be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee.
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The Trustee will make no representations as to the validity or sufficiency
of the applicable Indenture, Trust Agreement or Pooling and Servicing Agreement,
the related Securities, or of any Loan Asset or related document, and will not
be accountable for the use or application by the Seller or a Transferor of any
funds paid to the Seller or such Transferor in respect of the Securities or the
related Assets, or amounts deposited in the related Distribution Account or
deposited into any other account for purposes of making payments or
distributions to Securityholders. If no Event of Default has occurred, the
Trustee will be required to perform only those duties specifically required of
it under the applicable Indenture, Trust Agreement or Pooling and Servicing
Agreement. However, upon receipt of the various certificates, reports or other
instruments required to be furnished to it, the Trustee will be required to
examine them to determine whether they conform to the requirements of the
applicable Indenture, Trust Agreement or Pooling and Servicing Agreement.
The Trustee may resign at any time and the Seller, the Servicer or the
Administrator, as applicable, may remove the Trustee if the Trustee ceases to be
eligible to continue as such under the applicable Indenture, Trust Agreement or
Pooling and Servicing Agreement, if the Trustee becomes insolvent or in such
other instances, if any, as are set forth in the applicable Indenture, Trust
Agreement or Pooling and Servicing Agreement. Following any resignation or
removal of the Trustee, the Seller or Servicer, as applicable, will be obligated
to appoint a successor Trustee. Any resignation or removal of the Trustee and
appointment of a successor Trustee does not become effective until acceptance of
the appointment by the successor Trustee.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Property may at the time be located,
the Seller and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or cotrustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Property,
and to vest in such Person or Persons, in such capacity, such title to the Trust
Property, or any part thereof, and, subject to the provisions of the applicable
Indenture, Trust Agreement or Pooling and Servicing Agreement, such powers,
duties, obligations, rights and trusts as the Seller and the Trustee may
consider necessary or desirable.
DESCRIPTION OF THE TRUST PROPERTY
GENERAL
The Trust Property for a Series of Securities may include (i) Loan Assets
and payments or distributions thereon (subject, if specified in the Prospectus
Supplement, to certain exclusions); (ii) if specified in the Prospectus
Supplement, reinvestment income on such payments or distributions; (iii) with
respect to a Trust that includes Mortgage Loans or Secured Contracts, all
property acquired by foreclosure or deed in lieu of foreclosure with respect to
any such Mortgage Loan or Secured Contract and certain rights of the
Administrator, if any, and the Servicer under any policies required to be
maintained in respect of the related Loan Assets; and (iv) if specified in the
Prospectus Supplement, one or more forms of Credit Enhancement. The Trust
Property of each Trust will consist primarily of Loan Assets.
With respect to a Series, the Seller will acquire the Loan Assets in the
open market or in privately negotiated transactions from one or more entities,
and each such entity from whom the Seller so acquires a significant portion of
the Loan Assets (individually or collectively, the "Transferor") will be
described in the related Prospectus Supplement, including a description of any
affiliation between the Transferor and the Seller. To the extent specified in
the related prospectus supplement, the Loan Assets will have been originated or
acquired by the Transferor in one of four ways: (i) the indirect origination and
purchase of retail installment sales contracts from a network of independent
contractors or dealers professionally installing property improvements
("indirect originations"); (ii) the origination of loans directly to consumers,
including solicitations through direct mail and telemarketing ("direct
originations"); (iii) the wholesale purchase of loans, on a flow basis,
originated by other unaffiliated lenders, as correspondents ("correspondent
originations"); or (iv) the purchase, on a bulk basis, of loan portfolios
originated by other unaffiliated lenders ("portfolio acquisitions"). In
acquiring the Loan Assets from a Transferor, the Seller will rely on the
representations and warranties made by the Transferor with respect to such Loan
Assets. For a summary
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description of the expected representations and warranties with respect to such
Loan Assets, See "Description of the Transfer and Servicing Agreements -- Sale
and Assignment of Loan Assets." As further described in the related Prospectus
Supplement for a Series, the Transferor will be obligated to repurchase or
replace any Loan Assets that, subject to the lapse of any applicable cure
period, are in breach of a representation or warranty made by the Transferor and
such breach has a material and adverse affect on the value of such Loan Assets
or the interest of Securityholders therein. To the extent that the Seller has
any obligation to repurchase or replace any Loan Assets for a material breach of
any representations or warranties made by the Seller, the Seller is not expected
to have the financial capability to repurchase or replace such defective Loan
Assets, but rather the Seller will be relying on the related Transferor of such
defective Loan Assets to repurchase or replace them. See "The Seller."
The following is a brief description of the Loan Assets expected to be
included in the Trusts for each Series. If specific information respecting the
Loan Assets is not known at the time a Series is initially offered, more general
information of the nature described below will be provided in the related
Prospectus Supplement, and specific information will be set forth in a report on
Form 8-K to be filed with the Securities and Exchange Commission within fifteen
days after the initial issuance of such Series. A copy of the related Sale and
Servicing Agreement or Pooling and Servicing Agreement with respect to each
Series will be attached to the Form 8-K and will be available for inspection at
the corporate trust office of the related Trustee specified in the related
Prospectus Supplement. A schedule of the Loan Assets relating to each Series,
will be attached to the related Sale and Servicing Agreement or Pooling and
Servicing Agreement delivered to the applicable Trustee upon delivery of such
Series.
MORTGAGE LOANS
The Mortgage Loans will be evidenced by promissory notes, retail
installment sales contracts or other evidences of indebtedness (the "Mortgage
Notes") and will be secured by mortgages, deeds of trust or other similar
security instruments (the "Mortgages") creating a lien or security interest on
single family (one-to-four unit) residences, units in planned unit developments,
units in condominium developments, town homes and Manufactured Homes (as defined
herein) (the "Mortgaged Properties") located in various states. If specified in
the Prospectus Supplement, the Mortgage Loans may include cooperative apartment
or manufactured housing loans ("Cooperative Loans") secured by security
interests in shares issued by private, non-profit, cooperative housing
corporations ("Cooperatives") and in the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specific units in such
Cooperatives. To the extent specified in the related Prospectus Supplement, all
or a portion of the Mortgages will be junior liens on the related Mortgaged
Properties, and the related superior liens will not be included in the related
Loan Asset Pool. Certain of the Mortgage Loans may be partially insured to the
extent described in the related Prospectus Supplement (and subject to the
conditions described herein and in the related Prospectus Supplement) by the FHA
under the Title I Program (the "Title I Mortgage Loans"). To the extent
specified in the related Prospectus Supplement, the Mortgage Loans will have
scheduled monthly payment dates throughout a month, and no Mortgage Loan will
provide for deferred interest or negative amortization, and no commercial or
multifamily loans will be included in any Mortgage Loan Pool.
The payment terms of the Mortgage Loans to be included in a Trust for a
Series or will be described in the related Prospectus Supplement and may include
any of the following features or combinations thereof or other features
described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index, a rate that is fixed for a period of
time or under certain circumstances and is followed by an adjustable rate,
a rate that otherwise varies from time to time, or a rate that is
convertible from an adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest may be
deferred and added to the principal of a loan for such periods and under
such circumstances as may be specified in the related Prospectus
Supplement. Mortgage Loans may provide for the payment of interest at a
rate lower than the specified mortgage rate for a period of time or for the
life of the Mortgage Loan with the
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amount of any difference contributed from funds supplied by the seller of
the Mortgaged Property or another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the loan over its term, may be calculated on the basis of an
amortization schedule that is significantly longer than the original term
to maturity or on an interest rate that is different from the interest rate
on the Mortgage Loan or may not be amortized during all or a portion of the
original term. Payment of all or a substantial portion of the principal may
be due on maturity. Principal may include interest that has been deferred
and added to the principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the loan, may increase over a specified period of time or may
change from period to period. Mortgage Loans may include limits on periodic
increases or decreases in the amount of monthly payments and may include
maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which
may be fixed for the life of the loan or may decline over time, and may be
prohibited for the life of the loan or for certain periods ("lockout
periods"). Certain loans may permit prepayments after expiration of the
applicable lockout period and may require the payment of a prepayment fee
in connection with any such subsequent prepayment. Other loans may permit
prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The loans may include "due-on-sale" clauses which
permit the mortgagee to demand payment of the entire mortgage loan in
connection with the sale or certain transfers of the related mortgaged
property. Other Mortgage Loans may be assumable by persons meeting the then
applicable underwriting standards of the Seller.
With respect to a Series for which the related Trust includes Mortgage
Loans the related Prospectus Supplement may specify, among other things,
information regarding the interest rates (the "Mortgage Rates"), the average
principal balance and the aggregate principal balance of such Mortgage Loans,
the years of origination, geographic dispersion and original principal balances
and the loan-to-value ratios of such Mortgage Loans.
CONTRACTS
As specified in the related Prospectus Supplement for a Series, "Contracts"
may include: (i) loans evidenced by retail installments sales or loan
agreements, including loans secured by new or used Manufactured Homes (as
defined herein) that are not considered to be interests in real property because
such Manufactured Homes are not permanently affixed to real estate ("Secured
Contracts") and (ii) loans evidenced by retail installments sales or loan
agreements which are not secured by any interest in real or personal property
("Unsecured Contracts"). To the extent described in the related Prospectus
Supplement, certain Contracts will be conventional (i.e., not insured or
guaranteed by a governmental agency) contracts (the "Conventional Contracts"),
while other Contracts will be partially insured by the FHA under the Title I
Program (the "Title I Contracts"). To the extent specified in the related
Prospectus Supplement, the Contracts included as part of the Trust Property for
a Series will be fully amortizing and will bear interest at a fixed annual
percentage rate ("APR"). The Secured Contracts differ from Mortgage Loans in
that the Secured Contracts are not secured by an interest in real property, but
rather by an interest in a Manufactured Home that is not permanently affixed to
real estate. In addition, the Contracts differ from Mortgage Loans in that they
are generally originated by a network of independent contractors or dealers that
professionally install property improvements, rather than by financial
institutions or other traditional mortgage lenders.
While the Unsecured Contracts are not secured by a security interest in any
related real or personal property, such contracts are still subject to the same
underwriting criteria as the Mortgage Loans and the Secured Contracts. For
example, in underwriting an Unsecured Contract, the Transferor will consider the
borrower's credit history and ability to repay the related debt as well as the
value of real or personal property owned by the borrower which could be the
subject of a junior lien in favor of the Transferor; however, because the
Unsecured Contracts generally have smaller principal amounts than the Mortgage
Loans or the Secured Contracts, a junior lien with respect to such real or
personal property will not be obtained because the costs
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associated with obtaining and perfecting such a junior lien will not justify the
benefits provided by such a lien, including any realization from the enforcement
of such lien.
The Manufactured Homes securing the Secured Contracts consist of
manufactured homes within the meaning of 42 United States Code, Section 5402(6),
which defines a "Manufactured Home" as "a structure, transportable in one or
more sections, which in the traveling mode, is eight body feet or more in width
or forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without permanent foundation when
connected to the required utilities, and includes the plumbing, heating,
air-conditioning, and electrical systems contained therein; except that such
term shall include any structure which meets all the requires of [this]
paragraph except the size requirements and with respect to which the
manufacturer voluntarily files a certification required by the Secretary of
Housing and Urban Development and complies with the standards established under
[this] chapter."
To the extent specified in the Prospectus Supplement with respect to a
Series for which the related Trust includes Secured Contracts, for purposes of
calculating the loan-to-value ratio of a Secured Contract relating to a new
Manufactured Home, the "Collateral Value" is no greater than the sum of a fixed
percentage of the list price of the unit actually billed by the manufacturer to
the dealer (exclusive of freight to the dealer site) including "accessories"
identified in the invoice (the "Manufacturer's Invoice Price"), plus the actual
cost of any accessories purchased from the dealer, a delivery and set-up
allowance, depending on the size of the unit and the cost of state and local
taxes, filing fees and up to three years prepaid hazard insurance premiums. To
the extent specified in the related Prospectus Supplement, the Collateral Value
of a used Manufactured Home is the least of the sales price, the appraised
value, and the National Automobile Dealer's Association book value plus prepaid
taxes and hazard insurance premiums. The appraised value of a Manufactured Home
is based upon the age and condition of the manufactured housing unit and the
quality and condition of the mobile home park in which it is situated, if
applicable.
The related Prospectus Supplement may specify for the Contracts contained
in the related Contract Pool, among other things, the date of origination of the
Contracts; the APRs on the Contracts; the Contract Loan-to-Value Ratios; the
minimum and maximum outstanding principal balance as of the cut-off date and the
average outstanding principal balance; the outstanding principal balances of the
Contracts included in the Contract Pool; and the original maturities of the
Contracts and the last maturity date of any Contract.
ADDITIONS, SUBSTITUTION AND WITHDRAWAL OF ASSETS
With respect to a Series, as described in the related Prospectus
Supplement, the related Transferor or the Seller may, subsequent to the issuance
of a Series, (i) deliver additional Assets to the related Trust, (ii) withdraw
Assets previously included in a Trust for such Series and substitute comparable
assets therefor, or (iii) withdraw Assets previously included in a Reserve Fund
for such Series. Assets may be added to the Trust for a Series subsequent to the
issuance of such Series in the manner described under "Pre-Funding Arrangements"
below. In addition, Assets may be withdrawn from or substituted in the Trust for
a Series for the following reasons: (a) curing any breaches of representations
and warranties with respect to such Assets, (b) curing certain immaterial
irregularities with respect to such Assets that do not constitute a breach of
such representations and warranties, or (c) achieving certain targeted or
desired Loan Asset Pool characteristics with respect to the Loan Assets of a
particular Series, including, without limitation, those characteristics that
accommodate the requests of a Rating Agency, the Underwriters or a third party
provider of Credit Enhancement. Any such additions, withdrawals or substitutions
of Assets by the related Transferor or the Seller will be subject to the
applicable limitations, requirements and conditions provided in the related Sale
and Servicing Agreement or Pooling and Servicing Agreement (and described in the
related Prospectus Supplement) for such Series.
PRE-FUNDING ARRANGEMENTS
To the extent provided in the related Prospectus Supplement for a Series,
the related Sale and Servicing Agreement or Pooling and Servicing Agreement will
provide for a commitment by the related Trust to
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subsequently purchase additional Loan Assets ("Subsequent Loan Assets") from the
Seller following the date on which the Trust is established and the related
Securities are issued (a "Pre-Funding Arrangement"). With respect to a Series,
the Pre-Funding Arrangement will require that any Subsequent Loan Assets
transferred to the Trust conform to the requirements and conditions provided in
the related Sale and Servicing Agreement or Pooling and Servicing Agreement. If
a Pre-Funding Arrangement is utilized in connection with the issuance of the
Series of Securities, on the closing date for the issuance of such Series the
related Trustee will be required to deposit in a segregated account (a
"Pre-Funding Account") all or a portion of the proceeds received by such Trustee
in connection with the sale of one or more Classes of Securities of such Series;
and, subsequently, the Trust will acquire Subsequent Loan Assets from the Seller
in exchange for the release of money from the Pre-Funding Account for such
Series. In addition, the Pre-Funding Arrangement will be limited to a specified
period, not to exceed three months, during which time any transfers of
Subsequent Loan Assets must occur and to a maximum deposit to the related
Pre-Funding Account of no more than thirty-five percent (35%) of the aggregate
proceeds received from the sale of all Classes of Securities of such Series.
If all of the funds originally deposited in the such Pre-Funding Account
are not used by the end of such specified period, then any remaining amount of
such funds will be applied as a mandatory prepayment of a Class or Classes of
Securities as specified in the related Prospectus Supplement. Although it is
intended that the principal amount of Subsequent Loan Assets transferred to the
Trust after the closing date for the issuance of any particular Series will
require application of substantially all of the Pre-Funding Account, and it is
not anticipated that there will be any material amount of principal
distributions from amounts remaining on deposit in the Pre-Funding Account in
reduction of the principal balances of any Securities, no assurance can be given
that such a distribution with respect to the Securities will not occur on the
Distribution Date following the Due Period in which the Pre-Funding Arrangement
ends. In any event, it is unlikely that the Transferor will be able to deliver
Subsequent Loan Assets with aggregate principal balances that exactly equal the
Pre-Funding Account, and the portion of the Pre-Funding Account remaining at the
end of the Pre-Funding Arrangement, if any, will be distributed in reduction of
the principal balance of the Securities of the related Series, as set forth in
related Prospectus Supplement.
As may be further specified in the related Prospectus Supplement, amounts
on deposit in the Pre-Funding Account will be invested in short-term debt
obligations of, or debt obligations guaranteed by, the United States, repurchase
agreements that satisfy the criteria specified in the applicable Sale and
Servicing Agreement or Pooling and Servicing Agreement, certificates of deposit,
time deposits and bankers acceptances of any United States depository
institution or trust company, FDIC insured deposits, including deposits with the
related Trustee, commercial paper, debt obligations, and money market funds;
provided such investments are acceptable to each Rating Agency rating the Series
of Offered Securities at the time at which the investments are made
(collectively "Permitted Investments"); and provided further that an investment
in such Permitted Investments will not require the Trust for a Series to be
registered as an "investment company" under the Investment Company Act of 1940,
as amended. Permitted Investments will consist of short term investments that
convert into cash or mature within a short period of time, have minimal or no
exposure to fluctuations in value as a result of market changes in prevailing
interest rates and are acceptable to each Rating Agency rating the applicable
Series of Offered Securities.
The utilization of a Pre-Funding Arrangement is intended to improve the
efficiency of the issuance of a Series of Securities and the sale and assignment
of the Loan Assets to the related Trust through the incremental delivery of the
Loan Assets on the closing date and during the three month period following the
closing date for such Series, which allows for a more even accumulation of the
Loan Assets by the Seller and the related Transferor and the issuance of a
larger principal amount of Securities for such Series than would be the case
without a Pre-Funding Arrangement.
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CREDIT ENHANCEMENT
GENERAL
The amount and types of credit and cash flow enhancement arrangements
("Credit Enhancement") and the provider thereof, if applicable, with respect to
each Class of Securities of a given Series, if any, will be set forth in the
related Prospectus Supplement. If and to the extent provided in the related
Prospectus Supplement, Credit Enhancement may be in the form of the
subordination of one or more Classes of Securities of such Series, the
overcollateralization of the Trust with respect to a Series, the establishment
of one or more Reserve Funds, the use of a cross-support feature, the use of a
Mortgage Pool Insurance Policy, Guaranty Policy, Special Hazard Insurance
Policy, bankruptcy bond, surety bond, letter of credit, credit or liquidity
facility, guaranteed investment contract, swap or other interest rate protection
agreement, repurchase obligation, yield maintenance agreement, other agreements
with respect to third party payments or other support, cash deposits or such
other form of Credit Enhancement as may be described in the related Prospectus
Supplement, or any combination of two or more of the foregoing. If specified in
the related Prospectus Supplement, Credit Enhancement for a Class of Securities
may cover one or more other Classes of Securities of the same Series, and Credit
Enhancement for a Series of Securities may cover one or more other Series of
Securities.
The presence of Credit Enhancement for the benefit of any Class or Series
of Securities is intended to enhance the likelihood of receipt by the
Securityholders of such Class or Series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. To the extent specified in the related Prospectus
Supplement, any Credit Enhancement with respect to a Series will not provide
protection against all risks of loss and will not guarantee repayment of the
entire principal balance of the Securities of such Series and interest thereon.
If losses occur which exceed the amount covered by such Credit Enhancement or
which are not covered by the Credit Enhancement, holders will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of Credit Enhancement covers more than one
Class or Series of Securities, Securityholders of any such Class or Series will
be subject to the risk that such credit enhancement will be exhausted by the
claims of Securityholders of other Classes or Series.
SUBORDINATION
If specified in the related Prospectus Supplement, distributions in respect
of scheduled principal, interest or any combination thereof that otherwise would
have been payable or distributable to one or more Classes of a Series (the
"Subordinated Securities") will instead be payable to one or more other Classes
of such Series (the "Senior Securities") under the circumstances and to the
extent provided in such Prospectus Supplement. If specified in the Prospectus
Supplement, delays in receipt of scheduled payments on the Loan Assets and
losses on defaulted Loan Assets will be borne first by the various Classes of
Subordinated Securities and thereafter by the various Classes of Senior
Securities, in each case under the circumstances and subject to the limitations
specified in the Prospectus Supplement. The aggregate distributions in respect
of delinquent payments or distributions on the Loan Assets over the lives of the
Securities of a Series or at any time, the aggregate losses in respect of
defaulted Loan Assets which must be borne by the Subordinated Securities by
virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Securities that will be distributable to
holders of Senior Securities on any Distribution Date may be limited as
specified in the related Prospectus Supplement. If aggregate distributions in
respect of delinquent payments or distributions on the Loan Assets or aggregate
losses in respect of such Loan Assets were to exceed the total amounts
distributable and available for distribution to holders of Subordinated
Securities were to exceed the specified maximum amount, holders of Senior
Securities could experience losses on their Securities.
In addition to or in lieu of the foregoing, if specified in the related
Prospectus Supplement, all or any portion of distributions otherwise
distributable to holders of Subordinated Securities on any Distribution Date may
instead be deposited into one or more Reserve Funds (as defined below)
established by the related Trustee. If specified in the related Prospectus
Supplement, such deposits may be made (i) on each
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Distribution Date, (ii) on each Distribution Date for specified periods, or
(iii) on each Distribution Date until the balance in the Reserve Fund has
reached a specified amount and, following payments from the Reserve Fund to
holders of Senior Securities or otherwise, thereafter to the extent necessary to
restore the balance in the Reserve Fund to required levels, in each case as
specified in such Prospectus Supplement. If specified in the related Prospectus
Supplement, amounts on deposit in the Reserve Fund may be released to the
Depositor or the holders of any Class of Securities at the times and under the
circumstances specified in such Prospectus Supplement.
If specified in the related Prospectus Supplement, various Classes of
Senior Securities and Subordinated Securities may themselves be subordinate in
their right to receive certain distributions to other Classes of Senior and
Subordinated Securities, respectively, through a cross-support mechanism or
otherwise.
As between Classes of Senior Securities and as between Classes of
Subordinated Securities, distributions may be allocated among such Classes (i)
in the order of their Stated Maturity or Assumed Final Distribution Dates, (ii)
in accordance with a schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise, in each case as specified in the related Prospectus
Supplement. As between Classes of Subordinated Securities, distributions to
holders of Senior Securities on account of delinquencies or losses and payments
to any Reserve Fund will be allocated as specified in the related Prospectus
Supplement.
OVERCOLLATERALIZATION
If provided in the related Prospectus Supplement, the aggregate principal
balance of the Loan Assets included in the Trust may exceed the aggregate
original principal balance of the Securities of a Series thereby creating an
"Excess Spread" on each Distribution Date. If provided in the related Prospectus
Supplement, such Excess Spread may be distributed to holders of Senior
Securities to produce and maintain a specified level of overcollateralization.
With respect to a Series of Securities, the overcollateralization level may be
fixed or may increase or decrease over time, subject to certain floors, caps and
triggers, as set forth in the related Prospectus Supplement and the related
Indenture, Sale and Servicing Agreement or Pooling and Servicing Agreement.
CROSS-SUPPORT
If specified in the related Prospectus Supplement, separate Classes of
related Series of Securities may represent the beneficial ownership of or be
separately secured by, separate groups of Assets included in the Trust for a
Series or otherwise available for the benefit of such Securities. In such case,
Credit Enhancement may be provided by a cross-support feature which may require
that distributions be made with respect to Securities evidencing beneficial
ownership of or secured by one or more groups of Assets prior to distributions
to Subordinated Securities evidencing a beneficial ownership interest in or
secured by other groups of Assets within the same Trust. The Prospectus
Supplement for a Series which includes a cross-support feature will describe the
manner and conditions for applying such cross-support feature.
GUARANTY INSURANCE
If specified in the Prospectus Supplement, one or more financial guaranty
insurance policies (each, a "Guaranty Policy") will be obtained. Each such
Guaranty Policy with respect to a Series will, subject to limitations described
in the related Prospectus Supplement, provide to the holders of the insured
Securities of a Series a guarantee of payment of any interest and/or principal
payments due to such holders on each Distribution Date. The related Prospectus
Supplement will describe the terms of any Guaranty Policy and will set forth
certain information with respect to the applicable insurer.
MORTGAGE POOL INSURANCE
With respect to a Series for which the related Trust includes Mortgage
Loans (and, if specified in the related Prospectus Supplement, a Series for
which the related Trust includes Contracts), in order to decrease the likelihood
that holders of the Securities of such Series will experience losses in respect
of such Mortgage Loans, if specified in the related Prospectus Supplement, one
or more mortgage pool insurance policies (each,
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a "Mortgage Pool Insurance Policy") will be obtained. Each such Mortgage Pool
Insurance Policy will, subject to the limitations described below and in the
Prospectus Supplement, cover loss by reason of default in payments on such
Mortgage Loans up to the amounts specified in the Prospectus Supplement or
reported on Form 8-K and for the periods specified in the Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, the Servicer under
the related Sale and Servicing Agreement or Pooling and Servicing Agreement will
agree to use its best reasonable efforts to cause to be maintained in effect any
such Mortgage Pool Insurance Policy and to file claims thereunder to the issuer
of such Mortgage Pool Insurance Policy (the "Pool Insurer"). A Mortgage Pool
Insurance Policy, however, is not a blanket policy against loss, since claims
thereunder may only be made respecting particular defaulted Mortgage Loans and
only upon satisfaction of certain conditions precedent set forth in such policy
as described in the related Prospectus Supplement. To the extent specified in
the related Prospectus Supplement, no Mortgage Pool Insurance Policy, if any,
will cover losses due to a failure to pay or denial of a claim under a primary
mortgage insurance policy, irrespective of the reason therefor. The related
Prospectus Supplement will describe the terms of any applicable Mortgage Pool
Insurance Policy and will set forth certain information with respect to the
related Pool Insurer.
SPECIAL HAZARD INSURANCE
With respect to a Series for which the related Trust includes Mortgage
Loans (and, if specified in the related Prospectus Supplement, each Series for
which the related Trust includes Contracts), in order to decrease the likelihood
that holders of the Securities of such Series will experience losses in respect
of such Mortgage Loans, if specified in the related Prospectus Supplement, one
or more Special Hazard Insurance Policies (each, a "Special Hazard Insurance
Policy") will be obtained. Each such Special Hazard Insurance Policy with
respect to a Series will, subject to limitations described below and in the
related Prospectus Supplement, protect holders of the Securities of such Series
from (i) loss by reason of damage to Mortgaged Properties caused by certain
hazards (including earthquakes and, to a limited extent, tidal waves and related
water damage) not covered by the standard form of hazard insurance policy for
the respective states in which the Mortgaged Properties are located or under
flood insurance policies, if any, covering the Mortgaged Properties, and (ii)
loss caused by reason of the application of the coinsurance clause contained in
hazard insurance policies. Any Special Hazard Insurance Policy may not cover
losses occasioned by war, civil insurrection, certain governmental actions,
errors in design, faulty workmanship or materials (except under certain
circumstances), nuclear reaction, flood (if the Mortgaged Property is located in
a federally designated flood area), chemical contamination and certain other
risks. Aggregate claims under each Special Hazard Insurance Policy will be
limited as described in the related Prospectus Supplement. Any Special Hazard
Insurance Policy may also provide that no claim may be paid unless hazard and if
applicable, flood insurance on the Mortgaged Property has been kept in force and
other protection and preservation expenses have been paid.
The related Prospectus Supplement will describe the terms of any applicable
Special Hazard Insurance Policy and will set forth certain information with
respect to the related special hazard insurer.
RESERVE FUNDS
If specified in the Prospectus Supplement with respect to a Series, assets
such as cash, U.S. Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in such Prospectus Supplement will be deposited by the Seller in one
or more accounts (each, a "Reserve Fund") established and maintained with the
related Trustee. Such cash and the payments on such other assets will be used to
enhance the likelihood of timely distribution of principal of, and interest on,
or, if specified in the related Prospectus Supplement, to provide additional
protection against losses in respect of the Assets in the related Trust, to pay
the expenses of the related Trust or for such other purposes specified in such
Prospectus Supplement. Whether or not the Seller has any obligation to make such
a deposit, certain amounts to which the holders of the Subordinated Securities
of such Series, if any, the Seller would otherwise be entitled may instead be
deposited into the Reserve Fund from time to time and in the amounts as
specified in the related
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Prospectus Supplement. Any cash in any Reserve Fund and the proceeds of any
other instrument upon maturity will be invested in Permitted Investments. If a
letter of credit is deposited with the applicable Trustee, such letter of credit
will be irrevocable. To the extent specified in the Prospectus Supplement with
respect to a Series, any instrument deposited therein will name the related
Trustee, in its capacity as trustee for the holders of the Securities of such
Series, as beneficiary and will be issued by an entity acceptable to each rating
agency that rates such Securities. Additional information with respect to such
instruments deposited in the Reserve Funds may be set forth in the Prospectus
Supplement.
SERVICING OF THE LOAN ASSETS
Except as otherwise noted in the applicable Prospectus Supplement, the
description set forth below of the servicing of Loan Assets is applicable to
Loan Assets included in the Trust with respect to a Series of Securities.
To the extent provided in the related Prospectus Supplement, the Loan
Assets included in the Trust for a Series of Securities will be serviced either
(i) by the related Servicer as sole servicer, (ii) by the related Master
Servicer as administrator or master servicer, (iii) by one or more loan
servicing institutions as servicers or (iv) by another institution as master
servicer. If an institution other than the Servicer acts as the sole servicer or
as the master servicer for a Series, the Servicer may have no servicing
obligations with respect to such Series. Generally, the discussion in this
section of the Prospectus is applicable under circumstances when the Servicer is
an affiliate of the Seller. If the Servicer is not an affiliate of the Seller,
the discussion relating to the servicing of the Loan Assets as set forth below
may be modified or superseded by any discussion relating to the servicing of the
Loan Assets set forth in the Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, the Loan
Assets will be serviced by one or more loan servicing institutions, which may
include the Servicer or a Subservicer, pursuant to a subservicing agreement
between each Subservicer and the Servicer (each, a "Subservicing Agreement"),
which may be entered into only with the prior written consent of the applicable
Trustee and the Administrator, if any.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
When a Mortgaged Property has been or is about to be conveyed by the
borrower, the Servicer, on behalf of the Trustee, shall, to the extent it has
knowledge of such conveyance or prospective conveyance, enforce the rights of
the Trustee as the mortgagee of record to accelerate the maturity of the related
Mortgage Loan under any "due-on-sale" clause contained in the related Mortgage;
provided, however, that the Servicer shall not exercise any such right if the
"due-on-sale" clause, in the reasonable belief of the Servicer, is not
enforceable under applicable law. In such event or in the event the related
Mortgage does not contain a "due-on-sale" clause, the Servicer shall enter into
an assumption and modification Agreement with the person to whom such property
has been or is about to be conveyed, pursuant to which such person becomes
liable under such Mortgage and, unless prohibited by applicable law or the
mortgage documents, the borrower remains liable thereon. The Servicer is also
authorized to enter into a substitution of liability agreement with such person,
pursuant to which the original borrower is released from liability and such
person is substituted as borrower and becomes liable under the Mortgage.
REALIZATION UPON DEFAULTED LOAN ASSETS
With respect to any defaulted Loan Asset as to which no satisfactory
arrangements can be made for collection of delinquent payments or the cure of
any other event of default, the Servicer will take such action as it shall deem
to be in the best interest of the Securityholders. Without limiting the
generality of the preceding sentence, the Servicer will, in accordance with the
servicing standard described above, (i) in the case of Title I Mortgage Loans
and Title I Contracts only, direct the Trustee (or any Administrator) to submit
an FHA Claim to the FHA, in accordance with FHA Regulations, or (ii) in the case
of Mortgage Loans and Contracts, take such other action as the Servicer deems to
be in the best interests of the Securityholders, which if no superior lien
exists on the related Mortgaged Property, could include a foreclosure upon such
Mortgaged Property in the name of the Trustee for the benefit of the
Securityholders, provided such action
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was economically justified. Typically, however, the Servicer has chosen not to
pursue foreclosures of defaulted loans comparable to the Loan Assets due to the
costs involved. In servicing mortgage loans and contracts secured by junior
liens in their portfolios, it will not be the Servicer's or any Subservicer's
practice to satisfy the senior mortgage(s) at or prior to the foreclosure sale
of the related Mortgaged Property, or to advance funds to keep the senior
mortgage(s) current. In addition, if a defaulted Loan Asset (together with any
senior lien indebtedness) has a high loan-to-value ratio, then the Servicer will
be less likely to foreclose on the related Mortgaged Property, even if the
Servicer has a first-lien position for such defaulted Loan Asset. In the event
an FHA Claim is rejected by the FHA due to circumstances that constitute a
breach of the Seller's representations and warranties in the applicable Sale and
Servicing Agreement or Pooling and Servicing Agreement, the Seller will be
required to repurchase the related Title I Mortgage Loan or Title I Contract at
the purchase price and in the manner set forth in such Sale and Servicing
Agreement or Pooling and Servicing Agreement.
In connection with any collection activities or foreclosure, the Servicer
is required to exercise collection and foreclosure procedures with the same
degree of care and skill in its exercise or use, as it would exercise or use
under the circumstances in the conduct of its own affairs.
WAIVERS AND DEFERMENTS OF CERTAIN PAYMENTS
Each Sale and Servicing Agreement and each Pooling and Servicing Agreement
will require the Servicer to make reasonable efforts to collect all payments
called for under the terms and provisions of the Loan Assets. Consistent with
the foregoing, the Servicer may at its own discretion waive any late payment
charge, assumption fee or any penalty interest in connection with the payment of
a Loan Asset or any other fee or charge which the Servicer would be entitled to
retain as servicing compensation and may waive, vary or modify any term of any
Loan Asset or consent to the postponement of strict compliance with any such
term or in any matter grant indulgence to any borrower, subject to the
limitations set forth in the applicable Sale and Servicing Agreement or Pooling
and Servicing Agreement and the FHA Regulations, if applicable.
SUBSERVICERS
The Servicer is permitted under the applicable Sale and Servicing Agreement
or Pooling and Servicing Agreement to enter into servicing arrangements from
time to time with subservicers (each, a "Subservicer") meeting the requirements
of such Sale and Servicing Agreement or Pooling and Servicing Agreement,
provided that the applicable Trustee gives written consent thereto.
Notwithstanding any subservicing arrangements, the Servicer shall not be
relieved of its obligations under the applicable Sale and Servicing Agreement or
Pooling and Servicing Agreement to the applicable Trustee and the
Securityholders, and the Servicer shall be obligated to the same extent and
under the same terms and conditions as if it alone were servicing and
administering the related Loan Assets.
REMOVAL AND RESIGNATION OF SERVICER
To the extent specified in the Prospectus Supplement, the applicable
Trustee may remove the Servicer upon the occurrence and continuation beyond the
applicable cure period of certain events described in the applicable Sale and
Servicing Agreement or Pooling and Servicing Agreement. To the extent specified
in the Prospectus Supplement, the Servicer will not be permitted to resign from
its obligations and duties except by mutual consent of the Servicer, the Seller,
the applicable Trustee and any other persons so specified in the applicable Sale
and Servicing Agreement or Pooling and Servicing Agreement, or upon the
determination that the Servicer's duties are no longer permissible under
applicable law and such incapacity cannot be cured by the Servicer. No such
resignation shall become effective until a qualified successor has assumed the
Servicer's responsibilities and obligations. Upon removal or resignation of the
Servicer, a successor servicer will be appointed pursuant to the terms and
conditions set forth in the applicable Sale and Servicing Agreement or Pooling
and Servicing Agreement.
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ADVANCES
To the extent specified in the Prospectus Supplement, neither the Servicer,
nor any Subservicer on behalf of the Servicer, shall have any obligation to
advance its own funds for any delinquent scheduled payments of principal and
interest on any Loan Asset or to satisfy or keep current the indebtedness
secured by any superior liens on the related Mortgaged Property. To the extent
specified in the Prospectus Supplement, no costs incurred by the Servicer or any
Subservicer in respect of servicing advances shall, for the purposes of
distributions to Securityholders, be added to the amount owing under the related
Loan Asset.
SERVICING PROCEDURES
To the extent specified in the related Prospectus Supplement, the Servicer
and each Subservicer will service the Loan Assets pursuant to written guidelines
promulgated by the Seller or the Servicer. The Servicer will exercise its best
reasonable efforts to insure that any Subservicers service the Loan Assets in
compliance with such guidelines and in a manner consistent with industry
standards.
Mortgage Loans. To the extent specified in the related Prospectus
Supplement, the Servicer and each Subservicer will be required to service and
administer the Mortgage Loans and will have full power and authority, acting
alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and consistent
with the terms of the applicable Sale and Servicing Agreement or Pooling and
Servicing Agreement. The Servicer, in servicing and administering the Mortgage
Loans, will be required to employ or cause to be employed procedures (including
collection, foreclosure, liquidation and REO Property management and liquidation
procedures) and exercise the same care that it customarily employs and exercises
in servicing and administering loans of the same type as the Mortgage Loans for
its own account, all in accordance with accepted servicing practices of prudent
lending institutions and servicers of loans of the same type as the Mortgage
Loans and giving due consideration to the Securityholders' reliance on the
Servicer. With respect to any Title I Mortgage Loan, the foregoing servicing
standard also shall include the requirement that the Servicer will and will
cause any Subservicer to, comply with FHA Regulations in servicing the Title I
Mortgage Loans so that the FHA Insurance remains in full force and effect with
respect to the Title I Mortgage Loans, except for good faith disputes relating
to FHA Regulations or such FHA Insurance, unless such disputes would result in
the termination or suspension of such FHA Insurance. The Servicer will be
required to maintain the facilities, procedures and experienced personnel
necessary to comply with such servicing standard and the duties of the Servicer
set forth in the applicable Sale and Servicing Agreement or Pooling and
Servicing Agreement.
The Servicer will expend its own funds to restore property securing a
Mortgage Loan which has sustained uninsured damage only if it determines that
such restoration will increase the proceeds of liquidation of the Mortgage Loan
after the reimbursement to the Servicer of its expenses and after the
satisfaction of any senior liens.
With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the Loan
Assets -- General Legal Considerations -- Cooperative Loans." This approval is
usually based on the purchaser's income and net worth and numerous other
factors. Although the Cooperative's approval is unlikely to be unreasonably
withheld or delayed, the necessity of acquiring such approval could limit the
number of potential purchasers for those shares and otherwise limit the ability
to sell and realize the value of those shares.
In general, a "tenant-stockholder" (as defined in Code Section 216(b)(2))
of a corporation that qualifies as a "cooperative housing corporation" within
the meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Code Section requires, among other things, that at
least 80% of the gross income of the corporation be derived from its
tenant-stockholders (as defined in Code Section 216(b)(2). By virtue of this
requirement,
41
<PAGE> 52
the status of a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no assurance that
Cooperatives relating to the Cooperative Loans will qualify under such Code
Section for any particular year. In the event that such a Cooperative fails to
qualify for one or more years, the value of the collateral securing any related
Cooperative Loans could be significantly impaired because no deduction would be
allowable to tenant-stockholders under Code Section 216(a) with respect to those
years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Code Section
216(b)(1), the likelihood that such a failure would be permitted to continue
over a period of years appears remote.
So long as it acts as servicer of the Mortgage Loans, the Servicer will be
required to maintain certain insurance covering errors and omissions in the
performance of its obligations as servicer and certain fidelity bond coverage
ensuring against losses through wrongdoing of its officers, employees and
agents.
Contracts. With respect to a Trust that includes Contracts, pursuant to the
applicable Sale and Servicing Agreement or Pooling and Servicing Agreement, the
Servicer will service and administer the Contracts assigned to the Trustee as
more fully set forth below. The Servicer, either directly or through
Subservicers subject to general supervision by the Servicer, will perform
diligently all services and duties specified in each Sale and Servicing
Agreement or Pooling and Servicing Agreement in the same manner as prudent
lending institutions of property improvement and/or manufactured housing
installment sales contracts of the same type as the Contracts in those
jurisdictions where the related borrowers are located. The Servicer will monitor
the performance of each Subservicer, if any, and, unless the related Prospectus
Supplement states otherwise, will remain liable for the servicing of the
Contracts in accordance with the terms of the applicable Sale and Servicing
Agreement or Pooling and Servicing Agreement. The duties to be performed by the
Servicer or the Subservicer, if any, will include collection and remittance of
principal and interest payments, collection of insurance claims and, if
necessary, repossession.
ADMINISTRATION AND SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Loan Asset, the Servicer may receive compensation with
respect to each interest payment thereon in an amount specified in the related
Prospectus Supplement. As compensation for its servicing duties, each
Subservicer, if any, will be entitled to a monthly servicing fee in the amount
specified in the related Prospectus Supplement. In addition to the primary
compensation, each Servicer or Subservicer, if any, will retain all assumption
underwriting fees and late payment charges, to the extent collected from
borrowers if provided in the related Prospectus Supplement.
The Servicer and any Subservicer will be entitled to reimbursement for
certain expenses incurred by it in connection with the liquidation of defaulted
Loan Assets. No loss will be suffered on the Securities by reason of such
expenses to the extent claims for such expenses are paid directly under any
applicable Mortgage Pool Insurance Policy, any primary mortgage insurance
policy, or from any other forms of Credit Enhancement. In the event, however,
that the defaulted Mortgage Loans are not covered by a Mortgage Pool Insurance
Policy, any primary mortgage insurance policy, or another form of Credit
Enhancement, or claims are either not made or not paid under such policies or
Credit Enhancement, or if coverage thereunder has ceased, a loss will occur on
the Securities of the affected Series to the extent that the proceeds from the
liquidation of a defaulted Loan Asset, after reimbursement of the Servicer's and
the Subservicer's expenses, are less than the then outstanding principal balance
of such defaulted Loan Asset.
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<PAGE> 53
THE SELLER
FIRSTPLUS INVESTMENT CORPORATION (the "Seller"), a Nevada corporation, was
incorporated in 1995 as a limited purpose finance corporation. All of the
outstanding capital stock of the Depositor is owned by RAC Financial Group,
Inc., the common stock of which is traded in the over-the-counter market on the
Nasdaq National Market. The Seller maintains its principal office at 3773 Howard
Hughes Parkway, Suite 300N, Las Vegas, Nevada 89109, and its telephone number is
(702) 892-3772.
As a limited purpose finance corporation under the Rating Agency
guidelines, the business operations of the Seller will be limited to functions
relating to the issuance of one or more Series of Securities or similar series
of asset-backed or mortgage-backed securities, the acquisition and resale of
Loan Assets and other incidental activities related thereto. The Seller does not
have, and is not expected in the future to have, any significant assets. If the
Seller were required to repurchase a Loan Asset included in the Trust for a
Series, its only sources of funds to make such repurchase would be funds
obtained from the enforcement of a corresponding obligation, if any, on the part
of the Transferor of such Loan Asset or the related Servicer, as the case may
be, or from a Reserve Fund, if any, established to provide funds for such
repurchases.
Neither the Seller nor any of its affiliates will insure or guarantee the
Securities of any Series or the Loan Assets backing any such Series. See "Risk
Factors -- Limited Assets of Trust."
THE SERVICER AND THE TRANSFEROR
To the extent specified in the related Prospectus Supplement, the Servicer
with respect to any Series of Securities may be FIRSTPLUS FINANCIAL, INC.
("FFI"), an affiliate of the Seller. In addition, to the extent specified in the
related Prospectus Supplement for a Series, the related Transferor of the Loan
Assets to the Seller for such Series may also be FFI. See "Description of the
Trust Property -- General."
The delinquency and loss experience of FFI for the periods indicated is set
forth below. In the event that FFI is not the Servicer with respect to a Series,
or if an entity other than FFI acts as Servicer with respect to a Series, the
delinquency experience of such Servicer will be set forth in the related
Prospectus Supplement.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
1995
DEC. 31 ------------------------------------------- MAR. 31
1994 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 1996
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DELINQUENCY DATA:
Delinquencies in Serviced Loan
Portfolio (at period end)(1):
31-60 days.................... 3.7% 2.3% 1.7% 1.8% 1.5% 1.4%
61-90 days.................... 1.4 1.0 0.7 0.7 0.5 0.6
91 days and over.............. 3.2 3.3 1.9 2.2 2.1 2.2
------- ------- -------- -------- -------- --------
Total................. 8.3% 6.6% 4.3% 4.7% 4.1% 4.2%
======= ======= ======== ======== ======== ========
Serviced Loan Portfolio
(at period end)............... $60,850 $70,410 $177,358 $238,584 $387,343 $506,287
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
LOSS AND DEFAULT DATA:
Net Losses as a percentage of the average Serviced Loan Portfolio(2)... 0.39% 0.44% 0.04%
Defaults as a percentage of the average Serviced Loan Portfolio(2)..... 2.04% 2.64% 0.69%
</TABLE>
- ---------------
(1) Delinquencies (as a percentage of the total serviced loan portfolio balance)
typically increase in November and December of each calendar year.
(2) The average serviced loan portfolio is calculated by adding the beginning
and ending balances for the fiscal year and dividing the sum by two.
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<PAGE> 54
While the preceding tables generally indicate that FFI is experiencing
declining delinquency, loss and default rates on its serviced loan portfolio as
a whole, such rates have been increasing on a pool-by-pool basis. Although such
increases to date have been within the parameters anticipated by FFI at the time
of the issuance of each Series of Securities, there can be no assurance that
such rates will not continue to increase. Loan Assets that will be conveyed to
the Seller in connection with the issuance of a Series of Securities will
generally possess reduced delinquency, default and loss rates due to certain
requirements of the Underwriters and Rating Agencies for such Series. The
overall decline in the delinquency rates on the serviced loan portfolio is
principally due to the increased volume of loans originated by FFI. FFI
calculates its delinquency and default rates by dividing the amount of
delinquent or defaulted loans in the serviced loan portfolio by the total
serviced loan portfolio. Since FFI and its affiliates are originating higher
volumes of new loans that, due to their lack of seasoning, tend to have lower
delinquency and default rates, FFI's overall delinquency and default rates have
decreased.
Because delinquencies and losses typically occur months or years after a
loan is originated, data relating to delinquencies and losses as a percentage of
the current portfolio can understate the risk of future delinquencies, losses or
foreclosures. There is no assurance that the delinquency, foreclosure and loss
experience with respect to any of the Loan Assets or with respect to any pool of
Loan Assets will be comparable to the experience reflected above for assets
originated and serviced by FFI or its affiliates. Because certain Loan Assets
may have been underwritten pursuant to standards that rely primarily on the
value of the related Mortgaged Properties rather than the creditworthiness of
the related mortgagor, the actual rates of delinquencies, foreclosures and
losses on such Loan Assets, particularly in periods during which the value of
the related Mortgage Properties has declined, could be higher than those
historically experienced by the mortgage lending industry in general. In
addition, the rate of delinquencies, foreclosures and losses with respect to the
Loan Assets will also be affected by, among other things, interest rate
fluctuations and general and regional economic conditions. See "Risk
Factors -- Certain Factors Affecting Delinquencies, Foreclosures and Losses on
Loan Assets."
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Sale and Servicing
Agreement or Pooling and Servicing Agreement pursuant to which a Trust will
purchase Loan Assets from the Seller and the Servicer will agree to service such
Loan Assets, each Trust Agreement (in the case of a grantor trust, the Pooling
and Servicing Agreement) pursuant to which a Trust will be created and
Securities will be issued and each Administration Agreement pursuant to which
FFI will undertake certain administrative duties with respect to a Trust that
issues Notes (collectively, the "Transfer and Servicing Agreements"). Forms of
the Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. This summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF LOAN ASSETS
On or prior to the Closing Date specified with respect to any given Trust
in the related Prospectus Supplement (the "Closing Date"), the Transferor will
sell and assign to the Seller, without recourse, its entire interest in the Loan
Assets comprising the related Loan Asset Pool, together with all principal and
interest on such Loan Assets (subject to exclusions or adjustments specified in
the related Prospectus Supplement received by the Seller on or with respect to
such Loan Assets on or after the Cut-off Date), other than principal and
interest due and payable in respect of such Loan Assets on or before the date
specified in the related Prospectus Supplement. On the Closing Date, the Seller
will transfer and assign to the applicable Trustee, without recourse, pursuant
to a Sale and Servicing Agreement or a Pooling and Servicing Agreement, as
applicable, its entire interest in the Loan Assets comprising the related Loan
Asset Pool, together with all principal and interest on such Loan Assets
(subject to exclusions or adjustments specified in the related Prospectus
Supplement received by the Seller on or with respect to such Loan Assets on or
after the Cut-off Date), other than principal and interest due and payable in
respect of such Loan Assets on or before the date specified in the related
Prospectus Supplement. Each such Loan Asset will be identified in a schedule
44
<PAGE> 55
appearing as an exhibit to such Sale and Servicing Agreement or such Pooling and
Servicing Agreement (a "Schedule of Loan Assets"). The applicable Trustee will,
concurrently with such transfer and assignment, execute and deliver the related
Securities. Unless otherwise provided in the related Prospectus Supplement, the
net proceeds received from the sale of the Securities of a given Series will be
applied to the purchase of the related Loan Assets from the Seller and, to the
extent specified in the related Prospectus Supplement, to provide for the
funding of the applicable Credit Enhancement.
In addition, as to each Loan Asset that is a Mortgage Loan, the Seller will
deliver to the applicable Trustee or its custodian, as specified in the related
Prospectus Supplement, the related mortgage note ("Mortgage Note") and mortgage
("Mortgage"), any assumption and modification agreement, an assignment of the
Mortgage in recordable form, evidence of title insurance and, if applicable, the
certificate of private mortgage insurance. In instances where recorded documents
cannot be delivered due to delays in connection with recording, the Seller may
deliver copies thereof and deliver the original recorded documents promptly upon
receipt.
With respect to each Loan Asset that is a Cooperative Loan, the Seller will
cause to be delivered to the applicable Trustee or its custodian, as specified
in the related Prospectus Supplement, the related original Cooperative note
endorsed to the order of such Trustee, the original security agreement, the
proprietary lease or occupancy agreement, the recognition agreement, an executed
financing agreement and the relevant stock certificate and related blank stock
powers. The Seller will file in the appropriate office an assignment and a
financing statement evidencing such Trustee's security interest in each
Cooperative Loan.
With respect to each Loan Asset that is a Contract for a Manufactured Home,
the Seller will deliver or cause to be delivered to the applicable Trustee, the
original Contract and copies of documents and instruments related to each
Contract and the security interest in the Manufactured Home securing each
Contract. To give notice of the right, title and interest of the Securityholders
to the Contracts, the Seller will cause a UCC-1 financing statement to be filed
identifying such Trustee as the secured party and identifying all Contracts as
collateral. To the extent specified in the related Prospectus Supplement, the
Contracts will not be stamped or otherwise marked to reflect their assignment
from the Seller to such Trustee. Therefore, if a subsequent purchaser were able
to take physical possession of the Contracts without notice of such assignment,
the interest of the holders of the Securities of the applicable Series in the
Contracts could be defeated. See "Certain Legal Aspects of the Loan Assets."
To the extent specified in the related Prospectus Supplement, in the
applicable Sale and Servicing Agreement or Pooling and Servicing Agreement, the
Seller generally will represent and warrant to the applicable Trustee, among
other things, that (i) the information with respect to each Loan Asset set forth
in the Schedule of Loan Assets attached thereto is true and correct in all
material respects; (ii) at the date of initial issuance of the Securities, the
Seller has good and marketable title to the Loan Assets included in the Trust
and such other items comprising the corpus of the Trust are free and clear of
any lien, mortgage, pledge, charge, security interest or other encumbrance;
(iii) at the date of initial issuance of the Securities, no payment in respect
of a Loan Asset is 30 or more days delinquent and there are no delinquent tax or
assessment liens against the related Mortgaged Property, if any; and (iv) at
origination, each Mortgage Loan complied in all material respects with
applicable state and federal laws, including, without limitation, consumer,
usury, truth-in-lending, consumer credit protection, equal credit opportunity
and disclosure laws and with respect to any Title I Mortgage Loans, the FHA
Regulations.
In the event that the Seller has acquired the Loan Assets for a Series, if
specified in the related Prospectus Supplement, the Seller may, in lieu of
making the representations set forth in the preceding paragraph, cause the
entity from which such Loan Assets were acquired to make such representations
(other than those regarding the Seller's title to the Loan Assets, which will in
all events be made by the Seller), in the agreement pursuant to which such Loan
Assets are acquired, or if such entity is acting as Servicer, in the applicable
Sale and Servicing Agreement or Pooling and Servicing Agreement, or if such
entity is acting as a Subservicer, in its Subservicing Agreement. In such event
such representations, and the Seller's rights against such entity in the event
of a breach thereof, will be assigned to the Trustee for the benefit of the
Securityholders of such Series.
45
<PAGE> 56
CONVEYANCE OF SUBSEQUENT LOAN ASSETS
With respect to a Series of Securities for which a Pre-Funding Arrangement
is provided, in connection with any conveyance of Subsequent Loan Assets to the
Trust after the issuance of such Series, the related Sale and Servicing
Agreement or Pooling and Servicing Agreement will require the Transferor and
Seller to satisfy the following conditions, among others: (i) each Subsequent
Loan Asset purchased after the Closing Date must satisfy the representations and
warranties contained in the subsequent transfer agreement to be entered into by
the Transferor, the applicable Trustee and the Seller (the "Subsequent Transfer
Agreement") and in the related Sale and Servicing Agreement or Pooling and
Servicing Agreement; (ii) the Transferor will not select such Subsequent Loan
Assets in a manner that it believes is adverse to the interests of the
Securityholders; (iii) as of the related cut-off date, all of the Loan Assets in
the Loan Asset Pool at that time, including the Subsequent Loan Assets purchased
after the closing date will satisfy the criteria set forth in the related Sale
and Servicing Agreement or Pooling and Servicing Agreement; (iv) the Subsequent
Loan Assets will have been approved by any third party provider of Credit
Enhancement, if applicable; and (v) prior to the purchase of each Subsequent
Loan Asset the applicable Trustee will perform an initial review of certain
related loan file documentation for such Loan Asset and issue an initial
certification for which the required documentation in such loan file has been
received with respect to each such Subsequent Loan Asset. The Subsequent Loan
Assets on an aggregate basis, will have characteristics similar to the
characteristics of the pool of Initial Loan Assets as described in the related
Prospectus Supplement. Each acquisition of any Subsequent Loan Assets will be
subject to the review by any third party provider of Credit Enhancement, if
applicable, the Rating Agencies and the Transferor's accountants of the
aggregate statistical characteristics of the related Loan Asset Pool for
compliance with the applicable statistical criteria set forth in the related
Sale and Servicing Agreement or Pooling and Servicing Agreement.
REPURCHASE OR SUBSTITUTION OF LOAN ASSETS
The Trustee (or its custodian as specified in the related Prospectus
Supplement) will review the documents delivered to it with respect to the Loan
Assets included in the related Trust. To the extent specified in the related
Prospectus Supplement, if any document is not delivered or is found to be
defective in any material respect and the Seller cannot deliver such document or
cure such defect within 60 days after notice thereof (which the applicable
Trustee will undertake to give within 45 days of the delivery of such
documents), and if any other party obligated to deliver such document or cure
such defect has not done so and has not substituted or repurchased the affected
Loan Asset, then the Seller will, not later than the Determination Date next
succeeding the end of such 60-day period (a) if provided in the Prospectus
Supplement remove the affected Loan Asset from the Trust and substitute one or
more other Loan Assets therefor or (b) repurchase the Loan Asset from the
applicable Trustee for a price equal to 100% of its principal balance plus
interest thereon as the date specified in the related Prospectus Supplement,
plus the amount of unreimbursed servicing advances made by the Servicer or any
Subservicer with respect to such Loan Asset. To the extent specified in the
related Prospectus Supplement, such purchase price will be deposited in the
Collection Account on such Determination Date and such repurchase and, if
applicable, substitution obligation will constitute the sole remedy available to
holders of the Securities of the applicable Series or the related Trustee
against the Seller for a material defect in a document relating to a Loan Asset.
If the Prospectus Supplement for a Series of Securities so provides, then
in lieu of agreeing to repurchase or substitute Loan Assets as described above,
the Seller may obtain such an agreement from the entity which sold such Loan
Assets to the Seller, which agreement will be assigned to the applicable Trustee
for the benefit of the holders of the Securities of such Series.
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<PAGE> 57
EVIDENCE AS TO COMPLIANCE
The related Sale and Servicing Agreement or Pooling and Servicing Agreement
will provide that on or before a specified date after the end of each of the
Servicer's fiscal years elapsing during the term of its appointment, beginning
with the first fiscal year ending after the Closing Date, the Servicer, at its
expense, will furnish to the applicable Trustee and certain other Persons (i) an
opinion by a firm of independent certified public accountants on the financial
position of the Servicer at the end of the relevant fiscal year and the results
of operations and changes in financial position of the Servicer for such year
then ended on the basis of an examination conducted in accordance with generally
accepted auditing standards, and (ii) if the Servicer is then servicing any
Mortgage Loans, a statement from such independent certified public accountants
to the effect that based on an examination of certain specified documents and
records relating to the servicing of the Servicer's mortgage loan portfolio
conducted substantially in compliance with the audit program for mortgages
serviced for the United States Department of Housing and Urban Development
Mortgage Audit Standards, or the Uniform Single Audit Program for Mortgage
Bankers (the "Applicable Accounting Standards"), such firm is of the opinion
that such servicing has been conducted in compliance with the Applicable
Accounting Standards except for (a) such exceptions as such firm shall believe
to be immaterial and (b) such other exceptions as shall be set forth in such
statement.
LIST OF SECURITYHOLDERS
Upon written request of the applicable Trustee, the Registrar for a Series
of Securities will provide to the Trustee, within fifteen days after receipt of
such request, a list of the names and addresses of all holders of record of the
Securities of such Series as of the most recent Record Date for payment of
distributions to holders of Securities of that Series. Upon written request of
three or more holders of record of a Series of Securities for purposes of
communicating with other holders with respect to their rights under the
applicable Indenture, Trust Agreement or Pooling and Servicing Agreement for
such Series, the applicable Trustee will afford such holders access during
business hours to the most recent list of holders of such Series held by such
Trustee. With respect to Book Entry Securities, the only named holder on the
Certificate Register will be the Clearing Agency.
No Indenture, Trust Agreement or Pooling and Servicing Agreement will
provide for the holding of any annual or other meetings of holders of
Securities.
ADMINISTRATION OF THE DISTRIBUTION ACCOUNT
The applicable Sale and Servicing Agreement or Pooling and Servicing
Agreement with respect to a Series will require the Servicer to maintain a
Distribution Account that is either: (i) an account maintained with a depository
institution the debt obligations of which (or, in the case of a depository
institution which is a part of a holding company structure, the debt obligations
of the holding company of which) have a long-term or short-term rating
acceptable to each rating agency that rated the Securities; (ii) an account or
accounts the deposits in which are fully insured by either the Bank Insurance
Fund (the "BIF"), the Federal Deposit Insurance Corporation (the "FDIC") or the
Savings Association Insurance Fund (as successor to the Federal Savings and Loan
Insurance Corporation) ("SAIF") of the FDIC; (iii) a trust account (which shall
be a "segregated trust account") maintained with the corporate trust department
of a federal or state chartered depository institution or trust company with
trust powers and acting in its fiduciary capacity for the benefit of the
applicable Trustee which depository institution or trust company will be
required to have capital and surplus of not less than the amount specified in
the related Indenture, Trust Agreement, Sale and Servicing Agreement or Pooling
and Servicing Agreement; or (iv) an account that will not cause any rating
agency rating the Securities of such Series to downgrade or withdraw its
then-current rating assigned to the Securities, as evidenced in writing by such
rating agency. The instruments in which amounts in the Distribution Account may
be invested are limited to Permitted Investments. To the extent specified in the
related Prospectus Supplement, a Distribution Account may be maintained as an
interest bearing account, or the funds held therein may be invested pending each
succeeding Distribution Date in Permitted Investments. To the extent specified
in the related Prospectus Supplement, the Seller or the Trustee will be entitled
to receive any such interest or other income earned on funds in the Distribution
Account as additional
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<PAGE> 58
compensation. To the extent specified in the related Prospectus Supplement, the
following payments and collections received subsequent to the cut-off date will
be deposited in the Distribution Account:
(i) all payments on account of scheduled principal;
(ii) all payments on account of interest accruing and collected on and
after the date specified in the related Prospectus Supplement, subject to
exclusions or adjustments described in such Prospectus Supplement;
(iii) all Liquidation Proceeds net of certain amounts reimbursed to
the Subservicers or the Servicer, as described in the related Sale and
Servicing Agreement or Pooling and Servicing Agreement;
(iv) all Insurance Proceeds;
(v) all proceeds of any Loan Asset or property acquired in respect
thereof repurchased by the Servicer, the Seller or the Transferor or
otherwise as described herein;
(vi) all amounts, if any, required to be transferred to the
Distribution Account from any Credit Enhancement for the related Series;
and
(vii) all other amounts required to be deposited in the Distribution
Account pursuant to the related Indenture, Trust Agreement, Sale and
Servicing Agreement or Pooling and Servicing Agreement.
REPORTS TO SECURITYHOLDERS
Concurrently with each payment or distribution on the Securities of a
Series, to the extent specified in the related Prospectus Supplement, the
applicable Trustee will furnish to the related Securityholders a statement
generally setting forth, to the extent applicable to such Series, among other
things:
(i) the aggregate amount of such distribution allocable to principal,
separately identifying the amount allocable to each Class;
(ii) the amount of such distribution allocable to interest, separately
identifying the amount allocable to each Class;
(iii) the aggregate principal balance of each Class of the Securities
after giving effect to distributions on such Distribution Date;
(iv) if applicable, the aggregate principal balance of any Class of
Securities which are Compound Interest Securities after giving effect to
any increase in such principal balance that results from the accrual of
interest that is not yet distributable thereon;
(v) if applicable, the amount otherwise distributable to holders of
any Class of Securities that were distributed to holders of other Classes
of Securities;
(vi) if any Class of Securities has priority in the right to receive
Principal Prepayments, the amount of Principal Prepayments received by the
related Trust in respect of the related Loan Assets;
(vii) certain performance information regarding the Loan Assets,
including delinquency and foreclosure information, specified in the related
Sale and Servicing Agreement or Pooling and Servicing Agreement;
(viii) the amount of coverage then remaining under any Credit
Enhancement; and
(ix) all other information required to be provided pursuant to the
related Indenture, Trust Agreement, Sale and Servicing Agreement or Pooling
and Servicing Agreement.
The Servicer or the applicable Trustee will also furnish annually customary
information deemed necessary for holders of such Securities to prepare their tax
returns.
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<PAGE> 59
EVENTS OF DEFAULT
"Events of Default" under the applicable Sale and Servicing Agreement or
Pooling and Servicing Agreement with respect to a Series will consist of (i) any
failure by the Servicer to duly observe or perform in any material respect any
of its covenants or agreements in such Sale and Servicing Agreement or such
Pooling and Servicing Agreement materially affecting the rights of holders of
the Securities of such Series which continues unremedied for 60 days after the
giving of written notice of such failure to the Servicer by the applicable
Trustee or to the Servicer or the applicable Trustee by the holders of such
Securities evidencing interests aggregating not less than 25% of the then
outstanding principal balance of the affected Class of Securities; and (ii)
certain events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings and certain actions by the Servicer
indicating its insolvency, reorganization or inability to pay its obligations.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under a Sale and Servicing Agreement or
Pooling and Servicing Agreement remains unremedied by the Servicer, the
applicable Trustee, or holders of Securities of each Class affected thereby
evidencing, as to each such Class, interests aggregating not less than 51% of
the then outstanding principal balance of such Class, may terminate all of the
rights and obligations of the Servicer under the applicable Sale and Servicing
Agreement or Pooling and Servicing Agreement, whereupon the applicable Trustee,
or a new Servicer appointed pursuant to such Sale and Servicing Agreement or
such Pooling and Servicing Agreement, will succeed to all the responsibilities,
duties and liabilities of the Servicer under such Sale and Servicing Agreement
or such Pooling and Servicing Agreement and will be entitled to similar
compensation arrangements. Notwithstanding its termination as Servicer, the
Servicer will be entitled to receive amounts earned by it under the applicable
Sale and Servicing Agreement or Pooling and Servicing Agreement prior to such
termination. If at the time of any such termination the Servicer is also
servicing as the Administrator, the Servicer's status as Administrator will be
simultaneously terminated by the Trustee and the Servicer's responsibilities as
such shall be transferred to the successor servicer, if such person is then
qualified to so act), or to another successor Administrator retained by the
applicable Trustee, or to the applicable Trustee itself if a successor
Administrator cannot be retained in a timely manner. To the extent provided in
the related Prospectus Supplement, unless and until a successor servicer is
appointed, the applicable Trustee will be required to fulfill the duties of the
Servicer.
No Securityholder will have any right under the applicable Sale and
Servicing Agreement or Pooling and Servicing Agreement to institute any
proceeding with respect to such Sale and Servicing Agreement or such Pooling and
Servicing Agreement, unless such holder previously has given to the applicable
Trustee written notice of default and unless the holders of Securities as
specified in the applicable Sale and Servicing Agreement or Pooling and
Servicing Agreement have made written request to the applicable Trustee to
institute such proceeding in its own name as trustee thereunder and have offered
to the applicable Trustee reasonable indemnity and the Trustee for 60 days has
neglected or refused to institute any such proceedings. However, no Trustee will
be under any obligation to exercise any of the trusts or powers vested in it by
the applicable Indenture, Trust Agreement or Pooling and Servicing Agreement or
to make any investigation of matters arising thereunder or to institute, conduct
or defend any litigation thereunder or in relation thereto at the request, order
or direction of any of the Securityholders, unless such Securityholders have
offered to such Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
Each of the Sale and Servicing Agreement with respect to a Series and the
Pooling and Servicing Agreement with respect to a Series may be amended by the
Seller, the Servicer and the applicable Trust or Trustee without the consent of
the Securityholders of such Series, to cure any error or ambiguity, to correct
or supplement any provision therein which may be defective or inconsistent with
any other provision therein or to add any other provisions with respect to
matters or questions arising under such Sale and Servicing Agreement or such
Pooling and Servicing Agreement provided that such action will not adversely
affect in any material
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respect the interests of any Securityholders of such Series. An amendment
described above shall not be deemed to adversely affect in any material respect
the interests of the Securityholders of a Series if either (a) an opinion of
counsel satisfactory to the applicable Trustee is obtained to such effect, or
(b) the person requesting the amendment obtains a letter from each of the rating
agencies then rating the Securities of that Series to the effect that the
amendment, if made, would not result in a downgrading or withdrawal of the
rating then assigned by it to such Securities.
To the extent specified in the Prospectus Supplement, each of the Sale and
Servicing Agreement with respect to a Series and the Pooling and Servicing
Agreement with respect to a Series may also be amended by the Seller, the
Servicer, and the applicable Trust or Trustee with the consent of the
Securityholders evidencing interests aggregating in excess of 50% of the then
outstanding principal balance of the Securities of the applicable Series for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Sale and Servicing Agreement or such Pooling and
Servicing Agreement or of modifying in any manner the rights of Securityholders
of that Series; provided, however, that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, collections of payments received
on the related Loan Assets or distributions which are required to be made on any
Security without the consent of the holder of such Security, (ii) adversely
affect in any material respect the interests of the holders of any Class of
Securities in any manner other than as described in clause (i), without the
consent of the holders of Securities evidencing 100% of the then outstanding
principal balance of such Class or (iii) reduce the aforesaid percentage of
Securities of any Class required to consent to any such amendment, without the
consent of the holders of Securities evidencing 100% of the then outstanding
principal balance of such Class.
CERTAIN LEGAL ASPECTS OF THE LOAN ASSETS
The following discussion contains summaries of certain legal aspects of the
Loan Assets which are general in nature. Because such legal aspects are governed
primarily by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the security
for the Loan Assets is situated. The summaries are qualified in their entirety
by reference to the applicable federal and state laws governing the Loan Assets.
In addition, the following discussion also contains a summary of the Title
I Program, which may be applicable to certain of the Loan Assets. With respect
to each Series for which the related Trust includes Contracts, the related
Prospectus Supplement will contain a discussion of certain legal aspects of
manufactured housing contracts.
GENERAL LEGAL CONSIDERATIONS
Applicable state laws generally regulate interest rates and other charges
that may be assessed on borrowers, require certain disclosures to borrowers, and
may require licensing of the Transferor, the Seller, the Trustee, the Indenture
Trustee, the Administrator, the Servicer and any Subservicer. In addition, most
states have other laws, public policies and general principles of equity
relating to the protection of consumers and the prevention of unfair and
deceptive practices which may apply to the origination, servicing and collection
of the Loan Assets.
The Loan Assets may also be subject to federal laws, including: (i) the
federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the Loan
Assets; (ii) the Real Estate Settlement Procedures Act and Regulation X
promulgated thereunder, which require certain disclosures to the borrowers
regarding the settlement and servicing of the Mortgage Loans; (iii) the Equal
Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit
discrimination on the basis of age, race, color, sex, religion, marital status,
national origin, receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act; (iv) the Fair Credit Reporting Act, which
regulates the use and reporting of information related to the borrower's credit
experience; (v) the Federal Trade Commission Preservation of Consumers' Claims
and Defenses Rule,
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16 C.F.R. Part 433, regarding the preservation of a consumer's rights; (vi) the
Fair Housing Act, 42 U.S.C. 3601 et seq., relating to the creation and
governance of the Title I Program; (vii) the Home Ownership and Equity
Protection Act; and (viii) if applied, the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act").
Mortgages. The Mortgage Loans will be secured by either deeds of trust,
mortgages, deeds to secure debt or chattel mortgages, depending upon the
prevailing practice in the state in which the Mortgaged Property subject to a
Mortgage Loan is located. In some states, a mortgage creates a lien upon the
real property encumbered by the mortgage. In other states, the mortgage conveys
legal title to the property to the mortgagee subject to a condition subsequent,
i.e., the payment of the indebtedness secured thereby. There are two parties to
a mortgage, the borrower, who is the owner of the property and usually the
borrower, and the mortgagee, who is the lender. Under the mortgage instrument,
the borrower delivers to the mortgagee a note or bond and the mortgage. Although
a deed of trust is similar to a mortgage, a deed of trust has three parties, the
owner of the property and usually the borrower, called the trustor (similar to a
borrower), a lender called the beneficiary (similar to a mortgagee), and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by applicable state law, the express provisions of the
deed of trust or mortgage, and, in some cases, with respect to deeds of trust,
the directions of the beneficiary. Some states use a security deed or deed to
secure debt which is similar to a deed of trust except that it has only two
parties: a grantor (similar to a borrower) and a grantee (similar to a
mortgagee). Mortgages, deeds of trust and deeds to secure debt generally are not
prior to liens for real estate taxes and assessments and other charges imposed
under governmental police powers. Priority with respect to mortgages, deeds of
trust and deeds to secure debt and other encumbrances depends on their terms,
the knowledge of the parties to such instrument and generally on the order of
recordation of the mortgage, deed of trust or the deed to secure debt in the
appropriate recording office.
Cooperative Loans. Certain of the Mortgage Loans may be Cooperative Loans.
The private, non-profit, cooperative apartment corporation owns all the real
property that comprises the project, including the land, separate dwelling units
and all common areas. The cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. If there is a blanket mortgage on the cooperative apartment
building and/or underlying land, as is generally the case, the cooperative, as
project borrower, is also responsible for meeting these mortgage obligations. A
blanket mortgage is ordinarily incurred by the cooperative in connection with
the construction or purchase of the cooperative's apartment building. The
interest of the occupant under proprietary leases or occupancy agreements to
which that cooperative is a party are generally subordinate to the interest of
the holder of the blanket mortgage in that building. If the cooperative is
unable to meet the payment obligations arising under its blanket mortgage, the
mortgagee holding the blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements. In
addition, the blanket mortgage on a cooperative may provide financing in the
form of a mortgage that does not fully amortize with a significant portion of
principal being due in one lump sum at final maturity. The inability of the
cooperative to refinance this mortgage and its consequent inability to make such
final payment could lead to foreclosure by the mortgagee providing the
financing. A foreclosure in either event by the holder of the blanket mortgage
could eliminate or significantly diminish the value of any collateral held by
the lender who financed the purchase by an individual tenant-stockholder of
cooperative shares or, in the case of a pool of Mortgage Loans including
Cooperative Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make a monthly
payment to the cooperative representing such tenant-stockholder's pro rata share
of the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights is financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or
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proprietary lease and in the related cooperative shares. The lender takes
possession of the share certificate and a counterpart of the proprietary lease
or occupancy agreement and a financing statement covering the proprietary lease
or occupancy agreement and the cooperative shares is filed in the appropriate
state and local offices to perfect the lender's interest in its collateral.
Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares.
FORECLOSURE
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. Generally, the action is initiated by the service of legal pleadings
upon all parties having an interest of record in the real property. Delays in
completion of the foreclosure may occasionally result from difficulties in
locating necessary parties defendant. Judicial foreclosure proceedings are often
not contested by any of the parties defendant. However, when the mortgagee's
right to foreclose is contested, the legal proceedings necessary to resolve the
issue can be time consuming. After the completion of a judicial foreclosure, the
court generally issues a judgment of foreclosure and appoints a referee or other
court officer to conduct the sale of the property.
An action to foreclose a mortgage is an action to recover the mortgage debt
by enforcing the mortgagee's rights under the mortgage. Foreclosure is regulated
by statutes and rules and is subject to the court's equitable powers. Generally,
a borrower is bound by the terms of the mortgage note and the mortgage as made
and cannot be relieved from his default if the mortgagee has exercised his
rights in a commercially reasonable manner. However, since a foreclosure action
historically was equitable in nature the court may exercise equitable powers to
relieve a borrower of a default and deny the mortgagee foreclosure on proof that
either the borrower's default was neither willful nor in bad faith or the
mortgagee's action established a waiver, fraud, bad faith or oppressive or
unconscionable conduct such as to warrant a court of equity to refuse
affirmative relief to the mortgagee. Under certain circumstances a court of
equity may relieve the borrower from an entirely technical default where such
default was not willful.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring up to
several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than
reasonably equivalent value and such sale occurred while the borrower was
insolvent and within one year (or within the state statute of limitations if the
trustee in bankruptcy elects to proceed under state fraudulent conveyance law)
of the filing of bankruptcy. Similarly, a suit against the debtor on the
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In some states, mortgages may also be foreclosed by advertisement pursuant
to a power of sale provided in the mortgage. Foreclosure of a mortgage by
advertisement is essentially similar to foreclosure of a deed of trust by
nonjudicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust or deed to secure debt which authorizes the trustee to sell the
property upon default by the borrower under the terms of the note, deed of trust
or deed to secure debt. In some states, prior to such sale, the trustee must
record a notice of default and send a copy to the borrower-trustor and to any
person who has recorded a request for a copy of a notice of default and notice
of sale. In addition, in some states, prior to such sale, the trustee must
provide notice to any other individual having an interest of record in the real
property, including any junior lienholders. In some states, the borrower, or any
other person having a junior encumbrance on the real estate, may, during a
reinstatement period, cure the default by paying the entire amount in arrears
plus the costs and expenses incurred in enforcing the obligations, including
attorney's and trustee's fees to the extent allowed by applicable law. Certain
states may require notices of sale to be published periodically for a prescribed
period in a specified manner prior to the date of the trustee's sale. In
addition, some state laws require that a copy of the notice of sale be posted on
the
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property and sent to all parties having an interest in the real property. In
certain states, foreclosure under a deed of trust may also be accomplished by
judicial action in the manner provided for foreclosure of mortgages.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the referee or other designated officer or by the trustee is generally a
public sale. Because of the difficulty a potential buyer at the sale might have
in determining the exact status of title and because the physical condition of
the property may have deteriorated during the foreclosure proceedings, a third
party may be unwilling to purchase the property at a foreclosure sale. For these
and other reasons, it is common for the lender to purchase the property from the
trustee, referee or other court officer for an amount equal to the principal
amount of the indebtedness secured by the mortgage or deed of trust, plus
accrued and unpaid interest and the expenses of foreclosure. Generally, state
law controls the amount of foreclosure costs and expenses, including attorneys'
and trustee's fees, which may be recovered by a lender. In some states there is
a statutory minimum purchase price which the lender may offer for the property.
Thereafter, subject to the right of the borrower in some states to remain in
possession during the redemption period, the lender will assume ownership of the
mortgaged property and, therefore, the burdens of ownership, including the
obligation to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale. The
lender will commonly obtain the services of a real estate broker and pay the
broker's commission in connection with the sale of the property. Depending upon
market conditions, the ultimate proceeds of the sale of the property may not
equal the lender's investment in the property. Any loss may be mitigated by the
receipt of any mortgage insurance proceeds.
A second mortgagee may not foreclose on the property securing a second
mortgage unless it forecloses subject to the first mortgage and any other prior
liens, in which case it must either pay the entire amount due on the first
mortgage and such other liens, prior to or at the time of the foreclosure sale
or undertake the obligation to make payments on the first mortgage and such
liens, in either event adding the amounts expended to the balance due on the
second loan, and may be subrogated to the rights of the first mortgagee. In
addition, in the event that the foreclosure of a second mortgage triggers the
enforcement of a "due-on-sale" clause, the second mortgagee may be required to
pay the full amount of the first mortgage to the first mortgagee. Accordingly,
with respect to those Mortgage Loans which are second mortgage loans, if the
lender purchases the property, the lender's title will be subject to all senior
liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of junior
mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds are
generally payable to the borrower or trustor. The payment of the proceeds to the
holders of junior mortgages may occur in the foreclosure action of the senior
mortgagee; however, a junior lienholder whose rights in the property are
terminated pursuant to foreclosure by a senior lienholder will not share in the
proceeds from the subsequent disposition of the property. Junior lienholders may
also institute legal proceedings separate from the foreclosure proceedings of
the senior lienholders.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the borrower. See
"-- Anti-Deficiency Legislation and Other Limitations on Lenders" below.
Cooperative Loans. The cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the cooperative's Certificate of Incorporation and
Bylaws, as well as the proprietary lease or occupancy agreement, and may be
canceled by the cooperative for failure by the tenant-stockholder to pay rent or
other obligations or charges owned by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the cooperative to terminate such lease or agreement in the event a
borrower fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by
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the tenant-stockholder on its obligations under the proprietary lease or
occupancy agreement. A default by the tenant-stockholder under the proprietary
lease or occupancy agreement will usually constitute a default under the
security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code (the "UCC") and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a "commercially reasonable"
manner. Whether a foreclosure sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted. Article 9 of the UCC provides that the
proceeds of the sale will be applied first to pay the costs and expenses of the
sale and then to satisfy the indebtedness secured by the lender's security
interest. The recognition agreement, however, generally provides that the
lender's right to reimbursement is subject to the right of the cooperative
corporation to receive sums due under the proprietary lease or occupancy
agreement. If there are proceeds remaining, the lender must account to the
tenant-stockholder for the surplus. Conversely, if a portion of the indebtedness
remains unpaid, the tenant-stockholder is generally responsible for the
deficiency. See "-- Anti-Deficiency Legislation and Other Limitations on
Lenders" below.
Junior Liens. Certain of the Mortgage Loans, including the Title I Mortgage
Loans, may be secured by junior lien mortgages or deeds of trust. Second
mortgages or deeds of trust are generally junior to first mortgages or deeds of
trust held by other lenders, and third mortgages or deeds of trust are generally
junior to first and second mortgages or deeds of trust held by other lenders,
and so forth. The rights of the Securityholders as the holders of a junior deed
of trust or a junior mortgage, are subordinate in lien and in payment to those
of the holder of the senior mortgage or deed of trust, including the prior
rights of the senior mortgagee or beneficiary to receive and apply hazard
insurance and condemnation proceeds and, upon default of the borrower, to cause
a foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage, the junior mortgagee's or junior
beneficiary's lien will be extinguished unless the junior mortgagee satisfies
the defaulted senior loan or asserts its subordinate interest in a property in
foreclosure proceedings. A junior mortgagee or beneficiary in some states may
satisfy a defaulted senior lien in full and in some states may cure such default
and bring the senior loan current, in either event, adding the amounts expended
to the balance due on the junior loan. In most states, absent a provision in the
mortgage or deed of trust to the contrary, no notice of default is required to
be given to a junior mortgagee or beneficiary.
Furthermore, the terms of a junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will generally govern. Upon a failure of the borrower or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the senior mortgagee
or beneficiary become part of the
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indebtedness secured by the senior mortgage or deed of trust. To the extent a
senior mortgagee expends such sums, such sums will generally have priority over
all sums due under the junior mortgage.
Right of Redemption. The purposes of a foreclosure action are to enable the
mortgagee to realize upon its security and to bar the borrower, and all persons
who have an interest in the property which is subordinate to the foreclosing
mortgagee, from their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been sold
in accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and duly summoned
to the foreclosure action in order for their equity of redemption to be barred.
The equity of redemption which is a non-statutory right that must be
exercised prior to foreclosure sale should be distinguished from 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 from the foreclosure sale. In
some states, statutory redemption may occur only upon payment of the foreclosure
sale price. In other states, redemption may be authorized if the former borrower
pays only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The exercise of a right of redemption would defeat the title of any
purchaser subsequent to foreclosure or sale under a deed of trust. 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.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory prohibitions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the net amount realized
upon the public sale of the real property and the amount due to the lender.
Other statutes require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, in those states permitting such
election, is that lenders will usually proceed against the security first rather
than bringing a personal action against the borrower. Finally, other statutory
provisions limit any deficiency judgment against the former borrower following a
judicial sale to the excess of the outstanding debt over the fair market value
of the property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids at
the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws, the Relief
Act and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon collateral and/or enforce
a deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
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Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modifications may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule or forgiving all or a portion of the debt. Additionally, a
federal bankruptcy court in a Chapter 11 bankruptcy case may be able to reduce
the lender's security interest to the value of the residence, thus leaving the
lender a general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan; however, the United States
Supreme Court has recently eliminated such a risk in Chapter 7 and Chapter 13
bankruptcy cases.
The Internal Revenue Code of 1986, as amended provides priority to certain
tax liens over the lien of a mortgage or deed of trust. In addition, substantive
requirements are imposed upon lenders in connection with the origination and the
servicing of mortgage loans by numerous federal and some state consumer
protection laws. These laws include the federal Truth-in-Lending Act, Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit
Billing Act, Fair Credit Reporting Act, and related statutes and regulations.
These federal laws impose specific statutory liabilities upon lenders who
originate mortgage loans and who fail to comply with the provisions of the
applicable laws. In some cases, this liability may affect assignees of the
Mortgage Loans.
Enforceability of Certain Provisions. Certain of the Mortgage Loans will
contain a debt-acceleration clause, which permits the lender to accelerate the
debt upon a monetary default of the borrower, after the applicable cure period.
Courts will generally enforce clauses providing for acceleration in the event of
a material payment default. However, courts, exercising equity jurisdiction, may
refuse to allow a lender to foreclose a mortgage or deed of trust when an
acceleration of the indebtedness would be inequitable or unjust and the
circumstances would render the acceleration unconscionable.
Some courts have imposed general equitable principles to limit the remedies
available in connection with foreclosure. These equitable principles are
generally designed to relieve the borrower from the legal effect of his defaults
under the loan documents. For example, some courts have required that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lenders' judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
lenders to foreclose if the default under the mortgage instrument or deed of
trust is not monetary, such as the borrower's failure to adequately maintain the
property or the borrower's execution of a second mortgage or deed of trust
affecting the property. The exercise by the court of its equity powers will
depend on the individual circumstances of each case. Finally, some courts have
been faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers under
deeds of trust receive notices in addition to those prescribed statutorily. For
the most part, these cases have upheld the statutory notice provisions as being
reasonable or have found that the sale by a trustee under a deed of trust or
under a mortgage having a power of sale does not involve sufficient state action
to afford constitutional protection to the borrower.
Some of the Mortgage Loans may not restrict secondary financing, thereby
permitting the borrower to use the Mortgaged Property as security for one or
more additional loans. Where the borrower encumbers the 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.
Second, acts of the senior lender which 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. The bankruptcy of a junior lender may operate to stay foreclosure
or similar proceedings by the senior lender.
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Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In certain states, there are or may be specific limitations upon
the late charges which a lender may collect from a borrower for delinquent
payments. Late charges are typically retained by servicers as additional
servicing compensation.
A portion of the Mortgage Loans contain "due-on-sale" clauses. These
clauses permit the lender to accelerate the maturity of the loan if the borrower
sells, transfers or coveys the property. The enforceability of these clauses has
been the subject of legislation or litigation in many states, and in some cases
the enforceability of these clauses was limited or denied. However, the Garn-St.
Germain Depository Institutions Act of 1982 (the "Garn-St. Germain Act")
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions. The
Garn-St. Germain Act does "encourage" lenders to permit assumption of loans at
the original rate of interest or at some other rate less than the average of the
original rate and the market rate.
Exempted from the general rule of enforceability of due-on-sale clauses
were mortgage loans (originated other than by federal savings and loan
associations and federal savings banks) that were made or assumed during the
period beginning on the date a state, by statute or final appellate court
decision having statewide effect, prohibited the exercise of due-on-sale clauses
and ending on October 15, 1982 ("Window Period Loans"). However, this exception
applied only to transfers of property underlying Window Period Loans occurring
between October 15, 1982 and October 15, 1985 and does not restrict enforcement
of a due-on-sale clause in connection with current transfers of property
underlying Window Period Loans. Due-on-sale clauses contained in mortgage loans
originated by federal savings and loan associations or federal savings banks are
fully enforceable pursuant to regulations of the Office of Thrift Supervision
(the "OTS"), as successor to the Federal Home Loan Bank Board which preempt
state law restrictions on the enforcement of due-on-sale clauses.
The Garn-St. Germain Act also sets forth nine instances in which a mortgage
lender covered by the Garn-St. Germain Act may not exercise a due-on-sale
clause, notwithstanding the fact that transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. The Garn-St. Germain Act also grants the Director of the Office of
Thrift Supervision (successor to the Federal Home Loan Bank Board) authority to
prescribe by regulation further instances in which a due-on-sale clause may not
be exercised upon the transfer of the property. To date no such regulations have
been issued. Regulations promulgated under the Garn-St. Germain Act also
prohibit the imposition of a prepayment penalty upon the acceleration of a loan
pursuant to a "due-on-sale" clause.
If interest rates were to rise above the interest rates on the Mortgage
Loans, then any inability of the Servicer or the subservicer to enforce
due-on-sale clauses may result in the Trust containing a greater number of
Mortgage Loans bearing below-market interest rates than would otherwise be the
case, since a transferee of the property underlying a Mortgage Loan would have a
greater incentive in such circumstances to assume the seller's Mortgage Loan.
Any inability to enforce due-on-sale clauses may affect the average life of the
Mortgage Loans and the number of Mortgage Loans that may be outstanding until
maturity.
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles are generally designed to relieve the borrower from the
legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required that lenders reinstate loans or recast payment schedules in
order to accommodate borrowers who are suffering from temporary financial
disability. In other cases, courts have limited the right of the lender to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower failing to adequately maintain the property or the borrower
executing a second mortgage or deed of trust affecting the property. Finally,
some courts have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that
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borrowers under deeds of trust or mortgages receive notices in addition to the
statutorily-prescribed minimum. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that the sale by a trustee
under a deed of trust, or under a mortgage having a power of sale, does not
involve sufficient state action to afford constitutional protections to the
borrower.
Adjustable Rate Loans. The laws of certain states may provide that mortgage
notes relating to adjustable rate loans are not negotiable instruments under the
Uniform Commercial Code. In such event, the Trustee will not be deemed to be a
"holder in due course" within the meaning of the Uniform Commercial Code and may
take such a mortgage note subject to certain restrictions on its ability to
foreclose and to certain contractual defenses available to a borrower.
Environmental Legislation. Certain states impose a statutory lien for
associated costs on property that is the subject of a cleanup action by the
state on account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a lien will generally have priority over all
subsequent liens on the property and, in certain of these states, will have
priority over prior recorded liens including the lien of a mortgage. In
addition, under federal environmental legislation and under state law in a
number of states, a secured party which takes a deed in lieu of foreclosure or
acquires a mortgaged property at a foreclosure sale or assumes active control
over the operation or management of a property so as to be deemed an "owner" or
"operator" of the property may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a secured lender (such as a Trustee or a Trust)
to homeowners. In the event that title to a property securing a Mortgage Loan in
a pool of Mortgage Loans was acquired by a Trustee or a Trust and cleanup costs
were incurred in respect of the property, the holders of the related Securities
might realize a loss if such costs were required to be paid. In addition, the
presence of certain environmental contamination, including, but not limited to,
lead-based paint, asbestos and leaking underground storage tanks could result in
the holders of the related Securities realizing a loss if associated costs were
required to be paid. The Seller, the Administrator, the Underwriters, the
Transferors, the Servicers, and any of their respective affiliates (i) have not
caused any environmental site assessments or evaluations to be conducted with
respect to any properties securing the Mortgage Loans, (ii) are not required to
make any such assessments or evaluations and (iii) make no representations or
warranties and assume no liability with respect to the absence or effect of
hazardous wastes or hazardous substances on any property or any casualty
resulting from the presence or effect of hazardous wastes or hazardous
substances.
In the event that title to a Mortgaged Property is acquired by a Trust and
cleanup costs are incurred in respect of such property, the related
Securityholders might realize a loss if such costs are required to be paid. In
addition, the presence of certain environmental contamination, including, but
not limited to, lead-based paint, asbestos and leaking underground storage tanks
could result in the Securityholders realizing a loss if any associated remedial
costs are required to be paid. The Transferor, the Seller, the Servicer, any
subservicer and any of their respective affiliates (i) have not caused any
environmental site assessments or evaluations to be conducted with respect to
any Mortgaged Property, (ii) are not required to make any such assessments or
evaluations and (iii) make no representations or warranties and assume no
liability with respect to the absence or effect of hazardous wastes or hazardous
substances on any property or any casualty resulting from the presence or effect
of hazardous wastes or hazardous substances.
TRUTH IN LENDING ACT
In September 1994, the Reigle Community Development and Regulatory
Improvement Act of 1994 (the "Reigle Act") was enacted which incorporates the
Home Ownership and Equity Protection Act of 1994, and which adds certain
additional provisions to Regulation Z, the implementing regulation of the
Truth-in-Lending Act ("TILA"). These provisions impose additional disclosure and
other requirements on creditors with respect to non-purchase money mortgage
loans with high interest rates or high up-front fees and charges ("covered
loans"). In general, mortgage loans within the purview of the Reigle Act have
annual percentage rates over 10% greater than the yield on Treasury Securities
of comparable maturity and/or fees and points which exceed the greater of 8% of
the total loan amount or $400. The provisions of the Reigle Act apply on a
mandatory basis to all mortgage loans originated on or after October 1, 1995.
These provisions can impose specific statutory liabilities upon creditors who
fail to comply with their provisions and may affect the
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enforceability of the related loans. In addition, any assignee of a creditor
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including, without limitation, the right to rescind
the mortgage loan. A substantial majority of the loans originated or purchased
by the Transferor are covered by the Reigle Act.
The Reigle Act provisions impose additional disclosure requirements on
lenders originating covered loans and prohibit lenders from originating covered
loans that are underwritten solely on the basis of the borrower's home equity
without regard to the borrower's ability to repay the loan. The Transferor
believes that only a small portion of its loans originated in fiscal 1994 and
fiscal 1995 are of the type that, unless modified, would be prohibited by the
Reigle Act. As a result of the Reigle Act provisions, with respect to all
covered loans, the Transferor applies loan underwriting criteria that take into
consideration the borrower's ability to repay.
The Reigle Act provisions also prohibit lenders from including prepayment
fee clauses in covered loans to borrowers with debt-to-income ratios in excess
of 50% or covered loans used to refinance existing loans originated by the same
lender. The Transferor reported immaterial amounts of prepayment fee revenues in
fiscal 1993, 1994 and 1995, respectively. The Transferor will continue to
collect prepayment fees on loans originated prior to effectiveness of the Reigle
Act provisions and on non-covered loans, as well as on covered loans in
permitted circumstances following the effectiveness of the Reigle Act
provisions. The Reigle Act provisions impose other restrictions on covered
loans, including restrictions on balloon payments and negative amortization
features, which the Transferor does not believe will have a material effect on
its operations.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of home improvement first mortgage
loans originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first three
months of 1980. The Office of Thrift Supervision is authorized to issue rules
and regulations and to publish interpretations governing implementation of Title
V. The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision which
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.
A similar federal statute, adopted in 1976, provides federal usury
preemption with respect to Title I Mortgage Loans, such as the Title I Mortgage
Loans. This statute also permits states to reimpose interest rate limits by
passing legislation at any time after June 30, 1976. To date, no state has
enacted any reported statute to reimpose interest rate limits with respect to
any loans, mortgage or advance that is insured under Title I.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's Mortgage Loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such interest rate limitation or similar limitations
under state law could have an effect, for an indeterminate period of time, on
the ability of the Servicer or the subservicer to collect full amounts of
interest on certain of the Mortgage Loans. Any shortfall in interest collections
resulting from the application of the Relief Act or similar legislation, which
would not be recoverable from the related Mortgage Loans, would result in a
reduction of the amounts available for distribution to the holders of the
Offered Securities, but the Offered Securities would receive the full amount
otherwise distributable to such holders to the extent that amounts are available
from the credit enhancement provided for the Offered Securities. See "Risk
Factors -- Limitations of Credit Enhancement." In addition, the Relief Act
imposes limitations which would impair the ability of the Servicer or
subservicer to foreclose on an affected Mortgage
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Loan during the borrower's period of active duty status. Thus, in the event that
such a Mortgage Loan goes into default there may be delays and losses occasioned
by the inability to realize upon the related Mortgaged Property in a timely
fashion.
THE TITLE I PROGRAM
General. Sections 1 and 2(a) of the National Housing Act of 1934, as
amended (the "Act"), authorize the creation of the Federal Housing
Administration (which is an agency within the United States Department of
Housing and Urban Development; such agency and department are referred to
together herein as the "FHA") and the Title I Program. Certain of the Mortgage
Loans or Contracts contained in a Trust may be loans insured under the Title I
Program. FHA Regulations contain the requirements under which approved Title I
Lenders may obtain insurance against a portion of losses incurred with respect
to eligible loans that have been originated and serviced in accordance with FHA
regulations, up to the amount of such Title I Lender's FHA Reserve, as described
below, and subject to the terms and conditions established under the Act and FHA
Regulations. While FHA Regulations permit the Secretary of HUD, subject to
statutory limitations, to waive a Title I Lender's noncompliance with FHA
Regulations if enforcement would impose an injustice on the lender (provided the
Title I Lender has acted in good faith, is in substantial compliance with FHA
Regulations and has credited the borrower for any excess charges), in general,
an insurance claim against the FHA will be denied if the Title I loan to which
it relates does not strictly satisfy the requirements of the Act and FHA
Regulations.
Unlike certain other government loan insurance programs, loans under the
Title I Program (other than loans in excess of $25,000) are not subject to prior
review by the FHA. Under the Title I Program, the FHA disburses insurance
proceeds with respect to defaulted loans for which insurance claims have been
filed by a Title I Lender prior to any review of such loans. A Title I Lender is
required to repurchase a Title I loan from the FHA that is determined to be
ineligible for insurance after insurance claim payments for such loan have been
paid to such lender. Under the FHA Regulations, if the Title I Lender's
obligation to repurchase the Title I loan is unsatisfied, the FHA is permitted
to offset the unsatisfied obligation against future insurance claim payments
owed by the FHA to such lender. FHA Regulations permit the FHA to disallow an
insurance claim with respect to any loan that does not qualify for insurance for
a period of up to two years after the claim is made and to require the Title I
Lender that has submitted the insurance claim to repurchase the loan. Pursuant
to a letter ruling issued by the FHA in October 1994, the FHA has stated that,
as a policy, the FHA will strive to review all insurance claim submissions in a
timely manner and limit the period of time within which it will request the
repurchase of a loan to a period of one year after claim submission. The letter
further states, however, that the FHA may find it necessary with respect to some
claim submissions to apply the foregoing two-year incontestability provision
strictly.
The proceeds of loans under the Title I Program may be used only for
permitted purposes, including, but not limited to, the alteration, repair or
improvement of residential property, the purchase of a manufactured home or lot
(or cooperative interest therein) on which to place such home or the purchase of
both a manufactured home loan and the lot (or cooperative interest therein) on
which such home is placed. Title I Program loans may be made directly to the
owners of the property to be improved or purchased ("direct loans") or with the
assistance of a dealer or home improvement contractor that will have an interest
in the proceeds of the loan ("dealer loans").
Subject to certain limitations described below, eligible Title I loans are
insured by the FHA for 90% of an amount equal to the sum of (i) the net unpaid
principal amount and the uncollected interest earned to the date of default,
(ii) interest on the unpaid loan obligation from the date of default to the date
of the initial submission of the insurance claim, plus 15 calendar days (the
total period not to exceed nine months) at a rate of 7% per annum, (iii)
uncollected court costs, (iv) title examination costs, (v) fees for required
inspections by the lenders or its agents, up to $75, and (vi) origination fees
up to a maximum of 5% of the loan amount. However, the insurance coverage
provided by the FHA is limited to the extent of the balance in the Title I
Lender's FHA Reserve maintained by the FHA. Accordingly if sufficient insurance
coverage is available in such FHA Reserve, then the Title I Lender bears the
risk of losses on a Title I loan for which a claim for reimbursement is paid by
the FHA of at least 10% of the unpaid principal, uncollected interest earned to
the
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date of default, interest from the date of default to the date of the initial
claim submission and certain expenses.
Under the Title I Program, the FHA maintains an FHA insurance coverage
reserve account (a "FHA Reserve") for each Title I Lender. The amount in each
Title I Lender's FHA Reserve is a maximum of 10% of the amounts disbursed,
advanced or expended by a Title I Lender in originating or purchasing eligible
loans registered with the FHA for Title I Insurance, with certain adjustments
permitted or required by FHA Regulations. The balance of such FHA Reserve is the
maximum amount of insurance claims the FHA is required to pay to the related
Title I Lender. Mortgage loans to be insured under the Title I Program will be
registered for insurance by the FHA, and the increase in Title I insurance
coverage to which the Title I Lender is entitled by reason of the reporting of
such loans under the Title I Lender's contract of insurance will be included in
the FHA Reserve for the originating Title I Lender following the receipt and
acknowledgment by the FHA of a transfer of note report on the prescribed form
(the "Transfer Report") pursuant to FHA Regulations.
Under the Title I Program the FHA will reduce the insurance coverage
available in a Title I Lender's FHA Reserve with the respect to loans insured
under such Title I Lender's contract of insurance by (i) the amount of FHA
Insurance claims approved for payment related to such loans, (ii) prior to
October 1, 1995, after a Title I Lender has held its Title I contract of
insurance for five years, the amount of the annual reduction (the "Annual
Reduction") equal to 10% of the amount of insurance coverage contained in the
related FHA Reserve as of that date, and (iii) the amount of reduction of the
Title I Lender's FHA Reserve by reason of the sale, assignment or transfer of
loans registered under the Title I Lender's contract of insurance. Such
insurance coverage also may be reduced for any FHA insurance claims previously
disbursed to the Title I Lender that are subsequently rejected by the FHA. On
June 5, 1995, the FHA announced the elimination of Annual Reductions, effective
as of October 1, 1995.
Upon the receipt and acknowledgment by the FHA of a Transfer Report,
originations of new loans will increase a Title I Lender's insurance coverage
reserve account balance by 10% of the amount disbursed, advanced or expended in
originating such loans registered with the FHA for insurance under the Title I
Program. A Title I Lender is permitted to sell or otherwise transfer loans
reported for insurance under the Title I Program only to another Title I Lender.
Upon any such transfer, except a transfer with recourse or under a guaranty or
repurchase Agreement, the seller is required to file a Transfer Report with the
FHA reporting the transfer of such loans. Upon notification and approval of such
transfer, the FHA Reserve of the selling Title I Lender is reduced, and the FHA
Reserve of the purchasing Title I Lender is increased, by an amount equal to the
lesser of 10% of the actual purchase price of the loans or the net unpaid
principal balance of the loans, up to the total amount of the selling Title I
Lender's FHA Reserve. Thus, in the event the selling Title I Lender's FHA
Reserve was less than 10% of the unpaid principal balance of its portfolio of
loans reported for insurance under the Title I Program prior to the sale, the
seller's FHA Reserve may be exhausted as the result of a sale of only a portion
of its total portfolio, with the result that its remaining Title I Program
portfolio may be ineligible for Title I Program benefits until the lender
originates or otherwise acquires additional loans reported for insurance under
the Title I Program. Accordingly, the insurance coverage reserves transferred to
the purchasing Title I Lender in such case will be less than 10% of the lesser
of the purchase price or the principal balance of the portfolio of loans
purchased, which may be the case with respect to the Transferor's purchase of
certain Title I Mortgage Loans and Title I Contracts from certain Title I
lenders and the transfer of the related insurance coverage from such lenders'
FHA Reserves. Additionally, pursuant to FHA Regulations, not more than $5,000 in
insurance coverage shall be transferred to or from a Title I Lender's insurance
coverage reserve account during any October 1 to September 30 fiscal year
without the approval of the Secretary of HUD. Such HUD approval is generally
viewed as automatic, provided the formal requirements for transfer are
satisfied, but HUD does have the right under FHA Regulations to withhold
approval.
Unlike most other FHA insurance programs, the obligation of the FHA to
reimburse a Title I Lender for losses in the portfolio of insured loans held by
such Title I Lender is limited to the amount in an FHA Reserve maintained on a
lender-by-lender basis and not on a loan-by-loan basis. Except when to do so
would be in HUD's best interest, the FHA does not track or "earmark" the loans
within a Title I Lender's portfolio to
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determine whether a reduction in such lender's FHA Reserve as the result of an
insurance claim by such lender are, in fact, attributable to the insured loan
with respect to which the claim was made. For this reason, if a Title I Lender
is holding insured loans as a fiduciary on behalf of multiple non-affiliated
beneficiaries, in order for such a lender to cause its FHA Reserve to be reduced
only by an amount to which a particular beneficiary is entitled by reason of the
insured loans beneficially held by it, the Title I Lender must segregate or
"earmark" its FHA Reserve on its own books and records according to which
beneficiary is entitled to what portion of the insurance coverage in the Title I
Lender's FHA Reserve as if the insurance coverage were not commingled by the FHA
in such FHA Reserve. If such Title I Lender continues to submit claims with
respect to loans held on behalf of a beneficiary whose portion of insurance
coverage in its FHA Reserve has been exhausted, the FHA will continue to honor
such claims until all insurance coverage in such Title I Lender's FHA Reserve
has been exhausted, even though such FHA Reserve may, in fact, be held by the
Title I Lender for the benefit of a different beneficiary than the beneficiary
of the insured loans to which the claims relate under a separate contractual
agreement. In addition, under certain FHA administrative offset regulations, the
FHA may offset an unsatisfied obligation of a Title I Lender to repurchase loans
that are determined to be ineligible for insurance against future insurance
claim payments owed by the FHA to such lender. In the case of the related Trust,
if the Trustee were to hold loans insured under the Depositor's FHA Reserve on
behalf of another trust fund, the FHA were to determine that insurance claims
were paid in respect of loans ineligible for insurance that related to such
other trust fund and the Trustee, on behalf of such other trust fund, was unable
or otherwise failed to repurchase the ineligible loans, then the FHA could
offset the amount of the repurchase obligation against insurance proceeds
payable with respect to one or more Title I Mortgage Loans or Title I Contract
included in the related Trust. If the Trustee were unable to recover the amount
of such offset from the other trust fund, the Trust could experience a loss as a
result.
Accordingly, claims paid to the Trustee (or the Administrator, if any) by
the FHA with respect to Title I loans insured under the Seller's FHA Reserve
other than the Title I Mortgage Loans and Title I Contracts may reduce the FHA
Insurance Amount. In the applicable Sale and Servicing Agreement or Pooling and
Servicing Agreement, the Seller and the Trustee (or the Administrator, if any)
will agree not to submit claims to the FHA with respect to Title I loans other
than the Title I Mortgage Loans and Title I Contracts if the effect thereof
would be to reduce the FHA Insurance Amount. The Seller has committed to use its
FHA contract of insurance under the Title I Program only to report the record
ownership of loans transferred and assigned to the Trustee pursuant to the
applicable Sale and Servicing Agreement or Pooling and Servicing Agreement and
similar such agreements that may be entered into by the Seller in the future.
On the final Transfer Date, such FHA Insurance Amount will be the maximum
amount of insurance coverage in the Seller's FHA Reserve that will be available
for the submission of claims on the Title I Mortgage Loans, and thereafter, such
FHA Insurance Amount will be decreased as a result of payments by the FHA in
respect of FHA Claims submitted for the Title I Mortgage Loans and Title I
Contracts after the Transfer Dates and as a result of the repurchase or
substitution of Title I Mortgage Loans and Title I Contracts by the Transferor.
Except in connection with the conveyance to the Trust of any Subsequent Mortgage
Loans that are Title I Mortgage Loans and the substitution of Title I Mortgage
Loans and Title I Contracts, the FHA Insurance Amount for the Title I Mortgage
Loans and Title I Contracts will not be increased for any other Title I loans,
either previously or subsequently owned by the Seller and reported for insurance
in the Seller's FHA Reserve.
On the final Transfer Date, the amount of FHA insurance coverage that will
have been transferred from the Transferor's FHA Reserve to the Seller's FHA
Reserve may be less than the maximum amount of insurance coverage transferrable
which would otherwise equal 10% of the unpaid principal balance or the purchase
price, if less. However, if individual Title I Mortgage Loans and Title I
Contracts are repurchased from the applicable Trustee, on behalf of the Trust,
by the Transferor, the Servicer and/or any Subservicer, then with respect to any
individual Title I Mortgage Loan or Title I Contract the amount of FHA insurance
coverage that will be transferred from the Trustee's FHA Reserve, in all
likelihood, will be the maximum amount of insurance coverage of 10% of the
unpaid principal balance or the purchase price, if less, until such time as the
Seller's FHA Reserve has been reduced to a balance which is less than such
maximum amount. Accordingly, the transfer of insurance coverage from the
Seller's FHA Reserve as the result of the repurchase
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of Title I Mortgage Loans and Title I Contracts will cause a disproportionately
larger reduction to the FHA Insurance Amount for each individual Title I
Mortgage Loan and Title I Contract and if a significant amount of Title I
Mortgage Loans and Title I Contracts are repurchased, could result in a
substantial reduction of such FHA Insurance Amount and the relative percentage
of such FHA Insurance Amount to the principal balance of the Title I Mortgage
Loans and Title I Contracts remaining in the Trust.
Requirements for Title I Property Improvement Loans and Contracts. The
proceeds of loans originated under the Title I Program for property improvements
may be used only for improvements that substantially protect or improve the
basic habitability or utility of an eligible property. Although Title I loans
are available for several types of properties, the Title I Mortgage Loans will
include primarily one-to four-family property improvement loans. FHA Regulations
require that the borrower have at least a one-half interest in (i) fee simple
title to the real property to be improved with the loan proceeds ("Secured
Property"), (ii) a lease on the Secured Property for a fixed term that expires
no sooner than six months after the maturity date of the property improvement
loan or (iii) a properly recorded land installment contract for the purchase of
the Secured Property. Any Title I property improvement loan originated after
August 1994 in excess of $7,500 must be secured by a recorded lien on the
improved property which is evidenced by a mortgage or deed of trust executed by
the borrower and all other owners in fee simple. Prior to August 1994, any Title
I property improvement loan in excess of $5,000 was required to be secured by
such a recorded lien.
The maximum principal amount of an eligible loan under the Title I Program,
must not exceed the actual cost of the project plus any authorized fees and
charges under the Title I Program as provided below; provided that such maximum
principal amount does not exceed $25,000 for a single family property
improvement loan. No single borrower is permitted to have more than an aggregate
of $25,000 in unpaid principal obligations with respect to Title I loans without
prior approval of HUD. Generally, the term of a Title I loan that is a property
improvement loan may not be less than six months nor greater than 20 years and
32 days. A borrower may obtain multiple Title I loans with respect to multiple
properties (subject to the aforementioned limit on loans to a single borrower),
and a borrower may obtain more than one Title I loan with respect to a single
property, in each case as long as the total outstanding balance of all Title I
loans on the same property does not exceed the maximum loan amount for the type
of Title I loan thereon having the highest permissible loan amount. If a
property improvement loan (or combination of loans on a single property) exceeds
$15,000, and either (i) the property is not owner occupied or (ii) the structure
on the property was completed within six months prior to the application for the
loan, the borrower is required to have equity in the property at least equal to
the loan amount. In all other cases, there is no requirement that the owner
contribute equity to the property other than fees and costs that may not be
added to the balance of the loan as described below.
Fees and charges that may be added to the balance of property improvement
loans include (i) architectural and engineering fees, (ii) building permit
costs, (iii) credit report costs, (vi) fees for required appraisals (if
applicable), (iv) title examination costs and (v) fees for required inspections
by the lender or its agent, up to $75. The Title I Lender is entitled to recover
the following fees and charges in connection with a property improvement loan
from the borrower as part of the borrower's initial payment: (i) an origination
fee not to exceed 1% of the loan amount, (ii) discount points, however, after
July 5, 1995, only to the extent a lender can demonstrate a clear relationship
between the charging of discount points and some tangible benefit to the
borrower such as a compensating decrease in the interest rate being charged,
(iii) recording fees, recording taxes, filing fees and documentary stamp taxes,
(iv) title insurance costs, (v) current year tax and insurance escrow payments,
(vi) fees necessary to establish the validity of the lien, (vii) appraisal fees
that are not eligible to be financed, (viii) survey costs, (ix) handling charges
for refinancing or modification of an existing loan, up to $100, (x) fees for
approving assumption or preparing assumption agreements, not to exceed 5%, (xi)
certain fees of closing agents and (xii) such other items as may be specified by
the FHA. FHA Regulations prohibit the advancement of such fees and charges to
the borrower by any party to the transaction.
FHA Regulations distinguish between "direct loans" and "dealer loans." A
loan is a "dealer loan" if an approved dealer having a direct or indirect
financial interest in the transaction assists the borrower in obtaining the
loan. A loan made by the lender to the borrower without the assistance of any
party with a financial interest in the loan transaction (other than the lender)
is a "direct loan."
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With respect to dealer loans, the dealer-contractor typically enters into a
consumer credit contract or note with the borrower and, after completion of the
financed improvements, assigns the contract or note to the Title I Lender. The
dealer-contractor presents the loan application to the Title I Lender, receives
the check or money order representing the loan proceeds and may accompany the
borrower to the institution for the purpose of receiving payment. As a condition
to the disbursement of the proceeds of a dealer loan, the Title I Lender is
required to obtain a completion certificate signed by the borrower and the
dealer certifying that the improvements have been completed in accordance with
the contract and that the borrower has received no inducement from the dealer to
enter into the transaction other than discount points. The Title I Lender may
enter into an agreement under which the lender has full or partial recourse
against the dealer for a period of three years in the event the Title I Lender
sustains losses with respect to loans originated by such dealer and such loans
do not satisfy FHA Regulations. FHA Regulations require that each dealer meet
certain net worth and experience requirements and be approved by the FHA on an
annual basis. Any Title I Lender that makes dealer loans is required to
supervise and monitor the dealer's activities with respect to loans insured
under the Title I Program and to terminate a dealer's approval if the dealer
does not satisfactorily perform its contractual obligations or comply with Title
I Program requirements.
The note evidencing a property improvement loan insured under the Title I
Program is required to bear a genuine signature of the borrower and any co-maker
and co-signer, must be valid and enforceable, must be complete and regular on
its face and must have interest and principal stated separately. The interest
rate must be negotiated and agreed to by the borrower and the lender and must be
fixed for the term of the loan and recited in the note. Interest on the Title I
loan must accrue from the date of the loan and be calculated according to the
actuarial method, which allocates payments on the loan between principal and
interest such that a payment is applied first to accrued interest and any
remainder is subtracted from, or any deficiency is added to, the unpaid
principal balance.
Principal and interest on the note is required to be payable in equal
installments at least monthly except where the borrower has irregular cash flow.
The first and last payments may vary in amount from the regular installment
amount but may not exceed 150% of the regular installment amount. The first
payment may be due no later than two months from the date of the loan (i.e., the
date upon which proceeds are disbursed by the lender). Late charges may be
assessed only after fifteen days and cannot exceed the lesser of 5% of the
installment, up to a maximum of $10 and must be billed as an additional charge
to the borrower. In lieu of late charges, the note may provide for interest to
accrue on late installments on a daily basis at the note rate. The note must
include a provision for acceleration of maturity, at the option of the holder,
upon a default by the borrower and a provision permitting prepayment in part or
in full without penalty. The Title I Lender must assure that the note and all
other documents evidencing the loan are in compliance with applicable Federal,
state and local laws.
A written but unrecorded modification agreement executed by the borrower
may be used in lieu of refinancing a delinquent or defaulted loan to reduce or
increase the installment payment, but not to increase the term or interest rate.
A written modification agreement may also be used to refinance a loan in order
to reduce the interest rate, provided the loan is current. Alternatively, the
lender may negotiate an informal repayment plan for the borrower to cure a
temporary delinquency within a short period of time by sending a letter to the
borrower reciting the terms of the agreement. The lender may not release any
party from liability under the note or any lien securing an insured loan without
prior FHA approval.
FHA Regulations do not require that the borrower obtain title or fire and
casualty insurance as a condition to obtaining loan, except with respect to
manufactured home loans. If the property is located in a flood hazard area,
however, flood insurance in an amount at least equal to the loan amount is
required at the date of loan disbursement. The Borrower is required to maintain
flood insurance of at least the unpaid balance of the loan (or the value of the
property if state law so limits the amount of flood insurance).
Requirements for Title I Manufactured Home Contracts. The maximum principal
amount for any Title I Contract for a Manufactured Home must not exceed the sum
of certain itemized amounts, which include a specified percentage of the
purchase price of the manufactured home depending on whether it is a new or
existing home; provided that such maximum amount does not exceed the following
loan amounts: (i) $48,600
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for a new or existing manufactured home purchase loan; (ii) $16,200 for a
manufactured home lot purchase; and (iii) $64,800 for a combination loan (i.e. a
loan to purchase a new or existing manufactured home and the lot for such home).
Generally, the term of a Title I Contract for a Manufacture Home may not be less
than six months nor greater than 20 years and 32 days, except that the maximum
term of a manufactured home lot loan is limited to 15 years and 32 days and the
maximum term of a multimodule manufactured home and lot in combination is
limited to 25 years and 32 days.
Borrower eligibility for a Title I Contract for a Manufactured Home
requires that the borrower become the owner of the property to be financed with
such loan and occupy the manufactured home as the borrower's principal
residence, except for a manufactured home lot loan which allows six months from
the date of the loan to occupy the home as the borrower's principal residence.
If a manufactured home is classified as realty, then ownership of the home must
be in fee simple, and also, the ownership of the manufactured home lot must be
in fee simple, except for a lot which consists of a share in a cooperative
association that owns and operates a manufactured home park. The borrower's
minimum cash down payment requirement to obtain financing through a Title I
Contract for a Manufactured Home is as follows: (i) at least 5% of the first
$5,000 and 10% of the balance of the purchase price of a new manufactured home
and at least 10% of the purchase price of an existing manufactured home for a
manufactured home purchase loan, or in lieu of a full or partial cash down
payment, the trade-in of the borrower's equity in an existing manufactured home;
(ii) at least 10% of the purchase price and development costs of a lot for a
manufactured home lot loan; and (iii) at least 5% of the first $5,000 and 10% of
the balance of the purchase price of the manufactured home and lot for a
combination loan.
Any manufactured home financed by a Title I Contract must be certified by
the manufacturer to have been constructed in compliance with the National
Manufactured Housing Construction and Safety Standards Act of 1974 (42 U.S.C.
sec.sec. 5401-5426), so as to conform to all applicable Federal construction and
safety standards, and with respect to the purchase of a new manufactured home,
the manufacturer must furnish the borrower with a one year written warranty on a
HUD approved form which obligates the manufacturer to correct any nonconformity
with all applicable Federal construction and safety standards or any defects in
materials or workmanship which become evident within one year after the date of
delivery. The regulations under the Title I Program set forth certain additional
requirements relating to the construction, transportation and installation of
any manufactured home and standards for the manufactured homesite financed by
any Title I Contract. The proceeds from a Title I Contract for a Manufactured
Home may be used as follows: the purchase or refinancing of a manufactured home,
a suitably developed lot for a manufactured home already owned by the borrower
or a manufactured home and suitably developed lot for the home in combination;
or the refinancing of an existing manufactured home already owned by the
borrower in connection with the purchase of a manufactured home lot or an
existing lot already owned by the borrower in connection with the purchase of a
manufactured home. In addition, the proceeds for a Title I Contract for a
Manufactured Home which is a manufactured home purchase loan may be used for the
purchase, construction or installation of a garage, carport, patio or other
comparable appurtenance to the manufactured home, and the proceeds for a Title I
Contract for a Manufactured Home which is a combination loan may be used for the
purchase, construction or installation of a foundation, garage, carport, patio
or other comparable appurtenance to the manufactured home. The proceeds from a
Title I Contract for a Manufactured Home cannot be used for the purchase of
furniture or the financing of any items and activities which are set forth on
the list published by the Secretary of HUD as amended from time to time.
Any Title I Contract for a Manufactured Home must be secured by a recorded
lien on the manufactured home (or lot or home and lot, as appropriate), its
furnishings, equipment, accessories and appurtenance, which lien must be a first
lien, superior to any other lien on the property which is evidenced by a
properly recorded financing statement, a properly recorded security instrument
executed by the borrower and any other owner of the property or other acceptable
instrument. With respect to any Title I Contract involving a manufactured home
purchase loan or combination loan and the sale of the manufactured home by a
dealer, the lender or its agent (other than a manufactured home dealer) must
conduct a site-of-placement inspection within 60 days after the date of the loan
to verify that the terms and conditions of the purchase contract have been met,
the manufactured home and any options and appurtenances included in the purchase
price or
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financed with the loan have been delivered and installed and the placement
certificate executed by the borrower and the dealer is in order.
Title I Underwriting Requirements. FHA Regulations require that, before
making a loan insured under the Title I Program, a Title I Lender exercise
prudence and diligence in determining whether the borrower and any co-maker or
co-signer is solvent and an acceptable credit risk with a reasonable ability to
make payments on the loan obligation. Prior to loan approval, the Title I Lender
is required to satisfy specified credit underwriting requirements and to keep
documentation supporting its credit determination. As part of its credit
underwriting, the Title I Lender must obtain the following: (i) a dated credit
application executed by the borrower, any co-maker and any co-signer, (ii)
written verification of current employment and current income of the borrower
and any co-maker or co-signer, (iii) a consumer credit report stating the credit
accounts and payment history of the borrower and any co-maker or co-signer, (iv)
on loans in excess of $5,000, written evidence that the borrower is not over 30
days delinquent on any senior lien instruments encumbering the improved
property, (v) verification whether the borrower is in default on any obligation
owed to or insured or guaranteed by the Federal Government and (vi) written
verification of the source of funds for any initial payment required of the
borrower if such payment is in excess of 5% of the loan. Before making a final
credit determination, the lender is required to conduct a face-to-face or
telephone interview with the borrower and any co-maker or co-signer to resolve
any discrepancies in the information on the credit application and to assure
that the information is accurate and complete. The Title I Lender's files must
contain, among other things, the note or other debt instrument, the lien
instrument and a copy of the property improvement contract (in the case of a
dealer loan) or a detailed written description of the work to be performed, the
materials to be furnished and the estimated cost (for a loan not involving a
dealer or contractor).
The Title I Lender is required to satisfy itself that the borrower's income
is adequate to make the payments required under the loan and to pay the
borrower's housing and other recurring expenses. The borrower's housing and
other recurring expenses generally may not exceed a maximum percentage of gross
income as published from time to time in the Federal Register. The Title I
Lender is required to document any compensating factors that support the
approval of the loan if such expense-to-income ratios are not satisfied. A Title
I Lender is prohibited from approving a loan under the Title I Program without
the approval of the FHA if the lender has knowledge that the borrower is past
due more than 30 days under the original terms of an obligation owed to or
insured or guaranteed by the Federal Government or the borrower has made
material misstatements of fact on applications for loans or other assistance.
UNDER THE TITLE I PROGRAM, THE FHA DOES NOT REVIEW OR APPROVE FOR
QUALIFICATION FOR INSURANCE THE INDIVIDUAL LOAN INSURED THEREUNDER AT THE TIME
OF APPROVAL BY THE LENDING INSTITUTION (AS IS TYPICALLY THE CASE WITH OTHER
FEDERAL LOAN INSURANCE PROGRAMS). If, after a loan has been made and reported
for insurance under the Title I Program, a Title I Lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, such Title I Lender is required promptly to
report such finding to the FHA. In such case, provided that the validity of any
lien on the property has not been impaired, the insurance of the loan under the
Title I Program will not be affected unless such material misstatement of facts
or misuse of loan proceeds was caused by (or was knowingly sanctioned by) such
Title I Lender or its employees.
Claims Procedures Under Title I. The term "default" is defined under FHA
Regulations as the failure of the borrower to make any payment due under the
note for a period of 30 days after such payment is due. The "date of default" is
considered to be the date 30 days after the borrower's first failure to make an
installment payment on the note that is not covered by subsequent payments
applied to overdue installments in the order they became due. When a loan
reported for insurance under the Title I Program goes into default, a Title I
Lender is required to contact the borrower and any co-maker and co-signer by
telephone or in person to determine the reasons for the default and to seek a
cure. If such Title I Lender is not able to effect a cure after diligent
efforts, it may provide the borrower with a notice of default stating that the
loan will be accelerated in 30 days if the loan is not brought current or the
borrower does not enter into a loan modification agreement or repayment plan.
The notice of default must meet certain requirements set forth in the FHA
Regulations and must conform to applicable state law provisions. Such Title I
Lender is permitted to rescind the acceleration
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of maturity of the loan only if the borrower brings the loan current, executes a
modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity of a secured property improvement loan,
a Title I Lender has the option to proceed against the security or make a claim
under its contract of insurance. If a Title I Lender chooses to proceed against
the Secured Property under a security instrument (or if it accepts a voluntary
conveyance or surrender of the Secured Property), (i) the Title I Lender must
proceed against the loan security by foreclosure and acquire good, marketable
title to the property securing the loan and (ii) the Title I Lender must take
all actions necessary under applicable law to preserve its rights, if any, to
obtain a deficiency judgment against the borrower, provided however, the Title I
Lender may still file an FHA Insurance claim, but only with the prior approval
of the Secretary of HUD.
If a Title I Lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file, certification of
compliance with applicable state and local laws in carrying out any foreclosure
or repossession, and where the borrower is in bankruptcy or deceased, evidence
that the lender has properly filed proofs of claims. Generally, a Title I Lender
must file its claim of insurance with the FHA not later than nine months after
the date of default. Concurrently with filing the insurance claim, such Title I
Lender is required to assign to the United States of America its entire interest
in the note (or a judgment in lieu of the note), in any securities held and in
any claims filed in any legal proceedings. If, at the time the note is assigned
to the United States, the Secretary of HUD has reason to believe that the note
is not valid or enforceable against the borrower, the FHA may deny the claim and
reassign the note to the Title I Lender. If either such defect is discovered
after the FHA has paid a claim, the FHA may require the Title I Lender to
repurchase the paid claim and to accept an assignment of the loan note. If the
Title I Lender subsequently obtains a valid and enforceable judgment against the
borrower, it may resubmit a new insurance claim with an assignment of the
judgment. The FHA may contest any insurance claim previously paid by it and make
a demand for repurchase of the loan with respect to which the claim was paid at
any time up to two years from the date the claim was certified for payment and
may do so thereafter in the event of fraud or misrepresentation on the part of
the Title I Lender.
A claim for reimbursement of loss with respect to a loan eligible for
insurance under the Title I Program is required to be made on an FHA-approved
form executed by a duly qualified officer of the Title I Lender and must be
accompanied by copies of certain relevant documents and documentation specified
in the FHA Regulations to support the claim. The Title I Lender is required,
among other things, to document its efforts to effect recourse against any
dealer in accordance with any recourse agreement with such dealer. If the loan
is subject to an unsatisfied dealer recourse agreement claim, the Title I Lender
is also required to assign its rights under such recourse agreement. The FHA has
the right to deny any claim for insurance in whole or in part based upon a
violation of the FHA Regulations unless a waiver of compliance is granted. The
Title I Lender is permitted to appeal any such claim denial and resubmit the
claim within six months of the date of the claim denial, subject to a
reprocessing fee. The applicable Sale and Servicing Agreement or Pooling and
Servicing Agreement provides that the Trustee (or the Administrator) shall
submit an FHA Claim with respect to any Title I Mortgage Loan or Title I
Contract that goes into default if the default cannot be cured.
If, as a result of the delay in the transfer of the FHA Insurance described
above, FHA Insurance is not available with respect to any defaulted Title I
Mortgage Loan or Title I Contract at the time it goes into default, then the
amount required to make interest payments to the Securityholders with respect to
the principal amount thereof, until such FHA Insurance becomes available and a
claim for insurance can be made, if at all, will be paid from other amounts, if
any, available in the Distribution Account.
No Rights of Securityholders Against FHA. Because the Trust and the
Securityholders will not hold an FHA contract of insurance, the FHA will not
recognize the Trust or the Securityholders as the owners of the Title I Mortgage
Loans, Title I Contracts or any portion thereof, entitled to submit FHA Claims
to the FHA. Accordingly, the Trust and the Securityholders will have no direct
right to receive insurance payments from the FHA. In the event the Trustee (or
the Administrator, if any) submits an FHA Claim to the FHA and the FHA approves
payment of such FHA Claim, the related FHA Insurance Proceeds will be payable
only to the Trustee or to the Administrator, if any, as agent and
attorney-in-fact for the Trustee. The Securityholders'
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rights relating to the receipt of payment from and the administration,
processing and submissions of FHA Claims by the Trustee or the Administrator, if
any, are limited and governed by the related Sale and Servicing Agreement or
Pooling and Servicing Agreement and FHA Claims Administration Agreement and
these functions are obligations of the Trustee and the Administrator, if any,
not the FHA.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of the Notes and the
Certificates of any Series, to the extent it relates to matters of law or legal
conclusions with respect thereto, represents the opinion of tax counsel to each
Trust with respect to the related Series on the material matters associated with
such consequences, subject to the qualifications set forth herein. "Tax Counsel"
with respect to each Trust will be Andrews & Kurth L.L.P. The summary does not
purport to deal with federal income tax consequences applicable to all
categories of investors, some of which may be subject to special rules. For
example, it does not discuss the tax treatment of Noteholders or
Certificateholders that are insurance companies, regulated investment companies
or dealers in securities. Moreover, there are no cases or Internal Revenue
Service ("IRS") rulings on similar transactions involving both debt and equity
interests issued by a trust with terms similar to those of the Notes and the
Certificates. As a result, the IRS may disagree with all or a part of the
discussion below. Prospective investors are urged to consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Tax Counsel regarding certain federal income tax matters
discussed below. An opinion of Tax Counsel, however, is not binding on the IRS
or the courts. No ruling on any of the issues discussed below will be sought
from the IRS. For purposes of the following summary, references to the Trust,
the Notes, the Certificates and related terms, parties and documents shall be
deemed to refer, unless otherwise specified herein, to each Trust and the Notes,
Certificates and related terms, parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary depending on
whether an election is made to treat the Trust as a partnership under the Code
or whether the Trust will be treated as a grantor trust. The Prospectus
Supplement for each Series of Securities will specify whether a partnership
election will be made or the Trust will be treated as a grantor trust.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates of a Trust for which a partnership election will be made, to the
extent it relates to matters of law or legal conclusions with respect thereto,
represents the opinion of Tax Counsel to each Trust with respect to the related
Series on the material matters associated with such consequences, subject to the
qualifications set forth herein. In addition, Tax Counsel has prepared or
reviewed the statements in the Prospectus under the heading "Trusts for Which a
Partnership Election is Made", and is of the opinion that such statements are
correct in all material respects. Such statements are intended as an explanatory
discussion of the 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 Notes or
Certificates.
