<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1996
REGISTRATION NO. 333-02209
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NORWEST ASSET SECURITIES CORPORATION
(Exact name of registrant as specified in governing instruments)
5325 SPECTRUM DRIVE
FREDERICK, MARYLAND 21701
(301) 846-8881
(Address of principal executive offices)
STEPHEN D. MORRISON, ESQ.
PRESIDENT AND SECRETARY
NORWEST ASSET SECURITIES CORPORATION
C/O NORWEST MORTGAGE, INC.
405 SOUTHWEST 5TH STREET
DES MOINES, IOWA 50328
(515) 221-7520
(Name and address of agent for service)
--------------------------
COPIES TO:
JORDAN M. SCHWARTZ, ESQ.
CADWALADER, WICKERSHAM & TAFT
100 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 504-6000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
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, 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, please 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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED BEING REGISTERED PER UNIT OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates..... $1,000,000 100%(1) $1,000,000 $344.83(2)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Previously paid.
--------------------------
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 THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
NORWEST ASSET SECURITIES CORPORATION
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-3 LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Forepart of Registration Statement and Outside Front
Cover
2. Inside Front Cover and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Summary of Prospectus; Risk Factors and Special
Considerations; Prepayment and Yield Considerations;
Description of the Certificates
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... *
6. Dilution............................................. *
7. Selling Security Holders............................. *
8. Plan of Distribution................................. Cover Page; Plan of Distribution
9. Description of Securities to be Registered........... Description of the Certificates
10. Interests of Named Experts and Counsel............... *
11. Material Changes..................................... *
12. Incorporation of Certain Information by Reference.... Incorporation of Certain Information by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
</TABLE>
- ------------------------
*Omitted since answer is negative or item is not applicable.
<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 SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
<PAGE>
PROSPECTUS SUPPLEMENT, SUBJECT TO COMPLETION, DATED MAY 15, 1996
$ (APPROXIMATE)
NORWEST ASSET SECURITIES CORPORATION
SELLER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199 -
PRINCIPAL AND INTEREST PAYABLE MONTHLY, COMMENCING IN 199
---------------------
The Series 199 - Mortgage Pass-Through Certificates (the "Series 199 -
Certificates") will consist of two classes of senior certificates (the "Class A
Certificates" and the "Class AP Certificates," respectively, and together, the
"Senior Certificates") and two classes of subordinated certificates (the "Class
M Certificates" and the "Class B Certificates," respectively, and together, the
"Subordinated Certificates"). The Senior Certificates are entitled to a certain
priority, relative to the Class M and Class B Certificates, in right of
distributions on the Mortgage Loans. As between the Class M Certificates and the
Class B Certificates, the Class M Certificates are entitled to a certain
priority in right of distributions on the Mortgage Loans. The Class A
Certificates will consist of six subclasses of Certificates designated as the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-R
Certificates. The Class AP and Class M Certificates will not be divided into
Subclasses. The Class B Certificates will consist of five Subclasses of
Certificates designated as the Class B-1, Class B-2, Class B-3, Class B-4 and
Class B-5 Certificates, none of which is offered hereby. Each subclass of Class
A Certificates or Class B Certificates is referred to herein as a "Subclass."
The Class A Certificates, the Class AP Certificates and the Class M Certificates
are the only Series 199 - Certificates being offered hereby and are referred to
herein collectively as the "Offered Certificates."
The Class A-1 Certificates are planned amortization class certificates and
are referred to herein as the "PAC Certificates." The Class A-2 Certificates are
targeted amortization class certificates and are referred to herein as the "TAC
Certificates." The Class A-3 Certificates are companion certificates and are
referred to herein as the "Companion Certificates."
(CONTINUED ON NEXT PAGE)
PROSPECTIVE INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE
FACTORS DISCUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT ON PAGE
S- AND IN THE PROSPECTUS ON PAGE .
---------------------
THESE SECURITIES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF NORWEST ASSET
SECURITIES CORPORATION OR ANY AFFILIATE THEREOF. NEITHER THESE SECURITIES
NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
INITIAL SUBCLASS OR INITIAL SUBCLASS OR
SUBCLASS OR CLASS CLASS PASS-THROUGH SUBCLASS OR CLASS CLASS PASS-THROUGH
DESIGNATION PRINCIPAL BALANCE (1) RATE DESIGNATION PRINCIPAL BALANCE (1) RATE
<S> <C> <C> <C> <C> <C>
Class A-1.......... $ % Class A-5.......... $ %
Class A-2.......... $ % Class A-R.......... $ %
Class A-3.......... $ % Class AP........... $ (2)
Class A-4.......... $ % Class M............ $ %
</TABLE>
(1) Approximate. The initial Subclass or Class Principal Balances are subject to
adjustment as described herein.
(2) The Class AP Certificates are principal-only certificates and will not be
entitled to distributions in respect of interest.
The Offered Certificates will be purchased by [Underwriter] (the
"Underwriter") from the Seller and will be offered by the Underwriter from time
to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The aggregate proceeds to the Seller are
expected to be approximately % of the initial aggregate principal balance of
the Class A, Class AP and Class M Certificates plus accrued interest thereon,
other than on an amount equal to the initial aggregate principal balance of the
Class AP Certificates, before deducting expenses payable by the Seller estimated
to be $ . The price to be paid to the Seller for the Class A, Class AP and
Class M Certificates has not been allocated among the Class A, Class AP and
Class M Certificates nor among the Subclasses of Class A Certificates. See
"Underwriting" herein.
The Offered Certificates are offered by the Underwriter subject to prior
sale, when, as and if accepted by the Underwriter and subject to certain
conditions. It is expected that the Offered Certificates will be available for
delivery through the facilities of The Depository Trust Company or, in the case
of the Class A-R, Class AP and Class M Certificates, at the offices of
, New York, New York , in each case, on or about
, 199 .
[UNDERWRITER]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 199 .
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The credit enhancement for the Series 199 - Certificates is provided through
the use of a "shifting interest" type subordination, which has the effect of
allocating all or a disproportionate amount of principal prepayments and other
unscheduled receipts of principal to the Class A Certificates in the aggregate
for at least nine years beginning on the first Distribution Date. See "Summary
Information -- Credit Enhancement " and "-- Effects of Prepayments on Investment
Expectations," "Description of the Certificates" and "Prepayment and Yield
Considerations" herein.
The Series 199 - Certificates will evidence in the aggregate the entire
beneficial ownership interest in a trust fund (the "Trust Estate") established
by Norwest Asset Securities Corporation (the "Seller" or "NASCOR") and
consisting of a pool of fixed interest rate, conventional, monthly pay, fully
amortizing, one- to four-family, residential first mortgage loans having
original terms to stated maturity of approximately years (the "Mortgage
Loans"), other than the Fixed Retained Yield described herein, together with
certain related property. Certain of the Mortgage Loans may be secured primarily
by shares issued by cooperative housing corporations. The servicing of the
Mortgage Loans will be performed by various servicers identified herein (each, a
"Servicer"), including Norwest Mortgage, Inc. ("Norwest Mortgage"), an affiliate
of both the Seller and Norwest Bank Minnesota, National Association ("Norwest
Bank"), and will be supervised by Norwest Bank (in such capacity, the "Master
Servicer"). The Mortgage Loans will be acquired by the Seller on the date of
issuance of the Series 199 - Certificates from Norwest Mortgage, and will have
been originated by Norwest Mortgage or acquired by Norwest Mortgage from various
entities (each, a "Correspondent"). The Mortgage Loans not originated by Norwest
Mortgage were originated by the Correspondents or acquired by the Correspondents
pursuant to mortgage loan purchase programs operated by such Correspondents. See
"Description of the Mortgage Loans" herein. The Senior Certificates will
initially evidence in the aggregate an approximate % undivided interest in the
principal balance of the Mortgage Loans. The Class M Certificates will initially
evidence in the aggregate an approximate % interest in the principal balance
of the Mortgage Loans. The remaining approximate % undivided interest in the
principal balance of the Mortgage Loans will be evidenced by the Class B
Certificates.
Distributions in respect of interest and principal will be made on the 25th
day of each month or, if such day is not a business day, on the succeeding
business day (each a "Distribution Date"), commencing in 199 , to the
holders of Offered Certificates, as described herein. The amount of interest
accrued on any Subclass or Class of Offered Certificates (other than the Class
AP Certificates) will be reduced by any prepayment interest shortfalls and
certain other shortfalls in the collection of interest from mortgagors, as well
as certain losses, as described herein under "Description of the Certificates --
Interest." The Class AP Certificates are principal-only certificates and will
not be entitled to distributions of interest. On any Distribution Date, the
holders of the Class M Certificates will receive distributions of interest only
if the holders of the Senior Certificates have received all amounts due them
(other than the Class AP Deferred Amount) on such date. Distributions of
principal to holders of the Class M Certificates will be made only after the
holders of the Class AP Certificates have received the Class AP Deferred Amount
and the holders of the Class M Certificates have received the amount of interest
due them with respect to such Distribution Date. On any Distribution Date, the
holders of a Subclass of Class B Certificates will receive distributions of
interest only if the holders of the Senior Certificates and Class M Certificates
and each Subclass of Class B Certificates with a lower numerical designation
have received all amounts of interest and of principal (other than the Class AP
Deferred Amount) to which they are entitled on such date. Distributions of
principal to holders of a Subclass of Class B Certificates will be made only
after the Senior Certificates, the Class M Certificates and each Subclass of
Class B Certificates with a lower numerical designation have received all
distributions to which they are entitled (including in the case of the Class AP
Certificates, the Class AP Deferred Amount) and such Subclass has received the
amount of interest due with respect to such Distribution Date. Distributions in
reduction of the principal balance of the Class A Certificates on any
Distribution Date will be allocated among the Subclasses of the Class A
S-2
<PAGE>
Certificates in the manner described herein under "Description of the
Certificates -- Principal (Including Prepayments)." Distributions to each
Subclass or undivided Class of Offered Certificates will be made pro rata among
Certificateholders of such Subclass or Class.
The Offered Certificates may not be an appropriate investment for individual
investors who do not have sufficient resources or expertise to evaluate the
particular characteristics of the applicable Classes or Subclasses of Offered
Certificates. This may be the case because:
- The yield to maturity of Offered Certificates purchased at a price other
than par will be sensitive to the uncertain rate and timing of principal
prepayments on the Mortgage Loans;
- The rate of principal distributions on, and the weighted average life of,
the Offered Certificates will be sensitive to the uncertain rate and
timing of principal prepayments on the Mortgage Loans;
- As discussed below, there can be no assurance that a secondary market for
the Offered Certificates will develop or provide Certificateholders with
liquidity of investment; and
- The Offered Certificates are subject to the further risks and other
special considerations discussed herein and in the Prospectus under the
heading "Risk Factors."
THE YIELD TO MATURITY OF THE OFFERED CERTIFICATES WILL BE SENSITIVE IN
VARYING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS, WHICH MAY BE MADE AT ANY TIME WITHOUT PENALTY) ON THE MORTGAGE
LOANS. INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE ASSOCIATED
RISKS, INCLUDING, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT,
PARTICULARLY THE CLASS AP CERTIFICATES, THE RISK THAT A SLOWER THAN ANTICIPATED
RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE
LOANS, OR IN THE CASE OF THE CLASS AP CERTIFICATES, ON THE DISCOUNT MORTGAGE
LOANS, COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED. A FASTER
THAN ANTICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER
THAN ANTICIPATED FOR INVESTORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM.
INVESTORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM SHOULD ALSO CONSIDER THE
RISK THAT A RAPID RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTORS
TO FULLY RECOVER THEIR INITIAL INVESTMENTS. THE YIELD TO INVESTORS IN THE CLASS
AP CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS OF THOSE
MORTGAGE LOANS WITH NET MORTGAGE INTEREST RATES LESS THAN % (THE "DISCOUNT
MORTGAGE LOANS"). THE YIELD TO MATURITY OF THE CLASS M CERTIFICATES WILL BE MORE
SENSITIVE THAN THE SENIOR CERTIFICATES TO THE AMOUNT AND TIMING OF LOSSES DUE TO
LIQUIDATIONS OF THE MORTGAGE LOANS, IN THE EVENT THAT THE CLASS B PRINCIPAL
BALANCE HAS BEEN REDUCED TO ZERO. SEE "DESCRIPTION OF THE CERTIFICATES --
INTEREST," "-- PRINCIPAL (INCLUDING PREPAYMENTS)" AND "-- SUBORDINATION OF CLASS
M AND CLASS B CERTIFICATES" HEREIN AND "PREPAYMENT AND YIELD CONSIDERATIONS"
HEREIN AND IN THE PROSPECTUS.
THE WEIGHTED AVERAGE LIFE OF THE COMPANION CERTIFICATES WILL BE HIGHLY
SENSITIVE TO THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS. AT RATES AT OR ABOVE
CERTAIN PREPAYMENT LEVELS, PAYMENTS OF PRINCIPAL ALLOCATED TO THE CLASS A
CERTIFICATES IN EXCESS OF AMOUNTS RESULTING FROM SUCH PREPAYMENT LEVELS WILL BE
PAID TO THE HOLDERS OF THE COMPANION CERTIFICATES PRIOR TO BEING PAID TO THE
HOLDERS OF THE TAC CERTIFICATES AND THE PAC CERTIFICATES, RESULTING IN A
REDUCTION IN THE WEIGHTED AVERAGE LIFE OF THE COMPANION CERTIFICATES. AT OR
BELOW CERTAIN PREPAYMENT LEVELS, THE COMPANION CERTIFICATES MAY RECEIVE NO
PRINCIPAL PAYMENTS FOR EXTENDED PERIODS OF TIME, RESULTING IN AN EXTENSION OF
THE WEIGHTED AVERAGE LIFE THEREOF. SEE "PREPAYMENT AND YIELD CONSIDERATIONS"
HEREIN.
The Offered Certificates, other than the Class A-R, Class AP and Class M
Certificates, will be issued only in book-entry form (the "Book-Entry
Certificates"), and purchasers thereof will not be entitled to receive
definitive certificates except in the limited circumstances set forth herein.
The Book-Entry Certificates will be registered in the name of Cede & Co., as
nominee of The Depository Trust Company, which will be the "holder" or
"Certificateholder" of such Certificates, as such terms are used herein. See
"Description of the Certificates" herein.
S-3
<PAGE>
Each Subclass and Class of Offered Certificates is offered in the minimum
denominations described herein under "Summary Information -- Forms of
Certificates; Denominations." It is intended that the Offered Certificates not
be directly or indirectly held or beneficially owned in amounts lower than such
minimum denominations.
There is currently no secondary market for the Offered Certificates and
there can be no assurance that a secondary market will develop or, if such a
market does develop, that it will provide Certificateholders with liquidity of
investment at any particular time or for the life of the Offered Certificates.
The Underwriter intends to act as a market maker in the Offered Certificates,
subject to applicable provisions of federal and state securities laws and other
regulatory requirements, but is under no obligation to do so and any such market
making may be discontinued at any time. There can be no assurance that any
investor will be able to sell an Offered Certificate at a price equal to or
greater than the price at which such Certificate was purchased. THE CLASS M
CERTIFICATES MAY NOT BE TRANSFERRED UNLESS THE TRANSFEREE HAS DELIVERED (I) A
REPRESENTATION LETTER TO THE TRUSTEE AND THE SELLER STATING EITHER (A) THAT THE
TRANSFEREE IS NOT A PLAN AND IS NOT ACTING ON BEHALF OF A PLAN OR USING THE
ASSETS OF A PLAN TO EFFECT SUCH PURCHASE OR (B) SUBJECT TO CERTAIN CONDITIONS
DESCRIBED HEREIN, THAT THE SOURCE OF FUNDS USED TO PURCHASE THE CERTIFICATES IS
AN "INSURANCE COMPANY GENERAL ACCOUNT" OR (II) AN OPINION OF COUNSEL AS PROVIDED
IN THIS PROSPECTUS SUPPLEMENT. IN ADDITION, THE CLASS A-R CERTIFICATE MAY NOT BE
PURCHASED BY OR TRANSFERRED TO (I) A "DISQUALIFIED ORGANIZATION," (II) EXCEPT
UNDER CERTAIN LIMITED CIRCUMSTANCES, A PERSON WHO IS NOT A "U.S. PERSON," (III)
A PLAN OR (IV) ANY PERSON OR ENTITY WHO THE TRANSFEROR KNOWS OR HAS REASON TO
KNOW WILL BE UNWILLING OR UNABLE TO PAY WHEN DUE FEDERAL, STATE OR LOCAL TAXES
WITH RESPECT THERETO. See "ERISA Considerations" and "Description of the
Certificates -- Restrictions on Transfer of the Class A-R and Class M
Certificates" herein and "Certain Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates" in the Prospectus.
An election will be made to treat the Trust Estate as a real estate mortgage
investment conduit (the "REMIC") for federal income tax purposes. As described
more fully herein and in the Prospectus, the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class AP, Class M, Class B-1, Class B-2, Class B-3, Class
B-4 and Class B-5 Certificates will constitute "regular interests" in the REMIC
and the Class A-R Certificate will constitute the "residual interest" in the
REMIC. PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE CLASS A-R
CERTIFICATEHOLDER'S REMIC TAXABLE INCOME AND THE LIABILITY THEREON MAY EXCEED,
AND MAY SUBSTANTIALLY EXCEED, CASH DISTRIBUTIONS TO SUCH HOLDER DURING CERTAIN
PERIODS, IN WHICH EVENT SUCH HOLDER MUST HAVE SUFFICIENT ALTERNATIVE SOURCES OF
FUNDS TO PAY SUCH TAX LIABILITY. See "Summary Information -- Federal Income Tax
Status" and "Federal Income Tax Considerations" herein and "Certain Federal
Income Tax Consequences -- Federal Income Tax Consequences for REMIC
Certificates" in the Prospectus.
The Class A Certificates represent six Subclasses of a Class, and the Class
AP and Class M Certificates each represent a Class, all of which are part of a
separate Series of Certificates being offered by the Seller pursuant to the
Prospectus dated , 199 accompanying this Prospectus Supplement.
Any prospective investor should not purchase any Offered Certificates described
herein unless it has received the Prospectus and this Prospectus Supplement. The
Prospectus shall not be considered complete without this Prospectus Supplement.
The Prospectus contains important information regarding this offering which is
not contained herein, and prospective investors are urged to read, in full, the
Prospectus and this Prospectus Supplement.
UNTIL , 199 , 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 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-4
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary Information....................................................................................... S-7
Risk Factors.............................................................................................. S-27
General................................................................................................. S-27
Subordination........................................................................................... S-27
Book-Entry System for Certain Classes and Subclasses of Certificates.................................... S-27
Description of the Certificates........................................................................... S-28
Denominations........................................................................................... S-28
Definitive Form......................................................................................... S-28
Book-Entry Form......................................................................................... S-28
Distributions........................................................................................... S-28
Interest................................................................................................ S-31
Principal (Including Prepayments)....................................................................... S-35
Calculation of Amount to be Distributed to the Class A Certificates................................... S-35
Calculation of Amount to be Distributed to the Class AP Certificates.................................. S-38
Calculation of Amount to be Distributed to the Class M Certificates................................... S-39
Allocation of Amount to be Distributed................................................................ S-42
Principal Payment Characteristics of the PAC Certificates, the TAC Certificates and the Companion
Certificates......................................................................................... S-43
Example of Distribution to Certificateholders........................................................... S-46
Additional Rights of the Class A-R Certificateholder.................................................... S-47
Periodic Advances....................................................................................... S-47
[Financial Security Assurance Inc....................................................................... S-48]
Restrictions on Transfer of the Class A-R and Class M Certificates...................................... S-50
Reports................................................................................................. S-51
Subordination of Class M and Class B Certificates....................................................... S-52
Allocation of Losses.................................................................................. S-52
Description of the Mortgage Loans......................................................................... S-57
General................................................................................................. S-57
Mortgage Loan Data...................................................................................... S-59
Mandatory Repurchase or Substitution of Mortgage Loans.................................................. S-63
Optional Repurchase of Defaulted Mortgage Loans......................................................... S-63
Mortgage Underwriting Standards......................................................................... S-63
Norwest Mortgage Delinquency and Foreclosure Experience................................................... S-64
Prepayment and Yield Considerations....................................................................... S-68
Sensitivity of the Class AP Certificates................................................................ S-74
Pooling and Servicing Agreement........................................................................... S-75
General................................................................................................. S-75
Distributions........................................................................................... S-76
Voting.................................................................................................. S-76
Trustee................................................................................................. S-76
Master Servicer......................................................................................... S-77
Optional Termination.................................................................................... S-77
Servicing of the Mortgage Loans........................................................................... S-78
The Servicers........................................................................................... S-78
Servicer Custodial Accounts............................................................................. S-78
Fixed Retained Yield; Servicing Compensation and Payment of Expenses.................................... S-79
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Servicer Defaults....................................................................................... S-80
Federal Income Tax Considerations......................................................................... S-80
Regular Certificates.................................................................................... S-80
Residual Certificate.................................................................................... S-80
ERISA Considerations...................................................................................... S-82
Legal Investment.......................................................................................... S-83
Secondary Market.......................................................................................... S-83
Underwriting.............................................................................................. S-84
Legal Matters............................................................................................. S-84
[Experts.................................................................................................. S-84]
Use of Proceeds........................................................................................... S-84
Ratings................................................................................................... S-85
Index of Significant Prospectus Supplement Definitions.................................................... S-86
</TABLE>
S-6
<PAGE>
SUMMARY INFORMATION
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN THE
ACCOMPANYING PROSPECTUS (THE "PROSPECTUS"). CAPITALIZED TERMS USED IN THIS
PROSPECTUS SUPPLEMENT AND NOT OTHERWISE DEFINED HEREIN HAVE THE MEANINGS
ASSIGNED IN THE PROSPECTUS. SEE "INDEX OF SIGNIFICANT PROSPECTUS SUPPLEMENT
DEFINITIONS" HEREIN AND "INDEX OF SIGNIFICANT DEFINITIONS" IN THE PROSPECTUS.
<TABLE>
<S> <C>
Title of Securities............. Mortgage Pass-Through Certificates, Series 199
-Certificates (the "Series 199 - Certificates" or the
"Certificates").
Seller.......................... Norwest Asset Securities Corporation (the "Seller").
Participant..................... Norwest Mortgage, Inc. ("Norwest Mortgage"). The Mortgage
Loans that Norwest Mortgage sells to the Seller will
either have been originated by Norwest Mortgage or
acquired by Norwest Mortgage from various entities (each,
a "Correspondent"), which either originated the Mortgage
Loans or acquired the Mortgage Loans pursuant to mortgage
loan purchase programs operated by the Correspondents.
None of the Correspondents is an affiliate of Norwest
Mortgage.
Servicing/Servicers............. Norwest Mortgage and one or more other Servicers (which
will be Correspondents) approved by the Master Servicer
will provide customary servicing functions with respect to
the Mortgage Loans pursuant to servicing agreements (each,
an "Underlying Servicing Agreement") assigned to the Trust
Estate. Servicers servicing more than % of the Mortgage
Loans by Cut-Off Date Aggregate Principal Balance are
Norwest Mortgage and . Among other things, the
Servicers are obligated under certain circumstances to
advance delinquent payments of principal and interest with
respect to the Mortgage Loans. Each of the Servicers will
be entitled to (i) a monthly Servicing Fee with respect to
each Mortgage Loan it services payable on each
Distribution Date that is expressed as one-twelfth of a
fixed percentage per annum multiplied by the Scheduled
Principal Balance of such Mortgage Loan on the first day
of the preceding Due Period and (ii) other additional
servicing compensation described herein. The weighted
average of the Servicing Fee Rates is expected to be
approximately % as of the Cut-Off Date. See "Servicing
of the Mortgage Loans" herein and in the Prospectus.
Master Servicer................. Norwest Bank Minnesota, National Association ("Norwest
Bank" and, in its capacity as master servicer, the "Master
Servicer") Norwest Bank is a direct, wholly owned
subsidiary of Norwest Corporation and is an affiliate of
the Seller. The Master Servicer will (a) monitor certain
aspects of the servicing of the Mortgage Loans, (b) cause
the Mortgage Loans to be serviced in the event that a
Servicer is terminated and a successor Servicer is not
appointed, (c) provide administrative services with
respect to the Certificates, (d) provide certain reports
to the Trustee regarding the Mortgage Loans and the
Certificates and (e) make advances, to the extent
described herein, with respect to the Mortgage Loans if a
Servicer (other than Norwest Mortgage) fails to make a
required advance. The Master Servicer will be entitled to
(i) a monthly Master Servicing Fee with respect to each
Mortgage Loan, payable on each Distribution Date, in an
</TABLE>
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<S> <C>
amount equal to one-twelfth of a fixed percentage per
annum multiplied by the Scheduled Principal Balance of
such Mortgage Loan on the first day of the preceding month
and (ii) any interest earned on funds in the Certificate
Account. See "The Pooling and Servicing Agreement --
Master Servicer" herein and "Norwest Bank," "Servicing of
the Mortgage Loans -- The Master Servicer" and "Certain
Matters Regarding the Master Servicer" in the Prospectus.
Trustee......................... [Trustee], a national banking association (the "Trustee")
will, in addition to performing the normal duties of
trustee with respect to the Certificates, make advances,
to the extent described herein, with respect to the
Mortgage Loans if Norwest Mortgage, as Servicer, fails to
make a required advance. The Trustee will be entitled to a
monthly Trustee Fee with respect to each Mortgage Loan,
payable on each Distribution Date, in an amount equal to
one-twelfth of a fixed percentage per annum multiplied by
the Scheduled Principal Balance of such Mortgage Loan on
the first day of the preceding month. See "Pooling and
Servicing Agreement -- Trustee" in this Prospectus
Supplement.
Rating of Certificates.......... It is a condition to the issuance of the Series 199
- Certificates offered by this Prospectus Supplement and
the Prospectus that they shall have been rated [["Aaa" by
Moody's Investors Service, Inc. ("Moody's")] ["AAA" by
[Fitch Investors Service, L.P. ("Fitch")] [Duff & Phelps
Credit Rating Co. ("DCR")]] [and] ["AAA" and "AAAr" by
Standard and Poor's ("S&P")]] and [["Aa" by Moody's] ["AA"
by [Fitch] [DCR] [S&P]] [and] ["A" by [Moody's] [Fitch]
[DCR] [S&P]] [and] [["Baa" by Moody's] ["BBB" by [Fitch]
[DCR] [S&P]. The ratings by [Moody's] [Fitch] [DCR] [S&P]
are not recommendations to buy, sell or hold such
certificates and may be subject to revision or withdrawal
at any time by the assigning rating agency. The ratings do
not address the possibility that, as a result of principal
prepayments, holders of such certificates may receive a
lower than anticipated yield. See "-- Effects of
Prepayments on Investment Expectations" below and
"Ratings" in this Prospectus Supplement.
Description of Certificates..... The Series 199 - Certificates will consist of the Class A
Certificates, the Class AP Certificates, the Class M
Certificates and the Class B Certificates. The Class A and
Class AP Certificates represent a type of interest
referred to in the Prospectus as "Senior Certificates" and
the Class M and Class B Certificates represent a type of
interest referred to in the Prospectus as "Subordinated
Certificates." As these designations suggest, the Senior
Certificates are entitled to a certain priority, relative
to the Class M and Class B Certificates, in right of
distributions on the mortgage loans underlying the Series
199 - Certificates (the "Mortgage Loans"). As between the
Class M Certificates and the Class B Certificates, the
Class M Certificates are entitled to a certain priority in
right of distributions on the Mortgage Loans. See "--
Distributions of Principal and Interest" below.
The Senior Certificates will initially evidence in the
aggregate an approximate % interest in the principal
balance of the Mortgage Loans. The Class M Certificates
will initially evidence
</TABLE>
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<S> <C>
in the aggregate an approximate % interest in the
principal balance of the Mortgage Loans. The remaining
approximate % interest in the principal balance of the
Mortgage Loans will be evidenced by the Class B
Certificates. The Class AP Certificates will evidence an
interest in portions of the principal balances of Mortgage
Loans that have Net Mortgage Interest Rates, as defined on
page S- , less than % (the "Discount Mortgage
Loans"), such initial interest in the aggregate repre-
senting an approximate % interest by principal balance
of the Mortgage Loans (the "Pool Balance (Class AP
Portion)"). In addition, the Class AP Certificates will
represent an approximate % initial interest in the
principal balance of the Discount Mortgage Loans. By
virtue of the subordination of the Class M and Class B
Certificates, it is possible that the Class AP
Certificates may also receive support from certain
payments made with respect to the other Mortgage Loans in
the Trust Estate. The Class A, Class M and Class B
Certificates will evidence the entire remaining interest
in the principal balance of the Mortgage Loans (the "Pool
Balance (Classes A/M/B Portion)"). Initially, the Class A
Certificates will evidence in the aggregate an approximate
% (approximately $ ) undivided interest in the
initial Pool Balance (Classes A/M/B Portion); the Class M
Certificates will evidence in the aggregate an approximate
% (approximately $ ) undivided interest in the
initial Pool Balance (Classes A/M/B Portion); and the
Class B Certificates will evidence in the aggregate an ap-
proximate % (approximately $ ) undivided inter-
est in the initial Pool Balance (Classes A/M/B Portion).
The relative interests in the initial Pool Balance
(Classes A/M/B Portion) represented by the Class A, Class
M and Class B Certificates are subject to change over time
because of the disproportionate allocation of certain
unscheduled principal payments to the Class A Certificates
for a specified period and the allocation of certain
losses and certain shortfalls first to the Class B
Certificates in reverse numerical order, and then to the
Class M Certificates, prior to the allocation of such
losses and shortfalls to the Class A Certificates, as
discussed in "-- Distributions of Principal and Interest"
and "-- Credit Enhancement" below.
The Class A Certificates will consist of six Subclasses
designated as the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5 and Class A-R Certificates. The Class AP
Certificates are a separate class and are not a Subclass
of the Class A Certificates. The Class AP and Class M
Certificates will not be divided into Subclasses. The
Class B Certificates will consist of five Subclasses,
designated as the Class B-1, Class B-2, Class B-3, Class
B-4 and Class B-5 Certificates which are not offered
hereby and may be retained or sold by the Seller. The
Class A Certificates, the Class AP Certificates and the
Class M Certificates are referred to in this Prospectus
Supplement as the "Offered Certificates."
The Class A-1 Certificates are planned amortization class
certificates (referred to herein as the "PAC
Certificates") because, based on certain assumptions
described in the paragraph on
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S-9
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<S> <C>
page S- , if prepayments on the Mortgage Loans occur at
any constant rate between approximately % SPA (as
defined herein under "Prepayment and Yield
Considerations") and approximately % SPA, it is
expected that their principal balances would be reduced to
the percentages of their initial principal balances
indicated in the tables on page . The Class A-2
Certificates are targeted amortization class certificates
(referred to herein as the "TAC Certificates") because,
based on certain assumptions described in the paragraph on
page S- , at a constant prepayment level of approximately
% SPA, it is expected that their principal balances
would be reduced to the percentages of their initial
principal balances indicated in the tables on page .
However, it is highly unlikely that principal prepayments
on the Mortgage Loans will occur at any constant rate or
that the Mortgage Loans will prepay at the same rate. The
Class A-3 Certificates are companion certificates
(referred to herein as the "Companion Certificates")
because payments of principal allocated to the Class A
Certificates in excess of amounts resulting from certain
prepayment levels will be paid first to the holders of the
Companion Certificates for so long as such Certificates
remain outstanding, prior to being paid to the holders of
the TAC Certificates and the PAC Certificates. See
"Description of the Certificates -- Principal (Including
Prepayments) -- Allocation of Amount to be Distributed"
and "-- Principal Payment Characteristics of the PAC
Certificates, the TAC Certificates and the Companion
Certificates" in this Prospectus Supplement.
The Offered Certificates have the approximate aggregate
initial principal balances set forth on the cover of this
Prospectus Supplement. Any difference between the
aggregate principal balance of the Class A, Class AP and
Class M Certificates as of the date of issuance of the
Series 199 - Certificates and the approximate initial
aggregate principal balance of such Subclasses and Classes
as of the date of this Prospectus Supplement will not,
with respect to the Senior Certificates, exceed 5% of the
initial aggregate principal balance of the Class A and
Class AP Certificates as stated on the cover of this
Prospectus Supplement and, with respect to the Class M
Certificates, will depend on the final subordination
levels for the Series 199 - Certificates. Any difference
allocated to the Class A Certificates will be allocated to
one or more of the Subclasses of Class A Certificates,
other than the Class A-R Certificate, and to the Class AP
Certificates.
Forms of Certificates;
Denominations................. The Offered Certificates will be issued either in
book-entry form or in fully registered, certificated form
("Definitive Certificates"). The following table sets
forth the original certificate form, the minimum
denomination and the incremental denomination of the
Offered Certificates. The Offered Certificates are not
intended to be directly or indirectly held or beneficially
owned in amounts lower than such minimum denominations.
See "Descriptions of the Certificates -- Denominations" in
this Prospectus Supplement.
</TABLE>
S-10
<PAGE>
FORM AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
ORIGINAL CERTIFICATE MINIMUM INCREMENTAL
SUBCLASS FORM DENOMINATION DENOMINATION
- ---------------------------------------------------------- ----------------------- ------------- -------------
<S> <C> <C> <C>
Classes A-1, A-2, A-3, A-4 and A-5........................ Book-Entry $ 100,000 $ 1,000
Class A-R................................................. Definitive $ N/A
Class AP.................................................. Definitive $ 100,000 $ 1
Class M................................................... Definitive $ 100,000 $ 1,000
</TABLE>
- ------------------------
In order to aggregate the original principal balance of such Subclass, one
certificate will be issued with an incremental denomination of less than
that shown.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BOOK-ENTRY FORM. The Offered Certificates, other than
the Class A-R, Class AP and Class M Certificates, will
be issued in book-entry form, through the facilities of
The Depository Trust Company ("DTC"). These Certificates
are referred to collectively in this Prospectus
Supplement as the "Book-Entry Certificates." An investor
in a Subclass of Book-Entry Certificates will not
receive a physical certificate representing its
ownership interest in such Book-Entry Certificates,
except under extraordinary circumstances which are
discussed in "Description of the Certificates --
Book-Entry Form" in the Prospectus. Instead, DTC will
effect payments and transfers by means of its electronic
recordkeeping services, acting through certain
participating organizations. This may result in certain
delays in receipt of distributions by an investor and
may restrict an investor's ability to pledge its
securities. The rights of investors in the Book-Entry
Certificates may generally only be exercised through DTC
and its participating organizations. See "Description of
the Certificates -- Denominations" and "-- Book-Entry
Form" in this Prospectus Supplement and "Description of
the Certificates -- Book-Entry Form" in the Prospectus.
DEFINITIVE FORM. The Class A-R, Class AP and Class M
Certificates will each be issued as Definitive
Certificates. See "Description of the Certificates --
Denominations" and "-- Definitive Form" in this
Prospectus Supplement and "Description of the
Certificates -- Definitive Form" in the Prospectus.
Mortgage Loans.................... MORTGAGE LOAN DATA. The Mortgage Loans, which are the
source of distributions to holders of the Series 199 -
Certificates, will consist of conventional, fixed
interest rate, monthly pay, fully amortizing, one- to
four-family, residential first mortgage loans, having
original terms to stated maturity of approximately
years, which may include loans secured by shares issued
by cooperative housing corporations. The Mortgage Loans
are expected to have the further specifications set
forth in the following table and under the heading
"Description of the Mortgage Loans" in this Prospectus
Supplement.
</TABLE>
S-11
<PAGE>
SELECTED MORTGAGE LOAN DATA(2)
(AS OF THE CUT-OFF DATE)
<TABLE>
<S> <C>
Cut-Off Date: 1, 199
Number of Mortgage Loans:
Aggregate Unpaid Principal Balance(1) $
Range of Unpaid Principal Balances(1): $ to $
Average Unpaid Principal Balance(1): $
Range of Mortgage Interest Rates: % to %
Weighted Average Mortgage Interest Rate(1): %
Range of Remaining Terms to Stated Maturity: months to months
Weighted Average Remaining Term to Stated Maturity(1): months
Range of Original Loan-to-Value Ratios(1): % to %
Weighted Average Original Loan-to-Value Ratio(1): %
Geographic Concentration of Mortgaged Properties
Securing Mortgage Loans in Excess of 5% of the
Aggregate Unpaid Principal Balance(1): [States] %
Maximum Five-Digit Zip Code Concentration(1): %
</TABLE>
- ------------------------
(1) Approximate.
(2) Information concerning the Discount Mortgage Loans is set forth under
"Description of the Mortgage Loans -- General."
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGES TO POOL. A number of Mortgage Loans may be
removed from the pool, or a substitution may be made for
certain Mortgage Loans, in advance of the issuance of the
Series 199 - Certificates (which is expected to occur on
or about , 199 ) (the "Closing Date"). Any of
such Mortgage Loans may be excluded from the Trust Estate
(i) as a result of principal prepayment thereof in full or
(ii) if, as a result of delinquencies or otherwise, the
Seller otherwise deems such exclusion necessary or
desirable. In either event, other Mortgage Loans may be
included in the Trust Estate. This may result in changes
in certain of the pool characteristics set forth in the
table above and elsewhere in this Prospectus Supplement.
In the event that any of the characteristics as of the
Cut-Off Date of the Mortgage Loans that constitute the
Trust Estate on the date of initial issuance of the Series
199 - Certificates vary materially from those described
herein, revised information regarding the Mortgage Loans
will be made available to purchasers of the Offered
Certificates on or before such issuance date, and a
Current Report on Form 8-K containing such information
will be filed with the Securities and Exchange Commission
within 15 days following such issuance date. See
"Description of the Mortgage Loans" in this Prospectus
Supplement.
Subsequent to the issuance of the Series 199
- Certificates, certain Mortgage Loans may be removed from
the pool through
</TABLE>
S-12
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<S> <C>
repurchase or, under certain circumstances, through
substitution by the Seller, if the Mortgage Loans are
discovered to have defective documentation or if they
otherwise do not conform to the standards established by
the Seller's representations and warranties concerning the
Mortgage Loans. See "Description of the Mortgage Loans --
Mandatory Repurchase or Substitution of Mortgage Loans" in
this Prospectus Supplement.
Optional Termination............ Norwest Mortgage is entitled, subject to certain
conditions relating to the then-remaining size of the
pool, to purchase all outstanding Mortgage Loans in the
pool and thereby effect early retirement of the Series 199
- Certificates. See "Pooling and Servicing Agreement --
Optional Termination" in this Prospectus Supplement.
Underwriting Standards.......... Approximately % (by Cut-Off Date Aggregate Principal
Balance) of the Mortgage Loans (the "Norwest Mortgage
Underwritten Loans") were generally originated in
conformity with Norwest Mortgage's underwriting standards
applied either by Norwest Mortgage or by Correspondents to
whom Norwest Mortgage had delegated all underwriting
functions. In certain instances, exceptions to Norwest
Mortgage's underwriting standards may have been granted by
Norwest Mortgage to such Correspondents. See "The Mortgage
Loan Programs -- Mortgage Loan Underwriting" in the
Prospectus. Approximately % and % (by Cut-Off Date
Aggregate Principal Balance) of the Mortgage Loans (the
"Pool Certification Underwritten Loans") will have been
reviewed by General Electric Mortgage Insurance
Corporation ("GEMICO") and United Guaranty Residential
Insurance Company ("UGRIC"), respectively, to ensure
compliance with their respective credit, appraisal and
underwriting standards. Neither the Series 199
- Certificates nor the Mortgage Loans are insured or
guaranteed under a mortgage pool insurance policy issued
by GEMICO or UGRIC. [The Pool Certification Underwritten
Loans were evaluated by Norwest Mortgage using credit
scoring as described in the Prospectus under "The Mortgage
Loan Programs -- Mortgage Loan Underwriting -- Pool
Certification Underwriting" and, based on the credit
scores of such Mortgage Loans, some of such Mortgage Loans
were re-underwritten by Norwest Mortgage. The remaining
approximate % (by Cut-Off Date Aggregate Principal
Balance) of the Mortgage Loans (the "Bulk Purchase
Underwritten Loans") were purchased by Norwest Mortgage
from one or more Correspondents and were underwritten
using underwriting standards which may vary from Norwest
Mortgage's underwriting standards. However, Norwest
Mortgage has in each case reviewed the underwriting
standards applied and determined that such variances did
not depart materially from Norwest Mortgage's underwriting
standards.] See "Description of the Mortgage Loans --
Mortgage
</TABLE>
S-13
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<TABLE>
<S> <C>
Underwriting Standards" in this Prospectus Supplement and
"The Mortgage Loan Programs -- Mortgage Loan Underwriting"
in the Prospectus.
Distributions of Principal and
Interest....................... DISTRIBUTIONS IN GENERAL. Distributions on the Series
199 - Certificates will be made on the 25th day of each
month, or, if such day is not a business day, on the
succeeding business day (each such date is referred to in
this Prospectus Supplement as a "Distribution Date"),
commencing in 199 , to holders of record at the close
of business on the last business day of the preceding
month. In the case of the Book-Entry Certificates, the
holder of record will be DTC.
The amount available for distribution on any Distribution
Date is primarily a function of (i) the amount remitted by
mortgagors of the Mortgage Loans in payment of their
scheduled installments of principal and interest, (ii) the
amount of prepayments made by the mortgagors and (iii)
proceeds from liquidations of defaulted Mortgage Loans.
On any Distribution Date, holders of the Class A and Class
AP Certificates will be entitled to receive all amounts
due them (other than the Class AP Deferred Amount, as
defined on page S- ) before any distributions are made to
holders of the Class M and Class B Certificates on that
Distribution Date. The Class AP Certificates will be
entitled to receive the Class AP Deferred Amount as
described below. The amount that is available to be
distributed on any Distribution Date will be allocated
first to pay interest due holders of the Class A
Certificates and then, if the amount available for
distribution exceeds the amount of interest due holders of
the Class A Certificates, to reduce the outstanding
principal balances of the Class A and Class AP
Certificates. The likelihood that a holder of a particular
Subclass of Class A Certificates will receive principal
distributions on any Distribution Date will depend on the
priority in which such Subclass is entitled to principal
distributions, as set forth under the heading "Description
of the Certificates -- Principal (Including Prepayments)
-- Allocation of Amount to be Distributed" and "--
Calculation of Amount to be Distributed to the Class A
Certificates" in this Prospectus Supplement.
After all amounts due on the Class A and Class AP
Certificates (other than the Class AP Deferred Amount)
have been paid, the amount remaining will be distributed,
in the following order, to (i) pay any Class AP Deferred
Amount first from amounts otherwise distributable as
principal on the Subclasses of Class B Certificates in
reverse numerical order (I.E., first from amounts
otherwise distributable as principal on the Class B-5
Certificates, then from amounts otherwise distributable as
principal on the Class B-4 Certificates, and so on), and
then from amounts otherwise distributable as principal on
the Class M Certificates, (ii) pay interest due to the
holders of the Class M Certificates, (iii) pay principal
due to the holders of the Class M
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
Certificates less any amounts used to pay the Class AP
Deferred Amount and (iv) pay with respect to each Subclass
of Class B Certificates sequentially in numerical order
interest due and then principal due to the holders of each
such Subclass of Class B Certificates before any
Subclasses of Class B Certificates with higher numerical
designations receive any payments in respect of interest
or principal, provided that the principal due any Subclass
will be reduced by any amount used to pay the Class AP
Deferred Amount. See "Description of the Certificates --
Distributions" in this Prospectus Supplement.
If any mortgagor is delinquent in the payment of principal
or interest on a Mortgage Loan in any month, the
respective Servicer is required to advance such payment
unless such Servicer determines that the delinquent amount
will not be recoverable by such Servicer from insurance
proceeds, liquidation proceeds or other recoveries on the
related Mortgage Loan. The Master Servicer or Trustee may,
in certain circumstances, be required to make such
advances upon a Servicer's default on its obligation to
advance. See "Description of the Certificates -- Periodic
Advances" in this Prospectus Supplement.
INTEREST DISTRIBUTIONS. The amount of interest to which
holders of each Class or Subclass of Offered Certificates,
other than the Class AP Certificates, will be entitled
each month is calculated based on the outstanding
principal balance of such Class or Subclass, as of the
related Distribution Date. Interest will accrue each month
on each such Class or Subclass according to the following
formula: 1/12th of the Pass-Through Rate for such Class or
Subclass multiplied by the outstanding principal balance
of such Class or Subclass as of the related Distribution
Date. Holders of the Class AP Certificates will not be
entitled to receive distributions of interest. The
"Pass-Through Rate" for each Class and Subclass of Offered
Certificates is the percentage set forth on the cover of
this Prospectus Supplement.
When mortgagors prepay principal or when principal is
recovered through foreclosures or other liquidations of
defaulted Mortgage Loans, a full month's interest for the
month of payment or recovery may not be paid or recovered,
resulting in interest shortfalls. These interest
shortfalls are variously handled, depending on the
Servicer and the nature of the event resulting in the
interest shortfall.
In the case of principal prepayments IN FULL the
respective Servicer will be obligated to cover resulting
interest shortfalls up to the aggregate amount of
Servicing Fees payable thereunder on such Distribution
Date to the related Servicer. Interest shortfalls
resulting from partial principal prepayments occurring
with respect to Mortgage Loans will not be offset by
Servicing Fees, but instead will be borne first by the
Class B Certificates and then by the Class A Certificates.
See "Description of the Certificates -- Subordination of
the Class B Certificates" in this Prospectus Supplement.
Shortfalls in
</TABLE>
S-15
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<S> <C>
collections of interest resulting from principal
prepayments in full, to the extent they exceed the
aggregate amount of Servicing Fees payable with respect to
a Distribution Date to the related Servicer
("Non-Supported Interest Shortfalls"), will be allocated
pro rata among the Classes of the Series 199 -
Certificates (other than the Class AP Certificates) based
on their then-outstanding principal balances and will be
allocated pro rata among the Subclasses of Class A
Certificates based on interest accrued.
In addition, the amount of interest required to be
distributed to holders of the Series 199 - Certificates
will be reduced by a portion of certain Special Hazard
Losses, Fraud Losses and Bankruptcy Losses attributable to
interest. See "-- Credit Enhancement -- Extent of Loss
Coverage" below and "Description of the Certificates --
Interest" in this Prospectus Supplement.
To the extent that the amount available for distribution
on any Distribution Date is insufficient to permit the
distribution of the applicable amount of accrued interest
on the Class A Certificates (net of any Non-Supported
Interest Shortfall, other shortfalls and losses allocable
to the Class A Certificates as described above), the
amount of interest to be distributed will be allocated
among the outstanding Subclasses of Class A Certificates
pro rata in accordance with their respective entitlements
to interest and the amount of any deficiency will be added
to the amount of interest that the Class A Certificates
are entitled to receive on subsequent Distribution Dates.
No interest will accrue on such deficiencies.
To the extent that the amount available for distribution
on any Distribution Date, after the payment of all amounts
due the Class A and Class AP Certificates (other than any
Class AP Deferred Amount) has been made, is insufficient
to permit distribution in full of accrued interest on the
Class M Certificates (net of any Non-Supported Interest
Shortfall, other shortfalls and losses allocable to the
Class M Certificates as described above), the amount of
any deficiency will be added to the amount of interest
that the Class M Certificates are entitled to receive on
subsequent Distribution Dates. No interest will accrue on
such deficiencies.
Interest on the Class A Certificates and Class M
Certificates will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
See "Description of the Certificates -- Interest" in this
Prospectus Supplement.
PRINCIPAL DISTRIBUTIONS. The aggregate amount of
principal to which the holders of the Class A Certificates
are entitled each month will equal the sum for each
Mortgage Loan of the product of (a) the Classes A/M/B
Fraction applicable to such Mortgage Loan and (b) the sum
of (i) a percentage (the "Class A Percentage") of
scheduled payments of principal on each Mortgage Loan and
(ii) a percentage (the "Class A Prepayment
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
Percentage") of certain unscheduled payments of principal
on each Mortgage Loan. The "Classes A/M/B Fraction" with
respect to any Mortgage Loan will equal the lesser of (a)
1.0 and (b) the Net Mortgage Interest Rate for such
Mortgage Loan divided by %. The Class A Percentage will
be equal, on each Distribution Date, to the percentage
corresponding to the fraction that represents the ratio of
the then-outstanding principal balance of the Class A
Certificates to the Pool Balance (Classes A/M/B Portion).
The Class A Prepayment Percentage will be equal to the
percentage described in the preceding sentence plus an
additional amount equal to a percentage of the principal
otherwise distributable to the holders of the Subordinated
Certificates. As a result, the percentage of certain
unscheduled principal payments otherwise distributable to
the holders of the Subordinated Certificates that is
instead distributable to the holders of the Class A
Certificates will be equal to 100% during the first five
years beginning on the first Distribution Date and,
subject to meeting certain conditions, will likely decline
during the subsequent four years, as described under the
heading "Description of the Certificates -- Principal
(Including Prepayments) -- Calculation of Amount to be
Distributed to the Class A Certificates" in this
Prospectus Supplement, until the ninth anniversary of the
first Distribution Date and thereafter it is equal to
zero. On each Distribution Date, the Subordinated
Certificates will collectively be entitled to receive the
percentages of the scheduled and certain unscheduled
payments of principal on the portion of each Mortgage Loan
representing the Classes A/M/B Fraction of such Mortgage
Loan equal, in each case, to 100% less the applicable
percentage for the Class A Certificates described above.
The aggregate amount of principal to which holders of the
Class AP Certificates are entitled each month will equal
the sum for each Discount Mortgage Loan of the product of
(a) the Class AP Fraction for such Mortgage Loan and (b)
the sum of (i) scheduled principal payments on such
Mortgage Loan and (ii) certain unscheduled payments of
principal on such Mortgage Loan. In addition, the Class AP
Certificates will be entitled to receive any previously
unpaid amounts of principal to which such Certificates
were entitled on prior Distribution Dates as part of the
Class AP Deferred Amount. The "Class AP Fraction" with
respect to any Discount Mortgage Loan will equal the
difference between 1.0 and the Classes A/M/B Fraction for
such Discount Mortgage Loan. The Class AP Fraction with
respect to each Mortgage Loan that is not a Discount
Mortgage Loan will be equal to zero. See "Description of
the Certificates -- Principal (Including Prepayments)" in
this Prospectus Supplement.
The holders of the Class AP Certificates will also be
entitled each month to an amount equal to the Class AP
Deferred Amount. The Class AP Deferred Amount will be paid
to holders of the Class AP Certificates only from amounts
otherwise
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distributable as principal to the Subordinated
Certificates. The Class AP Deferred Amount will be paid
first from amounts otherwise distributable as principal to
the Subclasses of Class B Certificates in reverse
numerical order and then from amounts otherwise
distributable as principal to the Class M Certificates. No
interest will accrue on any Class AP Deferred Amount.
Except as described below under "-- Effect of
Subordination Level on Principal Distributions," on each
Distribution Date, the Class M Certificates will be
entitled to a portion of scheduled payments and certain
unscheduled payments of principal on the Mortgage Loans
allocable to the Subordinated Certificates that represents
the ratio of the then-outstanding principal balance of the
Class M Certificates to the then-outstanding principal
balance of the Subordinated Certificates.
The amount that is available for distribution to the
holders of the Class A and Class AP Certificates on any
Distribution Date as a distribution of principal (other
than any Class AP Deferred Amount) is equal to the amount
remaining after deducting the amount of interest
distributable on the Class A Certificates from the total
amount collected that is available to be distributed to
holders of the Series 199 - Certificates on such
Distribution Date. Principal will be distributed to the
holders of the Class A Certificates in accordance with the
payment priorities described under the heading
"Description of the Certificates -- Principal (Including
Prepayments) -- Allocation of Amount to be Distributed" in
this Prospectus Supplement.
The amount that is available for distribution to the
holders of the Class M Certificates on any Distribution
Date as a distribution of principal is the amount
remaining after all interest and principal distributions
due on the Class A Certificates, all principal
distributions on the Class AP Certificates (including any
Class AP Deferred Amount) and interest due on the Class M
Certificates have been deducted from the total amount
collected that is available to be distributed to holders
of the Series 199 - Certificates.
EFFECT OF SUBORDINATION LEVEL ON PRINCIPAL
DISTRIBUTIONS. In order to preserve the availability of
the original subordination level as protection against
losses on the Class M Certificates, the Class B-1
Certificates, the Class B-2 Certificates, the Class B-3
Certificates and the Class B-4 Certificates, some or all
of the Subclasses of Class B Certificates, as described
below, may not be entitled to distributions of principal
on certain Distribution Dates and the principal balance of
such Subclasses will not be considered for purposes of
allocation of principal among the Subordinated
Certificates.
In the case of the Class M Certificates, if on any
Distribution Date the percentage obtained by dividing the
outstanding principal balance of the Class B Certificates
by the sum of the outstanding principal balances of the
Class A, Class M and Class B Certificates is less than
such percentage was upon the initial issuance of the
Series 199 - Certificates, then the Class B
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Certificates will not be entitled to distributions of
principal on such Distribution Date and the Class M
Certificates will be entitled to all distributions of
principal allocable to the Subordinated Certificates for
such Distribution Date.
In the case of the Class B-1, Class B-2, Class B-3 or
Class B-4 Certificates, if on any Distribution Date the
percentage obtained by dividing the then-outstanding
principal balances of the Subclasses of Class B
Certificates with higher numerical designations by the sum
of the then-outstanding principal balances of the Class A,
Class M and Class B Certificates is less than such
percentage at the time of the initial issuance of the
Series 199 -Certificates, then such Subclasses of Class B
Certificates with higher numerical designations will not
be entitled to distributions of principal and the
principal balances of such Subclasses will not be taken
into account for purposes of calculating the portions of
scheduled and unscheduled principal payments allocable to
the Class M Certificates and to the Subclasses of Class B
Certificates with lower numerical designations.
In any such case, the Class M Certificates and those
Subclasses of Class B Certificates with lower numerical
designation will receive a greater portion of scheduled
and unscheduled payments of principal on the Mortgage
Loans allocable to the Subordinated Certificates than the
Class M Certificates and those Subclasses of Class B
Certificates with lower numerical designation would have
received had all Subclasses of Class B Certificates been
entitled to their portion of such principal payments. See
"Description of the Certificates -- Principal (Including
Prepayments) -- Calculation of Amount to be Distributed to
the Class M Certificates" in this Prospectus Supplement.
Credit Enhancement.............. DESCRIPTION OF "SHIFTING-INTEREST" SUBORDINATION. The
rights of the holders of the Class M Certificates to
receive distributions will be subordinated to the rights
of the holders of the Senior Certificates to receive
distributions, to the extent described herein. The rights
of the holders of the Class B Certificates to receive
distributions will be subordinated to the rights of the
holders of the Senior Certificates and the Class M
Certificates to receive distributions, to the extent
described herein. This subordination provides a certain
amount of protection to the holders of the Senior
Certificates (to the extent of the subordination of the
Class M and Class B Certificates) and the Class M
Certificates (to the extent of the subordination of the
Class B Certificates) against delays in the receipt of
scheduled payments of interest and principal and against
losses associated with the liquidation of defaulted
Mortgage Loans and certain losses resulting from the
bankruptcy of a mortgagor.
In general, the protection afforded the holders of the
Senior Certificates by means of this subordination will be
effected in two ways: (i) by the preferential right of the
holders of the Senior Certificates to receive, prior to
any distribution being
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made on any Distribution Date in respect of the Class M
and Class B Certificates, the amounts of interest and
principal due the holders of the Class A Certificates and
the amount of principal due the holders of the Class AP
Certificates on such date and, if necessary, by the right
of such holders to receive future distributions on the
Mortgage Loans that would otherwise have been allocated to
the holders of the Class M and Class B Certificates and
(ii) by the allocation to the Class M and Class B
Certificates, until their respective principal balances
are reduced to zero, of certain losses resulting from the
liquidation of defaulted Mortgage Loans or the bankruptcy
of mortgagors prior to the allocation of such losses to
the Senior Certificates. See "Description of the
Certificates -- Distributions" in this Prospectus
Supplement.
In general, the protection afforded the holders of the
Class M Certificates by means of this subordination will
also be effected in two ways: (i) by the preferential
right of the holders of the Class M Certificates to
receive, prior to any distribution being made on any
Distribution Date in respect of the Class B Certificates,
the amounts of interest and principal due the holders of
the Class M Certificates on such date and, if necessary,
by the right of such holders to receive future
distributions on the Mortgage Loans that would otherwise
have been allocated to the holders of the Class B
Certificates and (ii) by the allocation to the Class B
Certificates, until their principal balance has been
reduced to zero, of certain losses resulting from the
liquidation of defaulted Mortgage Loans or the bankruptcy
of mortgagors prior to the allocation of such losses to
the Class M Certificates. See "Description of the
Certificates -- Distributions" in this Prospectus
Supplement.
In addition, in order to increase the period during which
the principal balances of the Class M and Class B
Certificates remain available as credit enhancement to the
Senior Certificates, a disproportionate amount of
prepayments and certain unscheduled recoveries with
respect to the Mortgage Loans will be allocated to the
Class A Certificates. This allocation has the effect of
accelerating the amortization of the Class A Certificates
while, in the absence of losses in respect of the
liquidation of defaulted Mortgage Loans or losses
resulting from the bankruptcy of mortgagors, increasing
the respective percentage interests in the principal
balance of the Mortgage Loans evidenced by the Class M and
Class B Certificates.
EXTENT OF LOSS COVERAGE. Realized losses on Mortgage
Loans, other than losses that are (i) attributable to
"special hazards" not insured against under a standard
hazard insurance policy, (ii) incurred on defaulted
Mortgage Loans as to which there was fraud in the
origination of such Mortgage Loans or (iii) attributable
to certain actions which may be taken by a bankruptcy
court in connection with a Mortgage Loan, including a
reduction by a bankruptcy court of the principal balance
of or the interest rate on a Mortgage Loan or an extension
of its maturity, will not be allocated to the Senior
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Certificates until the date on which the aggregate
principal balance of the Class M and Class B Certificates
(which aggregate balance is expected initially to be
approximately $ ) has been reduced to zero and will
not be allocated to the Class M Certificates until the
date on which the aggregate principal balance of the Class
B Certificates (which aggregate balance is expected
initially to be approximately $ ) has been reduced to
zero. Such losses will be allocated first among the
Subclasses of Class B Certificates, in reverse numerical
order (that is, to the Class B-5, Class B-4, Class B-3,
Class B-2 and Class B-1 Certificates, respectively).
With respect to any Distribution Date subsequent to the
first Distribution Date, the availability of the credit
enhancement provided by the Class M and Class B
Certificates will be affected by the prior reduction of
the principal balance of the Class M Certificates and such
Subclasses of Class B Certificates. Reduction of the
principal balance of the Class M and Class B Certificates
will result from (i) the prior allocation of losses due to
the liquidation of defaulted Mortgage Loans, including
losses due to special hazards and fraud losses up to the
respective limits referred to below, (ii) the prior
allocation of bankruptcy losses up to the limit referred
to below and (iii) the prior receipt of principal
distributions by the holders of such Certificates.
As of the date of issuance of the Series 199
- Certificates, the amount of losses attributable to
special hazards, fraud and bankruptcy that will be
absorbed solely by the holders of the Class B Certificates
and then solely by the holders of the Class M Certificates
will be approximately %, % and %, respectively,
of the Cut-Off Date Aggregate Principal Balance of the
Mortgage Loans (approximately $ , $ and $ ,
respectively). If losses due to special hazards, fraud or
bankruptcy exceed any of such amounts prior to the
principal balances of the Class M and Class B Certificates
being reduced to zero, (a) the principal portion of any
such excess losses with respect to the Mortgage Loans will
generally be shared pro rata by (i) the Class A, Class M
and Subclasses of Class B Certificates and (ii) to the
extent such losses arise with respect to Discount Mortgage
Loans, the Class AP Certificates, in each case according
to their respective interests in such Mortgage Loans and
(b) the interest portion of any such losses with respect
to the Mortgage Loans will generally be shared pro rata by
the Class A, Class M and Class B Certificates based on
their respective interest accrual amounts. Under certain
circumstances, the limits set forth above may be reduced
as described under "Description of the Certificates --
Subordination of Class M and Class B Certificates --
Allocation of Losses" in this Prospectus Supplement.
After the principal balances of the Class M and Class B
Certificates have been reduced to zero, the principal
portion of all losses (other than the portion attributable
to the Class AP Certificates, if any) will be allocated to
the Class A Certificates. To the extent such losses arise
with respect to Discount
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Mortgage Loans, such losses will be shared between the
Class A and Class AP Certificates, according to their
respective interests in such Mortgage Loans. The interest
portion of such losses will be borne by the Class A
Certificates. Any losses borne by the Class A Certificates
will be shared pro rata by the Subclasses of Class A
Certificates based on their then-outstanding principal
balances with respect to the principal portion of such
losses, and based on their accrued interest, with respect
to the interest portion of such losses. See "Description
of the Certificates -- Interest" and "-- Subordination of
Class M and Class B Certificates -- Allocation of Losses"
in this Prospectus Supplement.
THE YIELD TO MATURITY ON THE CLASS M CERTIFICATES WILL BE
MORE SENSITIVE TO LOSSES DUE TO LIQUIDATIONS OF THE
MORTGAGE LOANS (AND THE TIMING THEREOF) THAN THE SENIOR
CERTIFICATES, IN THE EVENT THAT THE AGGREGATE PRINCIPAL
BALANCE OF THE CLASS B CERTIFICATES HAS BEEN REDUCED TO
ZERO.
See "Description of the Certificates -- Subordination of
Class M and Class B Certificates" in this Prospectus
Supplement.
Effects of Prepayments on
Investment Expectations........ The actual rate of prepayment of principal on the Mortgage
Loans cannot be predicted. The investment performance of
the Offered Certificates may vary materially and adversely
from the investment expectations of investors due to
prepayments on the Mortgage Loans being higher or lower
than anticipated by investors. In addition, the Class A
Certificates in the aggregate will be more sensitive to
prepayments on the Mortgage Loans than the Subordinated
Certificates due to the disproportionate allocation of
such prepayments to investors in the Class A Certificates
then entitled to principal distributions during the nine
years beginning on the first Distribution Date. The actual
yield to the holder of an Offered Certificate may not be
equal to the yield anticipated at the time of purchase of
the Certificate or, notwithstanding that the actual yield
is equal to the yield anticipated at that time, the total
return on investment expected by the investor or the
expected weighted average life of the Certificate may not
be realized. These effects are summarized below. IN
DECIDING WHETHER TO PURCHASE ANY OFFERED CERTIFICATES, AN
INVESTOR SHOULD MAKE AN INDEPENDENT DECISION AS TO THE
APPROPRIATE PREPAYMENT ASSUMPTIONS TO BE USED.
YIELD. If an investor purchases an Offered Certificate at
an amount equal to its unpaid principal balance (that is,
at "par"), the effective yield to that investor (assuming
that there are no interest shortfalls and assuming the
full return of the investor's invested principal) will
approximate the Pass-Through Rate on that Certificate. If
an investor pays less or more than the unpaid principal
balance of an Offered Certificate (that is, buys the
Certificate at a "discount" or "premium," respectively),
then, based on the assumptions set forth in the preceding
sentence, the effective yield to the investor will be
higher or lower, respectively, than the stated interest
rate on the Certificate,
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because such discount or premium will be amortized over
the life of the Certificate. Any deviation in the actual
rate of prepayments on the Mortgage Loans from the rate
assumed by the investor will affect the period of time
over which, or the rate at which, the discount or premium
will be amortized and, consequently, will change the
investor's actual yield from that anticipated. The timing
of receipt of prepayments may also affect the investor's
actual yield. The yield experienced by an investor in the
Class AP Certificates, which do not bear interest, is
solely a function of the price paid by such investor, the
rate and timing of principal payments on the Discount
Mortgage Loans and losses incurred on and after the
Cross-Over Date. The particular sensitivity of the Class
AP Certificates is displayed in a table appearing under
the heading "Prepayment and Yield Considerations" in this
Prospectus Supplement. AN INVESTOR THAT PURCHASES ANY
OFFERED CERTIFICATES AT A DISCOUNT, PARTICULARLY THE CLASS
AP CERTIFICATES, SHOULD CONSIDER THE RISK THAT A SLOWER
THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS, OR IN THE CASE OF THE CLASS AP
CERTIFICATES, ON THE DISCOUNT MORTGAGE LOANS, WILL RESULT
IN AN ACTUAL YIELD THAT IS LOWER THAN SUCH INVESTOR'S
EXPECTED YIELD. AN INVESTOR THAT PURCHASES ANY OFFERED
CERTIFICATES AT A PREMIUM SHOULD CONSIDER THE RISK THAT A
FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS WILL RESULT IN AN ACTUAL YIELD THAT IS
LOWER THAN SUCH INVESTOR'S EXPECTED YIELD AND SHOULD
CONSIDER THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS
ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH
INVESTOR TO FULLY RECOVER ITS INITIAL INVESTMENT. THE
YIELD ON THE CLASS AP CERTIFICATES WILL BE INFLUENCED BY
PRINCIPAL PAYMENTS SOLELY WITH RESPECT TO THE DISCOUNT
MORTGAGE LOANS.
REINVESTMENT RISK. As stated above, if an Offered
Certificate is purchased at an amount equal to its unpaid
principal balance (that is, at "par"), fluctuations in the
rate of distributions of principal will generally not
affect the yield to maturity of that Certificate. However,
the total return on any investor's investment, including
an investor who purchases at par, will be reduced to the
extent that principal distributions received on its
Certificate cannot be reinvested at a rate as high as the
stated interest rate of the Certificate or, in the case of
the Class AP Certificates, the expected yield, which is
based on the price paid by the investor and the rate of
prepayments anticipated by such investor. Investors in the
Offered Certificates should consider the risk that rapid
rates of prepayments on the Mortgage Loans may coincide
with periods of low prevailing market interest rates.
During periods of low prevailing market interest rates,
mortgagors may be expected to prepay or refinance Mortgage
Loans that carry interest rates significantly higher than
then-current interest rates for mortgage loans.
Consequently, the amount of principal distributions
available to an investor for reinvestment at such low
prevailing interest rates may be relatively large.
Conversely, slow rates of prepayments on the Mortgage
Loans may coincide with periods of high prevailing market
interest rates. During such periods, it is less likely
that
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mortgagors will elect to prepay or refinance Mortgage
Loans and, therefore, the amount of principal
distributions available to an investor for reinvestment at
such high prevailing interest rates may be relatively
small.
WEIGHTED AVERAGE LIFE VOLATILITY. One indication of the
impact of varying prepayment speeds on a security is the
change in its weighted average life. The "weighted average
life" of an Offered Certificate is the average amount of
time that will elapse between the date of issuance of the
Certificate and the date on which each dollar in reduction
of the principal balance of the Certificate is distributed
to the investor. Low rates of prepayment may result in the
extension of the weighted average life of a Certificate;
high rates, in the shortening of such weighted average
life. In general, if the weighted average life of a
Certificate purchased at par is extended beyond that
initially anticipated, such Certificate's market value may
be adversely affected even though the yield to maturity on
the Certificate is unaffected. The weighted average life
of the Class AP Certificates will be determined by the
rate of prepayment of the Discount Mortgage Loans and
generally will not be affected by the rate of prepayment
on other Mortgage Loans.
THE WEIGHTED AVERAGE LIFE OF THE COMPANION CERTIFICATES
WILL BE HIGHLY SENSITIVE TO THE RATE OF PREPAYMENTS ON THE
MORTGAGE LOANS AT RATES AT OR ABOVE CERTAIN PREPAYMENT
LEVELS BECAUSE PAYMENTS OF PRINCIPAL ALLOCATED TO THE
CLASS A CERTIFICATES IN EXCESS OF SUCH PREPAYMENT LEVELS
WILL BE PAID TO THE HOLDERS OF THE COMPANION CERTIFICATES
WHILE SUCH CERTIFICATES REMAIN OUTSTANDING PRIOR TO BEING
PAID TO THE HOLDERS OF THE TAC CERTIFICATES AND THE PAC
CERTIFICATES.
The weighted average lives of the Offered Certificates,
under various prepayment scenarios, are displayed in the
tables appearing under the heading "Prepayment and Yield
Considerations" in this Prospectus Supplement.
See "Description of the Certificates -- Principal
(Including Prepayments) -- Allocation of Amount to be
Distributed" and "-- Principal Payment Characteristics of
the PAC Certificates, the TAC Certificates and the
Companion Certificates" in this Prospectus Supplement.
Federal Income Tax Status....... An election will be made to treat the Trust Estate as a
real estate mortgage investment conduit (the "REMIC") for
federal income tax purposes. The Class A-1, Class A-2,
Class A-3, Class A-4 and Class A-5 Certificates, the Class
AP Certificates, the Class M Certificates, and the Class
B-1, Class B-2, Class B-3, Class B-4 and Class B-5
Certificates will constitute "regular interests" in the
REMIC and the Class A-R Certificate will constitute the
"residual interest" in the REMIC.
The Regular Certificates (as defined herein) generally
will be treated as newly originated debt instruments for
federal income tax purposes. Beneficial owners of the
Regular Certificates will be required to report income
thereon in accordance with the accrual method of
accounting. The Class Certificates will be
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issued with original issue discount in an amount equal to
the excess of the initial principal balance thereof over
their issue price. It is anticipated that the Class
Certificates will be issued with original issue discount
in an amount equal to the excess of their initial
principal balances (plus days of interest at the
pass-through rates thereon) over their respective issue
prices. It is also anticipated that the Class A- and Class
A- Certificates will be issued at a premium and that the
Class
Certificates will be issued with DE MINIMIS original issue
discount for federal income tax purposes. It is further
anticipated that the Class B-1, Class B-2, Class B-3,
Class B-4 and Class B-5 Certificates will be issued with
original issue discount for federal income tax purposes.
The holder of the Class A-R Certificate will be required
to include the taxable income or loss of the REMIC in
determining its federal taxable income. It is anticipated
that all or a substantial portion of the taxable income of
the REMIC includible by the Class A-R Certificateholder
will be treated as "excess inclusion" income subject to
special limitations for federal income tax purposes. AS A
RESULT, THE EFFECTIVE AFTER-TAX RETURN OF THE CLASS A-R
CERTIFICATE MAY BE SIGNIFICANTLY LOWER THAN WOULD BE THE
CASE IF THE CLASS A-R CERTIFICATE WERE TAXED AS A DEBT
INSTRUMENT, OR MAY BE NEGATIVE. FURTHER, SIGNIFICANT
RESTRICTIONS APPLY TO THE TRANSFER OF THE CLASS A-R
CERTIFICATE. THE CLASS A-R CERTIFICATE WILL BE CONSIDERED
A "NONECONOMIC RESIDUAL INTEREST," CERTAIN TRANSFERS OF
WHICH MAY BE DISREGARDED FOR FEDERAL INCOME TAX PURPOSES.
See "Description of the Certificates -- Restrictions on
Transfer of the Class A-R and Class M Certificates" and
"Federal Income Tax Considerations" in this Prospectus
Supplement and "Certain Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC Certificates" in
the Prospectus.
ERISA Considerations............ A fiduciary of any employee benefit plan 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"), or a governmental
plan subject to any federal, state or local law ("Similar
Law") which is, to a material extent, similar to the
foregoing provisions of ERISA or the Code (collectively, a
"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, the Code or Similar
Law. BECAUSE THE CLASS M CERTIFICATES ARE SUBORDINATED TO
THE SENIOR CERTIFICATES, THE CLASS M CERTIFICATES MAY NOT
BE TRANSFERRED UNLESS THE TRANSFEREE HAS DELIVERED (I) A
REPRESENTATION LETTER TO THE TRUSTEE AND SELLER STATING
EITHER (A) THAT THE TRANSFEREE IS NOT A PLAN AND IS NOT
ACTING ON BEHALF OF A PLAN OR USING THE ASSETS OF A PLAN
TO EFFECT SUCH PURCHASE OR (B) SUBJECT TO CERTAIN
CONDITIONS DESCRIBED HEREIN, THAT THE SOURCE OF FUNDS USED
TO PURCHASE THE CLASS M CERTIFICATES IS AN "INSURANCE
COMPANY GENERAL ACCOUNT" OR (II) AN OPINION OF COUNSEL AS
DESCRIBED UNDER "ERISA CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT RELATING TO THE OFFERING OF SUCH CERTIFICATES.
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THE CLASS A-R CERTIFICATE MAY NOT BE PURCHASED BY OR
TRANSFERRED TO A PLAN. See "ERISA Considerations" in this
Prospectus Supplement and in the Prospectus.
Legal Investment................ [The Offered Certificates will constitute "mortgage
related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement Act") so
long as they are rated in one of the two highest rating
categories by at least one nationally recognized
statistical rating organization. As such, the Offered
Certificates are legal investments for certain entities to
the extent provided in such act. However, there are
regulatory requirements and considerations applicable to
regulated financial institutions and restrictions on the
ability of such institutions to invest in certain types of
mortgage rated securities.] [The Offered Certificates will
not constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act"). The appropriate characterization of
the Offered Certificates under various legal investment
restrictions, and thus the ability of investors subject to
these restrictions to purchase Offered Certificates, may
be subject to significant interpretive uncertainties. All
investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to
determine, whether, and to what extent, the Offered
Certificates will constitute legal investments for them.]
Prospective purchasers of the Offered Certificates should
consult their own legal, tax and accounting advisors in
determining the suitability of and consequences to them of
the purchase, ownership and disposition of the Offered
Certificates. See "Legal Investment" in this Prospectus
Supplement.
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RISK FACTORS
GENERAL
The rate of distributions in reduction of the principal balance of any
Subclass or Class of Offered Certificates, the aggregate amount of distributions
of principal and interest on any Subclass or Class of Offered Certificates and
the yield to maturity of any Subclass or Class of Offered Certificates will be
directly related to the rate of payments of principal on the Mortgage Loans in
the Trust Estate or, in the case of the Class AP Certificates, on the Discount
Mortgage Loans, and the amount and timing of mortgagor defaults resulting in
Realized Losses. The rate of principal payments on the Mortgage Loans will in
turn be affected by the amortization schedules of the Mortgage Loans, the rate
of principal prepayments (including partial prepayments and those resulting from
refinancing) thereon by mortgagors, liquidations of defaulted Mortgage Loans,
repurchases by Norwest Mortgage of Mortgage Loans as a result of defective
documentation or by the appropriate Representing Party for breaches of
representations and warranties, optional purchase by the Seller of defaulted
Mortgage Loans and optional purchase by Norwest Mortgage of all of the Mortgage
Loans in connection with the termination of the Trust Estate. See "Pooling and
Servicing Agreement -- Optional Termination" herein and "The Pooling and
Servicing Agreement -- Assignment of Mortgage Loans to the Trustee," "--
Optional Purchases" and "-- Termination; Purchase of Mortgage Loans" in the
Prospectus. Mortgagors are permitted to prepay the Mortgage Loans, in whole or
in part, at any time without penalty.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage Interest
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to increase. Conversely, if interest rates on similar mortgage loans rise above
the Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment would
generally be expected to decrease.
An investor that purchases any Offered Certificates at a discount,
particularly the Class AP Certificates, should consider the risk that a slower
than anticipated rate of principal payments on the Mortgage Loans, or in the
case of the Class AP Certificates, on the Discount Mortgage Loans, will result
in an actual yield that is lower than such investor's expected yield. An
investor that purchases any Offered Certificates at a premium should consider
the risk that a faster than anticipated rate of principal payments on the
Mortgage Loans will result in an actual yield that is lower than such investor's
expected yield. See "Prepayment and Yield Considerations" herein.
SUBORDINATION
The rights of the holders of the Class M Certificates to receive
distributions with respect to the Mortgage Loans in the Trust Estate will be
subordinated to such rights of the holders of the Senior Certificates and the
rights of the holders of the Class B Certificates to receive distributions with
respect to the Mortgage Loans in the Trust Estate will be subordinated to such
rights of the holders of the Senior Certificates and the Class M Certificates,
all to the extent described herein under "Description of the Certificates --
Subordination of Class M and Class B Certificates."
BOOK-ENTRY SYSTEM FOR CERTAIN CLASSES AND SUBCLASSES OF CERTIFICATES
Transactions in the Classes and Subclasses of Book-Entry Certificates of any
Series generally can be effected only through DTC, DTC Participants and Indirect
DTC Participants. The ability of a Beneficial Owner to pledge Book-Entry
Certificates and the liquidity of the Book-Entry Certificates in general may be
limited due to the lack of a physical certificate for such Book-Entry
Certificates. In addition, Beneficial Owners may experience delays in their
receipt of payments. See "Risk Factors and Special Considerations --Book-Entry
System for Certain Classes and Subclasses of Certificates" and "Description of
the Certificates -- Book-Entry Form" in the Prospectus.
See "Risk Factors" in the Prospectus.
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DESCRIPTION OF THE CERTIFICATES
DENOMINATIONS
The Offered Certificates, other than the Class A-R and Class AP
Certificates, will be issued in minimum denominations of $100,000 initial
principal balance and integral multiples of $1,000 initial principal balance in
excess thereof. The Class A-R Certificate will be issued as a single Certificate
with a denomination of $ initial principal balance. The Class AP
Certificates will be issued in minimum denominations of $100,000 initial
principal balance and integral multiples of $1 initial principal balance in
excess thereof, except that one of the Class AP Certificates may be issued in
any denomination in excess of $100,000 initial principal balance.
DEFINITIVE FORM
Offered Certificates issued in fully registered, certificated form are
referred to herein as "Definitive Certificates." The Class A-R, Class AP and
Class M Certificates will be issued as Definitive Certificates. Distributions of
principal of, and interest on, the Definitive Certificates will be made by the
Trustee or other paying agent directly to holders of Definitive Certificates in
accordance with the procedures set forth in the Pooling and Servicing Agreement.
The Definitive Certificates will be transferable and exchangeable at the offices
of the Trustee or other certificate registrar. No service charge will be imposed
for any registration of transfer or exchange, but the Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
BOOK-ENTRY FORM
Each Subclass of the Book-Entry Certificates initially will be represented
by one physical certificate registered in the name of Cede & Co. ("Cede"), as
nominee of DTC, which will be the "holder" or "Certificateholder" of such
Certificates, as such terms are used herein. No person acquiring an interest in
the Book-Entry Certificates (a "Beneficial Owner") will be entitled to receive a
Definitive Certificate representing such person's interest in the Book-Entry
Certificates, except as set forth under "Description of the Certificates --
Book-Entry Form" in the Prospectus. Unless and until Definitive Certificates are
issued under the limited circumstances described therein, all references to
actions taken by Certificateholders or holders shall, in the case of the
Book-Entry Certificates, refer to actions taken by DTC upon instructions from
its DTC Participants (as defined under "Description of the Certificates --
Book-Entry Form" in the Prospectus), and all references herein to distributions,
notices, reports and statements to Certificateholders or holders shall, in the
case of the Book-Entry Certificates, refer to distributions, notices, reports
and statements to DTC or Cede, as the registered holder of the Book-Entry
Certificates, as the case may be, for distribution to Beneficial Owners in
accordance with DTC procedures. See "Description of the Certificates --
Book-Entry Form" in the Prospectus.
DISTRIBUTIONS
Distributions of interest and in reduction of principal balance to holders
of the Class A, Class AP, Class M and Class B Certificates will be made monthly,
to the extent of each Subclass' or Class's entitlement thereto, on the 25th day
of each month or, if such day is not a business day, on the succeeding business
day (each, a "Distribution Date"), beginning in 199 . With respect to
the Class A Certificates, such distributions will be made, to the extent of each
Subclass's entitlement thereto, in an aggregate amount equal to the Class A
Distribution Amount. With respect to the Class AP Certificates, such
distributions will be made, to the extent of the Class AP Certificates'
entitlement thereto, on each Distribution Date in an amount equal to the Class
AP Principal Distribution Amount after all amounts in respect of interest due on
the Class A Certificates for such Distribution Date including all previously
unpaid Class A Subclass Interest Shortfall Amounts with respect to any Subclass
of Class A Certificates have been paid. With respect to the Class M
Certificates, such distributions will be made, to the extent of the Class M
Certificates' entitlement thereto, on each Distribution Date in an aggregate
amount equal to the Class M Distribution Amount after all amounts in respect of
interest and principal due on the Class A Certificates and principal due on the
Class AP
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Certificates for such Distribution Date including all previously unpaid Class A
Subclass Interest Shortfall Amounts with respect to any Subclass of Class A
Certificates have been paid. See "Description of the Certificates -- Interest"
herein. The "Determination Date" with respect to each Distribution Date will be
the 17th day of each month, or if such day is not a business day, the preceding
business day. Distributions will be made on each Distribution Date to holders of
record (which, in the case of the Book-Entry Certificates, will be Cede, as
nominee for DTC) at the close of business on the last business day of the
preceding month (each, a "Record Date"), except that the final distribution in
respect of any Certificate will only be made upon presentation and surrender of
such Certificate at the office or agency appointed by the Trustee and specified
in the notice of final distribution in respect of such Certificate.
The aggregate amount available for distribution to Certificateholders on
each Distribution Date will be the Pool Distribution Amount. The "Pool
Distribution Amount" for a Distribution Date will be the sum of all previously
undistributed payments or other receipts on account of principal (including
principal prepayments and Liquidation Proceeds in respect of principal, if any),
and interest (net of related servicing, master servicing and trustee fees) on or
in respect of the Mortgage Loans received by the Master Servicer, including
without limitation any related insurance proceeds and the proceeds of any
purchase of a related Mortgage Loan for breach of a representation or warranty
or the sale of a Mortgaged Property by a Servicer in connection with the
liquidation of the related Mortgage Loan on or prior to the Remittance Date in
the month in which such Distribution Date occurs, plus (i) all Periodic Advances
made and (ii) all other amounts (including any insurance proceeds) placed in the
Certificate Account by any Servicer on or before the Remittance Date or by the
Master Servicer on or before the Distribution Date pursuant to the Pooling and
Servicing Agreement, but excluding the following:
(a) amounts received as late payments of principal or interest
respecting which one or more unreimbursed Periodic Advances has been made;
(b) to the extent permitted by the Pooling and Servicing Agreement, that
portion of Liquidation Proceeds with respect to a Mortgage Loan that
represents any unreimbursed Periodic Advances of such Servicer;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent (i) the applicable Servicing Fee as adjusted in respect
of Prepayment Interest Shortfalls and, if applicable, Curtailment Interest
Shortfalls as described under "Description of the Certificates -- Interest"
below, (ii) the Master Servicer Fee, (iii) the Trustee Fee and (iv) the
Fixed Retained Yield, if any;
(d) all amounts representing scheduled payments of principal and
interest due after the Due Date occurring in the month in which such
Distribution Date occurs;
(e) all principal prepayments in full, partial principal prepayments and
Partial Liquidation Proceeds received by the related Servicer on or after
the Determination Date occurring in the month in which such Distribution
Date occurs, and all related payments of interest on such amounts;
(f) to the extent permitted by the Pooling and Servicing Agreement, that
portion of Liquidation Proceeds or insurance proceeds with respect to a
Mortgage Loan or proceeds of any Mortgaged Property that becomes owned by
the Trustee which represents any unpaid Servicing Fee, Master Servicer Fee
or Trustee Fees to which such Servicer, the Master Servicer or the Trustee,
respectively, is entitled, or which represents unpaid Fixed Retained Yield,
and the portion of net Liquidation Proceeds used to reimburse any
unreimbursed Periodic Advances;
(g) all amounts representing certain expenses reimbursable to the Master
Servicer and other amounts permitted to be retained by the Master Servicer
or withdrawn by the Master Servicer from the Certificate Account pursuant to
the Pooling and Servicing Agreement;
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(h) reinvestment earnings on payments received in respect of the
Mortgage Loans or on other amounts on deposit in the Certificate Account;
(i) Net Foreclosure Profits; and
(j) the amount of any recoveries in respect of principal which had
previously been allocated as a loss to one or more Classes or Subclasses of
the Certificates.
The "Remittance Date" with respect to any Distribution Date will be the 18th
day of each month, or if any day is not a business day, the preceding business
day.
Each Servicer is required to deposit in the Certificate Account on the
Remittance Date certain amounts in respect of the Mortgage Loans as set forth
herein under "Servicing of the Mortgage Loans -- Custodial Accounts." The Master
Servicer is required to remit to the Trustee on or before the Distribution Date
any payments constituting part of the Pool Distribution Amount that are received
by the Master Servicer or are required to be made with the Master Servicer's own
funds. Except as described below under "Description of the Certificates --
Periodic Advances," neither the Master Servicer nor the Trustee is obligated to
remit any amounts which a Servicer was required but failed to deposit in the
Certificate Account.
On each Distribution Date, the Pool Distribution Amount will be allocated
among the Classes or Subclasses of Certificates and distributed to the holders
thereof of record as of the related Record Date as follows (the "Pool
Distribution Amount Allocation"):
FIRST, to the Subclasses of Class A Certificates, pro rata based on their
respective Class A Subclass Interest Accrual Amounts, in an aggregate amount up
to the sum of the Class A Subclass Interest Accrual Amounts with respect to such
Distribution Date;
SECOND, to the Subclasses of Class A Certificates, pro rata based on their
respective unpaid Class A Subclass Interest Shortfall Amounts, in an aggregate
amount up to the sum of the previously unpaid Class A Subclass Interest
Shortfall Amounts;
THIRD, concurrently, to the Class A and Class AP Certificates pro rata,
based on their respective class optimal principal amounts, (A) to the Subclasses
of Class A Certificates, in an aggregate amount up to the Class A Optimal
Principal Amount, such distribution to be allocated among such Subclasses in
accordance with the priorities set forth below under "-- Principal (Including
Prepayments) -- Allocation of Amount to be Distributed to the Class A
Certificates" and (B) to the Class AP Certificates in an amount up to the Class
AP Optimal Principal Amount;
FOURTH, to the Class AP Certificates in an amount up to the Class AP
Deferred Amount, but only, first from amounts otherwise distributable (without
regard to this priority) to the Subclasses of Class B Certificates pursuant to
priority EIGHTH clause (C) of this Pool Distribution Amount Allocation and then
from amounts otherwise distributable (without regard to this priority) to the
Class M Certificates pursuant to priority SEVENTH of this Pool Distribution
Amount Allocation;
FIFTH, to the Class M Certificates in an amount up to the Class M Interest
Accrual Amount with respect to such Distribution Date;
SIXTH, to the Class M Certificates in an amount up to the sum of the
previously unpaid Class M Interest Shortfall Amounts;
SEVENTH, to the Class M Certificates in an amount up to the Class M Optimal
Principal Amount; provided, however, that the amount distributable pursuant to
this priority SEVENTH to the Class M Certificates will be reduced by the amount,
if any, otherwise distributable as principal hereunder used to pay the Class AP
Deferred Amount in accordance with priority FOURTH; and
EIGHTH, sequentially, to the Class B-1, Class B-2, Class B-3, Class B-4 and
Class B-5 Certificates so that each such Subclass shall receive (A) an amount up
to its Class B Subclass Interest Accrual Amount with respect to such
Distribution Date, (B) then, an amount up to its previously unpaid
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interest shortfall amount and (C) finally, an amount up to its optimal principal
amount before any Subclasses of Class B Certificates with higher numerical
designations receive any payments in respect of interest or principal; provided,
however, that the amount distributable pursuant to this priority EIGHTH clause
(C) to any Subclasses of Class B Certificates will be reduced by the amount, if
any, otherwise distributable as principal hereunder used to pay the Class AP
Deferred Amount in accordance with priority FOURTH.
The "Class A Distribution Amount" for any Distribution Date will be equal to
the sum of the amounts distributed in accordance with priorities FIRST, SECOND
and THIRD clause (A) of the Pool Distribution Amount Allocation set forth above.
The "Class M Distribution Amount" for any Distribution Date will be equal to
the sum of the amounts distributed in accordance with priorities FIFTH through
SEVENTH of the Pool Distribution Amount Allocation set forth above.
The undivided percentage interest (the "Percentage Interest") represented by
any Offered Certificate of a Subclass or any Class in distributions to such
Subclass or Class will be equal to the percentage obtained by dividing the
initial principal balance of such Certificate by the aggregate initial principal
balance of all Certificates of such Subclass or Class, as the case may be.
INTEREST
The amount of interest that will accrue on each Subclass of Class A
Certificates during each month, after taking into account any Non-Supported
Interest Shortfalls and the interest portion of certain losses allocated to such
Subclass, is referred to herein as the "Class A Subclass Interest Accrual
Amount" for such Subclass. The Class A Subclass Interest Accrual Amount for each
Subclass of Class A Certificates will equal the difference between (a) the
product of (i) 1/12th of the Pass-Through Rate for such Subclass and (ii) the
outstanding Class A Subclass Principal Balance of such Subclass and (b) the sum
of (i) any Non-Supported Interest Shortfall allocable to such Subclass, (ii) the
interest portion of any Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses allocable to such Subclass and (iii) the interest
portion of any Realized Losses, other than the interest portion of any Excess
Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses,
allocable to such Subclass on or after the Cross-Over Date. The pass-through
rate for each Subclass of Offered Certificates (the "Pass-Through Rate") is the
percentage set forth on the cover of this Prospectus Supplement.
