<PAGE>
As filed with the Securities and Exchange Commission on October 10, 1997
Registration No. 333-90282
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
Post-Effective Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________________________
TRANSAMERICA CONSUMER
MORTGAGE RECEIVABLES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0688964
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1150 South Olive Street, Suite 2800, Los Angeles, California 90015 (213)
------------------------------------------------------------------------
742-4865
--------
(Address and telephone number of registrant's principal executive office)
____________________________
Stephen H. Foltz
Transamerica Consumer Mortgage Receivables Corporation
1150 South Olive Street, Suite 2800
Los Angeles, California 90015
(213) 742-4865
(Name, address and telephone number of agent for service)
____________________________
COPIES TO:
MARK R. LEVIE, ESQ.
Orrick, Herrington & Sutcliffe LLP
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, CA 94111-3143
____________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time on or after the effective date of this Registration Statement.
____________________________
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ____________________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
____________________________
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.
================================================================================
<PAGE>
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 shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[FORM OF PROSPECTUS SUPPLEMENT]
-------------------------------
Subject to Completion dated __________ ___, 1997
PROSPECTUS SUPPLEMENT
to Prospectus dated __________ ___, 1997
$
TFC HOME EQUITY LOAN TRUST 199 -
TFC HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199__
$ Class A-1 Certificates, __________% Pass-Through Rate
$ Class A-2 Certificates, __________% Pass-Through Rate
$ Class A-3 Certificates, __________% Pass-Through Rate
$ Class A-4 Adjustable Rate Certificates
$ Class B-1 Certificates, __________% Pass-Through Rate
Transamerica Mortgage Company
Master Servicer
The TFC Home Equity Loan Asset-Backed Certificates, Series 199 - (the
"Certificates"), will consist of the Class A-1, Class A-2, Class A-3 and Class
A-4 Certificates (collectively, the "Class A Certificates"), the Class B-1 and
Class B-2 Certificates (collectively, the "Class B Certificates") and the Class
R Certificates (together with the Class A Certificates and the Class B
Certificates, the "Certificates"). Only the Class A Certificates and the Class
B-1 Certificates (collectively, the "Offered Certificates") are offered hereby.
Holders of Class B-2 Certificates will receive only distributions of interest
that are subordinate to distributions of principal and interest to holders of
Offered Certificates to the extent described herein. The Certificates represent
fractional undivided interests in a trust fund to be designated as the TFC Home
Equity Loan Trust 199 - (the "Trust" or the "Trust Fund"), consisting
primarily of (i) a pool (the "Mortgage Pool") of [fixed] [adjustable] rate
mortgage loans (each, a "Home Equity Loan") secured primarily by mortgages,
deeds of trust or other instruments (each, a "Mortgage") creating a first,
second or more junior lien on one- to four-family dwellings, units in planned
unit developments, units in condominium developments or units in cooperatives
and mobile or manufactured homes (each, a "Mortgaged Property") to be deposited
into the Trust by Transamerica Consumer Mortgage Receivables Corporation, a
Delaware corporation (the "Seller") and a wholly owned indirect subsidiary of
Transamerica Finance Corporation, for the benefit of the holders of the
Certificates (the "Certificateholders"), (ii) all monies received on the Home
Equity Loans on and after the Cut-off Date (as defined herein) and (iii) amounts
on deposit in the Reserve Account. The Home Equity Loans will be serviced by
Transamerica Mortgage Company (in its capacity as servicer, the "Master
Servicer"). The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be entered into among the
Master Servicer, the Seller and _______________________, as trustee (the
"Trustee").
In the aggregate, the Class A Certificates evidence an approximately ____%
undivided interest in the Trust Fund. In the aggregate, the Class B
Certificates evidence an approximately ____% undivided interest in the Trust
Fund. The rights of holders of the Class B Certificates to receive
distributions with respect to the Home Equity Loans will be subordinate to the
rights of the holders of the Class A Certificates to the extent described
herein. See "Description of the Certificates--Distributions" herein and
"Description of the Certificates--Description of Credit Enhancement--
Subordination" in the Prospectus. Distributions on the Certificates will be
made, to the extent funds are available therefor, on the day of each month,
or, if such day is not a business day, then on the next business day, commencing
on , 199 (each, a "Payment Date").
<PAGE>
There is currently no secondary market for the Offered Certificates. The
Underwriters intend to make a secondary market in the Offered Certificates, but
are not obligated to do so. There can be no assurance that a secondary market
for the Offered Certificates will develop or, if one does develop, that it will
continue. None of the Offered Certificates will be listed on any securities
exchange.
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated [" " by Moody's Investors Service, Inc. ("Moody's"), "
" by Duff & Phelps Credit Rating Co. ("D&P") and " " by Standard & Poor's
Ratings Services ("S&P") and Fitch Investors Service, L.P. ("Fitch")], and that
the Class B-1 Certificates be rated ["____" by Moody's and "____" by S&P and
Fitch].
[The Class A and Class B-1 Certificates initially will be represented by
certificates registered in the name of Cede & Co., the nominee of DTC. The
interests of owners of the Class A and Class B-1 Certificates will be
represented by book-entries on the records of DTC and participating members
thereof. See "Description of the Certificates--Registration and Transfer of the
Certificates" in the Prospectus.]
As described herein, [an election] [two separate elections] will be made to
treat the Trust Fund as [a] "real estate mortgage investment conduit[s]"
([each], a "REMIC") for federal income tax purposes. The Class A and Class B-1
Certificates will constitute "regular interests" in a REMIC. For a description
of certain tax consequences of owning the Class A and Class B-1 Certificates,
including, without limitation, original issue discount, see "Certain Federal
Income Tax Consequences" herein.
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE
CERTIFICATES, SEE "RISK FACTORS," WHICH BEGINS ON PAGE S-19 HEREIN, AND "RISK
FACTORS" IN THE PROSPECTUS, WHICH BEGINS ON PAGE 14 THEREIN.
PROCEEDS OF THE ASSETS IN THE TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE
CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
THE SELLER, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES. NEITHER THE
CERTIFICATES NOR THE UNDERLYING HOME EQUITY LOANS WILL BE GUARANTEED OR INSURED
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE SELLER, THE MASTER
SERVICER OR ANY OF THEIR AFFILIATES. NONE OF SUCH ENTITIES WILL HAVE ANY
OBLIGATIONS IN RESPECT OF THE CERTIFICATES, EXCEPT AS EXPRESSLY SET FORTH
HEREIN.
THESE CERTIFICATES 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.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE OFFERED CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS DATED ________, 199_ OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. PURCHASERS ARE URGED TO
READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE
OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED
BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
____________________________ (the "Underwriter") have agreed to purchase from
the Seller the Class A Certificates at % of the principal amount thereof and
the Class B-1 Certificates at __% of the principal amount thereof ($__________
aggregate proceeds to the Seller, before deducting expenses payable by the
Seller estimated at $ ), plus accrued interest in each case from
, , subject to the terms and conditions set forth in the Underwriting
Agreement referred to herein under "Underwriting".
ii
<PAGE>
The Underwriter proposes to offer the Offered Certificates from time to time for
sale in negotiated transactions or otherwise, at prices to be determined at the
time of such sale. For further information with respect to the plan of
distribution, and any discounts, commissions or profits that may be deemed
underwriting discounts or commissions, see "Underwriting" herein.
The Offered Certificates are subject to prior sale, when, as and if issued and
accepted by the Underwriter and subject to the Underwriter's right to reject
orders in whole or in part and to approval of certain legal matters by counsel.
It is expected that the Offered Certificates will be delivered in [book-entry
form, on or about , , through the facilities of The Depository
Trust Company ("DTC")].
_________________, 199___
iii
<PAGE>
SUMMARY OF TERMS
The following Summary of Terms is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus Supplement and
in the Prospectus. Capitalized terms used but not otherwise defined shall have
the meanings ascribed to such terms in the Prospectus.
ISSUER TFC Home Equity Loan Trust 199_-_.
SECURITIES OFFERED $_______________ aggregate principal amount of
___% TFC Home Equity Loan Asset-Backed
Certificates, Series 199_-_, Class A-1 (the "Class
A-1 Certificates"). The Final Scheduled Payment
Date of the Class A-1 Certificates is __________.
$______________ aggregate principal amount of
____% TFC Home Equity Loan Asset-Backed
Certificates, Series 199_-_, Class A-2 (the "Class
A-2 Certificates"). The Final Scheduled Payment
Date of the Class A-2 Certificates is
_____________.
$______________ aggregate principal amount of
____% TFC Home Equity Loan Asset-Backed
Certificates, Series 199_-_, Class A-3 (the "Class
A-3 Certificates"). The Final Scheduled Payment
Date of the Class A-3 Certificates is
_____________.
$______________ aggregate principal amount of
____% TFC Home Equity Loan Asset-Backed Adjustable
Rate Certificates, Series 199_-_, Class A-4 (the
"Class A-4 Certificates" and, with the Class A-1,
Class A-2 and Class A-3 Certificates, the "Class A
Certificates"). The Final Scheduled Payment Date
of the Class A-4 Certificates is
_____________.
$__________ aggregate principal amount of __% TFC
Home Equity Loan Asset-Backed Certificates, Series
199__-__, Class B-1 (the "Class B-1 Certificates"
and, with the Class A Certificates, the "Offered
Certificates"). The Final Scheduled Payment Date
of the Class B-1 Certificates is __________. The
Class B-1 Certificates are subordinated in right
of payment to the Class A Certificates to the
extent described herein. See "Description of the
Certificates--Distributions" and "--Subordinated
Certificates [and Shifting Interests"] herein.
The "Final Scheduled Payment Date" of each Class
of Certificates is ____ months after the Payment
Date on which the principal balance of such Class
is expected to be reduced to zero, based on the
assumptions specified herein under "Description of
the Certificates--Final Scheduled Payment Dates."
The rate of payment of principal of the Class A
and Class B-1 Certificates will depend on the rate
of payments of principal (including prepayments)
and any repurchases of the Home Equity Loans.
[Since the Final Scheduled Payment Dates have been
determined on the assumption, among others, that
there are no prepayments on
S-2
<PAGE>
the Home Equity Loans, the actual final
distribution date of each Class is likely to occur
prior to its Final Scheduled Payment Date
although, in the event of defaults in payment of
the Home Equity Loans, it could occur later or
earlier.]
SELLER Transamerica Consumer Mortgage Receivables
Corporation, a Delaware corporation (the "Seller")
and a wholly owned indirect subsidiary of
Transamerica Finance Corporation, will sell and
assign the Home Equity Loans to the Trust. Each
Home Equity Loan will be serviced by the Master
Servicer.
SUBSERVICERS [Transamerica Home Loan, Metropolitan Mortgage
Company and Transamerica Federal Savings Bank]
(collectively, the "Subservicers" and each
individually, a "Subservicer") are wholly-owned
subsidiaries of Transamerica Finance Corporation,
licensed to originate home equity loans in the
states in which the Home Equity Loans were
originated. [The Subservicers will sell the Home
Equity Loans to the Seller on the Closing
Date.]
MASTER SERVICER Transamerica Mortgage Company (the "Master
Servicer"). See "The Seller" and "The Master
Servicer and its Affiliates" in the
Prospectus.
TRUSTEE _________________, a __________________ organized
under the laws of ____________ and having its
principal place of business in the State of
_______ (the "Trustee"). See "The Trustee" herein.
CUT-OFF DATE ___________, 199_ (the "Cut-off Date").
CLOSING DATE The date on which the Certificates are initially
issued (the "Closing Date").
PAYMENT DATE The _______ calendar day of each month or, if such
day is not a business day, the first business day
following such ______ calendar day, commencing on
__________, 199_ (each, a "Payment Date").
DETERMINATION DATE The________ business day of the month in which the
related Payment Date occurs (each, a
"Determination Date").
RECORD DATE The calendar day immediately preceding each
Payment Date (or, if Definitive Certificates are
issued, the ______ calendar day of the month in
which each such Payment Date occurs) (each, a
"Record Date").
DESCRIPTION OF THE
CERTIFICATES;
THE MORTGAGE POOL The Class A Certificates, the Class B-1
Certificates and the TFC Home Equity Loan Asset-
Backed Certificates, Series 199 - , Class B-2
(with the Class B-1 Certificates, the "Class B
Certificates"; the Class A Certificates, the Class
B Certificates and the Class R Certificates,
collectively, the "Certificates"),
S-3
<PAGE>
represent interests in a trust fund to be
designated as the TFC Home Equity Loan Trust 199 -
__ (the "Trust"), consisting primarily of (i) a
pool (the "Mortgage Pool") of [fixed ]
[adjustable] rate mortgage loans acquired by the
Seller and evidenced by promissory notes or other
evidence of indebtedness (the "Home Equity Loans")
secured by mortgages, deeds of trust or other
instruments (each, a "Mortgage") creating a first,
second, or more junior lien on one- to four-family
dwellings, units in planned unit developments,
units in condominium developments, units in
cooperatives and mobile or manufactured homes
(each, a "Mortgaged Property"), with an aggregate
principal balance of $____________ as of the Cut-
off Date, after giving effect to payments received
prior to the Cut-off Date (the "Original Pool
Principal Balance"), (ii) all monies received with
respect to the Home Equity Loans on and after the
Cut-off Date and (iii) amounts on deposit in the
Reserve Account (as defined herein). The
Certificates will be issued pursuant to a Pooling
and Servicing Agreement to be dated as of the Cut-
off Date among the Master Servicer, the Seller and
the Trustee (the "Pooling and Servicing
Agreement"). See "Description of the Certificates-
-General" herein.
The Class A Certificates will [initially]
represent in the aggregate an approximately ____%
undivided interest (the "Class A Percentage") in
the Trust. The Class B-1 Certificates will
[initially] represent in the aggregate an
approximately ____% undivided interest (the "Class
B Percentage") in the Trust. The Class B
Certificates will be subordinate to the Class A
Certificates, to the extent described herein.
Holders of Class B-2 Certificates will receive
only distributions of interest that are
subordinate to distributions of principal and
interest to holders of Offered Certificates to the
extent described herein. [The Class A Percentage
and the Class B Percentage will vary from time to
time, as described herein, to the extent that the
Class A Certificateholders do not receive amounts
due to them on any Payment Date, losses are
realized on the Home Equity Loans or there are
principal payments of or certain other unscheduled
amounts of principal received with respect to the
Home Equity Loans.] Only the Class A and Class B-1
Certificates are offered hereby. See "Description
of the Certificates--General" "--Distributions"
and "--Subordinated Certificates [and Shifting
Interests]" herein.
Unless otherwise specified herein, references
herein to percentages of Home Equity Loans refer
in each case to the percentage of the aggregate
principal balance of the Home Equity Loans in the
Mortgage Pool as of the Cut-off Date, and giving
effect to principal payments received prior to the
Cut-off Date.
S-4
<PAGE>
The Mortgage Pool will consist of [fixed]
[adjustable] rate, closed-end home equity loans
with original terms to scheduled maturity of ___
to ___ months. Each Home Equity Loan will be
either fully-amortizing or a loan that provides
for the payment of the unamortized principal
balance thereof in a single payment at the
maturity of the loan that is greater than the
preceding monthly payment (a "Balloon Loan"). The
Home Equity Loans in the Mortgage Pool will be
primarily secured by first, second or more junior
mortgages on one- to four-family residential
properties, condominiums or townhouses. All of the
Home Equity Loans in the Mortgage Pool were
originated or acquired by Transamerica Mortgage
Company or its affiliates in accordance with the
underwriting standards as described under "The
Consumer Mortgage Loan Program--Credit Policy and
Procedures Relating to Consumer Mortgage Loans" in
the Prospectus. The Home Equity Loans will be
selected from home equity loans in the portfolio
of such loans owned by Transamerica Mortgage
Company and its affiliates (the "Portfolio") based
on the criteria specified in the Pooling and
Servicing Agreement and described herein. See
"Description of the Mortgage Pool" herein.
The Home Equity Loans consist of _____ loans
secured by Mortgaged Properties which are
primarily located in [____________ and
____________]. [____% of the Home Equity Loans
have Mortgage Interest Rates based upon Six-Month
Libor, ___% have Mortgage Interest Rates based
upon One-Year Treasuries and ___% have Mortgage
Interest Rates based upon Two-Year Treasuries.] As
of the Cut-Off Date, the unpaid principal balance
of the Home Equity Loans averaged $____________,
interest rates (the "Mortgage Interest Rates")
borne by the Home Equity Loans ranged from ___% to
___% per annum, the weighted average Mortgage
Interest Rate of the Home Equity Loans was ___%
per annum, the weighted average original term to
scheduled maturity of the Home Equity Loans was
_____ months and the weighted average remaining
term to scheduled maturity of the Home Equity
Loans was _____ months. As of the Cut-Off Date,
the maximum principal balance of any of the Home
Equity Loans was $____________ and the minimum
principal balance was $____________. All of the
Home Equity Loans were originated on or after
______________. The original term to scheduled
maturity of the Home Equity Loans ranged from __
months to ___ months. The remaining term to
scheduled maturity as of the Cut-Off Date of the
Home Equity Loans ranged from ___ months to ___
months. No Home Equity Loan had a scheduled
maturity later than __________________.
As of the dates of origination of the Home Equity
Loans, the weighted average Combined Loan-to-Value
Ratio of the Home Equity Loans was approximately
_____%, and the weighted average Home Equity Loan
Ratio of the Home Equity Loans
S-5
<PAGE>
was approximately _____%. Approximately _____% by
principal balance of the Home Equity Loans had a
Combined Loan-to-Value Ratio that was determined
on the basis of a Seller-approved, independent
third-party, fee-based appraisal. Approximately
_____% by principal balance of the Home Equity
Loans had a Combined Loan-to-Value Ratio that was
determined on the basis of a real estate broker's
price opinion. As of the dates of origination of
the Home Equity Loans, the weighted average ratio
of the principal balances of the Home Equity Loans
where the Seller had a junior lien to the
outstanding principal balances (or maximum
available credit limits, as the case may be) of
the related senior mortgage loans was
approximately _____%. See "Description of the
Mortgage Pools--General" in the Prospectus.
Approximately _____% by principal balance of the
Home Equity Loans were secured by first mortgages,
approximately _____% by second mortgages and
approximately _____% by third mortgages.
Approximately _____% by principal balance of the
Home Equity Loans were secured by mortgages on
single-family dwellings, approximately _____% by
mortgages on two- to four-family dwellings,
approximately _____% by mortgages on condominiums
or townhouses and approximately ____% by mortgages
on manufactured or mobile homes. Approximately
_____% by principal balance of the Home Equity
Loans were secured by mortgages on properties
which the borrowers represented to be their
primary residences. See "Description of the
Mortgage Pool--General" herein.
SUMMARY YIELD AND PREPAYMENT
CONSIDERATIONS The yield to maturity of the Offered Certificates
will depend on the rate and timing of payment of
principal on the Home Equity Loans in the Mortgage
Pool including prepayments, liquidations due to
defaults and repurchases due to defective
documentation or breaches of representations and
warranties. Such yield may be adversely affected
by a higher or lower than anticipated rate of
prepayments on the Home Equity Loans. Prepayments
are influenced by a number of factors, as
described more fully under "Certain Yield and
Prepayment Considerations" herein and in the
Prospectus.
Greater than anticipated prepayments of principal
will increase the yield on Offered Certificates
purchased at a price less than par. Greater than
anticipated prepayments of principal will decrease
the yield on Offered Certificates purchased at a
price greater than par. The effect on an
investor's yield due to principal prepayments on
the Home Equity Loans occurring at a rate that is
faster (or slower) than the rate anticipated by
the investor in the period immediately following
the issuance of the Offered Certificates may not
be entirely offset by a subsequent like reduction
(or increase) in the rate of principal payments.
The weighted average
S-6
<PAGE>
life of the Offered Certificates will also be
affected by the amount and timing of delinquencies
and defaults on the Home Equity Loans in the
Mortgage Pool and the recoveries, if any, on
defaulted Home Equity Loans and foreclosed
properties in the Mortgage Pool.
In addition, because principal distributions are
paid to certain Classes of Class A Certificates
before other Classes, holders of Classes having a
later priority of payment bear greater risk of
loss than holders of Classes having earlier
priorities for distributions of principal.
DENOMINATIONS The Offered Certificates of each Class will be
issued in minimum denominations of $ and integral
multiples thereof[; provided, however, that one
Offered Certificate of each Class is issuable in a
denomination equal to an amount such that the
aggregate denomination of all Certificates of such
Class is equal to the original principal balance
of all Certificates of such Class]. Each Class A
Certificate and Class B-1 Certificate will
represent a percentage interest (a "Percentage
Interest") in the respective Class determined by
dividing the original dollar amount represented by
such Certificate by the original aggregate
principal balance of all Certificates of such
Class.
REGISTRATION OF THE
OFFERED SECURITIES Each Class of Class A and Class B-1 Certificates
will initially be represented by one or more
certificates registered in the name of Cede & Co.
("Cede"), the nominee of The Depository Trust
Company ("DTC"), and will be available only in the
form of book-entries on the records of DTC,
participating members thereof ("Participants") and
other entities, such as banks, brokers, dealers
and trust companies, that clear through or
maintain custodial relationships with a
Participant, either directly or indirectly
("Indirect Participants"). Certificates
representing the Class A and Class B-1
Certificates will be issued in definitive form
only under the limited circumstances described
herein and in the Prospectus. All references
herein to "holders" or "Certificateholders" shall
reflect the rights of owners of the Class A and
Class B-1 Certificates (the "Certificate Owners")
as they may indirectly exercise such rights
through DTC and Participants, except as otherwise
specified herein. See "Risk Factors" and
"Description of the Certificates--Registration and
Transfer of the Certificates" in the Prospectus.
DISTRIBUTIONS
A. GENERAL As more fully described herein, distributions will
be made on the Certificates on each Payment Date
to the extent monies are available therefor, if
and to the extent such Certificates are then
entitled to such distributions, as described
herein. Any distributions on the Class A and Class
B-1 Certificates will be made on each
S-7
<PAGE>
Payment Date to Certificateholders of record on
the related Record Date in an amount equal to the
product of such Certificateholder's Percentage
Interest and the amount available for distribution
on such Payment Date to the Certificateholders of
the related Class in accordance with the
priorities described in "Description of the
Certificates--Distributions" herein.
On any Payment Date, the amount available for
distribution to Certificateholders generally will
be the Available Payment Amount. The term
"Available Payment Amount" generally means, with
respect to any Payment Date, the result of (a)
collections on or with respect to the Home Equity
Loans received by the Master Servicer during the
related Remittance Period, net of the related
Servicing Fee (defined below) paid to the Master
Servicer and reimbursements for incurred unpaid
Servicing Fees, previous Advances and Servicing
Advances and certain expenses paid by the Master
Servicer, fees and expenses of the Trustee and
premiums and fees of the provider of the credit
enhancement, if any, plus (b) the amount of any
Advances, as described further under "Advances" in
this summary.
[B. INTEREST DISTRIBUTIONS Interest on the Class A and Class B-1 Certificates
will accrue from the __th calendar day of each
month (whether or not a Business Day) to, but
excluding, the th calendar day of the next
succeeding month (whether or not a Business Day)
(each, an "Accrual Period"). Interest shall accrue
on each Class A-1, Class A-2, Class A-3 and Class
B-1 Certificate at the respective Pass-Through
Rates specified on the cover page hereof and shall
be distributed, to the extent monies are available
therefor, on each Payment Date. Interest with
respect to the Class A and Class B-1 Certificates
will accrue on the basis of a 360-day year
consisting of twelve 30-day months. The Class A-4
Certificates will accrue interest during each
Accrual Period at a rate equal to the London
interbank offered rate for one month U.S. dollar
deposits ("LIBOR") plus ___% (the "Class A-4 Pass-
Through Rate"). With respect to each Class of
Class A Certificates and each Payment Date,
interest accrued during the related Accrual Period
at the applicable Pass-Through Rate on the Class A
Certificate Balance (as defined below) outstanding
on the immediately preceding Payment Date (after
giving effect to all payments of principal made on
such Payment Date) or, in the case of the initial
Accrual Period, _______________, is referred to
herein as the "Interest Remittance Amount" for
such Class and, in the aggregate for all Class A
Certificates, the "Class A Interest Remittance
Amount". Interest accrued during each Accrual
Period at the Class B-1 Pass-Through Rate on the
Class B-1 Certificate Balance (as defined below)
outstanding on the immediately preceding Payment
Date (after giving effect to all payments of
principal made on such Payment Date) or, in
the
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case of the initial Accrual Period, __________, is
referred to herein as the "Class B-1 Interest
Remittance Amount" for the related Payment Date.
See "Description of the Certificates--
Distributions" herein and in the Prospectus.]
[C. PRINCIPAL
DISTRIBUTIONS Holders of the Class A and Class B-1 Certificates
will be entitled to receive on each Payment Date,
to the extent available (but not more than the
Class A Certificate Balance or Class B-1
Certificate Balance, then outstanding), a
distribution allocable to principal which will
generally equal the sum of (a)(i) the Class A
Percentage or Class B-1 Percentage, respectively,
of the principal portion of all scheduled payments
("Monthly Payments") received on the Home Equity
Loans during the calendar month preceding the
calendar month in which such Payment Date occurs
(the "Remittance Period"), (ii) [the Class A
[Prepayment] Percentage or Class B-1 Percentage,
respectively, of] any principal prepayments of any
such Home Equity Loans in full ("Principal
Prepayments") received during the related
Remittance Period and partial prepayments of
principal on any such Home Equity Loan that were
received during the related Remittance Period
payment that are not Principal Prepayments (each,
a "Curtailment"), (iii) [the Class A [Prepayment]
Percentage or Class B-1 Percentage, respectively,
of] the principal portion of (A) the proceeds of
any insurance policy relating to a Home Equity
Loan, a Mortgaged Property (as defined below) or a
REO Property (as defined below), net of proceeds
to be applied to the repair of the Mortgaged
Property or released to the Mortgagor (as defined
herein) and net of expenses reimbursable therefrom
("Insurance Proceeds"), (B) proceeds received in
connection with the liquidation of any defaulted
Home Equity Loans, whether by trustee's sale,
foreclosure sale or otherwise ("Liquidation
Proceeds"), net of fees and advances reimbursable
therefrom ("Net Liquidation Proceeds") and (C)
proceeds received in connection with a taking of a
related Mortgaged Property by condemnation or the
exercise of eminent domain or in connection with a
release of part of any such Mortgaged Property
from the related lien ("Released Mortgaged
Property Proceeds"), (iv) [the Class A
[Prepayment] Percentage or Class B-1 Percentage,
respectively, of] the principal portion of all
amounts paid by the Seller in connection with the
repurchase of, or the substitution of a
substantially similar mortgage loan for, a Home
Equity Loan as to which there is defective
documentation or a breach of a representation or
warranty contained in the Pooling and Servicing
Agreement, and (v) [the Class A [Prepayment]
Percentage or Class B-1 Percentage, respectively,
of] the principal balance of each defaulted Home
Equity Loan or REO Property (as defined below) as
to which the Master Servicer has determined that
all amounts expected to be recovered have been
recovered
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<PAGE>
(each, a "Liquidated Home Equity Loan") to the
extent not included in the amounts described in
clauses (i) through (iv) above (the sum of 100% of
(i), (ii), (iii), (iv) and (v) above, the "Basic
Principal Amount"), and (b) the sum of (i) the
amount, if any, by which (A) the amount required
to be distributed to Class A Certificateholders or
Class B-1 Certificateholders as of the preceding
Payment Date exceeded (B) the amount of the actual
distribution to Class A Certificateholders, or
Class B-1 Certificateholders, respectively on such
preceding Payment Date, (the "Class A Carry-
Forward Amount" and, together with the applicable
percentage of the Basic Principal Amount, the
"Class A Principal Remittance Amount" or the
"Class B-1 Carry-Forward Amount" and, with the
Class B-1 Percentage of the Basic Principal
Amount, the "Class B-1 Principal Remittance
Amount", as the case may be). Principal will be
distributed to the Class A Certificates [in order
of their Final Scheduled Payment Dates and pro
rata among the Class A Certificates of each
Class]. The Final Scheduled Payment Date of each
Class of Class A Certificates and of the Class B-1
Certificates has been calculated as described
herein. The actual final payment to each Class is
likely to occur prior to its Final Scheduled
Payment Date although, in the event of defaults in
payment of the Home Equity Loans, it could occur
later or earlier. See "Description of the
Certificates" herein.]
On each Payment Date, the lesser of (i) the Class
A Certificate Balance then outstanding and (ii)
the Class A Principal Remittance Amount (which,
together with the Class A Interest Remittance
Amount, constitutes the "Class A Remittance
Amount" for such Payment Date) is payable to the
Class A Certificateholders. As of any Payment
Date, the "Class A Certificate Balance" will equal
the Original Class A Certificate Balance, less all
amounts previously distributed on account of
principal to holders of the Class A Certificates.
Subject to the subordination and shifting interest
provisions described herein, on each Payment Date,
the lesser of (i) the Class B-1 Certificate
Balance then outstanding and (ii) the Class B-1
Principal Remittance Amount (which, together with
the Class B-1 Interest Remittance Amount,
constitutes the "Class B-1 Remittance Amount" for
such Payment Date) is payable to the Class B-1
Certificateholders. As of any Payment Date, the
"Class B-1 Certificate Balance" will equal the
Original Class B-1 Certificate Balance, less all
amounts previously distributed on account of
principal to holders of the Class B-1
Certificates.]
[The Available Payment Amount on deposit in the
Collection Account will be distributed on each
Payment Date in the following amounts and order of
priority:
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<PAGE>
(i) to the Class A Certificateholders,
interest accrued during the Accrual
Period at the Class A Pass-Through Rate
(the "Class A Interest Remittance
Amount") on the Class A Certificate
Balance as of the immediately preceding
Payment Date (after giving effect to all
payments of principal made on such
immediately preceding Payment Date);
(ii) to the Class A Certificateholders, any
previously unpaid shortfalls in required
distributions of interest on the Class A
Certificates, plus accrued interest
thereon at the Class A Pass-Through Rate
(the "Unpaid Class A Interest
Shortfall");
(iii) to the Class A Certificateholders, the
Monthly Principal (as defined below)
until the Class A Certificate Balance is
equal to zero;
(iv) to the Class A Certificateholders, the
Unpaid Monthly Principal Shortfall (as
defined below) until the Class A
Certificate Balance is equal to zero;
(v) to the Class B-1 Certificateholders,
interest accrued during the Accrual
Period at the Class B-1 Pass-Through
Rate (the "Class B-1 Interest Remittance
Amount") on the Class B-1 Certificate
Balance as of the immediately preceding
Payment Date (after giving effect to all
payments of principal made on such
immediately preceding Payment Date);
(vi) to the Class B-1 Certificateholders, any
previously unpaid shortfalls in required
distributions of interest on the Class
B-1 Certificates, plus accrued interest
thereon at the Class B-1 Pass-Through
Rate (the "Unpaid Class B-1 Interest
Shortfall")'
(vii) to the Class B-2 Certificateholders,
interest accrued during the Accrual
Period at the Class B-2 Pass-Through
Rate (the "Class B-2 Interest Remittance
Amount") on the Class B-2 Notional
Balance as of the immediately preceding
Payment Date (after giving effect to all
payments of principal made on such
immediately preceding Payment Date);
(viii) to the Reserve Account, the amount, if
any, by which the Reserve Account
Required Amount exceeds the balance in
the Reserve Account as of such Payment
Date [(net of reinvestment income
payable to the Class R
Certificateholders)];
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<PAGE>
(ix) if such Payment Date is on or after the
Class A Termination Date (and after any
required distributions to reduce the
Class A Certificate Balance to zero have
been made), to the Class B-1
Certificateholders, the Monthly
Principal until the Class B-1
Certificate Balance is equal to zero;
(x) if such Payment Date is on or after the
Class A Termination Date (and after any
required distributions to reduce the
Class A Certificate Balance to zero have
been made), to the Class B-1
Certificateholders, the Monthly
Principal Shortfall until the Class B-1
Certificate Balance is equal to zero;
and
(xi) any balance to the Class R
Certificateholders.
[The "Class A Remittance Amount" for a Payment
Date will be the aggregate of the full amounts
distributable pursuant to clauses (i), (ii), (iii)
and (iv) above, whether or not there is sufficient
Available Payment Amount to make such distribution
on such Payment Date.
The "Class B Remittance Amount" for a Payment Date
will be the aggregate of the full amounts
distributable pursuant to clauses (v), (vi),
(viii) and (ix) above, whether or not there are
sufficient Available Payment Amount to make such
distribution on such Payment Date.
To the extent that on any Payment Date sufficient
funds are not available, either from the
Collection Account or from the Reserve Account, to
fully pay Monthly Principal, there will be a
principal shortfall (a "Monthly Principal
Shortfall"). On any Payment Date, the "Unpaid
Monthly Principal Shortfall" is equal to the
aggregate of the previously unpaid Monthly
Principal Shortfalls for all previous Payment
Dates.
["Monthly Principal" for any Payment Date will
equal (i) the sum of the Principal Balances of the
Home Equity Loans as of the commencement of the
Remittance Period preceding the Remittance Period
in which such Payment Date occurs (or, in the case
of the first Payment Date, the initial principal
balances of the Home Equity Loans as of the Cut-
Off Date (the "Original Principal Pool Balance")),
less (ii) the sum of the Principal Balances of the
Home Equity Loans as of the commencement of the
Remittance Period in which such Payment Date
occurs.]
[In the event that on any Payment Date prior to
the Payment Date on which the Class A Certificate
Balance is reduced to zero (the "Class A
Termination Date") the Available Payment Amount is
not sufficient to pay the Class A Remittance
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<PAGE>
Amount, Class B-1 Interest Remittance Amount and
any Class B-1 Interest Shortfall, amounts in the
Reserve Account described under "Description of
the Certificates--Reserve Account" will be
withdrawn by the Trustee and applied first to the
payment of the Class A Remittance Amount, then to
the payment of Class B-1 Interest Remittance
Amount and then to the payment of Class B-1
Interest Shortfall, if any. On the Class A
Termination Date, any amounts in the Reserve
Account [(other than reinvestment income payable
to the Class R Certificateholders)] in excess of
the Reserve Account Required Amount (as reduced to
reflect the reduction of the Class A Certificate
Balance to zero on such date), shall be
distributed to holders of the Class B-1
Certificates in reduction of the Class B-1
Certificate Balance. On or after the Class A
Termination Date, amounts on deposit in the
Reserve Account will be available on each Payment
Date to pay the Class B-1 Remittance Amount to the
extent that it is not sufficient.]
SUBORDINATED CERTIFICATES The right of the Class B-1 Certificateholders to
receive distributions with respect to the Home
Equity Loans will be subordinated to the right of
the Class A Certificateholders, to the extent
described below. This subordination [and the
Reserve Account are] [is] intended to enhance the
likelihood of regular receipt by the Class A
Certificateholders of their respective Class A
Remittance Amounts and to protect the Class A
Certificateholders against losses.
On each Payment Date, payments to the Class A
Certificateholders will be made prior to payments
to the Class B-1 Certificateholders. [On any
Payment Date on which the Class A Percentage is
less than 100%, if the Class A Certificateholders
receive less than the amount due to them on such
date, the interest of the Class A
Certificateholders in the Trust Fund will vary so
as to preserve the entitlement of the Class A
Certificateholders to unpaid principal of the Home
Equity Loans and interest thereon.] [If a
Principal Prepayment, Curtailment or certain other
unscheduled amounts of principal are received on a
Home Equity Loan, the Class A Certificateholders
will be paid an amount equal to the Class A
Prepayment Percentage (defined herein) of the
amount received. This will have the effect of
accelerating receipt of principal by the Class A
Certificateholders, thus reducing their
proportionate interest in the Trust Fund and
increasing the relative interest in the Trust Fund
evidenced by the Class B-1 Certificates.
Increasing the interest of the Class B
Certificates relative to that of the Class A
Certificates is intended to preserve the
availability of the subordination provided by the
Class B-1 Certificates.] [Summarize applicable
limits on subordination.]
The Class B-1 Certificateholders will not be
required to refund any amounts properly
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<PAGE>
distributed to them, regardless of whether there
are sufficient funds on a subsequent Payment Date
to make a full distribution to Class A
Certificateholders of the amount required to be
distributed to such Certificateholders.
The subordination of the Class B-1 Certificates is
intended to enhance the likelihood of timely
payment to Class A Certificateholders of the Class
A Remittance Amount; however, if the Class A
Percentage increases to 100%, all future losses or
delinquencies will be borne by the Class A
Certificates and shortfalls could result.
[The protection afforded to holders of the Class A
Certificates by means of such subordination will
be accomplished by the preferential right of such
holders to receive, out of funds available in the
Collection Account and the Reserve Account, prior
to any distribution being made on a Payment Date
on the Class B-1 Certificates, the Class A
Remittance Amount due them on each Payment Date.
Unless offset by cash flow deficiencies due to
losses on defaulted Home Equity Loans or
Liquidated Home Equity Loans, the entitlement of
the Class A Certificates to 100% of the Monthly
Principal until the Class A Certificate Balance is
reduced to zero will have the effect of
accelerating the amortization of the Class A
Certificates from what it would have been if such
amounts have been distributed pro rata on the
basis of the principal balances of the Classes of
the Certificates while, in the absence of
significant losses on defaulted Home Equity Loans
or Liquidated Home Equity Loans, increasing the
respective interests in the Trust evidenced by the
Class B-1 Certificates. Increasing the respective
interests of the Class B-1 Certificates relative
to that of the Class A Certificates is intended to
preserve or increase the availability of the
subordination provided by the Class B-1
Certificates.]
Although the Class B-1 Certificates are
subordinated to the Class A Certificates, amounts
in the Reserve Account, if any, available after
payment of the Class A Remittance Amount on any
Payment Date, prior to the Class A Termination
Date, will be available on such Distribution Date
to pay Class B Interest Remittance Amount and any
Unpaid Class B-1 Interest Shortfall. On the Class
A Termination Date, any amounts in the Reserve
Account [(other than reinvestment income payable
to the Class R Certificateholders)] in excess of
the Reserve Account Required Amount (as reduced to
reflect the reduction of the Class A Certificate
Balance to zero on such date) will be distributed
to holders of the Class B-1 Certificates in
reduction of the Class B-1 Principal Balance.
Distribution of such amounts, if any, will have
the effect of accelerating the amortization of the
Class B-1 Certificates. See "Description of the
Certificates--Distributions" and "Certain Yield
and Prepayment Considerations" herein.
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<PAGE>
[RESERVE ACCOUNT A reserve account or accounts will be maintained
by the Trust (the "Reserve Account") to enhance
the likelihood of timely payments with respect to
the Class A Certificates and the Class B-1
Certificates. Amounts on deposit in the Reserve
Account will be available on each Payment Date on
or prior to the Class A Termination Date to pay
the Class A Remittance Amount, Class B-1 Interest
Remittance Amount and any Class B-1 Interest
Shortfall to the extent the Available Payment
Amount on any such Payment Date is insufficient
therefor. On or after the Class A Termination Date
amounts on deposit in the Reserve Account will be
available on each Payment Date to pay the Class B-
1 Remittance Amount to the extent the Available
Payment Amount on any such Payment Date is
insufficient therefor. An initial deposit of
__________ (__% of the Original Pool Principal
Balance) will be made by the Seller to the Reserve
Account and thereafter the Reserve Account will be
funded on each Payment Date by the Available
Payment Amount, if any, remaining after payment of
the Class A Remittance Amount, the Class B-1
Interest Remittance Amount and any Unpaid Class B-
1 Interest Shortfall. These funds will be
deposited in the Reserve Account, in the manner
described herein, to the extent necessary to
maintain the amount in the Reserve Account with
respect to any Payment Date at an amount equal to
the Reserve Account Required Amount. The Reserve
Account Required Amount will initially be equal to
__________ (___% of the Original Pool Principal
Balance) and thereafter will generally decline as
described herein. On each Payment Date, amounts
then held on deposit in the Reserve Account in
excess of the Reserve Account Required Amount in
effect on such Payment Date (and in the case of
the Payment Date which is the Class A Termination
Date, in excess of the amount distributable to the
Class B Certificateholders from the Reserve
Account on such date) and all investment earnings
on amounts on deposit in the Reserve Account will
be distributed to the Class R Certificateholders.
See "Description of the Certificates--Reserve
Account" herein.]
[ADVANCES] On each Payment Date the Master Servicer will make
advances (each, an "Advance") to cover shortfalls
in the amount of interest payable to Class A
Certificateholders resulting from delinquent
payments on the Home Equity Loans that remain
uncollected as of the end of the preceding
Remittance Period, to the extent the Master
Servicer believes that the amount so advanced will
be recoverable from subsequent payments and
collections in respect of the related Home Equity
Loan. However, no Advances will be made if after
giving effect thereto the total amount of such
Advances with respect to a particular Home Equity
Loan outstanding at that time would exceed the
total amount of delinquent payments of principal
and interest on such Home Equity Loan as of the
preceding Record Date, plus the total amount of
Servicing Advances made during the preceding
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<PAGE>
Remittance Period with respect to such Home Equity
Loan. On each Payment Date, the Master Servicer
will be entitled to a first priority reimbursement
from amounts paid by borrowers for previous
Advances.
In addition, the Master Servicer may advance funds
to satisfy or to keep current any Home Equity
Loans secured by senior liens, in order to
preserve the Trust's interest in such Home Equity
Loans, or to pay taxes, legal expenses and
attorney fees, insurance premiums and similar
expenses relating to a Home Equity Loan, to the
extent that the Master Servicer believes that the
amount so advanced will be recoverable from
subsequent payments and collections on the related
Home Equity Loan. The Master Servicer will be
entitled to a first priority reimbursement from
amounts paid by borrowers for such previous
advances. See "Description of the Certificates--
Advances; Servicing Advances" herein and in the
Prospectus.
SERVICING FEE The Master Servicer will be entitled to a fee of %
per annum of the outstanding principal balance of
each Home Equity Loan (the "Servicing Fee"),
calculated and payable monthly from payments and
collections with respect to the Home Equity Loans
as provided in the Pooling and Servicing
Agreement.