Tax Counsel will deliver its opinion that a Trust for which a partnership
election is made will not be an association (or publicly traded partnership)
taxable as a corporation for federal income tax purposes. This opinion will be
based on the assumption that the terms of the Trust Agreement and related
documents will be complied with, and on counsel's conclusions that (1) the Trust
will not have certain characteristics necessary
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for a business trust to be classified as an association taxable as a corporation
and (2) the nature of the income of the Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Loan Assets, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Securityholders could be liable for any
such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Tax Counsel will, except as otherwise provided
in the related Prospectus Supplement, advise the Trust that the Notes will be
classified as debt for federal income tax purposes. The discussion below assumes
this characterization of the Notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities, Interest Only Securities or Principal Only Securities.
Moreover, the discussion assumes that the interest formula for the Notes meets
the requirements for "qualified stated interest" under Treasury regulations (the
"OID regulations") relating to original issue discount ("OID"), and that any OID
on the Notes (i.e., any excess of the principal amount of the Notes over their
issue price) does not exceed a de minimis amount (i.e., 1/4% of their principal
amount multiplied by the number of full years included in their term), all
within the meaning of the OID regulations. If these conditions are not satisfied
with respect to any given Series of Notes, additional tax considerations with
respect to such Notes will be disclosed in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. A purchaser who
buys a Note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a "Short-Term Note") may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
and gain previously included by such Noteholder in income with respect to the
Note and decreased by the amount of bond premium, if any, previously amortized
and by the amount of principal payments previously received by such Noteholder
with respect to
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such Note. Any such gain or loss will be capital gain or loss if the Note was
held as a capital asset, except for gain representing accrued interest and
accrued market discount not previously included in income. Capital losses
generally may be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder who is
a nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest", and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Securities) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Owner Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under penalties of perjury, certifying that
the beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Tax Counsel, the IRS successfully asserted that one or more of the Notes did
not represent debt for federal income tax purposes, the Notes might be treated
as equity interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences described above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity). Alternatively, and most
likely in the view of Tax Counsel, the Trust might be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet certain qualifying income tests. Nonetheless, treatment of the Notes as
equity interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including pension funds) would be "unrelated business taxable income",
income to foreign holders generally would be subject to U.S. tax and U.S. tax
return filing and withholding requirements, and individual holders might be
subject to certain limitations on their ability to deduct their share of Trust
expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust as a Partnership. The Seller and the Servicer will
agree, and the Certificateholders will agree by their purchase of Certificates,
to treat the Trust as a partnership for purposes of federal and state income
tax, franchise tax and any other tax measured in whole or in part by income,
with the assets of the partnership being the assets held by the Trust, the
partners of the partnership being the Certificate-
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holders (including the Seller in its capacity as recipient of distributions from
the Reserve Fund), and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller and the Servicer is not clear because there
is no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all payments
on the Certificates are denominated in U.S. dollars, none of the Certificates
are Indexed Securities, Principal Only Securities or Interest Only Securities,
and that a Series of Securities includes a single Class of Certificates. If
these conditions are not satisfied with respect to any given Series of
Certificates, additional tax considerations with respect to such Certificates
will be disclosed in the applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest earned on the Loan Assets (including appropriate
adjustments for market discount, OID and bond premium) and any gain upon
foreclosure of Loan Assets. The Trust's deductions will consist primarily of
interest accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon foreclosure of the Loan Assets.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Loan Assets that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Loan Assets that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Seller. Based on the economic arrangement of the
parties, this approach for allocating Trust income should be permissible under
applicable Treasury regulations, although no assurance can be given that the IRS
would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass Through Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
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The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Loan Assets were not issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust for the Loan Assets may be greater or less than
the remaining principal balance of the Loan Assets at the time of purchase. If
so, the Loan Assets will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on an asset-by-asset
basis.)
If the Trust acquires the Loan Assets at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Loan Assets or to offset any such premium against interest
income on the Loan Assets. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Loan Assets would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller is
authorized to revise the
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Trust's method of allocation between transferors and transferees to conform to a
method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be set forth in the related Prospectus Supplement. The Trustee
will file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Trust and will report each Certificateholder's allocable
share of items of Trust income and expense to holders and the IRS on Schedule
K-1. The Trust will provide the Schedule K-1 information to nominees that fail
to provide the Trust with the information statement described below and such
nominees will be required to forward such information to the beneficial owners
of the Certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign
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holders that are taxable as corporations and 39.6% for all other foreign
holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures. In determining a holder's withholding status, the Trust may rely on
IRS Form W-8, IRS Form W-9 or the holder's certification of nonforeign status
signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign holder must obtain
a taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard to
the income of the Trust. If these interest payments are properly characterized
as guaranteed payments, then the interest will not be considered "portfolio
interest." As a result, Certificateholders will be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In such case, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates of a Trust for which a partnership election will not be made, to
the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of Tax Counsel to each Trust with respect to the
related Series on the material matters associated with such consequences,
subject to the qualifications set forth herein. In addition, Tax Counsel has
prepared or reviewed the statements in the Prospectus under the heading "Trusts
Treated as Grantor Trusts", and is 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 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 Notes or Certificates.
If a partnership election is not made, Tax Counsel will deliver its opinion
that the Trust will not be classified as an association taxable as a corporation
and that such Trust will be classified as a grantor trust under subpart E, Part
I of subchapter J of Chapter 1 of Subtitle A of the Code. In this case, owners
of Certificates (referred to herein as "Grantor Trust Certificateholders") will
be treated for federal income tax purposes as owners of a portion of the Trust's
assets as described below. The Certificates issued by a Trust that is treated as
a grantor trust are referred to herein as "Grantor Trust Certificates."
Characterization. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Loan Assets in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Loan Asset because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
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Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Loan Assets in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the Servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus all other Section 212 expenses
exceed two percent of its adjusted gross income. A Grantor Trust
Certificateholder using the cash method of accounting must take into account its
pro rata share of income and deductions as and when collected by or paid to the
Servicer. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income and deductions as
they become due or are paid to the Servicer, whichever is earlier. If the
servicing fees paid to the Servicer are deemed to exceed reasonable servicing
compensation, the amount of such excess could be considered as an ownership
interest retained by the Servicer (or any person to whom the Servicer assigned
for value all or a portion of the servicing fees) in a portion of the interest
payments on the Loan Assets. The Loan Assets would then be subject to the
"coupon stripping" rules of the Code discussed below.
Premium. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each Loan Asset based on each
Loan Asset's relative fair market value, so that such holder's undivided
interest in each Loan Asset will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Loan Assets at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on such Grantor
Trust Certificate. The basis for such Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Section 171. A Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a Loan Asset prepays in full, equal to the difference
between the portion of the prepaid principal amount of such Loan Asset that is
allocable to the Grantor Trust Certificate and the portion of the adjusted basis
of the Grantor Trust Certificate that is allocable to such Loan Asset. If a
reasonable prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments have
occurred at a rate faster than the reasonable assumed prepayment rate. It is not
clear whether any other adjustments would be required to reflect differences
between an assumed prepayment rate and the actual rate of prepayments.
STRIPPED NOTES AND STRIPPED COUPONS
Although the tax treatment of stripped bonds is not entirely clear, based
on recent guidance by the IRS, each purchaser of a Grantor Trust Certificate
will be treated as the purchaser of a stripped bond which generally should be
treated as a single debt instrument issued on the day it is purchased for
purposes of calculating any original issue discount. Generally, under applicable
Treasury regulations (the "Section 1286 Treasury Regulations"), if the discount
on a stripped bond is larger than a de minimis amount (as calculated for
purposes of the OID rules of the Code) such stripped bond will be considered to
have been issued with OID. See "-- Original Issue Discount" below. Based on the
preamble to the Section 1286 Treasury Regulations, Tax Counsel is of the opinion
that, although the matter is not entirely clear, the interest income on the
Certificates at the sum of the Pass Through Rate and the portion of the
Servicing Fee Rate that does not constitute excess servicing will be treated as
"qualified stated interest" within the meaning of the
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Section 1286 Treasury Regulations and such income will be so treated in the
Trustee's tax information reporting.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described herein, the special rules of the Code
relating to "original issue discount" (currently Sections 1271 through 1273 and
1275) will be applicable to a Grantor Trust Certificateholder's interest in
those Loan Assets meeting the conditions necessary for these sections to apply.
Generally, a Grantor Trust Certificateholder that acquires an undivided interest
in a Loan Asset issued or acquired with OID must include in gross income the sum
of the "daily portions," as defined below, of the OID on such Loan Asset for
each day on which it owns a Certificate, including the date of purchase but
excluding the date of disposition. In the case of an original Grantor Trust
Certificateholder, the daily portions of OID with respect to a Loan Asset
generally would be determined as follows. A calculation will be made of the
portion of OID that accrues on the Loan Asset during each successive monthly
accrual period (or shorter period in respect of the date of original issue or
the final Distribution Date). This will be done, in the case of each full
monthly accrual period, by adding (i) the present value of all remaining
payments to be received on the Loan Asset under the prepayment assumption used
in respect of the Loan Assets and (ii) any payments received during such accrual
period, and subtracting from that total the "adjusted issue price" of the Loan
Asset at the beginning of such accrual period. No representation is made that
the Loan Assets will prepay at any prepayment assumption. The "adjusted issue
price" of a Loan Asset at the beginning of the first accrual period is its issue
price (as determined for purposes of the OID rules of the Code) and the
"adjusted issue price" of a Loan Asset at the beginning of a subsequent accrual
period is the "adjusted issue price" at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual period
and reduced by the amount of any payment (other than "qualified stated
interest") made at the end of or during that accrual period. The OID accruing
during such accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the period. With
respect to an initial accrual period shorter than a full monthly accrual period,
the daily portions of OID must be determined according to a reasonable method,
provided that such method is consistent with the method used to determine the
yield to maturity of the Loan Assets.
With respect to the Loan Assets, the method of calculating OID as described
above will cause the accrual of OID to either increase or decrease (but never
below zero) in any given accrual period to reflect the fact that prepayments are
occurring at a faster or slower rate than the prepayment assumption used in
respect of the Loan Assets. Subsequent purchasers that purchase Loan Assets at
more than a de minimis discount should consult their tax advisors with respect
to the proper method to accrue such OID.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Loan Assets may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Loan Asset
is considered to have been purchased at a "market discount." Generally, the
amount of market discount is equal to the excess of the portion of the principal
amount of such Loan Asset allocable to such holder's undivided interest over
such holder's tax basis in such interest. Market discount with respect to a
Grantor Trust Certificate will be considered to be zero if the amount allocable
to the Grantor Trust Certificate is less than 0.25% of the Grantor Trust
Certificate's stated redemption price at maturity multiplied by the weighted
average maturity remaining after the date of purchase. Treasury regulations
implementing the market discount rules have not yet been issued; therefore,
investors should consult their own tax advisors regarding the application of
these rules and the advisability of making any of the elections allowed under
Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant
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legislative history will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Grantor Trust Certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust Certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Grantor Trust Certificate
purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount also
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
such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred 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. To the extent a Grantor Trust Certificateholder is considered to
have purchased an undivided interest in a Loan Asset for an amount that is
greater than its stated redemption price at maturity of such Loan Asset, such
Grantor Trust Certificateholder will be considered to have purchased the Loan
Asset with "amortizable bond premium" equal in amount to such excess. A Grantor
Trust Certificateholder (who does not hold the Certificate for sale to customers
or in inventory) may elect under Section 171 of the Code to amortize such
premium. Under the Code, premium is allocated among the interest payments on the
Loan Assets to which it relates and is considered as an offset against (and thus
a reduction of) such interest payments. With certain exceptions, such an
election would apply to all debt instruments held or subsequently acquired by
the electing holder. Absent such an election, the premium will be deductible as
an ordinary loss only upon disposition of the Certificate or pro rata as
principal is paid on the Loan Assets.
Election to Treat All Interest as OID. The OID regulations permit a Grantor
Trust Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "-- Premium." The election
to accrue interest, discount and premium on a constant yield method with respect
to a Grantor Trust Certificate is irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will be
capital gain or loss to an owner for which a Grantor Trust Certificate is a
"capital asset" within the meaning of Section 1221, and will be long-term or
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short-term depending on whether the Grantor Trust Certificate has been owned for
the long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1), so that gain or loss recognized from the sale of a
Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
Non-U.S. Persons. Generally, interest or OID paid by the person required to
withhold tax under Section 1441 or 1442 to (i) an owner that is not a U.S.
Person (as defined below) or (ii) a Grantor Trust Certificateholder holding on
behalf of an owner that is not a U.S. Person and accrued OID recognized by the
owner on the sale or exchange of such a Grantor Trust Certificate will not be
subject to withholding to the extent that a Grantor Trust Certificate evidences
ownership in Loan Assets issued after July 18, 1984 by natural persons if such
Grantor Trust Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor Trust
Certificateholder is not a U.S. Person and providing the name and address of
such Grantor Trust Certificateholder). Additional restrictions apply to Loan
Assets where the obligor is not a natural person in order to qualify for the
exemption from withholding.
As used herein, a "U.S. Person" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States.
Information Reporting and Backup Withholding. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
THE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL INFORMATION
ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A SECURITYHOLDER'S PARTICULAR TAX
SITUATION. PROSPECTIVE PURCHASERS OF THE SECURITIES SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans (each a "Benefit Plan"), from engaging
in certain transactions involving "plan assets" with persons that are "parties
in interest" under ERISA or "disqualified persons" under the Code with respect
to such Benefit Plan. ERISA also imposes certain duties on persons who are
fiduciaries of Benefit Plans subject to ERISA and prohibits certain transactions
between a Benefit Plan and parties in interest with respect to such Benefit
Plans. Under ERISA, any person who exercises any authority or control with
respect to the management or disposition of the assets of a Benefit Plan is
considered to be a fiduciary of such Benefit Plan (subject to certain exceptions
not here
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relevant). A violation of these "prohibited transaction" rules may result in an
excise tax or other penalties and liabilities under ERISA and the Code for such
persons.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes or Certificates if assets of the Trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "Plan Assets Regulation"), the assets of a Trust would
be treated as plan assets of a Benefit Plan for the purposes of ERISA and the
Code only if the Benefit Plan acquired an "equity interest" in the Trust and
none of the exceptions contained in the Plan Assets Regulation was applicable.
An equity interest is defined under the Plan Assets Regulation as an interest
other than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features. The likely treatment in this
context of Notes and Certificates of a given Series will be discussed in the
related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements. Due to the complexities of the
"prohibited transaction" rules and the penalties imposed upon persons involved
in prohibited transactions, it is important that the fiduciary of any Benefit
Plan considering the purchase of Securities consult with its tax and/or legal
advisors regarding whether the assets of the related Trust would be considered
plan assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences.
LEGAL INVESTMENT MATTERS
To the extent specified in the related Prospectus Supplement, the
Securities of a Series will not constitute "mortgage related securities" under
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") because a
substantial number of the Mortgage Loans are secured by liens on real estate
that are not first liens, as required by SMMEA. Accordingly, many institutions
with legal authority to invest in "mortgage related securities" may not be
legally authorized to invest in the Offered Securities.
Institutions whose investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain Classes of the Securities. Any
financial institution which is subject to the jurisdiction of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation ("FDIC"), the Office of Thrift Supervision
("OTS"), the National Credit Union Administration ("NCUA"), or other federal or
state agencies with similar authority should review any applicable rules,
guidelines and regulations prior to purchasing the Securities. The Federal
Financial Institutions Examination Council, for example, has issued a
Supervisory Policy Statement on Securities Activities effective February 10,
1992 (the "Policy Statement"). The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS, and
the NCUA (with certain modifications), with respect to the depository
institutions that they regulate. The Policy Statement prohibits depository
institutions from investing in certain "high-risk mortgage securities"
(including securities such as certain Classes of Securities), except under
limited circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions. The NCUA issued final regulations
effective December 2, 1991 that restrict and in some instances prohibit the
investment by federal credit unions in certain types of mortgage related
securities.
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 and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying", or in securities which are issued in book-entry
form.
Investors should consult their own legal advisors in determining whether
and to what extent the Securities constitute legal investments for such
investors.
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PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Securities of a given Series (collectively, the "Underwriting
Agreements"), the Seller will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase, the principal amount of each
Class of Securities of the related Series set forth therein and in the related
Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given Series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Securities described therein
which are offered hereby and by the related Prospectus Supplement if any of such
Securities are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each Class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
such Securities, such public offering prices and such concessions may be
changed.
Each Underwriting Agreement will provide that FFI and the Seller will
indemnify the underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts
in Eligible Investments acquired from such underwriters or from the Seller.
Pursuant to each Underwriting Agreement with respect to a given Series of
Securities, the closing of the sale of any Class of Securities subject to such
Underwriting Agreement will be conditioned on the closing of the sale of all
other such Classes of Securities of that Series.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
USE OF PROCEEDS
To the extent specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Securities will be applied to the simultaneous purchase of the Loan
Assets related to such Series or to reimburse the amounts previously used to
effect such a purchase, the costs of carrying such Loan Assets until sale of the
Securities and other expenses connected with pooling the Loan Assets and issuing
the Securities.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any Series will be
passed upon for the related Trust, the Seller and the Servicer by Andrews &
Kurth L.L.P., Dallas, Texas. In addition, certain United States federal and
Texas state tax and other matters will be passed upon for the related Trust by
Andrews & Kurth L.L.P., Dallas, Texas.
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INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
"Act"......................................................................... 71
"Administration Fee".......................................................... 26
"Administrator"............................................................... 1, 26
"Annual Reduction"............................................................ 73
"Applicable Accounting Standards"............................................. 56
"Assets"...................................................................... ii, 4
"Benefit Plan"................................................................ 93
"Call Risk"................................................................... 13
"Cedel"....................................................................... 33
"Certificate Balance"......................................................... 3
"Certificates"................................................................ i
"Class"....................................................................... i
"Closing Date"................................................................ 6, 53
"Code"........................................................................ 81
"Collateral Value"............................................................ 40
"Commission".................................................................. iv
"Companion Class"............................................................. 13
"Companion Securities"........................................................ 29
"Compound Interest Securities"................................................ 29
"Contract Pool"............................................................... ii, 4
"Contracts"................................................................... ii, 4, 6, 39
"Conventional Contracts"...................................................... 6, 40
"Conventional Mortgage Loans"................................................. 5
"Cooperative"................................................................. 34
"Cooperative Loans"........................................................... 38
"Cooperatives"................................................................ 5, 38
"Credit Enhancement".......................................................... 4, 7, 15, 16, 42
"Cut-off Date"................................................................ 6
"Definitive Notes"............................................................ 35
"Definitive Certificates"..................................................... 35
"Definitive Securities"....................................................... 31, 35
"Depository".................................................................. 21
"Distribution Date"........................................................... 22, 27
"DTC Participants"............................................................ 22, 32
"Euroclear"................................................................... 34
"Events of Default"........................................................... 23, 58
"Excess Spread"............................................................... 44
"Extension Risk".............................................................. 13
"FFI"......................................................................... 1, 51
"FHA"......................................................................... 71
"FHA Claims Administration Agreement"......................................... 16
"FHA Claims Administrator".................................................... 15
"FHA Reserve"................................................................. 72
"Fixed Rate Securities"....................................................... 30
"Floating Rate Securities".................................................... 30
"Grantor Trust Certificateholders"............................................ 89
"Grantor Trust Certificates".................................................. 89
"Guaranty Policy"............................................................. 44
"Indenture"................................................................... 2
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
"Indenture Trustee"........................................................... i
"Index"....................................................................... 30
"Index Currencies"............................................................ 30
"Indexed Principal Amount".................................................... 30
"Indexed Securities".......................................................... 30
"Indirect DTC Participants"................................................... 32
"indirect originations"....................................................... 38
"Interest Only Securities".................................................... 28
"Interest Rate"............................................................... 2
"Issuer"...................................................................... 1
"Loan Asset Pool"............................................................. ii
"Loan Assets"................................................................. ii
"Manufactured Home"........................................................... 40
"Manufacturer's Invoice Price"................................................ 40
"Master Servicer"............................................................. 1
"Mortgage".................................................................... 54
"Mortgage Loans".............................................................. ii, 4, 5
"Mortgage Notes".............................................................. 38
"Mortgage Note"............................................................... 54
"Mortgage Pool Insurance Policy".............................................. 45
"Mortgage Rates".............................................................. 39
"Mortgaged Properties"........................................................ 38
"Mortgages"................................................................... 38
"Non-Priority Securities"..................................................... 29
"Notes"....................................................................... i
"Offered Securities".......................................................... iii
"OID"......................................................................... 82
"OID regulations"............................................................. 82
"Pass Through Rate"........................................................... 3
"Permitted Investments"....................................................... 42
"Pool Insurer"................................................................ 45
"Pooling and Servicing Agreement"............................................. i, 1, 7
"Pre-Funding Account"......................................................... 41
"Principal Only Securities"................................................... 29
"Priority Securities"......................................................... 29
"Prospectus Supplement"....................................................... i
"Rating Agency"............................................................... 9
"Registration Statement"...................................................... iv
"Related Documents"........................................................... 25
"Relief Act".................................................................. 18, 60, 71
"Reserve Fund"................................................................ 46
"Sale and Servicing Agreement"................................................ 6
"Schedule of Loan Assets"..................................................... 53
"Scheduled Amortization Securities"........................................... 29
"Scheduled Amortization Security"............................................. 13
"Secured Contracts"........................................................... ii, 4, 6, 40
"Secured Property"............................................................ 75
"Securities".................................................................. i
"Securities Act".............................................................. iv
"Seller"...................................................................... i, 1, 50
"Senior Securities"........................................................... 29, 43
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
"Series"...................................................................... i
"Servicer".................................................................... i, 1
"SMMEA"....................................................................... 9, 94
"Special Allocation Securities"............................................... 29
"Special Hazard Insurance Policy"............................................. 45
"Subordinated Securities"..................................................... 29, 43
"Subsequent Loan Assets"...................................................... 6, 41
"Subsequent Transfer Agreement"............................................... 55
"Subservicer"................................................................. 48
"Subservicing Agreement"...................................................... 46
"Terms and Conditions"........................................................ 34
"Title I Contracts"........................................................... 6, 40
"Title I Mortgage Loans"...................................................... 5, 38
"Transfer and Servicing Agreements"........................................... 53
"Transfer Report"............................................................. 72
"Transferor".................................................................. 1, 37
"Trust"....................................................................... i, 1
"Trust Agreement"............................................................. i, 1
"Trust Property".............................................................. ii, 4
"Trustee"..................................................................... i, 36
"UCC"......................................................................... 64
"Underwriting Agreements"..................................................... 95
"Unsecured Contracts"......................................................... ii, 4, 6, 40
"Window Period Loans"......................................................... 68
</TABLE>
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ANNEX B
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Securities (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through DTC,
Cedel or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedure applicable
to U.S. corporate debt obligations and prior asset-backed securities issues.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding securities will be effected on a delivery-against-payment
basis through the Relevant Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
Relevant Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practice. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
securities custody accounts on the settlement date against payment in same-day
funds.
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SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to prior
asset-backed securities issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the Procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date, on the basis of the actual number of
days in such accrual period and a year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. Payment will
then be made by the respective Depositary to the DTC Participant's account
against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Cedel Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from, the
value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Cedel or Euroclear cash debt will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they clear the overdraft when the Global Securities are credited to
their accounts. However, interest on the Global Securities would accrue from
the value date. Therefore, in many cases the investment income on the Global
Securities earned during that one-day period may substantially reduce or offset
the amount of such overdraft charges, although this result will depend on each
Cedel Participants or Euroclear Participant's particular cost of funds.
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Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two
DTC Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
Cedel or Euroclear will instruct the Relevant Depositary, as appropriate, to
deliver the Global Securities to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment to and excluding the settlement date on the
basis of the actual number of days in such accrual period and a year assumed to
consist of 360 days. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Cedel Participant or Euroclear
Participant have a line of credit with its respective clearing system and elect
to be in debt in anticipation of receipt of the sale proceeds in its account,
the back valuation will extinguish any overdraft incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Cedel Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing though Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that
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generally applies to payments of interest (including original issue discount)
on registered debt issued by U.S. Persons, unless (i) each clearing system,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain of intermediaries between
such beneficial owner and the U.S. entity required to withhold tax complies
with applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Global Securities that are Non-U.S. Persons can obtain a complete exemption
from the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on
Income Effectively Connected with the Conduct of a Trade or Business in the
United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Certificate Owners or their
agents.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person though whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years, and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
that is subject to United States federal income tax, regardless of the source
of its income. The term "Non-U.S. Person" means any person who is not a U.S.
Person. This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of Global Securities.
B-4
<PAGE> 98
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. *
* A registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may *
* not be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This Prospectus Supplement *
* and the accompanying Prospectus shall not constitute an offer to sell *
* or the solicitation of an offer to buy nor shall there be any sale of *
* these securities in any jurisdiction in which such offer, *
* solicitation or sale would be unlawful prior to the registration or *
* qualification under the securities laws of any such jurisdiction. *
* *
***************************************************************************
PROSPECTUS SUBJECT TO COMPLETION; DATED SEPTEMBER 12, 1996
ASSET-BACKED CERTIFICATES
(ISSUABLE IN SERIES)
FIRSTPLUS INVESTMENT CORPORATION
This Prospectus relates to Asset-Backed Certificates (the
"Certificates") which may be issued from time to time in one or more series
(each, a "Series") by FIRSTPLUS INVESTMENT CORPORATION (the "Depositor") on
terms determined at the time of sale and described in this Prospectus and the
related Prospectus Supplement (a "Prospectus Supplement"). As specified in the
related Prospectus Supplement, the Certificates of a Series may be issued in
one or more classes (each, a "Class") and certain of these Classes of
Certificates (the "Offered Certificates") will be offered hereby and by such
Prospectus Supplement.
Each Series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (a "Trust Fund") to be formed by
the Depositor as the depositor pursuant to a Pooling and Servicing Agreement.
The issuer ("Issuer") with respect to a Series of Certificates will be the
Trust Fund. The Trust Fund for each Series of Certificates will consist
primarily of a segregated pool (a "Mortgage Asset Pool") of one or more of the
following mortgage related assets (the "Mortgage Assets"): (i) pools of single
family (one- to four-unit) residential mortgage loans, including mortgage loans
that are secured by first or junior liens on the related mortgaged properties,
mortgage loans for property improvement, debt consolidation and/or home equity
purposes, timeshare mortgage loans and loans evidenced by retail installment
sales or installment loan agreements that are secured by first or junior liens
on real property (the "Mortgage Loans"); (ii) pools of loans evidenced by
retail installment sales or installment loan agreements, including loans
secured by new or used Manufactured Homes (as defined herein) that are not
considered to be interests in real property because such Manufactured Homes are
not permanently affixed to real estate ("Secured Contracts") and unsecured
loans for Manufactured Homes, home improvement, debt consolidation and/or home
equity purposes ("Unsecured Contracts" and, together with the Secured
Contracts, the "Contracts"); and (iii) mortgage-backed certificates, mortgage
pass-through certificates or mortgage participation certificates (the "Agency
Securities"), issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC"). To the extent specified in
the related Prospectus Supplement, the Mortgage Loans and Contracts may include
Title I Mortgage Loans and Title I Contracts. If specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
the rights or other ancillary or incidental assets (together with the Mortgage
Assets, collectively, the "Assets") that are intended (i) to provide credit
enhancement for the ultimate or timely distributions of proceeds from the
Mortgage Assets to Certificateholders or (ii) to assure the servicing of the
Mortgage Assets.
BEFORE PURCHASING ANY OFFERED CERTIFICATES, PROSPECTIVE INVESTORS
SHOULD REVIEW THE INFORMATION SET FORTH ON PAGE 13 HEREIN UNDER THE CAPTION
"RISK FACTORS" AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION "RISK
FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT.
(Cover continued on next page)
________________________
PROCEEDS OF THE ASSETS OF A TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR OR ANY OF ITS
AFFILIATES. EXCEPT AS SET FORTH HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT, NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR
BY THE DEPOSITOR, ANY OF ITS AFFILIATES, OR ANY OTHER PERSON.
________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described
herein and in the related Prospectus Supplement. See "Plan of Distribution"
herein. There will have been no public market for any Series of Certificates
prior to the offering thereof. There can be no assurance that a secondary
market will develop for the Certificates of any Series or, if it does develop,
that such market will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT
BE USED TO CONSUMMATE SALES OF THE OFFERED CERTIFICATES FOR ANY SERIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 12, 1996.
<PAGE> 99
(Cover continued from previous page)
Each Series will be issued in one or more Classes, one or more of
which may be Principal Only Certificates, Interest Only Certificates, Compound
Interest Certificates, Variable Interest Rate Certificates, Scheduled
Amortization Certificates, Companion Certificates, Special Allocation
Certificates or any other Class of Certificates, if any, included in such
Series and described in the related Prospectus Supplement. Principal Only
Certificates will not accrue, and will not be entitled to receive, any
interest. Payments or distribution of interest on each Class of Certificates
other than Principal Only Certificates and Compound Interest Certificates will
be made on each Distribution Date as specified in the related Prospectus
Supplement. Interest will not be paid or distributed on Compound Interest
Certificates on a current basis until the date or period specified in the
related Prospectus Supplement. Prior to such time, interest on such Class of
Compound Interest Certificates will accrue and the amount of interest so
accrued will be added to the principal thereof on each Distribution Date. The
amount of principal and interest available and payable on each Series on each
Distribution Date will be applied to the Classes of such Series in the order
and as otherwise specified in the related Prospectus Supplement. Principal
payments or distributions on each Class of a Series will be made on a pro rata,
or other selection basis among Certificates of such Class, as specified in the
related Prospectus Supplement. Certificates of a Series will be subject to
redemption or repurchase only under the circumstances and according to the
priorities described herein and in the related Prospectus Supplement. The
Depositor or its affiliates may retain or hold for sale from time to time all
or a portion of one or more Classes of a Series.
The yield on each Class of a Series will be affected by the rate of
payment of principal and interest (including prepayments) on the related
Mortgage Assets and the timing of receipt of such payments as described herein
and in the related Prospectus Supplement.
If specified in the Prospectus Supplement for a Series, one or more
elections may be made to treat all or specified portions of the related Trust
Fund as a "real estate mortgage investment conduit" ("REMIC") or to treat the
arrangement by which such Series is issued as a REMIC, for federal income tax
purposes. If applicable, the Prospectus Supplement for a Series will specify
which Class or Classes of such Series of Certificates will be considered to be
regular interests in the related REMIC and which Class of Certificates or other
interests will be designated as the residual interest in the related REMIC. See
"Certain Federal Income Tax Consequences" herein.
See "ERISA Considerations" herein and in the related Prospectus
Supplement for a discussion of restrictions on the acquisition of Certificates
by "plan fiduciaries."
PROSPECTUS SUPPLEMENT
As further described herein, the Prospectus Supplement relating to
each series of Offered Certificates will, among other things, set forth, as and
to the extent appropriate: (i) a description of each Class of such Offered
Certificates, including with respect to each such Class the following (A) the
distribution provisions, (B) the aggregate principal amount, if any, (C) the
rate at which interest accrues from time to time, if at all, or the method of
determining such rate, and (D) whether interest will accrue from time to time
on its aggregate principal amount, if any, or on a specified notional amount,
if at all; (ii) information with respect to any other Classes of Certificates
of the same Series; (iii) the respective dates on which distributions are to be
made; (iv) information as to the Assets, including the Mortgage Assets and
Credit Enhancement, constituting the related Trust Fund; (v) the circumstances,
if any, under which the related Trust Fund may be subject to early termination;
(vi) additional information with respect to the method of distribution of such
Offered Certificates; (vii) whether one or more REMIC elections will be made
and the designation of the "regular interests" and "residual interests" in each
REMIC to be created and the identity of the person (the "REMIC Administrator")
responsible for the various tax-related duties in respect of each REMIC to be
created; (viii) the initial percentage ownership interest in the related Trust
Fund to be evidenced by each Class of Certificates of such Series; (ix)
information concerning the Trustee (as defined herein) of the related Trust
Fund; (x) if the related Trust Fund includes Mortgage Loans or Contracts,
information concerning the Servicer and any Master Servicer (each as defined
herein) of such
ii
<PAGE> 100
Mortgage Loans or Contracts; (xi) information as to the nature and extent of
subordination of any Class of Certificates of such Series, including a Class of
Offered Certificates; and (xii) whether such Offered Certificates will be
initially issued in definitive or book-entry form.
The actual characteristics of the Mortgage Assets relating to a Series
will not deviate in any material respect from the parameters specified in the
related Prospectus Supplement; provided, however, that if the characteristics
described therein materially differ from the actual characteristics, a
supplement to such Prospectus Supplement will be distributed.
AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith is required to file reports and other information (the
"Reports") with the Securities and Exchange Commission (the "Commission"). The
Depositor has filed with the Commission a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Certificates. This Prospectus, which forms a part of the Registration
Statement, and the Prospectus Supplement relating to each Series of
Certificates contain summaries of the material documents referred to herein and
therein, but do not contain all of the information contained in such
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. The Registration Statement can be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., 1st Floor,
Room 1024, Washington, D.C. 20549, and at the following regional offices of the
Commission: Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048.
The Depositor does not plan to send any financial information to
Certificateholders. The Trustee will include with each distribution to
Certificateholders a statement containing certain payment information with
respect to such Certificates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Certificates
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in another subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Depositor will provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
any such document). Requests for such copies should be directed, on behalf of
FIRSTPLUS INVESTMENT CORPORATION, to Jeffrey Luth at Morgan Walke, 380
Lexington Avenue, 50th Floor, New York, New York 10168, (212) 850-5600.
iii
<PAGE> 101
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . iii
SUMMARY OF PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Limited Liquidity and Fluctuation in Value from Market Conditions . . 12
Limited Assets of Trust Fund . . . . . . . . . . . . . . . . . . . . 13
Effect of Prepayments on Average Life . . . . . . . . . . . . . . . . 13
Effect of Prepayments on Yield . . . . . . . . . . . . . . . . . . . 15
Limitations of Credit Enhancement . . . . . . . . . . . . . . . . . . 15
Limited Nature of Ratings . . . . . . . . . . . . . . . . . . . . . . 17
Adverse Tax Consequences . . . . . . . . . . . . . . . . . . . . . . 17
Certain Factors Affecting Delinquencies, Foreclosures and Losses on
Underlying Loans . . . . . . . . . . . . . . . . . . . . . . . . . 18
Risks Associated with Certain Mortgage Assets . . . . . . . . . . . . 20
Recharacterization of Sale of Mortgage Assets as Borrowing . . . . . 21
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . 21
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
The Certificates -- General . . . . . . . . . . . . . . . . . . . . . 22
Form of Certificates; Transfer and Exchange . . . . . . . . . . . . . 22
REMIC Election . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Classes of Certificates . . . . . . . . . . . . . . . . . . . . . . . 23
Distributions of Principal and Interest . . . . . . . . . . . . . . . 25
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Book Entry Registration . . . . . . . . . . . . . . . . . . . . . . . 27
Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . 28
ASSETS SECURING OR UNDERLYING THE CERTIFICATES . . . . . . . . . . . . . . 28
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Agency Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Additions, Substitution and Withdrawal of Assets . . . . . . . . . . 37
Pre-Funding Arrangements . . . . . . . . . . . . . . . . . . . . . . 37
CREDIT ENHANCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Overcollateralization . . . . . . . . . . . . . . . . . . . . . . . . 39
Cross-Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Certificate Insurance . . . . . . . . . . . . . . . . . . . . . . . . 40
Pool Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Special Hazard Insurance . . . . . . . . . . . . . . . . . . . . . . 40
Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
iv
<PAGE> 102
<TABLE>
<S> <C>
Other Insurance, Guarantees and Similar Instruments or Agreements . . 41
SERVICING OF THE MORTGAGE LOANS AND CONTRACTS . . . . . . . . . . . . . . . 41
Enforcement of Due-on-Sale Clauses . . . . . . . . . . . . . . . . . 42
Realization Upon Defaulted Mortgage Loans . . . . . . . . . . . . . . 42
Waivers and Deferments of Certain Payments . . . . . . . . . . . . . 43
Subservicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Removal and Resignation of Servicer . . . . . . . . . . . . . . . . . 43
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Servicing Procedures . . . . . . . . . . . . . . . . . . . . . . . . 43
Administration and Servicing Compensation and Payment of Expenses . . 45
THE POOLING AND SERVICING AGREEMENT . . . . . . . . . . . . . . . . . . . . 45
Assignment of Mortgage Assets . . . . . . . . . . . . . . . . . . . . 45
Conveyance of Subsequent Mortgage Assets . . . . . . . . . . . . . . 47
Repurchase or Substitution of Mortgage Loans and Contracts . . . . . 47
Evidence as to Compliance . . . . . . . . . . . . . . . . . . . . . . 48
List of Certificateholders . . . . . . . . . . . . . . . . . . . . . 48
Administration of the Certificate Account . . . . . . . . . . . . . . 48
Reports to Certificateholders . . . . . . . . . . . . . . . . . . . . 49
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Rights Upon Event of Default . . . . . . . . . . . . . . . . . . . . 50
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
THE SERVICER AND THE TRANSFEROR . . . . . . . . . . . . . . . . . . . . . . 52
THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS . . . . . . . . . . . . . . . 54
General Legal Considerations . . . . . . . . . . . . . . . . . . . . 54
Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Truth in Lending Act . . . . . . . . . . . . . . . . . . . . . . . . 63
Applicability of Usury Laws . . . . . . . . . . . . . . . . . . . . . 63
Soldiers' and Sailors' Civil Relief Act . . . . . . . . . . . . . . . 64
The Title I Program . . . . . . . . . . . . . . . . . . . . . . . . . 64
LEGAL INVESTMENT MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 72
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . 74
Federal Income Tax Consequences for REMIC Certificates . . . . . . . . . . 75
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Status of REMIC Certificates . . . . . . . . . . . . . . . . . . . . 75
Taxation of Regular Certificates . . . . . . . . . . . . . . . . . . 76
Taxation of Residual Certificates . . . . . . . . . . . . . . . . . . 84
Treatment of Certain Items of REMIC Income and Expense . . . . . . . 85
Tax-Related Restrictions on Transfer of Residual Certificates . . . . 87
Taxes That May Be Imposed on the REMIC Pool . . . . . . . . . . . . . 90
Limitations on Deduction of Certain Expenses . . . . . . . . . . . . 91
</TABLE>
v
<PAGE> 103
<TABLE>
<S> <C>
Taxation of Certain Foreign Investors . . . . . . . . . . . . . . . . 92
Backup Withholding . . . . . . . . . . . . . . . . . . . . . . . . . 93
Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . 93
Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made . . . . . . . . . . . . . . . . . . . 94
Standard Certificates . . . . . . . . . . . . . . . . . . . . . . . . 94
Premium and Discount . . . . . . . . . . . . . . . . . . . . . . . . 95
Sale or Exchange of Certificates . . . . . . . . . . . . . . . . . . 97
Stripped Certificates . . . . . . . . . . . . . . . . . . . . . . . . 97
Taxation of Stripped Certificates . . . . . . . . . . . . . . . . . . 99
Reporting Requirements and Backup Withholding . . . . . . . . . . . 100
Taxation of Certain Foreign Investors . . . . . . . . . . . . . . . 100
STATE TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . 100
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 101
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
FINANCIAL INFORMATION AND ADDITIONAL INFORMATION . . . . . . . . . . . . 101
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL TERMS . . . . . . . . . . . . . . . 103
</TABLE>
vi
<PAGE> 104
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in the
Prospectus Supplement with respect to the Series offered thereby and to the
related Pooling and Servicing Agreement. Unless otherwise specified, initially
capitalized terms used and not defined in this Summary of Prospectus have the
meanings given to them in this Prospectus and in the related Prospectus
Supplement. Reference is made to the " Index to Location of Principal Terms"
set forth in Appendix A for the location of certain capitalized terms.
Securities Offered . . . . . Asset Backed Certificates issuable in Series
as described in the Prospectus Supplement.
Certificates of a Series will be issued
pursuant to a pooling and servicing agreement
(each, a "Pooling and Servicing Agreement")
between the Depositor, as depositor, the
Servicer, any Administrators, the Master
Servicer, if any, and the Trustee for such
Series and will evidence beneficial interests
in the assets included in a trust fund (the
"Trust Fund") and assigned to the Trustee for
the applicable Series. Holders of Certificates
are referred to herein as "Holders" or
"Certificateholders."
The Certificates of any Series may be issued
in one or more classes (each a "Class"), as
specified in the related Prospectus
Supplement. One or more Classes of
Certificates of each Series:
(i) may be entitled to receive distributions
allocable only to principal ("Principal Only
Certificates"), only to interest ("Interest
Only Certificates") or to any combination
thereof;
(ii) may be entitled to receive distributions
only of prepayments of principal throughout
the lives of the Certificates of such Series
or during specified periods;
(iii) may be subordinated in the right to
receive distributions of scheduled payments of
principal, prepayments of principal, interest
or any combination thereof to one or more
other Classes of such Series throughout the
lives of the Certificates of such Series or
during specified periods;
(iv) may be entitled to receive such
distributions only after the occurrence of
events specified in the Prospectus Supplement;
(v) may be entitled to receive distributions
in accordance with a schedule or formula or on
the basis of collections from designated
portions of the Assets securing such Series or
in the related Trust Fund;
(vi) may be entitled to receive interest at a
rate that is subject to change from time to
time ("Variable Interest Rate Certificates")
or at a fixed rate;
(vii) may accrue interest, with such accrued
interest added to the principal amount of the
Certificates of such Class and no
1
<PAGE> 105
payments being made thereon until such time as
is specified in the related Prospectus
Supplement ("Compound Interest Certificates").
As specified in the related Prospectus
Supplement, each Series of Certificates will
be entitled to distributions from the Assets
included in the related Trust Fund and any
other assets pledged or otherwise available
for the benefit of Holders of such Series.
The timing and amounts of such distributions
may vary among Classes, over time, or
otherwise as specified in the related
Prospectus Supplement.
The Depositor or its affiliates may retain or
hold for sale from time to time all or a
portion of one or more Classes of a Series.
The Certificates of each Class of a Series
will be issued either in fully registered form
or in book entry form in the authorized
denominations specified in the Prospectus
Supplement. The Certificates and Mortgage
Assets will be guaranteed or insured, if at
all, to the extent specified in the related
Prospectus Supplement; otherwise, the
Certificates will not be guaranteed or insured
by GNMA, FNMA, FHLMC, any governmental entity
or by any other person, and the Mortgage
Assets (other than Agency Securities) relating
to a Series will not be guaranteed or insured
by any governmental agency or instrumentality
or any other insurer.
Depositor . . . . . . . . . . FIRSTPLUS INVESTMENT CORPORATION will transfer
the Assets for a Series to the related Trust
Fund (the "Depositor"). See "The Depositor."
Issuer . . . . . . . . . . . The Issuer will be the Trust Fund established
by the Depositor pursuant to the related
Pooling and Servicing Agreement (the
"Issuer").
Servicer . . . . . . . . . . If the related Trust Fund includes Mortgage
Loans or Contracts, the entity or entities
named as the Servicer in the related
Prospectus Supplement (the "Servicer"), that
will act as servicer with respect to such
Mortgage Loans or Contracts. The Servicer may
be an affiliate of the Depositor.
Administrator . . . . . . . . The entity or entities named as Administrator,
if any, in the related Prospectus Supplement
(the "Administrator"), will act as
administrator with respect to one or more
aspects related to any Mortgage Loans or
Contracts included in the related Trust Fund
(e.g., REMIC Administrator, FHA Claims
Administrator, etc.). The Administrator may be
an affiliate of the Depositor.
Master Servicer . . . . . . . If the related Trust Fund includes Mortgage
Loans or Contracts, the entity or entities, if
any, named as the master servicer in the
related Prospectus Supplement (the "Master
Servicer"), that will act as master servicer
with respect to such
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<PAGE> 106
Mortgage Loans or Contracts. The Master
Servicer may be an affiliate of the Depositor.
Trustee . . . . . . . . . . . A bank, trust company or other fiduciary
acting as a trustee and named in the related
Prospectus Supplement (the "Trustee"), that
will enter into the related Pooling and
Servicing Agreement.
Distributions of Interest . . Each Class of a Series (other than a Class of
Principal Only Certificates) will accrue
interest at the rate set forth in (or, in the
case of Variable Interest Certificates, as
determined as provided in) the related
Prospectus Supplement (the "Certificate
Interest Rate"). One or more Classes of a
Series may be entitled to receive
distributions of interest only to the extent
of amounts available to make such
distributions. Interest on each Class will
accrue during the respective periods and be
paid or distributed on the respective dates
specified in the related Prospectus Supplement
(each such period a "Due Period" and each such
date a "Distribution Date"). Interest on all
Certificates that bear or receive interest,
other than Compound Interest Certificates,
will be distributed on the Distribution Dates
specified in the related Prospectus
Supplement. However, failure to distribute
interest on a current basis may not
necessarily be an Event of Default with
respect to a particular Series or Class of
Certificates. Interest on any Class of
Compound Interest Certificates will not be
paid or distributed currently, but will accrue
and the amount of the interest so accrued will
be added to the principal thereof on each
Distribution Date until such time as is
specified in the related Prospectus
Supplement. Principal Only Certificates will
not accrue, and will not be entitled to
receive, any interest. Upon maturity or
earlier termination of the Certificates of any
Class or earlier termination of the Trust Fund
for any Series, interest will be paid to the
date specified in the related Prospectus
Supplement.
Each payment of interest on each Class of
Certificates (or addition to principal of a
Class of Compound Interest Certificates) on a
Distribution Date will include all interest
accrued during the related Due Period. If the
Due Period for a Series ends on a date other
than a Distribution Date for such Series, the
yield realized by the Holders of such
Certificates may be lower than the yield that
would result if the Due Period ended on such
Distribution Date. Additionally, if specified
in the related Prospectus Supplement, interest
accrued for a Due Period for one or more
Classes may be calculated on the assumption
that principal distributions (and additions to
principal of the Certificates), and
allocations of losses on the Mortgage Assets
(if specified in the related Prospectus
Supplement), are made on the first day of the
preceding Due Period and not on the
Distribution Date for such preceding Due
Period when actually made or added. Such
method would
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<PAGE> 107
produce a lower effective yield than if
interest were calculated on the basis of the
actual principal amount outstanding.
With respect to each Class of Variable
Interest Rate Certificates of a Series, the
related Prospectus Supplement will set forth:
(i) the initial Certificate Interest Rate, (or
the manner of determining the initial
Certificate Interest Rate); (ii) the formula,
index or other method by which the Certificate
Interest Rate will be determined from time to
time; (iii) the periodic intervals at which
such determination will be made; (iv) the
interest rate cap (the "Maximum Variable
Interest Rate") if any, and the interest rate
floor (the "Minimum Variable Interest Rate"),
if any, on the Certificate Interest Rate for
such Variable Interest Rate Certificates; and
(v) any other terms relevant to such Class of
Certificates. See "Description of the
Certificates -- Distributions of Principal and
Interest" and -- "Distributions of Interest."
Distributions of
Principal . . . . . . . . . Principal distributions on the Certificates of
a Series will be made from amounts available
therefor on each Distribution Date in an
aggregate amount determined as set forth in
the related Prospectus Supplement and will be
allocated among the respective Classes of a
Series of Certificates at the times, in the
manner and in the priority set forth in the
related Prospectus Supplement.
Except with respect to Compound Interest
Certificates and Interest Only Certificates,
on each Distribution Date principal
distributions will be made on the Certificates
of a Series in an aggregate amount determined
as specified in the related Prospectus
Supplement. If a Series has a Class of
Compound Interest Certificates, additional
principal distributions on the Certificates of
such Series will be made on each Distribution
Date in an amount equal to the interest
accrued, but not then payable or
distributable, on such Class of Compound
Interest Certificates for the related Due
Period. See "Description of the Certificates
-- Distributions of Principal and Interest --
Distributions of Principal."
Unscheduled
Distributions . . . . . . . If specified in the related Prospectus
Supplement, the Certificates of a Series will
be subject to receipt of distributions before
the next scheduled Distribution Date as
described under "Description of Certificates
-- Distributions of Principal and Interest --
Unscheduled Distributions."
Allocation of Losses . . . . If specified in the related Prospectus
Supplement, on any Distribution Date on which
the principal balance of the Mortgage Assets
relating to a Series is reduced due to losses
on such Mortgage Assets, (i) the amount of
such losses will be allocated first, to reduce
the aggregate outstanding principal balance of
the Subordinate Certificates of such Series or
other subordination or reserves, if any, and,
thereafter, to reduce the aggregate
outstanding principal balance of the remaining
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<PAGE> 108
Certificates of such Series in the priority
and manner specified in such Prospectus
Supplement until the aggregate outstanding
principal balance of each Class of such
Certificates so specified has been reduced to
zero or paid in full, thus reducing the amount
of principal distributable on each such Class
of Certificates or (ii) such losses may be
allocated in any other manner set forth in the
related Prospectus Supplement. As specified in
the related Prospectus Supplement, such
reductions of principal of a Class or Classes
of a Series of Certificates will be allocated
to the Holders of the Certificates of such
Class or Classes pro rata in the proportion
which the outstanding principal of each
Certificate of such Class or Classes bears to
the aggregate outstanding principal balance of
all Certificates of such Class or Classes.
See "Description of the Certificates --
Distributions of Principal and Interest --
Distributions of Principal."
Scheduled Final
Distribution Date . . . . . The "Scheduled Final Distribution Date" for
each Class of Certificates of a Series will be
the date after which no Certificates of such
Class will remain outstanding, as specified
and determined on the basis of the assumptions
set forth in the related Prospectus
Supplement. The Scheduled Final Distribution
Date of a Class of Certificates may equal the
maturity date of the Mortgage Asset in the
related Trust Fund which has the latest stated
maturity or will be determined as described in
the related Prospectus Supplement.
The actual maturity date of the Certificates
of a Series will depend primarily upon the
rate and timing of principal and interest
payments (including the level of prepayments)
with respect to the Mortgage Assets (including
in the case of Agency Securities the Mortgage
Assets that back such Agency Securities)
securing or underlying such Series of
Certificates. The actual maturity of any
Certificates is likely to occur earlier and
may occur substantially earlier than the
Scheduled Final Distribution Date of the
Certificates as a result of the application of
prepayments and the allocation of other
distributions to the reduction of the
principal balances of the Certificates. The
rate and timing of principal and interest
payments including prepayments on the Mortgage
Assets securing or underlying a Series will
depend on a variety of factors, including
certain characteristics of such Mortgage Loans
and the prevailing level of interest rates
from time to time, as well as on a variety of
economic, demographic, tax, legal, social and
other factors. No assurance can be given as to
the actual rate and timing of principal and
interest payments including the level of
prepayments experienced with respect to a
Series. See "Risk Factors -- Effect of
Prepayments on Average Life" herein.
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<PAGE> 109
Assets Securing or Underlying
the Certificates . . . . . Each Series of Certificates will represent
beneficial ownership interests in a Trust
Fund. As specified in the related Prospectus
Supplement, the Mortgage Assets included in
the Trust Fund with respect to a Series of
Certificates will include Mortgage Assets
consisting of one or more of the following:
(i) a pool (a "Mortgage Pool") of single
family (one- to four-unit) residential
mortgage loans, including mortgage loans that
are secured by first or junior liens on the
related mortgaged properties, mortgage loans
for property improvement, debt consolidation
and/or home equity purposes, timeshare
mortgage loans and loans evidenced by retail
installment sales or installment loan
agreements that are secured by first or junior
liens on real property ("Mortgage Loans");
(ii) a pool (a "Contract Pool") of loans
evidenced by retail installment sales or
installment loan agreements, including loans
secured by new or used Manufactured Homes (as
defined herein) that are not considered to be
interests in real property because such
Manufactured Homes are not permanently affixed
to real estate ("Secured Contracts") and
unsecured loans for Manufactured Homes or for
home improvement, debt consolidation and/or
home equity purposes ("Unsecured Contracts"
and, together with the Secured Contracts, the
"Contracts"); and
(iii) mortgage-backed certificates, mortgage
pass-through certificates or mortgage
participation certificates, including residual
interests ("Agency Securities") issued or
guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") or the Federal
Home Loan Mortgage Corporation ("FHLMC");
As specified in the related Prospectus
Supplement, a Trust Fund may also include, or
the related Certificates may also have the
benefits of, certain rights and other
ancillary or incidental assets (together with
the Mortgage Assets, collectively, the
"Assets"), that are intended (i) to enhance
the likelihood of ultimate or timely
distributions of proceeds from the Mortgage
Assets to Certificateholders, including
letters of credit, insurance policies,
guaranties, reserve funds or other types of
credit enhancement or any combination thereof
(the "Credit Enhancement"), or (ii) to assure
the servicing of the Mortgage Assets,
including interest rate exchange agreements,
reinvestment income and cash accounts. The
Certificates of any Series will be entitled to
payment only from the Assets included in the
related Trust Fund and any other Assets
pledged or otherwise available for the benefit
of the holders of such Certificates as
specified in the related Prospectus
Supplement.
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<PAGE> 110
A. Mortgage Loans . . . . . . As specified in the related Prospectus
Supplement for a Series, "Mortgage Loans" may
include: (i) conventional (i.e., not insured
or guaranteed by any governmental agency)
Mortgage Loans secured by first liens on
one-to-four family residential properties;
(ii) Mortgage Loans secured by security
interests in shares issued by private,
non-profit, cooperative housing corporations
("Cooperatives") and in the related
proprietary leases or occupancy agreements
granting exclusive rights to occupy specific
dwelling units in such Cooperatives'
buildings; (iii) Mortgage Loans secured by
junior (i.e., second, third, etc.) liens on
the related mortgaged properties, including
loans for property improvements, debt
consolidation and/or home equity purposes
(which may be evidenced by retail installment
sales contracts and installment loan
agreements); (iv) Mortgage Loans secured by
timeshare estates representing an ownership
interest in common with other owners in one or
more vacation units entitling the owner
thereof to the exclusive use of unit and
access to the accompanying recreational
facilities for the week or weeks owned; and
(v) loans evidenced by retail installment
sales and installment loan agreements that are
secured by first or junior liens on real
property. See "Assets Securing or Underlying
the Certificates -- Mortgage Loans" herein. To
the extent described in the related Prospectus
Supplement, certain of the junior lien
Mortgage Loans will be conventional (i.e., not
insured or guaranteed by a governmental
agency) mortgage loans ("Conventional Mortgage
Loans"), while other junior lien Mortgage
Loans that are property improvement loans will
be partially insured by the Federal Housing
Administration under the Title I Program
("Title I Mortgage Loans").
The related Prospectus Supplement for a Series
will describe any Mortgage Loans included in
the Trust Fund and will specify certain
information regarding the payment terms of
such Mortgage Loans. See "Assets Securing or
Underlying the Certificates -- Mortgage
Loans."
B. Contracts . . . . . . . . As specified in the related Prospectus
Supplement for a Series, "Contracts" may
include: (i) loans evidenced by retail
installments sales or loan agreements,
including loans secured by new or used
Manufactured Homes (as defined herein) that
are not considered to be interests in real
property because such Manufactured Homes are
not permanently affixed to real estate
("Secured Contracts") and (ii) unsecured loans
for Manufactured Homes or for property
improvement, debt consolidation and/or home
equity purposes (such unsecured loans are
collectively, the "Unsecured Contracts"). See
"Assets Securing or Underlying the
Certificates -- Contracts" herein. To the
extent described in the related Prospectus
Supplement, certain Contracts that are secured
by Manufactured Homes and Unsecured Contracts
will be conventional (i.e., not insured or
guaranteed by a governmental agency) loan
contracts (the "Conventional Contracts"),
while other Contracts that are secured by
Manufactured Homes or that are unsecured loans
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<PAGE> 111
for Manufactured Homes or property
improvements will be partially insured by the
FHA under the Title I Program (the "Title I
Contracts"). The related Prospectus Supplement
for a Series will further describe any
Contracts included in the Trust Fund. See
"Assets Securing or Underlying the
Certificates -- Contracts."
C. Agency Securities . . . . As specified in the related Prospectus
Supplement for a Series, "Agency Securities"
may include: (i) "fully modified pass-through"
mortgage-backed certificates guaranteed as to
timely payment of principal and interest by
GNMA ("GNMA Certificates"); (ii) guaranteed
mortgage pass-through certificates issued and
guaranteed as to timely payment of principal
and interest by FNMA ("FNMA Certificates");
(iii) mortgage participation certificates
issued and guaranteed as to timely payment of
interest and, to the extent specified in the
related Prospectus Supplement, ultimate
payment of principal by FHLMC ("FHLMC
Certificates"); (iv) stripped mortgage-backed
securities representing an undivided interest
in all or a part of either the principal
distributions (but not the interest
distributions) or the interest distributions
(but not the principal distributions) or in
some specified portion of the principal and
interest distributions (but not all of such
distributions) on certain GNMA, FNMA or FHLMC
Certificates and, unless otherwise specified
in the Prospectus Supplement, guaranteed to
the same extent as the underlying securities;
(v) other types of mortgage-backed
certificates, mortgage pass-through
certificates or mortgage participation
certificates issued or guaranteed by GNMA,
FNMA or FHLMC, such as FNMA Guaranteed REMIC
Pass-Through Certificates and FHLMC Multiclass
Mortgage Participation Certificates, and
including residual interest securities, as
described in the related Prospectus
Supplement; or (vi) a combination of such
Agency Securities.
All GNMA Certificates will be backed by the
full faith and credit of the United States.
No FHLMC or FNMA Certificates will be backed,
directly or indirectly, by the full faith and
credit of the United States. See "Assets
Securing or Underlying the Certificates --
Agency Securities."
D. Pre-Funding
Arrangements . . . . . . . To the extent provided in the related
Prospectus Supplement for a Series, the
related Pooling and Servicing Agreement will
provide for a commitment by the related Trust
Fund to subsequently purchase additional
Mortgage Assets ("Subsequent Mortgage Assets")
from the Depositor following the date on which
the Trust Fund is established and the related
Certificates are issued (a "Pre-Funding
Arrangement"). See "Assets Securing or
Underlying the Certificates -- Pre-Funding
Arrangements" herein.
Credit Enhancement . . . . . If specified in the related Prospectus
Supplement, a Series, or certain Classes
within such Series, may have the benefit of
one
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<PAGE> 112
or more types of credit enhancement ("Credit
Enhancement") including but not limited to
overcollateralization, subordination, cross
support, mortgage pool insurance, certificate
insurance, special hazard insurance, a
bankruptcy bond, reserve funds, cash accounts,
other insurance, guarantees, letters of credit
and similar instruments and arrangements. The
protection against losses afforded by any such
Credit Enhancement will be limited. See "Risk
Factors -- Limitations of Credit Enhancement"
and "Credit Enhancement" herein.
Book Entry Registration . . . If the Prospectus Supplement for a Series so
provides, Certificates of one or more Classes
of such Series may be issued in book entry
form ("Book Entry Certificates") in which case
a single Certificate will be issued in the
name of a clearing agency (a "Clearing
Agency") registered with the Securities and
Exchange Commission, or its nominee. Transfers
and pledges of Book Entry Certificates may be
made only through entries on the books of the
Clearing Agency in the name of brokers,
dealers, banks and other organizations
eligible to maintain accounts with the
Clearing Agency ("Clearing Agency
Participants") or their nominees. Transfers
and pledges by purchasers and other beneficial
owners of Book Entry Certificates ("Beneficial
Owners") other than Clearing Agency
Participants may be effected only through
Clearing Agency Participants. Beneficial
Owners will receive distributions of principal
and interest, and, if applicable, may tender
Certificates for repurchase to the related
Trustee, only through the Clearing Agency and
Clearing Agency Participants. Except as
otherwise specified in this Prospectus or a
related Prospectus Supplement, the terms
"Certificateholders" and "Holders" shall be
deemed to include Beneficial Owners. See "Risk
Factors -- Limited Liquidity and Fluctuation
in Value from Market Conditions -- Book Entry
Registration" and "Description of the
Certificates -- Book Entry Registration."
Certain Federal Income Tax
Consequences . . . . . . . The federal income tax consequences to Holders
of a Series will depend on, among other
factors, whether one or more elections are
made to treat the related Trust Fund or
specified portions thereof as a "real estate
mortgage investment conduit" ("REMIC") under
the provisions of the Internal Revenue Code of
1986, as amended (the "Code"). The Prospectus
Supplement for each Series will specify
whether such an election will be made.
If the applicable Prospectus Supplement so
specifies with respect to a Series of
Certificates, one or more REMIC elections will
be made with respect to such Series of
Certificates. Certificates of such Series will
be designated as "regular interests" in a
REMIC ("Regular Certificates") or as "residual
interests" in a REMIC ("Residual
Certificates").
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<PAGE> 113
If the applicable Prospectus Supplement so
specifies with respect to a Series of
Certificates, the Certificates of such Series
will not be treated as regular or residual
interests in a REMIC for federal income tax
purposes but instead will be treated as (i)
indebtedness of the Issuer, (ii) an undivided
beneficial ownership interest in the Mortgage
Assets (and the arrangement pursuant to which
the Mortgage Assets will be held and the
Certificates will be issued will be treated as
a grantor trust under Subpart E, part I of
subchapter J of Chapter 1 of Subtitle A of the
Code and not as an association taxable as a
corporation for federal income tax purposes);
(iii) equity interests in an association that
will satisfy the requirements for
qualification as a real estate investment
trust; or (iv) interests in an entity that
will satisfy the requirements for
qualification as a partnership for federal
income tax purposes. The federal income tax
consequences to Holders of any such Series
will be described in the related Prospectus
Supplement to the extent not described herein.
Compound Interest Certificates and Principal
Only Certificates will, and certain other
Classes of Certificates may, be issued with
original issue discount that is not de
minimis. In such cases, the Holder will be
required to include the original issue
discount in gross income as it accrues, which
may be prior to the receipt of cash, or a
portion of the cash, attributable to such
income. If a Certificate is issued at a
premium, the Holder will be entitled to make
an election to amortize such premium on a
constant yield method. Certificates
constituting regular or residual interests in
a REMIC will generally represent "qualifying
real property loans" for mutual savings banks
and domestic building and loan associations,
"loans secured by an interest in real
property" for domestic building and loan
associations and "real estate assets" for real
estate investment trusts to the extent that
the underlying mortgage loans and interest
thereon qualify for such treatment. Non-REMIC
Certificates will not qualify for such
treatment.
A Holder of a Residual Certificate will be
required to include in its income its pro rata
share of the taxable income of the REMIC. In
certain circumstances, the Holder of a
Residual Certificate may have REMIC taxable
income or tax liability attributable to REMIC
taxable income for a particular period in
excess of cash distributions for such period
or have an after-tax return that is less than
the after-tax return on comparable debt
instruments. In addition, a portion (or, in
some cases, all) of the income from a Residual
Certificate (i) except in certain
circumstances with respect to a Holder
classified as a thrift institution under the
Code, may not be subject to offset by losses
from other activities, (ii) for a Holder that
is subject to tax under the Code on unrelated
business taxable income, may be treated as
unrelated business taxable income and (iii)
for a foreign Holder, may not qualify for
exemption from or reduction of withholding.
Further,
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<PAGE> 114
individual Holders are subject to limitations
on the deductibility of expenses of the REMIC.
See "Certain Federal Income Tax Consequences."
ERISA Considerations . . . . A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
the Code should carefully review with its own
legal advisors whether the purchase or holding
of Certificates could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code. See
"ERISA Considerations." To the extent
described in the Prospectus Supplement for a
Series, certain Classes of Certificates of
such Series may not be transferred unless the
Trustee and the Depositor are furnished with a
letter of representation or an opinion of
counsel to the effect that such transfer will
not result in a violation of the prohibited
transaction provisions of ERISA and the Code
and will not subject the Trustee, the
Depositor or the Servicer, the Master
Servicer, if any, or the Administrator, if
any, to additional obligations. If specified
in the related Prospectus Supplement, the
United States Department of Labor may have
issued to the Underwriter an administrative
exemption for certain classes of securities.
See "Description of the Certificates --
General" and "ERISA Considerations."
Legal Investment Matters . . Certificates of each Series will not
constitute "mortgage related securities" under
the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") because, to the extent
specified in the related Prospectus
Supplement, a substantial number of the
Mortgage Loans will be secured by liens on
real estate that are not first liens.
Accordingly, many institutions with legal
authority to invest in "mortgage related
securities" may not be legally authorized to
invest in the Certificates of any Series.
Investors should consult their own legal
advisors in determining whether and to what
extent the Certificates of any particular
Series constitute legal investments for such
investors.
Use of Proceeds . . . . . . . Substantially all of the net proceeds from the
sale of a Series will be applied to the
simultaneous purchase of the Mortgage Assets
included in the related Trust Fund or to
reimburse the amounts previously used to
effect such purchase, the costs of carrying
the Mortgage Assets until sale of such Series
and to pay other expenses connected with
pooling the Mortgage Assets and issuing such
Series. See "Use of Proceeds."
Rating . . . . . . . . . . . It is a condition to the issuance of each
Class of a Series specified as being offered
by the related Prospectus Supplement that the
Certificates of such Class be rated in one of
the four highest rating categories established
for such Certificates by a nationally
recognized statistical rating agency (a
"Rating Agency").
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<PAGE> 115
RISK FACTORS
In considering an investment in the Offered Certificates of any
Series, investors should consider, among other things, the following risk
factors and any other factors set forth under the heading "Risk Factors" in the
related Prospectus Supplement. In general, to the extent that the factors
discussed below pertain to or are influenced by the characteristics or behavior
of the underlying loans included in a particular Trust Fund (which comprise the
Mortgage Assets consisting of Mortgage Loans or the Contracts), they would
similarly pertain to and be influenced by the characteristics or behavior of
the mortgage loans underlying any Agency Securities included in such Trust
Fund.
LIMITED LIQUIDITY AND FLUCTUATION IN VALUE FROM MARKET CONDITIONS
General. The Offered Certificates of any Series may have limited or
no liquidity. Accordingly, an investor may be forced to bear the risk of its
investment in any Offered Certificates for an indefinite period of time.
Furthermore, except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights, and
the Offered Certificates of each Series are subject to early retirement only
under certain specified circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates -- Termination"
herein.
Lack of a Secondary Market. There can be no assurance that a
secondary market for the Offered Certificates of any Series will develop or, if
it does develop, that it will provide holders with liquidity of investment or
that it will continue for as long as such Certificates remain outstanding. The
Prospectus Supplement for any Series of Offered Certificates may indicate that
an underwriter specified therein intends to establish a secondary market in
such Offered Certificates; however, no underwriter will be obligated to do so.
Any such secondary market may provide less liquidity to investors than any
comparable market for securities that evidence interests in single-family
mortgage loans. To the extent provided in the related Prospectus Supplement,
the Certificates may be listed on any securities exchange.
Book Entry Registration. Because transfers and pledges of Book Entry
Certificates can be effected only through book entries at a Clearing Agency
through Clearing Agency Participants, the liquidity of the secondary market for
Book Entry Certificates may be reduced to the extent that some investors are
unwilling to hold Certificates in book entry form in the name of Clearing
Agency Participants, and the ability to pledge Book Entry Certificates may be
limited due to lack of a physical certificate. Beneficial Owners of Book Entry
Certificates may, in certain cases, experience delay in the receipt of
distributions of principal and interest since such distributions will be
forwarded by the related Trustee to the Clearing Agency who will then forward
payment to the Clearing Agency Participants who will thereafter forward payment
to Beneficial Owners. In the event of the insolvency of the Clearing Agency or
of a Clearing Agency Participant in whose name Certificates are recorded, the
ability of Beneficial Owners to obtain timely payment and (if the limits of
applicable insurance coverage by the Securities Investor Protection Corporation
are exceeded, or if such coverage is otherwise unavailable) ultimate payment of
principal and interest on Book Entry Certificates may be impaired.
Limited Nature of Ongoing Information. The primary source of ongoing
information regarding the Offered Certificates of any Series, including
information regarding the status of the related Mortgage Assets and any Credit
Enhancement for such Certificates, will be the periodic reports to
Certificateholders to be delivered pursuant to the related Pooling and
Servicing Agreement as described herein under the heading "The Pooling and
Servicing Agreement -- Reports to Certificateholders". There can be no
assurance that any additional ongoing information regarding the Offered
Certificates of any Series will be available through any other source. The
limited nature of such information in respect of a Series of Offered
Certificates may adversely affect the liquidity thereof, even if a secondary
market for such Certificates does develop.
Sensitivity to Fluctuations in Prevailing Interest Rates. Insofar as
a secondary market does develop with respect to any Series of Offered
Certificates or Class thereof, the market value of such Certificates will be
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<PAGE> 116
affected by several factors, including the perceived liquidity thereof, the
anticipated cash flow thereon (which may vary widely depending upon the
prepayment and default assumptions applied in respect of the underlying
Mortgage Loans) and prevailing interest rates. The price payable at any given
time in respect of certain Classes of Offered Certificates (in particular, a
Class with a relatively long average life, or a Class of Companion
Certificates, Interest Only Certificates or Principal Only Certificates) may be
extremely sensitive to small fluctuations in prevailing interest rates; and the
relative change in price for an Offered Certificate in response to an upward or
downward movement in prevailing interest rates may not necessarily equal the
relative change in price for such Offered Certificate in response to an equal
but opposite movement in such rates. Accordingly, the sale of Offered
Certificates by a holder in any secondary market that may develop may be at a
discount from the price paid by such holder. The Depositor is not aware of any
source through which price information about the Offered Certificates will be
generally available on an ongoing basis.
LIMITED ASSETS OF TRUST FUND
The Offered Certificates and Mortgage Assets for a Series will be
guaranteed or insured, if at all, to the extent specified in the related
Prospectus Supplement; otherwise neither the Offered Certificates of any Series
nor the Mortgage Assets in the related Trust Fund will be guaranteed or insured
by the Depositor or any of its affiliates, by any governmental agency or
instrumentality or by any other person, and no Offered Certificate of any
Series will represent a claim against or security interest in the Trust Funds
for any other Series. Accordingly, if the related Trust Fund has insufficient
assets to make payments on a Series of Offered Certificates, no other assets
will be available for payment of the deficiency, and the holders of one or more
Classes of such Offered Certificates will be required to bear the consequent
loss. To the extent provided in the related Prospectus Supplement for a Series
that consists of one or more Classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, all or a portion of the amount of such
losses or shortfalls will be borne first by one or more Classes of the
Subordinate Certificates, and, thereafter, by the remaining Classes of
Certificates in the priority and manner and subject to the limitations
specified in such Prospectus Supplement. Because distributions of principal on
the Certificates of a Series may, if provided in the related Prospectus
Supplement, be applied to outstanding Classes of such Series in the priority
specified in the related Prospectus Supplement, a deficiency that arises after
Certificates of a Class of any such Series having higher priority in payment
have been fully or partially repaid will have a disproportionately greater
effect on the Certificates of Classes of such Series having lower priority in
payment. The disproportionate effect of any such deficiency is further
increased in the case of Classes of Compound Interest Certificates of any
Series because, prior to the retirement of all Classes of such Series having
higher priority in payment than such Compound Interest Certificates, interest
is not payable, to the extent provided in the related Prospectus Supplement,
but is accrued and added to the principal of such Compound Interest
Certificates.
Additions, Substitutions and Withdrawals of Assets. To the extent
provided in the related Prospectus Supplement for a Series, the Depositor may,
subsequent to the issuance of such a Series, deliver additional Assets or
withdraw Assets previously included in the Trust Fund for such Series,
substituting assets therefore or depositing additional Assets or withdrawing
Assets previously deposited in a Reserve Fund for such Series. The effect of
delivery or substitution of other Assets may be to alter the characteristics
and composition of the Assets underlying such Series, either of which may alter
the timing and amount of distributions or the date of the final distribution on
the Certificates of such Series. See "Assets Securing or Underlying the
Certificates -- Additions, Substitution and Withdrawal of Assets" herein.
Furthermore, certain amounts on deposit from time to time in certain funds or
accounts constituting part of a Trust Fund, including the Certificate Account
and any accounts maintained as Credit Enhancement, may be withdrawn under
certain conditions, if and to the extent described in the related Prospectus
Supplement, for purposes other than the payment of principal of or interest on
the related Series of Certificates.
EFFECT OF PREPAYMENTS ON AVERAGE LIFE
As a result of prepayments on the underlying loans, which comprise the
Mortgage Assets consisting of Mortgage Loans or the Contracts or the mortgage
loans or contracts backing the Agency Securities included in
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any Trust Fund (in either case, the "Underlying Loans"), the amount and timing
of distributions of principal and/or interest on the Offered Certificates of
the related Series may be highly unpredictable. Prepayments on the Underlying
Loans in any Trust Fund will result in a faster rate of principal payments on
one or more Classes of the related Series of Certificates than if payments on
such Underlying Loans were made as scheduled. Thus, the prepayment experience
on the Underlying Loans in a Trust Fund may affect the average life of one or
more Classes of Certificates of the related Series, including a Class of
Offered Certificates. The rate of principal payments on pools of mortgage loans
and installment loan contracts 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 interest rates borne by the Underlying Loans included in a Trust
Fund, then, subject to the particular terms of the Underlying Loans (e.g.,
provisions that prohibit voluntary prepayments during specified periods or
impose penalties in connection therewith) and the ability of borrowers to
obtain new financing, principal prepayments on such Underlying Loans are likely
to be higher than if prevailing interest rates remain at or above the rates
borne by those Underlying Loans. Conversely, if prevailing interest rates rise
significantly above the interest rates borne by the Underlying Loans included
in a Trust Fund, then principal prepayments on such Underlying Loans are likely
to be lower than if prevailing interest rates remain at or below the interest
rates borne by those Underlying Loans. In addition to fluctuations in
prevailing interest rates, the rate of prepayments on the Underlying Loans may
be influenced by changes and developments in the types and structures of loan
products being offered to consumers within the mortgage banking and consumer
finance industry and by technological developments and innovations to the loan
underwriting and origination process.
Accordingly, there can be no assurance as to the actual rate of
prepayment on the Underlying Loans in any Trust Fund or that such rate of
prepayment will conform to any model described herein or in any Prospectus
Supplement. As a result, depending on the anticipated rate of prepayment for
the Underlying Loans in any Trust Fund, the retirement of any Class of
Certificates of the related Series could occur significantly earlier or later,
and the average life thereof could be significantly shorter or longer, than
expected.
In comparison to first lien single family mortgage loans, the
Depositor is not aware of any reliable statistical information regarding the
rates of prepayment of the Contracts and junior lien Mortgage Loans that is
available for these types of loans based upon the historical loan performance
of this segment of the mortgage banking and consumer finance industry. In fact,
this segment of the mortgage banking and consumer finance industry has
undergone significant growth and expansion, including an increase in new loan
originations, as a result of certain social and economic factors, including
recent tax law changes that limit the deductibility of consumer interest to
indebtedness secured by an individual's principal residence and changes and
developments in the types and structures of loan products being offered to
consumers. Therefore, no assurance can be given as to the level of prepayments
that the Contracts and junior lien Mortgage Loans will experience. In fact, a
number of factors suggest that the prepayment experience of the Contracts and
junior lien Mortgage Loans may be significantly different from that of any
first lien Mortgage Loans with equivalent interest rates and maturities.
Additional prepayment, yield and weighted average life considerations
with respect to a Series of Certificates will be set forth in the related
Prospectus Supplement.
The extent to which prepayments on the Underlying Loans included in
any Trust Fund ultimately affect the average life of any Class of Certificates
of the related Series will depend on the terms and provisions of such
Certificates. A Class of Certificates, including a Class of Offered
Certificates, may provide that on any Distribution Date the holders of such
Certificates are entitled to a pro rata share of the prepayments on the
Underlying Loans in the related Trust Fund that are distributable on such date,
to a disproportionately large share (which, in some cases, may be all) of such
prepayments, or to a disproportionately small share (which, in some cases, may
be none) of such prepayments. A Class of Certificates that entitles the holders
thereof to a disproportionately large share of the prepayments on the
Underlying Loans in the related Trust Fund increases the likelihood of early
retirement of such Class ("Call Risk") if the rate of prepayment is relatively
fast; while a Class of Certificates that entitles the holders thereof to a
disproportionately small share of the prepayments on the Underlying Loans in
the related Trust Fund increases the likelihood of an extended average life of
such
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Class ("Extension Risk") if the rate of prepayment is relatively slow. To the
extent described in the related Prospectus Supplement, the respective
entitlement of the various Classes of Certificateholders of such Series to
receive payments (and, in particular, prepayments) of principal of the
Underlying Loans in the related Trust Fund may vary based on the occurrence of
certain events (e.g., the retirement of one or more Classes of Certificates of
such Series) or whether certain contingencies do or do not occur (e.g.,
prepayment and default rates with respect to such Underlying Loans).
A Series of Certificates may include one or more Classes of Scheduled
Amortization Certificates, which will entitle the holders thereof to receive
principal distributions according to a specified principal payment schedule.
Although prepayment risk cannot be eliminated entirely from any Class of
Certificates, a Classes of Scheduled Amortization Certificates will generally
provide a relatively stable cash flow so long as the actual rate of prepayment
on the Underlying Loans included in the related Trust Fund remains relatively
constant at the rate, or within the range of rates, of prepayment used to
establish the specific principal payment schedule for such Certificates.
Prepayment risk with respect to a given Mortgage Asset Pool does not disappear,
however, and the stability afforded to Scheduled Amortization Certificates
comes at the expense of one or more Companion Classes of the same Series, any
of which Companion Classes may also be a Class of Offered Certificates. In
general, and as more specifically described in the related Prospectus
Supplement, a Companion Class may entitle the holders thereof to a
disproportionately large share of prepayments on the Underlying Loans in the
related Trust Fund when the rate of prepayment is relatively fast, and/or may
entitle the holders thereof to a disproportionately small share of prepayments
on the Underlying Loans in the related Trust Fund when the rate of prepayment
is relatively slow. As and to the extent described in the related Prospectus
Supplement, a Companion Class absorbs some (but not all) of the Call Risk
and/or Extension Risk that would otherwise belong to the related Scheduled
Amortization Certificates if all payments of principal of the Underlying Loans
in the related Trust Fund were allocated on a pro rata basis.
EFFECT OF PREPAYMENTS ON YIELD
A Series of Certificates may include one or more classes of Offered
Certificates offered at a premium or discount. Yields on such Classes of
Certificates will be sensitive, and in some cases extremely sensitive, to
prepayments on the Underlying Loans in the related Trust Fund and, where the
amount of interest payable with respect to a Class is disproportionately large,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might fail to recover its original investment
under some prepayment scenarios. The extent to which the yield to maturity of
any Class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which such Certificates are purchased at a discount
or premium and the amount and timing of distributions thereon. An investor
should consider, in the case of any Offered Certificate purchased at a premium,
the risk that a faster than anticipated rate of principal payments could result
in an actual yield to such investor that is lower than the anticipated yield.
LIMITATIONS OF CREDIT ENHANCEMENT
Limitations Regarding Types of Losses Covered. The related Prospectus
Supplement for a Series of Certificates will describe any Credit Enhancement
provided with respect thereto. Use of Credit Enhancement will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Credit Enhancement may not cover all potential
losses or delays; for example, Credit Enhancement may or may not cover loss by
reason of fraud or negligence by a mortgage loan originator or other parties.
Any such losses or delays not covered by Credit Enhancement may, at least in
part, be allocated to, or affect distributions to, one or more Classes of
Offered Certificates.
Disproportionate Benefits to Certain Classes and Series. A Series of
Certificates may include one or more Classes of Subordinate Certificates (which
may include Offered Certificates), if provided in the related Prospectus
Supplement. Although subordination is intended to reduce the likelihood of
temporary shortfalls and ultimate losses to holders of Senior Certificates, the
amount of subordination will be limited and may decline under certain
circumstances. In addition, if principal payments on one or more Classes of
Offered Certificates
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of a Series are made in a specified order of priority, any related Credit
Enhancement may be exhausted before the principal of the later paid classes of
Offered Certificates of such Series has been repaid in full. As a result, the
impact of losses and shortfalls experienced with respect to the Mortgage Assets
may fall primarily upon those classes of Offered Certificates having a later
right of payments. Moreover, if a form of Credit Enhancement covers the Offered
Certificates of more than one Series and losses on the related Mortgage Assets
exceed the amount of such Credit Enhancement, it is possible that the holders
of Offered Certificates of one (or more) such Series will be disproportionately
benefited by such Credit Enhancement to the detriment of the holders of Offered
Certificates of one (or more) other such Series.
Limitations Regarding the Amount of Credit Enhancement. The amount of
any applicable Credit Enhancement supporting one or more classes of Offered
Certificates, including the subordination of one or more other Classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such Classes of Certificates based on an assumed level of
defaults, delinquencies and losses on the Underlying Loans that comprise or
back the Mortgage Assets and certain other factors. There can be no assurance
that the default, delinquency and loss experience on such Underlying Loans will
not exceed such assumed levels. See "Credit Enhancement" herein. If the
defaults, delinquencies and losses on such Underlying Loans do exceed such
assumed levels, the holders of one or more Classes of Offered Certificates will
be required to bear such additional defaults, delinquencies and losses.
Regardless of the form of Credit Enhancement provided with respect to a Series,
the amount of coverage will be limited in amount and in most cases will be
subject to periodic reduction in accordance with a schedule or formula.
Limitations on FHA Insurance. The related Prospectus Supplement will
specify the number and percentage of the Title I Mortgage Loans and/or Title I
Contracts, if any, included in the related Trust Fund that are partially
insured by the FHA pursuant to Title I Program. Since the FHA Insurance Amount
for the Title I Mortgage Loans and Title I Contracts is limited as described
herein and in the related Prospectus Supplement, and since the adequacy of such
FHA Insurance Amount is dependent upon future events, including reductions for
the payment of FHA claims, no assurance can be given that the FHA Insurance
Amount is or will be adequate to cover 90% of all potential losses on the Title
I Mortgage Loans and Title I Contracts included in the related Trust Fund. If
the FHA Insurance Amount for the Title I Mortgage Loans and Title I Contracts
is reduced to zero, such loans and contracts will be effectively uninsured from
and after the date of such reduction. Under the Title I Program, until a claim
for insurance reimbursement is submitted to the FHA, the FHA does not review or
approve for qualification for insurance the individual Title I Mortgage Loan or
Title I Contract insured thereunder (as is typically the case with other
federal loan insurance programs). Consequently, the FHA has not acknowledged
that any of the Title I Mortgage Loans and Title I Contracts are eligible for
FHA insurance, nor has the FHA reviewed or approved the underwriting and
qualification by the originating lenders of any individual Title I Mortgage
Loans and Title I Contracts. See "Certain Legal Aspects of the Mortgage Assets
- -- The Title I Program" herein.
The availability of FHA Insurance reimbursement following a default on
a Title I Mortgage Loan or Title I Contract is subject to a number of
conditions, including strict compliance by the originating lender of such loan,
the Depositor, the FHA Claims Administrator, the Servicer, any subservicer and
the Transferor with the FHA Regulations in originating and servicing such Title
I Mortgage Loan or Title I Contract, and limits on the aggregate insurance
coverage available in the Depositor's FHA Reserve. For example, the FHA
Regulations provide that, prior to originating a Title I Mortgage Loan or Title
I Contract, a Title I lender must exercise prudence and diligence in
determining whether the borrower and any co-maker or co-signer is solvent and
an acceptable credit risk with a reasonable ability to make payments on the
loan. Although the related Transferor will represent and warrant that the Title
I Mortgage Loans and Title I Contracts have been originated and serviced in
compliance with all FHA Regulations, these regulations are susceptible to
substantial interpretation. Failure to comply with all FHA Regulations may
result in a denial of FHA Claims, and there can be no assurance that the FHA's
enforcement of the FHA Regulations will not become stricter in the future. See
"Certain Legal Aspects of the Mortgage Assets -- The Title I Program --
General" herein.
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Because the Trust Fund is not eligible to hold an FHA contract of
insurance under the Title I Program, the FHA will not recognize the Trust Fund
or the Certificateholders as the owners of the Title I Mortgage Loans or Title
I Contracts, or any portion thereof, entitled to submit FHA Claims.
Accordingly, the Trust Fund and the Certificateholders will have no direct
right to receive insurance payments from the FHA. The Depositor will contract
with the Servicer (or another person specified in the Prospectus Supplement) to
serve as the Administrator for FHA Claims (the "FHA Claims Administrator")
pursuant to an FHA claims administration agreement (the "FHA Claims
Administration Agreement"), which will provide for the FHA Claims Administrator
to handle all aspects of administering, processing and submitting FHA Claims
with respect to the Title I Mortgage Loans or Title I Contracts, in the name
and on behalf of the Depositor. The Certificateholders will be dependent on the
FHA Claims Administrator to (i) make claims on the Title I Mortgage Loans or
Title I Contracts in accordance with FHA Regulations and (ii) remit all FHA
Insurance proceeds received from the FHA in accordance with the related Pooling
and Servicing Agreement. The Certificateholders' rights relating to the receipt
of payment from and the administration, processing and submission of FHA Claims
by the Depositor or any FHA Claims Administrator are limited and governed by
the related Pooling and Servicing Agreement and the FHA Claims Administration
Agreement and these functions are obligations of the Depositor and the FHA
Claims Administrator, not the FHA. See "Certain Legal Aspects of the Mortgage
Assets -- The Title I Program -- Claims Procedures under Title I" herein.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a Class of Offered
Certificates will reflect only its assessment of the likelihood that holders of
such Offered Certificates will receive distributions to which such
Certificateholders are entitled under the related Pooling and Servicing
Agreement. Such rating will not constitute an assessment of the likelihood that
principal prepayments on the Underlying Loans will be made, the degree to which
the rate of such prepayments might differ from that originally anticipated or
the likelihood of early optional termination of the related Trust Fund.
Furthermore, such rating will not address the possibility that prepayment of
the Underlying Loans at a higher or lower rate than anticipated by an investor
may cause such investor to experience a lower than anticipated yield or that an
investor that purchases an Offered Certificate at a significant premium might
fail to recover its initial investment under certain prepayment scenarios.
Hence, a rating assigned by a Rating Agency does not guarantee or ensure the
realization of any anticipated yield on a Class of Offered Certificates.
The amount, type and nature of Credit Enhancement, if any, provided
with respect to a Series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating a Class of Certificates of
such Series. Those criteria are sometimes based upon an actuarial analysis of
the behavior of similar types of loans in a larger group. However, there can be
no assurance that the historical data supporting any such actuarial analysis
will accurately reflect future experience, or that the data derived from a
large pool of similar types of loans will accurately predict the delinquency,
default or loss experience of any particular pool of Underlying Loans. In other
cases, such criteria may be based upon determination of the values of the
Mortgaged Properties that provide security for the Underlying Loans. However,
no assurance can be given that those values will not decline in the future. As
a result, the Credit Enhancement required in respect of the Offered
Certificates of any Series may be insufficient to fully protect the holders
thereof from losses on the related Mortgage Asset Pool. See "Credit
Enhancement" herein.
ADVERSE TAX CONSEQUENCES
Original Issue Discount. All of the Compound Interest Certificates
and Principal Only Certificates will be, and certain of the other Certificates
may be, issued with original issue discount for federal income tax purposes. A
Holder of a Certificate issued with original issue discount will be required to
include original issue discount in ordinary gross income for federal income tax
purposes as it accrues, in advance of receipt of the cash, or a portion of the
cash, attributable to such income. Accrued but unpaid interest on the Compound
Interest Certificates generally will be treated as original issue discount for
this purpose. At certain rapid Mortgage Asset prepayment rates, original issue
discount may accrue on certain Classes of Certificates, including certain
variable
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rate Regular Certificates, that may never be received as cash, resulting in a
subsequent loss on such Certificates. See "Certain Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC Certificates --
Taxation of Regular Certificates -- Original Issue Discount" and "Certain
Federal Income Tax Consequences -- Federal Income Tax Consequences for
Certificates as to Which No REMIC Election Is Made -- Standard Certificates --
Premium and Discount -- Original Issue Discount" and " -- Stripped Certificates
- -- Taxation of Stripped Certificates -- Original Issue Discount."
Residual Certificates. An election may be made to treat all or any
portion of any Trust Fund as a REMIC for federal income tax purposes. Holders
("Residual Holders") of Certificates representing the residual interests in the
related REMIC ("Residual Certificates") must report on their federal income tax
returns their pro rata share of REMIC taxable income or loss. All or a portion
of the REMIC taxable income reportable by Residual Holders may be treated as
such holders' "excess inclusion" subject to special rules for federal income
tax purposes. The REMIC taxable income, and possibly the tax liabilities of the
Residual Holders, may exceed the cash distributions on the Residual
Certificates during certain periods. Residual Holders who are individuals may
be subject to limitations on the deductibility of servicing fees on the related
Mortgage Assets and other REMIC administrative expenses. Hence, Residual
Holders may experience an after-tax return that is significantly lower than
would be anticipated based upon the stated interest rate, if any, of their
Residual Certificates. See "Certain Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates."
CERTAIN FACTORS AFFECTING DELINQUENCIES, FORECLOSURES AND LOSSES ON UNDERLYING
LOANS
General. The payment performance of the Offered Certificates of any
Series will be directly related to the payment performance of the Underlying
Loans included in the related Trust Fund. Set forth below is a discussion of
certain factors that will affect the full and timely payment of the Underlying
Loans included in any Trust Fund.
Geographic Concentration. Certain geographic regions of the United
States from time to time will experience weaker regional economic conditions
and housing markets, and, consequently, will experience higher rates of loss
and delinquency on mortgage loans generally. Any concentration of the
Underlying Loans in such a region may present risk considerations in addition
to those generally present for similar mortgage-backed or asset-backed
securities without such concentration.
Decline in Value of the Underlying Asset. An investment in
Certificates secured by or evidencing an interest in a Mortgage Pool may be
affected by, among other things, a decline in one-to-four family residential
property values. No assurance can be given that values of the Mortgaged
Properties have remained or will remain at the levels existing on the dates of
origination of the related Mortgage Loans. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans in a particular Mortgage Pool, and
any other financing on the Mortgaged Properties, become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
defaults and losses could be higher than those now generally experienced with
respect to similar types of loans within the mortgage lending industry. To the
extent that such losses are not covered by applicable insurance policies, if
any, or by any Credit Enhancement as described in the related Prospectus
Supplement, Holders of Certificates secured by or evidencing interests in such
Mortgage Pool will bear all risk of loss resulting from defaults by Borrowers
and will have to look primarily to the value of the related Mortgaged
Properties for recovery of the outstanding principal and unpaid interest of the
defaulted Mortgage Loans. See "Assets Securing or Underlying the Certificates
- -- Mortgage Loans."
An investment in Certificates secured by or evidencing interests in
Contracts may be affected by, among other things, a downturn in regional or
local economic conditions. These regional or local economic conditions are
often volatile, and historically have affected the delinquency, loan loss and
repossession experience of Contracts. To the extent that losses on Contracts
are not covered by applicable insurance policies, if any, or by
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any Credit Enhancement, Holders of the Certificates secured by or evidencing
interests in such Contracts will bear all risk of loss resulting from default
by borrowers and will have to look primarily to the value of the underlying
asset for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "Assets Securing or Underlying the Certificates --
Contracts."
Limitations on Realizations of Junior Liens. The primary risk with
respect to defaulted Mortgage Loans secured by junior liens is the possibility
that adequate funds will not be received in connection with a foreclosure of
the related Mortgaged Property to satisfy fully both the senior lien(s) and the
Mortgage Loan and that other insurance providing for reimbursement for losses
from such default (i.e., the FHA Insurance Amount for a Title I Mortgage Loan)
is not available. The claims of the senior lienholder(s) will be satisfied in
full out of proceeds of the liquidation of the Mortgaged Property, if such
proceeds are sufficient, before the related Trust Fund as the junior lienholder
receives any payments in respect of the defaulted Mortgage Loan. If the
Servicer or a Subservicer, if any, were to foreclose on any Mortgage Loan, it
would do so subject to any related senior lien(s). In order for the Mortgage
Loan to be paid in full at such sale, a bidder at the foreclosure sale of such
Mortgage Loan would have to both bid an amount sufficient to pay off all sums
due under the Mortgage Loan and the senior lien(s) or purchase the Mortgaged
Property subject to the senior lien(s). If proceeds from a foreclosure and
liquidation of the related Mortgaged Property are insufficient to satisfy the
costs of foreclosure and liquidation and the amounts owed under the loans
secured by the senior lien(s) and the Mortgage Loan in the aggregate, the Trust
Fund, as the junior lienholder, will bear (i) the risk of delay in
distributions while a deficiency judgment (which may not be available in
certain jurisdictions) against the borrower is obtained and realized and (ii)
the risk of loss if the deficiency judgment is not obtained or realized. Any
such delays or losses will be borne by the Certificates of a Series to the
extent that such delays or losses are not otherwise covered by amounts
available from any Credit Enhancement provided for such Certificates, as
specified in the related Prospectus Supplement. See "Certain Legal Aspects of
the Mortgage Assets -- Foreclosure -- Junior Liens" herein.
Certain Legal Considerations of Mortgage Loans and Contracts.
Applicable state laws generally regulate interest rates and other charges that
may be assessed on borrowers, require certain disclosures to borrowers, and may
require licensing of the Depositor, the Trustee, the Servicer, the
Administrator, if any, the Master Servicer, if any, and any Subservicer. In
addition, most states have other laws, public policies and general principles
of equity relating to the protection of consumers and the prevention of unfair
and deceptive practices which may apply to the origination, servicing and
collection of the Mortgage Loans and Contracts. The Mortgage Loans and
Contracts also may be subject to federal laws, including, if applicable, the
following: (i) the federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding the
terms of the Mortgage Loans and Contracts; (ii) the Real Estate Settlement
Procedures Act and Regulation X promulgated thereunder, which require certain
disclosures to the borrowers regarding the settlement and servicing of the
Mortgage Loans and Contracts; (iii) the Equal Credit Opportunity Act and
Regulation B promulgated thereunder, which prohibit discrimination on the basis
of age, race, color, sex, religion, marital status, national origin, receipt of
public assistance or the exercise of any right under the Consumer Credit
Protection Act; (iv) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience; (v) the
Federal Trade Commission Preservation of Consumers' Claims and Defenses Rule,
16 C.F.R. Part 433, regarding the preservation of a consumer's rights; (vi) the
Fair Housing Act, 42 U.S.C. 3601 et seq., relating to the creation and
governance of the Title I Program; (vii) the Home Ownership and Equity
Protection Act; and (viii) the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"). See "Certain Legal Aspects of the Mortgage
Assets" herein. Federal and state environmental laws and regulations may also
impact the Servicer's or any Subservicer's ability to realize value with
respect to the Mortgaged Properties. See "Certain Legal Aspects of the
Mortgage Assets" herein.
Depending on the provisions of applicable law and the specific facts
and circumstances involved, violations of these laws, policies and principles
may limit the ability of the Servicer or any Subservicer to collect all or part
of the principal of or interest on the Mortgage Loans and Contracts, may
entitle the borrower to a refund of amounts previously paid, and, in addition,
could subject the Servicer or any Subservicer to damages and administrative
sanctions. Further, violations of state law can affect the insurability of the
Title I Mortgage
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Loans and Title I Contracts under FHA Regulations. See "Certain Legal Aspects
of the Mortgage Assets -- The Title I Program." If the Servicer or any
Subservicer is unable to collect all or part of the principal or interest on
any Mortgage Loan or Contract because of a violation of the aforementioned
laws, public policies or general principles of equity, distributions from the
Trust Fund may be delayed or the Trust Fund may be unable to make all
distributions owed to the Certificateholders to the extent any related losses
are not otherwise covered by amounts available from any Credit Enhancement
provided for the Series of Certificates. Furthermore, depending upon whether
damages and sanctions are assessed against the Servicer, the Master Servicer,
if any, or any Subservicer, such violations may materially impact the financial
ability of the Master Servicer, if any, the Servicer or Subservicer to continue
to act in such capacity.
To the extent specified in the related Prospectus Supplement, the
related Transferor or the Depositor will be required to repurchase or replace
any Mortgage Loan or Contract which, at the time of origination, did not comply
with applicable federal and state laws or regulations.
RISKS ASSOCIATED WITH CERTAIN MORTGAGE ASSETS
No Hazard Insurance for Title I Mortgage Loans. With respect to any
Title I Mortgage Loans, the FHA Regulations do not require that a borrower
obtain title or fire and casualty insurance as a condition to obtaining a
property improvement loan. With respect to both manufactured home contracts
that are Title I Contracts and property improvement loans that are Title I
Mortgage Loans, if the related Mortgage Property is located in a flood hazard
area, however, flood insurance in an amount at least equal to the loan amount
is required. In addition, the FHA Regulations do not require that the borrower
obtain insurance against physical damage arising from earth movement (including
earthquakes, landslides and mudflows) as a condition to obtaining a property
improvement loan insured under the Title I Program. Accordingly, if a Mortgaged
Property that secures a Title I Mortgage Loan suffers any uninsured hazard or
casualty losses, holders of any Offered Certificates secured in whole or in
part by Title I Mortgage Loans may bear the risk of loss resulting from a
default by the borrower to the extent such losses are not recovered by
foreclosure on the defaulted loans or from any FHA Claims payments. Such loss
may be otherwise covered by amounts available from the credit enhancement
provided for the Offered Certificates, as specified in the related Prospectus
Supplement.
Contracts Secured by Manufactured Homes. The Secured Contracts will
be secured by security interests in Manufactured Homes that are not considered
to be real property because they are not permanently affixed to real estate.
Perfection of security interests in such Manufactured Homes and enforcement of
rights to realize upon the value of such Manufactured Homes as collateral for
the Contracts are subject to a number of Federal and state laws, including the
Uniform Commercial Code as adopted in each state and each state's certificate
of title statutes. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. Because of the expense and
administrative inconvenience involved, the Servicer of a Contract will not
amend any certificate of title to change the lienholder specified therein from
such Servicer to the Trustee and will not deliver any certificate of title to
such Trustee or note thereon the Trustee's interest. Consequently, in some
states, in the absence of such an amendment, the assignment to such Trustee of
the security interest in the Manufactured Home may not be effective or such
security interest may not be perfected and, in the absence of such notation or
delivery to such Trustee, the assignment of the security interest in the
Manufactured Home may not be effective against creditors of the Servicer or a
trustee in bankruptcy of such servicer. If any related Credit Enhancement is
exhausted and a Contract is in default, then recovery of amounts due on such
Contracts is dependent on repossession and resale of the Manufactured Home
securing such Contract. Certain other factors may limit the ability of the
Holders to realize upon the Manufactured Homes or may limit the amount realized
to less than the amount due.
Unsecured Contracts. The obligations of the borrower under any
Unsecured Contract included in the related Trust Fund will not be secured by an
interest in the related real estate or otherwise, and the Trust Fund, as the
owner of such Contract, will be a general unsecured creditor as to such
obligations. As a consequence, in the event of a default under an Unsecured
Contract, the related Trust Fund will have recourse only against the
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borrower's assets generally, along with all other general unsecured creditors
of the borrower. In a bankruptcy or insolvency proceeding relating to an
borrower on an Unsecured Contract, the obligations of the borrower under such
Unsecured Contract may be discharged in their entirety, notwithstanding the
fact that the portion of such borrower's assets made available to the related
Trust Fund as a general unsecured creditor to pay amounts due and owing
thereunder are insufficient to pay all such amounts. A borrower on an Unsecured
Contract may not demonstrate the same degree of concern over performance of the
borrower's obligations under such Unsecured Contract as if such obligations
were secured by a single family residence owned by such borrower.
Consumer Protection Laws related to Contracts. Numerous federal and
state consumer protection laws impose requirements on lending under retail
installment sales contracts and installment loan agreements such as the
Contracts, and the failure by the lender or seller of goods to comply with such
requirements could give rise to liabilities of assignees for amounts due under
such agreements and claims by such assignees may be subject to set-off as a
result of such lender's or seller's noncompliance. These laws would apply to a
Trustee as an assignee of Contracts. Each Transferor of Contracts will warrant
that each Contract complies with all requirements of law and with respect to
any Secured Contract will make certain warranties relating to the validity,
subsistence, perfection and priority of the security interest in each
Manufactured Home securing such Contract. A breach of any such warranty that
materially adversely affects any Contract would create an obligation of the
Transferor to repurchase or replace such Contract unless such breach is cured.
Reliance on Management of Timeshare Units. Unlike most conventional
single-family residential properties, the value of a timeshare unit is
substantially dependent on the management of the resort property in which it is
located. Management of timeshare resort properties includes operation of a
reservation system, maintenance of the physical structure, refurbishing of
individual units, maintenance and management of common areas and recreational
facilities, and facilitating the rental of individual units on behalf of
timeshare owners. In addition, timeshare units, which are purchased for
intervals of one or more specified weeks each year, are marketed as the owner's
purchase of future vacation opportunities rather than as a primary residence, a
second home or an investment. Accordingly, while borrowers are obligated to
make payments under their Mortgage Loans irrespective of any defect in, damage
to or change in conditions (such as poor management, faulty construction or
physical, social or environmental conditions) relating to the timeshare
properties, any such defect, damage or change in conditions could result in
delays in payment or in defaults by borrowers whose timeshare units are
affected.
RECHARACTERIZATION OF SALE OF MORTGAGE ASSETS AS BORROWING
The Depositor will agree in the Pooling and Servicing Agreement that
the transfer of the Mortgage Assets to the Trust Fund is intended as a valid
sale and transfer of the Mortgage Assets to the Trustee for the benefit of the
Certificateholders. However, if the Mortgage Assets are held to be property of
the Depositor or if for any reason the Pooling and Servicing Agreement is held
to create a security interest in the Mortgage Assets, the Depositor will agree
in the Pooling and Servicing Agreement that such transfer shall be treated as
the grant of a security interest in the Mortgage Assets to the Trust Fund.
Also, the Depositor will warrant that if the transfer of the Mortgage Assets by
it is deemed to be a grant of a security interest in the Mortgage Assets, the
Trustee will have a perfected first-priority security interest therein. The
Depositor is required to take all actions that are required under law to
protect the Trust Fund's security interest in the Mortgage Assets. If the
transfer of the Mortgage Assets to the Trust Fund is deemed to create a
security interest therein, a tax or government lien on property of the
Depositor arising before the Mortgage Assets came into existence may have
priority over the Trusts Fund's interest in such Mortgage Assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The following summaries describe certain features common to each
Series. Such summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions
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of the Pooling and Servicing Agreement and the Prospectus Supplement relating
to each Series. When particular provisions or terms used or referred to in a
Pooling and Servicing Agreement are referred to herein, such provisions or
terms shall be as used or referred to in such Pooling and Servicing Agreement.
The Certificates will not be insured or guaranteed by GNMA, FNMA,
FHLMC, any governmental entity or, to the extent specified in the related
Prospectus Supplement, any other person. To the extent specified in the related
Prospectus Supplement, the Depositor's only obligations with respect to a
Series will be to obtain certain representations and warranties from each
Transferor and to assign to the related Trustee the Depositor's rights with
respect thereto, and its obligations pursuant to certain representations and
warranties made by it.
To the extent specified in the related Prospectus Supplement, the
Mortgage Assets relating to a Series, other than the Agency Securities and the
Title I Mortgage Loans and Title I Contracts, will not be insured or guaranteed
by any governmental entity or, any other person. With respect to a Series for
which the related Trust Fund includes Mortgage Loans or Contracts, to the
extent that delinquent payments on or losses in respect of defaulted Mortgage
Loans or Contracts, are not paid from any applicable Credit Enhancement, such
delinquencies may result in delays in distributions to the Holders of one or
more Classes of such Series, and such losses will be borne by the Holders of
one or more Classes of such Series. To the extent specified in the related
Prospectus Supplement, the Servicer will have no obligation to advance such
delinquencies.
In addition, with respect to a Series for which the related Trust Fund
includes Mortgage Assets, late payments on such Mortgage Assets may result in
delays in distributions to the Holders of one or more Classes of such Series,
and losses on such Mortgage Assets will be borne by the Holders of one or more
Classes of such Series, to the extent such late payments and losses are not
advanced or paid from any applicable Credit Enhancement.
THE CERTIFICATES -- GENERAL
The Certificates will be issued in Series pursuant to separate Pooling
and Servicing Agreements (each, a "Pooling and Servicing Agreement") between
the Depositor, the Servicer, the Administrator, if any, the Master Servicer, if
any, and the related Trustee named in the Prospectus Supplement. A form of
Pooling and Servicing Agreement has been filed as an Exhibit to the
Registration Statement of which this Prospectus forms a part. The Pooling and
Servicing Agreement relating to a Series of Certificates will be filed as an
Exhibit to a Report on Form 8-K to be filed with the Commission within 15 days
following the issuance of such Series of Certificates.
The "Issuer" with respect to a Series of Certificates will be the
related Trust Fund established by the Depositor pursuant to the related Pooling
and Servicing Agreement. Each Series of Certificates will be entitled to
distributions only from the Assets included in the related Trust Fund and any
other assets pledged or otherwise available for the benefit of the Holders of
such Series as specified in the related Prospectus Supplement. Accordingly, the
investment characteristics of a Series of Certificates will be determined by
the Assets included in the related Trust Fund. The Certificates of a Series
will not represent obligations of the Depositor, the Servicer, any
Administrator, any Master Servicer, the Trustee or any affiliate thereof.
FORM OF CERTIFICATES; TRANSFER AND EXCHANGE
As specified in the related Prospectus Supplement, the Certificates of
each Series will be issued either in book entry form or fully registered
certificated form in the minimum denominations for each Class specified in the
related Prospectus Supplement. To the extent specified in the Prospectus
Supplement, the original Principal Balance of each Certificate will equal the
aggregate distributions allocable to principal to which such Certificate is
entitled. To the extent specified in the related Prospectus Supplement,
distributions allocable to interest on each Certificate of a Series that is not
entitled to distributions allocable to principal will be calculated based on
the Notional Principal Balance of such Certificate. The "Notional Principal
Balance" of a Certificate will be a notional amount assigned to such
certificate and will not evidence an interest in or entitlement to
distributions
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allocable to principal, but will be used solely for convenience in expressing
the calculation of interest and for certain other purposes.
Except as described below under "Book Entry Registration" with respect
to Book Entry Certificates, the Certificates of each Series will be
transferable and exchangeable on a register to be maintained at the corporate
trust office of the related Trustee or such other office or agency maintained
for such purposes by the Trustee. To the extent specified in the Prospectus
Supplement with respect to a Series, under the related Pooling and Servicing
Agreement, the Trustee will be appointed initially as the "Registrar" for such
Series for purposes of maintaining books and records of the ownership and
transfer of the Certificates of such Series. To the extent specified in the
Prospectus Supplement with respect to a Series, no service change will be made
for any registration of transfer or exchange of Certificates of such Series,
but payment of a sum sufficient to cover any tax or other governmental charge
may be required.
Under current law the purchase and holding of a Class of Certificates
entitled only to a specified percentage of distributions of either interest or
principal or a notional amount of either interest or principal on the related
Mortgage Assets or a Class of Certificates entitled to receive distributions of
interest and principal on the Mortgage Assets only after distributions to other
Classes or after the occurrence of certain specified events by or on behalf of
any employee benefit plan or other retirement arrangement (including individual
retirement accounts and annuities, Keogh plans and collective investment funds
in which such plans, accounts or arrangements are invested) subject to
provisions of ERISA or the Code, may result in "prohibited transactions" within
the meaning of ERISA and the Code. See "ERISA Considerations." To the extent
specified in the related Prospectus Supplement, transfer of Certificates of
such a Class will not be registered unless the transferee (i) executes a
representation letter stating that it is not, and is not purchasing on behalf
of, any such plan, account or arrangement or (ii) provides an opinion of
counsel satisfactory to the related Trustee and the Depositor that the purchase
of Certificates of such a Class by or on behalf of such plan, account or
arrangement is permissible under applicable law and will not subject the
related Trustee, the Servicer, the Administrator, if any, the Master Servicer,
if any, or the Depositor to any obligation or liability in addition to those
undertaken in the Pooling and Servicing Agreement.
REMIC ELECTION
As to each Series, one or more elections may be made to treat all or
specified portions of the related Trust Fund as a REMIC for federal income tax
purposes. The related Prospectus Supplement will specify whether a REMIC
election is to be made. Alternatively, the Pooling and Servicing Agreement for
a Series may provide that a REMIC election may be made at the discretion of the
Depositor, the Servicer, the Administrator, if any, the Master Servicer, if
any, or another entity and may only be made if certain conditions are
satisfied. As to any such Series, the terms and provisions applicable to the
making of a REMIC election, as well as any material federal income tax
consequences to Holders of such Series not otherwise described herein, will be
set forth in the related Prospectus Supplement. If such an election is made
with respect to a Series, one or more of the Classes of such Series will be
designated as evidencing the "residual interests" in the related REMIC or
REMICs, as defined in the Code. All other Classes of such Series will
constitute "regular interests" in the related REMIC or REMICs, as defined in
the Code. As to each Series with respect to which a REMIC election is to be
made, the Servicer, the Administrator, if any, the related Trustee, a Residual
Holder or another person as specified in the related Prospectus Supplement will
be obligated to take all actions required in order to comply with applicable
laws and regulations and will be obligated to pay any prohibited transaction
taxes. The person so specified, to the extent provided in the related
Prospectus Supplement, will be entitled to reimbursement for any such payment
from the assets of the related Trust Fund or, if applicable, from any Residual
Holder.
CLASSES OF CERTIFICATES
Each Series will be issued in one or more Classes. If specified in the
Prospectus Supplement, one or more Classes of a Series may evidence beneficial
ownership interests in separate groups of Assets included in the related Trust
Fund or otherwise available for the benefit of such Series. The Certificates of
a Series will have an
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aggregate original principal balance as specified in the related Prospectus
Supplement. The original principal balance of the Certificates of a Series and
the Certificate Interest Rate on the Classes of such Certificates will be
determined in the manner specified in the Prospectus Supplement.
Each Class of Certificates that is entitled to distributions allocable
to interest will bear interest at the applicable Certificate Interest Rate,
which may be a fixed rate (which may be zero) or, in the case of Variable
Interest Certificates, may be a rate that is subject to change from time to
time (a) in accordance with a schedule, (b) in reference to an index, or (c)
otherwise in each case as specified in the related Prospectus Supplement.
Notwithstanding the foregoing, if specified in the related Prospectus
Supplement, one or more Classes of a Series may be entitled to receive
distributions of interest only to the extent of amounts available to make such
distributions. One or more Classes of Certificates may provide for interest
that accrues, but is not currently payable ("Compound Interest Certificates").
With respect to any Class of Compound Interest Certificates, if specified in
the related Prospectus Supplement, any interest that has accrued but is not
paid on a given Distribution Date will be added to the aggregate principal
balance of such Class on that Distribution Date.
A Series may include one or more Classes entitled only to
distributions (i) allocable to interest ("Interest Only Certificates"), (ii)
allocable to principal ("Principal Only Certificates"), and allocable as
between scheduled payments of principal and Principal Prepayments, as defined
below under "Distributions of Principal and Interest" or (iii) allocable to
both principal (and allocable as between scheduled payments of principal and
Principal Prepayments) and interest. A Series may include one or more classes
as to which distributions will be allocated (i) on the basis of collections
from designated portions of the Assets included in the related Trust Fund, (ii)
in accordance with a schedule or formula, (iii) in relation to the occurrence
of events, or (iv) otherwise, in each case as specified in the related
Prospectus Supplement. The timing and amounts of such distributions may vary
among Classes, over time or otherwise, in each case as specified in the related
Prospectus Supplement.
A Series of Certificates may include one or more Classes of Scheduled
Amortization Certificates and Companion Certificates. "Scheduled Amortization
Certificates" are Certificates with respect to which distributions of principal
are to be made in specified amounts on specified Distribution Dates, to the
extent of funds available on such Distribution Date. "Companion Certificates"
are Certificates which receive distributions of all or a portion of any funds
available on a given Distribution Date which are in excess of amounts required
to be applied to distributions on Scheduled Amortization Certificates on such
Distribution Date. Because of the manner of application of distributions of
principal to Companion Certificates, the weighted average lives of Companion
Certificates of a Series may be expected to be more sensitive to the actual
rate of prepayments on the Mortgage Assets in the related Trust Fund than will
the Scheduled Amortization Certificates of such Series.
One or more Series of Certificates may constitute a Series of "Special
Allocation Certificates" which may include Senior Certificates, Subordinated
Certificates, Priority Certificates and Non-Priority Certificates. As more
fully described in the related Prospectus Supplement for a Series of Special
Allocation Certificates, Special Allocation Certificates are Certificates for
which the timing and/or priority of distributions of principal and/or interest
may favor one or more Classes of such Certificates over one or more other
Classes of such Certificates. Such timing and/or priority may be modified or
reordered upon the occurrence of one or more specified events. To the extent
specified in the related Prospectus Supplement for a Series of Special
Allocation Certificates, losses on the Assets included in the related Trust
Fund may be disproportionately borne by one or more Classes of such Series, and
the proceeds and distributions from such Assets may be applied to the payment
in full of one or more Classes of such Series before the balance, if any, of
such proceeds are applied to one or more other Classes within such Series. For
example, Special Allocation Certificates in a Series may be comprised of one or
more Classes of Senior Certificates having a priority in right to distributions
of principal and interest over one or more Classes of Subordinated
Certificates, to the extent described in the related Prospectus Supplement, as
a form of Credit Enhancement. See "Credit Enhancement -- Subordination".
Typically, Subordinated Certificates of a Series will carry a rating by the
rating agencies rating the Certificates of such Series lower than that of the
Senior Certificates of such Series. In addition, one or more Classes of
Certificates of a Series ("Priority Certificates") may be entitled to a
priority of distributions of principal or interest from Assets included in the
related Trust Fund over another Class of Certificates of such Series
("Non-Priority Certificates"), but only after the exhaustion of other Credit
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Enhancement applicable to such Series. Priority Certificates and Non-Priority
Certificates nonetheless may be within the same rating category.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
General. Distributions of principal and interest on the Certificates
of a Series will be made by the related Trustee, to the extent of funds
available therefor, on the related Distribution Date. Distributions will be
made to the persons in whose names the Certificates of such Series are
registered at the close of business on the dates specified in the related
Prospectus Supplement (each, a "Record Date"). With respect to Certificates
other than Book Entry Certificates, distributions will be made by check or
money order mailed to Certificateholders of such Series at their addresses
appearing in the books and records maintained by or on behalf of the Issuer of
such Series or, if specified in the related Prospectus Supplement, in the case
of Certificates that are of a certain minimum denomination as specified in the
related Prospectus Supplement, upon written request by a Holder of such Series,
by wire transfer or by such other means as are agreed upon with such
Certificateholder; provided, however, that the final distribution in retirement
of a Series (other than Book Entry Certificates) will be made only upon
presentation and surrender of such Certificates at the office or agency of the
related Trustee specified in the notice to Certificateholders of such final
distribution. With respect to Book Entry Certificates, such distributions will
be made as described below under "Book Entry Registration" and in the related
Prospectus Supplement.
To the extent specified in the related Prospectus Supplement,
distributions allocable to principal and interest on the Certificates of a
Series will be made by the related Trustee out of, and only to the extent of,
funds in a separate account established and maintained under the related
Pooling and Servicing Agreement for the benefit of Certificateholders of such
Series (the "Certificate Account"), including any funds transferred from any
related Reserve Fund or otherwise applicable accounts maintained by the
Trustee. As between Certificates of different Classes of a Series and as
between distributions of principal (and, if applicable, between distributions
of Principal Prepayments) and interest, distributions made on any Distribution
Date will be applied as specified in the related Prospectus Supplement. To the
extent specified in the related Prospectus Supplement, distributions to any
Class of Certificates will be made pro rata to all Certificateholders of that
Class. If specified in the related Prospectus Supplement, the amounts received
by the Trustee as described below under "Assets Securing or Underlying the
Certificates" will be invested in the Permitted Investments specified herein
and in the related Prospectus Supplement, and all income or other gain from
such investments will be deposited in the related Certificate Account and will
be available to make distributions on the Certificates of the applicable Series
on the next succeeding Distribution Date in the manner specified in the related
Prospectus Supplement.
Distributions of Interest. Each Class of a Series (other than a Class
of Principal Only Certificates) will accrue interest at the applicable
Certificate Interest Rate. One or more Classes may be entitled to receive
distributions of interest only to the extent of amounts available to make such
distributions. Interest on each Class will accrue during the related Due Period
and will be distributed on the related Distribution Date. Interest on all
Certificates which bear or receive interest, other than Compound Interest
Certificates, will be distributed on the Distribution Dates specified in the
related Prospectus Supplement. However, failure to distribute interest on a
current basis may not necessarily be an Event of Default with respect to a
particular Series or Class of Certificates. Interest on any Class of Compound
Interest Certificates or similar securities will not be distributed currently,
but will accrue and the amount of the interest so accrued will be added to the
principal thereof on each Distribution Date until the date specified in the
related Prospectus Supplement. Principal Only Certificates will not accrue, and
will not be entitled to receive, any interest. Upon maturity or earlier
repurchase of the Certificates of any Class, interest will be paid to the date
specified in the related Prospectus Supplement.
Each payment of interest on each Class of Certificates (or addition to
principal of a Class of Compound Interest Certificates) on a Distribution Date
will include all interest accrued during the related Due Period. If the Due
Period for a Series ends on a date other than a Distribution Date for such
Series, the yield realized by the Holders of such Certificates may be lower
than the yield that would result if the Due Period ended on such Distribution
Date. Additionally, if specified in the related Prospectus Supplement,
interest accrued for a Due Period for one or more Classes may be calculated on
the assumption that principal distributions (and additions
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to principal of the Certificates), and allocations of losses on the Mortgage
Assets (if specified in the related Prospectus Supplement), are made on the
first day of the preceding Due Period and not on the Distribution Date for such
preceding Due Period when actually made or added. Such method would produce a
lower effective yield than if interest were calculated on the basis of the
actual principal amount outstanding.
A Series may include one or more Classes of Variable Interest Rate
Certificates. With respect to each Class of Variable Interest Certificates of a
Series, the related Prospectus Supplement will set forth: (i) the initial
Certificate Interest Rate (or the manner of determining the initial Certificate
Interest Rate); (ii) the formula, index or other method by which the
Certificate Interest Rate will be determined from time to time; (iii) the
periodic intervals at which such determination will be made; (iv) the Maximum
Variable Interest Rate, if any, and the Minimum Variable Interest Rate; and (v)
any other terms relevant to such Class of Certificates.
Distributions of Principal. Principal distributions on the
Certificates of a Series will be made from amounts available therefor on each
Distribution Date in an aggregate amount determined as set forth in the related
Prospectus Supplement and will be allocated among the respective Classes of a
Series of Certificates at the times, in the manner and in the priority set
forth in the related Prospectus Supplement.
Except with respect to Compound Interest Certificates and Interest
Only Certificates or similar securities, unless specified otherwise in the
related Prospectus Supplement, on each Distribution Date principal
distributions will be made on the Certificates of a Series in an aggregate
amount determined in the related Prospectus Supplement. If a Series of
Certificates has a Class of Compound Interest Certificates, additional
principal payments on the Certificates of such Series will be made on each
Distribution Date in an amount equal to the interest accrued, but not then
distributable, on such Class of Compound Interest Certificates for the related
Due Period.
If specified in the related Prospectus Supplement, on any Distribution
Date on which the principal balance of the Mortgage Assets relating to a Series
is reduced due to losses on such Mortgage Assets, (i) the amount of such losses
will be allocated first, to reduce the aggregate outstanding principal balance
of the Subordinate Certificates of such Series (or other subordination, if
any,) and, thereafter, to reduce the aggregate outstanding principal balance of
the remaining Certificates of such Series in the priority and manner specified
in such Prospectus Supplement until the aggregate outstanding principal balance
of each Class of such Certificates of such Series so specified has been reduced
to zero or paid in full, thus reducing the amount of principal distributable on
each such Class of Certificates or (ii) such losses may be allocated in any
other manner set forth in the related Prospectus Supplement. To the extent
specified in the related Prospectus Supplement, such reductions of principal of
a Class or Classes of Certificates will be allocated to the Holders of the
Certificates of such Class or Classes pro rata in the proportion which the
outstanding principal of each Certificate of such Class or Classes bears to the
aggregate outstanding principal balance of all Certificates of such Class.
If provided in the related Prospectus Supplement, one or more Classes
of Senior Certificates of a Series will be entitled to receive all or a
disproportionate percentage of the payments of principal which are received on
the related Mortgage Assets in advance of their scheduled due dates and are not
accompanied by amounts representing scheduled interest due after the month of
such payments ("Principal Prepayments") in the percentages and under the
circumstances or for the periods specified in the Prospectus Supplement. To the
extent provided in the related Prospectus Supplement, any such allocation of
principal prepayments to such Class or Classes will have the effect of
accelerating the amortization of such Senior Certificates while increasing the
interests evidenced by the Subordinated Certificates in rights to the benefit
of the Assets in the related Trust Fund. Increasing the interests of the
Subordinated Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the subordination credit enhancement
provided to the Priority Certificates by the Subordinated Certificates. See
"Credit Enhancement -- Subordination."
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Certificates of a Series will be subject to receipt of
distributions before the next scheduled Distribution Date under the
circumstances and in the manner described below and in the related Prospectus
Supplement. If applicable, the
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related Trustee will be required to make such unscheduled distributions on the
Certificates of a Series on the date and in the amount specified in the related
Prospectus Supplement if, due to substantial payments of principal (including
Principal Prepayments) on the related Mortgage Assets, low rates then available
for reinvestment of such payments or both, the Trustee determines, based on the
assumptions specified in the related Pooling and Servicing Agreement, that the
amount anticipated to be on deposit in the Certificate Account for such Series
on the next related Distribution Date, together with, if applicable, any
amounts available to be withdrawn from any related Reserve Fund or from any
other Credit Enhancement provided for such Series, may be insufficient to make
required distributions on the Certificates of such Series on such Distribution
Date. To the extent specified in the related Prospectus Supplement, the amount
of any such unscheduled distribution that is allocable to principal will not
exceed the amount that would otherwise have been required to be distributed as
principal on the Certificates of such Series on the next Distribution Date. To
the extent specified in the related Prospectus Supplement, all unscheduled
distributions will include interest at the applicable Certificate Interest Rate
(if any) on the amount of the unscheduled distribution allocable to principal
for the period and to the date specified in such Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, all
distributions allocable to principal in any unscheduled distribution made on
the Certificates of a Series will be made in the same priority and manner as
distributions of principal on such Certificates would have been made on the
next Distribution Date, and with respect to Certificates of the same Class,
unscheduled distributions of principal will be made on a pro rata basis. Notice
of any unscheduled distribution will be given by the Trustee prior to the date
of such distribution.
TERMINATION
The obligations created by the Pooling ans Servicing Agreement for
each Series of Certificates will terminate following (i) the final payment or
other liquidation of the last Mortgage Asset subject thereto or the disposition
of all property acquired upon foreclosure of any Mortgage Loan subject thereto
and (ii) the payment (or provision for payment) to the Certificateholders of
that Series of all amounts required to be paid to them pursuant to such Pooling
and Servicing Agreement. Written notice of termination of a Pooling and
Servicing Agreement will be given to each Certificateholder of the related
Series, and the final distribution will be made only upon presentation and
surrender of the Certificates of such Series at the location to be specified in
the notice of termination.
If 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 provided in the related Prospectus Supplement upon the reduction of
the Class Principal 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 repurchase or to solicit bids for the
purchase of the Mortgage Assets of the related Trust Fund, or of a sufficient
portion of such Mortgage Assets to retire such class or classes, under the
circumstances and in the manner set forth therein. If a REMIC election will be
made with respect to a Series of Certificates, there may be additional
conditions to the termination of the related Trust Fund which will be set forth
in the related Pooling and Servicing Agreement for such Series of Certificates.
BOOK ENTRY REGISTRATION
If the Prospectus Supplement for a Series so provides, Certificates of
any Class of such Series may be issued in book entry form ("Book Entry
Certificates") and held in the form of a single certificate issued in the name
of a Clearing Agency ("Clearing Agency") registered with the Securities and
Exchange Commission or its nominee. Transfers and pledges of Book Entry
Certificates may be made only through entries on the books of the Clearing
Agency in the name of brokers, dealers, banks and other organizations eligible
to maintain accounts with the Clearing Agency ("Clearing Agency Participants")
or their nominees. Clearing Agency Participants may also be Beneficial Owners
(as defined below) of Book Entry Certificates.
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Purchasers and other Beneficial Owners of Book Entry Certificates
("Beneficial Owners") may not hold Book Entry Certificates directly, but may
hold, transfer or pledge their ownership interest in the Book Entry
Certificates only through Clearing Agency Participants. Additionally,
Beneficial Owners will receive all distributions of principal and interest with
respect to Book Entry Certificates, and, if applicable, may request repurchase
of Book Entry Certificates only through the Clearing Agency and the Clearing
Agency Participants. Beneficial Owners will not be registered holders of
Certificates or be entitled to receive definitive certificates representing
their ownership interest in the Certificates except under the limited
circumstances, if any, described in the related Prospectus Supplement. See
"Risk Factors -- Limited Liquidity and Fluctuation in Value from Market
Conditions -- Book Entry Registration."
If Certificates of a Series are issued as Book Entry Certificates, the
Clearing Agency will be required to make book entry transfers among Clearing
Agency Participants, to receive and transmit distributions of principal and
interest with respect to the Certificates of such Series, and to receive and
transmit requests for repurchase with respect to such Certificates. Clearing
Agency Participants with whom Beneficial Owners have accounts with respect to
such Book Entry Certificates will be similarly required to make book entry
transfers and receive and transmit distributions and repurchase requests on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not be registered holders of Certificates and will not possess
physical certificates, a method will be provided whereby Beneficial Owners may
receive distributions, transfer their interests, and submit repurchase
requests.
MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES
To the extent specified in the related Prospectus Supplement, (i) any
mutilated Certificate is surrendered to the Certificate Registrar, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) there is delivered to the Depositor, the Trustee
and the Certificate Registrar such security or indemnity as may be required by
each of them to hold each of them harmless, then, in the absence of notice to
the Depositor, the Trustee and the Certificate Registrar that such Certificate
has been acquired by a bona fide purchaser, the Trustee shall execute, deliver
and authenticate, in exchange for or in lieu of any such mutilated, destroyed,
lost or stolen Certificate, a new Certificate of like tenor and Percentage
Interest, but bearing a number not contemporaneously outstanding. Upon the
issuance of any such new Certificate, the Depositor and the Trustee may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses connected
therewith. Any such duplicate Certificate shall constitute complete and
indefeasible evidence of ownership in the Trust Fund, as if originally issued,
whether or not the mutilated, destroyed, lost or stolen Certificate shall be
found at any time.