No interest will accrue on the Class AP Certificates.
The amount of interest that will accrue on the Class M Certificates during
each month, after taking into account any Non-Supported Interest Shortfalls and
the interest portion of certain losses allocated to such Class, is referred to
herein as the "Class M Interest Accrual Amount." The Class M Interest Accrual
Amount will equal the difference between (a) the product of (i) 1/12th of %
and (ii) the outstanding Class M Principal Balance and (b) the sum of (i) any
Non-Supported Interest Shortfall allocable to such Class and (ii) the interest
portion of any Excess Special Hazard Losses, Excess Fraud Losses and Excess
Bankruptcy Losses allocable to such Class.
The amount of interest that will accrue on each Subclass of Class B
Certificates during each month, after taking into account any Non-Supported
Interest Shortfalls and the interest portion of certain losses allocated to such
Class, is referred to herein as the "Class B Subclass Interest Accrual Amount."
The Class B Subclass Interest Accrual Amount will equal the difference between
(a) the product of (i) 1/12th of % and (ii) the outstanding Class B Subclass
Principal Balance and (b) the sum of (i) any Non-Supported Interest Shortfall
allocable to such Subclass and (ii) the interest portion of any Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocable to
such Subclass.
The "Class A Subclass Principal Balance" of a Subclass of Class A
Certificates as of any Determination Date will be the principal balance of such
Subclass on the date of initial issuance of the Class A
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Certificates, less (i) all amounts previously distributed to holders of
Certificates of such Subclass in reduction of the principal balance of such
Subclass and (ii) such Subclass' pro rata share of the principal portion of
Excess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
previously allocated to the holders of Class A Certificates in the manner
described herein under "-- Subordination of Class M and Class B Certificates --
Allocation of Losses." After the Cross-Over Date, the Class A Subclass Principal
Balance of a Subclass may be subject to further reduction in an amount equal to
such Subclass' pro rata share of the difference, if any, between (a) the Class A
Principal Balance as of such Determination Date without regard to this provision
and (b) the difference between (i) the Adjusted Pool Amount for the preceding
Distribution Date and (ii) the Adjusted Pool Amount (Class AP Portion) for the
preceding Distribution Date. Any pro rata allocation among the Subclasses of
Class A Certificates described in this paragraph will be made among the
Subclasses of Class A Certificates on the basis of their then-outstanding Class
A Subclass Principal Balances immediately prior to the preceding Distribution
Date.
The "Class A Principal Balance" as of any Determination Date will be equal
to the sum of the Class A Subclass Principal Balances of the Subclasses of Class
A Certificates as of such date.
The "Class AP Principal Balance" as of any Determination Date will be the
principal balance of the Class AP Certificates on the date of initial issuance
of the Class AP Certificates less (i) all amounts previously distributed to
holders of the Class AP Certificates in reduction of the principal balance of
such Class pursuant to priorities THIRD clause (B) and FOURTH of the Pool
Distribution Amount Allocation and (ii) the principal portion of Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses previously
allocated to the holders of the Class AP Certificates in the manner described
herein under "-- Subordination of Class M and Class B Certificates -- Allocation
of Losses." After the Cross-Over Date, the Class AP Principal Balance will be
subject to further reduction in an amount equal to the excess, if any, of (a)
the Class AP Principal Balance as of such Determination Date without regard to
this provision over (b) the Adjusted Pool Amount (Class AP Portion) for the
preceding Distribution Date.
The "Class M Principal Balance" as of any Determination Date will be the
lesser of (a) the principal balance of the Class M Certificates on the date of
initial issuance of the Class M Certificates less (i) all amounts previously
distributed to holders of the Class M Certificates in reduction of the principal
balance thereof and (ii) the principal portion of Excess Special Hazard Losses,
Excess Fraud Losses and Excess Bankruptcy Losses previously allocated to the
holders of the Class M Certificates in the manner described herein under "--
Subordination of Class M and Class B Certificates -- Allocation of Losses" and
(b) the Adjusted Pool Amount as of the preceding Distribution Date less the sum
of (i) the Class A Principal Balance and (ii) the Class AP Principal Balance,
each as of such Determination Date.
The "Class B Subclass Principal Balance" of a Subclass of Class B
Certificates as of any Determination Date will be the lesser of (a) the
principal balance of such Subclass on the date of initial issuance of the Class
B Certificates less (i) all amounts previously distributed to holders of such
Subclass in reduction of the principal balance thereof and (ii) the principal
portion of Excess Special Hazard Losses, Excess Fraud Losses and Excess
Bankruptcy Losses previously allocated to the holders of such Subclass in the
manner described under "-- Subordination of Class M and Class B Certificates --
Allocation of Losses" and (b) the Adjusted Pool Amount as of the preceding
Distribution Date less the sum of (i) Class A Principal Balance, (ii) the Class
AP Principal Balance, (iii) the Class M Principal Balance and (iv) the Class B
Subclass Principal Balances of the Subclasses of Class B Certificates with lower
numerical designations, each as of such Determination Date.
The "Class B Principal Balance" as of any date will be equal to the sum of
the Class B Subclass Principal Balances of the Subclasses of Class B
Certificates as of such date.
With respect to any Distribution Date, the "Adjusted Pool Amount" will equal
the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans minus the sum
of (i) all amounts in respect of principal received in respect of the Mortgage
Loans (including amounts received as Periodic Advances,
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principal prepayments and Liquidation Proceeds in respect of principal) and
distributed to holders of the Series 199 - Certificates on such Distribution
Date and all prior Distribution Dates and (ii) the principal portion of all
Realized Losses (other than Debt Service Reductions) incurred on the Mortgage
Loans from the Cut-Off Date through the end of the month preceding such
Distribution Date.
With respect to any Distribution Date, the "Adjusted Pool Amount (Class AP
Portion)" will equal the sum as to each Mortgage Loan outstanding at the Cut-Off
Date of the product of (A) the Class AP Fraction for such Mortgage Loan and (B)
the principal balance of such Mortgage Loan as of the Cut-Off Date less the sum
of (i) all amounts in respect of principal received in respect of such Mortgage
Loan (including amounts received as Periodic Advances, principal prepayments and
Liquidation Proceeds in respect of principal) and distributed to holders of the
Series 199 - Certificates on such Distribution Date and all prior Distribution
Dates and (ii) the principal portion of any Realized Loss (other than a Debt
Service Reduction) incurred on such Mortgage Loan from the Cut-Off Date through
the end of the month preceding the month in which such Distribution Date occurs.
The "Net Mortgage Interest Rate" on each Mortgage Loan will be equal to the
Mortgage Interest Rate on such Mortgage Loan as stated in the related mortgage
note minus the sum of (i) the Servicing Fee Rate ranging from % to % per
annum, (ii) the Master Servicing Fee Rate as set forth in the Pooling and
Servicing Agreement, (iii) the Trustee Fee Rate and (iv) the Fixed Retained
Yield Rate, if any, for such Mortgage Loan. The initial weighted average
Servicing Fee Rate of the Mortgage Loans is approximately % per annum. See
"Servicing of the Mortgage Loans -- Fixed Retained Yield; Servicing Compensation
and Payment of Expenses" herein.
When mortgagors prepay principal or when principal is recovered through
foreclosures or other liquidations of defaulted Mortgage Loans, a full month's
interest for the month of payment or recovery may not be paid or recovered,
resulting in interest shortfalls. [Interest shortfalls resulting from principal
prepayments in full are referred to herein as "Prepayment Interest Shortfalls."
Prepayment Interest Shortfalls occurring with respect to Mortgage Loans will be
offset to the extent of the aggregate Servicing Fees due to the related Servicer
in respect of the related Distribution Date. Interest shortfalls resulting from
the timing of the receipt of partial principal prepayments and of net Partial
Liquidation Proceeds with respect to the Mortgage Loans will not be offset by
Servicing Fees payable to the related Servicer, but instead will be borne first
by the Class B Certificates, then by the Class M Certificates and finally by the
Class A Certificates. See "Description of the Certificates -- Subordination of
Class M and Class B Certificates" herein. As to any Distribution Date,
Prepayment Interest Shortfalls to the extent that they exceed the aggregate
Servicing Fees payable to the related Servicer or Servicers on such Distribution
Date are referred to herein as "Non-Supported Interest Shortfalls"] and will be
allocated to (i) the Class A Certificates according to the percentage obtained
by dividing the then-outstanding Class A Principal Balance by the sum of the
then-outstanding Class A Principal Balance, Class M Principal Balance and Class
B Principal Balance, (ii) the Class M Certificates according to the percentage
obtained by dividing the then-outstanding Class M Principal Balance by the sum
of the then-outstanding Class A Principal Balance, Class M Principal Balance and
Class B Principal Balance and (iii) the Subclasses of Class B Certificates
according to the percentage obtained by dividing the then-outstanding Class B
Subclass Principal Balance of each such Subclass by the sum of the
then-outstanding Class A Principal Balance, Class M Principal Balance and Class
B Principal Balance. Such allocation of the Non-Supported Interest Shortfall
will reduce the amount of interest due to be distributed to holders of the Class
A Certificates then entitled to distributions in respect of interest. Such
allocation of the Non-Supported Interest Shortfall will also reduce the amount
of interest due to be distributed to the holders of the Class M Certificates and
the Class B Certificates. Any such reduction in respect of interest will be
allocated among the Subclasses of Class A Certificates pro rata on the basis of
their respective Class A Subclass Interest Accrual Amounts without regard to any
reduction pursuant to this paragraph, for such Distribution Date. See "Servicing
of the Mortgage Loans -- Adjustment to Servicing Fee in Connection with Prepaid
Mortgage Loans" in the Prospectus.
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The interest portion of any Excess Special Hazard Losses, Excess Fraud
Losses or Excess Bankruptcy Losses will be allocated among the Class A, Class M
and Class B Certificates pro rata based on the interest accrued on each such
Class or Subclass and among the Subclasses of Class A Certificates pro rata on
the basis of their respective Class A Subclass Interest Accrual Amounts, without
regard to any reduction pursuant to this paragraph, for such Distribution Date.
Allocations of the interest portion of Realized Losses (other than Excess
Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses) first to
the Class B Certificates and then to the Class M Certificates will result from
the priority of distributions first to the holders of the Senior Certificates
and then to the Class M Certificateholders of the Pool Distribution Amount as
described above under "Description of the Certificates -- Distributions."
On each Distribution Date on which the Pool Distribution Amount equals or
exceeds the sum of the Class A Subclass Interest Accrual Amounts, distributions
in respect of interest to each Subclass of Class A Certificates will equal such
Subclass' Class A Subclass Interest Accrual Amount.
If, on any Distribution Date, the Pool Distribution Amount is less than the
sum of the Class A Subclass Interest Accrual Amounts, the amount of interest
currently distributed on the Class A Certificates will equal the Pool
Distribution Amount and will be allocated among the Subclasses of Class A
Certificates pro rata in accordance with each such Subclass' Class A Subclass
Interest Accrual Amount. Amounts so allocated will be distributed in respect of
interest to each Subclass of Class A Certificates. Any difference between the
portion of the Pool Distribution Amount distributed in respect of current
interest to each Subclass of Class A Certificates and the Class A Subclass
Interest Accrual Amount for such Subclass with respect to the related
Distribution Date (as to each Subclass, the "Class A Subclass Interest Shortfall
Amount") will be added to the amount to be distributed on subsequent
Distribution Dates to the extent that the Pool Distribution Amount is sufficient
therefor. No interest will accrue on the unpaid Class A Subclass Interest
Shortfall Amounts.
On each Distribution Date on which the Pool Distribution Amount exceeds the
sum of the Class A Subclass Interest Accrual Amounts, any excess will then be
allocated first to pay previously unpaid Class A Subclass Interest Shortfall
Amounts. Such amounts will be allocated among the Subclasses of Class A
Certificates pro rata in accordance with the respective unpaid Class A Subclass
Interest Shortfall Amounts immediately prior to such Distribution Date.
On each Distribution Date on which the Pool Distribution Amount equals or
exceeds the sum for such Distribution Date of (A) the sum of (i) the sum of the
Class A Subclass Interest Accrual Amounts with respect to each Subclass of Class
A Certificates, (ii) the sum of the unpaid Class A Subclass Interest Shortfall
Amounts with respect to each Subclass of Class A Certificates and (iii) the
Class A Optimal Principal Amount (collectively with the amounts described in
clauses (i) and (ii), the "Class A Optimal Amount"), (B) the Class AP Optimal
Principal Amount (collectively with the amount described in clause (A), the
"Senior Optimal Amount") and (C) the Class M Interest Accrual Amount,
distributions in respect of current interest to the Class M Certificates will
equal the Class M Interest Accrual Amount.
If, on any Distribution Date, the Pool Distribution Amount is less than the
sum of (i) the Senior Optimal Amount and (ii) the Class M Interest Accrual
Amount, the amount of current interest distributed on the Class M Certificates
will equal the Pool Distribution Amount minus the amounts distributed to the
Senior Certificates with respect to such Distribution Date. Any difference
between the portion of the Pool Distribution Amount distributed in respect of
current interest to the Class M Certificates and the Class M Interest Accrual
Amount with respect to such Distribution Date (the "Class M Interest Shortfall
Amount") will be added to the amount to be distributed on subsequent
Distribution Dates to the Class M Certificates, but only so long as they are
outstanding, to the extent that the Pool Distribution Amount is sufficient
therefor. No interest will accrue on the unpaid Class M Interest Shortfall
Amount.
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Subject to the payment of any Class AP Deferred Amount, on each Distribution
Date on which the Pool Distribution Amount exceeds the sum of the Senior Optimal
Amount and the Class M Interest Accrual Amount, any excess will be allocated
first to pay previously unpaid Class M Interest Shortfall Amounts and then to
make distributions in respect of principal on the Class M Certificates and in
respect of interest and then principal on the Subclasses of Class B Certificates
in numerical order. With respect to each Distribution Date, the "Class M Optimal
Amount" will equal the sum of (i) the Class M Interest Accrual Amount, (ii) the
unpaid Class M Interest Shortfall Amount and (iii) the Class M Optimal Principal
Amount.
On any Distribution Date on which the Pool Distribution Amount is less than
the Senior Optimal Amount, the Class M Certificates and the Subclasses of Class
B Certificates will not be entitled to any distributions of interest or
principal.
PRINCIPAL (INCLUDING PREPAYMENTS)
The principal balance of a Class A Certificate of any Subclass or of any
Class AP or Class M Certificate at any time is equal to the product of the Class
A Subclass Principal Balance of such Subclass or the Class AP Principal Balance
or the Class M Principal Balance, as the case may be, and such Certificate's
Percentage Interest, and represents the maximum specified dollar amount
(exclusive of (i) any interest that may accrue on such Class A or Class M
Certificate and (ii) in the case of the Class A-R Certificate, any additional
amounts to which the holder of such Certificate may be entitled as described
below under "-- Additional Rights of the Class A-R Certificateholder") to which
the holder thereof is entitled from the cash flow on the Mortgage Loans at such
time, and will decline to the extent of distributions in reduction of the
principal balance of, and allocations of losses to, such Certificate. The
approximate initial Class A Subclass Principal Balance of each Subclass of Class
A Certificates and the approximate initial Class AP and Class M Principal
Balances are set forth on the cover of this Prospectus Supplement.
CALCULATION OF AMOUNT TO BE DISTRIBUTED TO THE CLASS A CERTIFICATES
Distributions in reduction of the principal balance of the Class A
Certificates will be made on each Distribution Date pursuant to priority THIRD
clause (A) of the Pool Distribution Amount Allocation, in an aggregate amount
(the "Class A Principal Distribution Amount") up to the Class A Optimal
Principal Amount.
The "Class A Optimal Principal Amount" with respect to each Distribution
Date will be an amount equal to the sum for each outstanding Mortgage Loan
(including each defaulted Mortgage Loan, other than a Liquidated Loan, with
respect to which the related Mortgaged Property has been acquired by the Trust
Estate) of the product of (A) the Classes A/M/B Fraction for such Mortgage Loan
and (B) the sum of:
(i) the Class A Percentage of (A) the scheduled payment of principal due on
such Mortgage Loan on the first day of the month in which the
Distribution Date occurs, less (B) if the Bankruptcy Loss Amount is zero,
the principal portion of Debt Service Reductions with respect to such
Mortgage Loan,
(ii) the Class A Prepayment Percentage of the Scheduled Principal Balance of
such Mortgage Loan which, during the month preceding the month of such
Distribution Date was repurchased by a Representing Party, as described
under the heading "Description of the Mortgage Loans -- Mandatory
Repurchase or Substitution of Mortgage Loans" herein,
(iii) The Class A Prepayment Percentage of (a) the aggregate net Liquidation
Proceeds (other than net Partial Liquidation Proceeds) on any such
Mortgage Loan that became a Liquidated Loan during such preceding month
(excluding the portion thereof, if any, constituting Net Foreclosure
Profits, as defined under "-- Additional Rights of the Class A-R
Certificateholder" below), less the amounts allocable to principal of any
unreimbursed Periodic Advances previously made with respect to such
Liquidated Loan and the portion of such net Liquidation Proceeds
allocable to interest and (b) the aggregate net Partial Liquidation
Proceeds on any such Mortgage Loan received by any Servicer on or after
the Determination
S-35
<PAGE>
Date occurring in the month preceding the month in which such
Distribution Date occurs and prior to the Determination Date occurring in
the month in which such Determination Date occurs, less the amounts
allocable to principal of any unreimbursed Periodic Advances and the
portion of the net Partial Liquidation Proceeds allocable to interest,
(iv) the Class A Prepayment Percentage of the Scheduled Principal Balance of
each Mortgage Loan which was the subject of a principal prepayment in
full during the period from and including the Determination Date in the
month preceding the month of such Distribution Date up to (but not
including) the Determination Date occurring in the month of such
Distribution Date,
(v) the Class A Prepayment Percentage of all partial principal prepayments
received by any Servicer with respect to such Mortgage Loan on or after
the Determination Date occurring in the month preceding the month in
which such Distribution Date occurs and prior to the Determination Date
occurring in the month in which such Distribution Date occurs, and
(vi) the Class A Percentage of the difference between the unpaid principal
balance of any such Mortgage Loan substituted for a defective Mortgage
Loan during the month preceding the month in which such Distribution Date
occurs and the unpaid principal balance of such defective Mortgage Loan,
less the amount allocable to the principal portion of any unreimbursed
advances in respect of such defective Mortgage Loan.
In addition, in the event that there is any recovery of an amount in respect
of principal which had previously been allocated as a Realized Loss to the Class
A Certificates, each Subclass of Class A Certificates then outstanding will be
entitled to its pro rata share of such recovery in an amount up to the amount by
which the Class A Subclass Principal Balance of such Subclass was reduced as a
result of such Realized Loss.
The "Classes A/M/B Fraction" with respect to any Mortgage Loan will equal
the Net Mortgage Interest Rate for such Mortgage Loan divided by %.
The "Scheduled Principal Balance" of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy (other than Deficient Valuations),
moratorium or similar waiver or grace period) as of the Due Date occurring in
the month preceding the month in which such Distribution Date occurs, after
giving effect to any principal prepayments or other unscheduled recoveries of
principal previously received, to any partial principal prepayments and
Deficient Valuations occurring prior to such Due Date and to the payment of
principal due on such Due Date, and irrespective of any delinquency in payment
by the mortgagor and any net Partial Liquidation Proceeds applied as of such Due
Date and any principal prepayments in full received prior to the Determination
Date in the month of such Due Date.
"Partial Liquidation Proceeds" are Liquidation Proceeds received by a
Servicer on a Mortgage Loan prior to such Mortgage Loan becoming a Liquidated
Loan and "net Partial Liquidation Proceeds" are Partial Liquidation Proceeds
less expenses incurred with respect to such liquidation. A "Liquidated Loan" is
a defaulted Mortgage Loan as to which the Servicer has determined that all
recoverable liquidation and insurance proceeds have been received. A "Liquidated
Loan Loss" on a Liquidated Loan is equal to the excess, if any, of (i) the
unpaid principal balance of such Liquidated Loan, plus accrued interest thereon
in accordance with the amortization schedule at the Net Mortgage Interest Rate
through the last day of the month in which such Mortgage Loan was liquidated,
over (ii) net Liquidation Proceeds. For purposes of calculating the amount of
any Liquidated Loan Loss, all net Liquidation Proceeds (after reimbursement of
any previously unreimbursed Periodic Advance) will be applied first to accrued
interest and then to the unpaid principal balance of the Liquidated Loan. A
"Special Hazard Loss" is (A) a Liquidated Loan Loss suffered by a Mortgaged
Property on account of direct physical loss exclusive of (i) any loss covered by
a standard hazard insurance policy or, if the Mortgaged Property is located in
an area identified in the Federal Register by the Federal
S-36
<PAGE>
Emergency Management Agency as having special flood hazards, a flood insurance
policy, of the types described in the Prospectus under "The Trust Estates --
Mortgage Loans -- Insurance Policies" and (ii) any loss caused by or resulting
from (a) normal wear and tear, (b) dishonest acts of the Trustee, the Master
Servicer or the Servicer or (c) errors in design, faulty workmanship or faulty
materials, unless the collapse of the property or a part thereof ensues or (B) a
Liquidated Loan Loss arising from or relating to the presence or suspected
presence of hazardous wastes or substances on a Mortgaged Property. A "Fraud
Loss" is a Liquidated Loan Loss incurred on a Liquidated Loan as to which there
was fraud in the origination of such Mortgage Loan. A "Bankruptcy Loss" is a
loss attributable to certain actions which may be taken by a bankruptcy court in
connection with a Mortgage Loan, including a reduction by a bankruptcy court of
the principal balance of or the interest rate on a Mortgage Loan or an extension
of its maturity. A "Debt Service Reduction" means a reduction in the amount of
monthly payments due to certain bankruptcy proceedings, but does not include any
permanent forgiveness of principal. A "Deficient Valuation" with respect to a
Mortgage Loan means a valuation by a court of the Mortgaged Property in an
amount less than the outstanding indebtedness under the Mortgage Loan or any
reduction in the amount of monthly payments that results in a permanent
forgiveness of principal, which valuation or reduction results from a bankruptcy
proceeding. Liquidated Loan Losses (including Special Hazard Losses and Fraud
Losses) and Bankruptcy Losses are referred to herein as "Realized Losses."
The "Class A Percentage" for any Distribution Date occurring on or prior to
the Cross-Over Date is the percentage (subject to rounding), which in no event
will exceed 100%, obtained by dividing the Class A Principal Balance as of such
date (before taking into account distributions in reduction of principal balance
on such date) by the Pool Balance (Classes A/M/B Portion). The "Pool Balance
(Classes A/M/B Portion)" is the sum for each outstanding Mortgage Loan of the
product of (i) the Classes A/M/B Fraction for such Mortgage Loan and (ii) the
Scheduled Principal Balance of such Mortgage Loan as of such Distribution Date.
The Class A Percentage for the first Distribution Date will be approximately
%. The Class A Percentage will decrease as a result of the allocation of
certain unscheduled payments in respect of principal according to the Class A
Prepayment Percentage for a specified period to the Class A Certificates and
will increase as a result of the allocation of Realized Losses to the Class B
and Class M Certificates. The Class A Percentage for each Distribution Date
occurring after the Cross-Over Date will be 100%.
The "Class A Prepayment Percentage" for any Distribution Date will be the
percentage indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING
IN CLASS A PREPAYMENT PERCENTAGE
- ---------------------------- ------------------------------------------------------------------------------------
<C> <S>
through..................... 100%;
through..................... the Class A Percentage, plus 70% of the Subordinated Percentage;
through..................... the Class A Percentage, plus 60% of the Subordinated Percentage;
through..................... the Class A Percentage, plus 40% of the Subordinated Percentage;
through..................... the Class A Percentage, plus 20% of the Subordinated Percentage; and
and thereafter.............. the Class A Percentage;
</TABLE>
PROVIDED, HOWEVER, that if on any of the foregoing Distribution Dates the
Class A Percentage exceeds the initial Class A Percentage, the Class A
Prepayment Percentage for such Distribution Date will once again equal 100%. See
"Prepayment and Yield Considerations" herein and in the Prospectus.
Notwithstanding the foregoing, no reduction of the Class A Prepayment Percentage
will occur on any Distribution Date if (i) as of such Distribution Date as to
which any such reduction applies, the average outstanding principal balance on
such Distribution Date and for the preceding five Distribution Dates on the
Mortgage Loans that were delinquent 60 days or more (including for this purpose
any Mortgage Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust Estate) is greater
than or equal to 50% of the sum of the then-outstanding Class M Principal
Balance and the then-outstanding Class B Principal Balance, or (ii) cumulative
Realized Losses with respect to the Mortgage Loans exceed (a) 30% of the
principal balance of the Subordinated Certificates as of the Cut-Off Date (the
"Original Subordinated Principal
S-37
<PAGE>
Balance") if such Distribution Date occurs between and including and
, (b) 35% of the Original Subordinated Principal Balance if such
Distribution Date occurs between and including and , (c) 40%
of the Original Subordinated Principal Balance if such Distribution Date occurs
between and including and , (d) 45% of the Original
Subordinated Principal Balance if such Distribution Date occurs between and
including and , and (e) 50% of the Original Subordinated
Principal Balance if such Distribution Date occurs during or after .
This disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Class A
Certificates while, in the absence of Realized Losses, increasing the interest
in the principal balance of the Mortgage Loans evidenced by the Class M and
Class B Certificates. Increasing the respective interest of the Class M and
Class B Certificates relative to that of the Class A Certificates is intended to
preserve the availability of the subordination provided by the Class M and Class
B Certificates. See "-- Subordination of Class M and Class B Certificates"
below. The "Subordinated Percentage" for any Distribution Date will be
calculated as the difference between 100% and the Class A Percentage for such
date. The "Subordinated Prepayment Percentage" for any Distribution Date will be
calculated as the difference between 100% and the Class A Prepayment Percentage
for such date. If on any Distribution Date the allocation to the Class A
Certificates of full and partial principal prepayments and other amounts in the
percentage required above would reduce the outstanding Class A Principal Balance
below zero, the Class A Prepayment Percentage for such Distribution Date will be
limited to the percentage necessary to reduce the Class A Principal Balance to
zero.
CALCULATION OF AMOUNT TO BE DISTRIBUTED TO THE CLASS AP CERTIFICATES
Distributions in reduction of the Class AP Principal Balance will be made on
each Distribution Date in an aggregate amount equal to the Class AP Principal
Distribution Amount. The "Class AP Principal Distribution Amount" with respect
to any Distribution Date will be equal to the sum of (i) the amount distributed
pursuant to priority THIRD clause (B) of the Pool Distribution Amount
Allocation, in an aggregate amount up to the Class AP Optimal Principal Amount
and (ii) the amount distributed pursuant to priority FOURTH of the Pool
Distribution Amount Allocation, in an aggregate amount up to the Class AP
Deferred Amount.
The "Class AP Optimal Principal Amount" with respect to each Distribution
Date will be an amount equal to the sum for each outstanding Mortgage Loan
(including each defaulted Mortgage Loan, other than a Liquidated Loan, with
respect to which the related Mortgaged Property has been acquired by the Trust
Estate) of the product of (A) the Class AP Fraction for such Mortgage Loan and
(B) the sum of:
(i) the scheduled payment of principal due on such Mortgage Loan on the
first day of the month in which the Distribution Date occurs, less, if
the Bankruptcy Loss Amount is zero, the principal portion of Debt Service
Reductions with respect to such Mortgage Loan,
(ii) the Scheduled Principal Balance of such Mortgage Loan which, during the
month preceding the month of such Distribution Date was repurchased by a
Representing Party, as described under the heading "Description of the
Mortgage Loans -- Mandatory Repurchase or Substitution of Mortgage Loans"
herein,
(iii) the sum of (a) the aggregate net Liquidation Proceeds (other than net
Partial Liquidation Proceeds) on any such Mortgage Loan that became a
Liquidated Loan during such preceding month (excluding the portion
thereof, if any, constituting Net Foreclosure Profits), less the amounts
allocable to principal of any unreimbursed Periodic Advances previously
made with respect to such Liquidated Loan and the portion of such net
Liquidation Proceeds allocable to interest and (b) the aggregate net
Partial Liquidation Proceeds on any such Mortgage Loan received by a
Servicer on or after the Determination Date occurring in the month
preceding the month in which such Distribution Date occurs and prior to
the Determination Date occurring in the month in which such Distribution
Date occurs, less the amounts allocable to principal of any unreimbursed
Periodic Advances and the portion of the net Partial Liquidation Proceeds
allocable to interest,
S-38
<PAGE>
(iv) the Scheduled Principal Balance of such Mortgage Loan which was the
subject of a principal prepayment in full during the period from and
including the Determination Date in the month preceding the month of such
Distribution Date up to (but not including) the Determination Date
occurring in the month of such Distribution Date,
(v) all partial principal prepayments received by a Servicer on or after the
Determination Date occurring in the month preceding the month in which
such Distribution Date occurs and prior to the Determination Date
occurring in the month in which such Distribution Date occurs, and
(vi) the difference between the unpaid principal balance of any such
Mortgage Loan substituted for a defective Mortgage Loan during the month
preceding the month in which such Distribution Date occurs and the unpaid
principal balance of such defective Mortgage Loan, less the amount
allocable to the principal portion of any unreimbursed advances in
respect of such defective Mortgage Loan. See "The Pooling and Servicing
Agreement -- Assignment of Mortgage Loans to the Trustee" in the
Prospectus.
The "Class AP Deferred Amount" for any Distribution Date prior to the
Cross-Over Date will equal the difference between (A) the sum of (i) the amount
by which the Class AP Optimal Principal Amount for all prior Distribution Dates
exceeds the amounts distributed on the Class AP Certificates on such prior
Distribution Dates pursuant to priority THIRD, clause (B) of the Pool
Distribution Amount Allocation, but only to the extent such shortfall is not
attributable to Realized Losses allocated to the Class AP Certificates as
described in "-- Subordination of Class M and Class B Certificates -- Allocation
of Losses" below and (ii) the sum of the product for each Discount Mortgage Loan
which became a Liquidated Loan in any month preceding the month of the current
Distribution Date of (a) the Class AP Fraction for such Discount Mortgage Loan
and (b) an amount equal to the principal portion of Realized Losses (other than
Bankruptcy Losses due to Debt Service Reductions) incurred with respect to such
Discount Mortgage Loan other than Excess Special Hazard Losses, Excess Fraud
Losses and Excess Bankruptcy Losses and (B) amounts distributed on the Class AP
Certificates on prior Distribution Dates pursuant to priority FOURTH of the Pool
Distribution Amount Allocation. On or after the Cross-Over Date, the Class AP
Deferred Amount will be zero. No interest will accrue on any Class AP Deferred
Amount.
The "Class AP Fraction" with respect to any Discount Mortgage Loan will
equal the difference between 1.0 and the Classes A/M/B Fraction for such
Mortgage Loan. The Class AP Fraction with respect to each Mortgage Loan that is
not a Discount Mortgage Loan will be zero.
The "Pool Balance (Class AP Portion)" is the sum for each Discount Mortgage
Loan of the product of the Scheduled Principal Balance of such Mortgage Loan and
the Class AP Fraction for such Mortgage Loan.
CALCULATION OF AMOUNT TO BE DISTRIBUTED TO THE CLASS M CERTIFICATES
Distributions in reduction of the principal balance of the Class M
Certificates will be made on each Distribution Date, pursuant to priority
SEVENTH of the Pool Distribution Amount Allocation, in an aggregate amount (the
"Class M Principal Distribution Amount"), up to the Class M Optimal Principal
Amount.
The "Class M Optimal Principal Amount" with respect to each Distribution
Date will be an amount equal to the sum for each outstanding Mortgage Loan
(including each defaulted Mortgage Loan, other than a Liquidated Loan, with
respect to which the related Mortgaged Property has been acquired by the Trust
Estate) of the product of (A) the Classes A/M/B Fraction for such Mortgage Loan
and (B) the sum of:
(i) the Class M Percentage of (a) the scheduled payment of principal due on
such Mortgage Loan on the first day of the month in which the
Distribution Date occurs, less (b) if the Bankruptcy Loss Amount is zero,
the principal portion of Debt Service Reductions with respect to such
Mortgage Loan,
S-39
<PAGE>
(ii) the Class M Prepayment Percentage of the Scheduled Principal Balance of
such Mortgage Loan which, during the month preceding the month of such
Distribution Date was repurchased by a Representing Party, as described
under the heading "Description of the Mortgage Loans -- Mandatory
Repurchase or Substitution of Mortgage Loans" herein,
(iii) the Class M Prepayment Percentage of (a) the aggregate net Liquidation
Proceeds (other than net Partial Liquidation Proceeds) on any such
Mortgage Loan that became a Liquidated Loan during such preceding month
(excluding the portion thereof, if any, constituting Net Foreclosure
Profits), less the amounts allocable to principal of any unreimbursed
Periodic Advances previously made with respect to such Liquidated Loan
and the portion of such net Liquidation Proceeds allocable to interest
and (b) the aggregate net Partial Liquidation Proceeds on any such
Mortgage Loan received by a Servicer on or after the Determination Date
occurring in the month preceding the month in which such Distribution
Date occurs and prior to the Determination Date occurring in the month in
which such Distribution Date occurs, less the amounts allocable to
principal of any unreimbursed Periodic Advances and the portion of the
net Partial Liquidation Proceeds allocable to interest,
(iv) the Class M Prepayment Percentage of the Scheduled Principal Balance of
such Mortgage Loan which was the subject of a principal prepayment in
full during the period from and including the Determination Date in the
month preceding the month of such Distribution Date up to (but not
including) the Determination Date occurring in the month of such
Distribution Date,
(v) the Class M Prepayment Percentage of all partial principal prepayments
received by a Servicer with respect to such Mortgage Loan on or after the
Determination Date occurring in the month preceding the month in which
such Distribution Date occurs and prior to the Determination Date
occurring in the month in which such Distribution Date occurs, and
(vi) the Class M Percentage of the difference between the unpaid principal
balance of any such Mortgage Loan substituted for a defective Mortgage
Loan during the month preceding the month in which such Distribution Date
occurs and the unpaid principal balance of such defective Mortgage Loan,
less the amounts allocable to principal of any unreimbursed Periodic
Advances with respect to such defective Mortgage Loan. See "The Pooling
and Servicing Agreement -- Assignment of Mortgage Loans to the Trustee"
in the Prospectus.
The principal distribution to the holders of Class M Certificates will be
reduced on any Distribution Date on which (i) the principal balance of the Class
M Certificates on the following Determination Date would be reduced to zero as a
result of principal distributions or allocation of losses and (ii) the principal
balance of any Senior Certificates would be subject to reduction on such
Determination Date as a result of allocation of Realized Losses (other than
Excess Bankruptcy Losses, Excess Fraud Losses and Excess Special Hazard Losses).
The amount of any such reduction in the principal distributed to the holders of
Class M Certificates will instead be distributed pro rata to the holders of the
Class A Certificates.
In addition, in the event that there is any recovery of an amount in respect
of principal which had previously been allocated as a Realized Loss to the Class
M Certificates, the Class M Certificates will be entitled to their pro rata
share of such recovery up to the amount by which the Class M Principal Balance
was reduced as a result of such Realized Loss.
The "Class M Percentage" and "Class M Prepayment Percentage" for any
Distribution Date will equal that portion of the Subordinated Percentage and
Subordinated Prepayment Percentage, as the case may be, represented by the
fraction the numerator of which is the then-outstanding Class M Principal
Balance and the denominator of which is the sum of the Class M Principal Balance
and, if any of the Subclasses of the Class B Certificates are entitled to
principal distributions for such Distribution Date as described below, the Class
B Subclass Principal Balances of the Subclasses entitled to principal
distributions.
S-40
<PAGE>
In the event that on any Distribution Date, the Current Class M Fractional
Interest is less than the Original Class M Fractional Interest, then the Class
B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates will not be
entitled to distributions in respect of principal and the Class B Subclass
Principal Balances thereof will not be used to determine the Class M Percentage
and Class M Prepayment Percentage for such Distribution Date. For such
Distribution Date, the Class M Percentage and Class M Prepayment Percentage will
equal the Subordinated Percentage and the Subordinated Prepayment Percentage,
respectively. In the event that the Current Class M Fractional Interest equals
or exceeds the Original Class M Fractional Interest but the Current Class B-1
Fractional Interest is less than the Original Class B-1 Fractional Interest, the
Class B-2, Class B-3, Class B-4 and Class B-5 Certificates will not be entitled
to distributions in respect of principal and the Class B Subclass Principal
Balances of such Subclasses will not be used to determine the Class M Percentage
and the Class M Prepayment Percentage for such Distribution Date. In the event
that each of the Current Class M Fractional Interest and the Current Class B-1
Fractional Interest equals or exceeds the Original Class M Fractional Interest
and the Original Class B-1 Fractional Interest, respectively, but the Current
Class B-2 Fractional Interest is less than the Original Class B-2 Fractional
Interest, the Class B-3, Class B-4 and Class B-5 Certificates will not be
entitled to distributions in respect of principal and the Class B Subclass
Principal Balances of such Subclasses will not be used to determine the Class M
Percentage and the Class M Prepayment Percentage for such Distribution Date. In
the event that each of the Current Class M Fractional Interest, the Current
Class B-1 Fractional Interest and the Current Class B-2 Fractional Interest
equals or exceeds the Original Class M Fractional Interest, the Original Class
B-1 Fractional Interest and the Original Class B-2 Fractional Interest,
respectively, but the Current Class B-3 Fractional Interest is less than the
Original Class B-3 Fractional Interest, the Class B-4 and Class B-5 Certificates
will not be entitled to distributions in respect of principal and the Class B
Subclass Principal Balances of such Subclasses will not be used to determine the
Class M Percentage and the Class M Prepayment Percentage for such Distribution
Date. In the event that each of the Current Class M Fractional Interest, the
Current Class B-1 Fractional Interest, the Current Class B-2 Fractional Interest
and the Current Class B-3 Fractional Interest equals or exceeds the Original
Class M Fractional Interest, the Original Class B-1 Fractional Interest, the
Original Class B-2 Fractional Interest and the Original Class B-3 Fractional
Interest, respectively, but the Current Class B-4 Fractional Interest is less
than the Original Class B-4 Fractional Interest, the Class B-5 Certificates will
not be entitled to distributions in respect of principal and the Class B
Subclass Principal Balance of such Subclass will not be used to determine the
Class M Percentage and the Class M Prepayment Percentage for such Distribution
Date. The Class B-5 Certificates will not have original or current fractional
interests which are required to be maintained as described above.
The "Original Class M Fractional Interest" is the percentage obtained by
dividing the sum of the initial Class B Subclass Principal Balances of the Class
B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates by the sum of
the initial Class A Principal Balance, initial Class M Principal Balance and
initial Class B Principal Balance. The Original Class M Fractional Interest is
expected to be approximately %. The "Current Class M Fractional Interest" for
any Distribution Date is the percentage obtained by dividing the sum of the
then-outstanding Class B Subclass Principal Balances of the Class B-1, Class
B-2, Class B-3, Class B-4 and Class B-5 Certificates by the sum of the then-
outstanding Class A Principal Balance, the Class M Principal Balance and the
Class B Principal Balance.
The "Original Class B-1 Fractional Interest" is the percentage obtained by
dividing the sum of the initial Class B Subclass Principal Balances of the Class
B-2, Class B-3, Class B-4 and Class B-5 Certificates by the sum of the initial
Class A Principal Balance, initial Class M Principal Balance and initial Class B
Principal Balance. The Original Class B-1 Fractional Interest is expected to be
approximately %. The "Current Class B-1 Fractional Interest" for any
Distribution Date is the percentage obtained by dividing the sum of the
then-outstanding Class B Subclass Principal Balances of the Class B-2, Class
B-3, Class B-4 and Class B-5 Certificates by the sum of the then-outstanding
Class A Principal Balance, the Class M Principal Balance and the Class B
Principal Balance.
S-41
<PAGE>
The "Original Class B-2 Fractional Interest" is the percentage obtained by
dividing the sum of the initial Class B Subclass Principal Balances of the Class
B-3, Class B-4 and Class B-5 Certificates by the sum of the initial Class A
Principal Balance, initial Class M Principal Balance and initial Class B
Principal Balance. The Original Class B-2 Fractional Interest is expected to be
approximately %. The "Current Class B-2 Fractional Interest" for any
Distribution Date is the percentage obtained by dividing the sum of the
then-outstanding Class B Subclass Principal Balances of the Class B-3, Class B-4
and Class B-5 Certificates by the sum of the then-outstanding Class A Principal
Balance, the Class M Principal Balance and the Class B Principal Balance.
The "Original Class B-3 Fractional Interest" is the percentage obtained by
dividing the sum of the initial Class B Subclass Principal Balances of the Class
B-4 and Class B-5 Certificates by the sum of the initial Class A Principal
Balance, initial Class M Principal Balance and initial Class B Principal
Balance. The Original Class B-3 Fractional Interest is expected to be
approximately %. The "Current Class B-3 Fractional Interest" for any
Distribution Date is the percentage obtained by dividing the sum of the
then-outstanding Class B Subclass Principal Balances of the Class B-4 and Class
B-5 Certificates by the sum of the then-outstanding Class A Principal Balance,
the Class M Principal Balance and the Class B Principal Balance.
The "Original Class B-4 Fractional Interest" is the percentage obtained by
dividing the initial Class B Subclass Principal Balance of the Class B-5
Certificates by the sum of the initial Class A Principal Balance, initial Class
M Principal Balance and initial Class B Principal Balance. The Original Class
B-4 Fractional Interest is expected to be approximately %. The "Current Class
B-4 Fractional Interest" for any Distribution Date is the percentage obtained by
dividing the then-outstanding Class B Subclass Principal Balance of the Class
B-5 Certificates by the sum of the then-outstanding Class A Principal Balance,
the Class M Principal Balance and the Class B Principal Balance.
ALLOCATION OF AMOUNT TO BE DISTRIBUTED
On each Distribution Date occurring prior to the Cross-Over Date, the Class
A Principal Distribution Amount will be allocated among and distributed in
reduction of the Class A Subclass Principal Balances of the other Subclasses of
Class A Certificates as follows:
[INSERT DISTRIBUTION PRIORITIES]
As used above, the "PAC Principal Amount" for any Distribution Date and for
the PAC Certificates means the amount, if any, that would reduce the Class A
Subclass Principal Balance of such Subclass to the percentage of its initial
Class A Subclass Principal Balance shown in the following tables with respect to
such Distribution Date.
As used above, the "TAC Principal Amount" for any Distribution Date and for
the TAC Certificates means the amount, if any, that would reduce the Class A
Subclass Principal Balance of such Subclass to the percentage of its initial
Class A Subclass Principal Balance shown in the following tables with respect to
such Distribution Date.
Notwithstanding the foregoing, on each Distribution Date occurring on or
after the Cross-Over Date, the Class A Principal Distribution Amount will be
distributed among the Subclasses of Class A Certificates pro rata in accordance
with their respective outstanding Class A Subclass Principal Balances without
regard to either the proportions or the priorities set forth above.
S-42
<PAGE>
Any amounts distributed on a Distribution Date to the holders of Class A
Certificates in reduction of principal balance will be allocated among the
holders of Class A Certificates of such Subclass pro rata in accordance with
their respective Percentage Interests. Amounts distributed on any Distribution
Date to the holders of the Class AP and Class M Certificates in reduction of
principal balance will be allocated among the holders of each such Class pro
rata in accordance with their respective Percentage Interests.
The following tables set forth for each Distribution Date the planned Class
A Subclass Principal Balance for the PAC Certificates and the targeted Class A
Subclass Principal Balance of the TAC Certificates, each expressed as a
percentage of the initial Class A Subclass Principal Balance.
PLANNED CLASS A SUBCLASS PRINCIPAL BALANCE AS PERCENTAGE
OF THE INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE OF THE PAC CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- --------------------------------------------- ----------------------
<S> <C>
</TABLE>
TARGETED CLASS A SUBCLASS PRINCIPAL BALANCE AS PERCENTAGE
OF THE INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE OF THE TAC CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- --------------------------------------------- ----------------------
<S> <C>
</TABLE>
PRINCIPAL PAYMENT CHARACTERISTICS OF THE PAC CERTIFICATES, THE TAC
CERTIFICATES AND THE COMPANION CERTIFICATES
The percentages of the initial Class A Subclass Principal Balances of the
PAC Certificates and the TAC Certificates set forth in the preceding tables were
calculated using the assumptions described in the paragraph on page S-
herein. Based on such assumptions, the Class A Subclass Principal Balance of the
PAC Certificates would be reduced to the percentage of its initial Class A
Subclass Principal Balance indicated in the preceding tables for each
Distribution Date if prepayments on the Mortgage Loans occur at any constant
rate between approximately % SPA (as defined herein under "Prepayment and
Yield Considerations") and approximately % SPA. Based on such assumptions,
the Class A Subclass Principal Balance of the TAC Certificates would be reduced
to the percentage of its Class A Subclass Principal Balance indicated in the
preceding tables for each Distribution Date if prepayments on the Mortgage Loans
occur at a CONSTANT rate of approximately % SPA. However, IT IS HIGHLY
UNLIKELY THAT PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOANS WILL OCCUR AT ANY
CONSTANT RATE OR THAT THE MORTGAGE LOANS WILL PREPAY AT THE SAME RATE. In
addition, even if principal prepayments were to occur at constant rate, there
may be differences between the characteristics of the mortgage loans ultimately
included in the Trust Estate and the Mortgage Loans which are
S-43
<PAGE>
expected to be included, as described herein. Therefore, there can be no
assurance that the Class A Subclass Principal Balance of the PAC Certificates or
the TAC Certificates, after the application of the distributions to be made on
any Distribution Date, will be equal to the applicable percentage of the initial
Class A Subclass Principal Balance for such Distribution Date specified in the
preceding tables.
As discussed under "Prepayment and Yield Considerations" herein, the
weighted average life of a Subclass or Class of Offered Certificates refers to
the average amount of time that will elapse from the date of issuance of such
Subclass or Class until each dollar in reduction of the principal balance of
such Subclass or Class is distributed to investors. The weighted average life of
each Subclass of Class A Certificates will be affected, to varying degrees, by
the rate of principal payments (including prepayments) on the Mortgage Loans,
the timing of changes in such rate of payment and the priority of distributions
in reduction of principal of the Class A Certificates and the timing of
reductions of the principal balances of the PAC Certificates and the TAC
Certificates and to their respective planned principal balances and targeted
principal balances. The interaction of these factors may have different effects
on the Subclasses of Class A Certificates, including the PAC Certificates and
the TAC Certificates, and the effects on any Subclass may vary at different
times during the life of such Subclass. Further, to the extent that the purchase
prices paid by investors for the Class A Certificates, including the PAC
Certificates and the TAC Certificates represent discounts or premiums to their
respective initial principal balances, variability in the weighted average lives
of such Certificates could result in variability in the related yields to
maturity. See "Prepayment and Yield Considerations" herein.
The weighted average lives of the PAC Certificates will vary under different
prepayment scenarios. To the extent that principal prepayments occur at a
CONSTANT rate that is slower than approximately % SPA with respect to the PAC
Certificates, the Class A Principal Distribution Amount on each Distribution
Date may be insufficient to make distributions in reduction of the principal
balances of the PAC Certificates in an amount that would reduce their principal
balance to their planned principal balance for such Distribution Date. The
weighted average lives of the PAC Certificates may therefore be extended, as
illustrated by the tables on page S- .
To the extent that such principal prepayments occur at a CONSTANT rate that
is higher than approximately % SPA with respect to the PAC Certificates, the
weighted average lives of the PAC Certificates may be shortened, as illustrated
by the tables on page S- .
To the extent that principal prepayments are made at a CONSTANT rate that is
slower than approximately % SPA, the Class A Principal Distribution Amount on
each Distribution Date may be insufficient to make distributions in reduction of
the principal balance of the TAC Certificates in an amount that would reduce
their principal balance to their targeted principal balance for such
Distribution Date. The weighted average lives of the TAC Certificates may
therefore be extended, as illustrated by the tables on page S- . To the extent
that such principal prepayments occur at a CONSTANT rate that is higher than
approximately % SPA, the weighted average lives of the TAC Certificates may
be shortened as illustrated by the tables on page S- .
The weighted average life of the Companion Certificates will be highly
sensitive to the rate of principal payments (including prepayments) on the
Mortgage Loans. See "Prepayment and Yield Considerations" herein.
The extent to which the planned principal balances will be achieved and the
sensitivity of the PAC Certificates to principal prepayments on the Mortgage
Loans will depend, in part, upon the period of time during which the Companion
Certificates and the TAC Certificates remain outstanding. On each Distribution
Date, the excess of the Class A Principal Amount of the PAC Principal Amounts
("Excess Principal Payment") for such Distribution Date will be distributed to
the Companion Certificates and the TAC Certificates before being distributed to
the PAC Certificates, in accordance with the proportions and priorities set
forth above under "-- Allocation of Amount to be Distributed." This is intended
to decrease the likelihood that the principal balance of the PAC Certificates
will be reduced below the planned principal balance on a given Distribution
Date. As such, and in accordance with the priorities described above, the
Companion Certificates and the TAC Certificates support the PAC
S-44
<PAGE>
Certificates. However, under certain relatively fast prepayment scenarios, the
PAC Certificates may continue to be outstanding when the Subclasses of Class A
Certificates that support the PAC Certificates are no longer outstanding. Under
such circumstances, all Excess Principal Payments will be applied to the PAC
Certificates and in accordance with the priorities described herein. Thus, when
the principal balances of the Companion Certificates and the TAC Certificates
have been reduced to zero, the PAC Certificates, if then outstanding will, in
accordance with the proportions and priorities set forth above, become more
sensitive to the rate of prepayment on the Mortgage Loans as such Subclass will
receive all Excess Principal Payments until the principal balance of the PAC
Certificates has been reduced to zero. Conversely, under certain relatively slow
prepayment scenarios, the Class A Principal Distribution Amount may not be
sufficient to pay the PAC Principal Amount for the PAC Certificates on a given
Distribution Date. In such cases, the Class A Principal Amount for each
subsequent Distribution Date will be applied in accordance with the priorities
described herein such that the Companion Certificates and the TAC Certificates
will not receive any distributions in reduction of their principal balances
until the outstanding principal balance of the PAC Certificates has reached the
planned principal balance for such Distribution Date. As a result, the weighted
average life of the PAC Certificates may be extended if such Subclass does not
receive its PAC Principal Amount on a Distribution Date.
The extent to which the targeted principal balances will be achieved and the
sensitivity of the TAC Certificates to principal prepayments on the Mortgage
Loans will depend, in part, upon the period of time during which the Companion
Certificates remain outstanding. On each Distribution Date, Excess Principal
Payments over the TAC Principal Amount for such Distribution Date will be
distributed to the Companion Certificates, before being distributed to the TAC
Certificates, in accordance with the priorities set forth above under "--
Allocation of Amount to be Distributed." This is intended to decrease the
likelihood that the principal balance of the TAC Certificates will be reduced
below the targeted principal balance on such Distribution Date. As such, and in
accordance with the priorities described above, the Companion Certificates
support the TAC Certificates. However, under certain relatively fast prepayment
scenarios, the TAC Certificates may continue to be outstanding when the
Companion Certificates are no longer outstanding. Under such circumstances, all
Excess Principal Payments will be applied to the TAC Certificates. Thus, when
the principal balance of the Companion Certificates has been reduced to zero,
the TAC Certificates, if then outstanding, will, in accordance with the
proportions and priorities set forth herein, become more sensitive to the rate
of prepayment on the Mortgage Loans as such Subclass will receive all Excess
Principal Payments until the principal balance of the TAC Certificates has been
reduced to zero. Conversely, under certain relatively slow prepayment scenarios,
Excess Principal Payments, if any, may not be sufficient to pay the TAC
Principal Amount for the TAC Certificates on a given Distribution Date. In such
cases, Excess Principal Payments for such subsequent Distribution Date will be
applied in accordance with the proportions and priorities described herein such
that the Companion Certificates will not receive any distributions in reduction
of their principal balance until the outstanding principal balance of the TAC
Certificates has reached the targeted principal balance for such Distribution
Date. As a result, the weighted average life of the TAC Certificates may be
extended if such Subclass does not receive its TAC Principal Amount on such
Distribution Date.
Because any Excess Principal Payments for any Distribution Date will be
distributed to Certificateholders on such Distribution Date, the ability to
distribute the PAC Principal Amount and TAC Principal Amount on any Distribution
Date will not be enhanced by the averaging of high and low principal prepayment
rates on the Mortgage Loans over several Distribution Dates, as might be the
case if any such Excess Principal Payments were held for future applications and
not distributed monthly. There is no assurance that, with respect to the Class A
Principal Amount (i) distributions in reduction of the Class A Subclass
Principal Balance of the PAC Certificates or the TAC Certificates will not
commence significantly earlier than the first Distribution Date shown in the
preceding tables relating to such Subclass, (ii) distributions in reduction of
the Class A Subclass Principal Balance of
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<PAGE>
PAC Certificates or the TAC Certificates will not commence significantly later
than the first Distribution Date shown in the preceding tables relating to such
Subclass or (iii) the Class A Subclass Principal Balance of PAC Certificates or
the TAC Certificates will not be reduced to zero significantly earlier or
significantly later than the last Distribution Date shown in the preceding
tables.
EXAMPLE OF DISTRIBUTION TO CERTIFICATEHOLDERS
The following chart sets forth an example of the application of the
provisions described above under "-- Distributions" to the first two months of
the Trust Estate's existence:
<TABLE>
<CAPTION>
1(A)......................... Cut-Off Date.
<S> <C>
2 -- 31(B)................... The applicable Servicer receives any liquidation
proceeds for liquidated Mortgage Loans and interest
thereon to date of liquidation.
31(C)........................ Record Date.
1 -- 16(D)................... The applicable Servicer receives scheduled payments
of principal and interest due on 1.
17(E)........................ Determination Date.
18(F)........................ Remittance Date.
25(G)........................ Distribution Date
</TABLE>
- ------------------------
(A) The initial unpaid principal balance of the Mortgage Loans in a Trust Estate
would be the aggregate unpaid principal balance of the Mortgage Loans at the
close of business on 1, after deducting principal payments due on
or before such date. Those principal payments due on or before 1
and the related interest payments, would not be part of the Trust Estate and
would be remitted by the applicable Servicer to the Seller when received.
(B) Liquidation Proceeds received during this period would be credited to the
Certificate Account for distribution to Certificateholders on the February
25 Distribution Date. When a Mortgage Loan is liquidated or an insurance
claim with respect to a Mortgage Loan is settled, interest on the amount
liquidated or received in settlement is collected only from the last
scheduled Due Date to the date of liquidation or settlement.
(C) Distributions in the month of February will be made to Certificateholders of
record at the close of business on this date.
(D) Schedule monthly payments on the Mortgage Loans due on February 1, and
principal prepayments and Partial Liquidation Proceeds received by the
applicable Servicer in reduction of the unpaid principal balance of any
Mortgage Loan prior to February 17, will be deposited in the Servicer
Custodial Account as received by such Servicer and will be distributed to
Certificateholders on the February 25 Distribution Date. Liquidation
Proceeds (other than Partial Liquidation Proceeds), and proceeds with
respect to the repurchase or purchase of any of the Mortgage Loans, in each
case received during this period, and principal prepayments and Partial
Liquidation Proceeds received on or after February 17, will be deposited in
the Certificate Account but will not be distributed to Certificateholders on
the February 25 Distribution Date. Instead, such amounts will be credited to
the Certificate Account for distribution to Certificateholders on the March
25 Distribution Date. When a Mortgage Loan is prepaid in part and such
payment is applied as of a date other than a Due Date, interest is charged
on such payment only to the date applied. To the extent funds are available
from the aggregate Servicing Fees relating to mortgagor payments or other
recoveries distributed to Certificateholders on the related Distribution
Date, the applicable Servicer would make an additional payment to
Certificateholders with respect to any Mortgage Loan that prepaid in full on
or after the Determination Date in the month preceding the month in which
such Distribution Date occurs equal to the amount of interest on
S-46
<PAGE>
such Mortgage Loan at the Net Mortgage Interest Rate for such Mortgage Loan
from the date of such prepayment in full through the end of the month
preceding the month in which such Distribution Date occurs.
(E) As of the close of business on February 17, each Servicer will determine the
amounts of Periodic Advances to be made by such Servicer in respect of
Mortgage Loans serviced thereby and the Master Servicer will determine the
amounts of principal and interest which will be distributed to the
Certificateholders, including scheduled payments due on or before February 1
which have been received on or before the close of business on February 16,
principal prepayments and Partial Liquidation Proceeds received by each
Servicer in reduction of the unpaid principal balance of any Mortgage Loan
prior to February 17 and liquidation proceeds (other than Partial
Liquidation Proceeds), and proceeds with respect to the repurchase or
purchase of any of the Mortgage Loans, received during the period commencing
January 2 and ending on January 31. The Master Servicer will calculate the
amounts to be distributed to each Class of Certificates and will determine
the Percentage Interest of each Subclass or Subclass of Certificates to be
used in connection with the March 25 Distribution Date.
(F) Each Servicer will be required to remit to the Certificate Account on the
February 18 Remittance Date all amounts on deposit in the respective
Servicer Custodial Account (other than amounts held for future
distribution).
(G) The Master Servicer, or the paying agent acting on behalf of the Master
Servicer, will make distributions to Certificateholders on the 25th day of
each month or if such 25th day is not a business day, on the next business
day.
Succeeding monthly periods follow the pattern of (B) through (F), except
that the period in (B) begins on the seventeenth of the previous month.
ADDITIONAL RIGHTS OF THE CLASS A-R CERTIFICATEHOLDER
The Class A-R Certificate will remain outstanding for as long as the Trust
Estate shall exist, whether or not either such Subclass is receiving current
distributions of principal or interest. The holder of the Class A-R Certificate
will be entitled to receive the proceeds of the remaining assets of the Trust
Estate, if any, on the final Distribution Date for the Series 199 -
Certificates, after distributions in respect of any accrued but unpaid interest
on the Series 199 - Certificates and after distributions in reduction of
principal balance have reduced the principal balances of the Series 199 -
Certificates to zero. It is not anticipated that there will be any assets
remaining in the Trust Estate on the final Distribution Date following the
distributions of interest and in reduction of principal balance made on the
Series 199 - Certificates on such date.
In addition, the Class A-R Certificateholder will be entitled on each
Distribution Date to receive any Pool Distribution Amount remaining after all
distributions pursuant to the Pool Distribution Amount Allocation have been made
and any Net Foreclosure Profits. "Net Foreclosure Profits" means, with respect
to any Distribution Date, the excess, if any, of (i) the aggregate profits on
Liquidated Loans in the related period with respect to which net Liquidation
Proceeds exceed the unpaid principal balance thereof plus accrued interest
thereon at the Mortgage Interest Rate over (ii) the aggregate Realized Losses on
Liquidated Loans in the related period with respect to which net Liquidation
Proceeds are less than the unpaid principal balance thereof plus accrued
interest thereon at the Mortgage Interest Rate. It is not anticipated that there
will be any such Net Foreclosure Profits or undistributed portion of the Pool
Distribution Amounts.
PERIODIC ADVANCES
If, on any Determination Date, payments of principal and interest due on any
Mortgage Loan in the Trust Estate on the related Due Date have not been
received, the Servicer of the Mortgage Loan will, in certain circumstances, be
required to advance on or before the related Distribution Date for the benefit
of holders of the Series 199 - Certificates an amount in cash equal to all
delinquent payments of principal and interest due on each Mortgage Loan in the
Trust Estate (with interest
S-47
<PAGE>
adjusted to the applicable Net Mortgage Interest Rate) not previously advanced,
but only to the extent that such Servicer believes that such amounts will be
recoverable by it from liquidation proceeds or other recoveries in respect of
the related Mortgage Loan (each, a "Periodic Advance"). Upon a Servicer's
failure to make a required Periodic Advance, the Trustee, if such Servicer is
Norwest Mortgage, or the Master Servicer, if such Servicer is not Norwest
Mortgage, will be required to make such Periodic Advance.
The Underlying Servicing Agreements and the Pooling and Servicing Agreement
provide that any advance of the kind described in the preceding paragraph may be
reimbursed to the related Servicer or the Master Servicer or the Trustee, as
applicable, at any time from funds available in the Servicer Custodial Account
or the Certificate Account, as the case may be, to the extent that (i) such
funds represent receipts on, or liquidation, insurance, purchase or repurchase
proceeds in respect of, the Mortgage Loans to which the advance relates or (ii)
the Servicer, the Master Servicer or Trustee, as applicable, has determined in
good faith that the advancing party will be unable to recover such advance from
funds of the type referred to in clause (i) above.
[FOR SERIES WITH A FINANCIAL GUARANTY INSURANCE POLICY:
FINANCIAL SECURITY ASSURANCE INC.
GENERAL. Financial Security Assurance Inc. ("Financial Security") is a
monoline insurance company incorporated in 1984 under the laws of the State of
New York. Financial Security is licensed, directly or through its subsidiaries,
to engage in financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. In general, financial
guaranty insurance consists of the issuance of a guaranty of scheduled payments
of an issuer's securities -- thereby enhancing the credit rating of those
securities -- in consideration for the payment of a premium to the insurer.
Financial Security and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. Financial Security insures both newly issued securities
sold in the primary market and outstanding securities sold in the secondary
market that satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
U.S. West Capital Corporation and the Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that location
is (212) 826-0100. At December 31, 1995, Financial Security and its subsidiaries
had 187 employees.
REINSURANCE. Pursuant to an intercompany agreement, liabilities on
financial guaranty insurance written or reinsured from third parties by
Financial Security or any of its domestic operating insurance company
subsidiaries are reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, Financial
Security reinsures a portion of its liabilities under certain of its financial
guaranty insurance policies with other reinsurers under various quota share
S-48
<PAGE>
treaties and on a transaction-by-transaction basis. Such reinsurance is utilized
by Financial Security as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit Financial
Security's obligations under any financial guaranty insurance policy.
RATING OF CLAIMS-PAYING ABILITY. Financial Security's claims-paying ability
is rated "Aaa" by Moody's and "AAA" by S&P, Nippon Investors Service Inc. and
Standard & Poor's (Australia) Pty. Ltd. Such ratings reflect only the views of
the respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies.
CAPITALIZATION. The following table sets forth the capitalization of
Financial Security and its wholly owned subsidiaries on the basis of generally
accepted accounting principles as of December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Unearned Premium Reserve (net of prepaid reinsurance premiums)............. $ 330,349
Shareholder's Equity:
Common Stock............................................................. 15,000
Additional Paid-In Capital............................................... 681,470
Unrealized Gain on Investments (net of deferred income taxes)............ 19,694
Accumulated Earnings..................................................... 73,822
-----------------
Total Shareholder's Equity................................................. $ 789,986
-----------------
Total Unearned Premium Reserve and Shareholder's Equity.................... $ 1,120,335
-----------------
-----------------
</TABLE>
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated by reference herein. Copies of the statutory quarterly and
annual statements filed with the State of New York Insurance Department by
Financial Security are available upon request to the State of New York Insurance
Department.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. In addition to the
documents described under "Incorporation of Certain Information by Reference" in
the Prospectus, the consolidated financial statements of Financial Security and
subsidiaries for the year ended December 31, 1995 included as exhibits to the
following document, which has been filed with the Securities and Exchange
Commission by Holdings, are hereby incorporated by reference in the Registration
Statement to which the Prospectus and this Prospectus Supplement form a part:
(a) Annual Report on Form 10-K of Holdings for the year ended December
31, 1995, which Report included as an exhibit Financial Security's audited
consolidated financial statements for the year ended December 31, 1995.
[(b) Reference quarterly reports, as applicable.]
All financial statements of Financial Security and Subsidiaries included in
documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), subsequent to
the date of this Prospectus Supplement and prior to the termination of the
offering of the Certificates shall be deemed to be incorporated by reference
into this Prospectus Supplement and to be a part hereof from the respective
dates of filing such documents.
INSURANCE REGULATION. Financial Security is licensed and subject to
regulation as a financial guaranty insurance corporation under the laws of the
State of New York, its state of domicile. In addition, Financial Security and
its insurance subsidiaries are subject to regulation by insurance laws of the
various other jurisdictions in which they are licensed to do business. As a
financial guaranty insurance corporation licensed to do business in the State of
New York, Financial Security is subject to
S-49
<PAGE>
Article 69 of the New York Insurance Law which, among other things, limits the
business of each such insurer to financial guaranty insurance and related lines,
requires that each insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for each
such insurer, and limits the size of individual transactions ("single risks")
and the volume of transactions ("aggregate risks") that may be underwritten by
each such insurer. Other provisions of the New York Insurance Law, applicable to
non-life insurance companies such as Financial Security, regulate, among other
things, permitted investments, payment of dividends, transactions with
affiliates, mergers, consolidations, acquisitions or sales of assets and
incurrence of liability for borrowings.]
RESTRICTIONS ON TRANSFER OF THE CLASS A-R AND CLASS M CERTIFICATES
The Class A-R Certificate will be subject to the following restrictions on
transfer, and the Class A-R Certificate will contain a legend describing such
restrictions.
The REMIC provisions of the Code impose certain taxes on (i) transferors of
residual interests to, or agents that acquire residual interests on behalf of,
Disqualified Organizations and (ii) certain Pass-Through Entities (as defined in
the Prospectus) that have Disqualified Organizations as beneficial owners. No
tax will be imposed on a Pass-Through Entity with respect to the Class A-R
Certificate to the extent it has received an affidavit from the owner thereof
that such owner is not a Disqualified Organization or a nominee for a
Disqualified Organization. The Pooling and Servicing Agreement will provide that
no legal or beneficial interest in the Class A-R Certificate may be transferred
to or registered in the name of any person unless (i) the proposed purchaser
provides to the Trustee an affidavit (or, to the extent acceptable to the
Trustee, a representation letter signed under penalty of perjury) to the effect
that, among other items, such transferee is not a Disqualified Organization (as
defined in the Prospectus) and is not purchasing the Class A-R Certificate as an
agent for a Disqualified Organization (I.E., as a broker, nominee, or other
middleman thereof) and (ii) the transferor states in writing to the Trustee that
it has no actual knowledge that such affidavit is false. Further, such affidavit
(or letter) requires the transferee to affirm that it (i) historically has paid
its debts as they have come due and intends to do so in the future, (ii)
understands that it may incur tax liabilities with respect to the Class A-R
Certificate in excess of cash flows generated thereby, (iii) intends to pay
taxes associated with holding the Class A-R Certificate as such taxes become due
and (iv) will not transfer the Class A-R Certificate to any person or entity
that does not provide a similar affidavit (or letter). The transferor must
certify in writing to the Trustee that, as of the date of the transfer, it had
no knowledge or reason to know that the affirmations made by the transferee
pursuant to the preceding sentence were false.
In addition, the Class A-R Certificate may not be purchased by or
transferred to any person that is not a "U.S. Person," unless (i) such person
holds such Class A-R Certificate in connection with the conduct of a trade or
business within the United States and furnishes the transferor and the Trustee
with an effective Internal Revenue Service Form 4224 or (ii) the transferee
delivers to both the transferor and the Trustee an opinion of a nationally
recognized tax counsel to the effect that such transfer is in accordance with
the requirements of the Code and the regulations promulgated thereunder and that
such transfer of the Class A-R Certificate will not be disregarded for federal
income tax purposes. The term "U.S. Person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust that is subject to U.S. federal income tax regardless of
the source of its income.
The Pooling and Servicing Agreement will provide that any attempted or
purported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee. Any transferor or
agent to whom the Trustee provides information as to any applicable tax imposed
on such transferor or agent may be required to bear the cost of computing or
providing such information. See "Certain Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Tax-Related Restrictions on Transfer of Residual Certificates"
in the Prospectus.
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<PAGE>
The Class A-R Certificate may not be purchased by or transferred to a Plan.
Because the Class M Certificates are subordinated to the Senior Certificates,
the Class M Certificates may not be transferred unless the transferee has
delivered (i) a representation letter to the Trustee and the Seller stating
either (a) that the transferee is not a Plan and is not acting on behalf of a
Plan or using the assets of a Plan to effect such purchase or (b) subject to the
conditions described herein, that the source of funds used to purchase the Class
M Certificates is an "insurance company general account" or (ii) an opinion of
counsel as described herein under "ERISA Considerations." See "ERISA
Considerations" herein and in the Prospectus.
REPORTS
In addition to the applicable information specified in the Prospectus, the
Master Servicer will cause to be included in the statement delivered to holders
of Class A, Class AP and Class M Certificates with respect to each Distribution
Date the following information: (i) the amount of such distribution allocable to
interest, the amount of interest currently distributable to each Subclass of
Class A Certificates and to the Class M Certificates, any Class A Subclass
Interest Shortfall Amount arising with respect to each Subclass or any Class M
Interest Shortfall Amount on such Distribution Date, any remaining unpaid Class
A Subclass Interest Shortfall Amount with respect to each Subclass, or any
remaining unpaid Class M Interest Shortfall Amount, after giving effect to such
distribution and any Non-Supported Interest Shortfall or the interest portion of
Realized Losses allocable to such Subclass or Class with respect to such
Distribution Date, (ii) the amount of such distribution allocable to principal,
(iii) the Class A Principal Balance, the Class AP Principal Balance, the Class M
Principal Balance, the Class A Subclass Principal Balance of each Subclass of
Class A Certificates after giving effect to the distribution of principal and
the allocation of the principal portion of Realized Losses to such Subclass with
respect to such Distribution Date, (iv) the Adjusted Pool Amount, the Adjusted
Pool Amount (Class AP Portion) and the Pool Scheduled Principal Balance of the
Mortgage Loans and the aggregate Scheduled Principal Balance of the Discount
Mortgage Loans for such Distribution Date, (v) the Class A Percentage and Class
M Percentage for the following Distribution Date (without giving effect to
partial prepayments and net Partial Liquidation Proceeds received after the
Determination Date in the current month that are applied as of the Due Date
occurring in such month), and (vi) the amount of the remaining Special Hazard
Loss Amount, the Fraud Loss Amount and the Bankruptcy Loss Amount as of the
close of business on such Distribution Date. See "Servicing of the Mortgage
Loans -- Reports to Certificateholders" in the Prospectus.
Copies of the foregoing reports are available upon written request to the
Trustee at its corporate trust office. See "Pooling and Servicing Agreement --
Trustee" herein.
SUBORDINATION OF CLASS M AND CLASS B CERTIFICATES
The rights of the holders of the Class M Certificates to receive
distributions with respect to the Mortgage Loans in the Trust Estate will be
subordinated to such rights of the holders of the Senior Certificates and the
rights of the holders of the Class B Certificates to receive distributions with
respect to the Mortgage Loans in the Trust Estate will be subordinated to such
rights of the holders of the Senior Certificates and the Class M Certificates,
all to the extent described below. This subordination is intended to enhance the
likelihood of timely receipt by the holders of the Senior Certificates (to the
extent of the subordination of the Class M and Class B Certificates) and the
holders of the Class M Certificates (to the extent of the subordination of the
Class B Certificates) of the full amount of their scheduled monthly payments of
interest and principal and to afford the holders of the Senior Certificates (to
the extent of the subordination of the Class M and Class B Certificates) and the
holders of the Class M Certificates (to the extent of the subordination of the
Class B Certificates) protection against Realized Losses, as more fully
described below. If Realized Losses exceed the credit support provided through
subordination to the Senior Certificates and the Class M Certificates or if
Excess Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses
occur, all or a portion of such losses will be borne by the Senior Certificates
and the Class M Certificates.
S-51
<PAGE>
The protection afforded to the holders of Senior Certificates by means of
the subordination feature will be accomplished by the preferential right of such
holders to receive, prior to any distribution being made on a Distribution Date
in respect of the Class M and Class B Certificates, the amounts of principal and
interest due the Class A Certificateholders and the amount of principal due the
Class AP Certificateholders on each Distribution Date out of the Pool
Distribution Amount with respect to such date and, if necessary, by the right of
such holders to receive future distributions on the Mortgage Loans that would
otherwise have been payable to the holders of Class M and Class B Certificates.
The application of this subordination to cover Realized Losses experienced in
periods prior to the periods in which a Subclass of Class A Certificates is
entitled to distributions in reduction of principal balance will decrease the
protection provided by the subordination to any such Subclass.
The protection afforded to the holders of Class M Certificates by means of
the subordination feature will be accomplished by the preferential right of such
holders to receive, prior to any distribution being made on a Distribution Date
in respect of the Class B Certificates, the amounts of principal (other than any
amount used to pay the Class AP Deferred Amount) and interest due the Class M
Certificateholders on each Distribution Date from the Pool Distribution Amount
with respect to such date (after all required payments on the Senior
Certificates have been made) and, if necessary, by the right of such holders to
receive future distributions on the Mortgage Loans that would otherwise have
been payable to the holders of the Class B Certificates.
The Subclasses of Class B Certificates will be entitled, on each
Distribution Date, to the remaining portion, if any, of the applicable Pool
Distribution Amount, after payment of the Senior Optimal Amount, the Class AP
Deferred Amount and the Class M Optimal Amount for such date. Amounts so
distributed to Class B Certificateholders will not be available to cover
delinquencies or Realized Losses in respect of subsequent Distribution Dates.
ALLOCATION OF LOSSES
Realized Losses (other than Excess Special Hazard Losses, Excess Fraud
Losses or Excess Bankruptcy Losses) will not be allocated to the holders of the
Senior Certificates until the date on which the amount of principal payments on
the Mortgage Loans to which the holders of the Subordinated Certificates are
entitled has been reduced to zero as a result of the allocation of losses to the
Subordinated Certificates, i.e., the date on which the Subordinated Percentage
has been reduced to zero (the "Cross-Over Date"). Prior to such time, such
Realized Losses will be allocated first to the Subclasses of Class B
Certificates sequentially in reverse numerical order, until the Class B Subclass
Principal Balance of each such Subclass has been reduced to zero and then to the
Class M Certificates until the Class M Principal Balance has been reduced to
zero.
The allocation of the principal portion of a Realized Loss (other than a
Debt Service Reduction, Excess Special Hazard Loss, Excess Fraud Loss or Excess
Bankruptcy Loss) will be effected through the adjustment of the principal
balance of the most subordinate Class (or in the case of the Subclasses of Class
B Certificates, the most subordinate Subclass) then-outstanding in such amount
as is necessary to cause the sum of the Class A Subclass Principal Balances, the
Class AP Principal Balance, the Class M Principal Balance and the Class B
Subclass Principal Balances to equal the Adjusted Pool Amount.
Allocations to the Class M Certificates or Class B Certificates of (i) the
principal portion of Debt Service Reductions, (ii) the interest portion of
Realized Losses (other than Excess Special Hazard Losses, Excess Fraud Losses
and Excess Bankruptcy Losses), (iii) any interest shortfalls resulting from
delinquencies for which the Servicer, the Master Servicer or the Trustee does
not advance and (iv) any interest shortfalls resulting from the timing of the
receipt of partial principal prepayments and net Partial Liquidation Proceeds
with respect to Mortgage Loans will result from the priority of distributions of
the Pool Distribution Amount first to the holders of the Senior Certificates and
then to the Class M Certificateholders as described above under "--
Distributions."
S-52
<PAGE>
The allocation of the principal portion of Realized Losses in respect of the
Mortgage Loans allocated on or after the Cross-Over Date will be effected
through the adjustment on any Determination Date of the Class A Principal
Balance and Class AP Principal Balance such that (i) the Class A Principal
Balance equals the Adjusted Pool Amount less the Adjusted Pool Amount (Class AP
Portion) as of the preceding Distribution Date and (ii) the Class AP Principal
Balance equals the Adjusted Pool Amount (Class AP Portion) as of the preceding
Distribution Date. The principal portion of such Realized Losses allocated to
the Class A Certificates will be allocated to the outstanding Subclasses of
Class A Certificates pro rata in accordance with their Class A Subclass
Principal Balances. The interest portion of any Realized Loss allocated on or
after the Cross-Over Date will be allocated among the outstanding Subclasses of
Class A Certificates pro rata in accordance with their respective Class A
Subclass Interest Accrual Amounts, without regard to any reduction pursuant to
this sentence. Any such losses will be allocated among the outstanding Class A
Certificates within each Subclass pro rata in accordance with their respective
Percentage Interests.
Any Excess Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy
Losses will be allocated (i) with respect to the principal portion of such
losses (a) to the outstanding Subclasses and Classes of the Class A, Class M and
Class B Certificates pro rata based on their outstanding principal balances in
proportion to the Classes A/M/B Fraction of such losses and (b) in respect of
Discount Mortgage Loans, to the Class AP Certificates in proportion to the Class
AP Fraction of such losses and (ii) with respect to the interest portion of such
losses, to the Class A, Class M and Class B Certificates pro rata based on the
interest accrued. (Any such losses so allocated to the Class A Certificates will
be allocated among the outstanding Subclasses of Class A Certificates pro rata
in accordance with their then-outstanding Class A Subclass Principal Balances
with respect to the principal portion of such losses and their Class A Subclass
Interest Accrual Amounts without regard to any reduction pursuant to this
sentence, with respect to the interest portion of such losses, and among the
outstanding Class A Certificates within each Subclass pro rata in accordance
with their respective Percentage Interests).
The interest portion of Excess Special Hazard Losses, Excess Fraud Losses
and Excess Bankruptcy Losses will be allocated by reducing the Class A Subclass
Interest Accrual Amounts, Class M Interest Accrual Amount and Class B Subclass
Interest Accrual Amounts.
As described above, the Pool Distribution Amount for any Distribution Date
will include current receipts (other than certain unscheduled payments in
respect of principal) from the Mortgage Loans otherwise payable to holders of
the Class M and Class B Certificates. If the Pool Distribution Amount is not
sufficient to cover the amount of principal payable to the holders of the Senior
Certificates on a particular Distribution Date (other than any portion thereof
representing the difference between the Class A Percentage of the Scheduled
Principal Balances of Liquidated Loans and the Class A Prepayment Percentage of
such amounts), then the percentage of principal payments on the Mortgage Loans
to which the holders of the Class A Certificates will be entitled (I.E., the
Class A Percentage) on and after the next Distribution Date will be
proportionately increased, thereby reducing, as a relative matter, the
respective interest of the Class M and Class B Certificates in future payments
of principal on the Mortgage Loans in the Trust Estate. Such a shortfall could
occur, for example, if a considerable number of Mortgage Loans were to become
Liquidated Loans in a particular month.
Special Hazard Losses, other than Excess Special Hazard Losses, will be
allocated solely to the Class B Certificates, or following the reduction of the
Class B Principal Balance to zero, solely to the Class M Certificates. Special
Hazard Losses in excess of the Special Hazard Loss Amount are "Excess Special
Hazard Losses." Excess Special Hazard Losses will be allocated (i) among the
Class A, Class M and Class B Certificates and (ii) to the extent such Excess
Special Hazard Losses arise with respect to Discount Mortgage Loans, the Class
AP Certificates. If the aggregate of all Special Hazard Losses incurred in the
month preceding the month of the related Distribution Date (the "Aggregate
Current Special Hazard Losses") is less than or equal to the then-applicable
Special Hazard Loss Amount, no Special Hazard Losses will be regarded as Excess
Special Hazard Losses. If Aggregate Current Special Hazard Losses exceed the
then-applicable Special Hazard Loss Amount, a portion of each Special Hazard
Loss will be regarded as an "Excess Special Hazard Loss" in proportion to the
ratio of (a) the
S-53
<PAGE>
excess of (i) Aggregate Current Special Hazard Losses over (ii) the
then-applicable Special Hazard Loss Amount, to (b) the Aggregate Current Special
Hazard Losses. Thereafter, when the Special Hazard Loss Amount is zero, all
Special Hazard Losses will be regarded as Excess Special Hazard Losses. Upon
initial issuance of the Series 199 - Certificates, the "Special Hazard Loss
Amount" with respect thereto will be equal to approximately % (approximately
$ ) of the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans.
As of any Distribution Date, the Special Hazard Loss Amount will equal the
initial Special Hazard Loss Amount less the sum of (A) any Special Hazard Losses
allocated solely to the Class B or Class M Certificates and (B) the Adjustment
Amount. The "Adjustment Amount" on each anniversary of the Cut-Off Date will be
equal to the amount, if any, by which the Special Hazard Amount, without giving
effect to the deduction of the Adjustment Amount for such anniversary, exceeds
the greater of (i) 1.00% (or, if greater than 1.00%, the highest percentage of
Mortgage Loans by principal balance in any California zip code) times the
aggregate principal balance of all the Mortgage Loans on such anniversary (ii)
twice the principal balance of the single Mortgage Loan having the largest
principal balance, and (iii) that which is necessary to maintain the original
ratings on the Class A, Class AP and Class M Certificates, as evidenced by
letters to that effect delivered by [Moody's] [Fitch] [DCR] and [S&P] to the
Master Servicer and the Trustee. On and after the Cross-Over Date, the Special
Hazard Loss Amount will be zero.
Fraud Losses, other than Excess Fraud Losses, will be allocated solely to
the Class B Certificates, or following the reduction of the Class B Principal
Balance to zero, solely to the Class M Certificates. Fraud Losses in excess of
the Fraud Loss Amount are "Excess Fraud Losses." Excess Fraud Losses will be
allocated (i) among the Class A, Class M and Class B Certificates and (ii) to
the extent such Excess Fraud Losses arise with respect to Discount Mortgage
Loans, the Class AP Certificates. If the aggregate of all Fraud Losses incurred
in the month preceding the month of the related Distribution Date (the
"Aggregate Current Fraud Losses") is less than or equal to the then-applicable
Fraud Loss Amount, no Fraud Losses will be regarded as Excess Fraud Losses. If
Aggregate Current Fraud Losses exceed the then-applicable Fraud Loss Amount, a
portion of each Fraud Loss will be regarded as an "Excess Fraud Loss" in
proportion to the ratio of (a) the excess of (i) Aggregate Current Fraud Losses
over (ii) the then-applicable Fraud Loss Amount, to (b) the Aggregate Current
Fraud Losses. Thereafter, when the Fraud Loss Amount is zero, all Fraud Losses
will be regarded as Excess Fraud Losses. Upon initial issuance of the Series
199 - Certificates, the "Fraud Loss Amount" with respect thereto will be equal
to approximately % (approximately $ ) of the Cut-Off Date Aggregate
Principal Balance of the Mortgage Loans. As of any Distribution Date prior to
the first anniversary of the Cut-Off Date, the Fraud Loss Amount will equal the
initial Fraud Loss Amount minus the aggregate amount of Fraud Losses allocated
solely to the Class B or Class M Certificates through the related Determination
Date. As of any Distribution Date from the first through fifth anniversary of
the Cut-Off Date, the Fraud Loss Amount will be an amount equal to (1) the
lesser of (a) the Fraud Loss Amount as of the most recent anniversary of the
Cut-Off Date and (b) 1.00% of the aggregate principal balance of all of the
Mortgage Loans as of the most recent anniversary of the Cut-Off Date minus (2)
the aggregate amounts allocated solely to the Class B or Class M Certificates
with respect to Fraud Losses since the most recent anniversary of the Cut-Off
Date through the related Determination Date. On and after the Cross-Over Date or
after the fifth anniversary of the Cut-Off Date, the Fraud Loss Amount will be
zero.
Bankruptcy Losses, other than Excess Bankruptcy Losses, will be allocated
solely to the Class B Certificates, or following the reduction of the Class B
Principal Balance to zero, solely to the Class M Certificates. Bankruptcy losses
in excess of the Bankruptcy Loss Amount are "Excess Bankruptcy Losses." Excess
Bankruptcy Losses will be allocated (i) among the Class A, Class M and Class B
Certificates and (ii) to the extent such Excess Bankruptcy Losses arise with
respect to Discount Mortgage Loans, the Class AP Certificates. If the aggregate
of all Bankruptcy Losses incurred in the month preceding the month of the
related Distribution Date (the "Aggregate Current Bankruptcy Losses") is less
than or equal to the then applicable Bankruptcy Loss Amount, no Bankruptcy
Losses will be regarded as Excess Bankruptcy Losses. If Aggregate Current
Bankruptcy Losses exceed the then-applicable Bankruptcy Loss Amount, a portion
of each Bankruptcy Loss will be regarded as an
S-54
<PAGE>
"Excess Bankruptcy Loss" in proportion to the ratio of (a) the excess of (i)
Aggregate Current Bankruptcy Losses over (ii) the then-applicable Bankruptcy
Loss Amount, to (b) the Aggregate Current Bankruptcy Losses. Thereafter, when
the Bankruptcy Loss Amount is zero, all Bankruptcy Losses will be regarded as
Excess Bankruptcy Losses. Upon initial issuance of the Series 199 -
Certificates, the "Bankruptcy Loss Amount" with respect thereto will be equal to
approximately % (approximately $ ) of the Cut-Off Date Aggregate
Principal Balance of the Mortgage Loans. As of any Distribution Date prior to
the first anniversary of the Cut-Off Date, the Bankruptcy Loss Amount will equal
the initial Bankruptcy Loss Amount minus the aggregate amount of Bankruptcy
Losses allocated solely to the Class B and Class M Certificates through the
related Determination Date. As of any Distribution Date on or after the first
anniversary of the Cut-Off Date, the Bankruptcy Loss Amount will equal the
excess, if any, of (1) the lesser of (a) the Bankruptcy Loss Amount as of the
business day next preceding the most recent anniversary of the Cut-Off Date and
(b) an amount, if any, calculated pursuant to the terms of the Pooling and
Servicing Agreement, which amount as calculated will provide for a reduction in
the Bankruptcy Loss Amount, over (2) the aggregate amount of Bankruptcy Losses
allocated solely to the Class B Certificates or Class M Certificates since such
anniversary. The Bankruptcy Loss Amount and the related coverage levels
described above may be reduced or modified upon written confirmation from
[Moody's] [Fitch] [DCR] and [S&P] that such reduction or modification will not
adversely affect the then-current ratings assigned to the Class A, Class AP and
Class M Certificates by [Moody's] [Fitch] [DCR] and [S&P]. Such a reduction or
modification may adversely affect the coverage provided by subordination with
respect to Bankruptcy Losses. On and after the Cross-Over Date, the Bankruptcy
Loss Amount will be zero.
Notwithstanding the foregoing, the provisions relating to subordination will
not be applicable in connection with a Bankruptcy Loss so long as the applicable
Servicer has notified the Trustee and the Master Servicer in writing that such
Servicer is diligently pursuing any remedies that may exist in connection with
the representations and warranties made regarding the related Mortgage Loan and
when (A) the related Mortgage Loan is not in default with regard to the payments
due thereunder or (B) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable Standard Hazard
Insurance Policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by such Servicer, in either case
without giving effect to any Debt Service Reduction.
Since the initial principal balance of the Class B Certificates in the
aggregate will be approximately $ , the risk of Special Hazard Losses,
Fraud Losses and Bankruptcy Losses will be separately borne by the Class B
Certificates to a lesser extent (I.E., only up to the Special Hazard Loss
Amount, Fraud Loss Amount and Bankruptcy Loss Amount, respectively) than the
risk of other Realized Losses, which they will bear to the full extent of their
initial principal balance. See "The Trust Estates -- Mortgage Loans --
Representations and Warranties" and "-- Insurance Policies," "Certain Legal
Aspects of the Mortgage Loans -- Environmental Considerations" and "Servicing of
the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Mortgage Loans" in the Prospectus.
S-55
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS(1)
GENERAL
The Mortgage Loans to be included in the Trust Estate will be fixed interest
rate, conventional, monthly pay, fully amortizing, one- to four-family,
residential first mortgage loans having original terms to stated maturity of
approximately years, which may include loans secured by shares ("Co-op
Shares") issued by private non-profit housing corporations ("Cooperatives"), and
the related proprietary leases or occupancy agreements granting exclusive rights
to occupy specified units in such Cooperatives' buildings. The Mortgage Loans
are expected to include promissory notes, to have an aggregate unpaid
principal balance as of the Cut-Off Date (the "Cut-Off Date Aggregate Principal
Balance") of approximately $ to be secured by first liens (the
"Mortgages") on one- to four-family residential properties (the "Mortgaged
Properties") and to have the additional characteristics described below and in
the Prospectus.