RATINGS It is a condition to the issuance of the
Certificates that the Class A Certificates be
rated ["____" by Moody's, " " by D&P and " " by
S&P and Fitch (each of Fitch, Moody's and S&P, a
"Rating Agency") and that the Class B-1
Certificates be rated "____" by S&P and Fitch]. A
security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time. No person is
obligated to maintain any rating on any Class A
Certificate, and, accordingly, there can be no
assurance that the ratings assigned to the Class A
or Class B-1 Certificates upon initial issuance
thereof will not be lowered or withdrawn by a
Rating Agency at any time thereafter. In the event
any rating is revised or withdrawn, the liquidity
of the Class A or Class B-1 Certificates may be
adversely affected. In general, the ratings
address credit risk and do not represent any
assessment of the likelihood or rate of principal
prepayments. See "Ratings" herein.
OPTIONAL TERMINATION BY
THE MASTER SERVICER The Master Servicer may, at its option, terminate
the Pooling and Servicing Agreement on any date on
which the Pool Principal Balance is less than
____% of the Original Pool Principal Balance by
purchasing from the Trust, on the next succeeding
Payment Date, [(but in no event earlier than the
Payment Date occurring in _______________)] all of
the Home Equity Loans and all Mortgaged Properties
acquired by foreclosure or deed in lieu of
foreclosure ("REO Properties") then
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<PAGE>
remaining in the Trust Fund at a price described
herein under "Description of the Certificates--
Termination; Purchase of Home Equity Loans" herein
and under "Description of the Certificates--
Optional Disposition of Home Equity Loans" in the
Prospectus.
CERTAIN LEGAL ASPECTS OF
THE HOME EQUITY LOANS Approximately _____% of the Home Equity Loans are
secured by [second] Mortgages [and approximately
___% of the Home Equity Loans are secured by more
junior Mortgages] which are subordinate to [a]
[one or more] mortgage lien on the related
Mortgaged Properties prior to the lien of such
Home Equity Loan (such senior lien[s], if any, a
"[First] [Senior] Lien"). A primary risk with
respect to [second] [junior] Mortgages is that
foreclosure funds received in connection therewith
will not be sufficient to satisfy fully both the
First Lien and the second Mortgage. See "Risk
Factors" and "Certain Legal Aspects of the Home
Equity Loans" in the Prospectus.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES [An] [Two separate] election[s] will be made to
treat the assets of the Trust Fund as [a] [two
separate] "real estate mortgage investment
conduit[s]" ([each,] a "REMIC") for federal income
tax purposes.
Upon the issuance of the Offered Certificates,
Orrick, Herrington & Sutcliffe LLP, counsel to the
Seller, will deliver its opinion generally to the
effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement,
for federal income tax purposes [the Trust Fund]
[REMIC I and REMIC II (as such terms are defined
in the Pooling and Servicing Agreement)] will
[each] qualify as a REMIC under Sections 860A
through 860G of the Internal Revenue Code of 1986.
For federal income tax purposes, [the Class R
Certificates will be the sole class of "residual
interests" in the Trust and the Offered
Certificates will represent ownership of "regular
interests" in the Trust and generally will be
treated as representing ownership of debt
instruments in the Trust Fund] [(a) the Class R-I
Certificates will be the sole class of "residual
interests" in REMIC I, (b) each class of the
Offered Certificates will represent ownership of
"regular interests" in REMIC II and will generally
be treated as representing ownership of debt
instruments of REMIC II and (c) the Class R
Certificates will constitute the sole class of
residual interests in REMIC II].
For further information regarding the federal
income tax consequences of investing in the
Offered Certificates, see "Certain Federal Income
Tax Consequences" herein and in the Prospectus.
[insert any additional or substitute language, as
appropriate]
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<PAGE>
ERISA CONSIDERATIONS See "ERISA Considerations" herein and in the
Prospectus.
[insert any additional or substitute language, as
appropriate]
LEGAL INVESTMENT Although upon their initial issuance the Class A
Certificates will be rated [" " by Moody's, " "
by Duff & Phelps and " " by S&P and Fitch], the
Class A Certificates will [not] constitute
"mortgage related securities" under the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
because the Mortgage Pool includes Home Equity
Loans that are secured by second Mortgages. [The
Class B-1 Certificates will not constitute
"mortgage related securities" under SMMEA.]
Investors should consult their own legal advisers
in determining whether and to what extent any
Class of Certificates constitute legal investments
for such investors. See "Legal Investment" herein.
USE OF PROCEEDS The Seller will use the net proceeds received from
the sale of the Class A Certificates and Class B-1
Certificates to purchase the Home Equity Loans
from its affiliates. Such affiliates will use such
proceeds for general corporate purposes.
S-18
<PAGE>
RISK FACTORS
Investors should consider, among other things, the matters discussed under
"Risk Factors" in the Prospectus and the following factors in connection with
the purchase of the Offered Certificates:
RISKS OF THE HOME EQUITY LOANS
[insert any appropriate additional risk factors with respect to Home Equity
Loans.]
Geographic Concentration. In addition to the foregoing, 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 Home Equity Loans in such a region may present risk
considerations in addition to those generally present for similar mortgage-
backed securities without such concentration. In particular, approximately
______ %, _____%, ______% and ______% of the Home Equity Loans in the Mortgage
Pool are secured by Mortgaged Properties located in __________, __________,
__________ and __________, respectively. [There has been a contraction of
economic activity and a deterioration of the real estate market in many states
and uncertainty exists with respect to the economy and the real estate market in
____________, ________________ and other regions of the United States.] [In
particular, in __________, [describe material economic condition] may adversely
affect loss and delinquency rates on Home Equity Loans located in __________.]
See "Description of the Mortgage Pool" herein for further information regarding
the geographic concentration of the Home Equity Loans in the Mortgage Pool.
Junior Liens. Approximately % of the Home Equity Loans in the Mortgage
------------
Pool, by aggregate principal balance as of the Cut-off Date, are secured by
second Mortgages [and approximately ___% of the Home Equity Loans are secured by
more junior Mortgages, and the related [First] [Senior] Liens are not included
in the Mortgage Pool.] Although little data is available, the rate of default of
[second] [junior] mortgage loans may be greater than that of mortgage loans
secured by First Liens on comparable properties. See "Risk Factors--Risks of the
Home Equity Loans--Junior Liens" in the Prospectus.
Non-Owner Occupied Properties. Vacation and second home properties and
-----------------------------
other properties not occupied by the owners as their primary residences
constituted approximately ___% of the Home Equity Loans in the Mortgage Pool, by
aggregate principal balance as of the Cut-off Date (based solely upon statements
made by the borrowers at the time of origination of such Home Equity Loans). In
addition, approximately __%, of the Home Equity Loans in the Mortgage Pool, by
aggregate principal balance as of the Cut-off Date, were investor-owned
properties. The rate of delinquencies, foreclosures and losses on Home Equity
Loans secured by non-owner occupied or investor properties may generally be
expected to be higher than that of loans secured by the primary residence of the
borrower.
Risk of Early Defaults of Recently Originated Home Equity Loans.
---------------------------------------------------------------
Approximately _____% of the Home Equity Loans in the Mortgage Pool by aggregate
principal balance as of the Cut-off Date were originated within ____ months
prior to the Cut-off Date. The weighted average remaining term to maturity of
the Home Equity Loans in the Mortgage Pool as of the Cut-off Date is
approximately months. Although little data is available, defaults on mortgage
loans are generally expected to occur with greater frequency in their early
years.
Balloon Loans. Approximately _____% of the Home Equity Loans in the
-------------
Mortgage Pool by aggregate principal balance as of the Cut-off Date provide for
the payment of the unamortized principal balance of the Home Equity Loan in a
single payment at the maturity of the Home Equity Loan that is greater than the
preceding monthly payment ("Balloon Loans"). Because borrowers under Balloon
Loans are required to make a relatively large payment upon maturity, it is
possible that the default risk associated with Balloon Loans is greater than
that
S-19
<PAGE>
associated with fully-amortizing mortgage loans. The ability of a Mortgagor on a
Balloon Loan to repay the Home Equity Loan upon maturity frequently depends
upon, among other things, the borrower's ability to refinance the Home Equity
Loan, which will be affected by a number of factors, including, without
limitation, the level of mortgage rates available in the primary mortgage market
at the time, the Mortgagor's equity in the related Mortgaged Property, the
financial condition of the Mortgagor, the condition of the Mortgaged Property,
tax law, general economic conditions and the general willingness of financial
institutions and primary mortgage bankers to extend credit.
Although a low interest rate environment may facilitate the refinancing of
a balloon payment, the receipt and reinvestment by holders of the Certificates
of the proceeds in such an environment may produce a lower return than that
previously received in respect of the related Home Equity Loan. Conversely, a
high interest rate environment may make it more difficult for the Mortgagor to
accomplish a refinancing and may result in delinquencies or defaults. See
"Description of the Mortgage Pool" herein.
CREDITORS' RIGHTS AND BANKRUPTCY CONSIDERATIONS
Creditors' Rights Considerations. During the period that the related
--------------------------------
Certificates are outstanding and so long as the long-term senior unsecured debt
of Transamerica Finance Corporation is rated at least "___" by Moody's and
"_____" by S&P, or such lower ratings as are deemed acceptable to Moody's and
S&P in order to maintain their then current ratings on the Offered Certificates,
assignments of the related Mortgages from the entities that will sell Home
Equity Loans to the Seller (collectively, the "Prior Owners") to the Seller and
from the Seller to the Trustee will not be required to be recorded. The failure
to record assignments of the Mortgages to the Seller and to the Trustee in some
states in which the Mortgaged Properties are located may have the result of
making the sale thereof potentially ineffective against (i) creditors of a Prior
Owner or the Seller, (ii) a purchaser to whom a Prior Owner or the Seller
fraudulently, negligently, or inadvertently sells a Home Equity Loan, or (iii)
any bankruptcy trustee or similar official appointed for a Prior Owner or the
Seller.
If Transamerica Finance Corporation's long-term senior unsecured debt
rating does not satisfy the foregoing ratings requirements, assignments of the
Mortgages in favor of the Seller and the Trustee will be required to be recorded
(or opinions of counsel acceptable to the Rating Agencies will be obtained to
the effect that recording is not required to protect the Trust's interest in and
to the related Home Equity Loan). See "Description of the Certificates --
Assignment of the Home Equity Loans" in the Prospectus.
Bankruptcy Related Matters. The transactions described herein will be
--------------------------
structured such that the Seller is unlikely to become the debtor in a case under
the United States Bankruptcy Code and so that, even if such a filing should
occur, it should not result in consolidation of the assets and liabilities of
the Seller with those of the prior owners. These steps include the creation of
the Seller as a separate, limited purpose corporation, the certificate of
incorporation of which contains limitations on the nature of its business and
restrictions on the ability of the Seller to commence voluntary or involuntary
cases or proceedings under the Bankruptcy Code without the prior unanimous
affirmative vote of all its directors. The Seller does not and will not engage
in any activities other than the transactions described herein and other similar
transactions and activities incidental to, or necessary or convenient to
accomplish the foregoing. Each of the Seller and the Prior Owners has no current
intention of filing a voluntary petition under the Bankruptcy Code. No assurance
can be given, however, that the Seller or a Prior Owner will not become a debtor
in a case under the Bankruptcy Code, or that the activities of the Seller would
not result in a court concluding that the assets and liabilities of the Seller
should be consolidated with those of the Prior Owners.
The Prior Owners will represent and warrant that the transfer of the Home
Equity Loans to the Seller will constitute a sale by each of the Prior
Owners
S-20
<PAGE>
to the Seller, and that the Prior Owners have taken and will take all actions
that are required to perfect the Seller's ownership interests in the Home Equity
Loans. Accordingly, it is intended that such Home Equity Loans will not be part
of the bankruptcy estate of any Prior Owner, and will not be available to the
creditors of any Prior Owner. However, in the event of the bankruptcy of any
Prior Owner, it is possible that such Prior Owner, a bankruptcy trustee for such
Prior Owner or a creditor of such Prior Owner may attempt to recharacterize the
transaction between the Prior Owner and the Seller as a pledge of the Home
Equity Loans in connection with a borrowing by such Prior Owner rather than a
true sale. This position, if asserted, could prevent timely payments of amounts
due on the related Certificates. If such an attempt were successful, reductions
in distributions of principal and interest on such Certificates could result, or
such a trustee in bankruptcy could elect to accelarate payment of the obligation
to the Seller and liquidate the Home Equity Loans.
Furthermore, for so long as the ratings of the long-term senior unsecured
debt of Transamerica Finance Corporation satisfy the ratings requirements
specified above, the Master Servicer is entitled to commingle with its own funds
payments made with respect to the Home Equity Loans until the relevant Payment
Date. In the event of a bankruptcy by the Master Servicer, the Trustee will
likely not have a perfected interest in such payments and the inclusion thereof
in the bankruptcy estate of the Master Servicer may result in delays in payment
and failure to pay amounts due on the Certificates.
[Subordination of Class B-1 Certificates
Distributions on the Class B-1 Certificates are subordinated to payments on
the Class A Certificates. If on any Payment Date, the amount available for
payment to the Certificateholders, including amounts contained in the Reserve
Account on such Payment Date, is insufficient to pay the Class A Remittance
Amount for such Payment Date, the rights of the Class B-1 Certificateholders to
the Class B-1 Remittance Amount are subordinated to the rights of the holders of
the Class A Certificates to be paid the Class A Remittance Amount in full.
Although credit enhancement with respect to the Class B-1 Certificates will
be provided by the Reserve Account to the extent described herein, the amount
available thereunder is limited and will decline to the extent that funds are
withdrawn therefrom. If the amount of funds in the Reserve Account available for
distribution to holders of the Class B-1 Certificates is reduced to zero,
holders of Class B-1 Certificates will bear the entire risk of losses on the
Home Equity Loans. The yield on the Class B-1 Certificates will accordingly be
extremely sensitive to the losses experienced by the Mortgage Pool and the
timing of any such losses. If the actual rate and amount of losses experienced
by the Mortgage Pool exceed the rate and amount of such losses assumed by an
investor, the yield to maturity on the Class B-1 Certificates may be lower than
anticipated by such investor, and it is possible that such investor may not
recover the initial investment in the Class B-1 Certificates.]
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Offered Certificates will depend on the rate
and timing of payment of principal on the Home Equity Loans in the Mortgage Pool
including prepayments, liquidations due to defaults and repurchases due to
defective documentation or breaches of representations and warranties. Such
yield may be adversely affected by a higher or lower than anticipated rate of
prepayments on the Home Equity Loans. Because the actual prepayment experience
of a pool of loans is dependent on a wide variety of economic and market factors
which change from time to time, such as relative interest rates, general
economic conditions, homeowner mobility and the availability of alternative
financing, the Seller does not believe that disclosure of the historical
prepayment experience of the Master Servicer would be informative or relevant
for investors. See "Certain Yield and Prepayment Considerations" herein and in
the Prospectus.
S-21
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The description herein of the Home Equity Loans comprising part of the
Trust (the "Mortgage Pool") and of the Mortgaged Properties describes the pool
of Home Equity Loans as it was constituted as of the opening of business on the
Cut-Off Date. The Mortgage Pool consists of _____ Home Equity Loans, and had an
Original Pool Principal Balance of $_____________. The promissory notes (the
"Mortgage Notes") evidencing the Home Equity Loans are secured by mortgages on
one- to four-family residential properties, condominiums or townhouses which are
located primarily in [____________________]. Each Home Equity Loan is a closed-
end, fixed-rate, [simple interest] mortgage loan. None of the Home Equity Loans
is insured or guaranteed by any governmental agency. The Home Equity Loans were
originated or acquired by the Seller as described under "The Consumer Mortgage
Loan Program" in the Prospectus.
Each Home Equity Loan was selected for inclusion in the Mortgage Pool from
among those home equity loans in the Portfolio that satisfied, among other
things, the following criteria as of the Cut-Off Date: were not 60 days or more
past due, had a remaining principal balance of not less than $________, had
Mortgage Interest Rates ranging no higher than _____% nor less than _____%, had
an original term to scheduled maturity ranging from ___ months to ___ months and
had a remaining term to scheduled maturity ranging from ___ months to ___
months. The Seller believes that no adverse selection procedures were employed
in making such selection. Each Home Equity Loan was either originated by the
Seller during the period from __________________ to _______________, in the
ordinary course of its home equity loan lending program or acquired from
[predecessor institutions in connection with the acquisition of such predecessor
institutions by TFC]. As of the Cut-Off Date, the average remaining principal
balance of the Home Equity Loans was $_______________, the weighted average
Mortgage Interest Rate of the Home Equity Loans was ___% per annum, the weighted
average remaining term to scheduled maturity of the Home Equity Loans was _____
months. As of the Cut-Off Date, no Home Equity Loan had a scheduled maturity
later than _______________.
Approximately _____% by principal balance of the Home Equity Loans were
secured by properties located in [____________] and approximately ___% by
principal balance of the Home Equity Loans were secured by properties located in
____________. At origination, approximately ___% by principal balance of the
Home Equity Loans were first mortgages, approximately ___% were second
mortgages, and approximately ___% were third mortgages. The weighted average
Combined Loan-to-Value Ratio of the Home Equity Loans was approximately _____%
and the weighted average Home Equity Loan-to-Value Ratio of such Home Equity
Loans was approximately ___%. As of the dates of origination of the Home Equity
Loans, the weighted average ratio of the principal balance of the Home Equity
Loans where the originator had a junior lien to the outstanding principal
balances (or maximum available credit limits, as the case may be) of the related
senior mortgage loans was approximately ___%. The averages in the two
immediately preceding sentences have been calculated based upon the original
principal balances of the related Home Equity Loans.
Approximately ___% by principal balance of the Home Equity Loans were
secured by single family properties, approximately ___% by principal balance of
such loans were secured by two- to four-family properties, approximately ____%
by principal balance of such loans were secured by condominiums or townhouses
and approximately ___% by principal balance of such loans were secured by
manufactured or mobile homes. Approximately ___% by principal balance of such
loans were secured by properties represented by the borrowers to be their
primary residences. Approximately ___% by principal balance of such loans were
secured by properties represented by the borrower to be investor-owned
properties, and approximately ___% by principal balance of such loans were
secured by properties represented by the borrower to be vacation/second
homes.
S-22
<PAGE>
The Index will be a per annum rate equal to the weekly average yield on
U.S. Treasury Securities adjusted to a constant maturity of one year as reported
by the Federal Reserve Board in statistical Release No. H.15(519) (the
"Release") as most recently available as of the date forty-five days prior to
the Adjustment Date ("One-Year U.S. Treasury"). Such average yields reflect the
yields for the week prior to that week. The Index may also be a per annum rate
equal to the average of interbank offered rates for six-month U.S. dollar-
denominated deposits in the London market based on quotations of major banks
("Six-Month LIBOR") as published in The Wall Street Journal and as most recently
available (i) as of the first business day of the month immediately preceding
the month in which the Adjustment Date occurs or (ii) as of the date forty-five
days prior to the Adjustment Date (each such date as of which Six-Month LIBOR is
determined, a "Reference Date"). One-Year U.S. Treasury and Six-Month LIBOR are
referred to herein as an "Index." In the event that the related Index specified
in a Mortgage Note is no longer available, an index reasonably acceptable to the
Trustee that is based on comparable information will be selected by the Master
Servicer.
One-Year U.S. Treasury. One-Year U.S. Treasury is currently based on
information reported in the Release. Listed below are the weekly average yields
on actively traded U.S. Treasury securities adjusted to a constant maturity of
one year as reported in the Release on the date that would have been applicable
to loans whose index was most recently available as of the date forty-five days
prior to the adjustment date and having the following adjustment dates for the
indicated years. Such average yields may fluctuate significantly from week to
week as well as over longer periods and may not increase or decrease in a
constant pattern from period to period. The following does not purport to be
representative of future average yields. No assurance can be given as to the
average yields on such U.S. Treasury securities on any Adjustment Date or during
the life of any Home Equity Loan.
One-Year U.S. Treasury
<TABLE>
<CAPTION>
ADJUSTMENT DATE 1993 1994 1995 1996 1997
- - --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January 1.................. 3.64% 3.55% 6.42% 5.45% 5.44%
February 1................. 3.72 3.60 7.10 5.35 5.46
March 1.................... 3.60 3.63 7.24 5.17 5.61
April 1.................... 3.41 3.85 6.79 4.85 5.53
May 1...................... 3.39 4.28 6.54 5.15 5.72
June 1..................... 3.31 4.71 6.28 5.62 5.99
July 1..................... 3.27 5.49 6.00 5.67 5.90
August 1................... 3.61 5.16 5.69 5.86 5.72
September 1................ 3.42 5.49 5.47 5.90 5.54
October 1.................. 3.48 5.60 5.71 5.60
November 1................. 3.32 5.62 5.63 5.88
December 1................. 3.35 6.04 5.60 5.57
</TABLE>
Six-Month LIBOR. Listed below are levels of Six-Month LIBOR as published
by The Wall Street Journal that are or would have been applicable to loans with
a Reference Date of the first business day of the preceding month, and having
the following adjustment dates for the indicated years. Such average yields may
fluctuate significantly from month to month as well as over longer periods and
may not increase or decrease in a constant pattern from period to period. There
can be no assurance that levels of Six-Month LIBOR published in The Wall
Street
S-23
<PAGE>
Journal on a different Reference Date would have been at the same levels as
those set forth below. The following does not purport to be representative of
future levels of Six-Month LIBOR. No assurance can be given as to the level of
Six-Month LIBOR on any Adjustment Date or during the life of any Home Equity
Loan based on Six-Month LIBOR.
Six-Month LIBOR
<TABLE>
<CAPTION>
ADJUSTMENT DATE 1993 1994 1995 1996 1997
- - --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January 1....................... 4.000% 3.500% 6.562% 5.718% 5.562%
February 1...................... 3.625 3.500 7.000 5.531 5.625
March 1......................... 3.375 3.375 6.687 5.281 5.687
April 1......................... 3.312 4.000 6.437 5.312 5.718
May 1.......................... 3.375 4.250 6.500 5.531 5.968
June 1.......................... 3.312 4.688 6.375 5.562 6.000
July 1.......................... 3.500 5.000 6.000 5.656 6.000
August 1........................ 3.500 5.250 6.000 5.812 5.937
September 1..................... 3.500 5.313 5.875 5.906 5.812
October 1....................... 3.437 5.313 5.906 5.843
November 1...................... 3.375 5.750 5.968 5.750
December 1...................... 3.437 5.937 5.875 5.562
</TABLE>
The initial Mortgage Interest Rate in effect on a Home Equity Loan
generally will be lower, and may be significantly lower, than the Mortgage
Interest Rate that would have been in effect based on the related Index and
Margin. Therefore, unless the related Index declines after origination of a Home
Equity Loan, the related Mortgage Interest Rate will generally increase on the
first Adjustment Date following origination of such Home Equity Loan subject to
the Periodic Rate Cap. The repayment of the Home Equity Loans will be dependent
on the ability of the Mortgagors to make larger monthly payments following
adjustments of the Mortgage Interest Rate. Home Equity Loans that have the same
initial Mortgage Rate may not always bear interest at the same Mortgage Rate
because such Mortgage Loans may have different Adjustment Dates (and the
Mortgage Rates therefore may reflect different related Index values), Margins,
Maximum Mortgage Rates and Minimum Mortgage Rates.
Set forth below is a description of certain additional characteristics of
the [Initial] Mortgage Pool as of the Cut-Off Date. The percentages set forth in
the table below do not always add to 100% due to rounding.
S-24
<PAGE>
MORTGAGE POOL STATISTICS
REMAINING PRINCIPAL BALANCES
<TABLE>
<CAPTION>
% of % of
Mortgage Mortgage
Pool by Number of Pool by
Aggregate Aggregate Home Number of
Range of Principal Principal Principal Equity Home Equity
Balances Balances Balance Loans Loans
- - ------------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Total 100.00% 100.00%
======== =========
</TABLE>
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
% of
% of [Initial]
[Initial] Mortgage
Mortgage Pool by
Pool by Number of Number of
Aggregate Aggregate [Initial] [Initial]
Range of Mortgage Principal Principal Home Equity Home Equity
Interest Rates Balances Balance Loans Loans
- - ----------------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Total 100.00% 100.00%
========== ===========
</TABLE>
MONTHS TO SCHEDULED MATURITY AT ORIGINATION
<TABLE>
<CAPTION>
% of
% of [Initial]
[Initial] Mortgage
Mortgage Pool by
Pool by Number of Number of
Range of Months Aggregate Aggregate [Initial] [Initial]
Remaining to Principal Principal Home Equity Home Equity
Scheduled Maturity Balances Balance Loans Loans
- - -------------------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Total 100.00% 100.00%
========== ============
</TABLE>
S-25
<PAGE>
MONTHS REMAINING TO SCHEDULED MATURITY
<TABLE>
<CAPTION>
% of
% of [Initial]
[Initial] Mortgage
Mortgage Pool by
Pool by Number of Number of
Range of Months Aggregate Aggregate [Initial] [Initial]
Remaining to Scheduled Principal Principal Home Equity Home Equity
Maturity Balances Balance Loans Loans
- - ------------------------ --------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
100.00% 100.00%
</TABLE>
GEOGRAPHICAL DISTRIBUTION OF HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% of
% of [Initial]
[Initial] Mortgage
Mortgage Pool by
Pool by Number of Number of
Aggregate Aggregate [Initial] [Initial]
Principal Principal Home Equity Home Equity
State Balances Balance Loans Loans
- - ------------ --------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Total 100.00% 100.00%
========== ============
</TABLE>
(1) Geographical location is determined by Obligor mailing address.
COMBINED LOAN-TO-VALUE RATIOS
AT ORIGINATION
<TABLE>
<CAPTION>
% of
HOME
Original EQUITY by Number of % of
Loan Principal HOME EQUITY HOME
Range of CLTV's Amount Balance Loans EQUITY
- - --------------- -------- ----------- ------------ by Number
----------
<S> <C> <C> <C> <C>
100.00% 100.00%
========== =========
</TABLE>
S-26
<PAGE>
HOME EQUITY LOAN RATIOS
AT ORIGINATION
<TABLE>
<CAPTION>
% of
HOME
EQUITY % of
Aggregate by Number of HOME
Range of Home Principal Principal HOME EQUITY EQUITY
Equity Loan Ratios Balances(1) Balance Loans by Number
- - ------------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Total 100.00% 100.00%
========== =========
</TABLE>
(1) Includes fees, if any, financed by an originator at the time of loan
origination.
PROPERTY TYPE
<TABLE>
<CAPTION>
% of
HOME
Aggregate EQUITY Number of % of
Principal by HOME HOME
Balances Principal EQUITY EQUITY
Balance Loans by Number
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Total 100.00% 100.00%
========== =========
</TABLE>
PROPERTY USE(1)
<TABLE>
<CAPTION>
% of
HOME
EQUITY Number of % of
Aggregate by HOME EQUITY HOME
Principal Principal Home Equity EQUITY
Balances Balance Loans by Number
--------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Total 100.00% 100.00%
========== =========
</TABLE>
(1) Based on information provided by Obligor at loan origination.
S-27
<PAGE>
LIEN PRIORITY
<TABLE>
<CAPTION>
% of
HOME
EQUITY Number of % of
Aggregate by HOME EQUITY HOME
Principal Principal Home Equity EQUITY
Balances Balance Loans by Number
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
100.00% 100.00%
Total ========== =========
</TABLE>
(1) Based on information provided by Obligor at loan origination.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Offered Certificates, the aggregate
amount of each interest payment on the Offered Certificates and the yield to
maturity of the Offered Certificates are related to the rate and timing of
payments of principal on the Home Equity Loans, which may be in the form of
scheduled and unscheduled payments. In general, when the level of prevailing
interest rates for similar loans significantly declines, the rate of prepayment
is likely to increase, although the prepayment rate is influenced by a number of
other factors, including general economic conditions and homeowner mobility.
Defaults on mortgage loans are expected to occur with greater frequency in their
early years, although little data is available with respect to the rate of
default on second mortgage loans. The rate of default on second or more junior
mortgage loans may be greater than that of mortgage loans secured by first liens
on comparable properties. Prepayments, liquidations and purchases of the Home
Equity Loans will result in distributions to the related Class of
Certificateholders of amounts of principal which would otherwise be distributed
over the remaining terms of the Home Equity Loans in the Mortgage Pool.
In addition, the Master Servicer may, at its option, purchase from the
Trust all of the outstanding Home Equity Loans and REO Properties, and thus
effect the early retirement of the Certificates, on any Payment Date [(but in no
event earlier than the Payment Date occurring __________)] following the first
date on which the Pool Principal Balance (as defined herein) is less than % of
the Original Pool Principal Balance. See "Description of the Certificates--
Termination; Purchase of Home Equity Loans" herein.
As with fixed rate obligations generally, the rate of prepayment on a pool
of mortgage loans is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
mortgage loans. Depending on prevailing market rates, the future outlook for
market rates and economic conditions generally, some mortgagors may sell or
refinance mortgaged properties in order to realize their equity in the mortgaged
properties, to meet cash flow needs or to make other investments. No
representation is made as to the particular factors that will affect the
prepayment of the Home Equity Loans, as to the relative importance of such
factors, as to the percentage of the principal balance of the Home Equity Loans
that will be paid as of any date or as to the overall rate of prepayment on the
Home Equity Loans.
Greater than anticipated prepayments of principal will increase the yield
on Offered Certificates purchased at a price less than par. Greater than
S-28
<PAGE>
anticipated prepayments of principal will decrease the yield on Offered
Certificates purchased at a price greater than par. The effect on an investor's
yield due to principal prepayments on the Home Equity Loans occurring at a rate
that is faster (or slower) than the rate anticipated by the investor in the
period immediately following the issuance of the Offered Certificates will not
be entirely offset by a subsequent like reduction (or increase) in the rate of
principal payments. The weighted average life of the Offered Certificates will
also be affected by the amount and timing of delinquencies and defaults on the
Home Equity Loans in the Mortgage Pool and the recoveries, if any, on defaulted
Home Equity Loans and foreclosed properties in the Mortgage Pool.
The yield to maturity on the Class B-1 Certificates will be extremely
sensitive to losses on the Home Equity Loans (and the timing thereof) because
the entire amount of losses [(to the extent of the Subordinated Amount)] will be
allocated to the Class B Certificates until the principal balance thereof has
been reduced to zero. After the Principal Balance of the Class B Certificates
has been reduced to zero, the yield to maturity of the Class A Certificates then
outstanding will be extremely sensitive to losses on the Home Equity Loans (and
the timing thereof). [In addition, because principal distributions are paid to
certain Classes of Class A Certificates before other Classes, holders of Classes
having a later priority of payment bear greater risk of loss than holder of
Classes having earlier priorities for distributions of principal.]
[As described herein, amounts otherwise distributable to holders of the
Class B Certificates may be made available to protect the holders of Class A
Certificates against interruptions in distributions due to certain Mortgagor
delinquencies [to the extent not covered by Advances.] Such delinquencies may
affect the yield to investors in the Class B Certificates and, even if
subsequently cured, may affect the timing of the receipt of distributions by the
holders of the Class B Certificates.]
[On the Class A Termination Date, any amounts in the Reserve Account
[(other than reinvestment earnings payable to the Class R Certificateholders)]
in excess of the Reserve Account Required Amount in effect as of such date, will
be distributed in respect of principal of the Class B-1 Certificateholders.
Such distributions, if any, will have the effect of accelerating the
amortization of the Class B-1 Certificates. See "Description of the
Certificates--Distributions".]
The "weighted average life" of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life
of the Certificates will be influenced by, among other factors, the rate at
which principal payments are made on the Home Equity Loans in the Mortgage Pool,
including final payments made upon the maturity of Balloon Loans.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement
[("CPR")] represents [an assumed annualized constant rate of prepayment relative
to the then outstanding principal balance of a pool of mortgage loans]. The
tables set forth below are based on the assumption that the Home Equity Loans
prepay at the indicated percentage of [CPR]. Neither [CPR] nor any other
prepayment model purports to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Pool.
For purposes of preparation of the following tables, it has been assumed
that (i) the Offered Certificates are purchased on _______________, (ii)
payments on the Certificates are made on the ____ day of each month, commencing
_______________, 199, [(iii) the initial Class A Percentage is approximately
____% and the initial Class B Percentage is approximately _____%], (iv)
prepayments are received on the Home Equity Loans at the specified percentage of
CPR, (v) all payments of principal of and interest on each of the Home Equity
Loans in the Mortgage Pool are timely received, (vi) none of the Home Equity
S-29
<PAGE>
Loans in the Mortgage Pool is repurchased from the Trust and ( ) [other
assumptions].
Any discrepancy between the characteristics of the Home Equity Loans
actually included in the Trust and the characteristics of the Home Equity Loans
expected to be so included may affect the percentages of the original
outstanding principal balance set forth in the tables and the weighted average
lives of the Certificates. In addition, to the extent that the Home Equity
Loans included in the Trust Fund have characteristics that differ from those
assumed in preparing the following tables, the outstanding principal balance of
any Certificate will be reduced to zero earlier or later than that indicated by
the table.
Variations in actual prepayment experience and the principal balances of
the Home Equity Loans that prepay may increase or decrease the percentages of
the original principal balances outstanding and the weighted average lives shown
in the following tables. Such variations may occur even if the average
prepayment experience of all such Home Equity Loans equals the indicated levels
of [CPR]. There is no assurance that prepayment of the Home Equity Loans will
conform to any level of [CPR].
Based on the foregoing assumptions, the following tables indicate the
weighted average life of each Class of Class A and Class B-1 Certificates and
sets forth the percentages of the original principal balance outstanding of each
Class of Class A and Class B-1 Certificates that would be outstanding after each
of the dates shown at various percentages of [CPR].
Payment Date Class A-1 Class A-2 Class A-3 Class A-4 Class B-1
in______ ___%___%___% ___%___%___% ___%___%___% ___%___%___% ___%___%___%
Weighted average
life in years(1)
_______________
(1) The weighted average lives of the Certificates as shown above are determined
by (i) multiplying the amount of principal payments by the number of years from
the date of issuance of the Certificates to the related Payment Date, (ii)
summing the results and (iii) dividing the sum by the sum of the amounts in
clause (i) above.
THE MASTER SERVICER AND ITS AFFILIATES--ORIGINATION AND SERVICING
EXPERIENCE
GENERAL
For a general discussion of the Seller and the Master Servicer, see "The
Seller" and "The Master Servicer and Its Affiliates" in the Prospectus.
LOAN ORIGINATION HISTORY
The dollar amounts of first, second and more junior lien mortgage loans
originated and purchased by the Master Servicer and its affiliates during the
years ended December 31, 199 [, 199 and 199] were $ , $
and $ , respectively. The Seller originated and purchased Mortgage
loans totalling $ during the months ended
, 199 .
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SERVICING PORTFOLIO
At and December 31, 199 , the Master Servicer and its
affiliates serviced a total portfolio of and mortgage loans,
respectively, having aggregate unpaid principal balances of $ and $
, respectively.
[Insert any applicable origination information for an acquired portfolio.]
[DELINQUENCY AND LOSS EXPERIENCE
The following tables set forth information relating to the delinquency and
loan loss experience for the home equity loans in the portfolio of such loans
owned by the [Prior Owner] (the "Portfolio"). The data presented in the
following tables is for illustrative purposes only, and there is no assurance
that future delinquency or loss experience of the Home Equity Loans will be
similar to that set forth below.
HOME EQUITY LOAN DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
[_____] [_____]
At December 31, Months Months
Ended Ended
------------------------------------------
19__ 19__ 19__ 19__ [_____] [_____]
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Principal Amount
Outstanding(1).....................
Principal Amount Outstanding(2)......
Total Delinquent Balances (3)........
Total Delinquencies as a Percent of
Principal Amount Outstanding........
</TABLE>
_______________________
(1) Calculated as the average of the daily principal balance outstanding in
each month during the period, not including unearned interest.
(2) "Principal Amount Outstanding" is the net remaining principal balance, not
including unearned interest, at the end of the related period.
(3) "Total Delinquent Balances" is the net remaining principal balance 60 days
or more contractually past due, including earned but not yet received
interest, at the end of the related period.
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<PAGE>
HOME EQUITY LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
[_____] [_____]
At December 31, Months Months
Ended Ended
---------------------------------------------
19__ 19__ 19__ 19__ [______] [______]
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Principal Amount
Outstanding(1).......................
Principal Amount Outstanding(2)........
Total Net Credit Losses (3)............
Net Credit Losses as a Percent of (4)
Average Principal Amount Outstanding..
</TABLE>
_________________________
(1) Calculated as the average of the daily principal balance outstanding in
each month during the period, not including unearned interest.
(2) "Principal Amount Outstanding" is the net remaining principal balance, not
including unearned interest, at the end of the related period.
(3) "Total Net Credit Losses" is the net remaining principal balance, including
earned but not yet received interest, at the end of the related period.
(4) Reflects the application of the Prior Owner's charge-off policy to the
outstanding balances of those home equity loans which were more than 120
days contractually delinquent at the time of acquisition from predecessor
institutions.
[Management's discussion and analysis of material trends or analysis in
delinquency and loan loss experience, if any.]
The delinquency percentages set forth in the preceding table are calculated
on the basis of the unpaid principal balances of mortgage loans included in the
Portfolio as of the end of the periods indicated. The charge-off experience
percentages set forth above are calculated on the basis of the average
outstanding unpaid principal balance of mortgage loans included in the Portfolio
during the periods indicated. [However, because the amount of loans included in
the Portfolio has increased rapidly over these periods as a result of new
originations, the Portfolio as of the end of any indicated period includes many
loans that will not have been outstanding long enough to give rise to some or
all of the indicated periods of delinquency or to have resulted in losses.] In
the absence of such substantial and continual additions of newly originated
loans to the Portfolio, the delinquency and charge-offs percentages indicated
above would be higher and could be substantially higher. The actual delinquency
percentages and loss experience with respect to the Home Equity Loans may be
expected to be substantially higher than the delinquency percentages indicated
above because the composition of the Mortgage Pool will not change.]
[INSERT ANY OTHER APPLICABLE DELINQUENCY OR LOAN LOSS INFORMATION FOR AN
ACQUIRED PORTFOLIO.]
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The following summary describes certain terms of the Certificates and the
Pooling and Servicing Agreement. Reference is made to the accompanying
Prospectus for important additional information regarding the terms of the
Offered Certificates and the underlying documents. A form of the Pooling and
Servicing Agreement has been filed as an exhibit to the Registration Statement
of which the Prospectus forms a part. The summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the provisions of the Certificates and the Pooling and Servicing Agreement.
Where particular provisions or terms used in any of such documents are referred
to, the actual provisions (including definitions of terms) are incorporated by
reference as part of such summaries.
The TFC Home Equity Loan Asset-Backed Certificates, Series 199 - , will
consist of the Class A-1, Class A-2, Class A-3 and Class A-4 Certificates
(collectively, the "Class A Certificates"), the Class B-1 and Class B-2
Certificates (collectively, the "Class B Certificates") and the Class R
Certificates (together with the Class A Certificates and the Class B
Certificates, the "Certificates"). In the aggregate, the Class A Certificates
evidence an approximately ____% undivided interest in the Trust Fund. In the
aggregate, the Class B-1 Certificates evidence an approximately ____% undivided
interest in the Trust Fund. Only the Class A Certificates and Class B-1
Certificates (the "Offered Certificates") are offered hereby. Holders of Class
B-2 Certificates will receive only distributions of interest that are
subordinate to distributions of principal and interest to holders of Offered
Certificates to the extent described herein.
The Certificates represent interests in the Trust Fund created and held
pursuant to the Pooling and Servicing Agreement. The Trust Fund consists
primarily of (i) the Home Equity Loans and all proceeds thereof, (ii) all monies
received on the Home Equity Loans on and after the Cut-Off Date and (iii)
amounts on deposit in the Reserve Account.
Each Class A Certificate will be issued in minimum denominations of
$____________ and integral multiples thereof. Each Class B-1 Certificate will
be issued in minimum denominations of $__________ and integral multiples
thereof. Each Class A and Class B-1 Certificate will represent a percentage
interest (a "Percentage Interest") in the Certificates of the applicable Class
determined by dividing the original dollar amount represented by such
Certificate by the original aggregate principal amount of all Certificates of
such Class.
[Each Class of Class A Certificates and the Class B-1 Certificates (the
"Book-Entry Certificates") will initially be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), the nominee of The
Depository Trust Company ("DTC"), and will be available only in the form of
book-entries on the records of DTC, Participants and Indirect Participants.
Certificates representing the Book-Entry Certificates will be issued in
definitive form only under the limited circumstances described herein. All
references to "holders" or "Certificateholders" shall reflect the rights of
owners of the Book-Entry Certificates, as they may indirectly exercise such
rights through DTC and Participants, except as otherwise specified herein. See
"Description of the Certificates--Registration and Transfer of the Certificates"
in the Prospectus.]
On each Payment Date, the Trustee will pay to each person in whose name a
Certificate is registered on the related Record Date [(which in the case of
Book-
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<PAGE>
Entry Certificates initially will be only Cede, as nominee of DTC)], the portion
of the aggregate payment to be made to Certificateholders of the applicable
Class of Certificates, to which such holder is entitled, if any, based on the
Percentage Interest of the Certificates of such Class held by such holder.
Distributions will be made by wire transfer of immediately available funds to
the account of such holder at a bank or other entity having appropriate
facilities therefor if such holder owns of record Certificates of such Class in
denominations aggregating in excess of $________________ and shall have provided
complete wiring instructions to the Trustee at least five business days prior to
the Record Date, and otherwise by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register.
The Master Servicer will service the Home Equity Loans either directly or
through subservicers in accordance with the Pooling and Servicing Agreement and
generally in accordance with the first and second mortgage loan servicing
standards and procedures accepted by prudent mortgage lending institutions. See
"Description of the Certificates--Servicing Standards" and "--Use of
Subservicers" in the Prospectus for a further description of the provisions of
the Pooling and Servicing Agreement relating to servicing standards and the use
of subservicers.
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<PAGE>
FINAL SCHEDULED PAYMENT DATES
The Final Scheduled Payment Dates of the Offered Certificates will be as
follows:
Class A-1:
Class A-2:
Class A-3:
Class A-4:
Class B-1:
The Final Scheduled Payment Date of each Class is ____ months after the
Payment Date on which the principal balance of such Class is expected to be
reduced to zero assuming that, among other things, [describe assumptions]. The
rate of payment of principal of the Class A and Class B-1 Certificates will
depend on the rate of payments of principal (including prepayments) and any
repurchases of the Home Equity Loans. [Since the Final Scheduled Payment Dates
have been determined on the assumption, among others, that there are no
prepayments on the Home Equity Loans, the actual final distribution date of each
Class is likely to occur prior to its Final Scheduled Payment Date although, in
the event of defaults in payment of the Home Equity Loans, it could occur later
or earlier.]