ASSETS SECURING OR UNDERLYING THE CERTIFICATES
GENERAL
Each Series of Certificates will represent a beneficial interest in
the Assets included in the related Trust Fund and transferred to the related
Trustee by the Depositor. Such Assets may include (i) Mortgage Assets and
payments or distributions thereon (subject, if specified in the Prospectus
Supplement, to certain exclusions); (ii) if specified in the Prospectus
Supplement, reinvestment income on such payments or distributions; (iii) with
respect to a Trust Fund that includes Mortgage Loans or Contracts, all property
acquired by foreclosure or deed in lieu of foreclosure with respect to any such
Mortgage Loan or Contract and certain rights of the Administrator, if any, and
the Servicer under any policies required to be maintained in respect of the
related Mortgage Assets; and (iv) if specified in the Prospectus Supplement,
one or more forms of Credit Enhancement. The primary Assets of any Trust Fund
will consist of Mortgage Assets.
With respect to a Series, the Depositor will acquire the Mortgage
Assets in the open market or in privately negotiated transactions from one or
more entities, and each such entity from whom the Depositor so acquires a
significant portion of the Mortgage Assets (individually or collectively, the
"Transferor") will be described in the related Prospectus Supplement, including
a description of any affiliation between the Transferor
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and the Depositor. To the extent specified in the related prospectus
supplement, the Mortgage Assets will have been originated or acquired by the
Transferor in one of four ways: (i) the indirect origination and purchase of
retail installment sales contracts from a network of independent contractors or
dealers professionally installing property improvements ("indirect
originations"); (ii) the origination of loans directly to consumers, including
solicitations through direct mail and telemarketing ("direct originations");
(iii) the wholesale purchase of loans, on a flow basis, originated by other
unaffiliated lenders, as correspondents ("correspondent originations"); or (iv)
the purchase, on a bulk basis, of loan portfolios originated by other
unaffiliated lenders ("portfolio acquisitions"). In acquiring the Mortgage
Assets from a Transferor, the Depositor will rely on the representations and
warranties made by the Transferor with respect to such Mortgage Assets. For a
summary description of the expected representations and warranties with respect
to such Mortgage Assets, See "The Pooling and Servicing Agreement -- Assignment
of Mortgage Assets" herein. As further described in the related Prospectus
Supplement for a Series, the Transferor will be obligated to repurchase or
replace any Mortgage Assets that, subject to the lapse of any applicable cure
period, are in breach of a representation or warranty made by the Transferor
and such breach has a material and adverse affect on the value of such Mortgage
Assets or the interest of Certificateholders therein. To the extent that the
Depositor has any obligation to repurchase or replace any Mortgage Assets for a
material breach of any representations or warranties made by the Depositor, the
Depositor is not expected to have the financial capability to repurchase or
replace such defective Mortgage Assets, but rather the Depositor will be
relying on the related Transferor of such defective Mortgage Assets to
repurchase or replace them. See"The Depositor" herein.
The following is a brief description of the Mortgage Assets expected
to be included in the Trust Funds. If specific information respecting the
Mortgage Assets is not known at the time a Series is initially offered, more
general information of the nature described below will be provided in the
related Prospectus Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Series. A copy of the
related Pooling and Servicing Agreement with respect to each Series will be
attached to the Form 8-K and will be available for inspection at the corporate
trust office of the related Trustee specified in the related Prospectus
Supplement. A schedule of the Mortgage Assets relating to each Series, will be
attached to the related Pooling and Servicing Agreement delivered to the
Trustee upon delivery of such Series.
MORTGAGE LOANS
The Mortgage Loans will be evidenced by promissory notes, retail
installment sales contracts or other evidences of indebtedness (the "Mortgage
Notes") and will be secured by mortgages, deeds of trust or other similar
security instruments (the "Mortgages") creating a lien or security interest on
single family (one-to-four unit) residences, units in planned unit
developments, units in condominium developments, townhomes and Manufactured
Homes (as defined herein) (the "Mortgaged Properties") located in various
states. If specified in the Prospectus Supplement, the Mortgage Loans may
include cooperative apartment or manufactured housing loans ("Cooperative
Loans") secured by security interests in shares issued by private, non-profit,
cooperative housing corporations ("Cooperatives") and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific units in such Cooperatives. To the extent specified in the related
Prospectus Supplement, all or a portion of the Mortgages will be junior liens
on the related Mortgaged Properties, and the related superior liens will not be
included in the Mortgage Loan Pool. Certain of the Mortgage Loans may be
partially insured to the extent described in the related Prospectus Supplement
(and subject to the conditions described herein and in the related Prospectus
Supplement) by the FHA under the Title I Program (the "Title I Mortgage
Loans"). To the extent specified in the related Prospectus Supplement, the
Mortgage Loans will have scheduled monthly payment dates throughout a month,
and no Mortgage Loan will provide for deferred interest or negative
amortization, and no commercial or multifamily loans will be included in any
Mortgage Loan Pool.
The payment terms of the Mortgage Loans to be included in a Trust Fund
for a Series or will be described in the related Prospectus Supplement and may
include any of the following features or combinations thereof or other features
described in the related Prospectus Supplement:
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(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index, a rate that is fixed for a period of time
or under certain circumstances and is followed by an adjustable rate, a rate
that otherwise varies from time to time, or a rate that is convertible from an
adjustable rate to a fixed rate. Changes to an adjustable rate may be subject
to periodic limitations, maximum rates, minimum rates or a combination of such
limitations. Accrued interest may be deferred and added to the principal of a
loan for such periods and under such circumstances as may be specified in the
related Prospectus Supplement. Mortgage Loans may provide for the payment of
interest at a rate lower than the specified mortgage rate for a period of time
or for the life of the Mortgage Loan with the amount of any difference
contributed from funds supplied by the seller of the Mortgaged Property or
another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the loan over its term, may be calculated on the basis of an
amortization schedule that is significantly longer than the original term to
maturity or on an interest rate that is different from the interest rate on the
Mortgage Loan or may not be amortized during all or a portion of the original
term. Payment of all or a substantial portion of the principal may be due on
maturity. Principal may include interest that has been deferred and added to
the principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the loan, may increase over a specified period of time or may change
from period to period. Mortgage Loans may include limits on periodic increases
or decreases in the amount of monthly payments and may include maximum or
minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which
may be fixed for the life of the loan or may decline over time, and may be
prohibited for the life of the loan or for certain periods ("lockout periods").
Certain loans may permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in connection with any
such subsequent prepayment. Other loans may permit prepayments without payment
of a fee unless the prepayment occurs during specified time periods. The loans
may include "due-on-sale" clauses which permit the mortgagee to demand payment
of the entire mortgage loan in connection with the sale or certain transfers of
the related mortgaged property. Other Mortgage Loans may be assumable by
persons meeting the then applicable underwriting standards of the Depositor.
With respect to a Series for which the related Trust Fund includes
Mortgage Loans the related Prospectus Supplement may specify, among other
things, information regarding the interest rates (the "Mortgage Rates"), the
average principal balance and the aggregate principal balance of such Mortgage
Loans, the years of origination, geographic dispersion and original principal
balances and the loan-to-value ratios of such Mortgage Loans.
AGENCY SECURITIES
Government National Mortgage Association (GNMA). GNMA is a
wholly-owned corporate instrumentality of the United States within the United
States Department of Housing and Urban Development. Section 306(g) of Title III
of the National Housing Act of 1934, as amended (the "Housing Act"), authorizes
GNMA to guarantee the timely payment of the principal of and interest on
certificates which represent an interest in a pool of mortgage loans insured by
the Federal Housing Administration ("FHA Loans"), or guaranteed by the Farmers
Home Administration ("FmHA Loans") or partially guaranteed by the Veterans'
Administration ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guarantee under this subsection." In order to
meet its obligations under any such guarantee, GNMA may, under Section 306(d)
of the Housing Act, borrow from the United States Treasury in an amount which
is at any time sufficient to enable GNMA, with no limitations as to amount, to
perform its obligations under its guarantee.
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GNMA Certificates. Each GNMA Certificate relating to a series (which
may be issued under either the GNMA I program or the GNMA II program, as
referred to by GNMA) will be a "fully modified pass-through" mortgage-backed
certificate issued and serviced by a mortgage banking company or other
financial concern ("GNMA Issuer") approved by GNMA or approved by FNMA as a
sellerservicer of FHA Loans, FmHA Loans and/or VA Loans. Each GNMA Certificate
will represent a fractional undivided interest in a pool of mortgage loans
which may include FHA Loans, FmHA Loans and/or VA Loans. Each such mortgage
loan is secured by a one- to four-family residential property. Each such GNMA
Certificate will provide for the payment by or on behalf of the GNMA Issuer to
the registered holder of such GNMA Certificate of scheduled monthly payments of
principal and interest equal to the registered holder's proportionate interest
in the aggregate amount of the monthly principal and interest payment on each
FHA Loan, FmHA Loan or VA Loan underlying such GNMA Certificate, less the
applicable servicing and guarantee fee which together equal the difference
between the interest on the FHA Loan, FmHA Loan or VA Loan and the pass-through
rate on the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of principal on the FHA
Loans, FmHA Loans or VA Loans underlying such GNMA Certificate and liquidation
proceeds in the event of a foreclosure or other disposition of any such FHA
Loans, FmHA Loans or VA Loans.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States.
Each such GNMA Certificate will have an original maturity of not more
than 30 years (but may have an original maturity of substantially less than 30
years). GNMA will approve the issuance of each such GNMA Certificate in
accordance with a guarantee agreement (a "Guaranty Agreement") between GNMA and
the GNMA Issuer. Pursuant to its Guaranty Agreement, a GNMA Issuer will be
required to advance its own funds in order to make timely payments of all
amounts due on the GNMA Certificate, even if the payments received by the GNMA
Issuer on the mortgage loans underlying each such GNMA Certificate are less
than the amounts due on such GNMA Certificate.
If a GNMA Issuer is unable to make payments on a GNMA Certificate as
such payments become due, it is required promptly to notify GNMA and request
GNMA to make such payments. Upon such notification and request, GNMA will make
such payments directly to the registered holder of the GNMA Certificate. In the
event no payment is made by a GNMA Issuer and the GNMA Issuer fails to notify
and request GNMA to make such payment, the holder of the GNMA Certificate will
have recourse only against GNMA to obtain such payment. In the case of GNMA
Certificates issued in definitive form, the Trustee, as registered holder of
the GNMA Certificates, will have the right to proceed directly against GNMA
under the terms of the Guaranty Agreements relating to such GNMA Certificates
for any amounts that are not paid when due. In the case of GNMA Certificates
issued in book-entry form, The Participants Trust Corporation ("PTC"), or its
nominee, will have the right to proceed against GNMA in such event.
All mortgage loans underlying a particular GNMA I Certificate must
have the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on each GNMA I
Certificate will equal the interest rate on the mortgage loans included in the
pool of mortgage loans underlying such GNMA I Certificate, less one-half
percentage point per annum of the unpaid principal balance of the mortgage
loans.
Mortgage loans underlying a particular GNMA II Certificate may have
per annum interest rates that vary from each other by up to one percentage
point. The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate relating
to a series will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans of VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled
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monthly installment on such GNMA Certificate is due. Such regular monthly
installments on each such GNMA Certificate are required to be paid to the
Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments
on any FHA Loans, FmHA Loans or VA Loans underlying a GNMA Certificate relating
to a series or any other early recovery of principal on such loan will be
passed through to the Trustee as the registered holder of such GNMA
Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or
by "buydown" mortgage loans for which funds will have been provided (and
deposited into escrow accounts) for application to the payment of a portion of
the borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from non-"buydown" GNMA Certificates and will include amounts
to be collected from both the borrower and the related escrow account. The
graduated payment mortgage loans will provide for graduated interest payments
that, during the early years of such mortgage loans, will be less than the
amount of stated interest on such mortgage loans. The interest not so paid will
be added to the principal of such graduated payment mortgage loans and,
together with interest thereon, will be paid in subsequent years. The
obligations of GNMA and of a GNMA Issuer will be the same irrespective of
whether the GNMA Certificates relating to a series of Certificates are backed
by graduated payment mortgage loans or "buydown" mortgage loans. No statistics
comparable to the FHA's prepayment experience on level payment, non-"buydown"
mortgage loans are available in respect of graduated payment or " buydown"
mortgages. GNMA Certificates included in the Trust Fund for a Series may be
held in book-entry form.
If specified in the related Prospectus Supplement, GNMA Certificates
included in the Trust Fund for a Series may be held on deposit at PTC, a
limited purpose trust company organized under the banking law of the State of
New York. PTC operates a private sector, industry-owned depository and
settlement facility for the book-entry transfer of interests in GNMA
Certificates. Distributions of principal of and interest on each GNMA
Certificate held through PTC will be credited by PTC to the PTC participant on
whose account the GNMA Certificate is credited.
Federal National Mortgage Association (FNMA). FNMA is a federally
chartered and privately owned corporation organized and existing under the
Federal National Mortgage Association Charter Act (the "Charter Act"). FNMA was
originally established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by legislation enacted in
1968.
FNMA provides funds to the mortgage market primarily by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending. FNMA acquires funds to purchase mortgage loans from many capital
market investors that may not ordinarily invest in mortgages, thereby expanding
the total amount of funds available for housing. Operating nationwide, FNMA
helps to redistribute mortgage funds from capital surplus to capital-short
areas.
FNMA Certificates. FNMA Certificates are Guaranteed Mortgage
Pass-Through Certificates representing fractional undivided interests in a pool
of mortgage loans formed by FNMA. Each mortgage loan must meet the applicable
standards of the FNMA purchase program. Mortgage loans comprising a pool are
either provided by FNMA from its own portfolio or purchased pursuant to the
criteria of the FNMA purchase program.
Mortgage loans underlying FNMA Certificates relating to a series will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be between either 8 to 15
years or 20 to 30 years. The original maturities of substantially all of the
fixed rate level payment FHA Loans or VA Loans are expected to be 30 years.
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Mortgage loans underlying a FNMA Certificate may have annual interest
rates that vary by as much as two percentage points from each other. The rate
of interest payable on a FNMA Certificate is equal to the lowest interest rate
of any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Thus,
the annual interest rates on the mortgage loans underlying a FNMA Certificate
will generally be between 50 basis points and 250 points greater than the
annual FNMA Certificate pass-through rate. If specified in the related
Prospectus Supplement, FNMA Certificates included in the Trust Fund with
respect to a Series may be backed by adjustable rate mortgages.
Regular monthly installment payments on each FNMA Certificate will be
comprised of interest due as specified by such FNMA Certificate plus the
scheduled principal payments on the Mortgage Loans underlying such FNMA
Certificate due during the period beginning on the second day of the month
prior to the month in which the scheduled monthly installment on such FNMA
Certificate is due and ending on the first day of such month in which the
scheduled monthly installment on such FNMA Certificate is due. Such regular
monthly installments on each such FNMA Certificate will be distributed to the
holder of record on the 25th day of each month. Any principal prepayments on
the mortgage loans underlying any FNMA Certificate included in the Trust Fund
with respect to a Series or any other early recovery of principal on such
mortgage loans will be passed through to the holder of record of such FNMA
Certificate on the 25th day of the month next following such prepayment or
recovery and, in turn, a portion of such amounts will be paid or distributed to
Holders of such Series, secured thereby, as additional principal payments.
FNMA guarantees to each registered holder of a FNMA Certificate that
it will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guarantees are obligations solely of FNMA and are not backed by, nor
entitled to, the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United
States nor any agency thereof is obligated to finance FNMA's operations or to
assist FNMA in any other manner. If FNMA were unable to satisfy its
obligations, distributions to holders of FNMA Certificates would consist solely
of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FNMA Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
Federal Home Loan Mortgage Corporation (FHLMC). FHLMC is a corporate
instrumentality of the United States created pursuant to Title III of the
Emergency Home Finance Act of 1970, as amended (the "FHLMC Act"). The common
stock of FHLMC is owned by the Federal Home Loan Banks. FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of urgently needed housing. It seeks to provide an enhanced
degree of liquidity for residential mortgage investments primarily by assisting
in the development of secondary markets for conventional mortgages. The
principal activity of FHLMC currently consists of the purchase of first lien
conventional mortgage loans or participation interests in such mortgage loans
and the sale of the mortgage loans or participations so purchased in the form
of mortgage securities, primarily FHLMC Certificates. FHLMC is confined to
purchasing, so far as practicable, mortgage loans that it deems to be of such
quality, type and class as to meet generally the purchase standards imposed by
private institutional mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien
conventional loans, FHA Loans or VA Loans (a "FHLMC Certificate Group"). FHLMC
Certificates are sold under the terms of a Mortgage Participation Certificate
Agreement. A FHLMC Certificate may be issued under either FHLMC's Cash Program
or Guarantor Program.
To the extent described in the related Prospectus Supplement, mortgage
loans underlying the FHLMC Certificates relating to a series will consist of
mortgage loans with original terms to maturity of between 10 and 30 years. Each
such mortgage loan must meet the applicable standards set forth in FHLMC Act. A
FHLMC
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Certificate group may include whole loans, participation interests in whole
loans and undivided interests in whole loans and/or participations comprising
another FHLMC Certificate group. Under the Guarantor Program any such FHLMC
Certificate group may include only whole loans or participation interests in
whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of
the applicable Certificate rate on the registered holder's pro rata share of
the unpaid principal balance outstanding on the underlying mortgage loans in
the FHLMC Certificate group represented by such FHLMC Certificate, whether or
not received. FHLMC also guarantees to each registered holder of a FHLMC
Certificate collection by such holder of all principal on the underlying
mortgage loans, without any offset or deduction, to the extent of such holder's
pro rata share thereof, but does not, except if and to the extent specified in
the Prospectus Supplement for a Series, guarantee the timely payment of
scheduled principal. Under FHLMC's Gold PC Program, FHLMC guarantees the timely
payment of principal based on the difference between the pool factor published
in the month preceding the month of distribution and the pool factor published
in such month of distribution. Pursuant to its guarantees, FHLMC indemnifies
holders of FHLMC Certificates against any diminution in principal by reason of
charges for property repairs, maintenance and foreclosure. FHLMC may remit the
amount due on account of its guarantee of collection of principal at any time
after default on an underlying mortgage loan, but not later than (i) 30 days
following foreclosure sale, (ii) 30 days following payment of the claim by any
mortgage insurer, or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the borrower for accelerated payment of
principal. In taking actions regarding the collection of principal after
default on the mortgage loans underlying FHLMC Certificates, including the
timing of demand for acceleration, FHLMC reserves the right to exercise its
judgment with respect to the mortgage loans in the same manner as for mortgage
loans which it has purchased but not sold. The length of time necessary for
FHLMC to determine that a mortgage loan should be accelerated varies with the
particular circumstances of each borrower, and FHLMC has not adopted standards
which require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage
loans and, accordingly, monthly distributions to holders of FHLMC Certificates
would be affected by delinquent payments and defaults on such mortgage loans.
In addition to FHLMC's guarantees of timely payment of interest and
ultimate collection of principal, FHLMC guarantees with respect to FHLMC
Certificates representing certain qualifying mortgage loans the timely payment
by each borrower of the monthly principal scheduled to be paid under the
amortization schedule applicable to each such mortgage loan ("Scheduled
Principal"). Servicers of the mortgage loans comprising these FHLMC
Certificates are required to pay Scheduled Principal to FHLMC whether or not
received from the borrowers. FHLMC, in turn, guarantees to pay Scheduled
Principal to each registered holder of such FHLMC Certificates whether or not
received from the servicers. FHLMC monthly payments of Scheduled Principal are
computed based upon the servicer's monthly report to FHLMC of the amount of
Scheduled Principal due to be paid on the related mortgage loans. The
Prospectus Supplement for each Series for which the related Trust Fund includes
FHLMC Certificates will set forth the nature of FHLMC's guarantee with respect
to scheduled principal payments on the mortgage loans in the pools represented
by such FHLMC Certificates.
Requests for registration of ownership of FHLMC Certificates made on
or before the last business day of a month are made effective as of the first
day of that month. With respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, a Federal Reserve Bank which maintains book-entry accounts
with respect thereto will make payments of interest and principal each month to
holders in accordance with the holders' instructions. The first payment to a
holder of a FHLMC Certificate will normally be received by the 15th day of the
second month following the month in which the purchaser became recognized as
the holder of such FHLMC Certificate. Thereafter, payments will normally be
received by the 15th day of each month.
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A FHLMC Certificate may be issued under programs created by FHLMC,
including its Cash Program or Guarantor Program. Under FHLMC's Cash Program,
the pooled mortgage loans underlying a FHLMC Certificate are purchased for cash
from a number of sellers. With respect to FHLMC Certificate Pools formed prior
to June 1, 1987, under the Cash Program, there is no limitation on the amount
by which interest rates on the mortgage loans underlying a FHLMC Certificate
may exceed the interest rate on the FHLMC Certificate. Under such program,
FHLMC purchases groups of whole mortgage loans at specified percentages of
their unpaid principal balances, adjusted for accrued or prepaid interest,
which, when applied to the interest rate of the mortgage loans purchased,
results in the yield (expressed as a percentage) required by FHLMC. The
required yield, which includes a minimum servicing fee retained by the
servicer, is calculated using the outstanding principal balance of the mortgage
loans, an assumed term and a prepayment period as determined by FHLMC. No
mortgage loan is purchased by FHLMC at greater than 100% of its outstanding
principal balance. Thus, the range of interest rates on the mortgage loans in a
FHLMC Certificate Pool formed prior to June 1987 under the Cash Program will
vary since mortgage loans are purchased and identified to a FHLMC Certificate
Pool based upon their yield to FHLMC rather than on the interest rates on the
mortgage loans. With respect to FHLMC Certificate Pools formed on or after June
1, 1987, the range of interest rates on the mortgage loans and participations
in a FHLMC Certificate Pool which is comprised of 15- or 30-year fixed-rate
single family mortgage loans bought by FHLMC under the Cash Program will be
restricted to one percentage point. In addition, the minimum interest rate on
any mortgage loan in a FHLMC Certificate Pool will be greater than or equal to
the annual pass-through rate on the related FHLMC Certificate, and the maximum
interest rate will not be more than two percentage points above such
pass-through rate.
Under FHLMC's Guarantor Program, the mortgage loans underlying a FHLMC
Certificate are purchased from a single seller in exchange for such FHLMC
Certificate. The interest rate on a FHLMC Certificate under such program is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of FHLMC's management and
guaranty income as agreed upon between the seller and FHLMC. Under the
Guarantor Program, the range between the lowest and highest annual interest
rates on the mortgage loans in a FHLMC Certificate Pool may not exceed two
percentage points. For some FHLMC Certificates issued pursuant to purchase
contracts under the Guarantor Program on or after September 1, 1987, the range
of the interest rates on the mortgage loans in a FHLMC Certificate Pool will
not exceed one percentage point.
Stripped Agency Securities. Agency Securities may consist of one or
more stripped mortgage-backed securities, each as described herein and in the
related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of either the principal distributions (but
not the interest distributions) or the interest distributions (but not the
principal distributions), or in some specified portion of the principal and
interest distributions (but not all of such distributions) on certain GNMA
Certificates, FNMA Certificates, FHLMC Certificates, or other Agency
Securities. The underlying securities will be held under a trust agreement by
GNMA, FNMA or FHLMC each as trustee, or by another trustee named in the related
Prospectus Supplement. FHLMC, FNMA or GNMA will guarantee each stripped Agency
Security to the same extent as such entity guarantees the underlying securities
backing such stripped Agency Security, to the extent specified in the related
Prospectus Supplement.
Other Agency Securities. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through or
participation certificates issued or guaranteed by GNMA, FNMA or FHLMC,
including but not limited to FNMA Guaranteed REMIC Pass-Through Certificates
and FHLMC Multiclass Mortgage Participation Certificates. The characteristics
of any such mortgage pass-through or participation certificates will be
described in such Prospectus Supplement. If specified, a combination of
different types of Agency Securities may be included in a Trust Fund.
CONTRACTS
As specified in the related Prospectus Supplement for a Series,
"Contracts" may include: (i) loans evidenced by retail installments sales or
loan agreements, including loans secured by new or used Manufactured
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Homes (as defined herein) that are not considered to be interests in real
property because such Manufactured Homes are not permanently affixed to real
estate ("Secured Contracts") and (ii) unsecured loans for Manufactured Homes
and for property improvement, debt consolidation and/or home equity purposes
(such unsecured loans are collectively, the "Unsecured Contracts"). To the
extent described in the related Prospectus Supplement, certain Contracts that
are secured by Manufactured Homes and Unsecured Contracts will be conventional
(i.e., not insured or guaranteed by a governmental agency) loan contracts (the
"Conventional Contracts"), while other Contracts that are secured by
Manufactured Homes or that are unsecured loans for Manufactured Homes or
property improvements will be partially insured by the FHA under the Title I
Program (the "Title I Contracts"). To the extent specified in the related
Prospectus Supplement, the Contracts included in the Trust Fund with respect to
a Series will be fully amortizing and will bear interest at a fixed annual
percentage rate ("APR"). The Secured Contracts differ from Mortgage Loans in
that the Secured Contracts are not secured by an interest in real property, but
rather by an interest in a Manufactured Home that is not permanently affixed to
real estate. In addition, the Contracts differ from Mortgage Loans in that they
are generally originated by a network of independent contractors or dealers
that professionally install property improvements, rather than by financial
institutions or other traditional mortgage lenders.
While the Unsecured Contracts are not secured by a security interest
in any related real or personal property, such contracts are still subject to
the same underwriting criteria as the Mortgage Loans and the Secured Contracts.
For example, in underwriting an Unsecured Contract, the Transferor will
consider the borrower's ability to pay the related debt as well as the value of
real or personal property owned by the borrower which could be the subject of a
junior lien in favor of the Transferor; however, because the Unsecured
Contracts generally have smaller principal amounts than the Mortgage Loans or
the Secured Contracts, a junior lien with respect to such real or personal
property will not be obtained because the costs associated with obtaining and
perfecting such a junior lien will not justify the benefits provided by such a
lien, including any realization from the enforcement of such lien.
The Manufactured Homes securing the Secured Contracts consist of
manufactured homes within the meaning of 42 United States Code, Section
5402(6), which defines a "Manufactured Home" as "a structure, transportable in
one or more sections, which in the traveling mode, is eight body feet or more
in width or forty body feet or more in length, or, when erected on site, is
three hundred twenty or more square feet, and which is built on a permanent
chassis and designed to be used as a dwelling with or without permanent
foundation when connected to the required utilities, and includes the plumbing,
heating, air-conditioning, and electrical systems contained therein; except
that such term shall include any structure which meets all the requires of
[this] paragraph except the size requirements and with respect to which the
manufacturer voluntarily files a certification required by the Secretary of
Housing and Urban Development and complies with the standards established under
[this] chapter." Moreover, if an election is made to treat a Trust Fund
including Secured Contracts as a REMIC as described in "Certain Federal Income
Tax Consequences -- Federal Income Tax Consequences for REMIC Certificates,"
the related Manufactured Homes will have a minimum of 400 square feet of living
space and a minimum width in excess of 102 inches.
To the extent specified in the Prospectus Supplement with respect to a
Series for which the related Trust Fund includes Secured Contracts, for
purposes of calculating the loan-to-value ratio of a Secured Contract relating
to a new Manufactured Home, the "Collateral Value" is no greater than the sum
of a fixed percentage of the list price of the unit actually billed by the
manufacturer to the dealer (exclusive of freight to the dealer site) including
"accessories" identified in the invoice (the "Manufacturer's Invoice Price"),
plus the actual cost of any accessories purchased from the dealer, a delivery
and set-up allowance, depending on the size of the unit and the cost of state
and local taxes, filing fees and up to three years prepaid hazard insurance
premiums. To the extent specified in the related Prospectus Supplement, the
Collateral Value of a used Manufactured Home is the least of the sales price,
the appraised value, and the National Automobile Dealer's Association book
value plus prepaid taxes and hazard insurance premiums. The appraised value of
a Manufactured Home is based upon the age and condition of the manufactured
housing unit and the quality and condition of the mobile home park in which it
is situated, if applicable.
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The related Prospectus Supplement may specify for the Contracts
contained in the related Contract Pool, among other things, the date of
origination of the Contracts; the APRs on the Contracts; the Contract
Loan-to-Value Ratios; the minimum and maximum outstanding principal balance as
of the cut-off date and the average outstanding principal balance; the
outstanding principal balances of the Contracts included in the Contract Pool;
and the original maturities of the Contracts and the last maturity date of any
Contract.
ADDITIONS, SUBSTITUTION AND WITHDRAWAL OF ASSETS
With respect to a Series, as described in the related Prospectus
Supplement, the related Transferor or the Depositor may, subsequent to the
issuance of a Series, (i) deliver additional Assets to the related Trust Fund,
(ii) withdraw Assets previously included in a Trust Fund for such Series and
substitute comparable assets therefor, or (iii) withdraw Assets previously
included in a Reserve Fund for such Series. Assets may be added to the Trust
Fund for a Series subsequent to the issuance of such Series in the manner
described under "Pre-Funding Arrangements" below. In addition, Assets may be
withdrawn from or substituted in the Trust Fund for a Series for the following
reasons: (a) curing any breaches of representations and warranties with respect
to such Assets, (b) curing certain immaterial irregularities with respect to
such Assets that do not constitute a breach of such representations and
warranties, or (c) achieving certain targeted or desired Mortgage Asset Pool
characteristics with respect to the Assets of a particular Series, including,
without limitation, those characteristics that accommodate the requests of a
Rating Agency, the Underwriters or a third party provider of Credit
Enhancement. Any such additions, withdrawals or substitutions of Assets by the
related Transferor or the Depositor will be subject to the applicable
limitations, requirements and conditions provided in the related Pooling and
Servicing Agreement (and described in the related Prospectus Supplement) for
such Series.
PRE-FUNDING ARRANGEMENTS
To the extent provided in the related Prospectus Supplement for a
Series, the related Pooling and Servicing Agreement will provide for a
commitment by the related Trust Fund to subsequently purchase additional
Mortgage Assets ("Subsequent Mortgage Assets") from the Depositor following the
date on which the Trust Fund is established and the related Certificates are
issued (a "Pre-Funding Arrangement"). With respect to a Series, the Pre-Funding
Arrangement will require that any Subsequent Mortgage Assets transferred to the
Trust Fund conform to the requirements and conditions provided in the related
Pooling and Servicing Agreement. If a Pre-Funding Arrangement is utilized in
connection with the issuance of the Series of Certificates, on the closing date
for the issuance of such Series the related Trustee will be required to deposit
in a segregated account (a "Pre-Funding Account") all or a portion of the
proceeds received by the Trustee in connection with the sale of one or more
Classes of Certificates of such Series; and subsequently, the Trust Fund will
acquire Subsequent Mortgage Assets from the Depositor in exchange for the
release of money from the Pre-Funding Account for such Series. In addition, the
Pre-Funding Arrangement will be limited to a specified period, not to exceed
three months, during which time any transfers of Subsequent Mortgage Assets
must occur and to a maximum deposit to the related Pre-Funding Account of no
more than thirty-five percent (35%) of the aggregate proceeds received from the
sale of all Classes of Certificates of such Series.
If all of the funds originally deposited in the such Pre-Funding
Account are not used by the end of such specified period, then any remaining
amount of such funds will be applied as a mandatory prepayment of a Class or
Classes of Certificates as specified in the related Prospectus Supplement.
Although it is intended that the principal amount of Subsequent Mortgage Assets
transferred to the Trust Fund after the closing date for the issuance of any
particular Series will require application of substantially all of the
Pre-Funding Account, and it is not anticipated that there will be any material
amount of principal distributions from amounts remaining on deposit in the
Pre-Funding Account in reduction of the principal balances of any Certificates,
no assurance can be given that such a distribution with respect to the
Certificates will not occur on the Distribution Date following the Due Period
in which the Pre-Funding Arrangement ends. In any event, it is unlikely that
the Transferor will be able to deliver Subsequent Mortgage Assets with
aggregate principal balances that exactly equal the Pre-Funding Account, and
the portion of the Pre-Funding Account remaining at the end of the Pre-Funding
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Arrangement, if any, will be distributed in reduction of the principal balance
of the Certificates of the related Series, as set forth in related Prospectus
Supplement.
As may be further specified in the related Prospectus Supplement,
amounts on deposit in the Pre-Funding Account will be invested in short-term
debt obligations of, or debt obligations guaranteed by, the United States,
repurchase agreements that satisfy the criteria specified in the Pooling and
Servicing Agreement, certificates of deposit, time deposits and bankers
acceptances of any United States depository institution or trust company, FDIC
insured deposits, including deposits with the Trustee, commercial paper, debt
obligations, and money market funds; provided such investments are acceptable
to each Rating Agency rating the Series of Certificates at the time at which
the investments are made (collectively "Permitted Investments"); and provided
further that an investment in such Permitted Investments will not require the
Trust Fund for a Series to be registered as an "investment company" under the
Investment Company Act of 1940, as amended. Permitted Investments will consist
of short term investments that convert into cash or mature within a short
period of time, have minimal or no exposure to fluctuations in value as a
result of market changes in prevailing interest rates and are acceptable to
each Rating Agency rating the applicable Series of Certificates.
The utilization of a Pre-Funding Arrangement is intended to improve
the efficiency of the issuance of a Series of Certificates and the sale of the
Mortgage Assets to the related Trust Fund through the incremental delivery of
the Mortgage Assets on the closing date and during the three month period
following the closing date for such Series, which allows for a more even
accumulation of the Mortgage Assets by the Depositor and the related Transferor
and the issuance of a larger principal amount of Certificates for such Series
than would be the case without a Pre-Funding Arrangement.
CREDIT ENHANCEMENT
GENERAL
Various forms of credit enhancement ("Credit Enhancement") may be
provided with respect to one or more Classes of a Series or with respect to the
Assets in the related Trust Fund. Credit Enhancement may be in the form of the
subordination of one or more Classes of such Series, the overcollateralization
of the Trust Fund with respect to a Series, the establishment of one or more
Reserve Funds, the use of a cross-support feature, the use of a Mortgage Pool
Insurance Policy, Certificate Insurance Policy, Special Hazard Insurance
Policy, bankruptcy bond, or another form of Credit Enhancement described in the
related Prospectus Supplement, or any combination of the foregoing. To the
extent specified in the related Prospectus Supplement, any Credit Enhancement
with respect to a Series will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates of such Series and interest thereon. If losses occur which exceed
the amount covered by such Credit Enhancement or which are not covered by the
Credit Enhancement, Holders will bear their allocable share of deficiencies.
SUBORDINATION
If specified in the related Prospectus Supplement, distributions in
respect of scheduled principal, interest or any combination thereof that
otherwise would have been payable or distributable to one or more Classes of a
Series (the "Subordinated Certificates") will instead be payable to one or more
other Classes of such Series (the "Senior Certificates") under the
circumstances and to the extent provided in such Prospectus Supplement. If
specified in the Prospectus Supplement, delays in receipt of scheduled payments
on the Mortgage Assets and losses on defaulted Mortgage Assets will be borne
first by the various Classes of Subordinated Certificates and thereafter by the
various Classes of Senior Certificates, in each case under the circumstances
and subject to the limitations specified in the Prospectus Supplement. The
aggregate distributions in respect of delinquent payments or distributions on
the Mortgage Assets over the lives of the Certificates of a Series or at any
time, the aggregate losses in respect of defaulted Mortgage Assets which must
be borne by the Subordinated Certificates by virtue of subordination and the
amount of the distributions otherwise distributable to the Subordinated
Certificates that will be distributable to Holders of Senior Certificates on
any Distribution Date may be limited as specified in the
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related Prospectus Supplement. If aggregate distributions in respect of
delinquent payments or distributions on the Mortgage Assets or aggregate losses
in respect of such Mortgage Assets were to exceed the total amounts
distributable and available for distribution to Holders of Subordinated
Certificates were to exceed the specified maximum amount, Holders of Senior
Certificates could experience losses on their Certificates.
In addition to or in lieu of the foregoing, if specified in the
related Prospectus Supplement, all or any portion of distributions otherwise
distributable to Holders of Subordinated Certificates on any Distribution Date
may instead be deposited into one or more Reserve Fund (as defined below)
established by the related Trustee. If specified in the related Prospectus
Supplement, such deposits may be made (i) on each Distribution Date, (ii) on
each Distribution Date for specified periods, or (iii) on each Distribution
Date until the balance in the Reserve Fund has reached a specified amount and,
following payments from the Reserve Fund to Holders of Senior Certificates or
otherwise, thereafter to the extent necessary to restore the balance in the
Reserve Fund to required levels, in each case as specified in such Prospectus
Supplement. If specified in the related Prospectus Supplement, amounts on
deposit in the Reserve Fund may be released to the Depositor or the Holders of
any Class of Certificates at the times and under the circumstances specified in
such Prospectus Supplement.
If specified in the related Prospectus Supplement, various Classes of
Senior Certificates and Subordinated Certificates may themselves be subordinate
in their right to receive certain distributions to other Classes of Senior and
Subordinated Certificates, respectively, through a cross-support mechanism or
otherwise.
As between Classes of Senior Certificates and as between Classes of
Subordinated Certificates, distributions may be allocated among such Classes
(i) in the order of their Scheduled Final Distribution Dates, (ii) in
accordance with a schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise, in each case as specified in the related Prospectus
Supplement. As between Classes of Subordinated Certificates, distributions to
Holders of Senior Certificates on account of delinquencies or losses and
payments to any Reserve Fund will be allocated as specified in the related
Prospectus Supplement.
OVERCOLLATERALIZATION
If provided in the related Prospectus Supplement, the aggregate
principal balance of the Mortgage Assets included in the Trust Fund may exceed
the aggregate original principal balance of the Certificates in a Series
thereby creating an "Excess Spread" on each Distribution Date. If provided in
the related Prospectus Supplement, such Excess Spread may be distributed to
holders of Senior Certificates to produce and maintain a specified level of
overcollateralization. With respect to a Series of Certificates, the
overcollateralization level may be fixed or may increase or decrease over time,
subject to certain floors, caps and triggers, as set forth in the related
Prospectus Supplement and the related Pooling and Servicing Agreement.
CROSS-SUPPORT
If specified in the related Prospectus Supplement, separate Classes of
related Series of Certificates may represent the beneficial ownership of or be
separately secured by, separate groups of Assets included in the Trust Fund for
a Series or otherwise available for the benefit of such Certificates. In such
case, Credit Enhancement may be provided by a cross-support feature which may
require that distributions be made with respect to Certificates evidencing
beneficial ownership of or secured by one or more asset groups prior to
distributions to Subordinated Certificates evidencing a beneficial ownership
interest in or secured by other asset groups within the same Trust Fund. The
Prospectus Supplement for a Series which includes a cross-support feature will
describe the manner and conditions for applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by
one or more forms of Credit Enhancement may apply concurrently to two or more
separate Trust Funds for a separate Series of Certificates. If applicable, the
Prospectus Supplement will identify the Trust Funds to which such credit
support relates and the manner of determining the amount of the coverage
provided thereby and of the application of such coverage to the identified
Trust Funds.
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CERTIFICATE INSURANCE
If specified in the Prospectus Supplement, one or more Certificate
Guaranty Insurance Policies (each, a "Certificate Guaranty Policy") will be
obtained. Such Certificate Guaranty Policy with respect to a Series will,
subject to limitations described in the related Prospectus Supplement, provide
to the Holders of the insured Certificates of such Series a guarantee of
payment of any interest and/or principal payments due to such Holders on each
Distribution Date. The related Prospectus Supplement will describe the terms of
any Certificate Guaranty Policy and will set forth certain information with
respect to the Certificate Insurer.
POOL INSURANCE
With respect to a Series for which the related Trust Fund includes
Mortgage Loans (and, if specified in the related Prospectus Supplement, a
Series for which the related Trust Fund includes Contracts), in order to
decrease the likelihood that Holders of the Certificates of such Series will
experience losses in respect of such Mortgage Loans, if specified in the
related Prospectus Supplement, one or more mortgage pool insurance policies
(each, a "Mortgage Pool Insurance Policy") will be obtained. Such Mortgage Pool
Insurance Policy will, subject to the limitations described below and in the
Prospectus Supplement, cover loss by reason of default in payments on such
Mortgage Loans up to the amounts specified in the Prospectus Supplement or
reported on Form 8-K and for the periods specified in the Prospectus
Supplement. To the extent specified in the related Prospectus Supplement, the
Servicer under the related Pooling and Servicing Agreement will agree to use
its best reasonable efforts to cause to be maintained in effect any such
Mortgage Pool Insurance Policy and to file claims thereunder to the issuer of
such Mortgage Pool Insurance Policy (the "Pool Insurer"). A Mortgage Pool
Insurance Policy, however, is not a blanket policy against loss, since claims
thereunder may only be made respecting particular defaulted Mortgage Loans and
only upon satisfaction of certain conditions precedent set forth in such policy
as described in the related Prospectus Supplement. To the extent specified in
the related Prospectus Supplement, the Mortgage Pool Insurance Policies, if
any, will not cover losses due to a failure to pay or denial of a claim under a
primary mortgage insurance policy, irrespective of the reason therefor. The
related Prospectus Supplement will describe the terms of any applicable
Mortgage Pool Insurance Policy and will set forth certain information with
respect to the related Pool Insurer.
SPECIAL HAZARD INSURANCE
With respect to a Series for which the related Trust Fund includes
Mortgage Loans (and, if specified in the related Prospectus Supplement, each
Series for which the related Trust Fund includes Contracts), in order to
decrease the likelihood that Holders of the Certificates of such Series will
experience losses in respect of such Mortgage Loans, if specified in the
related Prospectus Supplement, one or more Special Hazard Insurance Policies
(each, a "Special Hazard Insurance Policy") will be obtained. Such Special
Hazard Insurance Policy with respect to a Series will, subject to limitations
described below and in the related Prospectus Supplement, protect Holders of
the Certificates of such Series from (i) loss by reason of damage to Mortgaged
Properties caused by certain hazards (including earthquakes and, to a limited
extent, tidal waves and related water damage) not covered by the standard form
of hazard insurance policy for the respective states in which the Mortgaged
Properties are located or under flood insurance policies, if any, covering the
Mortgaged Properties, and (ii) loss caused by reason of the application of the
coinsurance clause contained in hazard insurance policies. See "Servicing of
the Mortgage Loans and Contracts -- Standard Hazard Insurance." Any Special
Hazard Insurance Policy may not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty
workmanship or materials (except under certain circumstances), nuclear
reaction, flood (if the Mortgaged Property is located in a federally designated
flood area), chemical contamination and certain other risks. Aggregate claims
under each Special Hazard Insurance Policy will be limited as described in the
related Prospectus Supplement. Any Special Hazard Insurance Policy may also
provide that no claim may be paid unless hazard and if applicable, flood
insurance on the Mortgaged Property has been kept in force and other protection
and preservation expenses have been paid.
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The related Prospectus Supplement will describe the terms of any
applicable Special Hazard Insurance Policy and will set forth certain
information with respect to the related Special Hazard Insurer.
RESERVE FUNDS
If specified in the Prospectus Supplement with respect to a Series,
assets such as cash, U.S. Treasury securities, instruments evidencing ownership
of principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in such Prospectus Supplement will be deposited by the related
Transferor or the Depositor in one or more accounts (each, a "Reserve Fund")
established and maintained with the related Trustee. Such cash and the payments
on such other assets will be used to enhance the likelihood of timely
distribution of principal of, and interest on, or, if specified in the related
Prospectus Supplement, to provide additional protection against losses in
respect of, the Assets in the related Trust Fund, to pay the expenses of the
related Trust Fund or for such other purposes specified in such Prospectus
Supplement. Whether or not the related Transferor or the Depositor has any
obligation to make such a deposit, certain amounts to which the Holders of the
Subordinated Certificates of such Series, if any, the related Transferor or the
Depositor would otherwise be entitled may instead be deposited into the Reserve
Fund from time to time and in the amounts as specified in the related
Prospectus Supplement. Any cash in any Reserve Fund and the proceeds of any
other instrument upon maturity will be invested in Permitted Investments. If a
letter of credit is deposited with the Trustee, such letter of credit will be
irrevocable. To the extent specified in the Prospectus Supplement with respect
to a Series, any instrument deposited therein will name the related Trustee, in
its capacity as trustee for the Holders of the Certificates of such Series, as
beneficiary and will be issued by an entity acceptable to each rating agency
that rates such Certificates. Additional information with respect to such
instruments deposited in the Reserve Funds may be set forth in the Prospectus
Supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the Prospectus Supplement with respect to a Series,
the related Trust Fund may also include, or the Certificates of such Series may
also have the benefits of, assets such as insurance, guarantees, surety bonds,
letters of credit, guaranteed investment contracts, swap agreements, option
agreements or similar arrangements for the purpose of (i) maintaining timely
payments or providing additional protection against losses on the Assets
included in such Trust Fund, (ii) paying administrative expenses, (iii)
establishing a minimum reinvestment rate on the distributions made in respect
of such Assets, (iv) guaranteeing timely distribution of principal and interest
on the Certificates of such Series, or (v) for such other purpose as is
specified in such Prospectus Supplement. Such arrangements may include
agreements under which Holders of the Certificates of a Series are entitled to
receive amounts deposited in various accounts held by the related Trustee upon
the terms specified in the related Prospectus Supplement. Such arrangements
may be in lieu of any obligation of the Servicers or the Administrator, if any,
to advance delinquent installments in respect of the Mortgage Loans. See
"Servicing of Mortgage Loans and Contracts -- Advances".
SERVICING OF THE MORTGAGE LOANS AND CONTRACTS
Except as otherwise noted, the description set forth below of the
servicing of Mortgage Loans is applicable to Mortgage Loans included in the
Trust Fund with respect to a Series of Certificates.
To the extent provided in the related Prospectus Supplement, with
respect to a Series of Certificates for which the related Trust Fund includes
Mortgage Loans or Contracts, the Mortgage Loans or Contracts included in the
Trust Fund for a Series of Certificates will be serviced either (i) by the
related Servicer as sole servicer, (ii) by the related Master Servicer as
administrator or master servicer, (iii) by one or more loan servicing
institutions as servicers or (iv) by another institution as master servicer. If
an institution other than the Servicer acts as the sole servicer or as the
master servicer for a Series, the Servicer may have no servicing obligations
with respect to such Series. Generally, the discussion in this section of the
Prospectus is applicable under circumstances when the Servicer is an affiliate
of the Depositor. If the Servicer is not an affiliate of the Depositor, the
discussion relating to the servicing of the Mortgage Loans and Contracts as set
forth below may be modified or superseded
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by any discussion relating to the servicing of the Mortgage Loans and Contracts
set forth in the Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, the
Mortgage Loans and Contracts will be serviced by one or more loan servicing
institutions, which may include the Servicer or a Subservicer, pursuant to a
subservicing agreement between each Subservicer and the Servicer (each, a
"Subservicing Agreement"), which may be entered into only with the prior
written consent of the Trustee and the Administrator, if any.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
When a Mortgaged Property has been or is about to be conveyed by the
borrower, the Servicer, on behalf of the Trustee, shall, to the extent it has
knowledge of such conveyance or prospective conveyance, enforce the rights of
the Trustee as the mortgagee of record to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Note; provided, however, that the Servicer shall not exercise any
such right if the "due-on-sale" clause, in the reasonable belief of the
Servicer, is not enforceable under applicable law. In such event or in the
event the related Mortgage and Note do not contain a "due-on-sale" clause, the
Servicer shall enter into an assumption and modification Agreement with the
person to whom such property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Note and, unless prohibited by
applicable law or the mortgage documents, the borrower remains liable thereon.
The Servicer is also authorized to enter into a substitution of liability
agreement with such person, pursuant to which the original borrower is released
from liability and such person is substituted as borrower and becomes liable
under the Note.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
With respect to any defaulted Mortgage Loan as to which no
satisfactory arrangements can be made for collection of delinquent payments or
the cure of any other event of default, the Servicer will take such action as
it shall deem to be in the best interest of the Certificateholders. Without
limiting the generality of the preceding sentence, the Servicer will, in
accordance with the servicing standard described above, (i) in the case of
Title I Mortgage Loans and Title I Contracts only, direct the Trustee (or any
Administrator) to submit an FHA Claim to the FHA, in accordance with FHA
Regulations, or (ii) in the case of Mortgage Loans and Contracts, take such
other action as the Servicer deems to be in the best interests of the
Certificateholders, which if no superior lien exists on the related Mortgaged
Property, could include a foreclosure upon such Mortgaged Property in the name
of the Trustee for the benefit of the Certificateholders, provided such action
was economically justified and would not affect the status of the REMIC or
cause a tax to be imposed upon the REMIC for federal income tax purposes.
Typically, however, the Servicer has chosen not to pursue foreclosures of
defaulted loans comparable to the Mortgage Loans and Contracts due to the costs
involved. In servicing mortgage loans and contracts secured by junior liens in
their portfolios, it will not be the Servicer's or any Subservicer's practice
to satisfy the senior mortgage(s) at or prior to the foreclosure sale of the
Mortgaged Property, or to advance funds to keep the senior mortgage(s) current.
In addition, if a defaulted mortgage loan or contract (together with any senior
lien indebtedness) has a high loan-to-value ratio, then the Servicer will be
less likely to foreclose on the related mortgaged property, even if the
Servicer has a first-lien position for such mortgage loan or contract. In the
event an FHA Claim is rejected by the FHA due to circumstances that constitute
a breach of the Transferor's representations and warranties in the Pooling and
Servicing Agreement, the Transferor will be required to repurchase the related
Title I Mortgage Loan or Title I Contract at the purchase price and in the
manner set forth in the Pooling and Servicing Agreement.
In connection with any collection activities or foreclosure, the
Servicer is required to exercise collection and foreclosure procedures with the
same degree of care and skill in its exercise or use, as it would exercise or
use under the circumstances in the conduct of its own affairs.
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WAIVERS AND DEFERMENTS OF CERTAIN PAYMENTS
The Pooling and Servicing Agreement requires the Servicer to make
reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans and the Contracts. Consistent with the
foregoing, the Servicer may at its own discretion waive any late payment
charge, assumption fee or any penalty interest in connection with the payment
of a Mortgage Loan or a Contract or any other fee or charge which the Servicer
would be entitled to retain as servicing compensation and may waive, vary or
modify any term of any Mortgage Loan or Contract or consent to the postponement
of strict compliance with any such term or in any matter grant indulgence to
any borrower, subject to the limitations set forth in the Pooling and Servicing
Agreement and the FHA Regulations, if applicable.
SUBSERVICERS
The Servicer is permitted under the Pooling and Servicing Agreement to
enter into servicing arrangements with subservicers meeting the requirements of
the Pooling and Servicing Agreement, provided that the Trustee gives written
consent thereto. Notwithstanding any subservicing arrangements, the Servicer
shall not be relieved of its obligations under the Pooling and Servicing
Agreement to the Trustee and the Certificateholders, and the Servicer shall be
obligated to the same extent and under the same terms and conditions as if it
alone were servicing and administering the Mortgage Loans and the Contracts.
REMOVAL AND RESIGNATION OF SERVICER
To the extent specified in the Prospectus Supplement, the Trustee may
remove the Servicer upon the occurrence and continuation beyond the applicable
cure period of certain events described in the related Pooling and Servicing
Agreement. To the extent specified in the Prospectus Supplement, the Servicer
will not be permitted to resign from its obligations and duties except by
mutual consent of the Servicer, the Depositor, the Trustee and any other
persons so specified in the related Pooling and Servicing Agreement, or upon
the determination that the Servicer's duties are no longer permissible under
applicable law and such incapacity cannot be cured by the Servicer. No such
resignation shall become effective until a qualified successor has assumed the
Servicer's responsibilities and obligations. Upon removal or resignation of the
Servicer, a successor servicer will be appointed pursuant to the terms and
conditions set forth in the applicable Pooling and Servicing Agreement.
ADVANCES
To the extent specified in the Prospectus Supplement, neither the
Servicer, nor any Subservicer on behalf of the Servicer, shall have any
obligation to advance its own funds for any delinquent scheduled payments of
principal and interest on any Mortgage Asset or to satisfy or keep current the
indebtedness secured by any Superior Liens on the related Mortgaged Property.
To the extent specified in the Prospectus Supplement, no costs incurred by the
Servicer or any Subservicer in respect of servicing advances shall, for the
purposes of distributions to Certificateholders, be added to the amount owing
under the related Mortgage Asset.
SERVICING PROCEDURES
To the extent specified in the related Prospectus Supplement, the
Servicer and each Subservicer will service the Mortgage Loans and Contracts
pursuant to written guidelines promulgated by the Depositor or the Servicer.
The Servicer will exercise its best reasonable efforts to insure that the
Subservicers service the Mortgage Loans and Contracts in compliance with such
guidelines and in a manner consistent with industry standards.
Mortgage Loans. To the extent specified in the related Prospectus
Supplement, the Servicer and each Subservicer will be required to service and
administer the Mortgage Loans and will have full power and authority, acting
alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and
consistent with the terms of the Pooling and Servicing Agreement. The Servicer,
in servicing and administering the Mortgage Loans, will be required to employ
or cause to be employed
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procedures (including collection, foreclosure, liquidation and REO Property
management and liquidation procedures) and exercise the same care that it
customarily employs and exercises in servicing and administering loans of the
same type as the Mortgage Loans for its own account, all in accordance with
accepted servicing practices of prudent lending institutions and servicers of
loans of the same type as the Mortgage Loans and giving due consideration to
the Certificateholders' reliance on the Servicer. With respect to any Title I
Mortgage Loan, the foregoing servicing standard also shall include the
requirement that the Servicer will and will cause any Subservicer to, comply
with FHA Regulations in servicing the Title I Mortgage Loans so that the FHA
Insurance remains in full force and effect with respect to the Title I Mortgage
Loans, except for good faith disputes relating to FHA Regulations or such FHA
Insurance, unless such disputes would result in the termination or suspension
of such FHA Insurance. The Servicer will be required to maintain the
facilities, procedures and experienced personnel necessary to comply with such
servicing standard and the duties of the Servicer set forth in the Pooling and
Servicing Agreement relating to the servicing of the Mortgage Loans.
The Servicer will expend its own funds to restore property securing a
Mortgage Loan which has sustained uninsured damage only if it determines that
such restoration will increase the proceeds of liquidation of the Mortgage Loan
after the reimbursement to the Servicer of its expenses and after the
satisfaction of any Senior liens.
With respect to Cooperative Loans, any prospective purchaser will
generally have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Mortgage Assets" herein. This approval is usually based on the purchaser's
income and net worth and numerous other factors. Although the Cooperative's
approval is unlikely to be unreasonably withheld or delayed, the necessity of
acquiring such approval could limit the number of potential purchasers for
those shares and otherwise limit the ability to sell and realize the value of
those shares.
In general, a "tenant-stockholder" (as defined in Code Section
216(b)(2)) of a corporation that qualifies as a "cooperative housing
corporation" within the meaning of Code Section 216(b)(1) is allowed a
deduction for amounts paid or accrued within his taxable year to the
corporation representing his proportionate share of certain interest expenses
and certain real estate taxes allowable as a deduction under Code Section
216(a) to the corporation under Code Sections 163 and 164. In order for a
corporation to qualify under Code Section 216(b)(1) for its taxable year in
which such items are allowable as a deduction to the corporation, such Code
Section requires, among other things, that at least 80% of the gross income of
the corporation be derived from its tenant-stockholders (as defined in Code
Section 216(b)(2). By virtue of this requirement, the status of a corporation
for purposes of Code Section 216(b)(1) must be determined on a year-to-year
basis. Consequently, there can be no assurance that Cooperatives relating to
the Cooperative Loans will qualify under such Code Section for any particular
year. In the event that such a Cooperative fails to qualify for one or more
years, the value of the collateral securing any related Cooperative Loans could
be significantly impaired because no deduction would be allowable to
tenant-stockholders under Code Section 216(a) with respect to those years. In
view of the significance of the tax benefits accorded tenant-stockholders of a
corporation that qualifies under Code Section 216(b)(1), the likelihood that
such a failure would be permitted to continue over a period of years appears
remote.
So long as it acts as servicer of the Mortgage Loans, the Servicer
will be required to maintain certain insurance covering errors and omissions in
the performance of its obligations as servicer and certain fidelity bond
coverage ensuring against losses through wrongdoing of its officers, employees
and agents.
Contracts. With respect to a Trust Fund that includes Contracts, the
Servicer will service and administer the Contracts assigned to the Trustee
pursuant to the related Pooling and Servicing Agreement. The Servicer, either
directly or through Subservicers subject to general supervision by the
Servicer, will perform diligently all services and duties specified in each
Pooling and Servicing Agreement, in the same manner as prudent lending
institutions of property improvement and/or manufactured housing installment
sales contracts of the same type as the Contracts in those jurisdictions where
the related borrowers are located. The Servicer will monitor the
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performance of each Subservicer, if any, and, unless the related Prospectus
Supplement states otherwise, will remain liable for the servicing of the
Contracts in accordance with the terms of the Pooling and Servicing Agreement.
The duties to be performed by the Servicer or the Subservicer, if any, will
include collection and remittance of principal and interest payments,
collection of insurance claims and, if necessary, repossession.
ADMINISTRATION AND SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Mortgage Loan and Contract, the Servicer may
receive compensation with respect to each interest payment thereon in an amount
specified in the related Prospectus Supplement. As compensation for its
servicing duties, each Subservicer, if any, will be entitled to a monthly
servicing fee in the amount specified in the related Prospectus Supplement. In
addition to the primary compensation, each Servicer or Subservicer, if any,
will retain all assumption underwriting fees and late payment charges, to the
extent collected from Borrowers if provided in the related Prospectus
Supplement.
The Servicer and any Subservicer will be entitled to reimbursement for
certain expenses incurred by it in connection with the liquidation of defaulted
Mortgage Loans and Contracts. No loss will be suffered on the Certificates by
reason of such expenses to the extent claims for such expenses are paid
directly under any applicable Mortgage Pool Insurance Policy, a primary
mortgage insurance policy, or from other forms of Credit Enhancement. In the
event, however, that the defaulted Mortgage Loans are not covered by a Mortgage
Pool Insurance Policy, Primary Mortgage Insurance Policies, or another form of
Credit Enhancement, or claims are either not made or not paid under such
policies or Credit Enhancement, or if coverage thereunder has ceased, a loss
will occur on the Certificates of the affected Series to the extent that the
proceeds from the liquidation of a defaulted Mortgage Loan or Contract, after
reimbursement of the Servicer's and the Subservicer's expenses, are less than
the principal balance of such defaulted Mortgage Loan or Contract.
THE POOLING AND SERVICING AGREEMENT
The following summaries describe certain provisions of the Pooling and
Servicing Agreement not described elsewhere in this Prospectus. Where
particular provisions or terms used in the Pooling and Servicing Agreements are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as a part of such summaries. The description set
forth below is subject to modification in the Prospectus Supplement for a
Series of Certificates to describe the terms and provisions of the particular
Pooling and Servicing Agreement relating to such Series of Certificates.
Generally, the discussion in this section of the Prospectus is
applicable under circumstances when the Servicer is an affiliate of the
Depositor. If the Servicer is not an affiliate of the Depositor, the discussion
relating to pooling and administration (or master servicing) as set forth below
may be modified or superseded by any discussion relating to the pooling and
administration (or master servicing) set forth in the Prospectus Supplement. In
addition, certain of the following summaries only apply to a Pooling and
Servicing Agreement relating to series of Certificates for which the related
Trust Fund includes Mortgage Loans or Contracts. Provisions of Pooling and
Servicing Agreements relating to series of Certificates for which the related
Trust Fund includes other types of Mortgage Assets will be summarized and
described in the related Prospectus Supplement.
ASSIGNMENT OF MORTGAGE ASSETS
Assignment of Mortgage Loans. At the time of issuance of the
Certificates of a Series, the Depositor will assign the Mortgage Loans to the
related Trustee, together with all principal and interest (subject to
exclusions or adjustments specified in the related Prospectus Supplement
received by the Depositor on or with respect to such Mortgage Loans on or after
the cut-off date) other than principal and interest due and payable on or
before the date specified in the related Prospectus Supplement. The Trustee
will, concurrently with such assignment, execute, countersign and deliver the
Certificates to the Depositor in exchange for the Mortgage Loans. Each Mortgage
Loan will be identified in a schedule appearing as an exhibit to the Pooling
and Servicing Agreement.
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In addition, as to each Mortgage Loan, the Depositor will deliver to
the Trustee or its custodian, as specified in the related Prospectus
Supplement, the Mortgage Note and Mortgage, any assumption and modification
agreement, an assignment of the Mortgage in recordable form, evidence of title
insurance and, if applicable, the certificate of private mortgage insurance. In
instances where recorded documents cannot be delivered due to delays in
connection with recording, the Depositor may deliver copies thereof and deliver
the original recorded documents promptly upon receipt.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor, as depositor, will cause to be delivered to the Trustee or its
custodian, as specified in the related Prospectus Supplement, the related
original Cooperative note endorsed to the order of the Trustee, the original
security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate and related blank stock powers. The Depositor will file in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
To the extent specified in the related Prospectus Supplement, in the
Pooling and Servicing Agreement the Depositor generally will represent and
warrant to the Trustee, among other things, that (i) the information with
respect to each Mortgage Loan set forth in the schedule of Mortgage Loans
attached thereto is true and correct in all material respects; (ii) at the date
of initial issuance of the Certificates, the Depositor has good and marketable
title to the Mortgage Loans included in the Trust Fund and such other items
comprising the corpus of the Trust Fund are free and clear of any lien,
mortgage, pledge, charge, security interest or other encumbrance; (iii) at the
date of initial issuance of the Certificates, no Mortgage Loan is 30 or more
days delinquent and there are no delinquent tax or assessment liens against the
property covered by the related Mortgage; and (iv) each Mortgage Loan at the
time it was made complied in all material respects with applicable state and
federal laws, including, without limitation, consumer, usury, truth-in-lending,
consumer credit protection, equal credit opportunity and disclosure laws and
with respect to any Title I Mortgage Loans, the FHA Regulations.
If specified in the related Prospectus Supplement, the Depositor may,
in lieu of making the representations set forth in the preceding paragraph,
cause the entity from which such Mortgage Loans were acquired to make such
representations (other than those regarding the Depositor's title to the
Mortgage Loans, which will in all events be made by the Depositor), in the
sales agreement pursuant to which such Mortgage Loans are acquired, or if such
entity is acting as Servicer, in the Pooling and Servicing Agreement, or if
such entity is acting as a Subservicer, in its Subservicing Agreement. In such
event such representations, and the Depositor's rights against such entity in
the event of a breach thereof, will be assigned to the Trustee for the benefit
of the holders of the Certificates of such Series.
Assignment of Contracts. The Depositor will cause the Contracts to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Contracts after the date specified in the related Prospectus
Supplement. Each Contract will be identified in a loan schedule ("Contract Loan
Schedule") appearing as an exhibit to the related Pooling and Servicing
Agreement.
In addition, with respect to each Contract for a Manufactured Home,
the Depositor will deliver or cause to be delivered to the Trustee, the
original Contract and copies of documents and instruments related to each
Contract and the security interest in the Manufactured Home securing each
Contract. To give notice of the right, title and interest of the
Certificateholders to the Contracts, the Depositor will cause a UCC-1 financing
statement to be filed identifying the Trustee as the secured party and
identifying all Contracts as collateral. To the extent specified in the related
Prospectus Supplement, the Contracts will not be stamped or otherwise marked to
reflect their assignment from the Depositor to the Trustee. Therefore, if a
subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the interest of the Holders of the
Certificates of the applicable Series in the Contracts could be defeated. See
"Certain Legal Aspects of the Mortgage Assets."
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To the extent specified in the Prospectus Supplement, the Depositor
will provide limited representations and warranties to the Trustee concerning
the Contracts. Such representations and warranties will include: (i) that the
information with respect to each Contract set forth in the Contract Loan
Schedule provides an accurate listing of the Contracts and that the information
respecting such Contracts set forth in such Contract Loan Schedule is true and
correct in all material respects at the date or dates respecting which such
information is furnished; (ii) that, immediately prior to the conveyance of the
Contracts, the Depositor had good and marketable title to, and was sole owner
of, each such Contract; and (iii) that there has been no other sale by it of
such Contract.
Assignment of Agency Securities. With respect to each Series, to the
extent specified in the related Prospectus Supplement, the Depositor will cause
any Agency Securities included in the related Trust Fund to be registered in
the name of the Trustee. The Trustee (or its custodian as specified in the
related Prospectus Supplement) will have possession of any certificated Agency
Securities. To the extent specified in the related Prospectus Supplement, the
Trustee will not be in possession of or be assignee of record of any underlying
assets for an Agency Security. Each Agency Security will be identified in a
schedule appearing as an exhibit to the related Pooling and Servicing
Agreement. The Depositor will represent and warrant to the Trustee, among other
things, the information contained in such schedule is true and correct and that
immediately prior to the transfer of the related securities to the Trustee, the
Depositor had good and marketable title to, and was the sole owner of, each
such security.
CONVEYANCE OF SUBSEQUENT MORTGAGE ASSETS
With respect to a Series of Certificates for which a PreFunding
Arrangement is provided, in connection with any conveyance of Subsequent
Mortgage Assets to the Trust Fund after the issuance of such Series, the
related Pooling and Servicing Agreement will require the Transferor and
Depositor to satisfy the following conditions, among others: (i) each
Subsequent Mortgage Asset purchased after the Closing Date must satisfy the
representations and warranties contained in the subsequent transfer agreement
to be entered into by the Transferor, the Trustee and the Depositor (the
"Subsequent Transfer Agreement") and in the related Pooling and Servicing
Agreement; (ii) the Transferor will not select such Subsequent Mortgage Assets
in a manner that it believes is adverse to the interests of the
Certificateholders; (iii) as of the related cut-off date, all of the Mortgage
Assets in the Mortgage Asset Pool at that time, including the Subsequent
Mortgage Assets purchased after the closing date will satisfy the criteria set
forth in the related Pooling and Servicing Agreement; (iv) the Subsequent
Mortgage Assets will have been approved by any third party provider of Credit
Enhancement, if applicable; and (v) prior to the purchase of each Subsequent
Mortgage Asset the Trustee will perform an initial review of certain related
loan file documentation for such Mortgage Asset and issue an initial
certification for which the required documentation in such loan file has been
received with respect to each such Subsequent Mortgage Asset. The Subsequent
Mortgage Assets on an aggregate basis, will have characteristics similar to the
characteristics of the pool of Initial Mortgage Assets as described in the
related Prospectus Supplement. Each acquisition of any Subsequent Mortgage
Assets will be subject to the review by any third party provider of Credit
Enhancement, if applicable, the Rating Agencies and the Transferor's
accountants of the aggregate statistical characteristics of the related
Mortgage Asset Pool for compliance with the applicable statistical criteria set
forth in the related Pooling and Servicing Agreement.
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS AND CONTRACTS
The Trustee (or its custodian as specified in the related Prospectus
Supplement) will review the documents delivered to it with respect to the
Mortgage Loans and Contracts included in the related Trust Fund. To the extent
specified in the related Prospectus Supplement, if any document is not
delivered or is found to be defective in any material respect and the Depositor
cannot deliver such document or cure such defect within 60 days after notice
thereof (which the Trustee will undertake to give within 45 days of the
delivery of such documents), and if any other party obligated to deliver such
document or cure such defect has not done so and has not substituted or
repurchased the affected Mortgage Loan or Contract, then the Depositor will,
not later than the Determination Date next succeeding the end of such 60-day
period (a) if provided in the Prospectus Supplement remove the affected
Mortgage Loan or Contract from the Trust Fund and substitute one or more other
Mortgage Loans or
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Contracts therefor or (b) repurchase the Mortgage Loan or Contract from the
Trustee for a price equal to 100% of its principal balance plus interest
thereon as the date specified in the related Prospectus Supplement, plus the
amount of unreimbursed servicing advances made by the Servicer or any
Subservicer with respect to such Mortgage Loan. To the extent specified in the
related Prospectus Supplement, such purchase price will be deposited in the
Collection Account on such Determination Date and such repurchase and, if
applicable, substitution obligation will constitute the sole remedy available
to Holders of the Certificates of the applicable Series or the Trustee against
the Depositor for a material defect in a document relating to a Mortgage Loan
or Contract.
If the Prospectus Supplement for a Series of Certificates so provides,
then in lieu of agreeing to repurchase or substitute Mortgage Loans or
Contracts as described above, the Depositor may obtain such an agreement from
the entity which sold such Mortgage Loans or Contracts to the Depositor, which
agreement will be assigned to the Trustee for the benefit of the holders of the
Certificates of such series.
If a REMIC election is to be made with respect to all or a portion of
a Trust Fund, there may be federal income tax limitations on the right to
substitute Mortgage Loans or Contracts as described above.
EVIDENCE AS TO COMPLIANCE
The related Pooling and Servicing Agreement will provide that on or
before a specified date after the end of each of the Servicer's fiscal years
elapsing during the term of its appointment, beginning with the first fiscal
year ending after the Closing Date, the Servicer, at its expense, will furnish
to the Trustee and certain other Persons (i) an opinion by a firm of
independent certified public accountants on the financial position of the
Servicer at the end of the relevant fiscal year and the results of operations
and changes in financial position of the Servicer for such year then ended on
the basis of an examination conducted in accordance with generally accepted
auditing standards, and (ii) if the Servicer is then servicing any Mortgage
Loans, a statement from such independent certified public accountants to the
effect that based on an examination of certain specified documents and records
relating to the servicing of the Servicer's mortgage loan portfolio conducted
substantially in compliance with the audit program for mortgages serviced for
the United States Department of Housing and Urban Development Mortgage Audit
Standards, or the Uniform Single Audit Program for Mortgage Bankers (the
"Applicable Accounting Standards"), such firm is of the opinion that such
servicing has been conducted in compliance with the Applicable Accounting
Standards except for (a) such exceptions as such firm shall believe to be
immaterial and (b) such other exceptions as shall be set forth in such
statement.
LIST OF CERTIFICATEHOLDERS
Upon written request of the Trustee, the Registrar for a Series of
Certificates will provide to the Trustee, within fifteen days after receipt of
such request, a list of the names and addresses of all Holders of record of
such Series as of the most recent Record Date for payment of distributions to
Holders of that Series. Upon written request of three or more Holders of record
of a Series of Certificates for purposes of communicating with other Holders
with respect to their rights under the Pooling and Servicing Agreement for such
Series, the Trustee will afford such Holders access during business hours to
the most recent list of Holders of that Series held by the Trustee. With
respect to Book Entry Certificates, the only named Holder on the Certificate
Register will be the Clearing Agency.
The Pooling and Servicing Agreement will not provide for the holding
of any annual or other meetings of Holders of Certificates.
ADMINISTRATION OF THE CERTIFICATE ACCOUNT
The Pooling and Servicing Agreement with respect to a Series will
require that the Certificate Account be any of the following: (i) an account
maintained with a depository institution the debt obligations of which (or, in
the case of a depository institution which is a part of a holding company
structure, the debt obligations of the
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holding company of which) have a longterm or short-term rating acceptable to
each rating agency that rated the Certificates; (ii) an account or accounts the
deposits in which are fully insured by either the Bank Insurance Fund (the
"BIF"), the Federal Deposit Insurance Corporation (the "FDIC") or the Savings
Association Insurance Fund (as successor to the Federal Savings and Loan
Insurance Corporation) ("SAIF") of the FDIC; (iii) a trust account (which shall
be a "segregated trust account") maintained with the corporate trust department
of a federal or state chartered depository institution or trust company with
trust powers and acting in its fiduciary capacity for the benefit of the
Trustee which depository institution or trust company will be required to have
capital and surplus of not less than the amount specified in the related
Pooling and Servicing Agreement; or (v) an account that will not cause any
rating agency rating the Certificates of such Series to downgrade or withdraw
its then-current rating assigned to the Certificates as evidenced in writing by
such rating agency. The instruments in which amounts in the Certificate Account
may be invested are limited Permitted Investments. To the extent specified in
the related Prospectus Supplement, a Certificate Account may be maintained as
an interest bearing account, or the funds held therein may be invested pending
each succeeding Distribution Date in Permitted Investments. To the extent
specified in the related Prospectus Supplement, the Depositor or the Trustee
will be entitled to receive any such interest or other income earned on funds
in the Certificate Account as additional compensation. To the extent specified
in the related Prospectus Supplement, the following payments and collections
received subsequent to the cut-off date will be deposited in the Certificate
Account:
(i) all payments on account of scheduled principal;
(ii) all payments on account of interest accruing and collected on
and after the date specified in the related Prospectus Supplement, subject to
exclusions or adjustments described in such Prospectus Supplement;
(iii) all Liquidation Proceeds net of certain amounts reimbursed to
the Subservicers or the Servicer, as described in the related Pooling and
Servicing Agreement;
(iv) all Insurance Proceeds;
(v) all proceeds of any Mortgage Loan or Contract or property
acquired in respect thereof repurchased by the Servicer, the Depositor or the
Transferor or otherwise as described above or under "Termination" below;
(vi) all amounts, if any, required to be transferred to the
Certificate Account from any Credit Enhancement for the related Series; and
(vii) all other amounts required to be deposited in the Certificate
Account pursuant to the related Pooling and Servicing Agreement.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution on the Certificates of a Series,
to the extent specified in the related Prospectus Supplement, the Trustee will
furnish to Holders of such Certificates a statement generally setting forth, to
the extent applicable to such Series, among other things:
(i) the aggregate amount of such distribution allocable to
principal, separately identifying the amount allocable to each Class;
(ii) the amount of such distribution allocable to interest,
separately identifying the amount allocable to each Class;
(iii) the aggregate principal balance of each Class of the
Certificates after giving effect to distributions on such Distribution Date;
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(iv) if applicable, the aggregate principal balance of any Class
Certificates which are Compound Interest Certificates after giving effect to
any increase in such principal balance that results from the accrual of
interest that is not yet distributable thereon;
(v) if applicable, the amount otherwise distributable to Holders
of any Class of Certificates that was distributed to Holders of other Classes
of Certificates;
(vi) if any Class of Certificates has priority in the right to
receive Principal Prepayments, the amount of Principal Prepayments in respect
of the related Mortgage Assets;
(vii) certain performance information, including delinquency and
foreclosure information specified in the related Pooling and Servicing
Agreement;
(viii) the amount of coverage then remaining under any Credit
Enhancement; and
(ix) all other information required to be provided pursuant to the
related Pooling and Servicing Agreement.
The Servicer or the Trustee will also furnish annually customary
information deemed necessary for Holders of such Certificates to prepare their
tax returns.
EVENTS OF DEFAULT
"Events of Default" under the Pooling and Servicing Agreement with
respect to a Series will consist of (i) any failure by the Servicer to duly
observe or perform in any material respect any of its covenants or agreements
in such Pooling and Servicing Agreement materially affecting the rights of
Holders of the Certificates of such Series which continues unremedied for 60
days after the giving of written notice of such failure to the Servicer by the
Trustee or to the Servicer or the Trustee by the Holders of such Certificates
evidencing interests aggregating not less than 25% of the affected Class of
Certificates; and (ii) certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings and certain actions
by the Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under a Pooling and Servicing Agreement
remains unremedied by the Servicer, the Trustee, or Holders of Certificates of
each Class of Certificates affected thereby evidencing, as to each such Class
interests aggregating not less than 51%, may terminate all of the rights and
obligations of the Servicer under the Pooling and Servicing Agreement,
whereupon the Trustee, or a new Servicer appointed pursuant to the Pooling and
Servicing Agreement, will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Pooling and Servicing Agreement and will
be entitled to similar compensation arrangements. Notwithstanding its
termination as Servicer, the Servicer will be entitled to receive amounts
earned by it under the Pooling and Servicing Agreement prior to such
termination. If at the time of any such termination the Servicer is also
servicing as the Administrator, the Servicer's status as Administrator will be
simultaneously terminated by the Trustee and the Servicer's responsibilities as
such shall be transferred to the successor servicer, if such person is then
qualified to so act), or to another successor Administrator retained by the
Trustee, or to the Trustee itself if a successor Administrator cannot be
retained in a timely manner. To the extent provided in the related Prospectus
Supplement, unless and until a successor servicer is appointed, the Trustee
will be required to fulfill the duties of the Servicer.
No Holder of Certificates will have any right under the Pooling and
Servicing Agreement to institute any proceeding with respect to the Pooling and
Servicing Agreement, unless such Holder previously has given to the Trustee
written notice of default and unless the Holders of Certificates as specified
in the Prospectus Supplement have made written request to the Trustee to
institute such proceeding in its own name as Trustee thereunder and
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have offered to the Trustee reasonable indemnity and the Trustee for 60 days
has neglected or refused to institute any such proceedings. However, the
Trustee is under no obligation to exercise any of the trusts or powers vested
in it by the Pooling and Servicing Agreement or to make any investigation of
matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the Holders, unless such Holders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
AMENDMENT
The Pooling and Servicing Agreement with respect to a Series may be
amended by the Depositor, the Servicer and the Trustee without the consent of
the Holder of the Certificates of such Series, to cure any error or ambiguity,
to correct or supplement any provision therein which may be defective or
inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under the Pooling and Servicing
Agreement provided that such action will not adversely affect in any material
respect the interests of any Holders of that Series. An amendment described
above shall not be deemed to adversely affect in any material respect the
interests of the Holders of that Series if either (a) an opinion of counsel
satisfactory to the Trustee is obtained to such effect, or (b) the person
requesting the amendment obtains a letter from each of the rating agencies then
rating the Certificates of that Series to the effect that the amendment, if
made, would not result in a downgrading or withdrawal of the rating then
assigned by it to such Certificates. Notwithstanding the foregoing, the
Depositor, the Servicer and the Trustee may amend each Pooling and Servicing
Agreement without the consent of the Holders of the Certificates of the
relevant Series in order to modify, eliminate or add to any of its provisions
to such extent as may be appropriate or necessary to maintain REMIC status of
all or any portion of any Trust Fund as to which a REMIC election has been made
with respect to the applicable Certificates or to avoid or minimize the risk of
the imposition of any tax on the Trust Fund created by such Pooling and
Servicing Agreement that would be a claim against the Trustee at any time prior
to final redemption of the Certificates, provided that the Trustee has obtained
the opinion of independent counsel to the effect that such action is necessary
or appropriate to maintain REMIC status or to avoid or minimize the risk of the
imposition of such a tax.
To the extent specified in the Prospectus Supplement, the Pooling and
Servicing Agreement may also be amended by the Depositor, the Servicer, and the
Trustee with the consent of the Holders of Certificates evidencing interests
aggregating in excess of 50% of the aggregate principal balance of the
Certificates of the applicable Series 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
Holders of Certificates of that Series; provided, however, that no such
amendment may (i) reduce in any manner the amount of, or delay the timing of,
collections of payments received on the related Mortgage Assets or
distributions which are required to be made on any Certificate without the
consent of the Holder of such Certificate, (ii) adversely affect in any
material respect the interests of the Holders of any Class of Certificates in
any manner other than as described in clause, (i) without the consent of the
Holders of Certificates of 100% of such Class or (iii) reduce the aforesaid
percentage of Certificates of any Class required to consent to any such
amendment, without the consent of the Holders of 100% of the Certificates of
such Class then outstanding.
USE OF PROCEEDS
To the extent specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be applied to the simultaneous purchase of the
Mortgage Assets related to such Series or to reimburse the amounts previously
used to effect such a purchase, the costs of carrying such Mortgage Assets
until sale of the Certificates and other expenses connected with pooling the
Mortgage Assets and issuing the Certificates.
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THE DEPOSITOR
FIRSTPLUS INVESTMENT CORPORATION (the "Depositor"), a Nevada
corporation, was incorporated in 1995 as a limited purpose finance corporation.
All of the outstanding capital stock of the Depositor is owned by RAC Financial
Group, Inc., the common stock of which is traded in the over-the-counter market
on the Nasdaq National Market. The Depositor maintains its principal office at
3773 Howard Hughes Parkway, Suite 300N, Las Vegas, Nevada 89109, and its
telephone number is (702) 892-3772.
As a limited purpose finance corporation under the Rating Agency
guidelines, the business operations of the Depositor will be limited to
functions relating to the issuance of one or more Series of Certificates or
similar series of asset-backed or mortgage-backed securities, the acquisition
and resale of Mortgage Assets and other incidental activities related thereto.
The Depositor does not have, and is not expected in the future to have, any
significant assets. If the Depositor were required to repurchase a Mortgage
Asset included in the Trust Fund for a Series, its only sources of funds to
make such repurchase would be funds obtained from the enforcement of a
corresponding obligation, if any, on the part of the Transferor of such
Mortgage Asset or the related Servicer, as the case may be, or from a Reserve
Fund, if any, established to provide funds for such repurchases.
Neither the Depositor nor any of its affiliates will insure or
guarantee the Certificates of any Series or the Mortgage Assets backing any
such Series. See "Risk Factors -- Limited Assets of Trust Fund."
THE SERVICER AND THE TRANSFEROR
To the extent specified in the related Prospectus Supplement, the
Servicer with respect to any series of Certificates evidencing interests in
Mortgage Loans or Contracts may be FIRSTPLUS FINANCIAL, INC. ("FFI"), an
affiliate of the Depositor. In addition, to the extent specified in the related
Prospectus Supplement for a Series, the related Transferor of the Mortgage
Assets to the Depositor for such Series may also be FFI. See"Assets Securing or
Underlying the Certificates -- General".
The delinquency and loss experience of FFI for the periods indicated
is set forth below. In the event that FFI is not the Servicer with respect to a
Series, or if an entity other than FFI acts as Servicer with respect to a
Series, the delinquency experience of such Servicer will be set forth in the
related Prospectus Supplement.
Delinquency Experience
<TABLE>
<CAPTION>
As of
----------------------------------------------------------------
1994 1995 1996
------- ------------------------------------------- -------
DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
DELINQUENCY DATA:
Delinquencies in Serviced Loan
Portfolio (at period end) (1):
31-60 days . . . . . . . 3.7% 2.3% 1.7% 1.8% 1.5% 1.4%
61-90 days . . . . . . . 1.4 1.0 0.7 0.7 0.5 0.6
91 days and over . . . . 3.2 3.3 1.9 2.2 2.1 2.2
------ ------ ------- ------ ------ ------
Total . . . . . 8.3% 6.6% 4.3% 4.7% 4.1% 4.2%
====== ====== ======= ====== ====== ======
Serviced Loan Portfolio at period
end (dollars in thousands) . . . $60,850 $70,410 $177,358 $238,584 $387,343 $506,287
</TABLE>
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Loss Experience
LOSS AND DEFAULT DATA:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Net Losses as a percentage of the average Serviced Loan
Portfolio(2) . . . . . . . . . . . . . . . . . . . . . . 0.39% 0.44% 0.04%
Defaults as a percentage of the average Serviced Loan
Portfolio(2) . . . . . . . . . . . . . . . . . . . . . . 2.04% 2.64% 0.69%
</TABLE>
- ---------------------------
(1) Delinquencies (as a percentage of the total serviced loan portfolio
balance) typically increase in November and December of each calendar
year.
(2) The average serviced loan portfolio is calculated by adding the
beginning and ending balances for the fiscal year and dividing the sum
by two.
While the preceding tables generally indicate that FFI is experiencing
declining delinquency, loss and default rates on its serviced loan portfolio as
a whole, such rates have been increasing on a pool-by-pool basis. Although such
increases to date have been within the parameters anticipated by FFI at the
time of the issuance of each Series of Certificates, there can be no assurance
that such rates will not continue to increase. Mortgage Assets that will be
conveyed to the Depositor in connection with the issuance of a Series of
Certificates will generally possess reduced delinquency, default and loss rates
due to certain requirements of the Underwriters and Rating Agencies for such
Series. THE OVERALL DECLINE IN THE DELINQUENCY RATES ON THE SERVICED LOAN
PORTFOLIO IS PRINCIPALLY DUE TO THE INCREASED VOLUME OF LOANS ORIGINATED BY
FFI. FFI CALCULATES ITS DELINQUENCY AND DEFAULT RATES BY DIVIDING THE AMOUNT OF
DELINQUENT OR DEFAULTED LOANS IN THE SERVICED LOAN PORTFOLIO BY THE TOTAL
SERVICED LOAN PORTFOLIO. SINCE FFI AND ITS AFFILIATES ARE ORIGINATING HIGHER
VOLUMES OF NEW LOANS THAT, DUE TO THEIR LACK OF SEASONING, TEND TO HAVE LOWER
DELINQUENCY AND DEFAULT RATES, FFI'S OVERALL DELINQUENCY AND DEFAULT RATES HAVE
DECREASED.
Because delinquencies and losses typically occur months or years after
a loan is originated, data relating to delinquencies and losses as a percentage
of the current portfolio can understate the risk of future delinquencies,
losses or foreclosures. There is no assurance that the delinquency, foreclosure
and loss experience with respect to any of the Mortgage Assets or with respect
to any Mortgage Asset Pool will be comparable to the experience reflected above
for assets originated and serviced by FFI or its affiliates. Because certain
Mortgage Assets may have been underwritten pursuant to standards that rely
primarily on the value of the related Mortgaged Properties rather than the
creditworthiness of the related mortgagor, the actual rates of delinquencies,
foreclosures and losses on such Mortgage Assets, particularly in periods during
which the value of the related Mortgage Properties has declined, could be
higher than those historically experienced by the mortgage lending industry in
general. In addition, the rate of delinquencies, foreclosures and losses with
respect to the Mortgage Assets will also be affected by, among other things,
interest rate fluctuations and general and regional economic conditions. See
"Risk Factors -- Certain Factors Affecting Delinquencies, Foreclosures and
Losses on Underlying Loans".
THE TRUSTEE
Any commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor or the Servicer. In addition,
the Trustee will have the power and the responsibility for appointing
co-trustees or separate trustees of all or any part of the Trust Fund relating
to a particular Series of Certificates. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the Trustee by
the Pooling and Servicing Agreement shall be conferred or imposed upon the
Trustee and such separate trustee or co- trustee jointly, or in any
jurisdiction in which the Trustee shall be incompetent or unqualified to
perform
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certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee.
The Trustee will make no representations as to the validity or
sufficiency of the applicable Pooling and Servicing Agreement, the related
Certificates, or of any Mortgage Loan, Agency Security, Contract or related
document, and will not be accountable for the use or application by the
Depositor or an Transferor of any funds paid to the Depositor or such
Transferor in respect of the Certificates or the related Assets, or amounts
deposited in the related Certificate Account or deposited into any other
account for purposes of making payments or distributions to Holders. If no
Event of Default has occurred, the Trustee will be required to perform only
those duties specifically required of it under the applicable Pooling and
Servicing Agreement. However, upon receipt of the various certificates, reports
or other instruments required to be furnished to it, the Trustee will be
required to examine them to determine whether they conform to the requirements
of the applicable Pooling and Servicing Agreement.
The Trustee may resign at any time and the Depositor or the Servicer,
as applicable, may remove the Trustee if the Trustee ceases to be eligible to
continue as such under the applicable Pooling and Servicing Agreement, if the
Trustee becomes insolvent or in such other instances, if any, as are set forth
in the applicable Pooling and Servicing Agreement. Following any resignation or
removal of the Trustee, the Depositor or Servicer, as applicable, will be
obligated to appoint a successor Trustee. Any resignation or removal of the
Trustee and appointment of a successor Trustee does not become effective until
acceptance of the appointment by the successor Trustee.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
may at the time be located, the Depositor and the Trustee acting jointly shall
have the power and shall execute and deliver all instruments to appoint one or
more Persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such Person or Persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to
the provisions of the Pooling and Servicing Agreement, such powers, duties,
obligations, rights and trusts as the Depositor and the Trustee may consider
necessary or desirable.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS
The following discussion contains summaries of certain legal aspects
of residential mortgage loans which are general in nature. Because such legal
aspects are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans is situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans.
In addition, the following discussion also contains a summary of the
Title I Program, which may be applicable to certain of the Mortgage Loans and
Contracts. With respect to each Series for which the related Trust Fund
includes Contracts, the related Prospectus Supplement will contain a discussion
of certain legal aspects of manufactured housing contracts.
GENERAL LEGAL CONSIDERATIONS
Applicable state laws generally regulate interest rates and other
charges that may be assessed on borrowers, require certain disclosures to
borrowers, and may require licensing of the Transferor, the Depositor, the
Trustee, the Administrator, the Servicer and any Subservicer. In addition, most
states have other laws, public policies and general principles of equity
relating to the protection of consumers and the prevention of unfair and
deceptive practices which may apply to the origination, servicing and
collection of the Mortgage Loans.
The Mortgage Loans are also subject to federal laws, including: (i)
the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of
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the Mortgage Loans; (ii) the Real Estate Settlement Procedures Act and
Regulation X promulgated thereunder, which require certain disclosures to the
borrowers regarding the settlement and servicing of the Mortgage Loans; (iii)
the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which
prohibit discrimination on the basis of age, race, color, sex, religion,
marital status, national origin, receipt of public assistance or the exercise
of any right under the Consumer Credit Protection Act; (iv) the Fair Credit
Reporting Act, which regulates the use and reporting of information related to
the borrower's credit experience; (v) the Federal Trade Commission Preservation
of Consumers' Claims and Defenses Rule, 16 C.F.R. Part 433, regarding the
preservation of a consumer's rights; (vi) the Fair Housing Act, 42 U.S.C. 3601
et seq., relating to the creation and governance of the Title I Program; (vii)
the Home Ownership and Equity Protection Act; and (viii) if applied, the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act").
Mortgages. The Mortgage Loans will be secured by either deeds of
trust, mortgages, deeds to secure debt or chattel mortgages, depending upon the
prevailing practice in the state in which the Mortgaged Property subject to a
Mortgage Loan is located. In some states, a mortgage creates a lien upon the
real property encumbered by the mortgage. In other states, the mortgage
conveys legal title to the property to the mortgagee subject to a condition
subsequent, i.e., the payment of the indebtedness secured thereby. There are
two parties to a mortgage, the borrower, who is the owner of the property and
usually the borrower, and the mortgagee, who is the lender. Under the mortgage
instrument, the borrower delivers to the mortgagee a note or bond and the
mortgage. Although a deed of trust is similar to a mortgage, a deed of trust
has three parties, the owner of the property and usually the borrower, called
the trustor (similar to a borrower), a lender called the beneficiary (similar
to a mortgagee), and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by applicable state law, the express
provisions of the deed of trust or mortgage, and, in some cases, with respect
to deeds of trust, the directions of the beneficiary. Some states use a
security deed or deed to secure debt which is similar to a deed of trust except
that it has only two parties: a grantor (similar to a borrower) and a grantee
(similar to a mortgagee). Mortgages, deeds of trust and deeds to secure debt
generally are not prior to liens for real estate taxes and assessments and
other charges imposed under governmental police powers. Priority with respect
to mortgages, deeds of trust and deeds to secure debt and other encumbrances
depends on their terms, the knowledge of the parties to such instrument and
generally on the order of recordation of the mortgage, deed of trust or the
deed to secure debt in the appropriate recording office.
Cooperative Loans. Certain of the Mortgage Loans may be Cooperative
Loans. The private, non-profit, cooperative apartment corporation owns all the
real property that comprises the project, including the land, separate dwelling
units and all common areas. The cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. If there is a blanket mortgage on the cooperative
apartment building and/or underlying land, as is generally the case, the
cooperative, as project borrower, is also responsible for meeting these
mortgage obligations. A blanket mortgage is ordinarily incurred by the
cooperative in connection with the construction or purchase of the
cooperative's apartment building. The interest of the occupant under
proprietary leases or occupancy agreements to which that cooperative is a party
are generally subordinate to the interest of the holder of the blanket mortgage
in that building. If the cooperative is unable to meet the payment obligations
arising under its blanket mortgage, the mortgagee holding the blanket mortgage
could foreclose on that mortgage and terminate all subordinate proprietary
leases and occupancy agreements. In addition, the blanket mortgage on a
cooperative may provide financing in the form of a mortgage that does not fully
amortize with a significant portion of principal being due in one lump sum at
final maturity. The inability of the cooperative to refinance this mortgage and
its consequent inability to make such final payment could lead to foreclosure
by the mortgagee providing the financing. A foreclosure in either event by the
holder of the blanket mortgage could eliminate or significantly diminish the
value of any collateral held by the lender who financed the purchase by an
individual tenant-stockholder of cooperative shares or, in the case of a pool
of Mortgage Loans including Cooperative Loans, the collateral securing the
Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights
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to occupy specific units. Generally, a tenant-stockholder of a cooperative must
make a monthly payment to the cooperative representing such
tenant-stockholder's pro rata share of the cooperative's payments for its
blanket mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. An ownership interest in a cooperative and accompanying
occupancy rights is financed through a cooperative share loan evidenced by a
promissory note and secured by a security interest in the occupancy agreement
or proprietary lease and in the related cooperative shares. The lender takes
possession of the share certificate and a counterpart of the proprietary lease
or occupancy agreement and a financing statement covering the proprietary lease
or occupancy agreement and the cooperative shares is filed in the appropriate
state and local offices to perfect the lender's interest in its collateral.
Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant- stockholder as an individual as provided in
the security agreement covering the assignment of the proprietary lease or
occupancy agreement and the pledge of cooperative shares.
FORECLOSURE
Mortgages. Foreclosure of a mortgage is generally accomplished by
judicial action. Generally, the action is initiated by the service of legal
pleadings upon all parties having an interest of record in the real property.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating necessary parties defendant. Judicial foreclosure
proceedings are often not contested by any of the parties defendant. However,
when the mortgagee's right to foreclose is contested, the legal proceedings
necessary to resolve the issue can be time consuming. After the completion of a
judicial foreclosure, the court generally issues a judgment of foreclosure and
appoints a referee or other court officer to conduct the sale of the property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. Foreclosure is
regulated by statutes and rules and is subject to the court's equitable powers.
Generally, a borrower is bound by the terms of the mortgage note and the
mortgage as made and cannot be relieved from his default if the mortgagee has
exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature the court may exercise
equitable powers to relieve a borrower of a default and deny the mortgagee
foreclosure on proof that either the borrower's default was neither willful nor
in bad faith or the mortgagee's action established a waiver, fraud, bad faith
or oppressive or unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under certain circumstances a court
of equity may relieve the borrower from an entirely technical default where
such default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
up to several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of
the parties' intent, if a court determines that the sale was for less than
reasonably equivalent value and such sale occurred while the borrower was
insolvent and within one year (or within the state statute of limitations if
the trustee in bankruptcy elects to proceed under state fraudulent conveyance
law) of the filing of bankruptcy. Similarly, a suit against the debtor on the
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In some states, mortgages may also be foreclosed by advertisement
pursuant to a power of sale provided in the mortgage. Foreclosure of a mortgage
by advertisement is essentially similar to foreclosure of a deed of trust by
nonjudicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust or deed to secure debt which authorizes the trustee to sell the
property upon default by the borrower under the terms of the note, deed of
trust or deed to secure debt. In some states, prior to such sale, the trustee
must record a notice of default and send a copy to the borrower-trustor and to
any person who has recorded a request for a copy of a notice of default and
notice of sale. In
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addition, in some states, prior to such sale, the trustee must provide notice
to any other individual having an interest of record in the real property,
including any junior lienholders. In some states, the borrower, or any other
person having a junior encumbrance on the real estate, may, during a
reinstatement period, cure the default by paying the entire amount in arrears
plus the costs and expenses incurred in enforcing the obligations, including
attorney's and trustee's fees to the extent allowed by applicable law. Certain
states may require notices of sale to be published periodically for a
prescribed period in a specified manner prior to the date of the trustee's
sale. In addition, some state laws require that a copy of the notice of sale be
posted on the property and sent to all parties having an interest in the real
property. In certain states, foreclosure under a deed of trust may also be
accomplished by judicial action in the manner provided for foreclosure of
mortgages.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is generally
a public sale. Because of the difficulty a potential buyer at the sale might
have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, a third party may be unwilling to purchase the property at a
foreclosure sale. For these and other reasons, it is common for the lender to
purchase the property from the trustee, referee or other court officer for an
amount equal to the principal amount of the indebtedness secured by the
mortgage or deed of trust, plus accrued and unpaid interest and the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses, including attorneys' and trustee's fees, which may be recovered by a
lender. In some states there is a statutory minimum purchase price which the
lender may offer for the property. Thereafter, subject to the right of the
borrower in some states to remain in possession during the redemption period,
the lender will assume ownership of the mortgaged property and, therefore, the
burdens of ownership, including the obligation to pay taxes, obtain casualty
insurance and to make such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property. Any loss may be mitigated by the receipt of any mortgage
insurance proceeds.
A second mortgagee may not foreclose on the property securing a second
mortgage unless it forecloses subject to the first mortgage and any other prior
liens, in which case it must either pay the entire amount due on the first
mortgage and such other liens, prior to or at the time of the foreclosure sale
or undertake the obligation to make payments on the first mortgage and such
liens, in either event adding the amounts expended to the balance due on the
second loan, and may be subrogated to the rights of the first mortgagee. In
addition, in the event that the foreclosure of a second mortgage triggers the
enforcement of a "due-on-sale" clause, the second mortgagee may be required to
pay the full amount of the first mortgage to the first mortgagee. Accordingly,
with respect to those Mortgage Loans which are second mortgage loans, if the
lender purchases the property, the lender's title will be subject to all senior
liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage or deed of trust under which the
sale was conducted. Any remaining proceeds are generally payable to the holders
of junior mortgages or deeds of trust and other liens and claims in order of
their priority, whether or not the borrower is in default. Any additional
proceeds are generally payable to the borrower or trustor. The payment of the
proceeds to the holders of junior mortgages may occur in the foreclosure action
of the senior mortgagee; however, a junior lienholder whose rights in the
property are terminated pursuant to foreclosure by a senior lienholder will not
share in the proceeds from the subsequent disposition of the property. Junior
lienholders may also institute legal proceedings separate from the foreclosure
proceedings of the senior lienholders.
With respect to any Series for which a REMIC election is made, the
REMIC provisions of the Code and the Pooling and Servicing Agreement may
require the Servicer to hire an independent contractor to operate any REO
Property. The costs of such operation may be significantly greater than the
cost of direct operation by the Servicer.
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Some states impose prohibitions or limitations on remedies available
to the mortgagee, including the right to recover the debt from the borrower.
See "Certain Legal Aspects of the Mortgage Assets -- Foreclosure --
Anti-Deficiency Legislation and Other Limitations on Lenders".
Cooperative Loans. The cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the cooperative's Certificate of
Incorporation and Bylaws, as well as the proprietary lease or occupancy
agreement, and may be canceled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owned by such
tenant-stockholder, including mechanics' liens against the cooperative
apartment building incurred by such tenant-stockholder. The proprietary lease
or occupancy agreement generally permits the cooperative to terminate such
lease or agreement in the event a borrower fails to make payments or defaults
in the performance of covenants required thereunder. Typically, the lender and
the cooperative enter into a recognition agreement which establishes the rights
and obligations of both parties in the event of a default by the
tenant-stockholder on its obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure
on a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a foreclosure sale has been conducted
in a "commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given
the debtor and the method, manner, time, place and terms of the foreclosure.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted. Article 9 of the
UCC provides that the proceeds of the sale will be applied first to pay the
costs and expenses of the sale and then to satisfy the indebtedness secured by
the lender's security interest. The recognition agreement, however, generally
provides that the lender's right to reimbursement is subject to the right of
the cooperative corporation to receive sums due under the proprietary lease or
occupancy agreement. If there are proceeds remaining, the lender must account
to the tenant-stockholder for the surplus. Conversely, if a portion of the
indebtedness remains unpaid, the tenant-stockholder is generally responsible
for the deficiency. See "-- Foreclosure -- Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
Junior Liens. Certain of the Mortgage Loans, including the Title I
Mortgage Loans, may be secured by junior lien mortgages or deeds of trust.
Second mortgages or deeds of trust are generally junior to first mortgages or
deeds of trust held by other lenders, and third mortgages or deeds of trust are
generally junior to first and second mortgages or deeds of trust held by other
lenders, and so forth. The rights of the Certificateholders as the holders of a
junior deed of trust or a junior mortgage, are subordinate in lien and in
payment to those of the
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holder of the senior mortgage or deed of trust, including the prior rights of
the senior mortgagee or beneficiary to receive and apply hazard insurance and
condemnation proceeds and, upon default of the borrower, to cause a foreclosure
on the property. Upon completion of the foreclosure proceedings by the holder
of the senior mortgage, the junior mortgagee's or junior beneficiary's lien
will be extinguished unless the junior mortgagee satisfies the defaulted senior
loan or asserts its subordinate interest in a property in foreclosure
proceedings. A junior mortgagee or beneficiary in some states may satisfy a
defaulted senior lien in full and in some states may cure such default and
bring the senior loan current, in either event, adding the amounts expended to
the balance due on the junior loan. In most states, absent a provision in the
mortgage or deed of trust to the contrary, no notice of default is required to
be given to a junior mortgagee or beneficiary. See "-- Foreclosure" herein.
Furthermore, the terms of a junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will generally govern. Upon a failure of the borrower or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to
perform the obligation itself. Generally, all sums so expended by the senior
mortgagee or beneficiary become part of the indebtedness secured by the senior
mortgage or deed of trust. To the extent a senior mortgagee expends such sums,
such sums will generally have priority over all sums due under the junior
mortgage.
Right of Redemption. The purposes of a foreclosure action are to
enable the mortgagee to realize upon its security and to bar the borrower, and
all persons who have an interest in the property which is subordinate to the
foreclosing mortgagee, from their "equity of redemption." The doctrine of
equity of redemption provides that, until the property covered by a mortgage
has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having an interest which is subordinate to that of the
foreclosing mortgagee have an equity of redemption and may redeem the property
by paying the entire debt with interest. In addition, in some states, when a
foreclosure action has been commenced, the redeeming party must pay certain
costs of such action. Those having an equity of redemption must generally be
made parties and duly summoned to the foreclosure action in order for their
equity of redemption to be barred.
The equity of redemption which is a non-statutory right that must be
exercised prior to foreclosure sale should be distinguished from 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 from the foreclosure sale.
In some states, statutory redemption may occur only upon payment of the
foreclosure sale price. In other states, redemption may be authorized if the
former borrower pays only a portion of the sums due. The effect of a statutory
right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser subsequent to foreclosure or sale under a deed of trust.
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.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory prohibitions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the net amount realized
upon the public sale of the real property and the amount due to the lender.
Other statutes require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, in those states permitting such
election, is that lenders will usually proceed against the security first
rather than bringing a personal action against the borrower. Finally, other
statutory
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provisions limit any deficiency judgment against the former borrower following
a judicial sale to the excess of the outstanding debt over the fair market
value of the property at the time of the public sale. The purpose of these
statutes is generally to prevent a beneficiary or a mortgagee from obtaining a
large deficiency judgment against the former borrower as a result of low or no
bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws, the
Relief Act and state laws affording relief to debtors, may interfere with or
affect the ability of the secured mortgage lender to realize upon collateral
and/or enforce a deficiency judgment. For example, with respect to federal
bankruptcy law, a court with federal bankruptcy jurisdiction may permit a
debtor through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure
a monetary default in respect of a mortgage loan on a debtor's residence by
paying arrearages within a reasonable time period and reinstating the original
mortgage loan payment schedule even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered in state court
(provided no sale of the residence had yet occurred) prior to the filing of the
debtor's petition. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the reorganization case, that
effected the curing of a mortgage loan default by paying arrearages over a
number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modifications may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule or forgiving all or a portion of the debt. Additionally, a
federal bankruptcy court in a Chapter 11 bankruptcy case may be able to reduce
the lender's security interest to the value of the residence, thus leaving the
lender a general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan; however, the United States
Supreme Court has recently eliminated such a risk in Chapter 7 and Chapter 13
bankruptcy cases.
The Internal Revenue Code of 1986, as amended provides priority to
certain tax liens over the lien of a mortgage or deed of trust. In addition,
substantive requirements are imposed upon lenders in connection with the
origination and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws impose specific statutory liabilities upon
lenders who originate mortgage loans and who fail to comply with the provisions
of the applicable laws. In some cases, this liability may affect assignees of
the Mortgage Loans.
Enforceability of Certain Provisions. Certain of the Mortgage Loans
will contain a debt-acceleration clause, which permits the lender to accelerate
the debt upon a monetary default of the borrower, after the applicable cure
period. Courts will generally enforce clauses providing for acceleration in the
event of a material payment default. However, courts, exercising equity
jurisdiction, may refuse to allow a lender to foreclose a mortgage or deed of
trust when an acceleration of the indebtedness would be inequitable or unjust
and the circumstances would render the acceleration unconscionable.
Some courts have imposed general equitable principles to limit the
remedies available in connection with foreclosure. These equitable principles
are generally designed to relieve the borrower from the legal effect of his
defaults under the loan documents. For example, some courts have required that
the lender undertake affirmative and expensive actions to determine the causes
for the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lenders' judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right
of lenders to foreclose if the default under the mortgage instrument or deed of
trust is not monetary, such as the borrower's failure to adequately maintain
the property or the borrower's execution of a second mortgage or deed of trust
affecting the property. The exercise by the court of its equity powers will
depend on the individual circumstances of each case. Finally, some courts have
been faced with the issue of whether federal or state constitutional
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provisions reflecting due process concerns for adequate notice require that
borrowers under deeds of trust receive notices in addition to those prescribed
statutorily. For the most part, these cases have upheld the statutory notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust or under a mortgage having a power of sale does not involve
sufficient state action to afford constitutional protection to the borrower.
Some of the Mortgage Loans may not restrict secondary financing,
thereby permitting the borrower to use the Mortgaged Property as security for
one or more additional loans. Where the borrower encumbers the 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. Second, acts of the senior lender which 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. The bankruptcy of a junior
lender may operate to stay foreclosure or similar proceedings by the senior
lender.
Forms of notes, mortgages and deeds of trust used by lenders may
contain provisions obligating the borrower to pay a late charge if payments are
not timely made. In certain states, there are or may be specific limitations
upon the late charges which a lender may collect from a borrower for delinquent
payments. Late charges are typically retained by servicers as additional
servicing compensation.
A portion of the Mortgage Loans contain "due-on-sale" clauses. These
clauses permit the lender to accelerate the maturity of the loan if the
borrower sells, transfers or coveys the property. The enforceability of these
clauses has been the subject of legislation or litigation in many states, and
in some cases the enforceability of these clauses was limited or denied.
However, the Garn-St. Germain Depository Institutions Act of 1982 (the
"Garn-St. Germain Act") preempts state constitutional, statutory and case law
that prohibits the enforcement of due-on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms, subject to certain
limited exceptions. The Garn-St. Germain Act does "encourage" lenders to
permit assumption of loans at the original rate of interest or at some other
rate less than the average of the original rate and the market rate.
Exempted from the general rule of enforceability of due-on-sale
clauses were mortgage loans (originated other than by federal savings and loan
associations and federal savings banks) that were made or assumed during the
period beginning on the date a state, by statute or final appellate court
decision having statewide effect, prohibited the exercise of due-on-sale
clauses and ending on October 15, 1982 ("Window Period Loans"). However, this
exception applied only to transfers of property underlying Window Period Loans
occurring between October 15, 1982 and October 15, 1985 and does not restrict
enforcement of a due-on-sale clause in connection with current transfers of
property underlying Window Period Loans. Due-on-sale clauses contained in
mortgage loans originated by federal savings and loan associations or federal
savings banks are fully enforceable pursuant to regulations of the Office of
Thrift Supervision (the "OTS"), as successor to the Federal Home Loan Bank
Board which preempt state law restrictions on the enforcement of due-on-sale
clauses.
The Garn-St. Germain Act also sets forth nine instances in which a
mortgage lender covered by the Garn-St. Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that transfer of the property may
have occurred. These include intrafamily transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. The Garn-St. Germain Act also grants the Director of the Office of
Thrift Supervision (successor to the Federal Home Loan Bank Board) authority to
prescribe by regulation further instances in which a due-on-sale clause may not
be exercised upon the transfer of the property. To date no such regulations
have been issued. Regulations promulgated under the Garn-St. Germain Act also
prohibit the imposition of a prepayment penalty upon the acceleration of a loan
pursuant to a "due-on-sale" clause.
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If interest rates were to rise above the interest rates on the
Mortgage Loans, then any inability of the Servicer or the subservicer to
enforce due-on-sale clauses may result in the Trust Fund containing a greater
number of Mortgage Loans bearing below-market interest rates than would
otherwise be the case, since a transferee of the property underlying a Mortgage
Loan would have a greater incentive in such circumstances to assume the
seller's Mortgage Loan. Any inability to enforce due-on-sale clauses may
affect the average life of the Mortgage Loans and the number of Mortgage Loans
that may be outstanding until maturity.
Upon foreclosure, courts have imposed general equitable principles.
These equitable principles are generally designed to relieve the borrower from
the legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right
of the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain the property or
the borrower executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages
receive notices in addition to the statutorily-prescribed minimum. For the most
part, these cases have upheld the notice provisions as being reasonable or have
found that the sale by a trustee under a deed of trust, or under a mortgage
having a power of sale, does not involve sufficient state action to afford
constitutional protections to the borrower.
Adjustable Rate Loans. The laws of certain states may provide that
mortgage notes relating to adjustable rate loans are not negotiable instruments
under the Uniform Commercial Code. In such event, the Trustee will not be
deemed to be a "holder in due course" within the meaning of the Uniform
Commercial Code and may take such a mortgage note subject to certain
restrictions on its ability to foreclose and to certain contractual defenses
available to a borrower.
Environmental Legislation. Certain states impose a statutory lien for
associated costs on property that is the subject of a cleanup action by the
state on account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a lien will generally have priority over all
subsequent liens on the property and, in certain of these states, will have
priority over prior recorded liens including the lien of a mortgage. In
addition, under federal environmental legislation and under state law in a
number of states, a secured party which takes a deed in lieu of foreclosure or
acquires a mortgaged property at a foreclosure sale or assumes active control
over the operation or management of a property so as to be deemed an "owner" or
"operator" of the property may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a secured lender (such as a Certificate
Trustee, a PMBS Trustee, or a Trust Fund) to homeowners. In the event that
title to a property securing a Mortgage Loan in a pool of Mortgage Loans was
acquired by a Certificate Trustee, a PMBS Trustee, or a Trust Fund and cleanup
costs were incurred in respect of the property, the Holders of the related
Certificates might realize a loss if such costs were required to be paid. In
addition, the presence of certain environmental contamination, including, but
not limited to, lead-based paint, asbestos and leaking underground storage
tanks could result in the holders of the related Certificates realizing a loss
if associated costs were required to be paid. The Depositor, the Administrator,
the Underwriters, the Transferors, the Servicers, and any of their respective
affiliates (i) have not caused any environmental site assessments or
evaluations to be conducted with respect to any properties securing the
Mortgage Loans, (ii) are not required to make any such assessments or
evaluations and (iii) make no representations or warranties and assume no
liability with respect to the absence or effect of hazardous wastes or
hazardous substances on any property or any casualty resulting from the
presence or effect of hazardous wastes or hazardous substances.
In the event that title to a Mortgaged Property is acquired by the
Trust Fund and cleanup costs are incurred in respect of such property, the
certificateholders might realize a loss if such costs are required to be
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paid. In addition, the presence of certain environmental contamination,
including, but not limited to, lead-based paint, asbestos and leaking
underground storage tanks could result in the Certificateholders realizing a
loss if any associated remedial costs are required to be paid. The Transferor,
the Depositor, the Servicer, any subservicer and any of their respective
affiliates (i) have not caused any environmental site assessments or
evaluations to be conducted with respect to any Mortgaged Property, (ii) are
not required to make any such assessments or evaluations and (iii) make no
representations or warranties and assume no liability with respect to the
absence or effect of hazardous wastes or hazardous substances on any property
or any casualty resulting from the presence or effect of hazardous wastes or
hazardous substances.
TRUTH IN LENDING ACT
In September 1994, the Reigle Community Development and Regulatory
Improvement Act of 1994 (the "Reigle Act") was enacted which incorporates the
Home Ownership and Equity Protection Act of 1994, and which adds certain
additional provisions to Regulation Z, the implementing regulation of the
Truth-in-Lending Act ("TILA"). These provisions impose additional disclosure
and other requirements on creditors with respect to non-purchase money mortgage
loans with high interest rates or high up-front fees and charges ("covered
loans"). In general, mortgage loans within the purview of the Reigle Act have
annual percentage rates over 10% greater than the yield on Treasury Securities
of comparable maturity and/or fees and points which exceed the greater of 8% of
the total loan amount or $400. The provisions of the Reigle Act apply on a
mandatory basis to all mortgage loans originated on or after October 1, 1995.
These provisions can impose specific statutory liabilities upon creditors who
fail to comply with their provisions and may affect the enforceability of the
related loans. In addition, any assignee of a creditor would generally be
subject to all claims and defenses that the consumer could assert against the
creditor, including, without limitation, the right to rescind the mortgage
loan. A substantial majority of the loans originated or purchased by the
Transferor are covered by the Reigle Act.
The Reigle Act provisions impose additional disclosure requirements on
lenders originating covered loans and prohibit lenders from originating covered
loans that are underwritten solely on the basis of the borrower's home equity
without regard to the borrower's ability to repay the loan. The Transferor
believes that only a small portion of its loans originated in fiscal 1994 and
fiscal 1995 are of the type that, unless modified, would be prohibited by the
Reigle Act. As a result of the Reigle Act provisions, with respect to all
covered loans, the Transferor applies loan underwriting criteria that take into
consideration the borrower's ability to repay.
The Reigle Act provisions also prohibit lenders from including
prepayment fee clauses in covered loans to borrowers with debt-to-income ratios
in excess of 50% or covered loans used to refinance existing loans originated
by the same lender. The Transferor reported immaterial amounts of prepayment
fee revenues in fiscal 1993, 1994 and 1995, respectively. The Transferor will
continue to collect prepayment fees on loans originated prior to effectiveness
of the Reigle Act provisions and on non-covered loans, as well as on covered
loans in permitted circumstances following the effectiveness of the Reigle Act
provisions. The Reigle Act provisions impose other restrictions on covered
loans, including restrictions on balloon payments and negative amortization
features, which the Transferor does not believe will have a material effect on
its operations.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of home improvement first
mortgage loans originated by certain lenders after March 31, 1980. A similar
federal statute was in effect with respect to mortgage loans made during the
first three months of 1980. The Office of Thrift Supervision is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized any state to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which 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.
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A similar federal statute, adopted in 1976, provides federal usury
preemption with respect to Title I Mortgage Loans, such as the Title I Mortgage
Loans. This statute also permits states to reimpose interest rate limits by
passing legislation at any time after June 30, 1976. To date, no state has
enacted any reported statute to reimpose interest rate limits with respect to
any loans, mortgage or advance that is insured under Title I.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's Mortgage Loan (including a
borrower who is a member of the National Guard or is in reserve status at the
time of the origination of the Mortgage Loan and is later called to active
duty) may not be charged interest above an annual rate of 6% during the period
of such borrower's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such interest rate limitation or
similar limitations under state law could have an effect, for an indeterminate
period of time, on the ability of the Servicer or the subservicer to collect
full amounts of interest on certain of the Mortgage Loans. Any shortfall in
interest collections resulting from the application of the Relief Act or
similar legislation, which would not be recoverable from the related Mortgage
Loans, would result in a reduction of the amounts available for distribution to
the holders of the Offered Certificates, but the Offered Certificates would
receive the full amount otherwise distributable to such holders to the extent
that amounts are available from the credit enhancement provided for the Offered
Certificates. See "Risk Factors -- Limitations of Credit Enhancement" herein.
In addition, the Relief Act imposes limitations which would impair the ability
of the Servicer or subservicer to foreclose on an affected Mortgage Loan during
the borrower's period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default there may be delays and losses occasioned by
the inability to realize upon the related Mortgaged Property in a timely
fashion.
THE TITLE I PROGRAM
General. Sections 1 and 2(a) of the National Housing Act of 1934, as
amended (the "Act"), authorize the creation of the Federal Housing
Administration (which is an agency within the Untied States Department of
Housing and Urban Development; such agency and department are referred to
together herein as the "FHA") and the Title I Program. Certain of the Mortgage
Loans or Contracts contained in a Trust Fund may be loans insured under the
Title I Program. FHA Regulations contain the requirements under which approved
Title I Lenders may obtain insurance against a portion of losses incurred with
respect to eligible loans that have been originated and serviced in accordance
with FHA Regulations, up to the amount of such Title I Lender's FHA Reserve, as
described below, and subject to the terms and conditions established under the
Act and FHA Regulations. While FHA Regulations permit the Secretary of HUD,
subject to statutory limitations, to waive a Title I Lender's noncompliance
with FHA Regulations if enforcement would impose an injustice on the lender
(provided the Title I Lender has acted in good faith, is in substantial
compliance with FHA Regulations and has credited the borrower for any excess
charges), in general, an insurance claim against the FHA will be denied if the
Title I loan to which it relates does not strictly satisfy the requirements of
the Act and FHA Regulations.
Unlike certain other government loan insurance programs, loans under
the Title I Program (other than loans in excess of $25,000) are not subject to
prior review by the FHA. Under the Title I Program, the FHA disburses insurance
proceeds with respect to defaulted loans for which insurance claims have been
filed by a Title I Lender prior to any review of such loans. A Title I Lender
is required to repurchase a Title I loan from the FHA that is determined to be
ineligible for insurance after insurance claim payments for such loan have been
paid to such lender. Under the FHA Regulations, if the Title I Lender's
obligation to repurchase the Title I loan is unsatisfied, the FHA is permitted
to offset the unsatisfied obligation against future insurance claim payments
owed by the FHA to such lender. FHA Regulations permit the FHA to disallow an
insurance claim with respect to any loan that does not qualify for insurance
for a period of up to two years after the claim is made and to require the
Title I Lender that has submitted the insurance claim to repurchase the loan.
Pursuant to a letter ruling issued by the FHA in October 1994, the FHA has
stated that, as a policy, the FHA will strive to review all insurance claim
submissions in a timely manner and limit the period of time within which it
will request the repurchase of a loan to a period of one year after claim
submission. The letter further states, however, that the
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FHA may find it necessary with respect to some claim submissions to apply the
foregoing two-year incontestability provision strictly.
The proceeds of loans under the Title I Program may be used only for
permitted purposes, including, but not limited to, the alteration, repair or
improvement of residential property, the purchase of a manufactured home or lot
(or cooperative interest therein) on which to place such home or the purchase
of both a manufactured home loan and the lot (or cooperative interest therein)
on which such home is placed. Title I Program loans may be made directly to the
owners of the property to be improved or purchased ("direct loans") or with the
assistance of a dealer or home improvement contractor that will have an
interest in the proceeds of the loan ("dealer loans").
Subject to certain limitations described below, eligible Title I loans
are insured by the FHA for 90% of an amount equal to the sum of (i) the net
unpaid principal amount and the uncollected interest earned to the date of
default, (ii) interest on the unpaid loan obligation from the date of default
to the date of the initial submission of the insurance claim, plus 15 calendar
days (the total period not to exceed nine months) at a rate of 7% per annum,
(iii) uncollected court costs, (iv) title examination costs, (v) fees for
required inspections by the lenders or its agents, up to $75, and (vi)
effective July 5, 1995, origination fees up to a maximum of 5% of the loan
amount. However, the insurance coverage provided by the FHA is limited to the
extent of the balance in the Title I Lender's FHA Reserve maintained by the
FHA. Accordingly if sufficient insurance coverage is available in such FHA
Reserve, then the Title I Lender bears the risk of losses on a Title I loan for
which a claim for reimbursement is paid by the FHA of at least 10% of the
unpaid principal, uncollected interest earned to the date of default, interest
from the date of default to the date of the initial claim submission and
certain expenses.
Under the Title I Program, the FHA maintains an FHA insurance coverage
reserve account (a "FHA Reserve") for each Title I Lender. The amount in each
Title I Lender's FHA Reserve is a maximum of 10% of the amounts disbursed,
advanced or expended by a Title I Lender in originating or purchasing eligible
loans registered with the FHA for Title I Insurance, with certain adjustments
permitted or required by FHA Regulations. The balance of such FHA Reserve is
the maximum amount of insurance claims the FHA is required to pay to the
related Title I Lender. Mortgage loans to be insured under the Title I Program
will be registered for insurance by the FHA, and the increase in Title I
insurance coverage to which the Title I Lender is entitled by reason of the
reporting of such loans under the Title I Lender's contract of insurance will
be included in the FHA Reserve for the originating Title I Lender following the
receipt and acknowledgment by the FHA of a transfer of note report on the
prescribed form (the "Transfer Report") pursuant to FHA Regulations.
Under the Title I Program the FHA will reduce the insurance coverage
available in a Title I Lender's FHA Reserve with the respect to loans insured
under such Title I Lender's contract of insurance by (i) the amount of FHA
Insurance claims approved for payment related to such loans, (ii) prior to
October 1, 1995, after a Title I Lender has held its Title I contract of
insurance for five years, the amount of the annual reduction (the "Annual
Reduction") equal to 10% of the amount of insurance coverage contained in the
related FHA Reserve as of that date, and (iii) the amount of reduction of the
Title I Lender's FHA Reserve by reason of the sale, assignment or transfer of
loans registered under the Title I Lender's contract of insurance. Such
insurance coverage also may be reduced for any FHA insurance claims previously
disbursed to the Title I Lender that are subsequently rejected by the FHA. On
June 5, 1995, the FHA announced the elimination of Annual Reductions, effective
as of October 1, 1995.
Upon the receipt and acknowledgment by the FHA of a Transfer Report,
originations of new loans will increase a Title I Lender's insurance coverage
reserve account balance by 10% of the amount disbursed, advanced or expended in
originating such loans registered with the FHA for insurance under the Title I
Program. A Title I Lender is permitted to sell or otherwise transfer loans
reported for insurance under the Title I Program only to another Title I
Lender. Upon any such transfer, except a transfer with recourse or under a
guaranty or repurchase Agreement, the seller is required to file a Transfer
Report with the FHA reporting the transfer of such loans. Upon notification and
approval of such transfer, the FHA Reserve of the selling Title I Lender is
reduced, and the FHA Reserve of the purchasing Title I Lender is increased, by
an amount equal to the lesser of 10% of the actual purchase price of the loans
or the net unpaid principal balance of the loans, up to the total amount of the
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selling Title I Lender's FHA Reserve. Thus, in the event the selling Title I
Lender's FHA Reserve was less than 10% of the unpaid principal balance of its
portfolio of loans reported for insurance under the Title I Program prior to
the sale, the seller's FHA Reserve may be exhausted as the result of a sale of
only a portion of its total portfolio, with the result that its remaining Title
I Program portfolio may be ineligible for Title I Program benefits until the
lender originates or otherwise acquires additional loans reported for insurance
under the Title I Program. Accordingly, the insurance coverage reserves
transferred to the purchasing Title I Lender in such case will be less than 10%
of the lesser of the purchase price or the principal balance of the portfolio
of loans purchased, which may be the case with respect to the Transferor's
purchase of certain Title I Mortgage Loans and Title I Contracts from certain
Title I lenders and the transfer of the related insurance coverage from such
lenders' FHA Reserves. Additionally, pursuant to FHA Regulations, not more than
$5,000 in insurance coverage shall be transferred to or from a Title I Lender's
insurance coverage reserve account during any October 1 to September 30 fiscal
year without the approval of the Secretary of HUD. Such HUD approval is
generally viewed as automatic, provided the formal requirements for transfer
are satisfied, but HUD does have the right under FHA Regulations to withhold
approval.
Unlike most other FHA insurance programs, the obligation of the FHA to
reimburse a Title I Lender for losses in the portfolio of insured loans held by
such Title I Lender is limited to the amount in an FHA Reserve maintained on a
lender-by-lender basis and not on a loan-by-loan basis. Except when to do so
would be in HUD's best interest, the FHA does not track or "earmark" the loans
within a Title I Lender's portfolio to determine whether a reduction in such
lender's FHA Reserve as the result of an insurance claim by such lender are, in
fact, attributable to the insured loan with respect to which the claim was
made. For this reason, if a Title I Lender is holding insured loans as a
fiduciary on behalf of multiple non-affiliated beneficiaries, in order for such
a lender to cause its FHA Reserve to be reduced only by an amount to which a
particular beneficiary is entitled by reason of the insured loans beneficially
held by it, the Title I Lender must segregate or "earmark" its FHA Reserve on
its own books and records according to which beneficiary is entitled to what
portion of the insurance coverage in the Title I Lender's FHA Reserve as if the
insurance coverage were not commingled by the FHA in such FHA Reserve. If such
Title I Lender continues to submit claims with respect to loans held on behalf
of a beneficiary whose portion of insurance coverage in its FHA Reserve has
been exhausted, the FHA will continue to honor such claims until all insurance
coverage in such Title I Lender's FHA Reserve has been exhausted, even though
such FHA Reserve may, in fact, be held by the Title I Lender for the benefit of
a different beneficiary than the beneficiary of the insured loans to which the
claims relate under a separate contractual agreement. In addition, under
certain FHA administrative offset regulations, the FHA may offset an
unsatisfied obligation of a Title I Lender to repurchase loans that are
determined to be ineligible for insurance against future insurance claim
payments owed by the FHA to such lender. In the case of the related Trust Fund,
if the Trustee were to hold loans insured under the Depositor's FHA Reserve on
behalf of another trust fund, the FHA were to determine that insurance claims
were paid in respect of loans ineligible for insurance that related to such
other trust fund and the Trustee, on behalf of such other trust fund, was
unable or otherwise failed to repurchase the ineligible loans, then the FHA
could offset the amount of the repurchase obligation against insurance proceeds
payable with respect to one or more Title I Mortgage Loans or Title I Contract
included in the related Trust Fund. If the Trustee were unable to recover the
amount of such offset from the other trust fund, the Trust Fund could
experience a loss as a result.
Accordingly, claims paid to the Trustee (or the Administrator, if any)
by the FHA with respect to Title I loans insured under the Depositor's FHA
Reserve other than the Title I Mortgage Loans and Title I Contracts may reduce
the FHA Insurance Amount. In the Pooling and Servicing Agreement, the Depositor
and the Trustee (or the Administrator, if any) will agree not to submit claims
to the FHA with respect to Title I loans other than the Title I Mortgage Loans
and Title I Contracts if the effect thereof would be to reduce the FHA
Insurance Amount. The Depositor has committed to use its FHA contract of
insurance under the Title I Program only to report the record ownership of
loans transferred and assigned to the Trustee pursuant to the Pooling and
Servicing Agreement and similar pooling and servicing agreements that may be
entered into by the Depositor in the future.