As of the Cut-Off Date, it is expected that of the Mortgage Loans in
the Trust Estate, representing approximately % of the Cut-Off Date Aggregate
Principal Balance of the Mortgage Loans will be secured by Co-op Shares and that
of the Mortgage Loans, representing approximately % of the Cut-Off Date
Aggregate Principal Balance of the Mortgage Loans, will be Buy-Down Loans. See
"The Trust Estates -- Mortgage Loans" in the Prospectus.
Each of the Mortgage Loans is subject to a due-on-sale clause. See "Certain
Legal Aspects of the Mortgage Loans -- "Due-on-Sale' Clauses" and "Servicing of
the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Mortgage Loans" in the Prospectus.
As of the Cut-Off Date, each Mortgage Loan is expected to have an unpaid
principal balance of not less than approximately $ or more than
approximately $ , and the average unpaid principal balance of the
Mortgage Loans is expected to be approximately $ . The latest stated
maturity date of any of the Mortgage Loans is expected to be , ;
however, the actual date on which any Mortgage Loan is paid in full may be
earlier than the stated maturity date due to unscheduled payments of principal.
Based on information supplied by the mortgagors in connection with their loan
applications at origination, of the Mortgaged Properties, which secure
approximately % of the Cut-Off Date Aggregate Principal Balance of the
Mortgage Loans, are expected to be owner occupied primary residences and of
the Mortgaged
- ------------------------
(1) The descriptions in this Prospectus Supplement of the Trust Estate and the
properties securing the Mortgage Loans to be included in the Trust Estate
are based upon the expected characteristics of the Mortgage Loans at the
close of business on the Cut-Off Date, as adjusted for the scheduled
principal payments due on or before such date. Notwithstanding the
foregoing, any of such Mortgage Loans may be excluded from the Trust Estate
(i) as a result of principal prepayment thereof in full or (ii) if, as a
result of delinquencies or otherwise, the Seller otherwise deems such
exclusion necessary or desirable. In either event, other Mortgage Loans may
be included in the Trust Estate. The Seller believes that the information
set forth herein with respect to the expected characteristics of the
Mortgage Loans on the Cut-Off Date is representative of the characteristics
as of the Cut-Off Date of the Mortgage Loans to be included in the Trust
Estate as it will be constituted at the time the Series 199 - Certificates
are issued, although the Cut-Off Date Aggregate Principal Balance, the range
of Mortgage Interest Rates and maturities, and certain other characteristics
of the Mortgage Loans in the Trust Estate may vary. In the event that any of
the characteristics as of the Cut-Off Date of the Mortgage Loans that
constitute the Trust Estate on the date of initial issuance of the Series
199 - Certificates vary materially from those described herein, revised
information regarding the Mortgage Loans will be made available to
purchasers of the Offered Certificates, on or before such issuance date, and
a Current Report on Form 8-K containing such information will be filed with
the Securities and Exchange Commission within 15 days following such date.
S-56
<PAGE>
Properties, which secure approximately % of the Cut-Off Date Aggregate
Principal Balance of the Mortgage Loans, are expected to be non-owner occupied
or second homes. See "The Mortgage Loan Programs -- Mortgage Loan Underwriting"
in the Prospectus.
It is expected that one of the Mortgage Loans representing approximately
% of the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans will
be subject to a subsidy agreement, which, except under certain limited
circumstances, requires the employer of the mortgagor to make a portion of the
payments on the related Mortgage Loans (a "Subsidy Loan") for specified periods.
The Subsidy Loan was underwritten by Norwest Mortgage. The subsidy agreement
relating to the Subsidy Loan generally will provide that monthly payments made
by the related mortgagor will be less than the scheduled monthly payments on
such Mortgage Loans, with the present value of the resulting difference in
payments being provided by the employer of the mortgagor in advance, generally
on an annual basis. Subsidy Loans are offered by employers generally through
either a graduated or fixed subsidy loan program, or a combination thereof. The
effective subsidized rates under the various programs offered generally range
from one to five percentage points below the interest rate specified in the
related mortgage note. These subsidized rates are used to calculate the
applicable debt-to-income ratios that are used to evaluate the creditworthiness
of prospective borrowers. This procedure may enable certain mortgagors who
otherwise would not meet Norwest Mortgage's underwriting guidelines to obtain
mortgage loans. As of the Cut-Off Date, it is expected that the Subsidy Loan in
the Trust Estate will be offered by an employer through a graduated subsidy loan
program with a term of five years or less. See "Prepayment and Yield
Considerations" herein.
Subsidy amounts paid by the employer will be deposited by the Servicer in an
account (the "Subsidy Account") maintained by the Servicer, which will not be
part of the Trust Estate or the REMIC. Funds in the Subsidy Account with respect
to each Subsidy Loan will be withdrawn by the Servicer and deposited in the
Servicer Custodial Account on the business day following the receipt by the
Servicer of the mortgagor's monthly payment to which such funds relate. Funds in
the Subsidy Account with respect to a Subsidy Loan will not be withdrawn by the
Servicer, and are not permitted to be applied under the related subsidy
agreement, during any period in which such Subsidy Loan is in default. Despite
the existence of the subsidy agreement, the mortgagor remains liable for making
all scheduled payments on a Subsidy Loan. From time to time, the amount of a
subsidy payment or the term of a subsidy agreement may, upon the request of a
corporate employer, be modified.
As of the Cut-Off Date, there were Mortgage Loans having an aggregate
unpaid principal balance of approximately $ , a range of unpaid
principal balances of approximately $ to approximately $ , an
average unpaid principal balance of approximately $ , a range of
interest rates from % to % per annum, a weighted average interest rate of
approximately % per annum, a range of remaining terms to stated maturity of
months to months, a weighted average remaining term to stated maturity of
approximately months, a range of original Loan-to-Value Ratios of % to
%, a weighted average original Loan-to-Value Ratio of approximately % and
the following geographic concentration of Mortgaged Properties securing Mortgage
Loans in excess of 5.00% of the aggregate unpaid principal balance of the
Discount Mortgage Loans: approximately % in [STATES].
As of the Cut-Off Date, there were Mortgage Loans other than
Discount Mortgage Loans having an aggregate unpaid principal balance of
approximately $ , a range of unpaid principal balances of approximately
$ to approximately $ , an average unpaid principal balance of
approximately $ , a range of interest rates from % to % per annum,
a weighted average interest rate of approximately % per annum, a range of
remaining terms to stated maturity of months to months, a weighted average
remaining term to stated maturity of approximately months, a range of
original Loan-to-Value Ratios of % to %, a weighted average original
Loan-to-Value Ratio of approximately % and the following geographic
concentration of Mortgaged Properties securing Mortgage Loans in excess of 5.00%
of the aggregate unpaid principal balance of the Mortgage Loans other than
Discount Mortgage Loans: approximately % in [STATES].
S-57
<PAGE>
The Mortgage Loans have been acquired by the Seller from Norwest Mortgage.
The Mortgage Loans that Norwest Mortgage sells to the Seller will have been
either originated by Norwest Mortgage or acquired by Norwest Mortgage from
various entities (each, a "Correspondent") which either originated the Mortgage
Loans or acquired the Mortgage Loans pursuant to mortgage loan purchase programs
operated by such Correspondents. Approximately % (by Cut-Off Date Aggregate
Principal Balance) of the Mortgage Loans (the "Norwest Mortgage Underwritten
Loans") were generally originated in conformity with Norwest Mortgage's
underwriting standards applied either by Norwest Mortgage or by eligible
originators to whom Norwest Mortgage had delegated all underwriting functions.
In certain instances, exceptions to Norwest Mortgage's underwriting standards
may have been granted by Norwest Mortgage to such originators. See "The Mortgage
Loan Programs -- Mortgage Loan Underwriting" in the Prospectus. Approximately
% and % (by Cut-Off Date Aggregate Principal Balance) of the Mortgage
Loans (the "Pool Certification Underwritten Loans") will have been reviewed by
GEMICO and UGRIC, respectively, to ensure compliance with such company's credit,
appraisal and underwriting standards. Neither the Series 199 - Certificates nor
the Mortgage Loans are insured or guaranteed under a mortgage pool insurance
policy issued by GEMICO or UGRIC. The Pool Certification Underwritten Loans were
evaluated by Norwest Mortgage using credit scoring as described in the
Prospectus under "The Mortgage Loan Programs -- Mortgage Loan Underwriting" and,
based on the credit scores of such Mortgage Loans, some of such Mortgage Loans
were re-underwritten by Norwest Mortgage. The remaining approximate % (by
Cut-Off Date Aggregate Principal Balance) of the Mortgage Loans (the "Bulk
Purchase Underwritten Loans") will have been underwritten under varying
standards which have been reviewed and accepted by Norwest Mortgage. Neither the
Seller nor Norwest Mortgage has underwritten any of the Bulk Purchase
Underwritten Loans. See "-- Mortgage Underwriting Standards" below and "The
Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospectus.
MORTGAGE LOAN DATA
Set forth below is a description of certain additional expected
characteristics of the Mortgage Loans as of the Cut-Off Date (except as
otherwise indicated).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER AGGREGATE UNPAID AGGREGATE
OF MORTGAGE PRINCIPAL PRINCIPAL
MORTGAGE INTEREST RATE LOANS BALANCE BALANCE
- ----------------------------------------------------------- -------------- ---------------- ------------------
<S> <C> <C> <C>
</TABLE>
As of the Cut-Off Date, the weighted average Mortgage Interest Rate of the
Mortgage Loans is expected to be approximately % per annum. The Net
Mortgage Interest Rate of each Mortgage Loan will be equal to the Mortgage
Interest Rate of such Mortgage Loan minus the sum of (a) the applicable
Servicing Fee Rate, (b) the Master Servicing Fee Rate as set forth in the
Pooling and Servicing Agreement and (c) the Fixed Retained Yield, if any, for
such Mortgage Loan. As of the Cut-Off Date, the weighted average Net Mortgage
Interest Rate of the Mortgage Loans is expected to be approximately % per
annum.
S-58
<PAGE>
REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER AGGREGATE UNPAID AGGREGATE
OF MORTGAGE PRINCIPAL PRINCIPAL
REMAINING STATED TERM (MONTHS) LOANS BALANCE BALANCE
- ----------------------------------------------------------- -------------- ---------------- ------------------
<S> <C> <C> <C>
</TABLE>
As of the Cut-Off Date, the weighted average remaining term to stated
maturity of the Mortgage Loans is expected to be approximately months.
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER AGGREGATE UNPAID AGGREGATE
OF MORTGAGE PRINCIPAL PRINCIPAL
YEAR OF ORIGINATION LOANS BALANCE BALANCE
- ----------------------------------------------------------- -------------- ---------------- ------------------
<S> <C> <C> <C>
</TABLE>
It is expected that the earliest month and year of origination of any
Mortgage Loan was and the latest month and year of origination was
.
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER AGGREGATE UNPAID AGGREGATE
OF MORTGAGE PRINCIPAL PRINCIPAL
ORIGINAL LOAN-TO-VALUE RATIO LOANS BALANCE BALANCE
- ----------------------------------------------------------- -------------- ---------------- ------------------
<S> <C> <C> <C>
</TABLE>
As of the Cut-Off Date, the minimum and maximum Loan-to-Value Ratios at
origination of the Mortgage Loans are expected to be % and %,
respectively, and the weighted average Loan-to-Value Ratio at origination of the
Mortgage Loans is expected to be approximately %. The Loan-to-Value Ratio of
a Mortgage Loan is calculated using the lesser of (i) the appraised value of the
related Mortgaged Property, as established by an appraisal obtained by the
originator from an appraiser at the time of origination and (ii) the sale price
for such property. See "The Trust Estates -- Mortgage Loans" in the Prospectus.
No assurance can be given that the values of the Mortgaged Properties securing
the Mortgage Loans have remained or will remain at the levels used in
calculating the Loan-to-Value Ratios shown above. See "Risk Factors -- Risks of
the Mortgage Loans" in the Prospectus. It is expected that of the Mortgage Loans
having Loan-to-Value Ratios at origination in excess of 80%, representing
approximately % (by Cut-Off Date Aggregate Principal Balance) of the Mortgage
Loans, were originated without primary mortgage insurance.
S-59
<PAGE>
MORTGAGE LOAN DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER AGGREGATE UNPAID AGGREGATE
OF MORTGAGE PRINCIPAL PRINCIPAL
DOCUMENTATION LEVEL LOANS BALANCE BALANCE
- ----------------------------------------------------------- -------------- ---------------- ------------------
<S> <C> <C> <C>
</TABLE>
Documentation levels vary depending upon several factors, including loan
amount, Loan-to-Value Ratio and the type and purpose of the Mortgage Loan.
Asset, income and mortgage verifications were obtained for Mortgage Loans
processed with "full documentation."
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER AGGREGATE UNPAID AGGREGATE
OF MORTGAGE PRINCIPAL PRINCIPAL
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCE LOANS BALANCE BALANCE
- ----------------------------------------------------------- -------------- ---------------- ------------------
<S> <C> <C> <C>
</TABLE>
As of the Cut-Off Date, the average unpaid principal balance of the Mortgage
Loans is expected to be approximately $ . As of the Cut-Off Date, the
weighted average Loan-to-Value Ratio at origination and the maximum
Loan-to-Value Ratio at origination of the Mortgage Loans which had original
principal balances in excess of $600,000 are expected to be approximately %
and %, respectively. See "The Trust Estates -- Mortgage Loans" in the
Prospectus.
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER AGGREGATE UNPAID AGGREGATE
OF MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY LOANS BALANCE BALANCE
- ----------------------------------------------------------- -------------- ---------------- ------------------
<S> <C> <C> <C>
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER AGGREGATE UNPAID CUT-OFF DATE
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
GEOGRAPHIC AREA LOANS BALANCE BALANCE
- ------------------------------------------------------------ --------------- ---------------- --------------------
<S> <C> <C> <C>
</TABLE>
S-60
<PAGE>
No more than approximately % of the Cut-Off Date Aggregate Principal
Balance of the Mortgage Loans is expected to be secured by Mortgaged Properties
located in any one five-digit zip code.
ORIGINATORS OF MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER AGGREGATE UNPAID CUT-OFF DATE
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
ORIGINATOR LOANS BALANCE BALANCE
- ------------------------------------------------------------ --------------- ---------------- --------------------
<S> <C> <C> <C>
</TABLE>
It is expected that, as of the Mortgage Loan Cut-off Date, of
the "Other Originators" will have accounted for approximately % of the
Mortgage Loan Cut-off Date Aggregate Principal Balance. No other single "Other
Originator" is expected to have accounted for more than 5.00% of the Mortgage
Loan Cut-off Date Aggregate Principal Balance.
PURPOSES OF MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER AGGREGATE UNPAID CUT-OFF DATE
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
LOAN PURPOSE LOANS BALANCE BALANCE
- ------------------------------------------------------------ --------------- ---------------- --------------------
<S> <C> <C> <C>
</TABLE>
In general, in the case of a Mortgage Loan made for "rate/term" refinance
purposes, substantially all of the proceeds are used to pay in full the
principal balance of a previous mortgage loan of the mortgagor with respect to a
Mortgaged Property and to pay origination and closing costs associated with such
refinancing. However, in the case of a Mortgage Loan made for "equity take out"
refinance purposes, all or a portion of the proceeds are generally retained by
the mortgagor for uses unrelated to the Mortgaged Property. The amount of such
proceeds retained by the mortgagor may be substantial. See "The Trust
Estates--Mortgage Loans" and "The Mortgage Loan Programs--Mortgage Loan
Underwriting" in the Prospectus.
SUBSIDY LOAN PROGRAMS
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER AGGREGATE UNPAID CUT-OFF DATE
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
PROGRAM AND TERM LOANS BALANCE BALANCE
- ------------------------------------------------------------ --------------- ---------------- --------------------
<S> <C> <C> <C>
</TABLE>
S-61
<PAGE>
MANDATORY REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
The Seller is required, with respect to Mortgage Loans that are found by the
Trustee to have defective documentation, or in respect of which the Seller has
breached a representation or warranty, either to repurchase such Mortgage Loans
or, if within two years of the date of initial issuance of the Series 199 -
Certificates, to substitute new Mortgage Loans therefor. Any Mortgage Loan so
substituted must, among other things, have an unpaid principal balance equal to
or less than the Scheduled Principal Balance of the Mortgage Loan for which it
is being substituted (after giving effect to the scheduled principal payment due
in the month of substitution on the Mortgage Loan for which a new Mortgage Loan
is being substituted), a Loan-to-Value Ratio less than or equal to, and a
Mortgage Interest Rate equal to that of the Mortgage Loan for which it is being
substituted. See "Prepayment and Yield Considerations" herein and "The Pooling
and Servicing Agreement -- Assignment of Mortgage Loans to the Trustee" in the
Prospectus.
OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS
The [Master Servicer][Seller] may, in its sole discretion, repurchase any
defaulted Mortgage Loan, or any Mortgage Loan as to which default is reasonably
foreseeable, from the Trust Estate at a price equal to the unpaid principal
balance of such Mortgage Loan, together with accrued interest at a rate equal to
the Mortgage Interest Rate through the last day of the month in which such
repurchase occurs. See "The Pooling and Servicing Agreement -- Optional
Purchases" in the Prospectus. A Servicer may, in its sole discretion, allow the
assumption of a defaulted Mortgage Loan serviced by such Servicer by a borrower
meeting Norwest Mortgage's underwriting guidelines or encourage the refinancing
of a defaulted Mortgage Loan. See "Prepayment and Yield Considerations" herein
and "Servicing of the Mortgage Loans -- Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Mortgage Loans" in the Prospectus.
MORTGAGE UNDERWRITING STANDARDS
Approximately % (by Cut-Off Date Aggregate Principal Balance) of the
Mortgage Loans (the "Norwest Mortgage Underwritten Loans") were generally
originated in conformity with Norwest Mortgage's underwriting standards. In the
case of certain Mortgage Loans underwritten pursuant to a Delegated Underwriting
(as defined in the Prospectus under "The Mortgage Loan Programs -- Mortgage Loan
Underwriting") arrangement, exceptions to Norwest Mortgage's underwriting
standards may have been approved by Norwest Mortgage. See "The Mortgage Loan
Programs -- Mortgage Loan Underwriting" in the Prospectus.
Approximately % and % (by Cut-Off Date Aggregate Principal Balance)
of the Mortgage Loans will have been reviewed by GEMICO and UGRIC, respectively,
to ensure compliance with such company's respective credit, appraisal and
underwriting standards generally to assess the eligibility of such Mortgage
Loans for inclusion in a mortgage pool to be insured by such company. See "The
Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospectus.
Neither the Series 199 - Certificates nor the Mortgage Loans are insured or
guaranteed under a mortgage pool insurance policy issued by GEMICO or UGRIC.
The Pool Certification Underwritten Loans were evaluated by Norwest Mortgage
using credit scoring as described in the Prospectus under "The Mortgage Loan
Programs -- Mortgage Loan Underwriting" and, based on the Credit Scores of such
Mortgage Loans, some of such Mortgage Loans were re-underwritten by Norwest
Mortgage.
[The remaining approximate % (by Cut-Off Date Aggregate Principal
Balance) of the Mortgage Loans (the "Bulk Purchase Underwritten Loans") will
have been underwritten under varying standards. Norwest Mortgage has in each
case reviewed the underwriting standards applied and determined that the Bulk
Purchase Underwritten Loans would have qualified for origination under Norwest
Mortgage's underwriting standards together with customary exceptions therefrom
reflecting the exercise of underwriting discretion. Any such exceptions did not
constitute material departures from Norwest Mortgage's underwriting standards.]
S-62
<PAGE>
NORWEST MORTGAGE DELINQUENCY AND FORECLOSURE EXPERIENCE
The following tables set forth certain information concerning recent
delinquency, foreclosure and loan loss experience on the conventional mortgage
loans included in Norwest Mortgage's mortgage loan servicing portfolio which
were originated by Norwest Mortgage for its own account or for the account of an
affiliate or acquired by Norwest Mortgage for its own account or for the account
of an affiliate and underwritten to Norwest Mortgage's underwriting standards
(the "Program Loans"), on the Program Loans which are fixed interest rate
mortgage loans ("Fixed Program Loans"), including, in both cases, mortgage loans
originated in connection with the purchases of residences by relocated employees
("Relocation Mortgage Loans") and on the Fixed Program Loans other than the
Relocation Mortgage Loans ("Fixed Non-relocation Program Loans"). See
"Description of the Mortgage Loans" herein and "The Mortgage Loan Programs --
Mortgage Loan Underwriting" in the Prospectus. The delinquency, foreclosure and
loan loss experience represents the recent experience of Norwest Mortgage. There
can be no assurance that the delinquency, foreclosure and loan loss experience
set forth with respect to Norwest Mortgage's total servicing portfolio of
Program Loans, which includes both fixed and adjustable interest rate mortgage
loans and loans having a variety of original terms to stated maturity including
Relocation Mortgage Loans and non-relocation mortgage loans, and Norwest
Mortgage's servicing portfolios of Fixed Program Loans or Fixed Non-relocation
Program Loans, each of which includes loans having a variety of payment
characteristics, such as Subsidy Loans, Buy-Down Loans and Balloon Loans, will
be representative of the results that may be experienced with respect to the
Mortgage Loans included in the Trust Estate. Furthermore, there can be no
assurance that the future experience on the Mortgage Loans generally or the
Mortgage Loans serviced by Norwest Mortgage, all of which are fixed interest
rate mortgage loans having original terms to stated maturity of months,
approximately % (by Cut-Off Date Aggregate Principal Balance) of which are
serviced by Other Servicers and approximately % (by Cut-Off Date Aggregate
Principal Balance) of which were underwritten to various pool insurers'
standards will be comparable to that of the total Program Loans or Fixed Program
Loans.
Historically, Relocation Mortgage Loans, which constitute a significant
percentage of the Mortgage Loans currently serviced by Norwest Mortgage, have
experienced a significantly lower rate of delinquency and foreclosure than other
mortgage loans included in the portfolios of total Program Loans and Fixed
Program Loans. There can be no assurance that the future experience on the
Mortgage Loans contained in the Trust Estate, all of which are fixed interest
rate mortgage loans having original terms to stated maturity of approximately
years and none of which are Relocation Mortgage Loans, will be comparable to
that of the total Program Loans, the Fixed Program Loans or the Fixed
Non-relocation Program Loans.
The following tables reflect rapid growth during recent periods in Norwest
Mortgage's mortgage loan servicing portfolio as a result of the substantially
higher volume of new loan originations and acquisitions of recently originated
mortgage loans. Delinquencies, foreclosures and loan losses generally are
expected to occur more frequently after the first full year of the life of
mortgage loans. Accordingly, because a large number of mortgage loans serviced
by Norwest Mortgage have been recently originated, the current level of
delinquencies, foreclosures and loan losses may not be representative of the
levels which may be experienced over the lives of such mortgage loans. If the
volume of Norwest Mortgage's new loan originations and acquisitions does not
continue to grow at the rate experienced in recent years, the levels of
delinquencies, foreclosures and loan losses as percentages of Norwest Mortgage's
total servicing portfolio could rise significantly above the rates indicated in
the following tables.
S-63
<PAGE>
TOTAL PROGRAM LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
----------- ---------- ----------- ---------- ----------- ----------
AS OF AS OF AS OF
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31 1995
----------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio of
Program Loans........... $ $ $
Period of Delinquency (1)
30 to 59 days.......... $ $ $
60 to 89 days..........
90 days or more........
Total Delinquent Loans... $ $ $
Percent of Portfolio..... % % % % % %
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 1995
----------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures (2)......... $ $ $
Foreclosure Ratio (3).... % % %
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 1995
----------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss) (4)...... ($ ) ($ ) ($ )
Net Gain (Loss) Ratio
(5)..................... (%) (%) (%)
</TABLE>
- ------------------------------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure
proceedings had been instituted or with respect to which the related
property had been acquired as of the dates indicated.
(3) Foreclosures as a percentage of total loans in the applicable portfolio at
the end of each period.
(4) Does not include gain or loss with respect to loans in the applicable
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(5) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
S-64
<PAGE>
FIXED PROGRAM LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
----------- ---------- ----------- ---------- ----------- ----------
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30 199
----------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio of Fixed
Program Loans........... $ $ $
Period of Delinquency (1)
30 to 59 days.......... $ $ $
60 to 89 days..........
90 days or more........
Total Delinquent Loans... $ $ $
Percent of Fixed Program
Loan Portfolio.......... % % % % % %
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
----------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures (2)......... $ $ $
Foreclosure Ratio (3).... % % %
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
----------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss) (4)...... $ $ $
Net Gain (Loss) Ratio
(5)..................... % % %
</TABLE>
- ------------------------------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure
proceedings had been instituted or with respect to which the related
property had been acquired as of the dates indicated.
(3) Foreclosures as a percentage of total loans in the applicable portfolio at
the end of each period.
(4) Does not include gain or loss with respect to loans in the applicable
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(5) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
S-65
<PAGE>
FIXED NON-RELOCATION PROGRAM LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR BY DOLLAR
BY NO. AMOUNT OF BY NO. AMOUNT OF BY NO. AMOUNT OF
OF LOANS LOANS OF LOANS LOANS OF LOANS LOANS
----------- ---------- ----------- ---------- ----------- ----------
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
----------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio of Fixed
Non-relocation Program
Loans................... $ $ $
Period of Delinquency (1)
30 to 59 days.......... $ $ $
60 to 89 days..........
90 days or more........
Total Delinquent Loans... $ $ $
Percent of Fixed Non-
relocation Program Loan
Portfolio............... % % % % % %
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
----------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures (2)......... $ $ $
Foreclosure Ratio (3).... % % %
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
----------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss) (4)...... $ $ $
Net Gain (Loss) Ratio
(5)..................... % % %
</TABLE>
- ------------------------------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure
proceedings had been instituted or with respect to which the related
property had been acquired as of the dates indicated.
(3) Foreclosures as a percentage of total loans in the applicable portfolio at
the end of each period.
(4) Does not include gain or loss with respect to loans in the applicable
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(5) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
S-66
<PAGE>
The likelihood that a mortgagor will become delinquent in the payment of his
or her mortgage loan, the rate of any subsequent foreclosures, and the severity
of any loan loss experience, may be affected by a number of factors related to a
borrower's personal circumstances, including, but not limited to, unemployment
or change in employment (or in the case of self-employed mortgagors or
mortgagors relying on commission income, fluctuations in income), marital
separation and the mortgagor's equity in the related mortgaged property. In
addition, delinquency, foreclosure and loan loss experience may be sensitive to
adverse economic conditions, either nationally or regionally, may exhibit
seasonal variations and may be influenced by the level of interest rates and
servicing decisions on the applicable mortgage loans. Regional economic
conditions (including declining real estate values) may particularly affect
delinquency, foreclosure and loan loss experience on mortgage loans to the
extent that mortgaged properties are concentrated in certain geographic areas.
Furthermore, the level of foreclosures reported is affected by the length of
time legally required to complete the foreclosure process and take title to the
related property, which varies from jurisdiction to jurisdiction. The changes in
the delinquency, foreclosure and loan loss experience of Norwest Mortgage's
servicing portfolio during the periods set forth in the preceding table may be
attributable to factors such as those described above, although there can be no
assurance as to whether these changes are the result of any particular factor or
a combination of factors. The delinquency, foreclosure and loan loss experience
on the Mortgage Loans serviced by Norwest Mortgage may be particularly affected
to the extent that the related Mortgaged Properties are concentrated in areas
which experience adverse economic conditions or declining real estate values.
See "Description of the Mortgage Loans" in the Prospectus Supplement.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of distributions in reduction of the principal balance of any
Subclass or Class of the Offered Certificates, the aggregate amount of
distributions on any Subclass or Class of the Offered Certificates and the yield
to maturity of any Subclass or Class of the Offered Certificates purchased at a
discount or premium will be directly related to the rate of payments of
principal on the Mortgage Loans in the Trust Estate and the amount and timing of
mortgagor defaults resulting in Realized Losses. The rate of principal payments
on the Mortgage Loans will in turn be affected by the amortization schedules of
the Mortgage Loans, the rate of principal prepayments (including partial
prepayments and those resulting from refinancing) thereon by mortgagors,
liquidations of defaulted Mortgage Loans, repurchases by the Representing Party
of Mortgage Loans as a result of defective documentation or breaches of
representations and warranties and optional purchases by Norwest Mortgage of all
of the Mortgage Loans in connection with the termination of the Trust Estate.
See "Description of the Mortgage Loans -- Mandatory Repurchase or Substitution
of Mortgage Loans" and "Pooling and Servicing Agreement -- Optional Termination"
herein and "The Pooling and Servicing Agreement -- Assignment of Mortgage Loans
to the Trustee," "-- Optional Purchases" and "-- Termination; Purchase of
Mortgage Loans" in the Prospectus. Mortgagors are permitted to prepay the
Mortgage Loans, in whole or in part, at any time without penalty. As described
under "Description of the Certificates -- Principal (Including Prepayments)"
herein, all or a disproportionate percentage of principal prepayments on the
Mortgage Loans (including liquidations and repurchases of Mortgage Loans) will
be distributed, to the extent of the Classes A/M/B Fraction, to the holders of
the Class A Certificates then entitled to distributions in respect of principal
during the nine years beginning on the first Distribution Date, and, to the
extent that such principal prepayments are made in respect of a Discount
Mortgage Loan, to the Class AP Certificates in proportion to the interest of the
Class AP Certificates in such Discount Mortgage Loan represented by the Class AP
Fraction. Prepayments (which, as used herein, include all unscheduled payments
of principal, including payments as the result of liquidations, purchases and
repurchases) of the Mortgage Loans in the Trust Estate will result in
distributions to Certificateholders then entitled to distributions in respect of
principal of amounts which would otherwise be distributed over the remaining
terms of such Mortgage Loans. Since the rate of prepayment on the Mortgage Loans
will depend on future events and a variety of factors (as described more fully
below and in the Prospectus under "Prepayment and Yield
S-67
<PAGE>
Considerations"), no assurance can be given as to such rate or the rate of
principal payments on any Subclass or Class of the Offered Certificates or the
aggregate amount of distributions on any Subclass or Class of the Offered
Certificates.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage Interest
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to increase. Conversely, if interest rates on similar mortgage loans rise above
the Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment would
generally be expected to decrease. The rate of prepayment on the Mortgage Loans
may also be influenced by programs offered by mortgage loan originators
(including Norwest Mortgage), servicers (including Norwest Mortgage) and
mortgage loan brokers to encourage refinancing through such originators,
servicers and brokers, including, but not limited to, general or targeted
solicitations (which may be based on characteristics including, but not limited
to, the mortgage loan interest rate or payment history and the geographic
location of the Mortgaged Property), reduced origination fees or closing costs,
pre-approved applications, waiver of pre-closing interest accrued with respect
to a refinanced loan prior to the pay-off of such loan, or other financial
incentives. See "Prepayment and Yield Considerations -- Weighted Average Life of
Certificates" in the Prospectus. In addition, Norwest Mortgage or third parties
may enter into agreements with borrowers providing for the bi-weekly payment of
principal and interest on the related mortgage loan, thereby accelerating
payment of the mortgage loan resulting in partial prepayments.
The effect of subsidy agreements on the rate of prepayment of Subsidy Loans
is uncertain. The rate of prepayment on Subsidy Loans may be affected by such
factors as the relationship between prevailing mortgage rates and the effective
interest rates on such Subsidy Loans, the remaining term of the subsidy
agreements, and requests by the related employers for refinance or modification.
The subsidy agreement relating to a Subsidy Loan generally provides that if
prevailing market rates of interest on mortgage loans similar to such Subsidy
Loan decline relative to the Mortgage Interest Rate of such Subsidy Loan by the
percentage set forth in the subsidy agreement, the employer may request that the
mortgagor refinance such Subsidy Loan. In the event the mortgagor refinances
such Subsidy Loan, the Subsidy Loan will be prepaid, and the new loan will not
be included in the Trust Estate. If the mortgagor fails to refinance such
Subsidy Loan, the employer may terminate the related subsidy agreement. In
addition, the termination of the subsidy agreement relating to a Subsidy Loan
for any reason (whether due to the mortgagor's failure to refinance or
otherwise) may increase the financial burden of the mortgagor, who may not have
otherwise qualified for a mortgage under Norwest Mortgage's mortgage loan
underwriting guidelines, and may consequently increase the risk of default with
respect to the related Mortgage Loan. See "The Trust Estates -- Mortgage Loans"
and "The Mortgage Loan Programs -- Mortgage Loan Underwriting" in the
Prospectus. From time to time, the amount of the subsidy payment or the term of
the subsidy agreement may, upon the request of the corporate employer, be
modified.
Other factors affecting prepayment of mortgage loans include changes in
mortgagors' housing needs, job transfers, unemployment or, in the case of
self-employed mortgagors or mortgagors relying on commission income, substantial
fluctuations in income, significant declines in real estate values and adverse
economic conditions either generally or in particular geographic areas,
mortgagors' equity in the Mortgaged Properties, including the use of second or
"home equity" mortgage loans by mortgagors or the use of the properties as
second or vacation homes, and servicing decisions. In addition, all of the
Mortgage Loans contain due-on-sale clauses which will generally be exercised
upon the sale of the related Mortgaged Properties. Consequently, acceleration of
mortgage payments as a result of any such sale will affect the level of
prepayments on the Mortgage Loans. The extent to which defaulted Mortgage Loans
are assumed by transferees of the related Mortgaged Properties will also affect
the rate of principal payments. The rate of prepayment and, therefore, the yield
to maturity of the Offered Certificates will be affected by the extent to which
(i) the Seller elects to repurchase,
S-68
<PAGE>
rather than substitute for, Mortgage Loans which are found by the Trustee to
have defective documentation or with respect to which the Seller has breached a
representation or warranty or (ii) the Servicer elects to encourage the
refinancing of any defaulted Mortgage Loan rather than to permit an assumption
thereof by a mortgagor meeting the Servicer's underwriting guidelines. See
"Servicing of the Mortgage Loans -- Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Mortgage Loans" in the Prospectus. There can be no
certainty as to the rate of prepayments on the Mortgage Loans during any period
or over the life of the Series 199 - Certificates. See "Prepayment and Yield
Considerations" in the Prospectus.
THE YIELD TO MATURITY OF THE OFFERED CERTIFICATES WILL BE SENSITIVE IN
VARYING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS, WHICH MAY BE MADE AT ANY TIME WITHOUT PENALTY) ON THE MORTGAGE
LOANS. INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE ASSOCIATED
RISKS, INCLUDING, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT,
PARTICULARLY THE CLASS AP CERTIFICATES, THE RISK THAT A SLOWER THAN ANTICIPATED
RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE
LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED. A FASTER
THAN ANTICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER
THAN ANTICIPATED FOR INVESTORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM.
INVESTORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM SHOULD ALSO CONSIDER THE
RISK THAT A RAPID RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTORS
TO FULLY RECOVER THEIR INITIAL INVESTMENTS. THE YIELD ON THE CLASS AP
CERTIFICATES WILL BE INFLUENCED BY PRINCIPAL PAYMENTS SOLELY WITH RESPECT TO
DISCOUNT MORTGAGE LOANS.
The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor who
purchases an Offered Certificate at a price other than par, even if the average
rate of principal payments experienced over time is consistent with such
investor's expectation. In general, the earlier a prepayment of principal on the
underlying Mortgage Loans, the greater the effect on such investor's yield to
maturity. As a result, the effect on such investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of the Offered Certificates
would not be fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
The yield to maturity on the Class M Certificates will be more sensitive
than the yield to maturity on the Senior Certificates to losses due to defaults
on the Mortgage Loans (and the timing thereof), to the extent not covered by the
Class B Certificates, because the entire amount of such losses will be allocable
to the Class M Certificates prior to the Senior Certificates, except as
otherwise provided herein. To the extent not covered by Periodic Advances,
delinquencies on Mortgage Loans may also have a relatively greater effect on the
yield to investors in the Class M Certificates. Amounts otherwise distributable
to holders of the Class M Certificates will be made available to protect the
holders of the Senior Certificates against interruptions in distributions due to
certain mortgagor delinquencies. Such delinquencies, to the extent not covered
by the Class B Certificates, even if subsequently cured, may affect the timing
of the receipt of distributions by the holders of Class M Certificates, because
the entire amount of those delinquencies would be borne by the Class M
Certificates prior to the Senior Certificates.
The yield to maturity on the Offered Certificates and more particularly on
the Class M Certificates may be affected by the geographic concentration of the
Mortgaged Properties securing the Mortgage Loans, and the yield to maturity on
the Class AP Certificates may be particularly affected by the geographic
concentration of the Mortgaged Properties securing the Discount Mortgage Loans.
In recent periods, California and several other regions in the United States
have experienced significant declines in housing prices. In addition, California
and several other regions have experienced natural disasters, including
earthquakes and floods, which may adversely affect property values. Any
deterioration in housing prices in California, as well as and the
other states in which the Mortgaged Properties are located, and any
deterioration of economic conditions in such states which
S-69
<PAGE>
adversely affects the ability of borrowers to make payments on the Mortgage
Loans, may increase the likelihood of losses on the Mortgage Loans. Such losses,
if they occur, may have an adverse effect on the yield to maturity of the
Offered Certificates and more particularly on the Class M Certificates.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Subclass or Class of
Offered Certificates. An investor is urged to make an investment decision with
respect to any Subclass or Class of Offered Certificates based on the
anticipated yield to maturity of such Subclass or Class of Offered Certificates
resulting from its purchase price and such investor's own determination as to
anticipated Mortgage Loan prepayment rates under a variety of scenarios. The
extent to which any Subclass or Class of Offered Certificates are purchased at a
discount or a premium and the degree to which such Subclass or Class is
sensitive to the timing of prepayments will determine the extent to which the
yield to maturity of such Subclass or Class may vary from the anticipated yield.
An investor should carefully consider the associated risks, including, in the
case of any Subclass or Class of Offered Certificates purchased at a discount,
particularly the Class AP Certificates, the risk that a slower than anticipated
rate of principal payments on the Mortgage Loans, or in the case of the Class AP
Certificates, on the Discount Mortgage Loans, could result in an actual yield to
such investor that is lower than the anticipated yield and, in the case of any
Subclass or Class of Offered Certificates purchased at a premium the risk that a
faster than anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield.
An investor should consider the risk that rapid rates of prepayments on the
Mortgage Loans, and therefore of amounts distributable in reduction of principal
balance of the Offered Certificates, may coincide with periods of low prevailing
interest rates. During such periods, the effective interest rates on securities
in which an investor may choose to reinvest amounts distributed in reduction of
the principal balance of such investor's Offered Certificate may be lower than
the applicable Pass-Through Rate or, in the case of the Class AP Certificates,
the anticipated yield thereon. Conversely, slower rates of prepayments on the
Mortgage Loans, and therefore of amounts distributable in reduction of principal
balance of the Offered Certificates, may coincide with periods of high
prevailing interest rates. During such periods, the amount of principal
distributions available to an investor for reinvestment at such high prevailing
interest rates may be relatively small.
As indicated under "Federal Income Tax Considerations" herein, the Class A-R
Certificateholder's REMIC taxable income and the tax liability thereon may
exceed, and may substantially exceed, cash distributions to such holders during
certain periods. There can be no assurance as to the amount by which such
taxable income or such tax liability will exceed cash distributions in respect
of the Class A-R Certificate during any such period and no representation is
made with respect thereto under any principal prepayment scenario or otherwise.
DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTERESTS, THE AFTER-TAX RETURN OF
THE CLASS A-R CERTIFICATE MAY BE SIGNIFICANTLY LOWER THAN WOULD BE THE CASE IF
THE CLASS A-R CERTIFICATE WERE TAXED AS A DEBT INSTRUMENT, OR MAY BE NEGATIVE.
As referred to herein, the weighted average life of a Subclass or Class of
the Offered Certificates refers to the average amount of time that will elapse
from the date of issuance of such Subclass or Class until each dollar in
reduction of the principal balance of such Subclass or Class is distributed to
the investor. The weighted average life of each Subclass or Class of the Offered
Certificates will be influenced by, among other things, the rate and timing of
principal payments on the Mortgage Loans, which may be in the form of scheduled
amortization, prepayments or other recoveries of principal.
THE WEIGHTED AVERAGE LIFE OF THE COMPANION CERTIFICATES WILL BE HIGHLY
SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE
MORTGAGE LOANS. Specifically, if prepayments result in a Class A Principal
Amount equal to or less than the sum of the PAC Principal Amount and the TAC
Principal Amount on any Distribution Date, the Companion Certificates will
receive no distributions in reduction of principal on such Distribution Date.
Further, on each Distribution Date up to an including the Distribution Date on
which the Class A Subclass Principal Balance of the Companion Certificates is
reduced to zero, any Excess Principal Payments for such Distribution Date will
be
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<PAGE>
applied to the Companion Certificates before being distributed to the TAC
Certificates and the PAC Certificates in the proportions and priorities set
forth above under "Description of the Certificates -- Principal (Including
Prepayments)." See "Description of the Certificates -- Principal (Including
Prepayments) -- Principal Payment Characteristics of the PAC Certificates, the
TAC Certificates and the Companion Certificates."
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA, I.E., no prepayments. Correspondingly, " % SPA" assumes
prepayment rates equal to % of SPA, and so forth. SPA DOES NOT PURPORT TO BE
A HISTORICAL DESCRIPTION OF PREPAYMENT EXPERIENCE OR A PREDICTION OF THE
ANTICIPATED RATE OF PREPAYMENT OF ANY POOL OF MORTGAGE LOANS, INCLUDING THE
MORTGAGE LOANS.
The tables set forth below have been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Trust Estate, as described above under "Description of the Mortgage Loans." The
tables assume, among other things, that (i) the scheduled payment in each month
for each Mortgage Loan has been based on its outstanding balance as of the first
day of the month preceding the month of such payment, its Mortgage Interest Rate
and its remaining term to stated maturity, so that such scheduled payments would
amortize the remaining balance by its remaining term to maturity, (ii) scheduled
monthly payments of principal and interest on the Mortgage Loans will be timely
received on the first day of each month (with no defaults), commencing in
199 , (iii) the Seller does not repurchase any Mortgage Loan, as
described under "Description of the Mortgage Loans -- Mandatory Repurchase or
Substitution of Mortgage Loans" herein, and Norwest Mortgage does not exercise
its option to purchase the Mortgage Loans and thereby cause a termination of the
Trust Estate, (iv) principal prepayments in full on the Mortgage Loans will be
received on the last day of each month commencing in 199 at the
respective constant percentages of SPA set forth in the tables and there are no
partial principal prepayments or Prepayment Interest Shortfalls, (v) the Series
199 Certificates will be issued on , 199 and (vi) distributions to
Certificateholders will be made on the 25th day of each month, commencing in
199 . IT IS HIGHLY UNLIKELY THAT THE MORTGAGE LOANS WILL PREPAY AT ANY CONSTANT
RATE, THAT ALL OF THE MORTGAGE LOANS WILL PREPAY AT THE SAME RATE OR THAT THE
MORTGAGE LOANS WILL NOT EXPERIENCE ANY LOSSES. In addition, there may be
differences between the characteristics of the mortgage loans ultimately
included in the Trust Estate and the Mortgage Loans which are assumed to be
included, as described above. Any difference may have an effect upon the actual
percentages of initial Class A Subclass Principal Balance of the Subclasses of
Class A Certificates, initial principal balances of the Class AP and Class M
Certificates, the actual weighted average lives of the Subclasses of Class A
Certificates and the Class AP and Class M Certificates and the date on which the
Class A Subclass Principal Balance of any Subclass of Class A Certificates and
the principal balances of the Class AP and Class M Certificates are reduced to
zero.
Based upon the foregoing assumptions, the following tables indicate the
weighted average life of each Subclass and Class of Offered Certificates, and
set forth the percentages of the initial Class A Subclass Principal Balance of
each such Subclass and, in the case of the Class AP and Class M Certificates, of
the initial principal balances of the Class AP and Class M Certificates that
would be outstanding after each of the dates shown at constant percentages of
SPA presented.
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<PAGE>
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF SPA OF SPA
--------------------------------------------------------------------------- -------------------------------
DISTRIBUTION
DATE 0% % % % % % % 0% % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
DISTRIBUTION
DATE % % % %
<S> <C> <C> <C> <C>
</TABLE>
- ------------------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of principal
balance by the number of years from the date of the issuance of such
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the aggregate distributions in reduction of
principal balance referred to in clause (i).
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF SPA OF SPA
--------------------------------------------------------------------------- -------------------------------
DISTRIBUTION
DATE 0% % % % % % % 0% % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
DISTRIBUTION
DATE % % % %
<S> <C> <C> <C> <C>
</TABLE>
- ------------------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of principal
balance by the number of years from the date of the issuance of such
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the aggregate distributions in reduction of
principal balance referred to in clause (i).
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<PAGE>
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-5 CLASS A-R
CERTIFICATES AT THE CERTIFICATE AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF SPA OF SPA
--------------------------------------------------------------------------- -------------------------------
DISTRIBUTION
DATE 0% % % % % % % 0% % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
DISTRIBUTION
DATE % % % %
<S> <C> <C> <C> <C>
</TABLE>
- ------------------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of principal
balance by the number of years from the date of the issuance of such
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the aggregate distributions in reduction of
principal balance referred to in clause (i).
Interest accrued on the Class A and Class M Certificates will be reduced by
the amount of any interest portions of Realized Losses allocated to such
Certificates as described under "Description of the Certificates -- Interest"
herein. The yield on the Class A Certificates and the Class M Certificates will
be less than the yield otherwise produced by their respective Pass-Through Rates
and the prices at which such Certificates are purchased because the interest
which accrues on the Mortgage Loans during each month will not be passed through
to Certificateholders until the 25th day of the month following the end of such
month (or if such 25th day is not a business day, the following business day).
[The Seller intends to file certain additional yield tables and other
computational materials with respect to one or more Subclasses or Classes of
Offered Certificates with the Securities and Exchange Commission in a Report on
Form 8-K. See "Incorporation Of Certain Documents By Reference" in the
Prospectus. Such tables and materials will have been prepared by the Underwriter
at the request of certain prospective investors, based on assumptions provided
by, and satisfying the special requirements of, such investors. Such tables and
assumptions may be based on assumptions that differ from the assumptions set
forth in clauses (i) through (vii) of the first full paragraph on page S-
hereof. Accordingly, such tables and other materials may not be relevant to or
appropriate for investors other than those specifically requesting them.]
SENSITIVITY OF THE CLASS AP CERTIFICATES
THE YIELD TO AN INVESTOR IN THE CLASS AP CERTIFICATES WILL BE HIGHLY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS)
OF THE DISCOUNT MORTGAGE LOANS, WHICH RATE MAY FLUCTUATE SIGNIFICANTLY FROM TIME
TO TIME. AN INVESTOR SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE
RISK THAT A RELATIVELY SLOW RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS)
ON THE DISCOUNT MORTGAGE LOANS WILL HAVE A NEGATIVE EFFECT ON THE YIELD TO AN
INVESTOR IN THE CLASS AP CERTIFICATES. THE DISCOUNT MORTGAGE LOANS WILL HAVE
LOWER NET MORTGAGE INTEREST RATES THAN THE OTHER MORTGAGE LOANS. IN GENERAL,
MORTGAGE LOANS WITH LOWER MORTGAGE INTEREST RATES MAY TEND TO PREPAY AT A SLOWER
RATE OF PAYMENT IN RESPECT OF PRINCIPAL THAN MORTGAGE LOANS WITH RELATIVELY
HIGHER MORTGAGE INTEREST RATES, IN RESPONSE TO CHANGES IN MARKET INTEREST RATES.
AS A RESULT, THE DISCOUNT MORTGAGE LOANS MAY PREPAY AT A SLOWER RATE OF PAYMENT
IN RESPECT OF PRINCIPAL THAN THE OTHER MORTGAGE LOANS, RESULTING IN A LOWER
YIELD ON THE CLASS AP CERTIFICATES THAN WOULD BE THE CASE IF THE DISCOUNT
MORTGAGE LOANS PREPAID AT THE SAME RATE AS THE OTHER MORTGAGE LOANS.
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<PAGE>
The following table indicates the sensitivity to various rates of prepayment
on the Discount Mortgage Loans of the pre-tax yields to maturity on a corporate
bond equivalent ("CBE") basis of the Class AP Certificates. Such calculations
are based on distributions made in accordance with "Description of the
Certificates" above, on the assumptions described in clauses (i) through (vii)
of the first full paragraph on page S- and on the further assumptions that (i)
the Class AP Certificates will be purchased on , 199 at an
aggregate purchase price of % of the initial Class AP Principal Balance and
(ii) distributions to holders of the Class AP Certificates will be made on the
25th day of each month commencing in 199 .
SENSITIVITY OF THE PRE-TAX YIELD ON THE CLASS AP CERTIFICATES TO PREPAYMENTS
<TABLE>
<CAPTION>
PERCENTAGES OF SPA
--------------------------------------------------------------------
0% % % % % % %
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield (CBE)........... % % % % % % %
</TABLE>
The pre-tax yields set forth in the preceding table were calculated by (i)
determining the monthly discount rates which, when applied to the assumed stream
of cash flows to be paid on the Class AP Certificates, would cause the
discounted present value of such assumed stream of cash flows to equal an
assumed aggregate purchase price for the Class AP Certificates of approximately
% of the initial Class AP Principal Balance and (ii) converting such monthly
rates to corporate bond equivalent rates. Such calculation does not take into
account the interest rates at which investors may be able to reinvest funds
received by them as distributions on the Class AP Certificates and consequently
does not purport to reflect the return on any investment in the Class AP
Certificates when such reinvestment rates are considered.
NOTWITHSTANDING THE ASSUMED PREPAYMENT RATES REFLECTED IN THE PRECEDING
TABLE, IT IS HIGHLY UNLIKELY THAT THE DISCOUNT MORTGAGE LOANS WILL PREPAY AT A
CONSTANT RATE UNTIL MATURITY OR THAT ALL OF THE DISCOUNT MORTGAGE LOANS WILL
PREPAY AT THE SAME RATE. The Discount Mortgage Loans initially included in the
Trust Estate may differ from those currently expected to be included in the
Trust Estate, and thereafter may be changed as a result of permitted
substitutions. As a result of these factors, the pre-tax yields on the Class AP
Certificates are likely to differ from those shown in such table, even if all of
the Discount Mortgage Loans prepay at the indicated percentages of SPA.
POOLING AND SERVICING AGREEMENT
GENERAL
The Series 199 - Certificates will be issued pursuant to a Pooling and
Servicing Agreement to be dated as of the date of initial issuance of the Series
199 - Certificates (the "Pooling and Servicing Agreement") among the Seller, the
Master Servicer and the Trustee. Reference is made to the Prospectus for
important additional information regarding the terms and conditions of the
Pooling and Underlying Servicing Agreement and the Series 199 - Certificates.
See "Description of the Certificates," "Servicing of the Mortgage Loans" and
"The Pooling and Servicing Agreement" in the Prospectus.
The Trust Estate created pursuant to the Pooling and Servicing Agreement
will consist of (i) the Mortgage Loans as described under "Description of the
Mortgage Loans," (ii) such assets as from time to time are identified as
deposited in any account held for the benefit of the Certificateholders, (iii)
any Mortgaged Properties acquired on behalf of the Certificateholders by
foreclosure or by deed in lieu of foreclosure after the date of original
issuance of the Certificates, (iv) the rights of the Trustee to receive the
proceeds of all insurance policies and performance bonds, if any, required to be
maintained pursuant to the Pooling and Servicing Agreement, (v) certain rights
of the Seller to the enforcement of representations and warranties made by the
Representing Parties relating to the Mortgage Loans, and (vi) the rights of the
Trustee under the Norwest Mortgage Loan Purchase Agreement.
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<PAGE>
DISTRIBUTIONS
Distributions (other than the final distribution in retirement of the Class
A Certificates of each Subclass) will be made by check mailed to the address of
the person entitled thereto as it appears on the Certificate Register. However,
with respect to any holder of a Class A Certificate evidencing at least a
$5,000,000 initial principal balance or any holder of a Class AP, Class M or
Offered Class B Certificate evidencing a 100% Percentage Interest, distributions
will be made on the Distribution Date by wire transfer in immediately available
funds, provided that the Master Servicer, or the paying agent acting on behalf
of the Master Servicer, shall have been furnished with appropriate wiring
instructions not less than seven business days prior to the related Distribution
Date. The final distribution in respect of each Subclass of Offered Certificates
will be made only upon presentation and surrender of the related Certificate at
the office or agency appointed by the Trustee specified in the notice of final
distribution with respect to the related Subclass or Class.
Unless Definitive Certificates are issued as described above, the Master
Servicer, the Trustee and the Master Servicer will treat DTC as the Holder of
the Book-Entry Certificates for all purposes, including making distributions
thereon and taking actions with respect thereto. DTC will make book-entry
transfers among its participants with respect to the Book-Entry Certificates; it
will also receive distributions on the Book-Entry Certificates from the Trustee
and transmit them to participants for distribution to Beneficial Owners or their
nominees.
VOTING
With respect to any provisions of the Pooling and Servicing Agreement
providing for the action, consent or approval of the holders of all Series
199 - Certificates evidencing specified Voting Interests in the Trust Estate,
the holders of the Class A Certificates will collectively be entitled to a
percentage (the "Class A Voting Interest") of the aggregate Voting Interest
represented by all Series 199 - Certificates equal to the product of (i) the
then applicable Class A Percentage and (ii) the ratio obtained by dividing the
Pool Balance (Classes A/M/B Portion) by the sum of the Pool Balance (Classes
A/M/B Portion) and the Pool Balance (Class AP Portion) (the "Classes A/M/B
Voting Interest"); the holders of the Class AP Certificates will collectively be
entitled to a percentage of the aggregate Voting Interest represented by all
Series 199 - Certificates equal to the percentage obtained by dividing the Pool
Balance (Class AP Portion) by the sum of the Pool Balance (Class A/M/B Portion)
and the Pool Balance (Class AP Portion); the holders of the Class M Certificates
will collectively be entitled to the then applicable percentage of the aggregate
Voting Interest represented by all Series 199 - Certificates equal to the
product of (i) the ratio obtained by dividing the Class M Principal Balance by
the sum of the Class A Principal Balance, the Class M Principal Balance and the
Class B Principal Balance and (ii) the Classes A/M/B Voting Interest. The
aggregate Voting Interests of each Subclass of Class A Certificates on any date
will be equal to the product of (a) the Class A Voting Interest on such date and
(b) the fraction obtained by dividing the Class A Subclass Principal Balance of
such Subclass on such date by the aggregate Class A Subclass Principal Balance
of the Class A Certificates on such date. Each Certificateholder of a Class or
Subclass will have a Voting Interest equal to the product of the Voting Interest
to which such Class or Subclass is collectively entitled and the Percentage
Interest in such Class or Subclass represented by such holder's Certificates.
With respect to any provisions of the Pooling and Servicing Agreement providing
for action, consent or approval of each Class or Subclass of Certificates or
specified Classes or Subclasses of Certificates, each Certificateholder of a
Subclass will have a Voting Interest in such Subclass equal to such holder's
Percentage Interest in such Subclass. Unless Definitive Certificates are issued
as described above, Beneficial Owners of Book-Entry Certificates may exercise
their voting rights only through DTC Participants.
TRUSTEE
The Trustee for the Series 199 - Certificates will be , a
[national banking association]. The Corporate Trust Office of the Trustee is
located at . The Trustee will be responsible for
monitoring the compliance of the Master Servicer with the Pooling and Servicing
Agreement and the Underlying Servicing Agreements and make Periodic Advances to
the limited extent described herein with respect to the Mortgage Loans serviced
by Norwest Mortgage if
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<PAGE>
Norwest Mortgage, as Servicer, fails to make a Periodic Advance required by the
Underlying Servicing Agreement. See "The Pooling and Servicing Agreement -- The
Trustee" in the Prospectus. The Trustee will be entitled to a "Trustee Fee"
payable monthly equal to the product of (i) 1/12th of a fixed percentage per
annum as set forth in the Pooling and Servicing Agreement (the "Trustee Fee
Rate") and (ii) the aggregate Scheduled Principal Balances of the Mortgage Loans
as of the first day of each month.
MASTER SERVICER
Norwest Bank will act as "Master Servicer" of the Mortgage Loans and, in
that capacity, will supervise the servicing of the Mortgage Loans, service
Mortgage Loans in the event a Servicer is terminated and a successor servicer is
not appointed, provide certain reports to the Trustee regarding the Mortgage
Loans and the Certificates and make Periodic Advances to the limited extent
described herein with respect to the Mortgage Loans if a Servicer other than
Norwest Mortgage fails to make a Periodic Advance required by the related
Underlying Servicing Agreement. The Master Servicer will be entitled to a
"Master Servicing Fee" payable monthly equal to the product of (i) 1/12th of a
fixed percentage per annum as set forth in the Pooling and Servicing Agreement
(the "Master Servicing Fee Rate") and (ii) the aggregate Scheduled Principal
Balances of the Mortgage Loans as of the first day of each month. The Master
Servicer will pay all administrative expenses to the Trust Estate subject to
reimbursement as described under "Master Servicer" in the Prospectus.
OPTIONAL TERMINATION
At its option, the Seller may purchase from the Trust Estate all of the
Mortgage Loans, and thereby effect early retirement of the Series 199 -
Certificates, on any Distribution Date when the Pool Scheduled Principal Balance
is less than % of the Cut-Off Date Aggregate Principal Balance. Any such
purchase will be made only in connection with a "qualified liquidation" of the
REMIC within the meaning of Section 860F(a)(4)(A) of the Code. The purchase
price will generally be equal to the unpaid principal balance of each Mortgage
Loan plus the fair market value of other property (including any Mortgaged
Property title to which has been acquired by the Trust Estate ("REO Property"))
in the Trust Estate plus accrued interest. In the event the Trust Estate is
liquidated as described above, holders of the Certificates, to the extent funds
are available, will receive the unpaid principal balance of their Certificates
and any accrued and unpaid interest thereon. The amount, if any, remaining in
the Certificate Account after the payment of all principal and interest on the
Certificates and expenses of the REMIC will be distributed to the holder of the
Class A-R Certificate. See "Description of the Certificates -- Additional Rights
of the Class A-R Certificateholder" herein and "The Pooling and Servicing
Agreement -- Termination; Purchase of Mortgage Loans" in the Prospectus.
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<PAGE>
SERVICING OF THE MORTGAGE LOANS
Norwest Mortgage will service approximately % (by Cut-Off Date Aggregate
Principal Balance) of the Mortgage Loans and the servicers listed below (the
"Other Servicers", and collectively with Norwest Mortgage, the "Servicers") will
service the balance of the Mortgage Loans, as indicated, each pursuant to a
separate Underlying Servicing Agreement. The rights to enforce the related
Servicer's obligations under each Underlying Servicing Agreement with respect to
the related Mortgage Loans will be assigned to the Trustee for the benefit of
Certificateholders. Among other things, the Servicers are obligated under
certain circumstances to advance delinquent payments of principal and interest
with respect to the Mortgage Loans. See "Servicing of the Mortgage Loans" in the
Prospectus.
THE SERVICERS
The Mortgage Loans initially will be serviced by the following entities:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF CUT-OFF
DATE AGGREGATE PRINCIPAL BALANCE
NAME OF SERVICER SERVICED
- --------------------------------------------------------------------- ---------------------------------
<S> <C>
Norwest Mortgage, Inc................................................ %
%
%
%
%
%
%
%
%
-------
Total............................................................ 100.00%
-------
-------
</TABLE>
Certain information with respect to the loan servicing experience of Norwest
Mortgage is set forth under "Norwest Mortgage -- Delinquency and Foreclosure
Experience."
SERVICER CUSTODIAL ACCOUNTS
Each Servicer is required to establish and maintain a custodial account for
principal and interest (each such account, a "Servicer Custodial Account"), into
which it will deposit all collections of principal (including principal
prepayments and Liquidation Proceeds in respect of principal, if any) on any
Mortgage Loan that such Servicer services, interest (net of Servicing Fees) on
any Mortgage Loan that such Servicer services, related insurance proceeds,
advances made from the Servicer's own funds and the proceeds of any purchase of
a related Mortgage Loan for breach of a representation or warranty or the sale
of a Mortgaged Property in connection with liquidation of the related Mortgage
Loan. All Servicer Custodial Accounts are required to be held in a depository
institution and invested in the manner specified in the related Underlying
Servicing Agreement. Funds in such accounts generally must be held separate and
apart from the assets of the Servicer and generally may not be commingled with
funds held by a Servicer with respect to mortgage loans other than the Mortgage
Loans.
Not later than the Remittance Date, the Servicers are obligated to remit to
the Certificate Account all amounts on deposit in the Servicer Custodial
Accounts as of the close of business on the business day preceding the
Remittance Date other than the following:
(a) amounts received as late payments of principal or interest
respecting which such Servicer previously has made one or more unreimbursed
Periodic Advances;
(b) any unreimbursed Periodic Advances of such Servicer with respect to
Liquidated Loans;
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<PAGE>
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent the applicable Servicing Fee, as adjusted where
applicable in respect of Prepayment Interest Shortfalls as described under
"Description of the Certificates -- Interest";
(d) all amounts representing scheduled payments of principal and
interest due after the Due Date occurring in the month in which such
Distribution Date occurs;
(e) all proceeds of any Mortgage Loans, or property acquired in respect
thereof, liquidated, foreclosed, purchased or repurchased pursuant to the
Pooling and Servicing Agreement (other than Partial Liquidation Proceeds)
received by such Servicer on or after the Due Date occurring in the month in
which such Distribution Date occurs, all principal prepayments in full,
partial principal prepayments and Partial Liquidation Proceeds on Mortgage
Loans received on or after the Determination Date occurring in the month in
which such Distribution Date occurs, and all related payments of interest on
such amounts;
(f) all amounts representing certain expenses reimbursable to such
Servicer and any other amounts permitted to be retained by such Servicer or
withdrawn by such Servicer from the Servicer Custodial Account pursuant to
the applicable Underlying Servicing Agreement;
(g) all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees which such Servicer is entitled to retain as
additional servicing compensation; and
(h) reinvestment earnings on payments received in respect of the
Mortgage Loans or on other amounts on deposit in the related Servicer
Custodial Account.
FIXED RETAINED YIELD; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The primary compensation payable to each of the Servicers is the aggregate
of the Servicing Fees applicable to the related Mortgage Loans. The Servicing
Fee applicable to each Mortgage Loan is expressed as a fixed percentage (the
"Servicing Fee Rate") of the Scheduled Principal Balance of such Mortgage Loan
as of the first day of each month. The Servicing Fee Rate for each Mortgage Loan
will be a fixed percentage rate per annum. The Servicing Fee Rate, as of the
Cut-Off Date, is expected to range from approximately % to % per annum.
In addition to the Servicing Fees, late payment fees, loan assumption fees and
prepayment fees with respect to the Mortgage Loans, and any interest or other
income earned on collections with respect to the Mortgage Loans pending
remittance to the Certificate Account, will be paid to or retained by the
Servicers as additional servicing compensation. The Servicing Fees payable to
such Servicer with respect to the Mortgage Loans serviced by Norwest Mortgage
are subject to reduction in any month to cover Prepayment Interest Shortfalls
with respect to such Mortgage Loans.
A fixed percentage of the interest on each Mortgage Loan (the "Fixed
Retained Yield") with a per annum Mortgage Interest Rate greater than (i) the
sum of (a) %, (b) the Servicing Fee Rate, (c) the Master Servicing Fee Rate
and (d) the Trustee Fee Rate, which will be determined on a loan by loan basis
and will equal the Mortgage Interest Rate on each Mortgage Loan minus the rate
described in clause (i), will not be included in the Trust Estate. There will be
no Fixed Retained Yield on any Mortgage Loan with a Mortgage Interest Rate equal
to or less than the rate described in clause (i). See "Servicing of the Mortgage
Loans -- Fixed Retained Yield, Servicing Compensation and Payment of Expenses"
in the Prospectus for information regarding other possible compensation to the
Servicer. The servicing fees and other expenses of the REMIC will be allocated
to a holder of the Class A-R Certificate who is an individual, estate or trust
(whether such Certificate is held directly or through certain pass-through
entities) as additional gross income without a corresponding distribution of
cash, and any such investor (or its owners, in the case of a pass-through
entity) may be limited in its ability to deduct such expenses for regular tax
purposes and may not be able to deduct such expenses to any extent for
alternative minimum tax purposes. See "Certain Federal Income Tax Consequences
- -- Federal Income Tax Consequences for REMIC Certificates -- Limitations on
Deduction of Certain Expenses" in the Prospectus.
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<PAGE>
SERVICER DEFAULTS
The Trustee will have the right pursuant to the Underlying Servicing
Agreements to terminate a Servicer in certain events, including the breach by
such Servicer of any of its material obligations under its Underlying Servicing
Agreement. In the event of such termination, (i) the Trustee may enter into a
substitute Underlying Servicing Agreement with the Master Servicer or, at the
Master Servicer's nomination, another servicing institution acceptable to the
Trustee and each Rating Agency; and (ii) the Master Servicer shall assume
certain of the Servicer's servicing obligations under such Underlying Servicing
Agreement, including the obligation to make Periodic Advances (limited as
provided herein under the heading "Pooling and Servicing Agreement -- Periodic
Advances"), until such time as a successor servicer is appointed. Any successor
Servicer, including the Master Servicer or the Trustee, will be entitled to
compensation arrangements similar to those provided to the Servicer. See
"Servicing of the Mortgage Loans -- Fixed Retained Yield, Servicing Compensation
and Payment of Expenses" in the Prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the anticipated material federal income tax consequences of the
purchase, ownership and disposition of the Offered Certificates.
An election will be made to treat the Trust Estate, and the Trust Estate
will qualify, as a REMIC for federal income tax purposes. The Class A-1, Class
A-2, Class A-3, Class A-4 and Class A-5 Certificates, the Class AP Certificates
and the Class M Certificates (collectively, the "Regular Certificates"),
together with the Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5
Certificates, will be designated as the regular interests in the REMIC, and the
Class A-R Certificate will be designated as the residual interest in the REMIC.
The Class A-R Certificate is a "Residual Certificate" for purposes of the
Prospectus.
The Offered Certificates will be treated as "qualifying real property loans"
for mutual savings banks and domestic building and loan associations, "regular
or residual interests in a REMIC" for domestic building and loan associations,
and "real estate assets" for real estate investment trusts, to the extent
described in the Prospectus.
REGULAR CERTIFICATES
The Regular Certificates generally will be treated as newly originated debt
instruments for federal income tax purposes. Beneficial Owners (or in the case
of Definitive Certificates, holders) of the Regular Certificates will be
required to report income on such Certificates in accordance with the accrual
method of accounting.
The Class AP Certificates will be issued with original issue discount in an
amount equal to the excess of the initial principal balance thereof over their
respective issue prices. It is anticipated that the Class A- and Class A-
Certificates and the Class M Certificates will be issued with original issue
discount in an amount equal to the excess of the initial principal balances of
such Subclasses or Class over their respective issue prices (including accrued
interest). It is further anticipated that the Class A- and Class A- Certificates
will be issued at a premium and that the Class A- Certificates will be issued
with DE MINIMIS original issue discount for federal income tax purposes. Each
Subclass of the Class B Certificates, which are not offered hereby, also will be
treated as issued with original issue discount for federal income tax purposes.
The Prepayment Assumption (as defined in the Prospectus) that the Master
Servicer intends to use in determining the rate of accrual of original issue
discount will be calculated using % SPA. No representation is made as to the
actual rate at which the Mortgage Loans will prepay.
RESIDUAL CERTIFICATE
The holder of the Class A-R Certificate must include the taxable income or
loss of the REMIC in determining its federal taxable income. The Class A-R
Certificate will remain outstanding for federal
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<PAGE>
income tax purposes until there are no Certificates of any other Class
outstanding. PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE CLASS A-R
CERTIFICATEHOLDER'S REMIC TAXABLE INCOME AND THE TAX LIABILITY THEREON MAY
EXCEED, AND MAY SUBSTANTIALLY EXCEED, CASH DISTRIBUTIONS TO SUCH HOLDER DURING
CERTAIN PERIODS, IN WHICH EVENT, THE HOLDER THEREOF MUST HAVE SUFFICIENT
ALTERNATIVE SOURCES OF FUNDS TO PAY SUCH TAX LIABILITY. Furthermore, it is
anticipated that all or a substantial portion of the taxable income of the REMIC
includible by the holder of the Class A-R Certificate will be treated as "excess
inclusion" income, resulting in (i) the inability of such holder to use net
operating losses to offset such income from the respective REMIC, (ii) the
treatment of such income as "unrelated business taxable income" to certain
holders who are otherwise tax-exempt, and (iii) the treatment of such income as
subject to 30% withholding tax to certain non-U.S. investors, with no exemption
or treaty reduction.
Under the REMIC Regulations, because the fair market value of the Class A-R
Certificate will not exceed 2% of the fair market value of the REMIC the Class
A-R Certificate will not have "significant value," and thrift institutions will
not be permitted to offset their net operating losses against such excess
inclusion income. In addition, the Class A-R Certificate will be considered a
"noneconomic residual interest," with the result that transfers thereof would be
disregarded for federal income tax purposes if any significant purpose of the
transferor was to impede the assessment or collection of tax. Accordingly, the
transferee affidavit used for transfer of the Class A-R Certificate will require
the transferee to affirm that it (i) historically has paid its debts as they
have come due and intends to do so in the future, (ii) understands that it may
incur tax liabilities with respect to the Class A-R Certificate in excess of
cash flows generated thereby, (iii) intends to pay taxes associated with holding
the Class A-R Certificate as such taxes become due and (iv) will not transfer
the Class A-R Certificate to any person or entity that does not provide a
similar affidavit. The transferor must certify in writing to the Trustee that,
as of the date of the transfer, it had no knowledge or reason to know that the
affirmations made by the transferee pursuant to the preceding sentence were
false. Additionally, the Class A-R Certificate generally may not be transferred
to certain persons who are not U.S. Persons (as defined herein). See
"Description of the Certificates -- Restrictions on Transfer of the Class A-R
and Class M Certificates" herein and "Certain Federal Income Tax Consequences --
Federal Income Tax Consequences For REMIC Certificates," "-- Taxation of
Residual Certificates -- Limitations on Offset or Exemption of REMIC Income" and
"-- Tax-Related Restrictions on Transfer of Residual Certificates -- Noneconomic
Residual Interests" in the Prospectus.
An individual, trust or estate that holds the Class A-R Certificate (whether
such Certificate is held directly or indirectly through certain pass-through
entities) also may have additional gross income with respect to, but may be
subject to limitations on the deductibility of, Servicing Fees on the Mortgage
Loans and other administrative expenses properly allocable to the applicable
REMIC in computing such holder's regular tax liability, and may not be able to
deduct such fees or expenses to any extent in computing such holder's
alternative minimum tax liability. In addition, some portion of a purchaser's
basis, if any, in the Class A-R Certificate may not be recovered until
termination of the respective REMIC. Furthermore, the federal income tax
consequences of any consideration paid to a transferee on a transfer of the
Class A-R Certificate are unclear. The preamble to the REMIC Regulations
indicates that the Internal Revenue Service anticipates providing guidance with
respect to the federal tax treatment of such consideration. Any transferee
receiving consideration with respect to the Class A-R Certificate should consult
its tax advisors.
DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTERESTS, THE EFFECTIVE
AFTER-TAX RETURN OF THE CLASS A-R CERTIFICATE MAY BE SIGNIFICANTLY LOWER THAN
WOULD BE THE CASE IF THE CLASS A-R CERTIFICATE WERE TAXED AS A DEBT INSTRUMENT,
OR MAY BE NEGATIVE.
See "Certain Federal Income Tax Consequences" in the Prospectus.
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<PAGE>
ERISA CONSIDERATIONS
The Class A-R Certificate may not be purchased by or transferred to any
person which is an employee benefit plan within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
which is subject to the fiduciary responsibility rules of Sections 401-414 of
ERISA or Code Section 4975 (an "ERISA Plan") or which is a governmental plan, as
defined in Section 3(32) of ERISA, subject to any federal, state or local law
("Similar Law") which is, to a material extent, similar to the foregoing
provisions of ERISA or the Code (collectively, with an ERISA Plan, a "Plan"), or
any person utilizing the assets of such Plan. Accordingly, the following
discussion does not purport to discuss the considerations under ERISA, Code
Section 4975 or Similar Law with respect to the purchase, acquisition or resale
of the Class A-R Certificate and for purposes of the following discussion all
references to the Offered Certificates are deemed to exclude the Class A-R
Certificate.
In addition, under current law the purchase and holding of the Class M
Certificates by or on behalf of a Plan may result in "prohibited transactions"
within the meaning of ERISA and Code Section 4975 or Similar Law. Transfer of
the Class M Certificates will not be made unless the transferee (i) executes a
representation letter in form and substance satisfactory to the Trustee stating
that (a) it is not, and is not acting on behalf of, any such Plan or using the
assets of any such Plan to effect such purchase or (b) if it is an insurance
company, that the source of funds used to purchase the Class M Certificates is
an "insurance company general account" (as such term is defined in Section V(e)
of Prohibited Transaction Class Exemption 95-60 ("PTE 95-60"), 60 Fed. Reg.
35925 (July 12, 1995) and there is no Plan with respect to which the amount of
such general account's reserves and liabilities for the contract(s) held by or
on behalf of such Plan and all other Plans maintained by the same employer (or
affiliate thereof as defined in Section V(a)(1) of PTE 95-60) or by the same
employee organization, exceed 10% of the total of all reserves and liabilities
of such general account (as such amounts are determined under Section I(a) of
PTE 95-60) at the date of acquisition or (ii) provides an opinion of counsel in
form and substance satisfactory to the Trustee that the purchase or holding of
the Class M Certificates by or on behalf of such Plan will not result in the
assets of the Trust Estate being deemed to be "plan assets" and subject to the
prohibited transaction provisions of ERISA and the Code or Similar Law and will
not subject the Seller, the Master Servicer, the Master Servicer or the Trustee
to any obligation in addition to those undertaken in the Pooling and Servicing
Agreement. The Class M Certificates will contain a legend describing such
restrictions on transfer and the Pooling and Servicing Agreement will provide
that any attempted or purported transfer in violation of these transfer
restrictions will be null and void and will vest no rights in any purported
transferee. Accordingly, the following discussion does not purport to discuss
the considerations under ERISA, Code Section 4975 or Similar Law with respect to
the purchase, acquisition or resale of the Class M Certificates and for purposes
of the following discussion all references to the Offered Certificates are
deemed to exclude the Class M Certificates.
As described in the Prospectus under "ERISA Considerations," ERISA and the
Code impose certain duties and restrictions on ERISA Plans and certain persons
who perform services for ERISA Plan. Comparable duties and restrictions may
exist under Similar Law on governmental plans and certain persons who perform
services for governmental plans. For example, unless exempted, investment by an
ERISA Plan in the Offered Certificates may constitute a prohibited transaction
under ERISA, the Code or Similar Law. There are certain exemptions issued by the
United States Department of Labor (the "DOL") that may be applicable to an
investment by an ERISA Plan in the Offered Certificates, including the
individual administrative exemption described below and Prohibited Transaction
Class Exemption 83-1 ("PTE 83-1"). For a further discussion of the individual
administrative exemption and PTE 83-1, including the necessary conditions to
their applicability, and other important factors to be considered by an ERISA
Plan contemplating investing in the Offered Certificates, see "ERISA
Considerations" in the Prospectus.
[On , the DOL issued to the Underwriter an individual
administrative exemption, Prohibited Transaction Exemption , Fed.
Reg. (the "Exemption"), from
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<PAGE>
certain of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by an ERISA Plan of certificates
in pass-through trusts that meet the conditions and requirements of the
Exemption. The Exemption might apply to the acquisition, holding and resale of
the Offered Certificates, other than the Class A-R Certificate, by an ERISA
Plan, provided that specified conditions are met.
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by an ERISA Plan of the Offered Certificates is the
condition that the ERISA Plan investing in the Offered Certificates 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
(the "Securities Act").]
Before purchasing an Offered Certificate, a fiduciary of an ERISA Plan
should make its own determination as to the [availability of the exemptive
relief provided in the Exemption or the] availability of any [other] prohibited
transaction exemptions (including PTE 83-1), and whether the conditions of any
such exemption will be applicable to the Offered Certificates and a fiduciary of
a governmental plan should make its own determination as to the need for and
availability of any exemptive relief under Similar Law. Any fiduciary of an
ERISA Plan considering whether to purchase an Offered Certificate should also
carefully review with its own legal advisors the applicability of the fiduciary
duty and prohibited transaction provisions of ERISA, the Code and Similar Law to
such investment. See "ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT
[The Offered Certificates constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act") so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization. As such, the Offered Certificates are legal investments for
certain entities to the extent provided in the Enhancement Act. However,
institutions subject to the jurisdiction of the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the National
Credit Union Administration or state banking or insurance authorities should
review applicable rules, supervisory policies and guidelines of these agencies
before purchasing any of the Offered Certificates, as certain Subclasses of the
Class A Certificates or the Class M Certificates may be deemed to be unsuitable
investments under one or more of these rules, policies and guidelines and
whether certain restrictions may apply to investments in other Subclasses of the
Class A Certificates or the Class M Certificates. It should also be noted that
certain states recently have enacted, or have proposed enacting, legislation
limiting to varying extents the ability of certain entities (in particular
insurance companies) to invest in mortgage related securities.] [The Offered
Certificates will not constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984 (the "Enhancement Act"). The
appropriate characterization of the Offered Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Offered Certificates, may be subject to significant
interpretive uncertainties. All investors whose investment authority is subject
to legal restrictions should consult their own legal advisors to determine,
whether, and to what extent, the Offered Certificates will constitute legal
investments for them.] Investors should consult with their own legal advisors in
determining whether and to what extent Offered Certificates constitute legal
investments for such investors. See "Legal Investment" in the Prospectus.
SECONDARY MARKET
There will not be any market for the Offered Certificates prior to the
issuance thereof. The Underwriter intends to act as a market maker in the
Offered Certificates, subject to applicable provisions of federal and state
securities laws and other regulatory requirements, but is under no obligation to
do so. There can be no assurance that a secondary market in the Offered
Certificates will develop or, if such a market does develop, that it will
provide holders of Offered Certificates with
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<PAGE>
liquidity of investment at any particular time or for the life of the Offered
Certificates. As a source of information concerning the Certificates and the
Mortgage Loans, prospective investors in Certificates may obtain copies of the
reports included in monthly statements to Certificateholders described under
"Description of Certificates -- Reports" upon written request to the Trustee at
the Corporate Trust Office.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated as
of , 199 (the "Underwriting Agreement") among Norwest Mortgage, the
Seller and [Underwriter], as underwriter (the "Underwriter"), the Offered
Certificates offered hereby are being purchased from the Seller by the
Underwriter upon issuance. The Underwriter is committed to purchase all of the
Offered Certificates if any Offered Certificates are purchased. The Underwriter
has advised the Seller that it proposes to offer the Offered Certificates, from
time to time, for sale in negotiated transactions or otherwise at prices
determined at the time of sale. Proceeds to the Seller from the sale of the
Offered Certificates are expected to be approximately % of the initial
aggregate principal balance of the Class A, Class AP and Class M Certificates
plus accrued interest thereon, other than on an amount equal to the initial
aggregate principal balance of the Class AP Certificates, from 1, 199
to (but not including) , 199 , before deducting expenses payable by
the Seller. The Underwriter, which is not an affiliate of the Seller, has
advised the Seller that the Underwriter has not allocated the purchase price
paid to the Seller for the Class A, Class AP and Class M Certificates has not
been allocated among the Class A, Class AP and Class M Certificates nor among
the Subclasses of Class A Certificates. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Offered Certificates
may be deemed to be underwriters, and any discounts or commissions received by
them and any profit on the resale of Offered Certificates by them may be deemed
to be underwriting discounts or commissions, under the Securities Act.
The Underwriting Agreement provides that the Seller or Norwest Mortgage will
indemnify the Underwriter against certain civil liabilities under the Securities
Act or contribute to payments which the Underwriter may be required to make in
respect thereof.
LEGAL MATTERS
The validity of the Offered Certificates and certain tax matters with
respect thereto will be passed upon for the Seller by Cadwalader, Wickersham &
Taft, New York, New York. Certain legal matters will be passed upon for the
Underwriter by , .
[FOR SERIES WITH A FINANCIAL GUARANTY INSURANCE POLICY:
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1995 and December 31, 1994, and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Prospectus Supplement have been incorporated
herein, in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in auditing and
accounting.]
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from Norwest Mortgage of the
Mortgage Loans underlying the Series 199 - ] Certificates.
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<PAGE>
RATINGS
It is a condition to the issuance of the Class A and Class AP Certificates
that they will have been rated [["Aaa" by Moody's Investors Service, Inc.
("Moody's")] ["AAA" by [Fitch Investors Service, L.P. ("Fitch")] [Duff & Phelps
Credit Rating Co. ("DCR")]] [and] ["AAA" and "AAAr" by Standard and Poor's
("S&P")]] and [["Aa" by Moody's] ["AA" by [Fitch] [DCR] [S&P]] [and]["A" by
[Moody's] [Fitch] [DCR] [S&P]] [and] [["Baa" by Moody's] ["BBB" by [Fitch] [DCR]
[S&P]. 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. Each security rating should be evaluated independently of any other
security rating.
[The ratings of Moody's on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
such certificateholders are entitled. Moody's rating opinions address the
structural, legal and issuer aspects associated with the certificates, including
the nature of the underlying mortgage loans and the credit quality of the credit
support provider, if any. Moody's ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments may differ
from those originally anticipated.]
[The ratings assigned by DCR to mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of all distributions to
which they are entitled under the transaction structure. DCR's ratings reflect
its analysis of the riskiness of the mortgage loans and its analysis of the
structure of the transaction as set forth in the operative documents. DCR's
ratings do not address the effect on the certificates' yield attributable to
prepayments or recoveries on the underlying mortgage loans. In addition, the
rating of the Class A-R Certificate does not assess the likelihood of return to
the investor in the Class A-R Certificate, except to the extent of the Class A
Subclass Principal Balance thereof and interest thereon.]
[The ratings of S&P on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of timely payments of interest
and the ultimate return of principal. S&P ratings take into consideration the
credit quality of the mortgage pool, including any credit support providers,
structural and legal aspects associated with the certificates, and the extent to
which the payment stream on the mortgage pool is adequate to make payments
required under the certificates. S&P's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
mortgage loans. S&P's rating does not address the possibility that investors may
suffer a lower than anticipated yield as a result of prepayments of the
underlying mortgages. In addition, it should be noted that in some structures a
default on a mortgage is treated as a prepayment and may have the same effect on
yield as a prepayment.]
[The ratings of Fitch on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
such certificateholders are entitled. Fitch's rating opinions address the
structural and legal aspects associated with the certificates, including the
nature of the underlying mortgage loans. Fitch's ratings on pass-through
certificates do not represent any assessment of the likelihood or rate of
principal prepayments and consequently any adverse effect the timing of such
prepayments could have on an investor's anticipated yield.]
The Seller has not requested a rating on the Offered Certificates of any
Subclass or Class by any rating agency other than [Moody's] [DCR] [S&P] and
[Fitch], although data with respect to the Mortgage Loans may have been provided
to other rating agencies solely for their informational purposes. There can be
no assurance that any rating assigned by any other rating agency to the Offered
Certificates will be as high as those assigned by [Moody's] [DCR] [S&P] and
[Fitch].
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INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Adjusted Pool Amount..................................................................................... S-32
Adjusted Pool Amount (Class AP Portion).................................................................. S-33
Adjustment Amount........................................................................................ S-54
Aggregate Current Bankruptcy Losses...................................................................... S-55
Aggregate Current Fraud Losses........................................................................... S-54
Aggregate Current Special Hazard Losses.................................................................. S-54
Bankruptcy Loss.......................................................................................... S-37
Bankruptcy Loss Amount................................................................................... S-55
Beneficial Owner......................................................................................... S-28
Book-Entry Certificates.................................................................................. S-3
Bulk Purchase Underwritten Loans......................................................................... S-13
CBE...................................................................................................... S-74
Cede..................................................................................................... S-28
Certificateholder........................................................................................ S-3
Certificates............................................................................................. S-7
CGC...................................................................................................... S-49
CGIC..................................................................................................... S-49
Class A Certificates..................................................................................... Cover
Class A Distribution Amount.............................................................................. S-31
Class A Optimal Amount................................................................................... S-34
Class A Optimal Principal Amount......................................................................... S-35
Class A Percentage....................................................................................... S-37
Class A Prepayment Percentage............................................................................ S-37
Class A Principal Balance................................................................................ S-32
Class A Principal Distribution Amount.................................................................... S-35
Class A Subclass Interest Accrual Amount................................................................. S-31
Class A Subclass Interest Shortfall Amount............................................................... S-34
Class A Subclass Principal Balance....................................................................... S-31
Class A Voting Interest.................................................................................. S-75
Class AP Certificates.................................................................................... Cover
Class AP Deferred Amount................................................................................. S-39
Class AP Fraction........................................................................................ S-39
Class AP Optimal Principal Amount........................................................................ S-38
Class AP Principal Balance............................................................................... S-32
Class AP Principal Distribution Amount................................................................... S-38
Class B Certificates..................................................................................... Cover
Class B Principal Balance................................................................................ S-32
Class B Subclass Interest Accrual Amount................................................................. S-31
Class B Subclass Principal Balance....................................................................... S-32
Class M Certificates..................................................................................... Cover
Class M Distribution Amount.............................................................................. S-31
Class M Interest Accrual Amount.......................................................................... S-31
Class M Interest Shortfall Amount........................................................................ S-34
Class M Optimal Amount................................................................................... S-35
Class M Optimal Principal Amount......................................................................... S-39
Class M Percentage....................................................................................... S-40
Class M Prepayment Percentage............................................................................ S-40
Class M Principal Balance................................................................................ S-32
Class M Principal Distribution Amount.................................................................... S-39
</TABLE>
S-85
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Classes A/M/B Fraction................................................................................... S-36
Classes A/M/B Voting Interest............................................................................ S-75
Closing Date............................................................................................. S-12
Co-op Shares............................................................................................. S-56
Code..................................................................................................... S-25
Companion Certificates................................................................................... Cover
Cooperatives............................................................................................. S-56
Correspondent............................................................................................ S-2
Cross-Over Date.......................................................................................... S-52
Current Class B-1 Fractional Interest.................................................................... S-41
Current Class B-2 Fractional Interest.................................................................... S-42
Current Class B-3 Fractional Interest.................................................................... S-42
Current Class B-4 Fractional Interest.................................................................... S-42
Current Class M Fractional Interest...................................................................... S-41
Cut-Off Date Aggregate Principal Balance................................................................. S-56
DCR...................................................................................................... S-8
Debt Service Reduction................................................................................... S-37
Deficient Valuation...................................................................................... S-37
Definitive Certificates.................................................................................. S-10
Determination Date....................................................................................... S-29
Discount Mortgage Loans.................................................................................. S-3
Distribution Date........................................................................................ S-2
DOL...................................................................................................... S-81
DTC...................................................................................................... S-10
Enhancement Act.......................................................................................... S-26
ERISA.................................................................................................... S-25
ERISA Plan............................................................................................... S-81
Excess Bankruptcy Losses................................................................................. S-55
Excess Fraud Losses...................................................................................... S-54
Excess Principal Payment................................................................................. S-44
Excess Special Hazard Loss............................................................................... S-54
Exchange Act............................................................................................. S-50
Exemption................................................................................................ S-81
Financial Security....................................................................................... S-48
Fitch.................................................................................................... S-8
Fixed Non-relocation Program Loans....................................................................... S-63
Fixed Program Loans...................................................................................... S-63
Fixed Retained Yield..................................................................................... S-78
Fraud Loss............................................................................................... S-37
Fraud Loss Amount........................................................................................ S-54
Fund American............................................................................................ S-48
GEMICO................................................................................................... S-13
Holdings................................................................................................. S-48
Liquidated Loan.......................................................................................... S-36
Liquidated Loan Loss..................................................................................... S-36
Master Servicer.......................................................................................... S-2
Master Servicing Fee..................................................................................... S-76
Master Servicing Fee Rate................................................................................ S-76
Moody's.................................................................................................. S-8
Mortgage Loans........................................................................................... S-2
Mortgaged Properties..................................................................................... S-56
</TABLE>
S-86
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Mortgages................................................................................................ S-56
NASCOR................................................................................................... S-2
Net Foreclosure Profits.................................................................................. S-47
Net Mortgage Interest Rate............................................................................... S-33
Net Partial Liquidation Proceeds......................................................................... S-36
Non-Supported Interest Shortfalls........................................................................ S-16
Norwest Bank............................................................................................. S-2
Norwest Mortgage......................................................................................... S-2
Norwest Mortgage Underwritten Loans...................................................................... S-13
Offered Certificates..................................................................................... Cover
Original Class B-1 Fractional Interest................................................................... S-41
Original Class B-2 Fractional Interest................................................................... S-42
Original Class B-3 Fractional Interest................................................................... S-42
Original Class B-4 Fractional Interest................................................................... S-42
Original Class M Fractional Interest..................................................................... S-41
Original Subordinated Principal Balance.................................................................. S-37
Other Servicers.......................................................................................... S-77
PAC Certificates......................................................................................... Cover
PAC Principal Amount..................................................................................... S-42
Partial Liquidation Proceeds............................................................................. S-36
Pass-Through Rate........................................................................................ S-15
Percentage Interest...................................................................................... S-31
Periodic Advance......................................................................................... S-48
Plan..................................................................................................... S-25
Pool Balance (Class AP Portion).......................................................................... S-19
Pool Balance (Classes A/M/B Portion)..................................................................... S-19
Pool Certification Underwritten Loans.................................................................... S-13
Pool Distribution Amount................................................................................. S-29
Pool Distribution Amount Allocation...................................................................... S-30
Pooling and Servicing Agreement.......................................................................... S-74
Prepayment Interest Shortfalls........................................................................... S-33
Program Loans............................................................................................ S-63
Prospectus............................................................................................... S-7
PTE 83-1................................................................................................. S-81
PTE 95-60................................................................................................ S-81
Realized Losses.......................................................................................... S-37
Record Date.............................................................................................. S-29
Regular Certificates..................................................................................... S-79
Relocation Mortgage Loans................................................................................ S-63
REMIC.................................................................................................... S-4
Remittance Date.......................................................................................... S-30
REO Property............................................................................................. S-76
Residual Certificate..................................................................................... S-79
S&P...................................................................................................... S-8
Scheduled Principal Balance.............................................................................. S-36
Securities Act........................................................................................... S-82
Seller................................................................................................... S-2
Senior Certificates...................................................................................... Cover
Senior Optimal Amount.................................................................................... S-34
Series 199 - Certificates................................................................................ Cover
Servicer................................................................................................. S-2
</TABLE>
S-87
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Servicer Custodial Account............................................................................... S-77
Servicers................................................................................................ S-77
Servicing Fee Rate....................................................................................... S-78
Similar Law.............................................................................................. S-25
SPA...................................................................................................... S-71
Special Hazard Loss...................................................................................... S-36
Special Hazard Loss Amount............................................................................... S-54
Subclass................................................................................................. Cover
Subordinated Certificates................................................................................ Cover
Subordinated Percentage.................................................................................. S-38
Subordinated Prepayment Percentage....................................................................... S-38
Subsidy Account.......................................................................................... S-57
Subsidy Loan............................................................................................. S-57
TAC Certificates......................................................................................... Cover
TAC Principal Amount..................................................................................... S-42
Tokio Marine............................................................................................. S-48
Trust Estate............................................................................................. S-2
Trustee.................................................................................................. S-8
Trustee Fee.............................................................................................. S-76
Trustee Fee Rate......................................................................................... S-76
U.S. Person.............................................................................................. S-50
UGRIC.................................................................................................... S-13
Underlying Servicing Agreement........................................................................... S-7
Underwriter.............................................................................................. Cover
Underwriting Agreement................................................................................... S-83
US WEST.................................................................................................. S-48
</TABLE>
S-88
<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.