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller will make the representations, among others, as to each Home
Equity Loan conveyed by the Seller as of the Closing Date described under
"Description of the Certificates--Representations and Warranties of the Seller"
in the Prospectus and will also represent that:
1. No more than ______% of the Home Equity Loans are Balloon Loans.
All of the Balloon Loans provide for monthly payments based on an
amortization schedule specified in the related Mortgage Note and have a
final balloon payment no earlier than ____ months following the date of
origination and no later than at the end of the _____ year following the
date of origination.
2. As of the Cut-off Date, no more than _____% of the Home Equity
Loans in the Mortgage Pool were 30 or more days contractually delinquent.
3. No more than ______% of the Home Equity Loans in the Mortgage Pool
are secured by Mortgaged Properties located within any single zip code
area.
4. No Home Equity Loan has a Combined Loan-to-Value Ratio in excess
of ___%.
DISTRIBUTIONS
Interest will accrue on the Class A and Class B-1 Certificates from [the
____ calendar day of each month (whether or not a Business Day) to, but
excluding, the ____ calendar day of the next succeeding month (whether or not a
Business Day)] (each, an "Accrual Period"). Interest shall accrue on each Class
A-1, Class A-2, Class A-3 and Class B-1 Certificate at the applicable Pass-
Through Rate specified on the cover page hereof, calculated on the basis of a
360-day year consisting of twelve 30-day months. The Class A-4 Certificates
will accrue interest during each Accrual Period at a rate qual to LIBOR
plus
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<PAGE>
_____% (the "Class A-4 Pass-Through Rates"). Interest shall be distributed, to
the extent monies are available therefor, on each Payment Date. With respect to
each Payment Date, interest accrued on each Class of Class A Certificates during
the related Accrual Period at the applicable Pass-Through Rate on the Class
Principal Balance (defined below) outstanding on the immediately preceding
Payment Date (after giving effect to all payments of principal made on such
Payment Date) or, in the case of the initial Accrual Period, ____________, is
referred to herein as the "Interest Remittance Amount" for such Class and, in
the aggregate for all Class A Certificates, as the "Class A Interest Remittance
Amount". Interest accrued during each Accrual Period at the Class B-1 Pass-
Through Rate on the Class B-1 Principal Balance (as defined below) outstanding
on the immediately preceding Payment Date (after giving effect to all payments
of principal made on such Payment Date) or, in the case of the initial Accrual
Period, __________, is referred to herein as the "Class B-1 Interest Remittance
Amount" for the related Payment Date.
[Holders of the Class A and Class B-1 Certificates will be entitled to
receive on each Payment Date, to the extent monies are available therefor (but
not more than the Class A Certificate Balance or Class B-1 Certificate Balance
then outstanding), a distribution allocable to principal which will generally
equal the sum of (i) the Class A Percentage or Class B-1 Percentage,
respectively, of all scheduled payments ("Monthly Payments") of principal
received on the Home Equity Loans during [the calendar month preceding the
calendar month in which such Payment Date occurs] (each, a "Remittance Period"),
(ii) the [Class A [Prepayment] Percentage or Class B-1 Percentage,
respectively,] of each other component of the Basic Principal Amount (defined
below) and (iii) the amount, if any, by which (a) the amount required to be
distributed to Class A Certificateholders as of the preceding Payment Date
exceeded (b) the amount actually distributed to the Class A Certificateholders
or Class B-1 Certificateholders, respectively on such date (such excess, the
"Class A Carry-Forward Amount" and, with the applicable percentage of the Basic
Principal Amount, the "Class A Principal Remittance Amount" or the "Class B-1
Carry-Forward Amount" and, with the Class B-1 Percentage of the Basic Principal
Amount, the "Class B-1 Principal Remittance Amount", as the case may be).
[Except during such time as the Class A Percentage equals 100%,] [P]rincipal
will be distributed to the Class A Certificates [in order of their Final
Scheduled Payment Dates and pro rata among the Class A Certificates of each
Class]. [If the Class A Percentage increases to 100%, distributions allocable
to principal will be made pro rata among the remaining Class A Certificates in
accordance with their respective outstanding principal balances and not in
accordance with the priorities set forth above.]
[The Available Payment Amount on deposit in the Collection Account will be
distributed on each Payment Date in the following amounts and order of priority:
(i) to the Class A Certificateholders, interest accrued during the
Accrual Period at the Class A Pass-Through Rate (the "Class A
Interest Remittance Amount") on the Class A Certificate Balance
as of the immediately preceding Payment Date (after giving
effect to all payments of principal made on such immediately
preceding Payment Date);
(ii) to the Class A Certificateholders, any previously unpaid
shortfalls in required distributions of interest on the Class A
Certificates, plus accrued interest thereon at the Class A
Pass-Through Rate (the "Unpaid Class A Interest Shortfall");
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<PAGE>
(iii) to the Class A Certificateholders, the Monthly Principal (as
defined below) until the Class A Certificate Balance is equal
to zero;
(iv) to the Class A Certificateholders, the Monthly Principal
Shortfall (as defined below) until the Class A Certificate
Balance is equal to zero;
(v) to the Class B-1 Certificateholders, interest accrued during
the Accrual Period at the Class B-1 Pass-Through Rate (the
"Class B-1 Interest Remittance Amount") on the Class B-1
Certificate Balance as of the immediately preceding Payment
Date (after giving effect to all payments of principal made on
such immediately preceding Payment Date);
(vi) to the Class B-1 Certificateholders, any previously unpaid
shortfalls in required distributions of interest on the Class
B-1 Certificates, plus accrued interest thereon at the Class B-
1 Pass-Through Rate (the "Unpaid Class B-1 Interest
Shortfall")'
(vii) to the Class B-2 Certificateholders, interest accrued during
the Accrual Period at the Class B-2 Pass-Through Rate (the
"Class B-2 Interest Remittance Amount") on the Class B-2
Notional Balance as of the immediately preceding Payment Date
(after giving effect to all payments of principal made on such
immediately preceding Payment Date);
(viii) to the Reserve Account, the amount, if any, by which the
Reserve Account Required Amount exceeds the balance in the
Reserve Account as of such Payment Date [(net of reinvestment
income payable to the Class R Certificateholders)];
(ix) if such Payment Date is on or after the Class A Termination
Date (and after any required distributions to reduce the Class
A Certificate Balance to zero have been made), to the Class B-1
Certificateholders, the Monthly Principal until the Class B-1
Certificate Balance is equal to zero;
(x) if such Payment Date is on or after the Class A Termination
Date (and after any required distributions to reduce the Class
A Certificate Balance to zero have been made), to the Class B-1
Certificateholders, the Monthly Principal Shortfall until the
Class B-1 Certificate Balance is equal to zero; and
(xi) any balance to the Class R Certificateholders.]
[The Class R Certificates are not issued in a principal amount, are not
entitled to receive distributions of principal or interest and are only entitled
to certain amounts in accordance with the priorities set forth above and as
otherwise described herein.]
The Trustee is required to establish a trust account (the "Collection
Account") for the remittance of payments on the Home Equity Loans to the
Certificateholders. The Collection Account is required to be maintained as an
Eligible Account.
The amount available to make the payments described above will generally
equal the Available Payment Amount for the related Remittance Period. The
"Available Payment Amount" generally means the result of (a) collections on or
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with respect to the Home Equity Loans received by the Master Servicer during the
related Remittance Period, net of the Servicing Fee paid to the Master Servicer
during the related Remittance Period and reimbursements for accrued unpaid
Servicing Fees, previous Advances and Servicing Advances and for certain
expenses paid by the Master Servicer, fees and expenses of the Trustee and
premiums and fees of the provider of the credit enhancement, if any[, plus (b)
the amount of any Advances] [less (c) the amount of any Excess Spread.]
[The "Basic Principal Amount" means the sum of (i) the principal portion of
each Monthly Payment [received][due] during the related Remittance Period, (ii)
all Curtailments and all Principal Prepayments received during such related
Remittance Period, (iii) the principal portion of all Insurance Proceeds,
Released Mortgaged Property Proceeds and Net Liquidation Proceeds received
during the related Remittance Period, (iv)(a) that portion of the purchase price
of any repurchased Home Equity Loans which represents principal and (b) any
Substitution Adjustments deposited into the Collection Account as of the related
Determination Date and (v) the Principal Balance of each Home Equity Loan as of
the beginning of the related Remittance Period which became a Liquidated Home
Equity Loan during the related Remittance Period (exclusive of any principal
payments in respect thereof described in the preceding clauses (i) through
(iv)).]
The "Class A Certificate Balance" means the Original Class A Certificate
Balance reduced by the sum of all amounts previously distributed to Class A
Certificateholders in respect of principal on all previous Payment Dates. The
"Original Class A Certificate Balance" is $__________.
The "Class B-1 Certificate Balance" means the Original Class B-1
Certificate Balance reduced by the sum of all amounts previously distributed to
Class B-1 Certificateholders in respect of principal on all previous Payment
Dates. The "Original Class B-1 Certificate Balance" is $__________.
[The "Class A Prepayment Percentage" means, generally, subject to certain
conditions set forth in the Pooling and Servicing Agreement, as of any Payment
Date up to and including the Payment Date in ____________, [100%]; as of any
Payment Date in the [first] year thereafter, the Class A Percentage plus ____%
of the Class B Percentage for such Payment Date; as of any Payment Date in the
[second] year thereafter, the Class A Percentage plus ____% of the Class B
Percentage for such Payment Date; as of any Payment Date in the [third] year
thereafter, the Class A Percentage plus ____% of the Class B Percentage for such
Payment Date; and as of any Payment Date thereafter, the Class A Percentage;
provided that, if the Class A Percentage as of any such Payment Date is greater
than the initial Class A Percentage, the Class A Prepayment Percentage shall be
100%.]
[The "Class A Remittance Amount" for a Payment Date will be the aggregate
of the full amounts distributable pursuant to clauses (i), (ii), (iii) and (iv)
above, whether or not there is sufficient Available Payment Amount to make such
distribution on such Payment Date.]
[The "Class B Remittance Amount" for a Payment Date will be the aggregate
of the full amounts distributable pursuant to clauses (v), (vi), (viii) and (ix)
above, whether or not the Available Payment Amount is sufficient to make such
distribution on such Payment Date.]
To the extent that on any Payment Date sufficient funds are not available,
either from the Collection Account or from the Reserve Account, to fully pay
Monthly Principal, there will be a principal shortfall (a "Monthly Principal
Shortfall"). On any Payment Date, the "Unpaid Monthly Principal Shortfall" is
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<PAGE>
equal to the aggregate of the previously unpaid Monthly Principal Shortfalls for
all previous Payment Dates.
["Monthly Principal" for any Payment Date will equal (i) the sum of
the Principal Balances of the Home Equity Loans as of the commencement of the
Remittance Period preceding the Remittance Period in which such Payment Date
occurs (or, in the case of the first Payment Date, the initial principal
balances of the Home Equity Loans as of the Cut-Off Date (the "Original
Principal Pool Balance")), less (ii) the sum of the Principal Balances of the
Home Equity Loans as of the commencement of the Remittance Period in which such
Payment Date occurs.]
"Principal Balance" means, with respect to any Home Equity Loan as of
any date, the principal balance as of the Cut-Off Date reduced by that portion
of all payments received by the Master Servicer allocable to principal;
provided, that for the purpose of determining Monthly Payments, (i) for every
Remittance Period in which a Home Equity Loan is repurchased or purchased by a
Seller or the Master Servicer because of a breach of warranty or covenant set
forth in the Pooling and Servicing Agreement, a material defect in the loan
documentation or an extension of the term of a Mortgage beyond the termination
date of the Trust or in which such Home Equity Loan is prepaid in full, and for
the Remittance Period, if any, in which the Master Servicer purchases the Home
Equity Loans in connection with an optional termination of the Trust, the
Principal Balance of such Home Equity Loan shall be deemed to be zero; (ii) for
every Remittance Period succeeding the final Remittance Period in which the
borrower is required to make any payment thereon, the Principal Balance, if any,
of such Home Equity Loan shall be deemed to be zero; (iii) for every Remittance
Period in which any charge-off of principal is made in respect of any defaulted
Home Equity Loan, the Principal Balance of such Home Equity Loan shall be
reduced by the amount of such charge-off; (iv) for every Remittance Period in
which a Home Equity Loan becomes a Liquidated Home Equity Loan, the Principal
Balance of such Home Equity Loan shall be deemed to be zero; and (v) for every
Remittance Period in which any portion of principal is reduced in respect of any
Home Equity Loan on account of adjustments for credit life or disability
insurance which has been terminated by the Master Servicer or the mortgagor, the
Principal Balance of such Home Equity Loan shall be reduced by the amount of
such reduction.
In the event that on any Payment Date prior to the Class A Termination
Date there is not sufficient Available Payment Amount in the Collection Account
to pay the Class A Remittance Amount, the Class B-1 Interest Remittance Amount
and any Class B Interest Shortfall, amounts available in the Reserve Account
will be withdrawn by the Trustee, deposited into the Collection Account, and
applied first to the payment of the Class A Remittance Amount, then to the
payment of Class B-1 Interest Remittance Amount and then to the payment of Class
B-1 Interest Shortfall, if any. On the Class A Termination Date, all amounts in
the Reserve Account [(other than reinvestment income payable to the Class R
Certificateholders)] in excess of the Reserve Account Required Amount (as
reduced to reflect the reduction of the Class A Certificate Balance to zero on
such date) shall be distributed to the holders of the Class B-1 Certificates in
reduction of the Class B-1 Principal Balance.
To the extent that on any Payment Date, sufficient funds are not
available, either from the Collection Account or from the Reserve Account, to
fully pay Monthly Principal, there will be Monthly Principal Shortfall. On any
Payment Date, the "Unpaid Monthly Principal Shortfall" is equal to the aggregate
of the previously unpaid Monthly Principal Shortfalls for all previous Payment
Dates.]
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<PAGE>
SUBORDINATED CERTIFICATES [AND SHIFTING INTERESTS]
The right of the Class B-1 Certificateholders to receive distributions
with respect to the Home Equity Loans will be subordinated to the right of the
Class A Certificateholders, to the extent described below. This subordination
and the Reserve Account [is] intended to enhance the likelihood of regular
receipt by the Class A Certificateholders of the Class A Remittance Amounts and
to protect the Class A Certificateholders against losses.
[The protection afforded to holders of the Class A Certificates by
means of such subordination will be accomplished by the preferential right of
such holders to receive out of funds on deposit in the Collection Account and
the Reserve Account, prior to any distribution being made on a Payment Date on
the Class B-1 Certificates, the Class A Remittance Amount due them on such
Payment Date.]
On each Payment Date, payments to the Class A Certificateholders will
be made prior to payments to the Class B-1 Certificateholders. On any Payment
Date on which the Class A Percentage is less than 100%, if the Class A
Certificateholders receive less than the amount due to them on such date, the
interest of the Class A Certificateholders in the Trust Fund will vary so as to
preserve the entitlement of the Class A Certificateholders to unpaid principal
of the Home Equity Loans and interest thereon. [If a Principal Prepayment,
Curtailment or certain other unscheduled amounts of principal are received on a
Home Equity Loan, the Class A Certificateholders will be paid an amount equal to
the Class A Prepayment Percentage (defined herein) of the amount received. This
will have the effect of accelerating receipt of principal by the Class A
Certificateholders, thus reducing their proportionate interest in the Trust Fund
and increasing the relative interest in the Trust Fund evidenced by the Class B
Certificates. Increasing the interest of the Class B Certificates relative to
that of the Class A Certificates is intended to preserve the availability of the
subordination provided by the Class B Certificates.]
[Although the Class B-1 Certificates are subordinated to the Class A
Certificates, amounts in the Reserve Account, if any, available after payment of
the Class A Remittance Amount on any Payment Date prior to the Class A
Termination Date will be available on each Payment Date to pay Class B Interest
Remittance Amount and any Class B-1 Interest Shortfall. On the Class A
Termination Date, any amounts in the Reserve Account [(other than reinvestment
income payable to the Class R Certificateholders)] in excess of the Reserve
Account Required Amount (as reduced to reflect the reduction of the Class A
Certificate Balance to zero on such date) will be distributed to the Class B-1
Certificateholders in reduction of the Class B-1 Certificate Balance. This will
have the effect of accelerating the amortization of the Class B-1 Certificates.]
[Describe any applicable limits on subordination.]
[RESERVE ACCOUNT
[A reserve account or accounts will be maintained by the Trust (the
"Reserve Account") to enhance the likelihood of timely payments with respect to
the Class A Certificates and the Class B-1 Certificates. Amounts on deposit in
the Reserve Account will be available on each Payment Date on or prior to the
Class A Termination Date to pay the Class A Remittance Amount, Class B-1
Interest Remittance Amount and any Class B-1 Interest Shortfall to the extent
that the Available Payment Amount on any such Payment Date is insufficient
therefor. An initial deposit of $__________ [(%_____ of the Original Pool
Principal Balance)] will be made by the Seller into the Reserve Account and
thereafter, on each Payment Date, the Available Payment Amount will be deposited
in the Reserve
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Account as set forth above under "--Distributions" until the amount in the
Reserve Account equals the Reserve Account Required Amount in effect on such
Payment Date. The Reserve Account Required Amount will initially be equal to
$__________ [(____% of the Original Pool Principal Balance)] and will remain at
such amount for each Payment Date until the Payment Date in __________ (such
date and each successive __________ Payment Date being referred to herein as an
"Anniversary Date"). On each Anniversary Date, commencing with the Anniversary
Date in __________, the Reserve Account Required Amount will be reduced to equal
the greater of (i) ____% of the Pool Principal Balance as of such Anniversary
Date, or (ii) the Anniversary Date Alternative Amount, but in no event will the
Reserve Account Required Amount on any Anniversary Date be reduced below
$__________ [(____% of the Original Pool Principal Balance).] The "Anniversary
Date Alternative Amount" for each Anniversary Date will equal the difference
between (i) ____% of the Pool Principal Balance as of such Anniversary Date, and
(ii) the difference between (a) the Pool Principal Balance as of such
Anniversary Date, and (b) the Class A Certificate Balance as of such Anniversary
Date (after giving effect to all distributions made on such Anniversary Date).
Notwithstanding the foregoing, no reduction shall be made in the Reserve Account
Required Amount on an Anniversary Date if on such Anniversary Date (i) the
[Three Month 30-Day] Delinquency Average is greater than ____% (ii) the [Three
Month 60-Day] Delinquency Average is greater than _____%, or (iii), the Net
Losses (expressed as a percentage of the Original Pool Principal Balance from
the Cut-Off Date to the applicable Anniversary Date equal or exceed ____% for
the Anniversary Date in __________, _____% for the Anniversary Date in
__________ or _____% for the Anniversary Date in __________ and for each
thereafter. Notwithstanding the foregoing, as of the Class A Termination Date
the Reserve Account Required Amount will be reduced to _____% of the Pool
Principal Balance as of such date and shall be reduced on each successive
Anniversary Date to equal ____% of the Pool Balance as of each such Anniversary
Date.]
["Net Losses" as of any date are equal to the sum of (i) the Principal
Balances of all Home Equity Loans which have become Liquidated Home Equity Loans
since the Cut-Off Date (which Principal Balances are measured as of the date the
related Home Equity Loan became a Defaulted Home Equity Loan), less Net
Liquidation Proceeds with respect to such Liquidated Home Equity Loans (provided
that such total shall not be below zero), and (ii) (without duplication) all
partial charge-offs incurred on all Home Equity Loans since the Cut-Off Date.]
[The "Three-Month 30-Day Delinquency Average" on any Anniversary Date
is equal to the average of the 30-Day Delinquency Percentages for the three
Remittance Periods ending immediately prior to such Anniversary Date. The "30-
Day Delinquency Percentage," for any Remittance Period, is equal to (i) the sum
of (a) the Principal Balances of all Home Equity Loans which were 30 or more
days past due as of the last day of such Remittance Period, plus (b) the
Principal Balance of each Home Equity Loan secured by a Mortgaged Property that
has become an REO Property (which Principal Balance is measured as of the date
on which such Mortgaged Property became an REO Property) less any partial
charge-offs taken as of the end of such Remittance Period, divided by (ii) the
Pool Principal Balance as of the first day of such Remittance Period, expressed
as a percentage.]
[The "Three Month 60-Day Delinquency Average" on any Anniversary Date
is equal to the average of the 60-Day Delinquency Percentages for the three
Remittance Periods ending immediately prior to such Anniversary Date. The "60-
Day Delinquency Percentage," for any Remittance Period, is equal to (i) the sum
of (a) the Principal Balances of all Home Equity Loans which were 60 or more
days past due as of the last day of such Remittance Period, plus (b) the
Principal Balance of each Home Equity Loan secured by a Mortgaged Property that
has become an REO Property (which Principal Balance is measured as of the date
on which such Mortgaged Property became an REO Property) less any partial
charge-offs taken as
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of the end of such Remittance Period, divided by (ii) the Pool Principal Balance
as of the first day of such Remittance Period expressed as a percentage.]
[Amounts on deposit in the Reserve Account will be invested in
Eligible Investments (as defined in the Pooling and Servicing Agreement), which
may include securities or obligations of the Seller or their affiliates if they
would otherwise qualify as Eligible Investments. All such Eligible Investments
are required to mature no later than the Business Day prior to each Payment Date
except that a portion of the amounts on deposit in the Reserve Account may be
invested in Eligible Investments with longer maturities to the extent allowed by
the Rating Agencies. Interest earned on amounts in the Reserve Account and
amounts in the Reserve Account on any Payment Date (after giving effect to all
distributions made on such Payment Date) in excess of the Reserve Account
Required Amount in effect on such Payment Date (and in the case of the Payment
Date which is the Class A Termination Date, in excess of the amount
distributable to the Class B-1 Certificateholders from the Reserve Account on
such date) will be distributed to the [Class R Certificateholders]. On the
Class A Termination Date, any amounts in the Reserve Account [(other than
reinvestment earnings payable to the Class R Certificateholders)] in excess of
the Reserve Account Required Amount (as reduced to reflect the reduction of the
Class A Certificate Principal Balance to zero on such date) will be distributed
to the Class B-1 Certificateholders in reduction of the Class B-1 Certificate
Balance.]
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates based upon the assumption that the Certificates will be issued in
199 .
Cut-off Date. The Original Pool Principal Balance will
------------
be the aggregate principal balances of the Home Equity
Loans on the Cut-off Date after application of all
payments received prior to the Cut-off Date.
Remittance Period. All amounts received on account of
-----------------
the Home Equity Loans (other than interest accrued
prior to the Cut-off Date) from the Cut-off Date to
_________, 1996 will be for the account of
Certificateholders.
Determination Date. The Trustee determines, based on
------------------
information provided by the Master Servicer, the amount
of principal and interest that will be distributed to
Certificateholders on , 199 .
The Master Servicer transfers funds received during the
Remittance Period to the Collection Account [including
any Advances].
First Record Date. Distributions on , 199
-----------------
will be made to Certificateholders of record at the
close of business on , 199 .
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Payment Date. The Trustee or its designee will
------------
distribute to Certificateholders the amounts required
to be distributed pursuant to the Pooling and Servicing
Agreement.
ADVANCES; SERVICING ADVANCES
On each Payment Date the Master Servicer will make advances (each, an
"Advance") to cover shortfalls in the amount of interest payable to Class A
Certificateholders resulting from delinquent payments on the Home Equity Loans
that remain uncollected as of the end of the preceding Remittance Period, to the
extent the Master Servicer believes that the amount so advanced will be
recoverable from subsequent payments and collections in respect of the related
Home Equity Loan. However, no Advances will be made if after giving effect
thereto the total amount of such Advances with respect to a particular Home
Equity Loan outstanding at that time would exceed the total amount of delinquent
payments of principal and interest on such Home Equity Loan as of the preceding
Record Date, plus the total amount of Servicing Advances made during the
preceding Remittance Period with respect to such Home Equity Loan.
In the course of performing its servicing obligations, the Master Servicer
will pay certain out-of-pocket costs and expenses incurred in the performance of
its servicing obligations ("Servicing Advances"), including, but not limited to,
the cost of (i) maintaining REO Properties; (ii) any enforcement or judicial
proceedings, including foreclosures; and (iii) the management and liquidation of
Mortgaged Property acquired in satisfaction of the related Mortgage, in each
case to the extent that the Master Servicer believes that the amount so advanced
will be recoverable from subsequent payments and collections in respect of the
related Home Equity Loan.
On each Payment Date, the Master Servicer will be entitled to a first
priority reimbursement from amounts paid by borrowers for previous Advances and
Servicing Advances.
SERVICING COMPENSATION
As compensation for servicing and administering the Home Equity Loans, the
Master Servicer is entitled to a fee of % per annum of the principal balance
of each Home Equity Loan (the "Servicing Fee") calculated and payable monthly
from collections and payments with respect to the Home Equity Loans. In
addition to the Servicing Fee, the Master Servicer is entitled under the Pooling
and Servicing Agreement to retain as additional servicing compensation any
assumption and other administrative fees (including bad check charges, late
payment fees and similar fees), the excess of any Net Liquidation Proceeds over
the outstanding principal balance of a Liquidated Home Equity Loan, to the
extent not otherwise required to be remitted to the Trustee for deposit into the
Collection Account, and earnings paid on Permitted Instruments and similar
items.
TERMINATION; PURCHASE OF HOME EQUITY LOANS
The Pooling and Servicing Agreement will terminate upon notice to the
Trustee of either: (a) the later of the distribution to Certificateholders of
the final payment or collection with respect to the last Home Equity Loan (or
Advances of such payment or collection by the Master Servicer), or the
disposition of all funds with respect to the last Home Equity Loan and the
remittance of all funds due under the Pooling and Servicing Agreement and the
payment of all amounts due and payable to the Trustee or (b) mutual consent of
the Master Servicer and all Certificateholders in writing; provided, however,
that in no event will the Trust established by the Pooling and Servicing
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Agreement terminate later than twenty-one years after the death of the last
surviving lineal descendant of the person named in the Pooling and Servicing
Agreement, alive as of the date of the Pooling and Servicing Agreement.
Subject to provisions in the Pooling and Servicing Agreement concerning
adopting a plan of complete liquidation, the Master Servicer may, at its option,
terminate the Pooling and Servicing Agreement on any date on which the Pool
Principal Balance is less than % of the Original Pool Principal Balance by
purchasing, on the next succeeding Payment Date [(but in no event before the
Payment Date occurring in ], all of the outstanding Home Equity
Loans and REO Properties then remaining in the Trust Fund at a price (the
"Termination Price") equal to the greater of: (i) the sum of (x) 100% of the
Principal Balance of each Home Equity Loan (other than any Liquidated Home
Equity Loan or any Home Equity Loan as to which title to the underlying
Mortgaged Property has been acquired and whose fair market value is included
pursuant to clause (y) below) as of the Payment Date upon which the proceeds of
any such purchase are to be distributed, (y) the fair market value of such
acquired property (as determined by the Master Servicer as of the close of
business on the third Business Day next preceding the date upon which notice of
any such termination is furnished to Certificateholders, and (z) interest at the
applicable Loan Rate on the Principal Balance of each Home Equity Loan for the
Accrual Period in which the Effective Date of such purchase occurs (including
any Home Equity Loan as to which title to the underlying Mortgaged Property has
been acquired); and (ii) the sum of (x) the Class A Certificate Balance together
with Class A Interest Remittance Amount and any Unpaid Class A Interest
Shortfall, (y) the Class B Certificate Balance together with the Class B
Interest Remittance Amount and any Unpaid Class B Interest Shortfall and (z) the
Monthly Servicing Fee for such Payment Date and all other amounts payable to the
Master Servicer for which the Master Servicer is entitled to withdraw funds from
the Collection Account, less all Net Losses that have not previously been
applied to reduce the Certificate Balances.
AMENDMENT
The Pooling and Servicing Agreement may be amended from time to time by the
Master Servicer and the Trustee by written agreement, without notice to, or
consent of, the Certificateholders, to cure any ambiguity, to correct or
supplement any provisions therein, to comply with any changes in the Code, or to
make any other provisions with respect to matters or questions arising under the
Pooling and Servicing Agreement which shall not be inconsistent with the
provisions of the Pooling and Servicing Agreement, provided that such action
does not, as evidenced by an Opinion of Counsel delivered to the Trustee,
adversely affect in any material respect the interests of any Certificateholder;
and provided, further, that no such amendment is permitted to reduce in any
manner the amount of, or delay the timing of, payments received on Home Equity
Loans which are required to be distributed on any Certificate without the
consent of the holder of such Certificate, or change the rights or obligations
of any other party to the Pooling and Servicing Agreement without the consent of
such party.
The Pooling and Servicing Agreement also may be amended from time to time
by the Seller, the Master Servicer and the Trustee, the Majority in Aggregate
Voting Interest [holders of Certificates evidencing not less than 51% of the
aggregate Class A and Class B Principal Balances] for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Pooling and Servicing Agreement or of modifying in any manner the rights of
the Certificateholders; provided, however, that no such amendment is permitted
unless the Trustee receives an opinion of counsel, at the expense of the party
requesting the change, that such change will not adversely affect the status of
the Trust Fund as a REMIC or cause any tax to be imposed on the REMIC, and
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provided further, that no such amendment is permitted to reduce in any manner
the amount of, or delay the timing of, payments received on Home Equity Loans
which are required to be distributed on any Certificate without the consent of
the holder of each such Certificate or reduce the percentage for each Class the
holders of which are required to consent to any such amendment without the
consent of the holders of 100% of each Class of Certificates affected thereby.
Notwithstanding any contrary provision of the Pooling and Servicing
Agreement, the Trustee is not permitted to consent to any amendment to the
Pooling and Servicing Agreement unless it has first received an Opinion of
Counsel to the effect that such amendment or the exercise of any power granted
to the Master Servicer, the Representative, any Depositor, or the Trustee in
accordance with such amendment will not result in the imposition of a tax on the
[Trust] or cause the REMIC to fail to qualify as a REMIC at any time that any
Certificate is outstanding.
[DESCRIPTION OF CREDIT ENHANCEMENT
The [Credit Enhancement] will be issued by ___________________________ (the
"Credit Enhancement Provider"), in favor of the Trustee on behalf of the holders
of the Class A Certificates. The Credit Enhancement provides
___________________ on each Payment Date.
If, by the close of business on the Determination Date before any Payment
Date, the Master Servicer determines that the Available Distribution Amount is
less than the __________ for such Payment Date, the Master Servicer shall
deliver to the Credit Enhancement Provider a notice of claim for payment of the
amount of the shortfall for such Payment Date. In such event, the Credit
Enhancement Provider shall pay to the Trustee for ultimate distribution to the
holders of the Class A Certificates an amount equal to ___________________ on
the later of (a) the Business Day following receipt of such notice and (b) such
Payment Date.
The Trustee will be entitled to enforce on behalf of Class A
Certificateholders the obligations of the Credit Enhancement Provider under the
Credit Enhancement, and no holder of a Class A Certificate will be entitled to
institute proceedings directly against the Credit Enhancement Provider unless
the Trustee has been directed to do so by the holders of Class A Certificates in
accordance with the terms of the Pooling and Servicing Agreement and fails to do
so.
The Credit Enhancement is non-cancelable. Premiums for the Credit
Enhancement will be paid monthly from the Collection Account prior to any
distributions to Certificateholders.
Pursuant to the Pooling and Servicing Agreement, the Credit Enhancement
Provider will be subrogated to the rights of the holders of the Class A
Certificates to the extent of any payment made by it under the Credit
Enhancement. For so long as the Credit Enhancement Provider is not in default
of its obligations under the Credit Enhancement, the Credit Enhancement Provider
will be deemed to be the sole holder of all outstanding Class A Certificates for
the purpose of voting or instructing the Trustee under the Pooling and Servicing
Agreement.
The Credit Enhancement does not guarantee to the holders of Class A
Certificates any specific rate of prepayments of principal of the Mortgage
Loans. The Credit Enhancement also does not insure payment of any interest
shortfalls attributable to prepayments on any of the Mortgage Loans or any
shortfalls in
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amounts otherwise distributable to Class A Certificateholders as a result of any
indemnification payments pursuant to the Pooling and Servicing Agreement.
[additional disclosure to be provided by Credit Enhancement Provider]
For further financial information concerning the Credit Enhancement
Provider, see the audited financial statements of the Credit Enhancement
Provider included as Appendix B and the unaudited interim financial statements
of the Credit Enhancement Provider included as Appendix A of this Prospectus
Supplement.
The Credit Enhancement Provider disclaims any responsibility for the
accurateness or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the Credit Enhancement Provider set forth
herein under the caption "The Credit Enhancement" and in Appendix A and Appendix
B.
The information set forth above concerning the Credit Enhancement Provider
has been provided by the Credit Enhancement Provider.]
THE TRUSTEE
, a
organized under the laws of with its principal place of
business in the State of will be named Trustee pursuant to the Pooling and
Servicing Agreement.
Pursuant to the Pooling and Servicing Agreement, the Trustee is required at
all times to be a banking association organized and doing business under the
laws of the United States of America or of any State, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, whose long-term deposits, if any, are rated at least " " by
S&P and " " by Moody's, or such lower rating as may be approved in writing by
Moody's and S&P, subject to supervision or examination by federal or state
authority. If at any time the Trustee shall cease to be eligible in accordance
with the provisions described in this paragraph, the Trustee shall give notice
of such ineligibility to the Master Servicer and shall resign, upon the request
of the [Majority in Aggregate Voting Interest], in the manner and with the
effect specified in the Pooling and Servicing Agreement.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall become effective upon the acceptance of appointment by such
successor trustee.
The Trustee, or any successor trustee or trustees, may resign at any time
by giving written notice to the Master Servicer and to all Certificateholders in
the manner set forth in the Pooling and Servicing Agreement. Upon receiving
notice of resignation, the Master Servicer is required to promptly appoint a
successor trustee or trustees meeting the eligibility requirements set forth
above in the manner set forth in the Pooling and Servicing Agreement. The
Master Servicer will deliver a copy of the instrument used to appoint a
successor trustee to the Certificateholders. If no successor trustee shall have
been appointed and have accepted appointment within 60 days after the giving of
such notice of resignation, the resigning trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
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The Majority in Aggregate Voting Interest may remove the Trustee under the
conditions set forth in the Pooling and Servicing Agreement and appoint a
successor trustee in the manner set forth therein.
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 Master Servicer 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 Master Servicer and the Trustee may
consider necessary or desirable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Orrick, Herrington &
Sutcliffe LLP, counsel to the Seller, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, [the Trust] [REMIC I and
REMIC II] (as defined in the Pooling and Servicing Agreement) will [each]
qualify as a REMIC under the Code.
For federal income tax purposes, [(a) the Class R-I Certificates will
constitute the sole class of "residual interests" in REMIC I, (b) each class of
Offered Certificates will represent ownership of "regular interests" in REMIC II
and will generally be treated as representing ownership of debt instruments of
REMIC II and (c) the Class R Certificates will constitute the sole class of
"Residual Certificates" in REMIC II.] See "Certain Federal Income Tax
Consequences--REMICs" in the Prospectus.
For federal income tax reporting purposes, the ____________ Certificates
will not, the ____________ Certificates may, and the ___________ Certificates
will, be treated as having been issued with original issue discount. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, market discount and premium, if any, for federal income
tax purposes will be based on the assumption that subsequent to the date of any
determination the Home Equity Loans will prepay at a rate equal to __% SPA. No
representation is made that the Home Equity Loans will prepay at that rate or at
any other rate. See "Certain Federal Income Tax Consequences--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount" in the
Prospectus.
[The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers
of the [Offered] [Adjustable Rate] Certificates should be aware that the OID
Regulations and Section 1272(a)(6) of the Code do not adequately address certain
issues relevant to, or are not applicable to, securities such as the [Offered
Certificates] [Adjustable Rate Certificates]. In addition, because of the
uncertainties concerning the application of Section 1272(a)(6) of the Code to
debt instruments having an adjustable rate of interest and because the rules of
the OID Regulations relating to such debt instruments are limited in their
application in ways that could preclude their application to the [Offered]
[Adjustable Rate] Certificates even in the absence of Section 1272(a)(6) of the
Code, the IRS could assert [that the Class ____ Certificates should be treated
as having been issued with original issue discount, or] that the Adjustable Rate
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Certificates should be governed by the rules applicable to debt instruments
having contingent payments or by some other method not yet set forth in
regulations. Prospective purchasers of the Adjustable Rate Certificates are
advised to consult their tax advisors concerning the tax treatment of such
Certificates.
In the absence of other authority, the Master Servicer intends, for
Adjustable Rate Certificates determined to have been issued with original issue
discount in excess of a de minimis amount, to report all income with respect to
such Certificates as original issue discount for each period, computing such
original issue discount (i) by assuming that the value of the applicable index
will remain constant for purposes of determining the original yield to maturity
of, and projecting future distributions on, each class of such Certificates,
thereby treating such Certificates as fixed rate instruments to which the
original issue discount rules described in the Prospectus can be applied, and
(ii) by accounting for any positive or negative variation in the applicable
index in any period from its assumed value as a current adjustment to original
issue discount with respect to such period.]
[If the rules of the OID Regulations that determine the amount and accrual
of original issue discount were applied literally to the [Class _____
Certificates] (even though such rules are by their terms generally inapplicable
to REMIC Regular Certificates such as the [Class ___ Certificates)], it appears
that such rules would (i) require that the stated fixed interest rate initially
payable on the Class ___ Certificates be replaced by a hypothetical adjustable
rate that would not cause the fair market value of the Class ___ Certificates to
be affected, (ii) determine the amount and accrual of original issue discount by
assuming that the Class ____ Certificates bore interest at successive fixed
rates equal to the closing date values of the hypothetical and the actual
adjustable rates, and (iii) make such periodic adjustments to interest income
and original issue discount as are necessary to account for the actual interest
paid on such Certificates, including differences between the stated fixed
interest rate and the rate assumed to have been paid during the fixed rate
period. This treatment could cause a holder of a Class ___ Certificate to
recognize income more rapidly than would occur under the Master Servicer's
method of reporting interest and original issue discount, and such a holder
should consult a tax advisor with regard to the appropriate method to recognize
interest and original discount with respect to the Class __ Certificates.]
[If the rules of the OID Regulations that determine the amount and accrual
of original issue discount were applied literally to the [Class _____
Certificates] (even though such rules are by their terms generally inapplicable
to REMIC Regular Certificates such as the [Class ___ Certificates]), it appears
that such rules would (i) treat all stated interest as "qualified stated
interest" (as defined in the Prospectus) and (ii) determine the accrual of
original issue discount based on the assumption that the interest rate on such
Certificates is a fixed rate that reflects the yield to maturity that is
"reasonably expected" for such Certificates. This treatment could cause a
holder of a Class ___ Certificate to recognize income more rapidly than would
occur under the Master Servicer's method of reporting interest and original
issue discount, and such a holder should consult a tax advisor with regard to
the appropriate method to recognize interest and original discount with respect
to the Class ___ Certificates.]
[If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder (in particular, the Class ___ Certificateholders), the amount
of original issue discount allocable to such period would be zero and such
Certificateholder will be permitted to offset such negative amount only against
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future original issue discount (if any) attributable to such Certificates.
Although the matter is not free from doubt, a Class ___ Certificateholder may be
permitted to deduct a loss to the extent that his or her respective remaining
basis in such Certificate exceeds the maximum amount of future payments to which
such Certificateholder is entitled, assuming no further prepayments of the Home
Equity Loans. Any such loss might be treated as a capital loss.]
The OID Regulations permit the holder of a debt instrument to recognize
original issue discount under a method that differs in certain respects from
that used by the issuer. Accordingly, it is possible for the holder of a
Certificate to recognize original issue discount in amounts different from those
to be reported by the Master Servicer to Certificateholders and the IRS.
Certain classes of the Offered Certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any holder of
such Certificates will be treated as holding a certificate with amortizable bond
premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such classes of Certificates
should consult their own tax advisors regarding the possibility of making an
election to amortize such premium. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates" and "--
Premium" in the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" under Section 593(d) of the Code, assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(5)(A)
of the Code generally in the same proportion that the assets of the Trust Fund
would be so treated. In addition, interest on the Offered Certificates will be
treated as "interest on obligations secured by mortgages on real property" under
Section 856(c)(3)(B) of the Code generally to the extent that such Offered
Certificates are treated as "real estate assets" under Section 856(c)(5)(A) of
the Code. Moreover, the Offered Certificates (other than the Residual
Certificates) will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code if transferred to another REMIC on its startup day in
exchange for a regular or residual interest therein. See "Certain Federal
Income Tax Consequences--REMICs--Characterization of Investments in REMIC
Certificates" in the Prospectus.
For further information regarding federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other plan or arrangement
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or section 4975 of the Code (a "Plan"), or any insurance company
(whether investing through its general or separate accounts) or other person
investing "plan assets" of any Plan, should carefully review with its legal
advisors whether the purchase or holding of Offered Certificates could give rise
to a transaction prohibited or not otherwise permissible under ERISA or section
4975 of the Code. The U.S. Department of Labor has issued an Exemption, as
described under "ERISA Considerations--Prohibited Transaction Exemptions" in the
Prospectus, to [an affiliate of] [NAME OF UNDERWRITER]. However, the
exemptive relief afforded by the Exemption will likely not apply to the
purchase, sale or holding of [NAME(S)] (due to the subordinated nature thereof)
or Residual Certificates. The purchase or holding of the [Senior] Certificates
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(other than the [NAME(S)] Certificates and Residual Certificates) by, on behalf
of or with "plan assets" of a Plan may qualify for exemptive relief under the
Exemption. Moreover, the Exemption contains a number of conditions, as
described under "ERISA Considerations--Prohibited Transaction Exemptions" in the
Prospectus, including the requirement that any such Plan must be an "accredited
investor" as defined in Rule 501(a)(i) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933, amended. In addition,
because it is not clear that the [NAME(S)] or Residual Certificates will qualify
for exemptive relief under the Exemption or PTCE 83-1, as described under "ERISA
Considerations--Prohibited Transaction Exemptions" in the Prospectus, purchases
of such Certificates by, on behalf of or with "plan assets" of any Plan are not
to be registered unless the transferee provides (i) an opinion of counsel
satisfactory to the Master Servicer and the Trustee that the purchase of any
such Certificate by, on behalf of or with "plan assets" of any Plan is
permissible under applicable law, will not result in any non-exempt prohibited
transaction under ERISA or section 4975 of the Code and will not subject the
Seller, the Master Servicer, or the Trustee to any obligation in addition to
those undertaken in the Pooling and Servicing Agreement, (ii) a representation
to the effect that the transferee is not, and is not acquiring such Certificates
on behalf of, or with "plan assets" of, a Plan, or (iii) if the transferee is an
insurance company, a representation that the transferee is an insurance company,
and the source of funds used to purchase such [name(s)] Certificates is an
"insurance company general account" (as such term is defined in PTCE 95-60) and
the conditions set forth in Sections I and III of PTCE 95-60 have been
satisfied. By a transferee's acceptance of a [name(s)] Certificate, the
transferee shall be deemed to have either (a) warranted to the Master Servicer
and the Trustee that it has provided the opinion described in clause (i) above
to the Trustee or (b) made the representation described in clause (ii) above or,
if the transferee is an insurance company, clause (ii) or (iii) above.