On the final Transfer Date, such FHA Insurance Amount will be the
maximum amount of insurance coverage in the Depositor's FHA Reserve that will
be available for the submission of claims on the Title I
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Mortgage Loans, and thereafter, such FHA Insurance Amount will be decreased as
a result of payments by the FHA in respect of FHA Claims submitted for the
Title I Mortgage Loans and Title I Contracts after the Transfer Dates and as a
result of the repurchase or substitution of Title I Mortgage Loans and Title I
Contracts by the Transferor. Except in connection with the conveyance to the
Trust Fund of any Subsequent Mortgage Loans that are Title I Mortgage Loans and
the substitution of Title I Mortgage Loans and Title I Contracts, the FHA
Insurance Amount for the Title I Mortgage Loans and Title I Contracts will not
be increased for any other Title I loans, either previously or subsequently
owned by the Depositor and reported for insurance in the Depositor's FHA
Reserve.
On the final Transfer Date, the amount of FHA insurance coverage that
will have been transferred from the Transferor's FHA Reserve to the Depositor's
FHA Reserve may be less than the maximum amount of insurance coverage
transferrable which would otherwise equal 10% of the unpaid principal balance
or the purchase price, if less. However, if individual Title I Mortgage Loans
and Title I Contracts are repurchased from the Trustee, on behalf of the Trust
Fund, by the Transferor, the Servicer and/or any Subservicer, then with respect
to any individual Title I Mortgage Loan or Title I Contract the amount of FHA
insurance coverage that will be transferred from the Trustee's FHA Reserve, in
all likelihood, will be the maximum amount of insurance coverage of 10% of the
unpaid principal balance or the purchase price, if less, until such time as the
Depositor's FHA Reserve has been reduced to a balance which is less than such
maximum amount. Accordingly, the transfer of insurance coverage from the
Depositor's FHA Reserve as the result of the repurchase of Title I Mortgage
Loans and Title I Contracts will cause a disproportionately larger reduction to
the FHA Insurance Amount for each individual Title I Mortgage Loan and Title I
Contract and if a significant amount of Title I Mortgage Loans and Title I
Contracts are repurchased, could result in a substantial reduction of such FHA
Insurance Amount and the relative percentage of such FHA Insurance Amount to
the principal balance of the Title I Mortgage Loans and Title I Contracts
remaining in the Trust Fund.
Requirements for Title I Property Improvement Loans and Contracts.
The proceeds of loans originated under the Title I Program for property
improvements may be used only for improvements that substantially protect or
improve the basic habitability or utility of an eligible property. Although
Title I loans are available for several types of properties, the Title I
Mortgage Loans will include primarily one-to four-family property improvement
loans. FHA Regulations require that the borrower have at least a one-half
interest in (i) fee simple title to the real property to be improved with the
loan proceeds ("Secured Property"), (ii) a lease on the Secured Property for a
fixed term that expires no sooner than six months after the maturity date of
the property improvement loan or (iii) a properly recorded land installment
contract for the purchase of the Secured Property. Any Title I property
improvement loan originated after August 1994 in excess of $7,500 must be
secured by a recorded lien on the improved property which is evidenced by a
mortgage or deed of trust executed by the borrower and all other owners in fee
simple. Prior to August 1994, any Title I property improvement loan in excess
of $5,000 was required to be secured by such a recorded lien.
The maximum principal amount of an eligible loan under the Title I
Program, must not exceed the actual cost of the project plus any authorized
fees and charges under the Title I Program as provided below; provided that
such maximum principal amount does not exceed $25,000 for a single family
property improvement loan. No single borrower is permitted to have more than an
aggregate of $25,000 in unpaid principal obligations with respect to Title I
loans without prior approval of HUD. Generally, the term of a Title I loan that
is a property improvement loan may not be less than six months nor greater than
20 years and 32 days. A borrower may obtain multiple Title I loans with respect
to multiple properties (subject to the aforementioned limit on loans to a
single borrower), and a borrower may obtain more than one Title I loan with
respect to a single property, in each case as long as the total outstanding
balance of all Title I loans on the same property does not exceed the maximum
loan amount for the type of Title I loan thereon having the highest permissible
loan amount. If a property improvement loan (or combination of loans on a
single property) exceeds $15,000, and either (i) the property is not owner
occupied or (ii) the structure on the property was completed within six months
prior to the application for the loan, the borrower is required to have equity
in the property at least equal to the loan amount. In all other cases, there is
no requirement that the owner contribute equity to the property other than fees
and costs that may not be added to the balance of the loan as described below.
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Fees and charges that may be added to the balance of property
improvement loans include (i) architectural and engineering fees, (ii) building
permit costs, (iii) credit report costs, (vi) fees for required appraisals (if
applicable), (iv) title examination costs and (v) fees for required inspections
by the lender or its agent, up to $75. The Title I Lender is entitled to
recover the following fees and charges in connection with a property
improvement loan from the borrower as part of the borrower's initial payment:
(i) an origination fee not to exceed 1% of the loan amount, (ii) discount
points, however, after July 5, 1995, only to the extent a lender can
demonstrate a clear relationship between the charging of discount points and
some tangible benefit to the borrower such as a compensating decrease in the
interest rate being charged, (iii) recording fees, recording taxes, filing fees
and documentary stamp taxes, (iv) title insurance costs, (v) current year tax
and insurance escrow payments, (vi) fees necessary to establish the validity of
the lien, (vii) appraisal fees that are not eligible to be financed, (viii)
survey costs, (ix) handling charges for refinancing or modification of an
existing loan, up to $100, (x) fees for approving assumption or preparing
assumption agreements, not to exceed 5%, (xi) certain fees of closing agents
and (xii) such other items as may be specified by the FHA. FHA Regulations
prohibit the advancement of such fees and charges to the borrower by any party
to the transaction.
FHA Regulations distinguish between "direct loans" and "dealer loans."
A loan is a "dealer loan" if an approved dealer having a direct or indirect
financial interest in the transaction assists the borrower in obtaining the
loan. A loan made by the lender to the borrower without the assistance of any
party with a financial interest in the loan transaction (other than the lender)
is a "direct loan."
With respect to dealer loans, the dealer-contractor typically enters
into a consumer credit contract or note with the borrower and, after completion
of the financed improvements, assigns the contract or note to the Title I
Lender. The dealercontractor presents the loan application to the Title I
Lender, receives the check or money order representing the loan proceeds and
may accompany the borrower to the institution for the purpose of receiving
payment. As a condition to the disbursement of the proceeds of a dealer loan,
the Title I Lender is required to obtain a completion certificate signed by the
borrower and the dealer certifying that the improvements have been completed in
accordance with the contract and that the borrower has received no inducement
from the dealer to enter into the transaction other than discount points. The
Title I Lender may enter into an agreement under which the lender has full or
partial recourse against the dealer for a period of three years in the event
the Title I Lender sustains losses with respect to loans originated by such
dealer and such loans do not satisfy FHA Regulations. FHA Regulations require
that each dealer meet certain net worth and experience requirements and be
approved by the FHA on an annual basis. Any Title I Lender that makes dealer
loans is required to supervise and monitor the dealer's activities with respect
to loans insured under the Title I Program and to terminate a dealer's approval
if the dealer does not satisfactorily perform its contractual obligations or
comply with Title I Program requirements.
The note evidencing a property improvement loan insured under the
Title I Program is required to bear a genuine signature of the borrower and any
co-maker and co-signer, must be valid and enforceable, must be complete and
regular on its face and must have interest and principal stated separately. The
interest rate must be negotiated and agreed to by the borrower and the lender
and must be fixed for the term of the loan and recited in the note. Interest on
the Title I loan must accrue from the date of the loan and be calculated
according to the actuarial method, which allocates payments on the loan between
principal and interest such that a payment is applied first to accrued interest
and any remainder is subtracted from, or any deficiency is added to, the unpaid
principal balance.
Principal and interest on the note is required to be payable in equal
installments at least monthly except where the borrower has irregular cash
flow. The first and last payments may vary in amount from the regular
installment amount but may not exceed 150% of the regular installment amount.
The first payment may be due no later than two months from the date of the loan
(i.e., the date upon which proceeds are disbursed by the lender). Late charges
may be assessed only after fifteen days and cannot exceed the lesser of 5% of
the installment, up to a maximum of $10 and must be billed as an additional
charge to the borrower. In lieu of late charges, the note may provide for
interest to accrue on late installments on a daily basis at the note rate. The
note must include a provision for acceleration of maturity, at the option of
the holder, upon a default by the borrower
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and a provision permitting prepayment in part or in full without penalty. The
Title I Lender must assure that the note and all other documents evidencing the
loan are in compliance with applicable Federal, state and local laws.
A written but unrecorded modification agreement executed by the
borrower may be used in lieu of refinancing a delinquent or defaulted loan to
reduce or increase the installment payment, but not to increase the term or
interest rate. A written modification agreement may also be used to refinance a
loan in order to reduce the interest rate, provided the loan is current.
Alternatively, the lender may negotiate an informal repayment plan for the
borrower to cure a temporary delinquency within a short period of time by
sending a letter to the borrower reciting the terms of the agreement. The
lender may not release any party from liability under the note or any lien
securing an insured loan without prior FHA approval.
FHA Regulations do not require that the borrower obtain title or fire
and casualty insurance as a condition to obtaining loan, except with respect to
manufactured home loans. If the property is located in a flood hazard area,
however, flood insurance in an amount at least equal to the loan amount is
required at the date of loan disbursement. The Borrower is required to
maintain flood insurance of at least the unpaid balance of the loan (or the
value of the property if state law so limits the amount of flood insurance).
Requirements for Title I Manufactured Home Contracts. The maximum
principal amount for any Title I Contract for a Manufactured Home must not
exceed the sum of certain itemized amounts, which include a specified
percentage of the purchase price of the manufactured home depending on whether
it is a new or existing home; provided that such maximum amount does not exceed
the following loan amounts: (i) $48,600 for a new or existing manufactured home
purchase loan; (ii) $16,200 for a manufactured home lot purchase; and (iii)
$64,800 for a combination loan (i.e. a loan to purchase a new or existing
manufactured home and the lot for such home). Generally, the term of a Title I
Contract for a Manufacture Home may not be less than six months nor greater
than 20 years and 32 days, except that the maximum term of a manufactured home
lot loan is limited to 15 years and 32 days and the maximum term of a
multimodule manufactured home and lot in combination is limited to 25 years and
32 days.
Borrower eligibility for a Title I Contract for a Manufactured Home
requires that the borrower become the owner of the property to be financed with
such loan and occupy the manufactured home as the borrower's principal
residence, except for a manufactured home lot loan which allows six months from
the date of the loan to occupy the home as the borrower's principal residence.
If a manufactured home is classified as realty, then ownership of the home must
be in fee simple, and also, the ownership of the manufactured home lot must be
in fee simple, except for a lot which consists of a share in a cooperative
association that owns and operates a manufactured home park. The borrower's
minimum cash down payment requirement to obtain financing through a Title I
Contract for a Manufactured Home is as follows: (i) at least 5% of the first
$5,000 and 10% of the balance of the purchase price of a new manufactured home
and at least 10% of the purchase price of an existing manufactured home for a
manufactured home purchase loan, or in lieu of a full or partial cash down
payment, the trade-in of the borrower's equity in an existing manufactured
home; (ii) at least 10% of the purchase price and development costs of a lot
for a manufactured home lot loan; and (iii) at least 5% of the first $5,000 and
10% of the balance of the purchase price of the manufactured home and lot for a
combination loan.
Any manufactured home financed by a Title I Contract must be certified
by the manufacturer to have been constructed in compliance with the National
Manufactured Housing Construction and Safety Standards Act of 1974 (42 U.S.C.
Sections 5401-5426), so as to conform to all applicable Federal construction
and safety standards, and with respect to the purchase of a new manufactured
home, the manufacturer must furnish the borrower with a one year written
warranty on a HUD approved form which obligates the manufacturer to correct any
nonconformity with all applicable Federal construction and safety standards or
any defects in materials or workmanship which become evident within one year
after the date of delivery. The regulations under the Title I Program set forth
certain additional requirements relating to the construction, transportation
and installation of any manufactured home and standards for the manufactured
homesite financed by any Title I Contract. The proceeds from a Title I Contract
for a Manufactured Home may be used as follows: the purchase or refinancing of
a manufactured home, a suitably developed lot for a manufactured home already
owned by the borrower or
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a manufactured home and suitably developed lot for the home in combination; or
the refinancing of an existing manufactured home already owned by the borrower
in connection with the purchase of a manufactured home lot or an existing lot
already owned by the borrower in connection with the purchase of a manufactured
home. In addition, the proceeds for a Title I Contract for a Manufactured Home
which is a manufactured home purchase loan may be used for the purchase,
construction or installation of a garage, carport, patio or other comparable
appurtenance to the manufactured home, and the proceeds for a Title I Contract
for a Manufactured Home which is a combination loan may be used for the
purchase, construction or installation of a foundation, garage, carport, patio
or other comparable appurtenance to the manufactured home. The proceeds from a
Title I Contract for a Manufactured Home cannot be used for the purchase of
furniture or the financing of any items and activities which are set forth on
the list published by the Secretary of HUD as amended from time to time.
Any Title I Contract for a Manufactured Home must be secured by a
recorded lien on the manufactured home (or lot or home and lot, as
appropriate), its furnishings, equipment, accessories and appurtenance, which
lien must be a first lien, superior to any other lien on the property which is
evidenced by a properly recorded financing statement, a properly recorded
security instrument executed by the borrower and any other owner of the
property or other acceptable instrument. With respect to any Title I Contract
involving a manufactured home purchase loan or combination loan and the sale of
the manufactured home by a dealer, the lender or its agent (other than a
manufactured home dealer) must conduct a site-of-placement inspection within 60
days after the date of the loan to verify that the terms and conditions of the
purchase contract have been met, the manufactured home and any options and
appurtenances included in the purchase price or financed with the loan have
been delivered and installed and the placement certificate executed by the
borrower and the dealer is in order.
Title I Underwriting Requirements. FHA Regulations require that,
before making a loan insured under the Title I Program, a Title I Lender
exercise prudence and diligence in determining whether the borrower and any
co-maker or co-signer is solvent and an acceptable credit risk with a
reasonable ability to make payments on the loan obligation. Prior to loan
approval, the Title I Lender is required to satisfy specified credit
underwriting requirements and to keep documentation supporting its credit
determination. As part of its credit underwriting, the Title I Lender must
obtain the following: (i) a dated credit application executed by the borrower,
any co-maker and any co-signer, (ii) written verification of current employment
and current income of the borrower and any co-maker or co-signer, (iii) a
consumer credit report stating the credit accounts and payment history of the
borrower and any co-maker or co-signer, (iv) on loans in excess of $5,000,
written evidence that the borrower is not over 30 days delinquent on any senior
lien instruments encumbering the improved property, (v) verification whether
the borrower is in default on any obligation owed to or insured or guaranteed
by the Federal Government and (vi) written verification of the source of funds
for any initial payment required of the borrower if such payment is in excess
of 5% of the loan. Before making a final credit determination, the lender is
required to conduct a face-to-face or telephone interview with the borrower and
any co-maker or co-signer to resolve any discrepancies in the information on
the credit application and to assure that the information is accurate and
complete. The Title I Lender's files must contain, among other things, the note
or other debt instrument, the lien instrument and a copy of the property
improvement contract (in the case of a dealer loan) or a detailed written
description of the work to be performed, the materials to be furnished and the
estimated cost (for a loan not involving a dealer or contractor).
The Title I Lender is required to satisfy itself that the borrower's
income is adequate to make the payments required under the loan and to pay the
borrower's housing and other recurring expenses. The borrower's housing and
other recurring expenses generally may not exceed a maximum percentage of gross
income as published from time to time in the Federal Register. The Title I
Lender is required to document any compensating factors that support the
approval of the loan if such expense-to-income ratios are not satisfied. A
Title I Lender is prohibited from approving a loan under the Title I Program
without the approval of the FHA if the lender has knowledge that the borrower
is past due more than 30 days under the original terms of an obligation owed to
or insured or guaranteed by the Federal Government or the borrower has made
material misstatements of fact on applications for loans or other assistance.
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UNDER THE TITLE I PROGRAM, THE FHA DOES NOT REVIEW OR APPROVE FOR
QUALIFICATION FOR INSURANCE THE INDIVIDUAL LOAN INSURED THEREUNDER AT THE TIME
OF APPROVAL BY THE LENDING INSTITUTION (AS IS TYPICALLY THE CASE WITH OTHER
FEDERAL LOAN INSURANCE PROGRAMS). If, after a loan has been made and reported
for insurance under the Title I Program, a Title I Lender discovers any
material misstatement of fact or that the loan proceeds have been misused by
the borrower, dealer or any other party, such Title I Lender is required
promptly to report such finding to the FHA. In such case, provided that the
validity of any lien on the property has not been impaired, the insurance of
the loan under the Title I Program will not be affected unless such material
misstatement of facts or misuse of loan proceeds was caused by (or was
knowingly sanctioned by) such Title I Lender or its employees.
Claims Procedures Under Title I. The term "default" is defined under
FHA Regulations as the failure of the borrower to make any payment due under
the note for a period of 30 days after such payment is due. The "date of
default" is considered to be the date 30 days after the borrower's first
failure to make an installment payment on the note that is not covered by
subsequent payments applied to overdue installments in the order they became
due. When a loan reported for insurance under the Title I Program goes into
default, a Title I Lender is required to contact the borrower and any co-maker
and co-signer by telephone or in person to determine the reasons for the
default and to seek a cure. If such Title I Lender is not able to effect a cure
after diligent efforts, it may provide the borrower with a notice of default
stating that the loan will be accelerated in 30 days if the loan is not brought
current or the borrower does not enter into a loan modification agreement or
repayment plan. The notice of default must meet certain requirements set forth
in the FHA Regulations and must conform to applicable state law provisions.
Such Title I Lender is permitted to rescind the acceleration of maturity of the
loan only if the borrower brings the loan current, executes a modification
agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity of a secured property improvement
loan, a Title I Lender has the option to proceed against the security or make a
claim under its contract of insurance. If a Title I Lender chooses to proceed
against the Secured Property under a security instrument (or if it accepts a
voluntary conveyance or surrender of the Secured Property), (i) the Title I
Lender must proceed against the loan security by foreclosure and acquire good,
marketable title to the property securing the loan and (ii) the Title I Lender
must take all actions necessary under applicable law to preserve its rights, if
any, to obtain a deficiency judgment against the borrower, provided however,
the Title I Lender may still file an FHA Insurance claim, but only with the
prior approval of the Secretary of HUD.
If a Title I Lender files an insurance claim with the FHA under the
Title I Program, the FHA reviews the claim, the complete loan file,
certification of compliance with applicable state and local laws in carrying
out any foreclosure or repossession, and where the borrower is in bankruptcy or
deceased, evidence that the lender has properly filed proofs of claims.
Generally, a Title I Lender must file its claim of insurance with the FHA not
later than nine months after the date of default. Concurrently with filing the
insurance claim, such Title I Lender is required to assign to the United States
of America it's entire interest in the note (or a judgment in lieu of the
note), in any securities held and in any claims filed in any legal proceedings.
If, at the time the note is assigned to the United States, the Secretary of HUD
has reason to believe that the note is not valid or enforceable against the
borrower, the FHA may deny the claim and reassign the note to the Title I
Lender. If either such defect is discovered after the FHA has paid a claim, the
FHA may require the Title I Lender to repurchase the paid claim and to accept
an assignment of the loan note. If the Title I Lender subsequently obtains a
valid and enforceable judgment against the borrower, it may resubmit a new
insurance claim with an assignment of the judgment. The FHA may contest any
insurance claim previously paid by it and make a demand for repurchase of the
loan with respect to which the claim was paid at any time up to two years from
the date the claim was certified for payment and may do so thereafter in the
event of fraud or misrepresentation on the part of the Title I Lender.
A claim for reimbursement of loss with respect to a loan eligible for
insurance under the Title I Program is required to be made on an FHA-approved
form executed by a duly qualified officer of the Title I Lender and must be
accompanied by copies of certain relevant documents and documentation specified
in the FHA Regulations to support the claim. The Title I Lender is required,
among other things, to document its efforts to effect recourse against any
dealer in accordance with any recourse agreement with such dealer. If the loan
is
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subject to an unsatisfied dealer recourse agreement claim, the Title I Lender
is also required to assign its rights under such recourse agreement. The FHA
has the right to deny any claim for insurance in whole or in part based upon a
violation of the FHA Regulations unless a waiver of compliance is granted. The
Title I Lender is permitted to appeal any such claim denial and resubmit the
claim within six months of the date of the claim denial, subject to a
reprocessing fee. The Pooling and Servicing Agreement provides that the Trustee
(or the Administrator) shall submit an FHA Claim with respect to any Title I
Mortgage Loan or Title I Contract that goes into default if the default cannot
be cured.
If, as a result of the delay in the transfer of the FHA Insurance
described above, FHA Insurance is not available with respect to any defaulted
Title I Mortgage Loan or Title I Contract at the time it goes into default,
then the amount required to make interest payments to the Certificateholders
with respect to the principal amount thereof, until such FHA Insurance becomes
available and a claim for insurance can be made, if at all, will be paid from
other amounts, if any, available in the Certificate Account.
No Rights of Certificateholders Against FHA. Because the Trust Fund
and the Certificateholders will not hold an FHA contract of insurance, the FHA
will not recognize the Trust Fund or the Certificateholders as the owners of
the Title I Mortgage Loans, Title I Contracts or any portion thereof, entitled
to submit FHA Claims to the FHA. Accordingly, the Trust Fund and the
Certificateholders will have no direct right to receive insurance payments from
the FHA. In the event the Trustee (or the Administrator, if any) submits an FHA
Claim to the FHA and the FHA approves payment of such FHA Claim, the related
FHA Insurance Proceeds will be payable only to the Trustee or to the
Administrator, if any, as agent and attorney-in-fact for the Trustee. The
Certificateholders' rights relating to the receipt of payment from and the
administration, processing and submissions of FHA Claims by the Trustee or the
Administrator, if any, are limited and governed by the related Pooling and
Servicing Agreement and FHA Claims Administration Agreement and these functions
are obligations of the Trustee and the Administrator, if any, not the FHA.
LEGAL INVESTMENT MATTERS
To the extent specified in the related Prospectus Supplement, the
Certificates of a Series will not constitute "mortgage related securities"
under the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") because a
substantial number of the Mortgage Loans are secured by liens on real estate
that are not first liens, as required by SMMEA. Accordingly, many institutions
with legal authority to invest in "mortgage related securities" may not be
legally authorized to invest in the Offered Certificates.
Institutions whose investment activities are subject to legal
investment laws or regulations or review by certain regulatory authorities may
be subject to restrictions on investment in certain Classes of the
Certificates. Any financial institution which is subject to the jurisdiction of
the Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation ("FDIC"), the Office of
Thrift Supervision ("OTS"), the National Credit Union Administration ("NCUA"),
or other federal or state agencies with similar authority should review any
applicable rules, guidelines and regulations prior to purchasing the
Certificates. The Federal Financial Institutions Examination Council, for
example, has issued a Supervisory Policy Statement on Securities Activities
effective February 10, 1992 (the "Policy Statement"). The Policy Statement has
been adopted by the Comptroller of the Currency, the Federal Reserve Board, the
FDIC, the OTS, and the NCUA (with certain modifications), with respect to the
depository institutions that they regulate. The Policy Statement prohibits
depository institutions from investing in certain "high-risk mortgage
securities" (including securities such as certain Classes of Certificates),
except under limited circumstances, and sets forth certain investment practices
deemed to be unsuitable for regulated institutions. The NCUA issued final
regulations effective December 2, 1991 that restrict and in some instances
prohibit the investment by federal credit unions in certain types of mortgage
related securities.
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 and provisions
which may restrict or prohibit
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investment in securities which are not "interest bearing" or "income paying",
or in securities which are issued in book-entry form.
Investors should consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Code impose requirements on employee benefit
plans (and on certain other retirement plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and collective
investment funds and separate accounts in which such plans, accounts or
arrangements are invested) (collectively, "Plans") subject to ERISA and Section
4975 of the Code and on persons who are fiduciaries with respect to such Plans.
Among other things, ERISA requires that the assets of Plans be held in trust
and that the trustee, or other duly authorized fiduciary, have exclusive
authority and discretion to manage and control the assets of such Plans. ERISA
also imposes certain duties on persons who are fiduciaries of Plans. Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a Plan is considered to be a
fiduciary of such Plan (subject to certain exceptions not here relevant). In
addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
("Prohibited Transactions") involving Plan assets and persons ("Parties in
Interest") having certain specified relationships to a Plan and imposes
additional prohibitions where Parties in Interest are fiduciaries with respect
to such Plan. Section 4975 of the Code provides many requirements and
prohibitions similar to those under ERISA and applies excise taxes on persons
engaged in Prohibited Transactions.
The United States Department of Labor (the "DOL") has issued
regulations concerning the definition of what constitutes the assets of a Plan
(DOL Reg. Section 2510.3-101, the "Plan Asset Regulations"). Under the Plan
Asset Regulations, the underlying assets and properties of corporations,
partnerships and certain other entities in which a Plan makes an "equity"
investment could be deemed for purposes of ERISA to be assets of the investing
Plan in certain circumstances. In such case, the fiduciary making such an
investment for the Plan could be deemed to have delegated his or her asset
management responsibility, and the underlying assets and properties could be
subject to ERISA reporting and disclosure. The Certificates of a Series will be
treated as "equity" for purposes of ERISA. Certain exceptions to the regulation
may apply in the case of a Plan's investment in the Certificates that
constitute "equity" investments, but the Depositor cannot predict in advance
whether such exceptions apply due to the factual nature of the conditions to be
met. Accordingly, because the Mortgage Loans or Agency Securities may be deemed
Plan assets of each Plan that purchases such Certificates, an investment in
such Certificates by a Plan might give rise to a prohibited transaction under
ERISA Sections 406 and 407 and be subject to an excise tax under Code Section
4975 unless a statutory or administrative exemption applies.
DOL Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1") exempts
from ERISA's prohibited transaction rules certain transactions relating to the
operation of residential mortgage pool investment trusts and the purchase, sale
and holding of "mortgage pool pass-through certificates" in the initial
issuance of such certificates. PTCE 83-1 permits, subject to certain
conditions, transactions which might otherwise be prohibited between Plans and
Parties in Interest with respect to those Plans involving the origination,
maintenance and termination of mortgage pools consisting of mortgage loans
secured by first or second mortgages or deeds of trust on single-family
residential property, and the acquisition and holding of certain mortgage pool
pass-through certificates representing an interest in such mortgage pools by
Plans.
PTCE 83-1 sets forth three general conditions which must be satisfied
for any transaction to be eligible for exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans and
property securing such loans, and for indemnifying certificateholders against
reductions in passthrough payments due to property damage or defaults in loan
payments in an amount not less than the greater of one percent of the aggregate
principal balance of all covered pooled mortgage loans or the principal balance
of the largest covered pooled mortgage loan; (ii) the existence of a pool
trustee who is not an affiliate of the pool sponsor; and (iii) a
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limitation on the amount of the payments retained by the pool sponsor, together
with other funds inuring to its benefit, to not more than adequate
consideration for selling the mortgage loans plus reasonable compensation for
services provided by the pool sponsor to the Mortgage Pool.
Although the Trustee for any series of Certificates will be
unaffiliated with the Depositor, there can be no assurance that the system of
insurance or subordination will meet the general or specific conditions
referred to above. In addition, the nature of a Trust Fund's assets or the
characteristics of one or more classes of the related series of Certificates
may not be included within the scope of PTCE 83-1 or any other class exemption
under ERISA. The Prospectus Supplement will provide additional information with
respect to the application of ERISA and the Code to the related Certificates.
Several underwriters of mortgage-backed securities have applied for
and obtained ERISA prohibited transactions exemptions which are in some
respects broader than PTCE 83-1. Such exemptions can only apply to
mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. Several other
underwriters have applied for similar exemptions. If such an exemption might be
applicable to a Series of Certificates, the related Prospectus Supplement will
refer to such possibility.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Certificates
must make its own determination as to whether the general and the specific
conditions of PTCE 83-1 have been satisfied, or as to the availability of any
other prohibited transaction exemptions. Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the Certificates is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
Any Plan proposing to invest in Certificates should consult with its
counsel to confirm that such investment will not result in a Prohibited
Transaction and will satisfy the other requirements of ERISA and the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates of any Series, 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 Andrews & Kurth L.L.P. ("Counsel to the
Depositor"). In connection with each Series of Certificates, Counsel to the
Depositor will issue an opinion with respect to the material tax aspects of
such Series, and the Depositor will cause such opinion to be timely filed with
the Commission as an exhibit to a Form 8-K. The discussion below does not
purport to address all federal income tax consequences that may be applicable
to particular categories of investors, some of which may be subject to special
rules. The authorities on which this discussion is based are subject to change
or differing interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the enactment of the Tax Reform Act of
1986 (the "1986 Act"), the Technical and Miscellaneous Revenue Act of 1988
("TAMRA") and the Revenue Reconciliation Act of 1993, as well as final Treasury
regulations concerning REMICs ("Final REMIC Regulations") promulgated by the
U.S. Department of the Treasury on December 23, 1992. Investors should consult
their own tax advisors in determining the federal, state, local and any other
tax consequences to them of the purchase, ownership and disposition of
Certificates, particularly with respect to federal income tax changes effected
by the 1986 Act, TAMRA and the Final REMIC Regulations. The Prospectus
Supplement for each series of Certificates will discuss any special tax
consideration applicable to any Class or Classes of Certificates of such
Series, and the discussion below is qualified by any such discussion in the
related Prospectus Supplement.
For purposes of this discussion, where the applicable Prospectus
Supplement provides for a fixed retained yield with respect to the Mortgage
Loans, Agency Securities or Contracts underlying a Series of Certificates,
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references to the Mortgage Loans, Agency Securities or Contracts will be deemed
to refer to that portion of the Mortgage Loans, Agency Securities or Contracts
held by the Trust Fund which does not include the fixed retained yield.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular Series of Certificates, an election may
be made to treat the Trust Fund or one or more segregated pools of assets
therein as one or more REMICs within the meaning of Code Section 860D. A Trust
Fund or a portion or portions thereof as to which a REMIC election will be made
will be referred to as a "REMIC Pool." For purposes of this discussion,
Certificates of a Series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more Classes of
"Regular Certificates" and one Class of "Residual Certificates" in the case of
each REMIC Pool. Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each Series of REMIC Certificates,
Counsel to the Depositor will give its opinion generally to the effect that,
assuming (i) the making of an appropriate election, (ii) compliance with the
Pooling and Servicing Agreement, and (iii) continuing compliance with the
applicable provisions of the Code, as it may be amended from time to time, and
any applicable Treasury regulations adopted thereunder, each REMIC Pool will
qualify as a REMIC. 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, subject to any qualifications set forth herein. In addition, Counsel
to the Depositor has prepared or reviewed the statements in this Prospectus
under the heading "Certain Federal Income Tax Consequences -- Federal Income
Tax Consequences for REMIC Certificates," and is 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. With respect to each Series of REMIC
Certificates, the Regular Certificates will be considered to be "regular
interests" in the REMIC Pool and generally will be treated for federal income
tax purposes as if they were newly originated debt instruments, and the
Residual Certificates will be considered to be "residual interests" in the
REMIC Pool. The Prospectus Supplement for each Series of Certificates will
indicate whether one or more REMIC elections with respect to the related Trust
Fund will be made, in which event references to "REMIC" or "REMIC Pool" herein
shall be deemed to refer to each such REMIC Pool. For purposes of this
discussion, to the extent specified herein or in the applicable Prospectus
Supplement, the term "Mortgage Loans" will be used to refer to Mortgage Loans,
Agency Securities and Contracts.
STATUS OF REMIC CERTIFICATES
REMIC Certificates held by a mutual savings bank or a domestic
building and loan association (a "Thrift Institution") will constitute
"qualifying real property loans" within the meaning of Code Section 593(d)(1)
in the same proportion that the assets of the REMIC Pool would be so treated.
REMIC Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the
REMIC Pool would be treated as "loans secured by an interest in real property"
within the meaning of Code Section 7701(a)(19)(C)(v) or as other assets
described in Code Section 7701(a)(19)(C). REMIC Certificates held by a real
estate investment trust (a "REIT") will constitute "real estate assets" within
the meaning of Code Section 856(c)(5)(A), and interest on the REMIC Certificates
will be considered "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Code Section
856(c)(3)(B) in the same proportion that, for both purposes, the assets of the
REMIC Pool would be so treated. However, if at all times 95% or more of the
assets of the REMIC Pool constitute qualifying assets for Thrift Institutions
and REITs, the REMIC Certificates will be
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treated entirely as qualifying assets for such entities (and the income will be
treated entirely as qualifying income). Moreover, the Final REMIC Regulations
provide that, for purposes of Code Sections 593(d)(1) and 856(c)(5)(A),
payments of principal and interest on the Mortgage Loans that are reinvested
pending distribution to holders of REMIC Certificates constitute qualifying
assets for such entities. Where two REMIC Pools are part of a tiered structure
they will be treated as one REMIC for purposes of the tests described above
respecting asset ownership of more or less than 95%. Notwithstanding the
foregoing, however, REMIC income received by a REIT owning a residual interest
in a REMIC Pool could be treated in part as non-qualifying REIT income if the
REMIC Pool holds Mortgage Loans with respect to which income is contingent on
borrower profits or property appreciation. In addition, if the assets of the
REMIC include buy-down Mortgage Loans, it is possible that the percentage of
such assets constituting "qualifying real property loans" or "loans secured by
an interest in real property" for purposes of Code Sections 593(d)(1) and
7701(a)(19)(C)(v), respectively, may be required to be reduced by the amount of
the related buy-down funds. REMIC Certificates held by a regulated investment
company will not constitute "Government securities" within the meaning of Code
Section 851(b)(4)(A)(i). REMIC Certificates held by certain financial
institutions will constitute an "evidence of indebtedness" within the meaning
of Code Section 582(c)(1). However, REMIC Regular Certificates acquired by
another REMIC on its Startup Day (as defined below) in exchange for regular or
residual interests in the REMIC will constitute "qualified mortgages" within
the meaning of Code Section 860G(a)(3). Qualification as a REMIC In order for
the REMIC Pool to qualify as a REMIC, there must be ongoing compliance on the
part of the REMIC Pool with the requirements set forth in the Code. The REMIC
Pool must fulfill an asset test, which requires that no more than a de minimis
amount of the assets of the REMIC Pool, as of the close of the third calendar
month beginning after the "Startup Day" (which for purposes of this discussion
is the date of issuance of the REMIC Certificates) and at all times thereafter,
may consist of assets other than "qualified mortgages" and "permitted
investments." The Final REMIC Regulations provide a "safe harbor" pursuant to
which the de minimis requirement will be met if at all times the aggregate
adjusted basis of any nonqualified assets (i.e., assets other than qualified
mortgages and permitted investments) is less than 1% of the aggregate adjusted
basis of all the REMIC Pool's assets.
If a REMIC Pool fails to comply with one or more of the requirements
of the Code for REMIC status during any taxable year, the REMIC Pool will not
be treated as a REMIC for such year and thereafter. In this event, the
classification of the REMIC for federal income tax purposes is uncertain. The
REMIC Pool might be entitled to treatment as a grantor trust under the rules
described in "-- Federal Income Tax Consequences for Certificates as to Which
No REMIC Election Is Made" herein. In that case, no entity-level tax would be
imposed on the REMIC Pool. Alternatively, the Regular Certificates may continue
to be treated as debt instruments for federal income tax purposes; but the
REMIC Pool could be treated as a taxable mortgage pool (a "TMP"). If the REMIC
Pool is treated as a TMP, any residual income of the REMIC Pool (i.e., income
from the Mortgage Loans less interest and original issue discount expense
allocable to the Regular Certificates and any administrative expenses of the
REMIC Pool) would be subject to corporate income tax at the REMIC Pool level.
On the other hand, an entity with multiple classes of ownership interests may
be treated as a separate association taxable as a corporation under Treasury
regulations, and the Regular Certificates may be treated as equity interests
therein. The Code, however, authorizes the Treasury Department to issue
regulations that address situations where failure to meet one or more of the
requirements for REMIC status occurs inadvertently and in good faith, and
disqualification of the REMIC Pool would occur absent regulatory relief.
Investors should be aware, however, that the Conference Committee Report to the
1986 Act (the "Committee Report") indicates that the relief may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion of
the REMIC Pool's income for the period of time in which the requirements for
REMIC status are not satisfied.
TAXATION OF REGULAR CERTIFICATES
General. Payments received by holders of Regular Certificates
generally should be accorded the same tax treatment under the Code as payments
received on ordinary taxable corporate debt instruments. In general, interest,
original issue discount and market discount on a Regular Certificate will be
treated as ordinary income to a holder of the Regular Certificate (the "Regular
Certificateholder") as they accrue, and principal payments on a Regular
Certificate will be treated as a return of capital to the extent of the Regular
Certificateholder's basis in the Regular Certificate allocable thereto. Regular
Certificateholders must use the accrual method of accounting
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with regard to Regular Certificates, regardless of the method of accounting
otherwise used by such Regular Certificateholders.
Original Issue Discount. Regular Certificates may be issued with
"original issue discount" within the meaning of Code Section 1273(a). Holders
of any class of Regular Certificates having original issue discount generally
must include original issue discount in ordinary income for federal income tax
purposes as it accrues, in accordance with a constant interest method that
takes into account the compounding of interest, in advance of receipt of the
cash or a portion of the cash attributable to such income. Based in part on
Treasury regulations issued on January 27, 1994 under Code Sections 1271
through 1273 and 1275 (the "OID Regulations") and in part on the provisions of
the 1986 Act, the Depositor anticipates that the amount of original issue
discount required to be included in a Regular Certificateholder's income in any
taxable year will be computed in a manner substantially as described below. In
general the OID Regulations apply to debt instruments issued on or after April
4, 1994, except that taxpayers may rely on the OID Regulations for debt
instruments issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority upon for instruments issued before December 21, 1992. Regular
Certificateholders should be aware, however, that the OID Regulations either do
not address, or are subject to varying interpretations with regard to, several
issues relevant to securities, such as the Regular Certificates, that are
subject to prepayment. The 1986 Act requires that the amount and rate of
accrual or original issue discount be calculated based on a reasonable assumed
prepayment rate for the Mortgage Loans in a manner prescribed by regulations
not yet issued ("Prepayment Assumption") and provides for adjusting the amount
and rate of accrual of such discount where the actual prepayment rate differs
from the Prepayment Assumption. The Committee Report indicates that the
regulations will require that the Prepayment Assumption be the prepayment
assumption that is used in determining the initial offering price of such
Certificates. The Prospectus Supplement for each Series of such Certificates
will specify the Prepayment Assumption determined by the Depositor for the
purposes of determining the amount and rate of accrual of original issue
discount. No representation is made that the Certificates will prepay at the
Prepayment Assumption or at any other rate. Moreover, the OID Regulations
include an anti-abuse rule allowing the Internal Revenue Service ("IRS") to
apply or depart from the OID Regulations where necessary or appropriate to
ensure a reasonable tax result in light of the applicable statutory provisions.
A tax result will not be considered unreasonable under the anti-abuse rule in
the absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion herein and the appropriate method for reporting interest and
original issue discount with respect to the Regular Certificates.
Under the OID Regulations, each Regular Certificate (except to the
extent described below with respect to a Regular Certificate on which
distributions of principal are made in a single installment or upon an earlier
distribution by lot of a specified principal amount upon the request of a
Regular Certificateholder or by random lot (a "Retail Class Certificate")) will
be treated as a single installment obligation for purposes of determining the
original issue discount includible in a Regular Certificateholder's income. The
total amount of original issue discount on a Regular Certificate is the excess
of the "stated redemption price at maturity" of the Regular Certificate over
its "issue price." The issue price of a Regular Certificate is the first price
at which a substantial amount of Regular Certificates of that class are first
sold (other than to bond houses, brokers, underwriters and wholesalers). Unless
specified otherwise in the Prospectus Supplement, the Depositor will determine
original issue discount by including the amount paid by an initial Regular
Certificateholder for accrued interest that relates to a period prior to the
issue date of the Regular Certificate in the issue price of a Regular
Certificate and will include in the stated redemption price at maturity any
interest paid on the first Distribution Date to the extent such interest is
attributable to a period in excess of the number of days between the issue date
and such first Distribution Date. The stated redemption price at maturity of a
Regular Certificate always includes the original principal amount of the
Regular Certificate, but generally will not include distributions of stated
interest if such interest distributions constitute "qualified stated interest."
Under the OID Regulations, qualified stated interest generally means stated
interest that is unconditionally payable in cash or in property (other than
debt instruments of the issuer), or that will be constructively received, at
least annually at a single fixed rate. Special rules apply for variable rate
Regular Certificates as described below. Any stated interest in excess of the
qualified stated
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interest is included in the stated redemption price at maturity. If the amount
of original issue discount is "de minimis" as described below, the amount of
original issue discount is treated as zero, and all stated interest is treated
as qualified stated interest. Distributions of interest on Regular Certificates
with respect to which deferred interest will accrue may not constitute
qualified stated interest, in which case the stated redemption price at
maturity of such Regular Certificates includes all distributions of interest as
well as principal thereon. Moreover, if the interval between the issue date and
the first Distribution Date on a Regular Certificate is longer than the
interval between subsequent Distribution Dates (and interest paid on the first
Distribution Date is less than would have been earned if the stated interest
rate were applied to outstanding principal during each day in such interval),
the stated interest distributions on such Regular Certificate technically do
not constitute qualified stated interest. The OID Regulations provide that in
such case a special rule, applying solely for the purpose of determining
whether original issue discount is de minimis, provides that the interest
shortfall for the long first period (i.e., the interest that would have been
earned if interest had been paid on the first Distribution Date for each day
the Regular Certificate was outstanding) is treated as original issue discount
assuming the stated interest would otherwise be qualified stated interest. Also
in such case the stated redemption price at maturity is treated as equal to the
issue price plus the greater of the amount of foregone interest or the excess,
if any, of the Certificate's stated principal amount over its issue price. The
OID Regulations indicate that all interest on a long first period Regular
Certificate that is issued with non-de minimis original issue discount will be
included in the Regular Certificate's stated redemption price at maturity.
Regular Certificateholders should consult their own tax advisors to determine
the issue price and stated redemption price at maturity of a Regular
Certificate.
Under a de minimis rule, original issue discount on a Regular
Certificate will be considered to be zero if such original issue discount is
less than 0.25% of the stated redemption price at maturity of the Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate. For this purpose, the weighted average maturity of the Regular
Certificate is computed as the sum of the amounts determined by multiplying the
number of full years (i.e., rounding down partial years) from the issue date
until each distribution in reduction of stated redemption price at maturity is
scheduled to be made by a fraction, the numerator of which is the amount of
each distribution included in the stated redemption price at maturity of the
Regular Certificate and the denominator of which is the stated redemption price
at maturity of the Regular Certificate. Although currently unclear, it appears
that the schedule of such distributions should be determined in accordance with
the Prepayment Assumption. In addition, if the original issue discount is de
minimis all stated interest (including stated interest that would otherwise be
treated as original issue discount) is treated as qualified stated interest.
Unless the Holder of a Regular Certificate elects to accrue all discount under
a constant yield to maturity method, as described below, the holder of a debt
instrument includes any de minimis original issue discount in income pro rata
as capital gain recognized on retirement of the Regular Certificate as stated
principal payments are received. If a subsequent Holder of a Regular
Certificate issued with de minimis original issue discount purchases the
Regular Certificate at a premium, the subsequent Holder does not include any
original issue discount in income. If a subsequent Holder purchases such
Regular Certificate at a discount all discount is reported as market discount,
as described below.
Of the total amount of original issue discount on a Regular
Certificate, the Regular Certificateholder generally must include in gross
income for any taxable year the sum of the "daily portions," as defined below,
of the original issue discount on the Regular Certificate accrued during an
accrual period for each day on which he holds the Regular Certificate,
including the date of purchase but excluding the date of disposition. Although
not free from doubt, the Depositor intends to treat the monthly period ending
on the day before each Distribution Date as the accrual period, rather than the
monthly period corresponding to the prior calendar month. With respect to each
Regular Certificate, a calculation will be made of the original issue discount
that accrues during each successive full accrual period (or shorter period from
the date of original issue) that ends on the day before the related
Distribution Date for the Regular Certificate. The original issue discount
accruing in a full accrual period would be the excess, if any, of (i) the sum
of (a) the present value of all of the remaining distributions to be made on
the Regular Certificate as of the end of that accrual period that are included
in the Regular Certificate's stated redemption price at maturity and (b) the
distributions made on the Regular Certificate during the accrual period that
are included in the Regular Certificate's stated redemption price at maturity,
over (ii) the adjusted issue price of the Regular Certificate at the beginning
of the accrual period. The present value of the
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remaining distributions referred to in the preceding sentence is calculated
based on (i) the yield to maturity of the Regular Certificate at the issue date
giving the effect to the Prepayment Assumption, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period and
(iii) the Prepayment Assumption. The effect of these rules is to adjust the
rate of original issue discount accrual to correspond to the actual prepayment
experience. For these purposes, the adjusted issue price of a Regular
Certificate at the beginning of any accrual period equals the issue price of
the Regular Certificate, increased by the aggregate amount of original issue
discount with respect to the Regular Certificate that accrued in all prior
accrual periods and reduced by the amount of distributions included in the
Regular Certificate's stated redemption price at maturity that were made on the
Regular Certificate in such prior periods. The original issue discount accruing
during any accrual period (as determined in this paragraph) will then be
divided by the number of days in the period to determine the daily portion of
original issue discount for each day in the period. With respect to an initial
accrual period shorter than a full accrual period, the daily portions of
original issue discount must be determined using a reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. To the
extent specified in the applicable Prospectus Supplement, an increase in
prepayments on the Mortgage Loans with respect to a Series of Regular
Certificates can result in both a change in the priority of principal payments
with respect to certain Classes of Regular Certificates and either an increase
or decrease in the daily portions of original issue discount with respect to
such Regular Certificates.
In the case of a Retail Class Certificate, the yield to maturity of
such Certificate will be determined based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Retail Class Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution of the entire
principal amount of any Retail Class Certificate (or portion thereof), (a) the
remaining unaccrued original issue discount allocable to such Certificate (or
to such portion) will accrue at the time of such distribution, and (b) the
accrual of original issue discount allocable to each remaining Certificate of
such Class (or the remaining principal amount of a Retail Class Certificate
after a distribution in reduction of a portion of its principal amount has been
received) will be adjusted by reducing the present value of the remaining
payments on such Class and the adjusted issue price of such Class to the extent
attributable to the portion of the principal amount thereof that was
distributed.
A subsequent holder of a Certificate issued with original issue
discount who purchases the Certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of original issue discount on the Certificate. In
computing the daily portions of original issue discount for a subsequent
purchaser (as well as an initial purchaser who purchases a Certificate at a
price higher than the issue price but less than the stated redemption price at
maturity), however, the daily portion for any day is reduced by the amount that
would be the daily portion for such day (computed in accordance with the rules
set forth above) multiplied by a fraction, the numerator of which is the
amount, if any, by which the price paid by such purchaser for the Regular
Certificate exceeds the excess of (i) the sum of its issue price and the
aggregate amount of original issue discount that would have been includible in
the gross income of an original holder of the Regular Certificate who purchased
the Regular Certificate at its issue price, over (ii) the amount of any prior
distributions included in the stated redemption price at maturity, and the
denominator of which is the sum of the daily portions for such Regular
Certificate (computed in accordance with the rules set forth above) for all
days beginning on the date after the date of purchase and ending on the date on
which the remaining principal amount of such Regular Certificate is expected to
be reduced to zero under the Prepayment Assumption. Alternatively, such a
subsequent holder may accrue original issue discount by treating the purchase
as a purchase at original issuance and applying the constant yield to maturity
method.
The OID Regulations provide that a holder that acquires a Regular
Certificate on or after April 4, 1994 may elect to include in gross income all
stated interest, original issue discount, de minimis original issue discount,
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market discount (as described below under "-- Market Discount"), de minimis
market discount and unstated interest (as adjusted for any amortizable bond
premium or acquisition premium) currently as it accrues using the constant
yield to maturity method. If such an election were made with respect to a
Regular Certificate with market discount, the Regular Certificateholder would
be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such Regular Certificateholder acquires during the year of the election or
thereafter. Similarly, a Regular Certificateholder that makes this election for
a Regular Certificate that is acquired at a premium will be deemed to have made
an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such Regular Certificateholder owns or
acquires. The election to accrue interest, discount and premium on a constant
yield method with respect to a Regular Certificate can not be revoked without
the consent of the IRS.
Regular Certificates may provide for interest based on a variable
rate. The OID Regulations provide special rules for variable rate instruments
that meet four requirements. First, the issue price must not exceed the
noncontingent principal payments by more than the lesser of (i) 1.5% of the
product of the noncontingent principal payments and the weighted average
maturity or (ii) 15% of the noncontingent principal payments. Second, the
instrument must provide for stated interest (compounded or paid at least
annually) at (i) one or more qualified floating rates, (ii) a single fixed rate
and a single objective rate that is a qualified inverse floating rate, (iii) a
single fixed rate and one or more qualified floating rates; or (iv) a single
objective rate. Third, the instrument must provide that each qualified floating
rate or objective rate in effect during the term of the Regular Certificate is
set at a current value of that rate (one occurring in the interval beginning
three months before and ending one year after the rate is first in effect on
the Regular Certificate). Fourth, the debt instrument must not provide for
contingent principal payments. If interest on a Regular Certificate is stated
at a fixed rate for an initial period of less than 1 year followed by a
variable rate that is either a qualified floating rate or an objective rate and
the value of the variable rate on the issue date is intended to approximate the
fixed rate, the fixed rate and the variable rate together constitute a single
qualified floating rate or objective rate. A rate is a qualified floating rate
if variations in the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the Regular Certificate's
currency denomination. A multiple of a qualified floating rate is not a
qualified floating rate unless it is a rate equal to (i) the product of a
qualified floating rate as described in the previous sentence and a positive
number not greater than 1.35 (but greater than 0.65 for instruments issued on
or after August 13, 1996), or (ii) a product described in (i) increased or
decreased by a fixed rate. A variable rate is not a qualified floating rate if
it is subject to a cap, floor or a restriction on the amount of increase or
decrease in stated interest rate (governor) unless: (i) the cap, floor or
governor is fixed throughout the Regular Certificate's term, (ii) the cap or
floor is not reasonably expected to cause the yield on the Regular Certificate
to be significantly less or more, respectively, than the expected yield without
the cap or floor, or (iii) the governor is not reasonably expected to cause the
yield to be significantly more or less than the expected yield without the
governor. Before August 13,1996, an objective rate is a rate that is determined
using a single fixed formula and is based on (i) the yield or changes in price
of actively traded personal property, (ii) one or more qualified floating
rates, (iii) a rate that would be a qualified rate if the Regular Certificate
were denominated in another currency or (iv) a combination of such rates. For
instruments issued on or after August 13, 1996, an objective rate is a rate
(other than a qualified floating rate) that is determined using a single fixed
formula and that is based on objective financial or economic information. An
objective rate is a qualified inverse floating rate if the rate is equal to a
fixed rate minus a qualified floating rate in which the variations of such rate
can reasonably be expected to inversely reflect contemporaneous variations in
the qualified floating rate. However, a variable rate is not an objective rate
if it is reasonably expected that the average value of the rate during the
first half of the Regular Certificate's term will be significantly less or
greater than the average value of the rate during the final half of the Regular
Certificate's term.
If a variable rate Regular Certificate provides for stated interest at
a single qualified floating rate or objective rate that is unconditionally
payable in cash or property at least annually (i) all stated interest is
qualified stated interest, (ii) the amount of qualified stated interest and
original issue discount, if any, that accrues is determined as if the Regular
Certificate had a fixed rate equal to (A) in the case of a qualified floating
rate or qualified inverse floating rate, the value on the issue date of the
qualified floating rate or qualified inverse floating rate or (B) in the case
of any other objective rate, a fixed rate that reflects the yield that is
reasonably expected
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for the Regular Certificate and (iii) the qualified stated interest that
accrues is adjusted for the interest actually paid. If a variable rate Regular
Certificate is not described in the previous sentence, the Regular Certificate
is treated as a fixed rate Regular Certificate with a fixed rate substitute or
substitutes equal to the value of the qualified floating rates or qualified
inverse floating rate at the date of issue or, in the case of a Regular
Certificate having an objective rate at a fixed rate that reflects the yield
reasonably expected for the Regular Certificate. Qualified stated interest or
original issue discount allocable to an accrual period is adjusted to reflect
differences in the interest actually accrued or paid compared to the interest
accrued or paid at the fixed rate substitute. If a variable rate Regular
Certificate provides for stated interest either at one or more qualified
floating rates or at a qualified inverse floating rate and also provides for
interest at an initial fixed rate that is not intended to approximate the
related floating rate or is fixed for a period of one year or more, original
issue discount is determined as described in the previous two sentences except
that the Regular Certificate is treated as if it provided for a qualified
floating rate or qualified inverse floating rate, as applicable, rather than a
fixed rate. The substitute rate must be one such that the fair market value of
the Regular Certificate would be approximately the same as the fair market
value of the hypothetical certificate.
Under the OID Regulations, a variable rate Regular Certificate not
qualifying for treatment under the variable rate rules described above is
subject to the contingent payment rules. Treasury regulations dealing with
contingent payment debt obligations were issued June 11, 1996 (the "Contingent
Debt Regulations"), and are generally effective August 13, 1996. The Contingent
Debt Regulations by their terms do not apply to REMIC regular interests.
However, the following paragraph describes the applicable Contingent Debt
Regulations as a method that may be considered reasonable.
The Contingent Debt Regulations apply a "noncontingent bond method" to
a debt instrument that is publicly traded or that is issued for cash or
publicly traded property. Under the noncontingent bond method, the issuer is
required to determine the comparable yield for the instrument and to construct
a projected payment schedule for the debt instrument consisting of all
noncontingent payments and a projected amount for each contingent payment. The
issuer is required to determine interest expense, and a holder is required to
determine interest income, according to the projected payment schedule
formulated by the issuer. Interest generally is accrued under the noncontingent
bond method according to generally applicable rules of the OID Regulations as
described above. Adjustments in the instrument's issue price and the holder's
basis are determined as if the projected payment schedule were the actual
payment schedule for the instrument. If the actual amount of a contingent
payment differs from the projected amount of the payment, adjustments to
interest accrual are generally taken into account at the time the payment is
made in order to reflect this difference. Gain or loss recognized by a holder
on the sale, exchange, or retirement of the instrument generally will be
treated as interest income or ordinary loss to the holder. A loss will be
treated as ordinary, however, only up to the amount of the holder's total
interest inclusions with respect to the Regular Certificate that were not
offset by previous adjustments. Any additional loss generally will be a capital
loss. Investors are urged to consult their tax advisors as to the proper
accrual of original issue discount (including stated interest) on the Regular
Certificates, including Regular Certificates which may be subject to the
contingent payment rules.
Although unclear at present, the Depositor intends to treat
Certificates bearing an interest rate that is a weighted average of the net
interest rates on the Mortgage Loans or the mortgage loans underlying the
Mortgage Assets as having qualified stated interest if the Mortgage Loans or
the underlying mortgage loans are adjustable rate mortgage loans. In such case,
the applicable index used to compute interest on the Mortgage Loans in effect
on the issue date (or possibly the pricing date) will be deemed to be in effect
beginning with the period in which the first weighted average adjustment date
occurring after the issue date occurs. If the Certificate interest rate for one
or more periods is less than it would be based upon the fully indexed rate, the
excess of the interest payments projected at the assumed index over interest
projected at such initial rate will be tested under the de minimis rules as
described above. Adjustments will be made in each accrual period increasing or
decreasing the amount of ordinary income reportable to reflect the actual
interest rate on the Certificates. It is possible, however, that the IRS may
treat some or all of the interest on Certificates with a weighted average rate
as taxable under the rules relating to obligations providing for contingent
payments. Such treatment may affect the timing of income accruals on such
Certificates.
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It is not clear how income should be accrued with respect to Regular
Certificates issued at a significant premium and with respect to REMIC
Certificates, the payments on which consist primarily of a specified portion of
the interest payments on qualified mortgages held by the REMIC ("Premium REMIC
Regular Certificates"). One method of income accrual would be to treat the
Premium REMIC Regular Certificate as a Certificate having qualified stated
interest purchased at a premium equal to the excess of the price paid by such
holder for the Premium REMIC Regular Certificate over its stated principal
amount. Under this approach, a holder would be entitled to amortize such
premium only if it has in effect an election under Section 171 of the Code with
respect to all bonds held by such holder, as described below. Alternatively,
all of the income derived from a Premium REMIC Regular Certificate could be
reported as original issue discount by treating all future payments under the
Prepayment Assumption as fixed payments, in which case the amount and rate of
accrual of original issue discount would be computed by treating the Premium
REMIC Regular Certificate as a Certificate which has no qualified stated
interest, as described above. Finally, the IRS could assert that the Premium
REMIC Regular Certificates should be taxable under the contingent payment rules
governing securities issued with contingent payments.
Market Discount. A purchaser of a Regular Certificate also may be
subject to the market discount rules of Code Sections 1276 through 1278. Under
these sections and the principles applied by the OID Regulations in the context
of original issue discount, "market discount" is the amount by which a
subsequent purchaser's initial basis in the Regular Certificate (i) is exceeded
by the stated redemption price at maturity of the Regular Certificate or (ii)
in the case of a Regular Certificate having original issue discount, is
exceeded by the sum of the issue price of such Regular Certificate plus any
original issue discount that would have previously accrued thereon if held by
an original Regular Certificateholder (who purchased the Regular Certificate at
its issue price), in either case less any prior distributions included in the
stated redemption price at maturity of such Regular Certificate. Such purchaser
generally will be required to recognize accrued market discount as ordinary
income as distributions includible in the stated redemption price at maturity
of such Regular Certificate are received, in an amount not exceeding any such
distribution. That recognition rule would apply regardless of whether the
purchaser is a cash-basis or accrual-basis taxpayer. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take into
account the Prepayment Assumption. The Committee Report provides that until
such regulations are issued, such market discount would accrue either (i) on
the basis of a constant interest rate or (ii) in the ratio of stated interest
allocable to the relevant period to the sum of the interest for such period
plus the remaining interest as of the end of such period, or in the case of a
Regular Certificate issued with original issue discount, in the ratio of
original issue discount accrued for the relevant period to the sum of the
original issue discount accrued for such period plus the remaining original
issue discount as of the end of such period. Such purchaser also generally will
be required to treat a portion of any gain on a sale or exchange of the Regular
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 as partial distributions
in reduction of the stated redemption price at maturity were received. Such
purchaser will be required to defer the deduction of a portion of the excess of
the interest paid or accrued on indebtedness incurred to purchase or carry a
Regular Certificate over the interest distributable thereon. The deferred
portion of such interest expense in any taxable year generally will not exceed
the accrued market discount on the Regular Certificate for such year. Any such
deferred interest expense is, in general, allowed as a deduction not later than
the year in which the related market discount income is recognized or the
Regular Certificate is disposed of. As an alternative to the inclusion of
market discount in income on the foregoing basis, the Regular Certificateholder
may elect to include market discount in income currently as it accrues on all
market discount instruments acquired by such Regular Certificateholder in that
taxable year or thereafter, in which case the interest deferral rule will not
apply. In Revenue Procedure 92-67, the IRS set forth procedures for taxpayers
(1) electing under Section 1278(b) of the Code to include market discount in
income currently, (2) electing under rules of Section 1276(b) of the Code to
use a constant interest rate to determine accrued market discount on a security
where the holder of the security is required to determine the amount of accrued
market discount at a time prior to the holder's disposition of the security,
and (3) requesting consent to revoke an election under Section 1278(b) of the
Code.
By analogy to the OID Regulations, market discount with respect to a
Regular Certificate will be considered to be zero if such market discount is
less than 0.25% of the remaining stated redemption price at
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maturity of such Regular Certificate multiplied by the weighted average
maturity of the Regular Certificate (determined as described above under "--
Original Issue Discount") remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been issued,
and therefore investors should consult their own tax advisors regarding the
application of these rules as well as the advisability of making any of the
elections with respect thereto.
Premium. A Regular Certificate purchased at a cost greater than its
remaining stated redemption price at maturity generally is considered to be
purchased at a premium. If the Regular Certificateholder holds such Regular
Certificate as a "capital asset" within the meaning of Code Section 1221, the
Regular Certificateholder may elect under Code Section 171 to amortize such
premium under a constant yield method that reflects compounding based on the
interval between payments on the Regular Certificates. The Committee Report
indicates a Congressional intent that the same rules that apply to the accrual
of market discount on installment obligations will also apply to amortizing
bond premium under Code Section 171 on installment obligations such as the
Regular Certificates, although it is unclear whether the alternatives to the
constant interest method described above under "-- Market Discount" are
available. Except as otherwise provided in Treasury regulations yet to be
issued, such amortizable bond premium will be treated as an offset to interest
income on a Regular Certificate rather than as a separate deduction item. This
election, once made, applies to all taxable obligations held by the taxpayer at
the beginning of the first taxable year to which such election applies and to
all taxable debt obligations thereafter acquired and is binding on such
taxpayer in all subsequent years. Purchasers who pay a premium for their
Regular Certificates should consult their tax advisors regarding the election
to amortize premium and the method to be employed.
Sale or Exchange of Regular Certificates. If a Regular
Certificateholder sells or exchanges a Regular Certificate, the Regular
Certificateholder will recognize gain or loss equal to the difference, if any,
between the amount received and his adjusted basis in the Regular Certificate.
The adjusted basis of a Regular Certificate generally will equal the cost of
the Regular Certificate to the seller, increased by any original issue discount
or market discount previously included in the seller's gross income with
respect to the Regular Certificate and reduced by amounts included in the
stated redemption price at maturity of the Regular Certificate that were
previously received by the seller and by any amortized premium.
Except as described in this paragraph, under "Original Issue Discount"
and under "-- Market Discount," any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term or
short-term depending on whether the Regular Certificate has been held for the
long-term capital gain holding period (currently more than one year). Gain from
the disposition of a Regular Certificate that might otherwise be capital gain
will be treated as ordinary income (i) if a Regular Certificate is held as part
of a "conversion transaction" as defined in Code Section 1258(c), up to the
amount of interest that would have accrued on the Regular Certificateholder's
net investment in the conversion transaction at 120% of the appropriate
applicable Federal rate under Code Section 1274(d) in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as part of such transaction, (ii) in the case of a noncorporate taxpayer, to
the extent such taxpayer has made an election under Code Section 163(d)(4) to
have net capital gains taxed as investment income at ordinary income rates, or
(iii) in the case of a Regular Certificate (issued by a REMIC) to the extent
that such gain does not exceed the excess, if any, of (a) the amount that would
have been includible in the gross income of the holder if his yield on such
Regular Certificate were 110% of the applicable Federal rate under Code Section
1274(d) as of the date of purchase, over (b) the amount of income actually
includible in the gross income of such holder with respect to the Regular
Certificate. Although the legislative history to the 1986 Act indicates that
the portion of the gain from disposition of a Regular Certificate that will be
recharacterized as ordinary income under clause (iii) is limited to the amount
of original issue discount (if any) on the Regular Certificate that was not
previously includible in income, the applicable Code provision contains no such
limitation. In addition, gain or loss recognized from the sale of a Regular
Certificate by certain banks or thrift institutions will be treated as ordinary
income or loss pursuant to Code Section 582(c). In the case of a Regular
Certificate subject to the new contingent payment rules issued on January 19,
1993 as
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described above under "-- Original Issue Discount," any gain on the sale or
exchange of such Certificate is treated as interest income.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income. Generally, the "daily portions" of REMIC
taxable income or net loss will be includible as ordinary income or loss in
determining the federal taxable income of holders of Residual Certificates
("Residual Certificateholders"), and will not be taxed separately to the REMIC
Pool. The daily portions of REMIC taxable income or net loss of a Residual
Certificateholder are determined by allocating the REMIC Pool's taxable income
or net loss for each calendar quarter ratably to each day in such quarter and
by allocating such daily portion among the Residual Certificateholders in
proportion to their respective holdings of Residual Certificates in the REMIC
Pool on such day. REMIC taxable income is generally determined in the same
manner as the taxable income of an individual using a calendar year and the
accrual method of accounting, except that (i) the limitation on deductibility
of investment interest expense and expenses for the production of income do not
apply, (ii) all bad loans will be deductible as business bad debts and (iii)
the limitation on the deductibility of interest and expenses related to
tax-exempt income will apply. REMIC taxable income generally means the REMIC
Pool's gross income, including interest, original issue discount income and
market discount income, if any, on the Mortgage Loans, plus income on
reinvestment of cash flows and reserve assets, minus deductions, including
interest and original issue discount expense on the Regular Certificates,
servicing fees on the Mortgage Loans and other administrative expenses of the
REMIC Pool, amortization of premium, if any, with respect to the Mortgage
Loans, and any tax imposed on the REMIC's income from foreclosure property. The
requirement that Residual Certificateholders report their pro rata share of
taxable income or net loss of the REMIC Pool will continue until there are no
Certificates of any Class of the related Series outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and original issue discount or market
discount income or amortization of premium with respect to the Mortgage Loans,
on the one hand, and the timing of deductions for interest (including original
issue discount) on the Regular Certificates, on the other hand. Because of the
way REMIC taxable income is calculated, a Residual Certificateholder may
recognize "phantom" income (i.e., income recognized for tax purposes in excess
of income as determined under financial accounting or economic principles)
which will be matched in later years by a corresponding tax loss or reduction
in taxable income, but which could lower the yield to Residual
Certificateholders due to the lower present value of such loss or reduction.
For example, if an interest in the Mortgage Loans is acquired by the REMIC Pool
at a discount, and one or more of such Mortgage Loans is prepaid, the Residual
Certificateholder may recognize taxable income without being entitled to
receive a corresponding amount of cash because (i) the prepayment may be used
in whole or in part to make distributions in reduction of principal on the
Regular Certificates and (ii) the discount income on the Mortgage Loans which
is includible in the REMIC's taxable income may exceed the interest and
discount deduction allowed to the REMIC upon such distributions on the Regular
Certificates. When there is more than one class of Regular Certificates that
distribute principal sequentially, this mismatching of income and deductions is
particularly likely to occur in the early years following issuance of the
Regular Certificates when distributions in reduction of principal are being
made in respect of earlier maturing classes of Regular Certificates to the
extent that such classes are not issued with substantial discount. If taxable
income attributable to such a mismatching is realized, in general, losses would
be allowed in later years as distributions on the later classes of Regular
Certificates are made. Taxable income may also be greater in earlier years than
in later years as a result of the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of such a Series
of Regular Certificates, may increase over time as distributions in reduction
of principal are made on the lower yielding classes of Regular Certificates,
whereas interest income with respect to any given Mortgage Loan will remain
constant over time as a percentage of the outstanding principal amount of that
loan. Consequently, Residual Certificateholders must have sufficient other
sources of cash to pay any federal, state or local income taxes due as a result
of such mismatching or unrelated deductions against which to offset such
income. Prospective investors should be aware, however, that a portion of such
income may be ineligible for offset by such investor's unrelated deductions.
See the discussion of "excess inclusions" below under "-- Treatment of Certain
Items of REMIC Income and Expense -- Limitations on Offset or Exemption of
REMIC
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Income; Excess Inclusions." The timing of such mismatching of income and
deductions described in this paragraph, if present with respect to a Series of
Certificates, may have a significant adverse effect upon the Residual
Certificateholder's after-tax rate of return. In addition, a Residual
Certificateholder's taxable income during certain periods may exceed the income
reflected by such Residual Certificateholder for such periods in accordance
with generally accepted accounting principles. Investors should consult their
own advisors concerning the proper tax and accounting treatment of their
investment in Residual Certificates.
Basis and Losses. The amount of any net loss of the REMIC Pool that
may be taken into account by the Residual Certificateholder is limited to the
adjusted basis of the Residual Certificate as of the close of the quarter (or
time of disposition of the Residual Certificate if earlier), determined without
taking into account the net loss for the quarter. The initial adjusted basis of
a purchaser of a Residual Certificate is the amount paid for such Residual
Certificate. Such adjusted basis will be increased by the amount of taxable
income of the REMIC Pool reportable by the Residual Certificateholder and
decreased by the amount of loss of the REMIC Pool reportable by the Residual
Certificateholder. A cash distribution from the REMIC Pool also will reduce
such adjusted basis (but not below zero). Any loss that is disallowed on
account of this limitation may be carried over indefinitely with respect to the
Residual Certificateholder as to whom such loss was disallowed and may be used
by such Residual Certificateholder only to offset any income generated by the
same REMIC Pool. The ability of a Residual Certificateholder to deduct net
losses with respect to a Residual Certificate may be subject to additional
limitations under the Code, as to which Residual Certificateholders should
consult their tax advisors.
A Residual Certificateholder will not be permitted to amortize
directly the cost of its Residual Certificate as an offset to its share of the
taxable income of the related REMIC Pool. However, such taxable income will not
include cash received by the REMIC Pool that represents a recovery of the REMIC
Pool's basis in its assets. Such recovery of basis by the REMIC Pool will have
the effect of amortization of the issue price of the Residual Certificates over
their life. However, in view of the possible acceleration of the income of
Residual Certificateholders described above under "-- Taxation of REMIC
Income," the period of time over which such issue price is effectively
amortized may be longer than the economic life of the Residual Certificates.
If a Residual Certificate has a negative value, it is not clear
whether its issue price would be considered to be zero or such negative amount
for purposes of determining the REMIC Pool's basis in its assets. The Final
REMIC Regulations do not address whether residual interests could have a
negative basis and a negative issue price. The Depositor does not intend to
treat a Class of Residual Certificates as having a value of less than zero for
purposes of determining the bases of the related REMIC Pool in its assets.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate
is greater that the corresponding portion of the REMIC Pool's basis in the
Mortgage Loans or the Mortgage Loans underlying the Agency Securities, the
Residual Certificateholder will not recover a portion of such basis until
termination of the REMIC Pool unless Treasury regulations yet to be issued
provide for periodic adjustments to the REMIC income otherwise reportable by
such holder. The Final REMIC Regulations do not so provide. See "-- Treatment
of Certain Items of REMIC Income and Expense -- Market Discount" below
regarding the basis of Mortgage Loans to the REMIC Pool and "-- Sale or
Exchange of a Residual Certificate" below regarding possible treatment of a
loss upon termination of the REMIC Pool as a capital loss.
TREATMENT OF CERTAIN ITEMS OF REMIC INCOME AND EXPENSE
Original Issue Discount. Generally, the REMIC Pool's deductions for
original issue discount will be determined in the same manner as original issue
discount income on Regular Certificates as described above under "-- Taxation
of Regular Certificates -- Original Issue Discount," without regard to the de
minimis rule described therein.
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Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool in such
Mortgage Loans is exceeded by their unpaid principal balances. The REMIC Pool's
basis in such Mortgage Loans is generally the fair market value of the Mortgage
Loans immediately after the transfer thereof to the REMIC Pool. The Final REMIC
Regulations provide that such basis is equal in the aggregate to the issue
prices of all regular and residual interests in the REMIC Pool. In respect of
Mortgage Loans that have market discount to which Code Section 1276 applies,
the accrued portion of such market discount would be recognized currently by
the REMIC as an item of ordinary income. Market discount income generally
should accrue in the manner described above under "-- Taxation of Regular
Certificates -- Market Discount."
Premium. Generally, if the basis of the REMIC Pool in the Mortgage
Loans exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate of
the issue prices of the regular and residual interests in the REMIC Pool
immediately after the transfer thereof to the REMIC Pool. In a manner analogous
to the discussion above under "-- Taxation of Regular Certificates -- Premium,"
a person that holds a Mortgage Loan as a capital asset under Code Section 1221
may elect under Code Section 171 to amortize premium on Mortgage Loans
originated after September 27, 1985 under a constant yield method. Amortizable
bond premium will be treated as an offset to interest income on the Mortgage
Loans, rather than as a separate deduction item. Because substantially all of
the borrowers with respect to the Mortgage Loans are expected to be
individuals, Code Section 171 will not be available for premium on Mortgage
Loans originated on or prior to September 27, 1985. Premium with respect to
such Mortgage Loans may be deductible in accordance with a reasonable method
regularly employed by the holder thereof. The allocation of such premium pro
rata among principal payments should be considered a reasonable method;
however, the IRS may argue that such premium should be allocated in a different
manner, such as allocating such premium entirely to the final payment of
principal.
Limitations on Offset or Exemption of REMIC Income; Excess Inclusions.
A portion of the income allocable to a Residual Certificate (referred to in the
Code as an "excess inclusion") for any calendar quarter, with an exception
discussed below for certain thrift institutions, will be subject to federal
income tax in all events. Thus, for example, an excess inclusion (i) cannot,
except as described below, be offset by any unrelated losses or loss carryovers
of a Residual Certificateholder, (ii) will be treated as "unrelated business
taxable income" within the meaning of Code Section 512 if the Residual
Certificateholder is a pension fund or any other organization that is subject
to tax only on its unrelated business taxable income and (iii) is not eligible
for any reduction in the rate of withholding tax in the case of a Residual
Certificateholder that is a foreign investor, as further discussed in "Taxation
of Certain Foreign Investors -- Residual Certificates" below. Except as
discussed below with respect to excess inclusions from Residual Certificates
without "significant value," this general rule does not apply to thrift
institutions to which Code Section 593 applies. For this purpose a thrift
institution and its qualified subsidiary are considered a single corporation. A
qualified subsidiary is one all of the stock of which, and substantially all of
the debt of which, is held by the thrift institution and which is organized and
operating exclusively in connection with the organization and operation of one
or more REMICs. Except in the case of a thrift institution (including qualified
subsidiaries) members of an affiliated group are treated as one corporation for
purposes of applying the limitations on offset of excess inclusion income.
Except as discussed in the following paragraph, with respect to excess
inclusions from Residual Certificates without "significant value," for any
Residual Certificateholder, the excess inclusion for any calendar quarter is
the excess, if any, of (i) the income of such Residual Certificateholder for
that calendar quarter from its Residual Certificate, over (ii) the sum of the
"daily accruals" (as defined below) for all days during the calendar quarter on
which the Residual Certificateholder holds such Residual Certificate. For this
purpose, the daily accruals with respect to a Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable
portion of the product of the "adjusted issue price" (as defined below) of the
Residual Certificate at the beginning of the calendar quarter and 120 percent
of the "Federal long-term rate" in effect at the time the Residual Certificate
is issued. For this purpose, the "adjusted issue price" of a Residual
Certificate at the beginning of any calendar quarter equals the issue price of
the Residual Certificate (adjusted for
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contributions), increased by the amount of daily accruals for all prior
quarters, and decreased (but not below zero) by the aggregate amount of
payments made on the Residual Certificate before the beginning of such quarter.
The Federal long-term rate is an average of current yields on Treasury
securities with a remaining term of greater than nine years, computed and
published monthly by the IRS.
The Code provides that to the extent provided in regulations, as an
exception to the general rule described above, the entire amount of income
accruing on a Residual Certificate will be treated as an excess inclusion if
the Residual Certificates in the aggregate are considered not to have
significant value." The Treasury Department has not yet provided regulations in
this respect and the Final REMIC Regulations did not adopt this rule. However,
the exception from the excess inclusion rules applicable to thrift institutions
does not apply if the Residual Certificates do not have significant value.
Under the Final REMIC Regulations, the Residual Certificates will have
significant value if: (i) the aggregate of the issue prices of the Residual
Certificates is at least two percent of the aggregate of the issue prices of
all Regular Certificates and Residual Certificates in the REMIC and (ii) the
anticipated weighted average life of the Residual Certificates is at least 20
percent of the REMIC's anticipated weighted average life based on the
prepayment and reinvestment assumptions used in pricing the transaction and any
required or permitted clean up calls or any required qualified liquidation.
Although not entirely clear, the Final REMIC Regulations indicate that the
significant value determination is made only on the Startup Day. The
anticipated weighted average life of a Residual Certificate with a principal
balance and a market rate of interest is computed by multiplying the amount of
each expected principal payment by the number of years (or fractions thereof)
from the Startup Day, adding these sums and dividing by the total principal
expected to be paid on such Residual Certificate based on the relevant
prepayment assumption and expected reinvestment income. The anticipated
weighted average life of a Residual Certificate with either no specified
principal balance or a principal balance and rights to interest payments
disproportionate to such principal balance, would be computed under the formula
described above but would include all payments expected on the Residual
Certificate instead of only the principal payments. The anticipated weighted
average life of a REMIC is a weighted average of the anticipated weighted
average lives of all classes of interests in the REMIC.
Under Treasury regulations to be promulgated, a portion of the
dividends paid by a REIT which owns a Residual Certificate are to be designated
as excess inclusions in an amount corresponding to the Residual Certificate's
allocable share of the excess inclusions. Similar rules apply in the case of
regulated investment companies, common trust funds and cooperatives. Thus,
investors in such entities which own a Residual Certificate will be subject to
the limitations on excess inclusions described above. The Final REMIC
Regulations do not provide guidance on this issue.
Mark to Market Rules. Under IRS temporary regulations, a "negative
value" REMIC residual interest is not a security for purposes of the
mark-to-market rules under the Code. A negative value REMIC residual interest
is a REMIC residual interest whose present value of anticipated tax liabilities
exceeds the present value of the expected future distributions, as determined
on the date of acquisition of the REMIC residual interest. For purposes of the
temporary regulations, the present value of anticipated tax liabilities is
determined net of any anticipated tax savings associated with holding the
residual interest as the REMIC generates losses. It is possible that a Residual
Certificate may constitute a negative value REMIC residual interest. Such
temporary regulations provide the IRS with the authority to treat any Residual
Certificate having substantially the same economic effect as a "negative value"
residual interest as a "negative value" residual interest. The IRS may also
issue final regulations which may retroactively treat a REMIC residual interest
as a "negative value" REMIC residual interest. The IRS has also issued proposed
regulations that provide that all REMIC residual interests are not considered
securities for purposes of the mark-to-market rules.
TAX-RELATED RESTRICTIONS ON TRANSFER OF RESIDUAL CERTIFICATES
Disqualified Organizations. If legal title or beneficial interest in
a Residual Certificate is transferred to a Disqualified Organization (as
defined below), a tax would be imposed in an amount equal to the product of (i)
the present value of the total anticipated excess inclusions with respect to
such Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The Final
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REMIC Regulations provide that the anticipated excess inclusions are based on
actual prepayment experience to the date of the transfer and projected payments
based on the Prepayment Assumption. The present value discount rate equals the
applicable Federal rate under Code Section 1274(d) that would apply to a debt
instrument that was issued on the date the Disqualified Organization acquired
the Residual Certificate and whose term ended on the close of the last quarter
in which excess inclusions were expected to accrue with respect to the Residual
Certificate. Such a tax generally would be imposed on the transferor of the
Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee, or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a Disqualified Organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. The tax also may be waived by the Treasury Department if
the Disqualified Organization promptly disposes of the Residual Certificate and
the transferor pays income tax at the highest corporate rate on the excess
inclusions for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions that are allocable to the interest in the
PassThrough Entity during the period such interest is held by such Disqualified
Organization, and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the Pass-Through
Entity for the taxable year. The Pass-Through Entity would not be liable for
such tax if it has received an affidavit from such record holder that (i)
states under penalty of perjury that it is not a Disqualified Organization or
(ii) furnishes a social security number and states under penalties of perjury
that the social security number is that of the transferee, provided that during
the period such person is the record holder of the Residual Certificate, the
Pass-Through Entity does not have actual knowledge that such affidavit is
false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors
is not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, and (ii) "Pass-Through
Entity" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations yet to be issued, any person holding an interest in a Pass-Through
Entity as a nominee for another will, with respect to such interest, be treated
as a Pass-Through Entity.
The Pooling and Servicing Agreement with respect to a Series of
Certificates will provide that neither legal title nor beneficial interest in a
Residual Certificate may be transferred or registered unless (i) the proposed
transferee provides to the Depositor and the Trustee an affidavit to the effect
that such transferee is not a Disqualified Organization, is not purchasing such
Residual Certificates on behalf of a Disqualified Organization (i.e., as a
broker, nominee or middleman thereof) and is not an entity that holds REMIC
residual securities as nominee to facilitate the clearance and settlement of
such securities through electronic book-entry changes in accounts of
participating organizations and (ii) the transferor provides a statement in
writing to the Depositor and the Trustee that it has no actual knowledge that
such affidavit is false. Moreover, the Pooling and Servicing Agreement will
provide that any attempted or purported transfer in violation of these transfer
restrictions will be null and void and will vest no rights in any purported
transferee. Each Residual Certificate with respect to a Series will bear a
legend referring to such restrictions on transfer, and each Residual
Certificateholder will be deemed to have agreed, as a condition of ownership
thereof, to any amendments to the related Pooling and Servicing Agreement
required under the Code or applicable Treasury regulations to effectuate the
foregoing
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restrictions. Information necessary to compute an applicable excise tax must be
furnished to the IRS and to the requesting party within 60 days of the request,
and the Depositor or the Trustee may charge a fee for computing and providing
such information.
Noneconomic Residual Interests. The Final REMIC Regulations would
disregard certain transfers of Residual Certificates, in which case the
transferor would continue to be treated as the owner of the Residual
Certificates and thus would continue to be subject to tax on its allocable
portion of the net income of the REMIC Pool. Under the Final REMIC Regulations,
a transfer of a "noneconomic residual interest" (defined below) to a Residual
Certificateholder (other than a Residual Certificateholder who is not a United
States Person, as defined below under "-- Foreign Investors") is disregarded
for all federal income tax purposes unless no significant purpose of the
transfer is to enable the transferor to impede the assessment or collection of
tax. A residual interest in a REMIC (including a residual interest with a
positive value at issuance) is a "noneconomic residual interest" unless, at the
time of the transfer, (i) the present value of the expected future
distributions on the residual interest at least equals the product of the
present value of the anticipated excess inclusions and the highest corporate
income tax rate in effect for the year in which the transfer occurs, and (ii)
the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. The anticipated excess inclusions and the present value rate are
determined in the same manner as set forth above under "-- Disqualified
Organizations." A significant purpose to impede the assessment or collection of
tax exists if the transferor, at the time of the transfer, either knew or
should have known (had "improper knowledge") that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. Under the Final REMIC Regulations, a transferor is presumed not to have
improper knowledge if (i) the transferor conducted, at the time of the
transfer, a reasonable investigation of the financial condition of the
transferee and, as a result of the investigation, the transferor found that the
transferee had historically paid its debts as they came due and found no
significant evidence to indicate that the transferee will not continue to pay
its debts as they come due in the future; and (ii) the transferee represents to
the transferor that it understands that, as the holder of the noneconomic
residual interest, the transferee may incur tax liabilities in excess of any
cash flows generated by the residual interest and that the transferee intends
to pay taxes associated with holding of residual interest as they become due.
The Pooling and Servicing Agreement will require the transferee of a Residual
Certificate to state as part of the affidavit described above under the heading
"Disqualified Organizations" that such transferee (i) has historically paid its
debts as they come due, (ii) intends to continue to pay its debts as they come
due in the future, (iii) understands that, as the holder of a noneconomic
Residual Certificate, it may incur tax liabilities in excess of any cash flows
generated by the Residual Certificate, and (iv) intends to pay any and all
taxes associated with holding the Residual Certificate as they become due. The
transferor must have no reason to believe that such statement is untrue.
Foreign Investors. The Final REMIC Regulations provide that the
transfer of a Residual Certificate that has "tax avoidance potential" to a
"foreign person" will be disregarded for all federal tax purposes. This rule
appears intended to apply to a transferee who is not a "United States Person"
(as defined below), unless such transferee's income is effectively connected
with the conduct of a trade or business within the United States. A Residual
Certificate is deemed to have tax avoidance potential unless, at the time of
the transfer, the transferor reasonably expects that, for each excess
inclusion, (i) the REMIC Pool will distribute to the transferee residual
interest holder an amount that will equal at least 30% of the excess inclusions
and (ii) that each such amount will be distributed at or after the time at
which the excess inclusion accrues and not later than the close of the calendar
year following the calendar year of accrual. If the Non-United States Person
transfers the Residual Certificate back to a United States Person, the transfer
will be disregarded and the foreign transferor will continue to be treated as
the owner unless arrangements are made so that the transfer does not have the
effect of allowing the transferor to avoid tax on accrued excess inclusions.
The Prospectus Supplement relating to a Series of Certificates may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a United States Person or may describe the circumstances
and restrictions pursuant to which such a transfer may be made. The term
"United States Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized
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in or under the laws of the United States or any political subdivision thereof
or an estate or trust that is subject to United States federal income tax
regardless of the source of its income.
Sale or Exchange of a Residual Certificate. Upon the sale or exchange
of a Residual Certificate, the Residual Certificateholder will recognize gain
or loss equal to the excess, if any, of the amount realized over the adjusted
basis (as described above under "Basis and Losses") of such Residual
Certificateholder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Certificateholder will have taxable income to the extent that any cash
distribution to him from the REMIC Pool exceeds such adjusted basis on that
Distribution Date or Payment Date. Such income will be treated as gain from the
sale or exchange of the Residual Certificate. It is possible that the
termination of the REMIC Pool may be treated as a sale or exchange of a
Residual Certificateholder's Residual Certificate, in which case, if the
Residual Certificateholder has an adjusted basis in his Residual Certificate
remaining when his interest in the REMIC Pool terminates, and if he holds such
Residual Certificate as a capital asset under Code Section 1221, then he will
recognize a capital loss at that time in the amount of such remaining adjusted
basis.
The Committee Report provides that, except as provided in Treasury
regulations yet to be issued, the wash sale rules of Code Section 1091 will
apply to dispositions of Residual Certificates. Consequently, losses on
dispositions of Residual Certificates will be disallowed where the seller of
the Residual Certificate, during the period beginning six months before the
sale or disposition of the Residual Certificate and ending six months after
such sale or disposition, acquires (or enters into any other transaction that
results in the application of Code Section 1091) any residual interest in any
REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC owner
trust) that is economically comparable to a Residual Certificate. In any event,
any loss realized by a Residual Certificateholder on the sale will not be
deductible, but, instead, will increase such Residual Certificateholder's
adjusted basis in the newly acquired assets.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions. Net income from certain transactions by the
REMIC Pool, called prohibited transactions, will not be part of the calculation
of income or loss includible in the federal income tax returns of Residual
Certificateholders, but rather will be taxed directly to the REMIC Pool at a
100% rate. Prohibited transactions generally include (i) the disposition of a
qualified mortgage other than for (a) substitution within two years of the
Startup Day for a defective (including a defaulted) obligation (or repurchase
in lieu of substitution of a defective (including a defaulted) obligation at
any time) or for any qualified mortgage within three months of the Startup Day,
(b) foreclosure, default or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC Pool or (d) a qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to hold, (iii) the
receipt of compensation for services or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The Final REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a
due-on-sale or encumbrance clause or the conversion of an interest rate by a
borrower pursuant to the terms of a convertible adjustable rate Mortgage Loan.
Final REMIC Regulations also provide that the modification of mortgage loans
underlying pass-through certificates will not be treated as a modification of
the Agency Securities, provided that the trust issuing the pass-through
certificates was not created to avoid prohibited transaction rules.
Contributions to the REMIC Pool After the Startup Day. In general,
the REMIC Pool will be subject to a tax at a 100% rate on the value of any
property contributed to the REMIC Pool after the Startup Day. Exceptions are
provided for cash contributions to the REMIC Pool (i) during the three months
following the Startup Day, (ii) made to a qualified reserve fund by a Residual
Certificateholder, (iii) in the nature of a
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guarantee, (iv) made to facilitate a qualified liquidation or clean-up call and
(v) as otherwise permitted in Treasury regulations yet to be issued.
Net Income from Foreclosure Property. The REMIC Pool will be subject
to federal income tax at the highest corporate rate on "net income from
foreclosure property," determined by reference to the rules applicable to real
estate investment trusts. Generally, property acquired by the REMIC Pool
through foreclosure or deed in lieu of foreclosure would be treated as
"foreclosure property" for a period of two years, with possible extensions. Net
income from foreclosure property generally means (i) gain from the sale of a
foreclosure property that is inventory property and (ii) gross income from
foreclosure property other than qualifying rents and other qualifying income
for a real estate investment trust.
Liquidation of the REMIC Pool
If a REMIC Pool and the Trustee adopt a plan of complete liquidation,
within the meaning of Code Section 860F(a)(4)(A)(i) and sell all of the REMIC
Pool's assets (other than cash) within a 90-day period beginning on the date of
the adoption of the plan of liquidation, any gain on the sale of its assets
will not result in a prohibited transaction tax, provided that the REMIC Pool
credits or distributes in liquidation all of the sale proceeds plus its cash
(other than amounts retained to meet claims against the REMIC Pool) to holders
of Regular Certificates and Residual Certificateholders within the 90-day
period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar
year basis and to file federal income tax returns for federal income tax
purposes in a manner similar to a partnership. The form for such income tax
return is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return. Treasury regulations provide that, except where there is a single
Residual Certificateholder for an entire taxable year, the REMIC Pool generally
will be subject to the procedural and administrative rules of the Code
applicable to partnerships, including the determination by the IRS of any
adjustments to, among other things, items of REMIC income, gain, loss,
deduction or credit in a unified administrative proceeding. Generally, the
Depositor or the Trustee will be obligated to act as "tax matters person," as
defined in applicable Treasury regulations, with respect to the REMIC Pool, in
its capacity as either Residual Certificateholder or agent of the Residual
Certificateholders. If the Code or applicable Treasury regulations do not
permit the Depositor or the Trustee to act as tax matters person in its
capacity as agent of the Residual Certificateholders, the Residual
Certificateholder chosen by the Residual Certificateholders or such other
person specified pursuant to Treasury regulations will be required to act as
tax matters person.
Treasury regulations provide that a holder of a Residual Certificate
is not required to treat items on its return consistently with their treatment
on the REMIC Pool's return if a holder owns 100% of the Residual Certificates
for the entire calendar year. Otherwise, each holder of a Residual Certificate
is required to treat items on its return consistently with their treatment on
the REMIC Pool's return, unless the holder of a Residual Certificate either
files a statement identifying the inconsistency or establishes that the
inconsistency resulted from incorrect information received from the REMIC Pool.
The IRS may assess a deficiency resulting from a failure to comply with the
consistency requirement without instituting an administrative proceeding at the
REMIC Pool level.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a taxable
year of an individual taxpayer will be reduced by the lesser of (i) 3% of the
excess, if any, of adjusted gross income over $117,950 for 1996 and adjusted
yearly for inflation ($58,975 for 1996 and adjusted yearly for inflation, in
the case of a married individual filing a separate return), or (ii) 80%
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of the amount of itemized deductions otherwise allowable for such year. In the
case of a REMIC Pool, such deductions may include deductions under Code Section
212 for servicing fees and all administrative and other expenses relating to
the REMIC Pool or any similar expenses allocated to the REMIC Pool with respect
to a regular interest it holds in another REMIC. Such investors who hold REMIC
Certificates either directly or indirectly through certain passthrough entities
may have their pro rata share of such expenses allocated to them as additional
gross income, but may be subject to such limitation on deductions. In addition,
such expenses are not deductible at all for purposes of computing the
alternative minimum tax, and may cause such investors to be subject to
significant additional tax liability. Treasury regulations provide that the
additional gross income and corresponding amount of expenses generally are to
be allocated entirely to the holders of Residual Certificates in the case of a
REMIC Pool that would not qualify as a fixed investment trust in the absence of
a REMIC election. However, such additional gross income and limitation on
deductions will apply to the allocable portion of such expenses to holders of
Regular Certificates, as well as holders of Residual Certificates, where such
Regular Certificates are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. In general, such allocable portion
will be determined based on the ratio that a REMIC Certificateholder's income,
determined on a daily basis, bears to the income of all holders of Regular
Certificates and Residual Certificates with respect to a REMIC Pool. As a
result, individuals, estates or trusts holding REMIC Certificates (either
directly or indirectly through a grantor trust, partnership, S corporation,
REMIC, or certain other pass-through entities described in the foregoing
Treasury regulations) may have taxable income in excess of the interest income
at the pass-through rate or Bond interest rate on Regular Certificates that are
issued in a single class or otherwise consistently with fixed investment trust
status or in excess of cash distributions for the related period on Residual
Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are nonresident aliens, foreign corporations, or other
Non-United States Persons (as defined below), will be considered "portfolio
interest" and therefore, generally will not be subject to 30% United States
withholding tax, provided that such Non-United States Person (i) is not a
"10-percent shareholders" within the meaning of Code Section 871(h)(3)(B) or a
controlled foreign corporation described in Code Section 881(c)(3)(C) and (ii)
provides the Trustee, or the person who would otherwise be required to withhold
tax from such distributions under Code Section 1441 or 1442, with an
appropriate statement, signed under penalties of perjury, identifying the
beneficial owner and stating, among other things, that the beneficial owner of
the Regular Certificate is a Non-United States Person. If such statement, or
any other required statement, is not provided, 30% withholding will apply
unless reduced or eliminated pursuant to an applicable tax treaty or unless the
interest on the Regular Certificate is effectively connected with the conduct
of a trade or business within the United States by such Non-United States
Person. In the latter case, such Non-United States Person will be subject to
United States federal income tax at regular rates. Investors who are Non-United
States Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a Regular Certificate. The term "Non-United
States Person" means any person who is not a United States Person. Payments on
Regular Certificates may subject a Non-United States Person to United States
federal income and withholding tax where such foreign person also owns,
actually or constructively, Residual Certificates issued by the same REMIC,
notwithstanding compliance with the certification requirements discussed above.
Residual Certificates
The Committee Report indicates that amounts paid to Residual
Certificateholders who are Non-United States Persons are treated as interest
for purposes of the 30% (or lower treaty rate) United States withholding tax.
Treasury regulations provide that amounts distributed to Residual
Certificateholders qualify as "portfolio interest," subject to the conditions
described in "-- Regular Certificates" above, but only to the extent that (i)
the Mortgage Loans were issued after July 18, 1984 and (ii) the Trust Fund or
segregated pool of assets therein (as to which a separate REMIC election will
be made), to which the Residual Certificate relates, consists of
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obligations issued in "registered form" within the meaning of Code Section
163(f)(1). Generally, Mortgage Loans will not be, but certificated regular
interests in another REMIC Pool will be, considered obligations issued in
registered form. Furthermore, a Residual Certificateholder will not be
entitled to any exemption from the 30% withholding tax (or lower treaty rate)
to the extent of that portion of REMIC taxable income that constitutes an
"excess inclusion." See "-- Treatment of Certain Items of REMIC Income and
Expense -- Limitations on Offset or Exemption of REMIC Income; Excess
Inclusions." If the amounts paid to Residual Certificateholders who are
Non-United States Persons are effectively connected with the conduct of a trade
or business within the United States by such Non-United States Persons, 30% (or
lower treaty rate) withholding will not apply. Instead, the amounts paid to
such Non-United States Persons will be subject to United States federal income
tax at regular rates. If 30% (or lower treaty rate) withholding is applicable,
such amounts generally will be taken into account for purposes of withholding
only when paid or otherwise distributed (or when the Residual Certificate is
disposed of) under rules similar to withholding upon disposition of debt
instruments that have original issue discount. See "-- Tax-Related Restrictions
on Transfer of Residual Certificates -- Foreign Investors" above concerning the
disregard of certain transfers having "tax avoidance potential." Investors who
are Non-United States Persons should consult their own tax advisors regarding
the specific tax consequences to them of owning Residual Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the
sale of the Regular Certificates to or through certain brokers, may be subject
to a "backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and,
under certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from distribution
on the Regular Certificates would be refunded by the IRS or allowed as a credit
against the Regular Certificateholder's federal income tax liability.
REPORTING REQUIREMENTS
Reports of accrued interest and original issue discount will be made
annually to the IRS and to individuals, estates, nonexempt and non-charitable
trusts, and partnerships who are either holders of record of Regular
Certificates or beneficial owners who own Regular Certificates through a broker
or middleman as nominee. All brokers, nominees and all other non-exempt holders
of record of Regular Certificates (including corporations, noncalendar year
taxpayers, securities or commodities dealers, real estate investment trusts,
investment companies, common trust funds, thrift institutions and charitable
trusts) may request such information for any calendar quarter by telephone or
in writing by contacting the person designated in IRS Publication 938 with
respect to a particular Series of Regular Certificates. Holders through
nominees must request such information from the nominee. Treasury regulations
provide that information necessary to compute the accrual of any market
discount on the Regular Certificates must also be furnished.
The IRS's Form 1066 has an accompanying Schedule Q, Quarterly Notice
to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool to
each Residual Certificateholder by the end of the month following the close of
each calendar quarter (41 days after the end of a quarter under proposed
Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the IRS concerning Code Section 67
expenses (See "-- Limitations on Deduction of Certain Expenses" above)
allocable to such holders. Furthermore, under such regulations, information
must be furnished quarterly to Residual Certificateholders, furnished annually
to holders of Regular
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Certificates, and filed annually with the IRS concerning the percentage of the
REMIC Pool's assets meeting the qualified asset tests described above under "--
Status of REMIC Certificates."
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO
WHICH NO REMIC ELECTION IS MADE
STANDARD CERTIFICATES
General. With respect a Series of Certificates issued under an
Agreement for which no election is made to treat the related Trust Fund (or a
segregated pool of assets therein) as a REMIC, Counsel to the Depositor will
deliver its opinion to the effect that, assuming compliance with all provisions
of the related Pooling and Servicing Agreement, the related Trust Fund will be
classified as a grantor trust under subpart E, Part 1 of subchapter J of
Chapter 1 of Subtitle A of the Code and not as an association taxable as a
corporation. The following general discussion of the anticipated federal income
tax consequences of the purchase, ownership and disposition of Standard
Certificates, to the extent it relates to matters of law or legal conclusions
with respect thereto, represents the opinion of Counsel to the Depositor,
subject to any qualifications set forth herein. In addition, Counsel to the
Depositor has prepared or reviewed the statements in this Prospectus under the
heading "Certain Federal Income Tax Consequences -- Federal Income Tax
Consequences for Securities as to Which No REMIC Election is Made -- Standard
Certificates," and is 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 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 Standard
Certificates.
Where there is no fixed retained yield with respect to the Mortgage
Loans underlying the Certificates of such a Series, and where such Certificates
are not designated as "Stripped Certificates," the holder of each such
Certificates in such Series will be treated as the owner of a pro rata
undivided interest in the ordinary income and corpus portions of the Trust Fund
represented by his Certificate and will be considered the beneficial owner of a
pro rata undivided interest in each of the Mortgage Loans, subject to the
discussion below under "-- Premium and Discount -- Recharacterization of
Servicing Fees." Accordingly, the holder of a Certificate of a particular
Series will be required to report on its federal income tax return its pro rata
share of the entire income from the Mortgage Loans represented by its
Certificate, including interest at the coupon rate on such Mortgage Loans,
original issue discount (if any), prepayment fees, assumption fees, and late
payment charges received by the Depositor or another service provider, in
accordance with such Certificateholder's method of accounting.
A Certificateholder generally will be able to deduct its share of
servicing fees and all administrative and other expenses of the Trust Fund in
accordance with his method of accounting, provided that such amounts are
reasonable compensation for services rendered to that Trust Fund. However,
investors who are individuals, estates or trusts who own Certificates, either
directly or indirectly through certain pass-through entities, will be subject
to limitation with respect to certain itemized deductions described in Code
Section 67, including deductions under Code Section 212 for servicing fees and
all such administrative and other expenses of the Trust Fund, to the extent
that such deductions, in the aggregate, do not exceed two percent of an
investor's adjusted gross income. In addition, Code Section 68 provides that
itemized deductions otherwise allowable for a taxable year of an individual
taxpayer will be reduced by the lesser of (i) 3% of the excess, if any, of
adjusted gross income over $117,950 for 1996, adjusted yearly for inflation
($58,975 for 1996, adjusted yearly for inflation, in the case of a married
individual filing a separate return), or (ii) 80% of the amount of itemized
deductions otherwise allowable for such year. As a result such investors
holding Certificates, directly or indirectly through a pass-through entity, may
have aggregate taxable income in excess of the aggregate amount of cash
received on such Certificates with respect to interest at the pass-through rate
on such Certificates or discount thereon. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and
may cause such investors to be subject to significant additional tax liability.
Moreover, where there is fixed retained
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yield with respect to the Mortgage Loans underlying a Series of Certificates or
where the servicing fees are in excess of reasonable servicing compensation,
the transaction will be subject to the application of the "stripped bond" and
"stripped coupon" rules of the Code, as described below under "-- Stripped
Certificates" and "-- Premium and Discount -- Recharacterization of Servicing
Fees," respectively.
Tax Status. To the extent disclosed in the related Prospectus
Supplement, Counsel for the Depositor will deliver its opinion with respect to
Certificates described under this subsection "Standard Certificates" that:
1. A Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be considered
to represent "loans secured by an interest in real property" within the meaning
of Code Section 7701(a)(19)(C)(v), provided that the real property securing the
Mortgage Loans represented by that Certificate is of the type described in such
section of the Code.
2. A Certificate owned by a financial institution described in
Code Section 593(a) will be considered to represent "qualifying real property
loans" within the meaning of Code Section 593(d)(1), provided that the real
property securing the Mortgage Loans represented by that Certificate is of the
type described in such section of the Code.
3. A Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code Section
856(c)(5)(A) to the extent that the assets of the related Trust Fund consist of
qualified assets, and interest income on such assets will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B).
4. A Certificate owned by a REMIC will be considered to represent
an " obligation (including any participation or certificate of beneficial
ownership therein) which is principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3)(A) to the extent that
the assets of the related Trust Fund consist of "qualified mortgages" within
the meaning of Code Section 860G(a)(3).
An issue arises as to whether buy-down Mortgage Loans may be
characterized in their entirety under the Code provisions cited in the
immediately preceding paragraph. Code Section 593(d)(1)(C) provides that the
term " qualifying real property loan" does not include a loan "to the extent
secured by a deposit in or share of the taxpayer." The application of this
provision to a buy-down fund with respect to a buy-down Mortgage Loan is
uncertain, but may require that a taxpayer's investment in a buy-down Mortgage
Loan be reduced by the buy-down fund. As to the treatment of buydown Mortgage
Loans as "qualifying real property loans" under Code Section 593(d)(1) if the
exception of Code Section 593(d)(1)(C) is inapplicable, as "loans . . . secured
by an interest in real property" under Code Section 7701(a)(19)(C)(v), as "
real estate assets" under Code Section 856(c)(5)(A), and as " obligations . . .
principally secured by an interest in real property" under Code Section
860G(a)(3)(A), there is indirect authority supporting treatment of an
investment in a buy-down Mortgage Loan as entirely secured by real property if
the fair market value of the real property securing the loan exceeds the
principal amount of the loan at the time of issuance or acquisition, as the
case may be. There is no assurance that the treatment described above is
proper. Accordingly, Certificateholders are urged to consult their own tax
advisors concerning the effects of such arrangements on the characterization of
such Certificateholder's investment for federal income tax purposes.
PREMIUM AND DISCOUNT
Certificateholders are advised to consult with their tax advisors as
to the federal income tax treatment of premium and discount arising either upon
initial acquisition of Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a
Certificate will be determined generally as described above under "-- Federal
Income Tax Consequences for REMIC Certificates -- Treatment of Certain Items of
REMIC Income and Expense -- Premium."
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Original Issue Discount. The IRS has stated in published rulings
that, in circumstances similar to those described herein, the original issue
discount rules will be applicable to a Certificateholder's interest in those
Mortgage Loans as to which the conditions for the application of those sections
are met. Rules regarding periodic inclusion of original issue discount income
are applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate borrowers (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984. Such
original issue discount could arise by the charging of points by the originator
of the mortgages in an amount greater than a statutory de minimis exception, to
the extent that the points are not for services provided by the lender. It is
generally not anticipated that adjustable rate Mortgage Loans will be treated
as issued with original issue discount. However, the application of the OID
Regulations to adjustable rate mortgage loans with incentive interest rates or
annual or lifetime interest rate caps may result in original issue discount.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant yield method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
However, Code Section 1272 provides for a reduction in the amount of original
issue discount includible in the income of a holder of an obligation that
acquires the obligation after its initial issuance at a price greater than the
sum of the original issue price and the previously accrued original issue
discount, less prior payments of principal. Accordingly, if such Mortgage Loans
acquired by a Certificateholder are purchased at a price equal to the then
unpaid principal amount of such Mortgage Loans, no original issue discount
attributable to the difference between the issue price and the original
principal amount of such Mortgage Loans (i.e., points) will be includible by
such holder.
Market Discount. Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the Mortgage Loans will be
determined and will be reported as ordinary income generally in the manner
described above under "-- Federal Income Tax Consequences for REMIC
Certificates -- Treatment of Certain Items of REMIC Income and Expense --
Market Discount."
Recharacterization of Servicing Fees. If the servicing fees paid to
Servicers were deemed to exceed reasonable servicing compensation, the amount
of such excess would be nondeductible under Code Section 162 or 212. In this
regard, there are no authoritative guidelines for federal income tax purposes
as to either the maximum amount of servicing compensation that may be
considered reasonable in the context of this or similar transactions or
whether, in the case of the Certificates, the reasonableness of servicing
compensation should be determined on a weighted average or loan-by-loan basis.
If a loan-by-loan basis is appropriate, the likelihood that such amount would
exceed reasonable servicing compensation as to some of the Mortgage Loans would
be increased. Recently issued IRS guidance indicates that a servicing fee in
excess of reasonable compensation ("excess servicing") will cause the Mortgage
Loans to be treated under the "stripped bond" rules. Such guidance provides
safe harbors for servicing deemed to be reasonable and requires taxpayers to
demonstrate that the value of servicing fees in excess of such amounts is not
greater than the value of the services provided.
Accordingly, if the IRS's approach is upheld, a servicer that receives
a servicing fee in excess of such amounts would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage Loans.
Under the rules of Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from the right
to receive some or all of the principal payments on the obligation would result
in treatment of such Mortgage Loans as " stripped coupons" and "stripped
bonds." While Certificateholders would still be treated as owners of beneficial
interests in a grantor trust for federal income tax purposes, the corpus of
such trust could be viewed as excluding the portion of the Mortgage Loans the
ownership of which is attributed to a servicer, or as including such portion as
a second class of equitable interest. Applicable Treasury regulations treat
such an arrangement as a fixed investment trust, since the multiple classes of
trust interests should be treated as merely facilitating direct investments in
the trust assets and the existence of multiple classes of ownership interests
is incidental to that purpose. In general, such a recharacterization should not
have any significant effect upon the timing or amount of income reported by a
Certificateholder, except that the income
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reported by a cash method holder may be slightly accelerated. See "-- Stripped
Certificates" below for a further description of the federal income tax
treatment of stripped bonds and stripped coupons.
In the alternative, the amount, if any, by which the servicing fees
paid to the servicers are deemed to exceed reasonable compensation for
servicing could be treated as deferred payments of purchase price by the
Certificateholders to purchase an undivided interest in the Mortgage Loans. In
such event, the present value of such additional payments might be included in
the Certificateholder's basis in such undivided interests for purposes of
determining whether the Certificate was acquired at a discount, at par, or at a
premium. Under this alternative, Certificateholders may also be entitled to a
deduction for unstated interest with respect to each deferred payment. The
Internal Revenue Service may take the position that the specific statutory
provisions of Code Section 1286 described above override the alternative
described in this paragraph. Certificateholders are advised to consult their
tax advisors as to the proper treatment of the amounts paid to the servicers as
set forth herein as servicing compensation or under either of the alternatives
set forth above.
SALE OR EXCHANGE OF CERTIFICATES
Upon sale or exchange of a Certificate, a Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its aggregate adjusted basis in the Mortgage Loans and other
assets represented by the Certificate. In general, the aggregate adjusted basis
will equal the Certificateholder's cost for the Certificate, increased by the
amount of any income previously reported with respect to the Certificate and
decreased by the amount of any losses previously reported with respect to the
Certificate and the amount of any distributions received thereon. Except as
provided above with respect to market discount on any Mortgage Loans, and
except for certain financial institutions subject to the provisions of Code
Section 582(c), any such gain or loss would be capital gain or loss if the
Certificate was held as a capital asset.
STRIPPED CERTIFICATES
General. The following general discussion of the anticipated federal
income tax consequences of the purchase, ownership and disposition of Stripped
Certificates, to the extent it relates to matters of law or legal conclusions
with respect thereto, represents the opinion of Counsel to the Depositor,
subject to any qualifications set forth herein. In addition, Counsel to the
Depositor has prepared or reviewed the statements in this Prospectus under the
heading "Certain Federal Income Tax Consequences -- Federal Income Tax
Consequences for Certificates as to Which No REMIC Election is Made -- Stripped
Certificates," and is 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 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 Stripped
Certificates.
Pursuant to Code Section 1286, the separation of ownership of the
right to receive some or all of the principal payments on an obligation from
ownership of the right to receive some or all of the interest payments results
in the creation of "stripped bonds" with respect to principal payments and
"stripped coupons" with respect to interest payments. For purposes of this
discussion, Certificates for which no REMIC election is made and that are
subject to those rules will be referred to as " Stripped Certificates." The
Certificates will be subject to those rules if (i) the Depositor or any of its
affiliates retains (for its own account or for purposes of resale), in the form
of fixed retained yield or otherwise, an ownership interest in a portion of the
payments on the Mortgage Loans, (ii) the Depositor, any of its affiliates or a
servicer is treated as having an ownership interest in the Mortgage Loans to
the extent it is paid (or retains) servicing compensation in an amount greater
than reasonable consideration for servicing the Mortgage Loans (See "-- Premium
and Discount -- Recharacterization of the Servicing Fees" above) or (iii)
Classes of Certificates are issued in two or more Classes or subclasses
representing the right to non-pro-rata percentages of the interest and
principal payments on the Mortgage Loans.
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In general, a holder of a Stripped Certificate will be considered to
own "stripped bonds" with respect to its pro rata share of all or a portion of
the principal payments on each Mortgage Loan and/or " stripped coupons" with
respect to its pro rata share of all or a portion of the interest payments on
each Mortgage Loan, including the Stripped Certificate's allocable share of the
servicing fees paid, to the extent that such fees represent reasonable
compensation for services rendered. See discussion above under "-- Premium and
Discount -- Recharacterization of Servicing Fees." For this purpose the
servicing fees will be allocated to the Stripped Certificates in proportion to
the respective offering price of each class (or subclass) of Stripped
Certificates. The holder of a Stripped Certificate generally will be entitled
to a deduction each year in respect of the servicing fees, as described above
under "Standard Certificates -- General," subject to the limitation described
therein.
Code Section 1286 treats a stripped bond or a stripped coupon
generally as a new obligation issued (i) on the date that the stripped interest
is purchased and (ii) at a price equal to its purchase price or, if more than
one stripped interest is purchased, the share of the purchase price allocable
to such stripped interest. Each stripped interest generally will have original
issue discount equal to the excess of its stated redemption price at maturity
(or, in the case of a stripped coupon, the amount payable on the due date of
such coupon) over its issue price. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects
at this time, particularly where such Stripped Certificates are issued with
respect to a Trust Fund containing variable-rate Mortgage Loans, the Depositor
has been advised by counsel that (i) the Trust Fund will be treated as a
grantor trust under subpart E, Part 1 of subchapter J of Chapter 1 of Subtitle
A of the Code and not as an association taxable as a corporation, and (ii) each
Stripped Certificate should be treated as a single installment obligation for
purposes of calculating original issue discount and gain or loss on
disposition. This treatment is based on the interrelationship of Code Section
1286 and the regulations thereunder, Code Sections 1272 through 1275, and the
OID Regulations. While under Code Section 1286 computations with respect to
Stripped Certificates arguably should be made in one of the ways described
below under "Taxation of Stripped Certificates -- Possible Alternative
Characterizations," the OID Regulations state, in general, that all debt
instruments issued in connection with the same transaction must be treated as a
single debt instrument. The Trustee will make and report all computations
described below using this aggregate approach, unless substantial legal
authority requires otherwise.
Furthermore, final Treasury regulations issued December 28, 1992
support the treatment of a Stripped Certificate as a single debt instrument
issued on the date it is originated for purposes of calculating any original
issue discount. The preamble to such regulations states that such regulations
are premised on the assumption that an aggregation approach is appropriate in
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis. In addition, under these regulations, a Stripped
Certificate that represents a right to payments of both interest and principal
may be viewed either as issued with original issue discount or market discount
(as described below), at a de minimis original issue discount, or, presumably,
at a premium. The preamble to such regulations also provide that such
regulations are premised on the assumption that generally the interest
component of such a Stripped Certificate would be treated as stated interest
under the OID Regulations. Further, the regulations provide that the purchaser
of such a Stripped Certificate may be required to account for any discount as
market discount rather than original issue discount if either (i) the initial
discount with respect to the Stripped Certificate was treated as zero under the
de minimis rule or (ii) no more than 100 basis points in excess of reasonable
servicing is stripped off the related Mortgage Loans. Any such market discount
would be reportable as described above under "-- Federal Income Tax
Consequences for REMIC Certificates -- Taxation of Regular Certificates --
Market Discount," without regard to the de minimis rule therein.
Status of Stripped Certificates. Even if Strip Certificates evidence
an interest in a Trust Fund consisting of Mortgage Loans that are "qualifying
real property loans" within the meaning of Code Section 593(d)(1), "real estate
assets" within the meaning of Code Section 856(c)(A), and "loans . . . secured
by an interest in real property" within the meaning of Code Section
7701(a)(19)(C)(v), and the interest (including original issue discount) income
on which is an "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B), it is unclear whether the
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
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is appropriate. Counsel to the Depositor will not deliver any opinion on these
questions. Prospective purchasers to which such characterization of an
investment in Strip Certificates in material should consult their tax advisors
regarding whether the Strip Certificates, and the income therefrom, will be so
characterized.
The 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 STRIPPED CERTIFICATES
Original Issue Discount. Except as described above under " --
General," each Stripped Certificate will be considered to have been issued (i)
on the date that the stripped interest is purchased and (ii) at a price equal
to its purchase price or, if more than one stripped interest is purchased, the
share of the purchase price allocable to such stripped interest. Each stripped
interest generally will have original issue discount equal to the excess of its
stated redemption price at maturity (or, in the case of a stripped coupon, the
amount payable on the due date of such coupon) over its issue price. Original
issue discount with respect to a Stripped Certificate must be included in
ordinary income as it accrues, in accordance with a constant yield method that
takes into account the compounding of interest, which may be prior to the
receipt of the cash attributable to such income. Based in part on the OID
Regulations and the amendments to the original issue discount sections of the
Code made by the 1986 Act, counsel has advised the Depositor that the amount of
original issue discount required to be included in the income of a holder of a
Stripped Certificate (referred to in this discussion as a "Stripped
Certificateholder") in any taxable year likely will be computed generally as
described above under "-- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Regular Certificates -- Original Issue Discount."
However, with the apparent exception of a Stripped Certificate issued with de
minimis original issue discount, as described above under "-- General," the
issue price of a Stripped Certificate will be the purchase price paid by each
holder thereof, and the stated redemption price at maturity will include the
aggregate amount of the payments to be made on the Stripped Certificate to such
Stripped Certificateholder, presumable under the Prepayment Assumption, other
than amounts treated as qualified stated interest.
If the Mortgage Loans prepay at a rate either faster or slower than
that under the Prepayment Assumption, a Stripped Certificateholder's
recognition of original issue discount will be either accelerated or
decelerated and the amount of such original issue discount will be either
increased or decreased depending on the relative interests in principal and
interest on each Mortgage Loan represented by such Stripped Certificateholder's
Stripped Certificate. While the matter is not free from doubt, the holder of a
Stripped Certificate should be entitled in the year that it becomes certain
(assuming no further prepayments) that the holder will not recover a portion of
its adjusted basis in such Stripped Certificate to recognize an ordinary loss
equal to such portion of unrecoverable basis.
Possible Alternative Characterizations. As an alternative to the
method described above, the fact that some or all of the interest payments with
respect to the Stripped Certificates will not be made if the Mortgage Loans are
prepaid could lead to the interpretation that such interest payments are
"contingent" within the meaning of the OID Regulations. Under the rules of the
OID Regulations relating to contingent payments, a projected payment schedule
for the Stripped Certificates would be constructed by the Depositor. Interest
accrual and adjustments relating to the Stripped Certificates would be
determined under the general rules of the noncontingent bond method described
above. While not free from doubt, counsel for the Depositor believes that
uncertainty as to the payment of interest arising as a result of the
possibility of prepayment of the Mortgage Loans should not cause the contingent
payment rules under the OID Regulations to apply to interest with respect to
the Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a
Stripped Certificate prior to its maturity will result in gain or loss equal to
the difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Federal Income Tax Consequences for REMIC Certificates -- Taxation
of Regular Certificates -- Sale or Exchange of Regular
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Certificates." To the extent that a subsequent purchaser's purchase price is
exceeded by the remaining payments on the Stripped Certificates, such
subsequent purchaser will be required for federal income tax purposes to accrue
and report such excess as if it were original issue discount in the manner
described above. It is not clear for this purpose whether the assumed
prepayment rate that is to be used in the case of a Stripped Certificateholder
other than original Stripped Certificateholder should be the Prepayment
Assumption or a new rate based on the circumstances at the date of subsequent
purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of the rules described above.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Trustee will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as the Trustee deems to be necessary or desirable to enable such
Certificateholders to prepare their federal income tax returns. Such
information will include the amount of original issue discount accrued on
Certificates held by persons other than Certificateholders exempted from the
reporting requirements. The amounts required to be reported by the Trustee may
not be equal to the proper amount of original issue discount required to be
reported as taxable income by a Certificateholder, other than an original
Certificateholder. The Trustee will also file such original issue discount
information with the IRS. If a Certificateholder fails to supply an accurate
taxpayer identification number or if the Secretary of the Treasury determines
that a Certificateholder has not reported all interest and dividend income
required to be shown on his federal income tax return, 31% backup withholding
may be required in respect of any reportable payments, as described above under
"-- Federal Income Tax Consequences for REMIC Certificates -- Backup
Withholding."
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans
that are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other Non-United States Persons
generally will be subject to 30% United States withholding tax, or such lower
rate as may be provided for interest by an applicable tax treaty. Accrued
original issue discount recognized by the Certificateholder on the sale or
exchange of such a Certificate also will be subject to federal income tax at
the same rate.
Treasury regulations provide that interest or original issue discount
paid by the Trustee or other withholding agent to a Non-United States Person
evidencing ownership interest in Mortgage Loans issued after July 18, 1984 will
be "portfolio interest" and will be treated in the manner, and such persons
will be subject to the same certification requirements described above under
"-- Federal Income Tax Consequences for REMIC Certificates -- Taxation of
Certain Foreign Investors -- Regular Certificates."
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences" herein, potential investors should
consider the state income tax consequences of the acquisition, ownership, and
disposition of the Offered Certificates. State income tax law may differ
substantially from the corresponding federal tax law, and this discussion does
not purport to describe any aspect of the income tax laws of any state.
Therefore, potential investors should consult their own tax advisors with
respect to the various tax consequences of investment in the Offered
Certificates.
100
<PAGE> 204
PLAN OF DISTRIBUTION
Certificates are being offered hereby in series through one or more
underwriters or groups of underwriters (the "Underwriters"). The related
Prospectus Supplement will set forth the terms of offering of a Series of
Certificates, including the public offering or purchase price of each Class of
Certificates of such Series being offered thereby or the method by which such
price will be determined and the net proceeds to the Depositor from the sale of
each such Class. Such 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. The managing Underwriter or Underwriters with respect to
the offer and sale of a particular Series of Certificates will be set forth on
the cover of the Prospectus Supplement relating to such Series and the members
of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the Sale of the Certificates, Underwriters may
receive compensation from the related Transferor or the Depositor or from
purchasers of the Certificates in the form of discounts, concessions or
commissions. Underwriters and dealers participating in the distribution of the
Certificates may be deemed to be Underwriters in connection with such
Certificates, and any discounts or commissions received by them from the
related Transferor or the Depositor and any profit on the resale of
Certificates by them may be deemed to be underwriting discounts and commissions
under the Securities Act. The Prospectus Supplement will describe any such
compensation paid by the related Transferor or the Depositor.
It is anticipated that the underwriting agreement pertaining to the
sale of any Series of Certificates 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 and that the related Transferor or the Depositor will indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act, as amended.
LEGAL MATTERS
The legality of the Certificates and certain federal income tax
matters will be passed upon for the Depositor by Andrews & Kurth L.L.P.,
Dallas, Texas, and for the Underwriters by ____________________
______________________________________.
FINANCIAL INFORMATION AND ADDITIONAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates. 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.
Copies of the Registration Statement to which this Prospectus forms a
part and the exhibits thereto are on file at the offices of the Securities and
Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and inspected,
without charge, at the offices of the Commission.
Copies of FHLMC's most recent Offering Circular for FHLMC
Certificates, FHLMC's Information Statement and most recent Supplement thereto
and any quarterly report made available by FHLMC can be obtained in writing or
calling FHLMC's Investor Relations Department at 8200 Jones Branch Drive,
McLean, Virginia 22102 (800-336-FMPC). The Depositor did not participate in the
preparation of FHLMC's Offering Circular, Information Statement or any
Supplement thereto or any such quarterly report.
Copies of FNMA's most recent Prospectus for FNMA Certificates and
FNMA's annual report and quarterly financial statements as well as other
financial information are available from the Vice President for
101
<PAGE> 205
Investor Relations of FNMA, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016
(202-752-7585). The Depositor did not participate in the preparation of FNMA's
Prospectus or any such report, financial statement or other financial
information.
102
<PAGE> 206
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
<S> <C>
"1986 Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
"Administrator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Annual Reduction" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
"Applicable Accounting Standards" . . . . . . . . . . . . . . . . . . . . . 48
"APR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 6
"Beneficial Owners" . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 28
"BIF" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"Book Entry Certificates" . . . . . . . . . . . . . . . . . . . . . . . 9, 27
"Call Risk" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Certificate Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Certificate Guaranty Policy" . . . . . . . . . . . . . . . . . . . . . . . 40
"Certificate Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . 3
"Certificateholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Charter Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"Class" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 1
"Clearing Agency Participants" . . . . . . . . . . . . . . . . . . . . 9, 27
"Clearing Agency" . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 27
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Collateral Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
"Committee Report" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"Companion Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Compound Interest Certificates" . . . . . . . . . . . . . . . . . . . 2, 24
"Contract Loan Schedule" . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Contract Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Contracts" . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 6, 7, 35
"Conventional Contracts" . . . . . . . . . . . . . . . . . . . . . . . 7, 36
"Conventional Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . 7
"Cooperative Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Cooperatives" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 29
"Credit Enhancement" . . . . . . . . . . . . . . . . . . . . 6, 9, 16, 17, 38
"Depositor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 2, 52
"Disqualified Organization" . . . . . . . . . . . . . . . . . . . . . . . . 88
"Distribution Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"DOL" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
"Due Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 73
"excess servicing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
"Excess Spread" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
"Extension Risk" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"FDIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49, 72
"FFI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
"FHA Claims Administrator" . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
103
<PAGE> 207
<TABLE>
<S> <C>
"FHA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"FHA Reserve" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
"FHLMC Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"FHLMC Certificate Group" . . . . . . . . . . . . . . . . . . . . . . . . . 33
"FHLMC Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"FHLMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 6
"Final REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . 74
"FmHA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"FNMA Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"FNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 6
"GNMA Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"GNMA Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"GNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 6
"Guaranty Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Holders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9
"Housing Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"improper knowledge" . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
"Interest Only Certificates" . . . . . . . . . . . . . . . . . . . . . 1, 24
"IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 2, 22
"Manufacturer's Invoice Price" . . . . . . . . . . . . . . . . . . . . . . 36
"Market Discount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
"Master Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Maximum Variable Interest Rate" . . . . . . . . . . . . . . . . . . . . . 4
"Minimum Variable Interest Rate" . . . . . . . . . . . . . . . . . . . . . 4
"Mortgage Asset Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Mortgage Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . i, 6, 7, 75
"Mortgage Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Mortgage Pool Insurance Policy" . . . . . . . . . . . . . . . . . . . . . 40
"Mortgage Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Mortgage Rates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"Mortgaged Properties" . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Mortgages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"NCUA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
"noneconomic residual interest" . . . . . . . . . . . . . . . . . . . . . . 89
"Notional Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . 22
"Offered Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . i
"OID Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"Original Issue Discount" . . . . . . . . . . . . . . . . . . . . . . . 77, 83
"OTS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61, 72
"Parties in Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
"Permitted Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"Plan Asset Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . 73
"Plans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
"Policy Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
"Pool Insurer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
"Premium REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
"Prepayment Assumption" . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"Principal Only Certificates" . . . . . . . . . . . . . . . . . . . . . 1, 24
"Principal Prepayments" . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Priority Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Prohibited Transactions" . . . . . . . . . . . . . . . . . . . . . . . 23, 73
</TABLE>
104
<PAGE> 208
<TABLE>
<S> <C>
"Prospectus Supplement" . . . . . . . . . . . . . . . . . . . . . . . . . . i
"PTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Rating Agency" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Regular Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 9, 75
"Reigle Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
"REIT" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
"Relief Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 55, 64
"REMIC Administrator" . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"REMIC Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, 9, 75
"Reports" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
"Reserve Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"Residual Certificates" . . . . . . . . . . . . . . . . . . . . . . 9, 18, 75
"Residual Holders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Retail Class Certificate" . . . . . . . . . . . . . . . . . . . . . . . . 77
"SAIF" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"Scheduled Amortization Certificates" . . . . . . . . . . . . . . . . . . . 24
"Scheduled Principal" . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Secured Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
"Senior Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"Series" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 72
"Special Allocation Certificates" . . . . . . . . . . . . . . . . . . . . . 24
"Special Hazard Insurance Policy" . . . . . . . . . . . . . . . . . . . . . 40
"Startup Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"Subordinated Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 38
"Subsequent Mortgage Assets" . . . . . . . . . . . . . . . . . . . . . 8, 37
"Subservicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . 42
"TAMRA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"Thrift Institution" . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
"TILA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
"Title I Contracts" . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 36
"Title I Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . 7, 29
"Title V" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
"TMP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"Transfer Report" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
"Transferor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"Trust Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 1
"Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"UCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
"Underlying Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Underwriters" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
"United States Person" . . . . . . . . . . . . . . . . . . . . . . . . . . 89
"Unsecured Contracts" . . . . . . . . . . . . . . . . . . . . . . i, 6, 7, 36
"VA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"Variable Interest Rate Certificates" . . . . . . . . . . . . . . . . . . . 1
"Window Period Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
105
<PAGE> 209
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of
the securities, other than underwriting discounts and commissions*, are as
follows:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission . . . . . $ 427,801.72
Printing and Engraving Expenses . . . . . . . . . . . . . . . . . 600,000.00
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . 100,000.00
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 400,000.00
Trustee Fees and Expenses . . . . . . . . . . . . . . . . . . . . 20,000.00
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . 10,000.00
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . . . 900,000.00
Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . . . 42,198.28
-------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $2,500,000.00
=============
</TABLE>
- ---------
* To be provided for each Series of Securities on the cover page of the
related Prospectus Supplement.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The forms of Underwriting Agreement filed as Exhibits 1.1 and 1.2
hereto provide for indemnification of FIRSTPLUS INVESTMENT CORPORATION (the
"Company"), each of its officers who signs this Registration Statement, and
each person who controls the Company within the meaning of the Securities Act
of 1933 (the "Securities Act") or the Securities and Exchange Act of 1934 (the
"Exchange Act") against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the
Securities Act, the Exchange Act, or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(a) written information furnished to the Company by or on behalf of the
Underwriter specifically for use in the preparation of the Registration
Statement related to the offered securities of the applicable series as it
became effective or in a any amendment or supplement thereof, or in such
Registration Statement, in the related Preliminary Prospectus or the related
Final Prospectus or in any amendment thereof, or in the Form 8-K referred to in
such Final Prospectus or (b) any Computational Materials or ABS Term Sheets (or
amendments or supplements thereof) delivered to prospective investors by such
Underwriter, including any Computational Materials or ABS Term Sheets that are
furnished to the Company by such Underwriter pursuant to the Underwriting
Agreement and incorporated by reference in the Registration Statement, the
related Preliminary Prospectus or the related Final Prospectus or any amendment
or supplement thereof (except that no such indemnity shall be available for any
losses, claims, damages or liabilities, or actions in respect thereof,
resulting from any Mortgage Pool Error, other than a Corrected Mortgage Pool
Error, as such terms are defined in the Underwriting Agreement).