<PAGE>
PROSPECTUS, SUBJECT TO COMPLETION, DATED MAY 15, 1996
NORWEST ASSET SECURITIES CORPORATION
SELLER
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
---------------------
Norwest Asset Securities Corporation (the "Seller" or "NASCOR") may sell
from time to time, under this Prospectus and applicable Prospectus Supplements,
Mortgage Pass-Through Certificates (the "Certificates"), issuable in series
(each, a "Series") consisting of one or more classes (each, a "Class") of
Certificates. Any Class of Certificates may be divided into two or more
subclasses (each, a "Subclass").
The Certificates of a Series will represent beneficial ownership interests
in a separate trust formed by the Seller. The property of each such trust (for
each Series, the "Trust Estate") will be comprised primarily of fixed or
adjustable interest rate, conventional, first mortgage loans (the "Mortgage
Loans"), secured by one- to four-family residential properties. The Mortgage
Loans will have been acquired by the Seller from its affiliate, Norwest
Mortgage, Inc. ("Norwest Mortgage"), and will have been underwritten either to
Norwest Mortgage's underwriting standards, to the underwriting standards of a
Pool Insurer (as defined herein) or to such other standards as are described in
the applicable Prospectus Supplement. All of the Mortgage Loans will be serviced
by Norwest Mortgage individually or together with one or more other servicers
(each, a "Servicer"). Norwest Bank Minnesota, National Association ("Norwest
Bank"), an affiliate of Norwest Mortgage, will act as master servicer with
respect to each Trust Estate (in such capacity, the "Master Servicer").
Each Series of Certificates may include one or more Classes of Certificates
(the "Subordinated Certificates") that are subordinate in right of distributions
or otherwise to one or more of the other Classes of such Series (the "Senior
Certificates"). If specified in the applicable Prospectus Supplement, the
relative interests of the Senior Certificates and the Subordinated Certificates
of a Series in the Trust Estate may be subject to adjustment from time to time
on the basis of distributions received in respect thereof and losses allocated
to the Subordinated Certificates. If and to the extent specified in the
Prospectus Supplement, credit support may be provided for any Series of
Certificates, or any Classes or Subclasses thereof, in the form of a limited
guarantee, financial guaranty insurance policy, surety bond, letter of credit,
mortgage pool insurance policy, reserve fund, cross-support or other form of
credit enhancement as described herein or therein.
Except for the Seller's limited obligations in connection with certain
breaches of its representations and warranties, certain undertakings and
obligations of the Master Servicer and Norwest Mortgage's obligations as
Servicer, neither the Seller, the Master Servicer nor Norwest Mortgage, nor any
affiliate of the Seller, the Master Servicer or Norwest Mortgage, will have any
obligations with respect to the Certificates.
If specified in the applicable Prospectus Supplement, an election will be
made to treat the Trust Estate (or one or more segregated pools of assets
therein) underlying a Series of Certificates as a "real estate mortgage
investment conduit" (a "REMIC") for federal income tax purposes. See "Certain
Federal Income Tax Consequences."
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market will
develop, or that if such a market does develop, it will provide
Certificateholders with liquidity of investment or will continue for the life of
the Certificates.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Certificates may be sold from time to time through one or more different
methods, including through underwriting syndicates led by one or more managing
underwriters or through one or more underwriters acting alone. See "Plan of
Distribution." Affiliates of the Seller may from time to time act as agents or
underwriters in connection with the sale of the Certificates.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by the Prospectus Supplement relating to the offering of such
Certificates.
------------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE>
REPORTS
The Master Servicer will prepare, and the Trustee or other Paying Agent
appointed for each Series by the Master Servicer will forward to the
Certificateholders of each Series statements containing information with respect
to principal and interest payments and the related Trust Estate, as described
herein and in the applicable Prospectus Supplement for such Series. No
information contained in such reports will have been examined or reported upon
by an independent public accountant. See "The Pooling and Servicing Agreement --
Reports to Certificateholders." In addition, each Servicer for each Series will
furnish to the Master Servicer (who will be required to furnish promptly to the
Trustee for such Series), a statement from a firm of independent public
accountants with respect to the examination of certain documents and records
relating to a random sample of mortgage loans serviced by such Servicer pursuant
to the related Underlying Servicing Agreement and/or other similar agreements.
See "Servicing of the Mortgage Loans -- Evidence as to Compliance." Copies of
the statements provided by the Master Servicer to the Trustee will be furnished
to Certificateholders of each Series upon request addressed to the Trustee for
the applicable Series or to the Master Servicer c/o Norwest Bank Minnesota,
National Association, 11000 Broken Land Parkway, Columbia, Maryland 21044-3562,
Attention: Securities Administration Services Manager.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of the
information set forth in the Registration Statement of which this Prospectus is
a part. For further information, reference is made to such Registration
Statement and the exhibits thereto which the Seller has filed with the
Securities and Exchange Commission (the "Commission"), Washington, D.C., under
the Securities Act of 1933, as amended (the "Securities Act"). Statements
contained in this Prospectus and any Prospectus Supplement as to the contents of
any contract or other document referred to are summaries and, in each instance,
reference is made to the copy of the contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement may be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 upon payment of the prescribed charges, or may be examined free of charge
at the Commission's offices, 450 Fifth Street N.W., Washington, D.C. 20549 or at
the regional offices of the Commission located at Room 1400, 75 Park Place, New
York, New York 10007 and 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of any documents incorporated herein by reference will be provided
to each person to whom a Prospectus is delivered upon written or oral request
directed to Norwest Asset Securities Corporation, 5325 Spectrum Drive,
Frederick, Maryland 21701, telephone number (301) 846-8881.
ADDITIONAL DETAILED INFORMATION
The Seller intends to offer by subscription detailed mortgage loan
information in machine readable format updated on a monthly basis (the "Detailed
Information") with respect to each outstanding Series of Certificates. The
Detailed Information will reflect payments made on the individual mortgage
loans, including prepayments in full and in part made on such mortgage loans, as
well as the liquidation of any such mortgage loans, and will identify various
characteristics of the mortgage loans. Subscribers of the Detailed Information
are expected to include a number of major investment brokerage firms as well as
financial information service firms. Some of such firms, including certain
investment brokerage firms as well as Bloomberg L.P. through the "The
Bloomberg-Registered Trademark-" service and Merrill Lynch Mortgage Capital Inc.
through the "CMO Passport -Registered Trademark-" service, may, in accordance
with their individual business practices and fee schedules, if any, make
portions of, or summaries of portions of, the Detailed Information available to
their customers and subscribers. The Seller, the Master Servicer and their
respective affiliates have no control over and take no responsibility for the
actions of such firms in processing, analyzing or disseminating such
information. For further information regarding the Detailed Information and
subscriptions thereto, please contact Norwest Asset Securities Corporation, 5325
Spectrum Drive, Frederick, Maryland 21701, telephone number (301) 846-8881.
2
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by NASCOR with respect to a Trust Estate pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of an offering of Certificates evidencing interests therein. Upon request, the
Master Servicer will provide or cause to be provided without charge to each
person to whom this Prospectus is delivered in connection with the offering of
one or more Classes of Certificates a list identifying all filings with respect
to a Trust Estate pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act since NASCOR's latest fiscal year covered by its annual report on Form 10-K
and a copy of any or all documents or reports incorporated herein by reference,
in each case to the extent such documents or reports relate to one or more of
such Classes of such Certificates, other than the exhibits to such documents
(unless such exhibits are specifically incorporated by reference in such
documents). Requests to the Master Servicer should be directed to: Norwest Asset
Securities Corporation, 5325 Spectrum Drive, Frederick, Maryland 21701,
telephone number (301) 846-8881.
3
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Reports.................................................................................................... 2
Additional Information..................................................................................... 2
Additional Detailed Information............................................................................ 2
Incorporation of Certain Information by Reference.......................................................... 3
Summary of Prospectus...................................................................................... 8
Title of Securities...................................................................................... 8
Seller................................................................................................... 8
Servicers................................................................................................ 8
Master Servicer.......................................................................................... 8
The Trust Estates........................................................................................ 8
Description of the Certificates.......................................................................... 9
Distributions on the Certificates........................................................................ 9
Cut-Off Date............................................................................................. 9
Distribution Dates....................................................................................... 9
Record Dates............................................................................................. 10
Credit Enhancement....................................................................................... 10
Periodic Advances........................................................................................ 10
Forms of Certificates.................................................................................... 11
Optional Purchase of Defaulted Mortgage Loans............................................................ 11
Optional Purchase of All Mortgage Loans.................................................................. 11
ERISA Limitations........................................................................................ 11
Tax Status............................................................................................... 12
Legal Investment......................................................................................... 12
Rating................................................................................................... 12
Risk Factors............................................................................................... 13
Limited Liquidity........................................................................................ 13
Limited Obligations...................................................................................... 13
Limitations, Reduction and Substitution of Credit Enhancement............................................ 13
Risks of the Mortgage Loans.............................................................................. 14
Yield and Prepayment Considerations...................................................................... 14
Book-Entry System for Certain Classes and Subclasses of Certificates..................................... 15
The Trust Estates.......................................................................................... 15
General.................................................................................................. 15
Mortgage Loans........................................................................................... 15
Fixed Rate Loans....................................................................................... 16
Adjustable Rate Loans.................................................................................. 17
Graduated Payment Loans................................................................................ 17
Subsidy Loans.......................................................................................... 17
Buy-Down Loans......................................................................................... 18
Balloon Loans.......................................................................................... 19
The Seller................................................................................................. 19
Norwest Mortgage........................................................................................... 19
Norwest Bank............................................................................................... 20
The Mortgage Loan Programs................................................................................. 20
Mortgage Loan Production Sources........................................................................... 20
Acquisition of Mortgage Loans from Correspondents........................................................ 21
Mortgage Loan Underwriting............................................................................... 22
Norwest Mortgage Underwriting............................................................................ 22
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Pool Certification Underwriting.......................................................................... 25
Representations and Warranties........................................................................... 27
Description of the Certificates............................................................................ 30
General.................................................................................................. 30
Definitive Form.......................................................................................... 31
Book-Entry Form.......................................................................................... 32
Distributions to Certificateholders...................................................................... 34
General................................................................................................ 34
Distributions of Interest.............................................................................. 35
Distributions of Principal............................................................................. 36
Other Credit Enhancement................................................................................. 37
Limited Guarantee...................................................................................... 37
Financial Guaranty Insurance Policy or Surety Bond..................................................... 38
Letter of Credit....................................................................................... 38
Pool Insurance Policies................................................................................ 38
Special Hazard Insurance Policies...................................................................... 38
Mortgagor Bankruptcy Bond.............................................................................. 38
Reserve Fund........................................................................................... 38
Cross Support.......................................................................................... 39
Prepayment and Yield Considerations........................................................................ 39
Pass-Through Rates....................................................................................... 39
Scheduled Delays in Distributions........................................................................ 39
Effect of Principal Prepayments.......................................................................... 39
Weighted Average Life of Certificates.................................................................... 40
Servicing of the Mortgage Loans............................................................................ 41
The Master Servicer...................................................................................... 42
The Servicers............................................................................................ 43
Payments on Mortgage Loans............................................................................... 43
Periodic Advances and Limitations Thereon................................................................ 46
Adjustment to Servicing Fee in Connection with Prepaid Mortgage Loans.................................... 47
Collection and Other Servicing Procedures................................................................ 47
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans............................ 48
Insurance Policies....................................................................................... 50
Fixed Retained Yield, Servicing Compensation and Payment of Expenses..................................... 51
Evidence as to Compliance................................................................................ 52
Certain Matters Regarding the Master Servicer.............................................................. 52
The Pooling and Servicing Agreement........................................................................ 53
Assignment of Mortgage Loans to the Trustee.............................................................. 53
Optional Purchases....................................................................................... 55
Reports to Certificateholders............................................................................ 55
List of Certificateholders............................................................................... 56
Events of Default........................................................................................ 56
Rights Upon Event of Default............................................................................. 57
Amendment................................................................................................ 57
Termination; Optional Purchase of Mortgage Loans......................................................... 58
The Trustee.............................................................................................. 59
Certain Legal Aspects of the Mortgage Loans................................................................ 59
General.................................................................................................. 59
Foreclosure.............................................................................................. 60
Foreclosure on Shares of Cooperatives.................................................................... 61
Rights of Redemption..................................................................................... 61
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Anti-Deficiency Legislation and Other Limitations on Lenders............................................. 62
Soldiers' and Sailors' Civil Relief Act and Similar Laws................................................. 63
Environmental Considerations............................................................................. 63
"Due-on-Sale" Clauses.................................................................................... 65
Applicability of Usury Laws.............................................................................. 66
Enforceability of Certain Provisions..................................................................... 66
Certain Federal Income Tax Consequences.................................................................... 66
Federal Income Tax Consequences for REMIC Certificates................................................... 67
General.................................................................................................. 67
Status of REMIC Certificates............................................................................. 67
Qualification as a REMIC................................................................................. 68
Taxation of Regular Certificates......................................................................... 69
General................................................................................................ 69
Original Issue Discount................................................................................ 70
Acquisition Premium.................................................................................... 72
Variable Rate Regular Certificates..................................................................... 72
Market Discount........................................................................................ 74
Premium................................................................................................ 74
Election to Treat All Interest Under the Constant Yield Method......................................... 75
Treatment of Losses.................................................................................... 75
Sale or Exchange of Regular Certificates............................................................... 76
Taxation of Residual Certificates........................................................................ 76
Taxation of REMIC Income............................................................................... 76
Basis and Losses....................................................................................... 78
Treatment of Certain Items of REMIC Income and Expense................................................. 78
Original Issue Discount and Premium.................................................................... 78
Market Discount........................................................................................ 79
Premium................................................................................................ 79
Limitations on Offset or Exemption of REMIC Income..................................................... 79
Tax-Related Restrictions on Transfer of Residual Certificates.......................................... 80
Disqualified Organizations............................................................................. 80
Noneconomic Residual Interests......................................................................... 81
Foreign Investors...................................................................................... 82
Sale or Exchange of a Residual Certificate............................................................. 82
Mark to Market Regulations............................................................................. 83
Taxes That May Be Imposed on the REMIC Pool.............................................................. 83
Prohibited Transactions................................................................................ 83
Contributions to the REMIC Pool After the Startup Day.................................................. 83
Net Income from Foreclosure Property................................................................... 84
Liquidation of the REMIC Pool............................................................................ 84
Administrative Matters................................................................................... 84
Limitations on Deduction of Certain Expenses............................................................. 84
Taxation of Certain Foreign Investors.................................................................... 85
Regular Certificates................................................................................... 85
Residual Certificates.................................................................................. 85
Backup Withholding....................................................................................... 86
Reporting Requirements................................................................................... 86
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Federal Income Tax Consequences for Certificates as to Which No REMIC Election is Made................... 86
General................................................................................................ 86
Tax Status............................................................................................. 87
Premium and Discount................................................................................... 88
Premium................................................................................................ 88
Original Issue Discount................................................................................ 88
Market Discount........................................................................................ 88
Recharacterization of Servicing Fees................................................................... 88
Sale or Exchange of Certificates....................................................................... 89
Stripped Certificates.................................................................................... 90
General................................................................................................ 90
Status of Stripped Certificates........................................................................ 91
Taxation of Stripped Certificates...................................................................... 91
Original Issue Discount................................................................................ 91
Sale or Exchange of Stripped Certificates.............................................................. 92
Purchase of More Than One Class of Stripped Certificates............................................... 92
Possible Alternative Characterizations................................................................. 92
Reporting Requirements and Backup Withholding............................................................ 93
Taxation of Certain Foreign Investors.................................................................... 93
ERISA Considerations....................................................................................... 93
General.................................................................................................. 93
Certain Requirements Under ERISA......................................................................... 94
General................................................................................................ 94
Parties in Interest/Disqualified Persons............................................................... 94
Delegation of Fiduciary Duty........................................................................... 94
Administrative Exemptions................................................................................ 95
Individual Administrative Exemptions................................................................... 95
PTE 83-1............................................................................................... 96
Exempt Plans............................................................................................. 97
Unrelated Business Taxable Income -- Residual Certificates............................................... 97
Legal Investment........................................................................................... 97
Plan of Distribution....................................................................................... 99
Use of Proceeds............................................................................................ 100
Legal Matters.............................................................................................. 100
Rating..................................................................................................... 100
Index of Significant Definitions........................................................................... 101
</TABLE>
7
<PAGE>
SUMMARY OF PROSPECTUS
THE FOLLOWING 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
APPLICABLE PROSPECTUS SUPPLEMENT. CERTAIN CAPITALIZED TERMS USED AND NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS GIVEN ELSEWHERE IN THIS
PROSPECTUS.
<TABLE>
<CAPTION>
Title of Securities............... Mortgage Pass-Through Certificates (Issuable in Series).
<S> <C>
Seller............................ Norwest Asset Securities Corporation (the "Seller"), a
direct, wholly-owned subsidiary of Norwest Mortgage,
Inc. ("Norwest Mortgage"), which is an indirect,
wholly-owned subsidiary of Norwest Corporation ("Norwest
Corporation"). See "The Seller."
Servicers......................... Norwest Mortgage and, to the extent specified in the
applicable Prospectus Supplement, one or more other
entities identified therein (each, a "Servicer") will
service the Mortgage Loans contained in each Trust
Estate. Each Servicer will perform certain servicing
functions with respect to the Mortgage Loans serviced by
it pursuant to a related Servicing Agreement (each, an
"Underlying Servicing Agreement"). See "Servicing of the
Mortgage Loans."
Master Servicer................... Norwest Bank Minnesota, National Association ("Norwest
Bank" and, in such capacity, the "Master Servicer").
Norwest Bank is a direct, wholly-owned subsidiary of
Norwest Corporation and an affiliate of the Seller. The
Master Servicer will perform certain administration,
calculation and reporting functions with respect to each
Trust Estate and will supervise the Servicers, in each
case, pursuant to a Pooling and Servicing Agreement. In
addition, the Master Servicer will generally be required
to make Periodic Advances (to the extent described
herein) with respect to the Mortgage Loans in each Trust
Estate to the extent that the related Servicer (other
than Norwest Mortgage) fails to make a required Periodic
Advance. See "Servicing of the Mortgage Loans -- The
Master Servicer" and "-- Periodic Advances and
Limitations Thereon."
The Trust Estates................. Each Trust Estate will be formed and each Series of
Certificates will be issued pursuant to a pooling and
servicing agreement (each, a "Pooling and Servicing
Agreement") among the Seller, the Master Servicer and
the Trustee specified in the applicable Prospectus
Supplement. Each Trust Estate will consist of the
related Mortgage Loans (other than the Fixed Retained
Yield (as defined herein), if any) and certain other
related property, as specified in the applicable
Prospectus Supplement. The Mortgage Loans will be
conventional, fixed or adjustable interest rate,
mortgage loans secured by first liens on one- to
four-family residential properties.
The Mortgage Loans will have been acquired by the Seller
from its affiliate Norwest Mortgage. The Mortgage Loans
will have been originated by Norwest Mortgage or an
affiliate or will have been acquired by Norwest Mortgage
directly or indirectly from other mortgage loan
originators. All of the Mortgage Loans will have been
underwritten either to Norwest
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Mortgage's standards, to the extent specified in the
applicable Prospectus Supplement, to the standards of a
Pool Insurer or to standards otherwise specified in the
Prospectus Supplement. See "The Trust Estates" and "The
Mortgage Loan Programs -- Mortgage Loan Underwriting."
The particular characteristics or expected
characteristics of the Mortgage Loans and a description
of the other property, if any, included in a Trust
Estate will be set forth in the applicable Prospectus
Supplement.
Description of the Certificates... Each Series of Certificates will include one or more
Classes, any of which may consist of multiple
Subclasses. A Class or Subclass of Certificates will be
entitled, to the extent of funds available, to either
(i) principal and interest payments in respect of the
related Mortgage Loans, (ii) principal distributions,
with no interest distributions, (iii) interest
distributions, with no principal distributions or (iv)
such other distributions as are described in the
applicable Prospectus Supplement.
Distributions on the
Certificates...................... INTEREST. With respect to each Series of Certificates,
interest on the related Mortgage Loans at the weighted
average of the applicable Mortgage Interest Rates
thereof (net of servicing fees and certain other amounts
as described herein or in the applicable Prospectus
Supplement), will be passed through to holders of the
related Classes of Certificates in the aggregate, in
accordance with the particular terms of each such Class
of Certificates. See "Description of the Certificates --
Distributions to Certificateholders -- Distributions of
Interest" herein. Except as otherwise specified in the
applicable Prospectus Supplement, interest on each Class
and Subclass of Certificates of each Series will accrue
at the pass-through rate for each Class and Subclass
indicated in the applicable Prospectus Supplement (each,
a "Pass-Through Rate") on the outstanding principal
balance or notional amount thereof.
PRINCIPAL. With respect to a Series of Certificates,
principal payments (including prepayments) will be
passed through to holders of the related Certificates or
otherwise applied in accordance with the related Pooling
and Servicing Agreement on each Distribution Date.
Distributions in reduction of principal balance will be
allocated among the Classes and Subclasses of
Certificates of a Series in the manner specified in the
applicable Prospectus Supplement. See "Description of
the Certificates -- Distributions to Certificateholders
-- Distributions of Principal."
Cut-Off Date...................... The date specified in the applicable Prospectus
Supplement.
Distribution Dates................ Distributions on the Certificates will generally be made
on the 25th day (or, if such day is not a business day,
the business day following the 25th day) of each month,
commencing with the month following the month in which
the applicable Cut-Off Date occurs (each, a
"Distribution Date"). If so specified in the applicable
Prospectus Supplement, distributions on
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Certificates may be made on a different day of each
month or may be made quarterly, or semi-annually, on the
dates specified in such Prospectus Supplement.
Record Dates...................... Distributions will be made on each Distribution Date to
Certificateholders of record at the close of business on
(unless a different date is specified in the applicable
Prospectus Supplement) the last business day of the
month preceding the month in which such Distribution
Date occurs (each, a "Record Date").
Credit Enhancement................ A Series of Certificates may include one or more Classes
of Senior Certificates and one or more Classes of
Subordinated Certificates. The rights of the holders of
Subordinated Certificates of a Series to receive
distributions with respect to the related Mortgage Loans
will be subordinated to such rights of the holders of
the Senior Certificates of the same Series to the extent
and in the manner specified in the applicable Prospec-
tus Supplement. This subordination is intended to
enhance the likelihood of the timely receipt by the
Senior Certificateholders of their proportionate share
of scheduled monthly principal and interest payments on
the related Mortgage Loans and to protect them against
losses. This protection will be effected by (i) the
preferential right of the Senior Certificateholders to
receive, prior to any distribution being made in respect
of the related Subordinated Certificates on each Dis-
tribution Date, current distributions on the related
Mortgage Loans of principal and interest due them on
each Distribution Date out of the funds available for
distributions on such date, (ii) by the right of such
holders to receive future distributions on the Mortgage
Loans that would otherwise have been payable to the
holders of Subordinated Certificates and/or (iii) by the
prior allocation to the Subordinated Certificate of all
or a portion of losses realized on the underlying
Mortgage Loans.
If so specified in the applicable Prospectus Supplement,
the Certificates of any Series, or any one or more
Classes thereof, may be entitled to the benefits of a
limited guarantee, financial guaranty insurance policy,
surety bond, letter of credit, mortgage pool insurance
policy, reserve fund, cross-support or other form of
credit enhancement as specified in the applicable
Prospectus Supplement. See "Description of the Certifi-
cates -- Other Credit Enhancement."
Periodic Advances................. In the event of delinquencies in payments on any
Mortgage Loan, the Servicer servicing such Mortgage Loan
will be obligated to make advances of cash ("Periodic
Advances") to the Servicer Custodial Account (as defined
herein) to the extent that such Servicer determines such
Periodic Advances would be recoverable from future
payments and collections on such Mortgage Loan. Any such
Periodic Advances will be reimbursable to such Servicer
as described herein and in the applicable Prospectus
Supplement. The Master Servicer or Trustee will,
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in certain circumstances, be required to make Periodic
Advances upon a Servicer default. See "Servicing of the
Mortgage Loans -- Periodic Advances and Limitations
Thereon."
Forms of Certificates............. The Certificates will be issued either (i) in book-entry
form ("Book-Entry Certificates") through the facilities
of The Depository Trust Company ("DTC") or (ii) in fully
registered, certificated form ("Definitive
Certificates").
An investor in a Class or Subclass of Book-Entry
Certificates will not receive a physical certificate
representing its ownership interest in such Book-Entry
Certificates, except under extraordinary circumstances
which are discussed in "Description of the Certificates
-- Definitive Form" in this Prospectus. Instead, DTC
will effect payments and transfers by means of its
electronic recordkeeping services, acting through
certain participating organizations. This may result in
certain delays in receipt of distributions by an
investor and may restrict an investor's ability to
pledge its securities. The rights of investors in the
Book-Entry Certificates may generally only be exercised
through DTC and its participating organizations. See
"Description of the Certificates -- Book-Entry Form" in
this Prospectus.
Optional Purchase of Defaulted
Mortgage Loans.................... The Seller or the Master Servicer, may, subject to the
terms of the applicable Pooling and Servicing Agreement,
purchase any defaulted Mortgage Loan or any Mortgage
Loan as to which default is reasonably foreseeable from
the related Trust Estate. See "Pooling and Servicing
Agreement -- Optional Purchases."
Optional Purchase of All Mortgage
Loans............................. If so specified in the Prospectus Supplement with
respect to a Series, all, but not less than all, of the
Mortgage Loans in the related Trust Estate and any
property acquired in respect thereof at the time, may be
purchased by the Seller, Norwest Mortgage or such other
party as is specified in the applicable Prospectus
Supplement, in the manner and at the price specified in
such Prospectus Supplement. In the event that an
election is made to treat the related Trust Estate (or
one or more segregated pools of assets therein) as a
REMIC, any such purchase will be effected only pursuant
to a "qualified liquidation," as defined under Section
860F(a)(4)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). Exercise of the right of purchase
will effect the early retirement of the Certificates of
that Series. See "Prepayment and Yield Considerations."
ERISA Limitations................. A fiduciary of any employee benefit plan subject to the
fiduciary responsibility provisions of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), including the "prohibited transaction" rules
thereunder, and to the corresponding provisions of the
Code, should carefully review with its own legal
advisors whether the purchase or holding of
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Certificates could give rise to a transaction prohibited
or otherwise impermissible under ERISA or the Code. See
"ERISA Considerations."
Tax Status........................ The treatment of the Certificates for federal income tax
purposes will be determined by whether a REMIC election
is made with respect to a Series of Certificates and, if
a REMIC election is made, by whether the Certificates
are Regular Interests or Residual Interests. See
"Certain Federal Income Tax Consequences."
Legal Investment.................. The applicable Prospectus Supplement will specify
whether the Class or Classes of Certificates offered
will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement
Act of 1984. Investors whose investment authority is
subject to legal restrictions should consult their own
legal advisors to determine whether and to what extent
such Certificates constitute legal investments for them.
See "Legal Investment" herein and in the applicable
Prospectus Supplement.
Rating............................ It is a condition to the issuance of the Certificates of
any Series offered pursuant to this Prospectus and a
Prospectus Supplement that each Class or Subclass be
rated in one of the four highest rating categories by at
least one nationally recognized statistical rating
organization (a "Rating Agency"). A security rating is
not a recommendation to buy, sell or hold the
Certificates of any Series and is subject to revision or
withdrawal at any time by the assigning rating agency.
Further, such ratings do not address the effect of
prepayments on the yield anticipated by an investor.
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RISK FACTORS
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FOLLOWING FACTORS IN
CONNECTION WITH THE PURCHASE OF CERTIFICATES.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for the
life of the Certificates of any Series. The Prospectus Supplement for any Series
of Certificates may indicate that an underwriter specified therein intends to
establish a secondary market in such Certificates, however no underwriter will
be obligated to do so. Unless specified in the applicable Prospectus Supplement,
the Certificates will not be listed on any securities exchange.
LIMITED OBLIGATIONS
Except for any related insurance policies and any reserve fund or credit
enhancement described in the applicable Prospectus Supplement, Mortgage Loans
included in the related Trust Estate will be the sole source of payments on the
Certificates of a Series. The Certificates of any Series will not represent an
interest in or obligation of NASCOR, Norwest Mortgage, Norwest Bank, the Trustee
or any of their affiliates, except for NASCOR's limited obligations with respect
to certain breaches of its representations and warranties, Norwest Mortgage's
obligations as Servicer and Norwest Bank's obligations as Master Servicer.
Neither the Certificates of any Series nor the related Mortgage Loans will be
guaranteed or insured by any governmental agency or instrumentality, NASCOR,
Norwest Mortgage, Norwest Bank, the Trustee, any of their affiliates or any
other person. Consequently, in the event that payments on the Mortgage Loans are
insufficient or otherwise unavailable to make all payments required on the
Certificates, there will be no recourse to NASCOR, Norwest Mortgage, Norwest
Bank, the Trustee or, except as specified in the applicable Prospectus
Supplement, any other entity.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT
With respect to each Series of Certificates, credit enhancement may be
provided in limited amounts to cover certain types of losses on the underlying
Mortgage Loans. Credit enhancement will be provided in one or more of the forms
referred to herein, including, but not limited to: subordination of other
Classes of Certificates of the same Series; a limited guarantee; a financial
guaranty insurance policy; a surety bond; a letter of credit; a pool insurance
policy; a special hazard insurance policy; a mortgagor bankruptcy bond; a
reserve fund; cross-support; and any combination thereof. See "Description of
the Certificates -- Other Credit Enhancement" herein. Regardless of the form of
credit enhancement provided, the amount of coverage will be limited in amount
and in most cases will be subject to periodic reduction in accordance with a
schedule or formula. Furthermore, such credit enhancements may provide only very
limited coverage as to certain types of losses, and may provide no coverage as
to certain other types of losses. All or a portion of the credit enhancement for
any Series of Certificates will generally be permitted to be reduced, terminated
or substituted for, in the sole discretion of the Master Servicer, if each
applicable Rating Agency indicates that the then current rating thereof will not
be adversely affected. In the event losses exceed the amount of coverage
provided by any credit enhancement or losses of a type not covered by any credit
enhancement occur, such losses will be borne by the holders of the related
Certificates (or certain Classes thereof). The rating of any Series of
Certificates by any applicable Rating Agency may be lowered following the
initial issuance thereof as a result of the downgrading of the obligations of
any applicable credit support provider, or as a result of losses on the related
Mortgage Loans in excess of the levels contemplated by such Rating Agency at the
time of its initial rating analysis. Neither NASCOR, Norwest Mortgage, Norwest
Bank, nor any of their affiliates will have any obligation to replace or
supplement any credit enhancement, or to take any other action to maintain any
rating of any Class of Certificates. See "Description of the Certificates --
Other Credit Enhancement."
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RISKS OF THE MORTGAGE LOANS
An investment in securities such as the Certificates, which generally
represent interests in pools of residential mortgage loans, may be affected by,
among other things, a decline in real estate values and changes in the
mortgagor's financial condition. No assurance can be given that the values of
the Mortgaged Properties (as defined herein) securing the Mortgage Loans
underlying any Series of Certificates have remained or will remain at their
levels on the dates of origination of the related Mortgage Loans. If the
residential real estate market should experience an overall decline in property
values such that the outstanding balances of the Mortgage Loans contained in a
particular Trust Estate, and any secondary financing 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 and
those experienced in Norwest Mortgage's or other Servicers' servicing
portfolios. In addition to risk factors related to the residential real estate
market generally, certain geographic regions of the United States from time to
time will experience weaker regional economic conditions and housing markets or
be directly or indirectly affected by natural disasters or civil disturbances
such as earthquakes, hurricanes, floods, eruptions or riots and, consequently,
will experience higher rates of loss and delinquency than on mortgage loans
generally. Although Mortgaged Properties located in certain identified flood
zones will be required to be covered, to the maximum extent available, by flood
insurance, as described under "Servicing of the Mortgage Loans -- Insurance
Policies," no Mortgaged Properties will otherwise be required to be insured
against earthquake damage of any other loss not covered by Standard Hazard
Insurance Policies, as described under "Servicing of the Mortgage Loans --
Insurance Policies." Adverse economic conditions generally, in particular
geographic areas or industries, or affecting particular segments of the
borrowing community (such as mortgagors relying on commission income and
self-employed mortgagors) and other factors which may or may not affect real
property values (including the purposes for which the Mortgage Loans were made
and the uses of the Mortgaged Properties) may affect the timely payment by
mortgagors of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquencies, foreclosures and losses
with respect to any Trust Estate. The Mortgage Loans underlying certain Series
of Certificates may be concentrated in certain regions, and such concentration
may present risk considerations in addition to those generally present for
similar mortgage-backed securities without such concentration. See "The Mortgage
Loan Programs -- Mortgage Loan Underwriting" and "Prepayment and Yield
Considerations -- Weighted Average Life of Certificates" herein. To the extent
that such losses are not covered by the applicable credit enhancement, holders
of Certificates of the Series evidencing interests in the related Trust Estate
will bear all risk of loss resulting from default by mortgagors and will have to
look primarily to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans. See
"The Trust Estates -- Mortgage Loans" and "The Mortgage Loan Programs --
Mortgage Loan Underwriting."
YIELD AND PREPAYMENT CONSIDERATIONS
The yield of the Certificates of each Series will depend in part on the rate
of principal payment on the Mortgage Loans (including prepayments, liquidations
due to defaults and mortgage loan repurchases). Such yield may be adversely
affected, depending upon whether a particular Certificate is purchased at a
premium or discount price, by a higher or lower than anticipated rate of
prepayments on the related Mortgage Loans. In particular, the yield on Classes
of Certificates entitling the holders thereof primarily or exclusively to
payments of interest or primarily or exclusively to payments of principal will
be extremely sensitive to the rate of prepayments on the related Mortgage Loans.
In addition, the yield on certain Classes of Certificates may be relatively more
sensitive to the rate of prepayment of specified Mortgage Loans than other
Classes of Certificates. In particular, prepayments are influenced by a number
of factors, including prevailing mortgage market interest rates, local and
national economic conditions and homeowner mobility. In addition, the yield to
investors may be adversely affected by interest shortfalls which may result from
the timing of the receipt of prepayments or liquidations to the extent that such
interest shortfalls are not covered by aggregate Servicing Fees or other
mechanisms specified in the applicable Prospectus Supplement. The yield to
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investors in Classes of Certificates will be adversely affected to the extent
that losses on the Mortgage Loans in the related Trust Estate are allocated to
such Classes and may be adversely affected to the extent of unadvanced
delinquencies on the Mortgage Loans in the related Trust Estate. Classes of
Certificates identified in the applicable Prospectus Supplement as Subordinated
Certificates are more likely to be affected by delinquencies and losses than
other Classes of Certificates. See "Prepayment and Yield Considerations."
BOOK-ENTRY SYSTEM FOR CERTAIN CLASSES AND SUBCLASSES OF CERTIFICATES
Since transactions in the Classes and Subclasses of Book-Entry Certificates
of any Series generally can be effected only through DTC, DTC Participants and
Indirect DTC Participants, the ability of a Beneficial Owner to pledge
Book-Entry Certificates to persons or entities that do not participate in the
DTC system, or to otherwise act with respect to such Book-Entry Certificates,
may be limited due to the lack of a physical certificate for such Book-Entry
Certificates. In addition, under a book-entry format, Beneficial Owners may
experience delays in their receipt of payments, since distributions will be made
by the Master Servicer, or a Paying Agent on behalf of the Master Servicer, to
Cede, as nominee for DTC. Also, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity thereof in any secondary trading market
that may develop therefor because investors may be unwilling to purchase
securities for which they cannot obtain delivery of physical certificates. See
"Description of the Certificates -- Book-Entry Form" herein.
THE TRUST ESTATES
GENERAL
The Trust Estate for each Series of Certificates will consist primarily of
Mortgage Loans evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages, deeds of trust or other instruments creating first liens (the
"Mortgages") on some or all of the following six types of property
(as so secured, the "Mortgaged Properties"), to the extent set forth in the
applicable Prospectus Supplement: (i) one- to four-family detached residences,
(ii) townhouses, (iii) condominium units, (iv) units within planned unit
developments, (v) long-term leases with respect to any of the foregoing, and
(vi) shares issued by private non-profit housing corporations ("cooperatives")
and the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specified units in such cooperatives' buildings. In addition, a
Trust Estate will also include (i) amounts held from time to time in the related
Certificate Account, (ii) the Seller's interest in any primary mortgage
insurance, hazard insurance, title insurance or other insurance policies
relating to a Mortgage Loan, (iii) any property which initially secured a
Mortgage Loan and which has been acquired by foreclosure or trustee's sale or
deed in lieu of foreclosure or trustee's sale, (iv) if applicable, and to the
extent set forth in the applicable Prospectus Supplement, any reserve fund or
funds, (v) if applicable, and to the extent set forth in the applicable
Prospectus Supplement, contractual obligations of any person to make payments in
respect of any form of credit enhancement or any interest subsidy agreement and
(vi) such other assets as may be specified in the applicable Prospectus
Supplement. The Trust Estate will not include the portion of interest on the
Mortgage Loans which constitutes the Fixed Retained Yield, if any. See
"Servicing of the Mortgage Loans -- Fixed Retained Yield, Servicing Compensation
and Payment of Expenses."
MORTGAGE LOANS
The Mortgage Loans will have been acquired by the Seller from its affiliate,
Norwest Mortgage. The Mortgage Loans will have been originated by Norwest
Mortgage or will have been acquired by Norwest Mortgage from other affiliated or
unaffiliated mortgage loan originators. Each Mortgage Loan will have been
underwritten either to Norwest Mortgage's standards, to the extent specified in
the applicable Prospectus Supplement, to the standards of a Pool Insurer or to
such other standards set forth in the applicable Prospectus Supplement. See "The
Mortgage Loan Programs -- Mortgage Loan Production Sources" and " -- Mortgage
Loan Underwriting." The Prospectus Supplement for each Series will set forth the
respective number and principal amounts of Mortgage Loans
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(i) originated by Norwest Mortgage or its affiliate and (ii) purchased by
Norwest Mortgage or its affiliates from unaffiliated mortgage loan originators
through Norwest Mortgage's mortgage loan purchase programs.
Each of the Mortgage Loans will be secured by a Mortgage on a Mortgaged
Property located in any of the 50 states or the District of Columbia. Generally,
the land underlying a Mortgaged Property will consist of five acres or less but
may consist of greater acreage in Norwest Mortgage's discretion.
If specified in the applicable Prospectus Supplement, the Mortgage Loans may
be secured by leases on real property under circumstances that Norwest Mortgage
determines in its discretion are commonly acceptable to institutional mortgage
investors. A Mortgage Loan secured by a lease on real property is secured not by
a fee simple interest in the Mortgaged Property but rather by a lease under
which the mortgagor has the right, for a specified term, to use the related real
estate and the residential dwelling located thereon. Generally, a Mortgage Loan
will be secured by a lease only if the use of leasehold estates as security for
mortgage loans is customary in the area, the lease is not subject to any prior
lien that could result in termination of the lease and the term of the lease
ends at least five years beyond the maturity date of the related Mortgage Loan.
The provisions of each lease securing a Mortgage Loan will expressly permit (i)
mortgaging of the leasehold estate, (ii) assignment of the lease without the
lessor's consent and (iii) acquisition by the holder of the Mortgage, in its own
or its nominee's name, of the rights of the lessee upon foreclosure or
assignment in lieu of foreclosure, unless alternative arrangements provide the
holder of the Mortgage with substantially similar protections. No lease will
contain provisions which (i) provide for termination upon the lessee's default
without the holder of the Mortgage being entitled to receive written notice of,
and opportunity to cure, such default, (ii) provide for termination in the event
of damage or destruction as long as the Mortgage is in existence or (iii)
prohibit the holder of the Mortgage from being insured under the hazard
insurance policy or policies related to the premises.
The Prospectus Supplement will set forth the geographic distribution of
Mortgaged Properties and the number and aggregate unpaid principal balances of
the Mortgage Loans by category of Mortgaged Property. The Prospectus Supplement
for each Series will also set forth the range of original terms to maturity of
the Mortgage Loans in the Trust Estate, the weighted average remaining term to
stated maturity at the Cut-Off Date of such Mortgage Loans, the earliest and
latest months of origination of such Mortgage Loans, the range of Mortgage
Interest Rates borne by such Mortgage Loans, if such Mortgage Loans have varying
Net Mortgage Interest Rates, the weighted average Net Mortgage Interest Rate at
the Cut-Off Date of such Mortgage Loans, the range of Loan-to-Value Ratios at
the time of origination of such Mortgage Loans and the range of principal
balances at origination of such Mortgage Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the Prospectus
Supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such cases,
information as to the final characteristics of the Mortgage Loans and Mortgaged
Properties will be available in a Current Report on Form 8-K which will be filed
with the Commission within 15 days of the initial issuance of the related
Series.
The Mortgage Loans in a Trust Estate will generally have monthly payments
due on the first of each month (each, a "Due Date") but may, if so specified in
the applicable Prospectus Supplement, have payments due on a different day of
each month and will be of one of the following types of mortgage loans:
A. FIXED RATE LOANS. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate, fully-amortizing mortgage
loans providing for level monthly payments of principal and interest and terms
at origination or modification of not more than 30 years. If specified in the
applicable Prospectus Supplement, fixed rates on certain Mortgage Loans may be
converted to adjustable rates after origination of such Mortgage Loans and upon
the satisfaction of other conditions specified in the applicable Prospectus
Supplement. If so specified in the applicable Prospectus
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Supplement, the Pooling and Servicing Agreement will require the Seller or
another party to repurchase each such converted Mortgage Loan at the price set
forth in the applicable Prospectus Supplement. A Trust Estate containing fixed
rate Mortgage Loans may contain convertible Mortgage Loans which have converted
from an adjustable interest rate prior to the formation of the Trust Estate and
which are subject to no further conversions.
B. ADJUSTABLE RATE LOANS. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fully-amortizing adjustable-rate mortgage
loans having an original or modified term to maturity of not more than 30 years
with a related Mortgage Interest Rate which generally adjusts initially either
six months, one, three, five, seven or ten years subsequent to the initial
payment date, and thereafter at either six-month, one-year or other intervals
over the term of the mortgage loan to equal the sum of a fixed margin set forth
in the related Mortgage Note and an index. The applicable Prospectus Supplement
will set forth the relevant index and the highest, lowest and weighted average
margin with respect to the adjustable rate mortgage loans in the related Trust
Estate. The applicable Prospectus Supplement will also indicate any periodic or
lifetime limitations on changes in any per annum Mortgage Rate at the time of
any adjustment.
If specified in the applicable Prospectus Supplement, adjustable rates on
certain Mortgage Loans may be converted to fixed rates after origination of such
Mortgage Loans and upon the satisfaction of the conditions specified in the
applicable Prospectus Supplement. If specified in the applicable Prospectus
Supplement, the Seller or another party will generally be required to repurchase
each such converted Mortgage Loan at the price set forth in the applicable
Prospectus Supplement. A Trust Estate containing adjustable rate Mortgage Loans
may contain convertible Mortgage Loans which have converted from a fixed
interest rate prior to the formation of the Trust Estate.
If so specified in the applicable Prospectus Supplement, the Trust Estate
may contain adjustable-rate mortgage loans which have Mortgage Interest Rates
that generally adjust monthly or may adjust at other intervals as specified in
the applicable Prospectus Supplement. The scheduled monthly payment will be
adjusted as and when described in the applicable Prospectus Supplement (at
intervals different from those at which the Mortgage Interest Rate is adjusted)
to an amount that would fully amortize the Mortgage Loan over its remaining term
on a level debt service basis; provided that increases in the scheduled monthly
payment may be subject to certain limitations as specified in the applicable
Prospectus Supplement, thereby resulting in negative amortization of principal.
If an adjustment to the Mortgage Interest Rate on such a Mortgage Loan causes
the amount of interest accrued thereon in any month to exceed the current
scheduled monthly payment on such mortgage loan, the resulting amount of
interest that has accrued but is not then payable ("Deferred Interest") will be
added to the principal balance of such Mortgage Loan.
C. GRADUATED PAYMENT LOANS. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate, graduated payment mortgage
loans having original or modified terms to maturity of not more than 30 years
with monthly payments during the first year calculated on the basis of an
assumed interest rate which is a specified percentage below the Mortgage Rate on
such mortgage loan. Such monthly payments increase at the beginning of the
second year by a specified percentage of the monthly payment during the
preceding year and each year specified thereafter to the extent necessary to
amortize the mortgage loan over the remainder of its term. Deferred Interest, if
any, will be added to the principal balance of such mortgage loans.
D. SUBSIDY LOANS. If so specified in the applicable Prospectus Supplement,
a Trust Estate may contain Mortgage Loans subject to temporary interest subsidy
agreements ("Subsidy Loans") pursuant to which the monthly payments made by the
related mortgagors will be less than the scheduled monthly payments on such
Mortgage Loans with the present value of the resulting difference in payment
("Subsidy Payments") being provided by the employer of the mortgagor, generally
on an annual basis. Subsidy Payments will generally be placed in a custodial
account ("Subsidy Account")
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by the related Servicer. Despite the existence of a subsidy program, a mortgagor
remains primarily liable for making all scheduled payments on a Subsidy Loan and
for all other obligations provided for in the related Mortgage Note and Mortgage
Loan.
Subsidy Loans are offered by employers generally through either a graduated
or fixed subsidy loan program, or a combination thereof. The terms of the
subsidy agreements relating to Subsidy Loans generally range from one to ten
years. The subsidy agreements relating to Subsidy Loans made under a graduated
program generally will provide for subsidy payments that result in effective
subsidized interest rates between three percentage points and five percentage
points below the Mortgage Interest Rates specified in the related Mortgage
Notes. Generally, under a graduated program, the subsidized rate for a Mortgage
Loan will increase approximately one percentage point per year until it equals
the full Mortgage Interest Rate. For example, if the initial subsidized interest
rate is five percentage points below the Mortgage Interest Rate in year one, the
subsidized rate will increase to four percentage points below the Mortgage
Interest Rate in year two, and likewise until year six, when the subsidized rate
will equal the Mortgage Interest Rate. Where the subsidy agreements relating to
Subsidy Loans are in effect for longer than five years, the subsidized interest
rates generally increase at smaller percentage increments for each year. The
subsidy agreements relating to Subsidy Loans made under a fixed program
generally will provide for subsidized interest rates at fixed percentages
(generally one percentage point to two percentage points) below the Mortgage
Interest Rates for specified periods, generally not in excess of ten years.
Subsidy Loans are also offered pursuant to combination fixed/graduated programs.
The subsidy agreements relating to such Subsidy Loans generally will provide for
an initial fixed subsidy of up to five percentage points below the related
Mortgage Interest Rate for up to five years, and then a periodic reduction in
the subsidy for up to five years, at an equal fixed percentage per year until
the subsidized rate equals the Mortgage Interest Rate.
Generally, employers may terminate subsidy programs in the event of (i) the
mortgagor's death, retirement, resignation or termination of employment, (ii)
the full prepayment of the Subsidy Loan by the mortgagor, (iii) the sale or
transfer by the mortgagor of the related Mortgaged Property as a result of which
the mortgagee is entitled to accelerate the Subsidy Loan pursuant to the
"due-on-sale" clause contained in the Mortgage, or (iv) the commencement of
foreclosure proceedings or the acceptance of a deed in lieu of foreclosure. In
addition, some subsidy programs provide that if prevailing market rates of
interest on mortgage loans similar to a Subsidy Loan are less than the Mortgage
Interest Rate of such Subsidy Loan, the employer may request that the mortgagor
refinance such Subsidy Loan and may terminate the related subsidy agreement if
the mortgagor fails to refinance such Subsidy Loan. In the event the mortgagor
refinances such Subsidy Loan, the new loan will not be included in the Trust
Estate. See "Prepayment and Yield Considerations" herein. In the event a subsidy
agreement is terminated, the amount remaining in the Subsidy Account will be
returned to the employer, and the mortgagor will be obligated to make the full
amount of all remaining scheduled payments, if any. The mortgagor's reduced
monthly housing expense as a consequence of payments under a subsidy agreement
is used by Norwest Mortgage in determining certain expense-to-income ratios
utilized in underwriting a Subsidy Loan. See "The Mortgage Loan Programs --
Mortgage Loan Underwriting."
E. BUY-DOWN LOANS. If so specified in the applicable Prospectus Supplement,
a Trust Estate may contain Mortgage Loans subject to temporary buy-down plans
("Buy-Down Loans") pursuant to which the monthly payments made by the mortgagor
during the early years of the Mortgage Loan will be less than the scheduled
monthly payments on the Mortgage Loan. The resulting difference in payment will
be compensated for from an amount contributed by the seller of the related
Mortgaged Property or another source, including the originator of the Mortgage
Loan (generally on a present value basis) and, if so specified in the applicable
Prospectus Supplement, placed in a custodial account (the "Buy-Down Fund") by
the related Servicer. If the mortgagor on a Buy-Down Loan prepays such Mortgage
Loan in its entirety, or defaults on such Mortgage Loan and the Mortgaged
Property is sold in liquidation thereof, during the period when the mortgagor is
not obligated, on account of the buy-
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down plan, to pay the full monthly payment otherwise due on such loan, the
unpaid principal balance of such Buy-Down Loan will be reduced by the amounts
remaining in the Buy-Down Fund with respect to such Buy-Down Loan, and such
amounts will be deposited in the Servicer Custodial Account or the Certificate
Account, net of any amounts paid with respect to such Buy-Down Loan by any
insurer, guarantor or other person pursuant to a credit enhancement arrangement
described in the applicable Prospectus Supplement.
F. BALLOON LOANS. If so specified in the applicable Prospectus Supplement,
a Trust Estate may include Mortgage Loans which are amortized over a fixed
period not exceeding 30 years but which have shorter terms to maturity (each
such Mortgage Loan, a "Balloon Loan") that causes the outstanding principal
balance of the related Mortgage Loan to be due and payable at the end of a
certain specified period (the "Balloon Period"). The borrower of such Balloon
Loan will be obligated to pay the entire outstanding principal balance of the
Balloon Loan at the end of the related Balloon Period. In the event Norwest
Mortgage refinances a mortgagor's Balloon Loan at maturity, the new loan will
not be included in the Trust Estate. See "Prepayment and Yield Considerations"
herein.
A Trust Estate may also include other types of first lien, residential
Mortgage Loans to the extent set forth in the applicable Prospectus Supplement.
THE SELLER
Norwest Asset Securities Corporation (the "Seller" or "NASCOR") is a direct,
wholly owned subsidiary of Norwest Mortgage, Inc. and an indirect, wholly owned
subsidiary of Norwest Corporation, a corporation organized under the laws of
Delaware ("Norwest Corporation"). The Seller was incorporated in the State of
Delaware on March 28, 1996.
The limited purposes of the Seller are, in general, to acquire, own and sell
mortgage loans; to issue, acquire, own, hold and sell mortgage pass-through
securities which represent ownership interests in mortgage loans, collections
thereon and related properties; and to engage in any acts which are incidental
to, or necessary, suitable or convenient to accomplish, the foregoing.
The Seller maintains its principal office at 5325 Spectrum Drive, Frederick,
Maryland 21701. Its telephone number is (301) 846-8881.
At the time of the formation of any Trust Estate, the Seller will be the
sole owner of all the related Mortgage Loans. The Seller will have acquired the
Mortgage Loans included in any Trust Estate from Norwest Mortgage. Except to the
extent otherwise specified in the applicable Prospectus Supplement, the Seller's
only obligation with respect to the Certificates of any Series will be to
repurchase or substitute for Mortgage Loans in a Trust Estate in the event of
defective documentation or upon the breach of certain representations and
warranties made by the Seller. See "The Pooling and Servicing Agreement --
Assignment of Mortgage Loans to the Trustee."
NORWEST MORTGAGE
Norwest Mortgage, Inc. ("Norwest Mortgage") was originally incorporated as a
Minnesota corporation on July 1, 1983. On August 30, 1995, Norwest Mortgage and
Directors Mortgage Loan Corporation, a California corporation, completed a
statutory merger. As a result of the merger, Norwest became a California
corporation as of September 1, 1995. Norwest Mortgage is engaged principally in
the business of (i) originating and purchasing residential mortgage loans in its
own name and through its affiliates, Norwest Funding, Inc. and Norwest Funding
II, Inc. (collectively, "Norwest Funding") and (ii) servicing residential
mortgage loans for its own account or for the account of others. Norwest
Mortgage is a direct, wholly owned subsidiary of Norwest Nova, Inc. and an
indirect, wholly owned subsidiary of Norwest Corporation. The executive offices
of Norwest Mortgage are located at 405 Southwest 5th Street, Des Moines, Iowa
50309-4603, and its telephone number is (515) 221-7300.
On May 7, 1996 Norwest Mortgage and Norwest Funding acquired all of the
mortgage origination, servicing and secondary marketing operations of The
Prudential Home Mortgage Company, Inc.
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("PHMC"), an indirect, wholly owned subsidiary of The Prudential Insurance
Company of America, and purchased certain mortgage loans from PHMC and a
substantial portion of PHMC's mortgage servicing portfolio (such transaction,
the "PHMC Acquisition"). The Mortgage Loans included in any Trust Estate
underlying a Series of Certificates may consist of (i) Mortgage Loans originated
by Norwest Mortgage or Norwest Funding or purchased by Norwest Mortgage or
Norwest Funding from originators other than PHMC ("Norwest Mortgage Loans"),
(ii) Mortgage Loans originated or purchased by PHMC and acquired by Norwest
Mortgage or Norwest Funding from PHMC as part of the PHMC Acquisition ("PHMC
Mortgage Loans") or (iii) a combination of Norwest Mortgage Loans and PHMC
Mortgage Loans.
Norwest Mortgage is an approved servicer of FNMA, FHLMC and the Government
National Mortgage Association. As of December 31, 1995, Norwest Mortgage had a
net worth of approximately $314.8 million. Prior to the PHMC Acquisition,
Norwest Mortgage serviced residential mortgage loans for its own account or the
account of others with an aggregate unpaid principal balance as of March 31,
1996 of $ . Following the PHMC Acquisition, Norwest Mortgage became the
servicer of residential mortgage loans with an aggregate unpaid principal
balance as of March 31, 1996 of $ and the subservicer for PHMC of
mortgage loans with an aggregate unpaid principal balance as of March 31, 1996
of $ .
NORWEST BANK
Norwest Bank Minnesota, National Association ("Norwest Bank") will act as
Master Servicer with respect to each Series. Norwest Bank is a direct, wholly
owned subsidiary of Norwest Corporation. Norwest Bank is a national banking
association originally chartered in 1872 and is engaged in a wide range of
activities typical of a national bank.
Norwest Bank's principal office is located at Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479. Norwest Bank conducts its master
servicing and securities administration services at its offices in Columbia,
Maryland. Its address there is 11000 Broken Land Parkway, Columbia, Maryland
21044-3662 and its telephone number is (410) 884-2000.
THE MORTGAGE LOAN PROGRAMS
MORTGAGE LOAN PRODUCTION SOURCES
Norwest Mortgage conducts a significant portion of its mortgage loan
originations through more than 700 loan production offices (the "Loan Stores")
located throughout all 50 states. Norwest Mortgage also conducts a significant
portion of its mortgage loan originations through centralized production offices
located in Springfield, Illinois, Frederick, Maryland and Minneapolis,
Minnesota. At the latter locations, Norwest Mortgage receives applications for
home mortgage loans on toll-free telephone numbers that can be called from
anywhere in the United States.
The following are Norwest Mortgage's primary sources of mortgage loan
originations: (i) direct contact with prospective borrowers (including borrowers
with mortgage loans currently serviced by Norwest Mortgage or borrowers referred
by borrowers with mortgage loans currently serviced by Norwest Mortgage), (ii)
referrals by realtors, other real estate professionals and prospective borrowers
to the Loan Stores, (iii) referrals from selected corporate clients, (iv)
referrals from the private mortgage banking group, a division of Norwest
Funding, Inc., which specializes in mortgage loans with original principal
balances in excess of the limits of FNMA and FHLMC, (v) several joint ventures
into which Norwest Mortgage, through its wholly owned subsidiary, Norwest
Mortgage Ventures, Inc., has entered with realtors and banking institutions (the
"Joint Ventures") and (vi) referrals from mortgage brokers and similar entities.
In addition to its own mortgage loan originations, Norwest Mortgage acquires
qualifying mortgage loans from other unaffiliated originators
("Correspondents"). See " -- Acquisition of Mortgage Loans from Correspondents"
below. The relative contribution of each of these sources to Norwest Mortgage's
business, measured by the volume of loans generated, tends to fluctuate over
time.
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Norwest Mortgage Ventures, Inc. owns at least a 50% interest in each of the
Joint Ventures, with the remaining ownership interest in each being owned by a
realtor or a banking institution having significant contact with potential
borrowers. Mortgage loans that are originated by Joint Ventures in which Norwest
Mortgage's partners are realtors are generally made to finance the acquisition
of properties marketed by such Joint Venture partners. Applications for mortgage
loans originated through Joint Ventures are generally taken by Joint Venture
employees and underwritten by Norwest Mortgage in accordance with its standard
underwriting criteria. Such mortgage loans are then closed by the Joint Ventures
in their own names and subsequently purchased by Norwest Mortgage or Norwest
Funding.
Norwest Mortgage may directly contact prospective borrowers (including
borrowers with mortgage loans currently serviced by Norwest Mortgage) through
general and targeted solicitations. Such solicitations are made through direct
mailings, mortgage loan statement inserts and television, radio and print
advertisements and by telephone. Norwest Mortgage's targeted solicitations may
be based on characteristics such as the borrower's mortgage loan interest rate
or payment history and the geographic location of the mortgaged property. See
"Prepayment and Yield Considerations" herein.
A majority of Norwest Mortgage's corporate clients are companies that
sponsor relocation programs for their employees and in connection with which
Norwest Mortgage provides mortgage financing. Eligibility for a relocation loan
is based, in general, on an employer's providing financial assistance to the
relocating employee in connection with a job-required move. Although Subsidy
Loans are typically generated through such corporate-sponsored programs, the
assistance extended by the employer need not necessarily take the form of a loan
subsidy. (Not all relocation loans are generated by Norwest Mortgage through
referrals from its corporate clients; some relocation loans are generated as a
result of referrals from mortgage brokers and similar entities and others are
generated through Norwest Mortgage's acquisition of mortgage loans from other
originators.) Also among Norwest Mortgage's corporate clients are various
professional associations. These associations, as well as the other corporate
clients, promote the availability of a broad range of Norwest Mortgage mortgage
products to their members or employees, including refinance loans, second-home
loans and investment-property loans.
ACQUISITION OF MORTGAGE LOANS FROM CORRESPONDENTS
In order to qualify for participation in Norwest Mortgage's mortgage loan
purchase programs, lending institutions must (i) meet and maintain certain net
worth and other financial standards, (ii) demonstrate experience in originating
residential mortgage loans, (iii) meet and maintain certain operational
standards, (iv) evaluate each loan offered to Norwest Mortgage for consistency
with Norwest Mortgage's underwriting guidelines or the standards of a Pool
Insurer and represent that each loan was underwritten in accordance with Norwest
Mortgage standards or the standards of a Pool Insurer and (v) utilize the
services of qualified appraisers.
The contractual arrangements with Correspondents may involve the commitment
by Norwest Mortgage to accept delivery of a certain dollar amount of mortgage
loans over a period of time; this commitment may be satisfied either by delivery
of mortgage loans one at a time or in multiples as aggregated by the
Correspondent. The contractual arrangements with Correspondents may also involve
the delegation of all underwriting functions to such Correspondents ("Delegated
Underwriting"), which will result in Norwest Mortgage not performing any
underwriting functions prior to acquisition of the loan but instead relying on
such originators' representations, and Norwest Mortgage's post-purchase reviews
of samplings of mortgage loans acquired from such originators regarding the
originators' compliance with Norwest Mortgage's underwriting standards. In all
instances, however, acceptance by Norwest Mortgage is contingent upon the loans
being found to satisfy Norwest Mortgage's program standards or the standards of
a Pool Insurer. Norwest Mortgage may also acquire portfolios of seasoned loans
in negotiated transactions.
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MORTGAGE LOAN UNDERWRITING
NORWEST MORTGAGE UNDERWRITING. Norwest Mortgage's underwriting standards
are applied by or on behalf of Norwest Mortgage to evaluate the applicant's
credit standing and ability to repay the loan, as well as the value and adequacy
of the mortgaged property as collateral. The underwriting standards that guide
the determination represent a balancing of several factors that may affect the
ultimate recovery of the loan amount, including, among others, the amount of the
loan, the ratio of the loan amount to the property value (i.e., the lower of the
appraised value of the mortgaged property and the purchase price), the
borrower's means of support and the borrower's credit history. Norwest
Mortgage's guidelines for underwriting may vary according to the nature of the
borrower or the type of loan, since differing characteristics may be perceived
as presenting different levels of risk. With respect to certain Mortgage Loans,
the originators of such loans may have contracted with unaffiliated third
parties to perform the underwriting process. Except as described below, Mortgage
Loans were underwritten by or on behalf of Norwest Mortgage or, in the case of
PHMC Mortgage Loans, PHMC, generally in accordance with the standards and
procedures described herein.
Norwest Mortgage utilizes various systems of credit scoring as a tool to
supplement the mortgage loan underwriting process. Credit scoring assists
Norwest Mortgage in the mortgage loan approval process by providing consistent,
objective measures of borrower credit and loan attributes. Such objective
measures are used to evaluate loan applications and assign each application a
"Credit Score." The Credit Score is used to determine the type of underwriting
process and which level of underwriter will review the loan file. For
transactions which are determined to be low-risk transactions, based upon the
Credit Score and other parameters (including the mortgage loan production
source), the lowest underwriting authority is generally required. For moderate
and higher risk transactions, higher level underwriters and a full review of the
mortgage file are generally required. Borrowers who have a satisfactory Credit
Score (based upon the mortgage loan production source) are generally subject to
streamlined credit review (which relies on the credit scoring process for
various elements of the underwriting assessments). Such borrowers may also be
eligible for a limited documentation program and are generally permitted a
greater latitude in the application of borrower debt-to-income ratios.
With respect to all mortgage loans underwritten by Norwest Mortgage, Norwest
Mortgage's underwriting of a mortgage loan may be based on data obtained by
parties other than Norwest Mortgage that are involved at various stages in the
mortgage origination or acquisition process. This typically occurs under
circumstances in which loans are subject to more than one approval process, as
when correspondents, certain mortgage brokers or similar entities that have been
approved by Norwest Mortgage to process loans on its behalf, or independent
contractors hired by Norwest Mortgage to perform underwriting services on its
behalf ("contract underwriters") make initial determinations as to the
consistency of loans with Norwest Mortgage underwriting guidelines. The
underwriting of mortgage loans acquired by Norwest Mortgage pursuant to a
Delegated Underwriting arrangement with a Correspondent is not reviewed prior to
acquisition of the mortgage loan by Norwest Mortgage although the mortgage loan
file is reviewed by Norwest Mortgage to confirm that certain documents are
included in the file. Instead, Norwest Mortgage relies on (i) the
Correspondent's representations that such mortgage loan was underwritten in
accordance with Norwest Mortgage's underwriting standards and (ii) a
post-purchase review of a sampling of all mortgage loans acquired from such
originator. In addition, in order to be eligible to sell mortgage loans to
Norwest Mortgage pursuant to a Delegated Underwriting arrangement, the
originator must meet certain requirements including, among other things, certain
quality, operational and financial guidelines.
A prospective borrower applying for a mortgage loan is required to complete
a detailed application. The loan application elicits pertinent information about
the applicant, with particular emphasis on the applicant's financial health
(assets, liabilities, income and expenses), the property being financed and the
type of loan desired. A self-employed applicant may be required to submit his or
her most recent signed federal income tax returns. With respect to every
applicant, credit reports are obtained from commercial reporting services,
summarizing the applicant's credit history with
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merchants and lenders. Significant unfavorable credit information reported by
the applicant or a credit reporting agency must be explained by the applicant.
The credit review process generally is streamlined for borrowers with a
qualifying Credit Score.
Verifications of employment, income, assets or mortgages may be used to
supplement the loan application and the credit report in reaching a
determination as to the applicant's ability to meet his or her monthly
obligations on the proposed mortgage loan, as well as his or her other mortgage
payments (if any), living expenses and financial obligations. A mortgage
verification involves obtaining information regarding the borrower's payment
history with respect to any existing mortgage the applicant may have. This
verification is accomplished by either having the present lender complete a
verification of mortgage form, evaluating the information on the credit report
concerning the applicant's payment history for the existing mortgage,
communicating, either verbally or in writing, with the applicant's present
lender or analyzing cancelled checks provided by the applicant. Verifications of
income, assets or mortgages may be waived under certain programs offered by
Norwest Mortgage, but Norwest Mortgage's underwriting guidelines require, in
most instances, a verbal or written verification of employment to be obtained.
In some cases, in lieu of a verification of employment, employment information
may be obtained through V.I.E., Inc., an affiliate of Norwest Mortgage, that
obtains employment data from state unemployment insurance departments. In
addition, the loan applicant may be eligible for a loan approval process
permitting limited documentation. The above referenced reduced documentation
options and waivers limit the amount of documentation required for an
underwriting decision and have the effect of increasing the relative importance
of the credit report and the appraisal. Documentation requirements vary based
upon a number of factors, including the purpose of the loan, the amount of the
loan, the ratio of the loan amount to the property value and the mortgage loan
production source. Norwest Mortgage accepts alternative methods of verification,
in those instances where verifications are part of the underwriting decision;
for example, salaried income may be substantiated either by means of a form
independently prepared and signed by the applicant's employer or by means of the
applicant's most recent paystub and W-2. In cases where two or more persons have
jointly applied for a mortgage loan, the gross incomes and expenses of all of
the applicants, including nonoccupant co-mortgagors, are combined and considered
as a unit.
In general, all borrowers applying for loans generally must demonstrate that
the ratio of their total monthly housing debt to their monthly gross income, and
the ratio of their total monthly debt to their monthly gross income do not
exceed certain maximum levels. Such maximum levels vary depending on a number of
factors including Loan-to-Value Ratio, a borrower's credit history, a borrower's
liquid net worth, the potential of a borrower for continued employment
advancement or income growth, the ability of the borrower to accumulate assets
or to devote a greater portion of income to basic needs such as housing expense,
a borrower's Credit Score and the type of loan for which the borrower is
applying. These calculations are based on the amortization schedule and the
interest rate of the related loan, with each ratio being computed on the basis
of the proposed monthly mortgage payment. In the case of adjustable-rate
mortgage loans, the interest rate used to determine a mortgagor's monthly
payment for purposes of such ratios may, in certain cases, be the initial
mortgage interest rate or another interest rate, which, in either case, is lower
than the sum of the index rate that would have been applicable at origination
plus the applicable margin. In evaluating applications for Subsidy Loans and
Buy-Down Loans, such ratios are determined by including in the applicant's total
monthly housing expense and total monthly debt the proposed monthly mortgage
payment reduced by the amount expected to be applied on a monthly basis under
the related subsidy agreement or buy-down agreement or, in certain cases, the
mortgage payment that would result from an interest rate lower than the Mortgage
Interest Rate but higher than the effective rate to the mortgagor as a result of
the subsidy agreement or the buy-down agreement. See "The Trust Estates --
Mortgage Loans." Secondary financing is permitted on mortgage loans under
certain circumstances. In those cases, the payment obligations under both
primary and secondary financing are included in the computation of the housing
debt-to-income ratios, and the combined amount of primary and secondary loans
will be used to calculate the combined loan-to-value ratio. Any secondary
financing permitted will generally mature prior to the maturity date of the
related mortgage loan. In
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evaluating an application with respect to a "non-owner-occupied" property, which
Norwest Mortgage defines as a property leased to a third party by its owner (as
distinct from a "second home," which Norwest Mortgage defines as an
owner-occupied, non-rental property that is not the owner's principal
residence), Norwest Mortgage will include projected rental income net of certain
mortgagor obligations and other assumed expenses or loss from such property to
be included in the applicant's monthly gross income or total monthly debt in
calculating the foregoing ratios. A mortgage loan secured by a two- to
four-family Mortgaged Property is considered to be an owner-occupied property if
the borrower occupies one of the units; rental income on the other units is
generally taken into account in evaluating the borrower's ability to repay the
mortgage loan.
Mortgage Loans will not generally have had at origination a Loan-to-Value
Ratio in excess of 95%. However, if so specified in the applicable Prospectus
Supplement, Mortgage Loans that had Loan-to-Value Ratios at origination in
excess of 95% may be included in the related Trust Estate. The Loan-to-Value
Ratio is the ratio, expressed as a percentage, of the principal amount of the
Mortgage Loan at origination to the lesser of (i) the appraised value of the
related Mortgaged Property, as established by an appraisal obtained by the
originator generally no more than four months prior to origination (or, with
respect to newly constructed properties, no more than twelve months prior to
origination), or (ii) the sale price for such property. In some instances, the
Loan-to-Value Ratio may be based on an appraisal that was obtained by the
originator more than four months prior to origination, provided that (i) a
recertification of the original appraisal is obtained and (ii) the original
appraisal was obtained no more than twelve months prior to origination. For the
purpose of calculating the Loan-to-Value Ratio of any Mortgage Loan that is the
result of the refinancing (including a refinancing for "equity take out"
purposes) of an existing mortgage loan, the appraised value of the related
Mortgaged Property is generally determined by reference to an appraisal obtained
in connection with the origination of the replacement loan. In connection with
certain of its mortgage originations, Norwest Mortgage currently obtains
appraisals through its affiliate, Value Information Technology, Inc. Appraisals
used in connection with the origination of the PHMC Mortgage Loans generally
were obtained by PHMC through its affiliate, Lender's Service, Inc.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at the levels which existed on the dates of appraisal
(or, where applicable, recertification of value) of the related Mortgage Loans.
The appraisal of any Mortgaged Property reflects the individual appraiser's
judgment as to value, based on the market values of comparable homes sold within
the recent past in comparable nearby locations and on the estimated replacement
cost. The appraisal relates both to the land and to the structure; in fact, a
significant portion of the appraised value of a Mortgaged Property may be
attributable to the value of the land rather than to the residence. Because of
the unique locations and special features of certain Mortgaged Properties,
identifying comparable properties in nearby locations may be difficult. The
appraised values of such Mortgaged Properties will be based to a greater extent
on adjustments made by the appraisers to the appraised values of reasonably
similar properties rather than on objectively verifiable sales data. If
residential real estate values generally or in particular geographic areas
decline such that the outstanding balances of the Mortgage Loans and any
secondary financing on the Mortgaged Properties in a particular Trust Estate
become equal to or greater than the values of the related Mortgaged Properties,
the actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry and those now
experienced in Norwest Mortgage's servicing portfolios. In addition, adverse
economic conditions generally, in particular geographic areas or industries, or
affecting particular segments of the borrowing community (such as mortgagors
relying on commission income and self-employed mortgagors) and other factors
which may or may not affect real property values, including the purposes for
which the Mortgage Loans were made and the uses of the Mortgaged Properties, may
affect the timely payment by mortgagors of scheduled payments of principal and
interest on the Mortgage Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to any Trust Estate. See
"Prepayment and Yield Considerations -- Weighted
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Average Life of Certificates" herein. To the extent that such losses are not
covered by the methods of credit support or the insurance policies described
herein, they will be borne by holders of the Certificates of the Series
evidencing interests in such Trust Estate.
In general, Norwest Mortgage does not originate mortgage loans with
Loan-to-Value Ratios in excess of 80% unless primary mortgage insurance is
obtained. Loans with Loan-to-Value Ratios exceeding 80% may be approved if
primary mortgage insurance is obtained from an approved primary mortgage
insurance company. In such cases, the excess over 75% (or such lower percentage
as Norwest Mortgage may require at origination) will be covered by primary
mortgage insurance until the unpaid principal balance of the Mortgage Loan is
reduced to an amount that will result in a Loan-to-Value Ratio less than or
equal to 80%. With respect to the PHMC Mortgage Loans, however, PHMC in certain
instances did not require primary mortgage insurance on loans that had
Loan-to-Value Ratios exceeding 80%. Only primary residences (excluding
cooperatives) were eligible for this program. Each qualifying loan was made at
an interest rate that was higher than the rate would have been if the
Loan-to-Value Ratio was 80% or less or if primary mortgage insurance was
obtained.
Except as described below, Mortgage Loans will generally be covered by an
appropriate standard form American Land Title Association ("ALTA") title
insurance policy, or a substantially similar policy or form of insurance
acceptable to the Federal National Mortgage Association ("FNMA") or the Federal
Home Loan Mortgage Corporation ("FHLMC"). Certain Mortgage Loans ("T.O.P.
Loans") originated by Norwest Mortgage or Norwest Funding in connection with the
"Title Option Plus" program are not covered by title insurance policies,
although title searches are performed in connection with the origination of
T.O.P. Loans by American Land Title Company, Inc., an affiliate of Norwest
Mortgage. The Seller will represent and warrant to the Trustee of any Trust
Estate that the Mortgaged Property related to each Mortgage Loan (including each
T.O.P. Loan) is free and clear of all encumbrances and liens having priority
over the first lien of the related Mortgage, subject to certain limited
exceptions as set forth below under "-- Representations and Warranties." However
in the event that a lien senior to the lien of the Mortgage related to a T.O.P.
Loan that is contained in the Trust Estate for any Series is found to exist, the
sole recourse of the Trustee will be against the Seller for breach of its
representation and warranty. The Trustee will not have recourse against any
title insurance company or other party.
Where permitted by law, Norwest Mortgage generally requires that a borrower
include in each monthly payment a portion of the real estate taxes, assessments,
primary mortgage insurance (if applicable), and hazard insurance premiums and
other similar items with respect to the related mortgage loan. Norwest Mortgage
may, however, on a case-by-case basis, in its discretion not require such
advance payments for certain Mortgage Loans, based on an evaluation of the
borrowers' ability to pay such taxes and charges as they become due.
POOL CERTIFICATION UNDERWRITING. If specified in the applicable Prospectus
Supplement, certain of the Mortgage Loans will have been reviewed by General
Electric Mortgage Insurance Corporation ("GEMICO"), United Guaranty Residential
Insurance Company ("UGRIC") or a similar entity (collectively, the "Pool
Insurers") to determine conformity, in the aggregate, with such company's
respective credit, appraisal and underwriting guidelines. Norwest Mortgage will
not have underwritten such Mortgage Loans. Neither GEMICO nor UGRIC have
underwritten any of the Mortgage Loans for compliance with any investor
guidelines.
Based on information provided by the relevant company, as a condition to
eligibility of a Mortgage Loan for inclusion in a mortgage pool to be insured by
GEMICO or UGRIC, the loan originator generally will be required to comply with
the following procedures, although exceptions may be made if permitted by such
company.
Initially, a prospective borrower must fill out a detailed application
providing pertinent credit information. The loan originator obtains a credit
report, which summarizes the prospective borrower's credit history with
merchants and lenders and any record of bankruptcy, or other pertinent legal
history. In addition, a verification of employment for the last two years is
made from either the
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applicant's employer or a Form W-2 for the most recent two years and the
applicant's most recent pay stub. If an applicant is self-employed, such
applicant submits copies of signed tax returns with all schedules for the prior
two years together with a current year-to-date profit and loss statement and any
other documentation deemed necessary. Rental income used to qualify the
applicant is verified either by lease agreements or by the borrower's tax
returns. In the case of refinancings, the loan originator must require, among
other things, that there has not been more than one delinquency in the prior 12
months nor, in the case of mortgage loans reviewed by GEMICO, any delinquency in
the past 90 days on the prior mortgage loan.
In determining the adequacy of the Mortgaged Property as collateral, an
independent appraisal must be made of each property considered for financing.
Each appraiser must be selected in accordance with predetermined guidelines
established for appraisers. The appraiser is required to inspect the property
and verify that it is in good condition and that construction, if new, has been
completed. The appraisal is based on the market value of comparable homes. No
appraisal more than six months old will be accepted by GEMICO and no appraisal
more than 120 days old will be accepted by UGRIC.
Once all applicable employment, credit and property information is received,
a determination must be made by the loan originator (and confirmed on review by
GEMICO or UGRIC) as to whether the prospective borrower has sufficient monthly
income to meet (i) the monthly payment obligations on the proposed mortgage loan
(including principal and interest payments, real estate taxes, insurance on the
subject property, and homeowners' association dues and secondary financing, if
any), and (ii) the aggregate of the foregoing and all other financial
obligations not expected to be fully repaid within the next 10 months. As a
general rule, GEMICO and UGRIC require the ratio of a prospective borrower's
debt, as described in clauses (i) and (ii) above, to such borrower's income to
be 33% and 38%, respectively for fixed rate, fixed payment loans. The ratios
required for adjustable rate loans are slightly lower. The general rule may be
varied, and higher debt-to-income ratios may be permitted, in appropriate cases
characterized by lower Loan-to-Value Ratios or other favorable factors.
In some special cases, GEMICO and UGRIC may underwrite loans under a
"limited documentation" program. With respect to such loans, limited
investigation into the borrower's credit history and income profile is
undertaken by the originator and such loans may be underwritten primarily on the
basis of an appraisal of the mortgaged property and Loan-to-Value Ratio on
origination. Thus, if the Loan-to-Value Ratio is less than the percentage
required under standard guidelines, the originator may forego certain aspects of
the review relating to monthly income, and, in the case of mortgage loans
reviewed by GEMICO, traditional ratios of monthly or total expenses to gross
income may not be applied. At a minimum, a limited documentation program must
require a loan application, a credit report, an appraisal acceptable to
FNMA/FHLMC performed by an independent appraiser, and a verification of
downpayment or three months of bank statements. The maximum Loan-to-Value Ratio
allowed under any limited documentation program underwritten by GEMICO and UGRIC
is 70%. UGRIC's "limited documentation" program is limited exclusively to
self-employed borrowers.
For any rate or term refinance of a mortgage loan, or conversion of an
adjustable rate mortgage loan, where GEMICO or UGRIC has already insured the
prior loan, GEMICO or UGRIC may have determined a loan's insurability without
reviewing updated credit or collateral information. In the case of seasoned
loans, GEMICO or UGRIC may have determined a loan's insurability by performing a
more limited credit and collateral review.
The foregoing should not be taken as a full and complete discussion of all
of the procedures undertaken in connection with a particular underwriting. Both
GEMICO and UGRIC consider various other factors including, but not limited to,
reviewing sales contracts, verifying deposits and other assets and examining
additional supporting documentation in certain instances such as divorce decrees
and separation agreements. Investors should consult the particular Pool
Insurer's underwriting guidelines for more specific and complete requirements
regarding underwriting standards. Furthermore, the underwriting process often
results in certain compensating factors being considered to offset the existence
of other negative factors in a loan file.
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The use of pool certification underwriting by a Pool Insurer in no way
indicates that the related Certificates or Mortgage Loans are insured or
guaranteed under a mortgage pool insurance policy unless the applicable
Prospectus Supplement so specifies.
REPRESENTATIONS AND WARRANTIES
In connection with the transfer of the Mortgage Loans related to any Series
by the Seller to the Trust Estate, the Seller will generally make certain
representations and warranties regarding the Mortgage Loans. In certain cases
where the Seller acquired some or all of the Mortgage Loans related to a Series
from a Correspondent, if so indicated in the applicable Prospectus Supplement,
the Seller may, rather than itself making representations and warranties, cause
the representations and warranties made by the Correspondent in connection with
its sale of Mortgage Loans to Norwest Mortgage or Norwest Funding to be assigned
to the Trust Estate. In such cases, the Correspondent's representations and
warranties may have been made as of a date prior to the date of execution of the
Pooling and Servicing Agreement. Unless otherwise provided in the applicable
Prospectus Supplement, such representations and warranties (whether made by the
Seller or another party) will generally include the following with respect to
the Mortgage Loans, or each Mortgage Loan, as the case may be:
(i)
the information set forth in the schedule of Mortgage Loans appearing
as an exhibit to such Pooling and Servicing Agreement is correct in
all material respects at the date or dates respecting which such information
is furnished as specified therein;
(ii)
immediately prior to the transfer and assignment contemplated by the
Pooling and Servicing Agreement, the Seller is the sole owner and
holder of the Mortgage Loan, free and clear of any and all liens, pledges,
charges or security interests of any nature and has full right and authority
to sell and assign the same;
(iii)
the Mortgage is a valid, subsisting and enforceable first lien on the
related Mortgaged Property, and the Mortgaged Property is free and
clear of all encumbrances and liens having priority over the first lien of
the Mortgage except for liens for real estate taxes and special assessments
not yet due and payable and liens or interests arising under or as a result
of any federal, state or local law, regulation or ordinance relating to
hazardous wastes or hazardous substances; and, if the Mortgaged Property is
a condominium unit, any lien for common charges permitted by statute or home
owners association fees; and, if the Mortgaged Property consists of shares
of a cooperative housing corporation, any lien for amounts due to the
cooperative housing corporation for unpaid assessments or charges or any
lien of any assignment of rents or maintenance expenses secured by the real
property owned by the cooperative housing corporation; and any security
agreement, chattel mortgage or equivalent document related to, and delivered
to the Trustee or a custodian with, any Mortgage establishes in the Seller a
valid first lien on the property described therein and the Seller has full
right to sell and assign the same to the Trustee;
(iv)
neither the Seller nor any prior holder of the Mortgage or the
related Mortgage Note has modified the Mortgage in any material
respect; satisfied, cancelled or subordinated the Mortgage or the related
Mortgage Note in whole or in part; or released the Mortgaged Property in
whole or in part from the lien of the Mortgage; or executed any instrument
of release, cancellation, modification or satisfaction, except in each case
as reflected in a document delivered by the Seller to the Trustee or a
custodian together with the related Mortgage;
(v)
all taxes, governmental assessments, insurance premiums, and water,
sewer and municipal charges previously due and owing have been paid,
or an escrow of funds in an amount sufficient to pay for every such item
which remains unpaid has been established to the extent permitted by law;
and the Seller has not advanced funds or received any advance of funds by a
party other than the mortgagor, directly or indirectly (except pursuant to
any Buy-Down Loan or Subsidy Loan arrangement), for the payment of any
amount required by the Mortgage, except for
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interest accruing from the date of the related Mortgage Note or date of
disbursement of the Mortgage Loan proceeds, whichever is later, to the date
which precedes by 30 days the first Due Date under the related Mortgage
Note;
(vi)
the Mortgaged Property is undamaged by water, fire, earthquake or
earth movement, windstorm, flood, tornado or similar casualty
(excluding casualty from the presence of hazardous wastes or hazardous
substances, as to which the Seller makes no representation), so as to affect
adversely the value of the Mortgaged Property as security for the Mortgage
Loan or the use for which the premises were intended and to the best of the
Seller's knowledge, there is no proceeding pending or threatened for the
total or partial condemnation of the Mortgaged Property;
(vii)
the Mortgaged Property is free and clear of all mechanics' and
materialmen's liens or liens in the nature thereof; provided,
however, that this warranty shall be deemed not to have been made at the
time of the initial issuance of the Certificates if a title policy
affording, in substance, the same protection afforded by this warranty is
furnished to the Trustee by the Seller;
(viii)
except for Mortgage Loans secured by shares in cooperatives, the
Mortgaged Property consists of a fee simple or leasehold estate in
real property, all of the improvements which are included for the purpose of
determining the appraised value of the Mortgaged Property lie wholly within
the boundaries and building restriction lines of such property and no
improvements on adjoining properties encroach upon the Mortgaged Property
(unless insured against under an applicable title insurance policy) and, to
the best of the Seller's knowledge, the Mortgaged Property and all
improvements thereon comply with all requirements of any applicable zoning
and subdivision laws and ordinances;
(ix)
the Mortgage Loan meets, or is exempt from, applicable state or
federal laws, regulations and other requirements pertaining to usury,
and the Mortgage Loan is not usurious;
(x)
to the best of the Seller's knowledge, all inspections, licenses and
certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the use and
occupancy of the same, including, but not limited to, certificates of
occupancy and fire underwriting certificates, have been made or obtained
from the appropriate authorities;
(xi)
all payments required to be made up to the Due Date immediately
preceding the Cut-Off Date for such Mortgage Loan under the terms of
the related Mortgage Note have been made and no Mortgage Loan had more than
one delinquency in the 13 months preceding the Cut-Off Date;
(xii)
the Mortgage Note, the related Mortgage and other agreements executed
in connection therewith are genuine, and each is the legal, valid and
binding obligation of the maker thereof, enforceable in accordance with its
terms except as such enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general equity principles (regardless of whether
such enforcement is considered in a proceeding in equity or at law); and, to
the best of the Seller's knowledge, all parties to the Mortgage Note and the
Mortgage had legal capacity to execute the Mortgage Note and the Mortgage
and each Mortgage Note and Mortgage has been duly and properly executed by
the mortgagor;
(xiii)
any and all requirements of any federal, state or local law with
respect to the origination of the Mortgage Loans including, without
limitation, truth-in-lending, real estate settlement procedures, consumer
credit protection, equal credit opportunity or disclosure laws applicable to
the Mortgage Loans have been complied with;
(xiv)
the proceeds of the Mortgage Loans have been fully disbursed, there
is no requirement for future advances thereunder and any and all
requirements as to completion of any on-site or off-site improvements and as
to disbursements of any escrow funds therefor have been complied
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with, except for escrow funds for exterior items which could not be
completed due to weather; and all costs, fees and expenses incurred in
making, closing or recording the Mortgage Loan have been paid, except
recording fees with respect to Mortgages not recorded as of the date of the
Pooling and Servicing Agreement;
(xv)
the Mortgage Loan (except a T.O.P. Loan as described above under "--
Mortgage Loan Underwriting" and any Mortgage Loan secured by
Mortgaged Property located in Iowa, as to which an opinion of counsel of the
type customarily rendered in such State in lieu of title insurance is
instead received) is covered by an ALTA mortgagee title insurance policy or
other generally acceptable form of policy or insurance acceptable to FNMA or
FHLMC, issued by a title insurer acceptable to FNMA or FHLMC insuring the
originator, its successors and assigns, as to the first priority lien of the
Mortgage in the original principal amount of the Mortgage Loan and subject
only to (A) the lien of current real property taxes and assessments not yet
due and payable, (B) covenants, conditions and restrictions, rights-of-way,
easements and other matters of public record as of the date of recording of
such Mortgage acceptable to mortgage lending institutions in the area in
which the Mortgaged Property is located or specifically referred to in the
appraisal performed in connection with the origination of the related
Mortgage Loan, (C) liens created pursuant to any federal, state or local
law, regulation or ordinance affording liens for the costs of clean-up of
hazardous substances or hazardous wastes or for other environmental
protection purposes and (D) such other matters to which like properties are
commonly subject which do not individually, or in the aggregate, materially
interfere with the benefits of the security intended to be provided by the
Mortgage; the Seller is the sole insured of such mortgagee title insurance
policy, the assignment to the Trustee of the Seller's interest in such
mortgagee title insurance policy does not require any consent of or
notification to the insurer which has not been obtained or made, such
mortgagee title insurance policy is in full force and effect and will be in
full force and effect and inure to the benefit of the Trustee and no claims
have been made under such mortgagee title insurance policy, and no prior
holder of the related Mortgage, including the Seller, has done, by act or
omission, anything which would impair the coverage of such mortgagee title
insurance policy;
(xvi)
the Mortgaged Property securing each Mortgage Loan is insured by an
insurer acceptable to FNMA or FHLMC against loss by fire and such
hazards as are covered under a standard extended coverage endorsement, in an
amount which is not less than the lesser of 100% of the insurable value of
the Mortgaged Property and the outstanding principal balance of the Mortgage
Loan, but in no event less than the minimum amount necessary to fully
compensate for any damage or loss on a replacement cost basis; if the
Mortgaged Property is a condominium unit, it is included under the coverage
afforded by a blanket policy for the project; if upon origination of the
Mortgage Loan, the improvements on the Mortgaged Property were in an area
identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards, a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance
Administration is in effect with a generally acceptable insurance carrier,
in an amount representing coverage not less than the least of (A) the
outstanding principal balance of the Mortgage Loan, (B) the full insurable
value of the Mortgaged Property and (C) the maximum amount of insurance
which was available under the Flood Disaster Protection Act of 1973; and
each Mortgage obligates the mortgagor thereunder to maintain all such
insurance at the mortgagor's cost and expense;
(xvii)
to the best of the Seller's knowledge, there is no default, breach,
violation or event of acceleration existing under any Mortgage or the
related Mortgage Note and no event which, with the passage of time or with
notice and the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration; and the Seller has not
waived any default, breach, violation or event of acceleration; no
foreclosure action is threatened or has been commenced with respect to the
Mortgage Loan;
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(xviii)
no Mortgage Note or Mortgage is subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, nor
will the operation of any of the terms of the Mortgage Note or Mortgage, or
the exercise of any right thereunder, render such Mortgage unenforceable, in
whole or in part, or subject it to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, and no such right
of rescission, set-off, counterclaim or defense has been asserted with
respect thereto;
(xix)
each Mortgage Note is payable in monthly payments, resulting in
complete amortization of the Mortgage Loan over a term of not more
than 360 months;
(xx)
each Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for
the realization against the Mortgaged Property of the benefits of the
security, including realization by judicial foreclosure (subject to any
limitation arising from any bankruptcy, insolvency or other law for the
relief of debtors), and there is no homestead or other exemption available
to the mortgagor which would interfere with such right of foreclosure;
(xxi)
to the best of the Seller's knowledge, no mortgagor is a debtor in
any state or federal bankruptcy or insolvency proceeding;
(xxii)
each Mortgaged Property is located in the United States and consists
of a one- to four-unit single family residential property which may
include a detached home, townhouse, condominium unit, unit in a planned unit
development or a leasehold interest with respect to any of the foregoing or,
in the case of Mortgage Loans secured by shares of cooperatives, leases or
occupancy agreements;
(xxiii)
with respect to each Buy-Down Loan, the funds deposited in the
Buy-Down Fund, if any, will be sufficient, together with interest
thereon at the rate customarily received by the Seller on such funds,
compounded monthly, and adding the amounts required to be paid by the
mortgagor, to make the scheduled payments stated in the Mortgage Note for
the term of the buy-down agreement; and
(xxiv)
each Mortgage Loan is a "Qualified Mortgage" within the meaning of
Section 860G of the Code.