LEGAL INVESTMENT
[Although] upon their initial issuance the Class A Certificates will be
rated [" " by Moody's and " " by S&P and Fitch], the Class A Certificates
[will not] constitute "mortgage related securities" under the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") [because the Mortgage Pool includes
Home Equity Loans that are secured by second Mortgages]. [The Class B-1
Certificates will not constitute "mortgage related securities" under SMMEA.]
Investors should consult their own legal advisers in determining whether and to
what extent any Class of Certificates constitute legal investments for such
investors.
USE OF PROCEEDS
The Seller will use the net proceeds received from the sale of the Class A
Certificates and Class B-1 Certificates to purchase the Home Equity Loans from
its affiliates. Such affiliates will use such proceeds for general corporate
purposes.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Seller and the Underwriters named
below, the Seller have agreed to sell to the Underwriters, and the Underwriters
have severally agreed to purchase from the Seller, the respective principal
amounts of Certificates set forth opposite their names below.
S-50
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS A-2 CLASS A-3 CLASS A-4 CLASS B-1
UNDERWRITERS CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- - -------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ $ $ $
Totals $ $ $ $
</TABLE>
Under the terms of the Underwriting Agreement, the Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Class A and Class B-1 Certificates offered hereby if any of such
Certificates are purchased.
The Underwriters have advised the Seller that they propose to offer the
Class A and Class B-1 Certificates from time to time for sale in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Underwriters may effect such transactions by selling Class A and Class B-1
Certificates to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriters and any purchasers of Class A and Class B-1 Certificates for whom
they act as agents. The Underwriters and any dealers that participate with the
Underwriters in the distribution of the Class A and Class B-1 Certificates may
be deemed to be underwriters, and any discounts or commissions received by them
and any profit on the resale of Class A and Class B-1 Certificates by them may
be deemed to be underwriting discounts or commissions under the Securities Act
of 1933, as amended.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, the Underwriters
and/or their respective affiliates have engaged, and may in the future engage,
in investment banking and/or commercial banking transactions with the Seller and
their affiliates.
RATINGS
The Class A Certificates will be rated at their initial issuance [" " by
Moody's, " " by D&P and " " by S&P and Fitch]. The Class B-1 Certificates
will be rated at their initial issuance ["____" by Moody's and "____" by S&P and
Fitch].
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. No person is obligated to maintain the rating on any Certificate, and,
accordingly, there can be no assurance that the ratings assigned to the Class A
Certificates or Class B-1 Certificates upon initial issuance will not be lowered
or withdrawn by a Rating Agency at any time thereafter. In general, ratings
address credit risk and do not represent any assessment of the likelihood or
rate of principal prepayments.
LEGAL MATTERS
In addition to the legal opinions referred to in the Prospectus, certain
legal matters relating to the Certificates will be passed upon for the Seller by
Orrick, Herrington & Sutcliffe LLP and for the Underwriters by
______________.
S-51
<PAGE>
Certain federal income tax matters will be passed upon for the Seller by Orrick,
Herrington & Sutcliffe LLP.
S-52
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER
OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms...................................... S-2
Risk Factors.......................................... S-19
Description of The Mortgage Pool...................... S-22
Certain Yield and Prepayment Considerations........... S-27
The Master Servicer and its Affiliates--Origination
and Servicing Experience......................... S-30
Description of the Certificates....................... S-32
[Description of Credit Enhancement]................... S-44
The Trustee........................................... S-45
[Certain Federal Income Tax Consequences]............. S-46
[ERISA Considerations]................................ S-48
Legal Investment...................................... S-49
Use of Proceeds....................................... S-49
Underwriting.......................................... S-49
Ratings............................................... S-50
Legal Matters......................................... S-50
PROSPECTUS
Available Information................................. 3
Reports to Holders.................................... 3
Incorporation of Certain Documents By Reference....... 3
Summary of Prospectus................................. 5
Risk Factors.......................................... 14
Description of the Mortgage Pools..................... 19
Certain Yield and Prepayment Considerations........... 22
The Trusts............................................ 23
Transamerica Finance Corporation...................... 23
The Master Servicer and its Affiliates................ 24
The Seller............................................ 24
The Consumer Mortgage Loan Program.................... 24
Description of the Certificates....................... 27
Certain Legal Aspects of the Home Equity Loans........ 47
Certain Federal Income Tax Consequences............... 51
State and Other Tax Consequences...................... 68
ERISA Considerations.................................. 69
Legal Investment...................................... 72
Use of Proceeds....................................... 72
Plan of Distribution.................................. 73
Ratings............................................... 73
Legal Matters......................................... 73
</TABLE>
S-53
<PAGE>
UNTIL , 199 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
S-54
<PAGE>
TFC HOME EQUITY LOAN
TRUST 199 -
TFC HOME EQUITY LOAN
CERTIFICATES,
SERIES 199 -
$
CLASS A-1 CERTIFICATES,
% PASS-THROUGH RATE
CLASS A-2 CERTIFICATES,
% PASS-THROUGH RATE
$__________
CLASS A-3 CERTIFICATES
% PASS-THROUGH RATE
$__________
CLASS A-4 CERTIFICATES
% PASS-THROUGH RATE
$__________
CLASS B-1 CERTIFICATES
% PASS-THROUGH RATE
Transamerica Mortgage Company
Master Servicer
PROSPECTUS SUPPLEMENT
S-55
<PAGE>
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 shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of the securities in
any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of such
jurisdiction.
SUBJECT TO COMPLETION DATED OCTOBER 10, 1997
PROSPECTUS
TFC Home Equity Loan Trusts
TFC Home Equity Loan Asset-Backed Certificates
(Issuable in Series)
______________
Transamerica Mortgage Company
Master Servicer
The TFC Home Equity Loan Asset-Backed Certificates (the " Certificates") offered
hereby may be sold from time to time in series (each, a "Series") as described
in the related Prospectus Supplement. Each Series of Certificates will be issued
by a separate trust (each, a "Trust").
The assets of each Trust will consist primarily of (i) a pool (a "Mortgage
Pool") of mortgage loans (each, a "Home Equity Loan") secured primarily by
mortgages, deeds of trust or other instruments (each, a "Mortgage") creating a
first, second or more junior lien on one- to four-family dwellings, units in
planned unit developments, condominium developments or cooperatives and mobile
or manufactured homes (each, a " Mortgaged Property") to be transferred to such
Trust by Transamerica Consumer Mortgage Receivables Corporation, as specified in
the related Prospectus Supplement (the "Seller") and (ii) all monies received on
the Home Equity Loans on and after the related Cut-Off Date (as defined herein).
All of the Home Equity Loans are closed-end Home Equity Loans where the
principal amount is disbursed in full at origination. The Home Equity Loans will
be master serviced by Transamerica Mortgage Company (in its capacity as
servicer, the "Master Servicer") and were originated or acquired by Transamerica
Mortgage Company or certain of its affiliates in the ordinary course of
business, as described in the related Prospectus Supplement. The Home Equity
Loans and other assets of each Trust as described herein and in the related
Prospectus Supplement will be held for the benefit of the holders of the related
Series of Certificates.
Each Series of Certificate may be issuable in one or more classes (each, a
"Class"), each of which may represent beneficial ownership interests in the Home
Equity Loans held by the related Trust. A Series may include one or more Classes
of Certificates entitled to principal distributions and disproportionate,
nominal or no interest distributions, or to interest distributions and
disproportionate, nominal or no principal distributions. The rights of one or
more Classes of Certificates of a Series may be senior or subordinate to the
rights of one or more of the other Classes of Certificates of such Series. A
Series may include two or more Classes of Certificates which differ as to the
timing, sequential order, priority of payment, interest rate or amount of
distributions of principal or interest or both.
<PAGE>
If specified in the related Prospectus Supplement, one or more Classes of
Certificates of a Series may have the benefit of one or more of a letter of
credit, financial guaranty insurance policy, mortgage pool insurance policy,
special hazard insurance policy, reserve fund, spread account, cash collateral
account, overcollateralization or other form of credit enhancement. If specified
in the related Prospectus Supplement, the Home Equity Loans underlying a Series
of Certificates may be insured under one or more of a mortgage pool insurance
policy, bankruptcy bond, special hazard insurance policy or similar credit
enhancement. In addition to or in lieu of any or all of the foregoing, credit
enhancement with respect to one or more Classes of Certificates of a Series may
be provided through subordination. See "Description of Credit Enhancement" in
the related Prospectus Supplement.
The yield on each Class of Certificates of a Series will be affected by, among
other things, the rate of payment of principal (including prepayments) on the
Home Equity Loans in the related Trust and the timing of receipt of such
payments. See "Certain Yield and Prepayment Considerations" herein and in the
related Prospectus Supplement. A Trust may be subject to early termination
under the circumstances described herein and in the related Prospectus
Supplement.
Offers of the Certificates of a Series may be made through one or more different
methods, including offerings through underwriters, as described under "Plan of
Distribution" herein and "Underwriting" in the related Prospectus Supplement.
There will have been no secondary market for the Certificates of any Series
prior to the offering thereof. There can be no assurance that a secondary
market for any Class of Certificates of any Series will develop or, if one does
develop, that it will continue. None of the Certificates will be listed on any
securities exchange.
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE
CERTIFICATES, SEE "RISK FACTORS," WHICH BEGINS ON PAGE 14 HEREIN.
One or more elections will be made to treat the related Trust or a designated
portion of the assets of the related Trust as one or more "real estate mortgage
investment conduits" (each, a "REMIC") for federal income tax purposes. For a
description of certain tax consequences of owning the Certificates, including,
without limitation, original issue discount, see "Certain Federal Income Tax
Consequences" herein and in the related Prospectus Supplement.
PROCEEDS OF THE ASSETS IN THE TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE
CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
THE SELLER, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES. EXCEPT AS EXPRESSLY
SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT, NEITHER THE CERTIFICATES NOR THE
UNDERLYING HOME EQUITY LOANS WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE SELLER, THE MASTER SERVICER OR ANY OF THEIR
AFFILIATES. NONE OF SUCH ENTITIES WILL HAVE ANY OBLIGATIONS IN RESPECT OF THE
CERTIFICATES, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN THE RELATED PROSPECTUS
SUPPLEMENT.
THESE CERTIFICATES 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.
Prospective investors should refer to the "Index of Principal Definitions"
herein for the location of the definitions of capitalized terms that appear in
this Prospectus.
__________ __, 1997
2
<PAGE>
No dealer, salesman, or any other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or the related Prospectus Supplement and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Seller or any dealer, salesman, or any other person. Neither the delivery
of this Prospectus or the related Prospectus Supplement nor any sale made
hereunder or thereunder shall under any circumstances create an implication that
there has been no change in the information herein or therein since the date
hereof. This Prospectus and the related Prospectus Supplement are not an offer
to sell or a solicitation of an offer to buy any security in any jurisdiction in
which it is unlawful to make such offer or solicitation.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE RELATED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus, which forms a part
of the Registration Statement, omits certain information contained in such
Registration Statement pursuant to the Rules and Regulations of the Commission.
The Registration Statement and the exhibits thereto 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 its Regional Offices located as
follows: Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material may also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, and electronically through the
Commission's Electronic Data Gathering, Analysis And Retrieval system at the
Commission's Web Site (http://www.sec.gov).
REPORTS TO HOLDERS
Unless and until the Offered Certificates are no longer issued in book-
entry form, the Trust will provide to CEDE & Co., as nominee of The Depository
Trust Company ("DTC") and registered holder of the Offered Certificates and,
upon request, to Participants (as defined herein) of DTC, monthly and annual
reports concerning the Certificates pursuant to the Pooling and Servicing
Agreement. See "Description of the Certificates -- Reports to Holders." Such
reports may be made available to the owners of the certificates (the
"Certificate Owners") upon request to their Participants. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The Trust does not intend to provide any financial
information to any holder of the Certificates which has been examined and
reported upon, with an opinion expressed, by an independent public accountant.
The Master Servicer will file with the Commission such periodic reports
with respect to each Trust as are required by the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules regulations or orders of
the Commission thereunder. Each Trust that issues a Series of Certificates may
discontinue filing periodic reports under the Exchange Act at the beginning of
the fiscal year following the issuance of such Certificates if there are fewer
than 300 holders of such Certificates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Seller pursuant to Section
13(a), Section 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
3
<PAGE>
Certificates offered hereby shall be deemed to be incorporated by reference in
this Prospectus and to be part hereof. 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 other 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 to whom a copy
of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any of or all the documents incorporated herein by reference
(other than exhibits to such documents). Requests for such copies should
be directed to Corporate Secretary, 1150 South Olive Street, Suite 2800,
Los Angeles, California 90015.
4
<PAGE>
SUMMARY OF PROSPECTUS
The following Summary of Prospectus 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 each Series of Certificates
contained in the related Prospectus Supplement. Capitalized terms used but not
defined in this Summary of Prospectus shall have the meanings ascribed to such
terms elsewhere in this Prospectus. The Index of Principal Definitions included
in this Prospectus sets forth the pages on which the definitions of certain
principal terms appear.
Seller Transamerica Consumer Mortgage Receivables Corporation,
a Delaware corporation (the "Seller") and a special
purpose, wholly owned indirect subsidiary of
Transamerica Finance Corporation, will sell and assign
the Home Equity Loans to the Trust. Each Home Equity
Loan will be serviced by the Master Servicer.
Issuer With respect to each Series of Certificates, a trust
entitled "TFC Home Equity Loan Trust" (the "Trust"),
with an additional designation to indicate the Series
of Certificates to which it relates. Each Trust will
be formed pursuant to a Pooling and Servicing Agreement
among the Seller, the Master Servicer (defined herein)
and the trustee named therein (the "Trustee").
Master Servicer Transamerica Mortgage Company, a California
corporation (in its capacity as servicer, the "Master
Servicer").
Trustee The entity or entities named as trustee in the related
Prospectus Supplement.
Cut-off Date The date specified in the related Prospectus Supplement
on and after which payments due or received on the
related Home Equity Loans, as specified in the related
Prospectus Supplement, are transferred to the related
Trust and available for payment to the holders of the
related Certificates (each, a " Cut-off Date").
Closing Date The date on which the Certificates of any Series are
initially issued (each, a "Closing Date") as specified
in the related Prospectus Supplement.
Description of The Certificates of each Series may be issued in
Certificates one or more classes (each, a "Class") and will
represent beneficial interests in a segregated pool
(each, a "Mortgage Pool") of mortgage loans (the "Home
Equity Loans") originated or acquired by Transamerica
Mortgage Company or certain of its affiliates. See
"Description of the Mortgage Pools."
A Series of Certificates may include one or more
Classes entitled to distributions of principal and
disproportionate, nominal or no interest distributions
or distributions of interest and disproportionate,
nominal or no principal distributions. The principal
amount of any Certificate may be zero or may be a
notional amount as specified in the related Prospectus
Supplement. A Class of Certificates of a Series
entitled to payments of interest may receive interest
at a specified rate (a "Pass-Through Rate") which may
be fixed, variable or adjustable and may differ from
other Classes of the same
5
<PAGE>
Series, may receive interest based on the weighted
average interest rate on the underlying Home Equity
Loans or may receive interest as otherwise determined,
all as described in the related Prospectus Supplement.
One or more Classes of a Series may be Certificates
upon which interest will accrue but not be currently
paid until certain other Classes have received
principal payments due to them in full or until the
happening of certain events, as set forth in the
related Prospectus Supplement. One or more Classes of
Certificates of a Series may be entitled to receive
principal payments pursuant to a planned amortization
schedule or may be entitled to receive interest
payments based on a notional principal amount which
reduces in accordance with a planned amortization
schedule. The rights of one or more Classes of
Certificates may be senior or subordinate to the rights
of one or more of the other Classes of Certificates. A
Series may include two or more Classes of Certificates
which differ as to the timing, sequential order,
priority of payment or amount of distributions of
principal or interest or both.
Except as expressly set forth in the related Prospectus
Supplement, neither the Certificates nor the underlying
Home Equity Loans will be guaranteed or insured by any
governmental agency or instrumentality or the Seller,
the Master Servicer or any of their affiliates.
Payment Date The monthly date specified in the related Prospectus
Supplement on which payments will be made to holders of
Certificates (each, a "Payment Date").
Determination Date With respect to each Payment Date the day (each, a
"Determination Date") specified in the related
Prospectus Supplement.
Record Date The calendar day (each, a "Record Date") specified in
the related Prospectus Supplement.
Interest Unless otherwise specified in the related Prospectus
Supplement, interest on each Class of Certificates of a
Series (other than a Class of Certificates entitled to
receive only principal) will accrue during each period
specified in the related Prospectus Supplement (each,
an "Accrual Period") at the Pass-Through Rate for such
Class specified in the related Prospectus Supplement.
Interest accrued on each Class of Certificates at the
applicable Pass-Through Rate during each Accrual Period
will be paid, to the extent monies are available
therefor, on each Payment Date, commencing on the day
specified in the related Prospectus Supplement and will
be distributed in the manner specified in such
Prospectus Supplement, except for any Class of
Certificates ("Accrual Certificates") on which interest
is to accrue and not be paid until the interest and
principal of certain other Classes has been paid in
full or until the occurrence of certain events as
specified in such Prospectus Supplement. If so
described in the related Prospectus Supplement,
interest that has accrued but is not yet payable on any
Accrual Certificates will be
6
<PAGE>
added to the principal balance thereof on each Payment
Date and will thereafter bear interest at the
applicable Pass-Through Rate. Payments of interest
with respect to any Class of Certificates entitled to
receive interest only or a disproportionate amount of
interest and principal will be paid in the manner set
forth in the related Prospectus Supplement. Payments
of interest (or accruals of interest, in the case of
Accrual Certificates) with respect to any Series of
Certificates or one or more Classes of Certificates of
such Series, may be reduced to the extent of interest
shortfalls not covered by Advances (defined herein), if
any, or by any applicable credit enhancement.
Principal On each Payment Date, commencing with the Payment Date
specified in the related Prospectus Supplement,
principal with respect to the related Home Equity Loans
during the period specified in the related Prospectus
Supplement (each such period, a "Remittance Period")
will be paid to holders of the Certificates of the
related Series (other than a Class of Certificates of
such Series entitled to receive interest only) in the
priority, manner and amount specified in such
Prospectus Supplement, to the extent funds are
available therefor. Unless otherwise specified in the
related Prospectus Supplement, such principal payments
will generally include (i) the principal portion of all
scheduled payments ("Monthly Payments") received on the
related Home Equity Loans during the related Remittance
Period, (ii) any principal prepayments of any such Home
Equity Loans in full (" Principal Prepayments") and in
part (" Curtailments") received during the related
Remittance Period or such other period (each, a
"Prepayment Period") specified in the related
Prospectus Supplement, (iii) the principal portion of
(A) the proceeds of any insurance policy relating to a
Home Equity Loan, a Mortgaged Property (defined herein)
or a REO Property (defined herein), net of any amounts
applied to the repair of the Mortgaged Property or
released to the Mortgagor (defined herein) and net of
reimbursable expenses (such net proceeds, "Insurance
Proceeds"), (B) proceeds received in connection with
the liquidation of any defaulted Home Equity Loans
("Liquidation Proceeds"), net of fees and advances
reimbursable therefrom ("Net Liquidation Proceeds") and
(C) proceeds received in connection with a taking of a
related Mortgaged Property by condemnation or the
exercise of eminent domain or in connection with any
partial release of any such Mortgaged Property from the
related lien (" Released Mortgaged Property Proceeds"),
(iv) the principal portion of all amounts paid by the
Seller or the Master Servicer in connection with the
purchase of or substitution for a Home Equity Loan as
to which there is defective documentation or a breach
of a representation or warranty contained in the
related Pooling and Servicing Agreement and (v) the
principal balance of each defaulted Home Equity Loan or
REO Property as to which the Master Servicer has
determined that all amounts expected to be recovered
have been recovered (each, a "Liquidated Home Equity
Loan"), to the extent not included in the amounts
described in
7
<PAGE>
clauses (i) through (iv) above (the aggregate of the
amounts described in clauses (i) through (v), the
"Basic Principal Payment"). Payments of principal with
respect to a Series of Certificates or one or more
Classes of such Series may be delayed or reduced to the
extent of delinquencies or losses not covered by
Advances, if any, or any applicable credit enhancement.
Denominations Each Class of Certificates of a Series will be issued
in the minimum denominations set forth in the related
Prospectus Supplement. Each Certificate will represent
a percentage interest (a "Percentage Interest") in the
Certificates of the related Class determined by
dividing the original dollar amount (or Notional
Principal Amount (as defined below), in the case of
Certificates entitled to interest only and assigned a
Notional Principal Amount) represented by such
Certificate by the original aggregate principal balance
(or original aggregate Notional Principal Amount, if
applicable). The related Prospectus Supplement will
set forth the amount or method of calculating the
Notional Principal Amount with respect to any
Certificate having a Notional Principal Amount.
Registration of the
Certificates Each or any Class of Certificates of a Series may be
issued in definitive form or may initially be
represented by one or more certificates registered in
the name of Cede & Co. ("Cede") ("Book-Entry
Certificates"), the nominee of The Depository Trust
Company ("DTC"), and available only in the form of
book-entries on the records of DTC, participating
members thereof (" Participants") and other entities,
such as banks, brokers, dealers and trust companies,
that clear through or maintain custodial relationships
with a Participant, either directly or indirectly
("Indirect Participants"). Certificateholders may also
hold Certificates of a Series through CEDEL or
Euroclear (in Europe), if they are participants in such
systems or indirectly through organizations that are
participants in such systems. Certificates
representing Book-Entry Certificates will be issued in
definitive form only under the limited circumstances
described herein and in the related Prospectus
Supplement. With respect to the Book-Entry
Certificates, all references herein to "holders" shall
reflect the rights of owners of the Book-Entry
Certificates as they may indirectly exercise such
rights through DTC and Participants, except as
otherwise specified herein. See "Risk Factors" and
"Description of the Certificates--Registration and
Transfer of the Certificates" herein.
The Trust Property Each Class of Certificates of a Series will represent
an interest in (i) a segregated pool (the "Mortgage
Pool") of fixed or adjustable rate mortgage loans
originated or acquired by Transamerica Mortgage Company
or certain of its affiliates and evidenced by
promissory notes or other evidence of indebtedness (the
"Home Equity Loans") secured primarily by mortgages,
deeds of trust or other instruments (each, a
"Mortgage") creating a first, second or more junior
lien on
8
<PAGE>
one- to four-family dwellings, units in condominium
developments, planned unit developments or cooperatives
and mobile or manufactured homes (each, a "Mortgaged
Property"), with the aggregate principal balance as of
the Cut-off Date specified in the related Prospectus
Supplement, after giving effect to payments due or
received, as specified in the related Prospectus
Supplement, on or prior to the Cut-off Date (the
"Original Pool Principal Balance") and (ii) all monies
due or received, as specified in the related Prospectus
Supplement, on or with respect to the Home Equity Loans
on or after the Cut-off Date. All of the Home Equity
Loans are closed-end Home Equity Loans where the
principal amount is disbursed in full at origination.
One or more Classes of Certificates of any Series may,
if so specified in the related Prospectus Supplement,
have the benefit of one or more of a letter of credit,
financial guaranty insurance policy, mortgage pool
insurance policy, special hazard insurance policy,
spread account, reserve fund, cash collateral account,
overcollateralization, subordination or other credit
enhancement as described herein under "Description of
the Certificates--Description of Credit Enhancement."
The Prospectus Supplement for each Series of
Certificates will specify certain information with
respect to the related Mortgage Pool including, without
limitation, the number of Home Equity Loans in the
Mortgage Pool, the Original Pool Principal Balance, the
respective percentages of the Home Equity Loans which
are secured by first Mortgages, second Mortgages and
more junior Mortgages, the minimum and maximum
outstanding principal balances of the Home Equity
Loans, the weighted average of the annual rates of
interest on the Home Equity Loans (each such annual
rate of interest hereinafter referred to as the "
Mortgage Interest Rate"), the weighted average original
term to maturity, the weighted average remaining term
to maturity, the minimum and maximum remaining terms to
maturity and the range of origination dates. If so
specified in the related Prospectus Supplement, such
information may be approximate, based on the expected
Mortgage Pool, in which case the final information, to
the extent of any variances, will be contained in the
Current Report on Form 8-K referred to below. See
"Description of the Mortgage Pools--General" herein and
"Description of the Mortgage Pool" in the related
Prospectus Supplement.
A Current Report on Form 8-K will be available to
purchasers or underwriters of the related Series of
Certificates and will generally be filed, together with
the related primary documents, with the Securities and
Exchange Commission within fifteen days after the
related Closing Date.
Optional Termination The Master Servicer, the Seller or the holders of the
Class of Certificates specified in the related
Prospectus Supplement may cause the Trust to sell all
of the Home Equity Loans and all Mortgaged Properties
acquired by foreclosure or deed in lieu of foreclosure
("REO Properties")
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when the Pool Principal Balance declines to the
percentage of the Original Pool Principal Balance
specified in the related Prospectus Supplement, the
proceeds of which will be applied to retire the related
Certificates. See "Description of the Certificates--
Optional Disposition of Home Equity Loans" herein.
Mandatory Termination If so specified in the related Prospectus Supplement,
the Trustee, the Master Servicer or such other entities
as may be specified in such Prospectus Supplement, may
be required to effect early retirement of a Series of
Certificates by soliciting competitive bids for the
purchase of the assets of the related Trust or
otherwise, under the circumstances and in the manner
specified under "Description of the Certificates--
Mandatory Disposition of Home Equity Loans" herein.
Yield and Prepayment The yield on each Class of Certificates of a Series
Considerations will be affected by, among other things, the rate of
payment of principal (including prepayments) on the
Home Equity Loans in the related Trust and the timing
of receipt of such payments. See "Certain Yield and
Prepayment Considerations" herein and in the related
Prospectus Supplement. The Prospectus Supplement for a
Series may specify certain yield calculations, based
upon an assumed rate or range of prepayment assumptions
on the related Home Equity Loans, for Classes receiving
disproportionate allocations of principal and interest.
A higher level of principal prepayments on the related
Home Equity Loans than anticipated is likely to have an
adverse effect on the yield of any Class of
Certificates that is purchased at a premium and a lower
level of principal prepayments on the related Home
Equity Loans than anticipated is likely to have an
adverse effect on the yield of any Class of
Certificates that is purchased at a discount from its
principal amount. It is possible under certain
circumstances that holders of Certificates purchased at
a premium (including Certificates entitled to receive
interest only) could suffer a lower than anticipated
yield or could fail to recoup fully their initial
investment. See "Certain Yield and Prepayment
Considerations" herein and in the related Prospectus
Supplement.
Credit Enhancement If so specified in the related Prospectus Supplement,
credit enhancement may be provided by any one or a
combination of a letter of credit, financial guaranty
insurance policy, mortgage pool insurance policy,
special hazard insurance policy, reserve fund, spread
account, cash collateral account, overcollateralization
or other type of credit enhancement to provide full or
partial coverage for certain defaults and losses
relating to the underlying Home Equity Loans. Credit
support may also be provided by subordination. The
amount of any credit enhancement may be limited or have
exclusions from coverage and may decline or be reduced
over time or under certain circumstances, all as
specified in the related Prospectus Supplement. See
"Description of the Certificates--Description of Credit
Enhancement" herein.
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Advances If so specified in the related Prospectus Supplement,
on each Payment Date the Master Servicer may be
required to make advances (each, an "Advance") to cover
shortfalls in the amount payable to
Certificateholders resulting from delinquent payments
on the Home Equity Loans that remain uncollected as of
the end of the preceding Remittance Period, to the
extent the Master Servicer believes that the amount so
advanced will be recoverable from subsequent payments
and collections in respect of the related Home Equity
Loan. However, no Advances will be made if after giving
effect thereto the total amount of such Advances with
respect to a particular Home Equity Loan outstanding at
that time would exceed the total amount of delinquent
payments of principal and interest on such Home Equity
Loan as of the preceding Record Date, plus the total
amount of Servicing Advances made during the preceding
Remittance Period with respect to such Home Equity
Loan. On each Payment Date, the Master Servicer will be
entitled to a first priority reimbursement from amounts
paid by borrowers for previous Advances.
In addition, the related Prospectus Supplement will
specify whether the Servicer may advance funds to
satisfy or to keep current any Home Equity Loans
secured by senior liens, in order to preserve the
Trust's interest in such Home Equity Loans, or to pay
taxes, legal expenses and attorney fees, insurance
premiums and similar expenses relating to a Home Equity
Loan, to the extent that the Master Servicer believes
that the amount so advanced will be recoverable from
subsequent payments and collections on the related Home
Equity Loan. The Master Servicer will be entitled to a
first priority reimbursement from amounts paid by
borrowers for such previous advances. See "Description
of the Certificates--Advances; Servicing Advances"
herein.
Servicing Fee The Master Servicer will be entitled to receive a fee
for its servicing duties in the amount specified in the
related Prospectus Supplement (the "Servicing Fee"),
payable monthly from payments and collections with
respect to the Home Equity Loans.
Ratings At the date of issuance, as to each series, each class
of Certificates offered hereby will be rated at the
request of the Seller in one of the four highest rating
categories by one or more nationally recognized
statistical rating agencies (each, a "Rating Agency").
See "Ratings" in the related Prospectus Supplement.
A security rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or
withdrawal at any time. No person is obligated to
maintain any rating on any Certificate and,
accordingly, there can be no assurance that the ratings
assigned to any Class of Certificates upon initial
issuance thereof will not be lowered or withdrawn by a
Rating Agency at any time thereafter. If a rating of
any Class of Certificates of a Series is revised or
withdrawn, the liquidity of such Class of
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<PAGE>
Certificates may be adversely affected. In general,
the ratings address credit risk and do not represent
any assessment of the likelihood or rate of principal
prepayments. See "Risk Factors Certificates Limited
Liquidity" and "Ratings" herein.
Certain Legal Aspects of
the Home Equity Loans The Home Equity Loans relating to a Series of
Certificates may be secured by second or more junior
Mortgages which are subordinate to one or more mortgage
liens on the related Mortgaged Property prior to the
lien of such Home Equity Loan (such senior lien, if
any, a " Senior Lien"). A primary risk with respect to
a junior Mortgage is that funds received in connection
with A foreclosure will not be sufficient to
satisfy fully both the Senior Lien and the junior
Mortgage. See "Risk Factors" and "Certain Legal
Aspects of the Home Equity Loans" herein.
Tax Status of the
Certificates One or more elections will be made to treat the Trust
relating to a Series of Certificates or one or more
segregated pools of assets comprising such a Trust as
one or more "real estate mortgage investment conduits"
(each, a "REMIC"). The Certificates will constitute "
regular interests" in a REMIC or " residual interests"
in a REMIC, as specified in the related Prospectus
Supplement. See "Certain Federal Income Tax
Consequences" herein and in the related Prospectus
Supplement.
ERISA Considerations A fiduciary of any employee benefit plan or other plan
or arrangement subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code") (a "Plan"), or any insurance
company (whether through its general or separate
accounts) or other person investing " plan assets" of
any Plan, should carefully review with its legal
advisors whether the purchase or holding of any Class
of Certificates could give rise to a transaction
prohibited or not otherwise permissible under ERISA or
Section 4975 of the Code. Certain Classes of
Certificates may not be permitted to be acquired by, on
behalf of or with "plan assets" of any Plan, as
specified in the related Prospectus Supplement. See
"ERISA Considerations" herein and in the related
Prospectus Supplement.
Legal Investment Unless otherwise specified in the related Prospectus
Supplement, no Class of Certificates will constitute "
mortgage related securities" under the Secondary
Mortgage Market Enhancement Act of 1984 because the
related Mortgage Pool will include Home Equity Loans
that are secured by second or more junior mortgages.
Investors should consult their own legal advisers in
determining whether and to what extent the Certificates
constitute legal investments for such investors. See
"Legal Investment" herein and in the related Prospectus
Supplement.
Use of Proceeds The Seller will use the net proceeds received from each
sale of Certificates to purchase Home Equity Loans from
its affiliates. Such
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affiliates will use such proceeds for general corporate
purposes.
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of Certificates:
RISKS OF THE HOME EQUITY LOANS
General Economic Conditions. General economic conditions have an impact on
---------------------------
the ability of borrowers to repay mortgage loans. Loss of earnings, illness and
other similar factors may lead to an increase in delinquencies and bankruptcy
filings by borrowers. In the event of personal bankruptcy of a borrower under a
Home Equity Loan (a "Mortgagor"), it is possible that the holders of the related
Certificates could experience a loss with respect to such Mortgagor's Home
Equity Loan. In conjunction with a Mortgagor's bankruptcy, a bankruptcy court
may suspend or reduce the payments of principal and interest to be paid with
respect to such Home Equity Loan, thus delaying the amount received by the
holders of the related Certificates with respect to such Home Equity Loan.
Moreover, if a bankruptcy court prevents the transfer of the related Mortgaged
Property to the related Trust, any remaining balance on such Home Equity Loan
may not be recoverable.
Real Estate Market Conditions. An investment in securities such as the
------------------------------
Certificates which are secured by or represent interests in mortgage loans may
be affected by, among other things, a decline in real estate values. No
assurance can be given that values of the Mortgaged Properties will remain at
the levels existing on the dates of origination of the related Home Equity
Loans. If the residential real estate market should experience an overall
decline in property values such that the outstanding balances of the Home Equity
Loans, together with loans secured by Senior Liens (defined below), if any, on
the Mortgaged Properties, become equal to or greater than the value of the
Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry.
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 Home Equity
Loans relating to any Series of Certificates in such a region may present risk
considerations in addition to those generally present for similar mortgage-
backed securities without such concentration. See "Description of the Mortgage
Pool" in the related Prospectus Supplement for further information regarding the
geographic concentration of the Home Equity Loans underlying the Certificates of
any Series.
Junior Liens. The Home Equity Loans underlying the Certificates of a
-------------
Series may be secured by Mortgages junior or subordinate to one or more other
mortgages ("Senior Liens"), and the related Senior Liens will not be included in
the Mortgage Pool. The rate of default of second or more junior mortgage loans
may generally be expected to be greater than that of mortgage loans secured by
senior liens on comparable properties. A primary risk to holders of Home Equity
Loans secured by junior Mortgages is the possibility that adequate funds will
not be received in connection with a foreclosure of the related Senior Lien to
first satisfy fully the Senior Lien and then make any payment in connection with
the Home Equity Loan. A foreclosure sale by the holder of a Senior Lien will
extinguish the lien of the junior Mortgage and it is unlikely that the holder of
the junior Mortgage will receive any proceeds from such foreclosure sale. Thus,
in servicing junior Mortgages, the Master Servicer may in certain circumstances
desire to advance funds to keep the Senior Lien current in the event the
Mortgagor is in default thereunder in order to forestall a foreclosure of the
Senior Lien until after such time as the Master Servicer is able to foreclose on
the junior Mortgage (subject to the Senior Lien). The related Prospectus
Supplement will specify whether the Master Servicer may advance such amounts.
Unless such amounts are advanced by the Master Servicer, the related Trust will
have no source of funds to satisfy any Senior Lien or make payments due to any
senior mortgagee.
If the Master Servicer were to foreclose on any junior Home Equity Loan, it
would do so subject to any related Senior Lien. The amount received at any such
sale will therefore be reduced to reflect the fact that the interest in the
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<PAGE>
property conveyed will be subject to the Senior Lien. If such proceeds from a
foreclosure or similar sale of the related Mortgaged Property (subject to the
Senior Lien) are insufficient to satisfy the Home Equity Loan, the related
Trust, as the holder of the junior Mortgage and, accordingly, holders of the
Certificates, would bear (i) the risk of delay in distributions while a
deficiency judgment against the Mortgagor is obtained and (ii) the risk of loss
if the deficiency judgment is not realized upon. Moreover, deficiency judgments
may not be available in certain jurisdictions. The junior Mortgages securing
the Home Equity Loans are subject and subordinate to any Senior Liens affecting
the related Mortgaged Property, including negative amortization features that
may increase the outstanding balance secured by a Senior Lien and limitations
and prohibitions which may be contained in such Senior Liens upon subordinate
financing.
Delays in Liquidating Defaulted Home Equity Loans or Property. Even
--------------------------------------------------------------
assuming that the Mortgaged Properties provide adequate security for the Home
Equity Loans underlying a Series of Certificates, substantial delays could be
encountered in connection with the liquidation of defaulted Home Equity Loans
and corresponding delays in the receipt of related proceeds by the related Trust
could occur. An action to foreclose on a Mortgaged Property securing a Home
Equity Loan is regulated by state statutes and rules and is subject to many of
the delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Some states allow a
nonjudicial foreclosure proceeding which may proceed more swiftly than a
judicial foreclosure action. However, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a Mortgaged
Property. In the event of a default by a Mortgagor, these restrictions, among
other things, may impede the ability of the Master Servicer to foreclose on or
sell the Mortgaged Property or to obtain Net Liquidation Proceeds sufficient to
repay all amounts due on the related Home Equity Loan. In addition, the Master
Servicer will be entitled to deduct from the amount of payments and collections
received during the preceding Remittance Period all expenses reasonably incurred
in attempting to recover amounts due and not yet repaid on Liquidated Home
Equity Loans, including payments to senior lienholders, legal fees and costs of
legal action, settlement costs, real estate taxes and maintenance and
preservation expenses, thereby reducing collections available to the related
Trust. See "Certain Legal Aspects of the Home Equity Loans--Foreclosure in
General," and "--Rights of Redemption" herein.
Likelihood of Disproportionate Liquidation Expenses. Some liquidation
----------------------------------------------------
expenses with respect to defaulted mortgage loans do not vary directly with the
outstanding principal balance of the loan at the time of default. Therefore,
assuming that the Master Servicer took the same steps in realizing upon a
defaulted mortgage loan having a small remaining principal balance as it would
in the case of a defaulted mortgage loan having a large remaining principal
balance, the amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the small mortgage loan than
would be the case with the defaulted mortgage loan having a large remaining
principal balance. To the extent that the average outstanding principal balance
of the Home Equity Loans is small relative to the size of the average
outstanding principal balance of the loans in a pool consisting only of
conventional purchase-money mortgage loans, Net Liquidation Proceeds on
Liquidated Home Equity Loans may also be smaller as a percentage of the
principal balance of a Home Equity Loan than would be the case in a pool
consisting only of conventional purchase-money mortgage loans.
Risk of Early Defaults. Certain of the Home Equity Loans underlying a
-----------------------
Series of Certificates may be recently originated as of the date of inclusion in
the related Mortgage Pool. Defaults on mortgage loans may generally be expected
to occur with greater frequency in their early years.
Balloon Loans. Certain of the Home Equity Loans underlying a Series of
--------------
Certificates may provide for the payment of the unamortized principal balance of
the Home Equity Loan in a single payment at the maturity of the Home Equity Loan
that is significantly greater than the scheduled monthly payments (" Balloon
Loans"). See "Description of the Mortgage Pools" herein and "Description of the
Mortgage Pool" in the related Prospectus Supplement. Because borrowers under
Balloon Loans are required to make a relatively large payment upon maturity, it
is possible that the default risk associated with Balloon Loans is greater
than
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<PAGE>
that associated with fully-amortizing mortgage loans. The ability of a
Mortgagor on a Balloon Loan to repay the Home Equity Loan upon maturity
frequently depends upon, among other things, the borrower's ability to refinance
the Home Equity Loan, which will be affected by a number of factors, including,
without limitation, the level of mortgage rates available in the primary
mortgage market at the time, the Mortgagor's equity in the related Mortgaged
Property, the financial condition of the Mortgagor, the condition of the
Mortgaged Property, tax law, general economic conditions and the general
willingness of financial institutions to extend credit.
Although a low interest rate environment may facilitate the refinancing of
a balloon payment, the receipt and reinvestment by holders of the Certificates
of the proceeds in such an environment may produce a lower return than that
previously received in respect of the related Home Equity Loan. Conversely, a
high interest rate environment may make it more difficult for the Mortgagor to
accomplish a refinancing and may result in delinquencies or defaults.
Certain Home Equity Loans. Certain of the Home Equity Loans underlying a
-------------------------
Series of Certificates may be delinquent for a period not exceeding 59 days, as
specified in the related Prospectus Supplement. Such Home Equity Loans may be
subject to a greater risk of default. See "Description of the Mortgage Pools"
herein and "Description of the Mortgage Pool" in the related Prospectus
Supplement.
Legal and Regulatory Considerations. Applicable state laws generally
------------------------------------
regulate interest rates and other charges, require certain disclosures and,
unless an exemption is available, require licensing of the originators of home
equity loans. In addition, most states have other laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and practices which may apply to the origination, servicing
and collection of the Home Equity Loans. Depending on the provisions of the
applicable law and the specific facts and circumstances involved, these laws,
policies and principles may limit the ability of the Master Servicer to collect
all or part of the principal of or interest on the Home Equity Loans, may
entitle the borrower to a refund of amounts previously paid and, in addition,
could subject the Master Servicer to damages and administrative sanctions. See
"Certain Legal Aspects of the Home Equity Loans" herein.
The Home Equity Loans are also subject to federal laws, including: (i) the
Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the Mortgagors regarding the terms of the Home
Equity Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; (iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the Mortgagor's credit experience; and (iv)
certain other laws and regulations.
Under environmental legislation and case law applicable in certain states,
it is possible that liability for environmental hazards in respect of real
property may be imposed on a holder of a mortgage note (such as the Trust)
secured by real property. See "Certain Legal Aspects of the Home Equity Loans--
Environmental Legislation" herein.
Limited Operating History of Master Servicer
The Master Servicer commenced originating and servicing mortgage loans in
June 1996 as part of TFC'S strategy to build a centralized real estate-secured
lending operation. Accordingly, the Master Servicer has a limited operating
history, and no relevant delinquency or loss experience data is available.