The Articles of Incorporation and By-Laws of the Company (Exhibit 3.1
and 3.2, respectively) provide that the Company shall indemnify its officers
and directors and may, in the discretion of the Board of Directors, indemnify
its other employees and agents to the fullest extent permitted by Nevada
statutory and decisional law if any such person was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, partner, venturer, proprietor, trustee,
employee or agent of another company, partnership, joint venture, trust,
limited liability company or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding.
II-1
<PAGE> 210
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
1.1 Form of Underwriting Agreement (Pass-Through Certificates)(5)
1.2 Form of Underwriting Agreement (Notes and Certificates)*
3.1 Amended and Restated Articles of Incorporation of FIRSTPLUS
INVESTMENT CORPORATION, as amended (1)
3.2 By-Laws (2)
4.1 Form of Pooling and Servicing Agreement (2)
4.2 Form of Indenture*
4.3 Form of Trust Agreement*
5.1 Opinion of Andrews & Kurth L.L.P. regarding the legality of the
Pass-Through Certificates (3)
5.2 Opinion of Andrews & Kurth L.L.P. regarding the legality of the
Notes*
5.3 Opinion of Andrews & Kurth L.L.P. regarding the legality of the
Certificates*
8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters (3)
8.2 Opinion of Andrews & Kurth L.L.P. regarding tax matters (Notes and
Certificates)*
10.1 Representative Form of Mortgage Note (3)
10.2 Representative Form of Mortgage (3)
10.3 Representative Form of Retail Installment Contract, Note and
Disclosure Statement (3)
10.4 Specimen of Certificate Insurance Policy (2)
10.5 Form of Subservicing Agreement (2)
10.6 Form of Loan Sale Agreement (2)
10.7 Form of Sale and Servicing Agreement*
10.8 Form of Administration Agreement*
10.9 Form of Agreement with Clearing Agency (2)
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits
5.1, 5.2, 5.3, 8.1 and 8.2)
24.1 Power of Attorney (included as part of Part II)
25.1 Statement of Eligibility of Trustee (6)
99.1 Form of Prospectus Supplement for Asset-Backed Certificates (filed
with the related Prospectus) (4)
99.2 Form of Prospectus Supplement for Asset-Backed Securities (filed
with the related Prospectus) (4)
</TABLE>
- ------------------
* Filed herewith.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 2 to Form S-3 Registration Statement (File No. 33-65373)
on May 10, 1996 and incorporated by reference herein.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Form S-3 Registration Statement (File No. 33-65373) on December 22,
1995 and incorporated by reference herein.
II-2
<PAGE> 211
(3) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 1 to Form S-3 Registration Statement (File No. 33-65373)
on April 23, 1996 and incorporated by reference herein.
(4) Previously filed with the Commission as an exhibit to the Registrant's
Form S-3 Registration Statement (File No. 333-10451) on August 19, 1996
and incorporated by reference herein.
(5) Previously filed with the Commission as Exhibit 1.1 to the
Registrant's Current Report on Form 8-K dated as of July 9, 1996 and
incorporated by reference herein.
(6) Previously filed with the Commission under cover of Form 305 B2 on
September 10, 1996 and incorporated by reference herein.
ITEM 17. UNDERTAKINGS
(a) The Company hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement: (i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933 (the "Securities Act"); (ii) to reflect
in the prospectus any facts or events arising after the effective date
of this Registration Statement (or the most recent post-effective
amendment hereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this Registration
Statement; (iii) to include any material information with respect to
the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement; provided, however, that no such post-effective
amendment shall be required in the information which would be required
by clauses (i) and (ii) is contained in periodic reports filed by the
Company pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are incorporated by
reference in this Registration Statement.
(2) That for the purpose of determining any liability
under the 1933 Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The Company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Company's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of competent jurisdiction the question whether
such indemnification by it is against public policy as expressed int he 1933
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 212
SIGNATURES
Pursuant to the requirements of the 1933 Act, the Company certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Columbia, State of South Carolina, on the 11th day of September, 1996.
FIRSTPLUS INVESTMENT CORPORATION
By: /s/ Kirk R. Phillips
----------------------------------------------
Kirk R. Phillips, President
Each person whose signature appears below does hereby make, constitute
and appoint Kirk R. Phillips and Christopher J. Gramlich and each of them his
true and lawful attorney with full power of substitution to execute, deliver
and file with the Securities and Exchange Commission, for and on his behalf an
in his capacity or capacities as stated below, any amendment (including
post-effective amendments) to the Registration Statement with all exhibits
thereto, making such changes in the Registration Statement as the Registrant
deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kirk R. Phillips Director and President September 11, 1996
- ---------------------------------------- (Principal Executive Officer)
Kirk R. Phillips
/s/ Mark J. Landry Director, Treasurer and Chief September 11, 1996
- ---------------------------------------- Financial Officer (Principal
Mark J. Landry Financial Officer and Principal
Accounting Officer)
/s/ Larry G. Studinski Director September 11, 1996
- ----------------------------------------
Larry G. Studinski
Director September 11, 1996
- ----------------------------------------
Steven A. Rubin
</TABLE>
II-4
<PAGE> 213
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1.1 Form of Underwriting Agreement (Pass Through Certificates)(5)
1.2 Form of Underwriting Agreement (Notes and Certificates)*
3.1 Amended and Restated Articles of Incorporation of FIRSTPLUS INVESTMENT CORPORATION, as amended (1)
3.2 By-Laws (2)
4.1 Form of Pooling and Servicing Agreement (2)
4.2 Form of Indenture *
4.3 Form of Trust Agreement *
5.1 Opinion of Andrews & Kurth L.L.P. regarding the legality of the Pass-Through Certificates (3)
5.2 Opinion of Andrews & Kurth L.L.P. regarding the legality of the Notes *
5.3 Opinion of Andrews & Kurth L.L.P. regarding the legality of the Certificates*
8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters (3)
8.2 Opinion of Andrews & Kurth L.L.P. regarding tax matters (Notes and Certificates)*
10.1 Representative Form of Mortgage Note (3)
10.2 Representative Form of Mortgage (3)
10.3 Representative Form of Retail Installment Contract, Note and Disclosure Statement (3)
10.4 Specimen of Certificate Insurance Policy (2)
10.5 Form of Subservicing Agreement (2)
10.6 Form of Loan Sale Agreement (2)
10.7 Form of Sale and Servicing Agreement *
10.8 Form of Administration Agreement *
10.9 Form of Agreement with Clearing Agency (2)
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits 5.1, 5.2, 5.3, 8.1 and 8.2)
24.1 Power of Attorney (included as part of Part II)
25.1 Statement of Eligibility of Trustee (6)
99.1 Form of Prospectus Supplement for Asset-Backed Certificates (filed with the related Prospectus) (4)
99.2 Form of Prospectus Supplement for Asset-Backed Securities (filed with the related Prospectus) (4)
</TABLE>
- -------------------
* Filed herewith.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 2 to Form S-3 Registration Statement (File No. 33-65373)
on May 10, 1996 and incorporated by reference herein.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Form S-3 Registration Statement (File No. 33-65373) on December 22,
1995 and incorporated by reference herein.
<PAGE> 214
(3) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 1 to Form S-3 Registration Statement (File No. 33-65373)
on April 23, 1996 and incorporated by reference herein.
(4) Previously filed with the Commission as an exhibit to the Registrant's
Form S-3 Registration Statement (File No. 333-10451) on August 19, 1996
and incorporated by reference herein.
(5) Previously filed with the Commission as Exhibit 1.1 to the
Registrant's Current Report on Form 8-K dated as of July 9, 1996 and
incorporated herein by reference.
(6) Previously filed with the Commisssion under cover of Form 305 B2 on
September 10, 1996 and incorporated by reference herein.
<PAGE> 1
EXHIBIT 1.2
FIRSTPLUS HOME LOAN OWNER TRUSTS
ASSET-BACKED SECURITIES
(Issuable in Series)
UNDERWRITING AGREEMENT
[NAME AND ADDRESS [DATE]
OF UNDERWRITER(S)]
Ladies and Gentlemen:
FIRSTPLUS INVESTMENT CORPORATION, a corporation organized and
existing under the laws of the State of Nevada (the "Company"), proposes to
cause FIRSTPLUS Home Loan Owner Trusts (each, a "Trust") to offer for sale from
time to time its Asset-Backed Securities evidencing interests in pools of
certain contracts and mortgage loans (the "Securities"). The Securities may be
issued in various series, and within each series, in one or more classes, in
one or more offerings on terms determined at the time of sale (each such
series, a "Series" and each such class, a "Class"). Each Trust may issue one
or more classes of Asset-Backed Notes (the "Notes") pursuant to an Indenture to
be dated as of the respective cut-off date (each, a "Cut-off Date") as
supplemented by one or more supplements to such Indenture (such Indenture, as
supplemented, the "Indenture") between the owner trustee named therein (the
"Owner Trustee") and the indenture trustee named therein (the "Indenture
Trustee"). Simultaneously with the issuance of the Notes, the Trust may issue
Asset-Backed Certificates (the "Certificates"), each representing a fractional
undivided ownership interest in the related Trust, pursuant to a separate Trust
Agreement (each, a "Trust Agreement") to be dated as of the respective Cut-off
Date among the Trust, the Company or one of its affiliates, as FHA Insurance
holder, if applicable, (the "FHA Insurance Holder"), FIRSTPLUS FINANCIAL, INC.,
("FFI") as transferor and servicer (the "Transferor" or "Servicer"), and the
Owner Trustee.
The assets of each Trust will consist primarily of a pool of
fixed- or adjustable-rate, fully-amortizing property improvement and/or debt
consolidation loans, and the related notes and mortgages (collectively, the
"Home Loans") having the original terms to maturity and interest rate types
specified in the related Terms Agreement referred to hereinbelow. Certain of
the Home Loans may be partially insured by the Federal Housing Administration
(the "FHA") of the United States Department of Housing and Urban Development
("HUD") pursuant to Title I of the National Housing Act of 1934, as amended
("Title I Mortgage Loans"). Unless otherwise specified in the
<PAGE> 2
related Prospectus Supplement and the related Sale and Servicing Agreement (as
defined below), the FHA Insurance Holder, will enter into an FHA claims
administration agreement (each, an "FHA Claims Agreement") with the Servicer
pursuant to which the Servicer will administer, process and submit claims (the
Servicer in such capacity, the "FHA Claims Administrator") to the FHA in
respect of Title I Mortgage Loans.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned thereto in the related sale and servicing agreement to be
dated as of the applicable Cut-off Date (the "Sale and Servicing Agreement"),
between the Company as depositor (the "Depositor") and the Servicer, or, if not
defined therein, in the respective Indenture or Trust Agreement.
If and to the extent specified in the related Sale and Servicing
Agreement, in addition to the Home Loans conveyed to the Trust on the Closing
Date (such Home Loans so conveyed to the Trust at such time, the "Initial Home
Loans"), the Depositor shall be obligated to convey to the Trust, from time to
time during the period commencing after the Closing Date and ending at the
expiration of the period specified in such Sale and Servicing Agreement (each,
a "Pre-Funding Period")(the date of any such conveyance, a "Subsequent Transfer
Date"), additional Home Loans (any such additional Home Loans so conveyed to
the Trust through the Pre-Funding Period, the "Subsequent Home Loans").
The Securities may have the benefit of one or more insurance policies
(each, a "Policy") issued by the insurer named therein (the "Insurer") pursuant
to an indemnity and insurance agreement among the Depositor, the Owner Trustee,
the Indenture Trustee, the Servicer and the Insurer (the "Insurance
Agreement").
Underwritten offerings of Securities may be made through you or
through an underwriting syndicate managed by you. The Company proposes to sell
one or more Series of the Securities to you and to each of the other several
underwriters, if any, participating in an underwriting syndicate managed by
you.
Whenever the Company determines to make an offering of Securities
(each, an "Offering") pursuant to this Agreement through you, it will enter
into an agreement (the "Terms Agreement") providing for the sale of specified
Classes of Offered Securities (as defined below) to, and the purchase and
public offering thereof by, you and such other underwriters, if any, selected
by you as have authorized you to enter into such Terms Agreement on their
behalf (the underwriters designated in any such Terms Agreement being referred
to herein as "Underwriters," which term shall include you whether acting alone
in the sale of any Offered Securities of any series or as a member of an
underwriting syndicate). Each such Certificate Offering which the Company
elects to make pursuant to this Agreement shall be governed by this Agreement,
as supplemented by the related Terms Agreement, and this Agreement and such
Terms Agreement shall inure to the benefit of and be binding upon each
underwriter participating in the offering of such Offered Securities. Each
Terms Agreement, which shall be substantially in the form of Exhibit A hereto,
shall specify, among other things, the Classes of Securities to be purchased by
the Underwriters (the "Offered Securities"),
- 2 -
<PAGE> 3
whether such Offered Securities constitute Notes or Certificates, the principal
balance or balances of the Offered Securities, each subject to any stated
variance, the names of the Underwriters participating in such offering (subject
to substitution as provided in Section 13 hereof) and the price or prices at
which such Offered Securities are to be purchased by the Underwriters from the
Company.
1. Representations and Warranties. (a) The Company and
FFI represent and warrant to and agree with the Underwriters, as of the date of
the related Terms Agreement, that:
(i) The registration statement specified in the related
Terms Agreement, on Form S-3, including a prospectus, has been filed
with the Securities and Exchange Commission (the "Commission") for the
registration under the Securities Act of 1933, as amended (the "Act"),
of asset-backed securities issuable in series, which registration
statement has been declared effective by the Commission. Such
registration statement, as amended to the date of the related Terms
Agreement, including any documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Act which were filed under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
on or before the effective date of the Registration Statement, is
hereinafter called the "Registration Statement," and such prospectus,
as such prospectus is supplemented by a prospectus supplement relating
to the Offered Securities of the related Series, each in the form
first filed via EDGAR by a financial printer or another person
designated by the Company (the "Financial Printer") after the date of
the related Terms Agreement pursuant to Rule 424(b) under the Act,
including any documents incorporated by reference therein pursuant to
Item 12 of Form S-3 under the Act which were filed under the Exchange
Act on or before the date of such Prospectus Supplement (other than
any such incorporated documents that relate to Collateral Term Sheets
(as defined herein)) (such prospectus supplement, including such
incorporated documents (other than those that relate to Collateral
Term Sheets), in the form first filed after the date of the related
Terms Agreement pursuant to Rule 424(b) is hereinafter called the
"Prospectus Supplement"), is hereinafter called the "Final
Prospectus". Any preliminary prospectus, including any preliminary
prospectus supplement which, as completed, is proposed to be used in
connection with the sale of a Series of Offered Securities and any
prospectus filed with the Commission pursuant to Rule 424(a) of the
Act is hereinafter referred to as a "Preliminary Prospectus." Any
reference herein to the terms "amend," "amendment" or "supplement"
with respect to the Registration Statement, the Preliminary
Prospectus, the Final Prospectus or the Prospectus Supplement shall be
deemed to refer to and include the filing of any document under the
Exchange Act after the effective date of the Registration Statement or
the issue date of the Preliminary Prospectus, the Final Prospectus or
Prospectus Supplement, as the case may be, deemed to be incorporated
therein by reference pursuant to Item 12 of Form S-3 under the Act.
(ii) The related Registration Statement, at the time it
became effective, and the prospectus contained therein, and any
amendments thereof and supplements thereto filed prior to the date of
the related Terms Agreement, conformed in all material respects to the
- 3 -
<PAGE> 4
requirements of the Act and the rules and regulations of the
Commission thereunder; on the date of the related Terms Agreement and
on each Closing Date (as defined in Section 3 below), the related
Registration Statement and the related Final Prospectus, and any
amendments thereof and supplements thereto, will conform in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder; such Registration Statement,
at the time it became effective, did not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; such Final Prospectus, on the date of any filing pursuant
to Rule 424(b) and on each Closing Date, will not include any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading; and the Form
8-K relating to any Subsequent Home Loans, on the date of any filing
thereof, will not include any untrue statement of a material fact or
omit to state any information which such Final Prospectus states will
be included in such Form 8-K; provided, however, that the Company
makes no representations or warranties as to the information contained
in or omitted from (A) such Registration Statement or such Final
Prospectus (or any supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of the Underwriters specifically for use in the preparation
thereof or (B) any Current Report (as defined in Section 5(b) below),
or in any amendment thereof or supplement thereto, incorporated by
reference in such Registration Statement or such Final Prospectus (or
any amendment thereof or supplement thereto).
(iii) The Securities of the related Series will conform to
the description thereof contained in the related Final Prospectus; and
will each on the related Closing Date be duly and validly authorized,
and, when validly executed, countersigned, issued and delivered in
accordance with the related Indenture or Trust Agreement, as
applicable, and sold to you as provided herein and in the related
Terms Agreement, will each be validly issued and outstanding and
entitled to the benefits of such Indenture or Trust Agreement, as
applicable, and, if applicable, the related Policy.
(iv) Neither the issuance nor sale of the Securities of
the related Series nor the consummation of any other of the
transactions herein contemplated, nor the fulfillment of the terms
hereof or of the related Terms Agreement, will conflict with any
statute, order or regulation applicable to the Company of any court,
regulatory body, administrative agency or governmental body having
jurisdiction over the Company or with any organizational document of
the Company or any instrument or any agreement under which the Company
is bound or to which it is a party.
(v) This Agreement and the related Terms Agreement have
been duly authorized, executed and delivered by the Company.
(vi) At or prior to the related Closing Date, the Trust
will have entered into the related Indenture, Trust Agreement and any
Insurance Agreement and, assuming the due
- 4 -
<PAGE> 5
authorization, execution and delivery thereof by the other parties
thereto, such Indenture, such Trust Agreement and such Insurance
Agreement (on such Closing Date) will constitute the valid and binding
agreement of the Trust enforceable in accordance with its terms,
subject as to enforceability, to bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights and
to general principles of equity (regardless of whether the
enforceability of such Indenture, such Trust Agreement or such
Insurance Agreement is considered in a proceeding in equity or at
law).
(vii) At or prior to the related Closing Date, the Company
will have entered into the related Sale and Servicing Agreement and
any related FHA Claims Agreement and, assuming the due authorization,
execution and delivery thereof by the other parties thereto, such Sale
and Servicing Agreement and such FHA Claims Agreement (on such Closing
Date) will constitute the valid and binding agreement of the Company
enforceable in accordance with its terms, subject as to
enforceability, to bankruptcy, insolvency, reorganization or other
similar laws affecting creditors' rights and to general principles of
equity (regardless of whether the enforceability of such Sale and
Servicing Agreement and such FHA Claims Agreement is considered in a
proceeding in equity or at law).
(viii) The FHA Insurance Holder and the Transferor are each
approved by the FHA as a lender under the Title I program and each
holds a valid contract of insurance or approval for insurance under
the Title I program; the FHA Insurance Holder, will have received
prior to each Closing Date or Subsequent Transfer Date, as the case
may be, all material consents, authorizations, orders and approvals
from governmental authorities, agencies or bodies and all other
material actions will have been taken prior to such Closing Date or
Subsequent Transfer Date, which are necessary to permit the FHA
Insurance Holder to obtain the benefit of the FHA Insurance in respect
of the related Title I Mortgage Loan as described in the related Final
Prospectus and will have completed prior to each Closing Date or
Subsequent Transfer Date, as the case may be, all material actions of
the Transferor and the FHA Insurance Holder that are necessary to duly
and validly effect the transfer of the FHA Insurance applicable to the
Title I Mortgage Loans into the FHA contract of insurance coverage
reserve account of the FHA Insurance Holder.
(ix) If applicable, the related Policy, when delivered,
will constitute the legal, valid and bind obligation of the Insurer,
enforceable in accordance with its terms.
(x) Any funds or accounts established from time to time
with respect to a Series of Securities in accordance with the related
Indenture, Trust Agreement or Sale and Servicing Agreement will have
been properly funded at the Closing Date by the deposit by the
Depositor of the requisite cash therein, in the manner specified by
such Indenture, Trust Agreement or Sale and Servicing Agreement.
(xi) The related Trust will have a valid and perfected
first priority security interest in, on the Closing Date, and on any
Subsequent Transfer Date, the Home Loans and any
- 5 -
<PAGE> 6
funds or accounts to be deposited or established with the Indenture
Trustee for the benefit and security of the holders of the related
Notes (and in any cash deposited therein), subject to no prior lien,
mortgage, pledge, charge, security interest, adverse claim or other
encumbrance.
(xii) Neither the Depositor, the Transferor, the Trust nor
any funds or accounts established thereunder is an "investment
company" (as defined in the Investment Company Act of 1940, as amended
(the "1940 Act")) or is under the "control" (as such term is defined
in the 1940 Act) of an "investment company" that is registered or
required to be registered under, or is otherwise subject to the
provisions of, the 1940 Act.
2. Purchase and Sale. Subject to the execution of the Terms
Agreement for a particular Offering and subject to the terms and conditions and
in reliance upon the representations and warranties set forth in this Agreement
and such Terms Agreement, the Company agrees to sell to each Underwriter,
severally and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Company, the respective original principal amounts
of the related Offered Securities set forth in the related Terms Agreement
opposite the name of such Underwriter, plus any additional original principal
amount of Offered Securities which such Underwriter may be obligated to
purchase pursuant to Section 13 hereof, at the purchase price therefor set
forth in such Terms Agreement (the "Purchase Price").
The parties hereto agree that settlement for all securities sold
pursuant to this Agreement shall take place on the terms set forth herein and
not as set forth in Rule 15c6-1(a) under the Exchange Act.
3. Delivery and Payment. Delivery of and payment for the Offered
Securities of a Series shall be made at the specified offices of Andrews &
Kurth L.L.P., at 10:00 a.m. New York City time, on the Closing Date specified
in the related Terms Agreement, which date and time may be postponed by
agreement between the Underwriters and the Company (such date and time being
herein called the "Closing Date"). Delivery of such Offered Securities shall
be made to the Underwriters against payment by the Underwriters of the Purchase
Price thereof to or upon the order of the Company by wire transfer in federal
or other immediately available funds. Unless delivery is made through the
facilities of The Depository Trust Company, the Offered Securities shall be
registered in such names and in such authorized denominations as the
Underwriters may request not less than two full business days in advance of
each Closing Date.
The Company agrees to notify the Underwriters at least two business
days before each Closing Date of the exact principal balance evidenced by the
Offered Securities and to have such Offered Securities available for
inspection, checking and packaging in New York, New York, no later than 12:00
noon on the business day prior to such Closing Date.
- 6 -
<PAGE> 7
4. Offering by the Underwriters. It is understood that the
Underwriters propose to offer the Offered Securities of the related Series for
sale to the public as set forth in the related Final Prospectus.
5. Agreements. The Company and FFI agree with the Underwriters
that:
(a) The Company will cause the each of the Preliminary
Prospectus and the Final Prospectus as supplemented by a Prospectus
Supplement relating to the Offered Securities to be filed pursuant to
Rule 424 under the Act and will promptly advise the Underwriters when
such Preliminary Prospectus and such Final Prospectus as so
supplemented has been so filed, and prior to the termination of the
Certificate Offering to which such Preliminary Prospectus and Final
Prospectus relates also will promptly advise the Underwriters (i) when
any amendment to the related Registration Statement specifically
relating to such Offered Securities shall have become effective or any
further supplement to such Preliminary Prospectus or such Final
Prospectus has been filed, (ii) of any request by the Commission for
any amendment of such Registration Statement, Preliminary Prospectus
or Final Prospectus or for any additional information, (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of such Registration Statement or the institution or
threatening of any proceeding for that purpose and (iv) of the receipt
by the Company of any written notification with respect to the
suspension of the qualification of such Offered Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding
for such purpose. The Company will not file any amendment of the
related Registration Statement or supplement to the related
Preliminary Prospectus or Final Prospectus (other than any amendment
or supplement specifically relating to one or more Series of
asset-backed securities other than the Series that includes the
related Offered Securities) unless (i) the Company has given
reasonable notice of its intention to file any such amendment or
supplement, (ii) the Company has furnished the Underwriters with a
copy for their review within a reasonable time prior to filing, and
(iii) the Underwriters do not reasonably object to the filing of such
amendment or supplement. The Company will use its best efforts to
prevent the issuance of any such stop order and, if issued, to obtain
as soon as possible the withdrawal thereof.
(b) The Company will cause any Computational Materials
and any Structural Term Sheets (each as defined in Section 8 below)
with respect to the Offered Securities of a Series that are delivered
by an Underwriter to the Company pursuant to Section 8 to be filed
with the Commission on a Current Report on Form 8-K (a "Current
Report") pursuant to Rule 13a-11 under the Exchange Act in accordance
with Section 10 on the business day immediately following the date on
which the related Terms Agreement is executed and delivered. The
Company will cause any Collateral Term Sheet (as defined in Section 9
below) with respect to the Offered Securities of a Series that is
delivered by the Underwriters to the Company in accordance with the
provisions of Section 9 to be filed with the Commission on a Current
Report pursuant to Rule 13a-11 under the Exchange Act in accordance
with Section 10 on the business day immediately following the day on
which
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<PAGE> 8
such Collateral Term Sheet is delivered to counsel for the Company by
the Underwriters prior to 10:30 a.m. In addition, if at any time
prior to the availability of the related Prospectus Supplement, the
Underwriters have delivered to any prospective investor a subsequent
Collateral Term Sheet that reflects, in the reasonable judgment of the
Underwriters and the Company, a material change in the characteristics
of the Home Loans for the related Series from those on which a
Collateral Term Sheet with respect to the related Series previously
filed with the Commission was based, the Company will cause any such
Collateral Term Sheet that is delivered by the Underwriters to the
Company in accordance with the provisions of Section 9 hereof to be
filed with the Commission on a Current Report in accordance with
Section 10. Each such Current Report shall be incorporated by
reference in the related Final Prospectus and the related Registration
Statement.
(c) If, at any time when a prospectus relating to the
Offered Securities of a Series is required to be delivered under the
Act, any event occurs as a result of which the related Final
Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in light of the circumstances
under which they were made not misleading, or if it shall be necessary
at any time to amend or supplement the related Final Prospectus to
comply with the Act or the rules thereunder, the Company promptly will
prepare and file with the Commission, subject to paragraph (a) of this
Section 5, an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance; provided, however, that the Company will not be required
to file any such amendment or supplement with respect to any
Computational Materials, Structural Term Sheets or Collateral Term
Sheets incorporated by reference in the Final Prospectus other than
any amendments or supplements of such Computational Materials or
Structural Term Sheets that are furnished to the Company by the
Underwriters pursuant to Section 8(e) hereof or any amendments or
supplements of such Collateral Term Sheets that are furnished to the
Company by the Underwriters pursuant to Section 9(d) hereof which are
required to be filed in accordance therewith.
(d) The Company will furnish to the Underwriters and
counsel for the Underwriters, without charge, and, so long as delivery
of a prospectus by the Underwriters or a dealer may be required by the
Act, as many copies of the related Preliminary Prospectus and the
related Final Prospectus and any supplements thereto (other than
exhibits to the related Current Report) as the Underwriters may
reasonably request.
(e) The Company will furnish such information, execute
such instruments and take such actions as may be reasonably requested
by the Underwriters to qualify the Offered Securities of a Series for
sale under the laws of such jurisdictions as the Underwriters may
designate, to maintain such qualifications in effect so long as
required for the distribution of such Offered Securities and to
determine the legality of such Offered Securities for purchase by
investors; provided, however, that the Company shall not be required
to qualify to do business in any jurisdiction where it is not
qualified on the date of the related Terms
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<PAGE> 9
Agreement or to take any action which would subject it to general or
unlimited service of process or corporate or franchise taxation as a
foreign corporation in any jurisdiction in which it is not, on the
date of the related Terms Agreement, subject to such service of
process.
(f) So long as the Offered Securities of a Series are
outstanding, the Company will furnish to the Underwriters copies of
the annual independent public accountants' servicing report furnished
to the Indenture Trustee pursuant to the related Sale and Servicing
Agreement.
(g) Whether or not the transactions contemplated hereby
and by the related Terms Agreement shall be consummated, the Company
shall be responsible for the payment of any costs and expenses for
which details are submitted, in connection with the performance of its
obligations under this Agreement and the related Terms Agreement,
including, without limitation, (a) the cost and expenses of printing
or otherwise reproducing the related Registration Statement, the
related Preliminary Prospectus, the related Final Prospectus, this
Agreement, the related Terms Agreement, the related Sale and Servicing
Agreement, the related Trust Agreement, the related Indenture and the
Offered Securities, and (b) the cost of delivering the related Offered
Securities to the office of the Underwriters, insured to the
satisfaction of the Underwriters, (c) the fees and disbursements of
the Depositor's and the Servicer's counsel and accountants, (d) the
qualification of the Securities under state securities or blue sky
laws, including filing fees and the fees and disbursements of counsel
for you in connection therewith and in connection with the preparation
of any blue sky survey and legal investment survey, (e) the printing,
word processing and duplicating expenses and supervision related to
preparation of and delivery to the Underwriter of copies of any
document contemplated hereunder and any blue sky survey and legal
investment survey, (f) the fees of rating agencies, (g) the fees and
expenses, if any, incurred in connection with the listing of the
Offered Securities on any national securities exchange, (h) the fees,
if any, of the National Association of Securities Dealers, Inc., and
the fees and expenses of counsel for you in connection with any
required written submission to or appearance before such entity, (i)
the fees and expenses of the Indenture Trustee, the Owner Trustee, any
custodian, the backup servicer and the Insurer, and their respective
counsel, (j) the fees and expenses of your counsel up to $25,000 per
Certificate Offering, and (k) any such other related expenses not
specified above.
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Offered Securities of any
Series shall be subject to the accuracy in all material respects of the
representations and warranties on the part of the Company contained in this
Agreement, as supplemented by the related Terms Agreement, as of the respective
dates thereof and the related Closing Date, to the accuracy of the statements
of the Company made in any applicable officers' certificates pursuant to the
provisions hereof, to the performance by the Company of its obligations under
this Agreement and such Terms Agreement and to the following additional
conditions applicable to the related Offering:
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<PAGE> 10
(a) No stop order suspending the effectiveness of the
related Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or threatened.
(b) Andrews & Kurth, counsel for the Company, shall have
furnished to the Underwriters an opinion, dated the related Closing
Date, to the effect that:
(i) this Agreement and the related Terms
Agreement have been duly executed and delivered by the
Company;
(ii) each of the related Sale and Servicing
Agreement and any FHA Claims Agreement have been duly executed
and delivered by the Company and is a legal, valid and binding
agreement of the Company enforceable against the Company in
accordance with its terms;
(iii) each of the related Indenture, Trust
Agreement and any Insurance Agreement have been duly executed
and delivered by the Trust and is a legal, valid and binding
agreement of the Trust enforceable against the Trust in
accordance with its terms;
(iv) the Notes, when duly executed and delivered
by the Owner Trustee and when authenticated by the Indenture
Trustee in accordance with the related Indenture, will be
validly issued and outstanding and entitled to the benefits of
such Indenture;
(v) the Certificates, when duly executed and
delivered by the Owner Trustee in accordance with the related
Trust Agreement, will be validly issued and outstanding and
entitled to the benefits of such Trust Agreement;
(vi) the related Trust Agreement is not required
to be qualified under the Trust Indenture Act of 1939, as
amended, (the "Trust Indenture Act") and the Trust created
thereunder is not required to be registered under the 1940
Act;
(vii) the Indenture has been duly qualified under
the Trust Indenture Act;
(viii) the related Indenture constitutes a grant by
the Trust to the Indenture Trustee of a valid and perfected
security interest in, or the Closing Date, and on any
subsequent Transfer Date, the Home Loans and any funds or
accounts to be deposited or established with such Indenture
Trustee for the benefit and security of the holders of the
related Notes (and any cash deposited therein), subject to no
prior lien, mortgage, pledge, charge, security interest,
adverse claim or other encumbrance.
- 10 -
<PAGE> 11
(ix) such counsel confirms that the related
Registration Statement is effective under the Act and, to the
best of such counsel's knowledge, no stop order with respect
thereto has been issued, and no proceeding for that purpose
has been instituted or threatened by the Commission under the
Act; such Registration Statement (except the financial
statements and schedules and other financial and statistical
data included therein and the documents incorporated by
reference therein), at the time it became effective and the
related Final Prospectus (except the financial statements and
schedules and the other financial and statistical data
included therein, the documents incorporated by reference
therein and the information included in the first sentence of
the last paragraph on the cover page, the information under
the heading "Underwriting" therein insofar as such information
relates to the offer and sale of the Securities by the
Underwriters, as of the date of the Prospectus Supplement,
conformed in all material respects to the requirements of the
Act and the rules and regulations thereunder; and no
information has come to the attention of such counsel that
causes it to believe that (A) such Registration Statement
(except the financial statements and schedules and the other
financial and statistical data included therein and the
documents incorporated by reference therein) at the time it
became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading or (B) such Final Prospectus or any amendment or
supplement thereto (except the financial statements and
schedules and the other financial and statistical data
included therein, the documents incorporated by reference
therein and the information included in the first sentence of
the last paragraph on the cover page, the information under
the heading "Underwriting" therein insofar as such information
relates to the offer and sale of the Securities by the
Underwriters), as of the date of the Prospectus Supplement or
at the related Closing Date, contained or contains an untrue
statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading;
(x) the statements set forth under the headings
"Description of the Transfer and Servicing Agreements" and
"Description of the Offered Securities" in the related Final
Prospectus, insofar as such statements purport to summarize
certain provisions of the related Trust Agreement, the related
Indenture, the related Sale and Servicing Agreement" and the
related Offered Securities, provide a fair summary of such
provisions;
(xi) the statements set forth in the related Final
Prospectus under the headings "Certain Legal Aspects of the
Loan Assets", "Certain Federal Income Tax Consequences"
(insofar as they relate specifically to the purchase,
ownership and disposition of the related Offered Securities)
and "ERISA Considerations" (insofar as they relate
specifically to the purchase, ownership and disposition of
such Offered
- 11 -
<PAGE> 12
Securities), to the extent that they constitute matters of law
or legal conclusions, provide a fair summary of such law or
conclusions;
(xii) such HUD/FHA regulatory matters as reasonably
required by the Underwriters; and
(xiii) the statements set forth in the related Final
Prospectus under the heading "Certain Federal Income Tax
Consequences" and in the related Prospectus Supplement under
the heading "Summary of Terms -- Tax Status", to the extent
such statements relate to federal income tax consequences,
accurately describe the material federal income tax
consequences to holders of the Securities.
Such opinion may express its reliance as to factual matters on the
representations and warranties made by, and on certificates or other
documents furnished by, officers of the parties to this Agreement, the
related Terms Agreement, the related Sale and Servicing Agreement, the
related Indenture, the related Trust Agreement or any related
Insurance Agreement. Such opinion may assume the due authorization,
execution and delivery of the instruments and documents referred to
therein by the parties thereto other than the Company. Such opinion
may be qualified, insofar as it concerns the enforceability of the
documents referred to therein, to the extent that such enforceability
may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights in general
and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law). Such
opinion may be further qualified as expressing no opinion as to (x)
the statements in the related Final Prospectus under the heading
"Certain Legal Aspects of the Loan Assets" except insofar as such
statements relate to the laws of the State of Texas and the laws of
the United States, and (y) the statements in such Final Prospectus
under the headings "ERISA Considerations" and "Certain Federal Income
Tax Consequences" except insofar as such statements relate to the laws
of the United States.
(c) Ronald M. Mankoff, as General Counsel for the Company
and FFI, shall have furnished to the Underwriters an opinion, dated
the related Closing Date, to the effect that:
(i) Each of the Company and FFI have been duly
incorporated and each is validly existing as a corporation in
good standing in the jurisdiction of its organization with
corporate power to own its properties, to conduct its business
as described in the related Final Prospectus and to enter into
and perform its obligations under this Agreement, the related
Terms Agreement, the related Sale and Servicing Agreement, the
related Indenture, the related Trust Agreement, the related
Insurance Agreement and the Securities of the related Series,
as applicable;
(ii) The Company has full power and authority to
deposit the related Home Loans as contemplated herein and in
the related Trust Agreement and FFI has
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<PAGE> 13
full power and authority to transfer and service the related
Home Loans as contemplated in the related Sale and Servicing
Agreement;
(iii) No consent, approval, authorization or order
of any court or governmental agency or body is required for
the consummation by (a) the Company of the transactions
contemplated herein and in the related Sale and Servicing
Agreement, Trust Agreement and Indenture (b) by FFI of the
transactions contemplated in the related Sale and Servicing
Agreement, except such as may be required under the blue sky
laws of any jurisdiction and such other approvals as have been
obtained;
(iv) Neither the issuance of the Securities of the
related Series nor delivery of the related Offered Securities,
nor the consummation of any other of the transactions
contemplated in this Agreement, the related Terms Agreement,
the related Sale and Servicing Agreement, the related Trust
Agreement, the related Indenture or the related Insurance
Agreement, nor the fulfillment of the terms of the related
Securities, the related Sale and Servicing Agreement, the
related Indenture, the related Trust Agreement, this
Agreement, the related Terms Agreement or the related
Insurance Agreement, as applicable, will conflict with or
violate any term or provision of the articles of incorporation
or by-laws of the Company or FFI, as applicable or any
statute, order or regulation applicable to the Company of any
court, regulatory body, administrative agency or governmental
body having jurisdiction over the Company or FFI and will not
conflict with, result in a breach or violation or the
acceleration of or constitute a default under the terms of any
indenture or other agreement or instrument known to such
counsel to which the Company or FFI is a party or by which it
is bound; and
(v) There are no actions, proceedings or
investigations pending or, to the best knowledge of such
counsel, threatened before any court, administrative agency or
other tribunal (i) asserting the invalidity of this Agreement,
the related Terms Agreement, the related Sale and Servicing
Agreement, the related Trust Agreement, the related Indenture,
the related Insurance Agreement or the related Securities,
(ii) seeking to prevent the issuance of the Securities of the
related Series or the consummation by the Company or FFI, as
applicable, of any of the transactions contemplated by this
Agreement, such Terms Agreement, such Sale and Servicing
Agreement, such Indenture, such Trust Agreement or such
Insurance Agreement, or (iii) which might materially and
adversely affect the performance by the Company or FFI, as
applicable, of its obligations under, or the validity or
enforceability of, this Agreement, such Terms Agreement, such
Sale and Servicing Agreement, such Indenture, such Trust
Agreement, such Insurance Agreement or the related Securities.
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<PAGE> 14
In rendering his opinion such counsel may rely as to matters of fact,
to the extent deemed proper and as stated therein, on certificates of
responsible officers of the Company, FFI or public officials.
(d) The Underwriters shall have received from Brown &
Wood, counsel for the Underwriters, such opinion or opinions, dated
the related Closing Date, with respect to the issuance and sale of the
Securities of the related Series, the related Registration Statement,
the related Final Prospectus and such other related matters in form
and substance that is customary and reasonably acceptable to the
Underwriters, and the Company shall have furnished to such counsel
such documents as the Underwriters may reasonably request for the
purpose of enabling them to pass upon such matters.
(e) The Company shall have furnished to the Underwriters
a certificate of the Company, signed by the President or any Vice
President dated the related Closing Date, to the effect that the
signers of such certificate have carefully examined the related
Registration Statement (excluding any Current Reports and any other
documents incorporated by reference therein), the related Final
Prospectus, the Form 8-K relating to the Subsequent Home Loans, this
Agreement and the related Terms Agreement and that:
(i) the representations and warranties of the
Company in this Agreement are true and correct in all material
respects on and as of the related Closing Date with the same
effect as if made on such Closing Date, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to such Closing Date;
(ii) no stop order suspending the effectiveness of
such Registration Statement has been issued and no proceedings
for that purpose have been instituted or, to their knowledge,
threatened; and
(iii) nothing has come to their attention that
would lead them to believe that such Registration Statement
(excluding any Current Report) contains any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading, that the related Final
Prospectus (excluding the related Current Report) contains any
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading, or that the Form
8-K relating to the Subsequent Home Loans includes any untrue
statement of a material fact or omits to state any information
which the Final Prospectus states will be included in such
Form 8-K.
(f) Counsel for the Indenture Trustee shall have
furnished to the Underwriters an opinion, dated the related Closing
Date, in form and substance that is customary and
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<PAGE> 15
reasonably acceptable to the Underwriters regarding certain matters
relating to the Indenture Trustee.
(g) Counsel for the Owner Trustee shall have furnished to
the Underwriters an opinion, dated the related Closing Date, in form
and substance that is customary and reasonably acceptable to the
Underwriters regarding certain matters relating to the Owner Trustee.
In addition, such counsel shall furnish to the Underwriters
such opinions as to the treatment of the Trust Fund for purposes of
state tax law where the Owner Trustee maintains possession of the
assets of the Trust Fund as are customary and reasonably satisfactory
to the Underwriters.
(h) Ernst & Young LLP shall have furnished to the
Underwriters one or more letters in form and substance that is
customary and reasonably satisfactory to the Underwriters, to the
effect that they have performed certain specified procedures requested
by the Underwriters with respect to certain information relating to
the Offered Securities and certain matters relating to the Company and
the Servicer.
(i) The Policy relating to the Offered Securities of the
related Series, if any, shall have been duly executed and issued prior
to the Closing Date, in form and substance that is customary and
reasonably satisfactory to the Underwriters, and shall conform in all
respects to the description thereof in the Prospectus.
(j) If applicable, counsel for the Insurer shall have
furnished to the Underwriters an opinion, dated the related Closing
Date, in form and substance that is customary and reasonably
acceptable to the Underwriters regarding to certain matters relating
to the Insurer.
In rendering his opinion such counsel may rely as to matters
of fact, to the extent deemed proper and as stated therein, on
certificates of responsible officers of the Insurer or public
officials.
(k) The Owner Trustee shall have received from the
Depositor all funds required to be delivered by the Depositor to be
deposited in any account required to be established in accordance with
the related Trust Agreement.
(l) If applicable, the Servicer, as FHA Claims
Administrator, and the Depositor, as FHA Insurance Holder, shall have
executed and delivered the FHA Claims Agreement in form and substance
reasonably acceptable to the Underwriters.
(m) The Offered Securities of the related Series shall
have received the ratings specified in the related Terms Agreement
(the "Required Ratings").
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<PAGE> 16
(n) On or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (i) any intended or
possible downgrading or (ii) any review or possible changes in rating
the direction of which has not been indicated, in the rating accorded
and originally requested by the Company relating to any previously
issued asset-backed securities of the Company by any "nationally
recognized statistical rating organization" (as such terms is defined
for purposes of the Exchange Act).
(o) On or prior to the Closing Date, there has been no
downgrading, not has any notice been given of (i) any intended or
possible downgrading or (ii) any review or possible changes in rating
the direction of which has not been indicated, in the rating accorded
the Insurer's claims paying ability by any "nationally recognized
statistical rating organization" (as such terms is defined for
purposes of the Exchange Act).
(p) Subsequent to the date of the related Terms
Agreement, there shall not have been any change, or any development
involving a prospective change, in or affecting the business or
properties of (i) the Company, its parent company or any of its
subsidiaries, (ii) the Transferor or (iii) the Insurer which the
Underwriters conclude in their reasonable judgment, after consultation
with the Company, materially impairs the investment quality of the
Offered Securities of the related Series so as to make it impractical
or inadvisable to proceed with the public offering or the delivery of
such Offered Securities as contemplated by the related Final
Prospectus.
(q) Prior to the related Closing Date, the Company shall
have furnished to the Underwriters such further information,
certificates and documents as the Underwriters may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects with respect to the particular Offered
Securities of a Series when and as provided in this Agreement and the related
Terms Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement and the related Terms Agreement shall not be in all
material respects reasonably satisfactory in form and substance to the
Underwriters and their counsel, this Agreement (with respect to the related
Offered Securities) and the related Terms Agreement and all obligations of the
Underwriters hereunder (with respect to the related Offered Securities) and
thereunder may be canceled at, or at any time prior to, the related Closing
Date by the Underwriters. Notice of such cancellation shall be given to the
Company in writing, or by telephone or telegraph confirmed in writing.
7. Indemnification and Contribution. (a) The Company and FFI
jointly and severally, agree to indemnify and hold harmless each Underwriter
and each person who controls any Underwriter within the meaning of the Act or
the Exchange Act against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the
Act, the Exchange Act, or other Federal or state statutory law or regulation,
at common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise
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<PAGE> 17
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement relating to the Offered
Securities of the applicable Series as it became effective or in any amendment
or supplement thereof, or in such Registration Statement, in the related
Preliminary Prospectus or the related Final Prospectus, or in any amendment
thereof, or in the Form 8-K referred to in such Final Prospectus or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and agrees to reimburse each such indemnified party for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company and FFI will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein (A) in reliance upon and in conformity with
written information furnished to the Company as herein stated by or on behalf
of any Underwriter through you specifically for use in connection with the
preparation thereof or (B) in any Computational Materials or ABS Term Sheets
furnished to prospective investors by the Underwriters or any Current Report or
any amendment or supplement thereof, except to the extent that any untrue
statement or alleged untrue statement therein or omission therefrom results
directly from an error (a "Mortgage Pool Error") in the information concerning
the characteristics of the Home Loans furnished by the Company to any
Underwriter in writing or by electronic transmission that was used in the
preparation of either (x) any Computational Materials or ABS Term Sheets (or
amendments or supplements thereof) included in such Current Report (or
amendment or supplement thereof) or (y) any written or electronic materials
furnished to prospective investors on which the Computational Materials (or
amendments or supplements) were based.
(b) Each Underwriter agrees, severally, and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement relating to the Offered
Securities of the applicable Series, and each person who controls the Company
within the meaning of the Act or the Exchange Act to the same extent as the
foregoing indemnities from the Company to each Underwriter, but only with
reference to (A) written information furnished to the Company by or on behalf
of such Underwriter through you specifically for use in the preparation of the
documents referred to in the foregoing indemnity with respect to the related
Series, or (B) any Computational Materials or ABS Term Sheets (or amendments or
supplements thereof) delivered to prospective investors by such Underwriter,
including any Computational Materials or ABS Term Sheets that are furnished to
the Company by such Underwriter pursuant to Section 8 and incorporated by
reference in such Registration Statement, the related Preliminary Prospectus or
the related Final Prospectus or any amendment or supplement thereof (except
that no such indemnity shall be available for any losses, claims, damages or
liabilities, or actions in respect thereof, resulting from any Mortgage Pool
Error, other than a Corrected Mortgage Pool Error).
(c) Promptly after receipt by an indemnified party under Section 7
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 7, notify such indemnifying party in writing of the commencement
thereof; but the omission so to notify such indemnifying party will not relieve
it
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<PAGE> 18
from any liability which it may have to any indemnified party otherwise than
under this Section 7. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent that they may elect by written notice
delivered to an indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both an indemnified party and an
indemnifying party and such indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to an
indemnifying party, such indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from an indemnifying party or parties to
such indemnified party of their election so to assume the defense of such
action and approval by such indemnified party of counsel, such indemnifying
party or parties will not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) such
indemnified party shall have employed separate counsel in connection with the
assertion of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party
or parties shall not be liable for the expenses of more than one separate
counsel approved by the indemnified party or parties in the case of
subparagraph (a) or (b), representing the indemnified parties under
subparagraph (a) or (b), who are parties to such action), (ii) the indemnifying
party or parties shall not have employed counsel satisfactory to the
indemnified party or parties to represent such indemnified party or parties
within a reasonable time after notice of commencement of the action or (iii)
the indemnifying party or parties have authorized the employment of counsel for
an indemnified party at the expense of the indemnifying parties; and except
that, if clause (i) or (iii) is applicable, such liability shall be only in
respect of the counsel referred to in such clause (i) or (iii).
(d) If the indemnification provided for in paragraph (a) or (b) of
this Section 7 is due in accordance with its terms but is for any reason held
by a court to be unavailable from the Company, FFI or any Underwriter, on
grounds of policy or otherwise, or if an indemnified party failed to give
notice under paragraph (c) of this Section 7 in respect of a claim otherwise
subject to indemnification in accordance with paragraph (a) or (b) of this
Section 7, the Company, FFI and each Underwriter shall contribute to the
aggregate losses, claims, damages and liabilities (including legal and other
expenses reasonably incurred in connection with investigating or defending
same) to which the Company, FFI and such Underwriter may be subject in such
proportion so that such Underwriter is responsible for that portion represented
by the difference between the portion of the proceeds to the Company in respect
of the Offered Securities underwritten by such Underwriter for the related
Series and the portion of the total proceeds received by such Underwriter from
the sale of such Offered Securities (the "Underwriting Discount"), and the
Company and FFI are responsible for the balance; provided, however, that in no
case shall any such Underwriter be responsible under this subparagraph for any
amount in excess of such Underwriting Discount applicable to the Offered
Securities purchased by such Underwriter pursuant to this Agreement and the
related Terms Agreement. Notwithstanding anything to the contrary in this
Section 7(d), no person guilty of
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<PAGE> 19
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person who
controls any Underwriter within the meaning of either the Act or the Exchange
Act shall have the same rights to contribution as such Underwriter, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the immediately
preceding sentence of this paragraph (d).
8. Computational Materials and Structural Term Sheets. (a) In
accordance with Section 10, the Underwriters shall deliver to the Company one
complete copy of all materials provided by the Underwriters to prospective
investors in such Offered Securities which constitute (i) "Computational
Materials" within the meaning of the no-action letter dated May 20, 1994 issued
by the Division of Corporation Finance of the Commission to Kidder, Peabody
Acceptance Corporation I, Kidder, Peabody & Co. Incorporated, and Kidder
Structured Asset Corporation and the no-action letter dated May 27, 1994 issued
by the Division of Corporation Finance of the Commission to the Public
Securities Association (together, the "Kidder Letters") and the filing of such
material is a condition of the relief granted in such letter (such materials
being the "Computational Materials"), and (ii) "Structural Term Sheets" within
the meaning of the no-action letter dated February 17, 1995 issued by the
Division of Corporation Finance of the Commission to the Public Securities
Association (the "PSA Letter") and the filing of such material is a condition
of the relief granted in such letter (such materials being the "Structural Term
Sheets"). Each delivery of Computational Materials and Structural Term Sheets
to the Company pursuant to this paragraph (a) shall be effected in accordance
with Section 10.
(b) Each Underwriter represents and warrants to and agrees with
the Company, as of the date of the related Terms Agreement and as of the
Closing Date, that:
(i) the Computational Materials furnished to the Company
by such Underwriter pursuant to Section 8(a) constitute (either in
original, aggregated or consolidated form) all of the materials
furnished to prospective investors by such Underwriter prior to the
time of delivery thereof to the Company that are required to be filed
with the Commission with respect to the related Offered Securities in
accordance with the Kidder Letters, and such Computational Materials
comply with the requirements of the Kidder Letters;
(ii) the Structural Term Sheets furnished to the Company
by such Underwriter pursuant to Section 8(a) constitute all of the
materials furnished to prospective investors by such Underwriter prior
to the time of delivery thereof to the Company that are required to be
filed with the Commission as "Structural Term Sheets" with respect to
the related Offered Securities in accordance with the PSA Letter, and
such Structural Term Sheets comply with the requirements of the PSA
Letter; and
- 19 -
<PAGE> 20
(iii) on the date any such Computational Materials or
Structural Term Sheets with respect to such Offered Securities (or any
written or electronic materials furnished to prospective investors on
which the Computational Materials are based) were last furnished to
each prospective investor by such Underwriter and on the date of
delivery thereof to the Company pursuant to Section 8(a) and on the
related Closing Date, such Computational Materials (or such other
materials) or Structural Term Sheets did not and will not include any
untrue statement of a material fact or, when read in conjunction with
the Final Prospectus and Prospectus Supplement, omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
Notwithstanding the foregoing, each Underwriter makes no representation or
warranty as to whether any Computational Materials or Structural Term Sheets
(or any written or electronic materials on which the Computational Materials
are based) included or will include any untrue statement resulting directly
from any Mortgage Pool Error.
(c) If, at any time when a prospectus relating to the Offered
Securities of a Series is required to be delivered under the Act, it shall be
necessary to amend or supplement the related Final Prospectus as a result of an
untrue statement of a material fact contained in any Computational Materials or
Structural Term Sheets provided by any Underwriter pursuant to this Section 8
or the omission to state therein a material fact required, when considered in
conjunction with the related Final Prospectus and Prospectus Supplement, to be
stated therein or necessary to make the statements therein, when read in
conjunction with the related Final Prospectus and Prospectus Supplement, not
misleading, or if it shall be necessary to amend or supplement any Current
Report relating to any Computational Materials or Structural Term Sheets to
comply with the Act or the rules thereunder, such Underwriter promptly will
prepare and furnish to the Company for filing with the Commission an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Each Underwriter represents and warrants to
the Company, as of the date of delivery by it of such amendment or supplement
to the Company, that such amendment or supplement will not include any untrue
statement of a material fact or, when read in conjunction with the related
Final Prospectus and Prospectus Supplement, omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, each such Underwriter makes no representation or
warranty as to whether any such amendment or supplement will include any untrue
statement resulting directly from any Mortgage Pool Error.
9. Collateral Term Sheets. (a) Prior to the delivery of any
"Collateral Term Sheet" within the meaning of the PSA Letter, the filing of
which material is a condition of the relief granted in such letter (such
material being the "Collateral Term Sheets"), to a prospective investor in the
Offered Securities, the Underwriters shall notify the Company and its counsel
by telephone of their intention to deliver such materials and the approximate
date on which the first such delivery of such materials is expected to occur.
Not later than 10:30 a.m., New York time, on the business day immediately
following the date on which any Collateral Term Sheet was first delivered to a
prospective investor in the Offered Securities, the Underwriters shall deliver
to the Company one
- 20 -
<PAGE> 21
complete copy of all materials provided by the Underwriters to prospective
investors in such Offered Securities which constitute "Collateral Term Sheets."
Each delivery of a Collateral Term Sheet to the Company pursuant to this
paragraph (a) shall be effected in accordance with Section 10. (Collateral Term
Sheets and Structural Term Sheets are, together, referred to herein as "ABS Term
Sheets.") At the time of each such delivery, the Underwriter making such
delivery shall indicate in writing that the materials being delivered constitute
Collateral Term Sheets, and, if there has been any prior such delivery with
respect to the related Series, shall indicate whether such materials differ in
any material respect from any Collateral Term Sheets previously delivered to the
Company with respect to such Series pursuant to this Section 9(a) as a result of
the occurrence of a material change in the characteristics of the related Home
Loans.
(b) Each Underwriter represents and warrants to and agrees with
the Company as of the date of the related Terms Agreement and as of the Closing
Date, that:
(i) The Collateral Term Sheets furnished to the Company
by such Underwriter pursuant to Section 9(a) constitute all of the
materials furnished to prospective investors by such Underwriter prior
to time of delivery thereof to the Company that are required to be
filed with the Commission as "Collateral Term Sheets" with respect to
the related Offered Securities in accordance with the PSA Letter, and
such Collateral Term Sheets comply with the requirements of the PSA
Letter; and
(ii) On the date any such Collateral Term Sheets with
respect to such Offered Securities were last furnished to each
prospective investor by such Underwriter and on the date of delivery
thereof to the Company pursuant to Section 9(a) and on the related
Closing Date, such Collateral Term Sheets did not and will not include
any untrue statement of a material fact or, when read in conjunction
with the Final Prospectus and Prospectus Supplement, omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
Notwithstanding the foregoing, each Underwriter makes no representation or
warranty as to whether any Collateral Term Sheet included or will include any
untrue statement or material omission resulting directly from any Mortgage Pool
Error.
(c) If, at any time when a prospectus relating to the Offered
Securities of a Series is required to be delivered under the Act, it shall be
necessary to amend or supplement the related Final Prospectus as a result of an
untrue statement of a material fact contained in any Collateral Term Sheets
provided by any Underwriter pursuant to this Section 9 or the omission to state
therein a material fact required, when considered in conjunction with the
related Final Prospectus and Prospectus Supplement, to be stated therein or
necessary to make the statements therein, when read in conjunction with the
related Final Prospectus and Prospectus Supplement, not misleading, or if it
shall be necessary to amend or supplement any Current Report relating to any
Collateral Term Sheets to comply with the Act or the rules thereunder, such
Underwriter promptly will prepare and furnish to the Company for filing with
the Commission an amendment or supplement which will
- 21 -
<PAGE> 22
correct such statement or omission or an amendment which will effect such
compliance. Each Underwriter represents and warrants to the Company, as of the
date of delivery of such amendment or supplement to the Company, that such
amendment or supplement will not include any untrue statement of a material
fact or, when read in conjunction with the related Final Prospectus and
Prospectus Supplement, omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, each such Underwriter makes no representation or warranty as to
whether any such amendment or supplement will include any untrue statement
resulting directly from any Mortgage Pool Error.
10. Delivery and Filing of Current Reports, Collateral Term
Sheets, Structural Term Sheets.
(a) Any Current Report, Collateral Term Sheet or
Structural Term Sheet that is required to be delivered by the
Underwriter to the Company hereunder shall be effected by the delivery
of four copies to counsel for the Company and one copy in computer
readable format to the Financial Printer on or prior to 10:30 a.m. on
the date so specified herein.
(b) The Company shall cause the Financial Printer to file
with the Commission any such Current Report, Collateral Term Sheet or
Structural Term Sheet within one business day immediately following
the delivery thereof pursuant to the preceding subsection. The
Company shall use its best efforts to cause any such Current Report,
Collateral Term Sheet or Structural Term Sheet to be so filed prior to
2:00 p.m., New York time, on such business day and will promptly
advise the Underwriters of such filing.
11. Termination. This Agreement (with respect to a particular
Certificate Offering) and the related Terms Agreement shall be subject to
termination in the absolute discretion of the Underwriters, by notice given to
the Company prior to delivery of and payment for the related Offered
Securities, if prior to the related Closing Date (i) trading in securities
generally on the New York Stock Exchange shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York shall have been declared by either federal or New York State
authorities, or (iii) there shall have occurred any outbreak or material
escalation of hostilities or other calamity or crisis the effect of which on
the financial markets of the United States is such as to make it, in the
reasonable judgment of the Underwriters, impracticable to market such Offered
Securities.
12. Representations and Indemnities to Survive Delivery. The
agreements, representations, warranties, indemnities and other statements of
the Company or its officers and of the Underwriters set forth in or made
pursuant to this Agreement and the related Terms Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters or the Company or any of the officers, directors of controlling
persons referred to in Section 7 hereof, and will survive delivery of and
payment for the related Offered Securities. The provisions of Section 7 hereof
shall survive the termination or cancellation of this Agreement and the related
Terms Agreement.
- 22 -
<PAGE> 23
13. Default by One or More of the Underwriters. If one or more of
the Underwriters shall fail on the Closing Date to purchase the Offered
Securities which it or they are obligated to purchase hereunder and under the
applicable Terms Agreement (the "Defaulted Securities"), you shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but
not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the terms herein set forth and under the applicable Terms
Agreement. If, however, you have not completed such arrangements within such
24-hour period, then:
(a) if the aggregate original Certificate Principal
Balance of Defaulted Securities does not exceed 10% of the aggregate
original Certificate Principal Balance of the Offered Securities to be
purchased pursuant to such Terms Agreement, the non-defaulting
Underwriters named in such Terms Agreement shall be obligated to
purchase the full amount thereof in the proportions that their
respective underwriting obligations thereunder bear to the
underwriting obligations of all non-defaulting Underwriters; and
(b) if the aggregate original Certificate Principal
Balance of Defaulted Securities exceeds 10% of the aggregate original
Certificate Principal Balance of the Offered Securities to be
purchased pursuant to such Terms Agreement, the applicable Terms
Agreement shall terminate without any liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section 13 and nothing in this
Agreement shall relieve any defaulting Underwriter from liability in respect of
its default.
In the event of any such default which does not result in a
termination of this Agreement or such applicable Terms Agreement, either you or
the Company shall have the right to postpone the Closing Date for a period of
time not exceeding seven days in order to effect any required changes in the
Registration Statement or in any other documents or arrangements.
14. Guarantor. RAC Financial Group, Inc., the parent of the
Company and FFI, ("RAC") shall guarantee any obligation or liability of the
Company or FFI pursuant to Section 7 hereof. RAC's acceptance of its guarantee
obligation is acknowledged by the execution of the signature page of this
Agreement by an authorized signatory of RAC.
15. Successors. This Agreement and the related Terms Agreement
will inure to the benefit of and be binding upon the parties hereto and thereto
and their respective successors and the officers, directors and controlling
persons referred to in Section 7 hereof, and their successors and assigns, and
no other person will have any right or obligation hereunder or thereunder. No
purchaser of any Offered Certificate from the Underwriters shall be deemed a
successor or assign by reason of such purchase.
16. APPLICABLE LAW. THIS AGREEMENT AND THE RELATED TERMS
AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
- 23 -
<PAGE> 24
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED THEREIN.
17. Miscellaneous. This Agreement, as supplemented by the related
Terms Agreement, supersedes all prior and contemporaneous agreements and
understandings relating to the subject matter hereof. This Agreement and the
related Terms Agreement or any term of each may not be changed, waived,
discharged or terminated except by an affirmative written agreement made by the
party against whom enforcement of the change, waiver, discharge or termination
is sought. The headings in this Agreement and the related Terms Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof or thereof.
18. Notices. All communications by one party hereunder to all
other parties hereunder will be in writing and effective only on receipt by
such other parties, and will be delivered as follows: (A) to the Underwriters
at the addresses first above written; (B) to the Company at 3773 Howard Hughes
Parkway, Suite 300N, Las Vegas, Nevada 89109, Attention: Michael Orendorf; and
(C) to FFI at FIRSTPLUS FINANCIAL, INC., 1250 Mockingbird Lane, Dallas, Texas
75247- 4902, Attention: Mr. Chris Gramlich.
- 24 -
<PAGE> 25
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Company and the Underwriters.
Very truly yours,
FIRSTPLUS INVESTMENT CORPORATION
By:
-------------------------
Christopher J. Gramlich
Senior Vice President
FIRSTPLUS FINANCIAL INC.
By:
-------------------------
Christopher J. Gramlich
Senior Vice President
ACKNOWLEDGED BY:
RAC FINANCIAL GROUP, INC.
By:
-------------------------
Christopher J. Gramlich
Senior Vice President
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
[NAME OF UNDERWRITER(S)]
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE> 26
EXHIBIT A
FIRSTPLUS HOME LOAN OWNER TRUST ___-__
ASSET-BACKED SECURITIES
TERMS AGREEMENT
(to Underwriting Agreement,
dated ______________, 199__
among the Company, FFI and the Underwriters)
FIRSTPLUS INVESTMENT CORPORATION [DATE]
3773 Howard Hughes Parkway
Suite 300N
Las Vegas, Nevada 89109
Attention: Mr. Michael Orendorf
FIRSTPLUS FINANCIAL INC.
1250 Mockingbird Lane
Dallas, Texas 75247-4902
Attention: Mr. Chris Gramlich
Each of ________________ ("______________") and
__________________ ("_____________," each an "Underwriter" and collectively the
"Underwriters") agrees, severally and not jointly, subject to the terms and
provisions herein and of the captioned Underwriting Agreement (the
"Underwriting Agreement"), to purchase such Classes of Series ____-__
Securities specified opposite its name in Section 2(a) hereof (the "Offered
Securities"). This letter supplements and modifies the Underwriting Agreement
solely as it relates to the purchase and sale of the Offered Securities
described below. The Series ____-__ Securities are registered with the
Securities and Exchange Commission by means of an effective Registration
Statement (No. _____). Capitalized terms used and not defined herein have the
meanings given them in the Underwriting Agreement.
Section 1. The Mortgage Pool: The Series _____-__
Securities shall evidence the entire beneficial ownership interest in a pool
(the "Home Loan Pool") of loans (the "Home Loans") having the characteristics
described in the Prospectus Supplement dated the date hereof.
Section 2. The Securities: The Offered Securities shall
be issued as follows:
- 26 -
<PAGE> 27
(a) Classes: The Offered Securities shall be issued with the
following Class designations, interest rates and principal balances,
subject in the aggregate to the variance referred to in the Final
Prospectus:
<TABLE>
<CAPTION>
Principal Interest Class Purchase
Class Balance Rate Price Percentage
----- ------- ---- ----------------
<S> <C> <C> <C>
</TABLE>
Each of the Underwriters agrees, severally and not jointly, subject to
the terms and provisions herein and of the captioned Underwriting Agreement, to
purchase the principal balances of the Classes of Series ____-__ Securities
specified opposite its name below.
<TABLE>
<CAPTION>
Class UNDERWRITER #1 UNDERWRITER #2
----- -------------- --------------
<S> <C> <C>
</TABLE>
(b) The Offered Securities shall have such other
characteristics as described in the related Final Prospectus.
Section 3. Purchase Price: The Purchase Price for each
Class of the Offered Securities shall be the Class Purchase Price Percentage
therefor (as set forth in Section 2(a) above) of the initial Class Principal
Balance thereof plus accrued interest at the applicable interest rate per annum
of each such Class from and including the Cut-off Date up to, but not
including, _____________ (the "Closing Date").
Section 4. Required Ratings: The Offered Securities
shall have received Required Ratings of at least [ ] from [ ].
Section 5. Insurer:
Section 6. Location of Closing:
- 27 -
<PAGE> 28
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Underwriters and the Company.
Very truly yours,
[UNDERWRITER]
as Representative of the several
Underwriters
By:
-------------------------
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
FIRSTPLUS INVESTMENT CORPORATION
By:
-------------------------
Name:
Title:
FIRSTPLUS FINANCIAL INC.
By:
-------------------------
Name:
Title:
- 28 -
<PAGE> 29
ACKNOWLEDGED BY:
RAC FINANCIAL GROUP, INC.
By:
-------------------------
Name:
Title:
- 29 -
<PAGE> 1
EXHIBIT 4.2
FORM OF INDENTURE
between
FIRSTPLUS HOME LOAN OWNER TRUST 199_-__,
as Issuer
and
(--------------------),
as Indenture Trustee
Dated as of __________, 199__
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - Definitions and Incorporation by Reference............................................................2
SECTION 1.1 Definitions........................................................................2
SECTION 1.2 Incorporation by Reference of Trust Indenture Act..................................9
SECTION 1.3 Rules of Construction..............................................................9
ARTICLE II - The Notes...........................................................................................10
SECTION 2.1 Form..............................................................................10
SECTION 2.2 Execution, Authentication and Delivery............................................10
SECTION 2.3 Temporary Notes...................................................................11
SECTION 2.4 Limitations on Transfer of the Class A-1 Notes....................................11
SECTION 2.5 Registration; Registration of Transfer and Exchange...............................12
SECTION 2.6 Mutilated, Destroyed, Lost or Stolen Notes........................................13
SECTION 2.7 Persons Deemed Owner..............................................................14
SECTION 2.8 Payment of Principal and Interest; Defaulted Interest.............................14
SECTION 2.9 Cancellation......................................................................15
SECTION 2.10 Release of Collateral............................................................16
SECTION 2.11 Book-Entry Notes.................................................................16
SECTION 2.12 Notices to Clearing Agency.......................................................17
SECTION 2.13 Definitive Notes.................................................................17
SECTION 2.14 Tax Treatment....................................................................17
ARTICLE III - Covenants..........................................................................................18
SECTION 3.1 Payment of Principal and Interest.................................................18
SECTION 3.2 Maintenance of Office or Agency...................................................18
SECTION 3.3 Money for Payments To Be Held in Trust............................................18
SECTION 3.4 Existence.........................................................................20
SECTION 3.5 Protection of Trust Estate........................................................20
SECTION 3.6 Opinions as to Trust Estate.......................................................20
SECTION 3.7 Performance of Obligations; Servicing of Receivables..............................21
SECTION 3.8 Negative Covenants...............................................................23
SECTION 3.9 Annual Statement as to Compliance.................................................23
SECTION 3.10 Issuer May Consolidate, etc., Only on Certain Terms..............................24
SECTION 3.11 Successor or Transferee..........................................................25
SECTION 3.12 No Other Business................................................................26
SECTION 3.13 No Borrowing.....................................................................26
SECTION 3.14 Servicer's Obligations...........................................................26
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities................................26
SECTION 3.16 Capital Expenditures.............................................................26
SECTION 3.17 Removal of Administrator.........................................................26
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.18 Restricted Payments..............................................................26
SECTION 3.19 Notice of Events of Default......................................................27
SECTION 3.20 Further Instruments and Acts.....................................................27
ARTICLE IV - Satisfaction and Discharge..........................................................................27
SECTION 4.1 Satisfaction and Discharge of Indenture...........................................27
SECTION 4.2 Application of Trust Money........................................................28
SECTION 4.3 Repayment of Moneys Held by Paying Agent..........................................28
ARTICLE V - Remedies.............................................................................................29
SECTION 5.1 Events of Default.................................................................29
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment................................30
SECTION 5.3 Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee.....................................30
SECTION 5.4 Remedies; Priorities..............................................................32
SECTION 5.5 Optional Preservation of the Receivables..........................................34
SECTION 5.6 Limitation of Suits...............................................................34
SECTION 5.7 Unconditional Rights of Noteholders To
Receive Principal and Interest.......................................35
SECTION 5.8 Restoration of Rights and Remedies................................................35
SECTION 5.9 Rights and Remedies Cumulative....................................................35
SECTION 5.10 Delay or Omission Not a Waiver...................................................35
SECTION 5.11 Control by Noteholders...........................................................36
SECTION 5.12 Waiver of Past Defaults..........................................................36
SECTION 5.13 Undertaking for Costs............................................................37
SECTION 5.14 Waiver of Stay or Extension Laws.................................................37
SECTION 5.15 Action on Notes..................................................................37
SECTION 5.16 Performance and Enforcement of Certain Obligations...............................37
ARTICLE VI - The Indenture Trustee...............................................................................38
SECTION 6.1 Duties of Indenture Trustee.......................................................38
SECTION 6.2 Rights of Indenture Trustee.......................................................39
SECTION 6.3 Individual Rights of Indenture Trustee............................................40
SECTION 6.4 Indenture Trustee's Disclaimer....................................................40
SECTION 6.5 Notice of Defaults................................................................40
SECTION 6.6 Reports by Indenture Trustee to Holders...........................................40
SECTION 6.7 Compensation and Indemnity........................................................40
SECTION 6.8 Replacement of Indenture Trustee..................................................41
SECTION 6.9 Successor Indenture Trustee by Merger.............................................42
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee................42
SECTION 6.11 Eligibility; Disqualification....................................................43
SECTION 6.12 Preferential Collection of Claims Against Issuer.................................44
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII - Noteholders' Lists and Reports............................................................44
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and
Addresses of Noteholders.............................................44
SECTION 7.2 Preservation of Information; Communications
to Noteholders.......................................................44
SECTION 7.3 Reports by Issuer.................................................................45
ARTICLE VIII - Accounts, Disbursements and Releases..............................................................45
SECTION 8.1 Collection of Money...............................................................45
SECTION 8.2 Trust Accounts....................................................................46
SECTION 8.3 General Provisions Regarding Accounts.............................................47
SECTION 8.4 Release of Trust Estate...........................................................48
SECTION 8.5 Opinion of Counsel................................................................48
ARTICLE IX - Supplemental Indentures.............................................................................49
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders............................49
SECTION 9.2 Supplemental Indentures with Consent of Noteholders...............................50
SECTION 9.3 Execution of Supplemental Indentures..............................................51
SECTION 9.4 Effect of Supplemental Indenture.................................................52
SECTION 9.5 Conformity with Trust Indenture Act...............................................52
SECTION 9.6 Reference in Notes to Supplemental Indentures.....................................52
ARTICLE X - Redemption of Notes.................................................................................52
SECTION 10.1 Redemption.......................................................................52
SECTION 10.2 Form of Redemption Notice........................................................53
SECTION 10.3 Notes Payable on Redemption Date.................................................54
ARTICLE XI - Miscellaneous.......................................................................................54
SECTION 11.1 Compliance Certificates and Opinions, etc........................................54
SECTION 11.2 Form of Documents Delivered to Indenture Trustee.................................56
SECTION 11.3 Acts of Noteholders..............................................................57
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer and
Rating Agencies......................................................57
SECTION 11.5 Notices to Noteholders; Waiver...................................................58
SECTION 11.6 Alternate Payment and Notice Provisions..........................................58
SECTION 11.7 Conflict with Trust Indenture Act................................................59
SECTION 11.8 Effect of Headings and Table of Contents.........................................59
SECTION 11.9 Successors and Assigns...........................................................59
SECTION 11.10 Separability....................................................................59
SECTION 11.11 Benefits of Indenture...........................................................59
SECTION 11.12 Legal Holidays..................................................................59
SECTION 11.13 GOVERNING LAW...................................................................59
SECTION 11.14 Counterparts....................................................................60
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
SECTION 11.15 Recording of Indenture..........................................................60
SECTION 11.16 Trust Obligation................................................................60
SECTION 11.17 No Petition.....................................................................60
SECTION 11.18 Inspection......................................................................60
</TABLE>
<TABLE>
<S> <C>
SCHEDULE A - Schedule of Receivables
EXHIBIT A-1 - Form of Class A-1 Note
EXHIBIT A-2 - Form of Class A-2 Note
EXHIBIT A-3 - Form of Class A-3 Note
EXHIBIT A-4 - Form of Class A-4 Note
EXHIBIT A-5 - Form of Class A-5 Note
(EXHIBIT B - Form of Transferor Certificate)
EXHIBIT C - Form of Investment Letter
EXHIBIT D - Form of Rule 144A Letter
</TABLE>
-iv-
<PAGE> 6
INDENTURE dated as of _________, 199_-__, between FIRSTPLUS HOME LOAN
OWNER TRUST 199_-__, a Delaware business trust (the "Issuer"), and
________________, a banking corporation, as trustee and not in its individual
capacity (the "Indenture Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the holders of the Issuer's Class A-1 _____%
Asset Backed Notes (the "Class A-1 Notes"), Class A-2 _____% Asset Backed Notes
(the "Class A-2 Notes"), Class A-3 _____% Asset Backed Notes (the "Class A-3
Notes"), Class A-4 _____% Asset Backed Notes (the "Class A-4 Notes"), and Class
A-5 _____% Asset Backed Notes (the "Class A-5 Notes" and, together with the
Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4
Notes, the "Notes"):
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing Date,
as Indenture Trustee for the benefit of the holders of the Notes, all of the
Issuer's right, title and interest in and to: (i) the Initial Home Loans and any
Subsequent Home Loans conveyed to the Issuer during the Funding Period, together
with the Servicer's Home Loan Files and the Issuer's Home Loan Files relating
thereto and all proceeds thereof, (ii) such assets as from time to time are
identified as Foreclosure Property, (iii) such assets and funds as are from time
to time deposited in the Collection Account, the Note Distribution Account, the
Pre-Funding Account, the Capitalized Interest Account, and the Reserve Account,
including amounts on deposit in such accounts which are invested in Permitted
Investments, (iv) the Issuer's rights under all insurance policies with respect
to the Home Loans and any Insurance Proceeds, (v) the Guaranty Policy applicable
to the Securities, (vi) Net Liquidation Proceeds, Guaranty Policy Proceeds and
Released Mortgaged Property Proceeds, (vii) all right, title and interest of the
Transferor in and to the obligations of any seller pursuant to a Loan Sale
Agreement, (viii) all right, title and interest of the Issuer in and to the
obligations of the Transferor under that certain Loan Sale Agreement dated as of
_________, 199__, between the Transferor, as seller, and the Issuer, as
purchaser, (ix) all right, title and interest of the Issuer, as purchaser, on
behalf of the Trust, under each Subsequent Transfer Agreement, (x) all right,
title and interest of the Servicer and the Transferor in and to the rights and
obligations of any Subservicer, pursuant to any Subservicing Agreement; (xi) all
right, title and interest of the Issuer in the the Sale and Servicing Agreement
(including the Issuer's right to cause the Seller to repurchase Home Loans from
the Issuer under certain circumstances described therein); and (xii) all present
and future claims, demands, causes of action and chooses in action in respect of
any or all of the foregoing and all payments on or under and all proceeds of
every kind and nature whatsoever in respect of any or all of the foregoing,
including all proceeds of the conversion thereof, voluntary or involuntary, into
cash or other liquid property, all cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind and other
forms of obligations and receivables, instruments and other property which at
any time constitute all or part of or are included in the proceeds of any of the
foregoing (collectively, the "Collateral").
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The foregoing Grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Notes,
equally and ratably without prejudice, priority or distinction, and to secure
compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the holders of
the Notes, acknowledges such Grant, accepts the trusts under this Indenture in
accordance with the provisions of this Indenture and agrees to perform its
duties required in this Indenture to the best of its ability to the end that the
interests of the holders of the Notes may be adequately and effectively
protected.
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1 (a) Definitions. Except as otherwise specified herein or as
the context may otherwise require, the following terms have the respective
meanings set forth below for all purposes of this Indenture.
"Act" has the meaning specified in Section 11.3(a).
"Administration Agreement" means the Administration Agreement dated as
of _________, 199__, among the Administrator, the Issuer and the Indenture
Trustee.
"Administrator" means FIRSTPLUS FINANCIAL, INC., a Texas corporation,
or any successor Administrator under the Administration Agreement.
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authorized Officer" means, with respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter) and, so
long as the Administration Agreement is in effect, any Vice President or more
senior officer of the Administrator who is authorized to act for the
Administrator in matters relating to the Issuer and to be acted upon by the
Administrator pursuant to the Administration Agreement and who is identified on
the list of Authorized Officers delivered by the Administrator to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter).
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"Basic Documents" means the Certificate of Trust, the Trust Agreement,
the Sale and Servicing Agreement, the Loan Purchase Agreement, the
Administration Agreement, the Note Depository Agreement, the Certificate
Depository Agreement and other documents and certificates delivered in
connection therewith.
"Book-Entry Notes" means a beneficial interest in the Class A-1 Notes,
the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and the Class A-5
Notes, ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 2.11.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions or trust companies in ____________________ are
authorized or obligated by law, regulation or executive order to remain closed.
"Certificate Depository Agreement" has the meaning specified in Section
1.01 of the Trust Agreement.
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit B to the Trust Agreement.
"Class A-1 Interest Rate" means ____% per annum (computed on the basis
of a 360-day year consisting of twelve 30-day months).
"Class A-1 Notes" means the Class A-1 ____% Asset Backed Notes,
substantially in the form of Exhibit A-1.
"Class A-2 Interest Rate" means ____% per annum (computed on the basis
of a 360-day year consisting of twelve 30-day months).
"Class A-2 Notes" means the Class A-2 ____% Asset Backed Notes,
substantially in the form of Exhibit A-2.
"Class A-3 Interest Rate" means ____% per annum (computed on the basis
of a 360 day year consisting of twelve 30-day months).
"Class A-3 Notes" means the Class A-3 ____% Asset Backed Notes,
substantially in the form of Exhibit A-3.
"Class A-4 Interest Rate" means ____% per annum (computed on the basis
of a 360 day year consisting of twelve 30-day months).
"Class A-4 Notes" means the Class A-4 ____% Asset Backed Notes,
substantially in the form of Exhibit A-4.
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"Class A-5 Interest Rate" means ____% per annum (computed on the basis
of a 360 day year consisting of twelve 30-day months).
"Class A-5 Notes" means the Class A-5 ____% Asset Backed Notes,
substantially in the form of Exhibit A-5.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means __________, 199__.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
Indenture.
"Company" means ______________.
"Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Agreement is located at
____________________; Attention: __________, or at such other address as the
Indenture Trustee may designate from time to time by notice to the Noteholders
and the Issuer, or the principal corporate trust office of any successor
Indenture Trustee at the address designated by such successor Indenture Trustee
by notice to the Noteholders and the Issuer.
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"Definitive Notes" has the meaning specified in Section 2.13.
"Due Period" means, with respect to any Distribution Date and any class
of Notes, the calendar month immediately preceding the month of such
Distribution Date.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice
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President, the Secretary or the Treasurer of such corporation; and with respect
to any partnership, any general partner thereof.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Note Register.
"Indenture Trustee" means _______________, a __________ banking
corporation, as Indenture Trustee under this Indenture, or any successor
Indenture Trustee under this Indenture.
"Independent" means, when used with respect to any specified Person,
that the Person (a) is in fact independent of the Issuer, any other obligor on
the Notes, the Seller and any Affiliate of any of the foregoing Persons, (b)
does not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Seller or any Affiliate of
any of the foregoing Persons and (c) is not connected with the Issuer, any such
other obligor, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Independent Certificate" means a certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1, made by
an Independent appraiser or other expert appointed by an Issuer Order and
approved by the Indenture Trustee in the exercise of reasonable care, and such
opinion or certificate shall state that the signer has read the definition of
"Independent" in this Indenture and that the signer is Independent within the
meaning thereof.
"Interest Rate" means the Class A-1 Interest Rate, the Class A-2
Interest Rate, the Class A-3 Interest Rate, the Class A-4 Interest Rate or the
Class A-5 Interest Rate.
"Issuer" means FIRSTPLUS Home Loan Owner Trust 199_-_ until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
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"Issuer Order" and "Issuer Request" mean a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.
"Note" means a Class A-1 Note, a Class A-2 Note, a Class A-3 Note, a
Class A-4 Note or a Class A-5 Note.
"Note Depository Agreement" means the agreement dated __________,
199__, among the Issuer, the Administrator, the Indenture Trustee and The
Depository Trust Company, as the initial Clearing Agency, relating to the Book
Entry Notes.
"Note Owner" means, with respect to a Book-Entry Note, the Person who
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.05.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, and delivered to
the Indenture Trustee. Unless otherwise specified, any reference in this
Indenture to an Officer's Certificate shall be to an Officer's Certificate of
any Authorized Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Indenture, be employees of
or counsel to the Issuer and who shall be satisfactory to the Indenture Trustee,
and which opinion or opinions shall be addressed to the Indenture Trustee as
Indenture Trustee, shall comply with any applicable requirements of Section 11.1
and shall be in form and substance satisfactory to the Indenture Trustee.
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money
in the necessary amount has been theretofore deposited with the
Indenture Trustee or any Paying Agent in trust for the Holders of such
Notes (provided, however, that if such Notes are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or
provision for such notice has been made, satisfactory to the Indenture
Trustee); and
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(iii) Notes in exchange for or in lieu of which other Notes
have been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser; provided, that in determining
whether the Holders of the requisite Outstanding Amount of the Notes
have given any request, demand, authorization, direction, notice,
consent, or waiver hereunder or under any Basic Document, Notes owned
by the Issuer, any other obligor upon the Notes, the Seller or any
Affiliate of any of the foregoing Persons shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the
Indenture Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent, or waiver, only
Notes that the Indenture Trustee knows to be so owned shall be so
disregarded. Notes so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction
of the Indenture Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Issuer, any other obligor
upon the Notes, the Seller or any Affiliate of any of the foregoing
Persons.
"Outstanding Amount" means the aggregate principal amount of all Notes,
or Class of Notes, as applicable, Outstanding at the date of determination.
"Owner Trustee" means _______________, not in its individual capacity
but solely as Owner Trustee under the Trust Agreement, or any successor Owner
Trustee under the Trust Agreement.
"Paying Agent" means the Indenture Trustee or any other Person that
meets the eligibility standards for the Indenture Trustee specified in Section
6.11 and is authorized by the Issuer to make payments to and distributions from
the Collection Account and the Note Distribution Account, including payment of
principal of or interest on the Notes on behalf of the Issuer.
"Payment Date" means a Distribution Date.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization, or government or any agency or political
subdivision thereof.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.6 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"Rating Agency Condition" means, with respect to any action to which a
Rating Agency Condition applies, that each Rating Agency shall have been given
10 days (or such shorter period
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as is acceptable to each Rating Agency) prior notice thereof and that each of
the Rating Agencies shall have notified the Seller, the Servicer and the Issuer
in writing that such action will not result in a reduction or withdrawal of the
then current rating of the Notes.
"Rating Agency" means ___________ and ______________. If no such
organization or successor is any longer in existence, "Rating Agency" shall be a
nationally recognized statistical rating organization or other comparable Person
designated by the Issuer, notice of which designation shall be given to the
Indenture Trustee, the Owner Trustee and the Servicer.
"Record Date" means, with respect to a Distribution Date or Redemption
Date, the close of business on the first day of the calendar month in which such
Distribution Date or Redemption Date occurs or, if Definitive Notes have been
issued pursuant to Section 2.13, the 15th day of the preceding month.
"Redemption Date" means (a) in the case of a redemption of the Notes
pursuant to Section 10.1(a) or a payment to Noteholders pursuant to Section
10.1(c), the Distribution Date specified by the Servicer or the Issuer pursuant
to Section 10.1(a) or (c), as applicable, or (b) in the case of a redemption of
Notes pursuant to Section 10.1(b), the Distribution Date specified in Section
5.8(b) of the Sale and Servicing Agreement on which the Indenture Trustee shall
withdraw any amount remaining in the Pre-Funding Account and deposit the
applicable amount thereof payable to any Class of Notes from the Distribution
Account.
"Redemption Price" means (a) in the case of a redemption of the Notes
pursuant to Section 10.1(a) or (b), an amount equal to the unpaid principal
amount of the Notes redeemed plus accrued and unpaid interest thereon at the
weighted average of the Interest Rates for each Class of Notes being so redeemed
to but excluding the Redemption Date, or (b) in the case of a payment made to
Noteholders pursuant to Section 10.1(c), the amount on deposit in the
Distribution Account, but not in excess of the amount specified in clause (a)
above.
"Registered Holder" means the Person in whose name a Note is registered
on the Note Register on the applicable Record Date.
"Responsible Officer" means, with respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of __________, 199__, among the Issuer, FIRSTPLUS INVESTMENT
CORPORATION, as Seller, and, FIRSTPLUS FINANCIAL, INC., as Servicer.
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"Schedule of Home Loans" means the listing of the Home Loans set forth
in Schedule A, as supplemented as of each Subsequent Transfer Date.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" shall mean FIRSTPLUS INVESTMENT CORPORATION, in its capacity
as seller under the Sale and Servicing Agreement, and its successor in interest.
"Servicer" shall mean FIRSTPLUS FINANCIAL, INC. in its capacity as
servicer under the Sale and Servicing Agreement, and any Successor Servicer
thereunder.
"State" means any one of the 50 States of the United States of America
or the District of Columbia.
"Successor Servicer" has the meaning specified in Section 3.7(e).
"Trust Estate" means all money, instruments, rights and other property
that are subject or intended to be subject to the lien and security interest of
this Indenture for the benefit of the Noteholders (including, without
limitation, all property and interests Granted to the Indenture Trustee pursuant
to the Granting Clause), including all proceeds thereof.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as
in force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
(b) Except as otherwise specified herein or as the
context may otherwise require, capitalized terms used but not otherwise
defined herein have the respective meanings set forth in the Sale and
Servicing Agreement for all purposes of this Indenture.
SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
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"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in
the plural include the singular; and
(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or statute as from
time to time amended, modified or supplemented and includes (in the
case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
ARTICLE II
The Notes
SECTION 2.1 Form. The Class A-1 Notes, the Class A-2 Notes, the Class
A-3 Notes, the Class A-4 Notes and the Class A-5 Notes, in each case together
with the Indenture Trustee's certificate of authentication, shall be in
substantially the form set forth in Exhibit A-1, Exhibit A-2, Exhibit A-3,
Exhibit A-4 and Exhibit A-5, respectively, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. Any portion of the text of any Note may be
set forth on the reverse thereof, with an appropriate reference thereto on the
face of the Note.
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The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibit A-1, Exhibit A-2, Exhibit A-3, Exhibit A-4 and
Exhibit A-5 are part of the terms of this Indenture.
SECTION 2.2 Execution, Authentication and Delivery. The Notes shall be
executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Order authenticate and deliver
Class A-1 Notes for original issue in an aggregate principal amount of
$__________, Class A-2 Notes for original issue in an aggregate principal amount
of $__________, Class A-3 Notes for original issue in an aggregate principal
amount of $__________, Class A-4 Notes for original issue in an aggregate
principal amount of $__________, and Class A-5 Notes for original issue in an
aggregate principal amount of $__________. The aggregate principal amount of
Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-4 Notes and Class A-5
Notes outstanding at any time may not exceed such respective amounts except as
provided in Section 2.6.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination $1,000.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.3 Temporary Notes. Pending the preparation of definitive
Notes, the Issuer may execute, and upon receipt of an Issuer Order the Indenture
Trustee shall authenticate and deliver, temporary Notes that are printed,
lithographed, typewritten, mimeographed or otherwise produced, of the tenor of
the definitive Notes in lieu of which they are issued and with such variations
not inconsistent with the terms of this Indenture as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
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If temporary Notes are issued, the Issuer will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer shall
execute, and the Indenture Trustee shall authenticate and deliver in exchange
therefor, a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.4 [Limitations on Transfer of the Class A- Notes. The Class
A-__ Notes have not been and will not be registered under the Securities Act and
will not be listed on any exchange. No transfer of a Class A-__ Note shall be
made unless such transfer is made pursuant to an effective registration
statement under the Securities Act and any applicable state securities laws or
is exempt from the registration requirements under said Act and such state
securities laws. In the event that a transfer is to be made in reliance upon an
exemption from the Securities Act and state securities laws, in order to assure
compliance with the Securities Act and such laws, the Holder desiring to effect
such transfer and such Holder's prospective transferee shall each certify to the
Indenture Trustee and the Issuer in writing the facts surrounding the transfer
in substantially the forms set forth in Exhibit B (the "Transferor Letter") and
either Exhibit C (the "Investment Letter") or Exhibit D (the "Rule 144A
Letter"). Except in the case of a transfer as to which the proposed transferee
has provided a Rule 144A Letter, there shall also be delivered to the Indenture
Trustee an opinion of counsel that such transfer may be made pursuant to an
exemption from the Securities Act and state securities laws, which opinion of
counsel shall not be an expense of the Trust, the Owner Trustee or the Indenture
Trustee; provided that such opinion of counsel in respect of the applicable
state securities laws may be a memorandum of law rather than an opinion if such
counsel is not licensed in the applicable jurisdiction. The Seller shall provide
to any Holder of a Class A-__ Note and any prospective transferee designated by
any such Holder, information regarding the Class A-__ Notes and the Receivables
and such other information as shall be necessary to satisfy the condition to
eligibility set forth in Rule 144A(d)(4) for transfer of any such Class A-__
Note without registration thereof under the Securities Act pursuant to the
registration exemption provided by Rule 144A. Each Holder of a Class A-1 Note
desiring to effect such a transfer shall, and does hereby agree to, indemnify
the Issuer, the Owner Trustee, the Indenture Trustee and the Seller against any
liability that may result if the transfer is not so exempt or is not made in
accordance with federal and state securities laws.
The Owner Trustee shall cause each Class A-__ Note to contain a legend
stating that transfer of the Class A-__ Notes is subject to certain restrictions
and referring prospective purchasers of the Class A-__ Notes to this Section 2.4
with respect to such restrictions.]
SECTION 2.5 Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe [and the restrictions on
transfers of the Class A-__ Notes set forth herein], the Issuer shall provide
for the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee
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initially shall be the "Note Registrar" for the purpose of registering Notes and
transfers of Notes as herein provided. Upon any resignation of any Note
Registrar, the Issuer shall promptly appoint a successor or, if it elects not to
make such an appointment, assume the duties of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer
as Note Registrar, the Issuer will give the Indenture Trustee prompt written
notice of the appointment of such Note Registrar and of the location, and any
change in the location, of the Note Register, and the Indenture Trustee shall
have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the Holders of the Notes and
the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, if the
requirements of Section 8-401(1) of the UCC are met the Issuer shall execute,
and the Indenture Trustee shall authenticate and the Noteholder shall obtain
from the Indenture Trustee, in the name of the designated transferee or
transferees, one or more new Notes of the same Class in any authorized
denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
the same Class in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, if the requirements of
Section 8-401(1) of the UCC are met the Issuer shall execute, and the Indenture
Trustee shall authenticate and the Noteholder shall obtain from the Indenture
Trustee, the Notes which the Noteholder making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Exchange Act.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.3 or Section 9.6 not involving any transfer.
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The preceding provisions of this Section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register transfers
or exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to such Note.
SECTION 2.6 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note of the same Class; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Indenture Trustee shall be entitled to recover
such replacement Note (or such payment) from the Person to whom it was delivered
or any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
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SECTION 2.7 Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and none of the Issuer, the Indenture Trustee or any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.8 Payment of Principal and Interest; Defaulted Interest.
(a) The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes,
the Class A-4 Notes and the Class A-5 Notes shall accrue interest at the Class
A-1 Interest Rate, the Class A-2 Interest Rate, the Class A-3 Interest Rate, the
Class A-4 Interest Rate and the Class A-5 Interest Rate, respectively, as set
forth in Exhibits A-1, A-2, A-3, A-4 and A-5, respectively, and such interest
shall be payable on each Distribution Date as specified therein, subject to
Section 3.01. Any installment of interest or principal, if any, payable on any
Note that is punctually paid or duly provided for by the Issuer on the
applicable Distribution Date shall be paid to the Person in whose name such Note
(or one or more Predecessor Notes) is registered on the Record Date by check
mailed first-class postage prepaid to such Person's address as it appears on the
Note Register on such Record Date, except that, unless Definitive Notes have
been issued pursuant to Section 2.13, with respect to Notes registered on the
Record Date in the name of the nominee of the Clearing Agency (initially, such
nominee to be Cede & Co.), payment will be made by wire transfer in immediately
available funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a
Distribution Date or on the applicable Final Scheduled Distribution Date (and
except for the Redemption Price for any Note called for redemption pursuant to
Section 10.01(a)), which shall be payable as provided below. The funds
represented by any such checks returned undelivered shall be held in accordance
with Section 3.03.
(b) The principal of each Note shall be payable in installments on
each Distribution Date as provided in the forms of the Notes set forth in
Exhibit A-1, Exhibit A-2, Exhibit A-3, Exhibit A-4 and Exhibit A-5.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable, if not previously paid, on the date on which an Event
of Default shall have occurred and be continuing, if the Indenture Trustee or
the Holders of Notes representing not less than a majority of the Outstanding
Amount of the Notes have declared the Notes to be immediately due and payable in
the manner provided in Section 5.2. All principal payments on each Class of
Notes shall be made pro rata to the Noteholders of such Class entitled thereto.
The Indenture Trustee shall notify the Person in whose name a Note is registered
at the close of business on the Record Date preceding the Distribution Date on
which the Issuer expects that the final installment of principal of and interest
on such Note will be paid. Such notice shall be mailed or transmitted by
facsimile prior to such final Distribution Date and shall specify that such
final installment will be payable only upon presentation and surrender of such
Note and shall specify the place where such Note may be presented and
surrendered for payment of such installment. Notices in connection with
redemptions of Notes shall be mailed to Noteholders as provided in Section 10.2.
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(c) If the Issuer defaults in a payment of interest on the Notes,
the Issuer shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) at the applicable Interest Rate in any lawful
manner. The Issuer may pay such defaulted interest to the persons who are
Noteholders on a subsequent special record date, which date shall be at least
five Business Days prior to the payment date. The Issuer shall fix or cause to
be fixed any such special record date and payment date, and, at least 15 days
before any such special record date, the Issuer shall mail to each Noteholder a
notice that states the special record date, the payment date and the amount of
defaulted interest to be paid.
SECTION 2.9 Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes may be held or disposed of by the Indenture
Trustee in accordance with its standard retention or disposal policy as in
effect at the time unless the Issuer shall direct by an Issuer Order that they
be destroyed or returned to it; provided, that such Issuer Order is timely and
the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.10 Release of Collateral. Subject to Section 11.1 and the
terms of the Basic Documents, the Indenture Trustee shall release property from
the lien of this Indenture only upon receipt of an Issuer Request accompanied by
an Officer's Certificate, an Opinion of Counsel and Independent Certificates in
accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion of Counsel in
lieu of such Independent Certificates to the effect that the TIA does not
require any such Independent Certificates.
SECTION 2.11 Book-Entry Notes. The Notes [(other than the Class A-__
Notes)], upon original issuance, will be issued in the form of typewritten Notes
representing the Book-Entry Notes, to be delivered to The Depository Trust
Company, the initial Clearing Agency, by, or on behalf of, the Issuer. [The
Class A-__ Notes will be issued on the Closing Date in the form of a single
typewritten Definitive Note, which will be purchased by and registered in the
name of the Seller.] The Book-Entry Notes shall be registered initially on the
Note Register in the name of Cede & Co., the nominee of the initial Clearing
Agency, and no Owner thereof will receive a definitive Note representing such
Note Owner's interest in such Note, except as provided in Section 2.13. Unless
and until definitive, fully registered Notes (the "Definitive Notes") have been
issued to such Note Owners pursuant to Section 2.13:
(i) the provisions of this Section shall be in full force
and effect;
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(ii) the Note Registrar and the Indenture Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole holder of the Notes, and shall have no obligation to the Note
Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the provisions of
this Section shall control;
(iv) the rights of Note Owners shall be exercised only
through the Clearing Agency and shall be limited to those established
by law and agreements between such Note Owners and the Clearing Agency
and/or the Clearing Agency Participants pursuant to the Note Depository
Agreement. Unless and until Definitive Notes are issued pursuant to
Section 2.13, the initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and receive and
transmit payments of principal of and interest on the Notes to such
Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions
to be taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Outstanding Amount of the
Notes, the Clearing Agency shall be deemed to represent such percentage
only to the extent that it has received instructions to such effect
from Note Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
SECTION 2.12 Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders [(other than Holders of the Class A-__ Notes)]
is required under this Indenture, unless and until Definitive Notes shall have
been issued to such Note Owners pursuant to Section 2.13, the Indenture Trustee
shall give all such notices and communications specified herein to be given to
Holders of the Notes to the Clearing Agency, and shall have no obligation to
such Note Owners.
SECTION 2.13 Definitive Notes. If (i) the Administrator advises the
Indenture Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities with respect to the Book-Entry
Notes and the Administrator is unable to locate a qualified successor, (ii) the
Administrator at its option advises the Indenture Trustee in writing that it
elects to terminate the book-entry system through the Clearing Agency or (iii)
after the occurrence of an Event of Default or a Servicer Default, Owners of the
Book-Entry Notes representing beneficial interests aggregating at least a
majority of the Outstanding Amount of such Notes advise the Clearing Agency in
writing that the continuation of a book-entry system through the Clearing Agency
is no longer in the best interests of such Note Owners, then the Clearing Agency
shall notify all Note Owners and the Indenture Trustee of the occurrence of such
event and of the availability of Definitive Notes to Note Owners requesting the
same. Upon surrender to the Indenture Trustee of the typewritten Notes
representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration
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instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Clearing Agency. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
SECTION 2.14 Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness of the Issuer secured by the Trust Estate. The Issuer, by
entering into this Indenture, and each Noteholder, by its acceptance of a Note
(and each Note Owner by its acceptance of an interest in the applicable
Book-Entry Note), agree to treat the Notes for federal, state and local income,
single business and franchise tax purposes as indebtedness of the Issuer.
ARTICLE III
Covenants
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly and
punctually pay (or will cause to be duly and punctually paid) the principal of
and interest, if any, on the Notes in accordance with the terms of the Notes and
this Indenture. Without limiting the foregoing, subject to Section 8.2(c), the
Issuer will cause to be distributed all amounts on deposit in the Note
Distribution Account on a Distribution Date deposited therein pursuant to the
Sale and Servicing Agreement (i) for the benefit of the Class A-1 Notes, to the
Class A-1 Noteholders, (ii) for the benefit of the Class A-2 Notes, to the Class
A-2 Noteholders, (iii) for the benefit of the Class A-3 Notes, to the Class A-3
Noteholders, (iv) for the benefit of the Class A-4 Notes, to the Class A-4
Noteholders and (v) for the benefit of the Class A-5 Notes, to the Class A-5
Noteholders. Amounts properly withheld under the Code by any Person from a
payment to any Noteholder of interest and/or principal shall be considered as
having been paid by the Issuer to such Noteholder for all purposes of this
Indenture.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. The Issuer will give
prompt written notice to the Indenture Trustee of the location, and of any
change in the location, of any such office or agency. If at any time the Issuer
shall fail to maintain any such office or agency or shall fail to furnish the
Indenture Trustee with the address thereof, such surrenders, notices and demands
may be made or served at the Corporate Trust Office, and the Issuer hereby
appoints the Indenture Trustee as its agent to receive all such surrenders,
notices and demands.
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SECTION 3.3 Money for Payments To Be Held in Trust. As provided in
Section 8.2(a ) and (b), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Collection Account
and the Note Distribution Account pursuant to Section 8.2(c) shall be made on
behalf of the Issuer by the Indenture Trustee or by another Paying Agent, and no
amounts so withdrawn from the Collection Account and the Note Distribution
Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section.
On or before the Business Day preceding each Distribution Date and
Redemption Date, the Issuer shall deposit or cause to be deposited in the Note
Distribution Account an aggregate sum sufficient to pay the amounts then
becoming due under the Notes, such sum to be held in trust for the benefit of
the Persons entitled thereto, and (unless the Paying Agent is the Indenture
Trustee) shall promptly notify the Indenture Trustee of its action or failure so
to act.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by
the Issuer (or any other obligor upon the Notes) of which it has actual
knowledge in the making of any payment required to be made with respect
to the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as a Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
and
(v) comply with all requirements of the Code with respect
to the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such
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payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
a newspaper published in the English language, customarily published on each
Business Day and of general circulation in The City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee shall also adopt and employ, at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
SECTION 3.4 Existence. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other State or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Collateral and each other
instrument or agreement included in the Trust Estate.
SECTION 3.5 Protection of Trust Estate. The Issuer will from time to
time execute and deliver all such supplements and amendments hereto and all such
financing statements, continuation statements, instruments of further assurance
and other instruments, and will take such other action necessary or advisable
to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity of
any Grant made or to be made by this Indenture;
(iii) enforce any of the Collateral; or
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(iv) preserve and defend title to the Trust Estate and the
rights of the Indenture Trustee and the Noteholders in such Trust
Estate against the claims of all persons and parties.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.5.
SECTION 3.6 Opinions as to Trust Estate.
(a) On the Closing Date, the Issuer shall furnish to the Indenture
Trustee an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording and filing of
this Indenture, any indentures supplemental hereto, and any other requisite
documents, and with respect to the execution and filing of any financing
statements and continuation statements, as are necessary to perfect and make
effective the lien and security interest of this Indenture and reciting the
details of such action, or stating that, in the opinion of such counsel, no such
action is necessary to make such lien and security interest effective.
(b) On or before __________ in each calendar year, beginning in
199__, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest of this Indenture until in the following calendar year.
SECTION 3.7 Performance of Obligations; Servicing of Receivables.
(a) The Issuer will not take any action and will use its best
efforts not to permit any action to be taken by others that would release any
Person from any of such Person's material covenants or obligations under any
instrument or agreement included in the Trust Estate or that would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Sale and Servicing Agreement or such
other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially,
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the Issuer has contracted with the Servicer and the Administrator to assist the
Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Estate, including but
not limited to filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Sale and Servicing Agreement in accordance with and within the time periods
provided for herein and therein. Except as otherwise expressly provided therein,
the Issuer shall not waive, amend, modify, supplement or terminate any Basic
Document or any provision thereof without the consent of the Indenture Trustee
or the Holders of at least a majority of the Outstanding Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of a
Servicer Default under the Sale and Servicing Agreement, the Issuer shall
promptly notify the Indenture Trustee and the Rating Agencies thereof, and shall
specify in such notice the action, if any, the Issuer is taking with respect of
such default. If a Servicer Default shall arise from the failure of the Servicer
to perform any of its duties or obligations under the Sale and Servicing
Agreement with respect to the Receivables, the Issuer shall take all reasonable
steps available to it to remedy such failure.
(e) As promptly as possible after the giving of notice of
termination to the Servicer of the Servicer's rights and powers pursuant to
Section _____ of the Sale and Servicing Agreement, the Issuer shall appoint a
successor servicer (the "Successor Servicer"), and such Successor Servicer shall
accept its appointment by a written assumption in a form acceptable to the
Indenture Trustee. In the event that a Successor Servicer has not been appointed
and accepted its appointment at the time when the Servicer ceases to act as
Servicer, the Indenture Trustee without further action shall automatically be
appointed the Successor Servicer. The Indenture Trustee may resign as the
Servicer by giving written notice of such resignation to the Issuer and in such
event will be released from such duties and obligations, such release not to be
effective until the date a new servicer enters into a servicing agreement with
the Issuer as provided below. Upon delivery of any such notice to the Issuer,
the Issuer shall obtain a new servicer as the Successor Servicer under the Sale
and Servicing Agreement. Any Successor Servicer other than the Indenture Trustee
shall (i) be an established financial institution having a net worth of not less
than $50,000,000 and whose regular business includes the servicing of loans of
the same or similar type as the Home Loans and (ii) enter into a servicing
agreement with the Issuer having substantially the same provisions as the
provisions of the Sale and Servicing Agreement applicable to the Servicer. If
within 30 days after the delivery of the notice referred to above, the Issuer
shall not have obtained such a new servicer, the Indenture Trustee may appoint,
or may petition a court of competent jurisdiction to appoint, a Successor
Servicer. In connection with any such appointment, the Indenture Trustee may
make such arrangements for the compensation of such successor as it and such
successor shall agree, subject to the limitations set forth below and in the
Sale and Servicing Agreement, and in accordance with Section _____ of the Sale
and Servicing Agreement, the Issuer shall enter into an agreement with such
successor for the servicing of the Home Loans (such agreement to be in form and
substance satisfactory to the
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Indenture Trustee). If the Indenture Trustee shall succeed to the Servicer's
duties as servicer of the Receivables as provided herein, it shall do so in its
individual capacity and not in its capacity as Indenture Trustee and,
accordingly, the provisions of Article VI hereof shall be inapplicable to the
Indenture Trustee in its duties as the successor to the Servicer and the
servicing of the Receivables. In case the Indenture Trustee shall become
successor to the Servicer under the Sale and Servicing Agreement, the Indenture
Trustee shall be entitled to appoint as Servicer any one of its affiliates,
provided that it shall be fully liable for the actions and omissions of such
affiliate in such capacity as Successor Servicer.
(f) Upon any termination of the Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify
the Indenture Trustee. As soon as a Successor Servicer is appointed, the Issuer
shall notify the Indenture Trustee of such appointment, specifying in such
notice the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee or the Holders of at least a
majority in Outstanding Amount of the Notes, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the
extent otherwise provided in the Sale and Servicing Agreement) or the Basic
Documents, or waive timely performance or observance by the Servicer or the
Seller under the Sale and Servicing Agreement; and (ii) that any such amendment
shall not (A) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, distributions that are required to be made for the benefit
of the Noteholders or (B) reduce the aforesaid percentage of the Notes that is
required to consent to any such amendment, without the consent of the Holders of
all the outstanding Notes. If any such amendment, modification, supplement or
waiver shall be so consented to by the Indenture Trustee or such Holders, the
Issuer agrees, promptly following a request by the Indenture Trustee to do so,
to execute and deliver, in its own name and at its own expense, such agreements,
instruments, consents and other documents as the Indenture Trustee may deem
necessary or appropriate in the circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture, the
Loan Purchase Agreement or the Sale and Servicing Agreement, sell,
transfer, exchange or otherwise dispose of any of the properties or
assets of the Issuer, including those included in the Trust Estate,
unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate; or
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(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or otherwise arise upon or
burden the Trust Estate or any part thereof or any interest therein or
the proceeds thereof (other than tax liens, mechanics' liens and other
liens that arise by operation of law, in each case on any of the
Mortgage Properties and arising solely as a result of an action or
omission of the related Obligor) or (C) permit the lien of this
Indenture not to constitute a valid first priority (other than with
respect to any such tax, mechanics' or other lien) security interest in
the Trust Estate.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver
to the Indenture Trustee, within 120 days after the end of each fiscal year of
the Issuer (commencing with the fiscal year 199__), an Officer's Certificate
stating, as to the Authorized Officer signing such Officer's Certificate, that:
(i) a review of the activities of the Issuer during such
year and of its performance under this Indenture has been made under
such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
SECTION 3.10 Issuer May Consolidate, etc., Only on Certain Terms.
(a) The Issuer shall not consolidate or merge with or into any
other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any State
and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form satisfactory
to the Indenture Trustee, the due and punctual payment of the principal
of and interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to
be performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing;
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(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Indenture Trustee) to
the effect that such transaction will not have any material adverse tax
consequence to the Issuer, any Noteholder or any Certificateholder;
(b) any action that is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(c) The Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with this Article
III and that all conditions precedent herein provided for relating to such
transaction have been complied with (including any filing required by the
Exchange Act).
(d) The Issuer shall not convey or transfer any of its properties
or assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any State, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or transferred
shall be subject and subordinate to the rights of Holders of the Notes,
(D) unless otherwise provided in such supplemental indenture, expressly
agrees to indemnify, defend and hold harmless the Issuer against and
from any loss, liability or expense arising under or related to this
Indenture and the Notes, and (E) expressly agrees by means of such
supplemental indenture that such Person (or if a group of Persons, then
one specified Person) shall make all filings with the Commission (and
any other appropriate Person) required by the Exchange Act in
connection with the Notes;
(ii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
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(iv) the Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Indenture Trustee) to
the effect that such transaction will not have any material adverse tax
consequence to the Issuer, any Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such conveyance or transfer and such supplemental indenture comply
with this Article III and that all conditions precedent herein provided
for relating to such transaction have been complied with (including any
filing required by the Exchange Act).
SECTION 3.11 Successor or Transferee.
(a) Upon any consolidation or merger of the Issuer in accordance
with Section 3.10(a), the Person formed by or surviving such consolidation or
merger (if other than the Issuer) shall succeed to, and be substituted for, and
may exercise every right and power of, the Issuer under this Indenture with the
same effect as if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties
of the Issuer pursuant to Section 3.10(b), FIRSTPLUS Home Loan Owner Trust
199_-_ will be released from every covenant and agreement of this Indenture to
be observed or performed on the part of the Issuer with respect to the Notes
immediately upon the delivery of written notice to the Indenture Trustee stating
that FIRSTPLUS Home Loan Owner Trust 199_-_ is to be so released.
SECTION 3.12 No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the Home
Loans in the manner contemplated by this Indenture and the Basic Documents and
activities incidental thereto. After the Funding Period, the Issuer shall not
fund the purchase of any new home loans.
SECTION 3.13 No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes as provided in Section 2.4 of the Sale and
Servicing Agreement.
SECTION 3.14 Servicer's Obligations. The Issuer shall cause the
Servicer to comply with Sections 6.01, 7.07 and Article IX of the Sale and
Servicing Agreement.
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by the Sale and Servicing Agreement or this Indenture, the
Issuer shall not make any loan or advance or credit to, or guarantee (directly
or indirectly or by an instrument having the effect of assuring another's
payment or performance on any obligation or capability of so doing or
otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations,
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stocks or dividends of, or own, purchase, repurchase or acquire (or agree
contingently to do so) any stock, obligations, assets or securities of, or any
other interest in, or make any capital contribution to, any other Person.
SECTION 3.16 Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17 Removal of Administrator. So long as any Notes are
Outstanding, the Issuer shall not remove the Administrator without cause unless
the Rating Agency Condition shall have been satisfied in connection with such
removal.
SECTION 3.18 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, (x)
distributions to the Servicer, the Indenture Trustee, the Owner Trustee, the
Securityholders and the holder of the Residual Interest as contemplated by, and
to the extent funds are available for such purpose under, the Sale and Servicing
Agreement or the Trust Agreement and (y) payments to the Indenture Trustee
pursuant to Section 1(a)(ii) of the Administration Agreement. The Issuer will
not, directly or indirectly, make or cause to be made payments to or
distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
SECTION 3.19 Notice of Events of Default. The Issuer shall give the
Indenture Trustee and the Rating Agencies prompt written notice of each Event of
Default hereunder, each default on the part of the Servicer or the Seller of its
obligations under the Sale and Servicing Agreement and each default on the part
of the Company or the Seller of its obligations under the Loan Purchase
Agreement.
SECTION 3.20 Further Instruments and Acts. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8,
3.10, 3.12 and 3.13
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hereof, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.7 and
the obligations of the Indenture Trustee under Section 4.2), and (vi) the rights
of Noteholders as beneficiaries hereof with respect to the property so deposited
with the Indenture Trustee payable to all or any of them, and the Indenture
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Notes, when:
(A) either
(1) all Notes theretofore authenticated and delivered (other than
(i) Notes that have been destroyed, lost or stolen and that
have been replaced or paid as provided in Section 2.6 and (ii)
Notes for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Issuer and
thereafter repaid to the Issuer or discharged from such trust,
as provided in Section 3.3) have been delivered to the
Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee
for cancellation
a. have become due and payable,
b. will become due and payable at the Class A-3 Final
Scheduled Distribution Date within one year, or
c. are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee
for the giving of notice of redemption by the
Indenture Trustee in the name, and at the expense, of
the Issuer, and the Issuer, in the case of a., b. or
c. above, has irrevocably deposited or caused to be
irrevocably deposited with the Indenture Trustee cash
or direct obligations of or obligations guaranteed by
the United States of America (which will mature prior
to the date such amounts are payable), in trust for
such purpose, in an amount sufficient to pay and
discharge the entire indebtedness on such Notes not
theretofore delivered to the Indenture Trustee for
cancellation when due to the applicable Final
Scheduled Distribution Date or Redemption Date (if
Notes shall have been called for redemption pursuant
to Section 10.1(a)), as the case may be;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA
or the Indenture Trustee) an Independent Certificate from a
firm of certified public accountants, each meeting the
applicable requirements of Section 11.1(a) and,
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subject to Section 11.2, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Holders of the particular Notes for the
payment or redemption of which such moneys have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest; but such moneys need not be segregated from other funds except to the
extent required herein or in the Sale and Servicing Agreement or required by
law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.3 and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
ARTICLE V
Remedies
SECTION 5.1 Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note
when the same becomes due and payable, and such default shall continue
for a period of five days; or
(ii) default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and
payable; or
(iii) default in the observance or performance of any
covenant or agreement of the Issuer made in this Indenture (other than
a covenant or agreement, a default in the observance or performance of
which is elsewhere in this Section specifically dealt with), or any
representation or warranty of the Issuer made in this Indenture or in
any certificate or other writing delivered pursuant hereto or in
connection herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made, and such
default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days after there shall have been given, by registered or
certified
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mail, to the Issuer by the Indenture Trustee or to the Issuer and the
Indenture Trustee by the Holders of at least 25% of the Outstanding
Amount of the Notes, a written notice specifying such default or
incorrect representation or warranty and requiring it to be remedied
and stating that such notice is a notice of Default hereunder; or
(iv) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or any
substantial part of the Trust Estate in an involuntary case under any
applicable federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the Trust Estate, or ordering the
winding-up or liquidation of the Issuer's affairs, and such decree or
order shall remain unstayed and in effect for a period of 60
consecutive days; or
(v) the commencement by the Issuer of a voluntary case
under any applicable federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by the Issuer to
the entry of an order for relief in an involuntary case under any such
law, or the consent by the Issuer to the appointment or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or for any substantial
part of the Trust Estate, or the making by the Issuer of any general
assignment for the benefit of creditors, or the failure by the Issuer
generally to pay its debts as such debts become due, or the taking of
any action by the Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee, within five days
after the occurrence thereof, written notice in the form of an Officer's
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clause (iii), its status and what action
the Issuer is taking or proposes to take with respect thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case the
Indenture Trustee or the Holders of Notes representing not less than a majority
of the Outstanding Amount of the Notes may declare all the Notes to be
immediately due and payable, by a notice in writing to the Issuer (and to the
Indenture Trustee if given by Noteholders), and upon any such declaration the
unpaid principal amount of such Notes, together with accrued and unpaid interest
thereon through the date of acceleration, shall become immediately due and
payable.
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Outstanding Amount of the Notes,
by written notice to the Issuer and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
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(A) all payments of principal of and interest on
all Notes and all other amounts that would then be due
hereunder or upon such Notes if the Event of Default giving
rise to such acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
(ii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issuer will, upon demand of the Indenture
Trustee, pay to the Indenture Trustee, for the benefit of the Holders of the
Notes, the whole amount then due and payable on such Notes for principal and
interest, with interest upon the overdue principal and, to the extent payment at
such rate of interest shall be legally enforceable, upon overdue installments of
interest at the rate borne by the Notes and in addition thereto such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts
upon such demand, the Indenture Trustee, in its own name and as trustee of an
express trust, may institute a Proceeding for the collection of the sums so due
and unpaid, and may prosecute such Proceeding to judgment or final decree, and
may enforce the same against the Issuer or other obligor upon such Notes and
collect in the manner provided by law out of the property of the Issuer or other
obligor upon such Notes, wherever situated, the moneys adjudged or decreed to be
payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee may, as more particularly provided in Section 5.4, in its discretion,
proceed to protect and enforce its rights and the rights of the Noteholders, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to
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enforce any other proper remedy or legal or equitable right vested in the
Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, Proceedings under Title 11 of the United States
Code or any other applicable federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Indenture Trustee,
irrespective of whether the principal of any Notes shall then be due and payable
as therein expressed or by declaration or otherwise and irrespective of whether
the Indenture Trustee shall have made any demand pursuant to the provisions of
this Section, shall be entitled and empowered, by intervention in such
Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective
agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee, except as a result of
negligence or bad faith) and of the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and regulations,
to vote on behalf of the Holders of Notes in any election of a trustee,
a standby trustee or Person performing similar functions in any such
Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property; and any trustee, receiver, liquidator, custodian or other
similar official in any such Proceeding is hereby authorized by each of
such Noteholders to make payments to the Indenture Trustee and, in the
event that the Indenture Trustee shall consent to the making of
payments directly to such Noteholders, to pay to the Indenture Trustee
such amounts as shall be sufficient to cover reasonable compensation to
the Indenture Trustee, each predecessor Indenture Trustee and their
respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee
and each predecessor Indenture Trustee except as a result of negligence
or bad faith.
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(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or Proceedings
instituted by the Indenture Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents and attorneys, shall
be for the ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also
any Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make any
Noteholder a party to any such Proceedings.
SECTION 5.4 Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing,
the Indenture Trustee may do one or more of the following (subject to Section
5.5):
(i) institute Proceedings in its own name and as trustee
of an express trust for the collection of all amounts then payable on
the Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes moneys adjudged
due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee and the Noteholders; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law; provided, however,
that the Indenture Trustee may not sell or otherwise liquidate the
Trust Estate following an Event of Default, other than an Event of
Default described in Section 5.01(i) or (ii), unless (A) the Holders of
100% of the Outstanding Amount of the Notes
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consent thereto, (B) the proceeds of such sale or liquidation
distributable to the Noteholders are sufficient to discharge in full
all amounts then due and unpaid upon such Notes for principal and
interest or (C) the Indenture Trustee determines that the Trust Estate
will not continue to provide sufficient funds for the payment of
principal of and interest on the Notes as they would have become due if
the Notes had not been declared due and payable, and the Indenture
Trustee obtains the consent of Holders of 66-2/3% of the Outstanding
Amount of the Notes. In determining such sufficiency or insufficiency
with respect to clause (B) and (C), the Indenture Trustee may, but need
not, obtain and rely upon an opinion of an Independent investment
banking or accounting firm of national reputation as to the feasibility
of such proposed action and as to the sufficiency of the Trust Estate
for such purpose.
(b) If the Indenture Trustee collects any money or property
pursuant to this Article V, it shall pay out the money or property in the
following order:
FIRST: to the Indenture Trustee for amounts due under Section
6.7;
SECOND: to Noteholders for amounts due and unpaid on the Notes
for interest (including any premium), ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Notes for interest (including any premium);
THIRD: to Holders of the Class A-1 Notes for amounts due and
unpaid on the Class A-1 Notes for principal, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Class A-1 Notes for principal, until the Outstanding
Amount of the Class A-1 Notes is reduced to zero;
FOURTH: to Holders of the Class A-2 Notes for amounts due and
unpaid on the Class A-2 Notes for principal, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Class A-2 Notes for principal, until the Outstanding
Amount of the Class A-2 Notes is reduced to zero;
FIFTH: to Holders of the Class A-3 Notes for amounts due and
unpaid on the Class A-3 Notes for principal, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Class A-3 Notes for principal, until the Outstanding
Amount of the Class A-3 Notes is reduced to zero;
SIXTH: to Holders of the Class A-4 Notes for amounts due and
unpaid on the Class A-4 Notes for principal, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Class A-4 Notes for principal, until the Outstanding
Amount of the Class A-4 Notes is reduced to zero;
FIFTH: to Holders of the Class A-5 Notes for amounts due and
unpaid on the Class A-5 Notes for principal, ratably, without
preference or priority of any kind, according to the
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amounts due and payable on the Class A-5 Notes for principal, until the
Outstanding Amount of the Class A-5 Notes is reduced to zero; and
SIXTH: to the Issuer for amounts required to be distributed to
the Certificateholders pursuant to the Trust Agreement.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section. At least 15 days before such
record date, the Issuer shall mail to each Noteholder and the Indenture Trustee
a notice that states the record date, the payment date and the amount to be
paid.
SECTION 5.5 Optional Preservation of the Receivables. If the Notes have
been declared to be due and payable under Section 5.2 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to maintain possession
of the Trust Estate. It is the desire of the parties hereto and the Noteholders
that there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the Trust
Estate. In determining whether to maintain possession of the Trust Estate, the
Indenture Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose.
SECTION 5.6 Limitation of Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Outstanding
Amount of the Notes have made written request to the Indenture Trustee
to institute such Proceeding in respect of such Event of Default in its
own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by
the Holders of a majority of the Outstanding Amount of the Notes.
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It is understood and intended that no one or more Holders of Notes
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.
SECTION 5.8 Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
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SECTION 5.11 Control by Noteholders. The Holders of a majority of the
Outstanding Amount of the Notes shall have the right to direct the time, method
and place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any rule
of law or with this Indenture;
(ii) subject to the express terms of Section 5.4, any
direction to the Indenture Trustee to sell or liquidate the Trust
Estate shall be by Holders of Notes representing not less than 100% of
the Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Indenture Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the Indenture Trustee
by Holders of Notes representing less than 100% of the Outstanding
Amount of the Notes to sell or liquidate the Trust Estate shall be of
no force and effect; and
(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent with
such direction.
Notwithstanding the rights of Noteholders set forth in this Section,
subject to Section 6.1, the Indenture Trustee need not take any action that it
determines might involve it in liability or might materially adversely affect
the rights of any Noteholders not consenting to such action.
SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.2, the
Holders of Notes representing not less than a majority of the Outstanding Amount
of the Notes may waive any past Default or Event of Default and its consequences
except a Default (a) in the payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof that cannot be
modified or amended without the consent of the Holder of each Note. In the case
of any such waiver, the Issuer, the Indenture Trustee and the Holders of the
Notes shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
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Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.15 Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Noteholders shall be impaired by the recovery of
any judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Trust Estate or upon any
of the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.4(b).
SECTION 5.16 Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee to do
so and at the Administrator's expense, the Issuer shall take all such lawful
action as the Indenture Trustee may request to compel or secure the performance
and observance by the Seller and the Servicer, as applicable, of each of their
obligations to the Issuer under or in connection with the Sale and Servicing
Agreement or by the Seller [or the Company, as applicable,] of [its] [each of
their] obligations under or in connection with the Loan Purchase Agreement, and
to exercise any and all rights, remedies, powers and privileges lawfully
available to the Issuer under or in connection with the Sale and Servicing
Agreement to the extent and in the manner directed by the Indenture Trustee,
including the transmission of notices of default on the part of the Seller or
the Servicer thereunder and the institution of legal or administrative actions
or proceedings to compel or secure performance by the Seller or the Servicer of
each of their obligations under the Sale and Servicing Agreement.
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(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in writing
or by telephone, confirmed in writing promptly thereafter) of the Holders of
66-2/3% of the Outstanding Amount of the Notes shall, exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Seller or the
Servicer under or in connection with the Sale and Servicing Agreement, or
against [the Company or] the Seller under or in connection with the Purchase
Agreement, including the right or power to take any action to compel or secure
performance or observance by the Seller or the Servicer[, or the Company as the
case may be], of each of their obligations to the Issuer thereunder and to give
any consent, request, notice, direction, approval, extension, or waiver under
the Sale and Servicing Agreement or the Purchase Agreement, as the case may be,
and any right of the Issuer to take such action shall be suspended.
ARTICLE VI
The Indenture Trustee
SECTION 6.1 Duties of Indenture Trustee.
(a) If an Event of Default has occurred and is continuing, the
Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless it
is proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
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(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 5.11.
(d) Every provision of this Indenture that in any way relates to
the Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
SECTION 6.2 Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document believed by it
to be genuine and to have been signed or presented by the proper person. The
Indenture Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Indenture Trustee acts or refrains from acting, it
may require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that
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such action or omission by the Indenture Trustee does not constitute willful
misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in the Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing
and if it is known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to each Noteholder notice of the Default within 90
days after it occurs. Except in the case of a Default in payment of principal of
or interest on any Note (including payments pursuant to the mandatory redemption
provisions of such Note), the Indenture Trustee may withhold the notice if and
so long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of Noteholders.
SECTION 6.6 Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns.
SECTION 6.7 Compensation and Indemnity. The Issuer shall or shall cause
the Administrator to pay to the Indenture Trustee from time to time reasonable
compensation for its services. The Indenture Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Issuer
shall or shall cause the Administrator to reimburse the Indenture Trustee for
all reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, counsel, accountants and experts.
The Issuer shall or shall cause the Administrator to indemnify the Indenture
Trustee against any and all loss, liability or expense (including attorneys'
fees) incurred by it in connection with the administration of this trust and the
performance of its duties hereunder. The Indenture Trustee shall notify the
Issuer and the Administrator promptly of
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any claim for which it may seek indemnity. Failure by the Indenture Trustee to
so notify the Issuer and the Administrator shall not relieve the Issuer or the
Administrator of its obligations hereunder. The Issuer shall or shall cause the
Administrator to defend any such claim, and the Indenture Trustee may have
separate counsel and the Issuer shall or shall cause the Administrator to pay
the fees and expenses of such counsel. Neither the Issuer nor the Administrator
need reimburse any expense or indemnify against any loss, liability or expense
incurred by the Indenture Trustee through the Indenture Trustee's own willful
misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section shall survive the discharge of this Indenture. When the Indenture
Trustee incurs expenses after the occurrence of a Default specified in Section
5.1(iv) or (v) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or similar law.