No representations or warranties are made by the Seller or any other party
as to the absence or effect of hazardous wastes or hazardous substances on any
of the Mortgaged Properties or on the lien of any Mortgage or with respect to
the absence or effect of fraud in the origination of any Mortgage Loan, and any
loss or liability resulting from the presence or effect of such hazardous
wastes, hazardous substances or fraud will be borne solely by
Certificateholders. See "Certain Legal Aspects of the Mortgage Loans --
Environmental Considerations" below.
See "The Pooling and Servicing Agreement -- Assignment of Mortgage Loans to
the Trustee" for a description of the limited remedies available in connection
with breaches of the foregoing representations and warranties.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Series of Certificates will include one or more Classes, each of which
may be divided into two or more Subclasses. Any references herein to the
characteristics of a Class of Certificates may also describe the characteristics
of a Subclass of Certificates. In addition, any Class or Subclass of
Certificates may consist of two or more non-severable components, each of which
may exhibit any of the principal or interest payment characteristics described
herein with respect to a Class of Certificates. A Series may include one or more
Classes of Certificates entitled, to the extent of funds available, to
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(i) principal and interest distributions in respect of the related Mortgage
Loans, (ii) principal distributions, with no interest distributions, (iii)
interest distributions, with no principal distributions or (iv) such other
distributions as are described in the applicable Prospectus Supplement.
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") among the Seller,
Norwest Bank, as the Master Servicer, and the Trustee named in the applicable
Prospectus Supplement. An illustrative form of Pooling and Servicing Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries describe certain provisions common
to the Certificates and to each Pooling and Servicing Agreement. The summaries
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Pooling and Servicing
Agreement for each Series of Certificates and the applicable Prospectus
Supplement. Wherever particular sections or defined terms of the Pooling and
Servicing Agreement are referred to, such sections or defined terms are thereby
incorporated herein by reference from the form of Pooling and Servicing
Agreement filed as an exhibit to the Registration Statement.
Unless otherwise specified in the applicable Prospectus Supplement,
distributions to Certificateholders of all Series (other than the final
distribution in retirement of the Certificates) will be made by check mailed to
the address of the person entitled thereto (which in the case of Book-Entry
Certificates will be DTC) as it appears on the certificate register, except
that, with respect to any holder of a Certificate evidencing not less than a
certain minimum denomination set forth in the applicable Prospectus Supplement,
distributions will be made by wire transfer in immediately available funds,
provided that the Master Servicer or the Paying Agent acting on behalf of the
Master Servicer shall have been furnished with appropriate wiring instructions
not less than seven business days prior to the related Distribution Date. The
final distribution in retirement of Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency
maintained by the Trustee or other entity for such purpose, as specified in the
final distribution notice to Certificateholders.
Each Series of Certificates will represent ownership interests in the
related Trust Estate. An election may be made to treat the Trust Estate (or one
or more segregated pools of assets therein) with respect to a Series of
Certificates as a REMIC. If such an election is made, such Series will consist
of one or more Classes of Certificates that will represent "regular interests"
within the meaning of Code Section 860G(a)(1) (such Class or Classes
collectively referred to as the "Regular Certificates") and one Class or
Subclass of Certificates with respect to each REMIC that will be designated as
the "residual interest" within the meaning of Code Section 860G(a)(2) (the
"Residual Certificates") representing the right to receive distributions as
specified in the Prospectus Supplement for such Series. See "Certain Federal
Income Tax Consequences" herein.
The Seller may sell certain Classes or Subclasses of the Certificates of a
Series, including one or more Classes of Subordinated Certificates, in privately
negotiated transactions exempt from registration under the Securities Act.
Alternatively, if so specified in a Prospectus Supplement relating to such
Subordinated Certificates, the Seller may offer one or more Classes of the
Subordinated Certificates of a Series by means of this Prospectus and such
Prospectus Supplement.
DEFINITIVE FORM
Certificates of a Series that are issued in fully registered, certificated
form are referred to herein as "Definitive Certificates." Distributions of
principal of, and interest on, the Definitive Certificates will be made directly
to holders of Definitive Certificates in accordance with the procedures set
forth in the Pooling and Servicing Agreement. The Definitive Certificates of a
Series offered hereby and by means of the applicable Prospectus Supplements will
be transferable and exchangeable at the office or agency maintained by the
Trustee or such other entity for such purpose set forth in the applicable
Prospectus Supplement. No service charge will be made for any transfer or
exchange of Definitive Certificates, but the Trustee or such other entity may
require payment of a sum sufficient to cover any tax or other governmental
charge in connection with such transfer or exchange.
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In the event that an election is made to treat the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC, the "residual interest"
thereof will be issued as a Definitive Certificate. No legal or beneficial
interest in all or any portion of any "residual interest" may be transferred
without the receipt by the transferor and the Trustee of an affidavit signed by
the transferee stating, among other things, that the transferee (i) is not a
disqualified organization within the meaning of Code Section 860E(e) or an agent
(including a broker, nominee, or middleman) thereof and (ii) understands that it
may incur tax liabilities in excess of any cash flows generated by the residual
interest. Further, the transferee must state in the affidavit that it (x)
historically has paid its debts as they have come due, (y) intends to pay its
debts as they come due in the future and (z) intends to pay taxes associated
with holding the residual interest as they become due. The transferor must
certify to the Trustee that, as of the time of the transfer, it has no actual
knowledge that any of the statements made in the transferee affidavit are false
and no reason to know that the statements made by the transferee pursuant to
clauses (x), (y) and (z) of the preceding sentence are false. See "Certain
Federal Income Tax Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates."
BOOK-ENTRY FORM
Each Class or Subclass of the Book-Entry Certificates of a Series initially
will be represented by one or more physical certificates registered in the name
of Cede & Co. ("Cede"), as nominee of DTC, which will be the "holder" or
"Certificateholder" of such Certificates, as such terms are used herein. No
person acquiring an interest in a Book-Entry Certificate (a "Beneficial Owner")
will be entitled to receive a Definitive Certificate representing such person's
interest in the Book-Entry Certificate, except as set forth below. Unless and
until Definitive Certificates are issued under the limited circumstances
described herein, all references to actions taken by Certificateholders or
holders shall, in the case of the Book-Entry Certificates, refer to actions
taken by DTC upon instructions from its DTC Participants, and all references
herein to distributions, notices, reports and statements to Certificateholders
or holders shall, in the case of the Book-Entry Certificates, refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Book-Entry Certificates, as the case may be, for distribution to
Beneficial Owners in accordance with DTC procedures.
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 Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its participating
organizations ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions among DTC Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers (which may
include any underwriter identified in the Prospectus Supplement applicable to
any Series), banks, trust companies and clearing corporations. Indirect access
to the DTC system also is available to banks, brokers, dealers, trust companies
and other institutions that clear through or maintain a custodial relationship
with a DTC Participant, either directly or indirectly ("Indirect DTC
Participants").
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry Certificates among DTC Participants on whose behalf it acts with
respect to the Book-Entry Certificates and to receive and transmit distributions
of principal of and interest on the Book-Entry Certificates. DTC Participants
and Indirect DTC Participants with which Beneficial Owners have accounts with
respect to the Book-Entry Certificates similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Certificates may do so only through DTC Participants
and Indirect DTC Participants. In addition, Beneficial Owners
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will receive all distributions of principal and interest from the Master
Servicer, or a Paying Agent on behalf of the Master Servicer, through DTC
Participants. DTC will forward such distributions to its DTC Participants, which
thereafter will forward them to Indirect DTC Participants or Beneficial Owners.
Beneficial Owners will not be recognized by the Trustee or the Master Servicer
or any paying agent as Certificateholders, as such term is used in the Pooling
and Servicing Agreement, and Beneficial Owners will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its DTC
Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, under a book-entry
format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Master Servicer, or a paying agent on
behalf of the Master Servicer, to Cede, as nominee for DTC.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Pooling and Servicing Agreement only at
the direction of one or more DTC Participants to whose accounts with DTC the
Book-Entry Certificates are credited. Additionally, DTC has advised the Seller
that it will take such actions with respect to specified Voting Interests only
at the direction of and on behalf of DTC Participants whose holdings of
Book-Entry Certificates evidence such specified Voting Interests. DTC may take
conflicting actions with respect to Voting Interests to the extent that DTC
Participants whose holdings of Book-Entry Certificates evidence such Voting
Interests authorize divergent action.
Neither the Seller, the Master Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. In the event of the
insolvency of DTC, a DTC Participant or an Indirect DTC Participant in whose
name Book-Entry Certificates are registered, the ability of the Beneficial
Owners of such Book-Entry Certificates to obtain timely payment and, if the
limits of applicable insurance coverage by the Securities Investor Protection
Corporation are exceeded or if such coverage is otherwise unavailable, ultimate
payment, of amounts distributable with respect to such Book-Entry Certificates
may be impaired.
The Book-Entry Certificates will be converted to Definitive Certificates and
reissued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Trustee is advised in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Certificates and the Trustee is unable to locate a
qualified successor, (ii) the Master Servicer, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of a
dismissal or resignation of the Master Servicer under the Pooling and Servicing
Agreement, Beneficial Owners representing not less than 51% of the Voting
Interests of the outstanding Book-Entry Certificates advise the Trustee through
DTC, in writing, that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Beneficial Owners through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the physical certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the Book-
Entry Certificates as Definitive Certificates to Beneficial Owners. The
procedures relating to payment on and transfer of Certificates initially issued
as Definitive Certificates will thereafter apply to those Book-Entry
Certificates that have been reissued as Definitive Certificates.
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DISTRIBUTIONS TO CERTIFICATEHOLDERS
GENERAL. On each Distribution Date, each holder of a Certificate of a Class
will be entitled to receive its Certificate's Percentage Interest of the portion
of the Pool Distribution Amount (as defined below) allocated to such Class. The
undivided percentage interest (the "Percentage Interest") represented by any
Certificate of a Subclass or any Class in distributions to such Subclass or
Class will be equal to the percentage obtained by dividing the initial principal
balance (or notional amount) of such Certificate by the aggregate initial
principal balance (or notional amount) of all Certificates of such Subclass or
Class, as the case may be.
In general, the funds available for distribution to Certificateholders of a
Series of Certificates with respect to each Distribution Date for such Series
(the "Pool Distribution Amount") will be the sum of all previously undistributed
payments or other receipts on account of principal (including principal
prepayments and Liquidation Proceeds, if any) and interest on or in respect of
the related Mortgage Loans received by the related Servicer after the Cut-Off
Date (except for amounts due on or prior to the Cut-Off Date), or received by
the related Servicer on or prior to the Cut-Off Date but due after the Cut-Off
Date, in either case received on or prior to the business day preceding the
Determination Date in the month in which such Distribution Date occurs, plus all
Periodic Advances with respect to payments due to be received on the Mortgage
Loans on the Due Date preceding such Distribution Date, but excluding the
following:
(a)
amounts received as late payments of principal or interest respecting
which one or more unreimbursed Periodic Advances has been made;
(b)
that portion of Liquidation Proceeds with respect to a Mortgage Loan
which represents any unreimbursed Periodic Advances;
(c)
those portions of each payment of interest on a particular Mortgage
Loan which represent (i) the Fixed Retained Yield, if any, (ii) the
applicable Servicing Fee, as adjusted in respect of principal prepayments in
full as described in "Servicing of the Mortgage Loans -- Adjustment to
Servicing Fee in Connection with Prepaid Mortgage Loans" below, (iii) the
applicable Master Servicing Fee, (iv) the Trustee's fee and (v) any other
amounts described in the applicable Prospectus Supplement;
(d)
all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such
Distribution Date occurs;
(e)
all proceeds (including Liquidation Proceeds other than, in certain
cases as specified in the applicable Prospectus Supplement,
Liquidation Proceeds which were received prior to the related Servicer's
determination that no further recoveries on a defaulted Mortgage Loan will
be forthcoming ("Partial Liquidation Proceeds")) of any Mortgage Loans, or
property acquired in respect thereof, that were liquidated, foreclosed,
purchased or repurchased pursuant to the applicable Pooling and Servicing
Agreement, which proceeds were received on or after the Due Date occurring
in the month in which such Distribution Date occurs and all principal
prepayments in full, partial principal prepayments and Partial Liquidation
Proceeds received by the related Servicer on or after the Determination Date
(or, in certain cases as specified in the applicable Prospectus Supplement,
the Due Date) occurring in the month in which such Distribution Date occurs,
and all related payments of interest on such amounts;
(f)
that portion of Liquidation Proceeds which represents any unpaid
Servicing Fees, Master Servicing Fee or any Trustee Fee to which the
related Servicer, the Trustee or the Master Servicer, respectively, is
entitled and any unpaid Fixed Retained Yield;
(g)
if an election has been made to treat the applicable Trust Estate as
a REMIC, any Net Foreclosure Profits with respect to such
Distribution Date;
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(h)
all amounts representing certain expenses reimbursable to the Master
Servicer or any Servicer and other amounts permitted to be withdrawn
by the Master Servicer from the Certificate Account, in each case pursuant
to the applicable Pooling and Servicing Agreement;
(i)
all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees and payments of interest related to principal
prepayments received on or after the first day of the month in which a
Distribution Date occurs and prior to the Determination Date in the month of
such Distribution Date which the related Servicer is entitled to retain
pursuant to the applicable Underlying Servicing Agreement;
(j)
reinvestment earnings on payments received in respect of the Mortgage
Loans; and
(k)
any recovery of an amount in respect of principal which had
previously been allocated as a realized loss to such Series of
Certificates.
The applicable Prospectus Supplement for a Series will describe any
variation in the calculation of the Pool Distribution Amount for such Series.
"Net Foreclosure Profits" with respect to a Distribution Date will be the
excess of (i) the portion of aggregate net Liquidation Proceeds which represents
the amount by which aggregate profits on Liquidated Loans with respect to which
net Liquidation Proceeds exceed the unpaid principal balance thereof plus
accrued interest thereon at the Mortgage Interest Rate over (ii) aggregate
realized losses on Liquidated Loans with respect to which net Liquidation
Proceeds are less than the unpaid principal balance thereof plus accrued
interest thereon at the Mortgage Interest Rate.
DISTRIBUTIONS OF INTEREST. With respect to each Series of Certificates,
interest on the related Mortgage Loans at the weighted average of the applicable
Net Mortgage Interest Rates thereof, will be passed through monthly to holders
of the related Classes of Certificates in the aggregate, in accordance with the
particular terms of each such Class of Certificates. The "Net Mortgage Interest
Rate" for each Mortgage Loan in a given period will equal the mortgage interest
rate for such Mortgage Loan in such period, as specified in the related mortgage
note (the "Mortgage Interest Rate"), less the portion thereof, if any, not
contained in the Trust Estate (the "Fixed Retained Yield"), and less amounts
payable to the Servicers for servicing the Mortgage Loan (the "Servicing Fee"),
the fee payable to the Master Servicer (the "Master Servicing Fee"), the fee
payable to the Trustee (the "Trustee Fee") and any related expenses specified in
the applicable Prospectus.
Interest will accrue on the principal balance (or notional amount, as
described below) of each Class of Certificates entitled to interest at the
Pass-Through Rate for such Class indicated in the applicable Prospectus
Supplement (which may be a fixed rate or an adjustable rate) from the date and
for the periods specified in such Prospectus Supplement. To the extent the Pool
Distribution Amount is available therefor, interest accrued during each such
specified period on each Class of Certificates entitled to interest (other than
a Class that provides for interest that accrues, but is not currently payable,
referred to hereafter as "Accrual Certificates") will be distributable on the
Distribution Dates specified in the applicable Prospectus Supplement until the
principal balance (or notional amount) of such Class has been reduced to zero.
Distributions allocable to interest on each Certificate that is not entitled to
distributions allocable to principal will generally be calculated based on the
notional amount of such Certificate. The notional amount of a Certificate will
not evidence an interest in or entitlement to distributions allocable to
principal but will be solely for convenience in expressing the calculation of
interest and for certain other purposes.
With respect to any Class of Accrual Certificates, any interest that has
accrued but is not paid on a given Distribution Date will be added to the
principal balance of such Class of Certificates on that Distribution Date.
Distributions of interest on each Class of Accrual Certificates will commence
only after the occurrence of the events or the existence of the circumstance
specified in such Prospectus Supplement and, prior to such time, or in the
absence of such circumstances, the principal balance of such Class will increase
on each Distribution Date by the amount of interest that accrued on such
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Class during the preceding interest accrual period but that was not required to
be distributed to such Class on such Distribution Date. Any such Class of
Accrual Certificates will thereafter accrue interest on its outstanding
principal balance as so adjusted.
DISTRIBUTIONS OF PRINCIPAL. The principal balance of any Class of
Certificates entitled to distributions of principal will generally be the
original principal balance of such Class specified in such Prospectus
Supplement, reduced by all distributions reported to the holders of such
Certificates as allocable to principal and any losses on the related Mortgage
Loans allocated to such Class of Certificates and (i) in the case of Accrual
Certificates, increased by all interest accrued but not then distributable on
such Accrual Certificates and (ii) in the case of a Series of Certificates
representing interests in a Trust Estate containing adjustable rate Mortgage
Loans, increased by any Deferred Interest allocable to such Class. The principal
balance of a Class or Subclass of Certificates generally represents the maximum
specified dollar amount (exclusive of (i) any interest that may accrue on such
Class or Subclass to which the holder thereof is entitled from the cash flow on
the related Mortgage Loans at such time) and will decline to the extent of
distributions in reduction of the principal balance of, and allocations of
losses to such Class or Subclass. Certificates with no principal balance will
not receive distributions in respect of principal. The applicable Prospectus
Supplement will specify the method by which the amount of principal to be
distributed on the Certificates on each Distribution Date will be calculated and
the manner in which such amount will be allocated among the Classes of
Certificates entitled to distributions of principal.
If so provided in the applicable Prospectus Supplement, one or more Classes
of Senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments of principal that are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the months of such payments or of
other unscheduled principal receipts or recoveries in the percentages and under
the circumstances or for the periods specified in such Prospectus Supplement.
Any such allocation of principal prepayments or other unscheduled receipts or
recoveries in respect of principal to such Class or Classes of Senior
Certificates will have the effect of accelerating the amortization of such
Senior Certificates while increasing the interests evidenced by the Subordinated
Certificates in the Trust Estate. Increasing the interests of the Subordinated
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the subordination provided by the Subordinated Certificates.
If specified in the applicable Prospectus Supplement, the rights of the
holders of the Subordinated Certificates of a Series of Certificates for which
credit enhancement is provided through subordination to receive distributions
with respect to the Mortgage Loans in the related Trust Estate will be
subordinated to such rights of the holders of the Senior Certificates of the
same Series to the extent described below, except as otherwise set forth in such
Prospectus Supplement. This subordination is intended to enhance the likelihood
of regular receipt by holders of Senior Certificates of the full amount of
scheduled monthly payments of principal and interest due them and to provide
limited protection to the holders of the Senior Certificates against losses due
to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series of
Certificates for which credit enhancement is provided through subordination by
the subordination feature described above will be effected by (i) the
preferential right of such holders to receive, prior to any distribution being
made in respect of the related Subordinated Certificates on each Distribution
Date, current distributions on the related Mortgage Loans of principal and
interest due them on each Distribution Date out of the funds available for
distribution on such date in the related Certificate Account, (ii) by the right
of such holders to receive future distributions on the Mortgage Loans that would
otherwise have been payable to the holders of Subordinated Certificates and/or
(iii) by the prior allocation to the Subordinated Certificates of all or a
portion of losses realized on the related Mortgage Loans.
Losses realized on liquidated Mortgage Loans (other than Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses as described
below) will be allocated to the holders of
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Subordinated Certificates through a reduction of the amount of principal
payments on the Mortgage Loans to which such holders are entitled before any
corresponding reduction is made in respect of the Senior Certificate.
A "Special Hazard Loss" is a loss on a liquidated Mortgage Loan occurring as
a result of a hazard not insured against under a standard hazard insurance
policy of the type described herein under "The Trust Estates -- Mortgage Loans
- -- Insurance Policies." A "Fraud Loss" is a loss on a liquidated Mortgage Loan
as to which there was fraud in the origination of such Mortgage Loan. A
"Bankruptcy Loss" is a loss on a liquidated Mortgage Loan attributable to
certain actions which may be taken by a bankruptcy court in connection with a
Mortgage Loan, including a reduction by a bankruptcy court of the principal
balance of or the interest rate on a Mortgage Loan or an extension of its
maturity. Special Hazard Losses in excess of the amount specified in the
applicable Prospectus Supplement (the "Special Hazard Loss Amount") are "Excess
Special Hazard Losses." Fraud Losses in excess of the amount specified in the
applicable Prospectus Supplement (the "Fraud Loss Amount") are "Excess Fraud
Losses." Bankruptcy losses in excess of the amount specified in the applicable
Prospectus Supplement (the "Bankruptcy Loss Amount") are "Excess Bankruptcy
Losses." Any Excess Special Hazard Losses, Excess Fraud Losses or Excess
Bankruptcy Losses with respect to a Series will be allocated on a pro rata basis
among the related Classes of Senior and Subordinated Certificates. An allocation
of a loss on a "pro rata basis" among two or more Classes of Certificates means
an allocation on a pro rata basis to each such Class of Certificates on the
basis of their then-outstanding principal balances in the case of the principal
portion of a loss or based on the accrued interest thereon in the case of an
interest portion of a loss.
Since the amounts of the Special Hazard Loss Amount, Fraud Loss Amount and
Bankruptcy Loss Amount for a Series of Certificates are each expected to be less
than the amount of principal payments on the Mortgage Loans to which the holders
of the Subordinated Certificates of such Series are initially entitled (such
amount being subject to reduction, as described above, as a result of allocation
of losses on liquidated Mortgage Loans that are not Special Hazard Losses, Fraud
Losses or Bankruptcy Losses), the holders of Subordinated Certificates of such
Series will bear the risk of Special Hazard Losses, Fraud Losses and Bankruptcy
Losses to a lesser extent than they will bear other losses on liquidated
Mortgage Loans.
Although the subordination feature described above is intended to enhance
the likelihood of timely payment of principal and interest to the holders of
Senior Certificates, shortfalls could result in certain circumstances. For
example, a shortfall in the payment of principal otherwise due the holders of
Senior Certificates could occur if losses realized on the Mortgage Loans in a
Trust Estate were exceptionally high and were concentrated in a particular
month.
The holders of Subordinated Certificates will not be required to refund any
amounts previously properly distributed to them, regardless of whether there are
sufficient funds on a subsequent Distribution Date to make a full distribution
to holders of each Class of Senior Certificates of the same Series.
OTHER CREDIT ENHANCEMENT
In addition to, or in substitution for, the subordination discussed above,
credit enhancement may be provided with respect to any Series of Certificates in
any other manner which may be described in the applicable Prospectus Supplement,
including, but not limited to, credit enhancement through an alternative form of
subordination and/or one or more of the methods described below.
LIMITED GUARANTEE
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, credit enhancement may be provided in the form of a limited
guarantee issued by a guarantor named therein.
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FINANCIAL GUARANTY INSURANCE POLICY OR SURETY BOND
If so specified in the Prospectus Supplement with respect to a Series of
Certificates credit enhancement may be provided in the form of a financial
guaranty insurance policy or a surety bond issued by an insurer named therein.
LETTER OF CREDIT
Alternative credit support with respect to a Series of Certificates may be
provided by the issuance of a letter of credit by the bank or financial
institution specified in the applicable Prospectus Supplement. The coverage,
amount and frequency of any reduction in coverage provided by a letter of credit
issued with respect to a Series of Certificates will be set forth in the
Prospectus Supplement relating to such Series.
POOL INSURANCE POLICIES
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller will obtain a pool insurance policy for the Mortgage
Loans in the related Trust Estate. The pool insurance policy will cover any loss
(subject to the limitations described in the applicable Prospectus Supplement)
by reason of default to the extent a related Mortgage Loan is not covered by any
primary mortgage insurance policy. The amount and principal terms of any such
coverage will be set forth in the Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the applicable Prospectus Supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Seller will
also obtain a special hazard insurance policy for the related Trust Estate in
the amount set forth in such Prospectus Supplement. The special hazard insurance
policy will, subject to the limitations described in the applicable Prospectus
Supplement, protect against loss by reason of damage to Mortgaged Properties
caused by certain hazards not insured against under the standard form of hazard
insurance policy for the respective states in which the Mortgaged Properties are
located. The amount and principal terms of any such coverage will be set forth
in the Prospectus Supplement.
MORTGAGOR BANKRUPTCY BOND
If so specified in the applicable Prospectus Supplement, losses resulting
from a bankruptcy proceeding relating to a mortgagor affecting the Mortgage
Loans in a Trust Estate with respect to a Series of Certificates will be covered
under a mortgagor bankruptcy bond (or any other instrument that will not result
in a downgrading of the rating of the Certificates of a Series by the Rating
Agency or Rating Agencies that rated such Series). Any mortgagor bankruptcy bond
or such other instrument will provide for coverage in an amount meeting the
criteria of the Rating Agency or Rating Agencies rating the Certificates of the
related Series, which amount will be set forth in the applicable Prospectus
Supplement. The amount and principal terms of any such coverage will be set
forth in the Prospectus Supplement.
RESERVE FUND
If so specified in the applicable Prospectus Supplement, credit enhancement
with respect to a Series of Certificates may be provided by the establishment of
one or more reserve funds (each, a "Reserve Fund") for such Series.
The Reserve Fund for a Series may be funded (i) by the deposit therein of
cash, U.S. Treasury securities or instruments evidencing ownership of principal
or interest payments thereon, letters of credit, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the
applicable Prospectus Supplement, (ii) by the deposit therein from time to time
of certain amounts, as specified in the applicable Prospectus Supplement, to
which the certain Classes of Certificates would otherwise be entitled or (iii)
in such other manner as may be specified in the applicable Prospectus
Supplement.
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CROSS SUPPORT
If specified in the applicable Prospectus Supplement, the beneficial
ownership of separate groups of Mortgage Loans included in a Trust Estate may be
evidenced by separate Classes of Certificates. In such case, credit support may
be provided by a cross support feature which requires that distributions be made
with respect to certain Classes from mortgage loan payments that would otherwise
be distributed to Subordinated Certificates evidencing a beneficial ownership
interest in other loan groups within the same Trust Estate. The applicable
Prospectus Supplement for a Series that includes a cross support feature will
describe the specific operation of any such cross support feature.
PREPAYMENT AND YIELD CONSIDERATIONS
PASS-THROUGH RATES
Any Class of Certificates of a Series may have a fixed Pass-Through Rate, or
a Pass-Through Rate which varies based on changes in an index or based on
changes with respect to the underlying Mortgage Loans (such as, for example,
varying on the basis of changes in the weighted average Net Mortgage Interest
Rate of the underlying Mortgage Loans).
The Prospectus Supplement for each Series will specify the range and the
weighted average of the Mortgage Interest Rates and, if applicable, Net Mortgage
Interest Rates for the Mortgage Loans underlying such Series as of the Cut-Off
Date. If the Trust Estate includes adjustable-rate Mortgage Loans or includes
Mortgage Loans with different Net Mortgage Interest Rates, the weighted average
Net Mortgage Interest Rate may vary from time to time as set forth below. See
"The Trust Estates." The Prospectus Supplement for a Series will also specify
the initial weighted average Pass-Through Rate for each Class of Certificates of
such Series and will specify whether each such Pass-Through Rate is fixed or is
variable.
The Net Mortgage Interest Rate for any adjustable-rate Mortgage Loan will
change with any changes in the index specified in the applicable Prospectus
Supplement on which such Mortgage Interest Rate adjustments are based, subject
to any applicable periodic or aggregate caps or floors on the related Mortgage
Interest Rate. The weighted average Net Mortgage Interest Rate with respect to
any Series may vary due to changes in the Net Mortgage Interest Rates of
adjustable-rate Mortgage Loans, to the timing of the Mortgage Interest Rate
readjustments of such Mortgage Loans and to different rates of payment of
principal of fixed or adjustable-rate Mortgage Loans bearing different Mortgage
Interest Rates.
SCHEDULED DELAYS IN DISTRIBUTIONS
At the date of initial issuance of the Certificates of each Series offered
hereby, the initial purchasers of a Class of Certificates may be required to pay
accrued interest at the applicable Pass-Through Rate for such Class from the
Cut-Off Date for such Series to, but not including, the date of issuance. The
effective yield to Certificateholders will be below the yield otherwise produced
by the applicable Pass-Through Rate because the distribution of principal and
interest which is due on each Due Date will not be made until the 25th day (or
if such 25th day is not a business day, the business day immediately following
such 25th day) of the month in which such Due Date occurs (or until such other
Distribution Date specified in the applicable Prospectus Supplement).
EFFECT OF PRINCIPAL PREPAYMENTS
When a Mortgage Loan is prepaid in full, the mortgagor pays interest on the
amount prepaid only to the date of prepayment and not thereafter. Liquidation
Proceeds (as defined herein) and amounts received in settlement of insurance
claims are also likely to include interest only to the time of payment or
settlement. When a Mortgage Loan is prepaid in full or in part, an interest
shortfall may result depending on the timing of the receipt of the prepayment
and the timing of when those prepayments are passed through to
Certificateholders. To partially mitigate this reduction in yield, the
Underlying Servicing Agreements relating to a Series may provide, to the extent
specified in the applicable Prospectus Supplement, that with respect to certain
principal prepayments received on or
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after the Determination Date in the month preceding the month in which the
related Distribution Date occurs and prior to the Due Date in the month in which
such Distribution Date occurs, or, with respect to certain Underlying Servicing
Agreements, during the month preceding the month in which the related
Distribution Date occurs, the related Servicer will pay into the Servicer
Custodial Account for remittance to the Certificate Account for such Series, to
the extent funds are available for such purpose from the aggregate Servicing
Fees (or portion thereof as specified in the applicable Prospectus Supplement)
which such Servicer is entitled to receive relating to mortgagor payments or
other recoveries distributed to Certificateholders on the related Distribution
Date, the amount, if any, of interest at the Net Mortgage Interest Rate for such
Mortgage Loan for the period from the date of such prepayment in full to and
including the end of the month in which such prepayment in full occurs. No
comparable offset against the Servicing Fee will be provided with respect to
liquidations of any Mortgage Loans. Any interest shortfall arising from
prepayments not so covered or from liquidations will be covered by means of the
subordination of the rights of Subordinated Certificateholders or any other
credit support arrangements. See "Servicing of the Mortgage Loans -- Adjustment
to Servicing Fee in Connection with Prepaid Mortgage Loans."
A lower rate of principal prepayments than anticipated would negatively
affect the total return to investors in any Certificates of a Series that are
offered at a discount to their principal amount and a higher rate of principal
prepayments than anticipated would negatively affect the total return to
investors in the Certificates of a Series that are offered at a premium to their
principal amount. The yield on Certificates that are entitled solely or
disproportionately to distributions of principal or interest may be particularly
sensitive to prepayment rates, and further information with respect to yield on
such Certificates will be included in the applicable Prospectus Supplement.
WEIGHTED AVERAGE LIFE OF CERTIFICATES
The Mortgage Loans may be prepaid in full or in part at any time. Mortgage
Loan generally will not provide for a prepayment penalty but may so provide if
indicated in the related Prospectus Supplement. Fixed rate Mortgage Loans
generally will contain due-on-sale clauses permitting the mortgagee to
accelerate the maturities of the Mortgage Loans upon conveyance of the related
Mortgaged Properties, and adjustable-rate Mortgage Loans generally will permit
creditworthy borrowers to assume the then-outstanding indebtedness on the
Mortgage Loans.
Prepayments on Mortgage Loans are commonly measured relative to a prepayment
standard or model. The Prospectus Supplement for each Series of Certificates may
describe one or more such prepayment standards or models and contain tables
setting forth the weighted average life of each Class and the percentage of the
original aggregate principal balance of each Class that would be outstanding on
specified Distribution Dates for such Series and the projected yields to
maturity on certain Classes thereof, in each case based on the assumptions
stated in such Prospectus Supplement, including assumptions that prepayments on
the Mortgage Loans are made at rates corresponding to various percentages of the
prepayment standard or model specified in such Prospectus Supplement.
There is no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to any level of the prepayment standard or
model specified in the applicable Prospectus Supplement. A number of factors,
including but not limited to homeowner mobility, economic conditions, natural
disasters, changes in mortgagors' housing needs, job transfers, unemployment or,
in the case of borrowers relying on commission income and self-employed
borrowers, significant fluctuations in income or adverse economic conditions,
mortgagors' net equity in the properties securing the mortgages, including the
use of second or "home equity" mortgage loans by mortgagors or the use of the
properties as second or vacation homes, servicing decisions, enforceability of
due-on-sale clauses, mortgage market interest rates, mortgage recording taxes,
competition among mortgage loan originators resulting in reduced refinancing
costs, reduction in documentation requirements and willingness to accept higher
loan-to-value ratios, and the availability of mortgage funds, may affect
prepayment experience. In general, however, if prevailing interest rates fall
below the Mortgage Interest Rates borne by the Mortgage Loans underlying a
Series of Certificates, the prepayment rates of such
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Mortgage Loans are likely to be higher than if prevailing rates remain at or
above the rates borne by such Mortgage Loans. Conversely, if prevailing interest
rates rise above the Mortgage Interest Rates borne by the Mortgage Loans, the
Mortgage Loans are likely to experience a lower prepayment rate than if
prevailing rates remain at or below such Mortgage Interest Rates. However, there
can be no assurance that prepayments will rise or fall according to such changes
in interest rates. It should be noted that Certificates of a Series may evidence
an interest in a Trust Estate with different Mortgage Interest Rates.
Accordingly, the prepayment experience of such Certificates will to some extent
be a function of the mix of interest rates of the Mortgage Loans. In addition,
the terms of the Underlying Servicing Agreements will require the related
Servicer to enforce any due-on-sale clause to the extent it has knowledge of the
conveyance or the proposed conveyance of the underlying Mortgaged Property;
provided, however, that any enforcement action that the Servicer determines
would jeopardize any recovery under any related primary mortgage insurance
policy will not be required and provided, further, that the Servicer may permit
the assumption of defaulted Mortgage Loans. See "Servicing of the Mortgage Loans
- -- Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans" and "Certain Legal Aspects of the Mortgage Loans -- Due-On-Sale Clauses"
for a description of certain provisions of each Pooling and Servicing Agreement
and certain legal developments that may affect the prepayment experience on the
Mortgage Loans.
At the request of the mortgagor, a Servicer, including Norwest Mortgage, may
allow the refinancing of a Mortgage Loan in any Trust Estate serviced by such
Servicer by accepting prepayments thereon and permitting a new loan secured by a
Mortgage on the same property. Upon such refinancing, the new loan will not be
included in the Trust Estate. A mortgagor may be legally entitled to require the
Servicer to allow such a refinancing. Any such refinancing will have the same
effect as a prepayment in full of the related Mortgage Loan. In this regard a
Servicer may, from time to time, implement programs designed to encourage
refinancing through such Servicer, including but not limited to general or
targeted solicitations, or the offering of pre-approved applications, reduced
origination fees or closing costs, or other financial incentives. A Servicer may
also encourage refinancing of defaulted Mortgage Loans, including Mortgage Loans
that would permit creditworthy borrowers to assume the outstanding indebtedness.
The Seller will be obligated, under certain circumstances, to repurchase
certain of the Mortgage Loans. In addition, if specified in the applicable
Prospectus Supplement, the Pooling and Servicing Agreement will permit, but not
require, the Seller or Master Servicer, and the terms of certain insurance
policies relating to the Mortgage Loans may permit the applicable insurer, to
purchase any Mortgage Loan which is in default or as to which default is
reasonably foreseeable. The proceeds of any such purchase or repurchase will be
deposited in the related Certificate Account and such purchase or repurchase
will have the same effect as a prepayment in full of the related Mortgage Loan.
See "The Pooling and Servicing Agreement -- Assignment of Mortgage Loans to the
Trustee" and " -- Optional Purchases." In addition, if so specified in the
applicable Prospectus Supplement, the Master Servicer or another person
identified therein will have the option to purchase all, but not less than all,
of the Mortgage Loans in any Trust Estate under the limited conditions specified
in such Prospectus Supplement. For any Series of Certificates for which an
election has been made to treat the Trust Estate (or one or more segregated
pools of assets therein) as a REMIC, any such purchase or repurchase may be
effected only pursuant to a "qualified liquidation," as defined in Code Section
860F(a)(4)(A). See "The Pooling and Servicing Agreement -- Termination; Optional
Purchase of Mortgage Loans."
SERVICING OF THE MORTGAGE LOANS
The following is a summary of certain provisions of the forms of the
Underlying Servicing Agreement and the Pooling and Servicing Agreement that have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. The summaries do not purport to be complete
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and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the Pooling and Servicing Agreement and Underlying Servicing
Agreements for each Series of Certificates and the applicable Prospectus
Supplement.
THE MASTER SERVICER
The Master Servicer with respect to each Series of Certificates will be
Norwest Bank. See "Norwest Bank" above. The Master Servicer generally will (a)
be responsible under each Pooling and Servicing Agreement for providing general
administrative services for the Trust Estate for any such Series, including,
among other things, (i) for administering and supervising the performance by the
Servicers of their duties and responsibilities under the Underlying Servicing
Agreements, (ii) oversight of payments received on Mortgage Loans, (iii)
monitoring the amounts on deposit in various trust accounts, (iv) calculation of
the amounts payable to Certificateholders on each Distribution Date, (v)
preparation of periodic reports to the Trustee or the Certificateholders with
respect to the foregoing matters, (vi) preparation of federal and applicable
state and local tax and information returns; (vii) preparation of reports, if
any, required under the Securities and Exchange Act of 1934, as amended and
(viii) performing certain of the servicing obligations of a terminated Servicer
as described below under "-- The Servicers"; (b) maintain any mortgage pool
insurance policy, mortgagor bankruptcy bond, special hazard insurance policy or
other form of credit support that may be required with respect to any Series and
(c) make advances of delinquent payments of principal and interest on the
Mortgage Loans to the limited extent described herein under the heading
"Servicing of Mortgage Loans -- Periodic Advances and Limitations Thereon," if
such amounts are not advanced by a Servicer (other than Norwest Mortgage). The
Master Servicer will also perform additional duties as described in the
applicable Pooling and Servicing Agreement. The Master Servicer will be entitled
to receive a portion of the interest payments on the Mortgage Loans included in
the Trust Estate for such a Series to cover its fees as Master Servicer. The
Master Servicer may subcontract with Norwest Mortgage or any other entity the
obligations of the Master Servicer under any Pooling and Servicing Agreement.
The Master Servicer will remain primarily liable for any such contractor's
performance in accordance with the applicable Pooling and Servicing Agreement.
The Master Servicer may be released from its obligations in certain
circumstances. See "Certain Matters Regarding the Master Servicer."
The Master Servicer will generally be required to pay all expenses incurred
in connection with the administration of the Trust Estate, including, without
limitation, fees or other amounts payable pursuant to any applicable agreement
for the provision of credit enhancement for such Series, the fees and
disbursements of the Trustee and any custodian, fees due to the independent
accountants and expenses incurred in connection with distributions and reports
to Certificateholders. Certain of these expenses may be reimbursable to the
Master Servicer pursuant to the terms of the applicable Pooling and Servicing
Agreement.
Each Prospectus Supplement relating to such a Series of Certificates will
contain information concerning recent delinquency, foreclosure and loan loss
experience on the mortgage loans included in Norwest Mortgage's servicing
portfolio which were originated or acquired by Norwest Mortgage for its own
account or for the account of its affiliates ("Program Loans"), and, if
available, on those Program Loans having payment terms generally similar to
those of the Mortgage Loans in the related Trust Estate. If the related Trust
Estate contains PHMC Mortgage Loans, the related Prospectus Supplement may
contain information concerning PHMC's delinquency, foreclosure and loan loss
experience prior to the PHMC Acquisition. Norwest Mortgage's total servicing
portfolio of Program Loans as of any date may include (and PHMC's servicing
portfolio included) loans having a variety of payment characteristics, including
adjustable rate mortgage loans and loans subject to subsidy agreements, and the
overall delinquency, foreclosure and loan loss experience of the Program Loans
(or PHMC-serviced mortgage loans) taken as a whole may differ from that of the
Mortgage Loans contained in any given Trust Estate and from that of mortgage
servicers generally.
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THE SERVICERS
For each Series, Norwest Mortgage and, if specified in the applicable
Prospectus Supplement, one or more other Servicers will provide certain
customary servicing functions with respect to Mortgage Loans pursuant to
separate servicing agreements ("Underlying Servicing Agreements") with the
Seller or an affiliate thereof. The rights of the Seller or such affiliate under
the applicable Underlying Servicing Agreements in respect of the Mortgage Loans
included in the Trust Estate for any such Series will be assigned (directly or
indirectly) to the Trustee for such Series. The Servicers may be entitled to
withhold their Servicing Fees and certain other fees and charges from
remittances of payments received on Mortgage Loans serviced by them.
Each Servicer generally will be approved by FNMA or FHLMC as a servicer of
mortgage loans and must be approved by the Master Servicer. In determining
whether to approve a Servicer, the Master Servicer will review the credit of the
Servicer, including capitalization ratios, liquidity, profitability and other
similar items that indicate financial ability to perform its obligations. In
addition, the Master Servicer's mortgage servicing personnel will review the
Servicer's servicing record and evaluate the ability of the Servicer to conform
with required servicing procedures. Once a Servicer is approved, the Master
Servicer will continue to monitor on an annual basis the financial position and
servicing performance of the Servicer.
The duties to be performed by each Servicer include collection and
remittance of principal and interest payments on the Mortgage Loans,
administration of mortgage escrow accounts, collection of insurance claims,
foreclosure procedures, and, if necessary, the advance of funds to the extent
certain payments are not made by the mortgagor and have not been determined by
the Servicer to be not recoverable under the applicable insurance policies with
respect to such Series, from proceeds of liquidation of such Mortgage Loans or
otherwise. Each Servicer also will provide such accounting and reporting
services as are necessary to enable the Master Servicer to provide required
information to the Trustee with respect to the Mortgage Loans included in the
Trust Estate for such Series. Each Servicer is entitled to a periodic Servicing
Fee equal to a specified percentage of the outstanding principal balance of each
Mortgage Loan serviced by such Servicer. With the consent of the Master
Servicer, any of the servicing obligations of a Servicer may be delegated to
another person approved by the Master Servicer. In addition, certain limited
duties of a Servicer may be delegated without consent.
The Trustee, or if so provided in the applicable Servicing Agreement, the
Master Servicer, may terminate a Servicer who has failed to comply with its
covenants or breached one of its representations contained in the Underlying
Servicing Agreement or in certain other circumstances. Upon termination of a
Servicer by the Master Servicer, the Master Servicer will assume certain
servicing obligations of the terminated Servicer, or, at its option, may appoint
a substitute Servicer acceptable to the Trustee (which substitute Servicer may
be Norwest Mortgage) to assume the servicing obligations of the terminated
Servicer. The Master Servicer's obligations to act as a servicer following the
termination of an Underlying Servicing Agreement will not, however, require the
Master Servicer to (i) purchase a Mortgage Loan from the Trust Estate due to a
breach by such Servicer of a representation or warranty in respect of such
Mortgage Loan or (ii) with respect to a default by Norwest Mortgage as Servicer,
advance payments of principal and interest on a delinquent Mortgage Loan.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, as to each Series of Certificates, establish and
maintain a separate trust account in the name of the Trustee (the "Certificate
Account"). Such account may be established at Norwest Bank or an affiliate
thereof. Each such account must be maintained with a depository institution
("Depository") either (i) whose long-term debt obligations (or, in the case of a
depository institution which is part of a holding company structure, the
long-term debt obligations of such parent holding company) are, at the time of
any deposit therein rated in at least one of the two highest rating categories
by each nationally recognized statistical rating organization that rated the
related Series of Certificates, or (ii) that is otherwise acceptable to the
Rating Agency or Rating Agencies rating the Certificates of such Series and, if
a REMIC election has been made, that would not cause the related Trust Estate
(or one or more segregated pools of assets therein) to fail to qualify as a
REMIC. To the
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extent that the portion of funds deposited in the Certificate Account at any
time exceeds the limit of insurance coverage established by the Federal Deposit
Insurance Corporation (the "FDIC"), such excess will be subject to loss in the
event of the failure of the Depository. Such insurance coverage will be based on
the number of holders of Certificates, rather than the number of underlying
mortgagors. Holders of the Subordinated Certificates of a Series will bear any
such loss up to the amount of principal payments on the related Mortgage Loans
to which such holders are entitled.
Pursuant to the applicable Underlying Servicing Agreements with respect to a
Series, each Servicer will be required to establish and maintain one or more
accounts (collectively, the "Servicer Custodial Account") into which the
Servicer will be required to deposit on a daily basis amounts received with
respect to Mortgage Loans serviced by such Servicer included in the Trust Estate
for such Series, as more fully described below. Each Servicer Custodial Account
must be a separate custodial account insured to the available limits by the FDIC
and limited to funds held with respect to a particular Series, unless the
Underlying Servicing Agreement specifies that a Servicer may establish an
account which is an eligible account meeting the requirements of the applicable
Rating Agencies (an "Eligible Custodial Account") to serve as a unitary Servicer
Custodial Account both for such Series and for other Series of Certificates for
which Norwest Bank is the Master Servicer and having the same financial
institution acting as Trustee and to be maintained in the name of such financial
institution, in its respective capacities as Trustee for each such Series.
Each Servicer will be required to deposit in the Certificate Account for
each Series of Certificates on the date the Certificates are issued any amounts
representing scheduled payments of principal and interest on the Mortgage Loans
serviced by such Servicer due after the applicable Cut-Off Date but received on
or prior thereto, and except as specified in the applicable Pooling and
Servicing Agreement or Underlying Servicing Agreement, will deposit in the
Servicer Custodial Account on receipt and, thereafter, not later than the 18th
calendar day of each month or such other day as may be specified in the
Underlying Servicing Agreement (the "Remittance Date"), will remit to the Master
Servicer for deposit in the Certificate Account, the following payments and
collections received or made by such Servicer with respect to the Mortgage Loans
serviced by such Servicer subsequent to the applicable Cut-Off Date (other than
(x) payments due on or before the Cut-Off Date and (y) amounts held for future
distribution):
(i)
all payments on account of principal, including prepayments, and
interest;
(ii)
all amounts received by the Servicer in connection with the
liquidation of defaulted Mortgage Loans or property acquired in
respect thereof, whether through foreclosure sale or otherwise, including
payments in connection with defaulted Mortgage Loans received from the
mortgagor other than amounts required to be paid to the mortgagor pursuant
to the terms of the applicable Mortgage Loan or otherwise pursuant to law
("Liquidation Proceeds") less, to the extent permitted under the applicable
Underlying Servicing Agreement, the amount of any expenses incurred in
connection with the liquidation of such Mortgage Loans;
(iii)
all proceeds received by the Servicer under any title, hazard or
other insurance policy covering any such Mortgage Loan, other than
proceeds to be applied to the restoration or repair of the property subject
to the related Mortgage or released to the mortgagor in accordance with the
Underlying Servicing Agreement;
(iv)
all Periodic Advances made by the Servicer;
(v)
all amounts withdrawn from Buy-Down Funds or Subsidy Funds, if any,
with respect to such Mortgage Loans, in accordance with the terms of
the respective agreements applicable thereto;
(vi)
all proceeds of any such Mortgage Loans or property acquired in
respect thereof purchased or repurchased pursuant to the Pooling and
Servicing Agreement or the Underlying Servicing Agreement; and
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(vii)
all other amounts required to be deposited therein pursuant to the
applicable Pooling and Servicing Agreement or the Underlying
Servicing Agreement.
Notwithstanding the foregoing, if at any time the sums in (x) any Servicer
Custodial Account, other than any Eligible Custodial Account, exceed $100,000 or
(y) any such Servicer Custodial Account, in certain circumstances, exceed such
amount less than $100,000 as shall have been specified by the Master Servicer,
the Servicer will be required within one business day to withdraw such excess
funds from such account and remit such amounts to the Certificate Account.
Notwithstanding the foregoing, each Servicer will be entitled, at its
election, either (a) to withhold and pay itself the applicable Servicing Fee
from any payment or other recovery on account of interest as received and prior
to deposit in the Servicer Custodial Account or (b) to withdraw from the
Servicer Custodial Account the applicable Servicing Fee after the entire payment
or recovery has been deposited in such account.
The Master Servicer or Trustee will deposit in the Certificate Account any
Periodic Advances made by the Master Servicer or Trustee in the event of a
Servicer default not later than the Distribution Date on which such amounts are
required to be distributed. All other amounts will be deposited in the
Certificate Account not later than the business day next following the day of
receipt and posting by the Master Servicer. On or before each Distribution Date,
the Master Servicer will withdraw from the Certificate Account and remit to the
Trustee for distribution to Certificateholders all amounts allocable to the Pool
Distribution Amount for such Distribution Date.
If a Servicer, the Master Servicer or the Trustee deposits in the
Certificate Account for a Series any amount not required to be deposited
therein, the Master Servicer may at any time withdraw such amount from such
account for itself or for remittance to such Servicer or the Trustee, as
applicable. Funds on deposit in the Certificate Account may be invested in
certain investments acceptable to the Rating Agencies ("Eligible Investments")
maturing in general not later than the business day preceding the next
Distribution Date. In the event that an election has been made to treat the
Trust Estate (or one or more segregated pools of assets therein) with respect to
a Series as a REMIC, no such Eligible Investments will be sold or disposed of at
a gain prior to maturity unless the Master Servicer has received an opinion of
counsel or other evidence satisfactory to it that such sale or disposition will
not cause the Trust Estate (or segregated pool of assets) to be subject to the
tax on "prohibited transactions" imposed by Code Section 860F(a)(1), otherwise
subject the Trust Estate (or segregated pool of assets) to tax, or cause the
Trust Estate (or any segregated pool of assets) to fail to qualify as a REMIC
while any Certificates of the Series are outstanding. Except as otherwise
specified in the applicable Prospectus Supplement, all income and gain realized
from any such investment will be for the account of the Master Servicer as
additional compensation and all losses from any such investment will be
deposited by the Master Servicer out of its own funds to the Certificate Account
immediately as realized.
The Master Servicer is permitted, from time to time, to make withdrawals
from the Certificate Account for the following purposes, to the extent permitted
in the applicable Pooling and Servicing Agreement (and, in the case of Servicer
reimbursements by the Master Servicer, only to the extent funds in the
respective Servicer Custodial Account are not sufficient therefor):
(i)
to reimburse the Master Servicer, the Trustee or any Servicer for
Advances;
(ii)
to reimburse any Servicer for liquidation expenses and for amounts
expended by itself or any Servicer, as applicable, in connection with
the restoration of damaged property;
(iii)
to pay to itself the applicable Master Servicing Fee and any other
amounts constituting additional master servicing compensation, to pay
the Trustee the applicable Trustee Fee, to pay any other fees described in
the applicable Prospectus Supplement; and to pay to the owner thereof any
Fixed Retained Yield;
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(iv)
to reimburse itself or any Servicer for certain expenses (including
taxes paid on behalf of the Trust Estate) incurred by and recoverable
by or reimbursable to itself or the Servicer, as applicable;
(v)
to pay to the Seller, a Servicer or itself with respect to each
Mortgage Loan or property acquired in respect thereof that has been
repurchased by the Seller or purchased by a Servicer or the Master Servicer
all amounts received thereon and not distributed as of the date as of which
the purchase price of such Mortgage Loan was determined;
(vi)
to pay to itself any interest earned on or investment income earned
with respect to funds in the Certificate Account (all such interest
or income to be withdrawn not later than the next Distribution Date);
(vii)
to pay to itself, the Servicer and the Trustee from net Liquidation
Proceeds allocable to interest, the amount of any unpaid Master
Servicing Fee, Servicing Fees or Trustee Fees and any unpaid assumption
fees, late payment charges or other mortgagor charges on the related
Mortgage Loan;
(viii)
to withdraw from the Certificate Account any amount deposited in such
account that was not required to be deposited therein; and
(ix)
to clear and terminate the Certificate Account.
The Master Servicer will be authorized to appoint a paying agent (the
"Paying Agent") to make distributions, as agent for the Master Servicer, to
Certificateholders of a Series. If the Paying Agent for a Series is the Trustee
of such Series, such Paying Agent will be authorized to make withdrawals from
the Certificate Account in order to make distributions to Certificateholders. If
the Paying Agent for a Series is not the Trustee for such Series, the Master
Servicer will, on each Distribution Date, deposit in immediately available funds
in an account designated by any such Paying Agent the amount required to be
distributed to the Certificateholders on such Distribution Date.
The Master Servicer will cause any Paying Agent that is not the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
agrees with the Trustee that such Paying Agent will:
(1) hold all amounts deposited with it by the Master Servicer for
distribution to Certificateholders in trust for the benefit of
Certificateholders until such amounts are distributed to Certificateholders
or otherwise disposed of as provided in the applicable Pooling and Servicing
Agreement;
(2) give the Trustee notice of any default by the Master Servicer in the
making of such deposit; and
(3) at any time during the continuance of any such default, upon written
request to the Trustee, forthwith pay to the Trustee all amounts held
in trust by such Paying Agent.
PERIODIC ADVANCES AND LIMITATIONS THEREON
Generally each Servicer will be required to make (i) Periodic Advances to
cover delinquent payments of principal and interest on such Mortgage Loan and
(ii) other advances of cash ("Other Advances" and, collectively with Periodic
Advances, "Advances") to cover (x) delinquent payments of taxes, insurance
premiums, and other escrowed items and (y) rehabilitation expenses and
foreclosure costs, including reasonable attorneys' fees, in either case unless
such Servicer has determined that any subsequent payments on that Mortgage Loan
or from the borrower will ultimately not be available to reimburse such Servicer
for such amounts. The failure of the Servicer to make any required Periodic
Advances or Other Advances under an Underlying Servicing Agreement constitutes a
default under such agreement for which the Servicer will be terminated. Upon
default by a Servicer, other than Norwest Mortgage, the Master Servicer may, and
upon default by Norwest Mortgage the Trustee may, in each case if so provided in
the Pooling and Servicing Agreement, be required to make
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Periodic Advances to the extent necessary to make required distributions on
certain Certificates or certain Other Advances, provided that the Master
Servicer or Trustee, as applicable, determines that funds will ultimately be
available to reimburse it. In the case of Certificates of any Series for which
credit enhancement is provided in the form of a mortgage pool insurance policy,
the Seller may obtain an endorsement to the mortgage pool insurance policy which
obligates the Pool Insurer to advance delinquent payments of principal and
interest. The Pool Insurer would only be obligated under such endorsement to the
extent the mortgagor fails to make such payment and the Master Servicer or
Trustee fails to make a required advance.
The advance obligation of the Master Servicer and Trustee may be further
limited to an amount specified by the Rating Agency rating the Certificates. Any
such Periodic Advances by the Servicers or the Master Servicer or Trustee, as
the case may be, must be deposited into the applicable Servicer Custodial
Account or the Certificate Account and will be due no later than the business
day before the Distribution Date to which such delinquent payment relates.
Advances by the Servicers or the Master Servicer or Trustee, as the case may be,
will be reimbursable out of insurance proceeds or Liquidation Proceeds of, or,
except for Other Advances, future payments on, the Mortgage Loans for which such
amounts were advanced. If an Advance made by a Servicer, the Master Servicer or
the Trustee later proves, or is deemed by the Master Servicer or the Trustee, to
be unrecoverable, such Servicer, the Master Servicer or the Trustee, as the case
may be, will be entitled to reimbursement from funds in the Certificate Account
prior to the distribution of payments to the Certificateholders to the extent
provided in the Pooling and Servicing Agreement.
Any Periodic Advances made by a Servicer, the Master Servicer or the Trustee
with respect to Mortgage Loans included in the Trust Estate for any Series are
intended to enable the Trustee to make timely payment of the scheduled
distributions of principal and interest on the Certificates of such Series.
However, neither the Master Servicer, the Trustee, any Servicer nor any other
person will, except as otherwise specified in the applicable Prospectus
Supplement, insure or guarantee the Certificates of any Series or the Mortgage
Loans included in the Trust Estate for any Certificates.
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH PREPAID MORTGAGE LOANS
When a mortgagor prepays all or part of a Mortgage Loan, the mortgagor pays
interest on the amount prepaid only to the date on which the principal
prepayment is applied to the principal balance thereof. To the extent specified
in the applicable Prospectus Supplement, in order to mitigate the adverse effect
to Certificateholders of a Series resulting from the prepayment of a Mortgage
Loan or a portion thereof, the amount of the aggregate Servicing Fees may be
offset by an amount equal to the related interest shortfall. Any such reductions
in the aggregate Servicing Fees will be made by the Servicer with respect to the
Mortgage Loans under the applicable Underlying Servicing Agreement, but only to
the extent of the aggregate amount of any Servicing Fees otherwise payable to
such Servicer relating to mortgagor payments or other recoveries distributed on
the related Distribution Date. The amount of any offset against the aggregate
Servicing Fees will be included in the distributions to Certificateholders on
the Distribution Date on which the related principal prepayments are passed
through to Certificateholders.
Unless such an offset against Servicing Fees with respect to principal
prepayments or another form of offset is specified in the applicable Prospectus
Supplement, any interest shortfall arising from full or partial prepayments or
liquidations will not be so offset and will be borne by Certificateholders of
the applicable Series. See "Prepayment and Yield Considerations."
COLLECTION AND OTHER SERVICING PROCEDURES
Each Servicer will be required by the related Underlying Servicing Agreement
to make reasonable efforts to collect all payments called for under the Mortgage
Loans and, consistent with the applicable Underlying Servicing Agreement and any
applicable agreement governing any form of credit enhancement, to follow such
collection procedures as it follows with respect to mortgage loans serviced by
it that are comparable to the Mortgage Loans. Consistent with the above, the
Servicer may, in its discretion, (i) waive any prepayment charge, assumption
fee, late payment charge or any other
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charge in connection with the prepayment of a Mortgage Loan and (ii) arrange
with a mortgagor a schedule for the liquidation of deficiencies running for not
more than 180 days (or such longer period to which the Master Servicer and any
applicable Pool Insurer or primary mortgage insurer have consented) after the
applicable Due Date.
Under each Underlying Servicing Agreement, each Servicer, to the extent
permitted by law, will establish and maintain one or more escrow accounts (each
such account, a "Servicing Account") in which each such Servicer will be
required to deposit any payments made by mortgagors in advance for taxes,
assessments, primary mortgage (if applicable) and hazard insurance premiums and
other similar items. Withdrawals from the Servicing Account may be made to
effect timely payment of taxes, assessments, mortgage and hazard insurance, to
refund to mortgagors amounts determined to be overages, to pay interest to
mortgagors on balances in the Servicing Account, if required, and to clear and
terminate such account. Each Servicer will be responsible for the administration
of its Servicing Account. A Servicer will be obligated to advance certain
amounts which are not timely paid by the mortgagors, to the extent that it
determines, in good faith, that they will be recoverable out of insurance
proceeds, liquidation proceeds, or otherwise. Alternatively, in lieu of
establishing a Servicing Account, a Servicer may procure a performance bond or
other form of insurance coverage, in an amount acceptable to the Master Servicer
and each Rating Agency rating the related Series of Certificates, covering loss
occasioned by the failure to escrow such amounts.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE LOANS
With respect to each Mortgage Loan having a fixed interest rate, the
applicable Underlying Servicing Agreement will generally provide that, when any
Mortgaged Property is about to be conveyed by the mortgagor, the Servicer will,
to the extent it has knowledge of such prospective conveyance, exercise its
rights to accelerate the maturity of such Mortgage Loan under the "due-on-sale"
clause applicable thereto, if any, unless it is not exercisable under applicable
law or if such exercise would result in loss of insurance coverage with respect
to such Mortgage Loan or would, in the Servicer's judgment, be reasonably likely
to result in litigation by the mortgagor and such Servicer has not obtained the
Master Servicer's consent to such exercise. In either case, the Servicer is
authorized to take or enter into an assumption and modification agreement from
or with the person to whom such Mortgaged 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 state law, the mortgagor remains liable
thereon, provided that the Mortgage Loan will continue to be covered by any pool
insurance policy and any related primary mortgage insurance policy and the
Mortgage Interest Rate with respect to such Mortgage Loan and the payment terms
shall remain unchanged. The Servicer will also be authorized, with the prior
approval of the pool insurer and the primary mortgage insurer, if any, 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.
Each Underlying Servicing Agreement and Pooling and Servicing Agreement with
respect to a Series will require the Servicer or the Master Servicer, as the
case may be, to present claims to the insurer under any insurance policy
applicable to the Mortgage Loans included in the Trust Estate for such Series
and to take such reasonable steps as are necessary to permit recovery under such
insurance policies with respect to defaulted Mortgage Loans, or losses on the
Mortgaged Property securing the Mortgage Loans.
Each Servicer is obligated under the applicable Underlying Servicing
Agreement for each Series to realize upon defaulted Mortgage Loans in accordance
with its normal servicing practices, which will conform generally to those of
prudent mortgage lending institutions which service mortgage loans of the same
type in the same jurisdictions. Notwithstanding the foregoing, the Servicer is
authorized under the applicable Underlying Servicing Agreement to permit the
assumption of a defaulted Mortgage Loan rather than to foreclose or accept a
deed-in-lieu of foreclosure if, in the Servicer's judgment, the default is
unlikely to be cured and the assuming borrower meets Norwest Mortgage's
applicable underwriting guidelines. In connection with any such assumption, the
Mortgage Interest Rate and the
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payment terms of the related Mortgage Note will not be changed. Each Servicer
may also, with the consent of the Master Servicer, modify the payment terms of
Mortgage Loans that are in default, or as to which default is reasonably
foreseeable, that remain in the Trust Estate rather than foreclose on such
Mortgage Loans; provided that no such modification shall forgive principal owing
under such Mortgage Loan or permanently reduce the interest rate on such
Mortgage Loan. Any such modification will be made only upon the determination by
the Servicer and the Master Servicer that such modification is likely to
increase the proceeds of such Mortgage Loan over the amount expected to be
collected pursuant to foreclosure. See also "The Pooling and Servicing Agreement
- -- Optional Purchases," above, with respect to the Seller's right to repurchase
Mortgage Loans that are in default, or as to which default is reasonably
foreseeable. Further, a Servicer may encourage the refinancing of such defaulted
Mortgage Loans, including Mortgage Loans that would permit creditworthy
borrowers to assume the outstanding indebtedness.
In the case of foreclosure or of damage to a Mortgaged Property from an
uninsured cause, the Servicer will not be required to expend its own funds to
foreclose or restore any damaged property, unless it reasonably determines (i)
that such foreclosure or restoration will increase the proceeds to
Certificateholders of such Series of liquidation of the Mortgage Loan after
reimbursement to the related Servicer for its expenses and (ii) that such
expenses will be recoverable to it through Liquidation Proceeds or any
applicable insurance policy in respect of such Mortgage Loan. In the event that
Servicer has expended its own funds for foreclosure or to restore damaged
property, it will be entitled to be reimbursed from the Certificate Account for
such Series an amount equal to all costs and expenses incurred by it.
Norwest Mortgage will not be obligated to, and any other Servicer will not
(except with the express written approval of the Master Servicer), foreclose on
any Mortgaged Property which it believes may be contaminated with or affected by
hazardous wastes or hazardous substances. See "Certain Legal Aspects of the
Mortgage Loans -- Environmental Considerations." If a Servicer does not
foreclose on a Mortgaged Property, the Certificateholders of the related Series
may experience a loss on the related Mortgage Loan. A Servicer will not be
liable to the Certificateholders if it fails to foreclose on a Mortgaged
Property which it believes may be so contaminated or affected, even if such
Mortgaged Property is, in fact, not so contaminated or affected. Conversely, a
Servicer will not be liable to the Certificateholders if, based on its belief
that no such contamination or effect exists, the Servicer forecloses on a
Mortgaged Property and takes title to such Mortgaged Property, and thereafter
such Mortgaged Property is determined to be so contaminated or affected.
The Servicer may foreclose against property securing a defaulted Mortgage
Loan either by foreclosure, by sale or by strict foreclosure and in the event a
deficiency judgment is available against the mortgagor or other person (see
"Certain Legal Aspects of the Mortgage Loans -- Anti-Deficiency Legislation and
Other Limitations on Lenders" for a discussion of the availability of deficiency
judgments), may proceed for the deficiency. It is anticipated that in most cases
the Servicer will not seek deficiency judgments, and will not be required under
the applicable Underlying Servicing Agreement to seek deficiency judgments. In
lieu of foreclosure, each Servicer may arrange for the sale by the borrower of
the Mortgaged Property related to a defaulted Mortgage Loan to a third party,
rather than foreclosing upon and selling such Mortgaged Property.
With respect to a Trust Estate (or any segregated pool of assets therein) as
to which a REMIC election has been made, if the Trustee acquires ownership of
any Mortgaged Property as a result of a default or reasonably foreseeable
default of any Mortgage Loan secured by such Mortgaged Property, the Trustee or
Master Servicer will be required to dispose of such property within two years
following its acquisition by the Trust Estate unless the Trustee (a) receives an
opinion of counsel to the effect that the holding of the Mortgaged Property by
the Trust Estate will not cause the Trust Estate to be subject to the tax on
"prohibited transactions" imposed by Code Section 860F(a)(1) or cause the Trust
Estate (or any segregated pool of assets therein as to which one or more REMIC
elections have been made or will be made) to fail to qualify as a REMIC or (b)
applies for and is granted an extension of the
two-year period in the manner contemplated by Code Section 856(e)(3). The
Servicer also will be
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required to administer the Mortgaged Property in a manner which does not cause
the Mortgaged Property to fail to qualify as "foreclosure property" within the
meaning of Code Section 860G(a)(8) or result in the receipt by the Trust Estate
of any "net income from foreclosure property" within the meaning of Code Section
860G(c)(2), respectively. In general, this would preclude the holding of the
Mortgaged Property by a party acting as a dealer in such property or the receipt
of rental income based on the profits of the lessee of such property. See
"Certain Federal Income Tax Consequences."
INSURANCE POLICIES
Each Underlying Servicing Agreement will require the related Servicer to
cause to be maintained for each Mortgage Loan a standard hazard insurance policy
issued by a generally acceptable insurer insuring the improvements on the
Mortgaged Property underlying such Mortgage Loan against loss by fire, with
extended coverage (a "Standard Hazard Insurance Policy"). The Underlying
Servicing Agreements will require that such Standard Hazard Insurance Policy be
in an amount at least equal to the lesser of 100% of the insurable value of the
improvements on the Mortgaged Property or the principal balance of such Mortgage
Loan; provided, however, that such insurance may not be less than the minimum
amount required to fully compensate for any damage or loss on a replacement cost
basis. Each Servicer will also maintain on property acquired upon foreclosure,
or deed in lieu of foreclosure, of any Mortgage Loan, a Standard Hazard
Insurance Policy in an amount that is at least equal to the lesser of 100% of
the insurable value of the improvements which are a part of such property or the
principal balance of such Mortgage Loan plus accrued interest and liquidation
expenses; provided, however, that such insurance may not be less than the
minimum amount required to fully compensate for any damage or loss on a
replacement cost basis. Any amounts collected under any such policies (other
than amounts to be applied to the restoration or repair of the Mortgaged
Property or released to the borrower in accordance with normal servicing
procedures) will be deposited in the Servicer Custodial Account for remittance
to the Certificate Account by a Servicer.
The Standard Hazard Insurance Policies covering the Mortgage Loans generally
will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Because the Standard Hazard Insurance Policies
relating to such Mortgage Loans will be underwritten by different insurers and
will cover Mortgaged Properties located in various states, such policies will
not contain identical terms and conditions. The most significant terms thereof,
however, generally will be determined by state law and generally will be
similar. Most such policies typically will not cover any physical damage
resulting from the following: war, revolution, governmental actions, floods and
other water-related causes, earth movement (including earthquakes, landslides
and mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, hazardous wastes or hazardous substances, theft and, in
certain cases, vandalism. The foregoing list is merely indicative of certain
kinds of uninsured risks and is not all-inclusive.
In general, if the improvements on a Mortgaged Property are located in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available) each Underlying Servicing Agreement will require the related Servicer
to cause to be maintained a flood insurance policy meeting the requirements of
the current guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier. Generally, the Underlying Servicing Agreement will
require that such flood insurance be in an amount not less than the least of (i)
the outstanding principal balance of the Mortgage Loan, (ii) the full insurable
value of the improvements, or (iii) the maximum amount of insurance which is
available under the Flood Disaster Protection Act of 1973, as amended. Norwest
Mortgage does not provide financing for flood zone properties located in
communities not participating in the National Flood Insurance Program or if
available insurance coverage is, in its judgment, unrealistically low.
Each Servicer may maintain a blanket policy insuring against hazard losses
on all of the Mortgaged Properties in lieu of maintaining the required Standard
Hazard Insurance Policies and may maintain a blanket policy insuring against
special hazards in lieu of maintaining any required flood
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insurance. Each Servicer will be liable for the amount of any deductible under a
blanket policy if such amount would have been covered by a required Standard
Hazard Insurance Policy or flood insurance, had it been maintained.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows, floods and hazardous wastes or hazardous
substances) or insufficient hazard insurance proceeds will adversely affect
distributions to the Certificateholders.
FIXED RETAINED YIELD, SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Fixed Retained Yield with respect to any Mortgage Loan is that portion, if
any, of interest at the Mortgage Interest Rate that is not included in the
related Trust Estate. The Prospectus Supplement for a Series will specify
whether there is any Fixed Retained Yield with respect to the Mortgage Loans of
such Series. If so, the Fixed Retained Yield will be established on a
loan-by-loan basis and will be specified in the schedule of Mortgage Loans
attached as an exhibit to the applicable Pooling and Servicing Agreement.
Norwest Mortgage as Servicer may deduct the Fixed Retained Yield from mortgagor
payments as received and prior to deposit of such payments in the Servicer
Custodial Account or Certificate Account for such Series or may withdraw from
the Servicer Custodial Account or Certificate Account, or request the Master
Servicer to withdraw from the Certificate Account for remittance to Norwest
Mortgage as Servicer, the Fixed Retained Yield after the entire payment has been
deposited in such account. Notwithstanding the foregoing, with respect to any
payment of interest received by Norwest Mortgage as Servicer relating to a
Mortgage Loan (whether paid by the mortgagor or received as Liquidation
Proceeds, insurance proceeds or otherwise) which is less than the full amount of
interest then due with respect to such Mortgage Loan, the owner of the Fixed
Retained Yield with respect to such Mortgage Loan will bear a ratable share of
such interest shortfall.
For each Series of Certificates, each Servicer will be entitled to be paid
the Servicing Fee on the related Mortgage Loans serviced by such Servicer until
termination of the applicable Underlying Servicing Agreement, subject, to the
extent specified in the applicable Prospectus Supplement, to adjustment as
described above under "-- Adjustment to Servicing Fee in Connection with Prepaid
Mortgage Loans." A Servicer, at its election, will pay itself the Servicing Fee
for a Series with respect to each Mortgage Loan by (a) withholding the Servicing
Fee from any scheduled payment of interest prior to deposit of such payment in
the Servicer Custodial Account for such Series or (b) withdrawing the Servicing
Fee from the Servicer Custodial Account after the entire interest payment has
been deposited in such account. A Servicer may also pay itself out of the
Liquidation Proceeds of a Mortgage Loan or other recoveries with respect
thereto, or withdraw from the Servicer Custodial Account or request the Master
Servicer to withdraw from the Certificate Account for remittance to the Servicer
such amounts after the deposit thereof in such accounts, or if such Liquidation
Proceeds or other recoveries are insufficient, from Net Foreclosure Profits with
respect to the related Distribution Date the Servicing Fee in respect of such
Mortgage Loan to the extent provided in the applicable Pooling and Servicing
Agreement. The Servicing Fee or the range of Servicing Fees with respect to the
Mortgage Loans underlying the Certificates of a Series will be specified in the
applicable Prospectus Supplement. Additional servicing compensation in the form
of prepayment charges, assumption fees, late payment charges or otherwise will
be retained by the Servicers.
Each Servicer will pay all expenses incurred in connection with the
servicing of the Mortgage Loans serviced by such Servicer underlying a Series,
including, without limitation, payment of the hazard insurance policy premiums.
The Servicer will be entitled, in certain circumstances, to reimbursement from
the Certificate Account of Periodic Advances, of Other Advances made by it to
pay taxes, insurance premiums and similar items with respect to any Mortgaged
Property or for expenditures incurred by it in connection with the restoration
or foreclosure of any Mortgaged Property (to the extent of Liquidation Proceeds
or insurance policy proceeds in respect of such Mortgaged Property) and of
certain losses against which it is indemnified by the Trust Estate.
As set forth in the preceding paragraph, a Servicer may be entitled to
reimbursement for certain expenses incurred by it, and payment of additional
fees for certain extraordinary services rendered by
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it (provided that such fees do not exceed those which would be charged by third
parties for similar services) in connection with the liquidation of defaulted
Mortgage Loans. In the event that claims are either not made or are not fully
paid from any applicable form of credit enhancement, the related Trust Estate
will suffer a loss to the extent that Liquidation Proceeds, after reimbursement
of the Servicing Fee and the expenses of the Servicer, are less than the
principal balance of the related Mortgage Loan.
EVIDENCE AS TO COMPLIANCE
Each Servicer will deliver annually to the Trustee or Master Servicer, as
applicable, on or before the date specified in the applicable Underlying
Servicing Agreement, an Officer's Certificate stating that (i) a review of the
activities of such Servicer during the preceding calendar year and of
performance under the applicable Underlying Servicing Agreement has been made
under the supervision of such officer, and (ii) to the best of such officer's
knowledge, based on such review, such Servicer has fulfilled all its obligations
under the applicable Underlying Servicing Agreement throughout such year, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof. Such
Officer's Certificate shall be accompanied by a statement of a firm of
independent public accountants to the effect that, on the basis of an
examination of certain documents and records relating to a random sample of the
mortgage loans being serviced by such Servicer pursuant to such Underlying
Servicing Agreement and/or other similar agreements, conducted substantially in
compliance with the Uniform Single Audit Program for Mortgage Bankers, the
servicing of such mortgage loans was conducted in compliance with the provisions
of the applicable Underlying Servicing Agreement and other similar agreements,
except for (i) such exceptions as such firm believes to be immaterial and (ii)
such other exceptions as are set forth in such statement.
Each year the Master Servicer will review each Servicer's performance under
its Underlying Servicing Agreement and the status of any fidelity bond and
errors and omissions policy required to be maintained by such Servicer under the
Underlying Servicing Agreement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement for each Series without the consent of the
Trustee, except upon its determination that its duties thereunder are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature carried on by it.
No such resignation will become effective until the Trustee for such Series or a
successor master servicer has assumed the Master Servicer's obligations and
duties under the Pooling and Servicing Agreement. If the Master Servicer resigns
for any of the foregoing reasons and the Trustee is unable or unwilling to
assume responsibility for its duties under the Pooling and Servicing Agreement,
it may appoint another institution to so act as described under "The Pooling and
Servicing Agreement -- Rights Upon Event of Default" below.
The Pooling and Servicing Agreement will also provide that neither the
Master Servicer nor any subcontractor, nor any partner, director, officer,
employee or agent of any of them, will be under any liability to the Trust
Estate or the Certificateholders, for the taking of any action or for refraining
from the taking of any action in good faith pursuant to the Pooling and
Servicing Agreement, or for errors in judgment; provided, however, that neither
the Master Servicer, any subcontractor, nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of his or its
duties or by reason of reckless disregard of his or its obligations and duties
thereunder. The Pooling and Servicing Agreement will further provide that the
Master Servicer, any subcontractor, and any partner, director, officer, employee
or agent of either of them shall be entitled to indemnification by the Trust
Estate and will be held harmless against any loss, liability or expense incurred
in connection with any legal action relating to the Pooling and Servicing
Agreement or the Certificates, other than any loss, liability or
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expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the performance of his or its duties thereunder or by reason of reckless
disregard of his or its obligations and duties thereunder. In addition, the
Pooling and Servicing Agreement will provide that the Master Servicer will not
be under any obligation to appear in, prosecute or defend any legal action that
is not incidental to its duties under the Pooling and Servicing Agreement and
that in its opinion may involve it in any expense or liability. The Master
Servicer may, however, in its discretion, undertake any such action deemed by it
necessary or desirable with respect to the Pooling and Servicing Agreement and
the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Estate and the Master Servicer will be entitled to be
reimbursed therefor out of the Certificate Account, and any loss to the Trust
Estate arising from such right of reimbursement will be allocated first to the
Subordinated Certificate of a Series before being allocated to the related
Senior Certificates, or if such Series does not contain Subordinated
Certificates, pro rata among the various Classes of Certificates unless
otherwise specified in the applicable Pooling and Servicing Agreement.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger, conversion or consolidation to which the
Master Servicer is a party, or any person succeeding to the business through the
transfer of substantially all of its assets or all assets relating to such
business, or otherwise, of the Master Servicer will be the successor of the
Master Servicer under the Pooling and Servicing Agreement for each Series
provided that such successor or resulting entity has a net worth of not less
than $15,000,000 and is qualified to service mortgage loans for FNMA or FHLMC.
The Master Servicer also has the right to assign its rights and delegate its
duties and obligations under the Pooling and Servicing Agreement for each
Series; provided that, if the Master Servicer desires to be released from its
obligations under the Pooling and Servicing Agreement, (i) the purchaser or
transferee accepting such assignment or delegation is qualified to service
mortgage loans for FNMA or FHLMC, (ii) the purchaser is satisfactory to the
Trustee for such Series, in the reasonable exercise of its judgment, and
executes and delivers to the Trustee an agreement, in form and substance
reasonably satisfactory to the Trustee, which contains an assumption by such
purchaser or transferee of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Master Servicer
under the Pooling and Servicing Agreement from and after the date of such
agreement; and (iii) each applicable Rating Agency's rating of any Certificates
for such Series in effect immediately prior to such assignment, sale or transfer
would not be qualified, downgraded or withdrawn as a result of such assignment,
sale or transfer and the Certificates would not be placed on credit review
status by any such Rating Agency. The Master Servicer will be released from its
obligations under the Pooling and Servicing Agreement upon any such assignment
and delegation, except that the Master Servicer will remain liable for all
liabilities and obligations incurred by it prior to the time that the conditions
contained in clauses (i), (ii) and (iii) above are met.
THE POOLING AND SERVICING AGREEMENT
ASSIGNMENT OF MORTGAGE LOANS TO THE TRUSTEE
The Seller will have acquired the Mortgage Loans included in each Trust
Estate from Norwest Mortgage pursuant to an agreement (the "Norwest Mortgage
Sale Agreement"). In connection with the conveyance of the Mortgage Loans to the
Seller, Norwest Mortgage will (i) agree to deliver to the Seller all of the
documents which the Seller is required to deliver to the Trustee; (ii) make
certain representations and warranties to the Seller which will be the basis of
certain of the Seller's representations and warranties to the Trustee or assign
the representations and warranties made by a Correspondent to Norwest Mortgage;
and (iii) agree to repurchase or substitute (or assign rights to a comparable
agreement of a Correspondent) for any Mortgage Loan for which any document is
not delivered or is found to be defective in any material respect, or which is
discovered at any time not to be in conformance with the representations and
warranties Norwest Mortgage has made to the Seller,
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if Norwest Mortgage cannot deliver such document or cure such defect or breach
within 60 days after notice thereof. Such agreement will inure to the benefit of
the Trustee and is intended to help ensure the Seller's performance of its
limited obligation to repurchase or substitute for Mortgage Loans. See "The
Mortgage Loan Programs -- Representations and Warranties" above.
At the time of issuance of each Series of Certificates, the Mortgage Loans
in the related Trust Estate will, pursuant to the applicable Pooling and
Servicing Agreement, be assigned to the Trustee, together with all principal and
interest received on or with respect to such Mortgage Loans after the applicable
Cut-Off Date other than principal and interest due and payable on or before such
Cut-Off Date and interest attributable to the Fixed Retained Yield on such
Mortgage Loans, if any. See "Servicing of the Mortgage Loans -- Fixed Retained
Yield, Servicing Compensation and Payment of Expenses." The Trustee or its agent
will, concurrently with such assignment, authenticate and deliver the
Certificates evidencing such Series to the Seller in exchange for the Mortgage
Loans. Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the applicable Pooling and Servicing Agreement. Each such schedule
will include, among other things, the unpaid principal balance as of the close
of business on the applicable Cut-Off Date, the maturity date and the Mortgage
Interest Rate for each Mortgage Loan in the related Trust Estate.
In addition, with respect to each Mortgage Loan in a Trust Estate, the
mortgage or other promissory note, any assumption, modification or conversion to
fixed interest rate agreement, a mortgage assignment in recordable form and the
recorded Mortgage (or other documents as are required under applicable law to
create perfected security interest in the Mortgaged Property in favor of the
Trustee) will be delivered to the Trustee or, if indicated in the applicable
Prospectus Supplement, to a custodian; provided that, in instances where
recorded documents cannot be delivered due to delays in connection with
recording, copies thereof, certified by the Seller to be true and complete
copies of such documents sent for recording, may be delivered and the original
recorded documents will be delivered promptly upon receipt. The assignment of
each Mortgage will be recorded promptly after the initial issuance of
Certificates for the related Trust Estate, except in states where, in the
opinion of counsel acceptable to the Trustee, such recording is not required to
protect the Trustee's interest in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Seller, Norwest
Mortgage or the originator of such Mortgage Loan.
The Trustee or custodian will hold such documents in trust for the benefit
of Certificateholders of the related Series and will review such documents
within 180 days of the date of the applicable Pooling and Servicing Agreement.
If any document is not delivered or is found to be defective in any material
respect, or if the Seller is in breach of any of its representations and
warranties, and such breach materially and adversely affects the interests of
the Certificateholders in a Mortgage Loan, and the Seller cannot deliver such
document or cure such defect or breach within 60 days after written notice
thereof, the Seller will, within 60 days of such notice, either repurchase the
related Mortgage Loan from the Trustee at a price equal to the then unpaid
principal balance thereof, plus accrued and unpaid interest at the applicable
Mortgage Interest Rate (minus any Fixed Retained Yield) through the last day of
the month in which such repurchase takes place, or (in the case of a Series for
which one or more REMIC elections have been or will be made, unless the maximum
period as may be provided by the Code or applicable regulations of the
Department of the Treasury ("Treasury Regulations") shall have elapsed since the
execution of the applicable Pooling and Servicing Agreement) substitute for such
Mortgage Loan a new mortgage loan having characteristics such that the
representations and warranties of the Seller made pursuant to the applicable
Pooling and Servicing Agreement (except for representations and warranties as to
the correctness of the applicable schedule of mortgage loans) would not have
been incorrect had such substitute Mortgage Loan originally been a Mortgage
Loan. In the case of a repurchased Mortgage Loan, the purchase price will be
deposited by the Seller in the related Certificate Account. In the case of a
substitute Mortgage Loan, the mortgage file relating thereto will be delivered
to the Trustee or the custodian and the Seller will deposit in the Certificate
Account, an amount equal to the excess of (i) the unpaid principal balance of
the Mortgage Loan which is substituted for, over (ii) the unpaid principal
balance of the substitute Mortgage Loan, together with
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interest on such excess at the Mortgage Interest Rate (minus any Fixed Retained
Yield) to the next scheduled Due Date of the Mortgage Loan which is being
substituted for. In no event will any substitute Mortgage Loan have an unpaid
principal balance greater than the scheduled principal balance calculated in
accordance with the amortization schedule (the "Scheduled Principal Balance") of
the Mortgage Loan for which it is substituted (after giving effect to the
scheduled principal payment due in the month of substitution on the Mortgage
Loan substituted for), or a term greater than, a Mortgage Interest Rate less
than, a Mortgage Interest Rate more than one percent per annum greater than or a
Loan-to-Value Ratio greater than, the Mortgage Loan for which it is substituted.