Currently, the Master Servicer services a loan portfolio with an aggregate
principal amount of approximately $160 million, which consists primarily of
first mortgage loans.
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CERTIFICATES
Limited Liquidity. There is no assurance that a secondary market for any
------------------
of the Certificates will develop or, if one does develop, that it will provide
the holders with liquidity of investment or that it will continue for the life
of such Certificates. None of the Certificates will be listed on any securities
exchange.
Issuance of any of the Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary trading market because investors
may be unwilling to purchase Certificates for which they cannot obtain physical
certificates. See "Description of the Certificates--Registration and Transfer
of the Certificates" herein.
Limited Obligations. No Class of Certificates of any Series will represent
--------------------
an interest in or obligation of the Seller, the Master Servicer or any of their
affiliates. The only obligations of the foregoing entities with respect to any
of the Certificates or the related Home Equity Loans will be the Master
Servicer's servicing obligations under the Pooling and Servicing Agreement and
the obligations of the Seller to purchase, or substitute substantially similar
mortgage loans for any Home Equity Loans as to which there is defective
documentation or a breach of certain representations and warranties in the
Pooling and Servicing Agreement. Except as expressly set forth in the related
Prospectus Supplement, neither the Certificates nor the underlying Home Equity
Loans will be guaranteed or insured by any governmental agency or
instrumentality, or by the Seller, the Master Servicer or any of their
affiliates.
ERISA Considerations. An investment in a Class of Certificates of any
---------------------
Series by Plans may give rise to a prohibited transaction under Section 406 of
ERISA and/or be subject to tax under Section 4975 of the Code unless a statutory
or administrative exemption is available. Accordingly, fiduciaries of any
employee benefit plan or other plan or arrangement subject to ERISA or Section
4975 of the Code (a "Plan") or any insurance company (whether through its
general or separate accounts) or other person investing "plan assets" of any
Plan, should consult their counsel before purchasing any Class of Certificates.
Certain Classes of Certificates will not be eligible for purchase by, on behalf
of or with "plan assets" of Plans. See "ERISA Considerations" herein and in the
related Prospectus Supplement.
Limitations, Reduction and Substitution of Credit Enhancement. Credit
--------------------------------------------------------------
enhancement may be provided with respect to one or more Classes of Certificates
of a Series to cover certain types of losses on the underlying Home Equity
Loans. Credit enhancement may be provided by one or more forms, including but
not limited to subordination of one or more Classes of Certificates of such
Series, letter of credit, financial guaranty insurance policy, mortgage pool
insurance policy, special hazard insurance policy, reserve fund, spread account,
cash collateral account, overcollateralization or other type of credit
enhancement. The coverage of any credit enhancement may be limited or have
exclusions from coverage and may decline over time or under certain
circumstances, all as specified in the related Prospectus Supplement. See
"Description of the Certificates--Description of Credit Enhancement"
herein.
CREDITORS' RIGHTS AND BANKRUPTCY CONSIDERATIONS
Creditors' Rights Considerations. During the period that the related
--------------------------------
Certificates are outstanding and so long as the ratings of the long-term senior
unsecured debt of TFC satisfy the ratings requirements specified in the related
Prospectus Supplement, assignments of the related Mortgages from the entities
that will sell Home Equity Loans to the Seller (collectively, the "Prior
Owners") to the Seller and from the Seller to the Trustee will not be required
to be recorded. The failure to record assignments of the Mortgages to the Seller
and to the Trustee in some states in which the Mortgaged Properties are located
may have the result of making the sale thereof potentially ineffective against
(i) creditors of a Prior Owner or the Seller, (ii) a purchaser to whom a Prior
Owner or the Seller fraudulently, negligently, or inadvertently sells a Home
Equity Loan, or (iii) any bankruptcy trustee or similar official appointed for a
Prior Owner or the Seller.
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If TFC'S long-term senior unsecured debt rating does not satisfy the
ratings requirements specified in the related Prospectus Supplement,
assignments of the Mortgages in favor of the Seller and the Trustee will be
required to be recorded (or opinions of counsel acceptable to the Rating
Agencies will be obtained to the effect that recording is not required to
protect the Trust's interest in and to the related Home Equity Loan). See
"Description of the Certificates -- Assignment of the Home Equity Loans"
herein.
Bankruptcy Related Matters. The transactions described herein and by the
related Prospectus Supplement will be structured such that the Seller is
unlikely to become the debtor in a case under the United States Bankruptcy Code
and so that, even if such a filing should occur, it should not result in
consolidation of the assets and liabilities of the Seller with those of the
Prior Owners. These steps include the Creation of the Seller as a separate,
limited purpose corporation, the certificate of incorporation of which contains
limitations on the nature of its business and restrictions on the ability of the
Seller to commence voluntary or involuntary cases or proceedings under the
Bankruptcy Code without the prior unanimous affirmative vote of all its
directors. The Seller does not and will not engage in any activities other than
the transactions described herein and other similar transactions and activities
incidental to, or necessary or convenient to accomplish the foregoing. Each of
the Seller and the Prior Owners has no current intention of filing a voluntary
petition under the Bankruptcy Code. No assurance can be given, however, that the
Seller or a Prior Owner will not become a debtor in a case under the Bankruptcy
Code, or that the activities of the Seller would not result in a court
concluding that the assets and liabilities of the Seller should be consolidated
with those of the Prior Owners.
The Prior Owners will represent and warrant that the transfer of the
Home Equity Loans to the Seller will constitute a sale by each of the Prior
Owners to the Seller, and that the Prior Owners have taken and will take all
actions that are required to perfect the Seller's Ownership interests in the
Home Equity Loans . Accordingly, it is intended that such Home Equity Loans will
not be part of the bankruptcy estate of any Prior Owner, and will not be
available to the creditors of any Prior Owner. However, in the event of the
bankruptcy of any Prior Owner, it is possible that such Prior Owner, a
bankruptcy trustee for such Prior Owner or a creditor of such Prior Owner may
attempt to recharacterize the transaction between the Prior Owner and the Seller
as a pledge of the Home Equity Loans in connection with a borrowing by such
Prior Owner rather than a true sale. This Position, if asserted, could prevent
timely payments of amounts due on the related Certificates . If such an attempt
were successful, reductions in distributions of principal and interest on such
Certificates could result, or such a trustee in Bankruptcy could elect to
accelerate payment of the obligation to the Seller and liquidate the Home Equity
Loans.
Furthermore, for so long as the ratings of the long-term senior unsecured
debt of TFC satisfy the ratings requirements specified in the related Prospectus
Supplement, the Master Servicer is entitled to commingle with its own funds
payments made with respect to the Home Equity Loans until the relevant Payment
Date. In the event of a bankruptcy by the Master Servicer, the Trustee will
likely not have a perfected interest in such payments and the inclusion thereof
in the bankruptcy estate of the Master Servicer may result in delays in payment
and failure to pay amounts due on the Certificates.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of each Class of Certificates of a Series will depend
on the rate and timing of payment of principal on the related Home Equity Loans,
including prepayments, liquidations due to defaults and repurchases due to
defective documentation or breaches of representations and warranties. Such
yield may be adversely affected by a higher or lower than anticipated rate of
prepayments on the Home Equity Loans. Prepayments are influenced by a number of
factors, including prevailing mortgage market interest rates, local and regional
economic conditions and homeowner mobility. The yield to maturity of certain
Classes of Certificates identified in the related Prospectus Supplement may be
particularly sensitive to the rate and timing of principal payments (including
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prepayments, liquidations and repurchases) of the related Home Equity Loans,
which may fluctuate significantly from time to time. Investors in a Class of
Certificates offered at a discount from the principal amount thereof or with no
stated principal amount should fully consider the associated risks, including
the risk that an extremely rapid rate of principal payments could result in the
failure of such investors to recoup their initial investments. See "Certain
Yield and Prepayment Considerations" herein and in the related Prospectus
Supplement.
ORIGINAL ISSUE DISCOUNT
Certain Classes of Certificates of a Series may be treated as having been
issued with original issue discount for federal income tax purposes. As a
result, holders of such Certificates will be required to include amounts in
income without the receipt of cash corresponding to that income. See "Certain
Federal Income Tax Consequences--Original Issue Discount" herein and, if
applicable, in the related Prospectus Supplement.
DESCRIPTION OF THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist of Home Equity Loans having the aggregate
principal balance outstanding as of the related Cut-off Date, after giving
effect to payments due or received prior to such date, specified in the related
Prospectus Supplement (the "Original Pool Principal Balance"). Unless otherwise
specified in the related Prospectus Supplement, each Mortgage Pool will consist
of fixed or adjustable rate Home Equity Loans (including both fully amortizing
Home Equity Loans and Balloon Loans) originated and underwritten by or acquired
by Transamerica Mortgage Company or certain of its affiliates. This subsection
describes generally certain characteristics of the Home Equity Loans.
Each Home Equity Loan will be selected by the Seller for inclusion in a
Mortgage Pool from among those originated or acquired by Transamerica Mortgage
Company and its affiliates. If a Mortgage Pool includes Home Equity Loans
originated by entities other than Transamerica Mortgage Company or any of its
affiliates, the related Prospectus Supplement will specify the extent of Home
Equity Loans so acquired. The characteristics of the Home Equity Loans are as
described in the related Prospectus Supplement. Other mortgage loans available
for purchase by the Seller may have characteristics that would make them
eligible for inclusion in a Mortgage Pool but were not selected for inclusion in
such Mortgage Pool.
The related Prospectus Supplement will describe certain characteristics of
the related Home Equity Loans, including without limitation (i) the range of
dates of origination and the latest scheduled maturity date, (ii) the minimum
remaining term to maturity, the weighted average original term to maturity and
the weighted average remaining term to maturity, (iii) the range of Mortgage
Interest Rates and the weighted average Mortgage Interest Rate, (iv) the range
of principal balances outstanding, the range of original principal balances and
the weighted average outstanding principal balance, (v) the percentages of Home
Equity Loans secured by first Mortgages, second Mortgages and more junior
Mortgages, respectively, (vi) the maximum Combined Loan-to-Value Ratio at
origination (defined below), the weighted average Combined Loan-to-Value Ratio,
the maximum Home Equity Loan Ratio (defined below) at origination and the
weighted average Home Equity Loan Ratio, (vii) the percentage of Home Equity
Loans secured by fee simple interests in single-family dwelling units, attached
or detached two- to four-family dwelling units, units in planned unit
developments, condominiums or cooperatives, and manufactured or mobile homes,
respectively, and the percentage of Home Equity Loans secured by units in
cooperatives, (viii) the percentage of Home Equity Loans as to which the related
Mortgagor represented at the time of origination that the related Mortgaged
Property would be occupied by such Mortgagor as a primary or secondary
residence, (ix) certain summary information relating to the geographic
concentration of the Mortgaged Properties securing the Home Equity Loans, (x)
the percentage of Home Equity Loans that are Balloon Loans and the dates after
origination the balloon payment is due, (xi) the percentage of Home Equity Loans
that are 0-29 days and 30-59 days contractually delinquent. If so specified in
the related Prospectus
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Supplement, the characteristics of the Home Equity Loans described in items (v)
through (ix) above, inclusive, may be based on a random sample of Home Equity
Loans included in the related initial Mortgage Pool (a "Sample Pool"). No
assurance can be given, however, that the characteristics of a Sample Pool are
representative of the characteristics of the initial Mortgage Pool. In
addition, if so specified in the related Prospectus Supplement, such information
may be approximate based on the expected characteristics of the Home Equity
Loans to be included in the related Mortgage Pool and any significant variations
therefrom provided on the related Current Report on Form 8-K, as described
below.
For purposes of the foregoing, the "Combined Loan-to-Value Ratio" of any
Home Equity Loan is the ratio (expressed as a percentage) of (i) the sum of (a)
the original principal balance of such Home Equity Loan at the date of
origination (which, unless otherwise specified in the related Prospectus
Supplement, includes certain financed fees ) plus (b) the outstanding balance of
the Senior Lien, if any, at such time divided by the value of the related
Mortgaged Property, based upon the appraisal or other valuation, such as a real
estate broker's price opinion, made at the time of origination of the Home
Equity Loan or not less than 12 months prior to the time of origination of the
Home Equity Loan. See "The Consumer Mortgage Loan Program--Credit Policy and
Procedures Relating to Consumer Mortgage Loans" herein. The "Home Equity Loan
Ratio" of any Home Equity Loan is the ratio (expressed as a percentage) of (i)
the original principal balance of such Home Equity Loan divided by (ii) the
lesser of (a) the value of the related Mortgaged Property, based upon the
appraisal, if any, or other valuation made at the time of origination of the
Home Equity Loan and (b) the purchase price of the Mortgaged Property if the
Home Equity Loan proceeds were used to purchase the Mortgaged Property. For Home
Equity Loans secured by a first Mortgage, the Combined Loan-to-Value Ratio and
the Home Equity Loan Ratio will be the same.
In addition, the related Prospectus Supplement or, if so specified therein,
the Current Report on Form 8-K to be filed within fifteen days after the
delivery of a Series of Certificates, will set forth in tabular form certain
more detailed information relating to the characteristics of the related Home
Equity Loans by number and outstanding principal balance and by percentage of
the Mortgage Pool including, without limitation, the outstanding principal
balances of the Home Equity Loans, the geographic distribution of the related
Mortgaged Properties (by state), the Combined Loan-to-Value Ratios, the Home
Equity Loan Ratios, the Mortgage Interest Rates, the remaining months to stated
maturity and the number of months since origination, in each case (except for
geographic distribution) within the ranges specified therein. If so specified
in the related Prospectus Supplement, some or all of this information may be
based on a Sample Pool.
PAYMENTS ON THE HOME EQUITY LOANS
The related Prospectus Supplement will specify the percentage of Home
Equity Loans underlying a Series of Certificates that provide for (a) payments
that are allocated to principal and interest according to the daily simple
interest method (a "Simple Interest Loan"), (b) payments in level monthly
installments (except, in the case of Balloon Loans, the final payment)
consisting of interest equal to one-twelfth of the applicable Mortgage Interest
Rate times the unpaid principal balance, with the remainder of such payment
applied to principal (an "Actuarial Loan") and (c) adjustable Mortgage Interest
Rates ("ARM Loans").
A Simple Interest Loan provides for the amortization of the amount financed
under the Home Equity Loan over a series of equal monthly payments (except, in
the case of a Balloon Loan, the final payment). Each monthly payment consists
of an installment of interest which is calculated on the basis of the
outstanding principal balance of the Home Equity Loan multiplied by the stated
Mortgage Interest Rate and further multiplied by a fraction, the numerator of
which is the number of days in the period elapsed since the preceding payment of
interest was made and the denominator of which is the number of days in the
annual period for which interest accrues on such Home Equity Loan. As payments
are received under a Simple Interest Loan, the amount received is applied first
to interest accrued to the date of payment and the balance is applied to reduce
the unpaid principal balance. Accordingly, if a borrower pays a fixed monthly
installment on a Simple Interest Loan before its scheduled due date, the portion
of the payment allocable to interest for the period since the preceding payment
was made will be less than
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it would have been had the payment been made as scheduled, and the portion of
the payment applied to reduce the unpaid principal balance will be
correspondingly greater. However, the next succeeding payment will result in an
allocation of a greater amount to interest if such payment is made on its
scheduled due date.
Conversely, if a borrower pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the remaining portion, if any,
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. If each scheduled payment under a Simple Interest Loan is
made on or prior to its scheduled due date, the principal balance of the Home
Equity Loan will amortize in the manner described in the preceding paragraph.
However, if the borrower consistently makes scheduled payments after the
scheduled due date the Home Equity Loan will amortize more slowly than
scheduled. If a Simple Interest Loan is prepaid, the borrower is required to
pay interest only to the date of prepayment.
ARM Loans generally will provide for a fixed initial Mortgage Interest Rate
until the first date on which such Mortgage Interest Rate is to be adjusted.
Thereafter, the Mortgage Interest Rate is subject to periodic adjustment as
described in the related Prospectus Supplement based on changes in the relevant
index (the "Index") described in the applicable Prospectus Supplement, to a rate
equal to the Index plus a fixed percentage spread over the Index established
contractually for each ARM Loan at the time of its origination (the "Gross
Margin"). The initial Mortgage Interest Rate on an ARM Loan may be lower than
the sum of the then-applicable Index and the Gross Margin for such ARM
Loan.
ARM Loans have features that provide investment considerations different
from those for fixed rate loans. In particular, adjustable interest rates can
cause payment increases that may exceed some mortgagors' capacity to cover such
payments. However, to the extent specified in the related Prospectus Supplement,
an ARM Loan may provide that its Mortgage Interest Rate may not be adjusted to a
rate above the applicable maximum Mortgage Interest Rate (the "Maximum Mortgage
Rate") or below the applicable minimum Mortgage Interest Rate (the "Minimum
Mortgage Rate"), if any, for such ARM Loan. In addition, to the extent specified
in the related Prospectus Supplement, certain of the ARM Loans may provide for
limitations on the maximum amount by which their interest rates may adjust for
any single adjustment period (the "Periodic Cap"). Some ARM Loans provide for
limitations on the amount of scheduled payments of principal and interest.
Certain ARM Loans may be subject to negative amortization from time to time
prior to their maturity (such ARM Loans, "Neg-Am ARM Loans"). Such negative
amortization may result from either the adjustment of the Mortgage Interest Rate
on a more frequent basis than the adjustment of the scheduled payment or the
application of a cap on the size of the scheduled payment. In the first case,
negative amortization results if an increase in the Mortgage Interest Rate
occurs prior to an adjustment of the scheduled payment on the related Home
Equity Loan and such increase causes accrued monthly interest on the Home Equity
Loan to exceed the scheduled payment. In the second case, negative amortization
results if an increase in the Mortgage Interest Rate causes accrued monthly
interest on a Home Equity Loan to exceed the limit on the size of the scheduled
payment on such Home Equity Loan. In the event that the scheduled payment is not
sufficient to pay the accrued monthly interest on a Neg-Am ARM Loan, the amount
of accrued monthly interest that exceeds the scheduled payment on such Home
Equity Loans (the "Deferred Interest") is added to the principal balance of such
ARM Loan and is to be repaid from future scheduled payments. Neg-Am ARM Loans do
not provide for the extension of their original stated maturity to accommodate
changes in their Mortgage Interest Rates. The related prospectus supplement will
specify whether the ARM Loans underlying a series are Neg-Am ARM Loans.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on each Class of Certificates of a Series
entitled to principal, the aggregate amount of each interest payment on each
Class of Certificates of a Series entitled to interest and the yield to maturity
of each Class of Certificates of a Series will be related to the rate and timing
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of payments of principal on the related Home Equity Loans, which may be in the
form of scheduled and unscheduled payments. The rate of prepayment on a pool of
mortgage loans is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. In general, when the level of prevailing
interest rates for similar loans significantly declines, the rate of prepayment
is likely to increase, although the prepayment rate is influenced by a number of
other factors, including general economic conditions and homeowner mobility.
Defaults on mortgage loans may generally be expected to occur with greater
frequency in their early years. The rate of default on second or more junior
mortgage loans may be greater than that of mortgage loans secured by first liens
on comparable properties. Prepayments, liquidations and purchases of the Home
Equity Loans will result in distributions to the holders of amounts of principal
which would otherwise be distributed over the remaining terms of the Home Equity
Loans.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer, the Seller or the holders of the Class of
Certificates of any Series specified in the related Prospectus Supplement may,
at their option, cause the related Trust to sell all of the outstanding Home
Equity Loans and REO Properties underlying the related Series of Certificates,
and thus effect the early retirement of the related Certificates, after the date
on which the Pool Principal Balance (as defined herein) is less than the
percentage of the Original Pool Principal Balance specified in the related
Prospectus Supplement. See "Description of the Certificates--Optional
Disposition of Home Equity Loans" herein. Further, if so specified in the
related Prospectus Supplement, the Master Servicer or such other entities as may
be specified in such Prospectus Supplement may be required to effect early
retirement of a Series of Certificates by soliciting competitive bids for the
purchase of the assets of the related Trust or otherwise. See "Description of
the Certificates--Mandatory Disposition of Home Equity Loans" herein.
As described above, the rate of prepayment on a pool of mortgage loans is
affected by prevailing market rates for comparable mortgage loans. When the
market interest rate is below the mortgage coupon, mortgagors may have an
increased incentive to refinance their mortgage loans. Depending on prevailing
market rates, the future outlook for market rates and economic conditions
generally, some mortgagors may sell or refinance mortgaged properties in order
to realize their equity in the mortgaged properties, to meet cash flow needs or
to make other investments. No representation is made as to the particular
factors that will affect the prepayment of the Home Equity Loans underlying any
Series of Certificates, as to the relative importance of such factors, as to the
percentage of the principal balance of the Home Equity Loans that will be paid
as of any date or as to the overall rate of prepayment on the related Home
Equity Loans.
The yield to maturity of certain Classes of Certificates of a Series may be
particularly sensitive to the rate and timing of principal payments (including
prepayments) of the Home Equity Loans, which may fluctuate significantly from
time to time. The Prospectus Supplement relating to such Certificates will
provide certain additional information with respect to the effect of such
payments on the yield to maturity of such Certificates under varying rates of
prepayment, including the rate of prepayment, if any, which would reduce the
holder's yield to zero.
Greater than anticipated prepayments of principal will increase the yield
on Certificates purchased at a price less than par. Conversely, greater than
anticipated prepayments of principal will decrease the yield on Certificates
purchased at a price greater than par. The effect on an investor's yield due to
principal prepayments on the Home Equity Loans occurring at a rate that is
faster (or slower) than the rate anticipated by the investor in the period
immediately following the issuance of the Certificates will not be entirely
offset by a subsequent like reduction (or increase) in the rate of principal
payments. The weighted average life of each Class of Certificates of a Series
will also be affected by the amount and timing of delinquencies and defaults on
the related Home Equity Loans and the recoveries, if any, on defaulted Home
Equity Loans and foreclosed properties in the related Mortgage Pool.
The "weighted average life" of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
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respect of principal of such Certificate is repaid. The weighted average life
of each Class of Certificates of a Series will be influenced by, among other
factors, the rate at which principal payments are made on the Home Equity Loans,
including final payments made upon the maturity of Balloon Loans.
THE TRUSTS
Each Trust will be formed under a Pooling and Servicing Agreement (a
"Pooling and Servicing Agreement") among the Seller, the Master Servicer and the
Trustee named therein (a "Trustee"). The property of each Trust will include:
(i) the related Home Equity Loans as from time to time are subject to the
related Pooling and Servicing Agreement and all proceeds thereof, (ii) such
assets as from time to time are identified as REO Property or are deposited in
the Collection Account (defined herein) or other accounts established under any
of the documents governing the Trust or the related Certificates, including
amounts on deposit in such accounts and invested in Permitted Instruments, (iii)
the Trustee's rights under all insurance policies with respect to the Home
Equity Loans required to be maintained pursuant to the Pooling and Servicing
Agreement and any Insurance Proceeds, (iv) Liquidation Proceeds and (v) Released
Mortgaged Property Proceeds.
The Master Servicer will service the Home Equity Loans either directly or
through Subservicers in accordance with the Pooling and Servicing Agreement and
generally in accordance with the first and second mortgage loan servicing
standards and procedures accepted by prudent mortgage lending institutions. See
"The Consumer Mortgage Loan Program--Servicing of Consumer Mortgage Loans" and
"Description of the Certificates--Servicing Standards" and "--Use of
Subservicers" below for a further description of the Master Servicer's servicing
procedures and provisions of the Pooling and Servicing Agreement relating to
servicing standards and the use of Subservicers.
TRANSAMERICA FINANCE CORPORATION
Transamerica Finance Corporation ("TFC") was incorporated in Delaware in
1931 and is a wholly owned subsidiary of Transamerica Corporation, a Delaware
corporation (" Transamerica"). TFC borrows money in wholesale markets and,
through its subsidiaries, provides a wide range of consumer and commercial
financing, including leasing, to individuals and businesses primarily in the
United States, Canada and Europe. Transamerica is a Delaware corporation with
approximately $49 billion in assets which, through its subsidiaries, engages
primarily in the finance and insurance business. TFC's principal executive
offices are located at 600 Montgomery Street, San Francisco, California, and its
telephone number is (415) 983-4000.
THE MASTER SERVICER AND ITS AFFILIATES
Transamerica Mortgage Company and its consumer lending affiliates, which
are all wholly owned indirect subsidiaries of TFC, originate mortgage loans
secured by residential dwellings, purchase such loans on a wholesale basis from
other lenders and service such loans. Transamerica Mortgage Company was
incorporated in Delaware in 1996 as part of TFC'S strategy to build a
centralized real estate-secured lending operation. Transamerica Mortgage Company
generates its loans through independent loan brokers. Its underwriting and
servicing operations are located in Dallas, Texas.
Transamerica's consumer lending business is also conducted through
Transamerica Home Loan and Metropolitan Mortgage Company. Transamerica Home Loan
was incorporated in California in 1992 and was previously in the business of
originating and servicing unsecured loans to professionals. Transamerica Home
Loan commenced servicing and originating mortgage loans in June 1997, following
the sale in June 1997 of Transamerica's former consumer lending business,
Transamerica Financial Services Holding Company. Transamerica Home Loan's loan
underwriting and servicing operations are located in Lenexa, Kansas.
Metropolitan Mortgage Company was incorporated in Florida in 1953 and was
acquired by TFC in March 1997. Metropolitan Mortgage Company's underwriting and
servicing operations are located in Miami, Florida. Both Transamerca Home
Loan
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and Metropolitan Mortgage Company will subservice the Home Equity Loans they
have originated or acquired.
Transamerica is also establishing a federal savings bank, Transamerica
Federal Savings Bank ("Transamerica FSB"), to originate mortgage loans.
Transamerica may establish other affiliates from time to time to originate and
service mortgage loans. Such other affiliates, if any, will be described in the
related Prospectus Supplement.
THE SELLER
Transamerica Consumer Mortgage Receivables Corporation (the "Seller") was
incorporated in December 1995 in the State of Delaware, with the special purpose
of acquiring mortgage loans and selling them to the Trusts. Transamerica
Consumer Finance Holding Company, a Delaware corporation and wholly owned
subsidiary of TFC, owns all of the outstanding capital stock of the Seller. The
Seller's executive office is located at 1150 South Olive Street, Suite 2800, Los
Angeles, California 90015 and its telephone number is (213) 742-4865.
The Seller's charter limits the Seller's purpose to acquiring and selling
mortgage loans, acting as grantor of one or more trusts consisting primarily of
mortgage loans and other liens on and interests in real estate and related
activities incidental to and necessary to accomplish such activities.
In addition, the Seller's charter provides that the Seller will not,
without the consent of the Rating Agencies, undertake certain significant
actions such as liquidating or filing a bankruptcy petition. Furthermore, the
related Pooling and Servicing Agreement will require the Seller to obtain the
approval of the Rating Agencies prior to amending certain provisions in the
Seller's charter.
The Seller has no intent to file, and Transamerica Consumer Finance Holding
Company and TFC have advised the Seller that they have no intent to cause the
filing of, a voluntary petition for relief under the Bankruptcy Code with
respect to the Seller.
THE CONSUMER MORTGAGE LOAN PROGRAM
The following is a general discussion of the lending practices of
Transamerica Mortgage Company and its consumer lending affiliates (collectively,
"TMC"). If a Mortgage Pool includes Home Equity Loans that have been originated
under lending practices that vary materially from those described below, the
related Prospectus Supplement will describe such other lending practices. In
particular, the underwriting criteria applied by the originators of Home Equity
Loans included in a Mortgage Pool may vary significantly. The related Prospectus
Supplement will describe generally certain aspects of the underwriting criteria,
to the extent known by the Company, that were applied by the originators of such
Home Equity Loans. TMC's portfolio of mortgage loans are secured by first,
second and third mortgages on residential dwellings. Such loans are referred to
herein as the "Consumer Mortgage Loans."
LENDING
Consumer Mortgage Loans are originated under several lending programs.
Potential borrowers may be identified based on a variety of factors and a
database of such borrowers is maintained. Potential borrowers may be contacted
by mail or by sales representatives based in sales offices located in key
metropolitan areas. In addition, borrowers contact TMC themselves in response to
media advertising.
Consumer Mortgage Loans are also originated under a correspondent program
with unaffiliated licensed mortgage lenders or other financial institutions.
Under this program, participating lenders identify borrowers who do not meet
such lenders' underwriting criteria but may qualify for a loan from TMC. When
such a borrower is identified, the lender may refer the borrower to TMC or may
complete the underwriting and documentation of a loan in
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conformance with underwriting and documentation requirements specified by TMC.
TMC will either fund or purchase such a loan after TMC has re-underwritten the
loan and reviewed the documentation.
Consumer Mortgage Loans may also be originated by independent loan brokers
located throughout the United States who underwrite and document loans in
conformance with underwriting and documentation requirements specified by TMC.
These loans are underwritten again by TMC prior to their purchase by TMC.
In the State of Florida, Consumer Mortgage Loans are marketed through
retail branch offices and through television and radio advertising.
TMC may also acquire Consumer Mortgage Loans through acquisitions of
businesses or bulk purchases of such loans from unaffiliated financial
institutions. If a Mortgage Pool includes Home Equity Loans originated by
entities other than TMC, the related Prospectus Supplement will specify the
extent of Home Equity Loans so acquired.
CREDIT POLICY AND PROCEDURES RELATING TO CONSUMER MORTGAGE LOANS
Underwriting standards utilized by TMC are less stringent than those used
by conventional mortgage loan lenders or purchase programs such as those
administered by FHLMC or FNMA. For example, Consumer Mortgage Loans are made to
borrowers who have a wide range of experiences in their recent credit histories,
including bankruptcy, or whose ratio of total monthly credit payments may be 50%
or more of income. In addition, the loan-to-value ratio of a Consumer Mortgage
Loan may exceed 80% without the benefit of private mortgage insurance. The
applicable Prospectus Supplement will specify the number and principal amount of
Home Equity Loans with loan-to-value ratios in excess of 80% and, if available,
the number and principal amount of Home Equity Loans whose borrowers have been
subject to bankruptcy proceedings. In addition, if so specified in the related
Prospectus Supplement, Home Equity Loans included in a Mortgage Pool may have
been originated in connection with a governmental program under which
underwriting standards were designed to promote home ownership, such as loans
partially guaranteed by the Veterans Administration ("VA Loans") or insured by
the Federal Housing Administration ("FHA Loans").
Unless a potential borrower qualifies for a "no documentation," "limited
documentation" or "limited income verification" loan described below, potential
borrowers generally complete an application designed to provide pertinent
information concerning assets, liabilities, income, credit history, employment
history and personal information. They also authorize TMC to obtain credit
reports from credit repositories, verification of deposits in financial
institutions, verification of employment from employers, and verification of
mortgage payment history from prior real estate lenders. Borrowers are required
to have sufficient credit history established to allow reliable evaluation.
In order to arrive at a lending decision, TMC generally evaluates the
creditworthiness of the borrower, the sufficiency of projected income to total
fixed obligations, the adequacy of the property to serve as collateral and
economic conditions in the metropolitan area in which the property is located.
Income sufficiency on adjustable rate loans is underwritten at no less than 1%
below fully indexed rates. A title insurance policy sufficient to cover the
Consumer Mortgage Loan and payable to TMC is required along with properly
endorsed property casualty insurance.
In determining the value of the related Mortgaged Property, TMC relies on
written appraisal reports prepared by impartial state licensed or certified
residential property appraisers or, if so specified in the related Prospectus
Supplement, other acceptable valuation methods described in the Prospectus
Supplement such as a real estate broker's price opinion or an appraisal prepared
by a staff appraiser.
TMC's experience indicates that the presence of an individual high-risk
loan attribute historically generally does not result in an unacceptable level
of loan losses. However, when multiple high risk attributes are exhibited in
the same loan without sufficient compensating factors (commonly referred to as
"layering" of risk factors or "layered risks"), their cumulative effect
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dramatically increases the observed loan losses. Thus, TMC generally bases
credit decisions on the existence of multiple risk attributes on the same loan
which combine to produce unacceptable levels of credit risk.
If so specified in the related Prospectus Supplement, certain Home Equity
Loans may have been originated under "limited documentation," "no documentation"
or "limited income verification" programs which generally require less
documentation and verification than do traditional "full documentation"
programs. Under such a program, underwriting may be based primarily or entirely
on an appraisal or other valuation of the Mortgaged Property and the Loan-to-
Value Ratio at origination, and minimal or no investigation is undertaken as to
a borrower's credit history and income profile. Loans may be originated under
these programs at lower Loan-to-Value Ratios than loans originated with full
documentation and full income verification.
A Consumer Mortgage Loan is funded after a review by one or more loan
officers and, in certain cases, management personnel, confirming that the loan
conforms with established credit policies and procedures.
TMC'S management regularly reviews the quality of the Consumer Mortgage
Loans included in its portfolio and also periodically conducts audits to ensure
compliance with its established policies and procedures.
SERVICING OF CONSUMER MORTGAGE LOANS
TMC follows specific servicing and collection procedures. Servicing
includes, but is not limited to, post-origination loan processing, customer
service, payment handling, collections and liquidations.
It is TMC'S policy to begin the collection process after a payment due
under a Consumer Mortgage Loan is between one and 30 days past due. TMC
collection representatives handling delinquent accounts attempt to initiate
contact with the delinquent borrower by telephone and/or through letters
targeted to the particular history of an account.
Foreclosure procedures begin when all collection methods have proved
ineffective. Typically, an account is between 60 to 120 days past due at this
point. The recommendation to initiate a foreclosure action is made by A
foreclosure specialist and approved by a manager. If TMC obtains title to the
property upon foreclosure, the account is placed in a "Real Estate Owned" status
until the property is liquidated.
TMC may not foreclose on the property securing a second mortgage loan
unless it forecloses subject to the first mortgage. If the first mortgage is in
default after TMC has initiated its foreclosure action, TMC may advance funds to
keep the mortgage current. In the event that foreclosure proceedings have been
instituted on the first mortgage prior to the initiation of TMC'S foreclosure
action, TMC will either satisfy the first mortgage at or before the time of the
foreclosure sale or take other action to protect its interest in the related
property. See "Description of the Certificates--Advances; Servicing Advances"
herein.
Upon sale of a "Real Estate Owned" property, the proceeds are applied to
the loan balance and any collectible expenses due to TMC. If the sale proceeds
do not cover the existing balance due TMC, the remainder of the balance is
charged off to bad debts.
Payment extensions require special circumstances and must be approved by a
manager. In situations where a borrower is experiencing a temporary financial
difficulty (most commonly loss of employment), the payment schedule of a
Consumer Mortgage Loan may be modified if certain requirements relating to the
Consumer Mortgage Loan, such as minimum equity requirements, are satisfied.
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DELINQUENCY AND LOSS EXPERIENCE
Because the Master Servicer commenced originating and servicing mortgage
loans only recently, no relevant delinquency OR loan loss experience for home
equity loans serviced by the Master Servicer is available. Furthermore, with
respect to Home Equity Loans acquired from an originator other than TMC,
including as a result of the acquisition of or merger with such originator, or
owned by such originator is generally not available to the Master Servicer.
However, if such data is available with respect to purchased Home Equity Loans
included in a Mortgage Pool, it will be set forth in the related Prospectus
Supplement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The following summary describes certain terms of the Certificates common to
each Pooling and Servicing Agreement. A form of the Pooling and Servicing
Agreement has been filed as an Exhibit to the Registration Statement of which
this Prospectus forms a part. The summary does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the provisions
of the Certificates, the Pooling and Servicing Agreement and the related
Prospectus Supplement. Where particular provisions or terms used in any of such
documents are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of such summaries.
The Certificates will represent beneficial interests in the assets of the
related Trust, including (i) the Home Equity Loans and all proceeds thereof,
(ii) REO Property, (iii) amounts on deposit in the funds and accounts
established with respect to the related Trust, including all investments of
amounts on deposit therein, and (iv) certain other property, if described in the
related Prospectus Supplement. If specified in the related Prospectus
Supplement, one or more Classes of Certificates of a Series may have the benefit
of one or more of a letter of credit, financial guaranty insurance policy,
mortgage pool insurance policy, special hazard insurance policy, reserve fund,
spread account, cash collateral account, overcollateralization or other form of
credit enhancement. If so specified in the related Prospectus Supplement, a
Series of Certificates may have the benefit of one or more of a mortgage pool
insurance policy, bankruptcy bond, special hazard insurance policy of similar
credit enhancement. Any such credit enhancement may be included in the assets
of the related Trust. See "Description of the Certificates--Description of
Credit Enhancement" herein.
A Series of Certificates may include one or more Classes entitled to
distributions of principal and disproportionate, nominal or no interest
distributions or distributions of interest and disproportionate, nominal or no
principal distributions. The principal amount of any Certificate may be zero or
may be a notional amount as specified in the related Prospectus Supplement. A
Class of Certificates of a Series entitled to payments of interest may receive
interest at a specified rate (a "Pass-Through Rate") which may be fixed,
variable or adjustable and may differ from other Classes of the same Series, may
receive interest based on the weighted average Mortgage Interest Rate on the
related Home Equity Loans, or may receive interest as otherwise determined, all
as described in the related Prospectus Supplement. One or more Classes of a
Series may be Certificates upon which interest will accrue but not be currently
paid until certain other Classes have received principal payments due to them in
full or until the occurrence of certain events, as set forth in the related
Prospectus Supplement. One or more Classes of Certificates of a Series may be
entitled to receive principal payments pursuant to a planned amortization
schedule or may be entitled to receive interest payments based on a notional
principal amount which reduces in accordance with a planned amortization
schedule. The rights of one or more Classes of Certificates may be senior or
subordinate to the rights of one or more of the other Classes of Certificates.
A Series may include two or more Classes of Certificates which differ as to the
timing, sequential order, priority of payment or amount of distributions of
principal or interest or both.
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Each Class of Certificates of a Series will be issued in the denominations
specified in the related Prospectus Supplement. Each Certificate will represent
a percentage interest (a "Percentage Interest") in the Certificates of the
respective Class, determined by dividing the original dollar amount (or Notional
Principal Amount (as defined below), in the case of certain Certificates
entitled to receive interest only) represented by such Certificate by the
Original Principal Balance of such Class. The related Prospectus Supplement
will set forth the amount or method of calculating the Notional Principal Amount
with respect to any Certificate.
One or more Classes of Certificates of a Series may be issuable in the form
of fully registered definitive certificates or, if so specified in the related
Prospectus Supplement, one or more Classes of Certificates of a Series (the
"Book-Entry Certificates") may initially be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), the nominee of The
Depository Trust Company ("DTC"), and available only in the form of book-entries
on the records of DTC, participating members thereof ("Participants") and other
entities, such as banks, brokers, dealers and trust companies, that clear
through or maintain custodial relationships with a Participant, either directly
or indirectly ("Indirect Participants"). Certificateholders may also hold
Certificates of a Series through CEDEL or Euroclear (in Europe), if they are
participants in such systems or indirectly through organizations that are
participants in such systems. Certificates representing the Book-Entry
Certificates will be issued in definitive form only under the limited
circumstances described herein and in the related Prospectus Supplement. With
respect to Book-Entry Certificates, all references herein to "holders" of
Certificates shall reflect the rights of owners of the Book-Entry Certificates,
as they may indirectly exercise such rights through DTC and Participants, except
as otherwise specified herein. See "--Registration and Transfer of the
Certificates" herein.
Unless otherwise specified in the related Prospectus Supplement, on each
Payment Date there shall be paid to each person in whose name a Certificate is
registered on the related Record Date (which in case of the Book-Entry
Certificates initially will be only Cede, as nominee of DTC), the portion of the
aggregate payment to be made to holders of such Class to which such holder is
entitled, if any, based on the Percentage Interest, held by such holder of such
Class.
INTEREST
Unless otherwise specified in the related Prospectus Supplement, interest
will accrue on each Class of Certificates of a Series (other than a Class of
Certificates entitled to receive only principal) during each period specified in
the related Prospectus Supplement (each, an "Accrual Period") at the Pass-
Through Rate for such Class specified in the related Prospectus Supplement.
Interest accrued on each Class of Certificates at the applicable Pass-Through
Rate during each Accrual Period will be paid, to the extent monies are available
therefor, on each Payment Date, commencing on the day specified in the related
Prospectus Supplement and will be distributed in the manner specified in such
Prospectus Supplement, except for any Class of Certificates ("Accrual
Certificates") on which interest is to accrue and not be paid until the interest
and principal of certain other Classes has been paid in full or the occurrence
of certain events as specified in such Prospectus Supplement. If so described
in the related Prospectus Supplement, interest that has accrued but is not yet
payable on any Accrual Certificates will be added to the principal balance
thereof on each Payment Date and will thereafter bear interest at the applicable
Pass-Through Rate. Payments of interest with respect to any Class of
Certificates entitled to receive interest only or a disproportionate amount of
interest and principal will be paid in the manner set forth in the related
Prospectus Supplement. Payments of interest (or accruals of interest, in the
case of Accrual Certificates) with respect to any Series of Certificates or one
or more Classes of Certificates of such Series, may be reduced to the extent of
interest shortfalls not covered by Advances, if any, or by any applicable credit
enhancement.
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PRINCIPAL
On each Payment Date, commencing with the Payment Date specified in the
related Prospectus Supplement, principal with respect to the related Home Equity
Loans during the period specified in the related Prospectus Supplement (each
such period, a "Remittance Period") will be paid to holders of the Certificates
of the related Series (other than a Class of Certificates of such Series
entitled to receive interest only) in the priority, manner and amount specified
in such Prospectus Supplement, to the extent funds are available therefor.