SECTION 6.8 Replacement of Indenture Trustee. No resignation or removal
of the Indenture Trustee and no appointment of a successor Indenture Trustee
shall become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section 6.8. The Indenture Trustee may resign
at any time by so notifying the Issuer. The Holders of a majority in Outstanding
Amount of the Notes may remove the Indenture Trustee by so notifying the
Indenture Trustee and may appoint a successor Indenture Trustee. The Issuer
shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section
6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge of
the Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
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If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority in Outstanding Amount
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section 6.7
shall continue for the benefit of the retiring Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.8 hereof.
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(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Indenture Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Indenture Trustee its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee shall
at all times satisfy the requirements of TIA Section 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [Baa3] or better by Moody's or
shall otherwise be acceptable to Moody's. The Indenture Trustee shall comply
with TIA Section 310(b),
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including the optional provision permitted by the second sentence of TIA Section
310(b)(9); provided, however, that there shall be excluded from the operation of
TIA Section 310(b)(1) any indenture or indentures under which other securities
of the Issuer are outstanding if the requirements for such exclusion set forth
in TIA Section 310(b)(1) are met.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of
Noteholders. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after the earlier of (i) each Record Date
and (ii) three months after the last Record Date, a list, in such form as the
Indenture Trustee may reasonably require, of the names and addresses of the
Holders of Notes as of such Record Date, (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than 10 days prior to the time such list is furnished; provided, however,
that so long as the Indenture Trustee is the Note Registrar, no such list shall
be required to be furnished.
SECTION 7.2 Preservation of Information; Communications to Noteholders.
(a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.1 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.1 upon receipt of
a new list so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this Indenture or
under the Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall
have the protection of TIA Section 312(c).
SECTION 7.3 Reports by Issuer.
(a) The Issuer shall:
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(i) file with the Indenture Trustee, within 15 days after
the Issuer is required to file the same with the Commission, copies of
the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission
may from time to time by rules and regulations prescribe) that the
Issuer may be required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee and the Commission in
accordance with the rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in TIA
Section 313(c)) such summaries of any information, documents and
reports required to be filed by the Issuer pursuant to clauses (i) and
(ii) of this Section 7.3(a) and by rules and regulations prescribed
from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each February 1 beginning with February 1, 199__,
the Indenture Trustee shall mail to each Noteholder as required by TIA Section
313(c) a brief report dated as of such date that complies with TIA Section
313(a). The Indenture Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1 Collection of Money. Except as otherwise expressly provided
herein, the Indenture Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to or
receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice
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to any right to claim a Default or Event of Default under this Indenture and any
right to proceed thereafter as provided in Article V.
SECTION 8.2 Trust Accounts.
(a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Indenture Trustee, for
the benefit of the Noteholders and the Certificateholders, the Trust Accounts as
provided in ARTICLE V of the Sale and Servicing Agreement.
(b) On or before each Distribution Date, the Required Distribution
Amount with respect to the preceding Collection Period will be deposited in the
Collection Account as provided in Section 5.1(a) of the Sale and Servicing
Agreement. On or before each Distribution Date, all amounts required to be
deposited in the Note Distribution Account with respect to the preceding
Collection Period pursuant to Sections 5.1(c) of the Sale and Servicing
Agreement will be transferred from the Collection Account and/or the Reserve
Account to the Note Distribution Account.
(c) On each Distribution Date and Redemption Date, the Indenture
Trustee shall distribute all amounts on deposit in the Note Distribution Account
to Noteholders in respect of the Notes to the extent of amounts due and unpaid
on the Notes for principal and interest (including any premium) in the amounts
and in the following order of priority (except as otherwise provided in Section
5.4(b)):
(i) accrued and unpaid interest on the Notes; provided,
that if there are not sufficient funds in the Note Distribution Account
to pay the entire amount of accrued and unpaid interest then due on the
Notes, the amount in the Note Distribution Account shall be applied to
the payment of such interest on the Notes pro rata on the basis of the
total such interest due on the Notes;
(ii) only to the extent of funds withdrawn from the
Pre-Funding Account and deposited in the Note Distribution Account by
the Indenture Trustee pursuant to Section 5.3(c) of the Sale and
Servicing Agreement, pro rata, to the Holders of the Class A-1 Notes,
the Holders of the Class A-2 Notes, the Holders of the Class A-3 Notes,
the Holders of the Class A-4 Notes and the Holders of the Class A-5
Notes based on the Class Principal Balance of each such Class, in each
case to reduce the Class Principal Balance of each such Class;
(iii) to the Holders of the Class A-1 Notes on account of
principal until the Outstanding Amount of the Class A-1 Notes is
reduced to zero;
(iv) to the Holders of the Class A-2 Notes on account of
principal until the Outstanding Amount of the Class A-2 Notes is
reduced to zero;
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(v) to the Holders of the Class A-3 Notes on account of
principal until the Outstanding Amount of the Class A-3 Notes is
reduced to zero;
(vi) to the Holders of the Class A-4 Notes on account of
principal until the Outstanding Amount of the Class A-4 Notes is
reduced to zero; and
(vii) to the Holders of the Class A-5 Notes on account of
principal until the Outstanding Amount of the Class A-5 Notes is
reduced to zero.
SECTION 8.3 General Provisions Regarding Accounts.
(a) So long as no Default or Event of Default shall have occurred
and be continuing, all or a portion of the funds in the Trust Accounts shall be
invested in Eligible Investments and reinvested by the Indenture Trustee upon
Issuer Order, subject to the provisions of ARTICLE V of the Sale and Servicing
Agreement. All income or other gain from investments of moneys deposited in the
Trust Accounts shall be deposited by the Indenture Trustee in the Collection
Account, and any loss resulting from such investments shall be charged to such
account. The Issuer will not direct the Indenture Trustee to make any investment
of any funds or to sell any investment held in any of the Trust Accounts unless
the security interest Granted and perfected in such account will continue to be
perfected in such investment or the proceeds of such sale, in either case
without any further action by any Person, and, in connection with any direction
to the Indenture Trustee to make any such investment or sale, if requested by
the Indenture Trustee, the Issuer shall deliver to the Indenture Trustee an
Opinion of Counsel, acceptable to the Indenture Trustee, to such effect.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in
any way be held liable by reason of any insufficiency in any of the Trust
Accounts resulting from any loss on any Eligible Investment included therein
except for losses attributable to the Indenture Trustee's failure to make
payments on such Eligible Investments issued by the Indenture Trustee, in its
commercial capacity as principal obligor and not as trustee, in accordance with
their terms.
(c) If (i) the Issuer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Indenture
Trustee by 11:00 a.m. Eastern Time (or such other time as may be agreed by the
Issuer and Indenture Trustee) on any Business Day or (ii) a Default or Event of
Default shall have occurred and be continuing with respect to the Notes but the
Notes shall not have been declared due and payable pursuant to Section 5.2 or
(iii) if such Notes shall have been declared due and payable following an Event
of Default, amounts collected or receivable from the Trust Estate are being
applied in accordance with Section 5.5 as if there had not been such a
declaration, then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Eligible Investments.
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SECTION 8.4 Release of Trust Estate.
(a) Subject to the payment of its fees and expenses pursuant to
Section 6.7, the Indenture Trustee may, and when required by the provisions of
this Indenture shall, execute instruments to release property from the lien of
this Indenture, or convey the Indenture Trustee's interest in the same, in a
manner and under circumstances that are not inconsistent with the provisions of
this Indenture. No party relying upon an instrument executed by the Indenture
Trustee as provided in this Article VIII shall be bound to ascertain the
Indenture Trustee's authority, inquire into the satisfaction of any conditions
precedent or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as there are no
Notes Outstanding and all sums due the Indenture Trustee pursuant to Section 6.7
have been paid, release any remaining portion of the Trust Estate that secured
the Notes from the lien of this Indenture and release to the Issuer or any other
Person entitled thereto any funds then on deposit in the Trust Accounts. The
Indenture Trustee shall release property from the lien of this Indenture
pursuant to this Section 8.4(b) only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
(c) Each Noteholder, by the acceptance of a Note, acknowledges
that promptly following the Closing Date and each Subsequent Transfer Date the
Indenture Trustee shall release the lien of this Indenture on each Fixed Value
Payment assigned by the Issuer to the Company, and consents to such release.
SECTION 8.5 Opinion of Counsel. The Indenture Trustee shall receive at
least seven days notice when requested by the Issuer to take any action pursuant
to Section 8.4(a), accompanied by copies of any instruments involved, and the
Indenture Trustee shall also require, except in connection with any action
contemplated by Section 8.4(c), as a condition to such action, an Opinion of
Counsel, in form and substance satisfactory to the Indenture Trustee, stating
the legal effect of any such action, outlining the steps required to complete
the same, and concluding that all conditions precedent to the taking of such
action have been complied with and such action will not materially and adversely
impair the security for the Notes or the rights of the Noteholders in
contravention of the provisions of this Indenture; provided, however, that such
Opinion of Counsel shall not be required to express an opinion as to the fair
value of the Trust Estate. Counsel rendering any such opinion may rely, without
independent investigation, on the accuracy and validity of any certificate or
other instrument delivered to the Indenture Trustee in connection with any such
action.
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ARTICLE IX
Supplemental Indentures
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders.
(a) Without the consent of the Holders of any Notes but with prior
notice to the Rating Agencies, the Issuer and the Indenture Trustee, when
authorized by an Issuer Order, at any time and from time to time, may enter into
one or more indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as in force at the date of the execution
thereof), in form satisfactory to the Indenture Trustee, for any of the
following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the lien of this Indenture, or to subject
to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit
of the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture; provided, that such action shall not adversely affect the
interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA.
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The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the Notes but with
prior notice to the Rating Agencies, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any Noteholder.
SECTION 9.2 Supplemental Indentures with Consent of Noteholders. The
Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may,
with prior notice to the Rating Agencies and with the consent of the Holders of
not less than a majority of the Outstanding Amount of the Notes, by Act of such
Holders delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby:
(i) change the date of payment of any installment of principal
of or interest on any Note, or reduce the principal amount thereof, the
interest rate thereon or the Redemption Price with respect thereto,
change the provisions of this Indenture relating to the application of
collections on, or the proceeds of the sale of, the Trust Estate to
payment of principal of or interest on the Notes, or change any place
of payment where, or the coin or currency in which, any Note or the
interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the
application of funds available therefor, as provided in Article V, to
the payment of any such amount due on the Notes on or after the
respective due dates thereof (or, in the case of redemption, on or
after the Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the
Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
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(iv) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Indenture Trustee to direct the Issuer to
sell or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified
or waived without the consent of the Holder of each Outstanding Note
affected thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Distribution Date
(including the calculation of any of the individual components of such
calculation) or to affect the rights of the Holders of Notes to the
benefit of any provisions for the mandatory redemption of the Notes
contained herein; or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein,
terminate the lien of this Indenture on any property at any time
subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section, the Indenture Trustee shall
mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such
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supplemental indenture that affects the Indenture Trustee's own rights, duties,
liabilities or immunities under this Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and shall be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Indenture Trustee, the Issuer and the Holders of the Notes shall thereafter
be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
ARTICLE X
Redemption of Notes
SECTION 10.1 Redemption.
(a) The Notes are subject to redemption in whole, but not in part, at
the direction of the Servicer pursuant to Section 11.1(a) of the Sale and
Servicing Agreement, on any Distribution Date on which the Servicer exercises
its option to purchase the Trust Estate pursuant to said Section 11.1(a), for a
purchase price equal to the Redemption Price; provided, that the Issuer has
available funds sufficient to pay the Redemption Price. The Servicer or the
Issuer shall furnish the Rating Agencies notice of such redemption. If the Notes
are to be redeemed pursuant to this Section 10.1(a), the Servicer or the Issuer
shall furnish notice of such election to the Indenture Trustee not later than 20
days prior to the Redemption Date and the Issuer shall deposit by 10:00 A.M. New
York City time on the Redemption Date with the Indenture Trustee in the Note
Distribution Account the Redemption Price of the Notes to be redeemed, whereupon
all such Notes shall be due and payable on the Redemption Date upon the
furnishing of a notice complying with Section 10.2 to each Holder of the Notes.
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(b) If (x) the Pre-Funded Amount has not been reduced to zero on the
Distribution Date on which the Funding Period ends (or, if the Funding Period
does not end on a Distribution Date, on the first Distribution Date following
the end of the Funding Period), after giving effect to any reductions in the
Pre-Funded Amount on such Distribution Date pursuant to Section 5.3(c) of the
Sale and Servicing Agreement, one or more classes of Notes then Outstanding will
be redeemed, in whole or in part, as described in Section 8.02(c)(ii) in a
principal amount described therein.
(c) In the event that the assets of the Trust are sold pursuant to
Section 9.2 of the Trust Agreement, all amounts on deposit in the Note
Distribution Account shall be paid to the Noteholders up to the Outstanding
Amount of the Notes and all accrued and unpaid interest thereon. If amounts are
to be paid to Noteholders pursuant to this Section 10.1(c), the Servicer or the
Issuer shall, to the extent practicable, furnish notice of such event to the
Indenture Trustee not later than 20 days prior to the Redemption Date, whereupon
all such amounts shall be payable on the Redemption Date.
SECTION 10.2 Form of Redemption Notice.
(a) Notice of redemption under Section 10.1(a) shall be given by the
Indenture Trustee by first-class mail, postage prepaid, or by facsimile mailed
or transmitted not later than 10 days prior to the applicable Redemption Date to
each Holder of Notes, as of the close of business on the Record Date preceding
the applicable Redemption Date, at such Holder's address or facsimile number
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the office or agency of
the Issuer to be maintained as provided in Section 3.2).
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
(b) Prior notice of redemption under Sections 10.1(b) and 10.1(c) is
not required to be given to Noteholders.
SECTION 10.3 Notes Payable on Redemption Date. The Notes or portions
thereof to be redeemed shall, following notice of redemption as required by
Section 10.2 (in the case of redemption pursuant to Section 10.1(a)), on the
Redemption Date become due and payable at the
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Redemption Price and (unless the Issuer shall default in the payment of the
Redemption Price) no interest shall accrue on the Redemption Price for any
period after the date to which accrued interest is calculated for purposes of
calculating the Redemption Price.
ARTICLE XI
Miscellaneous
SECTION 11.1 Compliance Certificates and Opinions, etc.
(a) Upon any application or request by the Issuer to the Indenture
Trustee to take any action under any provision of this Indenture, the Issuer
shall furnish to the Indenture Trustee (i) an Officer's Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed
opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property
or securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 11.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
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(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the Issuer shall also
deliver to the Indenture Trustee an Independent Certificate as to the same
matters, if the fair value to the Issuer of the securities to be so deposited
and of all other such securities made the basis of any such withdrawal or
release since the commencement of the then-current fiscal year of the Issuer, as
set forth in the certificates delivered pursuant to clause (i) above and this
clause (ii), is 10% or more of the Outstanding Amount of the Notes, but such a
certificate need not be furnished with respect to any securities so deposited,
if the fair value thereof to the Issuer as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of the Outstanding
Amount of the Notes.
(iii) Whenever any property or securities are to be released from the
lien of this Indenture, the Issuer shall also furnish to the Indenture Trustee
an Officer's Certificate certifying or stating the opinion of each person
signing such certificate as to the fair value (within 90 days of such release)
of the property or securities proposed to be released and stating that in the
opinion of such person the proposed release will not impair the security under
this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (iii) above, the Issuer shall also
furnish to the Indenture Trustee an Independent Certificate as to the same
matters if the fair value of the property or securities and of all other
property, other than property as contemplated by clause (v) below or securities
released from the lien of this Indenture since the commencement of the
then-current calendar year, as set forth in the certificates required by clause
(iii) above and this clause (iv), equals 10% or more of the Outstanding Amount
of the Notes, but such certificate need not be furnished in the case of any
release of property or securities if the fair value thereof as set forth in the
related Officer's Certificate is less than $25,000 or less than one percent of
the then Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.10 or any other provision of this
Section, the Issuer may, without compliance with the requirements of the other
provisions of this Section, (A) collect, liquidate, sell or otherwise dispose of
Home Loans and related Foreclosure Propety as and to the extent permitted or
required by the Basic Documents, and (B) make cash payments out of the Trust
Accounts as and to the extent permitted or required by the Basic Documents, so
long as the Issuer shall deliver to the Indenture Trustee every six months,
commencing December 15, 199__, an Officer's Certificate of the Issuer stating
that all the dispositions of Collateral described in clauses (A) or (B) above
that occurred during the preceding six calendar months were in the ordinary
course of the Issuer's business and that the proceeds thereof were applied in
accordance with the Basic Documents.
SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it
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is not necessary that all such matters be certified by, or covered by the
opinion of, only one such Person, or that they be so certified or covered by
only one document, but one such Person may certify or give an opinion with
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Seller, the Issuer or the
Administrator, stating that the information with respect to such factual matters
is in the possession of the Servicer, the Seller, the Issuer or the
Administrator, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3 Acts of Noteholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided
such action shall become effective when such instrument or instruments are
delivered to the Indenture Trustee, and, where it is hereby expressly required,
to the Issuer. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and
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(subject to Section 6.01) conclusive in favor of the Indenture Trustee and the
Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer and Rating
Agencies. Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other documents provided or permitted by this Indenture
shall be in writing and if such request, demand, authorization, direction,
notice, consent, waiver or act of Noteholders is to be made upon, given or
furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the Issuer
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at its
Corporate Trust Office, or
(ii) the Issuer by the Indenture Trustee or by any Noteholder
shall be sufficient for every purpose hereunder if in writing and
mailed first-class, postage prepaid to the Issuer addressed to:
FIRSTPLUS Home Loan Owner Trust 199__, in care of _______________,
Attention of __________, or at any other address previously furnished
in writing to the Indenture Trustee by the Issuer or the Administrator.
The Issuer shall promptly transmit any notice received by it from the
Noteholders to the Indenture Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
Moody's, at the following address: Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007, and (ii) in
the case of Standard & Poor's, at the following address: Standard & Poor's
Ratings Group, 26 Broadway (15th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department; or as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
SECTION 11.5 Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected
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<PAGE> 64
by such event, at his address as it appears on the Note Register, not later than
the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 Alternate Payment and Notice Provisions. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Paying Agent to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer will furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee will cause payments to be made and
notices to be given in accordance with such agreements.
SECTION 11.7 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
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SECTION 11.9 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
SECTION 11.10 Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.11 Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Trust Estate, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 11.12 Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
SECTION 11.16 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director,
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employee or agent of the Indenture Trustee or the Owner Trustee in its
individual capacity, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as any
such Person may have expressly agreed (it being understood that the Indenture
Trustee and the Owner Trustee have no such obligations in their individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of
any duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of Article
VI, VII and VIII of the Trust Agreement.
SECTION 11.17 No Petition. The Indenture Trustee, by entering into this
Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree
that they will not at any time institute against the Seller, the Servicer or the
Issuer, or join in any institution against the Seller, the Servicer or the
Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States federal or
state bankruptcy or similar law in connection with any obligations relating to
the Notes, this Indenture or any of the Basic Documents.
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
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<PAGE> 67
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
By:________________________________________
not in its individual capacity but
solely as Owner Trustee
By:_______________________________
Name:_____________________________
Title:____________________________
By:________________________________________
not in its individual capacity but
solely as Indenture Trustee
By:_______________________________
Name:_____________________________
Title:____________________________
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<PAGE> 68
STATE OF NEW YORK
COUNTY OF NEW YORK
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared , known to me to be the person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said FIRSTPLUS HOME LOAN
OWNER TRUST 199_-_, a Delaware business trust, and that such person executed the
same as the act of said business trust for the purpose and consideration therein
expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of __________,
199__.
______________________________________________
Notary Public in and for the State of New York
(Seal)
My commission expires:
_____________________
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<PAGE> 69
STATE OF NEW YORK
COUNTY OF NEW YORK
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared __________, known to me to be
the person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of __________, a banking
corporation, and that such person executed the same as the act of said
corporation for the purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of __________,
199__.
______________________________________________
Notary Public in and for the State of New York
(Seal)
My commission expires:
______________________
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<PAGE> 70
SCHEDULE A
(To be Provided at the Closing and Supplemented on each Subsequent
Transfer Date on which Subsequent Home Loans are transferred to the Trust)
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<PAGE> 71
EXHIBIT A-1
(FORM OF CLASS A-1 NOTE)
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
No._____ $__________
FIRSTPLUS HOME LOAN OWNER TRUST 199_-__
CLASS A1 ____% ASSET BACKED NOTES
FIRSTPLUS Home Loan Owner Trust 199_-__, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of ___________________________ DOLLARS and
NO/100 CENTS ($__________) payable on each Distribution Date in an amount equal
to the result obtained by multiplying (i) a fraction the numerator of which is
$[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
$__________ by (ii) the aggregate amount, if any, payable from the Distribution
Account in respect of principal on the Class A1 Notes pursuant to [Section 3.1]
of the Indenture dated as of __________, 199__, between the Issuer and
________________, a banking corporation, as Indenture Trustee (the "Indenture
Trustee"); provided, however, that the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the Distribution Date (the
"Class A1 Final Scheduled Distribution Date") and the Redemption Date, if any,
pursuant to Section 10.1(a) of the Indenture. Capitalized terms used but not
defined herein are defined in Article I of the Indenture, which also contains
rules as to construction that shall be applicable herein.
A-1-1
<PAGE> 72
The Issuer will pay interest on this Note at the rate per annum shown
above on each Distribution Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Distribution Date (after giving effect to all payments of principal
made on the preceding Distribution Date), subject to certain limitations
contained in Section 3.1 of the Indenture. Interest on this Note will accrue for
each Distribution Date from the second day of the month preceding the month of
such Distribution Date (in the case of the first Distribution Date, from the
Closing Date) to and including the first day of the month of such Distribution
Date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Such principal of and interest on this Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date:____________
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
By:___________________________________________
not in its individual capacity but
solely as Owner Trustee under the
Trust Agreement,
By:___________________________________________
Authorized Signatory
A-1-2
<PAGE> 73
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date:___________
(______________________________________________),
not in its individual capacity but
solely as Indenture Trustee,
By:____________________________________________
Authorized Signatory
A-1-3
<PAGE> 74
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A-1 ____% Asset Backed Notes (herein called the "Class
A-1 Notes"), all issued under the Indenture, to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Issuer, the Indenture
Trustee and the Holders of the Notes. The Class A-1 Notes are subject to all
terms of the Indenture.
The Class A-1 Notes, the Class A-2 Notes, Class A-3 Notes, Class A-4
Notes and the Class A-5 Notes (collectively, the "Notes") are and will be
equally and ratably secured by the collateral pledged as security therefor as
provided in the Indenture.
Principal of the Class A-1 Notes will be payable on each Distribution
Date in an amount described on the face hereof. "Distribution Date" means the
second day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing __________, 199__.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Class A-1 Final Scheduled
Distribution Date and the Redemption Date, if any, pursuant to Section 10.1(a)
of the Indenture. Notwithstanding the foregoing, the entire unpaid principal
amount of the Notes shall be due and payable on the date on which an Event of
Default shall have occurred and be continuing and the Indenture Trustee or the
Holders of the Notes representing not less than a majority of the Outstanding
Amount of the Notes have declared the Notes to be immediately due and payable in
the manner provided in Section 5.2 of the Indenture. All principal payments on
the Class A-1 Notes shall be made pro rata to the Class A-1 Noteholders entitled
thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Notes registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Distribution Date shall be binding upon all future Holders of this Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Distribution Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Registered Holder hereof as of the Record Date preceding such
Distribution Date by notice mailed or transmitted by facsimile prior to such
Distribution Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note
A-1-4
<PAGE> 75
at the Indenture Trustee's principal Corporate Trust Office or at the office of
the Indenture Trustee's agent appointed for such purposes located in The City of
New York.
The Issuer shall pay interest on overdue installments of interest at
the Class A-1 Interest Rate to the extent lawful.
As provided in the Indenture, the Class A-1 Notes may be redeemed, in
whole or in part, on the Distribution Date on which the Funding Period ends (or
on the Distribution Date immediately following the last day of the Funding
Period, if the Funding Period does not end on a Distribution Date), in the
manner and to the extent described in the Indenture and the Sale and Servicing
Agreement, in the event that any amount remains on deposit in the Pre-Funding
Account after giving effect to the purchase of all Subsequent Home Loans,
including any such purchase on such Redemption Date.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one or more new Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated transferee
or transferees. No service charge will be charged for any registration of
transfer or exchange of this Note, but the transferor may be required to pay a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any such registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director or employee of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed and except that any such partner, owner or beneficiary shall be
fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
A-1-5
<PAGE> 76
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Noteholder or Note Owner will
not at any time institute against the Seller or the Issuer, or join in any
institution against the Seller or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Noteholder, by acceptance of a Note (and each
Note Owner by acceptance of a beneficial interest in a Note), agrees to treat
the Notes for federal, state and local income, single business and franchise tax
purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note (or
any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
A-1-6
<PAGE> 77
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of in its individual capacity, in its
individual capacity, any owner of a beneficial interest in the Issuer, or any of
their respective partners, beneficiaries, agents, officers, directors, employees
or successors or assigns shall be personally liable for, nor shall recourse be
had to any of them for, the payment of principal of or interest on this Note or
performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The Holder of this Note by its
acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event of Default under the Indenture, the Holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be taken
to prevent recourse to, and enforcement against, the assets of the Issuer for
any and all liabilities, obligations and undertakings contained in the Indenture
or in this Note.
A-1-7
<PAGE> 78
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:______
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints , attorney, to transfer said Note on the books kept for
registration thereof, with full power of substitution in the premises.
Dated: ___________________ */
Signature Guaranteed:
__________________________ */
*/ NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
A-1-8
<PAGE> 79
EXHIBIT A-2
(FORM OF CLASS A-2 NOTE)
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
$____________
No._____ CUSIP NO._______
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
CLASS A-2 ____% ASSET BACKED NOTES
FIRSTPLUS Home Loan Owner Trust 199_-_, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of _______________ DOLLARS and NO/100
CENTS ($__________) payable on each Distribution Date in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is $
[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
$__________ by (ii) the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the Class A-2 Notes pursuant to
Section 3.1 of the Indenture dated as of __________, 199__, between the Issuer
and __________, a banking corporation, as Indenture Trustee (the "Indenture
Trustee"); provided, however, that the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the Distribution Date (the
"Class A-2 Final Scheduled Distribution Date") and the Redemption Date, if any,
pursuant to Section 10.1(a) of the Indenture. No payments of principal on the
Class A-2 Notes shall be made until the Class A-1 Notes have been paid in full.
Capitalized terms used but not defined herein are defined in Article I of the
Indenture, which also contains rules as to construction that shall be applicable
herein.
A-2-1
<PAGE> 80
The Issuer will pay interest on this Note at the rate per annum shown
above on each Distribution Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Distribution Date (after giving effect to all payments of principal
made on the preceding Distribution Date), subject to certain limitations
contained in Section 3.1 of the Indenture. Interest on this Note will accrue for
each Distribution Date from the second day of the month preceding the month of
such Distribution Date (in the case of the first Distribution Date, from the
Closing Date) to and including the first day of the month of such Distribution
Date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Such principal of and interest on this Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date: ____________________
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
By:___________________________________________
not in its individual capacity but
solely as Owner Trustee under the
Trust Agreement,
By:__________________________________
Authorized Signatory
A-2-2
<PAGE> 81
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date:___________
By:_________________________________________
not in its individual capacity but
solely as Indenture Trustee,
By:_________________________________________
Authorized Signatory
A-2-3
<PAGE> 82
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A-2 ____% Asset Backed Notes (herein called the "Class
A-2 Notes"), all issued under the Indenture, to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Issuer, the Indenture
Trustee and the Holders of the Notes. The Class A-2 Notes are subject to all
terms of the Indenture.
The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes and the Class A-5 Notes (collectively, the "Notes") are and will
be equally and ratably secured by the collateral pledged as security therefor as
provided in the Indenture.
Principal of the Class A-2 Notes will be payable on each Distribution
Date in an amount described on the face hereof. "Distribution Date" means the
second day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing __________, 199__.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Class A-2 Final Scheduled
Distribution Date and the Redemption Date, if any, pursuant to Section 10.1(a)
of the Indenture. Notwithstanding the foregoing, the entire unpaid principal
amount of the Notes shall be due and payable on the date on which an Event of
Default shall have occurred and be continuing and the Indenture Trustee or the
Holders of the Notes representing not less than a majority of the Outstanding
Amount of the Notes have declared the Notes to be immediately due and payable in
the manner provided in Section 5.2 of the Indenture. All principal payments on
the Class A-2 Notes shall be made pro rata to the Class A-2 Noteholders entitled
thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Notes registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Distribution Date shall be binding upon all future Holders of this Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Distribution Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Registered Holder hereof as of the Record Date preceding such
Distribution Date by notice mailed or transmitted by facsimile prior to such
Distribution Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note
A-2-4
<PAGE> 83
at the Indenture Trustee's principal Corporate Trust Office or at the office of
the Indenture Trustee's agent appointed for such purposes located in The City of
New York.
The Issuer shall pay interest on overdue installments of interest at
the Class A-2 Interest Rate to the extent lawful.
As provided in the Indenture, the Class A-2 Notes may be redeemed in
part on the Distribution Date on which the Funding Period ends (or on the
Distribution Date immediately following the last day of the Funding Period, if
the Funding Period does not end on a Distribution Date), in the manner and to
the extent described in the Indenture and the Sale and Servicing Agreement, in
the event that any amount remains on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Home Loans, including any such
purchase on such Redemption Date.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one or more new Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated transferee
or transferees. No service charge will be charged for any registration of
transfer or exchange of this Note, but the transferor may be required to pay a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any such registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director or employee of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed and except that any such partner, owner or beneficiary shall be
fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
A-2-5
<PAGE> 84
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Noteholder or Note Owner will
not at any time institute against the Seller or the Issuer, or join in any
institution against the Seller or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Noteholder, by acceptance of a Note (and each
Note Owner by acceptance of a beneficial interest in a Note), agrees to treat
the Notes for federal, state and local income, single business and franchise tax
purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note (or
any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
A-2-6
<PAGE> 85
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of in its individual capacity, in its
individual capacity, any owner of a beneficial interest in the Issuer, or any of
their respective partners, beneficiaries, agents, officers, directors, employees
or successors or assigns shall be personally liable for, nor shall recourse be
had to any of them for, the payment of principal of or interest on this Note or
performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The Holder of this Note by its
acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event of Default under the Indenture, the Holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be taken
to prevent recourse to, and enforcement against, the assets of the Issuer for
any and all liabilities, obligations and undertakings contained in the Indenture
or in this Note.
A-2-7
<PAGE> 86
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:_______
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints , attorney, to transfer said Note on the books kept for
registration thereof, with full power of substitution in the premises.
Dated:________________
*/Signature Guaranteed:
______________________
*/ NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
A-2-8
<PAGE> 87
EXHIBIT A-3
(FORM OF CLASS A-3 NOTE)
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
$__________
No._______ CUSIP NO.________
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
CLASS A-3 ____% ASSET BACKED NOTES
FIRSTPLUS Home Loan Owner Trust 199_-_, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of _______________ DOLLARS and NO/100
CENTS ($__________) payable on each Distribution Date in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is $
[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
$__________ by (ii) the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the Class A-3 Notes pursuant to
Section 3.1 of the Indenture dated as of , 199 , between the Issuer and
_______________, a banking corporation, as Indenture Trustee (the "Indenture
Trustee"); provided, however, that the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the Distribution Date (the
"Class A 3 Final Scheduled Distribution Date") and the Redemption Date, if any,
pursuant to Section 10.1(a) of the Indenture. No payments of principal of the
Class A-3 Notes shall be made until the Class A-1 Notes and the Class A-2 Notes
have been paid in full. Capitalized terms used but not defined herein are
defined in Article I of the Indenture, which also contains rules as to
construction that shall be applicable herein.
A-3-1
<PAGE> 88
The Issuer will pay interest on this Note at the rate per annum shown
above on each Distribution Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Distribution Date (after giving effect to all payments of principal
made on the preceding Distribution Date), subject to certain limitations
contained in Section 3.1 of the Indenture. Interest on this Note will accrue for
each Distribution Date from the second day of the month preceding the month of
such Distribution Date (in the case of the first Distribution Date, from the
Closing Date) to and including the first day of the month of such Distribution
Date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Such principal of and interest on this Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date:______________
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
By:____________________________________________
not in its individual capacity but
solely as Owner Trustee under the
Trust Agreement,
By:____________________________________________
Authorized Signatory
A-3-2
<PAGE> 89
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date:____________
______________________________________________
not in its individual capacity
but solely as Indenture Trustee,
By: __________________________________________
Authorized Signatory
A-3-3
<PAGE> 90
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A-3 ___% Asset Backed Notes (herein called the "Class
A-3 Notes"), all issued under the Indenture, to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Issuer, the Indenture
Trustee and the Holders of the Notes. The Class A-3 Notes are subject to all
terms of the Indenture.
The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes and the Class A-5 Notes (collectively, the "Notes") are and will
be equally and ratably secured by the collateral pledged as security therefor as
provided in the Indenture.
Principal of the Class A-3 Notes will be payable on each Distribution
Date in an amount described on the face hereof. "Distribution Date" means the
second day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing __________, 199__.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Class A-3 Final Scheduled
Distribution Date and the Redemption Date, if any, pursuant to Section 10.1(a)
of the Indenture. Notwithstanding the foregoing, the entire unpaid principal
amount of the Notes shall be due and payable on the date on which an Event of
Default shall have occurred and be continuing and the Indenture Trustee or the
Holders of the Notes representing not less than a majority of the Outstanding
Amount of the Notes have declared the Notes to be immediately due and payable in
the manner provided in Section 5.2 of the Indenture. All principal payments on
the Class A-3 Notes shall be made pro rata to the Class A-3 Noteholders entitled
thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Notes registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Distribution Date shall be binding upon all future Holders of this Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Distribution Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Registered Holder hereof as of the Record Date preceding such
Distribution Date by notice mailed or transmitted by facsimile prior to such
Distribution Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note
A-3-4
<PAGE> 91
at the Indenture Trustee's principal Corporate Trust Office or at the office of
the Indenture Trustee's agent appointed for such purposes located in The City of
New York.
The Issuer shall pay interest on overdue installments of interest at
the Class A-3 Interest Rate to the extent lawful.
As provided in the Indenture, the Class A-3 Notes may be redeemed (a)
in whole, but not in part, at the option of the Servicer, on any Distribution
Date on and after the date on which the Pool Balance is less than or equal to
10% of the Original Pool Balance and (b) in part on the Distribution Date on
which the Funding Period ends (or on the Distribution Date immediately following
the last day of the Funding Period, if the Funding Period does not end on a
Distribution Date), in the manner and to the extent described in the Indenture
and the Sale and Servicing Agreement, in the event that an amount in excess of
$_________ remains on deposit in the Pre-Funding Account after giving effect to
the purchase of all Subsequent Home Loans, including any such purchase on such
Redemption Date.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one or more new Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated transferee
or transferees. No service charge will be charged for any registration of
transfer or exchange of this Note, but the transferor may be required to pay a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any such registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director or employee of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed and except that any such partner, owner or beneficiary
A-3-5
<PAGE> 92
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Noteholder or Note Owner will
not at any time institute against the Seller or the Issuer, or join in any
institution against the Seller or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Noteholder, by acceptance of a Note (and each
Note Owner by acceptance of a beneficial interest in a Note), agrees to treat
the Notes for federal, state and local income, single business and franchise tax
purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note (or
any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
A-3-6
<PAGE> 93
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of in its individual capacity, in its
individual capacity, any owner of a beneficial interest in the Issuer, or any of
their respective partners, beneficiaries, agents, officers, directors, employees
or successors or assigns shall be personally liable for, nor shall recourse be
had to any of them for, the payment of principal of or interest on this Note or
performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The Holder of this Note by its
acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event of Default under the Indenture, the Holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be taken
to prevent recourse to, and enforcement against, the assets of the Issuer for
any and all liabilities, obligations and undertakings contained in the Indenture
or in this Note.
A-3-7
<PAGE> 94
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:______
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _______________, attorney, to transfer said Note on the books kept
for registration thereof, with full power of substitution in the premises.
Dated:________________
*/Signature Guaranteed:
______________________
*/ NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
A-3-8
<PAGE> 95
EXHIBIT A-4
(FORM OF CLASS A-4 NOTE)
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
$__________
No._______ CUSIP NO.________
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
CLASS A-4 ____% ASSET BACKED NOTES
FIRSTPLUS Home Loan Owner Trust 199_-_, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of _______________ DOLLARS and NO/100
CENTS ($__________) payable on each Distribution Date in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is $
[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
$__________ by (ii) the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the Class A-4 Notes pursuant to
Section 3.1 of the Indenture dated as of , 199 , between the Issuer and
_______________, a banking corporation, as Indenture Trustee (the "Indenture
Trustee"); provided, however, that the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the Distribution Date (the
"Class A 3 Final Scheduled Distribution Date") and the Redemption Date, if any,
pursuant to Section 10.1(a) of the Indenture. No payments of principal of the
Class A-4 Notes shall be made until the Class A-1 Notes, the Class A-2 Notes and
the Class A-3 Notes have been paid in full. Capitalized terms used but not
defined herein are defined in Article I of the Indenture, which also contains
rules as to construction that shall be applicable herein.
A-4-1
<PAGE> 96
The Issuer will pay interest on this Note at the rate per annum shown
above on each Distribution Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Distribution Date (after giving effect to all payments of principal
made on the preceding Distribution Date), subject to certain limitations
contained in Section 3.1 of the Indenture. Interest on this Note will accrue for
each Distribution Date from the second day of the month preceding the month of
such Distribution Date (in the case of the first Distribution Date, from the
Closing Date) to and including the first day of the month of such Distribution
Date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Such principal of and interest on this Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date:____________
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
By:__________________________________________
not in its individual capacity but
solely as Owner Trustee under the
Trust Agreement,
By:__________________________________________
Authorized Signatory
A-4-2
<PAGE> 97
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date:__________
______________________________________________
not in its individual capacity
but solely as Indenture Trustee,
By:___________________________________________
Authorized Signatory
A-4-3
<PAGE> 98
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A-4 ___% Asset Backed Notes (herein called the "Class
A-4 Notes"), all issued under the Indenture, to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Issuer, the Indenture
Trustee and the Holders of the Notes. The Class A-4 Notes are subject to all
terms of the Indenture.
The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes and the Class A-5 Notes (collectively, the "Notes") are and will
be equally and ratably secured by the collateral pledged as security therefor as
provided in the Indenture.
Principal of the Class A-4 Notes will be payable on each Distribution
Date in an amount described on the face hereof. "Distribution Date" means the
second day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing __________, 199__.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Class A-4 Final Scheduled
Distribution Date and the Redemption Date, if any, pursuant to Section 10.1(a)
of the Indenture. Notwithstanding the foregoing, the entire unpaid principal
amount of the Notes shall be due and payable on the date on which an Event of
Default shall have occurred and be continuing and the Indenture Trustee or the
Holders of the Notes representing not less than a majority of the Outstanding
Amount of the Notes have declared the Notes to be immediately due and payable in
the manner provided in Section 5.2 of the Indenture. All principal payments on
the Class A-4 Notes shall be made pro rata to the Class A-4 Noteholders entitled
thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Notes registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Distribution Date shall be binding upon all future Holders of this Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Distribution Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Registered Holder hereof as of the Record Date preceding such
Distribution Date by notice mailed or transmitted by facsimile prior to such
Distribution Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note
A-4-4
<PAGE> 99
at the Indenture Trustee's principal Corporate Trust Office or at the office of
the Indenture Trustee's agent appointed for such purposes located in The City of
New York.
The Issuer shall pay interest on overdue installments of interest at
the Class A-4 Interest Rate to the extent lawful.
As provided in the Indenture, the Class A-4 Notes may be redeemed (a)
in whole, but not in part, at the option of the Servicer, on any Distribution
Date on and after the date on which the Pool Balance is less than or equal to
10% of the Original Pool Balance and (b) in part on the Distribution Date on
which the Funding Period ends (or on the Distribution Date immediately following
the last day of the Funding Period, if the Funding Period does not end on a
Distribution Date), in the manner and to the extent described in the Indenture
and the Sale and Servicing Agreement, in the event that an amount in excess of
$_________ remains on deposit in the Pre-Funding Account after giving effect to
the purchase of all Subsequent Home Loans, including any such purchase on such
Redemption Date.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one or more new Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated transferee
or transferees. No service charge will be charged for any registration of
transfer or exchange of this Note, but the transferor may be required to pay a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any such registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director or employee of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed and except that any such partner, owner or beneficiary
A-4-5
<PAGE> 100
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Noteholder or Note Owner will
not at any time institute against the Seller or the Issuer, or join in any
institution against the Seller or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Noteholder, by acceptance of a Note (and each
Note Owner by acceptance of a beneficial interest in a Note), agrees to treat
the Notes for federal, state and local income, single business and franchise tax
purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note (or
any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
A-4-6
<PAGE> 101
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of in its individual capacity, in its
individual capacity, any owner of a beneficial interest in the Issuer, or any of
their respective partners, beneficiaries, agents, officers, directors, employees
or successors or assigns shall be personally liable for, nor shall recourse be
had to any of them for, the payment of principal of or interest on this Note or
performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The Holder of this Note by its
acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event of Default under the Indenture, the Holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be taken
to prevent recourse to, and enforcement against, the assets of the Issuer for
any and all liabilities, obligations and undertakings contained in the Indenture
or in this Note.
A-4-7
<PAGE> 102
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:______
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _______________, attorney, to transfer said Note on the books kept
for registration thereof, with full power of substitution in the premises.
Dated:________________
*/Signature Guaranteed:
______________________
*/ NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
A-4-8
<PAGE> 103
EXHIBIT A-5
(FORM OF CLASS A-5 NOTE)
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
$__________
No._______ CUSIP NO.________
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
CLASS A-5 ____% ASSET BACKED NOTES
FIRSTPLUS Home Loan Owner Trust 199_-_, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of _______________ DOLLARS and NO/100
CENTS ($__________) payable on each Distribution Date in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is $
[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
$__________ by (ii) the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the Class A-5 Notes pursuant to
Section 3.1 of the Indenture dated as of , 199 , between the Issuer and
_______________, a banking corporation, as Indenture Trustee (the "Indenture
Trustee"); provided, however, that the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the Distribution Date (the
"Class A-5 Final Scheduled Distribution Date") and the Redemption Date, if any,
pursuant to Section 10.1(a) of the Indenture. No payments of principal of the
Class A-5 Notes shall be made until the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes and the Class A-4 Notes have been paid in full. Capitalized
terms used but not defined herein are defined in Article I of the Indenture,
which also contains rules as to construction that shall be applicable herein.
A-5-1
<PAGE> 104
The Issuer will pay interest on this Note at the rate per annum shown
above on each Distribution Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Distribution Date (after giving effect to all payments of principal
made on the preceding Distribution Date), subject to certain limitations
contained in Section 3.1 of the Indenture. Interest on this Note will accrue for
each Distribution Date from the second day of the month preceding the month of
such Distribution Date (in the case of the first Distribution Date, from the
Closing Date) to and including the first day of the month of such Distribution
Date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Such principal of and interest on this Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date:____________
FIRSTPLUS HOME LOAN OWNER TRUST 199_-_
By:_________________________________________
not in its individual capacity but
solely as Owner Trustee under the
Trust Agreement,
By:_________________________________________
Authorized Signatory
A-5-2
<PAGE> 105
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date:___________
______________________________________________
not in its individual capacity
but solely as Indenture Trustee,
By:___________________________________________
Authorized Signatory
A-5-3
<PAGE> 106
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A-5 ___% Asset Backed Notes (herein called the "Class
A-5 Notes"), all issued under the Indenture, to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Issuer, the Indenture
Trustee and the Holders of the Notes. The Class A-5 Notes are subject to all
terms of the Indenture.
The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes and the Class A-5 Notes (collectively, the "Notes") are and will
be equally and ratably secured by the collateral pledged as security therefor as
provided in the Indenture.
Principal of the Class A-5 Notes will be payable on each Distribution
Date in an amount described on the face hereof. "Distribution Date" means the
second day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing __________, 199__.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Class A-5 Final Scheduled
Distribution Date and the Redemption Date, if any, pursuant to Section 10.1(a)
of the Indenture. Notwithstanding the foregoing, the entire unpaid principal
amount of the Notes shall be due and payable on the date on which an Event of
Default shall have occurred and be continuing and the Indenture Trustee or the
Holders of the Notes representing not less than a majority of the Outstanding
Amount of the Notes have declared the Notes to be immediately due and payable in
the manner provided in Section 5.2 of the Indenture. All principal payments on
the Class A-5 Notes shall be made pro rata to the Class A-5 Noteholders entitled
thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Notes registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Distribution Date shall be binding upon all future Holders of this Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Distribution Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Registered Holder hereof as of the Record Date preceding such
Distribution Date by notice mailed or transmitted by facsimile prior to such
Distribution Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note
A-5-4
<PAGE> 107
at the Indenture Trustee's principal Corporate Trust Office or at the office of
the Indenture Trustee's agent appointed for such purposes located in The City of
New York.
The Issuer shall pay interest on overdue installments of interest at
the Class A-5 Interest Rate to the extent lawful.
As provided in the Indenture, the Class A-5 Notes may be redeemed (a)
in whole, but not in part, at the option of the Servicer, on any Distribution
Date on and after the date on which the Pool Balance is less than or equal to
10% of the Original Pool Balance and (b) in part on the Distribution Date on
which the Funding Period ends (or on the Distribution Date immediately following
the last day of the Funding Period, if the Funding Period does not end on a
Distribution Date), in the manner and to the extent described in the Indenture
and the Sale and Servicing Agreement, in the event that an amount in excess of
$_________ remains on deposit in the Pre-Funding Account after giving effect to
the purchase of all Subsequent Home Loans, including any such purchase on such
Redemption Date.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one or more new Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated transferee
or transferees. No service charge will be charged for any registration of
transfer or exchange of this Note, but the transferor may be required to pay a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any such registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director or employee of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed and except that any such partner, owner or beneficiary
A-5-5
<PAGE> 108
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Noteholder or Note Owner will
not at any time institute against the Seller or the Issuer, or join in any
institution against the Seller or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Noteholder, by acceptance of a Note (and each
Note Owner by acceptance of a beneficial interest in a Note), agrees to treat
the Notes for federal, state and local income, single business and franchise tax
purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note (or
any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
A-5-6
<PAGE> 109
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of in its individual capacity, in its
individual capacity, any owner of a beneficial interest in the Issuer, or any of
their respective partners, beneficiaries, agents, officers, directors, employees
or successors or assigns shall be personally liable for, nor shall recourse be
had to any of them for, the payment of principal of or interest on this Note or
performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The Holder of this Note by its
acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event of Default under the Indenture, the Holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be taken
to prevent recourse to, and enforcement against, the assets of the Issuer for
any and all liabilities, obligations and undertakings contained in the Indenture
or in this Note.
A-5-7
<PAGE> 110
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:______
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _______________, attorney, to transfer said Note on the books kept
for registration thereof, with full power of substitution in the premises.
Dated:________________
*/Signature Guaranteed:
______________________
*/ NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
A-5-8
<PAGE> 111
EXHIBIT B
FORM OF TRANSFEROR CERTIFICATE
(DATE)
(Seller)
(Seller Address)
(Owner Trustee)
(Owner Trustee Address)
(Indenture Trustee)
(Indenture Trustee Address)
Re: FIRSTPLUS Home Loan Owner Trust 199_-__
____% Class A-__ Asset Backed Notes
Ladies and Gentlemen:
In connection with our disposition of the above-referenced _____% Class
A-__ Asset Backed Notes (the "Notes") we certify that (a) we understand that the
Notes have not been registered under the Securities Act of 1933, as amended (the
"Act"), and are being transferred by us in a transaction that is exempt from the
registration requirements of the Act and (b) we have not offered or sold any
Notes to, or solicited offers to buy any Notes from, any person, or otherwise
approached or negotiated with any person with respect thereto, in a manner that
would be deemed, or taken any other action which would result in, a violation of
Section 5 of the Act.
Very truly yours,
(NAME OF TRANSFEROR)
By:___________________________________
Authorized Officer
B-1
<PAGE> 112
EXHIBIT C
FORM OF INVESTMENT LETTER
(DATE)
(Seller)
(Seller Address)
(Owner Trustee)
(Owner Trustee Address)
(Indenture Trustee)
(Indenture Trustee Address)
Re: FIRSTPLUS Home Loan Owner Trust 199_-__
____% Class A-_ Asset Backed Notes
Ladies and Gentlemen:
In connection with our acquisition of the above-referenced _____% Class
A-__ Asset Backed Notes (the "Notes) we certify that (a) we understand that the
Notes are not being registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws and are being transferred to us in a
transaction that is exempt from the registration requirements of the Act and any
such laws, (b) we are an "accredited investor,"as defined in Regulation D under
the Act, and have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of investments in
the Notes, (c) we have had the opportunity to ask questions of and receive
answers from the seller concerning the purchase of the Notes and all matters
relating thereto or any additional information deemed necessary to our decision
to purchase the Notes, (d) we are acquiring the Notes for investment for our own
account and not with a view to any distribution of such Notes (but without
prejudice to our right at all times to sell or otherwise dispose of the Notes in
accordance with clause (f) below), (e) we have not offered or sold any Notes to,
or solicited offers to buy any Notes from, any person, or otherwise approached
or negotiated with any person with respect thereto, or taken any other action
that would result in a violation of Section 5 of the Act or any state securities
laws and (f) we will not sell, transfer or otherwise dispose of any Notes unless
(1) such sale, transfer or other disposition is made pursuant to an effective
registration statement under the Act and in compliance with any relevant state
securities laws or is exempt from such registration requirements and, if
requested, we will at our expense provide an opinion of counsel satisfactory to
the addressees of this certificate that such sale, transfer or other disposition
may be made pursuant to an exemption from the Act, (2) the purchaser or
transferee of such Note has executed and delivered to you a certificate to
substantially the same effect as this certificate and (3) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Indenture dated as of __________, 199__ between FIRSTPLUS Home Loan Owner
Trust 199_- __and _______________ as Indenture Trustee.
Very truly yours,
(NAME OF TRANSFEREE)
By:__________________________________
Authorized Officer
C-1
<PAGE> 113
EXHIBIT D
FORM OF RULE 144A LETTER
(DATE)
(Seller)
(Seller Address)
(Owner Trustee)
(Owner Trustee Address)
(Indenture Trustee)
(Indenture Trustee Address)
Re: FIRSTPLUS Home Loan Owner Trust 199_-_
____% Class A-__ Asset Backed Notes
Ladies and Gentlemen:
In connection with our acquisition of the above-referenced _____% Class
A-__ Asset Backed Notes (the "Notes) we certify that (a) we understand that the
Notes are not being registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws and are being transferred to us in a
transaction that is exempt from the registration requirements of the Act and any
such laws, (b) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of investments in
the Notes, (c) we have had the opportunity to ask questions of and receive
answers from the seller concerning the purchase of the Notes and all matters
relating thereto or any additional information deemed necessary to our decision
to purchase the Notes, (d) we have not, nor has anyone acting on our behalf,
offered, transferred, pledged, sold or otherwise disposed of the Notes, any
interest in the Notes or any other similar security to, or solicited any offer
to buy or accept a transfer, pledge or other disposition of the Notes, any
interest in the Notes or any other similar security from or otherwise approached
or negotiated with respect to the Notes, any interest in the Notes or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or taken
any other action that would constitute a distribution of the Notes under the Act
or that would render the disposition of the Notes a violation of Section 5 of
the Act or any state securities laws or require registration pursuant thereto,
and we will not act, or authorize any person to act, in such manner with respect
to the Notes, (e) we are a "qualified institutional buyer" as that term is
defined in Rule 144A under the Act. We are aware that the sale to us is being
made in reliance on Rule 144A. We are acquiring the Notes for our own account or
for resale pursuant to Rule 144A and understand that such Notes may be resold,
pledged or transferred only (i) to a person reasonably believed to be a
qualified institutional buyer that purchases for its own account or for the
account of a qualified institutional buyer to whom notice is given that the
resale, pledge or transfer is being made in reliance on Rule 144A or (ii)
pursuant to another exemption from registration under the Act.
Very truly yours,
(NAME OF TRANSFEREE)
By:______________________________
Chief Financial Officer
D-1
<PAGE> 1
EXHIBIT 4.3
FORM OF TRUST AGREEMENT
among
FIRSTPLUS INVESTMENT CORPORATION,
as Depositor,
[___________________],
as the Company
and
[____________________],
as Owner Trustee
Dated as of ___________, 199__
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - Definitions..................................................................................1
SECTION 1.1 Capitalized Terms..................................................................1
SECTION 1.2 Other Definitional Provisions......................................................4
ARTICLE II - Organization.........................................................................................4
SECTION 2.1 Name...............................................................................5
SECTION 2.2 Office.............................................................................5
SECTION 2.3 Purposes and Powers................................................................5
SECTION 2.4 Appointment of Owner Trustee.......................................................6
SECTION 2.5 Initial Capital Contribution of Owner Trust Estate.................................6
SECTION 2.6 Declaration of Trust...............................................................6
SECTION 2.7 Liability of the Owners............................................................6
SECTION 2.8 Title to Trust Property............................................................7
SECTION 2.9 Situs of Trust.....................................................................7
SECTION 2.10 Representations and Warranties of the Depositor
and the Company............................................................7
SECTION 2.11 Maintenance of the Demand Note....................................................9
SECTION 2.12 Federal Income Tax Allocations....................................................9
ARTICLE III - Trust Certificates and Transfer of Interests.......................................................10
SECTION 3.1 Initial Ownership.................................................................10
SECTION 3.2 The Trust Certificates............................................................10
SECTION 3.3 Authentication of Trust Certificates..............................................11
SECTION 3.4 Registration of Transfer and Exchange of Trust Certificates.......................11
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Trust Certificates...........................12
SECTION 3.6 Persons Deemed Owners.............................................................12
SECTION 3.7 Access to List of Certificateholders' Names and Addresses.........................12
SECTION 3.8 Maintenance of Office or Agency...................................................13
SECTION 3.9 Appointment of Paying Agent.......................................................13
SECTION 3.10 Ownership by Company of Trust Certificates.......................................13
SECTION 3.11 Fixed Value Securities...........................................................14
SECTION 3.12 Book-Entry Trust Certificates....................................................15
SECTION 3.13 Notices to Clearing Agency.......................................................16
SECTION 3.14 Definitive Trust Certificates....................................................16
ARTICLE IV - Actions by Owner Trustee............................................................................16
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters............................16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.2 Action by Owners with Respect to Certain Matters..................................17
SECTION 4.3 Action by Owners with Respect to Bankruptcy.......................................17
SECTION 4.4 Restrictions on Owners' Power.....................................................17
SECTION 4.5 Majority Control..................................................................18
ARTICLE V - Application of Trust Funds; Certain Duties...........................................................18
SECTION 5.1 Establishment of Trust Account....................................................18
SECTION 5.2 Application Of Trust Funds........................................................18
SECTION 5.3 Method of Payment.................................................................19
SECTION 5.4 No Segregation of Moneys; No Interest.............................................19
SECTION 5.5 Accounting and Reports to the Noteholders, Owners,
the Internal Revenue Service and Others..............................19
SECTION 5.6 Signature on Returns; Tax Matter Partner..........................................19
ARTICLE VI - Authority and Duties of Owner Trustee...............................................................20
SECTION 6.1 General Authority.................................................................20
SECTION 6.2 General Duties....................................................................20
SECTION 6.3 Action upon Instruction...........................................................20
SECTION 6.4 No Duties Except as Specified in this Agreement or
in Instructions......................................................21
SECTION 6.5 No Action Except Under Specified Documents
or Instructions......................................................22
SECTION 6.6 Restrictions......................................................................22
ARTICLE VII - Concerning the Owner Trustee.......................................................................22
SECTION 7.1 Acceptance of Trusts and Duties...................................................22
SECTION 7.2 Furnishing of Documents...........................................................23
SECTION 7.3 Representations and Warranties....................................................23
SECTION 7.4 Reliance; Advice of Counsel.......................................................24
SECTION 7.5 Not Acting in Individual Capacity................................................24
SECTION 7.6 Owner Trustee Not Liable for Trust Certificates
or Receivables.......................................................24
SECTION 7.7 Owner Trustee May Own Trust Certificates and Notes................................25
ARTICLE VIII - Compensation of Owner Trustee.....................................................................25
SECTION 8.1 Owner Trustee's Fees and Expenses.................................................25
SECTION 8.2 Indemnification...................................................................26
SECTION 8.3 Payments to the Owner Trustee.....................................................26
ARTICLE IX - Termination of Trust Agreement......................................................................26
SECTION 9.1 Termination of Trust Agreement....................................................26
SECTION 9.2 Dissolution upon Bankruptcy of the Company........................................27
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE X - Successor Owner Trustees and Additional Owner Trustees...............................................28
SECTION 10.1 Eligibility Requirements for Owner Trustee.......................................28
SECTION 10.2 Resignation or Removal of Owner Trustee..........................................28
SECTION 10.3 Successor Owner Trustee..........................................................29
SECTION 10.4 Merger or Consolidation of Owner Trustee.........................................29
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee....................................30
ARTICLE XI - Miscellaneous.......................................................................................31
SECTION 11.1 Supplements and Amendments.......................................................31
SECTION 11.2 No Legal Title to Owner Trust Estate in Owners...................................32
SECTION 11.3 Limitations on Rights of Others..................................................32
SECTION 11.4 Notices..........................................................................32
SECTION 11.5 Severability.....................................................................33
SECTION 11.6 Separate Counterparts............................................................33
SECTION 11.7 Successors and Assigns...........................................................33
SECTION 11.8 Covenants of the Company.........................................................33
SECTION 11.9 No Petition......................................................................33
SECTION 11.10 No Recourse.....................................................................34
SECTION 11.11 Headings........................................................................34
SECTION 11.12 GOVERNING LAW...................................................................34
SECTION 11.13 Trust Certificate Transfer Restrictions.........................................34
SECTION 11.14 Company Payment Obligation......................................................34
EXHIBIT A Form of Trust Certificate
EXHIBIT B Form of Certificate of Trust
EXHIBIT C Form of Certificate Depository Agreement
</TABLE>
<PAGE> 5
TRUST AGREEMENT, dated as of __________, 199__, among FIRSTPLUS
INVESTMENT CORPORATION, a Nevada corporation, as Depositor, ___________________
(the "Company"), a ____________ corporation, and _______________________, a
Delaware banking corporation, as Owner Trustee.
WHEREAS the Depositor and the Company have entered into a Loan Purchase
Agreement dated as of ______________, 199__, pursuant to which the Depositor
will assign to the Company any any all of the Depositor's rights and interests
with respect to the receipt of amounts from the Reserve Account (each as defined
in the Loan Purchase Agreement); and
WHEREAS, in connection therewith, the Company is willing to assume
certain obligations pursuant hereto.
NOW, THEREFORE, the Depositor, the Company and the Owner Trustee hereby
agree as follows:
ARTICLE I
Definitions
SECTION 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be amended
and supplemented from time to time.
"Basic Documents" shall mean the Purchase Agreement, the Sale and
Servicing Agreement, the Indenture, the Administration Agreement, the Note
Depository Agreement, the Certificate Depository Agreement and the other
documents and certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
11.13.
"Book-Entry-Trust Certificate" shall mean a beneficial interest in the
Trust Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 3.12.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of I the
Delaware Code, 12 Del. Code Section 3801 et seq., as the same may be amended
from time to time.
"Certificate Depository Agreement" shall mean the agreement among the
Trust, the Owner Trustee, the Administrator and The Depository Trust Company, as
the initial Clearing Agency, dated as of the Closing Date, substantially in the
form attached hereto as Exhibit C, relating to the Trust Certificates, as the
same may be amended and supplemented from time to time.
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<PAGE> 6
"Certificate Distribution Account" shall have the meaning assigned to
such term in Section 5.01.
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit B to be filed for the Trust to Section 3810(a) of the Business Trust
Statute.
"Certificate Owner" shall mean, with respect to a Book-Entry Trust
Certificate, the Person who is the beneficial owner of such Book-Entry Trust
Certificate, as reflected on the books of the Clearing Agency, or on the books
of a Person maintaining an account with such Clearing Agency (directly as a
Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned and the registrar appointed pursuant to Section 3.4.
"Certificateholder" or "Holder" shall mean a Person in whose name a
Trust Certificate is registered.
"Clearing Agency" shall mean an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee located at
__________________________________; or at such other address as the owner
Trustee may designate by notice to the Owners and the Company, or the principal
corporate trust office of any successor Owner Trustee (the address of which the
successor owner trustee will notify the Owners and the Company).
"Demand Note" means the Demand Note dated ________, 199__, from RAC to
the Company.
"Definitive Trust Certificates" shall have the meaning set forth in
Section 3.12.
"Depositor" shall mean the Seller in its capacity as Depositor
hereunder.
"ERISA" shall have the meaning assigned thereto in Section 11.13.
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<PAGE> 7
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall have the meaning assigned to such term in Section 8.2.
"FFI" shall mean FIRSTPLUS FINANCIAL, INC., a Texas corporation.
"Initial Certificate Balance" shall mean $_____________.
"Owner" shall mean each Holder of a Trust Certificate.
"Owner Trust Estate" shall mean all right, title and interest of the
Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and servicing Agreement, all funds on deposit from time
to time in the Trust Accounts (including the Distribution Account) and all other
property of the Trust from time to time, including any rights of the Owner
Trustee and the Trust pursuant to the Sale and Servicing Agreement and the
Administration Agreement.
"Owner Trustee" shall mean ______________, a ________ banking
corporation, not in its individual capacity but solely as owner trustee under
this Agreement, and any successor owner trustee hereunder.
"Paying Agent" shall mean any paying agent or co-paying agent appointed
pursuant to Section 3.9 and shall initially be _______________.
"RAC" shall mean RAC Financial Corporation, a _______ corporation.
"Record Date" shall mean, with respect to any Distribution Date, the
close of business on the fourteenth day of the calendar month in which such
Distribution Date occurs.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of the date hereof, among the Trust, the Depositor, as
seller, and FFI, as servicer.
"Secretary of State" shall mean the Secretary of State of the State of
_________.
"Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Certificate" shall mean a certificate evidencing the beneficial
interest of an Owner in the Trust, substantially in the form attached hereto as
Exhibit A.
-3-
<PAGE> 8
"Underwriters" shall mean those underwriters named in and parties to
the Underwriting Agreement dated as of ________ pursuant to which the Trust
Certificates will be offered publicly.
SECTION 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Sale and Servicing Agreement or, if not
defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
Organization
SECTION 2.1 Name. The Trust created hereby shall be known as "FIRSTPLUS
Home Loan Owner Trust 199_-__", in which name the Owner Trustee may conduct the
business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued.
-4-
<PAGE> 9
SECTION 2.2 Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the owners and the
Company.
SECTION 2.3 Purposes and Powers. (a) The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture
and the Trust Certificates pursuant to this
Agreement and to sell the Notes and the
Trust Certificates;
(ii) with the proceeds of the sale of the Notes
and the Trust Certificates, to fund the
Pre-Funding Account, the Capitalized
Interest Account and the Reserve Account and
to pay the organizational, start-up and
transactional expenses of the Trust and to
pay the balance to the Depositor pursuant to
the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage
and convey the Trust Estate pursuant to the
Indenture and to hold, manage and distribute
to the owners pursuant to the terms of the
Sale and Servicing Agreement any portion of
the Trust Estate released from the Lien of,
and remitted to the Trust pursuant to, the
Indenture;
(iv) to enter into and perform its obligations
under the Basic Documents to which it is to
be a party;
(v) to engage in those activities, including
entering into agreements, that are
necessary, suitable or convenient to
accomplish the foregoing or are incidental
thereto or connected therewith; and
(vi) subject to compliance with the Basic
Documents, to engage in such other
activities as may be required in connection
with conservation of the Owner Trust Estate
and the making of distributions to the
Owners and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.4 Appointment of Owner Trustee. The Depositor hereby appoints
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein.
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SECTION 2.5 Initial Capital Contribution of Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Certificate Distribution Account. The Depositor
shall pay organizational expenses of the Trust as they may arise or shall, upon
the request of the owner Trustee, promptly reimburse the owner Trustee for any
such expenses paid by the Owner Trustee.
SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Owners, subject to
the obligations of the Trust under the Basic Documents. It is the intention of
the parties hereto that the Trust constitute a business trust under the Business
Trust Statute and that this Agreement constitute the governing instrument of
such business trust. it is the intention of the parties hereto that, solely for
income and franchise tax purposes, the Trust shall be treated as a partnership,
with the assets of the partnership being the Home Loans and other assets held by
the Trust, the partners of the partnership being the Certificateholders
(including the Company (as assignee of the Depositor pursuant to the Loan
Purchase Agreement) in its capacity as recipient of distributions from the
Reserve Account), and the Notes being debt of the partnership. The parties agree
that, unless otherwise required by appropriate tax authorities, the Trust will
file or cause to be filed annual or other necessary returns, reports and other
forms consistent with the characterization of the Trust as a partnership for
such tax purposes. Effective as of the date hereof, the Owner Trustee shall have
all rights, powers and duties set forth herein and in the Business Trust Statute
with respect to accomplishing the purposes of the Trust.
SECTION 2.7 Liability of the Owners.
(a) The Company shall be liable directly to and will indemnify the
injured party for all losses, claims, damages, liabilities and expenses of the
Trust (including Expenses, to the extent not paid out of the owner Trust Estate)
to the extent that the Company would be liable if the Trust were a partnership
under the Delaware Revised Uniform Limited Partnership Act in which the Company
were a general partner; provided, however, that the Company shall not be "liable
for any losses incurred by a Certificateholder in the capacity of an investor in
the Trust Certificates or a Noteholder in the capacity of an investor in the
Notes. In addition, any third party creditors of the Trust (other than in
connection with the obligations described in the preceding sentence for which
the Company shall not be liable) shall be deemed third party beneficiaries of
this paragraph and paragraph (c) below. The obligations of the Company under
this paragraph and paragraph (c) below shall be evidenced by the Trust
Certificates described in Section 3.10, which for purposes of the Business Trust
Statute shall be deemed to be a separate class of Trust Certificates from all
other Trust Certificates issued by the Trust; provided that the rights and
obligations evidenced by all Trust Certificates, regardless of class, shall,
except as provided in this Section, be identical.
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<PAGE> 11
(b) No Owner, other than to the extent set forth in paragraphs (a) and
(c), shall have any personal liability for any liability or obligation of the
Trust.
(c) The Company agrees to be liable directly to and will indemnify the
injured party for all losses, claim damages, liabilities and expenses (other
than those incurred by a Certificateholder in the capacity of an investor in the
Trust Certificates or a Noteholder in the capacity of an investor in the Notes)
arising out of or based on the arrangements pursuant to which the [amounts
released from the Reserve Fund] are held by the Company and the Trust,
respectively, as though such arrangements were partnerships under the Delaware
Revised Uniform Limited Partnership Act in which the Company were a general
partner.
SECTION 2.8 Title to Trust Property. Legal title to all the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.
SECTION 2.9 Situs of Trust. The Trust will be located and administered
in the state of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York. The Trust shall not have any employees in any state other than
Delaware; provided, however, that nothing herein shall restrict or prohibit the
Owner Trustee from having employees within or without the State of Delaware.
Payments will be received by the Trust only in Delaware or New York, and
payments will be made by the Trust only from Delaware or New York. The only
office of the Trust will be at the Corporate Trust Office in Delaware.
SECTION 2.10 Representations and Warranties of the Depositor and the
Company.
(a) The Depositor hereby represents and warrants to the Owner Trustee
that:
(i) The Depositor is duly organized and validly
existing as a corporation in good standing
under the laws of the State of Nevada, with
power and authority to own its properties
and to conduct its business as such
properties are currently owned and such
business is presently conducted.
(ii) The Depositor is duly qualified to do
business as a foreign corporation in good
standing, and has obtained all necessary
licenses and approvals in all jurisdictions
in which the ownership or lease of property
or the conduct of its business shall require
such qualifications.
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<PAGE> 12
(iii) The Depositor has the power and authority to
execute and deliver this Agreement and to
carry out its terms; the Depositor has full
power and authority to sell and assign the
property to be sold and assigned to and
deposited with the Trust and the Depositor
has duly authorized such sale and assignment
and deposit to the Trust by all necessary
corporate action; and the execution,
delivery and performance of this Agreement
has been duly authorized by the Depositor by
all necessary corporate action.
(iv) The consummation of the transactions
contemplated by this Agreement and the
fulfillment of the terms hereof do not
conflict with, result in any breach of any
of the terms and provisions of, or
constitute (with or without notice or lapse
of time) a default under, the articles of
incorporation or by-laws of the Depositor,
or any indenture, agreement or other
instrument to which the Depositor is a party
or by which it is bound; nor result in the
creation or imposition of any lien upon any
of its properties pursuant to the terms of
any such indenture, agreement or other
instrument (other than pursuant to the Basic
Documents); nor violate any law or, to the
best of the Depositor's knowledge, any
order, rule or regulation applicable to the
Depositor of any court or of any Federal or
state regulatory body, administrative agency
or other governmental instrumentality having
jurisdiction over the Depositor or its
properties.
(v) To the Depositor's best knowledge, there are
no proceedings or investigations pending or
threatened before any court, regulatory
body, administrative agency or other
governmental instrumentality having
jurisdiction over the Depositor or its
properties: (i) asserting the invalidity of
this Agreement, (ii) seeking to prevent the
consummation of any of the transactions
contemplated by this Agreement or (iii)
seeking any determination or ruling that
might materially and adversely affect the
performance by the Depositor of its
obligations under, or the validity or
enforceability of, this Agreement.
(vi) The representations and warranties of the
Company and the Depositor in Sections 3.1
and 3.2 of the Loan Purchase Agreement are
true and correct.
(b) The Company hereby represents and warrants to the Owner
Trustee that:
(i) The Company is duly organized and validly
existing as a corporation in good standing
under the laws of the State of _________,
with
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<PAGE> 13
power and authority to own its properties
and to conduct its business as such
properties are currently owned and such
business is presently conducted.
(ii) The Company is duly qualified to do business
as a foreign corporation in good standing,
and has obtained all necessary licenses and
approvals in all jurisdictions in which the
ownership or lease of property or the
conduct of its business shall require such
qualifications.
(iii) The Company has the power and authority to
execute and deliver this Agreement and to
carry out its terms; the Company has full
power and authority to sell and assign the
property to be sold and assigned to and
deposited with the Trust and the Company has
duly authorized such sale and assignment and
deposit to the Trust by all necessary
corporate action; and the execution,
delivery and performance of this Agreement
has been duly authorized by the Company by
all necessary corporate action.
(iv) The consummation of the transactions
contemplated by this Agreement and the
fulfillment of the terms hereof do not
conflict with, result in any breach of any
of the terms and provisions of, or
constitute (with or without notice or lapse
of time) a default under, the articles of
incorporation or by-laws of the Company, or
any indenture, agreement or other instrument
to which the Company is a party or by which
it is bound; nor result in the creation or
imposition of any lien upon any of its
properties pursuant to the terms of any such
indenture, agreement or other instrument
(other than pursuant to the Basic
Documents); nor violate any law or, to the
best of the Company's knowledge, any order,
rule or regulation applicable to the Company
of any court or of any Federal or state
regulatory body, administrative agency or
other governmental instrumentality having
jurisdiction over the Company or its
properties.
(v) There are no proceedings or investigations
pending or, to the Company's best knowledge,
threatened, before any court, regulatory
body, administrative agency or other
governmental instrumentality having
jurisdiction over the Company or its
properties: (i) asserting the invalidity of
this Agreement, (ii) seeking to prevent the
consunration of any of the transactions
contemplated by this Agreement or (iii)
seeking any determination or ruling that
might materially and adversely affect the
performance by the company of
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its obligations under, or the validity or
enforceability of, this Agreement.
SECTION 2.11 Maintenance of the Demand Note. To the fullest extent
permitted by applicable law, the Company agrees that it shall not sell, convey,
pledge, transfer or otherwise dispose of the Demand Note.
SECTION 2.12 Federal Income Tax Allocations. Net income of the Trust
for any month, as determined tor Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof), shall
be allocated:
(a) among the Certificate Owners as of the first Record Date following
the end of such month, in proportion to their ownership of principal amount of
Trust Certificates on such date, an amount of net income up to the sum of (i)
the amount distributed in respect of interest to the Certificateholders pursuant
to Section 5.01(c) of the Sale and Servicing Agreement for such month, (ii)
interest on the excess, if any, of the amount distributed in respect of interest
to the Certificateholders pursuant to Section 5.01(c) of the Sale and Servicing
Agreement for the preceding Distribution Date over the amount in respect of
interest that is actually deposited in the Distribution Account on such
preceding Distribution Date, to the extent permitted by law, at the Pass-Through
Rate from such preceding Distribution Date through the current Distribution
Date, (iii) the portion of the market discount on the Home Loans accrued during
such month that is allocable to the excess, if any, of the initial aggregate
principal amount of the Trust Certificates over their initial aggregate issue
price, and (iv) any amount expected to be distributed to the Certificateholders
pursuant to Section [5.6(e)] of the Sale and Servicing Agreement (to the extent
not previously allocated pursuant to this clause); and
(b) to the Company, to the extent of any remaining net income.
If the net income of the Trust for any month is insufficient for the allocations
described in clause (a) above, subsequent net income shall first be allocated to
make up such shortfall before being allocated as provided in the preceding
sentence. Net losses of the Trust, if any, for any month, as determined for
Federal income tax purposes (and each item of income, gain, loss and deduction
entering into the computation thereof), shall be allocated to the Company to the
extent the Company is reasonably expected to bear the economic burden of such
net losses, and any remaining net losses shall be allocated among the
Certificate Owners as of the first Record Date following the end of such month
in proportion to their ownership of principal amount of Trust certificates on
such Record Date. The Company is authorized to modify the allocations in this
paragraph if necessary or appropriate, in its sole discretion, for the
allocations to fairly reflect the economic income, gain or loss to the Company
or to the Certificate Owners, or as otherwise required by the Code.
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ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.1 Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the issuance of
the Trust Certificates, the Depositor shall be the sole Owner of the Trust.
SECTION 3.2 The Trust Certificates. The Trust Certificates shall be
issued in minimum denominations of $10,000 and in integral multiples of $1,000
in excess thereof; provided, however, the Trust Certificates issued to the
Company pursuant to Section 3.10 may be issued in such denomination as to
include any residual amount. The Trust Certificates shall be executed on behalf
of the Trust by manual or facsimile signature of a Trust Officer of the Owner
Trustee. Trust Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be valid and binding
obligations of the Trust, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the authentication and delivery
of such Trust Certificates or did not hold such offices at the date of
authentication and delivery of such Trust Certificates.
A transferee of a Trust Certificate shall become a Certificateholder,
and shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder and under the Sale and Servicing Agreement, upon
such transferee's acceptance of a Trust Certificate duly registered in such
transferee's name pursuant to Section 3.4.
SECTION 3.3 Authentication of Trust Certificates. Concurrently with the
initial sale of the Receivables to the Trust pursuant to the Sale and Servicing
Agreement, the Owner Trustee shall cause the Trust Certificates in an aggregate
principal amount equal to the Initial Certificate Balance to be executed on
behalf of theTrust, authenticated and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its president or any vice
president, without further corporate action by the Depositor, in authorized
denominations. No Trust Certificate shall entitle its holder to any benefit
under this Agreement, or shall be valid for any purpose, unless there shall
appear on such Trust Certificate a certificate of authentication substantially
in the form set forth in Exhibit A, executed by the Owner Trustee or
_____________, as the Owner Trustee's authenticating agent, by manual signature;
such authentication shall constitute conclusive evidence that such Trust
Certificate shall have been duly authenticated and delivered hereunder. All
Trust Certificates shall be dated the date of their authentication.
SECTION 3.4 Registration of Transfer and Exchange of Trust
Certificates. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.8, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Trust Certificates and of
transfers and exchanges of Trust Certificates as herein provided. ______________
shall be the initial Certificate Registrar.
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<PAGE> 16
Upon surrender for registration of transfer of any Trust Certificate at
the office or agency maintained pursuant to Section 3.8, the Owner Trustee shall
execute, authenticate and deliver (or shall cause _____________ as its
authenticating agent to authenticate and deliver), in the name of the designated
transferee or transferees, one or more new Trust Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder, Trust
Certificates may be exchanged for other Trust Certificates of authorized
denominations of a like aggregate amount upon surrender of the Trust
Certificates to be exchanged at the office or agency maintained pursuant to
Section 3.8.
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Holder or his attorney duly authorized in writing. Each Trust
Certificate surrendered for registration of transfer or exchange shall be
cancelled disposed of by the Owner Trustee in accordance with its customary
practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Trust Certificates.
The preceding provisions of this Section notwithstanding, the owner
Trustee shall not make and the Certificate Registrar shall not register transfer
or exchanges of Trust Certificates for a period of 15 days preceding the due
date for any payment with respect to the Trust Certificates.
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Trust Certificates. If
(a) any mutilated Trust certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Trust Certificate and (b)
there shall be delivered to the Certificate Registrar and the Owner Trustee such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Trust Certificate shall have been
acquired by a bona fide purchaser, the Owner Trustee on behalf of the Trust
shall execute and the Owner Trustee, or Chemical Bankf as the Owner Trustee's
authenticating agent, shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Trust Certificate, a new Trust
Certificate of like tenor and denomination. in connection with the issuance of
any new Trust Certificate under this Section, the Owner Trustee or the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Trust Certificate issued pursuant to this Section shall constitute
conclusive evidence of ownership in the Trust, as if originally issued, whether
or not the lost, stolen or destroyed Trust Certificate shall be found at any
time.
SECTION 3.6 Persons Deemed Owners. Prior to due presentation of a Trust
Certificate for registration of transfer, the Owner Trustee or the Certificate
Registrar may treat the Person in whose
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<PAGE> 17
name any Trust Certificate shall be registered in the Certificate Register as
the owner of such Trust Certif icate for the purpose of receiving distributions
pursuant to Section 5.2 and for all other purposes whatsoever, and neither the
owner Trustee nor the Certificate Registrar shall be bound by any notice to the
contrary.
SECTION 3.7 Access to List of Certificateholders' Names and Addresses.
The Owner Trustee shall furnish or cause to be furnished to the Servicer and the
Depositor, within 15 days after receipt by the owner Trustee of a request
therefor from the Servicer or the Depositor in writing, a list, in such form as
the Servicer or the Depositor may reasonably require, of the names and addresses
of the Certificateholders as of the most recent Record Date. If three or more
Certificateholders or one or more Holders of Trust Certificates evidencing not
less than 25% of the certificate Balance apply in writing to the Owner Trustee,
and such application states that the applicants desire to communicate with other
Certificateholders with respect to their rights under this Agreement or under
the Trust Certificates and such application is accompanied.by a' copy of the
communication that such applicants propose to transmit, then the Owner Trustee
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders. Each Holder, by receiving and holding a Trust Certificate,
shall be deemed to have agreed not to hold any of the Depositor, the Company,
the Certificate Registrar or the Owner Trustee accountable by reason of the
disclosure of its name and address, regardless of the source from which such
information was derived.
SECTION 3.8 Maintenance of Office or Agency. The Owner Trustee shall
maintain in the Borough of Manhattan, The City of New York, an office or offices
or agency or agencies where Trust Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the owner Trustee in respect of the Trust Certificates and the Basic Documents
may be served. The Owner Trustee initially designates
_____________________________ as its principal corporate trust office for such
purposes. The owner Trustee shall give prompt written notice to the Company and
to the Certificateholders of any change in the location of the Certificate
Register or any such office or agency.
SECTION 3.9 Appointment of Paying Agent. The Paying Agent shall make
distributions to Certificateholders from the Certificate Distribution Account
pursuant to Section 5.2 and shall report the amounts of such distributions to
the Owner Trustee. Any Paying Agent shall have the revocable power to withdraw
funds from the Certificate Distribution Account for the purpose of making the
distributions referred to above. The Owner Trustee may revoke such power and
remove the Paying Agent if the owner Trustee determines in its sole discretion
that the Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. The Paying Agent shall initially be
_____________, and any co-paying agent chosen by ______________, and acceptable
to the Owner Trustee. _____________ shall be permitted to resign as Paying Agent
upon 30 days' written notice to the owner Trustee. In the event that ___________
shall no longer be the Paying Agent, the Owner Trustee shall appoint a successor
to act as Paying Agent (which shall be a bank or trust company). The Owner
Trustee shall cause such successor Paying Agent or any additional Paying Agent
appointed by the Owner Trustee to execute and deliver to the Owner
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<PAGE> 18
Trustee an instrument in which such successor Paying Agent or additional Paying
Agent shall agree with the owner Trustee that as Paying Agent, such successor
Paying Agent additional Paying Agent will hold all sums, if any, held by it for
payment to the Cartificateholders in trust for the benefit of the
Certificateholders entitled thereto until such sums shall be paid to such
Certificateholders. The Paying Agent shall return all unclaimed funds to the
owner Trustee and upon removal of a Paying Agent such Paying Agent shall also
return all funds in its possession to the Owner Trustee. The provisions of
Sections 7.1, 7.3, 7.4 and 8.1 shall apply to the Owner Trustee also in its role
as Paying Agent, for so long as the owner Trustee shall act as Paying Agent and,
to the extent applicable, to any other paying agent appointed hereunder. Any
reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise.
SECTION 3.10 Ownership by Company of Trust Certificates. The Company
shall on the Closing Date purchase from the Underwriters, and shall thereafter
retain beneficial and record ownership of, Trust Certificates representing at
least 1% of the Certificate Balance. Any attempted transfer of any Trust
Certificate that would reduce such interest of the Company below 1% of the
Certificate Balance shall be void. The Owner Trustee shall cause any Trust
Certificate issued to the Company to contain a legend stating "THIS CERTIFICATE
IS NON-TRANSFERABLE".
SECTION 3.11 Book-Entry Trust Certificates. The Trust Certificates,
upon original issuance, will be issued in the form of a typewritten Trust
Certificate or Trust Certificates representing Book-Entry Trust Certificates, to
be delivered to The Depository Trust Company, the initial Clearing Agency, by,
or on behalf of, the Trust; provided, however, that one Definitive Trust
Certificate may be issued to the Company pursuant to Section 3.10. Such Trust
Certificate or Trust Certificates shall initially be registered on the
Certificate Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Certificate Owner will receive a definitive Trust
Certificate representing such Certificate Owners interest in such Trust
Certificate, except as provided in Section 3.14. Unless and until definitive,
fully registered Trust Certificates (the Definitive Trust Certificates") have
been issued to Certificate Owners pursuant Section 3.14:
(i) the provisions of this Section shall be in
full force and effect;
(ii) the Certificate Registrar and the owner
Trustee shall be entitled to deal with the
Clearing Agency for all purposes of this
Agreement (including the payment of
principal of and interest on the Trust
Certificates and the giving of instructions
or directions hereunder) as the sole Holder
of the Trust Certificates and shall have no
obligation to the Certificate Owners;
(iii) to the extent that the provisions of this
section conflict with any other provisions
of this Agreement, the provisions of this
Section shall control;
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<PAGE> 19
(iv) the rights of Certificate Owners shall be
exercised only through the Clearing Agency
and'shall be limited to those established by
law and agreements between such Certificate
Owners and the Clearing Agency and/or the
Clearing Agency Participants. Pursuant to
the Certificate Depository Agreement, unless
and until Definitive Trust Certificates are
issued pursuant to Section 3.14, the initial
Clearing Agency will make book-entry
transfers among the Clearing Agency
Participants and receive and transmit
payments of principal of and interest on the
Trust Certificates to such Clearing Agency
Participants; and
(v) whenever this Agreement requires or permits
actions to be taken based upon instructions
or directions of Holders of Trust
Certificates evidencing a specified
percentage of the Certificate Balance, the
Clearing Agency shall be deemed to represent
such percentage only to the extent that it
has received instructions to such effect
from Certificate owners and/or Clearing
Agency Participants owning or representing,
respectively, such required percentage of
the beneficial interest in the Trust
Certificates and has delivered such
instructions to the owner Trustee.
SECTION 3.12 Notices to Clearing Agency. Whenever a notice or other
communication to the Certificateholders is required under this Agreement, unless
and until Definitive Trust Certificates shall have been issued to Certificate
owners pursuant to Section 3.14, the Owner Trustee shall give all such notices
and communizations specified herein to be given to Certificateholders to the
Clearing Agency, and shall have no obligations to the Certificate Owners.
SECTION 3.13 Definitive Trust Certificates. If (i) the Administrator
advises the Owner Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Trust Certificates, and the Administrator is unable to locate a qualified
successor, (ii) the Administrator at its option advises the Owner Trustee in
writing that it elects to terminate the book-entry system through the Clearing
Agency or (iii) after the occurrence of an Event of Default or a Servicer
Default, Certificate Owners representing beneficial interests aggregating at
least a majority of the Certificate Balance advise the Clearing Agency in
writing that the continuation of a book-entry system through the Clearing Agency
is no longer in the best interest of the certificate owners, then the Clearing
Agency shall notify all Certificate Owners and the Owner Trustee of the
occurrence of any such event and of the availability of the Definitive Trust
Certificates to Certificate owners requesting the same. Upon surrender to the
Owner Trustee of the typewritten Trust Certificate or Trust Certificates
representing the Book-Entry Trust Certificates by the clearing Agency,
accompanied by registration instructions the Owner Trustee shall execute and
authenticate the Definitive Trust Certificates in accordance with the
instructions of the Clearing Agency. Neither the Certificate Registrar nor the
Owner Trustee shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions.
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Upon the issuance of Definitive Trust Certificates, the owner Trustee shall
recognize the Holders of the Definitive Trust Certificates as
Certificateholders. The Definitive Trust Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Owner Trustee, as evidenced by its execution thereof.
ARTICLE IV
Actions bv Owner Trustee
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters.
With respect to the following matters, the Owner Trustee shall not take action
unless at least 30 days before the taking of such action, the Owner Trustee
shall have notified the Certificateholders in writing of the proposed action and
the Owners shall not have notified the Owner Trustee in writing prior to the
30th day after such notice is given that such Owners have withheld consent or
provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of the Home Loans) and the
compromise of any action, claim or lawsuit brought by or against the Trust
(except with respect to the aforementioned claims or lawsuits for collection of
the Home Loans);
(b) the election by the Trust to file an amendment-, to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Owners;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Owners; or
(f) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement of a
successor Certificate Registrar, or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee or Certificate Registrar of its
obligations under the indenture or this Agreement, as applicable.
SECTION 4.2 Action by Owners with Respect to Certain Matters. The Owner
Trustee shall not have the power, except upon the direction of the Owners, to
(a) remove the Administrator under the Administration Agreement pursuant to
Section 8 thereof, (b) appoint a successor Administrator
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<PAGE> 21
pursuant to Section 8 of the Administration Agreement, (c) remove the Servicer
under the Sale and Servicing Agreement pursuant to Section 8.1 thereof or (d)
except as expressly provided in the Basic Documents, sell the Receivables after
the termination of the Indenture. The Owner Trustee shall take the actions
referred to in the preceding sentence only upon written instructions signed by
the Owners.
SECTION 4.3 Action by Owners with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
owners and the delivery to the Owner Trustee by each such owner of a certificate
certifying that such Owner reasonably believes that the Trust is insolvent.
SECTION 4.4 Restrictions on Owners' Power. The owners shall not direct
the Owner Trustee to take or refrain from taking any action if such action or
inaction would be contrary to any obligation of the Trust or the owner Trustee
under this Agreement or any of the Basic Documents or would be contrary to
Section 2.3 nor shall the Owner Trustee be obligated to follow any such
direction, if given.
SECTION 4.5 Majority Control. Except as expressly provided herein, any
action that may be taken by the owners under this Agreement may be taken by the
Holders of Trust Certificates evidencing not less than a majority of the
Certificate Balance. Except as expressly provided herein, any written notice of
the Owners delivered pursuant to this Agreement shall be effective if signed by
Holders of Trust Certificates evidencing not less than a majority of the
Certificate Balance at the time of the delivery of such notice.
ARTICLE V
Application of Trust Funds; Certain Duties
SECTION 5.1 Establishment of Trust Account. Owner Trustee, for the
benefit of the Certificateholders, shall establish and maintain in the name of
the Trust an Eligible Deposit Account (the "Certificate Distribution Account"),
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Certificateholders.
The Owner Trustee shall possess all right, title and interest in all
funds on deposit from time to time in the Certificate Distribution Account and
in all proceeds thereof. Except as otherwise expressly provided herein, the
Certificate Distribution Account shall be under the sole dominion and control of
the Owner Trustee for the benefit of the Certificateholders. If, at any time,
the Certificate Distribution Account ceases to be an Eligible Deposit Account,
the Owner Trustee (or the Depositor on behalf of the Owner Trustee, if the
Certificate Distribution Account is not then held by the owner Trustee or an
affiliate thereof) shall within 10 Business Days (or such longer period, not to
exceed 30 calendar days, as to which each Rating Agency may consent) establish a
new Certificate
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Distribution Account as an Eligible Deposit Account and shall transfer any cash
and/or any investments to such new Certificate Distribution Account.
SECTION 5.2 Application Of Trust Funds.
(a) On each Distribution Date, the owner Trustee will distribute to
Certificateholders, on a pro rata basis, amounts deposited in the Certificate
Distribution Account pursuant to Sections 5.01(c), 5.03 and 5.06 of the Sale and
Servicing Agreement with respect to such Distribution Date.
(b) On each Distribution Date, the Owner Trustee shall send to each
Certificateholder the statement provided to the Owner Trustee by the Servicer
pursuant to Section 6.01 of the Sale and Servicing Agreement with respect to
such Distribution Date.
(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to an owner, such tax shall reduce the amount
otherwise distributable to the Owner in accordance with this Section. The Owner
Trustee is hereby authorized and directed to retain from amounts otherwise
distributable to the Owners sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to an Owner
shall be treated as cash distributed to such Owner at the time it is withheld by
the Trust and remitted to the appropriate taxing authority. If there is a
possibility that withholding tax is payable with respect to a distribution (such
as a distribution to a non-U.S. Owner), the Owner Trustee may in its sole
discretion withhold such amounts in accordance with this paragraph (c). In the
event that an Owner wishes to apply for a refund of any such withholding tax,
the Owner Trustee shall reasonably cooperate with such owner in making such
claim so long as such Owner agrees to reimburse the Owner Trustee for any
out-of-pocket expenses incurred.
SECTION 5.3 Method of Payment. Subject to Section 9.1(c), distributions
required to be made to Certificateholders on any Distribution Date shall be made
to each Certificateholder of record on the preceding Record Date either by wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Distribution Date
and such Holder's Trust Certificates in the aggregate evidence a denomination of
not less than $1,000,000, or, if not, by check mailed to such Certificateholder
at the address of such holder appearing in the Certificate Register.
SECTION 5.4 No Segregation of Moneys; No Interest. Subject to Sections
5.1 and 5.2, moneys received by the Owner Trustee hereunder need not be
segregated in any manner except to the extent required by law or the Sale and
Servicing Agreement and may be deposited under such general conditions as may be
prescribed by law, and the Owner Trustee shall not be liable for any interest
thereon.
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SECTION 5.5 Accounting and Reports to the Noteholders, Owners, the
Internal Revenue Service and Others. The owner Trustee shall (a) maintain (or
cause to be maintained) the books of the Trust on a calendar year basis on the
accrual method of accounting, (b) deliver to each Owner, as may be required by
the Code and applicable Treasury Regulations, such information as may be
required (including Schedule K-1) to enable each Owner to prepare its federal
and state income tax returns, (c) f ile such tax relating to the Trust
(including a partnership information return, IRS Form 1065), and make such
elections as may from time to time be required or appropriate under any
applicable state or Federal statute or rule or regulation thereunder so as to
maintain the Trust's characterization as a partnership for Federal income tax
purposes, (d) cause such tax returns to be signed in the manner required by law
and (e) collect or cause to be collected any withholding tax as described in and
in accordance with Section 5.2(c) with respect to income or distributions to
Owners. The Owner Trustee shall elect under Section 1278 of the Code to include
in income currently any market discount that accrues with respect to the
Receivables. The owner Trustee shall not make the election provided under
Section 754 of the Code.
SECTION 5.6 Signature on Returns; Tax Matter Partner.
(a) The Owner Trustee shall sign on behalf of the Trust the tax returns
of the Trust, unless applicable law requires an Owner to sign such documents, in
which case such documents shall be signed by the Company.
(b) The Company shall be designated the "tax matters partner" of the
Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable Treasury
Regulations.
ARTICLE VI
Authority and Duties of Owner Trustee
SECTION 6.1 General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described in Section 3.11, in each
case, in such form as the Company shall approve, as evidenced conclusively by
the Owner Trustee's execution thereof, and, on behalf of the Trust, to direct
the Indenture Trustee to authenticate and deliver Class A-1 Notes in the
aggregate principal amount of $___________, Class A-2 Notes in the aggregate
principal amount of $___________, Class A-3 Notes in the aggregate principal
amount of $___________, Class A-4 Notes in the aggregate principal amount of
$___________, and Class A-5 Notes in the aggregate principal amount of
$________. In addition to the foregoing, the Owner Trustee is authorized, but
shall not be obligated, to take all actions required of the Trust, pursuant to
the Basic Documents. The Owner Trustee is further authorized from time to time
to take such action as the Administrator recommends with respect to the Basic
Documents.
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SECTION 6.2 General Duties. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Agreement and the Basic Documents to which the Trust is a
party and to administer the Trust in the interest of the owners, subject to the
Basic Documents and in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the Owner Trustee shall be deemed to have
discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Administrator has agreed in the Administration
Agreement to perform any act or to discharge any duty of the owner Trustee
hereunder or under any Basic Document, and the Owner Trustee shall not be held
liable for the default or failure of the Administrator to carry out its
obligations under the Administration Agreement.
SECTION 6.3 Action upon Instruction.
(a) Subject to Article IV and in accordance with the terms of the Basic
Documents, the owners may by written instruction direct the owner Trustee in the
management ofthe Trust. Such direction may be exercised at any-time by written
instruction of the Owners pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Agreement or under
any Basic Document, the Owner Trustee shall promptly give notice (in such form
as shall be appropriate under the circumstances) to the owners requesting
instruction as to the course of action to be adopted, and to the extent the
owner Trustee acts in good faith in accordance with any written instruction of
the Owners received, the owner Trustee shall not be liable on account of such
action to any Person. If the Owner Trustee shall not have received appropriate
instruction within 10 days of such notice (or within such shorter period of time
as reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the Basic Documents,
as it shall deem to be in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the application
of any provision of this Agreement or any Basic Document or any such provision
is ambiguous as to its application, or is, or appears to be, in conflict with
any other applicable provision, or in the event that this Agreement permits any
determination by the Owner Trustee or is silent or is incomplete as to the
course of action that the Owner Trustee is required to take with respect to a
particular set of facts, the Owner Trustee may give notice (in such form as
shall be appropriate under the circumstances) to the owners requesting
instruction and, to the extent that the Owner Trustee acts or refrains from
acting in good faith in accordance with any such instruction received, the Owner
Trustee shall not be liable, on account of such action or inaction, to any
Person. If the owner Trustee shall not have
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received appropriate instruction within 10 days of such notice (or within such
shorter period of time as reasonably may be specified in such notice or may be
necessary under the circumstances) it may, but shall be under no duty to, take
or refrain from taking such action, not inconsistent with this Agreement or the
Basic Documents, as it shall deem to be in the best interests of the owners, and
shall have no liability to any Person for such action or inaction.
SECTION 6.4 No Duties Except as Specified in this Agreement or in
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to section 6.03; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public off ice at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost expense, promptly take
all action as may be necessary to discharge any liens on any part of the Owner
Trust Estate that result from actions by, or claims against, the Owner Trustee
that are not related to the ownership or the administration of the owner Trust
Estate.
SECTION 6.5 No Action Except Under Specified Documents or Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Owner Trust Estate except (i) in accordance with the
powers granted to and the authority conferred upon the owner Trustee pursuant to
this Agreement, (ii) in accordance with the Basic Documents and (iii) in
accordance with any document or instruction delivered to the owner Trustee
pursuant to Section 6.03.
SECTION 6.6 Restrictions. The owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section
2.03 or (b) that, to the actual knowledge of the Owner Trustee, would result in
the Trust's becoming taxable as a corporation for Federal income tax purposes.
The owners shall not direct the Owner Trustee to take action that would violate
the provisions of this Section.
ARTICLE VII
Concerning the Owner Trustee
SECTION 7.1 Acceptance of Trusts and Duties. The Owner Trustee accepts
the trusts hereby created and agrees to perform its duties hereunder with
respect to such trusts but only upon the terms of this Agreement. The owner
Trustee also agrees to disburse all moneys actually received by it constituting
part of the Owner Trust Estate upon the terms of the Basic Documents and this
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Agreement. The Owner Trustee shall not be answerable or accountable hereunder or
under any Basic Document under any circumstances, except (i) for its own willful
misconduct or negligence or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.03 expressly made by the Owner
Trustee. In particular, but not by way of limitations (and subject to the
exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of judgment
made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or any owner;
(c) no provision of this Agreement or any Basic Document shall require
the owner Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder or under
any Basic Document if the owner Trustee shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Agreement or for the due execution hereof by the
Depositor or the Company or for the form, character, genuineness, sufficiency,
value or validity of any of the Owner Trust Estate or for or in respect of the
validity or sufficiency of the Basic Documents, other than the certificate of
authentication on the Trust Certificates, and the Owner Trustee shall in no
event assume or incur any liability, duty, or obligation to any Noteholder or to
any Owner, other than as expressly provided for herein and in the Basic
Documents;
(f) the Owner Trustee shall not be liable for the default or misconduct
of the Administrator, the Seller, the Company, the Indenture Trustee or the
Servicer under any of the Basic Documents or otherwise and the Owner Trustee
shall have no obligation or liability to perform the obligations of the Trust
under this Agreement or the Basic Documents that are required to be performed by
the Administrator under the Administration Agreement, the Indenture Trustee
under the Indenture or the Servicer under the Sale and Servicing Agreement; and
(g) the owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation under this Agreement or otherwise or in relation to this
Agreement or any Basic Document, at the request, order or direction of any of
the Owners, unless such Owners have offered to the Owner Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities that
may be incurred by the Owner Trustee therein or thereby. The right of the Owner
Trustee to perform any discretionary act enumerated in this Agreement or in any
Basic Document shall not be construed as a duty, and the
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Owner Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of any such act.
SECTION 7.2 Furnishing of Documents. The Owner Trustee shall furnish
(a) to the owners promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the owner Trustee
under the Basic Documents and (b) to Noteholders promptly upon written request
therefor, copies of the Sale and Servicing Agreement, the Administration
Agreement and the Trust Agreement.
SECTION 7.3 Representations and Warranties. The Owner Trustee hereby
represents and warrants to the Company, for the benefit of the Owners, that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Agreement nor
the consummation by it of the transactions contemplated hereby nor compliance by
it with any of the terms or provisions hereof will contravene any Federal or
Delaware law, governmental rule or regulation governing the banking or trust
powers of the owner Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or by which
any of its properties may be bound.
SECTION 7.4 Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in acting upon
any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond, or other document or paper believed by it to
be genuine and believed by it to be signed by the proper party or parties. The
owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a Certificate, signed by the president or any vice
president or by the treasurer or other authorized officers of the relevant
party, as to such fact or matter and such certificate shall constitute full
protection to the Owner Trustee for any action taken or omitted to be taken by
it in good faith in reliance thereon.
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(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the Basic
Documents, the owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the owner
Trustee shall not be liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Owner
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled persons to be selected with reasonable care and employed by it.
The Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such persons and not contrary to this Agrement or
any Basic Document.
SECTION 7.5 Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created Chemical Bank Delaware
acts solely as owner Trustee hereunder and not in its individual capacity all
Persons having any claim against the Owner Trustee by reason of the transactions
contemplated by this Agreement or any.Basic Document shall look only to the
Owner Trust Estate for payment or satisfaction thereof.
SECTION 7.6 Owner Trustee Not Liable for Trust Certificates or
Receivables. The recitals contained herein and in the Certificates (other than
the signature and countersignature of the owner Trustee on the Trust
Certificates) shall be taken as the statements of the Depositor and the Company,
and the owner Trustee assumes no responsibility for the correctness thereof. The
Owner Trustee makes no representations as to the validity or sufficiency of this
Agreement, of any Basic Document or of the Trust Certificates (other than the
signature and countersignature of the Owner Trustee on the Trust certificates)
or the Notes, or of any Home Loans or related documents. The owner Trustee shall
at no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any Home Loan, or the perfection and
priority of any security interest created by any Home Loan or the maintenance of
any such perfection and priority, or for or with respect to the sufficiency of
the Owner Trust Estate or its ability to generate the payments to be distributed
to Certificateholders under this Agreement or the Noteholders under the
Indenture, including, without limitation: the existence, condition and ownership
of any Mortgaged Property; the existence and enforceability of any insurance
thereon; the existence and contents of any Home Loan on any computer or other
record thereof; the validity of the assignment of any Home Loan to the Trust or
of any intervening assignment; the completeness of any Home Loan; the
performance or enforcement of any Home Loan; the compliance by the Depositor,
the Company or the Servicer with any warranty or representation made under any
Basic Document or in any related document or the accuracy of any such warranty
or representation or any action of the Administrator, the Indenture Trustee or
the Servicer or any subservicer taken in the name of the Owner Trustee.
SECTION 7.7 Owner Trustee May Own Trust Certificates and Notes. The
Owner Trustee in its individual or any other capacity may become the owner or
pledgee of Trust Certificates or Notes and may deal with the Depositor, the
Company, the Administrator, the Indenture Trustee and the Servicer in banking
transactions with the same rights as it would have if it were not Owner Trustee.
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ARTICLE VIII
Comnensation of Owner Trustee
SECTION 8.1 Owner Trustee's Fees and Expenses. The Owner Trustee shall
receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Company and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by the Company
for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder.
SECTION 8.2 Indemnification. The Depositor shall be liable as primary
obligor for, and shall indemnify the Owner Trustee and its successors, assigns,
agents and servants (collectively, the "Indemnified Parties") from and against,
any and all liabilities, obligations, losses.damages, taxes, claims, actions and
suits, and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the owner Trustee or any Indemnified Party in any way relating
to or arising out of this Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, except only that the Depositor shall not be
liable for or required to indemnify an Indemnified Party from and against
Expenses arising or resulting from any of the matters described in the third
sentence of Section 7.01. The indemnities contained in this Section shall
survive the resignation or termination of the Owner Trustee or the termination
of this Agreement. In any event of any claim, action or proceeding for which
indemnity will be sought pursuant to this Section, the Owner Trusteels choice
of, legal counsel shall be subject to the approval of the Depositor, which
approval shall not be unreasonably withheld.
SECTION 8.3 Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
ARTICLE IX
Termination of Trust Agreement
SECTION 9.1 Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the-Trust shall
terminate and be of no further force or effect: (i) upon the final distribution
by the Owner Trustee of all moneys or other property or proceeds of the Owner
Trust Estate in accordance with the terms of the Indenture, the Sale and
Servicing Agreement and Article V or (ii) at the time provided in Section 9.2.
The bankruptcy, liquidation, dissolution, death or incapacity of any Owner,
other than the Company as
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described in Section 9.2, shall not (x) operate to terminate this Agreement or
the Trust, nor (y) entitle such Owner's legal representatives or heirs to claim
an accounting or to take any action or proceeding in any court for a partition
or winding up of all or any part of the Trust or Owner Trust Estate nor W
otherwise affect the rights, obligations and liabilities of the parties hereto.
(b) Except as provided in Section 9.1(a), none of the Depositor, the
Company nor any Owner shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Distribution
Date upon which the Certificateholders shall surrender their Trust Certificates
to the Paying Agent for payment of the final distributions and cancellation,
shall be given by the Owner Trustee by to Certificateholders mailed within five
Business Days of receipt of notice of such termination from the Servicer given
pursuant to Section 9.1 (c) of the Sale and Servicing Agreement, stating (i) the
Distribution Date upon or with respect to which final payment of the Trust
Certificates shall be made upon presentation and surrender of the Trust
Certificates at the office of the Paying Agent therein designated, (ii) the
amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Trust Certificates at the office of the
Paying Agent therein specified. The owner Trustee shall give such notice to the
Certificate Registrar (if other than the Owner Trustee) and the Paying Agent at
the time such notice is given to Certificateholders. Upon presentation and
surrender of the Trust Certificates, the Paying Agent shall cause to be
distributed to Certificateholders amounts distributable on such Distribution
Date pursuant to Section 5.2.
In the event that all of the Certificateholders-shall not surrender
their Trust Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the owner Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Trust certificates for cancellation and receive the final distribution with
respect thereto. If within one year after the second notice all the Trust
Certificates shall not have been surrendered for cancellation, the owner Trustee
may take appropriate steps, or may appoint an agent to take appropriate steps,
to contact the remaining Certificateholders concerning surrender of their Trust
Certificates, and the cost thereof shall be paid out of the funds and other
assets that shall remain subject to this Agreement. Any funds remaining in the
Trust after exhaustion of such remedies shall be distributed by the owner
Trustee to the Company.
(d) Upon the winding up of the Trust and its termination, the owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3820 of the Business Trust Statute.
SECTION 9.2 Dissolution upon Bankruptcy of the Company. In the event
that an Insolvency shall occur with respect to the Company, this Agreement shall
be terminated in accordance with Section 9.1 90 days after the date of such
Insolvency Event, unless, before the end of such 90-day period, the Owner
Trustee shall have received written instructions from (a) each of the
Certificateholders (other than the Company) representing more than 50% of the
Certificate
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Balance (not including the Certificate Balance of the Trust Certificates held by
the Company), and (b) each of the (i) Holders (as defined in the Indenture) of
Class A-1 Notes representing more than 50% of the Outstanding Amount of the
Class A-1 Notes, (ii) Holders of Class A-2 Notes representing more than 50% of
the Outstanding Amount of the Class A-2 Notes, (iii) Holders of Class A-3 Notes
representing more than 50% of the Outstanding Amount of the Class A-3 Notes,
(iv) Holders of Class A-4 Notes representing more than 50% of the Outstanding
Amount of the Class A-4 Notes, (v) Holders of Class A-5 Notes representing more
than 50% of the Outstanding Amount of the Class A-5 Notes. Promptly after the
occurrence of any Insolvency Event with respect to the Company, (A) the Company
shall give the Indenture Trustee and the Owner Trustee written notice of such
Insolvency Event, (B) the Owner Trustee shall, upon the receipt of such written
notice from the Company, give prompt written notice to the Certificateholders
and the Indenture Trustee, of the occurrence of such event and (C) the Indenture
Trustee shall, upon receipt of written notice of such Insolvency Event from the
owner Trustee or the Company, give prompt written notice to the Noteholders of
the occurrence of such event; provided, however, that any failure to give a
notice required by this sentence shall not prevent or delay, in any manner, a
termination of the Trust pursuant to the first sentence of this Section 9.2.
upon a termination pursuant to this Section, the Owner Trustee shall direct the
Indenture Trustee promptly to sell the assets of the Trust (other than the Trust
Accounts and the Certificate Distribution Account) in a commercially reasonable
manner and on commercially reasonable terms. The proceeds of such a sale of the
assets of the Trust shall be treated as collections under the Sale and Servicing
Agreement.
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1 Eligibility Reguirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate powers;
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or state authorities; and having (or
having a parent which has) a rating of at least Baa3 by Moody's. If such
corporation shall publish reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Owner Trustee shall cease to be eligible in accordance with the provisions of
this Section, the Owner Trustee shall resign immediately in the manner and with
the effect specified in Section 10.2.
SECTION 10.2 Resignation or Removal of Owner Trustee. The Owner Trustee
may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Administrator. Upon receiving such notice
of resignation, the Administrator shall promptly appoint a successor Owner
Trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Owner Trustee and one copy to the successor Owner
Trustee. If no successor Owner Trustee shall have been so appointed and have
accepted appointment within 30
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days after the giving of such notice of resignation, the resigning Owner Trustee
may petition any court of competent jurisdiction for the appointment of a
successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee and payment of all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.03 and payment of all fees and expenses owed to
the outgoing owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
SECTION 10.3 Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.02 shall execute, acknowledge and deliver to
the Administrator and to its predecessor Owner Trustee an instrument accepting
such appointment under this Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective and such successor Owner
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties, and obligations of its predecessor under
this Agreement, with like effect as if originally named as owner Trustee. The
predecessor owner Trustee shall upon payment of its fees and expenses deliver to
the successor owner Trustee all documents and statements and monies held by it
under this Agreement; and the Administrator and the predecessor owner Trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for fully and certainly vesting and confirming in the
successor Owner Trustee all such rights, powers, duties, and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Administrator shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Indenture Trustee, the Noteholders and
the Rating Agencies. If the Administrator fail to mail such notice within 10
days after acceptance of appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
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SECTION 10.4 Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding; provided
further that the Owner Trustee shall mail notice of such merger or consolidation
to the Rating Agencies.
SECTION 10.5 Appointment of Co-Trustee or SeparateTrustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Financed Vehicle may at the time be located,
the Administrator and the Owner Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Owner Trustee to act as co-trustee, jointly with the owner
Trustee, or separate trustee or separate trustees, of all or any part of the
Owner Trust Estate, and to vest in such Person, in such capacity, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the
Administrator and the owner Trustee may consider necessary or desirable. If the
Administrator shall not have joined in such appointment within 25 days after the
receipt by it of a request so to do, the Owner Trustee alone shall have the
power to make such appointment. No co-trustee or separate trustee under this
Agreement shall be required to meet the terms of eligibility as a successor
trustee pursuant to Section 10.1 and no notice of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provision and conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee
shall be conferred upon and exercised or
performed by the Owner Trustee and such
separate trustee or co- trustee jointly (it
being understood that such separate trustee
or co- trustee is not authorized to act
separately without the Owner Trustee joining
in such act), except to the extent that
under any law of any jurisdiction in which
any particular act or acts are to be
performed, the owner Trustee shall be
incompetent or unqualified to perform such
act or acts, in which event such rights,
powers, duties, and obligations (including
the holding of title to the Trust or any
portion thereof in any such jurisdiction)
shall be exercised and performed singly by
such separate trustee or co-trustee, but
solely at the direction of the Owner
Trustee;
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<PAGE> 34
(ii) no trustee under this Agreement shall be
personally liable by reason of any act or
omission of any other trustee under this
Agreement; and
(iii) the Administrator and the owner Trustee
acting jointly may at any time accept the
resignation of or remove any separate
trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been aivan to Panh mf the then separate trustees and
co-trustees, as as if given to each of them. Every instrument any separate
trustee or co-trustee shall refer Agreement and the conditions of this Article.
trustee and co-trustee, upon its acceptance of conferred, shall be vested with
the estates or specified in its instrument of appointment, either jointly with
the Owner Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Owner Trustee. Each such instrument shall be filed with the
Owner Trustee and a copy thereof given to the Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited. by law, to do any lawful act under or in respect,of this
Agreement on its behalf and in its name. If any separate trus tee or co trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
ARTICLE XI
Miscellaneous
SECTION 11.1 Supplements and Amendments. This Agreement may be amended
by the Depositor, the Company and the Owner Trustee, with prior written notice
to the Rating Agencies, without the consent of any of the Noteholders or the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders or the
Certificateholders provided, however, that such action shall not, as evidenced
by an Opinion of Counsel, adversely affect in any material respect the interests
of any Noteholder or Certificateholder.
This Agreement may also be amended from time to time by the Depositor,
the Company and the Owner Trustee, with prior written notice to the Rating
Agencies. with the consent of the Holders (as defined in the Indenture) of Notes
evidencing not less than a majority of the Outstanding Amount of the Notes and
the consent of the Holders of Certificates evidencing not less than a majority
of the Certificate Balance, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in-any manner the rights of the
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<PAGE> 35
Noteholders or the Certificateholders; provided, however, that no such amendment
shall (a) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on Receivables or distributions that
shall be required to be made for the benefit of the Noteholders or the
Certificateholders or (b) reduce the aforesaid percentage of the outstanding
Amount of the Notes and the Certificate Balance required to consent to any such
amendment, without the consent of the holders of all the outstanding Notes and
Certificates.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee and each
of the Rating Agencies.
It shall not be necessary for the consent of Certificateholders, the
Noteholders or the Indenture Trustee pursuant to this Section to approve the
particular form of any proposed amendment or consent, but it shall be sufficient
if such consent shall approve the substance thereof. The manner of obtaining
such consents (and any other consents of Certificateholders provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
requirements as the owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
SECTION 11.2 No Legal Title to Owner Trust Estate in Owners. The owners
shall not have legal title to any part of the Owner Trust Estate. The owners
shall be entitled to receive distributions with respect to their undivided
ownership interest therein only in accordance with Articles V and IX. No
transfer, by operation of law or otherwise, of any right, title, or interest of
the owners to and in their ownership interest in the Owner Trust Estate shall
operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Owner Trust Estate.
SECTION 11.3 Limitations on Rights of Others. Except for Section 2.7,
the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Depositor, the Company, the Owners, the Administrator and to the
extent expressly provided herein the Indenture Trustee and the Noteholders, and
nothing in this Agreement, (other than Section 2.7), whether express or implied,
shall be construed to give to any other Person any legal or equitable right,
remedy or claim in the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
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<PAGE> 36
SECTION 11.4 Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt by the intended recipient or three Business Days after
mailing if mailed by certified mail, postage prepaid (except that notice to the
Owner Trustee shall be deemed given only upon actual receipt by the Owner
Trustee), if to the Owner Trustee, addressed to the Corporate Trust Office; if
to the Depositor, addressed to FIRSTPLUS INVESTMENT CORPORATION, 3773 Howard
Hughes Parkway, Suite 300N, Las Vegas, Nevada 89109, Attention:_____________;
if, to the Company, addressed to _____________________, 3773 Howard Hughes
Parkway, Suite 300N, Las Vegas, Nevada 89109, Attention:_____________; or, as to
each party, at such other address as shall be designated by such party in a
written notice to each other party.
(b) Any notice required or permitted to be given a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice.
SECTION 11.5 Severability. Any provision of this Agreement that Is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.6 Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7 Sucessors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Company, the Owner Trustee and its successors and each owner and
its successors and permitted assigns, all as herein provided. Any request,
notice, direction, consent, waiver or other instrument or action by an Owner
shall bind the successors and assigns of such owner.
SECTION 11.8 Covenants of the Company. In the event that (a) the
Certificate Balance shall be reduced by Realized Losses and (b) any litigation
with claims in excess of $1,000,000 to which the Company is a party which shall
be reasonably likely to result in a material judgment against the Company that
the Company will not be able to satisfy shall be commenced by an owner, during
the period beginning nine months following the commencement of such litigation
and continuing until such litigation is dismissed or otherwise terminated (and,
if such litigation has resulted in a final judgment against the Company, such
judgment has been satisfied), the Company shall not pay any dividend to RAC, or
make any distribution on or in respect of its capital stock to RAC, or repay the
principal amount of any indebtedness of the Company held by RAC, unless (i)
after giving effect to such payment, distribution or repayment, the Company's
liquid assets shall not be less than the
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<PAGE> 37
amount of actual damages claimed in such litigation or (ii) the Rating Agency
Condition shall have been satisfied with respect to any such payment,
distribution or repayment. The Company will not at any time institute against
the Trust any bankruptcy proceedings under any United States Federal or state
bankruptcy or similar law in connection with any obligations relating to the
Trust Certificates, the Notes, the Trust Agreement or any of the Basic
Documents.
SECTION 11.9 No Petition. The Owner Trustee (not in its individual
capacity but solely as Owner Trustee), by entering into this Agreement, each
Certificateholder, by accepting a Trust Certificate, and the Indenture Trustee
and each Noteholder by accepting the benefits of this Agreement, hereby covenant
and agree that they will not at any time institute against the company or the
Trust, or join in any institution against the Company or the Trust of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings. under any United States Federal or state bankruptcy or law
in connection with any obligations relating to the Trust Certificates, the
Notes, this Agreement or any of the Basic Documents.
SECTION 11.10 No Recourse. Each Certificateholder by accepting a Trust
Certificate acknowledges that such Certificateholder's Trust Certificates
represent beneficial interests in the Trust only and do not represent interests
in or obligations of the Seller, the Servicer, the Administrator, the Owner
Trustee, the Indenture Trustee or any Affiliate thereof and no recourse may be
had against such parties or their assets, except as may be expressly set forth
or contemplated in this Agreement, the Trust Certificates or the Basic
Documents.
SECTION 11.11 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.12 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13 Trust Certificate Transfer Restrictions. The Trust
Certificates may not be acquired, by or for the account of (i) an employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) that is subject to the provisions of
Title I of ERISA, (ii) a plan described in Section 4975(e)(1) of the Internal
Revenue Code of 1986, as amended, or (iii) any entity whose underlying assets
include plan assets by reason of a plan's investment in the entity (each, a
"Benefit Plan"). By accepting and holding a Trust Certificate, the Holder
thereof shall be deemed to have represented and warranted that it is not a
Benefit Plan.
SECTION 11.14 Company Payment Obligation. The Company shall be
responsible for payment of the Administrator's fees under the Administration
Agreement and shall reimburse the Administrator for all expenses and liabilities
of the Administrator incurred thereunder.
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Trust Agreement to be duly executed by their respective officers
hereunto duly authorized, as of the day and year first above written.
FIRSTPLUS INVESTMENT CORPORATION,
Depositor
By:________________________________
Name:_____________________
Title:____________________
[COMPANY]
By:________________________________
Name:_____________________
Title:____________________
[____________________________],
not in its individual capacity but
solely as Owner Trustee
By:________________________________
Name:_____________________
Title:____________________
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<PAGE> 39
EXHIBIT A
TO THE TRUST AGREEMENT
(FORM OF TRUST CERTI FICATE]
NUMBER $____________
R-_____ CUSIP NO. _________
SEE REVERSE FOR CERTAIN DEFINITIONS
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCKANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAY14ENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE CO.v HAS AN INTEREST HEREIN.
FIRSTPLUS HOME LOAN OWNER TRUST 199_-__
____% ASSET BACKED CERTIFICATE
evidencing a fractional undivided interest in the Trust, as defined below, the
property of which includes a pool of Home Loans sold to the Trust by FIRSTPLUS
INVESTMENT CORPORATION.
(This Trust Certificate does not represent an interest in or obligation of
FIRSTPLUS INVESTMENT CORPORATION, FIRSTPLUS FINANCIAL, INC. or any of their
respective affiliates, except to the extent described below.)
THIS CERTIFIES THAT ________________________________________ is the
registered owner of _________________________ DOLLARS nonassessable, fully-paid,
fractional undivided interest in FIRSTPLUS Home Loan Owner Trust 199_-__ (the
"Trust") formed by FIRSTPLUS INVESTMENT CORPORATION, a Nevada corporation (the
"Seller").
The Trust was created pursuant to a Trust Agreement dated as of
__________, 199__ (as amended and supplemented from time to time, the "Trust
Agreement"), among the Seller,
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<PAGE> 40
___________________, a Delaware corporation (the "Company"), and
_____________________, as owner trustee (the "Owner Trustee"), a summary of
certain of the pertinent provisions of which is set forth below. To the extent
not otherwise defined herein, the capitalized terms used herein have the
meanings assigned to them in the Trust Agreement or the Sale and Servicing
Agreement dated as of _____________, 199__ (as amended and supplemented from
time to time, the "Sale and Servicing Agreement"), among the Trust, the Seller
and FIRSTPLUS INVESTMENT CORPORATION, as servicer (the "Servicer"), as
applicable.
This Certificate is one of the duly authorized Certificates designated
as "____% Asset Backed Certificates" (herein called the "Trust Certificates").
Also issued under the Indenture dated as of __________, 199_, between the Trust
and ______________________, as indenture trustee, are the five classes of Notes
designated an "Class A-1 ____% Asset Backed Notes", "Class A-2 ___% Asset Backed
Notes", "Class A-3 ___% Asset Backed Notes","Class A-4 ___% Asset Backed Notes",
and "Class A-5 ___% Asset Backed Notes" (collectively, the "Notes"). This Trust
Certificate is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement to which Trust Agreement the holder of this
Trust Certificate by virtue of the acceptance hereof assents and by which such
holder is bound. The property of the Trust includes a pool of home loans (the
"Home Loans"), all monies due thereunder on or after ______, 199__, certain bank
accounts and the proceeds thereof, proceeds from claims on certain insurance
policies and certain other rights under the Trust Agreement and the Sale and
Servicing Agreement and all proceeds of the foregoing. The rights of the holders
of the Trust Certificates are subordinated to the rights of the holders of the
Notes, as set forth in the Sale and Servicing Agreement.
Under the Trust Agreement, there will be distributed on the 20th day of
each month or, if such 20th day is not a Business Day, the next Business Day,
(each, a "Distribution Date"), commencing on ________, 199__, to the person in
whose name this Trust Certificate is registered at the close of business on the
fourteenth day, of the current calendar month (the "Record Date") such
Certificateholder's fractional undivided interest in the amount to be
distributed to Certificateholders on such Distribution Date; provided however,
that principal will be distributed to the Certificateholders on each
Distribution Date on (to the extent of funds remaining after the Class A-5 Notes
have been paid in full) and after the date on which the Class A-5 Notes have
been paid in full (but in no event prior to the ____________, 199__Distribution
Date).
The holder of this Trust Certificate acknowledges and agrees that its
rights to receive distributions in respect of this Trust Certificate are
subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement and the Indenture.
It is the intent of the Seller, the Company, the Servicer and the
Certificateholders that, for purposes of Federal Income, state and local income
and single business tax and any other income taxes, the Trust will be treated as
a partnership and the Certificateholders (including the Company) will be treated
as partners in that partnership. The Company and the other Certificateholders by
acceptance of a Trust Certificate, agree to treat, and to take no action
inconsistent with the treatment of, the Trust Certificates for such tax purposes
as partnership interests in the Trust.
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<PAGE> 41
Each Certificateholder or Certificate Owner, by its acceptance of a
Trust Certificate or, in the case of a Certificate Owner, a beneficial interest
in a Trust Certificate, covenants and agrees that such Certificateholder or
Certificate Owner, as the case may be, will not at any time institute against
the Company, or join in any institution against the Company of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Trust Certificates, the
Notes, the Trust Agreement or any of the Basic Documents.
Distributions on this Trust Certificate will be made as provided in the
Trust Agreement by the Owner Trustee by wire transfer or check mailed to the
Certificateholder of record in the Certificate Register without the presentation
or surrender of this Trust Certificate or the making.of any notation hereon,
except that with respect to Trust Certificates registered on the Record Date in
the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede a Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Except as otherwise provided in
the Trust Agreement and notwithstanding the above, the final distribution on
this Trust Certificate will be made after due notice by the Owner Trustee of the
pendency of such distribution and only upon presentation and surrender of this
Trust Certificate at the office or agency maintained for the purpose by the
Owner Trustee in the Borough of Manhattan, The City of New York.
Reference is hereby made to the further provisions of this Trust
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual. signature,
this Trust Certificate shall not entitle the holder hereof to any benefit under
the Trust Agreement or the Sale and Servicing Agreement or be valid for any
purpose.
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<PAGE> 42
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Trust Certificate to be duly
executed.
FIRSTPLUS HOME LOAN OWNER TRUST 199_-__
By: ___________________, not in its
individual capacity but solely an Owner
Trustee
By:________________________________
Authorized Signatory
DATED:_________________
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the within-mentioned Trust
Agreement.
[________________________________________]
as Authenticating Agent
By:______________________________________
Authorized Signatory
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<PAGE> 43
(REVERSE OF TRUST CERTIFICATE)
The Trust Certificates do not represent an obligation of, or an
interest in, the Seller, the Servicer, the Company, the Owner Trustee or any
affiliates of any of them and no recourse may be had against such parties or
their assets, except as may be expressly set forth or contemplated herein or in
the Trust Agreement or the Basic Documents. In addition, this Trust Certificate
is not guaranteed by any governmental agency or instrumentality and to limited
in right of payment to certain collections with respect to the Receivables (and
certain other amounts), all as more specifically set forth herein and in the
Sale and Servicing Agreement. The Trust Certificates are limited in right of
payment to certain collections and recoveries respecting the Receivables, all as
more specifically set forth in the Sale and Servicing Agreement. A copy of each
of the Sale and Servicing Agreement and the Trust Agreement may be examined
during normal business hours at the principal office of the Seller, and at such
other places, if any, designated by the Seller, by any Certificateholder upon
written request.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Seller and the Company and the rights of the Certificateholders under the Trust
Agreement at any time by the Seller, the Company and the Owner Trustee with the
consent of the holders of the Notes and the Trust Certificates each voting as a
class evidencing not less than a majority of the outstanding Notes and the
Certificate Balance. Any such consent by the holder of this Trust Certificate
shall be conclusive and binding on such holder and on all future holders of this
Trust Certificate and of any Trust Certificate issued upon the transfer hereof
or in exchange herefor or in lieu hereof whether or not notation of such consent
is made upon this Trust Certificate. The Trust Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
holders of any of the Trust Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Trust Certificate is registerable in the
Certificate Register upon surrender of this Trust Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Owner Trustee in the Borough of Manhattan, The City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Owner Trustee and the Certificate Registrar duly executed by the holder hereof
or such holder's attorney duly authorized in writing, and thereupon one or more
new Trust Certificates of authorized denominations evidencing the same aggregate
interest in the Trust will be issued to the designated transferee. The initial
Certificate Registrar appointed under the Trust Agreement is Chemical Bank, New
York, Now York.
The Trust Certificates are issuable only as registered Trust
Certificates without coupons in denominations of $20,000 and in integral
multiples of $1,000 in excess thereof. As provided in the Trust Agreement and
subject to certain limitations therein set forth, Trust Certificates are
exchangeable for new Trust Certificates of authorized denominations evidencing
the same aggregate denomination, as requested by the holder surrendering the
same. No service charge will be made for any such registration of transfer or
exchange, but the owner Trustee or the Certificate Registrar
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<PAGE> 44
may require payment of a sum sufficient to cover any tax or governmental charge
payable in connection therewith.
The Owner Trustee, the Certificate Registrar and any agent of the Owner
Trustee or the Certificate Registrar may treat the person in whose name this
Certificate is registered as the owner hereof for all purposes and none of the
Owner Trustee, the Certificate Registrar or any such agent shall be affected by
any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate upon the payment to Certificateholders
of all amounts required to be paid to them pursuant to the Trust Agreement and
the Sale and Servicing Agreement and the disposition of all property held as
part of the Trust. The Servicer of the Receivables may at its option purchase
the corpus of the Trust at a price specified in the Sale and Servicing
Agreement, and such purchase of the Receivables and other property of the Trust
will effect early retirement of the Trust Certificates; however, such right of
purchase is exercisable only as of the last day of any Collection Period as of
which the Pool Balance is less than or equal to 10% of the Original Pool
Balance.
The Trust Certificates may not be acquired by (a) an employee benefit
plan (as defined in Section 3(3) of ERISA) that is subject to the provisions of
Title I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c)
any entity whose underlying assets include plan assets by reason of a plan's
investment in the entity (each, a "Benefit Plan"). By accepting and holding this
Trust Certificate, the Holder hereof shall be deemed to have represented and
warranted that it is not a Benefit Plan.