If substitution is to be made for an adjustable rate Mortgage Loan, the
substitute Mortgage Loan will have an unpaid principal balance no greater than
the Scheduled Principal Balance of the Mortgage Loan for which it is substituted
(after giving effect to the scheduled principal payment due in the month of
substitution on the Mortgage Loan substituted for), a Loan-to-Value Ratio less
than or equal to, and a Mortgage Interest Rate at least equal to, that of the
Mortgage Loan for which it is substituted, and will bear interest based on the
same index, margin and frequency of adjustment as the substituted Mortgage Loan.
The repurchase obligation and the mortgage substitution referred to above will
constitute the sole remedies available to the Certificateholders or the Trustee
with respect to missing or defective documents or breach of the Seller's
representations and warranties.
If no custodian is named in the Pooling and Servicing Agreement, the Trustee
will be authorized to appoint a custodian to maintain possession of the
documents relating to the Mortgage Loans and to conduct the review of such
documents described above. Any custodian so appointed will keep and review such
documents as the Trustee's agent under a custodial agreement.
OPTIONAL PURCHASES
Subject to the provisions of the applicable Pooling and Servicing Agreement,
the Seller or the Master Servicer may, at such party's option, repurchase any
Mortgage Loan which is in default or as to which default is reasonably
foreseeable if, in the Seller's or the Master Servicer's judgment, the related
default is not likely to be cured by the borrower or default is not likely to be
averted, at a price equal to the unpaid principal balance thereof plus accrued
interest thereon and under the conditions set forth in the applicable Prospectus
Supplement.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Pooling and Servicing
Agreement for each Series, the Master Servicer will prepare and the Trustee will
include with each distribution to Certificateholders of record of such Series a
statement setting forth the following information, if applicable:
(i)
the amount of such distribution allocable to principal of the related
Mortgage Loans, separately identifying the aggregate amount of any
principal prepayments included therein, the amount of such distribution
allocable to interest on the related Mortgage Loans and the aggregate unpaid
principal balance of the Mortgage Loans evidenced by each Class after giving
effect to the principal distributions on such Distribution Date;
(ii)
the amount of servicing compensation with respect to the related
Trust Estate and such other customary information as is required to
enable Certificateholders to prepare their tax returns;
(iii)
the amount by which the Servicing Fee for the related Distribution
Date has been reduced by interest shortfalls due to prepayments;
(iv)
the aggregate amount of any Periodic Advances by the Servicer, the
Master Servicer or the Trustee included in the amounts actually
distributed to the Certificateholders;
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(v)
to each holder of a Certificate entitled to the benefits of payments
under any form of credit enhancement or from any Reserve Fund:
(a)
the amounts so distributed under any such form of credit
enhancement or from any such Reserve Fund on the applicable
Distribution Date; and
(b)
the amount of coverage remaining under any such form of credit
enhancement and the balance in any such Reserve Fund, after
giving effect to any payments thereunder and other amounts charged
thereto on the Distribution Date;
(vi)
in the case of a Series of Certificates with a variable Pass-Through
Rate, such Pass-Through Rate;
(vii)
the book value of any collateral acquired by the Trust Estate through
foreclosure or otherwise;
(viii)
the unpaid principal balance of any Mortgage Loan as to which the
Servicer has notified the Master Servicer that such Servicer has
determined not to foreclose because it believes the related Mortgaged
Property may be contaminated with or affected by hazardous wastes or
hazardous substances; and
(ix)
the number and aggregate principal amount of Mortgage Loans one
month, two months and three or more months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will furnish either directly, or through the
Trustee, a report to each Certificateholder of record at any time during such
calendar year such information as required by the Code and applicable
regulations thereunder to enable Certificateholders to prepare their tax
returns. In the event that an election has been made to treat the Trust Estate
(or one or more segregated pools of assets therein) as a REMIC, the Trustee will
be required to sign the federal and applicable state and local income tax
returns of the REMIC (which will be prepared by the Master Servicer). See
"Certain Federal Income Tax Consequences -- Administrative Matters."
LIST OF CERTIFICATEHOLDERS
The Pooling and Servicing Agreement for each Series will require the Trustee
to provide access to the most current list of names and addresses of
Certificateholders of such Series to any group of five or more
Certificateholders who advise the Trustee in writing that they desire to
communicate with other Certificateholders with respect to their rights under the
Pooling and Servicing Agreement or under the Certificates.
EVENTS OF DEFAULT
Events of Default under the Pooling and Servicing Agreement for each Series
include (i) any failure by the Master Servicer to make a required deposit which
continues unremedied for three business days after the giving of written notice
of such failure to the Master Servicer by the Trustee for such Series, or to the
Master Servicer and the Trustee by the holders of Certificates of such Series
having voting rights allocated to such Certificates ("Voting Interests")
aggregating not less than 25% of the Voting Interests allocated to all
Certificates for such Series; (ii) any failure by the Master Servicer duly to
observe or perform in any material respect any other of its covenants or
agreements in the Pooling and Servicing Agreement which continues unremedied for
60 days (or 30 days in the case of a failure to maintain any pool insurance
policy required to be maintained pursuant to the Pooling and Servicing
Agreement) after the giving of written notice of such failure to the Master
Servicer by the Trustee, or to the Master Servicer and the Trustee by the
holders of Certificates aggregating not less than 25% of the Voting Interests;
(iii) certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings and certain action by the Master Servicer
indicating its insolvency, reorganization or inability to pay its obligations
and (iv) it and any subservicer appointed by it becoming ineligible to service
for both FNMA and FHLMC (unless remedied within 90 days). (Section 7.01).
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RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series or holders of
Certificates of such Series evidencing not less than 66 2/3% of the Voting
Interests in the Trust Estate for such Series may terminate all of the rights
and obligations of the Master Servicer under the Pooling and Servicing Agreement
and in and to the Mortgage Loans (other than the Master Servicer's right to
recovery of the aggregate Master Servicing Fees due prior to the date of
termination, and other expenses and amounts advanced pursuant to the terms of
the Pooling and Servicing Agreement, which rights the Master Servicer will
retain under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under the
Pooling and Servicing Agreement and will be entitled to monthly compensation not
to exceed the aggregate Master Servicing Fees together with the other
compensation to which the Master Servicer is entitled under the Pooling and
Servicing Agreement. In the event that the Trustee is unwilling or unable so to
act, it may select, pursuant to the public bid procedure described in the
applicable Pooling and Servicing Agreement, or petition a court of competent
jurisdiction to appoint, a housing and home finance institution, bank or
mortgage servicing institution with a net worth of at least $10,000,000 to act
as successor to the Master Servicer under the provisions of the Pooling and
Servicing Agreement; provided however, that until such a successor Master
Servicer is appointed and has assumed the responsibilities, duties and
liabilities of the Master Servicer under the Pooling and Servicing Agreement,
the Trustee shall continue as the successor to the Master Servicer as described
above. In the event such public bid procedure is utilized, the successor would
be entitled to compensation in an amount equal to the aggregate Master Servicing
Fees, together with the other compensation to which the Master Servicer is
entitled under the Pooling and Servicing Agreement, and the Master Servicer
would be entitled to receive the net profits, if any, realized from the sale of
its rights and obligations under the Pooling and Servicing Agreement. (Sections
7.01 and 7.05).
During the continuance of any Event of Default under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Certificateholders of such Series, and
holders of Certificates evidencing not less than 25% of the Voting Interests for
such Series may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred upon the Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Certificateholders have offered the Trustee reasonable security or
indemnity against the cost, expenses and liabilities which may be incurred by
the Trustee thereby. Also, the Trustee may decline to follow any such direction
if the Trustee determines that the action or proceeding so directed may not
lawfully be taken or would involve it in personal liability or be unjustly
prejudicial to the non-assenting Certificateholders. (Sections 7.02 and 7.03).
No Certificateholder of a Series, solely by virtue of such holder's status
as a Certificateholder, will have any right under the Pooling and Servicing
Agreement for such Series to institute any proceeding with respect to the
Pooling and Servicing Agreement, unless such holder previously has given to the
Trustee for such Series written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Interests for such
Series have made written request upon the Trustee to institute such proceeding
in its own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity and the Trustee for 60 days has neglected or refused to institute any
such proceeding. (Section 10.03).
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Seller, the
Master Servicer and the Trustee without the consent of the Certificateholders,
(i) to cure any ambiguity or mistake, (ii) to correct or supplement any
provision therein that may be inconsistent with any other provision therein,
(iii) to modify, eliminate or add to any of its provisions to such extent as
shall be necessary to maintain the qualification of the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC at all times that any
Certificates are outstanding or to avoid or minimize the risk of the
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imposition of any tax on the Trust Estate pursuant to the Code that would be a
claim against the Trust Estate, provided that the Trustee has received an
opinion of counsel to the effect that such action is necessary or desirable to
maintain such qualification or to avoid or minimize the risk of the imposition
of any such tax and such action will not, as evidenced by such opinion of
counsel, adversely affect in any material respect the interests of any
Certificateholder, (iv) to change the timing and/or nature of deposits into the
Certificate Account, provided that such change will not, as evidenced by an
opinion of counsel, adversely affect in any material respect the interests of
any Certificateholder and that such change will not adversely affect the then
current rating assigned to any Certificates, as evidenced by a letter from each
Rating Agency to such effect, (v) to add to, modify or eliminate any provisions
therein restricting transfers of residual Certificates to certain disqualified
organizations described below under "Certain Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Tax-Related Restrictions on Transfer of Residual Certificates,"
(vi) to make certain provisions with respect to the denominations of, and the
manner of payments on, certain Classes or Subclasses of Certificates initially
retained by the Seller or an affiliate, or (vii) to make any other provisions
with respect to matters or questions arising under such Pooling and Servicing
Agreement that are not inconsistent with the provisions thereof, provided that
such action will not, as evidenced by an opinion of counsel, adversely affect in
any material respect the interests of the Certificateholders of the related
Series. The Pooling and Servicing Agreement may also be amended by the Seller,
the Master Servicer and the Trustee with the consent of the holders of
Certificates evidencing interests aggregating not less than 66 2/3% of the
Voting Interests evidenced by the Certificates of each Class or Subclass
affected thereby, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Pooling and Servicing
Agreement or of modifying in any manner the rights of the Certificateholders;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, any payments received on or with respect to
Mortgage Loans that are required to be distributed on any Certificates, without
the consent of the holder of such Certificate, (ii) adversely affect in any
material respect the interests of the holders of a Class or Subclass of
Certificates of a Series in a manner other than that set forth in (i) above
without the consent of the holders of Certificates aggregating not less than
66 2/3% of the Voting Interests evidenced by such Class or Subclass, or (iii)
reduce the aforesaid percentage of Certificates of any Class or Subclass, the
holders of which are required to consent to such amendment, without the consent
of the holders of all Certificates of such Class or Subclass affected then
outstanding. Notwithstanding the foregoing, the Trustee will not consent to any
such amendment if such amendment would subject the Trust Estate (or any
segregated pool of assets therein) to tax or cause the Trust Estate (or any
segregated pool of assets therein) to fail to qualify as a REMIC.
TERMINATION; OPTIONAL PURCHASE OF MORTGAGE LOANS
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate on the Distribution Date following the final
payment or other liquidation of the last Mortgage Loan subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage Loan.
In no event, however, will the trust created by the Pooling and Servicing
Agreement continue beyond the expiration of 21 years from the death of the last
survivor of certain persons named in such Pooling and Servicing Agreement. For
each Series of Certificates, the Trustee will give written notice of termination
of the Pooling and Servicing Agreement to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Seller and specified in the
notice of termination.
If so provided in the applicable Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Seller, Norwest Mortgage or such other party as is specified in the
applicable Prospectus Supplement, to purchase from the Trust Estate for such
Series all remaining Mortgage Loans at the time subject to the Pooling and
Servicing Agreement at a price specified in such Prospectus Supplement. In the
event that such party has caused the related Trust Estate (or any segregated
pool of assets therein) to be treated as a REMIC, any such purchase
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will be effected only pursuant to a "qualified liquidation" as defined in Code
Section 860F(a)(4)(A) and the receipt by the Trustee of an opinion of counsel or
other evidence that such purchase will not (i) result in the imposition of a tax
on "prohibited transactions" under Code Section 860F(a)(1), (ii) otherwise
subject the Trust Estate to tax, or (iii) cause the Trust Estate (or any
segregated pool of assets) to fail to qualify as a REMIC. The exercise of such
right will effect early retirement of the Certificates of that Series, but the
right so to purchase may be exercised only after the aggregate principal balance
of the Mortgage Loans for such Series at the time of purchase is less than a
specified percentage of the aggregate principal balance at the Cut-Off Date for
the Series, or after the date set forth in the applicable Prospectus Supplement.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement (the "Trustee") will
be named in the applicable Prospectus Supplement. The commercial bank or trust
company serving as Trustee may have normal banking relationships with the Seller
or any of its affiliates.
The Trustee may resign at any time, in which event the Master Servicer will
be obligated to appoint a successor trustee. The Master Servicer may also remove
the Trustee if the Trustee ceases to be eligible to act as Trustee under the
Pooling and Servicing Agreement, if the Trustee becomes insolvent or in order to
change the situs of the Trust Estate for state tax reasons. Upon becoming aware
of such circumstances, the Master Servicer will become obligated to appoint a
successor trustee. The Trustee may also be removed at any time by the holders of
Certificates evidencing not less than 51% of the Voting Interests in the Trust
Estate, except that, any Certificate registered in the name of the Seller, the
Master Servicer or any affiliate thereof will not be taken into account in
determining whether the requisite Voting Interest in the Trust Estate necessary
to effect any such removal has been obtained. Any resignation and removal of the
Trustee, and the appointment of a successor trustee, will not become effective
until acceptance of such appointment by the successor trustee. The Trustee, and
any successor trustee, will have a combined capital and surplus of at least
$50,000,000, or will be a member of a bank holding system, the aggregate
combined capital and surplus of which is at least $50,000,000, provided that the
Trustee's and any such successor trustee's separate capital and surplus shall at
all times be at least the amount specified in Section 310(a)(2) of the Trust
Indenture Act of 1939, and will be subject to supervision or examination by
federal or state authorities.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete or to reflect the laws of any particular
state, nor to encompass the laws of all states in which the security for the
Mortgage Loans is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
GENERAL
The Mortgage Loans will, in general, be secured by either first mortgages or
first deeds of trust, depending upon the prevailing practice in the state in
which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower (or, in the case of a Mortgage Loan secured
by a property that has been conveyed to an INTER VIVOS revocable trust, the
settlor of such trust); and the mortgagee, who is the lender. In a mortgage
instrument state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: a borrower 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 loan.
The trustee's authority
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under a deed of trust and the mortgagee's authority under a mortgage are
governed by the express provisions of the deed of trust or mortgage, applicable
law, and, in some cases, with respect to the deed of trust, the directions of
the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right of foreclosure is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming. After the completion of a judicial foreclosure proceeding, the
court may issue a judgment of foreclosure and appoint a receiver or other
officer to conduct the sale of the property. In some states, mortgages may also
be foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. 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 a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
receiver for an amount equal to the unpaid principal amount of the note, accrued
and unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of mortgage
insurance proceeds, if any, or by judicial action against the borrower for the
deficiency, if such action is permitted by law. See "-- Anti-Deficiency
Legislation and Other Limitations on Lenders" below.
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FORECLOSURE ON SHARES OF COOPERATIVES
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and By-laws, as well as
in the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided an opportunity to cure the default.
The recognition agreement typically provides that if the proprietary lease or
occupancy agreement is terminated, the cooperative will recognize the lender's
lien against proceeds from a sale of the cooperative apartment, subject,
however, to the cooperative's right to sums due under such proprietary lease or
occupancy agreement. The total amount owed to the cooperative by the tenant-
stockholder, which the lender generally cannot restrict and does not monitor,
could reduce the value of the collateral below the outstanding principal balance
of the cooperative loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited by the agreement in any rights it may have to dispossess the
tenant-stockholders.
Foreclosure on the cooperative shares is accomplished by a sale in
accordance with the provisions of Article 9 of the Uniform Commercial Code (the
"UCC") and the security agreement relating to those shares. Article 9 of the UCC
requires that a sale be conducted in a "commercially reasonable" manner. Whether
a foreclosure sale has been conducted in a "commercially reasonable" manner will
depend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according to the
usual practice of banks selling similar collateral will be considered reasonably
conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "-- Anti-Deficiency Legislation
and Other Limitations on Lenders" below.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust and/or foreclosure of
a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
most states where the right of redemption is available, statutory redemption may
occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a right of redemption is to delay the
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ability of the lender to sell the foreclosed property. The exercise of a right
of redemption would defeat the title of any purchaser at a foreclosure sale, or
of any purchaser from the lender subsequent to judicial foreclosure or sale
under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to maintain the property and pay the expenses of
ownership until the redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement and foreclosure on the
beneficial interest in a land trust. Some courts have interpreted Section 9-504
of the UCC to prohibit a deficiency award unless the creditor establishes that
the sale of the collateral (which, in the case of a Mortgage Loan secured by
shares of a cooperative, would be such shares and the related proprietary lease
or occupancy agreement) was conducted in a commercially reasonable manner.
A Servicer generally will not be required under the applicable Underlying
Servicing Agreement to pursue deficiency judgments on the Mortgage Loans even if
permitted by law.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of a secured mortgage lender to realize upon its security. For example,
numerous statutory provisions under the United States Bankruptcy Code, 11 U.S.C.
Sections 101 ET SEQ., (the "Bankruptcy Code") may interfere with or affect the
ability of the Seller to obtain payment of a Mortgage Loan, to realize upon
collateral and/or enforce a deficiency judgment. For example, under federal
bankruptcy law, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of a
bankruptcy petition, and often no interest or principal payments are made during
the course of the bankruptcy proceeding. In a case under the Bankruptcy Code,
the secured party is precluded from foreclosing without authorization from the
bankruptcy court. In addition, a court with federal bankruptcy jurisdiction may
permit a debtor through his or her Chapter 11 or Chapter 13 plan to cure a
monetary default in respect of a Mortgage Loan by paying arrearages within a
reasonable time period and reinstating the
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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 foreclosure sale 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 case, that effected the
curing of a mortgage loan default by paying arrearages over a number of years.
If a Mortgage Loan is secured by property NOT consisting solely of the
debtor's principal residence, the Bankruptcy Code also permits such Mortgage
Loan to be modified. Such modifications may include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
and reducing the lender's security interest to the value of the property, thus
leaving the lender in the position of a general unsecured creditor for the
difference between the value of the property and the outstanding balance of the
Mortgage Loan. Some courts have permitted such modifications when the Mortgage
Loan is secured both by the debtor's principal residence and by personal
property.
If a court relieves a borrower's obligation to repay amounts otherwise due
on a Mortgage Loan, the Servicer will not be required to advance such amounts,
and any loss in respect thereof will be borne by the Certificateholders.
The Internal Revenue Code of 1986, as amended, provides priority to certain
tax liens over the lien of the mortgage or deed of trust. The laws of some
states provide priority to certain tax liens over the lien of the mortgage or
deed of trust. Numerous federal and some state consumer protection laws impose
substantive requirements upon mortgage lenders in connection with the
origination, servicing and enforcement of mortgage loans. These laws include the
federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and
related statutes and regulations. These federal laws and state laws impose
specific statutory liabilities upon lenders who originate or service mortgage
loans and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT AND SIMILAR LAWS
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's Mortgage Loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Mortgage Loans in a Trust Estate. Any
shortfall in interest collections resulting from the application of the Relief
Act could result in losses to the holders of the Certificates of the related
Series. Further, the Relief Act imposes limitations which would impair the
ability of the Servicer to foreclose on an affected Mortgage Loan during the
borrower's period of active duty status. Thus, in the event that such a Mortgage
Loan goes into default, there may be delays and losses occasioned by the
inability to realize upon the Mortgaged Property in a timely fashion. Certain
states have enacted comparable legislation which may interfere with or affect
the ability of the Servicer to timely collect payments of principal and interest
on, or to foreclose on, Mortgage Loans of borrowers in such states who are
active or reserve members of the armed services.
ENVIRONMENTAL CONSIDERATIONS
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale or operates a mortgaged property may become
liable in certain circumstances for the costs of remedial action ("Cleanup
Costs") if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be substantial. Under the
laws of certain states, failure to perform the remediation required or demanded
by the state of any condition or circumstance that (i) may pose
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an imminent or substantial endangerment to the public health or welfare or the
environment, (ii) may result in a release or threatened release of any hazardous
substances, or (iii) may give rise to any environmental claim or demand may give
rise to a lien on the property to ensure the reimbursement of Cleanup Costs (a
"Superlien"). All subsequent liens on such property are subordinated to such
Superlien and, in some states, even prior recorded liens are subordinated to
such Superliens. In the latter states, the security interest of the Trustee in a
property that is subject to such a Superlien could be adversely affected.
The state of the law is currently unclear as to whether and under what
circumstances Cleanup Costs, or the obligation to take remedial actions, could
be imposed on a secured lender such as the Trust Estate. Under the laws of some
states and under CERCLA, a lender may be liable as an "owner or operator" for
costs of addressing releases or threatened releases of hazardous substances on a
mortgaged property if such lender or its agents or employees have participated
in the management of the operations of the borrower, even though the
environmental damage or threat was caused by a prior owner or current owner or
operator or other third party. Excluded from CERCLA's definition of "owner or
operator," however, is a person "who without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest" (the "secured-creditor exemption"). This exemption for holders of a
security interest such as a secured lender applies only when the lender seeks to
protect its security interest in the contaminated facility or property. Thus, if
a lender's activities begin to encroach on the actual management of such
facility or property, the lender faces potential liability as an "owner or
operator" under CERCLA. Similarly, when a lender forecloses and takes title to a
contaminated facility or property, the lender may incur potential CERCLA
liability in various circumstances, including among others, when it holds the
facility or property as an investment (including leasing the facility or
property to a third party), fails to market the property in a timely fashion or
fails to properly address environmental conditions at the property or facility.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in UNITED STATES V. FLEET FACTORS CORP. very narrowly construed
CERCLA's secured-creditor exemption. The court's opinion suggests that a lender
need not have involved itself in the day-to-day operations of the facility or
participated in decisions relating to hazardous waste to be liable under CERCLA;
rather, liability could attach to a lender if its involvement with the
management of the facility is broad enough to support the inference that the
lender had the capacity to influence the borrower's treatment of hazardous
waste. The court added that a lender's capacity to influence such decisions
could be inferred from the extent of its involvement in the facility's financial
management. A subsequent decision by the United States Court of Appeals for the
Ninth Circuit in IN RE BERGSOE METAL CORP., apparently disagreeing with, but not
expressly contradicting, the FLEET FACTORS court, held that a secured lender had
no liability absent "some actual management of the facility" on the part of the
lender. On April 29, 1992, the United States Environmental Protection Agency
(the "EPA") issued a final rule interpreting and delineating CERCLA's
secured-creditor exemption and the range of permissible actions that may be
undertaken by a holder of a contaminated facility without exceeding the bounds
of the secured-creditor exemption. On February 4, 1994, the United States Court
of Appeals for the District of Columbia Circuit in KELLEY V. EPA invalidated the
EPA rule. As a result of the KELLEY case, the state of the law with respect to
the secured creditor exemption remains unclear. In addition, even if the EPA
rule or a replacement were to be reinstated, the EPA rule or its replacement
would not necessarily affect the potential for liability in actions by either a
state or a private party under CERCLA or in actions under other federal or state
laws which may impose liability on "owners or operators" but do not incorporate
the secured-creditor exemption. Traditionally, residential mortgage lenders have
not taken steps to evaluate whether hazardous wastes or hazardous substances are
present with respect to any mortgaged property prior to the origination of the
mortgage loan or prior to foreclosure or accepting a deed-in-lieu of
foreclosure. Accordingly, neither the Seller, Norwest Mortgage nor Norwest
Funding has made such evaluations prior to the origination of the Mortgage
Loans, nor does Norwest Mortgage or Norwest Funding require that such
evaluations be made by originators who have sold the Mortgage Loans to Norwest
Mortgage. Neither the Seller nor Norwest
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Mortgage is required to undertake any such evaluations prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Neither the Seller nor the Master
Servicer makes any representations or warranties or assumes any liability with
respect to the absence or effect of hazardous wastes or hazardous substances on
any Mortgaged Property or any casualty resulting from the presence or effect of
hazardous wastes or hazardous substances. See "The Trust Estates -- Mortgage
Loans -- Representations and Warranties" and "Servicing of the Mortgage Loans --
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans"
above.
"DUE-ON-SALE" CLAUSES
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the borrower transfers its interest in the property. In
recent years, court decisions and legislative actions placed substantial
restrictions on the right of lenders to enforce such clauses in many states.
However, effective October 15, 1982, Congress enacted the Garn-St Germain
Depository Institutions Act of 1982 (the "Garn Act") which purports to preempt
state laws which prohibit the enforcement of "due-on-sale" clauses by providing
among other matters, that "due-on-sale" clauses in certain loans (which loans
may include the Mortgage Loans) made after the effective date of the Garn Act
are enforceable, within certain limitations as set forth in the Garn Act and the
regulations promulgated thereunder. "Due-on-sale" clauses contained in mortgage
loans originated by federal savings and loan associations or federal savings
banks are fully enforceable pursuant to regulations of the Office of Thrift
Supervision ("OTS"), as successor to the Federal Home Loan Bank Board ("FHLBB"),
which preempt state law restrictions on the enforcement of such clauses.
Similarly, "due-on-sale" clauses in mortgage loans made by national banks and
federal credit unions are now fully enforceable pursuant to preemptive
regulations of the Comptroller of the Currency and the National Credit Union
Administration, respectively.
The Garn Act created a limited exemption from its general rule of
enforceability for "due-on-sale" clauses in certain mortgage loans ("Window
Period Loans") which were originated by non-federal lenders and made or assumed
in certain states ("Window Period States") during the period, prior to October
15, 1982, in which that state prohibited the enforcement of "due-on-sale"
clauses by constitutional provision, statute or statewide court decision (the
"Window Period"). Though neither the Garn Act nor the OTS regulations actually
names the Window Period States, the Federal Home Loan Mortgage Corporation has
taken the position, in prescribing mortgage loan servicing standards with
respect to mortgage loans which it has purchased, that the Window Period States
were: Arizona, Arkansas, California, Colorado, Georgia, Iowa, Michigan,
Minnesota, New Mexico, Utah and Washington. Under the Garn Act, unless a Window
Period State took action by October 15, 1985, the end of the Window Period, to
further regulate enforcement of "due-on-sale" clauses in Window Period Loans,
"due-on-sale" clauses would become enforceable even in Window Period Loans. Five
of the Window Period States (Arizona, Minnesota, Michigan, New Mexico and Utah)
have taken actions which restrict the enforceability of "due-on-sale" clauses in
Window Period Loans beyond October 15, 1985. The actions taken vary among such
states.
By virtue of the Garn Act, a Servicer may generally be permitted to
accelerate any conventional Mortgage Loan which contains a "due-on-sale" clause
upon transfer of an interest in the property subject to the mortgage or deed of
trust. With respect to any Mortgage Loan secured by a residence occupied or to
be occupied by the borrower, this ability to accelerate will not apply to
certain types of transfers, including (i) the granting of a leasehold interest
which has a term of three years or less and which does not contain an option to
purchase, (ii) a transfer to a relative resulting from the death of a borrower,
or a transfer where the spouse or children become an owner of the property in
each case where the transferee(s) will occupy the property, (iii) a transfer
resulting from a decree of dissolution of marriage, legal separation agreement
or from an incidental property settlement agreement by which the spouse becomes
an owner of the property, (iv) the creation of a lien or other encumbrance
subordinate to the lender's security instrument which does not relate to a
transfer of rights of occupancy in the property (provided that such lien or
encumbrance is not created pursuant to a
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contract for deed), (v) a transfer by devise, descent or operation of law on the
death of a joint tenant or tenant by the entirety, (vi) a transfer into an INTER
VIVOS trust in which the borrower is the beneficiary and which does not relate
to a transfer of rights of occupancy; and (vii) other transfers as set forth in
the Garn Act and the regulations thereunder. The extent of the effect of the
Garn Act on the average lives and delinquency rates of the Mortgage Loans cannot
be predicted. See "Prepayment and Yield Considerations."
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The OTS as successor to the
FHLBB is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. The statute authorized any
state to reimpose interest rate limits by adopting before April 1, 1983, a law
or constitutional provision which expressly rejects application of the federal
law. Fifteen states have adopted laws reimposing or reserving the right to
reimpose interest rate limits. In addition, even where Title V is not so
rejected, any state is authorized to adopt a provision limiting certain other
loan charges.
The Seller will represent and warrant in the Pooling and Servicing Agreement
to the Trustee for the benefit of Certificateholders that all Mortgage Loans are
originated in full compliance with applicable state laws, including usury laws.
See "The Pooling and Servicing Agreement -- Assignment of Mortgage Loans to the
Trustee."
ENFORCEABILITY OF CERTAIN PROVISIONS
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Pooling and Servicing Agreement, late charges and prepayment
fees (to the extent permitted by law and not waived by the Servicer) will be
retained by the Servicer as additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required lenders to reinstate loans or recast payment schedules to
accommodate borrowers who are suffering from temporary financial disability. In
some cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second mortgage or
deed of trust affecting the property. In other cases, some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers under
the deeds of trust receive notices in addition to the statutorily-prescribed
minimum requirements. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust or under a mortgage having a power of sale does not involve
sufficient state action to afford constitutional protections to the borrower.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion represents the opinion of Cadwalader,
Wickersham & Taft as to the anticipated material federal income tax consequences
of the purchase, ownership and disposition of Certificates. The discussion below
does not purport to address all federal income tax consequences
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that may be applicable to particular categories of investors, some of which may
be subject to special rules. The authorities on which this discussion is based
are subject to change or differing interpretations, and any such change or
interpretation could apply retroactively. This discussion reflects the
applicable provisions of the Code, as well as regulations (the "REMIC
Regulations") promulgated by the U.S. Department of the Treasury on December 23,
1992. Investors should consult their own tax advisors in determining the
federal, state, local and any other tax consequences to them of the purchase,
ownership and disposition of Certificates.
For purposes of this discussion, where the applicable Prospectus Supplement
provides for a Fixed Retained Yield with respect to the Mortgage Loans of a
Series of Certificates, references to the Mortgage Loans will be deemed to refer
to that portion of the Mortgage Loans held by the Trust Estate that does not
include the Fixed Retained Yield. References to a "Holder" or
"Certificateholder" in this discussion generally mean the beneficial owner of a
Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular Series of Certificates, an election may be made
to treat the Trust Estate or one or more segregated pools of assets therein as
one or more REMICs within the meaning of Code Section 860D. A Trust Estate or a
portion or portions thereof as to which one or more REMIC elections will be made
will be referred to as a "REMIC Pool." For purposes of this discussion,
Certificates of a Series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more Classes of
"Regular Certificates" and one Class of "Residual Certificates" in the case of
each REMIC Pool. Qualification as a REMIC requires ongoing compliance with
certain conditions. With respect to each Series of REMIC Certificates,
Cadwalader, Wickersham & Taft, counsel to the Seller, has advised the Seller
that in the firm's opinion, assuming (i) the making of an appropriate election,
(ii) compliance with the Pooling and Servicing Agreement, and (iii) compliance
with any changes in the law, including any amendments to the Code or applicable
Treasury regulations thereunder, each REMIC Pool will qualify as a REMIC. In
such case, the Regular Certificates will be considered to be "regular interests"
in the REMIC Pool and generally will be treated for federal income tax purposes
as if they were newly originated debt instruments, and the Residual Certificates
will be considered to be "residual interests" in the REMIC Pool. The Prospectus
Supplement for each Series of Certificates will indicate whether one or more
REMIC elections with respect to the related Trust Estate will be made, in which
event references to "REMIC" or "REMIC Pool" herein shall be deemed to refer to
each such REMIC Pool.
STATUS OF REMIC CERTIFICATES
REMIC Certificates held by a mutual savings bank or a domestic building and
loan association will constitute "qualifying real property loans" within the
meaning of Code Section 593(d)(1) in the same proportion that the assets of the
REMIC Pool would be so treated. REMIC Certificates held by a domestic building
and loan association will constitute "a regular or residual interest in a REMIC"
within the meaning of Code Section 7701(a)(19)(C)(xi) in the same proportion
that the assets of the REMIC Pool would be treated as "loans...secured by an
interest in real property" within the meaning of Code Section 7701(a)(19)(C)(v)
or as other assets described in Code Section 7701(a)(19)(C). REMIC Certificates
held by a real estate investment trust will constitute "real estate assets"
within the meaning of Code Section 856(c)(5)(A), and interest on the Regular
Certificates and income with respect to Residual Certificates will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that, for both purposes, the assets of the REMIC Pool would be so
treated. If at all times 95% or more of the assets of the REMIC Pool qualify for
each of the foregoing treatments, the REMIC Certificates will qualify for the
corresponding status in their entirety. For purposes of Code Sections 593(d)(1)
and 856(c)(5)(A), payments of principal and interest on the Mortgage Loans that
are reinvested pending distribution to holders of REMIC Certificates qualify for
such treatment. Where two REMIC Pools are a part of a tiered structure they will
be treated as one REMIC for
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purposes of the tests described above respecting asset ownership of more or less
than 95%. In addition, if the assets of the REMIC include Buy-Down Loans, it is
possible that the percentage of such assets constituting "qualifying real
property loans" or "loans...secured by an interest in real property" for
purposes of Code Sections 593(d)(1) and 7701(a)(19)(C)(v), respectively, may be
required to be reduced by the amount of the related Buy-Down Funds. REMIC
Certificates held by a regulated investment company will not constitute
"Government securities" within the meaning of Code Section 851(b)(4)(A)(i).
REMIC Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1).
QUALIFICATION AS A REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must fulfill an asset test, which requires that no more
than a DE MINIMIS portion of the assets of the REMIC Pool, as of the close of
the third calendar month beginning after the "Startup Day" (which for purposes
of this discussion is the date of issuance of the REMIC Certificates) and at all
times thereafter, may consist of assets other than "qualified mortgages" and
"permitted investments." The REMIC Regulations provide a safe harbor pursuant to
which the DE MINIMIS requirement will be met if at all times the aggregate
adjusted basis of the nonqualified assets is less than 1% of the aggregate
adjusted basis of all the REMIC Pool's assets. An entity that fails to meet the
safe harbor may nevertheless demonstrate that it holds no more than a DE MINIMIS
amount of nonqualified assets. A REMIC Pool also must provide "reasonable
arrangements" to prevent its residual interests from being held by "disqualified
organizations" or agents thereof and must furnish applicable tax information to
transferors or agents that violate this requirement. See "Taxation of Residual
Certificates -- Tax-Related Restrictions on Transfer of Residual Certificates --
Disqualified Organizations."
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and, generally, certificates of beneficial interest in a grantor trust that
holds mortgage loans and regular interests in another REMIC, such as lower-tier
regular interests in a tiered REMIC. The REMIC Regulations specify that loans
secured by timeshare interests and shares held by a tenant stockholder in a
cooperative housing corporation can be qualified mortgages. A qualified mortgage
includes a qualified replacement mortgage, which is any property that would have
been treated as a qualified mortgage if it were transferred to the REMIC Pool on
the Startup Day and that is received either (i) in exchange for any qualified
mortgage within a three-month period thereafter or (ii) in exchange for a
"defective obligation" within a two-year period thereafter. A "defective
obligation" includes (i) a mortgage in default or as to which default is
reasonably foreseeable, (ii) a mortgage as to which a customary representation
or warranty made at the time of transfer to the REMIC Pool has been breached,
(iii) a mortgage that was fraudulently procured by the mortgagor, and (iv) a
mortgage that was not in fact principally secured by real property (but only if
such mortgage is disposed of within 90 days of discovery). A Mortgage Loan that
is "defective" as described in clause (iv) that is not sold or, if within two
years of the Startup Day, exchanged, within 90 days of discovery, ceases to be a
qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC Pool.
A qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC Pool to provide
for payments of expenses of the REMIC Pool or amounts due on the regular or
residual interests in the event of defaults (including delinquencies) on the
qualified mortgages, lower than expected reinvestment returns, prepayment
interest shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross
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income from the assets in such fund for the year is derived from the sale or
other disposition of property held for less than three months, unless required
to prevent a default on the regular interests caused by a default on one or more
qualified mortgages. A reserve fund must be reduced "promptly and appropriately"
as payments on the Mortgage Loans are received. Foreclosure property is real
property acquired by the REMIC Pool in connection with the default or imminent
default of a qualified mortgage and generally held for not more than two years,
with extensions granted by the Internal Revenue Service.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests or
(ii) a single class of residual interests on which distributions, if any, are
made pro rata. A regular interest is an interest in a REMIC Pool that is issued
on the Startup Day with fixed terms, is designated as a regular interest, and
unconditionally entitles the holder to receive a specified principal amount (or
other similar amount), and provides that interest payments (or other similar
amounts), if any, at or before maturity either are payable based on a fixed rate
or a qualified variable rate, or consist of a specified, nonvarying portion of
the interest payments on qualified mortgages. Such a specified portion may
consist of a fixed number of basis points, a fixed percentage of the total
interest, or a qualified variable rate, inverse variable rate or difference
between two fixed or qualified variable rates on some or all of the qualified
mortgages. The specified principal amount of a regular interest that provides
for interest payments consisting of a specified, nonvarying portion of interest
payments on qualified mortgages may be zero. A residual interest is an interest
in a REMIC Pool other than a regular interest that is issued on the Startup Day
and that is designated as a residual interest. An interest in a REMIC Pool may
be treated as a regular interest even if payments of principal with respect to
such interest are subordinated to payments on other regular interests or the
residual interest in the REMIC Pool, and are dependent on the absence of
defaults or delinquencies on qualified mortgages or permitted investments, lower
than reasonably expected returns on permitted investments, unanticipated
expenses incurred by the REMIC Pool or prepayment interest shortfalls.
Accordingly, the Regular Certificates of a Series will constitute one or more
classes of regular interests, and the Residual Certificates with respect to that
Series will constitute a single class of residual interests on which
distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests therein. The Code, however, authorizes the Treasury Department
to issue regulations that address situations where failure to meet one or more
of the requirements for REMIC status occurs inadvertently and in good faith, and
disqualification of the REMIC Pool would occur absent regulatory relief.
Investors should be aware, however, that the Conference Committee Report to the
Tax Reform Act of 1986 (the "1986 Act") indicates that the relief may be
accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the REMIC Pool's income for the period of time in which the
requirements for REMIC status are not satisfied.
TAXATION OF REGULAR CERTIFICATES
GENERAL
In general, interest, original issue discount, and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "Regular Certificateholder"), and principal payments on
a Regular Certificate will be treated as a return of capital to the extent of
the Regular Certificateholder's basis in the Regular Certificate allocable
thereto. Regular Certificateholders must use the accrual method of accounting
with regard to Regular Certificates, regardless of the method of accounting
otherwise used by such Regular Certificateholders.
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ORIGINAL ISSUE DISCOUNT
Compound Interest Certificates will be, and other classes of Regular
Certificates may be, issued with "original issue discount" within the meaning of
Code Section 1273(a). Holders of any Class or Subclass of Regular Certificates
having original issue discount generally must include original issue discount in
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of
interest, in advance of receipt of the cash attributable to such income. The
following discussion is based in part on temporary and final Treasury
regulations issued on February 2, 1994 (the "OID Regulations") and proposed
Treasury regulations issued on December 16, 1994 (the "Proposed OID
Regulations") under Code Sections 1271 through 1273 and 1275 and in part on the
provisions of the 1986 Act. Regular Certificateholders should be aware, however,
that the OID Regulations and the Proposed OID Regulations do not adequately
address certain issues relevant to prepayable securities, such as the Regular
Certificates. To the extent such issues are not addressed in such regulations,
the Seller intends to apply the methodology described in the Conference
Committee Report to the 1986 Act. No assurance can be provided that the Internal
Revenue Service will not take a different position as to those matters not
currently addressed by the OID Regulations and the Proposed OID Regulations.
Moreover, the OID Regulations include an anti-abuse rule allowing the Internal
Revenue Service to apply or depart from the OID Regulations where necessary or
appropriate to ensure a reasonable tax result in light of the applicable
statutory provisions. A tax result will not be considered unreasonable under the
anti-abuse rule in the absence of a substantial effect on the present value of a
taxpayer's tax liability. Investors are advised to consult their own tax
advisors as to the discussion herein and the appropriate method for reporting
interest and original issue discount with respect to the Regular Certificates.
Each Regular Certificate (except to the extent described below with respect
to a Regular Certificate on which principal is distributed in a single
installment or by lots of specified principal amounts upon the request of a
Certificateholder or by random lot (a "Non-Pro Rata Certificate")) will be
treated as a single installment obligation for purposes of determining the
original issue discount includible in a Regular Certificateholder's income. The
total amount of original issue discount on a Regular Certificate is the excess
of the "stated redemption price at maturity" of the Regular Certificate over its
"issue price." The issue price of a Class of Regular Certificates offered
pursuant to this Prospectus generally is the first price at which a substantial
amount of such Class is sold to the public (excluding bond houses, brokers and
underwriters). Although unclear under the OID Regulations, the Seller intends to
treat the issue price of a Class as to which there is no substantial sale as of
the issue date or that is retained by the Seller as the fair market value of
that Class as of the issue date. The issue price of a Regular Certificate also
includes any amount paid by an initial Regular Certificateholder for accrued
interest that relates to a period prior to the issue date of the Regular
Certificate, unless the Regular Certificateholder elects on its federal income
tax return to exclude such amount from the issue price and to recover it on the
first Distribution Date. The stated redemption price at maturity of a Regular
Certificate always includes the original principal amount of the Regular
Certificate, but generally will not include distributions of interest if such
distributions constitute "qualified stated interest." Under the OID Regulations,
qualified stated interest generally means interest payable at a single fixed
rate or a qualified variable rate (as described below) provided that such
interest payments are unconditionally payable at intervals of one year or less
during the entire term of the Regular Certificate. Because there is no penalty
or default remedy in the case of nonpayment of interest with respect to a
Regular Certificate, it is possible that no interest on any Class of Regular
Certificates will be treated as qualified stated interest. However, except as
provided in the following three sentences or in the applicable Prospectus
Supplement, because the underlying Mortgage Loans provide for remedies in the
event of default, the Seller intends to treat interest with respect to the
Regular Certificates as qualified stated interest. Distributions of interest on
a Compound Interest Certificate, or on other Regular Certificates with respect
to which deferred interest will accrue, will not constitute qualified stated
interest, in which case the stated redemption price at maturity of such Regular
Certificates includes all distributions of interest as well as principal
thereon. Likewise, the Seller intends to treat an interest-only Class or a Class
on which interest is substantially
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disproportionate to its principal amount (a so-called "super-premium" Class) as
having no qualified stated interest. Where the interval between the issue date
and the first Distribution Date on a Regular Certificate is shorter than the
interval between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
Under a DE MINIMIS rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than 0.25%
of the stated redemption price at maturity of the Regular Certificate multiplied
by the weighted average maturity of the Regular Certificate. For this purpose,
the weighted average maturity of the Regular Certificate is computed as the sum
of the amounts determined by multiplying the number of full years (I.E.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the Regular Certificate and the
denominator of which is the stated redemption price at maturity of the Regular
Certificate. The Conference Committee Report to the 1986 Act provides that the
schedule of such distributions should be determined in accordance with the
assumed rate of prepayment of the Mortgage Loans (the "Prepayment Assumption")
and the anticipated reinvestment rate, if any, relating to the Regular
Certificates. The Prepayment Assumption with respect to a Series of Regular
Certificates will be set forth in the applicable Prospectus Supplement. Holders
generally must report DE MINIMIS original issue discount pro rata as principal
payments are received, and such income will be capital gain if the Regular
Certificate is held as a capital asset. Under the OID Regulations, however,
Regular Certificateholders may elect to accrue all DE MINIMIS original issue
discount as well as market discount and market premium, under the constant yield
method. See "Election to Treat All Interest Under the Constant Yield Method."
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Certificate accrued during an accrual period for
each day on which it holds the Regular Certificate, including the date of
purchase but excluding the date of disposition. The Seller will treat the
monthly period ending on the day before each Distribution Date as the accrual
period. With respect to each Regular Certificate, a calculation will be made of
the original issue discount that accrues during each successive full accrual
period (or shorter period from the date of original issue) that ends on the day
before the related Distribution Date on the Regular Certificate. The Conference
Committee Report to the 1986 Act states that the rate of accrual of original
issue discount is intended to be based on the Prepayment Assumption. Other than
as discussed below with respect to a Non-Pro Rata Certificate, the original
issue discount accruing in a full accrual period would be the excess, if any, of
(i) the sum of (a) the present value of all of the remaining distributions to be
made on the Regular Certificate as of the end of that accrual period, and (b)
the distributions made on the Regular Certificate during the accrual period that
are included in the Regular Certificate's stated redemption price at maturity,
over (ii) the adjusted issue price of the Regular Certificate at the beginning
of the accrual period. The present value of the remaining distributions referred
to in the preceding sentence is calculated based on (i) the yield to maturity of
the Regular Certificate at the issue date, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period, and
(iii) the Prepayment Assumption. For these purposes, the adjusted issue price of
a Regular Certificate at the beginning of any accrual period equals the issue
price of the Regular Certificate, increased by the aggregate amount of original
issue discount with respect to the Regular Certificate that accrued in all prior
accrual periods and reduced by the amount of distributions included in the
Regular Certificate's stated redemption price at maturity that were made on the
Regular Certificate in such prior periods. The original issue discount accruing
during any accrual period (as determined in this paragraph) will then be divided
by the number of days in the period to determine the daily portion of original
issue discount for each day in the period. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of original issue
discount must be determined according to an appropriate allocation under any
reasonable method.
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Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Non-Pro Rata Certificate, the Seller intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Non-Pro Rata Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of the
entire unpaid principal balance of any Non-Pro Rata Certificate (or portion of
such unpaid principal balance), (a) the remaining unaccrued original issue
discount allocable to such Certificate (or to such portion) will accrue at the
time of such distribution, and (b) the accrual of original issue discount
allocable to each remaining Certificate of such Class (or the remaining unpaid
principal balance of a partially redeemed Non-Pro Rata Certificate after a
distribution of principal has been received) will be adjusted by reducing the
present value of the remaining payments on such Class and the adjusted issue
price of such Class to the extent attributable to the portion of the unpaid
principal balance thereof that was distributed. The Seller believes that the
foregoing treatment is consistent with the "pro rata prepayment" rules of the
OID Regulations, but with the rate of accrual of original issue discount
determined based on the Prepayment Assumption for the Class as a whole.
Investors are advised to consult their tax advisors as to this treatment.
ACQUISITION PREMIUM
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted issue
price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively, such
a subsequent purchaser may elect to treat all such acquisition premium under the
constant yield method, as described below under the heading "Election to Treat
All Interest Under the Constant Yield Method."
VARIABLE RATE REGULAR CERTIFICATES
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate if,
generally, (i) the issue price does not exceed the original principal balance by
more than a specified amount and (ii) the interest compounds or is payable at
least annually at current values of (a) one or more "qualified floating rates,"
(b) a single fixed rate and one or more qualified floating rates, (c) a single
"objective rate," or (d) a single fixed rate and a single objective rate that is
a "qualified inverse floating rate." A floating rate is a qualified floating
rate if variations in the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds, where such rate
is subject to a multiple of not less than zero nor more than 1.35. Such rate may
also be increased or decreased by a fixed spread or subject to a fixed cap or
floor, or a cap or floor that is not reasonably expected as of the issue date to
affect the yield of the instrument significantly. An objective rate includes a
rate determined using a single fixed formula and that is based on one or more
qualified floating rates or the yield or changes in the price of actively traded
personal property. The Proposed OID Regulations would expand the definition of
objective rate to include any rate (other than a qualified floating rate) that
is determined using a single fixed formula and that is based on objective
financial or economic information, provided that such
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information is not (i) within the control of the issuer or a related party or
(ii) unique to the circumstances of the issuer or a related party. A qualified
inverse floating rate is a rate equal to a fixed rate minus a qualified floating
rate that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified inverse
floating rate may nevertheless be an objective rate. A Class of Regular
Certificates may be issued under this Prospectus that does not have a variable
rate under the foregoing rules, for example, a Class that bears different rates
at different times during the period it is outstanding such that it is
considered significantly "front-loaded" or "back-loaded" within the meaning of
the OID Regulations. It is possible that such a Class may be considered to bear
"contingent interest" within the meaning of the OID Regulations and the Proposed
OID Regulations. The Proposed OID Regulations, as they relate to the treatment
of contingent interest, are by their terms not applicable to Regular
Certificates. However, if final regulations dealing with contingent interest
with respect to Regular Certificates apply the same principles as the Proposed
OID Regulations, such regulations may lead to different timing of income
inclusion than would be the case under the OID Regulations. Furthermore,
application of such principles could lead to the characterization of gain on the
sale of contingent interest Regular Certificates as ordinary income. Investors
should consult their tax advisors regarding the appropriate treatment of any
Regular Certificate that does not pay interest at a fixed rate or variable rate
as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates, including a rate based on the average cost of funds of one or
more financial institutions), or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans, including such a
rate that is subject to one or more caps or floors, or (ii) bearing one or more
such variable rates for one or more periods, or one or more fixed rates for one
or more periods, and a different variable rate or fixed rate for other periods,
qualifies as a regular interest in a REMIC. Accordingly, unless otherwise
indicated in the applicable Prospectus Supplement, the Seller intends to treat
Regular Certificates that qualify as regular interests under this rule in the
same manner as obligations bearing a variable rate for original issue discount
reporting purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "Original Issue Discount," with the yield to maturity and future payments
on such Regular Certificate generally to be determined by assuming that interest
will be payable for the life of the Regular Certificate based on the initial
rate (or, if different, the value of the applicable variable rate as of the
pricing date) for the relevant Class. Unless required otherwise by applicable
final regulations, the Seller intends to treat such variable interest as
qualified stated interest, other than variable interest on an interest-only or
super-premium Class, which will be treated as non-qualified stated interest
includible in the stated redemption price at maturity. Ordinary income
reportable for any period will be adjusted based on subsequent changes in the
applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, the Seller intends to treat Regular Certificates
bearing an interest rate that is a weighted average of the net interest rates on
Mortgage Loans as having qualified stated interest, except to the extent that
initial "teaser" rates cause sufficiently "back-loaded" interest to create more
than DE MINIMIS original issue discount. The yield on such Regular Certificates
for purposes of accruing original issue discount will be a hypothetical fixed
rate based on the fixed rates, in the case of fixed rate Mortgage Loans, and
initial "teaser rates" followed by fully indexed rates, in the case of
adjustable rate Mortgage Loans. In the case of adjustable rate Mortgage Loans,
the applicable index used to compute interest on the Mortgage Loans in effect on
the pricing date (or possibly the issue date) will be deemed to be in effect
beginning with the period in which the first weighted average adjustment date
occurring after the issue date occurs. Adjustments will be made in each accrual
period either increasing or decreasing the amount of ordinary income reportable
to reflect the actual Pass-Through Rate on the Regular Certificates.
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MARKET DISCOUNT
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Sections 1276 through 1278. Under these sections and the
principles applied by the OID Regulations in the context of original issue
discount, "market discount" is the amount by which the purchaser's original
basis in the Regular Certificate (i) is exceeded by the then-current principal
amount of the Regular Certificate, or (ii) in the case of a Regular Certificate
having original issue discount, is exceeded by the adjusted issue price of such
Regular Certificate at the time of purchase. Such purchaser generally will be
required to recognize ordinary income to the extent of accrued market discount
on such Regular Certificate as distributions includible in the stated redemption
price at maturity thereof are received, in an amount not exceeding any such
distribution. Such market discount would accrue in a manner to be provided in
Treasury regulations and should take into account the Prepayment Assumption. The
Conference Committee Report to the 1986 Act provides that until such regulations
are issued, such market discount would accrue either (i) on the basis of a
constant interest rate, or (ii) in the ratio of stated interest allocable to the
relevant period to the sum of the interest for such period plus the remaining
interest as of the end of such period, or in the case of a Regular Certificate
issued with original issue discount, in the ratio of original issue discount
accrued for the relevant period to the sum of the original issue discount
accrued for such period plus the remaining original issue discount as of the end
of such period. Such purchaser also generally will be required to treat a
portion of any gain on a sale or exchange of the Regular Certificate as ordinary
income to the extent of the market discount accrued to the date of disposition
under one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial distributions in reduction of the stated
redemption price at maturity were received. Such purchaser will be required to
defer deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Certificate over the
interest distributable thereon. The deferred portion of such interest expense in
any taxable year generally will not exceed the accrued market discount on the
Regular Certificate for such year. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which the related
market discount income is recognized or the Regular Certificate is disposed of.
As an alternative to the inclusion of market discount in income on the foregoing
basis, the Regular Certificateholder may elect to include market discount in
income currently as it accrues on all market discount instruments acquired by
such Regular Certificateholder in that taxable year or thereafter, in which case
the interest deferral rule will not apply. See "Election to Treat All Interest
Under the Constant Yield Method" below regarding an alternative manner in which
such election may be deemed to be made.
By analogy to the OID Regulations, market discount with respect to a Regular
Certificate will be considered to be zero if such market discount is less than
0.25% of the remaining stated redemption price at maturity of such Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate (determined as described above in the third paragraph under
"Original Issue Discount") remaining after the date of purchase. It appears that
DE MINIMIS market discount would be reported in a manner similar to DE MINIMIS
original issue discount. See "Original Issue Discount" above. Treasury
regulations implementing the market discount rules have not yet been issued, and
therefore investors should consult their own tax advisors regarding the
application of these rules. Investors should also consult Revenue Procedure
92-67 concerning the elections to include market discount in income currently
and to accrue market discount on the basis of the constant yield method.
PREMIUM
A Regular Certificate purchased at a cost greater than its remaining stated
redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Certificateholder holds such Regular Certificate as a
"capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. Such election will apply to all debt
obligations acquired by the Regular Certificateholder at a premium held in that
taxable year or thereafter, unless revoked with the permission of the
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Internal Revenue Service. The Conference Committee Report to the 1986 Act
indicates a Congressional intent that the same rules that apply to the accrual
of market discount on installment obligations will also apply to amortizing bond
premium under Code Section 171 on installment obligations such as the Regular
Certificates, although it is unclear whether the alternatives to the constant
interest method described above under "Market Discount" are available.
Amortizable bond premium will be treated as an offset to interest income on a
Regular Certificate, rather than as a separate deduction item. See "Election to
Treat All Interest Under the Constant Yield Method" below regarding an
alternative manner in which the Code Section 171 election may be deemed to be
made.
ELECTION TO TREAT ALL INTEREST UNDER THE CONSTANT YIELD METHOD
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to such an election, (i) "interest" includes stated interest, original issue
discount, DE MINIMIS original issue discount, market discount and DE MINIMIS
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (ii) the debt instrument is treated as if the instrument were issued
on the holder's acquisition date in the amount of the holder's adjusted basis
immediately after acquisition. It is unclear whether, for this purpose, the
initial Prepayment Assumption would continue to apply or if a new prepayment
assumption as of the date of the holder's acquisition would apply. A holder
generally may make such an election on an instrument by instrument basis or for
a class or group of debt instruments. However, if the holder makes such an
election with respect to a debt instrument with amortizable bond premium or with
market discount, the holder is deemed to have made elections to amortize bond
premium or to report market discount income currently as it accrues under the
constant yield method, respectively, for all premium bonds held or market
discount bonds acquired by the holder in the same taxable year or thereafter.
The election is made on the holder's federal income tax return for the year in
which the debt instrument is acquired and is irrevocable except with the
approval of the Internal Revenue Service. Investors should consult their own tax
advisors regarding the advisability of making such an election.
TREATMENT OF LOSSES
Regular Certificateholders will be required to report income with respect to
Regular Certificates on the accrual method of accounting, without giving effect
to delays or reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans, except to the extent it can be established
that such losses are uncollectible. Accordingly, the holder of a Regular
Certificate, particularly a Subordinated Certificate, may have income, or may
incur a diminution in cash flow as a result of a default or delinquency, but may
not be able to take a deduction (subject to the discussion below) for the
corresponding loss until a subsequent taxable year. In this regard, investors
are cautioned that while they may generally cease to accrue interest income if
it reasonably appears that the interest will be uncollectible, the Internal
Revenue Service may take the position that original issue discount must continue
to be accrued in spite of its uncollectibility until the debt instrument is
disposed of in a taxable transaction or becomes worthless in accordance with the
rules of Code Section 166. To the extent the rules of Code Section 166 regarding
bad debts are applicable, it appears that Regular Certificateholders that are
corporations or that otherwise hold the Regular Certificates in connection with
a trade or business should in general be allowed to deduct as an ordinary loss
such loss with respect to principal sustained during the taxable year on account
of any such Regular Certificates becoming wholly or partially worthless, and
that, in general, Regular Certificateholders that are not corporations and do
not hold the Regular Certificates in connection with a trade or business should
be allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of a portion of any such Regular Certificates becoming
wholly worthless. Although the matter is not free from doubt, such non-corporate
Regular Certificateholders should be allowed a bad debt deduction at such time
as the principal balance of such Regular Certificates is reduced to reflect
losses resulting from any liquidated Mortgage Loans. The Internal Revenue
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect such losses only after all the
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Mortgage Loans remaining in the Trust Estate have been liquidated or the
applicable Class of Regular Certificates has been otherwise retired. The
Internal Revenue Service could also assert that losses on the Regular
Certificates are deductible based on some other method that may defer such
deductions for all holders, such as reducing future cash flow for purposes of
computing original issue discount. This may have the effect of creating
"negative" original issue discount which would be deductible only against future
positive original issue discount or otherwise upon termination of the Class.
Regular Certificateholders are urged to consult their own tax advisors regarding
the appropriate timing, amount and character of any loss sustained with respect
to such Regular Certificates. While losses attributable to interest previously
reported as income should be deductible as ordinary losses by both corporate and
non-corporate holders, the Internal Revenue Service may take the position that
losses attributable to accrued original issue discount may only be deducted as
capital losses in the case of non-corporate holders who do not hold the Regular
Certificates in connection with a trade or business. Special loss rules are
applicable to banks and thrift institutions, including rules regarding reserves
for bad debts. Such taxpayers are advised to consult their tax advisors
regarding the treatment of losses on Regular Certificates.
SALE OR EXCHANGE OF REGULAR CERTIFICATES
If a Regular Certificateholder sells or exchanges a Regular Certificate, the
Regular Certificateholder will recognize gain or loss equal to the difference,
if any, between the amount received and its adjusted basis in the Regular
Certificate. The adjusted basis of a Regular Certificate generally will equal
the cost of the Regular Certificate to the seller, increased by any original
issue discount or market discount previously included in the seller's gross
income with respect to the Regular Certificate and reduced by amounts included
in the stated redemption price at maturity of the Regular Certificate that were
previously received by the seller, by any amortized premium and by any
recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate as
a capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Certificate has been held for the long-term
capital gain holding period (currently, more than one year). Such gain will be
treated as ordinary income (i) if a Regular Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount of
interest that would have accrued on the Regular Certificateholder's net
investment in the conversion transaction at 120% of the appropriate applicable
Federal rate under Code Section 1274(d) in effect at the time the taxpayer
entered into the transaction minus any amount previously treated as ordinary
income with respect to any prior disposition of property that was held as part
of such transaction, (ii) in the case of a non-corporate taxpayer, to the extent
such taxpayer has made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary income rates, or (iii) to
the extent that such gain does not exceed the excess, if any, of (a) the amount
that would have been includible in the gross income of the holder if its yield
on such Regular Certificate were 110% of the applicable Federal rate as of the
date of purchase, over (b) the amount of income actually includible in the gross
income of such holder with respect to such Regular Certificate. In addition,
gain or loss recognized from the sale of a Regular Certificate by certain banks
or thrift institutions will be treated as ordinary income or loss pursuant to
Code Section 582(c). Pursuant to the Revenue Reconciliation Act of 1993, capital
gains of certain non-corporate taxpayers are subject to a lower maximum tax rate
than ordinary income of such taxpayers. The maximum tax rate for corporations is
the same with respect to both ordinary income and capital gains.
TAXATION OF RESIDUAL CERTIFICATES
TAXATION OF REMIC INCOME
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable income
of holders of Residual Certificates ("Residual Holders"), and will not be taxed
separately to the REMIC Pool. The daily portions of REMIC taxable
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income or net loss of a Residual Holder are determined by allocating the REMIC
Pool's taxable income or net loss for each calendar quarter ratably to each day
in such quarter and by allocating such daily portion among the Residual Holders
in proportion to their respective holdings of Residual Certificates in the REMIC
Pool on such day. REMIC taxable income is generally determined in the same
manner as the taxable income of an individual using the accrual method of
accounting, except that (i) the limitations on deductibility of investment
interest expense and expenses for the production of income do not apply, (ii)
all bad loans will be deductible as business bad debts, and (iii) the limitation
on the deductibility of interest and expenses related to tax-exempt income will
apply. The REMIC Pool's gross income includes interest, original issue discount
income, and market discount income, if any, on the Mortgage Loans, reduced by
amortization of any premium on the Mortgage Loans, plus income from amortization
of issue premium, if any, on the Regular Certificates, plus income on
reinvestment of cash flows and reserve assets, plus any cancellation of
indebtedness income upon allocation of realized losses to the Regular
Certificates. The REMIC Pool's deductions include interest and original issue
discount expense on the Regular Certificates, servicing fees on the Mortgage
Loans, other administrative expenses of the REMIC Pool and realized losses on
the Mortgage Loans. The requirement that Residual Holders report their pro rata
share of taxable income or net loss of the REMIC Pool will continue until there
are no Certificates of any class of the related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market discount income or
amortization of premium with respect to the Mortgage Loans, on the one hand, and
the timing of deductions for interest (including original issue discount) or
income from amortization of issue premium on the Regular Certificates, on the
other hand. In the event that an interest in the Mortgage Loans is acquired by
the REMIC Pool at a discount, and one or more of such Mortgage Loans is prepaid,
the Residual Holder may recognize taxable income without being entitled to
receive a corresponding amount of cash because (i) the prepayment may be used in
whole or in part to make distributions in reduction of principal or Stated
Amount on the Regular Certificates, and (ii) the discount on the Mortgage Loans
which is includible in income may exceed the deduction allowed upon such
distributions on those Regular Certificates on account of any unaccrued original
issue discount relating to those Regular Certificates. When there is more than
one Class of Regular Certificates that distribute principal or payments in
reduction of Stated Amount sequentially, this mismatching of income and
deductions is particularly likely to occur in the early years following issuance
of the Regular Certificates when distributions in reduction of principal or
Stated Amount are being made in respect of earlier Classes of Regular
Certificates to the extent that such Classes are not issued with substantial
discount or are issued at a premium. If taxable income attributable to such a
mismatching is realized, in general, losses would be allowed in later years as
distributions on the later maturing Classes of Regular Certificates are made.
Taxable income may also be greater in earlier years than in later years as a
result of the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of such a Series of Regular Certificates,
may increase over time as distributions in reduction of principal or Stated
Amount are made on the lower yielding Classes of Regular Certificates, whereas,
to the extent the REMIC Pool consists of fixed rate Mortgage Loans, interest
income with respect to any given Mortgage Loan will remain constant over time as
a percentage of the outstanding principal amount of that loan. Consequently,
Residual Holders must have sufficient other sources of cash to pay any federal,
state, or local income taxes due as a result of such mismatching or unrelated
deductions against which to offset such income, subject to the discussion of
"excess inclusions" below under "-- Limitations on Offset or Exemption of REMIC
Income." The timing of such mismatching of income and deductions described in
this paragraph, if present with respect to a Series of Certificates, may have a
significant adverse effect upon a Residual Holder's after-tax rate of return. In
addition, a Residual Holder's taxable income during certain periods may exceed
the income reflected by such Residual Holder for such periods in accordance with
generally accepted accounting principles. Investors should consult their own
accountants concerning the accounting treatment of their investment in Residual
Certificates.
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BASIS AND LOSSES
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate if earlier), determined without taking into account the net
loss for the quarter. The initial adjusted basis of a purchaser of a Residual
Certificate is the amount paid for such Residual Certificate. Such adjusted
basis will be increased by the amount of taxable income of the REMIC Pool
reportable by the Residual Holder and will be decreased (but not below zero),
first, by a cash distribution from the REMIC Pool and, second, by the amount of
loss of the REMIC Pool reportable by the Residual Holder. Any loss that is
disallowed on account of this limitation may be carried over indefinitely with
respect to the Residual Holder as to whom such loss was disallowed and may be
used by such Residual Holder only to offset any income generated by the same
REMIC Pool.
A Residual Holder will not be permitted to amortize directly the cost of its
Residual Certificate as an offset to its share of the taxable income of the
related REMIC Pool. However, that taxable income will not include cash received
by the REMIC Pool that represents a recovery of the REMIC Pool's basis in its
assets. Such recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Certificates over their life.
However, in view of the possible acceleration of the income of Residual Holders
described above under "Taxation of REMIC Income," the period of time over which
such issue price is effectively amortized may be longer than the economic life
of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value of
anticipated tax liabilities exceeds the present value of anticipated cash flows.
The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC Pool's basis in its assets. The preamble to the REMIC Regulations
states that the Internal Revenue Service may provide future guidance on the
proper tax treatment of payments made by a transferor of such a residual
interest to induce the transferee to acquire the interest, and Residual Holders
should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC Pool unless future Treasury regulations provide for periodic
adjustments to the REMIC income otherwise reportable by such holder. The REMIC
Regulations currently in effect do not so provide. See "-- Treatment of Certain
Items of REMIC Income and Expense -- Market Discount" below regarding the basis
of Mortgage Loans to the REMIC Pool and "Sale or Exchange of a Residual
Certificate" below regarding possible treatment of a loss upon termination of
the REMIC Pool as a capital loss.
TREATMENT OF CERTAIN ITEMS OF REMIC INCOME AND EXPENSE
Although the Seller intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Seller makes no representation as to the specific
method that it will use for reporting income with respect to the Mortgage Loans
and expenses with respect to the Regular Certificates and different methods
could result in different timing of reporting of taxable income or net loss to
Residual Holders or differences in capital gain versus ordinary income.
ORIGINAL ISSUE DISCOUNT AND PREMIUM. Generally, the REMIC Pool's deductions
for original issue discount and income from amortization of issue premium will
be determined in the same manner as original issue discount income on Regular
Certificates as described above under "Taxation of Regular Certificates --
Original Issue Discount" and "-- Variable Rate Regular Certificates," without
regard to the DE MINIMIS rule described therein, and "-- Premium."
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MARKET DISCOUNT. The REMIC Pool will have market discount income in respect
of Mortgage Loans if, in general, the basis of the REMIC Pool in such Mortgage
Loans is exceeded by their unpaid principal balances. The REMIC Pool's basis in
such Mortgage Loans is generally the fair market value of the Mortgage Loans
immediately after the transfer thereof to the REMIC Pool. The REMIC Regulations
provide that such basis is equal in the aggregate to the issue prices of all
regular and residual interests in the REMIC Pool. The accrued portion of such
market discount would be recognized currently as an item of ordinary income in a
manner similar to original issue discount. Market discount income generally
should accrue in the manner described above under "Taxation of Regular
Certificates -- Market Discount."
PREMIUM. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be considered
to have acquired such Mortgage Loans at a premium equal to the amount of such
excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the fair
market value of the Mortgage Loans, based on the aggregate of the issue prices
of the regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Certificates -- Premium," a person that holds a
Mortgage Loan as a capital asset under Code Section 1221 may elect under Code
Section 171 to amortize premium on Mortgage Loans originated after September 27,
1985 under the constant yield method. Amortizable bond premium will be treated
as an offset to interest income on the Mortgage Loans, rather than as a separate
deduction item. Because substantially all of the mortgagors on the Mortgage
Loans are expected to be individuals, Code Section 171 will not be available for
premium on Mortgage Loans originated on or prior to September 27, 1985. Premium
with respect to such Mortgage Loans may be deductible in accordance with a
reasonable method regularly employed by the holder thereof. The allocation of
such premium pro rata among principal payments should be considered a reasonable
method; however, the Internal Revenue Service may argue that such premium should
be allocated in a different manner, such as allocating such premium entirely to
the final payment of principal.
LIMITATIONS ON OFFSET OR EXEMPTION OF REMIC INCOME
Except in the case of certain thrift institutions, a portion (or all) of the
REMIC taxable income includible in determining the federal income tax liability
of a Residual Holder will be subject to special treatment. That portion,
referred to as the "excess inclusion," is equal to the excess of REMIC taxable
income for the calendar quarter allocable to a Residual Certificate over the
daily accruals for such quarterly period of (i) 120% of the long-term applicable
Federal rate that would have applied to the Residual Certificate (if it were a
debt instrument) on the Startup Day under Code Section 1274(d), multiplied by
(ii) the adjusted issue price of such Residual Certificate at the beginning of
such quarterly period. For this purpose, the adjusted issue price of a Residual
Certificate at the beginning of a quarter is the issue price of the Residual
Certificate, plus the amount of such daily accruals of REMIC income described in
this paragraph for all prior quarters, decreased by any distributions made with
respect to such Residual Certificate prior to the beginning of such quarterly
period. Accordingly, the portion of the REMIC Pool's taxable income that will be
treated as excess inclusions will be a larger portion of such income as the
adjusted issue price of the Residual Certificates diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions, including net
operating loss carryforwards, on such Residual Holder's return. Further, if the
Residual Holder is an organization subject to the tax on unrelated business
income imposed by Code Section 511, the Residual Holder's excess inclusions will
be treated as unrelated business taxable income of such Residual Holder for
purposes of Code Section 511. In addition, REMIC taxable income is subject to
30% withholding tax with respect to certain persons who are not U.S. Persons (as
defined below under "Tax-Related Restrictions on Transfer of Residual
Certificates -- Foreign Investors"), and the portion thereof attributable to
excess inclusions is not eligible for any reduction in the rate of withholding
tax (by treaty or otherwise). See "Taxation of Certain Foreign Investors --
Residual Certificates" below. Finally, if a real estate investment trust or a
regulated investment company owns a Residual Certificate, a portion (allocated
under Treasury
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regulations yet to be issued) of dividends paid by the real estate investment
trust or regulated investment company could not be offset by net operating
losses of its shareholders, would constitute unrelated business taxable income
for tax-exempt shareholders, and would be ineligible for reduction of
withholding to certain persons who are not U.S. Persons.
An exception to the inability of a Residual Holder to offset excess
inclusions with unrelated deductions and net operating losses applies to Code
Section 593 institutions ("thrift institutions"). For purposes of applying this
rule, all members of an affiliated group filing a consolidated return are
treated as one taxpayer, except that thrift institutions to which Code Section
593 applies, together with their subsidiaries formed to issue REMICs, are
treated as separate corporations. Furthermore, the Code provides that
regulations may disallow the ability of a thrift institution to use deductions
to offset excess inclusions if necessary or appropriate to prevent the avoidance
of tax. A thrift institution may not so offset its excess inclusions unless the
Residual Certificates have "significant value," which requires that (i) the
Residual Certificates have an issue price that is at least equal to 2% of the
aggregate of the issue prices of all Residual Certificates and Regular
Certificates with respect to the REMIC Pool, and (ii) the anticipated weighted
average life of the Residual Certificates is at least 20% of the anticipated
weighted average life of the REMIC Pool. The anticipated weighted average life
of the Residual Certificates is based on all distributions anticipated to be
received with respect thereto (using the Prepayment Assumption). The anticipated
weighted average life of the REMIC Pool is the aggregate weighted average life
of all classes of interests therein (computed using all anticipated
distributions on a regular interest with nominal or no principal). Finally, an
ordering rule under the REMIC Regulations provides that a thrift institution may
only offset its excess inclusion income with deductions after it has first
applied its deductions against income that is not excess inclusion income. If
applicable, the Prospectus Supplement with respect to a Series will set forth
whether the Residual Certificates are expected to have "significant value"
within the meaning of the REMIC Regulations.
TAX-RELATED RESTRICTIONS ON TRANSFER OF RESIDUAL CERTIFICATES
DISQUALIFIED ORGANIZATIONS. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
Federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such rate is applied to the anticipated excess inclusions
from the end of the remaining calendar quarters in which they arise to the date
of the transfer. Such a tax generally would be imposed on the transferor of the
Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee, or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit stating that the transferee is not a Disqualified Organization and, as
of the time of the transfer, the transferor does not have actual knowledge that
such affidavit is false. The tax also may be waived by the Internal Revenue
Service if the Disqualified Organization promptly disposes of the Residual
Certificate and the transferor pays income tax at the highest corporate rate on
the excess inclusion for the period the Residual Certificate is actually held by
the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such Disqualified
Organization, and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the
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Pass-Through Entity for the taxable year. The Pass-Through Entity would not be
liable for such tax if it has received an affidavit from such record holder that
it is not a Disqualified Organization or stating such holder's taxpayer
identification number and, during the period such person is the record holder of
the Residual Certificate, the Pass-Through Entity does not have actual knowledge
that such affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United States,
any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, and (ii) "Pass-Through
Entity" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations, any person holding an interest in a Pass-Through Entity as a
nominee for another will, with respect to such interest, be treated as a
Pass-Through Entity.
The Pooling and Servicing Agreement with respect to a Series will provide
that no legal or beneficial interest in a Residual Certificate may be
transferred or registered unless (i) the proposed transferee furnishes to the
Seller and the Trustee an affidavit providing its taxpayer identification number
and stating that such transferee is the beneficial owner of the Residual
Certificate and is not a Disqualified Organization and is not purchasing such
Residual Certificate on behalf of a Disqualified Organization (I.E., as a
broker, nominee or middleman thereof) and (ii) the transferor provides a
statement in writing to the Seller and the Trustee that it has no actual
knowledge that such affidavit is false. Moreover, the Pooling and Servicing
Agreement will provide that any attempted or purported transfer in violation of
these transfer restrictions will be null and void and will vest no rights in any
purported transferee. Each Residual Certificate with respect to a Series will
bear a legend referring to such restrictions on transfer, and each Residual
Holder will be deemed to have agreed, as a condition of ownership thereof, to
any amendments to the related Pooling and Servicing Agreement required under the
Code or applicable Treasury regulations to effectuate the foregoing
restrictions. Information necessary to compute an applicable excise tax must be
furnished to the Internal Revenue Service and to the requesting party within 60
days of the request, and the Seller or the Trustee may charge a fee for
computing and providing such information.
NONECONOMIC RESIDUAL INTERESTS. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Holder (other than a Residual Holder
who is not a U.S. Person, as defined below under "Foreign Investors") is
disregarded for all federal income tax purposes if a significant purpose of the
transferor is to impede the assessment or collection of tax. A residual interest
in a REMIC (including a residual interest with a positive value at issuance) is
a "noneconomic residual interest" unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest at
least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year in
which the transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes on each excess inclusion. The anticipated excess
inclusions and the present value rate are determined in the same manner as set
forth above under "Disqualified Organizations." The REMIC Regulations explain
that a significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or
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should have known that the transferee would be unwilling or unable to pay taxes
due on its share of the taxable income of the REMIC. A safe harbor is provided
if (i) the transferor conducted, at the time of the transfer, a reasonable
investigation of the financial condition of the transferee and found that the
transferee historically had paid its debts as they came due and found no
significant evidence to indicate that the transferee would not continue to pay
its debts as they came due in the future, and (ii) the transferee represents to
the transferor that it understands that, as the holder of the non-economic
residual interest, the transferee may incur tax liabilities in excess of any
cash flows generated by the interest and that the transferee intends to pay
taxes associated with holding the residual interest as they become due. The
Pooling and Servicing Agreement with respect to each Series of Certificates will
require the transferee of a Residual Certificate to certify to the matters in
the preceding sentence as part of the affidavit described above under the
heading "Disqualified Organizations."
FOREIGN INVESTORS. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC Pool at or after
the time at which the excess inclusions accrue and prior to the end of the next
succeeding taxable year for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Certificate back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The Prospectus Supplement relating to the Certificates of a Series may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust that
is subject to U.S. federal income tax regardless of the source of its income.
SALE OR EXCHANGE OF A RESIDUAL CERTIFICATE
Upon the sale or exchange of a Residual Certificate, the Residual Holder
will recognize gain or loss equal to the excess, if any, of the amount realized
over the adjusted basis (as described above under "Taxation of Residual
Certificates -- Basis and Losses") of such Residual Holder in such Residual
Certificate at the time of the sale or exchange. In addition to reporting the
taxable income of the REMIC Pool, a Residual Holder will have taxable income to
the extent that any cash distribution to it from the REMIC Pool exceeds such
adjusted basis on that Distribution Date. Such income will be treated as gain
from the sale or exchange of the Residual Certificate. It is possible that the
termination of the REMIC Pool may be treated as a sale or exchange of a Residual
Holder's Residual Certificate, in which case, if the Residual Holder has an
adjusted basis in its Residual Certificate remaining when its interest in the
REMIC Pool terminates, and if it holds such Residual Certificate as a capital
asset under Code Section 1221, then it will recognize a capital loss at that
time in the amount of such remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with
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respect to any prior disposition of property that was held as a part of such
transaction or (ii) in the case of a non-corporate taxpayer, to the extent such
taxpayer has made an election under Code Section 163(d)(4) to have net capital
gains taxed as investment income at ordinary income rates. In addition, gain or
loss recognized from the sale of a Residual Certificate by certain banks or
thrift institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any residual interest in
any REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC
owner trust) that is economically comparable to a Residual Certificate.
MARK TO MARKET REGULATIONS
Prospective purchasers of the Residual Certificates should be aware that on
January 3, 1995, the Internal Revenue Service released proposed regulations (the
"Proposed Mark to Market Regulations") under Code Section 475 relating to the
requirement that a securities dealer mark to market securities held for sale to
customers. This mark-to-market requirement applies to all securities of a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Proposed Mark to Market Regulations provide
that, for purposes of this mark-to-market requirement, a Residual Certificate is
not treated as a security and thus may not be marked to market. The Proposed
Mark to Market Regulations apply to all Residual Certificates acquired on or
after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
PROHIBITED TRANSACTIONS
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Holders, but rather will be taxed
directly to the REMIC Pool at a 100% rate. Prohibited transactions generally
include (i) the disposition of a qualified mortgage other than for (a)
substitution within two years of the Startup Day for a defective (including a
defaulted) obligation (or repurchase in lieu of substitution of a defective
(including a defaulted) obligation at any time) or for any qualified mortgage
within three months of the Startup Day, (b) foreclosure, default, or imminent
default of a qualified mortgage, (c) bankruptcy or insolvency of the REMIC Pool,
or (d) a qualified (complete) liquidation, (ii) the receipt of income from
assets that are not the type of mortgages or investments that the REMIC Pool is
permitted to hold, (iii) the receipt of compensation for services, or (iv) the
receipt of gain from disposition of cash flow investments other than pursuant to
a qualified liquidation. Notwithstanding (i) and (iv), it is not a prohibited
transaction to sell REMIC Pool property to prevent a default on Regular
Certificates as a result of a default on qualified mortgages or to facilitate a
clean-up call (generally, an optional termination to save administrative costs
when no more than a small percentage of the Certificates is outstanding). The
REMIC Regulations indicate that the modification of a Mortgage Loan generally
will not be treated as a disposition if it is occasioned by a default or
reasonably foreseeable default, an assumption of the Mortgage Loan, the waiver
of a due-on-sale or due-on-encumbrance clause, or the conversion of an interest
rate by a mortgagor pursuant to the terms of a convertible adjustable rate
Mortgage Loan.
CONTRIBUTIONS TO THE REMIC POOL AFTER THE STARTUP DAY
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during the
three months following the Startup Day, (ii) made to a qualified reserve fund by
a Residual Holder, (iii) in the nature of a guarantee, (iv) made to facilitate a
qualified liquidation or clean-up call, and (v) as otherwise permitted in
Treasury regulations yet to be issued. It is not anticipated that there will be
any contributions to the REMIC Pool after the Startup Day.
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NET INCOME FROM FORECLOSURE PROPERTY
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period of two years, with possible extensions. Net
income from foreclosure property generally means 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. It is not anticipated that the REMIC Pool will
have any taxable net income from foreclosure property.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC Pool's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC Pool will not be subject to the prohibited transaction
rules on the sale of its assets, provided that the REMIC Pool credits or
distributes in liquidation all of the sale proceeds plus its cash (other than
amounts retained to meet claims) to holders of Regular Certificates and Residual
Holders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes in
a manner similar to a partnership. The form for such income tax return is Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign the REMIC Pool's returns. Treasury regulations
provide that, except where there is a single Residual Holder for an entire
taxable year, the REMIC Pool will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination by the Internal Revenue Service of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit in a unified
administrative proceeding. The Master Servicer will be obligated to act as "tax
matters person," as defined in applicable Treasury regulations, with respect to
the REMIC Pool, in its capacity as either Residual Holder or agent of the
Residual Holders. If the Code or applicable Treasury regulations do not permit
the Master Servicer to act as tax matters person in its capacity as agent of the
Residual Holders, the Residual Holder chosen by the Residual Holders or such
other person specified pursuant to Treasury regulations will be required to act
as tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate, or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not exceed
2% of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $100,000 ($50,000 in the case of a married
individual filing a separate return) (subject to adjustment for inflation), or
(ii) 80% of the amount of itemized deductions otherwise allowable for such year.
In the case of a REMIC Pool, such deductions may include deductions under Code
Section 212 for the Servicing Fee and all administrative and other expenses
relating to the REMIC Pool, or any similar expenses allocated to the REMIC Pool
with respect to a regular interest it holds in another REMIC. Such investors who
hold REMIC Certificates either directly or indirectly through certain pass-
through entities may have their pro rata share of such expenses allocated to
them as additional gross income, but may be subject to such limitation on
deductions. In addition, such expenses are not deductible at all for purposes of
computing the alternative minimum tax, and may cause such investors to be
subject to significant additional tax liability. Temporary Treasury regulations
provide that the additional gross income and corresponding amount of expenses
generally are to be allocated entirely to the holders of Residual Certificates
in the case of a REMIC Pool that would not qualify as a
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fixed investment trust in the absence of a REMIC election. However, such
additional gross income and limitation on deductions will apply to the allocable
portion of such expenses to holders of Regular Certificates, as well as holders
of Residual Certificates, where such Regular Certificates are issued in a manner
that is similar to pass-through certificates in a fixed investment trust. Unless
indicated otherwise in the applicable Prospectus Supplement, all such expenses
will be allocable to the Residual Certificates. In general, such allocable
portion will be determined based on the ratio that a REMIC Certificateholder's
income, determined on a daily basis, bears to the income of all holders of
Regular Certificates and Residual Certificates with respect to a REMIC Pool. As
a result, individuals, estates or trusts holding REMIC Certificates (either
directly or indirectly through a grantor trust, partnership, S corporation,
REMIC, or certain other pass-through entities described in the foregoing
temporary Treasury regulations) may have taxable income in excess of the
interest income at the pass-through rate on Regular Certificates that are issued
in a single class or otherwise consistently with fixed investment trust status
or in excess of cash distributions for the related period on Residual
Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
REGULAR CERTIFICATES
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) and (ii) provides the
Trustee, or the person who would otherwise be required to withhold tax from such
distributions under Code Section 1441 or 1442, with an appropriate statement,
signed under penalties of perjury, identifying the beneficial owner and stating,
among other things, that the beneficial owner of the Regular Certificate is a
Non-U.S. Person. If such statement, or any other required statement, is not
provided, 30% withholding will apply unless reduced or eliminated pursuant to an
applicable tax treaty or unless the interest on the Regular Certificate is
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Person. In the latter case, such Non-U.S. Person will be
subject to United States federal income tax at regular rates. Investors who are
Non-U.S. Persons should consult their own tax advisors regarding the specific
tax consequences to them of owning a Regular Certificate. The term "Non-U.S.
Person" means any person who is not a U.S. Person.
RESIDUAL CERTIFICATES
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Holders who are Non-U.S. Persons generally should be treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Holders may qualify as "portfolio interest," subject to the conditions
described in "Regular Certificates" above, but only to the extent that (i) the
Mortgage Loans were issued after July 18, 1984 and (ii) the Trust Estate or
segregated pool of assets therein (as to which a separate REMIC election will be
made), to which the Residual Certificate relates, consists of obligations issued
in "registered form" within the meaning of Code Section 163(f)(1). Generally,
Mortgage Loans will not be, but regular interests in another REMIC Pool will be,
considered obligations issued in registered form. Furthermore, a Residual Holder
will not be entitled to any exemption from the 30% withholding tax (or lower
treaty rate) to the extent of that portion of REMIC taxable income that
constitutes an "excess inclusion." See "Taxation of Residual Certificates --
Limitations on Offset or Exemption of REMIC Income." If the amounts paid to
Residual Holders who are Non-U.S. Persons are effectively connected with the
conduct of a trade or business within the United States by such Non-U.S.
Persons, 30% (or lower treaty rate) withholding will not apply. Instead, the
amounts paid to such Non-U.S. Persons will be subject to United States federal
income tax at regular rates. If 30% (or lower treaty rate) withholding is
applicable, such amounts generally will be taken into account for purposes of
withholding only when paid or otherwise distributed (or when the Residual
Certificate is disposed of)
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under rules similar to withholding upon disposition of debt instruments that
have original issue discount. See "Tax-Related Restrictions on Transfer of
Residual Certificates -- Foreign Investors" above concerning the disregard of
certain transfers having "tax avoidance potential." Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning Residual Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable payments"
(including interest distributions, original issue discount, and, under certain
circumstances, principal distributions) unless the Regular Certificateholder
complies with certain reporting and/or certification procedures, including the
provision of its taxpayer identification number to the Trustee, its agent or the
broker who effected the sale of the Regular Certificate, or such
Certificateholder is otherwise an exempt recipient under applicable provisions
of the Code. Any amounts to be withheld from distribution on the Regular
Certificates would be refunded by the Internal Revenue Service or allowed as a
credit against the Regular Certificateholder's federal income tax liability.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of market discount will be made annually to the
Internal Revenue Service and to individuals, estates, non-exempt and
non-charitable trusts, and partnerships who are either holders of record of
Regular Certificates or beneficial owners who own Regular Certificates through a
broker or middleman as nominee. All brokers, nominees and all other non-exempt
holders of record of Regular Certificates (including corporations, non-calendar
year taxpayers, securities or commodities dealers, real estate investment
trusts, investment companies, common trust funds, thrift institutions and
charitable trusts) may request such information for any calendar quarter by
telephone or in writing by contacting the person designated in Internal Revenue
Service Publication 938 with respect to a particular Series of Regular
Certificates. Holders through nominees must request such information from the
nominee.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Holder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual Holders,
furnished annually, if applicable, to holders of Regular Certificates, and filed
annually with the Internal Revenue Service concerning Code Section 67 expenses
(see "Limitations on Deduction of Certain Expenses" above) allocable to such
holders. Furthermore, under such regulations, information must be furnished
quarterly to Residual Holders, furnished annually to holders of Regular
Certificates, and filed annually with the Internal Revenue Service concerning
the percentage of the REMIC Pool's assets meeting the qualified asset tests
described above under "Status of REMIC Certificates."
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO WHICH NO REMIC ELECTION
IS MADE
GENERAL
In the event that no election is made to treat a Trust Estate (or a
segregated pool of assets therein) with respect to a Series of Certificates as a
REMIC, the Trust Estate will be classified as a grantor trust under subpart E,
Part 1 of subchapter J of the Code and not as an association taxable as a
corporation or a "taxable mortgage pool" within the meaning of Code Section
7701(i). Where there is no Fixed Retained Yield with respect to the Mortgage
Loans underlying the Certificates of a Series, and where such Certificates are
not designated as "Stripped Certificates," the holder of each such
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Certificate in such Series will be treated as the owner of a pro rata undivided
interest in the ordinary income and corpus portions of the Trust Estate
represented by its Certificate and will be considered the beneficial owner of a
pro rata undivided interest in each of the Mortgage Loans, subject to the
discussion below under "Recharacterization of Servicing Fees." Accordingly, the
holder of a Certificate of a particular Series will be required to report on its
federal income tax return its pro rata share of the entire income from the
Mortgage Loans represented by its Certificate, including interest at the coupon
rate on such Mortgage Loans, original issue discount (if any), prepayment fees,
assumption fees, and late payment charges received by the Servicer, in
accordance with such Certificateholder's method of accounting. A
Certificateholder generally will be able to deduct its share of the Servicing
Fee and all administrative and other expenses of the Trust Estate in accordance
with its method of accounting, provided that such amounts are reasonable
compensation for services rendered to that Trust Estate. However, investors who
are individuals, estates or trusts who own Certificates, either directly or
indirectly through certain pass-through entities, will be subject to limitation
with respect to certain itemized deductions described in Code Section 67,
including deductions under Code Section 212 for the Servicing Fee and all such
administrative and other expenses of the Trust Estate, to the extent that such
deductions, in the aggregate, do not exceed two percent of an investor's
adjusted gross income. In addition, Code Section 68 provides that itemized
deductions otherwise allowable for a taxable year of an individual taxpayer will
be reduced by the lesser of (i) 3% of the excess, if any, of adjusted gross
income over $100,000 ($50,000 in the case of a married individual filing a
separate return) (in each case, as adjusted for inflation), or (ii) 80% of the
amount of itemized deductions otherwise allowable for such year. As a result,
such investors holding Certificates, directly or indirectly through a
pass-through entity, may have aggregate taxable income in excess of the
aggregate amount of cash received on such Certificates with respect to interest
at the pass-through rate or as discount income on such Certificates. In
addition, such expenses are not deductible at all for purposes of computing the
alternative minimum tax, and may cause such investors to be subject to
significant additional tax liability. Moreover, where there is Fixed Retained
Yield with respect to the Mortgage Loans underlying a Series of Certificates or
where the servicing fees are in excess of reasonable servicing compensation, the
transaction will be subject to the application of the "stripped bond" and
"stripped coupon" rules of the Code, as described below under "Stripped
Certificates" and "Recharacterization of Servicing Fees," respectively.