Unless otherwise specified in the related Prospectus Supplement, such principal
payments will generally include (i) the principal portion of all scheduled
payments ("Monthly Payments") received on the related Home Equity Loans during
the related Remittance Period, (ii) any principal prepayments of any such Home
Equity Loans in full ("Principal Prepayments") and in part ("Curtailments")
received during the related Remittance Period or such other period (each, a
"Prepayment Period") specified in the related Prospectus Supplement, (iii) the
principal portion of (A) the proceeds of any insurance policy relating to a Home
Equity Loan, a Mortgaged Property (defined herein) or a REO Property (defined
herein), net of any amounts applied to the repair of the Mortgaged Property or
released to the Mortgagor (defined herein) and net of reimbursable expenses
("Insurance Proceeds"), (B) proceeds received in connection with the liquidation
of any defaulted Home Equity Loans ("Liquidation Proceeds"), net of fees and
advances reimbursable therefrom ("Net Liquidation Proceeds") and (C) proceeds
received in connection with a taking of a related Mortgaged Property by
condemnation or the exercise of eminent domain or in connection with any partial
release of any such Mortgaged Property from the related lien ("Released
Mortgaged Property Proceeds"), (iv) the principal portion of all amounts paid by
the Seller in connection with the purchase of or substitution for a Home Equity
Loan as to which there is defective documentation or a breach of a
representation or warranty contained in the related Pooling and Servicing
Agreement and (v) the principal balance of each defaulted Home Equity Loan or
REO Property as to which the Master Servicer has determined that all amounts
expected to be recovered have been recovered (each, a "Liquidated Home Equity
Loan"), to the extent not included in the amounts described in clauses (i)
through (iv) above] (the aggregate of the amounts described in clauses (i)
through (v), the "Basic Principal Payment"). Payments of principal with respect
to a Series of Certificates or one or more Classes of such Series may be reduced
to the extent of delinquencies or losses not covered by advances or any
applicable credit enhancement.
ASSIGNMENT OF THE HOME EQUITY LOANS
At the time of issuance of a Series of Certificates, the Seller will assign
the Home Equity Loans to the Trust pursuant to a Pooling and Servicing Agreement
together with all principal and interest received on or with respect to the Home
Equity Loans, other than principal and interest due or received on or before the
related Cut-off Date, as specified in the related Prospectus Supplement.
Each Home Equity Loan will be identified in a schedule included as an
exhibit to the related Pooling and Servicing Agreement (the "Home Equity Loan
Schedule"). The Home Equity Loan Schedule will set forth certain information
with respect to each Home Equity Loan, including, among other things, the
principal balance as of the Cut-off Date, the Mortgage Interest Rate, the Index
for ARM Loans, the scheduled monthly payment of principal and interest, the
maturity of the Mortgage Note, the Combined Loan-to-Value Ratio at origination
and, as applicable, the Home Equity Loan Ratio at origination.
Under the terms of each Pooling and Servicing Agreement, during the period
that the related Certificates are outstanding and so long as the ratings of the
long-term senior unsecured debt of TFC satisfy the rating conditions set forth
in the related Prospectus Supplement, assignments of the Mortgages in favor of
the Seller or the Trustee are not required to be recorded. If TFC'S long-term
senior unsecured debt rating does not satisfy the above-described conditions,
assignments of the Mortgages in favor of the Trustee will be required to be
recorded (or opinions of counsel acceptable to the Rating Agencies will be
obtained to the effect that recording is not required to protect the Trust's
interest in and to the related Home Equity Loan). Under the Pooling and
Servicing Agreement, the Trustee is appointed attorney-in-fact for the Seller
with power to prepare, execute and record assignments of the Mortgages in
the
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event that the Seller fails to do so on a timely basis. See "Risk Factors--
Creditors' Rights and Bankruptcy Considerations" herein.
Since assignments of the Mortgages to the Seller and to the Trustee will
not be recorded, it might be possible for a Prior Owner and the Seller to
transfer the Home Equity Loans to third parties, notwithstanding and in
derogation of the rights of the Trustee. See "Risk Factors -- Creditors' Rights
and Bankruptcy Considerations" herein.
The Trustee is required to review the original documentation delivered to
it relating to each Home Equity Loan, including the related Mortgage Note and
Mortgage (the "Mortgage File"), and if any document required to be included in
the Mortgage File is found to be defective in any material respect and such
defect is not cured within 90 days following written notification thereof to the
Master Servicer by the Trustee, the Seller will be required to repurchase the
related Home Equity Loan in the manner set forth below.
The Trustee will be authorized to appoint a custodian to review and
maintain possession of the Mortgage Files as the agent of the Trustee. The
custodian may not be an affiliate of the Master Servicer and shall meet
certain other criteria set forth in the Pooling and Servicing Agreement. Any
such Custodian will be required to release the Mortgage Files to the Master
Servicer or to any Subservicers in connection with its servicing activities or
for review by licensing authorities. Any such Custodial Agreement will be on
such terms as the Trustee, the Master Servicer and the Custodian shall
agree.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Unless otherwise specified in the related Prospectus Supplement, the Seller
will represent, among other things, that as to each Home Equity Loan conveyed by
the Seller as of the related Closing Date:
1. The information with respect to each Home Equity Loan set forth in
the Home Equity Loan Schedule is true and correct.
2. All of the original or certified documentation constituting the
Mortgage Files (including all material documents related thereto) has been
delivered to the Trustee or the custodian appointed to hold the Mortgage
Files, if any, on the Closing Date or as otherwise provided in the
Agreement.
3. Each Home Equity Loan is secured primarily by the related
Mortgaged Property. Each Mortgaged Property is improved by a one- to four-
family residential dwelling, including, if and to the extent specified in
the related Prospectus Supplement, cooperatives.
4. All of the Balloon Loans, if any, provide for monthly payments
based on an amortization schedule specified in the related Mortgage Note
and have a final balloon payment no earlier than the number of months
following the date of origination set forth in the related Prospectus
Supplement and no later than at the end of the year following the date of
origination set forth in the related Prospectus Supplement. Each other
Mortgage Note will provide for a schedule of substantially equal monthly
payments which are, if timely paid, sufficient to fully amortize the
principal balance of such Mortgage Note on or before its maturity date.
5. Each Mortgage is a valid and subsisting first, second or, if so
specified in the related Prospectus Supplement, more junior lien of record
on the Mortgaged Property subject, in the case of any second or more junior
Home Equity Loans, only to the Senior Lien or Liens on such Mortgaged
Property and subject in all cases to the exceptions to title set forth in
the title insurance policy, or the other evidence of title delivered
pursuant to the Pooling and Servicing Agreement, with respect to the
related Home Equity Loan, which exceptions are generally acceptable to
second mortgage lending companies, and such other exceptions to which
similar properties are commonly subject and which do not individually, or
in the aggregate, materially and adversely affect the benefits of the
security intended to be provided by such Mortgage.
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6. Immediately prior to the transfer of the Home Equity Loans to the
Trust, the Seller held good and indefeasible title to, and was the sole
owner of, each Home Equity Loan conveyed by the Seller subject to no liens,
charges, mortgages, encumbrances or rights of others.
7. Each Home Equity Loan conforms, and all Home Equity Loans in the
aggregate conform, to the description thereof set forth in this Prospectus
and the related Prospectus Supplement.
Such Seller will also make representations in the related Prospectus
Supplement as to the percentage of all of the Home Equity Loans or of the Home
Equity Loans in the Sample Pool which are secured by an owner- occupied
Mortgaged Property, the percentage of Home Equity Loans which are Balloon Loans
and the percentage of Home Equity Loans secured by Mortgaged Properties located
within any single zip code area.
Upon the discovery by any of the Seller, the Master Servicer, any
Subservicer, the Custodian, if any, the Credit Provider, if any, the Trustee or
any other party specified in the Pooling and Servicing Agreement that any of the
representations and warranties described above have been breached in any
material respect as of the Closing Date, with the result that the interests of
the holders of the related Certificates in the related Home Equity Loan or the
interests of any Credit Provider or any other party specified in such Pooling
and Servicing Agreement are materially and adversely affected, the party
discovering such breach is required to give prompt written notice to the other
parties. Within 60 days (or such other period as may be specified in the
related Prospectus Supplement) of the earlier to occur of its discovery or its
receipt of notice of any such breach, the Seller is required to (i) cure such
breach in all material respects, (ii) remove each Home Equity Loan which has
given rise to the requirement for action, or substitute one or more mortgage
loans that meet certain criteria set forth in the related Pooling and Servicing
Agreement (each a "Qualified Substitute Home Equity Loan") and, if the
outstanding principal balance of such Qualified Substitute Home Equity Loans
plus accrued and unpaid interest thereon as of the date of such substitution is
less than the outstanding principal balance, plus accrued and unpaid interest
thereon, of the replaced Home Equity Loans as of the date of substitution,
deliver or cause to be delivered to the Trustee, the amount of any such
shortfall (a " Substitution Adjustment"), or (iii) purchase such Home Equity
Loan at a price equal to the outstanding principal balance of such Home Equity
Loan as of the date of purchase plus all accrued and unpaid interest on such
outstanding principal balance computed at the Mortgage Interest Rate, and
deposit such purchase price into the Collection Account on the next succeeding
Determination Date or other date specified in the related Pooling and Servicing
Agreement; provided, however, that no such purchase or substitution may be made
if such Home Equity Loan is not in default or no default as to such Home Equity
Loan is imminent and no substitution may be made more than two years after the
Closing Date, in each case unless there shall have been delivered to the Trustee
an opinion of counsel knowledgeable in federal income tax matters which states
that such a purchase or substitution would not constitute a prohibited
transaction under the REMIC Provisions (defined herein) or cause the Trust to
otherwise incur a tax liability or to fail to qualify as a REMIC at any time the
related Certificates are outstanding. The obligation of the Seller to cure,
substitute or purchase any Home Equity Loan as described above will constitute
the sole remedy respecting a material breach of any such representation or
warranty to the holders of the related Certificates or the Trustee.
PAYMENTS ON THE HOME EQUITY LOANS
Unless otherwise specified in the related Prospectus Supplement, the
Pooling and Servicing Agreement will permit the Master Servicer to retain
payments received in respect of the Home Equity Loans and commingle them with
its own assets until the Payment Date of the month following the calendar date
of receipt for so long as the ratings on the short-term unsecured senior debt
obligations of TFC are at least the ratings specified in the related Prospectus
Supplement. On each Payment Date, the Master Servicer will be required to
deposit all amounts received in respect of the Home Equity Loans during the
preceding Remittance Period, net of the amounts specified in the related
Prospectus Supplement, into the Collection Account for distribution to
Certificateholders.
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If the ratings criteria specified in the related Prospectus Supplement are
not met, the Master Servicer will be required to deposit payments received in
respect of the Home Equity Loans, not later than two Business Days following the
application of such amounts on the accounting system at its headquarter office.
Unless otherwise specified in the related Prospectus Supplement, all funds in
the Collection Account are required to be held (i) uninvested, either in trust
or insured by the Federal Deposit Insurance Corporation up to the limits
provided by law, (ii) invested in certain permitted investments, which are
generally limited to United States government securities and other high-quality
investments and repurchase agreements or similar arrangements with respect to
such investments or (iii) invested in certain asset management accounts
maintained by the Trustee (collectively, "Permitted Instruments"). Unless
otherwise specified in the related Prospectus Supplement, any investment
earnings on funds held in the Collection Account will be for the account of the
Master Servicer.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer may make withdrawals from the Collection Account only for the following
purposes:
(i) to pay to the Trustee any fees and expenses payable under the
Pooling and Servicing Agreement;
(ii) to pay to the Credit Provider any premiums or fees for the
credit enhancement, if any;
(iii) to reimburse itself for any accrued unpaid Servicing Fees,
unreimbursed Servicing Advances and certain other expenses paid by the
Master Servicer, the Master Servicer's rights to such reimbursement being
prior to the rights of holders of the related Certificates;
(iv) for payment to Certificateholders, the aggregate excess, if
any, of interest collected on the related Home Equity Loans during the
Remittance Period over interest accrued on the related Certificates at the
applicable Pass-Through Rates on the related Payment Date (the "Excess
Spread"), and the Available Payment Amount for the related Remittance
Period;
(v) to withdraw any amount received from a Mortgagor 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, nonappealable order of a court having competent
jurisdiction;
(vi) to make investments in Permitted Instruments and, after
effecting the remittance described in clause (iii) above, to pay itself
interest earned in respect of Permitted Instruments or on funds deposited
in the Collection Account;
(vii) to withdraw any funds deposited in the Collection Account
that were not required to be deposited therein (such as servicing
compensation) or were deposited therein in error;
(viii) to pay itself the Servicing Fee and any other permitted
servicing compensation to the extent not previously retained or paid;
(ix) to withdraw funds necessary for the conservation and
disposition of REO Property;
(x) to make Servicing Advances, as more fully described below; and
(xi) to clear and terminate the Collection Account upon the
termination of the Pooling and Servicing Agreement.
ADVANCES; SERVICING ADVANCES
If so specified in the related Prospectus Supplement, on each Payment Date
the Master Servicer may be required to make advances (each, an "Advance") to
cover shortfalls in the amount payable to Certificateholders resulting from
delinquent payments on the Home Equity Loans that remain uncollected as of
the
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end of the preceding Remittance Period, to the extent the Master Servicer
believes that the amount so advanced will be recoverable from subsequent
payments and collections in respect of the related Home Equity Loan. However,
no Advances will be made if after giving effect thereto the total amount of such
Advances with respect to a particular Home Equity Loan outstanding at that time
would exceed the total amount of delinquent payments of principal and interest
on such Home Equity Loan as of the preceding Record Date, plus the total amount
of Servicing Advances made with respect to such Home Equity Loan during the
preceding Remittance Period.
In the course of performing its servicing obligations, the Master Servicer
will pay certain out-of-pocket costs and expenses incurred in the performance of
its servicing obligations (" Servicing Advances"), including, but not limited
to, the cost of (i) maintaining REO Properties; (ii) any enforcement or judicial
proceedings, including foreclosures; and (iii) the management and liquidation of
Mortgaged Property acquired in satisfaction of the related Mortgage, in each
case to the extent that the Master Servicer believes that the amount so advanced
will be recoverable from subsequent payments and collections in respect of the
related Home Equity Loan.
On each Payment Date, the Master Servicer will be entitled to a first
priority reimbursement from amounts paid by borrowers for previous Advances and
Servicing Advances.
DISTRIBUTIONS
The Trustee is required to establish a trust account (referred to herein as
the "Collection Account," but which may have such other designation as is set
forth in the related Prospectus Supplement) into which there shall be deposited
collections with respect to the Home Equity Loans. The Collection Account is
required to be maintained as an Eligible Account. Amounts on deposit in the
Collection Account may be invested in Permitted Instruments and other
investments specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, on each
Payment Date the Trustee is required to withdraw from the Collection Account and
distribute the amounts set forth in the related Prospectus Supplement, to the
extent available, in the priority set forth therein, which generally will
include (in no particular order of priority):
(i) deposits into any account established for the purpose of paying
credit enhancement fees and premiums;
(ii) if a Spread Account, Reserve Account or similar account is
established with respect to a Series of Certificates, deposits into such
fund or account of the Excess Spread or other amounts required to be
deposited therein;
(iii) payments to the holders of the Certificates on account of
interest and principal, in the order and manner set forth in the related
Prospectus Supplement;
(iv) reimbursement of the Master Servicer for amounts expended by
the Master Servicer and reimbursable thereto under the related Pooling and
Servicing Agreement but not previously reimbursed; and
(v) after the payments and deposits described above and in the
related Prospectus Supplement, the balance, if any, to the persons
specified in the related Prospectus Supplement.
The amount available to make the payments described above will generally
equal (a) the sum of (i) the Available Payment Amount for the related Remittance
Period and (ii) the amount available under any credit enhancement, including
amounts withdrawn from any Spread Account or Reserve Account, less (b) the
amount of the premiums or fees payable to the Trustee, the Master Servicer and
the Credit Provider, if any, during the related Remittance Period.
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Generally, to the extent a Credit Provider makes payments to holders of
Certificates, such Credit Provider will be subrogated to the rights of such
holders with respect to such payments and shall be deemed, to the extent of the
payments so made, to be a registered holder of such Certificates.
For purposes of the provisions described above, the following terms have
the respective meanings ascribed to them below, each determined as of any
Payment Date.
"Available Payment Amount" generally means the result of (a) collections on
or with respect to the Home Equity Loans received by the Master Servicer during
the related Remittance Period, net of the Servicing Fee paid to the Master
Servicer during the related Remittance Period and reimbursements for accrued
unpaid Servicing Fees and for certain expenses and Advances and Servicing
Advances paid by the Master Servicer during prior Remittance Periods, fees and
expenses payable to the Trustee and premiums and fees payable to the Credit
Provider, if any, plus (b) the amount of Advances, if any, less, if so specified
in the related Prospectus Supplement, plus (c) the Excess Spread or other
amounts specified in such Prospectus Supplement.
"Home Equity Loan Losses" means, for Home Equity Loans that become
Liquidated Home Equity Loans during the related Remittance Period, the amount,
if any, by which (i) the sum of the outstanding principal balance of each such
Home Equity Loan (determined immediately before such Home Equity Loan became a
Liquidated Home Equity Loan) and accrued and unpaid interest thereon at the
Mortgage Interest Rate to the date on which such Home Equity Loan became a
Liquidated Home Equity Loan exceeds (ii) the Net Liquidation Proceeds received
during such Remittance Period in connection with the liquidation of such Home
Equity Loan which have not theretofore been used to reduce the Principal Balance
of such Home Equity Loan.
"Payment Date" means the monthly date specified in the related Prospectus
Supplement on which payments will be made to holders of the related
Certificates.
OPTIONAL DISPOSITION OF HOME EQUITY LOANS
If so specified in the related Prospectus Supplement, the Master Servicer,
the Seller or the holders of the Class of Certificates or such other person
specified in such Prospectus Supplement may cause the Trust to sell all of the
Home Equity Loans and all REO Properties when the Pool Principal Balance
declines to the percentage of the Original Pool Principal Balance specified in
the related Prospectus Supplement, when the outstanding principal balance of a
Class of Certificates specified in the related Prospectus Supplement declines to
the percentage of the original principal balance of such Class specified in the
related Prospectus Supplement or at such other time as is specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the related Pooling and Servicing Agreement will
establish a minimum price at which such Home Equity Loans and REO Properties may
be sold. Such minimum price may include certain expenses and other amounts or
such party as is specified in the related Prospectus Supplement may be required
to pay all or a portion of such expenses or other amounts at the time of sale.
Unless otherwise specified in the related Prospectus Supplement, the proceeds of
any such sale will be distributed to holders of the Certificates on the Payment
Date next following the date of disposition.
MANDATORY DISPOSITION OF HOME EQUITY LOANS
If so specified in the related Prospectus Supplement, the Master Servicer,
the Seller or such other entities as may be specified in such Prospectus
Supplement may be required to effect early retirement of a Series of
Certificates by soliciting competitive bids for the purchase of the assets of
the related Trust or otherwise, under the circumstances set forth in such
Prospectus Supplement. The procedures for the solicitation of such bids will be
described in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer and any Underwriter
(defined herein) will be permitted to submit bids. If so specified in the
related Prospectus Supplement, a minimum bid or reserve price may be
established. If so specified in the related Prospectus Supplement, or if the
Master Servicer or the Seller is the purchaser, the Underwriter or such other
entity specified in such Prospectus
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Supplement will be required to confirm that the accepted bid will result in the
sale of the assets of the Trust at their fair market value.
REPORTS TO HOLDERS
On each Payment Date, there will be forwarded to each holder a statement
setting forth, among other things, the information as to such Payment Date
required by the related Pooling and Servicing Agreement, which generally will
include, except as otherwise provided therein, if applicable:
(i) the Available Payment Amount (and any portion of the Available
Payment Amount that has been deposited in the Collection Account but 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) the principal balance of each class of Certificates as reported
in the report for the immediately preceding Payment Date, or, with respect
to the first Payment Date for a Series of Certificates, the Original
Principal Balance of such Class;
(iii) the principal portion of all Monthly Payments received during
the related Remittance Period;
(iv) the amount of interest received on the Home Equity Loans during
the related Remittance Period;
(v) the aggregate amount of the Advances, if any, to be made with
respect to the Payment Date;
(vi) certain delinquency and foreclosure information as described
more fully in the related Pooling and Servicing Agreement, and the amount
of Home Equity Loan Losses during the related Remittance Period;
(vii) the amount of interest and principal due to the holders of each
Class of Certificates of such Series on such Payment Date;
(viii) the amount then available in any Spread Account or Reserve
Account;
(ix) the amount of the payments, if any, to be made from any credit
enhancement on the Payment Date;
(x) the amount to be distributed to the holders of any subordinated
or residual securities on the Payment Date;
(xi) the principal balance of each Class of Certificates of such
Series after giving effect to the payments to be made on the Payment Date;
(xii) with respect to the Mortgage Pool, the weighted average
maturity and the weighted average Mortgage Interest Rate of the Home Equity
Loans as of the last day of the related Remittance Period;
(xiii) the amount of all payments or reimbursements to the Master
Servicer for accrued unpaid Servicing Fees, unreimbursed Servicing Advances
and interest in respect of Permitted Instruments or funds on deposit in the
Collection Account and certain other amounts during the related Remittance
Period;
(xiv) the Pool Principal Balance as of the immediately preceding
Payment Date, the Pool Principal Balance after giving effect to payments
received and Home Equity Loan Losses incurred during the related Remittance
Period and the ratio of the Pool Principal Balance to the Original Pool
Principal Balance. As of any Payment Date, the "Pool Principal Balance"
equals the aggregate outstanding principal balance of all Home Equity
Loans, as reduced by the aggregate Home Equity Loan Losses, at the end of
the related Remittance Period;
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(xv) certain information with respect to the funding, availability
and release of monies from any Spread Account or Reserve Account;
(xvi) the number of Home Equity Loans outstanding at the beginning
and at the end of the related Remittance Period;
(xvii) the amounts that are reimbursable to the Master Servicer or the
Seller, as appropriate; and
(xviii) such other information as the holders may reasonably request in
writing.
The Master Servicer will also be required to furnish to any holder upon
request (i) annual audited financial statements of TFC (which include on a
consolidated basis the Master Servicer) for one or more of the most recently
completed three fiscal years for which such statements are available, and (ii)
interim unaudited financial statements of TFC (which include on a consolidated
basis the Master Servicer) relating to periods subsequent to the most recent
annual audited period.
DESCRIPTION OF CREDIT ENHANCEMENT
To the extent specified in the related Prospectus Supplement, credit
enhancement for one or more Classes of a Series of Certificates may be provided
by one or more of a letter of credit, financial guaranty insurance policy,
mortgage pool insurance policy, special hazard insurance policy, reserve fund,
spread account, cash collateral account, overcollateralization, subordination or
other type of credit enhancement. Credit enhancement may also be provided by
subordination of one or more Classes of Certificates of a Series to one or more
other Classes of Certificates of such Series. Any credit enhancement will be
limited in amount and scope of coverage. Unless otherwise specified in the
related Prospectus Supplement, credit enhancement for a Series of Certificates
will not be available for losses incurred with respect to any other Series of
Certificates. To the extent credit enhancement for any Series of Certificates
is exhausted, or losses are incurred which are not covered by such credit
enhancement, the holders of the Certificates will bear all further risk of loss.
The amounts and types of credit enhancement, as well as the provider
thereof (the "Credit Provider"), if applicable, with respect to each Series of
Certificates will be set forth in the related Prospectus Supplement. To the
extent provided in the applicable Prospectus Supplement and the related Pooling
and Servicing Agreement, any credit enhancement may be periodically modified,
reduced or substituted for as the aggregate principal balance of the related
Mortgage Pool decreases, upon the occurrence of certain events or otherwise.
Unless otherwise specified in the related Prospectus Supplement, to the extent
permitted by the applicable Rating Agencies and provided that the then current
rating of the affected Certificates is not reduced or withdrawn as a result
thereof, any credit enhancement may be cancelled, reduced or modified in amount
or scope of coverage or both.
The descriptions of credit enhancement arrangements included in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of governing documents, copies of which will be available upon
request.
To the extent that any credit enhancement represents a material asset of
the related Trust, additional disclosure regarding the provider of the credit
enhancement, including where appropriate financial statements of such provider,
will be included in the Prospectus Supplement. If the provider of any such
credit enhancement is subsequently replaced with another provider, or if such
credit enhancement is subsequently replaced with another form of credit
enhancement, similar additional disclosure will be included in the periodic
reports of the related Trust.
Financial Guaranty Insurance Policy. If so specified in the related
-----------------------------------
Prospectus Supplement, a financial guaranty insurance policy or surety bond (a
"Certificate Insurance Policy") may be obtained and maintained for a Class or
Series of Certificates. The issuer of the Certificate Insurance Policy (the
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"Insurer") will be described in the related Prospectus Supplement and a copy of
the form of Certificate Insurance Policy will be filed with the related Current
Report on Form 8-K.
Unless otherwise specified in the related Prospectus Supplement, a
Certificate Insurance Policy will be unconditional and irrevocable and will
guarantee to holders of the applicable Certificates that an amount equal to the
full amount of distributions due to such holders will be received by the Trustee
or its agent on behalf of such holders for distribution on each Payment Date.
The specific terms of any Certificate Insurance Policy will be set forth in the
related Prospectus Supplement. A Certificate Insurance Policy may have
limitations and generally will not insure the obligation of the Seller or the
Master Servicer to purchase or substitute for a defective Home Equity Loan and
will not guarantee any specific rate of principal prepayments. Unless otherwise
specified in the related Prospectus Supplement, the Insurer will be subrogated
to the rights of each holder to the extent the Insurer makes payments under the
Certificate Insurance Policy.
Letter of Credit. If so specified in the related Prospectus Supplement,
----------------
all or a component of credit enhancement for a Class or a Series of Certificates
may be provided by a letter of credit (a "Letter of Credit") issued by a bank or
other financial institution (a "Letter of Credit Issuer") identified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, each Letter of Credit will be irrevocable. A Letter of
Credit may provide coverage with respect to one or more Classes of Certificates
or the underlying Home Equity Loans or, if specified in the related Prospectus
Supplement, may support a specified obligation or be provided in lieu of the
funding with cash of a Reserve Account or Spread Account (each as defined
below). The amount available, conditions to drawing, if any, and right to
reimbursement with respect to a Letter of Credit will be specified in the
related Prospectus Supplement. A Letter of Credit will expire on the date
specified in the related Prospectus Supplement, unless earlier terminated or
extended in accordance with its terms.
Mortgage Pool Insurance Policy. If so specified in the related
------------------------------
Prospectus Supplement, credit enhancement with respect to a Series of
Certificates may be provided by a mortgage pool insurance policy (a "Pool
Insurance Policy") issued by the insurer (a "Pool Insurer") specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, each Pool Insurance Policy will, subject to limitations
described in such Prospectus Supplement, insure against losses due to defaults
in the payment of principal or interest on the underlying Home Equity Loans up
to the amount specified in such Prospectus Supplement (or in a Current Report on
Form 8-K). The Pooling and Servicing Agreement with respect to any Series of
Certificates for which a Pool Insurance Policy is provided will require the
Master Servicer or other party specified therein to use reasonable efforts to
maintain the Pool Insurance Policy and to present claims to the Pool Insurer in
the manner required thereby. No Pool Insurance Policy will be a blanket policy
against loss and will be subject to the limitations and conditions precedent
described in the related Prospectus Supplement.
Special Hazard Insurance Policy. If so specified in the related Prospectus
-------------------------------
Supplement, credit enhancement with respect to a Series of Certificates may be
provided in part by an insurance policy (a "Special Hazard Policy") covering
losses due to physical damage to a Mortgaged Property other than a loss of the
type covered by a standard hazard insurance policy or flood insurance policy or
losses resulting from the application of co-insurance clauses contained in
standard hazard insurance policies. The Prospectus Supplement relating to a
Series of Certificates for which a Special Hazard Policy is provided will
identify the issuer of such policy and any limitations on coverage. No Special
Hazard Policy will cover extraordinary losses such as those due to war, civil
insurrection, governmental action, errors in design or workmanship, chemical
contamination or similar causes. Each Special Hazard Policy will contain an
aggregate limit on claims specified in the related Prospectus Supplement. No
claim will be paid under any Special Hazard Policy unless hazard insurance on
the Mortgaged Property is in force and protection and preservation expenses have
been paid.
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Spread Account and Reserve Account. If so specified in the related
-----------------------------------
Prospectus Supplement, all or any component of credit enhancement for a Series
of Certificates may be provided by a reserve account (a "Reserve Account") or a
spread account (a " Spread Account"). A Reserve Account or Spread Account may
be funded by a combination of cash, one or more letters of credit or one or more
Permitted Instruments provided by the Seller or other party identified in the
related Prospectus Supplement, amounts otherwise distributable to one or more
Classes of Certificates subordinated to one or more other Classes of
Certificates or all or any portion of Excess Spread. If so specified in the
related Prospectus Supplement, a Reserve Account for a Series of Certificates
may be funded in whole or in part on the applicable Closing Date. If so
specified in the related Prospectus Supplement, cash deposited in a Reserve
Account or a Spread Account may be withdrawn and replaced with one or more
letters of credit or Permitted Instruments. A Reserve Account or Spread Account
may be pledged or otherwise made available to a Credit Provider. If so
specified in the related Prospectus Supplement, a Reserve Account or Spread
Account may not be deemed part of the assets of the related Trust or may be
deemed to be pledged or provided by one or more of the Seller, the holders of
the Class of Certificates otherwise entitled to the amounts deposited in such
account or such other party as is identified in such Prospectus Supplement. If
so specified in the related Prospectus Supplement, a Spread Account or Reserve
Account may also include an account (a "Yield Supplement Account"). Funds on
deposit in the Yield Supplement Account for any Series may be applied to
supplement interest payable on the related Home Equity Loans if necessary to pay
interest to holders of one or more classes of Certificates of such Series at the
applicable Pass-Through Rate.
Cash Collateral Account. If so specified in the related Prospectus
-----------------------
Supplement, all or any portion of credit enhancement for a Series of
Certificates may be provided by the establishment of a cash collateral account
(a "Cash Collateral Account"). A Cash Collateral Account will be similar to a
Reserve Account or Spread Account except that generally a Cash Collateral
Account is funded initially by a loan from a cash collateral lender (the " Cash
Collateral Lender"), the proceeds of which are invested with the Cash Collateral
Lender or other eligible institution. Unless otherwise specified in the related
Prospectus Supplement, the Cash Collateral Account will be required to be
maintained as an Eligible Account. The loan from the Cash Collateral Lender
will be repaid from Excess Spread, if any, or such other amounts as are
specified in the related Prospectus Supplement. Amounts on deposit in the Cash
Collateral Account will be available in generally the same manner described
above with respect to a Spread Account or Reserve Account. As specified in the
related Prospectus Supplement, a Cash Collateral Account may be deemed to be
part of the assets of the related Trust, may be deemed to be part of the assets
of a separate cash collateral trust or may be deemed to be property of the party
specified in the related Prospectus Supplement and pledged for the benefit of
the holders of one or more Classes of Certificates of a Series.
Subordination. If so specified in the related Prospectus Supplement,
-------------
distributions of scheduled principal, Principal Prepayments, Curtailments,
interest or any combination thereof otherwise payable to one or more Classes of
Certificates of a Series ("Subordinated Certificates") may instead be payable to
holders of one or more other Classes of Certificates of such Series ("Senior
Certificates") under the circumstances and to the extent specified in such
Prospectus Supplement. A Class of Certificates may be subordinated to one or
more Classes of Certificates and senior to one or more other Classes of
Certificates of a Series. If so specified in the related Prospectus Supplement,
delays in receipt of scheduled payments on the Home Equity Loans and losses on
defaulted Home Equity Loans 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 such Prospectus Supplement. The aggregate losses in
respect of defaulted Home Equity Loans 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 Senior Certificates on any Payment Date may be limited as
specified in the related Prospectus Supplement or the availability of
subordination may otherwise be limited as specified in the related Prospectus
Supplement. If losses or delinquencies were to exceed the amounts payable and
available to holders of Subordinated Certificates of a Series or if such amounts
were to exceed any
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limitation on the amount of subordination available, holders of Senior
Certificates of such Series could experience losses.
In addition, if so specified in the related Prospectus Supplement, amounts
otherwise payable to holders of Subordinated Certificates on any Payment Date
may be deposited in a Reserve Account or Spread Account, as described above.
Such deposits may be made on each Payment Date, on each Payment Date for a
specified period or to the extent necessary to cause the balance in such account
to reach or maintain a specified amount, as specified in the related Prospectus
Supplement, and thereafter, amounts may be released from such Reserve Account or
Spread Account in the amounts and under the circumstances specified in such
Prospectus Supplement.
Distributions may be allocated as among Classes of Senior Certificates and
as among Classes of Subordinated Certificates in order of their final scheduled
payment dates, in accordance with a schedule or formula or otherwise, as
specified in the related Prospectus Supplement. As between Classes of
Subordinated Certificates, payments to holders of Senior Certificates on account
of delinquencies or losses and deposits to any Reserve Account or Spread Account
will be allocated as specified in the related Prospectus Supplement. Principal
Prepayments and Curtailments may be paid disproportionately to Classes of Senior
Certificates pursuant to a "shifting interest" structure or otherwise, as
specified in the related Prospectus Supplement.
Other Credit Enhancement. Credit enhancement may also be provided for a
------------------------
Series of Certificates in the form of overcollateralization, surety bond,
insurance policy or other type of credit enhancement approved by the applicable
Rating Agencies to cover one or more risks with respect to the Home Equity Loans
or the Certificates, as specified in the related Prospectus Supplement. In
addition, if so specified in the related Prospectus Supplement, the form or
amount of credit enhancement may be changed after the issuance of the related
Certificates with the approval of the applicable Rating Agencies.
PAYMENT OF CERTAIN EXPENSES
If so specified in the related Prospectus Supplement, in order to provide
for the payment of the fees of the Credit Provider, if any, the Trustee may be
required to establish a credit enhancement account and to deposit therein on the
dates specified in the related Prospectus Supplement, from amounts on deposit in
the Collection Account, in the priority indicated, an amount that is sufficient
to pay the premiums or fees due to the Credit Provider.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Trustee's fees and reasonable
expenses and disbursements to be paid prior to distributions to
Certificateholders.
SERVICING COMPENSATION
As compensation for servicing and administering the Home Equity Loans, the
Master Servicer is entitled to a fee in the amount specified in the related
Prospectus Supplement (the "Servicing Fee"), payable monthly from payments and
collections with respect to the Home Equity Loans. In addition to the Servicing
Fee, the Master Servicer will generally be entitled under the related Pooling
and Servicing Agreement to retain as additional servicing compensation any
assumption and other administrative fees (including bad check charges, late
payment fees and similar fees), the excess of any Net Liquidation Proceeds over
the outstanding principal balance of a Liquidated Home Equity Loan, to the
extent not otherwise required to be remitted to the Trustee for deposit into the
Collection Account, and interest paid on funds on deposit in the Collection
Account.
SERVICING STANDARDS
General Servicing Standards. The Master Servicer will agree to service the
----------------------------
Home Equity Loans in accordance with the Pooling and Servicing Agreement and, in
servicing and administering the Home Equity Loans, to employ or cause to be
employed procedures, including collection, foreclosure and REO Property
management procedures, and exercise the same care it customarily employs and
exercises in servicing and administering mortgage loans for its own account, in
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accordance with accepted first and junior mortgage servicing practices of
prudent lending institutions and giving due consideration to the holders', and
any Credit Provider's reliance on the Master Servicer. The interests of the
holders of each Class of Certificates of any Series and the Credit Provider, if
any, may differ with respect to servicing decisions which may affect the rate at
which prepayments are received. For example, holders of certain Classes of
Certificates may prefer that "due-on-sale" clauses be waived in the event of a
sale of the underlying Mortgaged Property, that delinquent Mortgagors be granted
extensions or other accommodations and that liquidations of Home Equity Loans be
deferred, if an increase in the rate of principal prepayments would have an
adverse effect on the yield to investors in such Certificates. Depending on the
timing of such prepayments, holders of other classes of Certificates may prefer
that "due-on- sale" clauses be enforced or that other actions be taken which
- -
would increase prepayments. No holder of a Certificate will have the right to
make any decisions with respect to the underlying Home Equity Loans. The Master
Servicer will have the right and obligation to make such decisions in accordance
with its normal servicing procedures and the standards set forth in the related
Pooling and Servicing Agreement. In certain cases, the consent or approval of
the Credit Provider, if any, may be permitted or required. The interests of the
Credit Provider, if any, with respect to, among other things, matters which
affect the timing of payments and prepayments may not be the same as those of
the holders of each Class of Certificates of such Series.
Hazard Insurance. The Master Servicer will exercise its best reasonable
-----------------
efforts to cause to be maintained fire and hazard insurance with extended
coverage (sometimes referred to as "standard hazard insurance") customary in the
area where the Mortgaged Property is located, in an amount which is at least
equal to the outstanding Principal Balance owing on the Home Equity Loan;
provided, however, that, if so specified in the related Prospectus Supplement,
standard hazard insurance may not be required for Home Equity Loans where the
principal amount is less than $5,000 or the unimproved land valuation of the
Mortgaged Property. In some states the Master Servicer's ability to require
such insurance coverage may be limited by law. The Master Servicer will also be
required to maintain on REO Property, to the extent such insurance is available,
fire and hazard insurance in the applicable amounts described above, and
liability insurance. Any amounts collected by the Master Servicer under any such
policies (other than amounts to be applied to the restoration or repair of the
Mortgaged Property, or to be released to the Mortgagor in accordance with
customary mortgage servicing procedures) will be deposited in the Collection
Account on the following Payment Date, subject to retention by the Master
Servicer to the extent such amounts constitute servicing compensation or to
withdrawal pursuant to the related Pooling and Servicing Agreement.
If the Master Servicer obtains and maintains a blanket policy insuring
against fire and hazards of extended coverage on all of the Home Equity Loans
and/or the REO Properties, then, to the extent such policy names the Master
Servicer as loss payee and provides coverage in an amount equal to the aggregate
outstanding principal balance on the Home Equity Loans without co-insurance, the
Master Servicer will be deemed conclusively to have satisfied its obligations
with respect to fire and hazard insurance coverage.
In general, the standard hazard insurance policy covers physical damage to
or destruction of the improvements on the property by fire, lightning,
explosion, smoke, windstorm and hail, and riot, strike and civil commotion,
subject to the conditions and exclusions specified in each policy. Although the
policies relating to Home Equity Loans will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms and therefore will not contain identical terms and conditions, the
basic terms thereof are dictated by respective state laws, and most such
policies typically do not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water related causes, earth
movement (including earthquakes, landslides, and mudflows), nuclear reactions,
wet or dry rot, rodents, insects or domestic animals, theft and, in certain
cases, vandalism. The foregoing list is merely indicative of certain kinds of
uninsured risks and is not intended to be all-inclusive. No other insurance
coverage (other than title insurance as specified herein) is required under the
Home Equity Loan or the Pooling and Servicing Agreement.
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Since, as a general matter, the cost of construction of residential
properties has increased in recent years, if the amount of hazard insurance
maintained on the improvements securing a Home Equity Loan were to decline as
its principal balance decreased, hazard insurance proceeds could be insufficient
to restore fully the damaged property in the event of a loss.
Enforcement of Due on Sale Clauses. When a Mortgaged Property has been or
-----------------------------------
is about to be conveyed by the Mortgagor, the Master Servicer, on behalf of the
Trustee, may, but is not required to, enforce the rights of the Trustee as the
mortgagee of record to accelerate the maturity of the related Home Equity Loan
under a "due-on-sale" clause, if any, contained in the related Mortgage or
Mortgage Note; provided, however, that the Master Servicer will not be permitted
to exercise any such right if the "due-on-sale" clause, in the reasonable belief
of the Master Servicer, is not enforceable under applicable law. The Master
Servicer may enter into an assumption and modification agreement with the person
to whom such property has been or is about to be conveyed, pursuant to which
such person becomes liable under the Mortgage Note and, unless prohibited by
applicable law or the Mortgage Note or Mortgage, the Mortgagor remains liable
thereon. The Master Servicer will also be authorized (with the prior approval
of any Credit Provider, if required) to enter into a substitution of liability
agreement with such person, pursuant to which the original Mortgagor is released
from liability and such person is substituted as Mortgagor and becomes liable
under the Mortgage Note.
Realization Upon Defaulted Home Equity Loans. The Master Servicer is
---------------------------------------------
required to foreclose upon or otherwise comparably effect the ownership in the
name of the Trustee on behalf of the holders of the related Certificates of
Mortgaged Properties relating to defaulted Home Equity Loans as to which no
satisfactory arrangements can be made for collection of delinquent payments;
provided, however, that the Master Servicer will not be required to foreclose if
it determines that foreclosure would not be in the best interests of the holders
or any Credit Provider. In connection with such foreclosure or other
conversion, the Master 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.
Collection of Home Equity Loan Payments. Each Pooling and Servicing
----------------------------------------
Agreement will require the Master Servicer to make reasonable efforts to collect
all payments called for under the terms and provisions of the Home Equity Loans.
Consistent with the foregoing, the Master Servicer may at its own discretion
waive any late payment charge, assumption fee or any penalty interest in
connection with the prepayment of a Home Equity Loan or any other fee or charge
which the Master Servicer would be entitled to retain as servicing compensation
and may waive, vary or modify any term of any Home Equity Loan or consent to the
postponement of strict compliance with any such term or in any matter grant
indulgence to any Mortgagor, subject to the limitations set forth in the related
Pooling and Servicing Agreement.
USE OF SUBSERVICERS
The Master Servicer will be permitted under each Pooling and Servicing
Agreement to enter into subservicing agreements (" Subservicing Agreements") for
any servicing and administration of Home Equity Loans with any institution that
is in compliance with the laws of each state necessary to enable it to perform
its obligations under such Subservicing Agreement (A "Subservicer") and is
either (i) designated by Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC") as an approved Seller-Master
Servicer for first and second mortgage loans , (ii) approved by the United
States Department of Housing and Urban Development ("HUD") as a mortgagee or
(iii) an affiliate or a wholly owned subsidiary of the Master Servicer.
Notwithstanding any Subservicing Agreement, unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will not be relieved of
its obligations under a Pooling and Servicing Agreement, and the Master Servicer
shall be obligated to the same extent and under the same terms and conditions as
if it alone were servicing and administering the Home Equity Loans. The Master
Servicer will be entitled to enter into any agreement with a subservicer for
indemnification of the Master Servicer by such subservicer and nothing contained
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in any Pooling and Servicing Agreement shall be deemed to limit or modify such
indemnification.
SERVICING CERTIFICATES AND AUDITS
The Master Servicer is required to deliver, not later than the last day of
the fourth month following the end of the Master Servicer's fiscal year,
commencing in the year specified in the related Pooling and Servicing Agreement,
an officers' certificate stating that (i) the Master Servicer has fully complied
with the provisions of the Pooling and Servicing Agreement which relate to the
servicing and administration of the Home Equity Loans, (ii) a review of the
activities of the Master Servicer during such preceding year and of performance
under the Pooling and Servicing Agreement has been made under such officers'
supervision, and (iii) to the best of such officers' knowledge, based on such
review, the Master Servicer has fulfilled all its obligations under the Pooling
and Servicing Agreement for such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof including the steps being taken by
the Master Servicer to remedy such default.