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<PAGE> 45
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
____________________________________________________________________ Attorney to
transfer said Trust Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:_____________
________________________*/
Signature Guaranteed:
________________________*/
- ----------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the Now York Stock Exchange or a commercial bank
or trust company.
-7-
<PAGE> 46
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
FIRSTPLUS HOME LOAN OWNER TRUST 199 -
THIS Certificate of Trust of FIRSTPLUS HOME LOAN OWNER TRUST 199_-___
(the "Trust"), dated as of _______, 199__, is being duly executed and filed by
___________________, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, Section 3801
et seq.).
1. Name. The name of the business trust formed hereby is FIRSTPLUS HOME
LOAN OWNER TRUST 199_-___.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is
_____________________________________________________________,
Attention: ________________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
_______________________________,
not in its individual capacity but solely as
owner trustee under a Trust Agreement dated
as of ____________, 199__
By:_____________________________________
Name:
Title:
<PAGE> 47
EXHIBIT C
TO THE TRUST AGREEMENT
(Form of Certificate Depository Agreement]
<PAGE> 1
Exhibit 5.2
[LETTERHEAD OF ANDREWS & KURTH L.L.P.]
September 12, 1996
FIRSTPLUS INVESTMENT CORPORATION
3773 Howard Hughes Parkway
Suite 300N
Las Vegas, Nevada 89109
Re: FIRSTPLUS INVESTMENT CORPORATION
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special counsel for FIRSTPLUS INVESTMENT CORPORATION,
a corporation organized under the laws of the State of Nevada (the "Company"),
and certain trusts, all of the beneficial ownership of which will be initially
owned by the Company (each, an "Issuer"), in connection with the proposed
issuance by each Issuer of Asset Backed Notes (the "Notes"). The Notes of a
series are to be issued and secured pursuant to an Indenture for such series,
each between the applicable Issuer and the Indenture Trustee (as defined
therein). The Indenture, in the form filed with the Securities and Exchange
Commission as an exhibit to the Company's Registration Statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "1933 Act"), is herein referred to as the "Indenture."
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of the Issuer's form of organizational documents, the form
of Indenture and the form of Notes included therein and such other documents,
records, certificates of the Issuer and public officials and other instruments
as we have deemed necessary for the purposes of rendering this opinion. In
addition, we have assumed that the Indenture as completed for each series will
be duly executed and delivered by each of the parties thereto; that the Notes as
completed for each series will be duly executed and delivered substantially in
the forms contemplated by the Indenture; and that the Notes for each series will
be sold as described in the Registration Statement.
Based upon the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that the Notes are in due
and proper form and, assuming the due authorization, execution and delivery of
the Indenture of each series by the applicable Issuer and the Indenture
<PAGE> 2
FIRSTPLUS INVESTMENT CORPORATION
September 12, 1996
Page 2
Trustee and the due authorization of the Notes for each series by all necessary
action on the part of the applicable Issuer, when the Notes for each series have
been validly executed, authenticated and issued in accordance with the
applicable Indenture and delivered against payment therefor, the Notes for each
series will be valid and binding obligations of the applicable Issuer,
enforceable against the applicable Issuer in accordance with their terms, except
that the enforceability thereof may be subject to (a) bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent or preferential conveyance
or other similar laws now or hereinafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
The opinion expressed above is subject to the qualification that we do
not purport to be experts as to the laws of any jurisdiction other than the
federal laws of the United States of America and the laws of the States of Texas
and New York, and we express no opinion herein as to the effect that the laws
and decisions of courts of any such other jurisdiction may have upon such
opinions.
We consent to the use and filing of this opinion as Exhibit 5.2 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus Supplement and the Prospectus contained therein. In
giving such consent we do not imply or admit that we are an expert with respect
to any part of the Registration Statement, including this exhibit, within the
meaning of the term "expert" as used in the 1933 Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ ANDREWS & KURTH L.L.P.
----------------------------------------
<PAGE> 1
Exhibit 5.3
[LETTERHEAD OF ANDREWS & KURTH L.L.P.]
September 12, 1996
FIRSTPLUS INVESTMENT CORPORATION
3773 Howard Hughes Parkway
Suite 300N
Las Vegas, Nevada 89109
Re: FIRSTPLUS INVESTMENT CORPORATION
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special counsel for FIRSTPLUS INVESTMENT CORPORATION,
a corporation organized under the laws of the State of Nevada (the "Company"),
and certain trusts, all of the beneficial ownership of which will be initially
owned by the Company (each, an "Issuer"), in connection with the proposed
issuance by each Issuer of Asset Backed Certificates (the "Certificates"). The
Certificates of a series are to be issued pursuant to a Trust Agreement for
such series, each between the applicable Issuer, a special purpose entity to be
specified therein (the "SPV"), and an owner trustee to be specified therein
(the "Owner Trustee"). The Trust Agreement, in the form filed with the
Securities and Exchange Commission as an exhibit to the Company's registration
statement on Form S-3 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "1933 Act"), is herein referred to as the "Trust
Agreement."
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of the Issuer's form of organizational documents, the form
of Trust Agreement and the form of Certificates included therein and such other
documents, records, certificates of the Issuer and public officials and other
instruments as we have deemed necessary for the purposes of rendering this
opinion. In addition, we have assumed that the Trust Agreement as completed for
each series will be duly executed and delivered by each of the parties thereto;
that the Certificates as completed for each series will be duly executed and
delivered substantially in the forms contemplated by the Trust Agreement; and
that the Certificates for each series will be sold as described in the
Registration Statement.
<PAGE> 2
FIRSTPLUS INVESTMENT CORPORATION
September 12, 1996
Page 2
Based upon the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that the Certificates are
in due and proper form and, assuming the due authorization, execution and
delivery of the Trust Agreement of each series by the applicable Issuer, the SPV
and the Owner Trustee and the due authorization of the Certificates for each
series by all necessary action on the part of the applicable Issuer, when the
Certificates for each series have been validly executed, authenticated and
issued in accordance with the applicable Trust Agreement and delivered against
payment therefor, the Certificates for each series will be validly issued and
outstanding, fully paid and non-assessable, and entitled to the benefits of the
related Trust Agreement in accordance with their terms, except that the
enforceability thereof may be subject to (a) bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent or preferential conveyance
or other similar laws now or hereinafter in effect relating to creditors' rights
generally, and (b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
The opinion expressed above is subject to the qualification that we do
not purport to be experts as to the laws of any jurisdiction other than the
federal laws of the United States of America and the laws of the States of Texas
and New York, and we express no opinion herein as to the effect that the laws
and decisions of courts of any such other jurisdiction may have upon such
opinions.
We consent to the use and filing of this opinion as Exhibit 5.3 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus Supplement and Prospectus contained therein. In
giving such consent we do not imply or admit that we are an expert with respect
to any part of the Registration Statement, including this exhibit, within the
meaning of the term "expert" as used in the 1933 Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ ANDREWS & KURTH L.L.P.
-------------------------------------
<PAGE> 1
Exhibit 8.2
[LETTERHEAD OF ANDREWS & KURTH L.L.P.]
September 12, 1996
FIRSTPLUS INVESTMENT CORPORATION
3773 Howard Hughes Parkway, Suite 300N
Las Vegas, Nevada 89109
Re: FIRSTPLUS INVESTMENT CORPORATION
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for FIRSTPLUS INVESTMENT CORPORATION, a
corporation organized under the laws of the State of Nevada (the "Company"),
and certain trusts, all of the beneficial ownership of which will be initially
owned by the Company (each, an "Issuer"), in connection with the proposed
issuance by each Issuer of Asset Backed Certificates (the "Certificates") or
Asset Backed Notes (the "Notes"). The Certificates of a series are to be issued
pursuant to a Trust Agreement, each between the Issuer, a special purpose
entity to be specified therein (the "SPV"), and an owner trustee to be
specified therein (the "Owner Trustee"). The Trust Agreement, in the form filed
with the Securities and Exchange Commission as an exhibit to the Company's
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), is herein referred to as
the "Trust Agreement". The Notes of a series are to be issued pursuant to an
Indenture for such series, each between the applicable Issuer and the Indenture
Trustee (as defined therein). The Indenture, in the form filed with the
Securities and Exchange Commission as an exhibit to the Registration Statement,
is herein referred to as the "Indenture."
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of the Issuer's form of organizational documents, the form
of Trust Agreement and the form of Certificates included therein, the form of
Indenture and the form of Notes included therein and such other documents,
records, certificates of the Issuer and public officials and other instruments
as we have deemed necessary for the purposes of rendering this opinion. In
addition, we have assumed that the Trust Agreement as completed for each series
will be duly executed and delivered by each of the parties thereto; that the
Certificates as completed for each series will be duly executed and delivered
substantially in the forms contemplated by the Trust Agreement; and that the
Certificates for each series will be sold as described in the Registration
Statement. We have also assumed that the Indenture as completed for each series
will be duly executed and delivered by each of the parties thereto; that the
Notes as completed for each series will be duly executed and delivered
substantially
<PAGE> 2
FIRSTPLUS INVESTMENT CORPORATION
September 12, 1996
Page 2
in the forms contemplated by the Indenture; and that the Notes for each series
will be sold as described in the Registration Statement.
On the basis of the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that the description of
federal income tax consequences appearing under the heading "Certain Federal
Income Tax Consequences" in the form of prospectus contained in the Registration
Statement relating to Asset Backed Notes and Asset Backed Certificates
accurately describes the material federal income tax consequences to holders of
Certificates or Notes, as applicable, under existing law and subject to the
qualifications and assumptions stated therein.
The opinion herein is based upon our interpretations of current law,
including court authority and existing Final and Temporary Regulations, which
are subject to change both prospectively and retroactively, and upon the facts
and assumptions discussed herein. This opinion letter is limited to the matters
set forth herein, and no opinions are intended to be implied or may be inferred
beyond those expressly stated herein. Our opinion is rendered as of the date
hereof and we assume no obligation to update or supplement this opinion or any
matter related to this opinion to reflect any change of fact, circumstances, or
law after the date hereof. In addition, our opinion is based on the assumption
that the matter will be properly presented to the applicable court. Furthermore,
our opinion is not binding on the Internal Revenue Service or a court. In
addition, we must note that our opinion represents merely our best legal
judgment on the matters presented and that others may disagree with our
conclusion. There can be no assurance that the Internal Revenue Service will not
take a contrary position or that a court would agree with our opinion if
litigated.
We consent to the use and filing of this opinion as Exhibit 8.2 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus Supplement and Prospectus contained therein. In
giving such consent we do not imply or admit that we are an expert with respect
to any part of the Registration Statement, including this exhibit, within the
meaning of the term "expert" as used in the 1933 Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ ANDREWS & KURTH L.L.P.
--------------------------
<PAGE> 1
EXHIBIT 10.7
FORM OF SALE AND SERVICING AGREEMENT
Dated as of , 19
by and between
FIRSTPLUS HOME LOAN OWNER TRUST 19 -
(Issuer)
FIRSTPLUS INVESTMENT CORPORATION
(Seller)
and
FIRSTPLUS FINANCIAL, INC.
(Transferor and Servicer)
FIRSTPLUS HOME LOAN OWNER TRUST 19 __-__
ASSET-BACKED NOTES AND CERTIFICATES
SERIES 19 __-__
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C>
Section 1.01 Definitions.........................................................................................1
Addition Notice..........................................................................................1
Agreement................................................................................................1
Assignment of Mortgage...................................................................................1
Assumed Pool Principal Balance...........................................................................1
Available Collection Amount..............................................................................1
Business Day.............................................................................................2
Capitalized Interest Account.............................................................................2
Capitalized Interest Account Deposit.....................................................................2
Capitalized Interest Account Requirement.................................................................2
Capitalized Interest Amount..............................................................................2
Capitalized Interest Excess..............................................................................2
Certificate(s)...........................................................................................2
Certificateholder........................................................................................2
Certificateholders' Distributable Amount.................................................................2
Certificateholders' Interest Carry-Forward Amount........................................................3
Certificateholders' Interest Distributable Amount........................................................3
Certificateholders' Monthly Interest Distributable Amount................................................3
Certificateholders' Monthly Principal Distributable Amount...............................................3
Certificateholders' Principal Distributable Amount.......................................................3
Certificateholders' Principal Carry-Forward Amount.......................................................3
Certificate Principal Balance............................................................................4
Class ................................................................................................4
Class A-1 Note...........................................................................................4
Class A-2 Note...........................................................................................4
Class A-3 Note...........................................................................................4
Class A-4 Note...........................................................................................4
Class A-5 Note...........................................................................................4
Class Pool Factor........................................................................................4
Class Principal Balance..................................................................................4
Closing Date.............................................................................................4
Code ................................................................................................4
Collection Account.......................................................................................4
Completion Certificate...................................................................................4
Combination Loan.........................................................................................4
Credit Support Reduction Date............................................................................4
Custodial Agreement......................................................................................5
Custodian................................................................................................5
Custodian Fee............................................................................................5
Cut-Off Date.............................................................................................5
Debt Consolidation Loan..................................................................................5
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Defaulted Home Loan......................................................................................5
Defective Home Loan......................................................................................5
Deficiency Amount........................................................................................5
Deleted Home Loan........................................................................................7
Determination Date.......................................................................................7
Distribution Date........................................................................................7
DTC ................................................................................................7
Due Date ................................................................................................7
Due Period...............................................................................................7
Eligible Account.........................................................................................7
Eligible Servicer........................................................................................7
Event of Default.........................................................................................7
Excess Overcollateralization Amount......................................................................7
Excess Reserve Account Amount............................................................................7
Excess Servicing Fee.....................................................................................7
Excess Spread............................................................................................8
Expected Loan Losses.....................................................................................8
FDIC ................................................................................................8
FHLMC ................................................................................................8
Fidelity Note............................................................................................8
FNMA ................................................................................................8
Foreclosure Property.....................................................................................8
Funding Period...........................................................................................8
Guaranteed Payment.......................................................................................8
Guaranty Insurance Premium...............................................................................8
Guaranty Policy..........................................................................................8
Guaranty Policy Proceeds.................................................................................8
HUD ................................................................................................8
Home Improvement Loan....................................................................................9
Home Loan................................................................................................9
Home Loan Interest Rate..................................................................................9
Home Loan Pool...........................................................................................9
Home Loan Schedule.......................................................................................9
Indenture................................................................................................9
Indenture Trustee........................................................................................9
Indenture Trustee Fee....................................................................................9
Initial Overcollateralization Level......................................................................9
Initial Home Loan........................................................................................9
Initial Pool Principal Balance...........................................................................9
Insurance Agreement.....................................................................................10
Insurance Proceeds......................................................................................10
Insured Securities......................................................................................10
Interest Distribution Amount............................................................................10
Interest Shortfall......................................................................................10
Interest Shortfall Rate.................................................................................10
Issuer's Home Loan File.................................................................................10
Liquidated Home Loan....................................................................................10
Liquidation Proceeds....................................................................................11
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Loan Sale Agreement.....................................................................................11
Majority Securityholders................................................................................11
Modified Home Loan......................................................................................11
Monthly Payment.........................................................................................11
Mortgage ...............................................................................................11
Mortgaged Property......................................................................................11
Mortgaged Property States...............................................................................11
Net Liquidation Proceeds................................................................................11
Net Loan Losses.........................................................................................12
Net Principal Loan Losses...............................................................................12
Non-United States Person................................................................................12
Note(s) ...............................................................................................12
Note Distribution Account...............................................................................12
Noteholder..............................................................................................12
Noteholders' Distributable Amount.......................................................................12
Noteholders' Interest Carry-Forward Amount..............................................................12
Noteholders' Interest Distributable Amount..............................................................13
Noteholders' Monthly Interest Distributable Amount......................................................13
Noteholders' Monthly Principal Distributable Amount.....................................................13
Noteholders' Principal Distributable Amount.............................................................13
Noteholders' Principal Carry-Forward Amount.............................................................13
Note Interest Rate......................................................................................13
Obligor ...............................................................................................14
Officer's Certificate...................................................................................14
Original Certificate Principal Balance..................................................................14
Original Class Principal Balance........................................................................14
Overcollateralization Level.............................................................................14
Overcollateralization Reduction Amount..................................................................14
Overcollateralization Stepdown Date.....................................................................14
Ownership Interest......................................................................................14
Owner Trustee...........................................................................................14
Owner Trustee Fee.......................................................................................14
Pass-Through Rate.......................................................................................15
Permitted Investments...................................................................................15
Person ...............................................................................................16
Pool Principal Balance..................................................................................16
Post Liquidation Proceeds...............................................................................16
Preference Amount.......................................................................................16
Pre-Funded Amount.......................................................................................16
Pre-Funding Account.....................................................................................16
Pre-Funding Account Deposit.............................................................................17
Pre-Funding Account Weighted Average Balance............................................................17
Pre-Funding Termination Distribution Date...............................................................17
Principal Balance.......................................................................................17
Principal Prepayment....................................................................................17
Projected Interest Shortfall............................................................................17
Prospectus..............................................................................................17
Purchase Price..........................................................................................17
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
Qualified Substitute Home Loan..........................................................................18
Rating Agency or Rating Agencies........................................................................18
Ratings ...............................................................................................18
Realized Losses.........................................................................................18
Record Date.............................................................................................18
Regular Principal Distribution Amount...................................................................18
Released Mortgaged Property Proceeds....................................................................19
Required Credit Support Multiple........................................................................19
Reserve Account.........................................................................................20
Reserve Account Initial Deposit.........................................................................20
Required Overcollateralization Level....................................................................21
Reserve Account Requirement.............................................................................21
Residual Interest:......................................................................................21
Responsible Officer.....................................................................................21
Securities..............................................................................................21
Securities Insurer......................................................................................21
Securities Insurer Commitment...........................................................................21
Securities Insurer Default..............................................................................22
Securities Insurer Reimbursement Amount.................................................................22
Securityholder..........................................................................................22
Seller ...............................................................................................22
Series or Series 1996-3.................................................................................22
Servicer ...............................................................................................22
Servicer's Fiscal Year..................................................................................22
Servicer's Monthly Remittance Report....................................................................22
Servicer's Monthly Statement............................................................................22
Servicer's Home Loan File...............................................................................22
Servicing Advances......................................................................................22
Servicing Compensation..................................................................................22
Servicing Fee...........................................................................................23
Servicing Officer.......................................................................................23
Subsequent Home Loan....................................................................................23
Subsequent Purchase Price...............................................................................23
Subsequent Transfer Agreement...........................................................................23
Subsequent Transfer Date................................................................................23
Subservicer.............................................................................................23
Subservicing Account....................................................................................23
Subservicing Agreement..................................................................................23
Substitution Adjustment.................................................................................24
Superior Lien...........................................................................................24
Termination Price.......................................................................................24
Transferor..............................................................................................24
Trust ...............................................................................................24
Trust Account Property..................................................................................24
Trust Accounts..........................................................................................24
Trust Agreement.........................................................................................24
Trust Fees and Expenses.................................................................................24
Underwriters............................................................................................24
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C>
Weighted Average Interest Rate..........................................................................24
Section 1.02 Other Definitional Provisions......................................................................25
ARTICLE II
CONVEYANCE OF THE HOME LOANS
Section 2.01 Conveyance of the Initial Home Loans...............................................................26
Section 2.02 Conveyance of the Subsequent Home Loans............................................................26
Section 2.03 Ownership and Possession of Home Loan Files........................................................29
Section 2.04 Books and Records..................................................................................29
Section 2.05 Delivery of Home Loan Documents....................................................................29
Section 2.06 Acceptance by Issuer of the Home Loans; Certain Substitutions;
Certification by Issuer........................................................................32
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Seller.......................................................34
Section 3.02 Representations, Warranties and Covenants of the Servicer
and Transferor.................................................................................35
Section 3.03 Individual Home Loans..............................................................................37
Section 3.04 Subsequent Home Loans..............................................................................41
Section 3.05 Purchase and Substitution..........................................................................42
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 4.01 Duties of the Servicer.............................................................................44
Section 4.02 Liquidation of Home Loans..........................................................................46
Section 4.03 Fidelity Bond; Errors and Omission Insurance.......................................................47
Section 4.04 Title, Management and Disposition of Foreclosure Property..........................................47
Section 4.05 Access to Certain Documentation and Information Regarding the Home Loans...........................48
Section 4.06 Superior Liens.....................................................................................48
Section 4.07 Subservicing.......................................................................................48
Section 4.08 Successor Servicers................................................................................50
Section 4.09 Title, Management and Disposition of Foreclosure Property..........................................50
</TABLE>
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
-v-
<PAGE> 7
<TABLE>
<S> <C>
Section 5.01 Establishment of Collection Accounts; Deposits in Collection Accounts;
Withdrawals from the Collection Account.................................................................51
Section 5.02 Initial Collection Account; Transfer of Collection Account.........................................53
Section 5.03 Pre-Funding Account................................................................................53
Section 5.04 Capitalized Interest Account.......................................................................54
Section 5.05 Establishment of Note Distribution Account; Investment of Funds Held in Note
Distribution Account...........................................................................55
Section 5.06 Reserve Account....................................................................................56
Section 5.07 Trust Account Property.............................................................................58
ARTICLE VI
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Statements..........................................................................................59
Section 6.02 Reports of Foreclosure and Abandonment of Mortgaged Property.......................................62
Section 6.03 Specification of Certain Tax Matters...............................................................62
ARTICLE VII
GENERAL SERVICING PROCEDURE
Section 7.01 Assumption Agreements..............................................................................63
Section 7.02 Satisfaction of Mortgages and Release of Home Loan Files...........................................63
Section 7.03 Servicing Compensation.............................................................................65
Section 7.04 Quarterly Statements as to Compliance..............................................................65
Section 7.05 Annual Independent Public Accountants' Servicing Report............................................65
Section 7.06 Right to Examine Servicer Records..................................................................66
Section 7.07 Reports to the Indenture Trustee; Collection Account Statements....................................66
ARTICLE VIII
REPORTS TO BE PROVIDED BY SERVICER
Section 8.01 Financial Statements...............................................................................66
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims................................................................67
Section 9.02 Merger or Consolidation of the Servicer............................................................68
Section 9.03 Limitation on Liability of the Servicer and Others.................................................69
Section 9.04 Servicer Not to Resign; Assignment.................................................................69
Section 9.05 Relationship of Servicer to Owner Trustee and the Indenture Trustee................................69
</TABLE>
ARTICLE X
DEFAULT
-vi-
<PAGE> 8
<TABLE>
<S> <C>
Section 10.01 Events of Default.................................................................................70
Section 10.02 Indenture Trustee to Act; Appointment of Successor................................................72
Section 10.03 Waiver of Defaults................................................................................73
Section 10.04 Accounting Upon Termination of Servicer...........................................................73
ARTICLE XI
TERMINATION
Section 11.01 Termination.......................................................................................74
Section 11.02 Optional Termination by Holder of Residual Interest or the Securities Insurer.....................74
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders...........................................................................75
Section 12.02 Amendment.........................................................................................75
Section 12.03 Recordation of Agreement..........................................................................76
Section 12.04 Duration of Agreement.............................................................................76
Section 12.05 Governing Law.....................................................................................76
Section 12.06 Notices...........................................................................................77
Section 12.07 Severability of Provisions........................................................................77
Section 12.08 No Partnership....................................................................................77
Section 12.09 Counterparts......................................................................................77
Section 12.10 Successors and Assigns............................................................................78
Section 12.11 Headings..........................................................................................78
Section 12.12 Actions of Securityholders........................................................................78
Section 12.13 Reports to Rating Agencies........................................................................78
Section 12.14 Securities Insurer Deemed Owner...................................................................79
Section 12.15 Third Party Beneficiary...........................................................................79
Section 12.16 Suspension and Termination of Securities Insurer's Rights.........................................79
EXHIBITS
EXHIBIT A Home Loan Schedule
EXHIBIT B Form of Servicer's Monthly Remittance Report to Trustee
EXHIBIT C Contents of Home Loan File
EXHIBIT D Form of Subsequent Transfer Agreement
</TABLE>
-vii-
<PAGE> 9
This Sale and Servicing Agreement is entered into effective as of , 19
, among FIRSTPLUS Home Loan Trust 19 - , a Delaware business trust (the "Issuer"
or the "Trust"), FIRSTPLUS INVESTMENT CORPORATION, a Nevada corporation, as
Seller (the "Seller"), and FIRSTPLUS FINANCIAL, INC., a Texas corporation
("FFI"), as Transferor (in such capacity, the "Transferor") and Servicer (in
such capacity, the "Servicer").
PRELIMINARY STATEMENT
WHEREAS, the Issuer desires to purchase a pool of Home Loans which were
originated or purchased by the Transferor and sold to the Seller in the ordinary
course of business of the Transferor;
WHEREAS, the Seller is willing to sell such Home Loans to the Issuer;
and
WHEREAS, the Servicer is willing to service such Home Loans in
accordance with the terms of this agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Addition Notice: With respect to the transfer of Subsequent Home Loans
to the Trust pursuant to Section 2.02 of this Agreement, notice of the Seller's
designation of Subsequent Home Loans to be sold to the Issuer and the aggregate
Principal Balance of such Subsequent Home Loans as of the related Cut-Off Date,
which shall be given to the Indenture Trustee and to the Securities Insurer not
later than three Business Days prior to the related Subsequent Transfer Date.
Agreement: This Sale and Servicing Agreement and all amendments hereof
and supplements hereto.
Assignment of Mortgage: With respect to each Home Loan secured by a
Mortgage, an assignment, notice of transfer or equivalent instrument sufficient
under the laws of the jurisdiction wherein the related Mortgaged Property is
located to reflect of record the sale of the related Home Loan to the Issuer for
the benefit of the Securityholders and the Securities Insurer.
Assumed Pool Principal Balance: On the Closing Date, the amount equal
to the sum of the Initial Pool Principal Balance, plus the Pre-Funding Account
Deposit, which amount is $____________.
Available Collection Amount: An amount equal to the sum of (i) all
amounts received on the Home Loans or required to be paid by the Servicer, the
Transferor or the Seller (exclusive of amounts not required to be deposited in
the Collection Account and amounts permitted to be
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 1
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withdrawn by the Servicer from the Collection Account pursuant to the Sale and
Servicing Agreement, including without limitation the Servicing Fee) during the
related Due Period (or, in the case of amounts paid by the Transferor in
connection with the purchase or substitution of a Defective Home Loan) as
reduced by any portion thereof that may not be withdrawn therefrom pursuant to
an order of a United States bankruptcy court of competent jurisdiction imposing
a stay pursuant to Section 362 of the United States Bankruptcy Code, (ii) in the
case of a Distribution Date relating to a Due Period that occurs prior to the
end of the Funding Period, an amount from the Capitalized Interest Account
sufficient to fund any shortfall in the Interest Remittance Amount attributable
to the amounts in the Pre-Funding Account, (iii) in the case of the Distribution
Date following the Due Period in which the Funding Period ends, amounts, if any,
remaining in the Pre-Funding Account at the end of the Funding Period (net of
reinvestment income which must be transferred to the Capitalized Interest
Account), (iv) with respect to the final Distribution Date, an early retirement
of the Offered Securities by the Servicer or the Securities Insurer, the
Termination Price, and (v) any and all income or gain from investments in the
Collection Account.
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in New York City or in the city in which the
corporate trust office of the Indenture Trustee is located are authorized or
obligated by law or executive order to be closed.
Capitalized Interest Account: The account established pursuant to
Section 5.04, which account shall contain the Capitalized Interest Amount.
Capitalized Interest Account Deposit: An amount equal to
$______________.
Capitalized Interest Account Requirement: On the Closing Date, the
Capitalized Interest Account Requirement will equal the Capitalized Interest
Account Deposit. Thereafter, as determined by the Servicer pursuant to Section
5.04 on any Business Day prior to , 19 , the Capitalized
Interest Account Requirement will equal the Projected Interest Shortfall.
Capitalized Interest Amount: The amount on deposit in the Capitalized
Interest Account as of any date of determination, after giving effect to (i)
amounts to be transferred to the Distribution Account on the next Distribution
Date pursuant to Section 5.04(a), (ii) amounts released to the Seller pursuant
to Section 5.04(d), (iii) any amounts available under any letter of credit
deposited with the Indenture Trustee pursuant to Section 5.04(c) and (iv) any
income and gain, if any, on funds held in the Capitalized Interest Account and
any income and gain, if any, transferred to the Capitalized Interest Account
from funds held in the Pre-Funding Account pursuant to Section 5.03(b).
Capitalized Interest Excess: As determined by the Servicer pursuant to
Section 5.04, the amount of excess funds on deposit in the Capitalized Interest
Account; on any Business Day occurring prior to , 19 , the
Capitalized Interest Excess shall equal the greater of (i) zero and (ii) the
Capitalized Interest Amount less the Capitalized Interest Account Requirement.
Certificate(s): Any one or more certificate(s) issued pursuant to the
Trust Agreement.
Certificateholder: A holder of any Certificate.
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Certificateholders' Distributable Amount: With respect to any
Distribution Date, the sum of the Certificateholders' Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount.
Certificateholders' Interest Carry-Forward Amount: With respect to any
Distribution Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carry-Forward Amount on such preceding Distribution
Date, over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Pass Through
Rate for the related Interest Period.
Certificateholders' Interest Distributable Amount: With respect to any
Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carry-Forward Amount for such Distribution Date.
Certificateholders' Monthly Interest Distributable Amount: With respect
to any Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to but
excluding such Distribution Date) at the Pass Through Rate on the Certificate
Balance on the immediately preceding Distribution Date, after giving effect to
all payments allocable to the reduction of the Certificate Balance made on or
prior to such Distribution Date (or, in the case of the first Distribution Date,
on the Closing Date).
Certificateholders' Monthly Principal Distributable Amount: With
respect to any Distribution Date prior to the Distribution Date on which the
Notes are paid in full, zero; and with respect to any Distribution Date
commencing on the Distribution Date on which the Notes are paid in full, the sum
of (i) the Regular Principal Distribution Amount (less, on the Distribution Date
on which the Notes are paid in full, the portion thereof payable on the Notes),
plus (ii) until the Overcollateralization Amount equals the Required
Overcollateralization Amount, the Excess Spread, if any.
Certificateholders' Principal Distributable Amount: With respect to any
Distribution Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carry-Forward Amount as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance. In addition, on the Final
Scheduled Distribution Date, the principal required to be distributed to
Certificateholders will include the lesser of (a) any scheduled payments of
principal due and remaining unpaid on each Home Loan in the Trust as of the
Final Scheduled Maturity Date or (b) the portion of the amount required to be
advanced under clause (a) above that is necessary (after giving effect to the
other amounts to be deposited in the Certificate Distribution Account on such
Distribution Date and allocable to principal) to reduce the Certificate Balance
to zero, and, in the case of clauses (a) and (b), remaining after any required
distribution in respect of the Notes.
Certificateholders' Principal Carry-Forward Amount: As of the close of
any Distribution Date, the excess of the Certificateholders' Monthly Principal
Distributable Amount and any outstanding Certificateholders' Principal
Carry-Forward Amount from the preceding Distribution Date, over the amount in
respect of principal that is actually deposited in the Certificate Distribution
Account.
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Certificate Principal Balance: As of any date of determination, the
Original Certificate Principal Balance of the Certificates reduced by all
amounts previously distributed to the Certificateholders in reduction of the
principal balance of the Certificates on all previous Distribution Dates
pursuant Section of the Trust Agreement.
Class: With respect to the Notes, all Notes bearing the same class
designation.
Class A-1 Note: Any Class A-1 Note in the form attached to the
Indenture as Exhibit ___.
Class A-2 Note: Any Class A-2 Note in the form attached to the
Indenture as Exhibit ___.
Class A-3 Note: Any Class A-3 Note in the form attached to the
Indenture as Exhibit ___.
Class A-4 Note: Any Class A-4 Note in the form attached to the
Indenture as Exhibit ___.
Class A-5 Note: Any Class A-5 Note in the form attached to the
Indenture as Exhibit ___.
Class Pool Factor: With respect to each Class of Notes and as of any
date of determination, the then applicable Class Principal Balance of the
respective Class of Notes divided by the Original Class Principal Balance of
such Class. With respect to the Certificates and as of any date of
determination, the then applicable Certificate Principal Balance of the
respective Certificates divided by the Original Certificate Principal Balance of
the Certificates.
Class Principal Balance: With respect to each Class of Notes and as of
any date of determination, the Original Class Principal Balance of each such
Class reduced by all amounts previously distributed to Noteholders of such Class
in reduction of the principal balance of such Class on all previous Distribution
Dates pursuant to Section __, of the Indenture.
Closing Date: ____________________, 19__.
Code: The Internal Revenue Code of 1986, as amended.
Collection Account: The account established and maintained by the
Servicer in accordance with Section 5.01.
Completion Certificate: With respect to a Home Improvement Loan, a
certificate executed by the related Obligor wherein such Obligor states the
related contractor or seller of the property improvement has completed to such
Obligor's satisfaction the improvements for which the related Home Loan was
obtained.
Combination Loan: A Home Loan, the proceeds of which were used by the
Obligor in combination to finance property improvements and for debt
consolidation or other purposes, and which are marketed to by the Transferor
under the name "Buster(TM) Loans."
Credit Support Reduction Date: The Distribution Date occurring on the
later of: (i) the _______ (___) Distribution Date; or (ii) the Distribution Date
on which the Pool Principal Balance is equal to or less than ___ percent
(___%) of the aggregate Principal Balances as of the applicable Cut-Off Dates
of all the Home Loans.
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Custodial Agreement: The custodial agreement dated , 19
by and between the Seller, FFI, as the Transferor and the Servicer, the Issuer,
and Bank One, Texas, National Association, as the Custodian, and any subsequent
custodial agreement, in similar form and substance, providing for the retention
of the Home Loan Files by the Custodian on behalf of the Owner Trustee.
Custodian: Any custodian acceptable to the Securities Insurer and
appointed by the Issuer pursuant to the Custodial Agreement, which shall not be
affiliated with the Servicer, the Transferor, any Subservicer, or the Seller.
, shall be the initial Custodian pursuant to the terms of
the Custodial Agreement.
Custodian Fee: If applicable, the annual fee payable to the Custodian,
calculated and payable monthly on each Distribution Date equal to the per annum
percentage (as set forth in the Custodian Fee Agreement) of the Pool Principal
Balance as of the immediately preceding Determination Date, except with respect
to the first Distribution Date, when such monthly fee shall be pro rated based
on four (4) days for the first Due Period.
Cut-Off Date: With respect to the Initial Home Loans, the close of
business on , 19 and with respect to each Subsequent Home Loan,
the close of business on the date specified as such in the applicable
Subsequent Transfer Agreement.
Debt Consolidation Loan: A Home Loan, the proceeds of which were
primarily used by the related Obligor for debt consolidation purposes or
purposes other than to finance property improvements.
Debt Instrument: The note or other evidence of indebtedness evidencing
the indebtedness of an Obligor under a Home Loan.
Defaulted Home Loan: With respect to the calculation of the Required
Credit Support Multiple, during a Due Period, any Home Loan, including without
limitation any Liquidated Home Loan, with respect to which any of the following
occurs: (a) foreclosure proceedings have been commenced; (b) any portion of a
Monthly Payment becomes days past due; or (c) the Servicer or any
Subservicer has determined in good faith and in accordance with customary
servicing practices that such Home Loan is uncollectible.
Defective Home Loan: As defined in Section 3.05 hereof.
Deficiency Amount: As of any Distribution Date, the amount by which the
sum of the Required Distribution Amount exceeds the Available Collection Amount
for distribution in respect of the Securities for such Distribution Date.
Delivery: When used with respect to Trust Account Property means: (a)
with respect to bankers' acceptances, commercial paper, negotiable certificates
of deposit and other obligations that constitute "instruments" within the
meaning of Section 9-105(1)(i) of the UCC and are susceptible of physical
delivery, transfer thereof to the Indenture Trustee or its nominee or custodian
by physical delivery to the Indenture Trustee or its nominee or custodian
endorsed to, or registered in the name of, the Indenture Trustee or its nominee
or custodian or endorsed in blank, and, with respect to a certificated security
(as defined in Section 8-102 of the UCC) transfer thereof (i) by delivery of
such
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 5
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certificated security endorsed to, or registered in the name of, the Indenture
Trustee or its nominee or custodian or endorsed in blank to a financial
intermediary (as defined in Section 8-313 of the UCC) and the making by such
financial intermediary of entries on its books and records identifying such
certificated securities as belonging to the Indenture Trustee or its nominee or
custodian and the sending by such financial intermediary of a confirmation of
the purchase of such certificated security by the Indenture Trustee or its
nominee or custodian, or (ii) by delivery thereof to a "clearing corporation"
(as defined in Section 8-102(3) of the UCC) and the making by such clearing
corporation of appropriate entries on its books reducing the appropriate
securities account of the transferor and increasing the appropriate securities
account of a financial intermediary by the amount of such certificated security,
the identification by the clearing corporation of the certificated securities
for the sole and exclusive account of the financial intermediary, the
maintenance of such certificated securities by such clearing corporation or a
"custodian bank" (as defined in Section 8-102(4) of the UCC) or the nominee of
either subject to the clearing corporation's exclusive control, the sending of a
confirmation by the financial intermediary of the purchase by the Indenture
Trustee or its nominee or custodian of such securities and the making by such
financial intermediary of entries on its books and records identifying such
certificated securities as belonging to the Indenture Trustee or its nominee or
custodian (all of the foregoing, "Physical Property"), and, in any event, any
such Physical Property in registered form shall be in the name of the Indenture
Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Trust Account Property (as defined herein) to the
Indenture Trustee or its nominee or custodian, consistent with changes in
applicable law or regulations or the interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to federal book-entry regulations, the following procedures, all
in accordance with applicable law, including applicable federal regulations and
Articles 8 and 9 of the UCC: book-entry registration of such Trust Account
Property to an appropriate book-entry account maintained with a Federal Reserve
Bank by a financial intermediary that is also a "depository" pursuant to
applicable federal regulations and issuance by such financial intermediary of a
deposit advice or other written confirmation of such book-entry registration to
the Indenture Trustee or its nominee or custodian of the purchase by the
Indenture Trustee or its nominee or custodian of such book-entry securities; the
making by such financial intermediary of entries in its books and records
identifying such book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations as belonging to the Indenture Trustee
or its nominee or custodian and indicating that such custodian holds such Trust
Account Property solely as agent for the Indenture Trustee or its nominee or
custodian; and such additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust Account
Property to the Indenture Trustee or its nominee or custodian, consistent with
changes in applicable law or regulations or the interpretation thereof; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not governed by
clause (b) above, registration on the books and records of the issuer thereof in
the name of the financial intermediary, the sending of a confirmation by the
financial intermediary of the purchase by the Indenture Trustee or its nominee
or custodian of such uncertificated security, the making by such financial
intermediary of entries on its books and records identifying such uncertificated
certificates as belonging to the Indenture Trustee or its nominee or custodian.
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 6
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Deleted Home Loan: A Home Loan replaced by or to be replaced by a
Qualified Substitute Home Loan pursuant to Section 3.05 hereof.
Determination Date: The day of each month which is five (5) Business
Days prior to the related Distribution Date.
Distribution Date: The 20th day of any month or if such 20th day is not
a Business Day, the first Business Day immediately following such day,
commencing on ______________, 19__.
DTC: The Depository Trust Company.
Due Date: The day of the month on which the Monthly Payment is due from
the Obligor on a Home Loan.
Due Period: With respect to each Distribution Date, the calendar month
preceding the month in which such Distribution Date occurs.
Eligible Account: At any time, an account which is any of the
following: (i) an account maintained with a depository institution (A) the
long-term debt obligations of which are at such time rated by each Rating Agency
in one of their two highest long-term rating categories, or (B) the short-term
debt obligations of which are then rated by each Rating Agency in their highest
short-term rating category; (ii) an account or accounts the deposits in which
are fully insured by either the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC; (iii) a trust account (which shall be a "segregated
trust account") maintained with the corporate trust department of a federal or
state chartered depository institution or trust company with trust powers and
acting in its fiduciary capacity for the benefit of the Indenture Trustee and
the Owner Trustee, which depository institution or trust company shall have
capital and surplus of not less than $ _________; or (iv) an account that will
not cause any Rating Agency to downgrade or withdraw its then-current rating(s)
assigned to the Notes or the Certificates, as evidenced in writing by such
Rating Agency. (Each reference in this definition of "Eligible Account" to the
Rating Agency shall be construed as a reference to ___________________________.)
Eligible Servicer: A Person who is qualified to act as Servicer of the
Home Loans under applicable federal and state laws and regulations.
Event of Default: As described in Section 10.01 hereof.
Excess Overcollateralization Amount: As calculated on any Determination
Date, the excess of, if any, (x) the Overcollateralization Level on such
Distribution Date over (y) the Required Overcollateralization Level on such
Distribution Date.
Excess Reserve Account Amount: As defined in Section 5.06(c).
Excess Servicing Fee: With respect to each Distribution Date on which
the Excess Overcollateralization Amount equals or exceeds zero, then as to each
Home Loan (including any Home Loan as to which the related Mortgaged Property
has become a Foreclosure Property, but excluding any Liquidated Home Loan), the
excess servicing fee payable monthly to the Servicer on
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 7
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each Distribution Date, which shall be the product of ___% (___ basis points)
and the Principal Balance of such Home Loan as of the beginning of the
immediately preceding Due Period, divided by 12.
Excess Spread: With respect to any Distribution Date, an amount equal
to the portion, if any, of the Total Distribution Amount for the related Due
Period that remains after payment of (a) the Trust Fees and Expenses; (b) the
Noteholders' Interest Distributable Amount; (c) the Regular Principal
Distribution Amount; and (d) the Certificateholders' Interest Distributable
Amount.
Expected Loan Losses: As defined in Section 10.01(a)(vii).
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
Fidelity Note: As described in Section 4.03 hereof.
FNMA: The Federal National Mortgage Association and any successor
thereto.
Foreclosure Property: Any real property or personal property securing a
Home Loan that has been acquired by the Servicer through foreclosure, deed in
lieu of foreclosure or similar proceedings in respect of the related Home Loan.
Funding Period: The period beginning on the Closing Date and ending on
the earlier of (a) the date on which the amount on deposit in the Pre-Funding
Account is reduced below $__________ and the Transferor directs that the Funding
Period end, (b) the close of business on _________________, 19__ ; provided,
however, that the Funding Period shall end on such earlier date as determined
pursuant to Section 5.04(c), or (c) an Event of Default occurs.
Guaranteed Payment: With respect to the Guaranty Policy and as of any
Distribution Date, the sum of (i) any Deficiency Amount and (ii) any unpaid
Preference Amount.
Guaranty Insurance Premium: The premium, payable monthly, that is
specified in the Commitment Letter issued by the Securities Insurer with respect
to the Notes.
Guaranty Policy: That certain guaranty insurance policy for the Insured
Securities, number ______, dated _________, 19__ and issued by the Securities
Insurer to the Indenture Trustee guaranteeing payment on each Distribution Date
of the Required Distribution Amount and any unpaid Preference Amounts in
connection with the Insured Securities.
Guaranty Policy Proceeds: With respect to the Insured Securities, the
proceeds, if any, received by the Indenture Trustee from the Securities Insurer
pursuant to the Guaranty Policy. Such Guaranty Policy Proceeds shall be applied
solely to the Insured Securities pursuant to Section 6.01(b) in the event of a
shortfall with respect to the payment of any Required Distribution Amount in
respect of the Insured Securities on any Distribution Date.
HUD: The United States Department of Housing and Urban Development and
any successor thereto.
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Home Improvement Loan: A Home Loan, the proceeds of which were used by
the Obligor to finance property improvements.
Home Loan: A Home Improvement Loan, Debt Consolidation Loan or
Combination Loan that is included in the Home Loan Pool. As applicable, Home
Loan shall be deemed to refer to the related Debt Instrument, Mortgage, and any
related Foreclosure Property.
Home Loan Interest Rate: The fixed annual rate of interest borne by a
Debt Instrument, as shown on the related Home Loan Schedule.
Home Loan Pool: The pool of Initial Home Loans and Subsequent Home
Loans.
Home Loan Schedule: The schedule of Initial Home Loans attached hereto
as Exhibit A, as amended or supplemented from time to time, including any
schedules of Subsequent Home Loans attached as exhibits to any Subsequent
Transfer Agreement, such schedules identifying each Home Loan by address of the
related Mortgaged Property, if any, and the name(s) of each Obligor and setting
forth as to each Home Loan the following information: (i) the Principal Balance
as of the applicable Cut-Off Date, (ii) the account number, (iii) the original
principal amount, (iv) the Due Date, (v) the Home Loan Interest Rate, (vi) the
first date on which a Monthly Payment is due under the related Note, (vii) the
Monthly Payment, (viii) the maturity date of the related Debt Instrument, and
(ix) the remaining number of months to maturity as of the applicable Cut-Off
Date.
Indenture: The Indenture, dated as of __________, 19__ , between the
Issuer and the Indenture Trustee.
Indenture Trustee: The Person acting as indenture trustee under the
Indenture, its successors in interest and any successor indenture trustee under
the Indenture.
Indenture Trustee Fee: The annual fee payable to the Indenture Trustee,
calculated and payable monthly on each Distribution Date, equal to the per annum
percentage (as set forth in the Indenture Trustee Fee Agreement) the Pool
Principal Balance as of the immediately preceding Determination Date, except
with respect to the first Distribution Date such monthly amount shall be pro
rated based on ____(__) days for the first Due Period.
Initial Overcollateralization Level: On the Closing Date, the amount
equal to the excess of the Assumed Pool Principal Balance over the Original
Class Principal Balance of the Notes, which excess shall initially equal the
Original Class Principal Balance of the Certificates.
Initial Home Loan: An individual Home Loan that is conveyed to the
Issuer pursuant to this Agreement on the Closing Date, together with the rights
and obligations of a holder thereof and payments thereon and proceeds therefrom,
the Initial Home Loans subject to this Agreement being identified on the Home
Loan Schedule annexed hereto as Exhibit A.
Initial Pool Principal Balance: $_____________, which is the Pool
Principal Balance as of the ___________________, 19__ Cut-Off Date.
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Insurance Agreement: The Insurance and Indemnification Agreement, dated
as of _______, 19 __, between the Seller, the Indenture Trustee, the Transferor,
the Servicer, RAC Financial Group, Inc. and the Securities Insurer.
Insurance Proceeds: With respect to any Home Loan, the proceeds paid to
the Servicer by any insurer pursuant to any insurance policy covering a Home
Loan, Mortgaged Property or Foreclosure Property or any other insurance policy
that relates to a Home Loan, net of any expenses which are incurred by the
Servicer in connection with the collection of such proceeds and not otherwise
reimbursed to the Servicer, other than Guaranty Policy Proceeds and proceeds of
any insurance policy that are to be applied to the restoration or repair of the
Mortgaged Property or released to the Obligor in accordance with customary
mortgage loan servicing procedures applicable to the respective loan type,
including Home Improvement Loans, Debt Consolidation Loans and Combination
Loans.
Insured Securities: Each of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes, the Class A-4 Notes, the Class A-5 Notes and the
Certificates.
Interest Distribution Amount: On any Distribution Date and for the
Notes will be calculated on the basis of a 360 day year consisting of twelve 30
day months at the respective Interest Rate for such Class on the outstanding
Class Principal Balance of such Class immediately prior to such Distribution
Date. The Interest Distribution Amount on any Distribution Date and for the
Certificates will be calculated on the basis of a 360 day year consisting of
twelve 30 day months at the Pass Through Rate on the outstanding Certificate
Principal Balance of the Certificates immediately prior to such Distribution
Date.
Interest Shortfall: As to any Distribution Date prior to the end of the
Pre-Funding Period, the amount of the shortfall in interest on the Securities
arising as a result of the utilization of the Pre- Funding Account for the
purchase by the Issuer of Subsequent Home Loans after the Closing Date. With
respect to the ______________Distribution Date, the Interest Shortfall is equal
to four (4) days' interest on the Pre-Funding Account Deposit computed at a per
annum rate equal to the Weighted Average Interest Rate, based on the respective
Class Principal Balances of each Class of Securities on the Closing Date. With
respect to the ____________Distribution Date and the ______________Distribution
Date, the Interest Shortfall will be equal to 30 days' interest on the average
daily balance in the Pre-Funding Account (net of interest and investment
earnings) during the related Due Period, computed at a per annum rate equal to
the Weighted Average Interest Rate as of the immediately preceding Distribution
Date (after taking into account the distributions made on such Distribution
Date).
Interest Shortfall Rate: The per annum rate equal to ____%, such rate
having been derived as follows: (a) the [Class A-5 Note Interest Rate] minus (b)
____%.
Issuer's Home Loan File: The documents delivered to the Owner Trustee
or the Custodian as its designated agent pursuant to Section 2.05.
Liquidated Home Loan: Any Home Loan or Foreclosure Property in respect
of a Home Loan on which a Monthly Payment is in excess of 30 days past due and
as to which the Servicer has determined that all amounts which it reasonably and
in good faith expects to collect have been recovered from or on account of such
defaulted Home Loan or the related Foreclosure Property;
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 10
<PAGE> 19
provided that, in any event, such defaulted Home Loan or the related Foreclosure
Property shall be deemed uncollectible and therefore deemed a Liquidated Home
Loan upon the earlier of: (a) the liquidation of the related Foreclosure
Property, (b) the determination by the Servicer in accordance with customary
servicing practices that no further amounts are collectible from the Home Loan
and any related Mortgaged Property, or (c) the date on which any portion of a
Monthly Payment on any Home Loan is in excess of 300 days past due.
Liquidation Proceeds: With respect to a Liquidated Home Loan, any cash
amounts received in connection with the liquidation of such Liquidated Home
Loan, whether through trustee's sale, foreclosure sale or other disposition, and
any other amounts required to be deposited in the Collection Account pursuant to
Section 4.09, in each case other than Insurance Proceeds and Released Mortgaged
Property Proceeds.
Loan Sale Agreement: Each loan sale agreement entered into by the
Transferor, as purchaser, pursuant to which the Transferor has acquired any of
the Home Loans and which shall include all of the rights and benefits of the
Transferor thereunder, subject to any limitations thereunder regarding
assignment by the Transferor.
Majority Securityholders: (i) Until such time as the sum of the Class
Principal Balances of all Classes of Notes have been reduced to zero, the holder
or holders of in excess of ___% of the Class Principal Balance of all Classes of
Notes (accordingly, the holders of the Certificates shall be excluded from any
rights or actions of the Majority Securityholders during such period); and (ii)
thereafter, the holder or holders of in excess of ___% of the Certificate
Principal Balance of the Certificates.
Modified Home Loan: A Home Loan with respect to which the Servicer has
deferred delinquent interest and has modified the terms thereof to increase the
principal amount of such Home Loan, both pursuant to Section 4.01(c).
Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by an Obligor on the related Home Loan, as set
forth in the related Debt Instrument.
Mortgage: The mortgage, deed of trust or other security instrument
creating a lien in accordance with applicable law on a Mortgaged Property to
secure the Debt Instrument which evidences a Home Loan.
Mortgaged Property: The property (real, personal or mixed) encumbered
by the Mortgage which secures the Debt Instrument evidencing a secured Home
Loan.
Mortgaged Property States: Each state in which any Mortgaged Property
securing an Initial Home Loan is located as set forth in the Home Loan Schedule,
and any other state wherein a Mortgaged Property securing any Subsequent Home
Loan may be located as set forth in the applicable Home Loan Schedule.
Net Liquidation Proceeds: Liquidation Proceeds net of any
reimbursements to the Servicer made therefrom for any unreimbursed Servicing
Advances made and any other fees and expenses paid in connection with the
foreclosure, conservation and liquidation of the related Home Loan or
Foreclosure Property pursuant to Sections 4.02 and 4.09 hereof.
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 11
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Net Loan Losses: On each Distribution Date, with respect to the
Liquidated Home Loans occurring or becoming such during the immediately
preceding Due Period, an amount (but not less than zero) determined as of the
related Determination Date equal to the sum of (i) the Net Principal Loan
Losses, plus (ii) any accrued and unpaid interest on such Liquidated Home Loan,
minus the amount of any recoveries with respect to such Liquidated Home Loans
attributable to interest from whatever source received during any Due Period,
including any subsequent Due Period
Net Principal Loan Losses: On each Distribution Date, with respect to
the Liquidated Home Loans occurring or becoming such during the immediately
preceding Due Period, an amount (but not less than zero) determined as of the
related Determination Date equal to:
(i) the aggregate uncollected Principal Balances of such
Liquidated Home Loans immediately prior to the date of
liquidation and without the application of any amounts
included in clause (ii) below, minus
(ii) the aggregate amount of any recoveries attributable to
principal from whatever source received during any Due Period,
with respect to such Liquidated Home Loans, including any
subsequent Due Period, and including any Net Liquidation
Proceeds, any Insurance Proceeds, any Released Mortgaged
Property Proceeds, any payments from the related Obligor and
any payments made pursuant to Section 3.05;
provided, however, that for purposes of determining the Required Credit Support
Multiple, all of the preceding references to "Liquidated Home Loans" shall be
replaced with "Defaulted Home Loans".
Non-United States Person: Any Person other than a United States Person.
Note(s): One or more of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes or the Class A-5 Notes.
Note Distribution Account: The account established and maintained by
the Servicer with the Indenture Trustee pursuant to Section 5.05.
Noteholder: A holder of a Note.
Noteholders' Distributable Amount: With respect to any Distribution
Date, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the preceding Distribution Date and any outstanding Noteholders'
Interest Carry-Forward Amount on such preceding Distribution Date, over the
amount in respect of interest that is actually deposited in the Note
Distribution Account on such preceding Distribution Date, plus interest on the
amount of interest due but not paid to Noteholders on the preceding Distribution
Date, to the extent permitted by law, at the respective Interest Rates borne by
each class of the Notes for the related Due Period.
Noteholders' Interest Distributable Amount: With respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for such Distribution Date and the Noteholders' Interest Carry-Forward
Amount for such Distribution Date.
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Noteholders' Monthly Interest Distributable Amount: With respect to any
Distribution Date, interest accrued for the related Due Period on each Class of
Notes at the respective Interest Rate for such Class on the outstanding
principal balance of the Notes of such Class on the immediately preceding
Distribution Date after giving effect to all payments of principal to the
Noteholders of such class on or prior to such Distribution Date (or, in the case
of the first Distribution Date, on the Closing Date).
Noteholders' Monthly Principal Distributable Amount: With respect to
each Distribution Date, the sum of (i) the Regular Principal Distribution
Amount, plus (ii) until the Overcollateralization Amount equals the Required
Overcollateralization Amount, the Excess Spread, if any.
Noteholders' Principal Distributable Amount: With respect to any
Distribution Date, the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carry-Forward
Amount as of the close of the preceding Distribution Date; provided, however,
that the Noteholders' Principal Distributable Amount shall not exceed the
outstanding principal balance of the Notes; and provided, further, that (i) the
Noteholders' Principal Distributable Amount on the Class A-1 Final Scheduled
Distribution Date shall not be less than the Amount that is necessary (after
giving effect to other amounts to be deposited in the Note Distribution Account
on such Distribution Date and allocable to principal) to reduce the outstanding
principal balance of the Class A-1 Notes to zero; (ii) the Noteholders'
Principal Distributable Amount on the Class A-2 Final Scheduled Distribution
Date shall not be less than the amount that is necessary (after giving effect to
other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
principal balance of the Class A-2 Notes to zero; (iii) the Noteholders'
Principal Distributable Amount on the Class A-3 Final Scheduled Distribution
Date shall not be less than the amount that is necessary (after giving effect to
other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
principal balance of the Class A-3 Notes to zero; (iv) the Noteholders'
Principal Distributable Amount on the Class A-4 Final Scheduled Distribution
Date shall not be less than the amount that is necessary (after giving effect to
other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
principal balance of the Class A-4 Notes to zero; and (v) the Noteholders'
Principal Distributable Amount on the Class A-5 Final Scheduled Distribution
Date shall not be less than the amount that is necessary (after giving effect to
other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
principal balance of the Class A-5 Notes to zero.
Noteholders' Principal Carry-Forward Amount: As of the close of any
Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carry-Forward
Amount from the preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account.
Note Interest Rate: With respect to each Class of Notes, the per annum
rate of interest payable to the holders of such Class of Notes. The Note
Interest Rate with respect to the Class A-1 Notes is equal to ____%; the Note
Interest Rate with respect to the Class A-2 Notes is equal to _____%; the Note
Interest Rate with respect to the Class A-3 Notes is equal to ____%; the Note
Interest Rate with respect to the Class A-4 Notes is equal to ____%; and the
Note Interest Rate with respect to the Class A-5 Notes is equal to ____%.
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 13
<PAGE> 22
Obligor: Each obligor on a Debt Instrument.
Officer's Certificate: A certificate delivered to the Indenture Trustee
or the Owner Trustee signed by the President or a Vice President or an Assistant
Vice President of the Seller or the Servicer, in each case, as required by this
Agreement.
Original Certificate Principal Balance: $______________.
Original Class Principal Balance: In the case of the Class A-1 Notes,
$__________; in the case of the Class A-2 Notes, $__________; in the case of the
Class A-3 Notes, $___________; in the case of the Class A-4 Notes, $__________;
and in the case of the Class A-5 Notes, $______________.
Overcollateralization Level: As to any Determination Date, the amount
(exclusive of any distributions of Overcollateralization Reduction Amounts)
equal to the excess of (A) the sum of (i) the Pool Principal Balance and (ii)
the amount on deposit in the Pre-Funding Account, if any, over (B) the sum of
the Class Principal Balances of the Notes and the Certificate Principal Balance
of the Certificates.
Overcollateralization Reduction Amount: With respect to any
Distribution Date prior to an Overcollateralization Stepdown Date, zero; with
respect to any Distribution Date on an Overcollateralization Stepdown Date, the
lesser of (x) the Excess Overcollateralization Amount on such Distribution Date
and (y) the sum of the Regular Principal Distribution Amount, the Noteholders'
Principal Carry-Forward Amount and the Certificateholders' Principal
Carry-Forward Amount on such Distribution Date.
Overcollateralization Stepdown Date: Any Distribution Date with respect
to which the Required Overcollateralization Level is reduced as a result of a
reduction in the Required Credit Support Multiple.
Ownership Interest: As to any Security, any ownership or security
interest in such Security, including any interest in such Security as the holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial, as owner or as pledgee.
Owner Trustee: The Person acting as owner trustee under the Trust
Agreement, its successors in interest and any successor owner trustee under the
Trust Agreement.
Owner Trustee Fee: The annual fee payable to the Owner Trustee,
calculated and payable monthly on each Distribution Date, equal to the per annum
percentage (as set forth in the Owner Trustee Fee Agreement) the Pool Principal
Balance as of the immediately preceding Determination Date, except with respect
to the first Distribution Date such monthly amount shall be pro rated based on
four (4) days for the first Due Period.
Pass-Through Rate: With respect to the Certificates, the per annum rate
of interest with respect to the Certificates.
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 14
<PAGE> 23
Permitted Investments: Each of the following:
(i) obligations of, or guaranteed as to principal and interest
by, the United States or any agency or instrumentality thereof when
such obligations are backed by the full faith and credit of the United
States;
(ii) a repurchase agreement that satisfies the following
criteria and is acceptable to the Securities Insurer: (1) must be
between the Indenture Trustee and either (a) primary dealers on the
Federal Reserve reporting dealer list which are rated in one of the two
highest categories for long-term unsecured debt obligations by each
Rating Agency, or (b) banks rated in one of the two highest categories
for long-term unsecured debt obligations by each Rating Agency; and (2)
the written repurchase agreement must include the following: (a)
securities which are acceptable for the transfer and are either (I)
direct U.S. governments obligations, or (II) obligations of a Federal
agency that are backed by the full faith and credit of the U.S.
government, or FNMA or FHLMC; (b) a term no greater than 60 days for
any repurchase transaction; (c) the collateral must be delivered to the
Indenture Trustee or a third party custodian acting as agent for the
Indenture Trustee by appropriate book entries and confirmation
statements, with a copy to the Securities Insurer, and must have been
delivered before or simultaneous with payment (i.e., perfection by
possession of certificated securities); and (d) the securities sold
thereunder must be valued weekly, marked-to-market at current market
price plus accrued interest and the value of the collateral must be
equal to at least % of the amount of cash transferred by the Indenture
Trustee under the repurchase agreement and if the value of the
securities held as collateral declines to an amount below % of the cash
transferred by the Indenture Trustee plus accrued interest (i.e. a
margin call), then additional cash and/or acceptable securities must be
transferred to the Indenture Trustee to satisfy such margin call;
provided, however, that if the securities used as collateral are
obligations of FNMA or FHLMC, then the value of the securities held as
collateral must equal at least 105% of the cash transferred by the
Indenture Trustee under such repurchase agreement;
(iii) certificates of deposit, time deposits and bankers
acceptances of any United States depository institution or trust
company incorporated under the laws of the United States or any state,
including the Indenture Trustee; provided that the debt obligations of
such depository institution or trust company at the date of the
acquisition thereof have been rated by each Rating Agency in one of its
two highest long-term rating categories;
(iv) deposits, including deposits with the Indenture Trustee,
which are fully insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC, as the case may be;
(v) commercial paper of any corporation incorporated under the
laws of the United States or any state thereof, including corporate
affiliates of the Indenture Trustee, which at the date of acquisition
is rated by each Rating Agency in its highest short-term rating
category and which has an original maturity of not more than 365 days;
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 15
<PAGE> 24
(vi) debt obligations rated by each Rating Agency at the time
at which the investment is made in its highest long-term rating
category (or those investments specified in (iii) above with depository
institutions which have debt obligations rated by each Rating Agency in
one of its two highest long-term rating categories);
(vii) money market funds which are rated by each Rating Agency
at the time at which the investment is made in its highest long-term
rating category, any such money market funds which provide for demand
withdrawals being conclusively deemed to satisfy any maturity
requirements for Permitted Investments set forth in this Agreement; or
(viii) any other demand, money market or time deposit
obligation, security or investment as may be acceptable to each Rating
Agency and the Securities Insurer at the time at which the investment
is made;
provided that no instrument described in the foregoing subparagraphs shall
evidence either the right to receive (a) only interest with respect to the
obligations underlying such instrument or (b) both principal and interest
payments derived from obligations underlying such instrument where the interest
and principal payments with respect to such instrument provide a yield to
maturity at par greater than % of the yield to maturity at par of the underlying
obligations; and provided, further, that no instrument described in the
foregoing subparagraphs may be purchased at a price greater than par if such
instrument may be prepaid or called at a price less than its purchase price
prior to stated maturity.
Each reference in this definition of "Permitted Investments" to the
Rating Agency shall be construed, in the case of each subparagraph above
referring to each Rating Agency, as a reference to .
Person: Any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust, national
banking association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
Pool Principal Balance: The aggregate Principal Balances of the Home
Loans as of any Determination Date.
Post Liquidation Proceeds: As defined in Section 4.02(b).
Preference Amount: Any amount previously distributed to the holder of
an Insured Security that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code, in accordance with a final, non-appealable order of a court having
competent jurisdiction.
Pre-Funded Amount: With respect to any Distribution Date, the amount
then on deposit in the Pre-Funding Account.
Pre-Funding Account: The account established and maintained by the
Trustee pursuant to Section 5.03.
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 16
<PAGE> 25
Pre-Funding Account Deposit: An amount equal to $______________.
Pre-Funding Account Weighted Average Balance: For purposes of computing
the Projected Interest Shortfall, on any date of determination, with respect to
the calculation of the weighted average balance of the amount on deposit on a
daily basis in the Pre-Funding Account for the Due Period in which such date of
determination occurs, (x) the total of (A) the sum of the actual amount on
deposit in the Pre-Funding Account on each day in such Due Period prior to such
date of determination plus (B) the product of (i) the amount on deposit in the
Pre-Funding Account on such date of determination and (ii) the number of days
remaining in such Due Period including the date of determination (but assuming a
30 day month), divided by (y) thirty (30) days or, with respect to the first Due
Period, four (4) days.
Pre-Funding Termination Distribution Date: The first Distribution Date
following the Due Period in which the Funding Period ends.
Principal Balance: With respect to any Home Loan or related Foreclosure
Property, (i) at the applicable Cut-Off Date, the outstanding principal balance
of the Home Loan as of such Cut-Off Date and (ii) with respect to any Due Period
after such Cut-Off Date, the outstanding principal balance of the Home Loan as
of the first day of such Due Period (after giving effect to all payments
received thereon and the reclassification of any Home Loan as a Liquidated Home
Loan during the immediately preceding Due Period), without giving effect to
amounts received in respect of such Home Loan or related Foreclosure Property
after such day. Any Liquidated Home Loan shall have a Principal Balance of zero.
Principal Prepayment: With respect to any Home Loan and with respect to
any Due Period, any principal amount received on a Home Loan in excess of the
scheduled principal amount included in the Monthly Payment due on the Due Date
in such Due Period.
Projected Interest Shortfall: In connection with the calculation of the
Capitalized Interest Account Requirement pursuant to Section 5.04 as determined
by the Servicer on any Business Day prior to __________, 19__, the Projected
Interest Shortfall shall be the amount equal to the sum of (A) with respect to
the Due Period in which such date of determination occurs the Interest Shortfall
Rate, multiplied by the Pre-Funding Account Weighted Average Balance, multiplied
by the number of days in such Due Period (except for the first Due Period,
multiplied by ____ (__) days), and divided by 360 days, plus (B) with respect to
any Due Period thereafter ending on or before __________, 19__, the Interest
Shortfall Rate, multiplied by the balance in the Pre-Funding Account as of such
date of determination, multiplied by the number of days in such Due Period
thereafter ending on or before __________, 19__, and divided by 360 days;
assuming in the case of each Due Period other than the first Due Period, a
360-day year consisting of twelve 30-day months.
Prospectus: The final Prospectus, dated as of __________, 19__, as
supplemented by the related Prospectus Supplement, dated as of __________, 19__,
prepared by the Transferor and the Seller in connection with the issuance and
sale of the Securities.
Purchase Price: As defined in Section 3.05 herein.
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 17
<PAGE> 26
Qualified Substitute Home Loan: A home loan or home loans substituted
for a Deleted Home Loan pursuant to Section 2.06 or 3.05, which (i) has or have
an interest rate or rates of not less than (and not more than two percentage
points more than) the Home Loan Interest Rate for the Deleted Home Loan, (ii)
matures or mature not more than one year later than and not more than one year
earlier than the Deleted Home Loan, (iii) has or have a principal balance or
principal balances (after application of all payments received on or prior to
the date of substitution) equal to or less than the Principal Balance of the
Deleted Home Loan as of such date, (iv) has or have a lien priority no lower
than the Deleted Home Loan, and (v) complies or comply as of the date of
substitution with each representation and warranty set forth in Section 3.03.
For purposes of determining whether multiple mortgage loans proposed to be
substituted for one or more Deleted Home Loans pursuant to Section 2.06 or 3.05
are in fact "Qualified Substitute Home Loans" as provided above, the criteria
specified in clauses (i), (ii) and (iii) above may be considered on an aggregate
or weighted average basis, rather than on a loan-by-loan basis (e.g., so long as
the weighted average Home Loan Interest Rate of any loans proposed to be
substituted is not less than (and not more than two percentage points more than)
the Home Loan Interest Rate for the designated Deleted Home Loan or Home Loans,
the requirements of clause (i) above would be deemed satisfied).
Rating Agency or Rating Agencies: Either or both of _________ provided
that when the terms Rating Agency or Rating Agencies are used in reference to
the Insured Securities, such terms shall mean one or both of _______________.
Ratings: The ratings initially assigned to the Notes and the
Certificates by the Rating Agencies, as evidenced by letters from the Rating
Agencies.
Realized Losses: The excess of the principal balance of any Liquidated
Home Loans over the related Liquidation Proceeds to the extent attributable to
principal.
Record Date: The close of business on the last Business Day of the
month immediately preceding the month in which a Distribution Date occurs.
Regular Principal Distribution Amount: On each Distribution Date, an
amount equal to the lesser of (A) the sum of the aggregate Class Principal
Balance of the Notes and the Certificate Principal Balance of the Certificates
immediately prior to such Distribution Date and (B) the greater of (1) the sum
of (i) each scheduled payment of principal collected by the Servicer in the
related Due Period, (ii) all partial and full principal prepayments applied by
the Servicer during such related Due Period, (iii) the principal portion of all
Net Liquidation Proceeds, Insurance Proceeds and Released Mortgaged Property
Proceeds received during the related Due Period, (iv) (a) that portion of the
purchase price of any repurchased Home Loan which represents principal and (b)
the principal portion of any Substitution Adjustments required to be deposited
in the Collection Account as of the related Determination Date, and (v) upon the
reduction of the Reserve Fund and the Overcollateralization Amount to zero, the
principal portion of any Net Loan Losses for the preceding Due Period; and (2)
the amount by which (i) the aggregate principal balance of the Offered
Securities as of the preceding Distribution Date (after giving effect to all
payments of principal on such preceding Distribution Date) exceeds (ii) the Pool
Principal Balance plus funds on deposit in the Pre-Funding Account, each as of
the immediately preceding Determination Date. Notwithstanding clauses (B)(1)(v)
or (B)(2) of the definition of Regular Principal Distribution Amount, if on the
final Distribution Date the funds available for distribution are not sufficient
to provide for the distribution of the Regular Principal Distribution Amount and
the applicable Noteholders' Principal
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 18
<PAGE> 27
Carry-Forward Amount or Certificateholders' Principal Carry-Forward Amount, in
full, then the holders of the Notes or the Certificates, as applicable, will not
be distributed such portion of the Regular Principal Distribution Amount and
Noteholders' Principal Carry-Forward Amount or Certificateholders' Principal
Carryforward Amount attributable to such insufficiency, in which event the
amount of such insufficiency will be written-off and the Class Principal Balance
of all Classes of the Notes and the Certificate Principal Balance of the
Certificates will be reduced to zero without the distribution of funds to fully
pay the Notes and the Certificates. If prior to the final Distribution Date, the
Reserve Fund and the Overcollateralization Amount are reduced to zero, the
principal portion of any Net Loan Losses will be included within the Regular
Principal Distribution Amount for the related Distribution Date. However, no
corresponding proceeds of principal from the Home Loans will be included in the
Regular Principal Distribution Amount to provide funds for the distribution of
the portion of the Regular Principal Distribution Amount attributable to such
Net Loan Losses, and the distribution of this portion of the Regular Principal
Distribution Amount to the holders of the Offered Securities will be dependent
upon the receipt of funds from, first, the Excess Spread, if any, and, second,
if such Excess Spread does not provide sufficient funds, then from the
withdrawal of any available funds from the Reserve Account up to the Reserve
Account Requirement and, third, if such Excess Spread and withdrawal from the
Reserve Account do not provide sufficient funds, from any Guaranteed Payment
received by the Indenture Trustee or the Owner Trustee, as applicable. If
sufficient funds for the distribution of this portion of the Regular Principal
Distribution Amount are not provided from the Excess Spread, the Reserve Account
and/or the Guaranteed Payment on the applicable Distribution Date, then the
amount of such insufficiency would become a Noteholders' Principal Carry-Forward
Amount or Certificateholders' Principal Carry-Forward Amount, as applicable,
which would ultimately be subject to the write-off on the final Distribution
Date to the extent that sufficient funds are not available for distribution on
such final Distribution Date, including funds distributable to pay such
Noteholders' Principal Carry-Forward Amount or Certificateholders' Principal
Carry-Forward Amount from the receipt of Excess Spread and/or Guaranteed
Payments on or before such final Distribution Date.
Released Mortgaged Property Proceeds: With respect to any Home Loan,
proceeds received by the Servicer in connection with (i) a taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(ii) any release of part of the Mortgaged Property from the lien of the related
Mortgage, whether by partial condemnation, sale or otherwise; which in either
case are not released to the Obligor in accordance with applicable law,
customary second mortgage servicing procedures and this Agreement.
Required Credit Support Multiple: On each Distribution Date, as of the
related Determination Date the amount calculated as follows: (i) if less than
____% (by Principal Balance) of the Home Loans are more than 30 days delinquent,
and if less than ___% (by Principal Balance) of the Home Loans are more than 60
days delinquent, and if less than ___% (by Principal Balance) of the Home Loans
have become Defaulted Home Loans, then such amount will be 1.0; (ii) if less
than ___% (by Principal Balance) of the Home Loans are more than 30 days
delinquent, and if less than ___% (by Principal Balance) of the Home Loans are
more than 60 days delinquent, and if less than ___% (by Principal Balance) of
the Home Loans have become Defaulted Home Loans, then such amount will be 1.25;
(iii) if less than ____% (by Principal Balance) of the Home Loans are more than
30 days delinquent, and if less than ___% (by Principal Balance) of the Home
Loans are more than 60 days delinquent, and if less than ___% (by Principal
Balance) of the Home Loans have become Defaulted Home Loan, then such amount
will be 1.5; (iv) if ____% or more (by Principal Balance) of the Home Loans are
more than 30 days delinquent, or if ____% or more (by Principal Balance) of the
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 19
<PAGE> 28
Home Loans are more than 60 days delinquent, or if ___% or more (by Principal
Balance) of the Home Loans have become Defaulted Home Loans then such amount
will be 2.5; or (v) if ___% or more (based on Net Principal Loan Losses) of the
Home Loans have become Defaulted Home Loans on a cumulative basis on or prior to
the first anniversary of the , 19 Cut-Off Date, or if ____% or more (based on
Net Principal Loan Losses) of the Home Loans have become Defaulted Home Loans on
a cumulative basis on or prior to the second anniversary of the __________, 19__
Cut-Off Date, or if ___% or more (based on Net Principal Loan Losses) of the
Home Loans have become Defaulted Home Loans on a cumulative basis on or prior to
the third anniversary of the __________, 19__ Cut-Off Date, or if ____% or more
(based on Net Principal Loan Losses) of the Home Loans have become Defaulted
Home Loans on a cumulative basis on or prior to the fourth anniversary of the ,
19 Cut-Off Date and thereafter, then such amount will be 2.5; provided, however,
that such 2.5 multiple in clause (v) shall be reduced to an amount equal to
1.25, if the Home Loans (based on Net Principal Loan Losses) that have become
Defaulted Home Loans on a cumulative basis are determined to be less than the
foregoing percentages of ___%, ___%, ___% and ___% during the relevant time
periods in such clause (v) and if the rolling three month delinquency and
default multiple in clauses (i) through (iv) results in an amount of either 1.0
or 1.25. Except with respect to the calculations on a cumulative basis in clause
(v) and the proviso clause of the preceding sentence, the above delinquency
percentages for clauses (i) through (iv) will be calculated as the average of
the ratios for the immediately preceding three Due Periods based on the
outstanding aggregate Principal Balances for all Home Loans which are 30 or 60
days or more delinquent, respectively, over the outstanding aggregate Principal
Balance for all Home Loans, and such default percentages will be calculated on
an annualized basis as the average of the ratios for the immediately preceding
three Due Periods where such ratio equals the quotient of (A) 12 times the
aggregate Net Principal Loan Losses for such Home Loans that became Defaulted
Home Loans, over (B) the aggregate outstanding Principal Balance of such Home
Loans as of the beginning of the related Due Period. The cumulative default
percentages for clause (v) and the proviso clause above shall be calculated
after giving effect to any recovery of proceeds received by the Servicer with
respect to such Defaulted Home Loans in accordance with the definition of Net
Principal Loan Losses. Notwithstanding the preceding, in the event that the
Subsequent Home Loans violate or fail to conform or comply in all material
respects with the conditions and requirements for delivery thereof as set forth
herein and in the Securities Insurer Commitment, then, upon written notice to
each of the other parties hereto and the Rating Agencies, the Securities
Insurer, in its sole discretion, may modify the preceding definition, without
the requirement of an amendment of this Agreement, for a sixty (60) day period
after the last day of the Due Period in which the Funding Period ends.
Reserve Account: The account established and maintained by the Servicer
with the Indenture Trustee pursuant to Section 5.06 hereof.
Reserve Account Initial Deposit: With respect to the Closing Date, an
amount equal to the Specified Reserve Account Balance on the Closing Date (which
is equal to $_________) and, with respect to each Subsequent Transfer Date after
the Closing Date, an amount equal to % of the Principal Balance of the
Subsequent Home Loans transferred to the Issuer on such Subsequent Transfer
Date.
Required Distribution Amount: As of any Distribution Date, the sum of
the Interest Distribution Amount and the Regular Principal Distribution Amount.
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 20
<PAGE> 29
Required Overcollateralization Level: On each Distribution Date, as of
the related Determination Date the amount equal to the greater of (1) ____% of
the sum of the aggregate Principal Balances as of the applicable Cut-Off Dates
of the Home Loans (the "Required OC Floor"), and (2) the product of (x) the
Required Credit Support Multiple and (y) _____% of the aggregate Principal
Balances as of the applicable Cut-Off Dates of the Home Loans; provided,
however, that on each Distribution Date on or after the Credit Support Reduction
Date on which the rolling three month delinquency and default multiple set forth
in clause (i) of the definition of the Required Credit Support Multiple is equal
to 1.0, as of the related Determination Date, the amount equal to the greater of
(1) the Required OC Floor, and (2) the product of (x) the Required Credit
Support Multiple and (y) the lesser of (A) ____% of the aggregate Principal
Balances as of the applicable Cut-Off Dates of the Home Loans and (B) ____% of
the aggregate outstanding Principal Balances of the Home Loans; provided
further, however, that the Required OC Level shall not be reduced pursuant to
the preceding proviso clause if the rolling three month delinquency and default
multiple in clauses (i) through (iv) of the definition of Required Credit
Support Multiple results in an amount greater than 1.0 and the cumulative
default multiple in clause (v) and the proviso of such definition results in an
amount greater than 1.25. Notwithstanding the preceding, in the event that the
Subsequent Home Loans violate or fail to conform or comply in all material
respects with the conditions and requirements for delivery thereof as set forth
herein and in the Securities Insurer Commitment, then, upon written notice to
each of the other parties hereto and the Rating Agencies, the Securities
Insurer, in its sole discretion, may modify the preceding definition, without
the requirement of an amendment of this Agreement, for a sixty (60) day period
after the last day of the Due Period in which the Funding Period ends.
Reserve Account Requirement: An amount initially equal to ___________.
The Reserve Account Requirement is subject to reduction as described in Section
5.06.
Residual Interest: The interest which represents the right to receive
the remaining assets in the Trust after all required distributions have been
made on the Notes and the Certificates on each Distribution Date.
Responsible Officer: When used with respect to the Indenture Trustee,
any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Owner Trustee, any officer in
the Corporate Trust Administration Department of the Owner Trustee with direct
responsibility for the administration of the Trust Agreement and this Agreement
on behalf of the Owner Trustee. When used with respect to the Seller, the
Transferor, the Servicer, or the Custodian, the President or any Vice President,
Assistant Vice President, or any Secretary or Assistant Secretary.
Securities: The Notes and/or the Certificates, as applicable.
Securities Insurer: MBIA Insurance Corporation, as issuer of the
Guaranty Policy, and its successors and assigns.
Securities Insurer Commitment: As defined in Section 3.04(a) hereof.
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Securities Insurer Default: The failure of the Securities Insurer to
make payments under the Guaranty Policy, if such failure has not been remedied
with ten (10) days of notice thereof, or the entry of an order or decree with
respect to the Securities Insurer in any insolvency or bankruptcy proceedings
which remain unstayed or undischarged for 90 days.
Securities Insurer Reimbursement Amount: At any time, an amount owed to
the Securities Insurer as reimbursement for any Guaranteed Payments made under
the Guaranty Policy, together with interest thereon at the rate specified in the
Insurance Agreement and any other amounts then owing to the Securities Insurer
under the Insurance Agreement, which have not previously been reimbursed.
Securityholder: A holder of a Note or Certificate, as applicable.
Seller: FIRSTPLUS INVESTMENT CORPORATION, a Nevada corporation, and any
successor thereto.
Series or Series 19 - : FIRSTPLUS Asset-Backed Certificates, Series
19___ .___
Servicer: FFI, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.
Servicer's Fiscal Year:____________________________ through
__________________________ of each year.
Servicer's Monthly Remittance Report: A report prepared and computed by
the Servicer in substantially the form of Exhibit B attached hereto.
Servicer's Monthly Statement: As defined in Section 6.02.
Servicer's Home Loan File: As described in Exhibit C.
Servicing Advances: Subject to Section 4.01(b), all reasonable and
customary "out of pocket" costs and expenses advanced or paid by the Servicer
with respect to the Home Loans in accordance with the performance by the
Servicer of its servicing obligations hereunder, including, but not limited to,
the costs and expenses for (i) the preservation, restoration and protection of
the Mortgaged Property, including without limitation advances in respect of real
estate taxes and assessments, (ii) any collection, enforcement or judicial
proceedings, including without limitation foreclosures, collections and
liquidations pursuant to Section 4.02, (iii) the conservation, management and
sale or other disposition of an Foreclosure Property pursuant to Section 4.09,
(iv) the preservation of the security for a Home Loan if a Superior Lien has
accelerated or intends to accelerate its obligations pursuant to Section 4.06;
provided that such Servicing Advances are reimbursable to the Servicer to the
extent provided in the applicable clause of Section 6.01(b) or deducted or
retained in calculating Net Liquidation Proceeds hereunder.
Servicing Compensation: The Servicing Fee and other amounts to which
the Servicer is entitled pursuant to Sections 7.01 and 7.03 and under the
circumstances set forth herein, the Excess Servicing Fee.
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Servicing Fee: As to each Home Loan (including any Home Loan that has
been foreclosed and has become a Foreclosure Property, but excluding any
Liquidated Home Loan), the fee payable monthly to the Servicer on each
Distribution Date, which shall be the product of % ( basis points) times the
Principal Balance of such Home Loan as of the beginning of the immediately
preceding Due Period, divided by 12; provided that with respect to the first
Distribution Date, such monthly fee attributable to the performance of its
servicing functions commencing on the Closing Date shall be pro rated based on
four (4) days for the first Due Period. The Servicing Fee includes any servicing
fees owed or payable to any Subservicer which fees shall be paid from the
Servicing Fee.
Servicing Officer: Any officer of the Servicer or Subservicer involved
in, or responsible for, the administration and servicing of the Home Loans whose
name and specimen signature appears on a list of servicing officers annexed to
an Officer's Certificate furnished by the Servicer or the Subservicer,
respectively, to the Owner Trustee and the Indenture Trustee, on behalf of the
Securityholders and the Securities Insurer, as such list may from time to time
be amended.
Subsequent Home Loan: An individual Home Improvement Loan, Debt
Consolidation Loan or Combination Loan that is conveyed to the Issuer on a
Subsequent Transfer Date, pursuant to a Subsequent Transfer Agreement, together
with the rights and obligations of a holder thereof and payments thereon and
proceeds therefrom, the Subsequent Home Loans subject to this Agreement will be
identified on a schedule attached as an exhibit to the related Subsequent
Transfer Agreement.
Subsequent Purchase Price: The Principal Balance of any Subsequent Home
Loans as of the applicable Cut-Off Date.
Subsequent Transfer Agreement: With respect to any Subsequent Home
Loan, the agreement pursuant to which Subsequent Home Loans are transferred to
the Trust by the Seller, substantially in the form of Exhibit D hereto.
Subsequent Transfer Date: The date specified in each Subsequent
Transfer Agreement, but no later than ________, 19__.
Subservicer: Any Person with whom the Servicer has entered into a
Subservicing Agreement and who is an Eligible Servicer and who satisfies any
requirements set forth in Section 4.07(a) in respect of the qualifications of a
Subservicer.
Subservicing Account: An account established by a Subservicer pursuant
to a Subservicing Agreement, which account must be an Eligible Account.
Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Home
Loans as provided in Section 4.07(a), copies of which shall be made available,
along with any modifications thereto, to the Owner Trustee, the Indenture
Trustee and to the Securities Insurer.
Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Sections 2.06 or 3.05, the amount, if any, by which (a) the sum of
the aggregate principal balance (after application of principal payments
received on or before the date of substitution) of any Qualified Substitute Home
Loans as of the date of substitution plus any accrued interest thereon that is
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 23
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scheduled to be paid during the Due Period in which such substitution occurs, is
less than (b) the sum of the aggregate of the Principal Balances, together with
accrued and unpaid interest thereon to the date of substitution, of the related
Deleted Home Loans.
Superior Lien: With respect to any Home Loan which is secured by other
than a first priority lien, the home loan(s) relating to the corresponding
Mortgaged Property having a superior priority lien.
Termination Price: With respect to the Notes, as of any date of
determination, an amount equal to the sum of (i) the aggregate Class Principal
Balance of the Notes as of such date, and (ii) the sum of any outstanding
Noteholders' Interest Carry-Forward Amount and 30 days' interest on the
aggregate Class Principal Balance of the Notes as of such date, computed at the
weighted average Home Loan Interest Rate of the Home Loans (including
Foreclosure Properties) then outstanding. With respect to the Certificates, as
of any date of determination, an amount equal to the sum of (i) the Certificate
Principal Balance of the Certificates as of such date, and (ii) the sum of any
outstanding Certificateholders' Interest Carry-Forward Amount and 30 days'
interest on the Certificate Principal Balance of the Certificates as of such
date, computed at the weighted average Home Loan Interest Rate of the Home Loans
(including Foreclosure Properties) then outstanding.
Transferor: FFI, in its capacity as the transferor hereunder.
Trust: The Issuer.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in any Trust Account and all proceeds of the foregoing.
Trust Accounts: The Note Distribution Account, the Collection Account,
the Reserve Account, the Pre-Funding Account or the Capitalized Interest
Account.
Trust Agreement: The Trust Agreement dated as of _________________ ,
19____, among the Seller, and the Owner Trustee.
Trust Fees and Expenses: As of each Distribution Date, an amount equal
to the Guaranty Insurance Premium, the Indenture Trustee Fee, the Owner Trustee
Fee and the Custodian Fee.
Underwriters: ___________________________ pursuant to an Underwriting
Agreement dated as of ___________, 19__ with the Transferor and the Seller.
Weighted Average Interest Rate: As of any particular date of
determination, the sum of:
(i) the product of (A) the Class Principal Balance of the
Class A-1 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of the
Certificates, and (B) the Note Interest Rate for such Class A-1 Notes;
(ii) the product of (A) the Class Principal Balance of the
Class A-2 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate
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Principal Balance of the Certificates, and (B) the Note Interest Rate
for such Class A-2 Notes;
(iii) the product of (A) the Class Principal Balance of the
Class A-3 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of the
Certificates, and (B) the Note Interest Rate for such Class A-3 Notes;
(iv) the product of (A) the Class Principal Balance of the
Class A-4 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of the
Certificates, and (B) the Note Interest Rate for such Class A-4 Notes;
(v) the product of (A) the Class Principal Balance of the
Class A-5 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of the
Certificates, and (B) the Note Interest Rate for such Class A-5 Notes;
(vi) the product of (A) the Certificate Principal Balance of
the Certificates divided by the sum of (x) the aggregate Class
Principal Balances of the Notes and (y) the Certificate Principal
Balance of the Certificates, and (B) the Pass-Through Rate for the
Certificates.
Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Indenture.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
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(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
CONVEYANCE OF THE HOME LOANS
Section 2.01 Conveyance of the Initial Home Loans.
(a) In consideration of the Issuer's delivery to or upon the order of
the Seller of $_______________, less the Reserve Account Initial Deposit as of
the Closing Date (other than any portion thereof attributable to the conveyance
of Subsequent Home Loans on the Closing Date), the Seller, as of the Closing
Date and concurrently with the execution and delivery hereof, does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer, without recourse,
but subject to the other terms and provisions of this Agreement, all of the
right, title and interest of the Seller in and to the Initial Home Loans
(including all interest and principal thereon received after the related CutOff
Date), the Pre-Funding Account Deposit, the Capitalized Interest Account
Deposit, the Reserve Account Initial Deposit and the proceeds of any and all of
the foregoing. The foregoing sale, transfer, assignment, set over and conveyance
does not and is not intended to result in a creation or an assumption by the
Issuer of any obligation of the Seller, the Transferor or any other person in
connection with the Home Loans or under any agreement or instrument relating
thereto except as specifically set forth herein.
(b) The Issuer acknowledges the conveyance to it of the Initial Home
Loans, the Pre- Funding Account Deposit, the Capitalized Interest Account
Deposit and the Reserve Account Initial Deposit, receipt of which is hereby
acknowledged. Concurrently with such delivery and in exchange therefor, the
Issuer has pledged the Initial Home Loans and the Trust Account Property to the
Indenture Trustee and the Indenture Trustee, pursuant to the written request of
the Seller, has executed and caused to be authenticated and delivered to or upon
the order of the Seller, the Notes. In addition, concurrently with such delivery
and in exchange therefor, the Owner Trustee, pursuant to the written request of
the Seller, has executed (not in its individual capacity, but solely as Owner
Trustee on behalf of the Issuer) and caused to be authenticated and delivered to
or upon the order of the Seller, the Certificates and the Residual Interest.
Section 2.02 Conveyance of the Subsequent Home Loans.
(a) On or before the last day of the Funding Period, the Seller shall
convey to the Issuer, and the Issuer shall purchase pursuant to this Section
2.02 the lesser of: (i) all Home Loans then in its possession that satisfy the
requirements of this Section 2.02 or (ii) the maximum principal balance of Home
Loans that satisfies the requirements of this Section 2.02, with respect to
which the aggregate Subsequent Purchase Price does not exceed the Pre-Funding
Account Deposit. Subject to the conditions set forth in this Section 2.02, in
consideration of the Issuer's delivery on the related Subsequent Transfer Dates
to or upon the order of the Seller of the Subsequent Purchase Price of the
related Subsequent Home Loans from amounts on deposit in the Pre-Funding
Account, the Seller shall, from time to time, on any Subsequent Transfer Date
sell, transfer, assign, set over and
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 26
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otherwise convey to the Issuer, without recourse, but subject to the other terms
and provisions of this Agreement, all of the right, title and interest of the
Seller in and to each Subsequent Home Loan (including all interest and principal
thereon received after the related Cut-Off Date) identified on the Home Loan
Schedule attached to the related Subsequent Transfer Agreement and delivered by
the Seller on such Subsequent Transfer Date and all items in the related Owner
Trustee's Home Loan File. The sale, transfer, assignment, set over, conveyance
and grant by the Seller of the Subsequent Home Loans to the Issuer does not and
is not intended to result in a creation or an assumption by the Issuer of any
obligation of the Seller, the Transferor or any other person in connection with
the Subsequent Home Loans or under any agreement or instrument relating thereto
except as specifically set forth herein.
(b) The amount released from the Pre-Funding Account on any Subsequent
Transfer Date in connection with any conveyance of Subsequent Home Loans shall
be equal to the aggregate of the Subsequent Purchase Prices for such Subsequent
Home Loans, which amount shall not exceed the amount then on deposit in the
Pre-Funding Account. If the Subsequent Purchase Price for such Subsequent Home
Loans is less than the amount required to obtain the release of the interest of
any third party (including any lienholder therein), then the Transferor or the
Seller shall cause the delivery of immediately available funds equal to such
insufficiency to the Issuer in escrow (which funds shall not be property of the
Trust) and the Issuer, in turn, shall remit such immediately available funds,
together with funds from the Pre-Funding Account equal to the Subsequent
Purchase Price, to the third party designated by the Transferor or the Seller
that is releasing its interest in such Subsequent Home Loans.
On the related Subsequent Transfer Date, the Seller shall transfer to
the Issuer the Subsequent Home Loans and the other property and rights related
thereto described in (a) above only upon the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date:
(i) the Subsequent Home Loans to be conveyed on a given
Subsequent Transfer Date must have an aggregate Principal Balance as of
the related Cut-Off Date of not less than $__________ except in the
case of the final Subsequent Transfer Date when no minimum Principal
Balance requirement shall be applicable;
(ii) the Transferor and/or Seller shall provide the Owner
Trustee, the Indenture Trustee and the Securities Insurer with an
Addition Notice and shall provide any information reasonably requested
by the Owner Trustee, the Indenture Trustee or the Securities Insurer
with respect to the Subsequent Home Loans;
(iii) the Seller shall deliver to the Owner Trustee, the
Indenture Trustee and the Securities Insurer a duly executed Subsequent
Transfer Agreement, including all exhibits listed therein;
(iv) the Transferor shall deposit in the Collection Account
all collections in respect of the Subsequent Home Loans received on or
after the related Cut-Off Date;
(v) the Transferor and the Seller shall certify to the
Securities Insurer, the Indenture Trustee and the Owner Trustee that,
as of the Subsequent Transfer Date, the Transferor and the Seller,
respectively, was not insolvent nor was made insolvent by such transfer
nor is aware of any pending insolvency;
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(vi) the Transferor and the Seller shall certify that such
addition of Subsequent Home Loans will not result in a material adverse
tax consequence to the Issuer or the Securityholders;
(vii) the Funding Period shall not have terminated; and
(viii) the Transferor shall make the representations and
warranties set forth in Section 3.02 and Section 3.04(a) hereof and
shall reconfirm the accuracy of the representations and warranties set
forth in Section 3.03 hereof.
(c) In addition, the Transferor and/or Seller will provide the
Securities Insurer, the Indenture Trustee and the Owner Trustee with data
regarding all Subsequent Home Loans transferred to the Issuer on the related
Subsequent Transfer Date, which data shall be delivered at least three Business
Days prior to such Subsequent Transfer Date. No later than the end of the
Funding Period, the following conditions shall have been satisfied with respect
to all Subsequent Home Loans transferred to the Issuer on any Subsequent
Transfer Date:
(i) the Transferor and Seller shall have delivered to the
Owner Trustee, the Indenture Trustee and the Securities Insurer an
Officer's Certificate confirming the satisfaction of each condition
precedent specified in this Section 2.02 and in the related Subsequent
Transfer Agreements;
(ii) the Transferor and/or Seller shall have delivered to the
Securities Insurer, the Indenture Trustee and the Owner Trustee
opinions of counsel with respect to the transfer of all of the
Subsequent Home Loans to the Issuer on any Subsequent Transfer Date
substantially in the form of the opinions of counsel delivered to the
Owner Trustee, the Indenture Trustee and the Securities Insurer on the
Closing Date (as to certain bankruptcy, corporate, securities and tax
law matters);
(iii) the Owner Trustee shall deliver to the Securities
Insurer and the Seller an opinion of counsel with respect to each of
the Subsequent Transfer Agreements substantially in the form of the
opinion of counsel delivered to the Seller and the Securities Insurer
on the Closing Date;
(iv) the Transferor and Seller shall make the representations
and warranties set forth in Section 3.04(b) hereof; and
(v) the Securities Insurer shall deliver to the Seller, the
Indenture Trustee and the Owner Trustee a written notice confirming the
Securities Insurer's consent and approval to the addition of all
Subsequent Home Loans purchased by the Issuer on any Subsequent
Transfer Date.
(d) On or prior to the Closing Date, the Seller and the Transferor
shall provide to the Owner Trustee, the Indenture Trustee and the Securities
Insurer a schedule of the home loans (the "Subsequent Home Loan Schedule") that
are expected to be Subsequent Home Loans, and Subsequent Home Loans transferred
to the Issuer shall only be taken from such Subsequent Home Loan Schedule;
provided, however, if any such identified home loans do not satisfy the
requirements of Subsequent Home Loans as set forth in this Section 2.02 or if
any such home loans are rejected
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as Subsequent Home Loans by the Securities Insurer, home loans acceptable to the
Securities Insurer may be substituted for such defective or rejected home loans
only from a secondary schedule of home loans (the "Secondary Subsequent Home
Loan Schedule") that is identified as such, and delivered to, the Owner Trustee,
the Indenture Trustee and Securities Insurer on the Closing Date. The Transferor
and Seller shall certify that the Subsequent Home Loans will be transferred to
the Issuer in accordance with the foregoing and that all home loans identified
in both the Subsequent Home Loan Schedule and the Secondary Subsequent Home Loan
Schedule satisfy the requirements of Subsequent Home Loans as set forth in this
Section 2.02 as of the Closing Date.
Section 2.03 Ownership and Possession of Home Loan Files. Upon the
issuance of the Securities, with respect to the Initial Home Loans, and upon
payment of the related Subsequent Purchase Price, with respect to the Subsequent
Home Loans, the ownership of each Debt Instrument, the related Mortgage and the
contents of the related Servicer's Home Loan File and the Issuer's Home Loan
File shall be vested in the Issuer for the benefit of the Securityholders and
the Securities Insurer, although possession of the Servicer's Home Loan Files
(other than items required to be maintained in the Issuer's Home Loan Files)
shall remain with the Servicer, or Custodian, if applicable, as contemplated in
Section 3.02.
Section 2.04 Books and Records.
The sale of each Home Loan shall be reflected on the Seller's balance
sheets and other financial statements as a sale of assets by the Seller. The
Servicer shall be responsible for maintaining, and shall maintain, a complete
set of books and records for each Home Loan which shall be clearly marked to
reflect the ownership of each Home Loan by the Issuer for the benefit of the
Securityholders and the Securities Insurer.
Section 2.05 Delivery of Home Loan Documents.
(a) With respect to each Initial Home Loan, on the Closing Date the
Transferor and the Seller have delivered or caused to be delivered, and with
respect to each Subsequent Home Loan, on the related Subsequent Transfer Dates,
the Transferor and the Seller will deliver or will cause to be delivered, to the
Custodian each of the following documents:
(i) The original Debt Instrument, endorsed "PAY TO THE ORDER
OF ___________________, AS OWNER TRUSTEE, FOR THE FIRSTPLUS HOME LOAN
OWNER TRUST 19__-__, WITHOUT RECOURSE" and signed, by facsimile or
manual signature, in the name of the Seller by a Responsible Officer
thereof, together with all intervening endorsements that evidence a
complete chain of title from the originator thereof to the Transferor;
provided that any of the foregoing endorsements may be contained on an
allonge which shall be firmly affixed to such Debt Instrument;
(ii) With respect to each Debt Instrument, either: (A) the
original Mortgage, with evidence of recording thereon, (B) a copy of
the Mortgage certified as a true copy by a Responsible Officer of the
Transferor or by the closing attorney, if the original has been
transmitted for recording but has not, at the time of delivery of this
Agreement, been returned or (C) a copy of the Mortgage certified by the
public recording office in those instances where the original recorded
Mortgage has been lost or has been retained by the public recording
office;
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(iii) With respect to each Debt Instrument, either (A) the
original Assignment of Mortgage assigned to "__________________, AS
OWNER TRUSTEE FOR THE FIRSTPLUS HOME LOAN OWNER TRUST 19__-__" and
signed in the name of the Transferor by a Responsible Officer with
evidence of recording thereon, (B) a copy of the Assignment of
Mortgage, certified as a true copy by a Responsible Officer of the
Transferor where the original has been transmitted for recording but
has not, at the time of delivery of this Agreement, been returned or
(C) a copy of the Assignment of Mortgage certified by the public
recording office in those instances where the original recorded
Assignment of Mortgage has been lost or has been retained by the public
recording office (provided, however, that where the original Assignment
of Mortgage is not being delivered to the Custodian, such Responsible
Officer may complete one or more blanket certificates attaching copies
of one or more Assignments of Mortgage relating thereto); provided that
any such Assignments of Mortgage may be made by blanket assignments for
Home Loans secured by Mortgaged Properties located in the same county,
if permitted by applicable law; provided, however, that the recordation
of such Assignment of Mortgage shall not be required in the States (i)
in which a legal opinion is delivered to the Owner Trustee and the
Securities Insurer in accordance with subsection (c) below and (ii)
that are approved by the Rating Agencies.
(iv) With respect to each Debt Instrument, either: (A)
originals of all intervening assignments of the Mortgage, with evidence
of recording thereon, (B) if the original intervening assignments have
not yet been returned from the recording office, a copy of the
originals of such intervening assignments together with a certificate
of a Responsible Officer of the Transferor or the closing attorney
certifying that the copy is a true copy of the original of such
intervening assignments or (C) a copy of the intervening assignment
certified by the public recording office in those instances where the
original recorded intervening assignment has been lost or has been
retained by the public recording office; provided that the chain of
intervening recorded assignments shall not be required to match the
chain of intervening endorsements of the Debt Instrument, so long as
the chain of intervening recorded assignments, if applicable, evidences
one or more assignments of the Mortgage from the original mortgage
ultimately to the person who has executed the Assignment of Mortgage
referred to in clause (iii) above; and
(v) Originals of all assumption and modification agreements,
if any, or a copy certified as a true copy by a Responsible Officer of
the Transferor if the original has been transmitted for recording until
such time as the original is returned by the public recording office.
(b) The Seller agrees to deliver or cause to be delivered on or before
the applicable Subsequent Transfer Date to the Custodian each of the documents
identified in paragraphs (i) through (v) of subsection (a) above with respect to
any Subsequent Home Loans.
(c) The Transferor shall, within five Business Days after the receipt
thereof, and in any event, within nine (9) months of the Closing Date (in the
case of the Initial Home Loans) or the related Subsequent Transfer Date (in the
case of the Subsequent Home Loans), deliver or cause to be delivered to the
Custodian: (i) the original recorded Mortgage in those instances where a copy
thereof certified by the Transferor was delivered to the Custodian; (ii) the
original recorded Assignment of Mortgage, except in the States in which a legal
opinion is delivered to the Owner
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 30
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Trustee, the Indenture Trustee and Securities Insurer as provided below and that
are approved by the Rating Agencies; (iii) any original recorded intervening
assignments of Mortgage in those instances where copies thereof certified by the
Transferor were delivered to the Custodian; and (iv) the original recorded
assumption and modification agreement in those instances in which a copy was
delivered. Notwithstanding anything to the contrary contained in this Section
2.05, in those instances where the public recording office retains the original
Mortgage or, if applicable, the Assignment of Mortgage, the intervening
assignments of the Mortgage or the original recorded assumption and modification
agreement after it has been recorded, or where any such original has been lost
or destroyed, the Seller and Transferor shall be deemed to have satisfied their
respective obligations hereunder upon delivery to the Custodian of a copy, as
certified by the public recording office to be a true copy of the recorded
original of such Mortgage or, if applicable, the Assignment of Mortgage,
intervening assignments of Mortgage or assumption and modification agreement,
respectively. With respect to the States of Arizona, California, Colorado,
Florida, Georgia, Nevada, Texas, Utah and Washington the Transferor and the
Seller shall have the right to deliver to the Owner Trustee, the Indenture
Trustee and the Securities Insurer a legal opinion for each State providing that
the recordation of the Assignment of Mortgage in such State is not necessary to
transfer the related Home Loans secured by Mortgaged Properties in such State,
provided such legal opinion is in a form that is reasonably acceptable to the
Owner Trustee and the Securities Insurer and such legal opinion is delivered on
or before , 19 . Upon the delivery and acceptance by the Owner Trustee
and Securities Insurer of the foregoing legal opinion for each such State and
the approval of the Rating Agencies, the Transferor and the Seller shall not be
required to record Assignment of Mortgages for the related Home Loans secured by
Mortgaged Properties located in such State and the delivery of the Assignments
of Mortgages for such State to the Custodian in recordable form on the Closing
Date or Subsequent Transfer Date, as applicable, shall constitute full
compliance with subsection (a)(iii) above. If the foregoing legal opinion is not
delivered and accepted by the Owner Trustee, the Indenture Trustee and
Securities Insurer for any of the foregoing States, then the Assignments of
Mortgage relating to any such State shall be recorded in accordance with the
first sentence of this subsection (c). Notwithstanding the preceding provisions
allowing for the non- recordation of Assignments of Mortgage in certain States,
if a an Event of Default occurs pursuant to clause (vii) of Section 10.01 or the
Transferor, as the Servicer, is terminated hereunder, then the Transferor, in
its capacity as the Servicer or predecessor Servicer, shall be required to
record all Assignments of Mortgage in those States in which the Transferor had
previously been allowed not to record such Assignments of Mortgage.
(d) All Home Loan documents held by the Custodian on behalf of the
Issuer are referred to herein as the "Issuer's Home Loan File." All recordings
required pursuant to this Section 2.05 shall be accomplished by and at the
expense of the Transferor.
Section 2.06 Acceptance by Issuer of the Home Loans; Certain
Substitutions; Certification by Issuer.
(a) The Owner Trustee agrees to cause the Custodian to execute and
deliver on the Closing Date an acknowledgment of receipt of the Issuer's Home
Loan File for each Initial Home Loan, and the Owner Trustee agrees to cause the
Custodian to execute and deliver on any Subsequent Transfer Date an
acknowledgment of receipt of the Issuer's Home Loan File for each Subsequent
Home Loan. The Owner Trustee declares that it will cause the Custodian to hold
such documents and any amendments, replacements or supplements thereto, as well
as any other assets included in the Trust and delivered to the Custodian in
trust, upon and subject to the conditions set
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 31
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forth herein for the benefit of the Securityholders and the Securities Insurer.
The Owner Trustee agrees, for the benefit of the Securityholders and the
Securities Insurer, to cause the Custodian to review each Issuer's Home Loan
File within 45 days after the Closing Date (or, with respect to any Qualified
Substitute Home Loan or Subsequent Home Loan, within 45 days after the receipt
by the Custodian thereof) and to cause the Custodian to deliver to the
Transferor, the Seller, the Indenture Trustee, the Owner Trustee, the Securities
Insurer and the Servicer a certification to the effect that, as to each Home
Loan listed in the Home Loan Schedule and as to each Subsequent Home Loan Listed
in a Subsequent Home Loan Schedule (other than any Home Loan paid in full or any
Home Loan specifically identified in such certification as not covered by such
certification), (i) all documents required to be delivered to the Issuer
pursuant to this Agreement are in its possession or in the possession of the
Custodian on its behalf (other than as expressly permitted by Section
2.05(a)(ii) or 2.05(c)), (ii) all documents delivered by the Seller and the
Transferor to the Custodian pursuant to Section 2.05 have been reviewed by the
Custodian and have not been mutilated or damaged and appear regular on their
face (handwritten additions, changes or corrections shall not constitute
irregularities if initialed by the Obligor) and relate to such Home Loan, (iii)
based on the examination of the Custodian on behalf of the Issuer, and only as
to the foregoing documents, the information set forth on the Home Loan Schedule
accurately reflects the information set forth in the Issuer's Home Loan File and
(iv) each Debt Instrument has been endorsed as provided in Section 2.05. Neither
the Owner Trustee nor the Custodian shall be under any duty or obligation (i) to
inspect, review or examine any such documents, instruments, certificates or
other papers to determine that they are genuine, enforceable, or appropriate for
the represented purpose or that they are other than what they purport to be on
their face or (ii) to determine whether any Issuer's Home Loan File should
include any of the documents specified in Section 2.05(a)(v).
(b) If the Custodian, during the process of reviewing the Issuer's Home
Loan Files, finds any document constituting a part of a Issuer's Home Loan File
which is not executed, has not been received, is unrelated to any Home Loan
identified in the Home Loan Schedule, does not conform to the requirements of
Section 2.05 or does not conform, in all material respects, to the description
thereof as set forth in the Home Loan Schedule, then the Custodian shall
promptly so notify the Transferor, the Servicer, the Indenture Trustee, the
Owner Trustee, the Securities Insurer and the Seller. In performing any such
review, the Custodian may conclusively rely on the Seller and the Transferor as
to the purported genuineness of any such document and any signature thereon. It
is understood that the scope of the Custodian's review of the Issuer's Home Loan
Files is limited solely to confirming that the documents listed in Section 2.05
have been received and further confirming that any and all documents delivered
pursuant to Section 2.05 have been executed and relate to the Home Loans
identified in the Home Loan Schedule and to the Subsequent Home Loans listed in
the Subsequent Home Loan Schedule. Neither the Owner Trustee nor the Custodian
shall have any responsibility for determining whether any document is valid and
binding, whether the text of any assignment or endorsement is in proper or
recordable form, whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or whether a blanket assignment is
permitted in any applicable jurisdiction. If a material defect in a document
constituting part of a Issuer's Home Loan File is discovered, then the Seller
and Transferor shall comply with the cure, substitution and repurchase
provisions of Section 3.05 hereof.
(c) Within the three month period beginning on the Closing Date and
ending on _______, 19__, each of the Seller and the Transferor shall
have the option, exercisable in its sole
discretion, to remove a Home Loan from the Trust and substitute therefor a
Qualified Substitute Home Loan in the manner and subject to the conditions set
forth in Section 3.05 applicable to
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 32
<PAGE> 41
substitutions made by the Transferor and subject to the further conditions that
(i) the Seller and/or the Transferor may only effect substitutions under this
Section 2.06(c) which, in the aggregate, amount to (A) not more than ___% of the
aggregate Cut-Off Date Principal Balances of the Home Loans (as measured by the
aggregate Principal Balance of the Deleted Home Loans) on the Determination Date
immediately preceding the substitution date, without Securities Insurer approval
and (B) not more than ___% of the aggregate Cut-Off Date Principal Balances of
the Home Loans (as measured by the aggregate Principal Balance of the Deleted
Home Loans) on the Determination Date immediately preceding the substitution
date, with Securities Insurer approval, and (ii) no such substitution shall be
undertaken unless and until (A) the Owner Trustee and the Indenture Trustee
shall have received written assurances from each Rating Agency that such
substitution once effected would not result in the ratings assigned to any Class
of the Securities being downgraded and an Officer's Certificate from the
Transferor or the Seller, as applicable, stating that the substitution is not
being effected for the primary purpose of recognizing gains or decreasing losses
resulting from market value changes in the Deleted Home Loans and Qualified
Substitute Home Loans included in such substitution, and (B) the Owner Trustee,
the Indenture Trustee and the Securities Insurer shall have received an opinion
of counsel, which opinion of counsel shall be acceptable to the Owner Trustee,
that such substitution once effected would not cause the Trust to become an
"investment company" as defined under the Investment Company Act of 1940.
(d) Upon receipt by the Owner Trustee of a certification of a Servicing
Officer to the effect that such substitution has occurred and that the
Substitution Adjustment has been credited to the Collection Account pursuant to
Section 3.05 and remitted to the Indenture Trustee for deposit into the
Distribution Account, the Owner Trustee shall (i) release (or cause the
Custodian to release) to the Servicer for release to the Seller or the
Transferor, as the case may be, the related Issuer's Home Loan File for each
Deleted Home Loan and (ii) execute, without recourse, representation or
warranty, and deliver such instruments of transfer presented to it by the
Servicer as shall be necessary to transfer such Deleted Home Loan to the Seller
or the Transferor, as the case may be.
(e) On the Distribution Date in ______________of each year commencing
in 19__, the Owner Trustee shall deliver (or cause the Custodian to deliver) to
the Seller, the Securities Insurer, the Indenture Trustee and the Servicer a
certification listing all Issuer's Home Loan Files held by the Custodian on
behalf of the Issuer on such Distribution Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Seller.
The Seller hereby represents, warrants and covenants with and to the
Owner Trustee, the Indenture Trustee, the Servicer, the Securities Insurer and
the Securityholders as of the Closing Date:
(a) The Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Nevada and has all licenses
necessary to carry on its business as now being conducted and is licensed,
qualified and in good standing in each Mortgaged Property State if the laws of
such state require licensing or qualification in order to conduct business of
the type conducted by the Seller and perform its obligations as Seller
hereunder; the Seller has the power and authority to execute and deliver this
Agreement and to perform in accordance herewith; the
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 33
<PAGE> 42
execution, delivery and performance of this Agreement (including all instruments
of transfer to be delivered pursuant to this Agreement) by the Seller and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary action of the Seller; this Agreement evidences the
valid, binding and enforceable obligation of the Seller; and all requisite
action has been taken by the Seller to make this Agreement valid, binding and
enforceable upon the Seller in accordance with its terms, subject to the effect
of bankruptcy, insolvency, reorganization, moratorium and other, similar laws
relating to or affecting creditors' rights generally or the application of
equitable principles in any proceeding, whether at law or in equity;
(b) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Seller makes no such representation or warranty) that
are necessary in connection with the purchase and sale of the Securities and the
execution and delivery by the Seller of this Agreement and the other related
documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect, are not subject to any pending
proceedings or appeals (administrative, judicial or otherwise) and either the
time within which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal therefrom
taken, and are adequate to authorize the consummation of the transactions
contemplated by this Agreement and such other documents on the part of the
Seller and the performance by the Seller of its obligations as Seller under this
Agreement and such other documents to which it is a party;
(c) The consummation of the transactions contemplated by this Agreement
will not result in (i) the breach of any terms or provisions of the Articles of
Incorporation or Bylaws of the Seller, (ii) the breach of any term or provision
of, or conflict with or constitute a default under or result in the acceleration
of any obligation under, any material agreement, indenture or loan or credit
agreement or other material instrument to which the Seller, or its property is
subject, or (iii) the violation of any law, rule, regulation, order, judgment or
decree to which the Seller or its respective property is subject;
(d) Neither this Agreement nor the Prospectus nor any statement, report
or other document prepared by the Seller and furnished or to be furnished
pursuant to this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading;
(e) There is no action, suit, proceeding or investigation pending or,
to the best of the Seller's knowledge, threatened against the Seller which,
either in any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition, properties or
assets of the Seller or in any material impairment of the right or ability of
the Seller to carry on its business substantially as now conducted, or in any
material liability on the part of the Seller or which would draw into question
the validity of this Agreement or the Home Loans or of any action taken or to be
taken in connection with the obligations of the Seller contemplated herein, or
which would be likely to impair materially the ability of the Seller to perform
under the terms of this Agreement;
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 34
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(f) The Seller is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
other governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or otherwise) or
operations of the Seller or its properties or might have consequences that would
materially and adversely affect its performance hereunder;
(g) As of the Closing Date, the Issuer will have good and marketable
title to each Initial Home Loan and such other items comprising the corpus of
the Trust free and clear of any lien, mortgage, pledge, charge, security
interest or other encumbrance;
(h) As of any Subsequent Transfer Date, the Issuer will have good and
marketable title to each Subsequent Home Loan transferred on such date and such
other items comprising the corpus of the Trust free and clear of any lien,
mortgage, pledge, charge, security interest or other encumbrance; and
(i) The transfer, assignment and conveyance of the Home Loans, the Debt
Instruments and the Mortgages by the Seller pursuant to this Agreement or any
Subsequent Transfer Agreement are not subject to the bulk transfer laws or any
similar statutory provisions in effect in any applicable jurisdiction.
(j) The Seller shall provide each Rating Agency and the Securities
Insurer with notice and a copy of any amendment to the Articles of Incorporation
of the Seller promptly after the filing thereof.
Section 3.02 Representations, Warranties and Covenants of the Servicer
and Transferor.
The Servicer as such and in its capacity as the Transferor hereby
represents, warrants and covenants with and to the Seller, the Owner Trustee,
the Indenture Trustee, the Securities Insurer and the Securityholders as of the
Closing Date:
(a) The Servicer is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Texas and has all licenses
necessary to carry on its business as now being conducted and is licensed,
qualified and in good standing in each Mortgaged Property State if the laws of
such state require licensing or qualification in order to conduct business of
the type conducted by the Servicer and perform its obligations as Servicer
hereunder; the Servicer has the power and authority to execute and deliver this
Agreement and to perform in accordance herewith; the execution, delivery and
performance of this Agreement (including all instruments of transfer to be
delivered pursuant to this Agreement) by the Servicer and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action of the Servicer; this Agreement evidences the valid,
binding and enforceable obligation of the Servicer; and all requisite action has
been taken by the Servicer to make this Agreement valid, binding and enforceable
upon the Servicer in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium and other, similar laws
relating to or affecting creditors' rights generally or the application of
equitable principles in any proceeding, whether at law or in equity;
(b) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 35
<PAGE> 44
be, by or from any federal, state or other governmental authority or agency
(other than any such actions, approvals, etc. under any state securities laws,
real estate syndication or "Blue Sky" statutes, as to which the Servicer makes
no such representation or warranty) that are necessary in connection with the
execution and delivery by the Servicer of this Agreement and the other related
documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect, are not subject to any pending
proceedings or appeals (administrative, judicial or otherwise) and either the
time within which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal therefrom
taken, and are adequate to authorize the consummation of the transactions
contemplated by this Agreement and such other documents on the part of the
Servicer and the performance by the Servicer of its obligations as Servicer
under this Agreement and such other documents to which it is a party;
(c) The consummation of the transactions contemplated by this Agreement
will not result in (i) the breach of any terms or provisions of the charter or
by-laws of the Servicer, (ii) the breach of any term or provision of, or
conflict with or constitute a default under or result in the acceleration of any
obligation under, any material agreement, indenture or loan or credit agreement
or other material instrument to which the Servicer or its property is subject,
or (iii) the violation of any law, rule, regulation, order, judgment or decree
to which the Servicer or its property is subject;
(d) Neither this Agreement nor the Prospectus nor any statement, report
or other document prepared by the Servicer and furnished or to be furnished
pursuant to this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading;
(e) There is no action, suit, proceeding or investigation pending or,
to the best of the Servicer's knowledge, threatened against the Servicer which,
either in any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition, properties or
assets of the Servicer or in any material impairment of the right or ability of
the Servicer to carry on its business substantially as now conducted, or in any
material liability on the part of the Servicer or which would draw into question
the validity of this Agreement or the Home Loans or of any action taken or to be
taken in connection with the obligations of the Servicer contemplated herein, or
which would be likely to impair materially the ability of the Servicer to
perform under the terms of this Agreement;
(f) The Servicer is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or other governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or otherwise) or
operations of the Servicer or its properties or might have consequences that
would materially and adversely affect its performance hereunder;
(g) So long as FFI is the Servicer of the Home Loans hereunder, the
Servicer's Home Loan Files will be maintained at 1250 Mockingbird Lane, Dallas,
Texas 75247-4902, or, if FFI is no longer the Servicer hereunder or if FFI
changes the location of the Servicer's Home Loan Files, the Servicer's Home Loan
Files shall be maintained at such address as may be indicated on an Officer's
Certificate executed by a Servicing Officer and delivered to the Owner Trustee,
the Indenture Trustee, the Securities Insurer and the Seller;
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(h) The Servicer shall not solicit any refinancing of any of the Home
Loans; provided, that this covenant shall not prevent or restrict the Servicer
from making general solicitations, by mail, advertisement or otherwise of the
general public or persons on a targeted list, so long as the list was not
generated from the Home Loan Schedule; and
(i) The Servicer shall not sell, transfer, assign or otherwise dispose
of a customer or similar list comprised of the names of the Obligors under the
Home Loans to any third party.
Section 3.03 Individual Home Loans.
The Transferor hereby represents and warrants to the Seller, the Owner
Trustee, the Indenture Trustee, the Securities Insurer and the Securityholders,
with respect to each Initial Home Loan, as of the Closing Date and, with respect
to each Subsequent Home Loan, as of the related Subsequent Transfer Date:
(a) Home Loan Information. The information with respect to each Home
Loan set forth in the Home Loan Schedule is true and correct in all material
respects as of the applicable Cut-Off Date.
(b) Delivery of Home Loan Documents. All of the original or certified
documentation required to be delivered to the Owner Trustee or to the Custodian
on or prior to the Closing Date or the Subsequent Transfer Date, as applicable,
or as otherwise provided in this Agreement has or will be so delivered.
(c) Payments Current. As of the applicable Cut-off Date, no more than
___% (by aggregate Cut-off Date Principal Balance) of the Home Loans are more
than 30 days but not more than 60 days delinquent, based on the terms under
which the related Mortgages and Debt Instruments have been made and none of the
Home Loans are more than 60 days delinquent. The Transferor has not advanced
funds, or induced, solicited or knowingly received any advance of funds from a
party other than the related Obligor, directly or indirectly, for the payment of
any amount required by any Home Loan.
(d) No Waiver or Modification. The terms of each Debt Instrument and
Mortgage have not been impaired, waived, altered or modified in any respect,
except by written instruments reflected in the Issuer's Home Loan File and no
provision of any Mortgage or Debt Instrument has been "whited out" or erased
unless such modification has been initialed by each of the parties to the
related Home Loan. No instrument of waiver, alteration, modification or
assumption has been executed except for the instruments that are part of the
Issuer's Home Loan File and the terms of which are reflected in the Issuer's
Home Loan File.
(e) No Defenses. No Debt Instrument or Mortgage is subject to any
set-off, counterclaim or defense, including the defense of usury, nor will the
operation of any of the terms of any Debt Instrument or Mortgage, or the
exercise of any right thereunder, render such Debt Instrument or Mortgage
unenforceable, in whole or in part, or subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, and no such
right of rescission, set-off, counterclaim or defense has been asserted in any
proceeding or was asserted in any state or federal bankruptcy or insolvency
proceeding at the time the related Home Loan was originated.
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(f) Compliance with Laws. Any and all requirements of any federal,
state or local law applicable to each Home Loan have been complied with
including, without limitation, all consumer, usury, truth-in-lending, consumer
credit protection, equal credit opportunity or disclosure laws applicable to
each Home Loan; each Home Loan was originated in compliance with all applicable
laws and no fraud or misrepresentation was committed by any Person in connection
therewith.
(g) No Satisfaction or Release of Lien. No Mortgage has been satisfied,
canceled, subordinated or rescinded, in whole or in part. No Mortgaged Property
has been released from the lien of the related Mortgage, in whole or in part,
nor has any instrument been executed that would effect any such release,
cancellation, subordination or rescission, other than the subordination of the
lien of a Mortgage securing a Home Loan with respect to which a related Superior
Lien was released in connection with the refinancing of the mortgage loan
relating to such Superior Lien.
(h) Valid Lien. With respect to each Debt Instrument that is secured by
a Mortgage, such Mortgage is or creates a valid, subsisting and enforceable lien
on the related Mortgaged Property, including, in the case of a Mortgage securing
a Home Improvement Loan, the land and all buildings on the related Mortgaged
Property.
(i) Validity of Home Loan Documents. Each Debt Instrument and each
Mortgage is genuine and each is the legal, valid and binding obligation of the
Obligor thereof, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting creditors' rights in general and by general
principles of equity. All parties to each Debt Instrument and each Mortgage had
legal capacity at the time to enter into the related Home Loan and to execute
and deliver such Debt Instrument and Mortgage, and such Debt Instrument and
Mortgage have been duly and properly executed by such parties.
(j) Full Disbursement of Proceeds. As of the applicable Cut-Off Date,
the proceeds of each Home Loan have been fully disbursed and there is no
requirement for future advances thereunder, all costs, fees and expenses
incurred in making or closing each Home Loan and the recording of the Mortgage
were disbursed, the Obligor is not entitled to any refund of any amounts paid or
due under the Debt Instrument or any related Mortgage and any and all
requirements set forth in the related Home Loan documents have been complied
with.
(k) Ownership. Immediately prior to the conveyance thereof to the
Seller, the Transferor had good and marketable title to each Home Loan, Debt
Instrument and Mortgage, was the sole owner thereof and had full right to sell
each Home Loan, Debt Instrument and Mortgage to the Seller and upon the
conveyance thereof by the Transferor to the Seller, the Seller became the sole
owner of each Home Loan, Debt Instrument and Mortgage free and clear of any
encumbrance, equity, lien, pledge, charge, claim or security interest.
(l) Ownership of Mortgaged Property. With respect to each Home Loan
that is secured by a Mortgaged Property, the related Servicer's Home Loan File
contains a title document reflecting that title to such Mortgaged Property is
held at least ____% by the Obligor under such Home Loan.
(m) No Defaults. Except with respect to any delinquent scheduled
payment set forth in subsection (c) above, there is no default, breach,
violation or event of acceleration existing under any Mortgage or any Debt
Instrument and, to the best of the Transferor's knowledge, there is no event
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 38
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which, with the passage of time or with notice and/or the expiration of any
grace or cure period, would constitute such a default, breach, violation or
event of acceleration and neither the Transferor nor its predecessors have
waived any such default, breach, violation or event of acceleration, except as
set forth in an instrument of waiver, alteration, modification or assumption
that is included in the Issuer's Home Loan File.
(n) No Condemnation or Damage. To the best of the Transferor's
knowledge, the physical condition of each Mortgaged Property has not
deteriorated since the date of origination of the related Home Loan (normal wear
and tear excepted) and there is no proceeding pending for the total or partial
condemnation of any Mortgaged Property.
(o) Mortgage Remedies Adequate. Each Mortgage contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the related Mortgaged Property of
the benefits of the security provided thereby, including, (i) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise,
by judicial foreclosure.
(p) Underwriting of Home Loans. Each Home Loan has been underwritten by
the originator thereof in accordance with such originator's then current
underwriting guidelines.
(q) Terms of Home Loans. Each Home Loan is a fixed rate loan; each Debt
Instrument has an original term to maturity of not less than 24 months nor more
than 20 years and 32 days from the date of origination; each Debt Instrument is
payable in monthly installments of principal and interest, with interest payable
in arrears, and requires a monthly payment which is sufficient to amortize the
original principal balance over the original term and to pay interest at the
related Home Loan Interest Rate; and no Debt Instrument provides for any
extension of the original term.
(r) Security. No Debt Instrument is, or has been, secured by any
collateral except the lien of the related Mortgage.
(s) Deed of Trust. If a Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves as such and is named in the Mortgage, or a
valid substitution of trustee has been recorded or may be recorded and no
extraordinary fees or expenses are, or will become, payable by the Transferor to
the trustee under the deed of trust, except in connection with default
proceedings and a trustee's sale after default by the related Obligor.
(t) Types of Home Loans. Each Home Loan is either (i) a Home
Improvement Loan, (ii) a Debt Consolidation Loan, (iii) a Combination Loan, or
(iv) a first or junior lien purchase money loan. No Home Loan was originated for
the express purpose of purchasing a manufactured home.
(u) Completion of Improvements. With respect to all Home Loans that are
Home Improvement Loans (except for such Home Loans that are first lien or junior
lien purchase money loans, the proceeds of which have been used in part to
acquire the related Mortgaged Property), all improvements to be made to each
Mortgaged Property with the proceeds of the related Home Loan have been
completed and, except as to Home Loans that are such purchase money loans or
that were
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 39
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made by the originator thereof directly to the owner of the property being
improved, the related Servicer's Home Loan File contains a Completion
Certificate.
(v) Origination Practices. The origination practices used by each
originator of the Home Loans and the servicing and collection practices used by
the Transferor with respect to each Home Loan have been in all material respects
legal, proper, prudent and customary with respect to the loan origination and
servicing business as applicable to the respective loan type.
(w) Servicing Practices. Each Home Loan has been serviced in
accordance with all applicable laws and, to the best of the Transferor's
knowledge, no fraud or misrepresentation was committed by any Person in
connection therewith.
(x) No Bulk Transfer. The sale, transfer, assignment, conveyance and
grant of the Debt Instruments and the Mortgages by the Transferor to the Seller
were not subject to the bulk transfer laws or any similar statutory provisions
in effect in any applicable jurisdiction.
(y) Delinquencies. As of the ____________________, 19__ Cut-Off Date,
no more than _____% of the Initial Home Loans (by outstanding principal balance)
and no more than _____ of the Initial Home Loans (by number) were 31 days or
more delinquent.
(z) Relief Act Matters. No Obligor has notified the Transferor, and no
relief has been requested or allowed to an Obligor under the Soldiers' and
Sailors' Civil Relief Act of 1940.
(aa) Selection Criteria. The Home Loans were not selected by the
Transferor for sale to the Seller or the Issuer on any basis intended to
adversely affect the Seller or the Issuer.