TAX STATUS
Cadwalader, Wickersham & Taft has advised the Seller that, except as
described below with respect to Stripped Certificates:
1. A Certificate owned by a "domestic building and loan association"
within the meaning of Code Section 7701(a)(19) will be considered to
represent "loans...secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v), provided that the real property
securing the Mortgage Loans represented by that Certificate is of the type
described in such section of the Code.
2. A Certificate owned by a financial institution described in Code
Section 593(a) will be considered to represent "qualifying real
property loans" within the meaning of Code Section 593(d)(1), provided that
the real property securing the Mortgage Loans represented by that
Certificate is of the type described in such section of the Code.
3. A Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of
Code Section 856(c)(5)(A) to the extent that the assets of the related Trust
Estate consist of qualified assets, and interest income on such assets will
be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
4. A Certificate owned by a REMIC will be considered to represent an
"obligation (including any participation or certificate of beneficial
ownership therein) which is principally secured by
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an interest in real property" within the meaning of Code Section
860G(a)(3)(A) to the extent that the assets of the related Trust Estate
consist of "qualified mortgages" within the meaning of Code Section
860G(a)(3).
An issue arises as to whether Buy-Down Loans may be characterized in their
entirety under the Code provisions cited in clauses 1, 2 and 3 of the
immediately preceding paragraph. Code Section 593(d)(1)(C) provides that the
term "qualifying real property loan" does not include a loan "to the extent
secured by a deposit in or share of the taxpayer." The application of this
provision to a Buy-Down Fund is uncertain, but may require that a taxpayer's
investment in a Buy-Down Loan be reduced by the Buy-Down Fund. As to the
treatment of Buy-Down Loans as "qualifying real property loans" under Code
Section 593(d)(1) if the exception of Code Section 593(d)(1)(C) is inapplicable,
as "loans...secured by an interest in real property" under Code Section
7701(a)(19)(C)(v) or as "real estate assets" under Code Section 856(c)(5)(A),
there is indirect authority supporting treatment of an investment in a Buy-Down
Loan as entirely secured by real property if the fair market value of the real
property securing the loan exceeds the principal amount of the loan at the time
of issuance or acquisition, as the case may be. There is no assurance that the
treatment described above is proper. Accordingly, Certificateholders are urged
to consult their own tax advisors concerning the effects of such arrangements on
the characterization of such Certificateholder's investment for federal income
tax purposes.
PREMIUM AND DISCOUNT
Certificateholders are advised to consult with their tax advisors as to the
federal income tax treatment of premium and discount arising either upon initial
acquisition of Certificates or thereafter.
PREMIUM. The treatment of premium incurred upon the purchase of a
Certificate will be determined generally as described above under "Federal
Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Premium."
ORIGINAL ISSUE DISCOUNT. The original issue discount rules of Code Sections
1271 through 1275 will be applicable to a Certificateholder's interest in those
Mortgage Loans as to which the conditions for the application of those sections
are met. Rules regarding periodic inclusion of original issue discount income
are applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984. Under
the OID Regulations, such original issue discount could arise by the charging of
points by the originator of the mortgages in an amount greater than the
statutory DE MINIMIS exception, including a payment of points that is currently
deductible by the borrower under applicable Code provisions or, under certain
circumstances, by the presence of "teaser" rates on the Mortgage Loans. See "--
Stripped Certificates" below regarding original issue discount on Stripped
Certificates.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation that acquires the
obligation after its initial issuance at a price greater than the sum of the
original issue price and the previously accrued original issue discount, less
prior payments of principal. Accordingly, if such Mortgage Loans acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Loans, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Loans (I.E., points) will be includible by such holder.
MARKET DISCOUNT. Certificateholders also will be subject to the market
discount rules to the extent that the conditions for application of those
sections are met. Market discount on the Mortgage Loans will be determined and
will be reported as ordinary income generally in the manner described
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above under "Federal Income Tax Consequences for REMIC Certificates -- Taxation
of Regular Certificates -- Market Discount," except that the ratable accrual
methods described therein will not apply. Rather, the holder will accrue market
discount pro rata over the life of the Mortgage Loans, unless the constant yield
method is elected. Unless indicated otherwise in the applicable Prospectus
Supplement, no prepayment assumption will be assumed for purposes of such
accrual.
RECHARACTERIZATION OF SERVICING FEES
If the servicing fees paid to a Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would represent neither income
nor a deduction to Certificateholders. In this regard, there are no
authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether, in the case of the
Certificate, the reasonableness of servicing compensation should be determined
on a weighted average or loan-by-loan basis. If a loan-by-loan basis is
appropriate, the likelihood that such amount would exceed reasonable servicing
compensation as to some of the Mortgage Loans would be increased. Recently
issued Internal Revenue Service guidance indicates that a servicing fee in
excess of reasonable compensation ("excess servicing") will cause the Mortgage
Loans to be treated under the "stripped bond" rules. Such guidance provides safe
harbors for servicing deemed to be reasonable and requires taxpayers to
demonstrate that the value of servicing fees in excess of such amounts is not
greater than the value of the services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a
Servicer who receives a servicing fee in excess of such amounts would be viewed
as retaining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from the right to receive some or all of the principal payments on
the obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds." Subject to the DE MINIMIS rule discussed below
under "-- Stripped Certificates," each stripped bond or stripped coupon could be
considered for this purpose as a non-interest bearing obligation issued on the
date of issue of the Certificates, and the original issue discount rules of the
Code would apply to the holder thereof. While Certificateholders would still be
treated as owners of beneficial interests in a grantor trust for federal income
tax purposes, the corpus of such trust could be viewed as excluding the portion
of the Mortgage Loans the ownership of which is attributed to the Servicer, or
as including such portion as a second class of equitable interest. Applicable
Treasury regulations treat such an arrangement as a fixed investment trust,
since the multiple classes of trust interests should be treated as merely
facilitating direct investments in the trust assets and the existence of
multiple classes of ownership interests is incidental to that purpose. In
general, such a recharacterization should not have any significant effect upon
the timing or amount of income reported by a Certificateholder, except that the
income reported by a cash method holder may be slightly accelerated. See
"Stripped Certificates" below for a further description of the federal income
tax treatment of stripped bonds and stripped coupons.
SALE OR EXCHANGE OF CERTIFICATES
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale and
its aggregate adjusted basis in the Mortgage Loans and other assets represented
by the Certificate. In general, the aggregate adjusted basis will equal the
Certificateholder's cost for the Certificate, increased by the amount of any
income previously reported with respect to the Certificate and decreased by the
amount of any losses previously reported with respect to the Certificate and the
amount of any distributions received thereon. Except as provided above with
respect to market discount on any Mortgage Loans, and except for certain
financial institutions subject to the provisions of Code Section 582(c), any
such gain or loss generally would be capital gain or loss if the Certificate was
held as a capital asset. However, gain on the sale of a Certificate will be
treated as ordinary income (i) if a Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Certificateholder's net investment in the
conversion transaction at 120% of the appropriate
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applicable Federal rate in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as a part of such transaction
or (ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. Pursuant to the Revenue
Reconciliation Act of 1993 capital gains of certain noncorporate taxpayers are
subject to a lower maximum tax rate than ordinary income of such taxpayers. The
maximum tax rate for corporations is the same with respect to both ordinary
income and capital gains.
STRIPPED CERTIFICATES
GENERAL
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership of
the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates." The Certificates will be subject to those rules if (i) the Seller
or any of its affiliates retains (for its own account or for purposes of
resale), in the form of Fixed Retained Yield or otherwise, an ownership interest
in a portion of the payments on the Mortgage Loans, (ii) the Seller or any of
its affiliates is treated as having an ownership interest in the Mortgage Loans
to the extent it is paid (or retains) servicing compensation in an amount
greater than reasonable consideration for servicing the Mortgage Loans (see
"Certificates -- Recharacterization of Servicing Fees" above), and (iii) a Class
of Certificates are issued in two or more Classes or Subclasses representing the
right to non-pro-rata percentages of the interest and principal payments on the
Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with respect
to its pro rata share of all or a portion of the interest payments on each
Mortgage Loan, including the Stripped Certificate's allocable share of the
servicing fees paid to a Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See the discussion above under
"Certificates -- Recharacterization of Servicing Fees." Although not free from
doubt, for purposes of reporting to Stripped Certificateholders, the servicing
fees will be allocated to the Stripped Certificates in proportion to the
respective entitlements to distributions of each Class (or Subclass) of Stripped
Certificates for the related period or periods. The holder of a Stripped
Certificate generally will be entitled to a deduction each year in respect of
the servicing fees, as described above under "Certificates -- General," subject
to the limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally as
an obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped Certificates
for federal income tax purposes is not clear in certain respects at this time,
particularly where such Stripped Certificates are issued with respect to a
Mortgage Pool containing variable-rate Mortgage Loans, the Seller has been
advised by counsel that (i) the Trust Estate will be treated as a grantor trust
under subpart E, Part I of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of Code
Section 7701(i), and (ii) each Stripped Certificate should be treated as a
single installment obligation for purposes of calculating original issue
discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and the
OID Regulations. Although it is possible that computations with respect to
Stripped Certificates could be made in one of the ways described below under
"Taxation of Stripped Certificates -- Possible Alternative Characterizations,"
the OID Regulations state, in general, that two or more debt instruments issued
by a single issuer to a single investor in a single transaction should be
treated as a single debt instrument. Accordingly, for OID purposes, all payments
on any Stripped Certificates should be
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aggregated and treated as though they were made on a single debt instrument. The
Pooling and Servicing Agreement will require that the Trustee make and report
all computations described below using this aggregate approach, unless
substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount. In
addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as issued
with original issue discount or market discount (as described below), at a DE
MINIMIS original issue discount, or, presumably, at a premium. This treatment
indicates that the interest component of such a Stripped Certificate would be
treated as qualified stated interest under the OID Regulations. Further, these
final regulations provide that the purchaser of such a Stripped Certificate will
be required to account for any discount as market discount rather than original
issue discount if either (i) the initial discount with respect to the Stripped
Certificate was treated as zero under the DE MINIMIS rule, or (ii) no more than
100 basis points in excess of reasonable servicing is stripped off the related
Mortgage Loans. Any such market discount would be reportable as described above
under "Federal Income Tax Consequences for REMIC Certificates -- Taxation of
Regular Certificates -- Market Discount," without regard to the DE MINIMIS rule
therein, assuming that a prepayment assumption is employed in such computation.
STATUS OF STRIPPED CERTIFICATES
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as that
of the Mortgage Loans. Although the issue is not free from doubt, counsel has
advised the Seller that Stripped Certificates owned by applicable holders should
be considered to represent "qualifying real property loans" within the meaning
of Code Section 593(d)(1), "real estate assets" within the meaning of Code
Section 856(c)(5)(A), "obligation[s]...principally secured by an interest in
real property" within the meaning of Code Section 860G(a)(3)(A), and
"loans...secured by an interest in real property" within the meaning of Code
Section 7701(a)(19)(C)(v), and interest (including original issue discount)
income attributable to Stripped Certificates should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), provided that in each case the Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment. The
application of such Code provisions to Buy-Down Loans is uncertain. See
"Certificates -- Tax Status" above.
TAXATION OF STRIPPED CERTIFICATES
ORIGINAL ISSUE DISCOUNT. Except as described above under "General," each
Stripped Certificate will be considered to have been issued at an original issue
discount for federal income tax purposes. Original issue discount with respect
to a Stripped Certificate must be included in ordinary income as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the 1986
Act, the amount of original issue discount required to be included in the income
of a holder of a Stripped Certificate (referred to in this discussion as a
"Stripped Certificateholder") in any taxable year likely will be computed
generally as described above under "Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Regular Certificates -- Original Issue Discount" and
"-- Variable Rate Regular Certificates." However, with the apparent exception of
a Stripped Certificate issued with DE MINIMIS original issue discount as
described above under "General," the issue price of a Stripped Certificate will
be the purchase price paid by each holder thereof, and the stated redemption
price at maturity will include the aggregate amount of the payments to be made
on the Stripped Certificate to such Stripped Certificateholder, presumably under
the Prepayment Assumption.
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If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the amount
of such original issue discount will be either increased or decreased depending
on the relative interests in principal and interest on each Mortgage Loan
represented by such Stripped Certificateholder's Stripped Certificate. While the
matter is not free from doubt, the holder of a Stripped Certificate should be
entitled in the year that it becomes certain (assuming no further prepayments)
that the holder will not recover a portion of its adjusted basis in such
Stripped Certificate to recognize a loss (which may be a capital loss) equal to
such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations and the Proposed OID Regulations. The Proposed OID Regulations, as
they relate to the treatment of contingent interest, are by their terms not
applicable to prepayable securities such as the Stripped Certificates. However,
if final regulations dealing with contingent interest with respect to the
Stripped Certificates apply the same principles as the Proposed OID Regulations,
such regulations may lead to different timing of income inclusion than would be
the case under the OID Regulations. Furthermore, application of such principles
could lead to the characterization of gain on the sale of contingent interest
Stripped Certificates as ordinary income. Investors should consult their tax
advisors regarding the appropriate tax treatment of Stripped Certificates.
SALE OR EXCHANGE OF STRIPPED CERTIFICATES. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Federal Income Tax Consequences for REMIC Certificates -- Taxation
of Regular Certificates -- Sale or Exchange of Regular Certificates." To the
extent that a subsequent purchaser's purchase price is exceeded by the remaining
payments on the Stripped Certificates, such subsequent purchaser will be
required for federal income tax purposes to accrue and report such excess as if
it were original issue discount in the manner described above. It is not clear
for this purpose whether the assumed prepayment rate that is to be used in the
case of a Stripped Certificateholder other than an original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on the
circumstances at the date of subsequent purchase.
PURCHASE OF MORE THAN ONE CLASS OF STRIPPED CERTIFICATES. When an investor
purchases more than one Class of Stripped Certificates, it is currently unclear
whether for federal income tax purposes such Classes of Stripped Certificates
should be treated separately or aggregated for purposes of the rules described
above.
POSSIBLE ALTERNATIVE CHARACTERIZATIONS. The characterizations of the
Stripped Certificates discussed above are not the only possible interpretations
of the applicable Code provisions. For example, the Stripped Certificateholder
may be treated as the owner of (i) one installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to principal
on each Mortgage Loan and a second installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to interest
on each Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there
are scheduled payments of principal and/or interest on each Mortgage Loan, or
(iii) a separate installment obligation for each Mortgage Loan, representing the
Stripped Certificate's pro rata share of payments of principal and/or interest
to be made with respect thereto. Alternatively, the holder of one or more
Classes of Stripped Certificates may be treated as the owner of a pro rata
fractional undivided interest in each Mortgage Loan to the extent that such
Stripped Certificate, or Classes of Stripped Certificates in the aggregate,
represent the same pro rata portion of principal and interest on each such
Mortgage Loan, and a stripped bond or stripped coupon (as the case may be),
treated as an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to
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those regulations states that they are premised on the assumption that an
aggregation approach is appropriate for determining whether original issue
discount on a stripped bond or stripped coupon is DE MINIMIS, and solicits
comments on appropriate rules for aggregating stripped bonds and stripped
coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped Certificates
and the resultant differing treatment of income recognition, Stripped
Certificateholders are urged to consult their own tax advisors regarding the
proper treatment of Stripped Certificates for federal income tax purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Master Servicer will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as is necessary to enable such Certificateholders to prepare their
federal income tax returns. Such information will include the amount of original
issue discount accrued on Certificates held by persons other than
Certificateholders exempted from the reporting requirements. The amount required
to be reported by the Master Servicer may not be equal to the proper amount of
original issue discount required to be reported as taxable income by a
Certificateholder, other than an original Certificateholder that purchased at
the issue price. In particular, in the case of Stripped Certificates, unless
provided otherwise in the applicable Prospectus Supplement, such reporting will
be based upon a representative initial offering price of each Class of Stripped
Certificates. The Master Servicer will also file such original issue discount
information with the Internal Revenue Service. If a Certificateholder fails to
supply an accurate taxpayer identification number or if the Secretary of the
Treasury determines that a Certificateholder has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "Federal Income Tax Consequences for REMIC Certificates --
Backup Withholding."
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans that
are issued on or before July 18, 1984, interest or original issue discount paid
by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other non-U.S. persons ("foreign
persons") generally will be subject to 30% United States withholding tax, or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued original issue discount recognized by the Certificateholder on the sale
or exchange of such a Certificate also will be subject to federal income tax at
the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a foreign person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements, described above under "Federal
Income Tax Consequences for REMIC Certificates -- Taxation of Certain Foreign
Investors -- Regular Certificates."
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on those employee benefit plans to which it applies
("Plans") and on those persons who are fiduciaries with respect to such Plans.
The following is a general discussion of such requirements, and certain
applicable exceptions to and administrative exemptions from such requirements.
For purposes of this discussion, a person investing on behalf of an individual
retirement account established under Code Section 408 (an "IRA") is regarded as
a fiduciary and the IRA as a Plan.
Before purchasing any Certificates, a Plan fiduciary should consult with its
counsel and determine whether there exists any prohibition to such purchase
under the requirements of ERISA,
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whether prohibited transaction exemptions such as PTE 83-1 or any individual
administrative exemption (as described below) applies, including whether the
appropriate conditions set forth therein would be met, or whether any statutory
prohibited transaction exemption is applicable, and further should consult the
applicable Prospectus Supplement relating to such Series of Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
GENERAL. In accordance with ERISA's general fiduciary standards, before
investing in a Certificate a Plan fiduciary should determine whether to do so is
permitted under the governing Plan instruments and is appropriate for the Plan
in view of its overall investment policy and the composition and diversification
of its portfolio. A Plan fiduciary should especially consider the ERISA
requirement of investment prudence and the sensitivity of the return on the
Certificates to the rate of principal repayments (including prepayments) on the
Mortgage Loans, as discussed in "Prepayment and Yield Considerations" herein.
PARTIES IN INTEREST/DISQUALIFIED PERSONS. Other provisions of ERISA (and
corresponding provisions of the Code) prohibit certain transactions involving
the assets of a Plan and persons who have certain specified relationships to the
Plan (so-called "parties in interest" within the meaning of ERISA or
"disqualified persons" within the meaning of the Code). The Seller, the Master
Servicer or Master Servicer or the Trustee or certain affiliates thereof might
be considered or might become "parties in interest" or "disqualified persons"
with respect to a Plan. If so, the acquisition or holding of Certificates by or
on behalf of such Plan could be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and the Code unless an administrative
exemption described below or some other exemption is available.
Special caution should be exercised before the assets of a Plan (including
assets that may be held in an insurance company's separate or general accounts
where assets in such accounts may be deemed Plan assets for purposes of ERISA)
are used to purchase a Certificate if, with respect to such assets, the Seller,
the Master Servicer or Master Servicer or the Trustee or an affiliate thereof
either: (a) has investment discretion with respect to the investment of such
assets of such Plan; or (b) has authority or responsibility to give, or
regularly gives, investment advice with respect to such assets for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such assets and that such
advice will be based on the particular investment needs of the Plan.
DELEGATION OF FIDUCIARY DUTY. Further, if the assets included in a Trust
Estate were deemed to constitute Plan assets, it is possible that a Plan's
investment in the Certificates might be deemed to constitute a delegation, under
ERISA, of the duty to manage Plan assets by the fiduciary deciding to invest in
the Certificates, and certain transactions involved in the operation of the
Trust Estate might be deemed to constitute prohibited transactions under ERISA
and the Code. Neither ERISA nor the Code define the term "plan assets."
The U.S. Department of Labor (the "Department") has issued regulations (the
"Regulations") concerning 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
Estate) for purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA, as well as for the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an "equity interest"
(such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the Certificates
instead of being deemed to include an interest in the assets of a Trust Estate.
However, it cannot be predicted in advance nor can there be any continuing
assurance whether such exceptions may be met, because of the factual nature of
certain of the rules set forth in the Regulations. For example, one of the
exceptions in the Regulations states that the underlying assets of an entity
will not be considered "plan assets" if less than 25% of the value of all
classes of equity interests are held by "benefit plan investors," which are
defined as Plans, IRAs,
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and employee benefit plans not subject to ERISA (for example, governmental
plans), but this exception is tested immediately after each acquisition of an
equity interest in the entity whether upon initial issuance or in the secondary
market.
ADMINISTRATIVE EXEMPTIONS
INDIVIDUAL ADMINISTRATIVE EXEMPTIONS. Several underwriters of
mortgage-backed securities have applied for and obtained ERISA prohibited
transaction exemptions (each, an "Underwriter's Exemption") which are in some
respects broader than Prohibited Transaction Class Exemption 83-1 (described
below). Such exemptions can only apply to mortgage-backed securities which,
among other conditions, are sold in an offering with respect to which such
underwriter serves as the sole or a managing underwriter, or as a selling or
placement agent. If such an Underwriter's Exemption might be applicable to a
Series of Certificates, the applicable Prospectus Supplement will refer to such
possibility.
Among the conditions that must be satisfied for an Underwriter's Exemption
to apply are the following:
(1) The acquisition of Certificates by a Plan is on terms (including the
price for the Certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated
party;
(2) The rights and interests evidenced by Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by
other Certificates of the Trust Estate;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic
rating categories from either Standard & Poor's ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch
Investors Service, L.P. ("Fitch");
(4) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to and retained by the underwriter in
connection with the distribution of Certificates represents not more
than reasonable compensation for underwriting the Certificates. The sum of
all payments made to and retained by the Seller pursuant to the assignment
of the Mortgage Loans to the Trust Estate represents not more than the fair
market value of such Mortgage Loans. The sum of all payments made to and
retained by the Servicer (and any other servicer) represents not more than
reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses
in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
The Trust Estate must also meet the following requirements:
(i)
the assets of the Trust Estate must consist solely of assets of
the type that have been included in other investment pools in the
marketplace;
(ii)
certificates in such other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's,
Fitch or DCR for at least one year prior to the Plan's acquisition of the
Certificates; and
(iii)
certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of the Certificates.
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If the conditions to an Underwriter's Exemption are met, whether or not a
Plan's assets would be deemed to include an ownership interest in the Mortgage
Loans in a mortgage pool, the acquisition, holding and resale of the
Certificates by Plans would be exempt from the prohibited transaction provisions
of ERISA and the Code.
Moreover, an Underwriter's Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire Certificates in a Trust Estate in which
the fiduciary (or its affiliate) is an obligor on the Mortgage Loans held in the
Trust Estate provided that, among other requirements: (i) in the case of an
acquisition in connection with the initial issuance of Certificates, at least
fifty percent of each class of Certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the Trust Estate is acquired by persons
independent of the Restricted Group (as defined below); (ii) such fiduciary (or
its affiliate) is an obligor with respect to five percent or less of the fair
market value of the Mortgage Loans contained in the Trust Estate; (iii) the
Plan's investment in Certificates of any Class does not exceed twenty-five
percent of all of the Certificates of that Class outstanding at the time of the
acquisition and (iv) immediately after the acquisition no more than twenty-five
percent of the assets of the Plan with respect to which such person is a
fiduciary are invested in Certificates representing an interest in one or more
trusts containing assets sold or served by the same entity.
An Underwriter's Exemption does not apply to Plans sponsored by the Seller,
the underwriter specified in the applicable Prospectus Supplement, the Master
Servicer, the Trustee, the Servicer, any obligor with respect to Mortgage Loans
included in the Trust Estate constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust Estate, or
any affiliate of such parties (the "Restricted Group").
PTE 83-1. Prohibited Transaction Class Exemption 83-1 for Certain
Transactions Involving Mortgage Pool Investment Trusts ("PTE 83-1") permits
certain transactions involving the creation, maintenance and termination of
certain residential mortgage pools and the acquisition and holding of certain
residential mortgage pool pass-through certificates by Plans, whether or not the
Plan's assets would be deemed to include an ownership interest in the mortgages
in such mortgage pools, and whether or not such transactions would otherwise be
prohibited under ERISA.
The term "mortgage pool pass-through certificate" is defined in PTE 83-1 as
"a certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such a certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any fees
retained by the pool sponsor." It appears that, for purposes of PTE 83-1, the
term "mortgage pool pass-through certificate" would include Certificates issued
in a single Class or in multiple Classes that evidence the beneficial ownership
of both a specified percentage of future interest payments (after permitted
deductions) and a specified percentage of future principal payments on a Trust
Estate.
However, it appears that PTE 83-1 does or might not apply to the purchase
and holding of (a) Certificates that evidence the beneficial ownership only of a
specified percentage of future interest payments (after permitted deductions) on
a Trust Estate or only of a specified percentage of future principal payments on
a Trust Estate, (b) Residual Certificates, (c) Certificates evidencing ownership
interests in a Trust Estate which includes Mortgage Loans secured by multifamily
residential properties or shares issued by cooperative housing corporations, or
(d) Certificates which are subordinated to other Classes of Certificates of such
Series. Accordingly, unless exemptive relief other than PTE 83-1 applies, Plans
should not purchase any such Certificates.
PTE 83-1 sets forth "general conditions" and "specific conditions" to its
applicability. Section II of PTE 83-1 sets forth the following general
conditions to the application of the exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans or the property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments;
(ii) the existence of a pool
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trustee who is not an affiliate of the pool sponsor; and (iii) a requirement
that the sum of all payments made to and retained by the pool sponsor, and all
funds inuring to the benefit of the pool sponsor as a result of the
administration of the mortgage pool, must represent not more than adequate
consideration for selling the mortgage loans plus reasonable compensation for
services provided by the pool sponsor to the pool. The system of insurance or
protection referred to in clause (i) above must provide such protection and
indemnification up to an amount not less than the greater of one percent of the
aggregate unpaid principal balance of the pooled mortgages or the unpaid
principal balance of the largest mortgage in the pool. It should be noted that
in promulgating PTE 83-1 (and a predecessor exemption), the Department did not
have under its consideration interests in pools of the exact nature as some of
the Certificates described herein.
EXEMPT PLANS
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA), and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements and assets of such plans may be invested
in Certificates without regard to the ERISA considerations described above but
such plans may be subject to the provisions of other applicable federal and
state law.
UNRELATED BUSINESS TAXABLE INCOME -- RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code Section
501(a), including most varieties of ERISA Plans, may give rise to "unrelated
business taxable income" as described in Code Sections 511-515 and 860E.
Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a "Disqualified
Organization," which term as defined above includes certain tax-exempt entities
not subject to Code Section 511 such as certain governmental plans, as discussed
above under the caption "Certain Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Tax-Related Restrictions on Transfer of Residual Certificates --
Disqualified Organizations."
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES IMPOSED UPON PERSONS
INVOLVED IN PROHIBITED TRANSACTIONS, IT IS PARTICULARLY IMPORTANT THAT POTENTIAL
INVESTORS WHO ARE PLAN FIDUCIARIES CONSULT WITH THEIR COUNSEL REGARDING THE
CONSEQUENCES UNDER ERISA OF THEIR ACQUISITION AND OWNERSHIP OF CERTIFICATES.
THE SALE OF CERTIFICATES TO A PLAN IS IN NO RESPECT A REPRESENTATION BY THE
SELLER OR THE APPLICABLE UNDERWRITER THAT THIS INVESTMENT MEETS ALL RELEVANT
LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY
PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR
ANY PARTICULAR PLAN.
LEGAL INVESTMENT
As will be specified in the applicable Prospectus Supplement, certain
Classes of Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so
long as they are rated in one of the two highest rating categories by at least
one Rating Agency. As "mortgage related securities" such Classes will constitute
legal investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including but not limited to
state-chartered savings banks, commercial banks, savings and loan associations
and insurance companies, as well as trustees and state government employee
retirement systems) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities. Pursuant to SMMEA, a number of
states enacted legislation, on or before the October 3, 1991 cut-off for such
enactments, limiting to varying extents the ability of certain entities (in
particular, SMMEA insurance companies) to invest in mortgage related securities,
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in most cases by requiring the affected investors to rely solely upon existing
state law, and not SMMEA. Accordingly, the investors affected by such
legislation will be authorized to invest in the Certificates only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in mortgage related
securities, and national banks may purchase mortgage related securities for
their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. Section 24 (Seventh), subject in
each case to such regulations as the applicable federal regulatory authority may
prescribe. In this connection, federal credit unions should review National
Credit Union Administration ("NCUA") Letter to Credit Unions No. 96, as modified
by Letter to Credit Unions No. 108, which includes guidelines to assist federal
credit unions in making investment decisions for mortgage related securities.
The NCUA has adopted rules, codified as 12 C.F.R. Section 703.5(f)-(k), which
prohibit federal credit unions from investing in certain mortgage related
securities (such as the Residual Certificates and the Stripped Certificates),
except under limited circumstances.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of the
Federal Financial Institutions Examination Council. The Policy Statement, which
has been adopted by the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Comptroller of the Currency and the
Office of Thrift Supervision and by the NCUA (with certain modifications),
prohibits depository institutions from investing in certain "high-risk mortgage
securities" (including securities such as certain Series and Classes of the
Certificates), except under limited circumstances, and sets forth certain
investment practices deemed to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any of the
Certificates, as certain Series or Classes (in particular, Certificates which
are entitled solely or disproportionately to distributions of principal or
interest) may be deemed unsuitable investments, or may otherwise be restricted,
under such rules, policies or guidelines (in certain instances irrespective of
SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not
"interest-bearing" or "income-paying," and, with regard to any Certificates
issued in book-entry form, provisions which may restrict or prohibit investments
in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper characterization
of the Certificates for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Certificates) may adversely affect the liquidity of the
Certificates.
All investors should consult with their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
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PLAN OF DISTRIBUTION
The Certificates are being offered hereby in Series through one or more of
the methods described below. The applicable Prospectus Supplement for each
Series will describe the method of offering being utilized for that Series and
will state the public offering or purchase price of each Class of Certificates
of such Series, or the method by which such price is to be determined, and the
net proceeds to the Seller from such sale.
The Certificates will be offered through the following methods from time to
time and offerings may be made concurrently through more than one of these
methods or an offering of a particular Series of Certificates may be made
through a combination of two or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters specified in the applicable Prospectus Supplement;
2. By placements by the Seller with investors through dealers; and
3. By direct placements by the Seller with investors.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Firm
commitment underwriting and public reoffering by underwriters may be done
through underwriting syndicates or through one or more firms acting alone. The
specific managing underwriter or underwriters, if any, with respect to the offer
and sale of a particular Series of Certificates will be set forth on the cover
of the Prospectus Supplement applicable to such Series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement. The
Prospectus Supplement will describe any discounts and commissions to be allowed
or paid by the Seller to the underwriters, any other items constituting
underwriting compensation and any discounts and commissions to be allowed or
paid to the dealers. The obligations of the underwriters will be subject to
certain conditions precedent. The underwriters with respect to a sale of any
Class of Certificates will be obligated to purchase all such Certificates if any
are purchased. The Seller, and, if specified in the applicable Prospectus
Supplement, Norwest Mortgage, will indemnify the applicable underwriters against
certain civil liabilities, including liabilities under the Securities Act.
The Prospectus Supplement with respect to any Series of Certificates offered
other than through underwriters will contain information regarding the nature of
such offering and any agreements to be entered into between the Seller and
dealers and/or the Seller and purchasers of Certificates of such Series.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller or any affiliate thereof may purchase some or all of
one or more Classes of Certificates of such Series from the underwriter or
underwriters at a price specified or described in such Prospectus Supplement.
Such purchaser may thereafter from time to time offer and sell, pursuant to this
Prospectus, some or all of such Certificates so purchased directly, through one
or more underwriters to be designated at the time of the offering of such
Certificates or through dealers acting as agent and/or principal. Such offering
may be restricted in the matter specified in such Prospectus Supplement. Such
transactions may be effected at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices. The underwriters and dealers participating
in such purchaser's offering of such Certificates may receive compensation in
the form of underwriting discounts or commissions from such purchaser and such
dealers may receive commissions from the investors purchasing such Certificates
for whom they may
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act as agent (which discounts or commissions will not exceed those customary in
those types of transactions involved). Any dealer that participates in the
distribution of such Certificates may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any commissions and discounts received by
such dealer and any profit on the resale of such Certificates by such dealer
might be deemed to be underwriting discounts and commissions under the
Securities Act.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates will be used
by the Seller for the purchase of the Mortgage Loans represented by the
Certificates of such Series from Norwest Mortgage. It is expected that Norwest
Mortgage will use the proceeds from the sale of the Mortgage Loans to the Seller
for its general business purposes, including, without limitation, the
origination or acquisition of new mortgage loans and the repayment of borrowings
incurred to finance the origination or acquisition of mortgage loans, including
the Mortgage Loans underlying the Certificates of such Series.
LEGAL MATTERS
Certain legal matters, including the federal income tax consequences to
Certificateholders of an investment in the Certificates of a Series, will be
passed upon for the Seller by Cadwalader, Wickersham & Taft, New York.
RATING
It is a condition to the issuance of the Certificates of any Series offered
pursuant to this Prospectus and a Prospectus Supplement that they be rated in
one of the four highest categories by at least one Rating Agency.
A securities 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. Each securities rating should be evaluated independently of any other
rating.
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INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
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<S> <C>
Accrual Certificates..................................................................................... 35
Advances................................................................................................. 46
ALTA..................................................................................................... 25
Balloon Loan............................................................................................. 18
Balloon Period........................................................................................... 18
Bankruptcy Code.......................................................................................... 62
Bankruptcy Loss.......................................................................................... 36
Beneficial Owner......................................................................................... 32
Book-Entry Certificates.................................................................................. 11
Buy-Down Fund............................................................................................ 18
Buy-Down Loans........................................................................................... 18
Cede..................................................................................................... 32
CERCLA................................................................................................... 63
Certificate Account...................................................................................... 43
Certificateholder........................................................................................ 32
Certificates............................................................................................. cover
Class.................................................................................................... cover
Cleanup Costs............................................................................................ 63
Code..................................................................................................... 11
Commission............................................................................................... 2
Correspondents........................................................................................... 20
DCR...................................................................................................... 95
Deferred Interest........................................................................................ 17
Definitive Certificates.................................................................................. 11
Delegated Underwriting................................................................................... 21
Department............................................................................................... 94
Depository............................................................................................... 43
Detailed Information..................................................................................... 2
Disqualified Organization................................................................................ 80
Distribution Date........................................................................................ 10
DTC...................................................................................................... 12
DTC Participants......................................................................................... 32
Due Date................................................................................................. 16
Due on Sale.............................................................................................. 64
Eligible Custodial Account............................................................................... 44
ERISA.................................................................................................... 11
Excess Bankruptcy Losses................................................................................. 36
Excess Fraud Losses...................................................................................... 36
Excess Special Hazard Losses............................................................................. 36
FDIC..................................................................................................... 43
FHLBB.................................................................................................... 64
FHLMC.................................................................................................... 25
Fitch.................................................................................................... 95
Fixed Retained Yield..................................................................................... 35
FNMA..................................................................................................... 25
Fraud Loss............................................................................................... 36
Garn Act................................................................................................. 64
GEMICO................................................................................................... 25
Indirect DTC Participants................................................................................ 32
IRA...................................................................................................... 93
</TABLE>
101
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<TABLE>
<CAPTION>
TERM PAGE
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Joint Ventures........................................................................................... 20
<S> <C>
Liquidation Proceeds..................................................................................... 44
Loan Stores.............................................................................................. 20
Master Servicer.......................................................................................... cover
Master Servicing Fee..................................................................................... 35
Moody's.................................................................................................. 95
Mortgage Loans........................................................................................... cover
Mortgage Notes........................................................................................... 15
Mortgaged Properties..................................................................................... 15
Mortgages................................................................................................ 15
NASCOR................................................................................................... cover
Net Foreclosure Profits.................................................................................. 34
1986 Act................................................................................................. 69
Non-Pro Rata Certificate................................................................................. 70
Non-U.S. Person.......................................................................................... 85
Norwest Bank............................................................................................. cover
Norwest Corporation...................................................................................... 19
Norwest Funding.......................................................................................... 19
Norwest Mortgage......................................................................................... cover
Norwest Mortgage Loan.................................................................................... 19
Norwest Mortgage Sale Agreement.......................................................................... 53
OID Regulations.......................................................................................... 69
Other Advances........................................................................................... 46
OTS...................................................................................................... 64
Pass-Through Rate........................................................................................ 9
Pass-Through Entity...................................................................................... 81
Paying Agent............................................................................................. 46
Percentage Interest...................................................................................... 33
Periodic Advances........................................................................................ 10
PHMC..................................................................................................... 19
PHMC Mortgage Loans...................................................................................... 19
Plans.................................................................................................... 93
Policy Statement......................................................................................... 98
Pool Distribution Amount................................................................................. 33
Pool Insurers............................................................................................ 25
Pooling and Servicing Agreement.......................................................................... 8
Prepayment Assumption.................................................................................... 71
Program Loans............................................................................................ 42
Proposed Mark to Market Regulations...................................................................... 83
Proposed OID Regulations................................................................................. 69
PTE 83-1................................................................................................. 96
Qualified Mortgage....................................................................................... 30
Rating Agency............................................................................................ 12
Record Date.............................................................................................. 10
Regular Certificateholder................................................................................ 69
Regular Certificates..................................................................................... 31
Regulations.............................................................................................. 94
Relief Act............................................................................................... 63
REMIC.................................................................................................... cover
REMIC Certificates....................................................................................... 67
REMIC Pool............................................................................................... 67
REMIC Regulations........................................................................................ 66
</TABLE>
102
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<TABLE>
<CAPTION>
TERM PAGE
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Remittance Date.......................................................................................... 44
<S> <C>
Reserve Fund............................................................................................. 38
Residual Certificates.................................................................................... 31
Residual Holders......................................................................................... 76
Restricted Group......................................................................................... 96
Rules.................................................................................................... 32
S&P...................................................................................................... 95
Securities Act........................................................................................... 2
Seller................................................................................................... cover
Senior Certificates...................................................................................... cover
Series................................................................................................... cover
Servicer................................................................................................. cover
Servicer Custodial Account............................................................................... 43
Servicing Account........................................................................................ 47
Servicing Fee............................................................................................ 35
Special Hazard Loss...................................................................................... 37
Standard Hazard Insurance Policy......................................................................... 49
Startup Day.............................................................................................. 67
Stripped Certificateholder............................................................................... 91
Stripped Certificates.................................................................................... 90
Subclass................................................................................................. cover
Subordinated Certificates................................................................................ cover
Subsidy Account.......................................................................................... 17
Subsidy Loans............................................................................................ 17
Subsidy Payments......................................................................................... 17
Superlien................................................................................................ 63
Title V.................................................................................................. 65
T.O.P. Loans............................................................................................. 25
Treasury Regulations..................................................................................... 54
Trust Estate............................................................................................. cover
Trustee.................................................................................................. 58
Trustee Fee.............................................................................................. 35
U.S. Person.............................................................................................. 82
UCC...................................................................................................... 61
UGRIC.................................................................................................... 25
Underlying Servicing Agreement........................................................................... 8
Underwriter's Exemption.................................................................................. 94
Voting Interests......................................................................................... 56
Window Period............................................................................................ 65
Window Period Loans...................................................................................... 65
Window Period States..................................................................................... 65
</TABLE>
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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 SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE
OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER OR BY THE UNDERWRITER. NEITHER THIS
PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO
SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY SUCH SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------------
INDEX
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Table of Contents.............................. S-5
Summary Information............................ S-7
Risk Factors................................... S-27
Description of the Certificates................ S-28
Description of Mortgage Loans.................. S-57
Norwest Mortgage Delinquency and Foreclosure
Experience.................................... S-64
Prepayment and Yield Considerations............ S-68
Pooling and Servicing Agreement................ S-75
Servicing of the Mortgage Loans................ S-78
Federal Income Tax Considerations.............. S-80
ERISA Considerations........................... S-82
Legal Investment............................... S-83
Secondary Market............................... S-83
Underwriting................................... S-84
Legal Matters.................................. S-84
[Experts....................................... S-84]
Use of Proceeds................................ S-84
Ratings........................................ S-85
Index of Significant Prospectus Supplement
Definitions................................... S-86
PROSPECTUS
Reports........................................ 2
Additional Information......................... 2
Additional Detailed Information................ 2
Incorporation of Certain Information by
Reference..................................... 3
Table of Contents.............................. 4
Summary of Prospectus.......................... 8
Risk Factors................................... 13
The Trust Estates.............................. 15
The Seller..................................... 19
Norwest Mortgage............................... 19
Norwest Bank................................... 20
The Mortgage Loan Programs..................... 20
Mortgage Loan Production Sources............... 20
Description of the Certificates................ 30
Prepayment and Yield Considerations............ 38
Servicing of the Mortgage Loans................ 41
Certain Matters Regarding the Master
Servicer...................................... 52
The Pooling and Servicing Agreement............ 53
Certain Legal Aspects of the Mortgage Loans.... 59
Certain Federal Income Tax Consequences........ 66
ERISA Considerations........................... 93
Legal Investment............................... 97
Plan of Distribution........................... 98
Use of Proceeds................................ 99
Legal Matters.................................. 100
Rating......................................... 100
Index of Significant Definitions............... 101
</TABLE>
$
(APPROXIMATE)
NORWEST ASSET SECURITIES
CORPORATION
SELLER
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 199 -
---------------------
PROSPECTUS SUPPLEMENT
---------------------
[UNDERWRITER]
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration fees are estimated.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $1,724,138
Legal Fees and Expenses........................................ 1,170,000
Accounting Fees and Expenses................................... 288,000
Trustee's Fees and Expenses
(including counsel fees)...................................... 180,000
Printing and Engraving Fees.................................... 448,200
Rating Agency Fees............................................. 2,475,000
Miscellaneous.................................................. 85,500
----------
Total...................................................... $6,370,838
----------
----------
</TABLE>
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*To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers and directors, who are
made, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
officer or director acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests and, for criminal
proceedings, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify officers and directors in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
II-1
<PAGE>
The By-laws of Norwest Asset Securities Corporation provide for
indemnification of officers and directors to the full extent permitted by the
Delaware General Corporation Law.
The Pooling and Servicing Agreements for each Series of Certificates provide
either that the Registrant and the partners, directors, officers, employees and
agents of the Registrant, or that the Master Servicer and the partners,
directors, officers, employees and agents of the Master Servicer, will be
entitled to indemnification by the Trust Estate and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Pooling and Servicing Agreement or the Certificates,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of his or its
duties thereunder or by reason of reckless disregard of his or its obligations
and duties thereunder.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of Norwest Asset Securities Corporation.
*3.2 By-laws of Norwest Asset Securities Corporation.
4.1 Form of Pooling and Servicing Agreement.
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain matters involving the
Certificates.
8.1 Opinion of Cadwalader, Wickersham & Taft as to tax matters.
10.1 Form of Servicing Agreement.
23.1 Consent of Cadwalader, Wickersham & Taft (included as part of Exhibits 5.1 and 8.1).
23.2 Consent of Coopers & Lybrand regarding Financial Security Assurance Inc.
*24.1 Power of Attorney.
24.2 Power of Attorney (included on page II-5 of this Registration Statement).
</TABLE>
- ------------------------
*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:
II-2
<PAGE>
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the 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
the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(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 indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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 Pre-Effective
Amendment No. 1 to Form S-3 Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of West Des Moines,
State of Iowa on May 13, 1996.
By: /s/ STEPHEN D. MORRISON
-----------------------------------
Name: Stephen D. Morrison
Title: President
II-4
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen D. Morrison, Alta Jones and Robert
Gorsche, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities to sign any or all amendments (including
post-effective amendments) to this Registration Statement and any or all other
documents in connection therewith, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents 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 might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ ------------------------------------- ------------------
<C> <S> <C>
/s/ STEPHEN D. MORRISON
------------------------------------------- President, Secretary and Director May 13, 1996
Stephen D. Morrison
/s/ ALTA JONES Senior Vice President, Chief
------------------------------------------- Financial Officer and Chief May 13, 1996
Alta Jones Accounting Officer
*
------------------------------------------- Executive Vice President and Director May 13, 1996
Mark Faris
*
------------------------------------------- Director May 13, 1996
Robert Gorsche
*By: /s/ STEPHEN D. MORRISON
-------------------------------------------
Stephen D. Morrison
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of Norwest Asset Securities Corporation.
*3.2 By-laws of Norwest Asset Securities Corporation.
4.1 Form of Pooling and Servicing Agreement.
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain matters involving the
Certificates.
8.1 Opinion of Cadwalader, Wickersham & Taft as to tax matters.
10.1 Form of Servicing Agreement.
23.1 Consent of Cadwalader, Wickersham & Taft (included as part of Exhibits 5.1 and 8.1).
23.2 Consent of Coopers & Lybrand regarding Financial Security Assurance, Inc.
*24.1 Power of Attorney.
24.2 Power of Attorney (included on page II-5 of this Registration Statement).
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
[FORM OF UNDERWRITING AGREEMENT]
NORWEST ASSET SECURITIES CORPORATION
Mortgage Pass-Through Certificates
(Issuable in Series)
UNDERWRITING AGREEMENT
______ __, 199_
[Underwriter]
Ladies and Gentlemen:
Norwest Asset Securities Corporation, a Delaware corporation ("NASCOR"),
proposes to issue and sell from time to time its Mortgage Pass-Through
Certificates in various series, each series of which may be divided into classes
and each class of which may be divided into subclasses, in one or more offerings
on terms determined at the time of sale. One or more series of Mortgage Pass-
Through Certificates may be offered through you, as underwriter (the
"Underwriter"). Whenever NASCOR determines to make an offering of a series of
its Mortgage Pass-Through Certificates through the Underwriter, NASCOR and
Norwest Mortgage, Inc., a California Corporation ("Norwest Mortgage"), will
enter into an agreement (the "Terms Agreement") with the Underwriter, in
substantially the form attached hereto as Exhibit A, providing for the sale of
such series of Mortgage Pass-Through Certificates to the Underwriter. NASCOR is
a wholly-owned subsidiary of Norwest Mortgage. The Mortgage Pass-Through
Certificates of the series, classes and subclasses to be sold in each offering
to the Underwriter under this Underwriting Agreement, as supplemented by the
applicable Terms Agreement, are hereinafter referred to as the "Certificates".
The Certificates will have the characteristics set forth in the applicable Terms
Agreement and will evidence the ownership interests in a trust consisting of
mortgage loans acquired by NASCOR (the "Mortgage Loans") and related property
but excluding the Fixed Retained Yield, if any (collectively, the "Trust
Estate"). The Mortgage Loans will be of the type described in, and will have
the characteristics and aggregate principal balance set forth in, the Prospectus
Supplement (as hereinafter defined).
The Certificates will be issued under a pooling and servicing agreement
(the "Pooling and Servicing Agreement"), dated as of the close of business on
the date specified in the applicable Terms Agreement, by and among NASCOR, as
depositor, Norwest Bank Minnesota, National Association, a national banking
association ("Norwest Bank"), as master
-1-
<PAGE>
servicer (in such capacity, the "Master Servicer") and the trustee identified in
the applicable Terms Agreement, as trustee (the "Trustee"). The Certificates
will be issued in denominations of $100,000, or such lesser amount as may be
acceptable to NASCOR, and will have the terms set forth in the Prospectus
Supplement. The Certificates will conform in all material respects to the
description thereof contained in the applicable Terms Agreement and the
Prospectus Supplement. The Terms Agreement may take the form of an exchange of
any standard form of written communication between the Underwriter, NASCOR and
Norwest Mortgage. Each offering of Mortgage Pass-Through Certificates under
this Underwriting Agreement will be governed by this Underwriting Agreement, as
supplemented by the applicable Terms Agreement. This Underwriting Agreement, as
supplemented by the applicable Terms Agreement, is referred to herein as "this
Agreement."
1. REPRESENTATIONS AND WARRANTIES. (a) NASCOR represents and warrants to,
and agrees with, the Underwriter as of the date of the applicable Terms
Agreement that:
(i) A registration statement (File No. 33-02209), including a
prospectus, has been filed with the Securities and Exchange
Commission (the "Commission") and has become effective under the
Securities Act of 1933, as amended (the "Act"), and no stop order
suspending the effectiveness of such registration statement has
been issued and no proceedings for that purpose have been
initiated or to NASCOR's knowledge threatened by the Commission;
and the prospectus in the form in which it will be used in
connection with the offering of the Certificates is proposed to
be supplemented by a prospectus supplement relating to the
Certificates and, as so supplemented, to be filed with the
Commission pursuant to Rule 424 under the Act. (Such
registration statement, as amended to the date of the applicable
Terms Agreement, excluding for purposes of this Agreement any
information contained in any Form 8-K filed and incorporated by
reference therein pursuant to Section 9 hereof or pursuant to any
other underwriting agreement entered into by NASCOR, is
hereinafter referred to as the "Registration Statement"; such
prospectus supplement, as first filed with the Commission, is
hereinafter referred to as the "Prospectus Supplement"; and such
prospectus, in the form in which it will first be filed with the
Commission in connection with the offering of the Certificates,
as supplemented by the Prospectus Supplement, is hereinafter
referred to as the "Prospectus"; all references herein to the
Prospectus or to the Prospectus, as revised, amended, or
supplemented, shall be deemed to exclude any information
contained in any Form 8-K filed and incorporated by reference
therein pursuant to Section 9 hereof or pursuant to any other
underwriting agreement entered into by NASCOR).
(ii) The Registration Statement and the Prospectus, as of the
date of the Prospectus Supplement, will conform, and the
Registration Statement and the Prospectus, as revised, amended or
supplemented and filed with the Commission prior to the
termination of the offering of the Certificates, as of their
respective effective or issue dates, will conform in all material
respects to
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<PAGE>
the requirements of the Act and the rules and regulations of the
Commission thereunder applicable to such documents as of such
respective dates, and the Registration Statement and the
Prospectus, as revised, amended or supplemented and filed with
the Commission as of the "Closing Date" (as hereinafter defined),
will conform in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder
applicable to such documents; and the Registration Statement and
the Prospectus, as of the date of the Prospectus Supplement, will
not include any untrue statement of a material fact or will not
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and, in
the case of the Prospectus, as revised, amended or supplemented
and filed prior to the Closing Date, as of the Closing Date, will
not include any untrue statement of a material fact or will not
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
PROVIDED, HOWEVER, that NASCOR makes no representations,
warranties or agreements (i) as to the information contained in
or omitted from the Prospectus or any revision or amendment
thereof or supplement thereto in reliance upon and in conformity
with information furnished in writing to NASCOR by or on behalf
of the Underwriter specifically for use in connection with the
preparation of the Prospectus or any revision or amendment
thereof or supplement thereto [or (ii) based on the failure by
the Underwriter to deliver in a timely manner any information
required to be filed by NASCOR pursuant to Section 9 or as to any
untrue statement or alleged untrue statement of a material fact
contained in such information, or an omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein, when considered in
conjunction with the Prospectus, and in the light of the
circumstances under which they were made, not misleading, except
to the extent that such misstatements are the result of
inaccurate information with respect to the Mortgage Loans
supplied by NASCOR which was not corrected by information
subsequently supplied by NASCOR to the Underwriter at any time
prior to the earlier of (i) the written confirmation of a sale of
the Certificates, which sale results in the loss, claim, damage
or liability arising out of or based upon such misstatement, and
(ii) the 90th day following the filing of the Prospectus, as
amended or supplemented, with the Commission].
(iii) Assuming that certain of the Certificates are rated at
the time of issuance in one of the two highest rating categories
by a nationally recognized statistical rating organization, each
such Certificate at such time will be a "mortgage related
security" as such term is defined in Section 3(a)(41) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(iv) Each of the Certificates will conform in all material
respects to the description thereof contained in the Prospectus,
and each of the Certificates, when validly authenticated, issued
and delivered in accordance with the Pooling and Servicing
Agreement, will be duly and validly issued and outstanding and
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<PAGE>
entitled to the benefits of the Pooling and Servicing Agreement,
and immediately prior to the delivery of the Certificates to the
Underwriter, NASCOR will own the Certificates, and upon such
delivery the Underwriter will acquire title thereto, free and
clear of any lien, pledge, encumbrance or other security interest
other than one created or granted by the Underwriter or permitted
by the Pooling and Servicing Agreement.
(v) This Agreement has been duly authorized, executed and
delivered by NASCOR and, as of the Closing Date, the Pooling and
Servicing Agreement will have been duly authorized, executed and
delivered by NASCOR and will conform in all material respects to
the description thereof contained in the Prospectus and, assuming
the valid execution thereof by the Trustee and Norwest Bank, the
Pooling and Servicing Agreement will constitute a valid and
binding agreement of NASCOR enforceable in accordance with its
terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other laws relating to or affecting
the enforcement of creditors' rights and by general equity
principles.
(vi) NASCOR has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own its properties
and conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Pooling and
Servicing Agreement and this Agreement.
(vii) Neither the issuance or delivery of the Certificates,
nor the consummation of any other of the transactions
contemplated herein, nor compliance with the provisions of the
Pooling and Servicing Agreement or this Agreement, will conflict
with or result in the breach of any material term or provision of
the certificate of incorporation or bylaws of NASCOR, and NASCOR
is not in breach or violation of or in default (nor has an event
occurred which with notice or lapse of time or both would
constitute a default) under the terms of (i) any indenture,
contract, lease, mortgage, deed of trust, note agreement or other
evidence of indebtedness or other agreement, obligation or
instrument to which NASCOR is a party or by which it or its
properties are bound, or (ii) any law, decree, order, rule or
regulation applicable to NASCOR of any court or supervisory,
regulatory, administrative or governmental agency, body or
authority, or arbitrator having jurisdiction over NASCOR, or its
properties, the default in or the breach or violation of which
would have a material adverse effect on NASCOR or the ability of
NASCOR to perform its obligations under the Pooling and Servicing
Agreement; and neither the delivery of the Certificates, nor the
consummation of any other of the transactions contemplated
herein, nor the compliance with the provisions of the Pooling and
Servicing Agreement or this Agreement will result in such a
breach, violation or default which would have such a material
adverse effect.
-4-
<PAGE>
(viii) No filing or registration with, notice to, or consent,
approval, authorization or order or other action of, any court or
governmental authority or agency is required for the consummation
by NASCOR of the transactions contemplated by this Agreement or
the Pooling and Servicing Agreement (other than as required under
state securities laws or Blue Sky laws, as to which no
representations and warranties are made by NASCOR), except such
as have been, or will have been prior to the Closing Date,
obtained under the Act, and such recordations of the assignment
of the Mortgage Loans to the Trustee pursuant to the Pooling and
Servicing Agreement that have not yet been completed.
(ix) There is no action, suit or proceeding before or by any
court, administrative or governmental agency, or other tribunal,
domestic or foreign, now pending to which NASCOR is a party, or
to the best of NASCOR's knowledge threatened against NASCOR,
which could reasonably result individually or in the aggregate in
any material adverse change in the condition (financial or
otherwise), earnings, affairs, regulatory situation or business
prospects of NASCOR or could reasonably interfere with or
materially and adversely affect the consummation of the
transactions contemplated herein.
(x) At the Closing Date the representations and warranties made
by NASCOR in the Pooling and Servicing Agreement will be true and
correct in all material respects as of the date made.
(xi) At the time of execution and delivery of the Pooling and
Servicing Agreement, NASCOR will own the mortgage notes (the
"Mortgage Notes") being transferred to the Trust Estate pursuant
thereto, free and clear of any lien, mortgage, pledge, charge,
encumbrance, adverse claim or other security interest
(collectively, "Liens"), except to the extent permitted in the
Pooling and Servicing Agreement, and will not have assigned to
any person other than the Trust Estate any of its right, title or
interest, exclusive of the Fixed Retained Yield, if any, in the
Mortgage Notes. NASCOR will have the power and authority to
transfer the Mortgage Notes to the Trust Estate and to transfer
the Certificates to the Underwriter, and, upon execution and
delivery to the Trustee of the Pooling and Servicing Agreement,
payment by the Underwriter for the Certificates, and delivery to
the Underwriter of the Certificates, the Trust Estate will own
the Mortgage Notes (exclusive of the Fixed Retained Yield, if
any) and the Underwriter will acquire title to the Certificates,
in each case free of Liens except to the extent permitted by the
Pooling and Servicing Agreement.
(xii) Any taxes, fees and other governmental charges in
connection with the execution, delivery and issuance of this
Agreement, the Pooling and Servicing Agreement and the
Certificates have been or will be paid by NASCOR at or prior to
the Closing Date, except for fees for recording
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<PAGE>
assignments of mortgage loans to the Trustee pursuant to the
Pooling and Servicing Agreement that have not yet been completed,
which fees will be paid by NASCOR in accordance with the Pooling
and Servicing Agreement.
(xiii) The transfer of the Mortgage Loans and the related
assets to the Trust Estate at the Closing Date will be treated by
NASCOR for financial accounting and reporting purposes as a sale
of assets and not as a pledge of assets to secure debt.
(b) Norwest Mortgage, Inc. ("Norwest Mortgage") represents and warrants to,
and agrees with, the Underwriter as of the date of the applicable Terms
Agreement that:
(i) Norwest Mortgage has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the State of California with corporate power and authority to
own its properties and conduct its business as described in the
Prospectus and to enter into and perform its obligations under
this Agreement.
(ii) The execution and delivery by Norwest Mortgage of this
Agreement are within the corporate power of Norwest Mortgage and
have been duly authorized by all necessary corporate action on
the part of Norwest Mortgage.
(iii) Neither the execution and delivery of this
Agreement, nor the consummation by Norwest Mortgage of any other
of the transactions contemplated herein, nor compliance with the
provisions of this Agreement, will conflict with or result in the
breach of any material term or provision of the certificate of
incorporation or bylaws of Norwest Mortgage.
(iv) This Agreement has been duly authorized, executed and
delivered by Norwest Mortgage.
2. PURCHASE PRICE. The purchase price at which the Underwriter will
purchase the Certificates shall be the aggregate purchase price set forth in the
applicable Terms Agreement.
3. DELIVERY AND PAYMENT. The Certificates shall be delivered at the
office, on the date and at the time specified in the applicable Terms Agreement,
which place, date and time may be changed by agreement between the Underwriter
and NASCOR (such date and time of delivery of and payment for the Certificates
being hereinafter referred to as the "Closing Date"). Delivery of the
Certificates shall be made to the Underwriter against payment by the Underwriter
of the purchase price therefor to or upon the order of NASCOR in same-day funds.
The Certificates shall be registered in such names and in such denominations as
the Underwriter may have requested not less than two full business days prior to
the Closing Date. NASCOR agrees to have the Certificates available for
inspection,
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<PAGE>
checking and packaging in New York, New York, on the business day prior to the
Closing Date.
4. OFFERING BY UNDERWRITER. It is understood that the Underwriter proposes
to offer the Certificates for sale as set forth in the Prospectus and that the
Underwriter will not offer, sell or otherwise distribute the Certificates
(except for the sale thereof in exempt transactions) in any state in which the
Certificates are not exempt from registration under state securities laws or
Blue Sky laws (except where the Certificates will have been qualified for
offering and sale at the direction of the Underwriter under such state
securities laws or Blue Sky laws). In connection with such offering(s), the
Underwriter agrees to provide NASCOR with information related to the offer and
sale of the Certificates that is reasonably requested by NASCOR, from time to
time (but not in excess of one year from the Closing Date), and necessary for
complying with its tax reporting obligations, including, without limitation, the
issue price of the Certificates.
[The Underwriter agrees that it shall not distribute any written
materials to any potential investor in the Certificates prior to the time that a
final Prospectus and Prospectus Supplement are delivered to such potential
investor, other than any written materials which do not constitute a prospectus
within the meaning of Section 2(10) of the Act or which are permitted by any
rule or regulation promulgated under the Act to be delivered prior to a final
prospectus; including, but not limited to, Rules 134 and 139 under the Act.]
The Underwriter further agrees that it will not sell or transfer any
Certificate or interest therein in the initial sale or transfer of such
Certificate by the Underwriter in an amount less than the minimum denomination
for such Certificate to be set forth in the Prospectus Supplement.
5. AGREEMENTS. NASCOR agrees with the Underwriter that:
(a) NASCOR will cause the Prospectus to be filed with the Commission
pursuant to Rule 424 under the Act and, if necessary, within 15 days of the
Closing Date, will file a report on Form 8-K setting forth specific information
concerning the Certificates [(but will not include any information required to
be filed under Section 9)], and will promptly advise the Underwriter when the
Prospectus has been so filed, and, prior to the termination of the offering of
the Certificates, will also promptly advise the Underwriter (i) when any
amendment to the Registration Statement has become effective or any revision of
or supplement to the Prospectus has been so filed (unless such amendment,
revision or supplement does not relate to the Certificates), (ii) of any request
by the Commission for any amendment of the Registration Statement or the
Prospectus or for any additional information (unless such request does not
relate to the Certificates), and (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
institution or, to the knowledge of NASCOR, the threatening of any proceeding
for that purpose (unless such stop order or proceeding does not relate to the
Certificates). NASCOR will use its best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the withdrawal
thereof. Except as otherwise provided in Section 5(b)
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<PAGE>
hereof, NASCOR will not file prior to the termination of such offering any
amendment to the Registration Statement or any revision of or supplement to the
Prospectus (other than any such amendment, revision or supplement which does not
relate to the Certificates) which shall be disapproved by the Underwriter after
reasonable notice and review of such filing.
(b) If, at any time when a prospectus relating to the Certificates is
required to be delivered under the Act (i) any event occurs as a result of which
the Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein in the light of the circumstances under which they were
made not misleading, or (ii) it shall be necessary to revise, amend or
supplement the Prospectus to comply with the Act or the rules and regulations of
the Commission thereunder, NASCOR promptly will notify the Underwriter and will,
upon request of the Underwriter, or may, after consultation with the
Underwriter, prepare and file with the Commission a revision, amendment or
supplement which will correct such statement or omission or effect such
compliance, and furnish without charge to the Underwriter as many copies as the
Underwriter may from time to time reasonably request of an amended Prospectus or
a supplement to the Prospectus which will correct such statement or omission or
effect such compliance.
(c) NASCOR will (i) furnish to the Underwriter and counsel for the
Underwriter, without charge, conformed copies of the Registration Statement
(including exhibits thereto) and, so long as delivery of a prospectus relating
to the Certificates is required under the Act, as many copies of the Prospectus
and any revisions or amendments thereof or supplements thereto as may be
reasonably requested, and (ii) file promptly all reports and any definitive
proxy or information statements required to be filed by NASCOR with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act (as
such requirements may be modified pursuant to Section 12(h) of the Exchange Act)
subsequent to the date of the Prospectus and for so long as the delivery of a
prospectus is required in connection with the offering or sale of the
Certificates.
(d) NASCOR will, as between itself and the Underwriter, pay all
expenses incidental to the performance of its obligations under this Agreement
including, without limitation, (i) expenses of preparing, printing and
reproducing the Registration Statement, the Prospectus, the Pooling and
Servicing Agreement and the Certificates, (ii) the cost of delivering the
Certificates to the Underwriter, insured to the satisfaction of the Underwriter,
(iii) the fees charged by securities rating services for rating the
Certificates, (iv) the fees and expenses of the Trustee and any agent of the
Trustee and the fees and disbursements of counsel for the Trustee in connection
with the Pooling and Servicing Agreement and the Certificates, and (v) all other
costs and expenses incidental to the performance by NASCOR of NASCOR's
obligations hereunder which are not otherwise specifically provided for in this
subsection. It is understood that, except as provided in this paragraph (d) and
in Sections 7 and 12 hereof, the Underwriter will pay all of its own expenses,
including (i) the fees of any counsel to the Underwriter, (ii) any transfer
taxes on resale of any of the Certificates by it, (iii) any advertising expenses
connected with any offers that the Underwriter may make and (iv) any expenses
for the qualification of the Certificates under state securities laws or Blue
Sky laws,
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<PAGE>
including filing fees and the fees and disbursements of counsel for the
Underwriter in connection therewith and in connection with the preparation of
any Blue Sky survey [and (v) any expenses incurred in connection with the
preparation of any Computational Materials, Structural Term Sheets and
Collateral Term Sheets (each as defined in Section 9) and the filing of such
materials with the Commission].
(e) So long as any Certificates are outstanding, upon the request of
the Underwriter, NASCOR will, or will cause the Master Servicer to, furnish to
the Underwriter, as soon as available, a copy of (i) the annual statement of
compliance delivered by the Master Servicer to the Trustee under the Pooling and
Servicing Agreement, (ii) the annual independent public accountants' servicing
report furnished to the Trustee pursuant to the Pooling and Servicing Agreement,
(iii) each report of NASCOR regarding the Certificates filed with the Commission
under the Exchange Act or mailed to the holders of the Certificates, and (iv)
from time to time, such other information concerning the Certificates which may
be furnished by NASCOR or the Master Servicer without undue expense and without
violation of applicable law.
6. CONDITIONS TO THE OBLIGATION OF THE UNDERWRITER. The obligation of
the Underwriter to purchase the Certificates shall be subject to the accuracy in
all material respects of the representations and warranties on the part of
NASCOR and Norwest Mortgage contained herein as of the date of the applicable
Terms Agreement and as of the Closing Date, to the accuracy of the statements of
NASCOR and Norwest Mortgage made in any officer's certificate pursuant to the
provisions hereof, to the performance in all material respects by NASCOR of its
obligations hereunder and to the following additional conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement with respect to the Certificates shall have been issued and no
proceedings for that purpose shall have been instituted and be pending or shall
have been threatened, and the Prospectus shall have been filed or mailed for
filing with the Commission not later than required pursuant to the rules and
regulations of the Commission.
(b) NASCOR shall have furnished to the Underwriter a certificate, dated
the Closing Date, of NASCOR, signed by a vice president of NASCOR, to the effect
that the signer of such certificate has carefully examined the Registration
Statement, the Prospectus and this Agreement and that:
(i) The representations and warranties of NASCOR herein are
true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date,
and NASCOR has complied with all agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior
to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement with respect to the Certificates has been
issued, and no proceedings for that purpose have been instituted
and are pending or, to his knowledge, have been threatened as of
the Closing Date; and
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(iii) Nothing has come to the attention of such person
that would lead him or her to believe that the Prospectus
contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading.
(c) NASCOR shall have caused Norwest Mortgage to furnish to the
Underwriter a certificate, dated the Closing Date, of Norwest Mortgage, signed
by a vice president or an assistant vice president of Norwest Mortgage, to the
effect that the representations and warranties of Norwest Mortgage herein are
true and correct in all material respects on and as of the Closing Date with the
same effect as if made on the Closing Date, and Norwest Mortgage has in all
material respects complied with all agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to the Closing Date.
(d) NASCOR shall have furnished to the Underwriter an opinion,
dated the Closing Date, of Cadwalader, Wickersham & Taft, counsel to NASCOR, to
the effect that:
(i) NASCOR is a corporation validly existing as a
corporation in good standing under the laws of the State of
Delaware;
(ii) The Certificates have been duly authorized and executed
and, assuming authentication and delivery in the manner
contemplated in the Pooling and Servicing Agreement, are validly
issued and outstanding and entitled to the benefits provided by
the Pooling and Servicing Agreement and this Agreement, and upon
delivery by NASCOR of the Certificates to the Underwriter and
payment by the Underwriter of the purchase price therefor in the
manner contemplated by this Agreement, the Underwriter will
acquire the Certificates free and clear of any lien, pledge,
encumbrance or other security interest other than one created or
granted by the Underwriter or permitted by the Pooling and
Servicing Agreement;
(iii) Assuming that the Certificates are rated at the
time of issuance in one of the two highest rating categories by a
nationally recognized statistical rating organization, each such
Certificate at such time will be a "mortgage related security" as
such term is defined in Section 3(a)(41) of the Exchange Act;
(iv) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by NASCOR and, assuming valid
execution and delivery thereof by Norwest Bank and the Trustee,
constitutes a valid and legally binding agreement of NASCOR,
enforceable against NASCOR in accordance with its terms, subject
to bankruptcy, insolvency, reorganization or other laws of
general applicability relating to or affecting creditors' rights
generally and to general equity principles, regardless of whether
such enforcement is considered in a proceeding at law or in
equity;
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(v) The Pooling and Servicing Agreement is not
required to be qualified under the Trust Indenture Act of 1939,
as amended, and the Trust Estate (as defined in the Pooling and
Servicing Agreement) is not required to be registered under the
Investment Company Act of 1940, as amended;
(vi) The Registration Statement has become effective
under the Act, and, to the best of the knowledge of such counsel,
(x) no stop order suspending the effectiveness of the
Registration Statement with respect to the Certificates has been
issued and no proceedings for that purpose have been instituted
or are pending or have been threatened under the Act; (y) the
Registration Statement and the Prospectus, as of the date of the
Prospectus Supplement, and each revision or amendment thereof or
supplement thereto relating to the Certificates, as of its
effective or issue date, appeared on their respective faces to be
appropriately responsive in all material respects to the
requirements of the Act and the rules and regulations of the
Commission thereunder applicable to such documents as of such
respective dates; and (z) the Prospectus, as revised, amended or
supplemented as of the Closing Date, will conform in all material
respects to the requirements of the Act and the rules and
regulations of the Commission thereunder applicable to such
documents as to be used as of the Closing Date; in the course of
such counsel's review of the Registration Statement and the
Prospectus and discussion of the same with certain officers of
NASCOR and its accountants, no facts came to the attention of
such counsel that caused such counsel to believe that the
Registration Statement or the Prospectus, as of the date of the
Prospectus Supplement, or any revision or amendment thereof or
supplement thereto, as of its effective or issue date, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading, or that the Prospectus, or
any revision or amendment thereof or supplement thereto filed
prior to the date of such opinion, as of the date of such
opinion, contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; the descriptions in the Registration
Statement and the Prospectus, as of the date of such opinion, of
the Certificates and the Pooling and Servicing Agreement and such
descriptions, as of the date of the Prospectus Supplement, of the
aspects of certain statutes as set forth in the Prospectus under
the headings "ERISA Considerations" and "Certain Federal Income
Tax Consequences" were, to the extent that they constitute
matters of law or legal conclusions, accurate; and such counsel
does not know of any contracts or documents relating to NASCOR of
a character required to be described in or to be filed as
exhibits to the Registration Statement, as of the date of the
Prospectus Supplement, which were not described and filed as
required; it being understood that such counsel need express no
opinion as to the financial statements or other financial,
numerical or statistical data contained
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<PAGE>
in the Registration Statement or the Prospectus or any material
incorporated by reference in the Registration Statement or the
Prospectus;
(vii) This Underwriting Agreement and the applicable
Terms Agreement have been duly authorized, executed and delivered
by NASCOR;
(viii) No consent, approval, authorization or order of
any State of New York or federal governmental agency or body or,
to the knowledge of such counsel, any State of New York or
federal court is required for the consummation by NASCOR of the
transactions contemplated by the terms of this Agreement or the
Pooling and Servicing Agreement except such as may be required
under the Blue Sky laws of any jurisdiction in connection with
the offering, sale or acquisition of the Certificates, any
recordations of the assignment of the mortgage loans to the
Trustee pursuant to the Pooling and Servicing Agreement that have
not yet been completed and such other approvals as have been
obtained;
(ix) The sale of the Certificates to the Underwriter
pursuant to this Agreement and the consummation of any of the
transactions contemplated by the terms of the Pooling and
Servicing Agreement or this Agreement do not conflict with or
result in a breach or violation of any material term or provision
of, or constitute a default under, the certificate of
incorporation or bylaws of NASCOR, or, to the knowledge of such
counsel, without independent investigation, any indenture or
other agreement or instrument to which NASCOR is a party or by
which it is bound, or any State of New York or federal statute or
regulation applicable to NASCOR or, to the knowledge of such
counsel, without independent investigation, an order of any State
of New York or federal court, regulatory body, administrative
agency or governmental body having jurisdiction over NASCOR; and
(x) To the knowledge of such counsel, without
independent investigation, after due inquiry, there are no legal
or governmental actions, investigations or proceedings pending to
which NASCOR is a party, or threatened against NASCOR, (A)
asserting the invalidity of this Agreement, the Pooling and
Servicing Agreement or the Certificates, (B) seeking to prevent
the issuance of the Certificates or the consummation of any of
the transactions contemplated by this Agreement, (C) which might
materially and adversely affect the performance by NASCOR of its
obligations under, or the validity or enforceability of, this
Agreement, the Pooling and Servicing Agreement or the
Certificates or (D) seeking to affect adversely the federal
income tax attributes of the Certificates as described in the
Prospectus under the heading "Certain Federal Income Tax
Consequences." For purposes of the foregoing, such counsel may
state that it has not regarded any legal or governmental actions,
investigations or proceedings to be "threatened" unless the
potential litigant or
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governmental authority has manifested to NASCOR a present
intention to initiate such proceedings.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to this Agreement and the
Pooling and Servicing Agreement. Such opinion may assume the due authorization,
execution and delivery of the instruments and documents referred to therein by
the parties thereto other than NASCOR. Such opinion may be qualified as an
opinion only on the laws of the State of New York, the laws of each state in
which the writer of the opinion is admitted to practice law and the federal law
of the United States. To the extent that such firm relies upon the opinion of
other counsel in rendering any portion of its opinion, the opinion of such other
counsel shall be attached to and delivered with the opinion of such firm that is
delivered to the Underwriter.
(e) Norwest Bank shall have furnished to the Underwriter an
opinion, dated the Closing Date, of counsel to Norwest Bank (who may be an
employee of Norwest Bank), to the effect that:
(i) Norwest Bank is a national banking association
duly [chartered] and validly existing in good standing under the
laws of the United States;
(ii) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by Norwest Bank and, assuming
valid execution and delivery thereof by NASCOR and the Trustee,
the Pooling and Servicing Agreement constitutes a valid and
legally binding agreement of Norwest Bank, enforceable against
Norwest Bank in accordance with its terms, subject to bankruptcy,
insolvency, reorganization or other laws of general applicability
relating to or affecting creditors' rights generally and to
general equity principles regardless of whether such enforcement
is considered in a proceeding at law or in equity;
(iii) No consent, approval, authorization or order of
any [state] or federal court or governmental agency or body is
required for the consummation by Norwest Bank of the transactions
contemplated by the Pooling and Servicing Agreement except any
such as may be required under the Blue Sky laws of any
jurisdiction in connection with the offering, sale or acquisition
of the Certificates, any recordations of the assignment of the
mortgage loans evidenced by the Certificates to the Trustee
pursuant to the Pooling and Servicing Agreement that have not yet
been completed and any approvals as have been obtained;
(iv) The consummation by Norwest Bank of any of the
transactions contemplated by the terms of the Pooling and
Servicing Agreement does not, to the knowledge of such counsel,
conflict with or result in a breach or violation of any material
term or provision of, or constitute a default under, the charter
or bylaws of Norwest Bank, any indenture or other agreement or
instrument to
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which Norwest Bank is a party or by which it is bound, any state
or federal statute or regulation applicable to Norwest Bank or,
to the knowledge of such counsel, any order of any state or
federal court, regulatory body, administrative agency or
governmental body having jurisdiction over Norwest Bank; and
(v) To the best knowledge of such counsel after due
inquiry, there are no legal or governmental actions,
investigations or proceedings pending to which Norwest Bank is a
party, or threatened against Norwest Bank, (A) asserting the
invalidity of the Pooling and Servicing Agreement or (B) which
might materially and adversely affect the performance by Norwest
Bank of its obligations under, or the validity or enforceability
of, the Pooling and Servicing Agreement. For purposes of the
foregoing, such counsel may state that it has not regarded any
legal or governmental actions, investigations or proceedings to
be "threatened" unless the potential litigant or governmental
authority has manifested to the legal department of Norwest Bank
or to an employee of Norwest Bank responsible for servicing a
present intention to initiate such proceedings.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to the Pooling and Servicing
Agreement. Such opinion may assume the due authorization, execution and
delivery of the instruments and documents referred to therein by the parties
thereto other than Norwest Bank. Such opinion may be qualified as an opinion
only on the laws of the State of Minnesota and the federal law of the United
States and, with respect to the opinions set forth in paragraph (e)(ii) above,
the laws of the State of New York. To the extent that such counsel relies upon
the opinion of other counsel in rendering any portion of its opinion, the
opinion of such other counsel shall be attached to and delivered with the
opinion of such counsel that is delivered to the Underwriter.
(f) The Underwriter shall have received from counsel for the
Underwriter such opinion or opinions, dated the Closing Date, with respect to
the issuance and sale of the Certificates, the Registration Statement and the
Prospectus, and such other related matters as the Underwriter may reasonably
require.
(g) NASCOR's independent accountants, _________________,
shall have furnished to the Underwriter a letter dated as of or prior to the
date of first use of the Prospectus Supplement in the form and reflecting the
performance of the procedures previously agreed to by NASCOR and the
Underwriter.
(h) Subsequent to the date hereof, there shall not have
occurred any change, or any development involving a prospective change, in or
affecting the business or properties of NASCOR which the Underwriter concludes,
in the reasonable judgment of the Underwriter, materially impairs the investment
quality of the Certificates so as to make it impractical or inadvisable to
proceed with the public offering or the delivery of the Certificates as
contemplated by the Prospectus.
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<PAGE>
(i) The Certificates shall be rated not lower than the
required ratings set forth in the applicable Terms Agreement, such ratings shall
not have been rescinded and no public announcement shall have been made that
either rating of the Certificates has been placed under review (otherwise than
for possible upgrading).
(j) You shall have received an opinion of special counsel to
NASCOR, dated the Closing Date, in form and substance satisfactory to you, with
respect to certain state tax consequences under the tax laws of the jurisdiction
in which the Trustee is located relating to the Trust Estate and the holders of
the Certificates.
(k) You shall have received copies of any opinions of counsel
to NASCOR supplied to the rating organizations relating to certain matters with
respect to the Certificates. Any such opinions shall be dated the Closing Date
and addressed to you or accompanied by reliance letters to you or shall state
that you may rely upon them.
(l) NASCOR shall have furnished to the Underwriter such
further information, certificates and documents as the Underwriter may
reasonably have requested, and all proceedings in connection with the
transactions contemplated by this Agreement and all documents incident hereto
shall be in all material respects reasonably satisfactory in form and substance
to the Underwriter and its counsel.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, this Agreement and all obligations of the Underwriter hereunder may
be canceled at, or at any time prior to, the Closing Date by the Underwriter.
Notice of such cancellation shall be given to NASCOR in writing, or by telephone
or telegraph confirmed in writing.
7. INDEMNIFICATION AND CONTRIBUTION. (a) NASCOR agrees to
indemnify and hold harmless the Underwriter and each person who controls the
Underwriter within the meaning of either the Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to which they
may become subject under the Act, the Exchange Act, or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or in the Prospectus, or in any
revision or amendment thereof or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading and
agrees to reimburse each such indemnified party for any legal or other expenses
reasonably incurred by it or him in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
NASCOR will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon [(A)] any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
NASCOR by or on behalf of the Underwriter specifically for use in connection
with the
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<PAGE>
preparation thereof[ or (B) any untrue statement or alleged untrue statement of
a material fact contained in any information delivered by the Underwriter to
NASCOR pursuant to Section 9(e), or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, when considered in
conjunction with the Prospectus, and in the light of the circumstances under
which they were made, not misleading, except to the extent that such
misstatements are the result of inaccurate information with respect to the
Mortgage Loans supplied by NASCOR which was not corrected by information
subsequently supplied by NASCOR to the Underwriter at any time prior to the
earlier of (i) the written confirmation of a sale of the Certificates, which
sale results in the loss, claim, damage or liability arising out of or based
upon such misstatement, and (ii) the 90th day following the filing of the
Prospectus, as amended or supplemented, with the Commission]; provided, further,
that NASCOR shall not be liable to the Underwriter and each person who controls
the Underwriter with respect to any Prospectus or any Prospectus Supplement to
the extent that any loss, claim, damage or liability results from the fact that
the Certificates were offered or sold to a person to whom there was not
delivered, at or prior to the written confirmation of such sale, a copy of the
Prospectus or of the Prospectus as then revised, amended or supplemented in any
case where such delivery is required by the Act or the Exchange Act, if NASCOR
has previously furnished copies thereof to the Underwriter. This indemnity
agreement will be in addition to any liability which NASCOR may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless
NASCOR, its officers who signed the Registration Statement or any amendment
thereof, its directors, and each person who controls NASCOR within the meaning
of either the Act or the Exchange Act, and Norwest Mortgage, and each person who
controls Norwest Mortgage within the meaning of either the Act or the Exchange
Act, [(i)] to the same extent as the foregoing indemnities from NASCOR to the
Underwriter, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to NASCOR by or on behalf of the
Underwriter specifically for use in connection with the preparation of the
Prospectus or any revision or amendment thereof or supplement thereto [or (ii)
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) are based on, result from or arise out of any untrue statement or
alleged untrue statement of a material fact contained in any information
delivered by the Underwriter to NASCOR pursuant to Section 9(e), or arise out of
or are based upon the omission or alleged omission to state in such information
a material fact required to be stated therein or necessary to make the
statements therein, when considered in conjunction with the Prospectus, and in
the light of the circumstances under which they were made, not misleading;
except to the extent that such misstatements are the result of inaccurate
information with respect to the Mortgage Loans supplied by NASCOR to the
Underwriter which was not corrected by information subsequently supplied by
NASCOR to the Underwriter at any time prior to the earlier of (A) the written
confirmation of a sale of the Certificates, which sale results in the loss,
claim, damage or liability arising out of or based upon such misstatement, and
(B) the 90th day following the filing of the Prospectus, as amended or
supplemented, with the Commission]. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have.
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(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 7, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 7. In case any such action
is brought against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein, and to the extent that it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and after
receipt of notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation by the indemnified
party undertaken with notice to and approval by the indemnifying party.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to [(A)] in subsection (a) or (b)[(i)]
above in such proportion as is appropriate to reflect both (i) the relative
benefits received by NASCOR on the one hand and the Underwriter on the other
from the offering of the Certificates and (ii) the relative fault of NASCOR on
the one hand and the Underwriter on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations [and (B) in subsection
(b)(ii) above, in such proportion as is appropriate to reflect the relative
fault of the Underwriter on the one hand and NASCOR on the other in connection
with the actions, statements or omissions that resulted in such losses, claims,
damages or liabilities]. The relative benefits received by NASCOR on the one
hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by NASCOR bear to the difference between (i) the total price
at which the Certificates underwritten by the Underwriter and distributed to the
public were offered to the public, and (ii) the portion of the total net
proceeds from the offering (before deducting expenses) received by NASCOR
attributable to the Certificates. The relative fault [for the purposes of
clauses (A) and (B) above] shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact related to information
supplied by NASCOR or the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. NASCOR, Norwest Mortgage and the Underwriter
agree that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid by an indemnified party as a
result of the losses, claims, damages or
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liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), and with respect to losses, claims, damages
or liabilities referred to in subsection (a) or (b) above, the Underwriter shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Certificates underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The obligations of NASCOR under this Section 7 shall be
in addition to any liability which NASCOR may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Underwriter within the meaning of the Act; and the obligations of the
Underwriter under this Section 7 shall be in addition to any liability which the
Underwriter may otherwise have and shall extend, upon the same terms and
conditions, to (i) the officers of NASCOR who signed the Registration Statement
or any amendment thereof, to its directors, and to each person who controls
NASCOR within the meaning of either the Act or the Exchange Act and (ii) each
person who controls Norwest Mortgage within the meaning of either the Act or the
Exchange Act.
8. OBLIGATIONS OF NORWEST MORTGAGE. Norwest Mortgage agrees
with the Underwriter, for the sole and exclusive benefit of the Underwriter and
each person who controls the Underwriter within the meaning of either the Act or
the Exchange Act and not for the benefit of any assignee thereof or any other
person or persons dealing with the Underwriter, in consideration of and as an
inducement to its agreement to purchase the Certificates from NASCOR, to
indemnify and hold harmless the Underwriter against any failure by NASCOR to
perform its obligations to the Underwriter pursuant to Section 7 hereof;
provided, however, that the aggregate liability of Norwest Mortgage for the
foregoing indemnity shall not exceed an amount equal to the aggregate principal
amount of the Certificates.
[9. FILING OF INVESTOR INFORMATION. (a) NASCOR agrees to
file with the Commission current reports on Form 8-K under the Exchange Act in
accordance with paragraph (c) below, containing the Computational Materials,
Structural Term Sheets and Collateral Term Sheets described in paragraph (b)
below, provided by the Underwriter to NASCOR in accordance with paragraph (e)
below and subject, in the case of Computational Materials and Structural Term
Sheets, to the conditions precedent set forth in paragraph (d) below for the
purpose of permitting the Underwriter to comply as to the Certificates with the
No-Action Letter of May 20, 1994 issued by the Commission to Kidder, Peabody
Acceptance Corporation I, Kidder, Peabody & Co. Incorporated and Kidder
Structured Asset Corporation and the No-Action Letter of May 27, 1994 issued by
the Commission to the Public Securities
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Association (collectively, the "Kidder/PSA Letter") and the No-Action Letter of
February 17, 1995 issued by the Commission to the Public Securities Association
(the "PSA Letter").
(b)(i) For purposes of Section 9(a), Computational Materials
shall mean any information with respect to the Certificates which constitutes
"Computational Materials", as defined in the Kidder/PSA Letter, excluding (i)
complex multi-scenario vector analyses, (ii) option-adjusted spreads and (iii)
option-adjusted durations, prepared by the Underwriter and delivered to
investors, which information may be aggregated and filed in consolidated form to
the extent described in the Kidder/PSA Letter, and that meets the criteria set
forth in Section 9(b)(ii).
For purposes of Section 9(a), Structural Term Sheets and
Collateral Term Sheets shall mean any information with respect to the
Certificates which constitutes "Structural Term Sheets" and "Collateral Term
Sheets" as defined in the PSA Letter and that, with respect to Structural Term
Sheets meets the criteria set forth in Section 9(b)(ii).
(ii) For purposes of Section 9(a), Computational Materials and
Structural Term Sheets are those that:
(A) are generated based on assumptions regarding the payment
priorities and characteristics of a class or subclass of Certificates that will
be actually issued and purchased by the Underwriter; and
(B) are provided to prospective investors under the following
conditions prior to the time of filing of the Prospectus pursuant to Rule 424(b)
under the Act:
(x) in the case of each prospective investor that has orally
indicated to the Underwriter that it will purchase all or a portion of a class
or subclass of Certificates to which such Computational Materials or Structural
Term Sheets, as the case may be, relate, the Computational Materials or
Structural Term Sheets, as the case may be, relating to such class or subclass
that are sent to such prospective investor; and
(y) for any prospective investor, all Computational Materials
or Structural Term Sheets, as the case may be, that are sent to such prospective
investor after the structure for the entire issue of Certificates is finalized.
Computational Materials and Structural Term Sheets required to be
filed with the Commission will not include materials relating to abandoned
structures or materials that are furnished to prospective investors prior to the
time that the structure of the entire issue of Certificates is finalized where
such investors have not indicated to the Underwriter their intention to purchase
the Certificates described in such materials.
(c)(i) Subject to the timely receipt pursuant to Section 9(e)(i)
of the Computational Materials and Structural Term Sheets to be filed and the
satisfaction of the condition precedent set forth in paragraph (d), NASCOR
agrees and covenants to file the
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Computational Materials and Structural Term Sheets delivered to it by the
Underwriter not later than the filing of the Prospectus pursuant to Rule 424
under the Act.
(ii) Subject to the timely receipt pursuant to Section
9(e)(ii) of the Collateral Term Sheets to be filed, NASCOR agrees and covenants
to file the Collateral Term Sheets delivered to it by the Underwriter within two
business days of delivery.