The Master Servicer is required to cause to be delivered, not later than
the last day of the fourth month following the end of the Master Servicer's
fiscal year, commencing in the year set forth in the related Pooling and
Servicing Agreement, a letter or letters of a firm of independent certified
public accountants reasonably acceptable to the Trustee stating that such firm
has, with respect to the Master Servicer's overall servicing operations,
examined such operations in accordance with the requirements of the Uniform
Single Audit Program for Mortgage Bankers, and stating such firm's conclusions
relating thereto.
LIMITATIONS ON LIABILITY OF THE MASTER SERVICER AND ITS AGENTS
Each Pooling and Servicing Agreement will provide that the Master Servicer
and any director, officer, employee or agent of the Master Servicer may rely on
any document of any kind that is reasonably and in good faith believed to be
genuine and adopted or signed by the proper authorities respecting any matters
arising under the Pooling and Servicing Agreement. In addition, the Master
Servicer will not be required to appear with respect to, prosecute or defend any
legal action that is not incidental to the Master Servicer's duty to service the
Home Equity Loans in accordance with the related Pooling and Servicing
Agreement, other than certain claims made by third parties with respect to such
Pooling and Servicing Agreement.
REMOVAL AND RESIGNATION OF MASTER SERVICER
Unless otherwise specified in the related Prospectus Supplement, any Credit
Provider or the holders of Certificates of a Series representing a majority in
principal amount of Certificates of such Series, voting as a single class (a "
Majority in Aggregate Voting Interest"), with the consent of any Credit
Provider, may, pursuant to the related Pooling and Servicing Agreement, remove
the Master Servicer only upon the occurrence and continuation beyond the
applicable cure period of any of the following events (each a "Master Servicer
Termination Event"):
(a) the failure by Master Servicer to make any payment, transfer or
deposit, or to give instructions to the Trustee to make any payment,
transfer or deposit, on the date the Master Servicer is required to do so
under the Pooling and Servicing Agreement, which is not cured within a five
business day grace period;
(b) the Master Servicer assigns its duties under the Pooling and
Servicing Agreement, except as specifically permitted thereunder, or
failure on the part of the Master Servicer duly to observe or perform in
any material respect any other covenants or agreements of the Master
Servicer in the Pooling and Servicing Agreement which has a material
adverse effect on the Certificateholders and which continues unremedied for
a period of sixty days after written notice or knowledge of such default;
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(c) any representation, warranty or certification made by the Master
Servicer in the Pooling and Servicing Agreement or in any certificate
delivered pursuant to the Pooling and Servicing Agreement proves to have
been incorrect in any material respect when made, which has a material
adverse effect on the rights of the Certificateholders, and which material
adverse effect continues for a period of sixty days after written notice;
or
(d) the occurrence of certain events of bankruptcy with respect to
the Master Servicer, although this provision may not be enforceable.
No removal of the Master Servicer shall be effective until the appointment
and acceptance of a successor Master Servicer other than the Trustee (unless the
Trustee agrees to serve) meeting the requirements described below and otherwise
acceptable to any Credit Provider and majority in Percentage Interest of each
Class of Certificates of such Series.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer may not assign the related Pooling and Servicing Agreement nor resign
from the obligations and duties thereby imposed on it except by mutual consent
of the Master Servicer, any Credit Provider, the Trustee and the Majority in
Aggregate Voting Interest or upon the determination that the Master Servicer's
duties thereunder are no longer permissible under applicable law and such
incapacity cannot be cured by the Master Servicer. No such resignation shall
become effective until a successor has assumed the Master Servicer's
responsibilities and obligations in accordance with the Pooling and Servicing
Agreement.
Unless otherwise specified in the related Prospectus Supplement, upon
removal or resignation of the Master Servicer other than as described in the
second preceding paragraph, the Trustee will be the successor servicer (the
"Successor Master Servicer"). The Trustee, as Successor Master Servicer, is
obligated to make Servicing Advances and certain other advances unless it
determines reasonably and in good faith that such advances would not be
recoverable. If, however, the Trustee is unwilling or unable to act as
Successor Master Servicer, or if the Majority in Aggregate Voting Interest or
any Credit Provider so requests in writing, the Trustee may appoint, or petition
a court of competent jurisdiction to appoint, any established mortgage loan
servicing institution acceptable to such Credit Provider having a net worth of
not less than the amount set forth in the related Pooling and Servicing
Agreement and which is either approved as a servicer by FNMA and FHLMC or
approved as a mortgagee by Hud as the Successor Master Servicer in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer.
The Trustee and any other Successor Master Servicer in such capacity is
entitled to the same reimbursement for advances and other Servicing Compensation
as the Master Servicer. See "Servicing Compensation" above.
REGISTRATION AND TRANSFER OF THE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes
of Certificates of a Series will be issued in definitive certificated form and
will be transferable and exchangeable at the office of the registrar identified
in the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, no service charge will be made for any such registration
or transfer of such Certificates, but the owner may be required to pay a sum
sufficient to cover any tax or other governmental charge.
If so specified in the related Prospectus Supplement, one or more Classes
of Certificates of a Series ("Book-Entry Certificates") may be initially
represented by one or more certificates registered in the name of The Depository
Trust Company ("DTC") or other securities depository and be available only in
the form of book-entries. Any Book-Entry Certificates will initially be
registered in the name of Cede, the nominee of DTC. Certificateholders may also
hold Certificates of a Series through CEDEL or Euroclear (in Europe), if they
are participants in such systems or indirectly through organizations that are
participants in such systems. CEDEL and Euroclear will hold omnibus positions
on behalf of their participants through customers' certificates accounts in
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CEDEL's and Euroclear's names on the books of their respective Depositaries
which in turn will hold such positions in customers' certificates accounts in
the Depositaries' names on the books of DTC. Citibank, N.A. (" Citibank"), will
act as depositary for CEDEL and Morgan Guaranty Trust Company of New York
("Morgan") will act as depositary for Euroclear (in such capacities, the
"Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in the ordinary way 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, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules an procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving certificates 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 certificates received in CEDEL
or Euroclear as a result of a transaction with a DTC participant will be made
during subsequent certificates settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
certificates 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 certificates 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. For
information with respect to tax documentation procedures relating to the
Certificates, see "Certain Federal Income Tax Consequences--Foreign Investors in
REMIC Certificates" herein.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Certificates Exchange Act of 1934, as amended. DTC accepts securities for
deposit from its participating organizations ("Participants") and facilitates
the clearance and settlement of securities transactions between Participants in
such securities through electronic book-entry changes in accounts of
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Beneficial owners ("Owners") that are not Participants but desire to
purchase, sell or otherwise transfer ownership of Book-Entry Certificates may do
so only through Participants (unless and until Definitive Certificates, as
defined below, are issued). In addition, Owners will receive all distributions
of principal of, and interest on, the Book-Entry Certificates from the Trustee
or any Trustee, as the case may be, through DTC and Participants. Owners will
not receive or be entitled to receive certificates representing their respective
interests in the Book-Entry Certificates, except under the limited circumstances
described below.
Unless and until Definitive Certificates (as defined below) are issued, it
is anticipated that the only "holder" of Book-Entry Certificates of any Series
will be Cede, as nominee of DTC. Owners will only be permitted to exercise the
rights of holders indirectly through Participants and DTC .
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While any Book-Entry Certificates of a Series are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Book-Entry Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Book-Entry Certificates.
Participants with whom Owners have accounts with respect to Book-Entry
Certificates are similarly required to make book-entry transfers and receive and
transmit such distributions on behalf of their respective Owners. Accordingly,
although Owners will not possess certificates, the Rules provide a mechanism by
which Owners will receive distributions and will be able to transfer their
interests.
Unless and until Definitive Certificates are issued, Owners who are not
Participants may transfer ownership of Book-Entry Certificates of a Series only
through Participants by instructing such Participants to transfer Book-Entry
Certificates, by book-entry transfer, through DTC for the account of the
purchasers of such Book-Entry Certificates, which account is maintained with
their respective Participants. Under the Rules and in accordance with DTC's
normal procedures, transfers of ownership of Book-Entry Certificates will be
executed through DTC and the accounts of the respective Participants at DTC will
be debited and credited. Similarly, the respective Participants will make
debits or credits, as the case may be, on their records on behalf of the selling
and purchasing Owners.
Book-Entry Certificates of a Series will be issued in registered form to
Owners, or their nominees, rather than to DTC (such Book-Entry Certificates
being referred to herein as " Definitive Certificates") only under the
circumstances provided in the related Pooling and Servicing Agreement, which
generally will include, except if otherwise provided therein, if (i) DTC or the
Master Servicer advises the Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as nominee and depository with
respect to the Book-Entry Certificates of such Series and the Master Servicer is
unable to locate a qualified successor, (ii) the Master Servicer, at its sole
option, elects to terminate the book-entry system through DTC or (iii) after the
occurrence of a Master Servicer Termination Event, a majority of the aggregate
Percentage Interest of any Class of Certificates of such Series advises DTC in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) to the exclusion of any physical certificates being issued to Owners is
no longer in the best interests of Owners of such Class of Certificates. Upon
issuance of Definitive Certificates of a Series to Owners, such Book-Entry
Certificates will be transferable directly (and not exclusively on a book-entry
basis) and registered holders will deal directly with the Trustee with respect
to transfers, notices and distributions.
DTC has advised the Master Servicer and the Seller that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by a holder only at the direction of one or more Participants to whose DTC
accounts the Certificates are credited. DTC has advised the Master Servicer and
the Seller that DTC will take such action with respect to any Percentage
Interests of the Book-Entry Certificates of a Series only at the direction of
and on behalf of such Participants with respect to such Percentage Interests of
the Book-Entry Certificates. DTC may take actions, at the direction of the
related Participants, with respect to some Book-Entry Certificates which
conflict with actions taken with respect to other Book-Entry Certificates.
Centrale de Livraison de Valeurs Mobilieres S.A. ("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 securities.
Transactions may be settled in CEDEL in any of 28 currencies, including United
States dollars. CEDEL provides to its 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,
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securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include any underwriters, agents or
dealers with respect to a Series of Certificates 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 ("Euroclear") 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 book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 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"), 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
Euroclear on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers with respect to
a Series of Certificates offered hereby. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that 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.
Certificates 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 Euroclear and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in the
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant systems' rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences" herein. CEDEL or
the Euroclear Operator, as the case may be, will take any other action permitted
to be taken by a Certificateholder under the Pooling and Servicing Agreement or
the relevant Supplement 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.
CERTAIN LEGAL ASPECTS OF THE HOME EQUITY LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state laws (which laws may differ substantially
from one another), 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 Mortgaged Properties may be situated. The summaries are qualified in
their
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entirety by reference to the applicable federal and state laws governing the
Home Equity Loans.
GENERAL
The Home Equity Loans will be secured by either deeds of trust or
mortgages, depending upon the prevailing practice in the state in which the
Mortgaged Property subject to a Home Equity Loan is located. A mortgage conveys
legal title to or creates a lien upon 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 mortgagor, who is the borrower and
homeowner, and the mortgagee, who is the lender. Under the mortgage instrument,
the mortgagor delivers to the mortgagee a note or bond and the mortgage.
Although a deed of trust is similar to a mortgage, a deed of trust has three
parties, the borrower-homeowner called the trustor (similar to a mortgagor), 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 law, the express provisions of the deed of trust or mortgage,
and, in some cases, 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 mortgagor) and a grantee
(similar to a mortgagee). Mortgages, deeds of trust and deeds to secure debt
are not prior to liens for real estate taxes and assessments and other charges
imposed under governmental police powers. Priority between mortgages, deeds of
trust and deeds to secure debt and other encumbrances depends on their terms in
some cases and generally on the order of recordation of the mortgage, deed of
trust or the deed to secure debt in the appropriate recording office.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
include loans on units in cooperatives (" Cooperative Loans"). Cooperative
Loans are evidenced by notes secured by security interests in shares issued by
cooperatives, which are corporations entitled to be treated as housing
cooperatives under federal tax law, and in the related proprietary leases or
occupancy agreements granting rights to occupy specific dwelling units within
the cooperative buildings. The security agreement will create a lien upon or
grant a title interest in the property which it covers, the priority of which
lien will depend on the terms of the agreement and the order of recordation in
the appropriate recording office. Ownership of a unit in a cooperative is held
through the ownership of stock in the corporation, together with the related
proprietary lease or occupancy agreement. Such ownership interest is generally
financed through a cooperative share loan evidenced by a promissory note and
secured by an assignment of and a security interest in the proprietary lease or
occupancy agreement and a security interest in the related cooperative shares.
Each cooperative owns in fee or has a leasehold interest in the real
property and improvements, including all separate dwelling units therein. The
cooperative is responsible for property management and generally for the payment
of real estate taxes, insurance and similar charges, the cost of which is shared
by the owners. The cooperative building or underlying land may be subject to
one or more mortgages (generally incurred in connection with the construction or
purchase of the building) for which the cooperative is responsible. The
interest of an occupant under proprietary leases or occupancy agreements is
generally subordinate to that of the holder of such a mortgage or land lease.
If the cooperative is unable to meet the payment obligations under such mortgage
or any land lease, the holder of such mortgage or land lease could foreclose the
mortgage or terminate the land lease, which may have the effect of terminating
all proprietary leases or occupancy agreements. In the event of such
foreclosure or termination, the value of any collateral held by a lender which
financed the purchase by a tenant/shareholder of cooperative shares or, in the
case of the Home Equity Loans, the collateral securing the Cooperative Loans
could be eliminated or significantly reduced.
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FORECLOSURE IN GENERAL
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties defendant. Judicial foreclosure proceedings are often not contested by
any of the parties defendant.
Foreclosure of a deed of trust or a security deed is generally accomplished
by a non-judicial trustee's sale under a specific provision in the deed of trust
or security deed which authorizes the sale of the property upon default by the
borrower under the terms of the note, deed of trust or security deed. In some
states, 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 such
notice. In addition, the trustee must provide notice in some states to any
other individual having an interest in the real property, including any junior
lienholders. The borrower, or any other person having a junior encumbrance on
the real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligations. Generally, 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 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 often a public
sale. Because of the difficulty a potential buyer at the sale would have in
determining the exact status of title and because the physical condition of the
property subject to the lien of the mortgage or the deed of trust may have
deteriorated during the foreclosure proceedings, a third party may be unwilling
to purchase the property at a foreclosure sale.
For these reasons, it is common for the lender to purchase the property
from the trustee or referee with a "credit bid" in an amount less than or equal
to the principal amount of the indebtedness secured by the mortgage or deed of
trust, accrued and unpaid interest and the expenses of foreclosure. The lender
thereby assumes 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. In some states there is a
statutory minimum purchase price which the lender may offer for the property.
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.
Under the Pooling and Servicing Agreement (and the REMIC Provisions of the
Code), the Master Servicer may 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 Master Servicer.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the unpaid portion of the debt from
the mortgagor. See "--Anti-Deficiency Legislation and Other Limitations on
Lenders" herein.
JUNIOR MORTGAGES
Some of the Home Equity Loans may be secured by second or more junior
mortgages or deeds of trust, which are subordinate to first or more senior
mortgages or deeds of trust held by other lenders. The rights of the holders,
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 mortgagor, 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. See "--Foreclosure in
General" herein.
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Furthermore, the terms of the second or more junior mortgage or deed of
trust are subordinate to the terms of the first or 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 deed of trust will govern generally. Upon a failure of the mortgagor
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 mortgagee or beneficiary become part of the indebtedness secured
by the 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. See "Risk Factors--Risks of the Home Equity Loans--Junior Liens"
herein for a further discussion of certain risks associated with junior mortgage
loans.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The rights of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect
of the redemption right is to force the lender to retain the property and pay
the expenses of ownership until the redemption period has expired.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which 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 a nonjudicial foreclosure or
sale under a deed of trust. In addition, some states prohibit a deficiency
judgment where the loan proceeds were used to purchase a dwelling occupied by
the borrower. A deficiency judgment is a personal judgment against a borrower
equal in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender. Other
statutes require the beneficiary or mortgagee to exhaust the security afforded
under a deed of trust or mortgage by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the borrower. Finally,
other statutory provisions limit any deficiency judgment against the borrower
following a judicial sale to the excess of the outstanding debt over the "fair
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
both the property (or the proceeds therefrom) and a large deficiency judgment
against the borrower as a result of low or no bids at the foreclosure sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon collateral and/or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law, a court with
federal bankruptcy jurisdiction may permit a debtor through his or her Chapter
11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearages within a reasonable
time period and reinstating the original mortgage loan payment schedule even
though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court provided no sale of the residence
had yet occurred prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the bankruptcy 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 allowed modifications that include reducing the amount of each
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monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Generally, however, the terms of a mortgage
loan secured only by a mortgage on real property that is the debtor's principal
residence may not be modified pursuant to a plan confirmed pursuant to Chapter
11 or Chapter 13 except with respect to mortgage payment arrearages, which may
be cured within a reasonable time period.
The Code provides priority to certain tax liens over the lien of the
mortgage. In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. These laws include
the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and
related statutes. These federal laws impose specific statutory liabilities upon
lenders who originate mortgage loans and who fail to comply with the provisions
of the applicable laws. In some cases, this liability may affect assignees of
the Home Equity Loans.
ENFORCEABILITY OF CERTAIN PROVISIONS
Unless otherwise specified in the related Prospectus Supplement, all of the
Home Equity Loans will include 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 of all states will generally enforce clauses
providing for acceleration in the event of a material payment default. However,
courts 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 the lenders to foreclose if the default under the mortgage instrument or deed
of trust is not monetary, such as the borrower's failure to maintain adequately
the property or the borrower's execution of a second mortgage or deed of trust
affecting the property. Finally, some courts have been willing to relieve a
borrower from the consequences of the default if the borrower has not received
adequate notice of the default.
The Home Equity Loans may contain due-on-sale clauses, which permit the
lender to accelerate the maturity of the Home Equity Loan if the borrower sells,
transfers, or conveys the related Mortgaged Property. The enforceability of
these clauses has been the subject of legislation or litigation in many states.
Some jurisdictions automatically enforce such clauses, while others require a
showing of reasonableness and hold, on a case-by-case basis, that a "due-on-
sale" clause may be invoked only where a sale threatens the legitimate security
interests of the lender.
The Garn-St Germain Depository Institutions Act of 1982 purports to preempt
state laws which prohibit the enforcement of "due-on-sale" provisions in certain
loans made after October 15, 1982. The Master Servicer may thus be able to
accelerate the Home Equity Loans that were originated after that date and
contain a "due-on-sale" provision, upon transfer of an interest in the related
Mortgaged Property, regardless of its ability to demonstrate that a sale
threatens its legitimate security interest. Each Pooling and Servicing
Agreement will provide that the Master Servicer, on behalf of the Trustee, may,
but is not required to, enforce any right of the Trustee as the mortgagee of
record to accelerate a Home Equity Loan in the event of a sale or other transfer
of the related Mortgaged Property.
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RELIEF ACT LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a Mortgagor who enters military service
after the origination of such Mortgagor's Home Equity Loan (including a
Mortgagor who is a member of the National Guard or is in reserve status at the
time of the
origination of the Home Equity Loan and is later called to active duty) may not
be charged interest (including fees and charges) above an annual rate of 6%
during the period of such Mortgagor's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that such action could
have an effect, for an indeterminate period of time, on the ability of the
Master Servicer to collect full amounts of interest on certain of the Home
Equity Loans underlying a Series of Certificates. In addition, the Relief Act
imposes limitations which would impair the ability of the Master Servicer to
foreclose on an affected Home Equity Loan during the Mortgagor's period of
active duty status. Thus, in the event that such a Home Equity 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.
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 possibly under state law in a number of states, a secured party
which takes a deed in lieu of foreclosure, acquires a mortgaged property at a
foreclosure sale or which has been involved in decisions which may lead to
contamination of a 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 the related Trust).
The Federal Comprehensive Environmental Response, Compensation and
Liability act of 1980 ("CERCLA"), as well as some similar state laws, contains
an exemption from liability for holders of security interests in property. The
scope of that exemption was uncertain until the recent passage of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the
"Asset Conservation Act"). The Asset Conservation Act, which was passed on
September 30, 1996, clarifies that in order to be considered to have
"participated in the management" of a property a lender must actually
participate in the environmental management of the property. The Asset
Conservation Act also provides that most conventional activities by a lender,
taken to protect its security interest, will not subject the lender to CERCLA
liability.
It should be noted that liability for certain cleanup costs may be governed
by state law or may fall outside of CERCLA. CERCLA does not apply to petroleum
products and the security interest exemption, therefore will not apply to many
properties. There is a similar lender liability provision, however, in the
Resource Conservation and Recovery Act ("RCRA"), which applies to underground
storage tanks (other than heating oil tanks).
The Pooling and Servicing Agreement requires that the Master Servicer, in
making a determination to foreclose on or otherwise acquire a Mortgaged
Property, take into account (and the Master Servicer is not required to
foreclose or otherwise acquire a Mortgaged Property in the case of) the
existence of hazardous wastes or hazardous substances on such Mortgaged
Property. If title to a Mortgaged Property securing a Home Equity Loan is
acquired by a Trust and cleanup costs are incurred in respect of the Mortgaged
Property, the holders of the Certificates might incur a loss if such costs were
required to be paid by the Trust and sufficient funds were not available from
any Reserve Account, Spread Account or similar account or from collections on
the Home Equity Loans.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Certificates offered hereunder. This discussion is directed solely to
Certificateholders that hold the Certificates as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code") and does not purport to discuss all federal income tax consequences that
may be applicable to particular categories of investors, some of which (such as
banks, insurance companies and foreign investors) may be subject to special
rules. Further, the authorities on which this discussion, and the opinion
referred to below, are based are subject to change or differing interpretations,
which could apply retroactively. Taxpayers and preparers of tax returns
(including those filed by any REMIC or other issuer) should be aware that under
applicable Treasury regulations a provider of advice on specific issues of law
is not considered an income tax return preparer unless the advice (i) is given
with respect to events that have occurred at the time the advice is rendered and
is not given with respect to the consequences of contemplated actions, and (ii)
is directly relevant to the determination of an entry on a tax return.
Accordingly, taxpayers should consult their own tax advisors and tax return
preparers regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. In addition to the federal
income tax consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase, ownership and
disposition of the Certificates. See "State and Other Tax Consequences" herein.
Certificateholders are advised to consult their own tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of the Certificates offered hereunder.
The following discussion addresses securities ("REMIC Certificates")
representing interests in a Trust, or a portion thereof, which the Master
Servicer will covenant to elect to have treated as a REMIC under Sections 860A
through 860G (the "REMIC Provisions") of the Code. The Prospectus Supplement for
each series of Certificates will indicate whether a REMIC election (or
elections) will be made for the related Trust and, if such an election is to be
made, will identify all "regular interests" and "residual interests" in the
REMIC. For purposes of this tax discussion, references to a "Certificateholder"
or a "holder" are to the beneficial owner of a Certificate.
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Sections 1271-1273 and 1275 of the Code and
in the Treasury regulations issued thereunder (the "OID Regulations"), and in
part upon the REMIC Provisions and the Treasury regulations issued thereunder
(the "REMIC Regulations"). The OID Regulations, which are effective with respect
to debt instruments issued on or after April 4, 1994, do not adequately address
certain issues relevant to, and in some instances provide that they are not
applicable to, securities such as the Certificates.
REMICS
CLASSIFICATION OF REMICS
Upon the issuance of each series of REMIC Certificates, the special tax
counsel to the Seller identified in the related Prospectus Supplement ("Tax
Counsel"), will deliver their opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the related Trust (or each applicable portion thereof) will qualify as a REMIC
and the REMIC Certificates offered with respect thereto will be considered to
evidence ownership of "regular interests" ("REMIC Regular Certificates") or
"residual interests" ("REMIC Residual Certificates") in that REMIC within the
meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a separate
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
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the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
Trust's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust as a REMIC
will be terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES
In general, the REMIC Certificates will be "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code in the same proportion that the assets of the REMIC
underlying such Certificates would be so treated. Moreover, if 95% or more of
the assets of the REMIC qualify for any of the foregoing treatments at all times
during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest
(including original issue discount) on the REMIC Regular Certificates and income
allocated to the class of REMIC Residual Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. In addition, the REMIC Regular Certificates will be "qualified
mortgages" within the meaning of Section 860G(a)(3)(C) of the Code if
transferred to another REMIC on its startup day in exchange for regular or
residual interests therein. The determination as to the percentage of the
REMIC's assets that constitute assets described in the foregoing sections of the
Code will be made with respect to each calendar quarter based on the average
adjusted basis of each category of the assets held by the REMIC during such
calendar quarter. The Master Servicer will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations.
The assets of the REMIC will include, in addition to Home Equity Loans,
payments on Home Equity Loans held pending distribution on the REMIC
Certificates and property acquired by foreclosure held pending sale, and may
include amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale and amounts in reserve accounts would be
considered to be part of the Home Equity Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections) otherwise
would receive the same treatment as the Home Equity Loans for purposes of all of
the foregoing sections. In addition, in some instances Home Equity Loans may not
be treated entirely as assets described in the foregoing sections. If so, the
related Prospectus Supplement will describe the Home Equity Loans that may not
be so treated. The REMIC Regulations do provide, however, that payments on Home
Equity Loans held pending distribution are considered part of the Home Equity
Loans for purposes of Section 856(c)(5)(A) of the Code.
TIERED REMIC STRUCTURES
For certain series of REMIC Certificates, two or more separate elections
may be made to treat designated portions of the related Trust as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of REMIC Certificates, Tax Counsel will deliver their opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the Tiered REMICs will each qualify as a REMIC and the
REMIC Certificates issued by the Tiered REMICs, respectively, will be considered
to evidence ownership of REMIC Regular Certificates or REMIC Residual
Certificates in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
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TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
GENERAL
Except as otherwise stated in this discussion, REMIC Regular Certificates
will be treated for federal income tax purposes as debt instruments issued by
the REMIC and not as ownership interests in the REMIC or its assets. Moreover,
holders of REMIC Regular Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect to REMIC
Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Section 1273(a) of the Code. Any holders of
REMIC Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with the method described below, in advance of the receipt of the
cash attributable to such income. In addition, Section 1272(a)(6) of the Code
provides special rules applicable to REMIC Regular Certificates and certain
other debt instruments issued with original issue discount. Regulations have not
been issued under that section.
The Code requires that a prepayment assumption be used with respect to Home
Equity Loans held by a REMIC in computing the accrual of original issue discount
on REMIC Regular Certificates issued by that REMIC, and that adjustments be made
in the amount and rate of accrual of such discount to reflect differences
between the actual prepayment rate and the prepayment assumption. The prepayment
assumption is to be determined in a manner prescribed in Treasury regulations;
as noted above, those regulations have not been issued. The Conference Committee
Report accompanying the Tax Reform Act of 1986 (the "Committee Report")
indicates that the regulations will provide that the prepayment assumption used
with respect to a REMIC Regular Certificate must be the same as that used in
pricing the initial offering of such REMIC Regular Certificate. The prepayment
assumption used by the Master Servicer in reporting original issue discount for
each series of REMIC Regular Certificates (the "Prepayment Assumption") will be
consistent with this standard and will be disclosed in the related Prospectus
Supplement. However, neither the Seller nor the Master Servicer will make any
representation that the Home Equity Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the date of their initial issuance
(the "Closing Date"), the issue price for such class will be treated as the fair
market value of such class on the Closing Date. Under the OID Regulations, the
stated redemption price of a REMIC Regular Certificate is equal to the total of
all payments to be made on such Certificate other than "qualified stated
interest." "Qualified stated interest" includes interest that is unconditionally
payable at least annually at a single fixed rate, or in the case of a variable
rate debt instrument, at a "qualified floating rate," an "objective rate," a
combination of a single fixed rate and one or more "qualified floating rates" or
one "qualified inverse floating rate," or a combination of "qualified floating
rates" that generally does not operate in a manner that accelerates or defers
interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied by the Master Servicer with respect to those
Certificates in preparing information returns to the Certificateholders and the
Internal Revenue Service (the "IRS").
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Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on a
Payment Date, in some cases, as a consequence of this "long first accrual
period," some or all interest payments may be required to be included in the
stated redemption price of the REMIC Regular Certificate and accounted for as
original issue discount. Because interest on REMIC Regular Certificates must in
any event be accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion in income of
the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Payment Date
is computed with respect to a period that begins prior to the Closing Date, a
portion of the purchase price paid for a REMIC Regular Certificate will reflect
such accrued interest. In such cases, information returns to the
Certificateholders and the IRS will be based on the position that the portion of
the purchase price paid for the interest accrued with respect to periods prior
to the Closing Date is treated as part of the overall cost of such REMIC Regular
Certificate (and not as a separate asset the cost of which is recovered entirely
out of interest received on the next Payment Date) and that portion of the
interest paid on the first Payment Date in excess of interest accrued for a
number of days corresponding to the number of days from the Closing Date to the
first Payment Date should be included in the stated redemption price of such
REMIC Regular Certificate. However, the OID Regulations state that all or some
portion of such accrued interest may be treated as a separate asset the cost of
which is recovered entirely out of interest paid on the first Payment Date. It
is unclear how an election to do so would be made under the OID Regulations and
whether such an election could be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "--Taxation
of Owners of REMIC Regular Certificates--Market Discount" herein for a
description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to a Payment Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of original issue
discount
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that accrues in any accrual period will equal the excess, if any, of (i) the sum
of (A) the present value, as of the end of the accrual period, of all of the
distributions remaining to be made on the REMIC Regular Certificate, if any, in
future periods and (B) the distributions made on such REMIC Regular Certificate
during the accrual period of amounts included in the stated redemption price,
over (ii) the adjusted issue price of such REMIC Regular Certificate at the
beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that distributions on the REMIC Regular Certificate will be received in
future periods based on the Home Equity Loans being prepaid at a rate equal to
the Prepayment Assumption and (ii) using a discount rate equal to the original
yield to maturity of the Certificate. For these purposes, the original yield to
maturity of the Certificate will be calculated based on its issue price and
assuming that distributions on the Certificate will be made in all accrual
periods based on the Home Equity Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount that
accrued with respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular Certificate in
prior accrual periods of amounts included in its stated redemption price. The
original issue discount accruing during any accrual period, computed as
described above, will be allocated ratably to each day during the accrual period
to determine the daily portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of such Certificate's
"adjusted issue price," in proportion to the ratio such excess bears to the
aggregate original issue discount remaining to be accrued on such REMIC Regular
Certificate. The adjusted issue price of a REMIC Regular Certificate on any
given day equals the sum of (i) the adjusted issue price (or, in the case of the
first accrual period, the issue price) of such Certificate at the beginning of
the accrual period which includes such day and (ii) the daily portions of
original issue discount for all days during such accrual period prior to such
day.
MARKET DISCOUNT
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, in the case of a REMIC Regular Certificate issued without
original issue discount, at a purchase price less than its remaining stated
principal amount, or in the case of a REMIC Regular Certificate issued with
original issue discount, at a purchase price less than its adjusted issue price
will recognize income upon receipt of each distribution representing stated
redemption price. In particular, under Section 1276 of the Code such a
Certificateholder generally will be required to allocate the portion of each
such distribution representing stated redemption price first to accrued market
discount not previously included in income, and to recognize ordinary income to
that extent. A Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest, 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 made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a Certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "--Taxation of Owners of REMIC
Regular Certificates--Premium" herein. Each of these elections to accrue
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interest, discount and premium with respect to a Certificate on a constant yield
method or as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" herein. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is to be used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includable in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includable 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.
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PREMIUM
A REMIC Regular Certificate purchased at a cost (excluding any portion of
such cost attributable to accrued qualified stated interest) greater than its
remaining stated redemption price will be considered to be purchased at a
premium. The holder of such a REMIC Regular Certificate may elect under Section
171 of the Code to amortize such premium under the constant yield method over
the life of the Certificate. If made, such an election will apply to all debt
instruments having amortizable bond premium that the holder owns or subsequently
acquires. Amortizable premium will be treated as an offset to interest income on
the related REMIC Regular Certificate, rather than as a separate interest
deduction. The OID Regulations also permit Certificateholders to elect to
include all interest, discount and premium in income based on a constant yield
method, further treating the Certificateholder as having made the election to
amortize premium generally. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" herein. The Committee Report states that the same
rules that apply to accrual of market discount (which rules will require use of
a Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Section 171 of
the Code.
REALIZED LOSSES
Under Section 166 of the Code, both corporate holders of the REMIC Regular
Certificates and noncorporate holders of the REMIC Regular Certificates that
acquire such Certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their Certificates become wholly or partially worthless as the
result of one or more realized losses on the Home Equity Loans. However, it
appears that a noncorporate holder that does not acquire a REMIC Regular
Certificate in connection with a trade or business will not be entitled to
deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its outstanding principal balance has been
reduced to zero) and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Home Equity Loans or the Underlying Certificates until it
can be established that any such reduction ultimately will not be recoverable.
As a result, the amount of taxable income reported in any period by the holder
of a REMIC Regular Certificate could exceed the amount of economic income
actually realized by the holder in such period. Although the holder of a REMIC
Regular Certificate eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that, as the result of a
realized loss, ultimately will not be realized, the law is unclear with respect
to the timing and character of such loss or reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL
As residual interests, the REMIC Residual Certificates will be subject to
tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Home Equity Loans or as debt instruments issued by
the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts will then be allocated among the REMIC
Residual Certificateholders in proportion to their respective ownership
interests on such day. Any amount included in the gross income or allowed as a
loss of any REMIC Residual Certificateholder by virtue of this allocation will
be treated as
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ordinary income or loss. The taxable income of the REMIC will be determined
under the rules described below in "--Taxable Income of the REMIC" and will be
taxable to the REMIC Residual Certificateholders without regard to the timing or
amount of cash distributions by the REMIC. Ordinary income derived from REMIC
Residual Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to limitations under Section 469 of the Code on the
deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily portion of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. These daily portions generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise, to reduce (or increase) the income or loss of a holder
of a REMIC Residual Certificateholder that purchased such REMIC Residual
Certificate from a prior holder of such Certificate at a price greater than (or
less than) the adjusted basis (as defined below) such REMIC Residual Certificate
would have had in the hands of an original holder of such Certificate. The REMIC
Regulations, however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includable
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions,"
residual interests without "significant value" and "noneconomic" residual
interests discussed below. The fact that the tax liability associated with the
income allocated to REMIC Residual Certificateholders may exceed the cash
distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return.
TAXABLE INCOME OF THE REMIC
The taxable income of the REMIC will equal the income from the Home Equity
Loans and other assets of the REMIC plus any cancellation of indebtedness income
due to the allocation of realized losses to REMIC Regular Certificates, less the
deductions allowed to the REMIC for interest (including original issue discount
and reduced by the amortization of any premium received on issuance) on the
REMIC Regular Certificates (and any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered hereby), amortization
of any premium on the Home Equity Loans, bad debt deductions with respect to the
Home Equity Loans and, except as described below, for servicing, administrative
and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to their fair market value
immediately after their transfer to the REMIC. For this purpose, the Master
Servicer intends to treat the fair market value of the Home Equity Loans as
being equal to the aggregate issue prices of the REMIC Regular Certificates and
REMIC Residual Certificates. Such aggregate basis will be allocated among the
Home Equity Loans collectively and the other assets of the REMIC in proportion
to their respective fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the manner described above
under "--Taxation
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of Owners of REMIC Regular Certificates--Original Issue Discount." Accordingly,
if one or more classes of REMIC Certificates are retained initially rather than
sold, the Master Servicer may be required to estimate the fair market value of
such interests in order to determine the basis of the REMIC in the Home Equity
Loans and other property held by the REMIC.
Subject to the possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Home Equity Loans that it holds will be equivalent to the
method of accruing original issue discount income for REMIC Regular
Certificateholders (that is, under the constant yield method taking into account
the Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such discount in income currently, as it accrues, on a
constant interest basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method of accruing discount income that
is analogous to that required to be used by a REMIC as to Home Equity Loans with
market discount that it holds.
A Home Equity Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includable in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Home
Equity Loans. Premium on any Home Equity Loan to which such election applies may
be amortized under a constant yield method, presumably taking into account a
Prepayment Assumption.
The REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular Certificates--
Original Issue Discount," except that the de minimis rule and the adjustments
for subsequent holders of REMIC Regular Certificates (including any other class
of Certificates constituting "regular interests" in the REMIC not offered
hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess, "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount."
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions and Other Possible REMIC
Taxes" below. Further, the limitation on miscellaneous itemized deductions
imposed on individuals by Section 67 of the Code (which allows such deductions
only to the extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the REMIC
will be allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be allocated
as a separate item to the holders of REMIC Certificates, subject to the
limitation of Section 67 of the Code. See "--Possible Pass-Through of
Miscellaneous Itemized Deductions" herein. If the deductions allowed to the
REMIC exceed its gross income for a calendar quarter, such excess will be the
net loss for the REMIC for that calendar quarter.
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BASIS RULES, NET LOSSES AND DISTRIBUTIONS
The adjusted basis of a REMIC Residual Certificate will be equal to the
amount paid for such REMIC Residual Certificate, increased by amounts included
in the income of the REMIC Residual Certificateholder and decreased (but not
below zero) by distributions made, and by net losses allocated, to such REMIC
Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a non-
taxable return of capital to the extent it does not exceed the holder's adjusted
basis in such REMIC Residual Certificate. To the extent a distribution on a
REMIC Residual Certificate exceeds such adjusted basis, it will be treated as
gain from the sale of such REMIC Residual Certificate. Holders of certain REMIC
Residual Certificates may be entitled to distributions early in the term of the
related REMIC under circumstances in which their bases in such REMIC Residual
Certificates will not be sufficiently large that such distributions will be
treated as nontaxable returns of capital. Their bases in such REMIC Residual
Certificates will initially equal the amount paid for such REMIC Residual
Certificates and will be increased by their allocable shares of taxable income
of the Trust. However, such basis increases may not occur until the end of the
calendar quarter, or perhaps the end of the calendar year, with respect to which
such REMIC taxable income is allocated to the REMIC Residual Certificateholders.
To the extent such REMIC Residual Certificateholders' initial bases are less
than the distributions to such REMIC Residual Certificateholders, and increases
in such initial bases either occur after such distributions or (together with
their initial bases) are less than the amount of such distributions, gain will
be recognized to such REMIC Residual Certificateholders on such distributions
and will be treated as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a Residual Certificateholder may not
amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of its share of any net
losses of the REMIC or upon the sale of its REMIC Residual Certificate. See "--
Sales of REMIC Certificates" herein. For a discussion of possible modifications
of these rules that may require adjustments to income of a holder of a REMIC
Residual Certificate other than an original holder in order to reflect any
difference between the cost of such REMIC Residual Certificate to such holder
and the adjusted basis such REMIC Residual Certificate would have had in the
hands of the original holder, see "--Taxation of Owners of REMIC Residual
Certificates--General" herein.
EXCESS INCLUSIONS
Any "excess inclusions" with respect to a REMIC Residual Certificate will,
with an exception discussed below for certain REMIC Residual Certificates held
by thrift institutions, be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the sum
of the daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
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any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold. The "long-term Federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than nine years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below.
Although it has not done so, the Treasury also has authority to issue
regulations that would treat the entire amount of income accruing on a REMIC
Residual Certificate as an excess inclusion if the REMIC Residual Certificates
are considered noT to have "significant value." The REMIC Regulations provide
that in order to be treated as having significant value, the REMIC Residual
Certificates must have an aggregate issue price at least equal to two percent of
the aggregate issue prices of all of the related REMIC's Regular and Residual
Certificates. In addition, based on the Prepayment Assumption, the anticipated
weighted average life of the REMIC Residual Certificates must equal or exceed 20
percent of the anticipated weighted average life of the REMIC, based on the
Prepayment Assumption and on any required or permitted clean up calls or
required qualified liquidation provided for in the REMIC's organizational
documents. The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered to have "significant value" under the
REMIC Regulations; provided, however, that any disclosure that a REMIC Residual
Certificate will have "significant value" will be based upon certain
assumptions, and the Seller will make no representation that a REMIC Residual
Certificate will have "significant value" for purposes of the above-described
rules.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, based on the
Prepayment Assumption and on any required or permitted clean up calls, or
required qualified liquidation provided for in the REMIC's organizational
documents, (1) the present value of the expected future distributions
(discounted using the "applicable Federal rate" for obligations whose term ends
on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) on the REMIC Residual Certificate equals at
least the present value of the expected tax on the anticipated excess
inclusions, and (2) the transferor reasonably expects that the transferee will
receive distributions with respect to the REMIC Residual Certificate at or after
the time the taxes accrue
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on the anticipated excess inclusions in an amount sufficient to satisfy the
accrued taxes. Accordingly, all transfers of REMIC Residual Certificates that
may constitute noneconomic residual interests will be subject to certain
restrictions under the terms of the related Pooling and Servicing Agreement that
are intended to reduce the possibility of any such transfer being disregarded.
Such restrictions will require each party to a transfer to provide an affidavit
that no purpose of such transfer is to impede the assessment or collection of
tax, including certain representations as to the financial condition of the
prospective transferee, as to which the transferor also is required to make a
reasonable investigation to determine such transferee's historic payment of its
debts and ability to continue to pay its debts as they come due in the future.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers should
consider the possibility that a purported transfer of such REMIC Residual
Certificate by such a purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules which would result in
the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Seller will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
MARK-TO-MARKET RULES
Treasury regulations provide that any REMIC Residual Certificate acquired
after January 4, 1995 will not be treated as a security and therefore generally
may not be marked to market.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS
Fees and expenses of a REMIC generally will be allocated to the holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
the holders of the related REMIC Regular Certificates. Unless otherwise stated
in the related Prospectus Supplement, such fees and expenses will be allocated
to holders of the related REMIC Residual Certificates in their entirety and not
to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate two percent of a taxpayer's adjusted gross
income. In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by REMIC Certificateholders that
are subject to the limitations of either Section 67 or Section 68 of the Code
may be substantial. Furthermore, in determining the alternative minimum taxable
income of such a holder of a REMIC Certificate that is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
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or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should consult
carefully with their tax advisors prior to making an investment in such
Certificates.