(bb) Superior Lien Delinquencies. No Superior Lien was more than 30
days past due at the time of origination of the related Home Loan.
(cc) Aggregate Principal Balances of the Home Loans. The aggregate
outstanding principal balances of the Home Loans as of each Cut-Off Date will
not represent more than 80% of the Pool Principal Balance.
(dd) Good Repair. The related Mortgaged Property described in each Debt
Instrument is, to the best of the Transferor's knowledge, free of damage and in
good repair.
(ee) Simple Interest. Interest for each Home Loan is calculated at a
rate of interest computed by the simple interest method.
The Transferor has reviewed all of the documents constituting each
Servicer's Home Loan File and each Issuer's Home Loan File and has made such
inquiries as it deems necessary to make and confirm the accuracy of the
representations set forth herein.
Section 3.04 Subsequent Home Loans.
(a) The Transferor shall represent and warrant to the Seller, the
Owner Trustee, the Indenture Trustee, the Securities Insurer and the
Securityholders that as of each Subsequent Transfer Date:
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(i) No Subsequent Home Loan provides for negative amortization;
(ii) No Subsequent Home Loan has a Cut-Off Date or a Subsequent
Transfer Date later than __________________, 19__ ;
(iii) No Subsequent Home Loan has a maturity date later than ,
____________________ 20__;
(iv) To the best of the Transferor's knowledge, the acquisition
of the Subsequent Home Loans as of such Subsequent Transfer Date will
not result in a downgrading in any rating of the Securities;
(v) The Subsequent Home Loans have not been acquired by the
Issuer for the primary purpose of recognizing gains or decreasing
losses resulting from market value changes in such Subsequent Home
Loans;
(vi) Each of the representations and warranties set forth in
Section 3.03 is true and correct with respect to each of the Subsequent
Home Loans being transferred to the Issuer; and
(vii) To the extent applicable to each Subsequent Home Loan being
transferred to the Issuer, the quantitative criteria set forth in
paragraphs 31 and 32 of that certain Commitment to Issue a Financial
Guaranty Insurance Policy (Application No.__________) dated as of
__________, 19__ (the "Securities Insurer Commitment") issued by the
Securities Insurer have been satisfied.
(b) The Transferor shall represent and warrant to the Seller, the
Owner Trustee, the Indenture Trustee, the Securities Insurer and the
Securityholders that as of the end of the Funding Period:
(i) The Home Loans have a weighted average Home Loan Interest
Rate of at least ____% and a Home Loan Interest Rate of at least ____%;
(ii) The Home Loans have a weighted average original term to
stated maturity of not more than _____ years;
(iii) No Home Loans have a Principal Balance as of the related
Cut-Off Date of greater than $___________;
(iv) There is not a concentration of Home Loans in a single
postal zip code in excess of ____% of the Pool Principal Balance;
(v) No more than ___% of the Home Loans by Principal Balance as
of the respective Cut-Off Dates shall be Combination Loans in which
less than 40% of the proceeds from each such loan have been used for
the improvement of the related Mortgaged Property; and
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(vi) The other quantitative criteria set forth in paragraphs
31 and 32 of the Securities Insurer Commitment (as defined in (a)(vii)
above) have been satisfied.
Section 3.05 Purchase and Substitution.
(a) It is understood and agreed that the representations and
warranties set forth in Sections 3.03 and 3.04, shall survive the conveyance of
the Home Loans to the Issuer and the delivery of the Securities to the
Securityholders. Upon discovery by the Seller, the Servicer, the Transferor, the
Custodian, the Owner Trustee, the Indenture Trustee, the Securities Insurer or
any Securityholder of a breach of any of such representations and warranties
which materially and adversely affects the value of the Home Loans or the
interest of the Securityholders or the Securities Insurer, or which materially
and adversely affects the interests of the Securityholders or the Securities
Insurer in the related Home Loan in the case of a representation and warranty
relating to a particular Home Loan (notwithstanding that such representation and
warranty was made to the Transferor's best knowledge), the party discovering
such breach shall give prompt written notice to the others. The Transferor shall
within 60 days of the earlier of its discovery or its receipt of notice of any
breach of a representation or warranty, promptly cure such breach in all
material respects. If, however, within 60 days after the notice to the
Transferor respecting such breach the Transferor has not remedied the breach and
the breach materially and adversely affects the interests of the Securityholders
or the Securities Insurer generally or in the related Home Loan (the "Defective
Home Loan"), the Seller shall cause the Transferor on or before the
Determination Date next succeeding the end of such 60 day period either (i) to
remove such Defective Home Loan from the Trust (in which case it shall become a
Deleted Home Loan) and substitute one or more Qualified Substitute Home Loans in
the manner and subject to the conditions set forth in this Section 3.05 or (ii)
to purchase such Defective Home Loan at a purchase price equal to the Purchase
Price (as defined below) by depositing such Purchase Price in the Collection
Account; provided any such substitution may be effected not later than the date
which is two years after the Startup Day. In the event the Seller or the
Transferor is notified that any Mortgage Property is not free of damage or not
in good repair, regardless of the Transferor's knowledge, the Seller shall cause
the Transferor to (x) substitute or purchase the related Home Loan in accordance
with clauses (i) and (ii), respectively, above or (y) repair any such Mortgaged
Property such that such Mortgaged Property is free of damage and in good repair.
The Transferor shall provide the Servicer, the Securities Insurer, the Indenture
Trustee and the Owner Trustee with a certification of a Responsible Officer on
the Determination Date next succeeding the end of such 60 day period indicating
whether the Transferor is purchasing the Defective Home Loan or substituting in
lieu of such Defective Home Loan a Qualified Substitute Home Loan. With respect
to the purchase of a Defective Home Loan pursuant to this Section, the "Purchase
Price" shall be equal to the Principal Balance of such Defective Home Loan as of
the date of purchase, plus all accrued and unpaid interest on such Defective
Home Loan to but not including the Due Date in the Due Period most recently
ended prior to such Determination Date computed at the applicable Home Loan
Interest Rate, plus the amount of any unreimbursed Servicing Advances made by
the Servicer with respect to such Defective Home Loan, which Purchase Price
shall be deposited in the Collection Account (after deducting therefrom any
amounts received in respect of such repurchased Defective Home Loan and being
held in the Collection Account for future distribution to the extent such
amounts represent recoveries of principal not yet applied to reduce the related
Principal Balance or interest (net of the Servicing Fee) for the period from and
after the Due Date in the Due Period most recently ended prior to such
Determination Date).
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Any substitution of Home Loans pursuant to this Section 3.05(a) and
Section 2.06(c) shall be accompanied by payment by the Transferor of the
Substitution Adjustment, if any, to be deposited in the Collection Account. For
purposes of calculating the Available Remittance Amount for any Distribution
Date, amounts paid by the Transferor pursuant to this Section 3.05 in connection
with the repurchase or substitution of any Defective Home Loan that are on
deposit in the Collection Account as of the Determination Date for such
Distribution Date shall be deemed to have been paid during the related Due
Period and shall be transferred to the Distribution Account pursuant to Section
5.01(c)(i) on the Determination Date for such Distribution Date.
As to any Deleted Home Loan for which the Transferor substitutes a
Qualified Substitute Home Loan or Loans, the Transferor shall effect such
substitution by delivering to the Owner Trustee (i) a certification executed by
a Responsible Officer of the Transferor to the effect that the Substitution
Adjustment has been credited to the Collection Account and remitted to the
Indenture Trustee for deposit into the Distribution Account, and (ii) the
documents constituting the Issuer's Loan File for such Qualified Substitute Home
Loan or Loans.
In addition to the preceding repurchase obligations, each of the Seller
and the Transferor shall have the option, exercisable in its sole discretion at
any time, to repurchase any Home Loan from the Issuer in the event that such
Home Loan is in foreclosure, default or imminent default; provided that any
repurchase pursuant to this paragraph is conducted in the same manner as the
repurchase of a Defective Home Loan pursuant to this Section 3.05.
(b) The Servicer shall deposit in the Collection Account all payments
received in connection with such Qualified Substitute Home Loan or Loans after
the date of such substitution. Monthly Payments received with respect to
Qualified Substitute Home Loans on or before the date of substitution will be
retained by the Transferor. The Issuer will be entitled to all payments received
on the Deleted Home Loan on or before the date of substitution, and the
Transferor shall thereafter be entitled to retain all amounts subsequently
received in respect of such Deleted Home Loan. The Transferor shall give written
notice to the Owner Trustee, the Servicer (if the Transferor is not then acting
as such), the Indenture Trustee and the Securities Insurer that such
substitution has taken place and shall amend the Home Loan Schedule to reflect
(i) the removal of such Deleted Home Loan from the terms of this Agreement and
(ii) the substitution of the Qualified Substitute Home Loan. The Transferor
shall promptly deliver to the Owner Trustee, the Servicer (if the Transferor is
not then acting as such), the Indenture Trustee and the Securities Insurer a
copy of the amended Home Loan Schedule. Upon such substitution, such Qualified
Substitute Home Loan or Loans shall be subject to the terms of this Agreement in
all respects, and the Transferor shall be deemed to have made with respect to
such Qualified Substitute Home Loan or Loans, as of the date of substitution,
the covenants, representations and warranties set forth in Section 3.03. On the
date of such substitution, the Transferor will deposit into the Collection
Account an amount equal to the Substitution Adjustment, if any.
(c) It is understood and agreed that the obligations of the Transferor
set forth in this Section 3.05 to cure, purchase or substitute for a Defective
Home Loan constitute the sole remedies of the Issuer, the Owner Trustee, the
Indenture Trustee, the Securityholders and the Securities Insurer hereunder
respecting a breach of the representations and warranties contained in Sections
3.03 and 3.04. Any cause of action against the Seller relating to or arising out
of a defect in a Issuer's Home Loan File as contemplated by Section 2.06 or
against the Transferor relating to or arising out of a breach of any
representations and warranties made in Sections 3.03 or 3.04 shall
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accrue as to any Home Loan upon (i) discovery of such defect or breach by any
party and notice thereof to the Seller or the Transferor, as applicable, or
notice thereof by the Transferor or the Seller, as applicable, to the Owner
Trustee, (ii) failure by the Transferor or the Seller, as applicable, to cure
such defect or breach or purchase or substitute such Home Loan as specified
above, and (iii) demand upon the Transferor or the Seller, as applicable, by the
Owner Trustee or the Majority Securityholders for all amounts payable in respect
of such Home Loan.
(d) Neither the Owner Trustee nor the Indenture Trustee shall have any
duty to conduct any affirmative investigation other than as specifically set
forth in this Agreement as to the occurrence of any condition requiring the
repurchase or substitution of any Home Loan pursuant to this Section or the
eligibility of any Home Loan for purposes of this Agreement.
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 4.01 Duties of the Servicer.
(a) Servicing Standard. The Servicer, as an independent contractor,
shall service and administer the Home Loans and shall have full power and
authority, acting alone, to do any and all things in connection with such
servicing and administration which the Servicer may deem necessary or desirable
and consistent with the terms of this Agreement. Notwithstanding anything to the
contrary contained herein, the Servicer, in servicing and administering the Home
Loans, shall employ or cause to be employed procedures (including collection,
foreclosure, liquidation and Foreclosure Property management and liquidation
procedures) and exercise the same care that it customarily employs and exercises
in servicing and administering loans of the same type as the Home Loans for its
own account, all in accordance with accepted servicing practices of prudent
lending institutions and servicers of loans of the same type as the Home Loans
and giving due consideration to the Securityholders' and the Securities
Insurer's reliance on the Servicer. The Servicer has and shall maintain the
facilities, procedures and experienced personnel necessary to comply with the
servicing standard set forth in this subsection (a) and the duties of the
Servicer set forth in this Agreement relating to the servicing and
administration of the Home Loans. Consistent with the terms of this Agreement,
the Servicer may, with the prior written consent of the Owner Trustee and the
Indenture Trustee, with respect to any material obligations hereunder which
consent shall not be unreasonably withheld, employ or retain agents or contract
with third parties to aid in the performance of the Servicer's obligations
hereunder; provided, however, that the Servicer shall remain obligated for all
actions taken by such agents or third parties.
(b) Servicing Advances. In accordance with the preceding general
servicing standard, the Servicer, or any Subservicer on behalf of the Servicer,
shall make all reasonable and necessary Servicing Advances in connection with
the servicing of each Home Loan hereunder. Notwithstanding any provision to the
contrary herein, neither the Servicer, nor any Subservicer on behalf of the
Servicer, shall have any obligation to advance its own funds for any delinquent
scheduled payments of principal and interest on any Home Loan or to satisfy or
keep current the indebtedness secured by any Superior Liens on the related
Mortgaged Property. No costs incurred by the Servicer or any Subservicer in
respect of Servicing Advances shall, for the purposes of distributions to
Securityholders, be added to the amount owing under the related Home Loan.
Notwithstanding any obligation by the Servicer to make a Servicing Advance
hereunder with respect
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to a Home Loan, before making any Servicing Advance that is material in relation
to the outstanding principal balance thereof, the Servicer shall assess the
reasonable likelihood of (i) recovering such Servicing Advance and any prior
Servicing Advances for such Home Loan, and (ii) recovering any amounts
attributable to outstanding interest and principal owing on such Home Loan for
the benefit of the Securityholders and the Securities Insurer in excess of the
costs, expenses and other deductions to obtain such recovery, including without
limitation any Servicing Advances therefor and, if applicable, the outstanding
indebtedness of all Superior Liens. The Servicer shall only make a Servicing
Advance with respect to a Home Loan to the extent that the Servicer determines
in its reasonable, good faith judgment that such Servicing Advance would likely
be recovered as aforesaid.
(c) Waivers, Modifications and Extensions. Consistent with the terms of
this Agreement, the Servicer may waive, modify or vary any provision of any Home
Loan or consent to the postponement of strict compliance with any such provision
or in any manner grant indulgence to any Obligor if in the Servicer's reasonable
determination such waiver, modification, postponement or indulgence is not
materially adverse to the interests of the Securityholders or the Securities
Insurer; provided, however, unless the Obligor is in default with respect to the
Home Loan, or such default is, in the judgment of the Servicer, reasonably
foreseeable, the Servicer may not permit any modification with respect to any
Home Loan that would change the Home Loan Interest Rate, defer (subject to the
following paragraph) or forgive the payment of any principal or interest (unless
in connection with the liquidation of the related Home Loan) or extend the final
maturity date on the Home Loan. The Servicer may grant a waiver or enter into a
subordination agreement with respect to the refinancing of a Superior Lien on
the related Mortgaged Property, provided that the Obligor is in a better
financial or cash flow position as a result of such refinancing, which may
include a reduction in the Obligor's scheduled monthly payment on the
indebtedness secured by such Superior Lien. The Servicer shall notify the Owner
Trustee and the Indenture Trustee of any modification, waiver or amendment of
any provision of any Home Loan and the date thereof, and shall deliver to the
Custodian for deposit in the related Issuer's Home Loan File, an original
counterpart of the agreement relating to such modification, waiver or amendment
promptly following the execution thereof. Notwithstanding the preceding
provisions of this subsection (c), if the Home Loans that have been waived,
modified or varied, in the aggregate, equal or exceed two percent (2%) of the
aggregate Principal Balances of the Initial Home Loans as of the related Cut-Off
Date, then any waiver, modification or variance of any Home Loan thereafter
shall be subject to the prior written consent of the Securities Insurer.
The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of each Home Loan and the related Debt
Instrument and Mortgage, if applicable. Consistent with the foregoing, the
Servicer may in its discretion waive or permit to be waived any late payment
charge, prepayment charge or assumption fee or any other fee or charge which the
Servicer would be entitled to retain hereunder as Servicing Compensation and
extend the due date for payments due on a Debt Instrument for a period (with
respect to each payment as to which the due date is extended) not greater than
90 days after the initially scheduled due date for such payment, provided that
such extension would not result in an extension of the final maturity date of
such Debt Instrument.
(d) Instruments of Satisfaction or Release. Without limiting the
generality of the foregoing, the Servicer is hereby authorized and empowered to
execute and deliver on behalf of the Issuer, the Owner Trustee, the Indenture
Trustee, each Securityholder and the Securities Insurer, all instruments of
satisfaction or cancellation, or of partial or full release, discharge and all
other
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comparable instruments, with respect to the Home Loans and with respect to the
related Mortgaged Properties. If reasonably required by the Servicer, the Owner
Trustee shall furnish the Servicer with any powers of attorney and other
documents necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties under this Agreement.
Section 4.02 Liquidation of Home Loans.
(a) In the event that any payment due under any Home Loan and not
postponed pursuant to Section 4.01(c) is not paid when the same becomes due and
payable, or in the event the Obligor fails to perform any other covenant or
obligation under the Home Loan and such failure continues beyond any applicable
grace period, the Servicer shall take such action as it shall deem to be in the
best interest of the Securityholders and the Securities Insurer. Without
limiting the generality of the preceding sentence, the Servicer shall, in
accordance with the standard of care specified in Section 4.01(a), take such
other action as the Servicer shall deem to be in the best interests of the
Securityholders and the Securities Insurer (including the resale or substitution
of such Home Loan pursuant to Section 3.05, or, if no Superior Liens exist on
the related Mortgaged Property, foreclose or otherwise comparably effect
ownership in such Mortgaged Property in the name of the Issuer for the benefit
of Securityholders and the Securities Insurer). The Servicer shall give the
Indenture Trustee and the Owner Trustee notice of the election of remedies made
pursuant to this Section 4.02. The Servicer shall not be required to satisfy the
indebtedness secured by any Superior Liens on the related Mortgaged Property or
to advance funds to keep the indebtedness secured by such Superior Liens
current. In connection with any collection or foreclosure activities, the
Servicer shall exercise collection or foreclosure procedures with the same
degree of care and skill as it would exercise or use under the circumstances in
the conduct of its own affairs.
(b) During any Due Period occurring after a Home Loan becomes a
Liquidated Home Loan, the Servicer shall deposit into the Collection Account any
proceeds received by it with respect to such Liquidated Home Loan or the related
Foreclosure Property ("Post Liquidation Proceeds").
(c) After a Home Loan has become a Liquidated Home Loan, the Servicer
shall promptly prepare and forward to the Owner Trustee, the Indenture Trustee,
the Securities Insurer and, upon request of any Securityholder, to such
Securityholder a Liquidation Report detailing the following: (i) the Net
Liquidation Proceeds, Insurance Proceeds or Released Mortgaged Property Proceeds
received in respect of such Liquidated Home Loan; (ii) expenses incurred with
respect thereto; (iii) any Net Principal Loan Losses incurred in connection
therewith; and (iv) any Post Liquidation Proceeds.
Section 4.03 Fidelity Bond; Errors and Omission Insurance.
The Servicer shall maintain with a responsible company, and at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy in
such amounts as required by, and satisfying any other requirements of, the FHA
and the FHLMC, with broad coverage on all officers, employees or other persons
acting in any capacity requiring such persons to handle funds, money, documents
or papers relating to the Home Loans ("Servicer Employees"). Any such fidelity
bond and errors and omissions insurance shall protect and insure the Servicer
against losses, including losses resulting from forgery, theft, embezzlement,
fraud, errors and omissions and negligent acts (including acts relating to the
origination and servicing of loans of the same type as the Home Loans) of such
Servicer Employees. Such fidelity bond shall also protect and insure the
Servicer against
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losses in connection with the release or satisfaction of a Home Loan without
having obtained payment in full of the indebtedness secured thereby. In the
event of any loss of principal or interest on a Home Loan for which
reimbursement is received from the Servicer's fidelity bond or errors and
omissions insurance, the proceeds from any such insurance will be deposited in
the Collection Account. No provision of this Section 4.03 requiring such
fidelity bond and errors and omissions insurance shall diminish or relieve the
Servicer from its duties and obligations as set forth in this Agreement. Upon
the request of the Owner Trustee, the Indenture Trustee or the Securities
Insurer, the Servicer shall cause to be delivered to requesting party a
certified true copy of such fidelity bond and insurance policy. On the Closing
Date, such fidelity bond and insurance is maintained by the Servicer with
Reliance Insurance Company of Illinois.
Section 4.04 Title, Management and Disposition of Foreclosure Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (a "Foreclosure Property"), the
deed or certificate of sale shall be taken in the name of the Issuer for the
benefit of the Securityholders.
The Servicer shall manage, conserve, protect and operate each
Foreclosure Property for the Issuer, the Securityholders and the Securities
Insurer solely for the purpose of its prudent and prompt disposition and sale.
The Servicer shall, either itself or through an agent selected by the Servicer,
manage, conserve, protect and operate the Foreclosure Property in the same
manner that it manages, conserves, protects and operates other foreclosure
property for its own account, and in the same manner that similar property in
the same locality as the Foreclosure Property is managed. The Servicer shall
attempt to sell the same (and may temporarily lease the same) on such terms and
conditions as the Servicer deems to be in the best interest of the
Securityholders and the Securities Insurer.
The disposition of Foreclosure Property shall be carried out by the
Servicer at such price, and upon such terms and conditions, as the Servicer
deems to be in the best interest of the Issuer, the Securityholders and the
Securities Insurer and, as soon as practicable thereafter, the expenses of such
sale shall be paid. The Net Liquidation Proceeds or Post Liquidation Proceeds,
as applicable, from the conservation, disposition and sale of the Foreclosure
Property shall be promptly deposited by the Servicer in the Collection Account
for distribution to the Securityholders in accordance with the Indenture or the
Trust Agreement, as applicable, which Net Liquidation Proceeds or Post
Liquidation Proceeds, as applicable, shall equal all cash amounts received with
respect thereto less the amounts retained and withdrawn by the Servicer for any
related unreimbursed Servicing Advances and any other fees and expenses incurred
in connection with such Foreclosure Property.
Section 4.05 Access to Certain Documentation and Information Regarding
the Home Loans.
The Servicer shall provide to the Owner Trustee, the Indenture Trustee,
the Securityholders, the Securities Insurer and the supervisory agents and
examiners of each of the foregoing access to the documentation regarding the
Home Loans required by applicable state and federal regulations, such access
being afforded without charge but only upon reasonable request and during normal
business hours at the offices of the Servicer designated by it.
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Section 4.06 Superior Liens.
(a) The Servicer shall file (or cause to be filed) of record a request
for notice of any action by a lienholder under a Superior Lien for the
protection of the Issuer'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.
(b) If the Servicer is notified that any lienholder under a Superior
Lien has accelerated or intends to accelerate the obligations secured by such
Superior Lien, or has declared or intends to declare a default under the related
mortgage or promissory note secured thereby, or has filed or intends to file an
election to have any Mortgaged Property sold or foreclosed, the Servicer shall
take, on behalf of the Trust, all reasonable actions that are necessary to
protect the interests of the Securityholders and the Securities Insurer, and/or
to preserve the security of the related Home Loan, including making any
Servicing Advances that are necessary to cure the default or reinstate the
Superior Lien. The Servicer shall immediately notify the Owner Trustee and the
Indenture Trustee of any such action or circumstances. Any Servicing Advances by
the Servicer pursuant to its obligations in this Section 4.06 shall comply with
requirements set forth in Section 4.01(b) hereof.
Section 4.07 Subservicing.
(a) The Servicer may, with the prior written consent of the Owner
Trustee and the Indenture Trustee, enter into Subservicing Agreements for any
servicing and administration of Home Loans with any institution which is in
compliance with the laws of each state necessary to enable it to perform its
obligations under such Subservicing Agreement and is an Eligible Servicer. The
Servicer shall give prior written notice to the Owner Trustee, the Indenture
Trustee and the Securities Insurer of the appointment of any Subservicer. The
Servicer shall be entitled to terminate any Subservicing Agreement in accordance
with the terms and conditions of such Subservicing Agreement and to either
directly service the related Home Loans or enter into a Subservicing Agreement
with a successor subservicer which qualifies hereunder. Each of the Owner
Trustee, the Indenture Trustee and Securities Insurer hereby acknowledge and
consent to each Person identified as a Subservicer in the definition of such
term as of the Closing Date.
(b) Notwithstanding any Subservicing Agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Subservicer or reference to actions taken through a Subservicer or
otherwise, the Servicer shall remain obligated and primarily liable to the Owner
Trustee, the Indenture Trustee, the Securities Insurer and Securityholders for
the servicing and administering of the Home Loans in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue of such Subservicing Agreements or arrangements or by virtue of
indemnification from the Subservicer and to the same extent and under the same
terms and conditions as if the Servicer alone were servicing and administering
the Home Loans. For purposes of this Agreement, the Servicer shall be deemed to
have received payments on Home Loans when the Subservicer has actually received
such payments and, unless the context otherwise requires, references in this
Agreement to actions taken or to be taken by the Servicer in servicing the Home
Loans include actions taken or to be taken by a Subservicer on behalf of the
Servicer. The Servicer shall be entitled to enter into any agreement with a
Subservicer for indemnification of the Servicer by such Subservicer, and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.
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(c) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default), the successor Servicer,
on behalf of the Owner Trustee, the Indenture Trustee and the Securityholders
pursuant to Section 4.08, shall thereupon assume all of the rights and
obligations of the Servicer under each Subservicing Agreement that the Servicer
may have entered into, unless the successor Servicer elects to terminate any
Subservicing Agreement in accordance with its terms. The successor Servicer
shall be deemed to have assumed all of the Servicer's interest therein and to
have replaced the Servicer as a party to each Subservicing Agreement to the same
extent as if the Subservicing Agreements had been assigned to the assuming
party, except that the Servicer shall not thereby be relieved of any liability
or obligations under the Subservicing Agreements. The Servicer at its expense
and without right of reimbursement therefor, shall, upon request of the
successor Servicer, deliver to the assuming party all documents and records
relating to each Subservicing Agreement and the Home Loans then being serviced
and an accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Subservicing
Agreements to the assuming party.
(d) As part of its servicing activities hereunder, the Servicer, for
the benefit of the Owner Trustee, the Indenture Trustee, the Securities Insurer
and the Securityholders, shall enforce the obligations of each Subservicer under
the related Subservicing Agreement. Such enforcement, including, without
limitation, the legal prosecution of claims and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Servicer, in its good faith business judgment, would require were it
the owner of the related Home Loans. The Servicer shall pay the costs of such
enforcement at its own expense, and shall be reimbursed therefor only (i) from a
general recovery resulting from such enforcement to the extent, if any, that
such recovery exceeds all amounts due in respect of the related Home Loan or
(ii) from a specific recovery of costs, expenses or attorneys fees against the
party against whom such enforcement is directed.
(e) Any Subservicing Agreement that may be entered into and any other
transactions or services relating to the Home Loans involving a Subservicer in
its capacity as such and not as an originator shall be deemed to be between the
Subservicer and the Servicer alone and none of the Owner Trustee, the Indenture
Trustee, the Securityholders or the Securities Insurer shall be deemed parties
thereto or shall have any claims, rights, obligations, duties or liabilities
with respect to the Subservicer in its capacity as such except as set forth in
Section 4.07(c) above.
Section 4.08 Successor Servicers. In the event that the Servicer is
terminated pursuant to Section 10.01 hereof, or resigns pursuant to Section 9.04
hereof or otherwise becomes unable to perform its obligations under this
Agreement, the Indenture Trustee will become the successor servicer or will
appoint a successor servicer in accordance with the provisions of Section 10.02
hereof; provided that any successor servicer, including the Indenture Trustee,
shall satisfy the requirements of an Eligible Servicer and shall be approved by
the Rating Agencies.
Section 4.09 Title, Management and Disposition of Foreclosure Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (each, a "Foreclosure Property"),
the deed or certificate of sale shall be taken in the name of the Issuer for the
benefit of the Securityholders and the Securities Insurer.
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The Servicer shall manage, conserve, protect and operate each
Foreclosure Property for the Securityholders and the Securities Insurer solely
for the purpose of its prudent and prompt disposition and sale. The Servicer
shall, either itself or through an agent selected by the Servicer, manage,
conserve, protect and operate the Foreclosure Property in the same manner that
it manages, conserves, protects and operates other foreclosure property for its
own account, and in the same manner that similar property in the same locality
as the Foreclosure Property is managed. The Servicer shall attempt to sell the
same (and may temporarily rent the same) on such terms and conditions as the
Servicer deems to be in the best interest of the Securityholders and the
Securities Insurer.
The disposition of Foreclosure Property shall be carried out by the
Servicer at such price, and upon such terms and conditions, as the Servicer
deems to be in the best interest of the Securityholders and the Securities
Insurer and, as soon as practicable thereafter, the expenses of such sale shall
be paid. The Net Liquidation Proceeds or Post Liquidation Proceeds, as
applicable, from the conservation, disposition and sale of the Foreclosure
Property shall be promptly deposited by the Servicer in the Collection Account
for distribution in accordance with Section 5.01(c), which Net Liquidation
Proceeds or Post Liquidation Proceeds, as applicable, shall equal all cash
amounts received with respect thereto less the amounts retained and withdrawn by
the Servicer for any related unreimbursed Servicing Advances and any other fees
and expenses incurred in connection with such Foreclosure Property.
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Establishment of Collection Accounts; Deposits in
Collection Accounts; Withdrawals from the Collection Account.
(a) The Servicer, for the benefit of the Securityholders, shall cause
to be established and maintained one or more Collection Accounts, which shall be
Eligible Accounts, which may be interest-bearing, entitled "FIRST TRUST OF
CALIFORNIA, NATIONAL ASSOCIATION, IN TRUST FOR THE BENEFICIAL OWNERS OF
FIRSTPLUS HOME LOAN OWNER TRUST 19 - ASSET-BACKED NOTES AND ASSET-BACKED
CERTIFICATES, SERIES 19 - , COLLECTION ACCOUNT". The Collection Account may be
maintained with the Indenture Trustee or any other depository institution which
satisfies the requirements set forth in the definition of Eligible Account. The
creation of any Collection Account other than one maintained with the Indenture
Trustee shall be evidenced by a letter agreement between the Servicer and the
depository institution. A copy of such letter agreement shall be furnished to
the Owner Trustee, Indenture Trustee, the Securities Insurer and, upon request
of any Securityholder, to such Securityholder.
(b) The Servicer shall use its best efforts to deposit or cause to be
deposited (without duplication) within one (1) Business Day, and shall in any
event deposit within two (2) Business Days, of receipt thereof in the Collection
Account and retain therein:
(i) all payments on account of principal on the Home Loans
collected after the applicable Cut-Off Date;
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(ii) all payments on account of interest on the Home Loans
collected after the applicable Cut-Off Date;
(iii) all Net Liquidation Proceeds and Post Liquidation Proceeds
pursuant to Sections 4.02 or 4.07;
(iv) all Insurance Proceeds;
(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the repurchase of
any Home Loan and the amount of any Substitution Adjustment pursuant to
Sections 2.06 and 3.05;
(vii) any amount required to be deposited in the Collection
Account pursuant to the receipt of proceeds from any fidelity bond or
errors and omission insurance under Section 4.03 or the deposit of the
Termination Price under Section 11.02; and
(viii) interest and gains on funds held in the Collection Account.
The foregoing requirements for deposit in the Collection Account shall
be exclusive.
(c) On the Business Day prior to each Distribution Date, the Servicer
(based on the information contained in the Servicer's Monthly Remittance Report
for such Distribution Date) shall make or cause to be made the following
deposits and distributions from the Collection Account by 11:00 a.m. (New York
City time), to the extent of the Available Collection Amount, in the following
order of priority:
(i) to the Securities Insurer, an amount equal to the Guaranty
Insurance Premium;
(ii) in the following order: (a) to the Indenture Trustee, an
amount equal to the Indenture Trustee Fee and all unpaid Indenture
Trustee Fees from prior Due Periods, (b) to the Owner Trustee, an
amount equal to the Owner Trustee Fee and all unpaid Owner Trustee Fees
from prior Due Periods, and (c) to the Custodian, an amount equal to
the Custodian Fee and all unpaid Custodian Fees from prior Due Periods;
(iii) to the Note Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) and
(ii) above, the Noteholders' Interest Distributable Amount;
(iv) to the Note Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i)
through (iii) above, the Noteholders' Principal Distributable Amount;
(v) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i)
through (iv) above, the Certificateholders' Interest Distributable
Amount;
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(vi) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i)
through (v) above, the Certificateholders' Principal Distributable
Amount;
(vii) to the holder of the Residual Interest, the Total
Distribution Amount, if any, remaining after the application of clauses
(i) through (vi) above.
Notwithstanding that the Notes have been paid in full, the Indenture
Trustee shall continue to maintain the Collection Account hereunder until the
Certificate Balance is reduced to zero.
(d) The Servicer shall also make or cause to be made the following
investments in and/or withdrawals from the Collection Account, in no particular
order of priority:
(i) to invest amounts on deposit in the Collection Account in
Permitted Investments pursuant to Section 5.07 hereof;
(ii) to pay itself Servicing Compensation pursuant to Section
7.03 hereof and to pay itself any accrued but unpaid Servicing Fees;
(iii) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error; and
(iv) to clear and terminate the Collection Account in connection
with the termination of this Agreement.
The Servicer shall not retain any cash or investment in the Collection
Account for a period in excess of 12 months and cash therein shall be considered
transferred to the Note Distribution Account on a first-in, first-out basis.
(e) So long as no Event of Default shall have occurred and be
continuing, the funds held in the Collection Account may be invested (to the
extent practicable and consistent with any requirements of the Code) in
Permitted Investments, as directed to the Servicer in writing or by telephone or
facsimile transmission confirmed in writing by the Seller. In any case, funds in
the Collection Account must be available for withdrawal without penalty, and any
Permitted Investments must mature or otherwise be available for withdrawal, not
later than one Business Day immediately preceding the Distribution Date next
following the date of such investment and shall not be sold or disposed of prior
to its maturity. All interest and any other investment earnings on amounts or
investments held in the Collection Account shall be deposited into the
Collection Account immediately upon receipt by the Servicer. All Permitted
Investments in which funds in the Collection Account are invested must be held
by or registered in the name of "FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION, IN TRUST FOR THE BENEFICIAL OWNERS OF FIRSTPLUS HOME LOAN OWNER
TRUST 19_-_ ASSET-BACKED NOTES AND ASSET-BACKED CERTIFICATES, SERIES 19_-_".
Section 5.02 Initial Collection Account; Transfer of Collection
Account.
Pursuant to Section 5.01, the Collection Account shall be established,
as of the Closing Date, with __________________________, as an Eligible Account
pursuant to the definition thereof. The
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Collection Account may, upon written notice to the Owner Trustee and the
Indenture Trustee, be transferred to a different depository institution so long
as such transfer is to an Eligible Account.
Section 5.03 Pre-Funding Account.
(a) No later than the Closing Date, the Servicer, for the benefit of
the Securityholders, shall establish and maintain with the Indenture Trustee one
or more Eligible Accounts entitled "PRE- FUNDING ACCOUNT, FIRST TRUST OF
CALIFORNIA, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE FOR THE BENEFICIAL OWNERS
OF THE FIRSTPLUS HOME LOAN OWNER TRUST 19__-__ ASSET-BACKED NOTES AND
ASSET-BACKED CERTIFICATES, SERIES 19__-__". On the Closing Date, the Owner
Trustee, on behalf of the Seller, shall cause the Pre-Funding Account Deposit to
be deposited into the Pre- Funding Account from the proceeds of the sale of the
Securities. On any Subsequent Transfer Date, the Servicer shall instruct the
Indenture Trustee to: (i) withdraw from the Pre-Funding Account an amount equal
to the Subsequent Purchase Price for the Subsequent Home Loans sold to the
Issuer on such Subsequent Transfer Date pursuant to a Subsequent Transfer
Agreement; and (ii) pay such amount to or upon the order of the Seller upon
satisfaction of the conditions set forth in Section 2.02 of this Agreement with
respect to such transfer.
(b) So long as no Event of Default shall have occurred and be
continuing, amounts held in the Pre-Funding Account shall be invested in
Permitted Investments of the type specified in clause (vii) of the definition of
Permitted Investments, which Permitted Investments shall mature on the Business
Day following the purchase date of such investments or upon demand. The
Indenture Trustee shall not be liable for any losses on amounts invested in
accordance with the provisions hereof (except to the extent that the Indenture
Trustee is the obligor and has defaulted on such investments). Any losses
realized in connection with any such investment shall be for the account of the
Seller, and the Seller shall deposit the amount of such loss (to the extent not
offset by income from other investments) in the Pre-Funding Account immediately
upon the realization of such loss. All interest and any other investment
earnings on amounts held in the Pre-Funding Account shall be taxed to the Seller
and for federal and state income tax purposes the Seller shall be deemed to be
the owner of the Pre-Funding Account. All interest and any other investment
earnings on amounts or investments held in the Pre-Funding Account shall be
deposited into the Capitalized Interest Account on each Distribution Date.
(c) If the Pre-Funding Account has not been reduced to zero by the
close of business on the date on which the Funding Period ends, the Servicer
shall direct the Indenture Trustee to deposit any amounts remaining in the
Pre-Funding Account (net of reinvestment earnings which shall be transferred to
the Capitalized Interest Account) into the Note Distribution Account and the
Certificate Distribution Account on the Business Day immediately preceding the
Pre-Funding Termination Distribution Date for distribution to the
Securityholders pro rata based on the Class Principal Balance of the Note and
the Certificate Principal Balance of the Certificates. Amounts that are
transferred to the Note Distribution Account or the Certificate Distribution
Account from the Pre-Funding Account pursuant to this Section 5.03(c) may not be
invested in Permitted Investments or other investments after being transferred
into the Note Distribution Account or the Certificate Distribution Account.
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Section 5.04 Capitalized Interest Account.
(a) No later than the Closing Date, the Servicer, for the benefit of
the Securityholders, shall establish and maintain with the Indenture Trustee one
or more Eligible Accounts entitled "CAPITALIZED INTEREST ACCOUNT, FIRST TRUST OF
CALIFORNIA, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE FOR FIRSTPLUS HOME LOAN
OWNER TRUST 19___-___ ASSET-BACKED NOTES AND ASSET- BACKED CERTIFICATES, SERIES
19 ___-___ ". On the Closing Date, the Owner Trustee, on behalf of the Seller,
shall cause the Capitalized Interest Account Deposit to be deposited into the
Capitalized Interest Account from the proceeds of the sale of the Securities.
The Indenture Trustee shall hold the Capitalized Interest Account Deposit for
the benefit of the Securityholders and the Securities Insurer. On the Business
Day preceding each Distribution Date during the Funding Period and on the first
Distribution Date occurring after the Due Period in which the Funding Period
ends, the Servicer shall instruct the Indenture Trustee to withdraw from the
Capitalized Interest Account and deposit into the Note Distribution Account
and/or the Certificate Distribution Account the Interest Shortfall, if any, with
respect to such Distribution Date.
(b) So long as no Event of Default shall have occurred and be
continuing, amounts held in the Capitalized Interest Account shall be invested
in Permitted Investments of the type specified in clause (vii) of the definition
of Permitted Investments, which Permitted Investments shall mature no later than
the third Business Day prior to the Distribution Date. The Indenture Trustee
shall not be liable for any losses on amounts invested in accordance with the
provisions hereof (except to the extent that the Indenture Trustee is the
obligor and has defaulted on such investments). All interest and other
investment earnings on amounts held in the Capitalized Interest Account shall be
retained by the Indenture Trustee in the Capitalized Interest Account until
distributed pursuant to this Section and for federal and state income tax
purposes the Seller shall be deemed to be the owner of the Capitalized Interest
Account including, for such purposes, the recognition of income from such
earnings. Any losses realized in connection with any such investment shall be
for the account of the Seller, and the Seller and the Transferor shall deposit
into the Capitalized Interest Account an amount in cash equal to the amount of
any such loss (to the extent not offset by income from other investments)
immediately upon the realization of such loss. All amounts earned on amounts on
deposit in the Capitalized Interest Account shall be taxed to the Seller.
(c) On any Business Day occurring prior to the last Business Day of
each Due Period that occurs prior to __________________, 19__ the Transferor and
the Seller may deposit with the Indenture Trustee a letter of credit issued by a
financial institution, and in a form, approved by the Securities Insurer and the
Rating Agencies in an amount equal to any positive difference between the
Capitalized Interest Account Requirement and the Capitalized Interest Amount as
of any date of determination occurring prior to such Business Day, and the
Indenture Trustee shall notify the Securities Insurer of the receipt of such
letter of credit. The failure to deposit such letter of credit in respect of any
such difference before the close of business on the last Business Day of each
Due Period that occurs prior to __________________, 19__ will cause the Funding
Period to end as of the last day of such Due Period. On any Business Day
occurring prior to the last Business Day of each Due Period that occurs prior to
__________________, 19__, the Transferor and the Seller may request the Servicer
to calculate the Capitalized Interest Account Requirement as of such Business
Day; provided that if no such request has been received during a Due Period then
the Servicer shall calculate the Capitalized Interest Account Requirement on the
last Business Day of such Due Period to determine whether the Funding Period
will end pursuant to the preceding sentence. Any amounts
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remaining in the Capitalized Interest Account at the end of the Funding Period
and not used as described above will be distributed to the Seller, including any
net reinvestment income thereon.
(d) On any Business Day occurring prior to the last Business Day of
each Due Period that occurs prior to ________________, 19__ , the Transferor and
the Seller may request the Servicer to calculate the amount, if any, of the
Capitalized Interest Excess. If the Capitalized Interest Excess is greater than
zero on any such Business Day prior to ________________, 19__ , such Capitalized
Interest Excess will be released to the Seller on the following Distribution
Date. On the Distribution Date following the Due Period in which the Funding
Period ends, the Servicer shall instruct the Indenture Trustee to release and
distribute to the Seller the Capitalized Interest Amount, if any, that remains
after the distribution of any Interest Shortfall on such Distribution Date.
Section 5.05 Establishment of Note Distribution Account; Investment of
Funds Held in Note Distribution Account.
(a) No later than the Closing Date, the Servicer, for the benefit of
the Securityholders, will establish and maintain with the Indenture Trustee one
or more Eligible Accounts entitled "NOTE DISTRIBUTION ACCOUNT, FIRST TRUST OF
CALIFORNIA, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE FOR FIRSTPLUS HOME LOAN
OWNER TRUST 19 ___-___ ASSET-BACKED NOTES AND ASSET-BACKED CERTIFICATES, SERIES
19 ___-___ ". On each Distribution Date, the Indenture Trustee shall distribute
the Noteholders' Distributable Amount from the Note Distribution Account in
accordance with Section ___ of the Indenture.
(b) So long as no Event of Default shall have occurred and be
continuing, the funds held in the Note Distribution Account may be invested (to
the extent practicable and consistent with any requirements of the Code) in
Permitted Investments, as directed to the Indenture Trustee in writing or by
telephone or facsimile transmission confirmed in writing by the Servicer. In any
case, funds in the Note Distribution Account must be available for withdrawal
without penalty, and any Permitted Investments must mature or otherwise be
available for withdrawal, not later than one Business Day immediately preceding
the Distribution Date next following the date of such investment and shall not
be sold or disposed of prior to its maturity. All interest and other investment
earnings on amounts or investments held in the Note Distribution Account shall
be deposited into the Note Distribution Account immediately upon receipt by the
Indenture Trustee. All Permitted Investments in which funds in the Distribution
Account are invested must be held by or registered in the name of "FIRST TRUST
OF CALIFORNIA, NATIONAL ASSOCIATION, IN TRUST FOR THE BENEFICIAL OWNERS OF
FIRSTPLUS HOME LOAN OWNER TRUST 19 ___-___ ASSET-BACKED NOTES AND ASSET-BACKED
CERTIFICATES, SERIES 19 ___-___ ".
Section 5.06 Reserve Account.
(a) No later than the Closing Date, the Servicer, for the benefit of
the Securityholders, will establish and maintain with the Indenture Trustee one
or more Eligible Accounts entitled "RESERVE ACCOUNT, FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION, IN TRUST FOR FIRSTPLUS HOME LOAN OWNER TRUST 19 ___-___
ASSET BACKED NOTES AND ASSET BACKED CERTIFICATES, SERIES 19 ___-___ ". On the
Closing Date, the Owner Trustee will deposit, on behalf of the Seller, the
Reserve Account Initial Deposit into the Reserve Account from the net proceeds
of the sale of the Notes and the Certificates. On the Closing Date, the Reserve
Account Initial Deposit will be equal to the Reserve Account Requirement. So
long as no Event of Default shall have occurred and be
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continuing, the funds held in the Reserve Account may be invested (to the extent
practicable and consistent with any requirements of the Code) in Permitted
Investments, as directed to the Indenture Trustee in writing or by telephone or
facsimile transmission confirmed in writing by the Servicer. In any case, funds
in the Reserve Account must be available for withdrawal without penalty, and any
Permitted Investments must mature or otherwise be available for withdrawal, not
later than one Business Day immediately preceding the Distribution Date next
following the date of such investment and shall not be sold or disposed of prior
to its maturity. All interest and other investment earnings on amounts or
investments held in the Reserve Account shall be deposited into the Reserve
Account immediately upon receipt by the Indenture Trustee.
(b) On any Business Day occurring after _________________, 19__ , the
Transferor and the Seller may deposit with the Indenture Trustee a limited
guaranty issued by an affiliate of the Transferor and the Seller or a letter of
credit issued by a financial institution in an amount equal to any positive
difference between the Reserve Account Requirement and the Reserve Account
Amount as of any date of determination occurring prior to such Business Day,
provided that such limited guaranty or such letter of credit is in a form
approved by the Securities Insurer and the Rating Agencies. The Indenture
Trustee shall notify the Securities Insurer of the receipt of any such limited
guaranty or letter of credit.
(c) If the amount on deposit in the Reserve Account on any Distribution
Date (after giving effect to all deposits thereto or withdrawals therefrom on
such Distribution Date) is greater than the Reserve Account Requirement for such
Distribution Date (such amount "the Excess Reserve Account Amount"), the
Servicer shall first instruct the Indenture Trustee to cause a reduction in the
amount available under the limited guaranty or letter of credit, if any, until
(A) the Excess Reserve Account Amount is reduced to zero or (B) the amount
available under the limited guaranty or letter of credit is reduced to zero.
After any limited guaranty or letter of credit has been reduced to zero, the
Servicer shall instruct the Indenture Trustee to distribute any Excess Reserve
Account Amount to the holder of the residual interest until the Excess Reserve
Account Amount is reduced to zero.
(d) The Servicer shall cause the amount of the Reserve Account
Requirement to be reduced incrementally (i.e., dollar-for-dollar) each time the
Overcollateralization Level is increased as a result of the application of
Excess Spread to the principal amount of the Securities until the
Overcollateralization Level equals the Required Overcollateralization Level and
the Reserve Fund Requirement is reduced to zero. Once the Reserve Account
Requirement is reduced to zero, the Servicer shall direct the Indenture Trustee
to distribute any amounts remaining in the Reserve Account to the holder of the
Residual Interest.
(e) If the Servicer determines pursuant to Section 4.01(b) that it is
required to make an Advance on a Determination Date and does not do so from its
own funds, the Servicer shall instruct the Indenture Trustee to withdraw funds
from the Reserve Account and deposit them in the Collection Account to cover any
shortfall. Such payment shall be deemed to have been made by the Servicer
pursuant to Section 4.01(b) for purposes of making distributions pursuant to
this Agreement, but shall not otherwise satisfy the Servicer's obligation to
deliver the amount of the Advances, and the Servicer shall within two Business
Days replace any funds in the Reserve Account so used.
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(f) (i) In the event that the Required Distribution Amount for a
Distribution Date exceeds the Available Collection Amount on such
Distribution Date, the Servicer shall instruct the Indenture
Trustee to withdraw from the Reserve Account on such Distribution
Date an amount equal to the Deficiency Amount, to the extent of
funds available therein and deposit such amount into the Note
Distribution Account and/or the Certificate Distribution Account,
as applicable.
(ii) In the event that the Total Distribution Amount on the
Final Scheduled Distribution Date for a Class of Notes or the
Certificates exceeds the amount deposited into the Note
Distribution Account and/or the Certificate Distribution Account
pursuant to Section 5.01(c) on such Distribution Date, the
Servicer shall instruct the Indenture Trustee to withdraw from the
Reserve Account on such Distribution Date an amount equal to such
excess, to the extent of funds available therein and deposit such
amount into the Note Distribution Account and/or the Certificate
Distribution Account, as applicable.
(g) Following the payment in full of the aggregate outstanding
Principal Balance of the Notes and the Certificates and of all other amounts
owing or to be distributed hereunder or under the Indenture or the Trust
Agreement to the Securityholders and the termination of the Trust, any amount
remaining on deposit in the Reserve Account shall be distributed to the holder
of the Residual Interest and any Permitted Investments in the Reserve Account
shall be transferred to the holder of the Residual Interest.
Section 5.07 Trust Account Property.
(a) The Indenture Trustee shall possess all right, title and interest
in all funds on deposit from time to time in the Trust Accounts and in all
proceeds thereof (including all income thereon) and all such funds, investments,
proceeds and income shall be part of the Trust Account Property. The Trust
Accounts shall be under the sole dominion and control of the Indenture Trustee
for the benefit of the Noteholders, the Owner Trustee and the
Certificateholders, as the case may be. If, at any time, any of the Trust
Accounts ceases to be an Eligible Account, the Indenture Trustee (or the
Servicer on its behalf) shall within 10 Business Days (or such longer period,
not to exceed 30 calendar days, as to which each Rating Agency may consent)
establish a new Trust Account as an Eligible Account and shall transfer any cash
and/or any investments to such new Trust Account.
(b) If any amounts are needed for disbursement from any Trust Account
held by or on behalf of the Indenture Trustee and sufficient uninvested funds
are not available to make such disbursement, the Indenture Trustee shall cause
to be sold or otherwise converted to cash a sufficient amount of the investments
in such Trust Account. The Indenture Trustee shall not be liable for any
investment loss or other charge resulting therefrom unless the Indenture
Trustee's failure to perform in accordance with this Section 5.07 is the cause
of such loss or charge.
(c) Subject to Section 12.01 hereof, the Indenture Trustee shall not
in any way be held liable by reason of any insufficiency in any Account held by
the Indenture Trustee resulting from any investment loss on any Permitted
Investment included therein (except to the extent that the Indenture Trustee is
the obligor and has defaulted thereon).
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(d) With respect to the Trust Account Property, the Indenture Trustee
agrees, by its acceptance hereof, that:
(i) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Accounts, subject to
the last sentence of Section 5.07(a); and each such Eligible
Account shall be subject to the exclusive custody and control of
the Indenture Trustee, and the Indenture Trustee shall have sole
signature authority with respect thereto;
(ii) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee in accordance
with paragraph (a) of the definition of "Delivery" and shall be
held, pending maturity or disposition, solely by the Indenture
Trustee or a financial intermediary (as such term is defined in
Section 8-313(4) of the UCC) acting solely for the Indenture
Trustee;
(iii) any Trust Account Property that is a book-entry
security held through the Federal Reserve System pursuant to
federal book-entry regulations shall be delivered in accordance
with paragraph (b) of the definition of "Delivery" and shall be
maintained by the Indenture Trustee, pending maturity or
disposition, through continued book-entry registration of such
Trust Account Property as described in such paragraph; and
(iv) any Trust Account Property that is an "uncertificated
security" under Article VIII of the UCC and that is not governed
by clause (C) above shall be delivered to the Indenture Trustee in
accordance with paragraph (c) of the definition of "Delivery" and
shall be maintained by the Indenture Trustee, pending maturity or
disposition, through continued registration of the Indenture
Trustee's (or its nominee's) ownership of such security.
(e) The Servicer shall have the power, revocable by the Indenture
Trustee or by the Owner Trustee with the consent of the Indenture Trustee, to
instruct the Indenture Trustee to make withdrawals and payments from the Trust
Accounts for the purpose of permitting the Servicer or the Owner Trustee to
carry out its respective duties hereunder or permitting the Indenture Trustee to
carry out its duties under the Indenture.
ARTICLE VI
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Statements.
(a) No later than each Determination Date, the Servicer shall deliver
to the Indenture Trustee and the Securities Insurer, by facsimile, the receipt
and legibility of which shall be confirmed telephonically, and with hard copy
thereof to be delivered no later than one (1) Business Day after
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such Determination Date, the Servicer's Monthly Remittance Report, setting forth
the date of such Report (day, month and year), the name of the Issuer (i.e.
"FIRSTPLUS Home Loan Owner Trust 19___-___"), the Series designation of the
Securities (i.e. "Series 19___-___"), and the date of this Agreement.
Furthermore, no later than each Determination Date, the Servicer shall deliver
to the Indenture Trustee a magnetic tape or computer disk providing such
information regarding the Servicer's activities in servicing the Home Loans
during the related Due Period as the Indenture Trustee may reasonably require.
(b) On each Distribution Date, the Servicer shall prepare and the
Indenture Trustee shall distribute a monthly statement (the "Servicer's Monthly
Statement") to the Seller, the Securityholders, the Beneficial Owners (who have
notified the Indenture Trustee by delivery of an Investment Letter to the
Indenture Trustee), the Securities Insurer and the Rating Agencies, stating the
date of original issuance of the Securities (day, month and year), the name of
the Issuer (i.e. "FIRSTPLUS Home Loan Owner Trust 19___-___"), the series
designation of the Certificates (i.e. "Series 19___-___"), the date of this
Agreement and the following information:
(i) the Available Collection Amount and Required Distribution
Amount for the related Distribution Date;
(ii) the Class Principal Balance of each Class of Notes, the
Certificate Principal Balance of the Certificates, and the Pool
Principal Balance (including, until the Funding Period ends, the amount
remaining in the Pre-Funding Account and the Capitalized Interest
Account as of such Distribution Date) as of the first day of the
related Due Period and after giving effect to distributions made to the
holders of such Securities on such Distribution Date;
(iii) the Class Pool Factor with respect to each Class of Notes
then outstanding and the Certificate Pool Factor with respect to the
Certificates then outstanding;
(iv) the amount of principal and interest received on the Home
Loans during the related Due Period;
(v) the Noteholders' Distributable Amount and the
Certificateholders' Distributable Amount;
(vi) the amount, if any, of the Excess Overcollateralization
Amount and, if applicable, the Overcollateralization Reduction Amount
or any other amount to be distributed to the Securityholders or the
holder of the Residual Interest on such Distribution Date;
(vii) the Servicing Fee, the Indenture Trustee Fee, the Owner
Trustee Fee, the Custodian Fee, if any, and the Guaranty Insurance
Premium for such Distribution Date;
(viii) the Overcollateralization Level on such Distribution
Date, the Required Overcollateralization Level as of such Distribution
Date, the Net Principal Loan Losses incurred during the related Due
Period and the cumulative Net Principal Loan Losses as of such
Distribution Date;
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(ix) the Reserve Account Requirement and the amount remaining
on deposit in the Reserve Account on such Distribution Date after
giving effect to the distributions made to Securityholders on such
Distribution Date;
(x) the weighted average maturity of the Home Loans and the
weighted average Home Loan Interest Rate of the Home Loans;
(xi) certain performance information, including delinquency
and foreclosure information with respect to the Home Loans, as set
forth in the Servicer's Monthly Remittance Report;
(xii) the amount of any Guaranteed Payment included in the
amounts distributed to the Noteholders on such Distribution Date;
(xiii) as identified with respect to the each Insured Security,
the amount of any Securities Insurer Reimbursement Amount to be
distributed to the Securities Insurer on such Distribution Date and the
amount of any Securities Insurer Reimbursement Amount remaining
unsatisfied following such distribution;
(xiv) the number of and aggregate Principal Balance of all Home
Loans in foreclosure proceedings (other than any Home Loans described
in clause (xv)) and the percent of the aggregate Principal Balances of
such Home Loans to the aggregate Principal Balances of all Home Loans,
all as of the close of business on the first day of the related Due
Period;
(xv) the number of and the aggregate Principal Balance of the
Home Loans in bankruptcy proceedings (other than any Home Loans
described in clause (xvi)) and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all
Home Loans, all as of the close of business on the first day of the
related Due Period;
(xvi) the number of Foreclosure Properties, the aggregate
Principal Balance of the related Home Loans, the book value of such
Foreclosure Properties and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all
Home Loans, all as of the close of business on the first day of the
related Due Period;
(xvii) the aggregate Principal Balance of Home Loans that became
Defaulted Home Loans and the aggregate Principal Balance of Home Loans
that became Liquidated Home Loans during the related Due Period,
including the foregoing amounts by loan type (i.e. Combination Loans,
Debt Consolidation Loans and Home Improvement Loans);
(xviii) the cumulative aggregate Principal Balance of Home Loans
that became Defaulted Home Loans and the cumulative aggregate Principal
Balance of Home Loans that became Liquidated Home Loans from the
Closing Date through the most current Due Period, including the
foregoing amounts by loan type (i.e. Combination Loans, Debt
Consolidation Loans and Home Improvement Loans); and
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(xix) the scheduled principal payments and the principal
prepayments received with respect to the Home Loans during the Due
Period.
All reports prepared by the Servicer of the withdrawals from and
deposits in the Collection Account will be based in whole or in part upon the
information provided to the Indenture Trustee by the Servicer, and the Indenture
Trustee may fully rely upon and shall have no liability with respect to such
information provided by the Servicer.
(c) Within a reasonable period of time after the end of each calendar
year, the Servicer shall prepare and direct the Indenture Trustee to distribute
to each Person who at any time during the calendar year was a Securityholder,
such information as is reasonably necessary to provide to such Person a
statement containing the information set forth in subclauses (b)(iv) and (v)
above, aggregated for such calendar year or applicable portion thereof during
which such Person was a Securityholder. Such obligation of the Indenture Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Servicer to the Securityholders
pursuant to any requirements of the Code as are in force from time to time.
(d) On each Distribution Date, the Indenture Trustee shall forward to
the holder of the Residual Interest a copy of the Servicer's Monthly Statement
in respect of such Distribution Date and a statement setting forth the amounts
actually distributed to such holder of the Residual Interest on such
Distribution Date, together with such other information as the Indenture Trustee
deems necessary or appropriate.
(e) Within a reasonable period of time after the end of each calendar
year, the Servicer shall prepare and direct the Indenture Trustee to distribute
to each Person who at any time during the calendar year was a holder of Residual
Interest, if requested in writing by such Person, such information as is
reasonably necessary to provide to such Person a statement containing the
information provided pursuant to the previous paragraph aggregated for such
calendar year or applicable portion thereof during which such Person was a
holder of Residual Interest. Such obligation of the Indenture Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Servicer to the holder of Residual Interest
pursuant to any requirements of the Code as are in force from time to time.
(f) Upon reasonable advance notice in writing, the Servicer will
provide to each Securityholder which is a savings and loan association, bank or
insurance company access to information and documentation regarding the Home
Loans sufficient to permit such Securityholder to comply with applicable
regulations of the FDIC or other regulatory authorities with respect to
investment in such Securities.
(g) The Servicer or its agent shall furnish to the Indenture Trustee,
who in turn shall forward to each Securityholder and the holder of Residual
Interest, during the term of this Agreement, such periodic, special, or other
reports, including information tax returns or reports required with respect to
the Securities and the Residual Interest, including Internal Revenue Service
Forms 1099 and (if instructed in writing by the Seller on the basis of the
advice of legal counsel) Form 1066, Schedule Q and other similar reports that
are required to be filed by the Servicer or its agent and the holder of Residual
Interest, whether or not provided for herein, as shall be necessary, reasonable,
or appropriate with respect to the Securityholders or the holder of Residual
Interest, or otherwise with respect to the purposes of this Agreement, all such
reports or information to be
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provided by and in accordance with such applicable instructions and directions
as the Securityholders or the holder of Residual Interest may reasonably
require.
(h) Reports and computer tapes furnished by the Servicer and the
Indenture Trustee pursuant to this Agreement shall be deemed confidential and of
proprietary nature, and shall not be copied or distributed except in connection
with the purposes and requirements of this Agreement. No Person entitled to
receive copies of such reports or tapes shall use the information therein for
the purpose of soliciting the customers of the Seller or the Servicer or for any
other purpose except as set forth in this Agreement.
Section 6.02 Reports of Foreclosure and Abandonment of Mortgaged
Property.
Each year beginning in 19 the Servicer, at its expense, shall make
the reports of foreclosures and abandonments of any Mortgaged Property required
by Section 6050J of the Code. The reports from the Servicer shall be in form and
substance sufficient to meet the reporting requirements imposed by such Section
6050J of the Code.
Section 6.03 Specification of Certain Tax Matters.
Each Securityholder shall provide the Indenture Trustee with a
completed and executed Form W-9 prior to purchasing a Security. The Indenture
Trustee shall comply with all requirements of the Code, and applicable state and
local law, with respect to the withholding from any distributions made to any
Securityholder of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection therewith.
ARTICLE VII
GENERAL SERVICING PROCEDURE
Section 7.01 Assumption Agreements.
When a Mortgaged Property has been or is about to be conveyed by the
Obligor, the Servicer shall, to the extent it has knowledge of such conveyance
or prospective conveyance, exercise its rights to accelerate the maturity of the
related Home Loan under any "due-on-sale" clause contained in the related
Mortgage or Debt Instrument; provided, however, that the Servicer shall not
exercise any such right if the "due-on-sale" clause, in the reasonable belief of
the Servicer, is not enforceable under applicable law. In such event or in the
event the related Mortgage and Debt Instrument do not contain a "due-on-sale"
clause, the Servicer shall enter into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable under the Debt Instrument and,
unless prohibited by applicable law or the Mortgage Documents, the Obligor
remains liable thereon. The Servicer is also authorized to enter into a
substitution of liability agreement with such person, pursuant to which the
original Obligor is released from liability and such person is substituted as
Obligor and becomes liable under the Debt Instrument. The Servicer shall notify
the Custodian that any such substitution or assumption agreement has been
completed by forwarding to the Custodian the original of such substitution or
assumption agreement, which original shall be added by the Custodian to the
related Issuer's Home Loan File and shall, for all purposes, be considered a
part of such Issuer's Home Loan
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File to the same extent as all other documents and instruments constituting a
part thereof. In connection with any assumption or substitution agreement
entered into pursuant to this Section 7.01, the Servicer shall not change the
Home Loan Interest Rate or the Monthly Payment, defer or forgive the payment of
principal or interest, reduce the outstanding principal amount or extend the
final maturity date on such Home Loan. Any fee collected by the Servicer for
consenting to any such conveyance or entering into an assumption or substitution
agreement shall be retained by or paid to the Servicer as additional Servicing
Compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Home Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 7.02 Satisfaction of Mortgages and Release of Home Loan Files.
Subject to the provisions of Sections 4.01 and 4.02, the Servicer shall
not grant a satisfaction or release of a Mortgage without having obtained
payment in full of the indebtedness secured by the Mortgage or otherwise
prejudice any right the Securityholders or the Securities Insurer may have under
the mortgage instruments. The Servicer shall maintain the fidelity bond and
errors and omissions insurance as provided for in Section 4.03 insuring the
Servicer against any loss it may sustain with respect to any Home Loan not
satisfied in accordance with the procedures set forth herein.
Upon the payment in full of any Home Loan, or the receipt by the
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Servicer will immediately notify the Custodian
by an Officers' Certificate (which certificate shall include a statement to the
effect that all amounts received or to be received in connection with such
payment which are required to be deposited in the Collection Account pursuant to
Section 5.01(b) have been or will be so deposited) of a Servicing Officer and
shall request delivery to it of the Issuer's Home Loan File. Upon receipt of
such certification and request, the Custodian shall promptly release the related
Issuer's Home Loan File to the Servicer. Expenses incurred in connection with
any instrument of satisfaction or deed of reconveyance shall be payable only
from and to the extent of Servicing Compensation and shall not be chargeable to
the Collection Account or the Distribution Account. Upon receipt by the
Custodian of the certification of a Servicing Officer with respect to the
release of the Issuer's Home Loan File for any Home Loan or any documents
included therein, the Custodian shall release to the Servicer such Issuer's Home
Loan File and shall deliver such instruments of transfer presented to it by the
Servicer as shall be necessary or appropriate for the release of such Issuer's
Home Loan File in accordance with such certification of the Servicing Officer;
provided that in the case of a release of the related Issuer's Home Loan File in
connection with a substitution or repurchase of any Home Loan pursuant to
Section 2.06(c) and (d), Section 3.05 or Section 11.02 or a release for other
servicing reasons, such release of the Issuer's Home Loan File by the Custodian
shall be subject to the prior approval of the Indenture Trustee.
The Owner Trustee shall execute and deliver to the Servicer any court
pleadings, requests for trustee's sale or other documents necessary to the
foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal
action brought to obtain judgment against any Obligor on the Debt Instrument or
Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or
rights provided by the Debt Instrument or Mortgage or otherwise available at law
or in equity.
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Together with such documents or pleadings, the Servicer shall deliver to the
Owner Trustee a certificate of a Servicing Officer requesting that such
pleadings or documents be executed by the Owner Trustee and certifying as to the
reason such documents or pleadings are required and that the execution and
delivery thereof by the Owner Trustee will not invalidate or otherwise affect
the lien of the Mortgage, except for the termination of such a lien upon
completion of the foreclosure or trustee's sale. The Owner Trustee shall, upon
receipt of a written request from a Servicing Officer, execute any document
provided to the Owner Trustee by the Servicer or take any other action requested
in such request that is, in the opinion of the Servicer as evidenced by such
request, required by any state or other jurisdiction to discharge the lien of a
Mortgage upon the satisfaction thereof and the Owner Trustee will sign and post,
but will not guarantee receipt of, any such documents to the Servicer, or such
other party as the Servicer may direct, within five Business Days, or more
promptly if needed, of the Owner Trustee's receipt of such certificate or
documents. Such certificate or documents shall establish to the Owner Trustee's
satisfaction that the related Home Loan has been paid in full by or on behalf of
the Obligor and that such payment has been deposited in the Collection Account.
Subject to any other applicable terms and conditions of this Agreement,
the Owner Trustee and Servicer shall be entitled to approve an assignment in
lieu of satisfaction with respect to any Home Loan, provided the obligee with
respect to such Home Loan following such proposed assignment provides the Owner
Trustee and Servicer with a "Certification for Assignment of Home Loan" in form
and substance satisfactory to the Owner Trustee and Servicer, providing the
following: (i) that the Home Loan is secured by Mortgaged Property located in a
jurisdiction in which an assignment in lieu of satisfaction is required to
preserve lien priority, minimize or avoid mortgage recording taxes or otherwise
comply with or facilitate a refinancing under the laws of such jurisdiction;
(ii) that the substance of the assignment is, and is intended to be, a
refinancing of such Home Loan and that the form of the transaction is solely to
comply with or facilitate the transaction under such local laws; (iii) that the
Home Loan following the proposed assignment will have a rate of interest at
least 0.25 percent below or above the rate of interest on such Home Loan prior
to such proposed assignment; and (iv) that such assignment is at the request of
the borrower under the related Home Loan. Upon approval of an assignment in lieu
of satisfaction with respect to any Home Loan, the Servicer shall receive cash
in an amount equal to the unpaid principal balance of and accrued interest on
such Home Loan and the Servicer shall treat such amount as a Principal
Prepayment with respect to such Home Loan for all purposes hereof.
Section 7.03 Servicing Compensation.
As compensation for its services hereunder, the Servicer shall be
entitled to withdraw from the Collection Account, the Servicing Fee out of which
the Servicer shall pay any servicing fees owed or payable to any Subservicer.
Additional servicing compensation in the form of assumption and other
administrative fees, amounts remitted pursuant to Section 7.01 and late payment
charges shall be retained by or remitted to the Servicer to the extent not
required to be remitted to the Indenture Trustee for deposit in the Distribution
Account.
The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein. The Servicer
also agrees to pay (i) all reasonable costs and expenses incurred by the
Indenture Trustee, the Owner Trustee or the Seller in investigating the
Servicer's activities hereunder when, in the reasonable opinion of the Indenture
Trustee, the Owner
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Trustee or the Seller, such investigation is warranted on the basis of adverse
information about the Servicer obtained from a reasonably reliable source, (ii)
all reasonable costs and expenses incurred by any successor servicer or the
Indenture Trustee in replacing the Servicer in the event of a default by the
Servicer in the performance of its duties under the terms and conditions of this
Agreement, and (iii) the annual Rating Agency monitoring fees.
Section 7.04 Quarterly Statements as to Compliance.
Not later than the last day of the second month following the end of
each quarter of the Servicer's Fiscal Year, beginning in , 19 , the
Servicer will deliver to the Indenture Trustee, the Owner Trustee, the
Securities Insurer and to each Securityholder, an Officer's Certificate stating
that (i) the Servicer has fully complied with the provisions of Articles V and
VII, (ii) a review of the activities of the Servicer during the preceding
quarter and of performance under this Agreement has been made under such
officer's supervision, and (iii) to the best of such officers' knowledge, based
on such review, the Servicer has fulfilled all its obligations under this
Agreement throughout such quarter, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof and the action being taken by the
Servicer to cure such default.
Section 7.05 Annual Independent Public Accountants' Servicing Report.
On or before 120 days after the end of each of the Servicer's fiscal
years elapsing during the term of its appointment under this Agreement,
beginning with the first fiscal year ending after the Closing Date, the
Servicer, at its expense, shall furnish to the Seller, the Indenture Trustee,
the Owner Trustee, the Securityholders, the Securities Insurer and the Rating
Agencies (i) an opinion by a firm of independent certified public accountants on
the financial position of the Servicer at the end of the relevant fiscal year
and the results of operations and changes in financial position of the Servicer
for such year then ended on the basis of an examination conducted in accordance
with generally accepted auditing standards, and (ii) if the Servicer is then
servicing any Home Loans, a statement from such independent certified public
accountants to the effect that based on an examination of certain specified
documents and records relating to the servicing of the Servicer's loan portfolio
conducted substantially in compliance with the audit program for mortgages
serviced for the United States Department of Housing and Urban Development
Mortgage Audit Standards, or the Uniform Single Attestation Program for Mortgage
Bankers (the "Applicable Accounting Standards"), such firm is of the opinion
that such servicing has been conducted in compliance with the Applicable
Accounting Standards except for (a) such exceptions as such firm shall believe
to be immaterial and (b) such other exceptions as shall be set forth in such
statement.
Section 7.06 Right to Examine Servicer Records.
Each Securityholder, the Indenture Trustee, the Owner Trustee, the
Securities Insurer and each of their respective agents shall have the right upon
reasonable prior notice, during normal business hours and as often as reasonably
required, to examine, audit and copy, at the expense of the Person making such
examination, any and all of the books, records or other information of the
Servicer (including without limitation any Subservicer to the extent provided in
the related Subservicing Agreement) whether held by the Servicer or by another
on behalf of the Servicer, which may be relevant to the performance or
observance by the Servicer of the terms, covenants or conditions of this
Agreement. Each Securityholder, the Indenture Trustee, the Owner Trustee and
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the Securities Insurer agree that any information obtained pursuant to the terms
of this Agreement shall be held confidential.
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements.
If the Collection Account is not maintained with the Indenture Trustee,
then not later than 25 days after each Record Date, the Servicer shall forward
to the Indenture Trustee, the Securities Insurer and to each Majority
Securityholder a statement, certified by a Servicing Officer, setting forth the
status of the Collection Account as of the close of business on the preceding
Record Date and showing, for the period covered by such statement, the aggregate
of deposits into the Collection Account for each category of deposit specified
in Section 5.01(b), the aggregate of withdrawals from the Collection Account for
each category of withdrawal specified in Section 5.01(c) and (d) and the
aggregate amount of permitted withdrawals not made in the related Due Period in
each case, for the related Due Period.
ARTICLE VIII
REPORTS TO BE PROVIDED BY SERVICER
Section 8.01 Financial Statements.
The Servicer understands that, in connection with the transfer of the
Securities, Securityholders may request that the Servicer make available to the
Beneficial Owners and/or Securityholders and to prospective Beneficial Owners
and/or Securityholders annual audited financial statements of the Servicer for
one or more of the most recently completed five fiscal years for which such
statements are available, which request shall not be unreasonably denied.
The Servicer also agrees to make available on a reasonable basis to the
Beneficial Owners and/or Securityholders, and any prospective Beneficial Owners
and/or Securityholder a knowledgeable financial or accounting officer for the
purpose of answering reasonable questions respecting recent developments
affecting the Servicer or the financial statements of the Servicer and to permit
the Beneficial Owners and/or Securityholders and any prospective Beneficial
Owners and/or Securityholder to inspect the Servicer's servicing facilities
during normal business hours for the purpose of satisfying the Beneficial Owners
and/or Securityholders and such prospective Beneficial Owners and/or
Securityholder that the Servicer has the ability to service the Home Loans in
accordance with this Agreement.
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Servicer agrees to indemnify and hold the Indenture Trustee,
the Owner Trustee, the Seller, the Securities Insurer and each Securityholder
harmless from and against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the Indenture Trustee, the Owner Trustee, the Seller, the
Securities Insurer or any Securityholder may sustain directly resulting from the
negligence or willful
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misconduct of the Servicer in the performance of its duties hereunder or in the
servicing of the Home Loans in compliance with the terms of this Agreement. IT
IS THE EXPRESS INTENTION OF THE PARTIES TO THIS AGREEMENT THAT THE
INDEMNIFICATION AND HOLD HARMLESS OBLIGATIONS OF THE SERVICER SET FORTH IN THE
PRECEDING SENTENCE SHALL APPLY FULLY TO CLAIMS, LOSSES, ETC. RESULTING FROM ACTS
OR OMISSIONS THAT MAY CONSTITUTE ORDINARY NEGLIGENCE ON THE PART OF THE
SERVICER. The Servicer shall not be liable or responsible for any of the
representations, covenants, warranties, responsibilities, duties or liabilities
of any prior Servicer. The Servicer shall immediately notify the Indenture
Trustee, the Owner Trustee, the Seller, the Securities Insurer and each
Securityholder if a claim is made by a third party with respect to this
Agreement, and the Servicer shall assume (with the consent of the Indenture
Trustee and the Owner Trustee) the defense of any such claim and advance all
expenses in connection therewith, including reasonable counsel fees, and
promptly advance funds to pay, discharge and satisfy any judgment or decree
which may be entered against the Servicer, the Indenture Trustee, the Owner
Trustee, the Seller, the Securities Insurer and/or any Securityholder in respect
of such claim.
(b) The Seller agrees to indemnify and hold the Indenture Trustee, the
Owner Trustee, the Servicer, the Securities Insurer and each Securityholder
harmless from and against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the Indenture Trustee, the Owner Trustee, the Servicer, the
Securities Insurer or any Securityholder may sustain directly resulting from the
negligence or willful misconduct of the Seller in the performance of its duties
hereunder or in compliance with the terms of this Agreement. IT IS THE EXPRESS
INTENTION OF THE PARTIES TO THIS AGREEMENT THAT THE INDEMNIFICATION AND HOLD
HARMLESS OBLIGATIONS OF THE SELLER SET FORTH IN THE PRECEDING SENTENCE SHALL
APPLY FULLY TO CLAIMS, LOSSES, ETC. RESULTING FROM ACTS OR OMISSIONS THAT MAY
CONSTITUTE ORDINARY NEGLIGENCE ON THE PART OF THE SELLER. The Seller shall
immediately notify the Indenture Trustee, the Owner Trustee, the Servicer, the
Securities Insurer and each Securityholder if a claim is made by a third party
with respect to this Agreement, and the Seller shall assume (with the consent of
the Indenture Trustee and the Owner Trustee) the defense of any such claim and
advance all expenses in connection therewith, including reasonable counsel fees,
and promptly advance funds to pay, discharge and satisfy any judgment or decree
which may be entered against the Seller, the Servicer, the Indenture Trustee,
the Owner Trustee, the Securities Insurer and/or any Securityholder in respect
of such claim.
(c) The Transferor agrees to indemnify and hold the Indenture Trustee,
the Owner Trustee, the Servicer, the Securities Insurer and each Securityholder
harmless from and against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the Indenture Trustee, the Owner Trustee, the Servicer, the
Securities Insurer or any Securityholder may sustain directly resulting from the
negligence or willful misconduct of the Transferor in the performance of its
duties hereunder or in compliance with the terms of this Agreement. IT IS THE
EXPRESS INTENTION OF THE PARTIES TO THIS AGREEMENT THAT THE INDEMNIFICATION AND
HOLD HARMLESS OBLIGATIONS OF THE TRANSFEROR SET FORTH IN THE PRECEDING SENTENCE
SHALL APPLY FULLY TO CLAIMS, LOSSES, ETC. RESULTING FROM ACTS OR OMISSIONS THAT
MAY CONSTITUTE ORDINARY NEGLIGENCE ON THE PART OF THE TRANSFEROR. The Transferor
shall immediately notify the Indenture Trustee, the Owner Trustee, the Servicer,
the Securities Insurer and each Securityholder if a claim is made by a third
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party with respect to this Agreement, and the Transferor shall assume (with the
consent of the Indenture Trustee and the Owner Trustee) the defense of any such
claim and advance all expenses in connection therewith, including reasonable
counsel fees, and promptly advance funds to pay, discharge and satisfy any
judgment or decree which may be entered against the Transferor, the Servicer,
the Indenture Trustee, the Owner Trustee, the Securities Insurer and/or any
Securityholder in respect of such claim.
(d) The obligations of the Servicer, the Seller and the Transferor
under this Section 9.01 shall survive the termination of this Agreement.
Section 9.02 Merger or Consolidation of the Servicer.
The Servicer shall keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation and maintain such other licenses and
permits, in each jurisdiction necessary to protect the validity and
enforceability of this Agreement or any of the Home Loans and to perform its
duties under this Agreement.
Any Person into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee, the Owner
Trustee and the Securities Insurer.
Section 9.03 Limitation on Liability of the Servicer and Others.
The Servicer and any director, officer, employee or agent of the
Servicer may rely on any document of any kind which it in good faith reasonably
believes to be genuine and to have been adopted or signed by the proper
authorities respecting any matters arising hereunder. Subject to the terms of
Section 9.01 herein, the Servicer shall have no obligation to appear with
respect to, prosecute or defend any legal action which is not incidental to the
Servicer's duty to service the Home Loans in accordance with this Agreement.
Section 9.04 Servicer Not to Resign; Assignment.
(a) The Servicer shall not resign from the obligations and duties
hereby imposed on it except by mutual consent of the Servicer, the Seller, the
Indenture Trustee, the Owner Trustee, the Securities Insurer and the Majority
Securityholders, or upon the determination that the Servicer's duties hereunder
are no longer permissible under applicable law and such incapacity cannot be
cured by the Servicer. Any such determination permitting the resignation of the
Servicer shall be evidenced by a written opinion of counsel (who may be an
employee of the Servicer) to such effect delivered to the Indenture Trustee, the
Owner Trustee, the Securities Insurer and the Seller, which opinion of counsel
shall be in form and substance acceptable to the Indenture Trustee, the Owner
Trustee and the Securities Insurer. No such resignation shall become effective
until the Indenture Trustee or a successor servicer has assumed the Servicer's
responsibilities and obligations hereunder in accordance with Section 10.02.
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(b) The Servicer shall not assign this Agreement or any of its
obligations, rights and duties hereunder without the prior written consent the
Seller, the Indenture Trustee, the Owner Trustee, the Securities Insurer and the
Majority Securityholders; provided, however, the Servicer may assign this
Agreement without the prior written consent of the Seller, the Indenture
Trustee, the Owner Trustee, the Securities Insurer and the Majority
Securityholders to (i) the Indenture Trustee or (ii) any Person that (A) is
satisfactory to the Indenture Trustee, the Owner Trustee, the Securities Insurer
and the Majority Securityholders, (B) services not less than $25,000,000 in
aggregate outstanding principal amount of loans similar in type to the Home
Loans, (C) has a net worth of not less than $ , (D) has a blanket
fidelity bond and errors and omissions insurance coverage satisfying the
requirements set forth in Section 4.03 and (E) will not cause any rating of any
Class of the Securities in effect immediately prior to such assignment to be
qualified, downgraded or withdrawn, as evidenced by a letter from each Rating
Agency to such effect. Any such assignment to a successor servicer (other than
the Indenture Trustee) shall be effective only upon delivery to the Indenture
Trustee, the Owner Trustee and the Securities Insurer of an agreement, duly
executed by the Servicer and such successor servicer in a form reasonably
satisfactory to the Indenture Trustee and the Owner Trustee, in which such
successor servicer shall assume the due and punctual performance of each
covenant and condition to be performed or observed by the Servicer hereunder.
Section 9.05 Relationship of Servicer to Owner Trustee and the
Indenture Trustee.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Owner Trustee and the Indenture Trustee
under this Agreement is intended by the parties hereto to be that of an
independent contractor and not of a joint venturer, agent or partner of the
Owner Trustee or the Indenture Trustee.
ARTICLE X
DEFAULT
Section 10.01 Events of Default.
(a) In case one or more of the following Events of Default by the
Servicer shall occur and be continuing, that is to say:
(i) any failure by the Servicer to (1) deposit in the
Collection Account in accordance with Section 5.01(b) any payments in
respect of the Home Loans received by the Servicer no later than the
fourth Business Day following the day on which such payments were
received or (2) remit to the Indenture Trustee the amounts required to
be remitted to the Distribution Account on any Distribution Date
hereunder no later than the first Business Day after receipt from the
Indenture Trustee of notice of such failure; or
(ii) failure by the Servicer duly to observe or perform, in
any material respect, any other covenants, obligations or agreements of
the Servicer as set forth in this Agreement, which failure continues
unremedied for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied and stating
that such notice is a "Notice of Default" hereunder, shall have been
given (a) to the Servicer by the Indenture
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Trustee or the Owner Trustee, or (b) to the Servicer, the Indenture
Trustee or the Owner Trustee by any Securityholder or the Securities
Insurer; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been entered
against the Servicer and such decree or order shall have remained in
force, undischarged or unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings of
or relating to the Servicer or of or relating to all or substantially
all of the Servicer's property; or
(v) the Servicer shall admit in writing its inability to pay
its debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for
the benefit of its creditors, or voluntarily suspend payment of its
obligations; or
(vi) the Majority Securityholders or the Securities Insurer (A)
shall receive notice from the Servicer that the Servicer is no longer
able to discharge its duties under this Agreement or (B) shall
determine, in their reasonable judgment and based upon published
reports (including wire services), which they reasonably believe in
good faith to be reliable, that the Servicer
(1) has experienced a material adverse change in its
business, assets, liabilities, operations, condition
(financial or otherwise) or prospects,
(2) has defaulted on any of its material obligations, or
(3) has ceased to conduct its business in the ordinary
course; or
(vii) as of any Determination Date, the total Expected Loan
Losses (as defined below) exceed (1) commencing in ___________________
up to the fifth (5th) anniversary of the ____________________, 19__
Cut-Off Date, ___% of the sum of the Initial Pool Principal Balance and
the aggregate Principal Balance as of the applicable Cut-Off Dates of
all Subsequent Home Loans conveyed to the Issuer, or (2) thereafter up
to the tenth (10th) anniversary of the ____________________, 19__
Cut-Off Date, ___% of the sum of the Initial Pool Principal Balance and
the aggregate Principal Balance as of the applicable Cut-Off Dates of
all Subsequent Home Loans conveyed to the Issuer (where the "Expected
Loan Losses" shall be the sum of (A) the cumulative Net Loan Losses,
plus (B) ___% of the aggregate Principal Balance of the Home Loans
which are then more than 30 but less than 60 days delinquent, plus (C)
___% of the aggregate Principal Balance of the Home Loans which are
then more than 60 but less than 90 days delinquent, plus (B) ___% of
the aggregate Principal Balance of the Home Loans which are then more
than 90 days delinquent).
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(b) then, and in each and every such case, so long as an Event of
Default shall not have been remedied, the Majority Securityholders, the
Securities Insurer, the Indenture Trustee or the Owner Trustee by notice in
writing to the Servicer may, in addition to whatever rights such Person may have
at law or equity to damages, including injunctive relief and specific
performance, and with the consent of the Securities Insurer (which consent shall
not be unreasonably withheld), terminate all the rights and obligations of the
Servicer under this Agreement and in and to the Home Loans and the proceeds
thereof, as servicer under this Agreement. Upon receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Home Loans or otherwise, shall, subject to Section
10.02, pass to and be vested in a successor servicer acceptable to the
Securities Insurer, or the Indenture Trustee if a successor servicer cannot be
retained in a timely manner, and the successor servicer, or Indenture Trustee,
as applicable, is hereby authorized and empowered to execute and deliver, on
behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments and do or cause to be done all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
including, but not limited to, the transfer and endorsement or assignment of the
Home Loans and related documents. The Servicer agrees to cooperate with the
successor servicer in effecting the termination of the Servicer's
responsibilities and rights hereunder, including, without limitation, the
transfer to the successor servicer for administration by it of all amounts which
shall at the time be credited by the Servicer to each Collection Account or
thereafter received with respect to the Home Loans.
Section 10.02 Indenture Trustee to Act; Appointment of Successor.
On and after the date the Servicer receives a notice of termination
pursuant to Section 10.01, or the Indenture Trustee receives the resignation of
the Servicer evidenced by an opinion of counsel or accompanied by the consents
required by Section 9.04, or the Servicer is removed as servicer pursuant to
this Article X, then, subject to Section 4.08, the Indenture Trustee shall
appoint a successor servicer acceptable to the Securities Insurer to be the
successor in all respects to the Servicer in its capacity as servicer under this
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof; provided, however,
that the successor servicer shall not be liable for any actions of any servicer
prior to it; provided further, however, that if a successor servicer cannot be
retained in a timely manner, the Indenture Trustee shall act as successor
servicer. In the event the Indenture Trustee assumes the responsibilities of the
Servicer pursuant to this Section 10.02, the Indenture Trustee will make
reasonable efforts consistent with applicable law to become licensed, qualified
and in good standing in each Mortgaged Property State the laws of which require
licensing or qualification, in order to perform its obligations as Servicer
hereunder or, alternatively, shall retain an agent who is so licensed, qualified
and in good standing in any such Mortgaged Property State. The successor
servicer shall be obligated to make Servicing Advances hereunder. As
compensation therefor, the successor servicer appointed pursuant to the
following paragraph, shall be entitled to all funds relating to the Home Loans
which the Servicer would have been entitled to receive from the Collection
Account pursuant to Section 5.01(c) and from the Distribution Account pursuant
to the applicable provisions of Section 6.01(b) if the Servicer had continued to
act as servicer hereunder, together with other servicing compensation in the
form of assumption fees, late payment charges or otherwise as provided in
Sections 7.01 and 7.03. The Servicer shall not be entitled to any termination
fee if it is terminated pursuant to Section 10.01, but shall be entitled to any
accrued and unpaid Servicing Fee to the date of termination.
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Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly to the
Indenture Trustee or, at the direction of the Indenture Trustee, to the
successor servicer. The compensation of any successor servicer (including,
without limitation, the Indenture Trustee) so appointed shall be the Servicing
Fees, together with other Servicing Compensation provided for herein. In the
event the Indenture Trustee is required to solicit bids to appoint a successor
servicer, the Indenture Trustee shall solicit, by public announcement, bids from
housing and home finance institutions, banks and mortgage servicing institutions
meeting the qualifications set forth in Section 9.04(b)(ii) above. Such public
announcement shall specify that the successor servicer shall be entitled to the
full amount of the Servicing Fees and Servicing Compensation provided for
herein. Within thirty days after any such public announcement, the Indenture
Trustee shall negotiate and effect the sale, transfer and assignment of the
servicing rights and responsibilities hereunder to the qualified party
submitting the highest qualifying bid. The Indenture Trustee shall deduct from
any sum received by the Indenture Trustee from the successor to the Servicer in
respect of such sale, transfer and assignment all costs and expenses of any
public announcement and of any sale, transfer and assignment of the servicing
rights and responsibilities hereunder and the amount of any unreimbursed
Servicing Advances made by the Indenture Trustee. After such deductions, the
remainder of such sum shall be paid by the Indenture Trustee to the Servicer at
the time of such sale, transfer and assignment to the Servicer's successor. The
Indenture Trustee, the Owner Trustee, any Custodian, the Servicer and any such
successor servicer shall take such action, consistent with this Agreement, as
shall be necessary to effectuate any such succession. The Servicer agrees to
cooperate with the Indenture Trustee and any successor servicer in effecting the
termination of the Servicer's servicing responsibilities and rights hereunder
and shall promptly provide the Indenture Trustee or such successor servicer, as
applicable, all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the Indenture Trustee or such successor servicer, as applicable, all amounts
which then have been or should have been deposited in the Collection Account by
the Servicer or which are thereafter received with respect to the Home Loans.
Neither the Indenture Trustee nor any other successor servicer shall be held
liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it, or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. No appointment of a successor to the Servicer
hereunder shall be effective until written notice of such proposed appointment
shall have been provided by the Indenture Trustee to each Securityholder, the
Owner Trustee, the Seller and the Securities Insurer and, except in the case of
the appointment of the Indenture Trustee as successor to the Servicer (when no
consent shall be required), the Seller, the Majority Securityholders, the Owner
Trustee and the Securities Insurer shall have consented thereto.
Pending appointment of a successor to the Servicer hereunder, the
Indenture Trustee shall act as servicer hereunder as hereinabove provided. In
connection with such appointment and assumption, the Indenture Trustee may make
such arrangements for the compensation of such successor servicer out of
payments on the Home Loans as it and such successor servicer shall agree;
provided, however, that no such compensation shall be in excess of that
permitted the Servicer pursuant to Section 7.03, together with other Servicing
Compensation in the form of assumption fees, late payment charges or otherwise
as provided in this Agreement.
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Section 10.03 Waiver of Defaults.
The Majority Securityholders may with the prior consent of the
Securities Insurer, on behalf of all Securityholders, waive any events
permitting removal of the Servicer as servicer pursuant to this Article X,
provided, however, that the Majority Securityholders may not waive a default in
making a required distribution on a Security or Residual Interest without the
consent of the related Securityholder or holder of the Residual Interest. Upon
any waiver of a past default, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereto except to the extent
expressly so waived.
Section 10.04 Accounting Upon Termination of Servicer.
Upon termination of the Servicer under this Article X, the Servicer
shall, at its own expense:
(a) deliver to its successor or, if none shall yet have been appointed,
to the Indenture Trustee the funds in any Collection Account;
(b) deliver to its successor or, if none shall yet have been appointed,
to the Indenture Trustee all Home Loan Files and related documents and
statements held by it hereunder and a Home Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been appointed,
to the Indenture Trustee, the Owner Trustee, the Securities Insurer and the
Securityholders a full accounting of all funds, including a statement showing
the Monthly Payments collected by it and a statement of monies held in trust by
it for payments or charges with respect to the Home Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Home Loans to its successor and to more fully and definitively
vest in such successor all rights, powers, duties, responsibilities, obligations
and liabilities of the Servicer under this Agreement.
ARTICLE XI
TERMINATION
Section 11.01 Termination.
This Agreement shall terminate upon notice to the Indenture Trustee of
either: (a) the later of the distribution to Securityholders of the final
payment or collection with respect to the last Home Loan, or the disposition of
all funds with respect to the last Home Loan and the remittance of all funds due
hereunder and the payment of all amounts due and payable to the Indenture
Trustee, the Owner Trustee, the Custodian and the Securities Insurer or (b)
mutual consent of the Servicer, the Seller, the Transferor, the Securities
Insurer and all Securityholders in writing.
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Section 11.02 Optional Termination by Holder of Residual Interest or
the Securities Insurer
The holder of the Residual Interest may, at its option, effect an early
redemption or termination of the Offered Securities on or after any Distribution
Date on which the Pool Principal Balance declines to ____% or less of the Pool
Principal Balance of the Initial Home Loans and Subsequent Home Loans conveyed
to the Trust as of the respective Cut-Off Dates. In addition, the holder of the
Residual Interest may, at its option, effect an early redemption or termination
of the Offered Securities on or after any Distribution Date on which the Pool
Principal Balance declines to ____% or less of the Pool Principal Balance of the
Initial Home Loans and Subsequent Home Loan conveyed to the Trust as of the
respective Cut-Off Dates. In connection with any such optional termination, to
the extent that sufficient proceeds are not available from the sale of the Home
Loans or the termination of the Trust, the holder of the Residual Interest will
pay the outstanding fees and expenses, if any, of the Indenture Trustee, the
Owner Trustee, the Securities Insurer, the Custodian, and the Servicer.
In addition, subject to Section 11.03, on any date on or after which
(i) ____% or more (based on Net Principal Loan Losses) of the Home Loans have
become Defaulted Home Loans on a cumulative basis and (ii) the
Overcollateralization Level has been reduced to zero or an amount less than
zero, then the Securities Insurer may, at its option, effect an early retirement
of the Securities and termination of this Agreement.
Any such early retirement and termination by the holder of the Residual
Interest, the Servicer or the Securities Insurer, as applicable, shall be
accomplished by depositing into the Collection Account on the Determination Date
immediately preceding the Distribution Date on which the purchase is to occur
the amount of the Termination Price together with an amount equal to the fees
and expenses of the Indenture Trustee, the Owner Trustee, the Servicer, the
Securities Insurer and any Custodian to be paid pursuant to the preceding
paragraph. On the same day that the Termination Price is deposited into the
Collection Account, the Termination Price and any amounts then on deposit in the
Collection Account (other than any amounts not required to have been deposited
therein pursuant to Section 5.01(b) and any amounts withdrawable therefrom by
the Servicer pursuant to Section 5.01(c)(ii)) shall be transferred to the Note
Distribution Account and/or the Certificate Distribution Account for
distribution to Securityholders on the final Distribution Date; and any amounts
received with respect to the Home Loans and Foreclosure Properties subsequent to
such transfer shall belong to the Servicer or the Securities Insurer, as
applicable. For purposes of calculating the Required Distribution Amount for the
final Distribution Date, amounts transferred to the Note Distribution Account or
the Certificate Distribution Account pursuant to the immediately preceding
sentence on the Determination Date immediately preceding such final Distribution
Date shall in all cases be deemed to have been received during the related Due
Period, and such transfer shall be made pursuant to Section 5.01(c).
Section 11.03 Notice of Termination.
Notice of termination of this Agreement or of early redemption and
retirement of the Securities shall be sent (i) by the Indenture Trustee to the
Noteholders in accordance with Section _____ of the Indenture or (ii) by the
Owner Trustee to the Certificateholders in accordance with Section _____ of the
Trust Agreement.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders.
Except as otherwise specifically provided herein, whenever
Securityholder action, consent or approval is required under this Agreement,
such action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Securityholders if the Majority
Securityholders agree to take such action or give such consent or approval.
Section 12.02 Amendment.
(a) This Agreement may be amended from time to time by the Seller, the
Servicer, the Transferor and the Owner Trustee by written agreement with notice
thereof to the Securityholders, without the consent of any of the
Securityholders, but with the consent of the Securities Insurer, to cure any
error or ambiguity, to correct or supplement any provisions hereof which may be
defective or inconsistent with any other provisions hereof or to add any other
provisions with respect to matters or questions arising under this Agreement;
provided, however, that such action will not adversely affect in any material
respect the interests of the Securityholders. An amendment described above shall
be deemed not to adversely affect in any material respect the interests of the
Securityholders if either (i) an opinion of counsel is obtained to such effect,
or (ii) the party requesting the amendment obtains a letter from each of the
Rating Agencies confirming that the amendment, if made, would not result in the
downgrading or withdrawal of the rating then assigned by the respective Rating
Agency to any Class of Securities then outstanding. Notwithstanding the
preceding, the Securities Insurer shall have the right to modify the definitions
relating to the calculation of the Required Overcollateralization Level without
the requirement of an amendment to this Agreement.
(b) This Agreement may also be amended from time to time by the Seller,
the Servicer, the Transferor and the Owner Trustee by written agreement, with
the prior written consent of the Majority Securityholders and the Securities
Insurer, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement, or of modifying in any
manner the rights of the Securityholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on Home Loans or distributions which are required to be
made on any Security, without the consent of the holders of % of each Class of
Notes or the Certificates affected thereby and the Securities Insurer, (ii)
adversely affect in any material respect the interests of the holders of any
Class of Notes or Certificates in any manner other than as described in (i),
without the consent of the holders of % of such Class of Notes or the
Certificates, or (iii) reduce the percentage of any Class of Notes or the
Certificates, the holders of which are required to consent to any such
amendment, without the consent of the holders of % of such Class of Notes
or the Certificates and the Securities Insurer.
(c) It shall not be necessary for the consent of Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
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Prior to the execution of any amendment to this Agreement, the Owner
Trustee shall be entitled to receive and rely upon an opinion of counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement. The Owner Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Owner Trustee's own rights, duties or
immunities under this Agreement.
Section 12.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the Mortgaged
Properties are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Servicer at the
Securityholders' expense on direction of the Majority Securityholders or the
Securities Insurer, but only when accompanied by an opinion of counsel to the
effect that such recordation materially and beneficially affects the interests
of the Securityholders or is necessary for the administration or servicing of
the Home Loans.
Section 12.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 12.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06 Notices.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by overnight mail, certified mail or registered mail, postage prepaid, to (i)
the Seller, FIRSTPLUS INVESTMENT CORPORATION, 3773 Howard Hughes Parkway, Suite
300N, Las Vegas, Nevada 89109, Attention: Michael Orendorf, or such other
addresses as may hereafter be furnished to the Certificateholders and the other
parties hereto in writing by the Seller, (ii) in the case of the Owner
Trustee,__________________________________, Attention: _____________________, or
such other address as may hereafter be furnished to the Securityholders and the
other parties hereto, (iii) in the case of the Transferor and the Servicer,
FIRSTPLUS FINANCIAL, INC., 1250 Mockingbird Lane, Dallas, Texas 75247-4902,
Attention: Chris Gramlich, or such other address as may hereafter be furnished
to the Securityholders and the other parties hereto in writing by the Servicer
or the Transferor, (iv) in the case of a claim under the Guaranty Policy,
___________________, Attention:______________________, or such other address as
may be furnished to the Securityholders and the other parties hereto in writing
by such Fiscal Agent or the Securities Insurer, (v) in the case of the
Securities Insurer, _________________________,
Attention:_______________________, and (vii) in the case of the Securityholders,
as set forth in the applicable Note Register and Certificate Register. Any such
notices shall be deemed to be effective with respect to any party hereto upon
the
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receipt of such notice by such party, except that notices to the Securityholders
shall be effective upon mailing or personal delivery.
Section 12.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08 No Partnership.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 12.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Transferor, the Seller, the Owner Trustee and the Securityholders
and their respective successors and permitted assigns.
Section 12.11 Headings.
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
Section 12.12 Actions of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Seller, the Servicer or the Owner Trustee. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Seller, the Servicer and the Owner Trustee if made in the manner provided in
this Section.
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(b) The fact and date of the execution by any Securityholder of any
such instrument or writing may be proved in any reasonable manner which the
Seller, the Servicer or the Owner Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Seller, the Servicer, the Owner Trustee or the Securities Insurer in
reliance thereon, whether or not notation of such action is made upon such
Security.
(d) The Seller, the Servicer or the Owner Trustee may require
additional proof of any matter referred to in this Section 12.12 as it shall
deem necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Servicer shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared by the
Servicer hereunder, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Home Loans;
(iii) notice of any termination, replacement, succession, merger
or consolidation of either the Servicer, any Custodian or the Owner
Trustee;
(iv) notice of final payment on the Notes and the Certificates;
(v) notice of any Event of Default;
(vi) copies of the annual independent auditor's report delivered
pursuant to Section 7.05, and copies of any compliance reports
delivered by the Servicer hereunder including Section 7.04; and
(vii) copies of any Servicer's Monthly Statement pursuant to
Section 6.02(b); and
(b) With respect to the requirement of the Servicer to provide
statements, reports and notices to the Rating Agencies such statements, reports
and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to_________________________, Attention:___________________,
(ii) if to_________________________, Attention:___________________, or (iii) if
to_________________________, Attention:___________________.
Section 12.14 Securities Insurer Deemed Owner. Unless a Securities
Insurer Default shall be continuing, the Securities Insurer shall be deemed to
be the holder of % of the outstanding Insured Securities for purpose of
exercising the rights, including the voting rights subject to the provisions of
Section 12.02(b), of the holders of the Insured Securities under this Agreement.
The rights of the Securities Insurer to direct certain actions and consent to
certain actions of the Majority Securityholders hereunder will terminate at such
time as the Class Principal Balances of all Classes of Notes and the Certificate
Principal Balance of the Certificates have been reduced to zero and the
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Securities Insurer has been reimbursed for all Guaranteed Payments and any other
amounts owed under the Guaranty Policy and the Securities Insurer has no further
obligation under the Guaranty Policy.
Section 12.15 Third Party Beneficiary. The parties hereto acknowledge
that the Securities Insurer is an express third party beneficiary hereof
entitled to enforce any rights reserved to it hereunder as if it were actually a
party hereto.
Section 12.16 Suspension and Termination of Securities Insurer's
Rights.
(a) During the continuation of a Securities Insurer Default, rights
granted or reserved to the Securities Insurer hereunder shall vest instead in
the Majority Certificateholders; provided that the Securities Insurer shall be
entitled to any distributions in reimbursement of the Securities Insurer
Reimbursement Amount.
(b) At such time as either (i) the Class Principal Balances of each
Class of Notes or the Certificate Principal Balance of the Certificates have
been reduced to zero or (ii) the Guaranty Policy has been terminated following a
Securities Insurer Default, and in either case of (i) or (ii) the Securities
Insurer has been reimbursed for all Guaranteed Payments and any other amounts
owed under the Guaranty Policy and the Insurance Agreement (and the Securities
Insurer no longer has any obligation under the Guaranty Policy, except for
breach thereof by the Securities Insurer), then the rights and benefits granted
or reserved to the Securities Insurer hereunder (including the rights to direct
certain actions and receive certain notices) shall terminate and the
Securityholders (including in certain instances the Majority Securityholders)
shall be entitled to the exercise of such rights and to receive such benefits of
the Securities Insurer following such termination to the extent that such rights
and benefits are applicable to the Securityholders (including the Majority
Securityholders).
IN WITNESS WHEREOF, the Servicer, the Transferor, the Owner Trustee and
the Seller have caused their names to be signed by their respective officers
thereunto duly authorized, as of the day and year first above written, to this
SALE AND SERVICING AGREEMENT .
FIRSTPLUS HOME LOAN OWNER TRUST 19_-____,
By: ___________________________, as Owner Trustee
By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
FIRSTPLUS INVESTMENT CORPORATION, as
Seller
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By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
FIRSTPLUS FINANCIAL, INC., as Transferor and
Servicer
By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 80
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THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared _______________________________, known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said FIRSTPLUS HOME LOAN
OWNER TRUST 19 ___-___, as Issuer, and that he executed the same as the act of
such corporation for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _____ day of
___________________, 19__.
______________________________________________
Notary Public, State of New York
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared _______________________________, known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said FIRSTPLUS INVESTMENT
CORPORATION, as the Seller, and that he executed the same as the act of such
corporation for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _____ day of
____________________, 19___.
______________________________________________
Notary Public, State of New York
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 81
<PAGE> 90
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared ________________________, known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said FIRSTPLUS FINANCIAL, INC., a Texas
corporation, as the Transferor and Servicer, and that he executed the same as
the act of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _____ day of
____________________, 19___.
______________________________________________
Notary Public, State of New York
SALE AND SERVICING AGREEMENT (Series 19 - ) - Page 82
<PAGE> 1
EXHIBIT 10.8
FORM OF ADMINISTRATION AGREEMENT
Dated as of _____________, 199__
among
FIRSTPLUS HOME LOAN OWNER TRUST 199_-__
(the "Issuer")
and
FIRSTPLUS FINANCIAL, INC.
(the "Administrator")
and
______________________, as Owner Trustee
(the "Owner Trustee")
<PAGE> 2
ADMINISTRATION AGREEMENT dated as of __________, 199__, among
FIRSTPLUS HOME LOAN OWNER TRUST 199_-__, a Delaware business trust (the
"Issuer"), FIRSTPLUS FINANCIAL, INC., a Texas corporation, as administrator
(the "Administration"), and ________________, a ____________ banking
corporation, not in its individual capacity but solely as Indenture Trustee
(the "Indenture Trustee").
W I T N E S S E T H:
WHEREAS the issuer is issuing the Class A-1 ___% Asset Backed Notes,
the Class A-2 ___% Asset Backed Notes and the Class A-3 ___% Asset Backed Notes
(collectively, the "Notes") pursuant to the Indenture dated as of ________,
199_ (as amended and supplemented from time to time, the "Indenture"), between
the Issuer and the Indenture Trustee (capitalized terms used herein and not
defined herein shall have the meanings assigned such terms in the Indenture);
WHEREAS the Issuer has entered into certain agreements in connection
with the issuance of the Notes and of certain beneficial ownership interests of
the Issuer, including (i) a Sale and Servicing Agreement dated as of ________,
199__ (as amended and supplemented from time to the "Sale and Servicing
Agreement"), among the Issuer, FIRSTPLUS FINANCIAL, INC., a Texas corporation,
as transferor and servicer, and FIRSTPLUS INVESTMENT CORPORATION, a Nevada
corporation, as seller (the "Seller"), (ii) Letter of Representations dated
_______, 199__ (as amended and supplemented from time to time, the "Note
Depository Agreement"), among the Issuer, the Indenture Trustee and The
Depository Trust Company relating to the Notes, (iii) Letter of Representations
dated _____, 199__ (as amended and supplemented from time to time, the
"Certificate Depository Agreement"), among the Issuer, the Administrator and
The Depository Trust Company (the Certificate Depository Agreement, together
with the Note Depository Agreement, the "Depository Agreements") and (iv) the
Indenture (the Sale and Servicing Agreement, the Depository Agreements and the
Indenture being hereinafter referred to collectively as the "Related
Agreements");
WHEREAS, pursuant to the Related Agreements, the Issuer and the Owner
Trustee are required to perform certain duties in connection with (a) the Notes
and the collateral therefor pledged pursuant to the Indenture (the
"Collateral") and (b) the beneficial ownership interests in the issuer (the
registered holders of such interests being referred to herein as the "Owners");
WHEREAS the Issuer and the Owner Trustee desire to have the
Administrator perform certain of the duties of the Issuer and the Owner Trustee
referred to in the preceding clause, and to provide such additional services
consistent"' with the terms of this Agreement and the Related Agreements as the
issuer and the Owner Trustee may from time to time request; and
WHEREAS the Administrator has the capacity to provide the services
required hereby and is willing to perform such services for the issuer and the
Owner Trustee on the terms set forth herein.
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<PAGE> 3
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
Section 1. Duties of the Administrator.
(a) Duties with Respect to the Depository Agreements and the
Indenture.
(i) The Administrator agrees to perform all its duties as
Administrator and the duties of the Issuer under the Depository Agreements. In
addition, the Administrator shall consult with the Owner Trustee regarding the
duties of the Issuer under the Indenture and the Depository Agreements. The
Administrator shall monitor the performance of the Issuer and shall advise the
Owner Trustee when action is necessary to comply with the Issuer's duties under
the Indenture and the Depository Agreements. The Administrator shall prepare
for execution by the Issuer or shall cause the preparation by other appropriate
persons of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer to prepare, file or deliver
pursuant to the Indenture and the Depository Agreements. In furtherance of the
foregoing, the Administrator shall take all appropriate action that is the duty
of the Issuer to take pursuant to the Indenture including, without limitation,
such of the foregoing as are required with respect to the following matters
under the Indenture (references are to sections of the Indenture):
(A) the duty to cause the Note Register to be kept and to
give the Indenture Trustee notice of any appointment of a new Note
Registrar and the location, or change in location, of the Note
Register (Section 2.4);
(B) the notification of Noteholders of the final
principal payment on their Notes (Section 2.7(b));
(C) the fixing or causing to be fixed of any specified
record date and the notification of the Indenture Trustee and
Noteholders with respect to special payment dates, if any (Section
2.7(c));
(D) the preparation of or obtaining of the documents and
instruments required for authentication of the Notes and delivery of
the same to the Indenture Trustee (Section 2.2);
(E) the preparation, obtaining or filing of the
instruments, opinions and certificates and other documents required
for the release of collateral (Section 2.9) ;
(F) the maintenance of an office in the Borough of
Manhattan, City of New York, for registration of transfer or exchange
of Notes (Section 3.2);
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<PAGE> 4
(G) the duty to cause newly appointed Paying Agents, if
any, to deliver to the Indenture Trustee the instrument specified in
the Indenture regarding funds held in trust (Section 3.3);
(H) the direction to the Indenture Trustee to deposit
moneys with Paying Agents, if any, other than the Indenture Trustee
(Section 3.3);
(I) The obtaining and preservation of the Issuer's
qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of the Indenture, the Notes, the Collateral and each
other instrument and agreement included in the Trust Estate (Section
3.4);
(J) the preparation of all supplements, amendments,
financing statements, continuation statements, instruments of further
assurance and other instruments, in accordance with Section 3.5 of the
Indenture, necessary to protect the Trust Estate (Section 3.5);
(K) the delivery of the Opinion of Counsel on the,
Closing Date and the annual delivery of Opinions of Counsel, in
accordance with Section 3.6 of the Indenture, as to the Trust Estate,
and the annual delivery of the Officers' Certificate and certain other
statements, in accordance with Section 3.9 of the Indenture, as to
compliance with the Indenture (Sections 3.6 and 3.9);
(L) the identification to the Indenture Trustee in an
Officers' Certificate of a Person with whom the issuer has contracted
to perform its duties under the Indenture (Section 3.7(b));
(M) the notification of the Indenture Trustee and the
Rating Agencies of a Servicer Default pursuant to the Sale and
Servicing Agreement and, if such Servicer Default arises from the
failure of the Servicer to perform any of its duties under the Sale
and Servicing Agreement, the taking of all reasonable steps available
to remedy such failure (Section 3.7(d));
(N) the preparation and obtaining of documents and
instruments required for the release of the, Issuer from its
obligations under the Indenture (Section 3.10(b));
(O) the delivery of notice to the Indenture Trustee of
each Event of Default and each default by the Servicer or the seller
under the Sale and Servicing Agreement (Section 3.19);
(P) the monitoring of the Issuer's obligations as to the
satisfaction and discharge of the Indenture and the preparation of an
Officer's Certificate and the obtaining of the Opinion of Counsel and
the Independent Certificate relating thereto (Section 4.1);
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<PAGE> 5
(Q) the compliance with any written directive of the
Indenture Trustee with respect to the sale of the Trust Estate in a
commercially reasonable manner if an Event of Default shall have
occurred and be continuing (Section 5.4);
(R) the preparation and delivery of notice to Noteholders
of the removal of the Indenture Trustee and the appointment of a
successor Indenture Trustee (Section 6.8);
(S) the preparation of any written instruments required
to confirm more fully the authority of any co-trustee or separate
trustee and any written instruments necessary in connection with the
resignation or removal of any co-trustee or separate trustee (Sections
6.8 and 6.10);
(T) the furnishing of the Indenture Trustee with the
names and addresses of Noteholders during any period when the
Indenture Trustee is not the Note Registrar (Section 7.1);
(U) the preparation and, after execution by the Issuer,
the filing with the Commission, any applicable state agencies and the
Indenture Trustee of documents required to be filed on a periodic
basis with, and summaries thereof as may be required by rules and
regulations prescribed by, the Commission and any applicable state
agencies and the transmission of such summaries as necessary, to the
Noteholders (Section 7.3);
(V) the opening of one or more accounts Trust's name, the
preparation of Issuer Orders, Officers' Certificates and Opinions of
Counsel and all other actions necessary with respect to investment and
reinvestment of funds in the Trust Accounts (Sections 8.2 and 8.3);
(W) the preparation of an Issuer Request and Officers'
Certificate and the obtaining of an opinion of Counsel and Independent
Certificates, if necessary, for the release of the Trust Estate as
defined in the Indenture (Sections 8.4 and 8.5);
(X) the preparation of Issuer Orders and the obtaining of
Opinions of Counsel with respect to the execution of supplemental
indentures and the mailing to the Noteholders of notices with respect
to such supplemental indentures (Sections 9.1, 9.2 and 9.3);
(Y) the execution and delivery of new Notes conforming to
any supplemental indenture (Section 9.6);
(Z) the notification of Noteholders of redemption of the
Notes or the duty to cause the Indenture Trustee to provide such
notification (Section 10.2);
(AA) the preparation of all Officers' Certificates,
Opinions of Counsel and Independent Certificates with respect to any
requests by the issuer to the Indenture Trustee to take any action
under the Indenture (Section 11.1(a));
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<PAGE> 6
(AB) the preparation and delivery of Officers'
Certificates and the obtaining of Independent Certificates, if
necessary, for the release of property from the lien of the Indenture
(Section 11.1(b));
(AC) the notification of the Rating Agencies, upon the
failure of the Indenture Trustee to give such notification, of the
information required pursuant to Section 11.4 of the Indenture
(Section 11.4);
(AD) the preparation and delivery to Noteholders and the
Indenture Trustee of any agreements with respect to alternate payment
and notice provisions (Section 11.6);
(AE) the recording of the Indenture, if applicable
(Section 11.15); and
(AF) the preparation of Reserve Account Definitive Notes
and other Notes and arranging the exchanges thereof (Section 2.12(b)).
(ii) The Administrator will:
(A) pay the Indenture Trustee from time to time
reasonable compensation for all services rendered by the Indenture
Trustee under the Indenture (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of
an express trust);
(B) except as otherwise expressly provided in the
Indenture, reimburse the Indenture Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by
the Indenture Trustee in accordance with any provision of the
Indenture (including the reasonable compensation, expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or
bad faith;
(C) indemnify the Indenture Trustee and its agents for,
and to hold them harmless against, any losses, liability or expense
incurred without negligence or bad faith on their part, arising out of
or in connection with the acceptance or administration of the
transactions contemplated by the Indenture, including the reasonable
costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of
their powers or duties under the Indenture; and
(D) indemnify the Owner Trustee and its agents for, and
to hold them harmless against, any losses, liability or expense
incurred without negligence or bad faith on their part, arising out of
or in connection with the acceptance or administration of the
transactions contemplated by the Trust Agreement, including the
reasonable costs and expenses of defending themselves against any
claim or liability in connection with the exercise or performance of
any of their powers or duties under the Trust Agreement.
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<PAGE> 7
(b) Additional Duties. (i) In addition to the duties of
the Administrator set forth above, the Administrator shall perform such
calculations, and shall prepare for execution by the Issuer or the Owner
Trustee or shall cause the preparation by other appropriate persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer or the Owner Trustee to prepare, file or deliver
pursuant to the Related Agreements, and at the request of the Owner Trustee
shall take all appropriate action that it is the duty of the Issuer or the
Owner Trustee to take pursuant to the Related Agreements. Subject to Section 5
of this Agreement, and in accordance with the directions of the Owner Trustee,
the Administrator shall administer, perform or supervise the performance of
such other activities in connection with the Collateral (including the Related
Agreements) as are not covered by any of the foregoing provisions and as are
expressly requested by the Owner Trustee and are reasonably within the
capability of the Administrator.
(ii) Notwithstanding anything in this Agreement or the
Related Agreements to the contrary, the Administrator shall be responsible for
promptly notifying the Owner Trustee in the event that any withholding tax is
imposed on the Trust's payments (or allocations of income) to an Owner as
contemplated in Section 5.2(c) of the Trust Agreement. Any such notice shall
specify the amount of any withholding tax required to be withheld by the Owner
Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the
Related Agreements to the contrary, the Administrator shall be responsible for
performance of the duties of the Owner Trustee set forth in Section 5.5(a),
(b), (c) and (d) of the Trust Agreement with respect to, among other accounting
and reports to Owners; provided, however, that the Owner Trustee shall retain
responsibility for the distribution of the Schedule K-1s necessary to enable
each owner to prepare its federal and state income tax returns.
(iv) The Administrator shall satisfy its obligations with
respect to clauses (ii) and (iii) above by retaining, at the expense of the
Trust payable by the Administrator, a firm of independent public accountants
(the "Accountants") acceptable to the Owner Trustee which shall perform the
obligations of the Administrator thereunder. In connection with paragraph (ii)
above, the Accountants will provide prior to _______, 199__, a letter in form
and substance satisfactory to the Owner Trustee as to whether any tax
withholding is then required and, if required, the procedures to be followed
with respect thereto to comply with the requirements of the Code. The
Accountants shall be required to update the letter in each instance that any
additional tax withholding is subsequently required or any previously required
tax withholding shall no longer be required.
(v) The Administrator shall perform the duties of the
Administrator specified in Section 10.2 of the Trust Agreement required to be
performed in connection with the resignation or removal of the Owner Trustee,
and any other duties expressly required to be performed by the Administrator
under the Trust Agreement.
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<PAGE> 8
(vi) In carrying out the foregoing duties or any of its
other obligations under this Agreement, the Administrator may enter into
transactions with or otherwise deal with any of its affiliates; provided,
however, that the terms of any such transactions or dealings shall be in
accordance with any directions received from the Issuer and shall be, in the
Administrator's opinion, no less favorable to the Issuer than would be
available from unaffiliated parties.
(c) Non-Ministerial Matters.
(i) With respect to matters that in the reasonable
judgment of the Administrator are non-ministerial, the Administrator shall not
take any action unless within a reasonable time before the taking of such
action the Administrator shall have notified the Owner Trustee of the proposed
action and the Owner Trustee shall not have withheld consent or provided an
alternative direction. For the purpose of the preceding sentence,
"non-ministerial matters" shall include, without limitation:
(A) the amendment of or any supplement to the Indenture;
(B) the initiation of any claim or lawsuit by the Issuer
and the compromise of any action, claim or lawsuit brought by or
against the Issuer (other than in connection with the collection of
the Home Loans);
(C) the amendment, change or modification of the Related
Agreements;
(D) the appointment of successor Note Registrars,
successor Paying Agents and successor Indenture Trustees pursuant to
the Indenture or the appointment of successor Administrators or
successor Servicers, or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee of its obligations, under
the Indenture; and
(E) the removal of the Indenture Trustee.
(ii) Notwithstanding anything to the contrary in this
Agreement, the Administrator shall not be obligated to, and shall not, (x) make
any payments to the Noteholders under the Related Agreements, (y) sell the
Trust Estate pursuant to Section 5.4 of the Indenture or (z) take any other
action that the Issuer directs the Administrator not to take on its behalf.
Section 2. Records. The Administrator shall maintain
appropriate books of account and records relating to services performed
hereunder, which books of account and records shall be accessible for
inspection by the Issuer and the Company at any time during normal business
hours.
Section 3. Compensation. As compensation for the performance of
the Administrator's obligations under this Agreement and as reimbursement for
its expenses related thereto, the Administrator shall be entitled to a fee of
$_______ per month which shall be solely an obligation of the Company.
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<PAGE> 9
Section 4. Additional Information to be Furnished to the Issuer.
The Administrator shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall, reasonably request.
Section 5. Independence of the Administrator. For all purposes
of this Agreement, the Administrator shall be an independent contractor and
shall not be subject to the supervision of the Issuer or the Owner Trustee with
respect to the manner in which it accomplishes the performance of its
obligations hereunder. Unless expressly authorized by the Issuer, the
Administrator shall have no authority to act for or represent the Issuer or the
Owner Trustee in any way and shall not otherwise be deemed an agent of the
Issuer or the Owner Trustee.
Section 6. No Joint Venture. Nothing contained in this
Agreement (i) shall constitute the Administrator and either of the Issuer or
the Owner Trustee as members of any partnership, joint venture, association,
syndicate, unincorporated business or other separate entity, (ii) shall be
construed to impose any liability as such on any of them or (iii) shall be
deemed to confer on any of them any express, implied or apparent authority to
incur any obligation or liability on behalf of the others.
Section 7. Other Activities of Administrator. Nothing herein
shall prevent the Administrator or its Affiliates from engaging in other
businesses or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or entity
may engage in business activities similar to those of the Issuer, the Owner
Trustee or the Indenture Trustee.
Section 8. Term of Agreement; Resignation and Removal of
Administrator. (a) This Agreement shall continue in force until the
dissolution of the Issuer, upon which event this Agreement shall automatically
terminate.
(b) Subject to Section 8(e), the Administrator may resign its
duties hereunder by providing the Issuer with at least 60 days' prior written
notice.
(c) Subject to Section 8(e), the Issuer may remove the
Administrator without cause by providing the Administrator with at least 60
days' prior written notice.
(d) Subject to Section 8(e), at the sole option of the Issuer, the
Administrator may be removed immediately upon written notice of termination
from the Issuer to the Administrator if any of the following events shall
occur:
(i) the Administrator shall default in the
performance of any of its duties under this Agreement and, after
notice of such default, shall not cure such default within ten days
(or, if such default cannot be cured in such time, shall not give
within ten days such assurance of cure as shall be reasonably
satisfactory to the Issuer);
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<PAGE> 10
(ii) a court having jurisdiction in the premises shall
enter a decree or order for relief, decree or order shall not have
been vacated within 60 days, in respect of the Administrator in any
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect or appoint a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
officially for the Administrator or any substantial part of its
property or order the winding-up or liquidation of its affairs; or
(iii) the Administrator shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, shall consent to the entry of an order for
relief in an involuntary case under any such law, or shall consent to
the appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator or similar official for the Administrator or
any substantial part of its property, shall consent to the taking of
possession by any such official of any substantial part of its
property, shall make any general assignment for the benefit of
creditors or shall fail generally to pay its debts as they become due.
The Administrator agrees that if any of the events specified in
clauses (ii) or (iii) of this Section shall occur, it shall give written notice
thereof to the Issuer and the Indenture Trustee within seven days after the
happening of such event.
(e) No resignation or removal of the Administrator pursuant to
this Section shall be effective until (i) a successor Administrator shall have
been appointed by the Issuer and (ii) such successor Administrator shall have
agreed in writing to be bound by the terms of this Agreement in the same manner
as the Administrator is bound hereunder.
(f) The appointment of any successor Administrator shall be
effective only after satisfaction of the Rating Agency Condition with respect
to the proposed appointment.
(g) Subject to Section 8(e) and 8(f), the Administrator
acknowledges that upon the appointment of a Successor Servicer pursuant to the
Sale and Servicing Agreement, the Administrator shall immediately resign and
such Successor Servicer shall automatically become the Administrator under this
Agreement.
Section 9. Action upon Termination, Resignation or Removal.
Promptly upon the effective date of termination of this Agreement pursuant to
Section 8(a) or the resignation or removal of the Administrator pursuant to
Section 8(b) or (c), respectively, the Administrator shall be entitled to be
paid all fees and reimbursable expenses accruing to it to the date of such
termination, resignation or removal. The Administrator shall forthwith upon
such termination pursuant to Section 8(a) deliver to the Issuer all property
and documents of or relating to the Collateral then in the custody of the
Administrator in the event of the resignation or removal of the Administrator
pursuant to Section 8(b) or (c), respectively, the Administrator shall
cooperate with the Issuer and take all reasonable steps requested to assist the
Issuer in making an orderly transfer of the duties of the Administrator.
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<PAGE> 11
Section 10. Notices. Any notice, report or other communication
given hereunder shall be in writing and addressed as follows:
(a) if to the Issuer or the Owner Trustee, to
FIRSTPLUS Home Loan Owner Trust 199_-__
In care of ________________
___________________________
___________________________
Attention: ________________
(b) if to the Administrator, to
FIRSTPLUS FINANCIAL, INC.
1250 Mockingbird Lane, 6th Floor
Dallas, Texas 75247-4902
Attention: ________________
(c) if to the Indenture Trustee, to
___________________________
___________________________
___________________________
Attention: ________________
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed
given if such notice is mailed by certified mail, postage prepaid, or hand
delivered to the address of such party as provided above.
Section 11. Amendments. This Agreement may be amended from time
to time by a written amendment duly executed and delivered by the Issuer, the
Administrator and the Indenture Trustee, with the written consent of the Owner
Trustee, without the consent of the Noteholders and the Certificateholders, for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner, the rights of the Noteholders or Certificateholders; provided that such
amendment will not, in the Opinion of Counsel satisfactory to the Indenture
Trustee, materially and adversely affect the interest of any Noteholder or
Certificateholder. This Agreement may also be amended by the Issuer, the
Administrator and the Indenture Trustee with the written consent of the Owner
Trustee and the holders of Notes evidencing at least a majority in the
Outstanding Amount of the Notes and the holders of Certificates evidencing at
least a majority of the Certificate Balance for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of Noteholders or the
Certificateholders; provided, however, that no such amendment may (i) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections
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<PAGE> 12
of payments in respect of the Home Loans or distributions that are required to
be made for the benefit of the Noteholders or Certificateholders or (ii) reduce
the aforesaid percentage of the holders of Notes and Certificates which are
required to consent to any such amendment, without the consent of the holders
of all the outstanding Notes and Certificates. Notwithstanding the foregoing
the Administrator may not amend this Agreement without the permission of the
Company, which permission shall not be unreasonably withheld.
Section 12. Successor and Assigns. This Agreement may not be
assigned by the Administrator unless such assignment is previously consented to
in writing by the Issuer and the Owner Trustee and subject to the satisfaction
of the Rating Agency Condition in respect thereof. An assignment with such
consent and satisfaction, if accepted by the assignee, shall bind the assignee
hereunder in the same manner as the Administrator is bound hereunder.
Notwithstanding the foregoing, this Agreement may be assigned by the
Administrator without the consent of the Issuer or the Owner Trustee to a
corporation or other organization that is a successor (by merger, consolidation
or purchase of assets) to the Administrator, provided that such successor
organization executes and delivers to the Issuer, the Owner Trustee and the
Indenture Trustee an agreement in which such corporation or other organization
agrees to be bound hereunder by the terms of said assignment in the same manner
as the Administrator is bound hereunder. Subject to the foregoing, this
Agreement shall bind any successors or assigns of the parties hereto.
Section 13. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 14. Headings. The section headings hereof have been
inserted for convenience of reference only and shall not be construed to affect
the meaning, construction or effect of this Agreement.
Section 15. Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall together constitute but one
and the same agreement.
Section 16. Severability. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 17. Not Applicable to FIRSTPLUS FINANCIAL, INC. in Other
Capacities. Nothing in this Agreement shall affect any obligation FIRSTPLUS
FINANCIAL, INC. may have in any other capacity.
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<PAGE> 13
Section 18. Limitation of Liability of Owner Trustee and
Indenture Trustee. (a) Notwithstanding anything contained herein to the
contrary, this instrument has been countersigned by ____________________ not in
its individual capacity but solely in its capacity as Owner Trustee of the
Issuer and in no event shall _______________ in its individual capacity or any
beneficial owner of the Issuer have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder,
as to all of which recourse shall be had solely to the assets of the Issuer.
For all purposes of this Agreement, in the performance of any duties or
obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of [Articles VI, VII and
VIII] of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary,
this Agreement has been countersigned by _________________ not in its
individual capacity but solely as Indenture Trustee and in no event shall
_____________________ have any liability for the representations, warranties,
covenants, agreements or other obligations of the Issuer hereunder or in any of
the certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
Section 19. Third-Party Beneficiary. The Owner Trustee is a
third-party beneficiary to this Agreement and is entitled to the rights and
benefits hereunder and may enforce the provisions hereof as if it were a party
hereto.
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<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
FIRSTPLUS HOME LOAN OWNER TRUST 199_-__
By: ,
-----------------------------------
not in its individual
capacity but solely as
Owner Trustee,
By:
------------------------------
Name:
Title:
By: ,
-----------------------------------
not in its individual capacity but
solely as Indenture Trustee,
By:
------------------------------
Name:
Title:
FIRSTPLUS FINANCIAL, INC.,
as Administrator,
By:
-----------------------------------
Name:
Title:
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