SALES OF REMIC CERTIFICATES
If a REMIC Certificate is sold, the selling Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the REMIC Certificate. The adjusted basis of
a REMIC Regular Certificate generally will equal the cost of such REMIC Regular
Certificate to such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate (including
original issue discount and market discount income) and reduced (but not below
zero) by distributions on such REMIC Regular Certificate received by such
Certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under "--Taxation of Owners
of REMIC Residual Certificates--Basis Rules, Net Losses and Distributions"
herein. Except as described below, any such gain or loss generally will be
capital gain or loss.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includable in
the seller's income with respect to such REMIC Regular Certificate had income
accrued thereon at a rate equal to 110% of the "applicable Federal rate"
(generally, a rate based on an average of current yields on Treasury securities
having a maturity comparable to that of the Certificate, which rate is computed
and published monthly by the IRS), determined as of the date of purchase of such
REMIC Regular Certificate, over (ii) the amount of ordinary income actually
includable in the seller's income prior to such sale. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
such REMIC Regular Certificate at a market discount will be taxable as ordinary
income to the extent of any accrued and previously unrecognized market discount
that accrued during the period the Certificate was held. See "--Taxation of
Owners of REMIC Regular Certificates--Market Discount" herein.
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in Certificates or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the limitation on the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires the Certificate, any other
residual interest in a REMIC or any similar interest in a "taxable mortgage
pool" (as defined in Section 7701(i) of the Code) within six months of the date
of such sale, the sale will be subject to the "wash sale" rules of Section 1091
of the Code. In that event, any loss realized by the REMIC Residual
Certificateholder
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on the sale will not be deductible, but instead will be added to such REMIC
Residual Certificateholder's adjusted basis in the newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (a "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions a prohibited transaction means the
disposition of a Home Equity Loan, the receipt of income from a source other
than a Home Equity Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Home Equity Loans for temporary investment pending
distribution on the REMIC Certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or Trustee in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by the
Master Servicer or the Trustee will be payable out of the related Trust
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO CERTAIN
ORGANIZATIONS
If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the Certificate, which rate is computed and published
monthly by the IRS) of the total anticipated excess inclusions with respect to
such REMIC Residual Certificate for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. The
anticipated excess inclusions must be determined as of the date that the REMIC
Residual Certificate is transferred and must be based on events that have
occurred up to the time of such transfer, the Prepayment Assumption and any
required or permitted clean up calls or required liquidation provided for in the
REMIC's organizational documents. Such a tax generally would be imposed on the
transferor of the REMIC Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax would instead be
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imposed on such agent. However, a transferor of a REMIC Residual Certificate
would in no event be liable for such tax with respect to a transfer if the
transferee furnishes to the transferor an affidavit that the transferee is not a
disqualified organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. Moreover, an
entity will not qualify as a REMIC unless there are reasonable arrangements
designed to ensure that (i) residual interests in such entity are not held by
disqualified organizations and (ii) information necessary for the application of
the tax described herein will be made available. Restrictions on the transfer
of REMIC Residual Certificates and certain other provisions that are intended to
meet this requirement will be included in the Pooling and Servicing Agreement.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
TERMINATION
A REMIC will terminate immediately after the Payment Date following receipt
by the REMIC of the final payment in respect of the Home Equity Loans or upon a
sale of the REMIC's assets following the adoption by the REMIC of a plan of
complete liquidation. The last distribution on a REMIC Regular Certificate will
be treated as a payment in retirement of a debt instrument. In the case of a
REMIC Residual Certificate, if the last distribution on such REMIC Residual
Certificate is less than the REMIC Residual Certificateholder's adjusted basis
in such Certificate, such REMIC Residual Certificateholder should be treated as
realizing a loss equal to the amount of such difference, and such loss may be
treated as a capital loss.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Solely for purposes of the administrative provisions of the Code, the REMIC
will be treated as a partnership and Residual Certificateholders will be treated
as partners. Unless otherwise stated in the related Prospectus Supplement, the
Master Servicer will file REMIC federal income tax returns on behalf of the
related REMIC, will be designated as and will act as the "tax matters person"
with respect to the REMIC in all respects, and generally will hold at least a
nominal amount of REMIC Residual Certificates.
As the tax matters person, the Master Servicer will, subject to certain
notice requirements and various restrictions and limitations, generally have the
authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders will generally be required to
report such REMIC
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items consistently with their treatment on the related REMIC's tax return and
may in some circumstances be bound by a settlement agreement between the Master
Servicer, as tax matters person, and the IRS concerning any such REMIC item.
Adjustments made to the REMIC tax return may require a REMIC Residual
Certificateholder to make corresponding adjustments on its return, and an audit
of the REMIC's tax return, or the adjustments resulting from such an audit,
could result in an audit of a REMIC Residual Certificateholder's return. No
REMIC will be registered as a tax shelter pursuant to Section 6111 of the Code
because it is not anticipated that any REMIC will have a net loss for any of the
first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
to the related REMIC, in a manner to be provided in Treasury regulations, the
name and address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other non-individuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face certain information including the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to the REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method requires information relating to the holder's purchase
price that the Master Servicer will not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" herein.
The responsibility for complying with the foregoing reporting rules will be
borne by the Trustee. Certificateholders may request any information with
respect to the returns described in Section 1.6049-7(e)(2) of the Treasury
regulations. Such request should be directed to the Trustee at First National
Bank of Chicago, One First National Plaza, Suite 0126, Chicago, Illinois 60670-
0126, Attn: Corporate Trust Services Division.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES
Payments of interest and principal, as well as payments of proceeds from
the sale of REMIC Certificates, may be subject to the "backup withholding tax"
under Section 3406 of the Code at a rate of 31% if recipients of such payments
fail to furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of payments that is
required to supply information but that does not do so in the proper manner.
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FOREIGN INVESTORS IN REMIC CERTIFICATES
A REMIC Regular Certificateholder that is not a "United States person" (as
defined below) and is not subject to federal income tax as a result of any
direct or indirect connection to the United States in addition to its ownership
of a REMIC Regular Certificate will not be subject to United States federal
income or withholding tax in respect of a distribution on a REMIC Regular
Certificate, provided that the holder complies to the extent necessary with
certain identification requirements (including delivery of a statement, signed
by the Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a United States person and providing the name and
address of such Certificateholder). For these purposes, "United States person"
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in, or under the laws of, the United States or
any political subdivision thereof, or an estate or trust whose income from
sources without the United States is includable in gross income for United
States federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States. It is possible that the IRS may
assert that the foregoing tax exemption should not apply with respect to a REMIC
Regular Certificate held by a REMIC Residual Certificateholder that owns
directly or indirectly a 10% or greater interest in the REMIC Residual
Certificates. If the holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue discount,
to such holder may be subject to a tax rate of 30%, subject to reduction under
any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non-resident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are non-resident
alien individuals should consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences" herein, potential investors should consider the
state and local tax consequences of the acquisition, ownership, and disposition
of the Certificates offered hereunder. State tax law may differ substantially
from the corresponding federal tax law, and the discussion above does not
purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
certificates offered hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain fiduciary and prohibited transaction restrictions on employee
pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section 4975
of the Code imposes similar prohibited transaction restrictions on tax-qualified
retirement or annuity plans described in Section 401(a) or 403(a) of the Code
("Qualified Plans") and on individual retirement accounts ("IRAs") described in
Section 408 of the Code (collectively, "Tax-Favored Plans"). Generally, any
person who has discretionary authority or control respecting the management or
disposition of "plan assets" of any ERISA Plan or Tax-Favored Plan
(collectively, "Plans"), and any person who provides investment advice with
respect to such assets for a fee, is a fiduciary of the Plan involved.
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Any fiduciary or other Plan investor considering whether to purchase any
Certificates on behalf of or with "plan assets" of any Plan should consult with
its counsel and refer to the applicable Prospectus Supplement for guidance
regarding the ERISA Considerations applicable to the Certificates offered
thereby.
Certain employee benefit plans, such as 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 the requirements of ERISA or Section 4975 of the
Code. Accordingly, assets of such plans may be invested in the Certificates
without regard to the ERISA considerations described herein and in the
applicable Prospectus Supplement, subject to the provisions of other applicable
federal and state law. However, any such plan that is a Qualified Plan and
exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503(b) of the Code.
In addition to imposing general fiduciary requirements, including those of
investment prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan, Section
406 of ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving "plan assets" of Plans and persons (referred to as "parties in
interest" in ERISA or "disqualified persons" in Section 4975 of the Code)
(collectively, "Parties in Interest") who have certain specified relationships
to the Plans, unless a statutory or administrative exemption is available.
Certain Parties in Interest that participate in a prohibited transaction may be
subject to a penalty or an excise tax imposed pursuant to Section 502 of ERISA
or Section 4975 of the Code, unless a statutory or administrative exemption is
available.
PLAN ASSET REGULATION
An investment of Plan Assets (as defined below) in Certificates may cause
the Home Equity Loans and other assets of the related Trust to be deemed "plan
assets" of all Plans involved. Section 2510.3-101 of the U.S. Department of
Labor (the "DOL") regulations (the "DOL Regulation") addresses whether or not a
Plan's assets would be deemed to include an interest in the underlying assets of
an entity (such as a Trust), for purposes of applying the general fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code, when such Plan acquires an "equity interest"
(such as a Certificate) in such entity. Because of the indefinite nature of
certain of the rules set forth in the DOL Regulation, the assets of a Plan which
acquires Certificates of any Class may be deemed to include merely its interest
in the Certificates or both such interest and an undivided interest in the
assets of the related Trust. Therefore, Plan Assets should not be used to
acquire or hold Certificates in reliance upon the availability of any exception
under the DOL Regulation. For purposes of the sections of this Prospectus and
any Prospectus Supplement headed "ERISA Considerations," the terms "Plan Assets"
and "assets of a Plan" have the meaning specified in the DOL Regulation and
include an undivided interest in the underlying assets of certain entities in
which a Plan invests.
The prohibited transaction provisions of Section 406 of ERISA and Section
4975 of the Code may apply to a Trust and cause the Seller, the Master Servicer,
any Subservicer, the Trustee, the obligor under any credit enhancement mechanism
and certain affiliates thereof, to be considered or become Parties in Interest
with respect to the assets of any Plan that are invested in Certificates issued
by the Trust. If so, the acquisition or holding of Certificates by or on behalf
of a Plan or with Plan Assets could also give rise to a prohibited transaction
under ERISA and Section 4975 of the Code, unless a statutory or administrative
exemption is available. Certificates acquired by a Plan would be assets of that
Plan. Under the DOL Regulation, the Home Equity Loans and other assets held in
the Trust may also be deemed to be assets of each Plan that acquires
Certificates. Special caution should be exercised before Plan Assets are used to
acquire a Certificate in such circumstances, especially if, with respect to such
Plan Assets, a Seller, the Master Servicer, a Subservicer, the Trustee, the
obligor under any credit enhancement mechanism or an affiliate thereof either
(1) has investment discretion with respect to the investment of Plan Assets, or
(2) has authority or responsibility to give (or regularly gives) investment
advice with respect to Plan Assets for a fee pursuant to an agreement
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or understanding that such advice will serve as a primary basis for investment
decisions with respect thereto.
Any person who has discretionary authority or control with respect to the
management or disposition of the assets of a Plan, and any person who provides
investment advice with respect to such assets for a fee (in the manner described
above), is a fiduciary with respect to such Plan. If the Home Equity Loans and
other Trust assets were deemed to be Plan Assets, any party exercising
management or discretionary control regarding those assets may be deemed to be a
"fiduciary" with respect to all Plans involved and, therefore, subject to the
fiduciary requirements of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code with respect to such Plans. In addition, if
the Home Equity Loans and other Trusts assets were deemed to be Plan Assets, the
acquisition or holding of Certificates by or on behalf of a Plan or with Plan
Assets, as well as the normal operations of the Trust, may constitute or result
in a prohibited transaction under ERISA and Section 4975 of the Code.
PROHIBITED TRANSACTION EXEMPTIONS
UNDERWRITERS' EXEMPTIONS. The DOL has issued individual exemptions (each,
an "Exemption") to a large number of investment banking firms, broker-dealers
and banks or their affiliates (each, an "Underwriter"), which generally exempt
from the application of the prohibited transaction provisions of Section 406 of
ERISA, and the excise taxes imposed on prohibited transactions pursuant to
Section 4975(a) and (b) of the Code, certain transactions (among others)
relating to the servicing and operation of mortgage pools and the purchase, sale
and holding of mortgage pass-through certificates issued by a trust as to which
an Underwriter to whom the DOL has issued an Exemption (or any of its
affiliates) is the sole underwriter or the manager or co-manager of the
underwriting syndicate, or a selling or placement agent, with respect to such
certificates, provided that certain conditions set forth in the applicable
Exemption are satisfied. The Prospectus Supplement for each Series will state
(in the section headed "ERISA Considerations") whether or not the DOL has issued
an Exemption to an Underwriter with respect that Series and identify the Classes
of Certificates of that Series to which any such Exemption may apply.
GENERAL CONDITIONS. Each Exemption sets forth six general conditions which
must be satisfied for a transaction involving the purchase, sale and holding of
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of Certificates with Plan Assets must be on terms that are at least
as favorable to the Plans involved as they would be in an arm's-length
transaction with an unrelated party. Second, an Exemption only applies to
Certificates evidencing rights and interests that are not subordinated to the
rights and interests evidenced by the other Certificates of the same Trust.
Third, the Certificates, at the time of their acquisition with Plan Assets, must
be rated in one of the three highest generic rating categories by S&P, Moody's,
D&P or Fitch. Fourth, the Trustee must not be an affiliate of any member of the
"Restricted Group," which consists of any Underwriter, the Seller, the Master
Servicer, any Subservicer and any mortgagor with respect to Home Equity Loans
constituting more than 5% of the aggregate unamortized principal balance of the
Home Equity Loans held in the related Trust as of the date of initial issuance
of the Certificates. Fifth, the sum of all payments made to and retained by the
Underwriters must represent not more than reasonable compensation for
underwriting or placing the Certificates; the sum of all payments made to and
retained by the Seller pursuant to the assignment of the Home Equity Loans and
other Trust assets to the related Trust must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Master Servicer and any Subservicers must represent not more
than reasonable compensation for such persons' services under the related
Pooling and Servicing Agreement and reimbursement of such persons' reasonable
expenses in connection therewith. Sixth, each Exemption states that the
investing Plan must be an accredited investor as defined in Rule 501(a)(1) of
Regulation D of the Securities and Exchange Commission under the Securities Act
of 1933, as amended.
A Plan fiduciary or other investor of Plan Assets contemplating purchasing
a Certificate must make its own determination that the general conditions
described above will be satisfied with respect to such Certificate.
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If the general conditions of an applicable Exemption are satisfied, the
Exemption may provide exemptive relief from the restrictions imposed by Section
406(a) of ERISA, and the excise taxes imposed by Section 4975(a) and (b) by
reason of Section 4975(c)(1)(A) through (D) of the Code, in connection with the
direct or indirect sale, exchange, transfer, holding or the direct or indirect
acquisition or disposition in the secondary market of Certificates by a Plan or
with Plan Assets. However, no exemption is provided from the restrictions of
Section 406(a)(1)(E) and 406(A)(2) of ERISA for the acquisition or holding of a
Certificate by or with Plan Assets of an Excluded Plan by any person who has
discretionary authority or renders investment advice with respect to Plan Assets
of such Excluded Plan. For purposes of the sections of this Prospectus and any
Prospectus Supplement headed "ERISA Considerations," the term " Excluded Plan"
means a Plan sponsored by any member of the Restricted Group (as defined
above).
SPECIFIC CONDITIONS. If certain specific conditions of an applicable
Exemption are also satisfied, the Exemption may provide exemptive relief from
the restrictions imposed by Section 406(b)(1) and (2) of ERISA, and the excise
taxes imposed by Section 4975(a) and (b) by reason of Section 4975(c)(1)(E) of
the Code, in connection with (1) the direct or indirect sale, exchange or
transfer of Certificates, in the initial issuance of Certificates between a
Seller or an Underwriter and an investor of Plan Assets, when the person who has
discretionary authority or renders investment advice with respect to the
investment of the relevant Plan Assets in the Certificates is a mortgagor with
respect to 5% or less of the fair market value of the Home Equity Loans or other
assets held in the Trust (or an affiliate of such a person), and (2) the direct
or indirect acquisition or disposition in the secondary market and holding of
Certificates by a Plan or with Plan Assets.
Further, if certain specific conditions of an applicable Exemption are
satisfied, the Exemption may provide exemptive relief from the restrictions
imposed by Section 406(a) and (b) of ERISA, and the excise taxes imposed by
Section 4975(a) and (b) by reason of Section 4975(c) of the Code, for
transactions in connection with the servicing, management and operation of the
Mortgage Pools. The Seller expect that those specific conditions of an
applicable Exemption will be satisfied with respect to the Certificates so that
the Exemption would provide exemptive relief from those restrictions and excise
taxes for transactions in connection with the servicing, management and
operation of the Mortgage Pools, provided that the general conditions of the
Exemption are satisfied.
An applicable Exemption also may provide exemptive relief from the
restrictions imposed by Section 406(a) of ERISA, and the excise taxes imposed by
Section 4975(a) and (b) by reason of Section 4975(e)(1)(A) through (D) of the
Code, if such restrictions are otherwise deemed to apply merely because a person
is deemed to be a Party in Interest with respect to a Plan (or the investing
entity holding Plan Assets) by virtue of providing services to the Plan(s)
involved, or by virtue of having certain specified relationships to such a
person, solely as a result of the ownership of Certificates by a Plan or with
Plan Assets.
ADVANCE DETERMINATIONS. Before purchasing any Class of Certificates of any
Series, a Plan fiduciary or other investor of Plan Assets should itself
determine that (1) the DOL has issued an Exemption to an Underwriter with
respect that Series, (2) the Exemption applies to Certificates of that Class,
(3) the Certificates constitute "certificates" as defined in the Exemption, and
(4) the specific and general conditions and any other requirements set forth in
the Exemption would be satisfied. In addition to making its own determination as
to the availability of the exemptive relief provided by an applicable Exemption,
the Plan fiduciary or other investor of Plan Assets should consider its general
fiduciary obligations under ERISA in determining whether to purchase any
Certificates with Plan Assets.
Any Plan fiduciary or other of Plan Assets investor who proposes to
purchase Certificates with Plan Assets should consult with its counsel with
respect to the potential applicability of ERISA and Section 4975 of the Code to
such investment and the availability of exemptive relief under an Exemption or
any other prohibited transaction exemption in connection therewith. In
particular, in connection with a contemplated purchase of Certificates
representing a beneficial ownership interest in a pool of single-family
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residential mortgage loans, any fiduciary or other Plan investor should consider
the availability of an Exemption or Prohibited Transaction Class Exemption
("PTCE") 83-1 for certain transactions involving mortgage pool investment
trusts. The Prospectus Supplement for any Series of Certificates may contain
additional information regarding the application of an Exemption, PTCE 83-1 or
any other prohibited transaction exemption with respect to the Certificates
offered thereby. However, PTCE 83-1 does not provide exemptive relief with
respect to Certificates evidencing interests in Trusts which include Cooperative
Loans. In addition, such fiduciary or other Plan Asset investor should consider
the availability of other class exemptions granted by the DOL, which provide
relief from certain of the prohibited transaction provisions of ERISA and the
related excise tax provisions of Section 4975 of the Code, including Sections I
and III of PTCE 95-60, regarding transactions by insurance company general
accounts. The applicable Prospectus Supplement may contain additional
Information regarding the application of the Exemption, PTCE 83-1, PTCE 95-60 or
other DOL class exemptions with respect to the Certificates offered thereby.
There can be no assurance that any of these exemptions will apply with respect
to any particular Plan's or other Plan Asset investor's investment in the
Certificates or, even if an exemption were deemed to apply, that any exemption
would apply to all prohibited transactions that may occur in connection with
such an investment.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by Section 4975 of the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the DOL
is required to issue final regulations ("the 401(c) Regulations") no later than
December 31, 1997 which are to provide guidance for the purpose of determining,
in cases where insurance policies or annuity contracts supported by an insurer's
general account are issued to or for the benefit of a Plan on or before December
31, 1998, which general account assets constitute Plan Assets. Section 401(c) of
ERISA generally provides that, until the date which is 18 months after the
401(c) Regulations become final, no person shall be subject to liability under
Part 4 of Title I of ERISA and Section 4975 of the Code on the basis of a claim
that the assets of an insurance company general account constitute Plan Assets,
unless (i) as otherwise provided by the Secretary of Labor in the 401(c)
Regulations to prevent avoidance of the regulations or (ii) an action is brought
by the Secretary of Labor for certain breaches of fiduciary duty which would
also constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies or annuity
contracts issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as Plan Assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as Plan Assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Certificates should consult with their legal counsel with
respect to the applicability of Sections I and III of PTCE 95-60 and Section
401(c) of ERISA, including the general account's ability to continue to hold the
Certificates after the date which is 18 months after the date the 401(c)
Regulations become final.
REPRESENTATION FROM INVESTING PLANS
The exemptive relief afforded by the Exemption will not apply to the
purchase, sale or holding of any class of Subordinated Certificates. To the
extent Certificates are Subordinated Certificates, transfers of such
Certificates to a Plan, to a trustee or other person acting on behalf of any
Plan, or to any other person using Plan Assets to effect such acquisition will
not be registered by the Trustee unless the transferee provides the Seller, the
Trustee and the Master Servicer with an opinion of counsel satisfactory to the
Seller, the Trustee and the Master Servicer, which opinion will not be at the
expense of the Seller, the Trustee or the Master Servicer, that the purchase of
such
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Certificates by or on behalf of such Plan is permissible under applicable law,
will not constitute or result in any non-exempt prohibited transaction under
ERISA or Section 4975 of the Code and will not subject the Seller, the Trustee
and the Master Servicer to any obligation in addition to those undertaken in the
Pooling and Servicing Agreement. In lieu of such opinion of counsel, the
transferee may provide a certification of facts substantially to the effect that
the purchase of such Certificates by or on behalf of such Plan is permissible
under applicable law, will not constitute or result in a non-exempt prohibited
transaction under ERISA or Section 4975 of the Code, will not subject the
Seller, the Trustee or the Master to any obligation in addition to those
undertaken in the Pooling and Servicing Agreement, and the following conditions
are met: (a) the source of funds used to purchase such Certificates is an
"insurance company general account" (as such term is defined in PTCE 95-60), and
(b) the conditions set forth in Sections I and III of PTCE 95-60 have been
satisfied as of the date of the acquisition of such Certificates.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section
501(a) of the Code (a "Tax Exempt Investor") nonetheless will be subject to
federal income taxation to the extent that its income is "unrelated business
taxable income" (" UBTI") (within the meaning of Section 512 of the Code). All
"excess inclusions" of a REMIC allocated to a REMIC Residual Certificate held by
a Tax-Exempt Investor will be considered UBTI and, therefore, will be subject to
federal income tax. See "Certain Federal Income Tax Consequences--Taxation of
Owners of REMIC Residual Interests -- Excess Inclusions" herein.
CONSULTATION WITH COUNSEL
There can be no assurance that the Exemption or any other DOL exemption
will apply with respect to any particular Plan that acquires the Certificates
or, even if all of the conditions specified therein were satisfied, that the
exemption would apply to transactions involving a Trust. Prospective Plan
investors should consult with their legal counsel concerning the impact of ERISA
and the Code and the potential consequences to their specific circumstances
prior to making an investment in the Certificates.
Any fiduciary or other investor of Plan Assets that proposes to acquire or
hold Certificates on behalf of or with Plan Assets of any Plan should consult
with its counsel with respect to the potential applicability of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code to the proposed investment and the Exemption,
The availability of exemptive relief under PTCE 83-1, Sections I and III of PTCE
95-60 or any other DOL class exemption.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, no Class
of Certificates of a Series will constitute "mortgage related securities" under
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") because the
related Mortgage Pool will include Home Equity Loans that are secured by second
or more junior Mortgages. Investors should consult their own legal advisers in
determining whether and to what extent any Class of Certificates of a Series
constitutes legal investments for such investors.
USE OF PROCEEDS
The Seller will use the net proceeds received from each sale of
Certificates to purchase Home Equity Loans from its affiliates. Such affiliates
will use such proceeds for general corporate purposes.
PLAN OF DISTRIBUTION
The Certificates of each Series may be sold to or through Underwriters by a
negotiated firm commitment underwriting and public reoffering by the
Underwriters or such other underwriting arrangement as may be specified in the
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related Prospectus Supplement or may be offered or placed either directly or
through agents. The Seller intends that Certificates will be offered through
such various methods from time to time and that offerings may be made
concurrently through more than one of such methods or that an offering of a
particular Series of Certificates may be made through a combination of such
methods.
The distribution of Certificates may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.
In connection with the sale of the Certificates, Underwriters or agents may
receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell Certificates to certain dealers at prices less a
concession. Underwriters may allow and such dealers may reallow a concession to
certain other dealers. Underwriters, dealers and agents that participate in the
distribution of the Certificates of a Series may be deemed to be underwriters
and any discounts or commissions received by them from the Seller or the related
Trust and any profit on the resale of the Certificates by them may be deemed to
be underwriting discounts and commissions under the Securities Act of 1933. Any
such Underwriters or agents will be identified, and any such compensation
received from the Seller or the related Trust will be described, in the related
Prospectus Supplement.
Under agreements which may be entered into by the Seller, Underwriters and
agents who participate in the distribution of the Certificates may be entitled
to indemnification by the Seller against certain liabilities, including
liabilities under the Securities Act of 1933.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any such market, if established, will continue.
RATINGS
Each Class of Certificates of a Series offered hereby will be rated at
their initial issuance in one of the four highest categories by at least one
Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. No person is obligated to maintain the rating on any Certificate, and,
accordingly, there can be no assurance that the ratings assigned to a
Certificate upon initial issuance will not be lowered or withdrawn by a Rating
Agency at any time thereafter. In general, ratings address credit risk and do
not represent any assessment of the likelihood or rate of principal prepayments.
LEGAL MATTERS
Certain legal matters relating to the Certificates and certain federal
income tax consequences of the issuance of the Certificates will be passed upon
by Orrick, Herrington & Sutcliffe LLP, counsel to the Seller, the Master
Servicer and TFC.
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TABLE OF CONTENTS
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<TABLE>
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Page
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SUMMARY OF PROSPECTUS.......................................... 5
RISK FACTORS................................................... 14
Risks of the Home Equity Loans............................ 14
Limited Operating History Of Master Servicer.............. 16
Certificates.............................................. 17
Creditors' Rights and Bankruptcy Considerations........... 17
Yield and Prepayment Considerations....................... 18
Original Issue Discount................................... 19
DESCRIPTION OF THE MORTGAGE POOLS.............................. 19
General................................................... 19
Payments on the Home Equity Loans......................... 20
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS.................... 21
THE TRUSTS..................................................... 23
TRANSAMERICA FINANCE CORPORATION............................... 23
THE MASTER SERVICER AND ITS AFFILIATES......................... 23
THE SELLER..................................................... 24
THE CONSUMER MORTGAGE LOAN PROGRAM............................. 24
Lending 24
Credit Policy and Procedures Relating to Consumer
Mortgage Loans............................................ 25
Servicing of Consumer Mortgage Loans...................... 26
Delinquency and Loss Experience........................... 27
DESCRIPTION OF THE CERTIFICATES................................ 27
General................................................... 27
Interest.................................................. 28
Principal................................................. 29
Assignment of the Home Equity Loans....................... 29
Representations and Warranties of the Seller.............. 30
Payments on the Home Equity Loans......................... 31
Advances; Servicing Advances.............................. 32
Distributions............................................. 33
Optional Disposition of Home Equity Loans................. 34
Mandatory Disposition of Home Equity Loans................ 34
Reports to Holders........................................ 35
Description of Credit Enhancement......................... 36
Payment of Certain Expenses............................... 39
Servicing Compensation.................................... 39
Servicing Standards....................................... 39
Use of Subservicers....................................... 41
Servicing Certificates and Audits......................... 42
Limitations on Liability of the Master Servicer and Its
Agents.................................................... 42
Removal and Resignation of Master Servicer................ 42
Registration and Transfer of the Certificates............. 43
CERTAIN LEGAL ASPECTS OF THE HOME EQUITY LOANS................. 46
General................................................... 47
Foreclosure in General.................................... 48
Junior Mortgages.......................................... 48
Rights of Redemption...................................... 49
Anti-Deficiency Legislation and Other Limitations on
Lenders................................................... 49
Enforceability of Certain Provisions...................... 50
Environmental Legislation................................. 51
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................ 52
General................................................... 52
REMICS.................................................... 52
Classification of REMICs.................................. 52
Characterization of Investments in REMIC Certificates..... 53
Tiered REMIC Structures................................... 53
Taxation of Owners of REMIC Regular Certificates.......... 53
General................................................... 53
Original Issue Discount................................... 54
Market Discount........................................... 56
Premium................................................... 57
Realized Losses........................................... 58
Taxation of Owners of REMIC Residual Certificates......... 58
General................................................... 58
Taxable Income of the REMIC............................... 59
Basis Rules, Net Losses and Distributions................. 60
Excess Inclusions......................................... 61
Noneconomic REMIC Residual Certificates................... 62
Mark-to-Market Rules...................................... 63
Possible Pass-Through of Miscellaneous Itemized Deductions 63
Sales of REMIC Certificates............................... 64
Prohibited Transactions and Other Possible REMIC Taxes.... 65
Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations................ 65
Termination............................................... 66
Reporting and Other Administrative Matters................ 66
Backup Withholding With Respect to REMIC Certificates..... 67
Foreign Investors in REMIC Certificates................... 67
STATE AND OTHER TAX CONSEQUENCES............................... 68
ERISA CONSIDERATIONS........................................... 68
Plan Asset Regulation..................................... 69
Prohibited Transaction Exemptions......................... 70
Tax Exempt Investors...................................... 73
Consultation With Counsel................................. 73
LEGAL INVESTMENT............................................... 73
USE OF PROCEEDS................................................ 73
PLAN OF DISTRIBUTION........................................... 73
RATINGS........................................................ 74
LEGAL MATTERS.................................................. 74
</TABLE>
ii
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
------------------------------
<TABLE>
<CAPTION>
Term Page
- - ---- ----
<S> <C>
Accrual Certificates...................................................... 6
Accrual Period............................................................ 6
Actuarial Loan............................................................ 20
Advance................................................................... 11
ARM Loans................................................................. 20
Asset Conservation Act.................................................... 51
Available Payment Amount.................................................. 34
Balloon Loans............................................................. 15
Basic Principal Payment................................................... 8
Book-Entry Certificates................................................... 8
Cash Collateral Account................................................... 38
Cash Collateral Lender.................................................... 38
Cede...................................................................... 8
CEDEL..................................................................... 45
CEDEL Participants........................................................ 45
CERCLA.................................................................... 51
Certificate Insurance Policy.............................................. 37
Certificate Interest Rate................................................. 5
Certificate Owners........................................................ 3
Certificateholder......................................................... 52
Certificates.............................................................. 1
Citibank.................................................................. 44
Class..................................................................... 1
Closing Date.............................................................. 5
Code...................................................................... 12
Collection Account........................................................ 33
Combined Loan-to-Value Ratio.............................................. 20
Commission................................................................ 3
Committee Report.......................................................... 54
Consumer Mortgage Loans................................................... 24
Contributions Tax......................................................... 65
conversion transaction.................................................... 64
Cooperative............................................................... 46
Cooperative Loans......................................................... 47
Credit Provider........................................................... 36
Curtailments.............................................................. 7
Cut-off Date.............................................................. 5
Deferred Interest......................................................... 21
Definitive Certificates................................................... 45
Depositaries.............................................................. 44
Determination Date........................................................ 6
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Term Page
- - ---- ----
<S> <C>
DOL......................................................................... 69
DOL Regulation.............................................................. 69
DTC......................................................................... 3
ERISA....................................................................... 1
ERISA Considerations........................................................ 70
ERISA Plans................................................................. 68
Euroclear................................................................... 46
Euroclear Operator.......................................................... 46
Euroclear Participants...................................................... 46
Excess Spread............................................................... 32
Exchange Act................................................................ 3
Excluded Plan............................................................... 71
Exemption................................................................... 70
FHA Loans................................................................... 25
FHLMC....................................................................... 41
FNMA........................................................................ 21
Gross Margin................................................................ 21
Home Equity Loan............................................................ 1
Home Equity Loan Losses..................................................... 34
Home Equity Loan Ratio...................................................... 20
Home Equity Loan Schedule................................................... 29
Home Equity Loans........................................................... 5
HUD......................................................................... 41
Index....................................................................... 21
Index of Principal Definitions.............................................. 2
Indirect Participants....................................................... 8
Insurance Proceeds.......................................................... 7
Insurer..................................................................... 37
IRAs........................................................................ 68
IRS......................................................................... 54
Issue Premium............................................................... 60
Letter of Credit............................................................ 37
Letter of Credit Issuer..................................................... 37
Liquidated Home Equity Loan................................................. 7
Liquidation Proceeds........................................................ 7
Majority in Aggregate Voting Interest....................................... 42
Master Servicer............................................................. 1
Master Servicer Termination Event........................................... 42
Maximum Mortgage Rate....................................................... 21
Minimum Mortgage Rate....................................................... 21
Monthly Payments............................................................ 7
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Term Page
- - ---- ----
<S> <C>
Morgan...................................................................... 44
Mortgage.................................................................... 1
Mortgage File............................................................... 30
Mortgage Interest Rate...................................................... 9
Mortgage Pool............................................................... 1
mortgage related securities................................................. 12
Mortgaged Property.......................................................... 1
Mortgagor................................................................... 14
Neg-Am ARM Loans............................................................ 21
Net Liquidation Proceeds.................................................... 7
OID Regulations............................................................. 52
Original Pool Principal Balance............................................. 9
Owners...................................................................... 44
Participants................................................................ 8
Parties in Interest......................................................... 69
Pass-Through Rate........................................................... 27
Payment Date................................................................ 6
Percentage Interest......................................................... 8
Periodic Cap................................................................ 21
Permitted Instruments....................................................... 32
Plan........................................................................ 12
plan assets................................................................. 12
Plans....................................................................... 68
Pool Insurance Policy....................................................... 37
Pool Insurer................................................................ 37
Pool Principal Balance...................................................... 35
Pooling and Servicing Agreement............................................. 23
Prepayment Assumption....................................................... 54
Prepayment Period........................................................... 7
Principal Prepayments....................................................... 7
Prior Owners................................................................ 17
Prohibited Transactions Tax................................................. 65
PTCE........................................................................ 71
PTCE 83-1................................................................... 71
Qualified Plans............................................................. 68
Qualified Substitute Home Equity Loan....................................... 31
Rating Agency............................................................... 11
RCRA........................................................................ 51
real estate assets.......................................................... 53
Real Estate Owned........................................................... 26
Record Date................................................................. 6
regular interests........................................................... 12
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Term Page
- - ---- ----
<S> <C>
Released Mortgaged Property Proceeds........................................ 7
Relief Act.................................................................. 51
REMIC....................................................................... 2
REMIC Certificates.......................................................... 52
REMIC Provisions............................................................ 52
REMIC Regular Certificates.................................................. 52
REMIC Regulations........................................................... 52
REMIC Residual Certificates................................................. 52
Remittance Period........................................................... 7
REO Properties.............................................................. 9
Reserve Account............................................................. 38
residual interests.......................................................... 12
Rules....................................................................... 45
Sample Pool................................................................. 20
Seller...................................................................... 1
Senior Certificates......................................................... 38
Senior Lien................................................................. 12
Series...................................................................... 1
Servicing Advances.......................................................... 33
Servicing Fee............................................................... 11
Simple Interest Loan........................................................ 20
SMMEA....................................................................... 73
Special Hazard Policy....................................................... 37
Spread Account.............................................................. 38
Subordinated Certificates................................................... 38
Subservicer................................................................. 41
Subservicing Agreements..................................................... 41
Substitution Adjustment..................................................... 31
Successor Master Servicer................................................... 43
Tax Counsel................................................................. 52
Tax Exempt Investor......................................................... 73
Tax-Favored Plans........................................................... 68
Terms and Conditions........................................................ 46
TFC......................................................................... 23
TFC Home Equity Loan Trust.................................................. 5
TFS......................................................................... 16
Tiered REMICs............................................................... 53
Transamerica................................................................ 23
Transamerica FSB............................................................ 24
Trust....................................................................... 1
Trustee..................................................................... 5
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Term Page
- - ---- ----
<S> <C>
UBTI........................................................................ 73
Underwriter................................................................. 70
VA Loans.................................................................... 25
weighted average life....................................................... 22
Yield Supplement Account.................................................... 38
</TABLE>
v
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are the expenses expected to be incurred by Transamerica
Consumer Mortgage Receivables Corporation (the "Registrant") in connection
with the issuance and distribution of the securities being registered other than
underwriting discounts and commissions. All such expenses, other than the
filing fee, are estimated expenses.
<TABLE>
<S> <C>
Filing Fee for Registration Statement.............................. $206,897
Blue Sky Fees and Expenses......................................... 10,000
Legal Fees and Expenses............................................ 225,000
Accounting Fees and Expenses....................................... 100,000
Trustees' Fees and Expenses (including counsel fees)............... 20,000
Printing and Engraving Fees........................................ 50,000
Rating Agency Fees................................................. 200,000
Miscellaneous...................................................... 25,000
--------
Total..................................................... $836,897
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of Transamerica Consumer Mortgage
Receivables Corporation provides that a director of the Registrant shall not be
personally liable to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is amended
after the date of the filing of the Registrant's Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Registrant shall
be eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. No repeal or modification of the Registrant's
Certificate of Incorporation shall apply to or have any effect on the liability
or alleged liability of any director of the Registrant for or with respect to
any acts or omissions of such director occurring prior to such repeal or
modification.
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
All financial statements, schedules and historical financial information of
the Registrant have been omitted as they are not applicable.
(B) EXHIBITS
1.1 - Form of Underwriting Agreement /*/
4.1 - Form of Pooling and Servicing Agreement /*/
5.1 - Opinion of Orrick, Herrington & Sutcliffe LLP With Respect To
Legality /*/
8.1 - Opinion of Orrick, Herrington & Sutcliffe LLP With Respect To
Certain Tax Matters /*/
II-1
<PAGE>
23.1 - Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit
5.1) /*/
24.1 - Power of Attorney for James J. Murphy /**/
24.2 - Power Of Attorney For Stephen D. Mcavoy
______________________________________
/*/ Previously filed.
/**/ The powers of attorney for individuals other than James J. Murphy And
Stephen D. Mcavoy were previously filed.
ITEM 17. UNDERTAKINGS.
(A) UNDERTAKING PURSUANT TO RULE 415:
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event arising after
the effective date of this Registration Statement (or the most recent post-
effective amendment thereof) 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 paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(B) UNDERTAKING IN RESPECT OF DELIVERY OF CERTIFICATES:
The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement, Certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(C) UNDERTAKING IN RESPECT OF INDEMNIFICATION:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 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
II-2
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(D) UNDERTAKING IN RESPECT OF QUALIFICATION OF INDENTURES UNDER THE TRUST
INDENTURE ACT OF 1939:
The undersigned Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act of 1939 in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act of 1939.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
Transamerica Consumer Mortgage Receivables Corporation 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 Post-Effective Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, hereunto
duly authorized, in the City of San Francisco, State of California, on the
10th day of October, 1997.
TRANSAMERICA CONSUMER MORTGAGE RECEIVABLES
CORPORATION
*
--------------------------------------------------------
David H. Hawkins
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement has been signed on the
10th day of October, 1997 by the following persons in the capacities indicated:
* President and Chief Executive Officer
---------------------------- (Principal Executive Officer)
Stephen H. Foltz
* Vice President and Treasurer
---------------------------- (Principal Financial Officer)
David H. Hawkins
* Vice President and Controller
---------------------------- (Principal Accounting Officer)
Stephen D. McAvoy
DAVID H. HAWKINS )
RAYMOND A. GOLAN ) A majority of the Board of Directors*
STEPHEN H. FOLTZ )
JAMES J. MURPHY )
* James J. Murphy, by signing his name hereto, does hereby sign this document
on behalf of each of the officers and directors named above pursuant to powers
of attorney duly executed by such persons.
/s/ JAMES J. MURPHY
-------------------------------
James J. Murphy
Attorney-In-Fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- - -------- ------- ------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement /*/
4.1 -- Form of Pooling and Servicing Agreement /*/
5.1 -- Opinion of Orrick, Herrington & Sutcliffe LLP With
Respect To Legality /*/
8.1 -- Opinion of Orrick, Herrington & Sutcliffe LLP With
Respect To Certain Tax Matters /*/
23.1 -- Consent of Orrick, Herrington & Sutcliffe LLP (included
in Exhibit 5.1) /*/
24.1 -- Power of Attorney for James J. Murphy /**/
24.2 -- Power of Attorney for Stephen D. McAvoy
</TABLE>
______________________________________
/*/ Previously filed.
/**/ The powers of attorney for individuals other than James J. Murphy and
Stephen D. Mcavoy were previously filed.
II-5
<PAGE>
EXHIBIT 24.1
TRANSAMERICA CONSUMER
MORTGAGE RECEIVABLES CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of TRANSAMERICA CONSUMER MORTGAGE RECEIVABLES CORPORATION, a delaware
corporation (the "company"), does hereby make, constitute and appoint DAVID H.
HAWKINS the undersigned's true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities (including his
capacity as director and/or officer of the Company), to sign and affix the
undersigned's name to a Registration Statement on Form S-3 or other applicable
form, and all amendments (including post-effective amendments) thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, in connection with the
registration under the Securities Act of 1933, as amended, of $600,000,000 in
principal amount of Asset-Backed Securities to be issued from time to time
thereafter by the Company, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
/s/ James J. Murphy
---------------------------------
James J. Murphy
<PAGE>
EXHIBIT 24.2
TRANSAMERICA CONSUMER
MORTGAGE RECEIVABLES CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of TRANSAMERICA CONSUMER MORTGAGE RECEIVABLES CORPORATION, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
DAVID H. HAWKINS and JAMES J. MURPHY and each or any one of them the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any and all capacities (including his capacity as
director and/or officer of the Company), to sign and affix the undersigned's
name to a Registration Statement on Form S-3 or other applicable form, and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, in connection with the registration under
the Securities Act of 1933, as amended, of $600,000,000 in principal amount of
Asset-Backed Securities to be issued from time to time thereafter by the
Company, granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Stephen D. McAvoy
-----------------------------------
Stephen D. McAvoy