(iii) NASCOR agrees to file any information delivered to NASCOR
for filing pursuant to Section (9)(e)(v) (A) or (C) on the business day
following the receipt of the accountant's letter pursuant to Section 9(d) with
respect to such information.
(iv) NASCOR agrees to file any Collateral Term Sheet delivered
to NASCOR for filing pursuant to Section 9(e)(v)(B) within two business days
following the receipt of such Collateral Term Sheet.
(d)(i) It shall be a condition precedent to NASCOR's obligation
to file Computational Materials and Structural Term Sheets pursuant to this
Section 9, that NASCOR shall have received a letter not later than 5:00 P.M. on
the business day prior to such filing from NASCOR's independent accountants,
_______________, reflecting the performance of procedures previously agreed to
by NASCOR and otherwise in form and substance satisfactory to NASCOR with
respect to the structural, financial, numerical or statistical information to be
filed. NASCOR agrees to cooperate with the accountants to facilitate the
obtaining of such letter but nothing contained herein shall be construed as a
representation by NASCOR that it will cause the accountants to provide such
letter or shall require NASCOR to accept a letter in substance unsatisfactory to
it. Such letter will be obtained at the sole expense of the Underwriter. The
Underwriter acknowledges and agrees that NASCOR is not able to obtain such
letter with respect to (i) complex multi-scenario vector analyses, (ii) option-
adjusted spreads and (iii) option-adjusted durations, and accordingly, the
Underwriter agrees it will not disseminate any such information in written form
to an investor prior to its delivery of a final Prospectus to such investor.
(ii) The Underwriter agrees to cooperate with the accountants
and agrees to furnish revised Computational Materials or Structural Term Sheets,
if necessary, in order for the accountants to provide such letter.
(iii) NASCOR intends, but is not obligated, to obtain a letter
from ______________ regarding the information set forth in any Collateral Term
Sheets filed or to be filed pursuant to Section 9(a). Any such letter will be
at the expense of the Underwriter. If the accountants are unable to deliver
such letter because of inaccuracies in the Collateral Term Sheets, the
provisions of Section 9(e)(v)(B) shall apply.
(e) (i)The Underwriter agrees and covenants to deliver to
NASCOR no later than four business days before the delivery of the final
Prospectus to the Underwriter copies of all Computational Materials and
Structural Term Sheets that are required under the Kidder/PSA Letter or the PSA
Letter, as the case may be, to be filed with the Commission.
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<PAGE>
(ii) The Underwriter agrees and covenants to deliver to NASCOR
any Collateral Term Sheets that are required under the PSA Letter to be filed
with the Commission simultaneously with the delivery of such Collateral Term
Sheets to an investor.
(iii) The Underwriter represents and warrants to NASCOR that
the Computational Materials, Structural Term Sheets and Collateral Term Sheets
to be furnished to NASCOR by the Underwriter for filing with the Commission
pursuant to Section 9(c)(i) or (ii) will constitute all Computational Materials
(either in original, aggregated or consolidated form), Structural Term Sheets
and Collateral Term Sheets with respect to the Certificates that (i) were
furnished to prospective investors by the Underwriter in connection with its
offer and sale of the Certificates and (ii) are required to be filed with the
Commission in order to secure the relief granted under the Kidder/PSA Letter or
the PSA Letter, as the case may be.
(iv) The Underwriter represents and warrants to, and covenants
with, NASCOR that any information filed by NASCOR with the Commission pursuant
to this Section 9 as of the date of filing will not include any untrue
statements of a material fact and, when considered in conjunction with the
Prospectus, will not omit to state any material facts required to be stated
therein or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the Underwriter makes no representation with respect to the accuracy of the
Prospectus exclusive of any information filed with the Commission pursuant to
this Section 9 and any other written information furnished to NASCOR by or on
behalf of the Underwriter specifically for use in connection with the Prospectus
and, provided further, that the Underwriter makes no representation to the
extent such misstatements are the result of inaccurate information with respect
to the Mortgage Loans supplied by NASCOR which was not corrected by information
subsequently supplied by NASCOR to the Underwriter prior to the earlier of (A)
the written confirmation of a sale of the Certificates which sale results in a
loss, claim, damage or liability arising out of or based upon such misstatement,
and (B) the 90th day following the filing of the Prospectus, as amended or
supplemented, with the Commission.
(v) The Underwriter covenants with NASCOR that:
(A) if a filing was made with the Commission with respect to
a structure which was considered final with respect to any class or subclass
of Certificates, and such structure is subsequently revised, the Underwriter
shall prepare and deliver to NASCOR for filing with the Commission, pursuant
to Section 9(c)(ii), revised Computational Materials and Structural Term
Sheets based on such revised structure; and
(B) in the event that NASCOR determines that any information
contained in a Collateral Term Sheet is inaccurate, the Underwriter shall
prepare and deliver to any investor that received the inaccurate Collateral Term
Sheet and to NASCOR for filing with the Commission pursuant to Section 9(c)(iv),
a revised Collateral Term Sheet.
(C) if any Computational Materials or Structural Term Sheets
filed with the Commission are determined by the Underwriter or NASCOR, at any
time prior to the 90th day following the filing of the Prospectus, as amended or
supplemented, with the Commission, to
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<PAGE>
contain any information that is inaccurate or misleading, and NASCOR determines
that as a result such Computational Materials or Structural Term Sheets include
an untrue statement of a material fact or, when considered in conjunction with
the Prospectus, will omit to state any material fact required to be stated
therein or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading, the Underwriter shall
prepare and deliver to NASCOR for filing with the Commission pursuant to Section
9(c)(iii), corrected Computational Materials or Structural Term Sheets, as the
case may be; provided, however, that if such information is inaccurate or
misleading solely because it is based on inaccurate information with respect to
the Mortgage Loans supplied by NASCOR to the Underwriter, the Underwriter shall
be under no obligation to prepare and deliver to NASCOR corrected Computational
Materials or Structural Term Sheets, as the case may be, unless and until
corrected information is supplied by NASCOR to the Underwriter and such
corrected information is supplied by NASCOR to the Underwriter at any time prior
to the 90th day following the filing of the Prospectus, as amended or
supplemented, with the Commission.
(vi) The Underwriter covenants with NASCOR that any
Computational Materials, Structural Term Sheets or Collateral Term Sheets
delivered to prospective investors shall contain the following legend:
"THIS INFORMATION IS FURNISHED TO YOU SOLELY BY [UNDERWRITER] AND
NOT BY THE ISSUER OF THE SECURITIES OR ANY OF ITS AFFILIATES.
[UNDERWRITER] IS ACTING AS UNDERWRITER AND NOT ACTING AS AGENT
FOR THE ISSUER OR ITS AFFILIATES IN CONNECTION WITH THE PROPOSED
TRANSACTION."
or shall contain the legend mutually agreed upon between the Underwriter and
NASCOR as set forth in Exhibit A hereto.
In addition, the Underwriter covenants with NASCOR that any
Collateral Term Sheets delivered to prospective investors shall contain the
additional legend:
"THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED BY THE
DESCRIPTION OF THE MORTGAGE LOANS CONTAINED IN THE PROSPECTUS
SUPPLEMENT."
and, except for the initial Collateral Term Sheet sent to an investor,
"SUCH INFORMATION SUPERSEDES THE
INFORMATION IN ALL PRIOR COLLATERAL TERM
SHEETS."
(f) Notwithstanding any other provision herein, the
Underwriter and NASCOR each agree to pay all costs and expenses of the other
party including, without limitation, legal fees and expenses, incurred in
connection with any successful action by the
-22-
<PAGE>
Underwriter or NASCOR against the other party to enforce any of its rights set
forth in this Section 9.
(g) The Underwriter covenants with NASCOR that it will make
available to NASCOR such personnel as are familiar with the Underwriter's
compliance procedures for the purpose of answering questions concerning the
Underwriter's practices and procedures for the preparation and dissemination of
written materials concerning the Certificates to prospective investors prior to
the delivery of the final Prospectus to such investors.
(h) The Underwriter covenants with NASCOR that after the
final Prospectus is available the Underwriter shall not distribute any written
information concerning the Certificates to a prospective investor unless such
information is preceded or accompanied by the final Prospectus.]
10. TERMINATION. Subsequent to the execution of the
applicable Terms Agreement, this Agreement shall be subject to termination in
the absolute discretion of the Underwriter, by notice given to NASCOR prior to
delivery of and payment for the Certificates, if prior to such time (i) trading
in securities generally on the New York Stock Exchange shall have been suspended
or materially limited or any setting of minimum prices for trading on such
exchange shall have been instituted, (ii) a general moratorium on commercial
banking activities in the State of New York shall have been declared by either
federal or New York State authorities, or (iii) there shall have occurred any
material outbreak or escalation of hostilities or other calamity or crisis the
effect of which on the financial markets of the United States is such as to make
it, in the reasonable judgment of the Underwriter, impracticable or inadvisable
to market the Certificates on the terms and in the manner contemplated by the
Prospectus as amended or supplemented. In addition, following receipt of notice
from NASCOR that the Mortgage Loans will not conform to the specifications set
forth in the applicable Terms Agreement, if, in the reasonable judgment of the
Underwriter, such disparity would have a material adverse effect on the
marketing and sale of the Certificates, the Underwriter may terminate this
Agreement not later than the close of business on the first Business Day after
receipt of such notice or, if earlier, the Closing Date.
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The
respective agreements, representations, warranties, indemnities and other
statements of NASCOR, Norwest Mortgage and their respective officers and of the
Underwriter set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriter, NASCOR, Norwest Mortgage or any of the officers, directors or
controlling persons referred to in Section 7 hereof, and will survive delivery
of and payment for the Certificates. The provisions of Section 5(d), Section 7,
Section 8 and Section 11 hereof shall survive the termination or cancellation of
this Agreement.
12. REIMBURSEMENT OF UNDERWRITER'S EXPENSES. If for any
reason, other than default by the Underwriter in its obligation to purchase the
Certificates, the material breach by the Underwriter of any of its covenants in
Section 9 hereof (without the fault of NASCOR) or termination by the Underwriter
pursuant to Section 10 hereof, the Certificates
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<PAGE>
are not delivered by or on behalf of NASCOR as provided herein, NASCOR will
reimburse the Underwriter for all out-of-pocket expenses of the Underwriter,
including reasonable fees and disbursements of its counsel, reasonably incurred
by the Underwriter in making preparations for the purchase, sale and delivery of
the Certificates, but NASCOR and Norwest Mortgage shall then be under no further
liability to the Underwriter with respect to the Certificates except as provided
in Section 5(d), Section 7 and Section 8 hereof. If the Certificates are not
delivered by or on behalf of NASCOR as provided herein because of the default by
the Underwriter in its obligation to purchase the Certificates, the material
breach by the Underwriter of any of its covenants in Section 9 hereof (without
the fault of NASCOR) [or termination by the Underwriter pursuant to Section 10
hereof], the Underwriter will reimburse the NASCOR for all out-of-pocket
expenses of the NASCOR, including reasonable fees and disbursements of its
counsel, reasonably incurred by the NASCOR in making preparations for the
issuance and delivery of the Certificates[, but the Underwriter shall then be
under no further liability to the NASCOR with respect to the Certificates except
as provided in Section 7 hereof.]
13. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers, directors and controlling persons referred to in Section 7 hereof and
their respective successors and assigns, and no other person will have any right
or obligation hereunder.
14. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
15. FINAL STRUCTURE DUE DATE. The Underwriter agrees to
submit to NASCOR not later than 9:00 a.m. New York City Time on the Final
Structure Due Date specified in the applicable Terms Agreement its determination
of the final structure relating to, among other items, the class designations,
approximate principal amounts and payment priorities of the Certificates.
Changes to such final structure may be made by the Underwriter after the Final
Structure Due Date if the changes are of a non-material nature. The
determination as to whether such changes are non-material shall be in the sole
discretion of NASCOR. In addition, on or before the Final Structure Due Date
the Underwriter may elect an extension thereof for an additional one or two
business days beyond the original Final Structure Due Date if the Underwriter
notifies NASCOR of its election not later than 9:00 a.m. New York City Time on
such original Final Structure Due Date and the Underwriter pays to NASCOR, on or
prior to the Closing Date, an extension fee of $100,000 for each day the Final
Structure Due Date is extended as reimbursement for NASCOR's costs and expenses
arising from such extension.
16. MISCELLANEOUS. Time shall be of the essence of this
Agreement. This Agreement supersedes all prior or contemporaneous agreements
and understandings relating to the subject matter hereof. Neither this
Agreement nor any term hereof may be changed, waived, discharged or terminated
except by a writing signed by the party against whom enforcement of such change,
waiver, discharge or termination is sought. This Agreement may
-24-
<PAGE>
be signed in any number of counterparts, each of which shall be deemed an
original, which taken together shall constitute one and the same instrument.
17. NOTICES. All communications hereunder will be in writing
and effective only on receipt and, if sent to the Underwriter, will be delivered
to [Underwriter], [Street, City, State, Zip], Attn: ___________________, or if
sent to NASCOR, will be delivered to NASCOR at [Street, City, State, Zip]; or if
sent to Norwest Mortgage, will be delivered to Norwest Mortgage at 405 Southwest
5th Street, Des Moines, Iowa 50328.
* * *
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this letter and your acceptance shall represent a binding agreement by
and among NASCOR, Norwest Mortgage and the Underwriter.
Very truly yours,
NORWEST ASSET SECURITIES CORPORATION
By: ______________________________
Name:
Title:
NORWEST MORTGAGE, INC.
By: ______________________________
Name:
Title:
The foregoing Underwriting
Agreement is hereby
confirmed and accepted as of
the date first above written.
[UNDERWRITER]
By: ___________________________
Name:
Title:
-26-
<PAGE>
Exhibit A
NORWEST ASSET SECURITIES CORPORATION.
Mortgage Pass-Through Certificates
Terms Agreement
[Underwriter] __________,199__
[Address]
Underwriting Agreement dated _______, 199_.
Title of Certificates: Mortgage Pass-Through Certificates, Series
199_-_, [Classes] (the "Offered
Certificates").
Subclasses of Certificates Each of the Class A Certificates and the
Class B Certificates will consist of one or
more Subclasses with the prior consent of
NASCOR, which consent shall not be reasonably
withheld. The Class AP and Class M
Certificates will not be divided into
subclasses
Aggregate Principal Amount of the:
Offered Certificates $__________ (Approximate)
Certificates Not Offered Hereby: [Classes]
Subordination "Shifting interest" structure.
Minimum Denominations of Offered
Certificates: $100,000 initial principal balance and
integral multiples of $1,000 in excess
thereof.
Description of the Mortgage Loans: Fixed interest rate, conventional, monthly
pay, fully amortizing, one- to four-family,
residential first mortgage loans having
original stated terms to maturity of
approximately [ ] years.
Subordination: "Shifting interest" structure.
REMIC Election: Yes.
<PAGE>
Cut-Off Date: _______ 1, 199_
Final Structure Due Date: _______ __, 199_
Distributions: Distributions will be made monthly on the
25th day of each month or the next succeeding
Business Day (the "Distribution Date").
Servicing Fee:
(Monthly fee payable to
each Servicer): [ ]% to [ ] % per annum.
Master Servicing Fee
(Monthly fee payable to
the Master Servicer): [ ]% per annum.
Fixed Retained Yield: [Yes][No].
Trustee:
Book-Entry Registration: Settlement in "same-day" funds, to the extent
practicable. Any REMIC residual, floating
rate, stripped and Class M Certificates will
not be issued in book-entry form, unless
authorized by NASCOR.
Optional Termination: [ ].
Required Ratings: [Ratings]
Closing Date, Location and Time: _______ __, 199_; offices of Cadwalader,
Wickersham & Taft, New York, New York; 10:00
a.m. New York City Time.
Purchase Price for the Certificates: [ ]% of the initial aggregate
principal amount of the Offered
Certificates plus accrued interest
thereon.
Date of Pooling and Servicing Agreement: The Closing Date.
<PAGE>
[FORM OF POOLING AND SERVICING AGREEMENT]
_________________________________________________________________
NORWEST ASSET SECURITIES CORPORATION
(Seller)
and
NORWEST BANK MINNESOTA NATIONAL ASSOCIATION
(Master Servicer)
and
[TRUSTEE]
(Trustee)
POOLING AND SERVICING AGREEMENT
Dated as of ____________, 199_
$
Mortgage Pass-Through Certificates
Series 199_-__
_________________________________________________________________
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . I-1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . I-1
Accepted Master Servicing Practices. . . . . . . . . . . . . . . . . I-1
Adjusted Pool Amount . . . . . . . . . . . . . . . . . . . . . . . . I-1
Adjusted Pool Amount (Class AP Portion). . . . . . . . . . . . . . . I-1
Adjusted Principal Balance . . . . . . . . . . . . . . . . . . . . . I-2
Adjustment Amount. . . . . . . . . . . . . . . . . . . . . . . . . . I-2
Aggregate Current Bankruptcy Losses. . . . . . . . . . . . . . . . . I-2
Aggregate Current Fraud Losses . . . . . . . . . . . . . . . . . . . I-2
Aggregate Current Special Hazard Losses. . . . . . . . . . . . . . . I-2
Aggregate Foreclosure Profits. . . . . . . . . . . . . . . . . . . . I-2
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
Amount Held for Future Distribution. . . . . . . . . . . . . . . . . I-2
Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . I-3
Bankruptcy Code. . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
Bankruptcy Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
Bankruptcy Loss Amount . . . . . . . . . . . . . . . . . . . . . . . I-3
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
Book-Entry Certificate . . . . . . . . . . . . . . . . . . . . . . . I-3
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
Certificate Account. . . . . . . . . . . . . . . . . . . . . . . . . I-4
Certificate Register and Certificate Registrar . . . . . . . . . . . I-4
Certificateholder or Holder. . . . . . . . . . . . . . . . . . . . . I-4
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
Class A Certificate. . . . . . . . . . . . . . . . . . . . . . . . . I-4
Class A Certificateholder. . . . . . . . . . . . . . . . . . . . . . I-4
Class A Distribution Amount. . . . . . . . . . . . . . . . . . . . . I-4
Class A Fixed Pass-Through Rate. . . . . . . . . . . . . . . . . . . I-4
Class A Interest Accrual Amount. . . . . . . . . . . . . . . . . . . I-4
Class A Optimal Amount . . . . . . . . . . . . . . . . . . . . . . . I-5
Class A Optimal Principal Amount . . . . . . . . . . . . . . . . . . I-5
Class A Percentage . . . . . . . . . . . . . . . . . . . . . . . . . I-6
Class A Prepayment Percentage. . . . . . . . . . . . . . . . . . . . I-6
Class A Principal Balance. . . . . . . . . . . . . . . . . . . . . . I-7
Class A Principal Distribution Amount. . . . . . . . . . . . . . . . I-7
Class A Subclass . . . . . . . . . . . . . . . . . . . . . . . . . . I-7
Class A Subclass Distribution Amount . . . . . . . . . . . . . . . . I-7
<PAGE>
Class A Subclass Interest Accrual Amount . . . . . . . . . . . . . . I-7
Class A Subclass Interest Percentage . . . . . . . . . . . . . . . . I-8
Class A Subclass Interest Shortfall Amount . . . . . . . . . . . . . I-8
Class A Subclass Loss Percentage . . . . . . . . . . . . . . . . . . I-8
Class A Subclass Pass-Through Rate . . . . . . . . . . . . . . . . . I-8
Class A Subclass Principal Balance . . . . . . . . . . . . . . . . . I-8
Class A Subclass Shortfall Percentage. . . . . . . . . . . . . . . . I-9
Class A Subclass Unpaid Interest Shortfall . . . . . . . . . . . . . I-9
Class A Unpaid Interest Shortfall. . . . . . . . . . . . . . . . . . I-9
Class A Voting Interest. . . . . . . . . . . . . . . . . . . . . . . I-9
Class A-1 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-9
Class A-1 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-9
Class A-2 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-9
Class A-2 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-9
Class A-3 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-9
Class A-3 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-9
Class A-4 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-9
Class A-4 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-9
Class A-5 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-9
Class A-5 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-9
Class A-R Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-10
Class A-R Certificateholder. . . . . . . . . . . . . . . . . . . . . I-10
Class AP Certificate . . . . . . . . . . . . . . . . . . . . . . . . I-10
Class AP Certificateholder . . . . . . . . . . . . . . . . . . . . . I-10
Class AP Deferred Amount . . . . . . . . . . . . . . . . . . . . . . I-10
Class AP Distribution Amount . . . . . . . . . . . . . . . . . . . . I-10
Class AP Fraction. . . . . . . . . . . . . . . . . . . . . . . . . . I-10
Class AP Optimal Principal Amount. . . . . . . . . . . . . . . . . . I-10
Class AP Principal Balance . . . . . . . . . . . . . . . . . . . . . I-11
Class B Certificate. . . . . . . . . . . . . . . . . . . . . . . . . I-12
Class B Certificateholder. . . . . . . . . . . . . . . . . . . . . . I-12
Class B Interest Accrual Amount. . . . . . . . . . . . . . . . . . . I-12
Class B Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . I-12
Class B Principal Balance. . . . . . . . . . . . . . . . . . . . . . I-12
Class B Subclass . . . . . . . . . . . . . . . . . . . . . . . . . . I-12
Class B Subclass Distribution Amount . . . . . . . . . . . . . . . . I-12
Class B Subclass Interest Accrual Amount . . . . . . . . . . . . . . I-12
Class B Subclass Interest Percentage . . . . . . . . . . . . . . . . I-12
Class B Subclass Interest Shortfall Amount . . . . . . . . . . . . . I-12
Class B Subclass Loss Percentage . . . . . . . . . . . . . . . . . . I-12
Class B Subclass Percentage. . . . . . . . . . . . . . . . . . . . . I-13
Class B Subclass Prepayment Percentage . . . . . . . . . . . . . . . I-13
Class B Subclass Principal Balance . . . . . . . . . . . . . . . . . I-13
Class B Subclass Unpaid Interest Shortfall . . . . . . . . . . . . . I-13
Class B-1 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-13
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<PAGE>
Class B-1 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-13
Class B-1 Distribution Amount. . . . . . . . . . . . . . . . . . . . I-13
Class B-1 Interest Shortfall Amount. . . . . . . . . . . . . . . . . I-13
Class B-1 Optimal Principal Amount . . . . . . . . . . . . . . . . . I-13
Class B-1 Percentage . . . . . . . . . . . . . . . . . . . . . . . . I-14
Class B-1 Prepayment Percentage. . . . . . . . . . . . . . . . . . . I-15
Class B-1 Principal Balance. . . . . . . . . . . . . . . . . . . . . I-15
Class B-1 Unpaid Interest Shortfall. . . . . . . . . . . . . . . . . I-15
Class B-2 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-15
Class B-2 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-15
Class B-2 Distribution Amount. . . . . . . . . . . . . . . . . . . . I-15
Class B-2 Interest Shortfall Amount. . . . . . . . . . . . . . . . . I-15
Class B-2 Optimal Principal Amount . . . . . . . . . . . . . . . . . I-16
Class B-2 Percentage . . . . . . . . . . . . . . . . . . . . . . . . I-17
Class B-2 Prepayment Percentage. . . . . . . . . . . . . . . . . . . I-17
Class B-2 Principal Balance. . . . . . . . . . . . . . . . . . . . . I-17
Class B-2 Unpaid Interest Shortfall. . . . . . . . . . . . . . . . . I-17
Class B-3 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-18
Class B-3 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-18
Class B-3 Distribution Amount. . . . . . . . . . . . . . . . . . . . I-18
Class B-3 Interest Shortfall Amount. . . . . . . . . . . . . . . . . I-18
Class B-3 Optimal Principal Amount . . . . . . . . . . . . . . . . . I-18
Class B-3 Percentage . . . . . . . . . . . . . . . . . . . . . . . . I-19
Class B-3 Prepayment Percentage. . . . . . . . . . . . . . . . . . . I-19
Class B-3 Principal Balance. . . . . . . . . . . . . . . . . . . . . I-19
Class B-3 Unpaid Interest Shortfall. . . . . . . . . . . . . . . . . I-20
Class B-4 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-20
Class B-4 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-20
Class B-4 Distribution Amount. . . . . . . . . . . . . . . . . . . . I-20
Class B-4 Interest Shortfall Amount. . . . . . . . . . . . . . . . . I-20
Class B-4 Optimal Principal Amount . . . . . . . . . . . . . . . . . I-20
Class B-4 Percentage . . . . . . . . . . . . . . . . . . . . . . . . I-21
Class B-4 Prepayment Percentage. . . . . . . . . . . . . . . . . . . I-21
Class B-4 Principal Balance. . . . . . . . . . . . . . . . . . . . . I-22
Class B-4 Unpaid Interest Shortfall. . . . . . . . . . . . . . . . . I-22
Class B-5 Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-22
Class B-5 Certificateholder. . . . . . . . . . . . . . . . . . . . . I-22
Class B-5 Distribution Amount. . . . . . . . . . . . . . . . . . . . I-22
Class B-5 Interest Shortfall Amount. . . . . . . . . . . . . . . . . I-22
Class B-5 Optimal Principal Amount . . . . . . . . . . . . . . . . . I-22
Class B-5 Percentage . . . . . . . . . . . . . . . . . . . . . . . . I-24
Class B-5 Prepayment Percentage. . . . . . . . . . . . . . . . . . . I-24
Class B-5 Principal Balance. . . . . . . . . . . . . . . . . . . . . I-24
Class B-5 Unpaid Interest Shortfall. . . . . . . . . . . . . . . . . I-24
Class M Certificate. . . . . . . . . . . . . . . . . . . . . . . . . I-24
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Class M Certificateholder. . . . . . . . . . . . . . . . . . . . . . I-24
Class M Distribution Amount. . . . . . . . . . . . . . . . . . . . . I-25
Class M Interest Accrual Amount. . . . . . . . . . . . . . . . . . . I-25
Class M Interest Shortfall Amount. . . . . . . . . . . . . . . . . . I-25
Class M Optimal Principal Amount . . . . . . . . . . . . . . . . . . I-25
Class M Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . I-26
Class M Percentage . . . . . . . . . . . . . . . . . . . . . . . . . I-26
Class M Prepayment Percentage. . . . . . . . . . . . . . . . . . . . I-26
Class M Principal Balance. . . . . . . . . . . . . . . . . . . . . . I-27
Class M Unpaid Interest Shortfall. . . . . . . . . . . . . . . . . . I-27
Classes A/M/B Fraction . . . . . . . . . . . . . . . . . . . . . . . I-27
Classes A/M/B Voting Interest. . . . . . . . . . . . . . . . . . . . I-27
Clearing Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . I-27
Clearing Agency Participant. . . . . . . . . . . . . . . . . . . . . I-27
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . I-27
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . I-27
Co-op Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . I-27
Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . I-27
Cross-Over Date. . . . . . . . . . . . . . . . . . . . . . . . . . . I-28
Current Class A Interest Distribution Amount . . . . . . . . . . . . I-28
Current Class B Interest Distribution Amount . . . . . . . . . . . . I-28
Current Class B-1 Fractional Interest. . . . . . . . . . . . . . . . I-28
Current Class B-2 Fractional Interest. . . . . . . . . . . . . . . . I-28
Current Class B-3 Fractional Interest. . . . . . . . . . . . . . . . I-28
Current Class B-4 Fractional Interest. . . . . . . . . . . . . . . . I-28
Current Class M Fractional Interest. . . . . . . . . . . . . . . . . I-28
Current Class M Interest Distribution Amount . . . . . . . . . . . . I-28
Curtailment . . . . . . . . . . . . . . . . . . . . . . . . . . . I-29
Curtailment Interest Shortfall . . . . . . . . . . . . . . . . . . . I-29
Custodial Agreement. . . . . . . . . . . . . . . . . . . . . . . . . I-29
Custodial P&I Agreement. . . . . . . . . . . . . . . . . . . . . . . I-29
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . I-29
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . I-29
Cut-Off Date Aggregate Principal Balance . . . . . . . . . . . . . . I-29
Cut-Off Date Principal Balance . . . . . . . . . . . . . . . . . . . I-29
DCR . . . . . . . . . . . . . . . . . . . . . . . . . . . I-29
Debt Service Reduction . . . . . . . . . . . . . . . . . . . . . . . I-30
Deficient Valuation. . . . . . . . . . . . . . . . . . . . . . . . . I-30
Definitive Certificates. . . . . . . . . . . . . . . . . . . . . . . I-30
Denomination . . . . . . . . . . . . . . . . . . . . . . . . . . . I-30
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . I-30
Discount Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . I-30
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . . . I-30
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . I-30
Eligible Account . . . . . . . . . . . . . . . . . . . . . . . . . . I-30
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Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . I-31
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . I-32
ERISA Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . I-32
ERISA Prohibited Holder. . . . . . . . . . . . . . . . . . . . . . . I-32
Errors and Omissions Policy. . . . . . . . . . . . . . . . . . . . . I-32
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . I-32
Excess Bankruptcy Loss . . . . . . . . . . . . . . . . . . . . . . . I-32
Excess Fraud Loss. . . . . . . . . . . . . . . . . . . . . . . . . . I-33
Excess Special Hazard Loss . . . . . . . . . . . . . . . . . . . . . I-33
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . I-33
FHLMC . . . . . . . . . . . . . . . . . . . . . . . . . . . I-33
Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . I-33
Final Distribution Date. . . . . . . . . . . . . . . . . . . . . . . I-33
Fitch . . . . . . . . . . . . . . . . . . . . . . . . . . . I-33
Fixed Retained Yield . . . . . . . . . . . . . . . . . . . . . . . . I-33
Fixed Retained Yield Rate. . . . . . . . . . . . . . . . . . . . . . I-34
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . I-34
Foreclosure Profits. . . . . . . . . . . . . . . . . . . . . . . . . I-34
Fraud Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . I-34
Fraud Loss Amount. . . . . . . . . . . . . . . . . . . . . . . . . . I-34
Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . I-34
Independent . . . . . . . . . . . . . . . . . . . . . . . . . . . I-34
Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . I-35
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . I-35
Insured Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . I-35
Liquidated Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . I-35
Liquidated Loan Loss . . . . . . . . . . . . . . . . . . . . . . . . I-35
Liquidation Expenses . . . . . . . . . . . . . . . . . . . . . . . . I-35
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . I-35
Loan-To-Value Ratio. . . . . . . . . . . . . . . . . . . . . . . . . I-35
Master Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . I-36
Master Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . I-36
Master Servicing Fee Rate. . . . . . . . . . . . . . . . . . . . . . I-36
Monthly Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . I-36
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . I-36
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . I-36
Mortgage Interest Rate . . . . . . . . . . . . . . . . . . . . . . . I-36
Mortgage Loan Rider. . . . . . . . . . . . . . . . . . . . . . . . . I-36
Mortgage Loan Schedule . . . . . . . . . . . . . . . . . . . . . . . I-36
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . I-37
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . I-37
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Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . . . . I-37
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . . I-37
Net Foreclosure Profits. . . . . . . . . . . . . . . . . . . . . . . I-38
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . I-38
Net Mortgage Interest Rate . . . . . . . . . . . . . . . . . . . . . I-38
Net Partial Liquidation Proceeds . . . . . . . . . . . . . . . . . . I-38
Net REO Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . I-38
Non-permitted Foreign Holder . . . . . . . . . . . . . . . . . . . . I-38
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . I-38
Non-Supported Interest Shortfall . . . . . . . . . . . . . . . . . . I-38
Non-U.S. Person. . . . . . . . . . . . . . . . . . . . . . . . . . . I-39
Norwest Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . I-39
Norwest Mortgage Loan Sellers. . . . . . . . . . . . . . . . . . . . I-39
Norwest Mortgage Servicing Agreement . . . . . . . . . . . . . . . . I-39
Officers' Certificate. . . . . . . . . . . . . . . . . . . . . . . . I-39
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . I-39
Optimal Adjustment Event . . . . . . . . . . . . . . . . . . . . . . I-39
Original Class A Percentage. . . . . . . . . . . . . . . . . . . . . I-39
Original Class A Principal Balance . . . . . . . . . . . . . . . . . I-40
Original Class A Subclass Principal Balance. . . . . . . . . . . . . I-40
Original Class AP Principal Balance. . . . . . . . . . . . . . . . . I-40
Original Class B Principal Balance . . . . . . . . . . . . . . . . . I-40
Original Class B-1 Percentage. . . . . . . . . . . . . . . . . . . . I-40
Original Class B-2 Percentage. . . . . . . . . . . . . . . . . . . . I-40
Original Class B-3 Percentage. . . . . . . . . . . . . . . . . . . . I-40
Original Class B-4 Percentage. . . . . . . . . . . . . . . . . . . . I-40
Original Class B-5 Percentage. . . . . . . . . . . . . . . . . . . . I-40
Original Class B-1 Principal Balance . . . . . . . . . . . . . . . . I-40
Original Class B-2 Principal Balance . . . . . . . . . . . . . . . . I-40
Original Class B-3 Principal Balance . . . . . . . . . . . . . . . . I-40
Original Class B-4 Principal Balance . . . . . . . . . . . . . . . . I-40
Original Class B-5 Principal Balance . . . . . . . . . . . . . . . . I-40
Original Class B-1 Fractional Interest . . . . . . . . . . . . . . . I-40
Original Class B-2 Fractional Interest . . . . . . . . . . . . . . . I-41
Original Class B-3 Fractional Interest . . . . . . . . . . . . . . . I-41
Original Class B-4 Fractional Interest . . . . . . . . . . . . . . . I-41
Original Class M Fractional Interest . . . . . . . . . . . . . . . . I-41
Original Class M Percentage. . . . . . . . . . . . . . . . . . . . . I-41
Original Class M Principal Balance . . . . . . . . . . . . . . . . . I-41
Original Subordinated Percentage . . . . . . . . . . . . . . . . . . I-41
Original Subordinated Principal Balance. . . . . . . . . . . . . . . I-41
Other Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . I-41
Other Servicing Agreements . . . . . . . . . . . . . . . . . . . . . I-41
Outstanding Mortgage Loan. . . . . . . . . . . . . . . . . . . . . . I-42
Owner Mortgage Loan File . . . . . . . . . . . . . . . . . . . . . . I-42
PAC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . I-42
PAC Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . I-42
Partial Liquidation Interest Shortfall . . . . . . . . . . . . . . . I-42
Partial Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . I-42
Partial Liquidation Receipt Period . . . . . . . . . . . . . . . . . I-42
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Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . I-42
Payment Account. . . . . . . . . . . . . . . . . . . . . . . . . . . I-42
Percentage Interest. . . . . . . . . . . . . . . . . . . . . . . . . I-42
Periodic Advance . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Pool Balance (Classes A/M/B Portion) . . . . . . . . . . . . . . . . I-43
Pool Balance (Class AP Portion). . . . . . . . . . . . . . . . . . . I-43
Pool Distribution Amount . . . . . . . . . . . . . . . . . . . . . . I-43
Pool Scheduled Principal Balance . . . . . . . . . . . . . . . . . . I-44
Prepayment In Full . . . . . . . . . . . . . . . . . . . . . . . . . I-44
Prepayment Interest Shortfall. . . . . . . . . . . . . . . . . . . . I-44
Principal Adjustment . . . . . . . . . . . . . . . . . . . . . . . . I-45
Principal Prepayment . . . . . . . . . . . . . . . . . . . . . . . . I-45
Prohibited Transaction Tax . . . . . . . . . . . . . . . . . . . . . I-45
Prudent Servicing Practices. . . . . . . . . . . . . . . . . . . . . I-45
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . I-45
Realized Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . I-45
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
Relevant Anniversary . . . . . . . . . . . . . . . . . . . . . . . . I-46
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
REMIC Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
Remittance Date. . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
REO Mortgage Loan. . . . . . . . . . . . . . . . . . . . . . . . . . I-46
REO Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
Request for Release. . . . . . . . . . . . . . . . . . . . . . . . . I-46
Responsible Officer. . . . . . . . . . . . . . . . . . . . . . . . . I-46
Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
Scheduled Principal Amount . . . . . . . . . . . . . . . . . . . . . I-46
Scheduled Principal Balance. . . . . . . . . . . . . . . . . . . . . I-46
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . I-47
Senior Optimal Amount. . . . . . . . . . . . . . . . . . . . . . . . I-47
Servicer Mortgage Loan File. . . . . . . . . . . . . . . . . . . . . I-47
Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . I-47
Servicing Agreements . . . . . . . . . . . . . . . . . . . . . . . . I-47
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . I-47
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . I-47
Servicing Officer. . . . . . . . . . . . . . . . . . . . . . . . . . I-47
Similar Law . . . . . . . . . . . . . . . . . . . . . . . . . . . I-47
Single Certificate . . . . . . . . . . . . . . . . . . . . . . . . . I-47
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Special Hazard Loss. . . . . . . . . . . . . . . . . . . . . . . . . I-47
Special Hazard Loss Amount . . . . . . . . . . . . . . . . . . . . . I-47
Special Hazard Percentage. . . . . . . . . . . . . . . . . . . . . . I-47
Startup Day . . . . . . . . . . . . . . . . . . . . . . . . . . . I-47
Subclass . . . . . . . . . . . . . . . . . . . . . . . . . . . I-47
Subordinated Percentage. . . . . . . . . . . . . . . . . . . . . . . I-47
Subordinated Prepayment Percentage . . . . . . . . . . . . . . . . . I-48
Subsidy Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
Substitution Principal Amount. . . . . . . . . . . . . . . . . . . . I-49
TAC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
TAC Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . I-49
T.O.P. Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . I-49
Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
Trustee Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
Trustee Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
Voting Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
Weighted Average Net Mortgage Interest Rate. . . . . . . . . . . . . I-50
Section 1.02. Acts of Holders . . . . . . . . . . . . . . . . . . . I-50
Section 1.03. Effect of Headings and Table of Contents. . . . . . . I-51
Section 1.04. Benefits of Agreement . . . . . . . . . . . . . . . . I-51
ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL
ISSUANCE OF THE CERTIFICATES . . . . . . . . . . . . II-1
Section 2.01. Conveyance of Mortgage Loans . . . . . . . . . . . . II-1
Section 2.02. Acceptance by Trustee . . . . . . . . . . . . . . . . II-2
Section 2.05. Representations and Warranties of the Master
Servicer. . . . . . . . . . . . . . . . . . . . . . II-3
Section 2.06. Execution and Delivery of Certificates . . . . . . . II-9
Section 2.07. Designation of Certificates; Designation
of Startup Day and Latest Possible
Maturity Date . . . . . . . . . . . . . . . . . . . II-9
ARTICLE III ADMINISTRATION OF THE TRUST ESTATE:
SERVICING OF THE MORTGAGE LOANS . . . . . . . . . . III-1
Section 3.01. Certificate AccountII . . . . . . . . . . . . . . . . III-1
Section 3.02. Permitted Withdrawals from the
Certificate Account . . . . . . . . . . . . . . . . III-2
Section 3.03. Advances by Master Servicer and Trustee . . . . . . . III-3
Section 3.04. Trustee to Cooperate; Release of
Owner Mortgage Loan Files . . . . . . . . . . . . . III-4
Section 3.05. Reports to the Trustee;
Annual Compliance Statements. . . . . . . . . . . . III-5
Section 3.06. Title, Management and Disposition of
Any REO Mortgage Loan . . . . . . . . . . . . . . . III-6
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Section 3.07. Amendments to Servicing Agreements,
Modification of Standard Provisions . . . . . . . . III-7
Section 3.08. Oversight of Servicing. . . . . . . . . . . . . . . . III-7
Section 3.09. Termination and Substitution of Servicing
Agreements . . . . . . . . . . . . . . . . . . . . III-10
Section 3.10. 1934 Act Reports. . . . . . . . . . . . . . . . . . . III-10
ARTICLE IV DISTRIBUTIONS IN RESPECT OF CERTIFICATES;
PAYMENTS TO CERTIFICATEHOLDERS;
STATEMENTS AND REPORTS. . . . . . . . . . . . . . . . IV-1
Section 4.01. Distributions . . . . . . . . . . . . . . . . . . . . IV-1
Section 4.02. Allocation of Realized Losses . . . . . . . . . . . . IV-8
Section 4.03. Paying Agent. . . . . . . . . . . . . . . . . . . . . IV-10
Section 4.04. Statements to Certificateholders;
Report to the Trustee and
the Seller. . . . . . . . . . . . . . . . . . . . . IV-11
Section 4.05. Reports to Mortgagors and the Internal
Revenue Service . . . . . . . . . . . . . . . . . . IV-15
ARTICLE V THE CERTIFICATES. . . . . . . . . . . . . . . . . . . V-1
Section 5.01. The Certificates. . . . . . . . . . . . . . . . . . . V-1
Section 5.02. Registration of Transfer and Exchange of
Certificates. . . . . . . . . . . . . . . . . . . . V-3
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates . . V-6
Section 5.04. Persons Deemed Owners . . . . . . . . . . . . . . . . V-6
Section 5.05. Access to List of Certificateholders'
Names and Addresses . . . . . . . . . . . . . . . . V-6
Section 5.06. Maintenance of Office or Agency . . . . . . . . . . . V-7
Section 5.07. Definitive Certificates . . . . . . . . . . . . . . . V-7
Section 5.08. Notices to Clearing Agency. . . . . . . . . . . . . . V-8
ARTICLE VI THE SELLER AND THE MASTER SERVICER. . . . . . . . . . VI-1
Section 6.01. Liability of the Seller and the
Master Servicer . . . . . . . . . . . . . . . . . . VI-1
Section 6.02. Merger or Consolidation of the Seller
or the Master Servicer. . . . . . . . . . . . . . . VI-1
Section 6.03. Limitation on Liability of the Seller,
the Master Servicer and Others. . . . . . . . . . . VI-1
Section 6.04. Resignation of the Master Servicer. . . . . . . . . . VI-2
Section 6.05. Compensation to the Master Servicer . . . . . . . . . VI-2
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Section 6.06. Assignment or Delegation of Duties by
Master Servicer . . . . . . . . . . . . . . . . . . VI-2
ARTICLE VIIDEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
Section 7.01. Events of Default . . . . . . . . . . . . . . . . . . VII-1
Section 7.02. Other Remedies of Trustee . . . . . . . . . . . . . . VII-2
Section 7.03. Directions by Certificateholders and Duties
of Trustee During Event of Default. . . . . . . . . VII-2
Section 7.04. Action upon Certain Failures of the Master
Servicer and upon Event of Default. . . . . . . . . VII-3
Section 7.05. Trustee to Act; Appointment of Successor. . . . . . . VII-3
Section 7.06. Notification to Certificateholders. . . . . . . . . . VII-5
ARTICLE VIII CONCERNING THE TRUSTEE. . . . . . . . . . . . . . . . VIII-1
Section 8.01. Duties of Trustee . . . . . . . . . . . . . . . . . . VIII-1
Section 8.02. Certain Matters Affecting the Trustee . . . . . . . . VIII-2
Section 8.03. Trustee Not Required to Make Investigation. . . . . . VIII-2
Section 8.04. Trustee Not Liable for Certificates or Mortgage Loans VIII-3
Section 8.05. Trustee May Own Certificates. . . . . . . . . . . . . VIII-3
Section 8.06. Compensation of the Trustee . . . . . . . . . . . . . VIII-3
Section 8.07. Eligibility Requirements. . . . . . . . . . . . . . . VIII-3
Section 8.08. Resignation and Removal . . . . . . . . . . . . . . . VIII-3
Section 8.09. Successor . . . . . . . . . . . . . . . . . . . . . . VIII-4
Section 8.10. Merger or Consolidation . . . . . . . . . . . . . . . VIII-5
Section 8.11. Authenticating Agent. . . . . . . . . . . . . . . . . VIII-5
Section 8.12. Separate Trustees and Co-Trustees . . . . . . . . . . VIII-6
Section 8.13. Appointment of Custodians . . . . . . . . . . . . . . VIII-7
Section 8.14. Tax Matters; Compliance with REMIC Provisions . . . . VIII-8
Section 8.15. Monthly Advances. . . . . . . . . . . . . . . . . . .VIII-10
ARTICLE IX TERMINATION . . . . . . . . . . . . . . . . . . . . . IX-1
Section 9.01. Termination upon Purchase by the Seller
or Liquidation of All
Mortgage Loans. . . . . . . . . . . . . . . . . . . IX-1
Section 9.02. Additional Termination Requirements . . . . . . . . . IX-3
ARTICLE X MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . X-1
Section 10.01. Amendment . . . . . . . . . . . . . . . . . . . . . . X-1
Section 10.02. Recordation of Agreement. . . . . . . . . . . . . . . X-2
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Section 10.03. Limitation on Rights of Certificateholders. . . . . . X-2
Section 10.04. Governing Law; Jurisdiction . . . . . . . . . . . . . X-3
Section 10.05. Notices . . . . . . . . . . . . . . . . . . . . . . . X-3
Section 10.06. Severability of Provisions. . . . . . . . . . . . . . X-4
Section 10.07. Special Notices to Rating Agencies. . . . . . . . . . X-4
Section 10.08. Covenant of Seller. . . . . . . . . . . . . . . . . . X-5
Section 10.09. Recharacterization. . . . . . . . . . . . . . . . . . X-5
ARTICLE XI TERMS FOR CERTIFICATES. . . . . . . . . . . . . . . . XI-1
Section 11.01. Class A Fixed Pass-Through Rate . . . . . . . . . . . XI-1
Section 11.02. Cut-Off Date. . . . . . . . . . . . . . . . . . . . . XI-1
Section 11.03. Cut-Off Date Aggregate Principal Balance. . . . . . . XI-1
Section 11.04. Original Class A Percentage . . . . . . . . . . . . . XI-1
Section 11.05. Original Class A Subclass Principal Balances. . . . . XI-1
Section 11.06. Original Class A Principal Balance. . . . . . . . . . XI-1
Section 11.07. Original Class AP Principal Balance . . . . . . . . . XI-1
Section 11.08. Original Class M Percentage . . . . . . . . . . . . . XI-1
Section 11.09. Original Class M Principal Balance. . . . . . . . . . XI-1
Section 11.10. Original Class M Fractional Interest. . . . . . . . . XI-1
Section 11.11. Master Servicing Fee Rate . . . . . . . . . . . . . . XI-2
Section 11.12. Original Class B-1 Percentage . . . . . . . . . . . . XI-2
Section 11.13. Original Class B-2 Percentage . . . . . . . . . . . . XI-2
Section 11.14. Original Class B-3 Percentage . . . . . . . . . . . . XI-2
Section 11.15. Original Class B-4 Percentage . . . . . . . . . . . . XI-2
Section 11.16. Original Class B-5 Percentage . . . . . . . . . . . . XI-2
Section 11.17. Original Class B Principal Balance. . . . . . . . . . XI-2
Section 11.18. Original Class B Subclass Principal Balances. . . . . XI-2
Section 11.19. Original Class B-1 Fractional Interest. . . . . . . . XI-2
Section 11.20. Original Class B-2 Fractional Interest. . . . . . . . XI-2
Section 11.21. Original Class B-3 Fractional Interest. . . . . . . . XI-2
Section 11.22. Original Class B-4 Fractional Interest. . . . . . . . XI-2
Section 11.23. Original Subordinated Percentage. . . . . . . . . . . XI-3
Section 11.24. Closing Date. . . . . . . . . . . . . . . . . . . . . XI-3
Section 11.25. Right to Purchase . . . . . . . . . . . . . . . . . . XI-3
Section 11.26. Wire Transfer Eligibility . . . . . . . . . . . . . . XI-3
Section 11.27. Single Certificate. . . . . . . . . . . . . . . . . . XI-3
Section 11.28. Servicing Fee Rate. . . . . . . . . . . . . . . . . . XI-3
Section 11.29. Trustee Fee Rate. . . . . . . . . . . . . . . . . . . XI-3
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EXHIBITS
EXHIBIT A-1 - Form of Face of Class A-1 Certificate
EXHIBIT A-2 - Form of Face of Class A-2 Certificate
EXHIBIT A-3 - Form of Face of Class A-3 Certificate
EXHIBIT A-4 - Form of Face of Class A-4 Certificate
EXHIBIT A-5 - Form of Face of Class A-5 Certificate
EXHIBIT A-R - Form of Face of Class A-R Certificate
EXHIBIT B-1 - Form of Face of Class B-1 Certificate
EXHIBIT B-2 - Form of Face of Class B-2 Certificate
EXHIBIT B-3 - Form of Face of Class B-3 Certificate
EXHIBIT B-4 - Form of Face of Class B-4 Certificate
EXHIBIT B-5 - Form of Face of Class B-5 Certificate
EXHIBIT C-1 - Form of Face of Class AP Certificate
EXHIBIT C - Form of Face of Class M Certificate
EXHIBIT D - Form of Reverse of Series 199_-__ Certificates
EXHIBIT E - Custodial Agreement
EXHIBIT F-1 - Schedule of Mortgage Loans Serviced by Norwest Mortgage
EXHIBIT F-2 - Schedule of Mortgage Loans Serviced by Other Servicers
EXHIBIT G - Request for Release
EXHIBIT H - Affidavit Pursuant to Section 860E(e)(4) of
the Internal Revenue Code of 1986, as amended, and for
Non-ERISA Investors
EXHIBIT I - Letter from Transferor of Residual Certificates
EXHIBIT J - Transferee's Letter (Class [B-1] [B-2] [B-3] [B-4] [B-5]
Certificates)
EXHIBIT K - Transferee's Letter (Class M Certificates)
EXHIBIT L - Servicing Agreements
EXHIBIT M Form of Special Servicing Agreement
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This Pooling and Servicing Agreement, dated as of ___________, 199_
executed by NORWEST ASSET SECURITIES CORPORATION, as Seller, NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, as Master Servicer, and [TRUSTEE], as Trustee.
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the
Seller, the Master Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. Whenever used herein, the following words
and phrases, unless the context otherwise requires, shall have the meanings
specified in this Article.
ACCEPTED MASTER SERVICING PRACTICES: Accepted Master Servicing
Practices shall consist of the customary and usual master servicing practices of
prudent master servicing institutions which service mortgage loans of the same
type as the Mortgage Loans in the jurisdictions in which the related Mortgaged
Properties are located, regardless of the date upon which the related Mortgage
Loans were originated.
ADJUSTED POOL AMOUNT: With respect to any Distribution Date, the Cut-
Off Date Aggregate Principal Balance of the Mortgage Loans minus the sum of (i)
all amounts in respect of principal received in respect of the Mortgage Loans
(including, without limitation, amounts received as Monthly Payments, Periodic
Advances, Liquidation Proceeds, Principal Prepayments, Substitution Principal
Amounts and Net REO Proceeds) and distributed to Holders of the Certificates on
such Distribution Date and all prior Distribution Dates and (ii) the principal
portion of all Realized Losses (other than Debt Service Reductions) incurred on
the Mortgage Loans from the Cut-Off Date through the end of the month preceding
such Distribution Date.
ADJUSTED POOL AMOUNT (CLASS AP PORTION): With respect to any
Distribution Date, the sum of the amounts, calculated as follows, with respect
to all Outstanding Mortgage Loans: the product of (i) the Class AP Fraction for
each such Mortgage Loan and (ii) the remainder of (A) the Cut-Off Date Principal
Balance of such Mortgage Loan minus (B) the sum of (x) all amounts in respect of
principal received in respect of such Mortgage Loan (including, without
limitation, amounts received as Monthly Payments, Periodic Advances, Liquidation
Proceeds, Principal Prepayments, Substitution Principal Amounts and Net REO
Proceeds) and distributed to Holders of the Certificates on such Distribution
Date and all prior Distribution Dates and (y) the principal portion of any
Realized Loss (other than a Debt
<PAGE>
Service Reduction) incurred on such Mortgage Loan from the Cut-Off Date through
the end of the month preceding such Distribution Date.
ADJUSTED PRINCIPAL BALANCE: As to any Distribution Date and the Class
M Certificates or any Class B Subclass, the greater of (A) zero and (B) (i) the
principal balance of such Class or Subclass with respect to such Distribution
Date minus (ii) the Adjustment Amount for such Distribution Date less, with
respect to the Class M Certificates, the Class B Principal Balance and, with
respect to any Class B Subclass, the Class B Subclass Principal Balances for any
Class B Subclasses with higher numerical designations.
ADJUSTMENT AMOUNT: For any Distribution Date, the difference between
(A) the sum of the Class A Principal Balance, Class AP Principal Balance, Class
M Principal Balance and Class B Principal Balance as of the related
Determination Date and (B) the sum of (i) the sum of the Class A Principal
Balance, Class AP Principal Balance, Class M Principal Balance and Class B
Principal Balance as of the Determination Date succeeding such Distribution
Date, (ii) the principal portion of Excess Special Hazard Losses, Excess Fraud
Losses and Excess Bankruptcy Losses allocated to the Certificates with respect
to such Distribution Date and (iii) the aggregate amount that would have been
distributed to all Classes as principal in accordance with Section 4.01(a) for
such Distribution Date without regard to the provisos in the definitions of
Class M Optimal Principal Amount, Class B-1 Optimal Principal Amount, Class B-2
Optimal Principal Amount, Class B-3 Optimal Principal Amount, Class B-4 Optimal
Principal Amount and Class B-5 Optimal Principal Amount.
AGGREGATE CURRENT BANKRUPTCY LOSSES: With respect to any Distribution
Date, the sum of all Bankruptcy Losses incurred on any of the Mortgage Loans in
the month preceding the month of such Distribution Date.
AGGREGATE CURRENT FRAUD LOSSES: With respect to any Distribution
Date, the sum of all Fraud Losses incurred on any of the Mortgage Loans in the
month preceding the month of such Distribution Date.
AGGREGATE CURRENT SPECIAL HAZARD LOSSES: With respect to any
Distribution Date, the sum of all Special Hazard Losses incurred on any of the
Mortgage Loans in the month preceding the month of such Distribution Date.
AGGREGATE FORECLOSURE PROFITS: As to any Distribution Date, the
aggregate amount of Foreclosure Profits with respect to all of the Mortgage
Loans.
AGREEMENT: This Pooling and Servicing Agreement and all amendments
and supplements hereto.
AMOUNT HELD FOR FUTURE DISTRIBUTION: As to any Distribution Date, the
total of the amounts held in the Custodial P&I Accounts or Certificate Account
on account of (a)(i) Principal Prepayments and all related payments of interest
received on or after the Determination Date occurring in the month of such
Distribution Date, (ii) Liquidation Proceeds (other than Partial Liquidation
Proceeds) received in the month of such Distribution
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<PAGE>
Date, (iii) Partial Liquidation Proceeds received on or after the
Determination Date occurring in the month of such Distribution Date and (iv)
amounts received from the Seller pursuant to Section 2.02 or Section 2.03 in
the month of such Distribution
Date and (b) payments which represent early receipt of scheduled payments of
principal and interest due on a date or dates subsequent to the related Due
Date.
AUTHENTICATING AGENT: Any authenticating agent appointed by the
Trustee pursuant to Section 8.11. There shall initially be no Authenticating
Agent for the Certificates.
BANKRUPTCY CODE: The Bankruptcy Code of 1978, as amended.
BANKRUPTCY LOSS: With respect to any Mortgage Loan, a Deficient
Valuation or Debt Service Reduction; PROVIDED, HOWEVER, that a Bankruptcy Loss
shall not be deemed a Bankruptcy Loss hereunder so long as the applicable
Servicer has notified the Master Servicer and the Trustee in writing that such
Servicer is diligently pursuing any remedies that may exist in connection with
the representations and warranties made regarding the related Mortgage Loan and
either (A) the related Mortgage Loan is not in default with regard to payments
due thereunder or (B) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable primary hazard
insurance policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by such Servicer without giving
effect to any Debt Service Reduction.
BANKRUPTCY LOSS AMOUNT: As of any Distribution Date prior to the
first anniversary of the Cut-Off Date, the Bankruptcy Loss Amount will equal
$___________ minus the aggregate amount of Bankruptcy Losses allocated solely to
the Class B Certificates or, following the reduction of the Class B Principal
Balance to zero, solely to the Class M Certificates in accordance with Section
4.02(a) since the Cut-Off Date. As of any Distribution Date on or after the
first anniversary of the Cut-Off Date, an amount equal to (1) the lesser of (a)
the Bankruptcy Loss Amount calculated as of the close of business on the
Business Day immediately preceding the most recent anniversary of the Cut-Off
Date coinciding with or preceding such Distribution Date (the "Relevant
Anniversary") and (b) such lesser amount which, as determined on the Relevant
Anniversary will not cause any rated Certificates to be placed on credit review
status (other than for possible upgrading) by either Rating Agency minus (2) the
aggregate amount of Bankruptcy Losses allocated solely to the Class B
Certificates or, following the reduction of the Class B Principal Balance to
zero, solely to the Class M Certificates in accordance with Section 4.02(a)
since the Relevant Anniversary. On and after the Cross-Over Date the Bankruptcy
Loss Amount shall be zero.
BENEFICIAL OWNER: With respect to a Book-Entry Certificate, the
Person who is the beneficial owner of such Book-Entry Certificate, as reflected
on the books of the Clearing Agency, or on the books of a Person maintaining an
account with such Clearing Agency (directly or as an indirect participant, in
accordance with the rules of such Clearing Agency), as the case may be.
BOOK-ENTRY CERTIFICATE: Any of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates or Class A-5
Certificates, beneficial
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<PAGE>
ownership and transfers of which shall be evidenced by, and made through, book
entries by the Clearing Agency as described in Section 5.01(b).
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday, or (ii)
a legal holiday in the City of New York, State of Iowa, State of Maryland, State
of Minnesota or State of Missouri or (iii) a day on which banking institutions
in the City of New York, or the State of Iowa, State of Maryland, State of
Minnesota or State of Missouri are authorized or obligated by law or executive
order to be closed.
CERTIFICATE: Any one of the Class A Certificates, Class AP
Certificates, Class M Certificates or Class B Certificates.
CERTIFICATE ACCOUNT: The trust account established and maintained by
the Master Servicer in the name of the Master Servicer on behalf of the Trustee
pursuant to Section 3.01. The Certificate Account shall be an Eligible Account.
CERTIFICATE REGISTER AND CERTIFICATE REGISTRAR: Respectively, the
register maintained pursuant to and the registrar provided for in Section 5.02.
The initial Certificate Registrar is the Trustee.
CERTIFICATEHOLDER OR HOLDER: The Person in whose name a Certificate
is registered in the Certificate Register, except that, solely for the purposes
of the taking of any action under Articles VII or VIII, any Certificate
registered in the name of the Master Servicer, a Servicer or any affiliate
thereof shall be deemed not to be outstanding and the Voting Interest evidenced
thereby shall not be taken into account in determining whether the requisite
percentage of Certificates necessary to effect any such action has been
obtained.
CLASS: All certificates whose form is identical except for (i)
variations in the Percentage Interest evidenced thereby and (ii) in the case of
the Class A Certificates and Class B Certificates, variations in Subclass
designation and other Subclass characteristics.
CLASS A CERTIFICATE: Any one of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates or Class A-R Certificate.
CLASS A CERTIFICATEHOLDER: The registered holder of a Class A
Certificate.
CLASS A DISTRIBUTION AMOUNT: As to any Distribution Date, the
aggregate amount distributable to the Subclasses of Class A Certificates
pursuant to paragraphs FIRST, SECOND and THIRD clause (A) of Section 4.01(a) on
such Distribution Date.
CLASS A FIXED PASS-THROUGH RATE: As to any Distribution Date, the
rate per annum set forth in Section 11.01.
CLASS A INTEREST ACCRUAL AMOUNT: As to any Distribution Date, the sum
of the Class A Subclass Interest Accrual Amounts with respect to such
Distribution Date.
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<PAGE>
CLASS A OPTIMAL AMOUNT: As to any Distribution Date, the sum for such
Distribution Date of (i) the Class A Interest Accrual Amount, (ii) the sum of
the Class A Subclass Unpaid Interest Shortfalls for each Class A Subclass and
(iii) the Class A Optimal Principal Amount.
CLASS A OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Classes A/M/B Fraction with respect to such Mortgage Loan, and (y) the
sum of:
(i) the Class A Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class A Prepayment Percentage of the Scheduled Principal
Balance of each Mortgage Loan that was repurchased by the Seller during
such preceding month pursuant to Section 2.02 or 2.03, net of any
unreimbursed Periodic Advances in respect of principal previously made by
the Servicer, Master Servicer or Trustee with respect to such Mortgage
Loan;
(iii) the Class A Prepayment Percentage of (a) the aggregate Net
Liquidation Proceeds (other than Net Partial Liquidation Proceeds) of any
such Mortgage Loan that became a Liquidated Loan in the month preceding the
month of such Distribution Date (excluding the portion thereof, if any,
constituting Net Foreclosure Profits) less the sum of (A) any unreimbursed
Periodic Advances in respect of principal previously made by the Servicer,
the Master Servicer or the Trustee with respect to such Liquidated Loan and
(B) the portion of the Net Liquidation Proceeds allocable to interest and
(b) the aggregate Net Partial Liquidation Proceeds on any such Mortgage
Loan received by a Servicer during the related Partial Liquidation Receipt
Period, less the sum of (A) the amounts allocable to principal of any
unreimbursed Periodic Advances previously made by such Servicer, the Master
Servicer or the Trustee and (B) the portion of the Net Partial Liquidation
Proceeds allocable to interest;
(iv) the Class A Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan if such Mortgage Loan was the subject of a
Prepayment in Full during the period from and including the Determination
Date in the month preceding the month of such Distribution Date up to (but
not including) the Determination Date occurring in the month of such
Distribution Date;
(v) the Class A Prepayment Percentage of all partial principal
prepayments received on or after the Determination Date occurring in the
month preceding the month in which such Distribution Date occurs and prior
to the Determination Date occurring in the month in which such Distribution
Date occurs; and
(vi) the Class A Percentage of the difference between the unpaid
principal balance of such Mortgage Loan substituted for a defective
Mortgage Loan during the
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<PAGE>
month preceding the month in which such Distribution Date occurs and the
unpaid principal balance of such defective Mortgage Loan, less the amount
allocable to the principal portion of any unreimbursed Periodic Advances
previously made by the Servicer, the Master Servicer or the Trustee in
respect of such defective Mortgage Loan.
CLASS A PERCENTAGE: As to any Distribution Date occurring on or prior
to the Cross-Over Date, the lesser of (i) 100% and (ii) the percentage obtained
by dividing the Class A Principal Balance (determined as of the Determination
Date preceding such Distribution Date) by the Pool Balance (Classes A/M/B
Portion). As to any Distribution Date occurring subsequent to the Cross-Over
Date, 100% or such lesser percentage which will cause the Class A Principal
Balance to decline to zero following the distribution made on such Distribution
Date.
CLASS A PREPAYMENT PERCENTAGE: As to any Distribution Date to and
including the Distribution Date in ________ 200_, 100%. As to any Distribution
Date subsequent to ________ 200_ to and including the Distribution Date in
________ 200_, the Class A Percentage as of such Distribution Date plus 70% of
the Subordinated Percentage as of such Distribution Date. As to any
Distribution Date subsequent to ________ 200_ to and including the Distribution
Date in ________ 200_, the Class A Percentage as of such Distribution Date plus
60% of the Subordinated Percentage as of such Distribution Date. As to any
Distribution Date subsequent to ________ 200_ to and including the Distribution
Date in ________ 200_, the Class A Percentage as of such Distribution Date plus
40% of the Subordinated Percentage as of such Distribution Date. As to any
Distribution Date subsequent to ________ 200_ to and including the Distribution
Date in ________ 200_, the Class A Percentage as of such Distribution Date plus
20% of the Subordinated Percentage as of such Distribution Date. As to any
Distribution Date subsequent to ________ 200_, the Class A Percentage as of such
Distribution Date. The foregoing is subject to the following: (i) if the
aggregate distribution to Holders of Class A Certificates on any Distribution
Date of the Class A Prepayment Percentage provided above of (a) Principal
Prepayments distributable on such Distribution Date, (b) the principal portion
of Net Partial Liquidation Proceeds (excluding any amount constituting Net
Foreclosure Profits) of each Mortgage Loan which became a Liquidated Loan during
the month preceding the month of such Distribution Date or (c) Net Partial
Liquidation Proceeds received during the Partial Liquidation Receipt Period,
would reduce the Class A Principal Balance below zero, the Class A Prepayment
Percentage for such Distribution Date shall be the percentage necessary to bring
the Class A Principal Balance to zero and thereafter the Class A Prepayment
Percentage shall be zero and (ii) if the Class A Percentage as of any
Distribution Date is greater than the Original Class A Percentage, the Class A
Prepayment Percentage for such Distribution Date shall be 100%. Notwithstanding
the foregoing, with respect to any Distribution Date on which the following
criteria are not met, the reduction of the Class A Prepayment Percentage
described in the second through sixth sentences of this definition of Class A
Prepayment Percentage shall not be applicable with respect to such Distribution
Date. In such event, the Class A Prepayment Percentage for such Distribution
Date will be determined in accordance with the applicable provision, as set
forth in the first through fifth sentences above, which was actually used to
determine the Class A Prepayment
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<PAGE>
Percentage for the Distribution Date occurring in the ________ preceding such
Distribution Date (it being understood that for the purposes of the
determination of the Class A Prepayment Percentage for the current Distribution
Date, the current Class A Percentage and Subordinated Percentage shall be
utilized). In order for the reduction referred to in the second through sixth
sentences to be applicable, with respect to any Distribution Date (a) the
average outstanding principal balance on such Distribution Date and for the
preceding five Distribution Dates on the Mortgage Loans that were delinquent 60
days or more (including for this purpose any payments due with respect to
Mortgage Loans in foreclosure and REO Mortgage Loans) must be less than 50% of
the sum of the current Class M Principal Balance and the current Class B
Principal Balance and (b) cumulative Realized Losses shall not exceed (1) 30% of
the Original Subordinated Principal Balance if such Distribution Date occurs
between and including ________ 200_ and ________ 200_, (2) 35% of the Original
Subordinated Principal Balance if such Distribution Date occurs between and
including ________ 200_ and ________ 200_, (3) 40% of the Original Subordinated
Principal Balance if such Distribution Date occurs between and including
________ 200_ and ________ 200_, (4) 45% of the Original Subordinated Principal
Balance if such Distribution Date occurs between and including ________ 200_
and ________ 200_, and (5) 50% of the Original Subordinated Principal Balance if
such Distribution Date occurs during or after ________ 200_. With respect to
any Distribution Date on which the Class A Prepayment Percentage is reduced
below the Class A Prepayment Percentage for the prior Distribution Date, the
Master Servicer shall certify to the Trustee, based upon information provided by
each Servicer as to the Mortgage Loans serviced by it that the criteria set
forth in the preceding sentence are met.
CLASS A PRINCIPAL BALANCE: As of any date, an amount equal to the sum
of the Class A Subclass Principal Balances for the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates and Class A-R Certificate.
CLASS A PRINCIPAL DISTRIBUTION AMOUNT: As to any Distribution Date,
the aggregate amount distributed in respect of the Class A Subclasses pursuant
to Paragraph THIRD clause (A) of Section 4.01(a).
CLASS A SUBCLASS: Any of the Subclasses of Class A Certificates
consisting of the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates, Class A-4 Certificates, Class A-5 Certificates and Class A-R
Certificate.
CLASS A SUBCLASS DISTRIBUTION AMOUNT: As to any Distribution Date and
any Class A Subclass, the amount distributable to such Class A Subclass pursuant
to Paragraphs FIRST, SECOND and THIRD clause (A) of Section 4.01(a).
CLASS A SUBCLASS INTEREST ACCRUAL AMOUNT: As to any Distribution Date
and any Class A Subclass, (i) the product of (a) 1/12th of the Class A Subclass
Pass-Through Rate for such Class A Subclass and (b) the Class A Subclass
Principal Balance of such Class A Subclass as of the Determination Date
preceding such Distribution Date minus (ii) the Class A Subclass Interest
Percentage of such Class A Subclass of (x) any Non-Supported Interest
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Shortfall allocated to the Class A Certificates with respect to such
Distribution Date, (y) the interest portion of any Excess Special Hazard Losses,
Excess Fraud Losses and Excess Bankruptcy Losses allocated to the Class A
Certificates with respect to such Distribution Date pursuant to Section 4.02(e)
and (z) the interest portion of any Realized Losses (other than Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses) allocated to
the Class A Certificates on or after the Cross-Over Date pursuant to Section
4.02(e).
CLASS A SUBCLASS INTEREST PERCENTAGE: As to any Distribution Date and
any Class A Subclass, the percentage calculated by dividing the Class A Subclass
Interest Accrual Amount of such Class A Subclass (determined without regard to
clause (ii) of the definition thereof) by the Class A Interest Accrual Amount
(determined without regard to clause (ii) of the definition of each Class A
Subclass Interest Accrual Amount).
CLASS A SUBCLASS INTEREST SHORTFALL AMOUNT: As to any Distribution
Date and any Subclass of Class A Certificates, any amount by which the Class A
Subclass Interest Accrual Amount of such Class A Subclass with respect to such
Distribution Date exceeds the amount distributed in respect of such Class A
Subclass on such Distribution Date pursuant to Paragraph FIRST of Section
4.01(a).
CLASS A SUBCLASS LOSS PERCENTAGE: As to any Determination Date and
any Subclass of Class A Certificates then outstanding, the percentage calculated
by dividing the Class A Subclass Principal Balance of such Subclass by the Class
A Principal Balance (determined without regard to any Class A Subclass Principal
Balance of any Subclass of Class A Certificates not then outstanding), in each
case determined as of the preceding Determination Date.
CLASS A SUBCLASS PASS-THROUGH RATE: As to each Class A Subclass, the
Class A Fixed Pass-Through Rate.
CLASS A SUBCLASS PRINCIPAL BALANCE: As of the first Determination
Date and as to any Class A Subclass, the Original Class A Subclass Principal
Balance of such Class A Subclass. As of any subsequent Determination Date prior
to the Cross-Over Date and as to any Class A Subclass, the Original Class A
Subclass Principal Balance of such Class A Subclass less the sum of (a) all
amounts previously distributed in respect of such Class A Subclass on prior
Distribution Dates (A) pursuant to Paragraph THIRD clause (A) of Section 4.01(a)
and (B) as a result of a Principal Adjustment and (b) all amounts previously
allocated to such Class A Subclass with respect to prior Distribution Dates
pursuant to Section 4.02(b). After the Cross-Over Date, each Class A Subclass
Principal Balance will also be reduced on each Determination Date by an amount
equal to the product of the Class A Subclass Loss Percentage of such Class A
Subclass and the excess, if any, of (i) the Class A Principal Balance for such
Determination Date without regard to this sentence over (ii) the difference
between (A) the Adjusted Pool Amount for the preceding Distribution Date and (B)
the Adjusted Pool Amount (Class AP Portion) for the preceding Distribution Date.
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CLASS A SUBCLASS SHORTFALL PERCENTAGE: As to any Distribution Date
and Class A Subclass, the percentage calculated by dividing the Class A Subclass
Unpaid Interest Shortfall for such Class A Subclass by the Class A Unpaid
Interest Shortfall, in each case determined as of the day preceding the
applicable Distribution Date.
CLASS A SUBCLASS UNPAID INTEREST SHORTFALL: As to any Distribution
Date and Class A Subclass, the amount, if any, by which the aggregate of the
Class A Subclass Interest Shortfall Amounts for such Class A Subclass for prior
Distribution Dates is in excess of the amounts distributed in respect of such
Class A Subclass on prior Distribution Dates pursuant to Paragraph SECOND of
Section 4.01(a).
CLASS A UNPAID INTEREST SHORTFALL: As to any Distribution Date, an
amount equal to the sum of the Class A Subclass Unpaid Interest Shortfalls for
all the Class A Subclasses.
CLASS A VOTING INTEREST: The product of (i) the then applicable Class
A Percentage and (ii) the Classes A/M/B Voting Interest.
CLASS A-1 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit A-1 and Exhibit D hereto.
CLASS A-1 CERTIFICATEHOLDER: The registered holder of a Class A-1
Certificate.
CLASS A-2 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit A-2 and Exhibit D hereto.
CLASS A-2 CERTIFICATEHOLDER: The registered holder of a Class A-2
Certificate.
CLASS A-3 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit A-3 and Exhibit D hereto.
CLASS A-3 CERTIFICATEHOLDER: The registered holder of a Class A-3
Certificate.
CLASS A-4 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit A-4 and Exhibit D hereto.
CLASS A-4 CERTIFICATEHOLDER: The registered holder of a Class A-4
Certificate.
CLASS A-5 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit A-5 and Exhibit D hereto.
CLASS A-5 CERTIFICATEHOLDER: The registered holder of a Class A-5
Certificate.
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CLASS A-R CERTIFICATE: The Certificate executed by the Trustee and
authenticated by the Trustee or the Authenticating Agent in substantially the
form set forth in Exhibit A-R and Exhibit D hereto.
CLASS A-R CERTIFICATEHOLDER: The registered holder of the Class A-R
Certificate.
CLASS AP CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit C and Exhibit D hereto.
CLASS AP CERTIFICATEHOLDER: The registered holder of a Class AP
Certificate.
CLASS AP DEFERRED AMOUNT: For any Distribution Date prior to the
Cross-Over Date, the difference between (A) the sum of (i) the amount by which
the sum of the Class AP Optimal Principal Amounts for all prior Distribution
Dates exceeded the amounts distributed on the Class AP Certificates on such
prior Distribution Dates pursuant to Paragraph THIRD clause (B) of Section
4.01(a) and (ii) the sum of the product for each Discount Mortgage Loan which
became a Liquidated Loan in any month preceding the month of the current
Distribution Date of (a) the Class AP Fraction for such Discount Mortgage Loan
and (b) an amount equal to the principal portion of Realized Losses (other than
Bankruptcy Losses due to Debt Service Reductions) incurred with respect to such
Mortgage Loan other than Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses and (B) amounts distributed on the Class AP
Certificates on prior Distribution Dates pursuant to Paragraph FOURTH of Section
4.01(a). On or after the Cross-Over Date, the Class AP Deferred Amount will be
zero. No interest will accrue on any Class AP Deferred Amount.
CLASS AP DISTRIBUTION AMOUNT: As to any Distribution Date, the
aggregate amount distributable to the Class AP Certificates pursuant to
Paragraphs THIRD clause (B) and FOURTH of Section 4.01(a) on such Distribution
Date.
CLASS AP FRACTION: With respect to any Discount Mortgage Loan, the
difference between 1.0 and the Classes A/M/B Fraction for such Mortgage Loan;
with respect to any other Mortgage Loan, zero.
CLASS AP OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum as to each Outstanding Mortgage Loan, of the product of
(x) the Class AP Fraction with respect to such Mortgage Loan and (y) the sum of:
(i) (A) the principal portion of the Monthly Payment due on the Due
Date occurring in the month of such Distribution Date on such Mortgage
Loan, less (B) if the Bankruptcy Loss Amount has been reduced to zero, the
principal portion of any Debt Service Reduction with respect to such
Mortgage Loan;
(ii) the Scheduled Principal Balance of each Mortgage Loan that was
repurchased by the Seller during such preceding month pursuant to Section
2.02 or
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2.03, net of any unreimbursed Periodic Advances in respect of principal
previously made by the Servicer, Master Servicer or Trustee with respect to
such Mortgage Loan;
(iii) (a) the aggregate Net Liquidation Proceeds (other than Net
Partial Liquidation Proceeds) of any such Mortgage Loan that became a
Liquidated Loan in the month preceding the month of such Distribution Date
(excluding the portion thereof, if any, constituting Net Foreclosure
Profits) less the sum of (A) any unreimbursed Periodic Advances in respect
of principal previously made by the Servicer, Master Servicer or Trustee
with respect to such Liquidated Loan and (B) the portion of the Net
Liquidation Proceeds allocable to interest and (b) the aggregate Net
Partial Liquidation Proceeds on any such Mortgage Loan received by the
related Servicer, during the related Partial Liquidation Receipt Period,
less the sum of (A) the amounts allocable to principal of any unreimbursed
Periodic Advances previously made by such Servicer, the Master Servicer or
the Trustee and (B) the portion of the Net Partial Liquidation Proceeds
allocable to interest;
(iv) the Scheduled Principal Balance of such Mortgage Loan if such
Mortgage Loan was the subject of a Prepayment in Full during the period
from and including the Determination Date in the month preceding the month
of such Distribution Date up to (but not including) the Determination Date
occurring in the month of such Distribution Date;
(v) all partial principal prepayments received on or after the
Determination Date occurring in the month preceding the month in which such
Distribution Date occurs and prior to the Determination Date occurring in
the month in which such Distribution Date occurs; and
(vi) the difference between the unpaid principal balance of such
Mortgage Loan substituted for a defective Mortgage Loan during the month
preceding the month in which such Distribution Date occurs and the unpaid
principal balance of such defective Mortgage Loan, less the amount
allocable to the principal portion of any unreimbursed Periodic Advances
previously made by the Servicer, the Master Servicer or the Trustee in
respect of such defective Mortgage Loan.
CLASS AP PRINCIPAL BALANCE: As to the first Determination Date, the
Original Class AP Principal Balance. As of any subsequent Determination Date
prior to the Cross-Over Date, the Original Class AP Principal Balance less the
sum of (a) all amounts previously distributed in respect of the Class AP
Certificates on prior Distribution Dates pursuant to Paragraphs THIRD clause (B)
and FOURTH of Section 4.01(a) and (b) the Realized Losses previously allocated
to the Class AP Certificates pursuant to Section 4.02(b). On or after the
Cross-Over Date, the Class AP Principal Balance will also be reduced on each
Determination Date by an amount equal to the difference, if any, between the
Class AP Principal Balance as of such Determination Date and the Adjusted Pool
Amount (Class AP Portion) as of the preceding Distribution Date.
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CLASS B CERTIFICATE: Any one of the Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class B-4 Certificates or Class B-5
Certificates.
CLASS B CERTIFICATEHOLDER: The registered holder of a Class B
Certificate.
CLASS B INTEREST ACCRUAL AMOUNT: As to any Distribution Date, the sum
of the Class B Subclass Interest Accrual Amounts with respect to such
Distribution Date.
CLASS B PRINCIPAL BALANCE: As of any date, an amount equal to the sum
of the Class B-1 Principal Balance, Class B-2 Principal Balance, Class B-3
Principal Balance, Class B-4 Principal Balance and Class B-5 Principal Balance.
CLASS B SUBCLASS: Any of the Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class B-4 Certificates or Class B-5
Certificates.
CLASS B SUBCLASS DISTRIBUTION AMOUNT: Any of the Class B-1, Class B-
2, Class B-3, Class B-4 or Class B-5 Distribution Amounts.
CLASS B SUBCLASS INTEREST ACCRUAL AMOUNT: As to any Distribution Date
and any Class B Subclass, an amount equal to (i) the product of 1/12th of the
Class B Pass-Through Rate and the Class B Subclass Principal Balance of such
Class B Subclass as of the Determination Date preceding such Distribution Date
minus (ii) the Class B Subclass Interest Percentage of such Class B Subclass of
(x) any Non-Supported Interest Shortfall allocated to the Class B Certificates
with respect to such Distribution Date and (y) the interest portion of any
Excess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
allocated to the Class B Certificates with respect to such Distribution Date
pursuant to Section 4.02(e).
CLASS B PASS-THROUGH RATE: As to any Distribution Date, ___% per
annum.
CLASS B SUBCLASS INTEREST PERCENTAGE: As to any Distribution Date and
any Class B Subclass, the percentage calculated by dividing the Class B Subclass
Interest Accrual Amount of such Class B Subclass (determined without regard to
clause (ii) of the definition thereof) by the Class B Interest Accrual Amount
(determined without regard to clause (ii) of the definition of each Class B
Subclass Interest Accrual Amount).
CLASS B SUBCLASS INTEREST SHORTFALL AMOUNT: Any of the Class B-1
Interest Shortfall Amount, Class B-2 Interest Shortfall Amount, Class B-3
Interest Shortfall Amount, Class B-4 Interest Shortfall Amount or Class B-5
Interest Shortfall Amount.
CLASS B SUBCLASS LOSS PERCENTAGE: As to any Determination Date and
any Class B Subclass then-outstanding, the percentage calculated by dividing the
Class B Subclass Principal Balance of such Class B Subclass by the Class B
Principal Balance (determined without regard to any Class B Subclass Principal
Balance of any Class B Subclass not then outstanding), in each case determined
as of the preceding Determination Date.
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CLASS B SUBCLASS PERCENTAGE: Any one of the Class B-1 Percentage,
Class B-2 Percentage, Class B-3 Percentage, Class B-4 Percentage or Class B-5
Percentage.
CLASS B SUBCLASS PREPAYMENT PERCENTAGE: Any of the Class B-1
Prepayment Percentage, Class B-2 Prepayment Percentage, Class B-3 Prepayment
Percentage, Class B-4 Prepayment Percentage or Class B-5 Prepayment Percentage.
CLASS B SUBCLASS PRINCIPAL BALANCE: Any of the Class B-1 Principal
Balance, Class B-2 Principal Balance, Class B-3 Principal Balance, Class B-4
Principal Balance or Class B-5 Principal Balance.
CLASS B SUBCLASS UNPAID INTEREST SHORTFALL: Any of the Class B-1
Unpaid Interest Shortfall, Class B-2 Unpaid Interest Shortfall, Class B-3 Unpaid
Interest Shortfall, Class B-4 Unpaid Interest Shortfall or Class B-5 Unpaid
Interest Shortfall.
CLASS B-1 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-1 and Exhibit D hereto.
CLASS B-1 CERTIFICATEHOLDER: The registered holder of a Class B-1
Certificate.
CLASS B-1 DISTRIBUTION AMOUNT: As to any Distribution Date, any
amount distributable to the Holders of the Class B-1 Certificates pursuant to
Paragraphs EIGHTH, NINTH and TENTH of Section 4.01(a).
CLASS B-1 INTEREST SHORTFALL AMOUNT: As to any Distribution Date, any
amount by which the Class B Subclass Interest Accrual Amount of the Class B-1
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-1 Certificates on such Distribution Date
pursuant to Paragraph EIGHTH of Section 4.01(a).
CLASS B-1 OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Classes A/M/B Fraction with respect to such Mortgage Loan and (y) the
sum of:
(i) the Class B-1 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-1 Prepayment Percentage of the Scheduled Principal
Balance of each Mortgage Loan that was repurchased by the Seller during
such preceding month pursuant to Section 2.02 or 2.03, net of any
unreimbursed Periodic Advances in respect of principal previously made by
the Servicer, Master Servicer or Trustee with respect to such Mortgage
Loan;
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(iii) the Class B-1 Prepayment Percentage of (a) the aggregate Net
Liquidation Proceeds (other than Net Partial Liquidation Proceeds) of any
such Mortgage Loan that became a Liquidated Loan in the month preceding the
month of such Distribution Date (excluding the portion thereof, if any,
constituting Net Foreclosure Profits) less the sum of (A) any unreimbursed
Periodic Advances in respect of principal previously made by the Servicer,
the Master Servicer or the Trustee with respect to such Liquidated Loan and
(B) the portion of the Net Liquidation Proceeds allocable to interest and
(b) the aggregate Net Partial Liquidation Proceeds on any such Mortgage
Loan received by the related Servicer during the related Partial
Liquidation Receipt Period, less the sum of (A) the amounts allocable to
principal of any unreimbursed Periodic Advances previously made by such
Servicer, the Master Servicer or the Trustee and (B) the portion of the Net
Partial Liquidation Proceeds allocable to interest;
(iv) the Class B-1 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan if such Mortgage Loan was the subject of a
Prepayment in Full during the period from and including the Determination
Date in the month preceding the month of such Distribution Date up to (but
not including) the Determination Date occurring in the month of such
Distribution Date;
(v) the Class B-1 Prepayment Percentage of all partial principal
prepayments received on or after the Determination Date occurring in the
month preceding the month in which such Distribution Date occurs and prior
to the Determination Date occurring in the month in which such Distribution
Date occurs; and
(vi) the Class B-1 Prepayment Percentage of the difference between the
unpaid principal balance of such Mortgage Loan substituted for a defective
Mortgage Loan during the month preceding the month in which such
Distribution Date occurs and the unpaid principal balance of such defective
Mortgage Loan, less the amount allocable to the principal portion of any
unreimbursed Periodic Advances previously made by the Servicer, the Master
Servicer or the Trustee in respect of such defective Mortgage Loan;
PROVIDED, HOWEVER, that if an Optimal Adjustment Event occurs with respect to
such Subclass and such Distribution Date, the Class B-1 Optimal Principal Amount
will equal the lesser of (A) the Class B-1 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-1 Certificates.
CLASS B-1 PERCENTAGE: As to any Distribution Date, except as set
forth in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-1 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class M
Principal Balance and the Class B Subclass Principal Balances of the Class B
Subclasses eligible to receive principal distributions for such Distribution
Date in accordance with the provisions of Section 4.01(d). Except as set forth
in Section 4.01(d)(ii), in the event
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that the Class B-1 Certificates are not eligible to receive distributions of
principal in accordance with Section 4.01(d)(i), the Class B-1 Percentage for
such Distribution Date will be zero.
CLASS B-1 PREPAYMENT PERCENTAGE: As to any Distribution Date, except
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated Prepayment Percentage by (ii) a fraction, the numerator of
which is the Class B-1 Principal Balance (determined as of the Determination
Date preceding such Distribution Date) and the denominator of which is the sum
of the Class M Principal Balance and the Class B Subclass Principal Balances of
the Class B Subclasses eligible to receive principal distributions for such
Distribution Date in accordance with the provisions of Section 4.01(d). Except
as set forth in Section 4.01(d)(ii), in the event that the Class B-1
Certificates are not eligible to receive distributions of principal in
accordance with Section 4.01(d)(i), the Class B-1 Percentage for such
Distribution Date will be zero.
CLASS B-1 PRINCIPAL BALANCE: As to the first Determination Date, the
Original Class B-1 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-1 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-1 Certificates on
prior Distribution Dates (A) pursuant to Paragraph TENTH of Section 4.01(a) and
(B) as a result of a Principal Adjustment and (b) the Realized Losses previously
allocated to the Class B-1 Certificates pursuant to Section 4.02(b) and (ii) the
Adjusted Pool Amount as of the preceding Distribution Date less the sum of the
Class A Principal Balance, the Class AP Principal Balance and the Class M
Principal Balance as of such Determination Date.
CLASS B-1 UNPAID INTEREST SHORTFALL: As to any Distribution Date, the
amount, if any, by which the aggregate of the Class B-1 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-1 Certificates on prior Distribution Dates pursuant to
Paragraph NINTH of Section 4.01(a).
CLASS B-2 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-2 and Exhibit D hereto.
CLASS B-2 CERTIFICATEHOLDER: The registered holder of a Class B-2
Certificate.
CLASS B-2 DISTRIBUTION AMOUNT: As to any Distribution Date, any
amount distributable to the Holders of the Class B-2 Certificates pursuant to
Paragraphs ELEVENTH, TWELFTH and THIRTEENTH of Section 4.01(a).
CLASS B-2 INTEREST SHORTFALL AMOUNT: As to any Distribution Date, any
amount by which the Class B Subclass Interest Accrual Amount of the Class B-2
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-2 Certificates on such Distribution Date
pursuant to Paragraph ELEVENTH of Section 4.01(a).
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<PAGE>
CLASS B-2 OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Classes A/M/B Fraction with respect to such Mortgage Loan and (y) the
sum of:
(i) the Class B-2 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-2 Prepayment Percentage of the Scheduled Principal
Balance of each Mortgage Loan that was repurchased by the Seller during
such preceding month pursuant to Section 2.02 or 2.03, net of any
unreimbursed Periodic Advances in respect of principal previously made by
the Servicer, Master Servicer or Trustee with respect to such Mortgage
Loan;
(iii) the Class B-2 Prepayment Percentage of (a) the aggregate Net
Liquidation Proceeds (other than Net Partial Liquidation Proceeds) of any
such Mortgage Loan that became a Liquidated Loan in the month preceding the
month of such Distribution Date (excluding the portion thereof, if any,
constituting Net Foreclosure Profits) less the sum of (A) any unreimbursed
Periodic Advances in respect of principal previously made by the Servicer,
the Master Servicer or the Trustee with respect to such Liquidated Loan and
(B) the portion of the Net Liquidation Proceeds allocable to interest and
(b) the aggregate Net Partial Liquidation Proceeds on any such Mortgage
Loan received by the related Servicer during the related Partial
Liquidation Receipt Period, less the sum of (A) the amounts allocable to
principal of any unreimbursed Periodic Advances previously made by such
Servicer, the Master Servicer or the Trustee and (B) the portion of the Net
Partial Liquidation Proceeds allocable to interest;
(iv) the Class B-2 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan if such Mortgage Loan was the subject of a
Prepayment in Full during the period from and including the Determination
Date in the month preceding the month of such Distribution Date up to (but
not including) the Determination Date occurring in the month of such
Distribution Date;
(v) the Class B-2 Prepayment Percentage of all partial principal
prepayments received on or after the Determination Date occurring in the
month preceding the month in which such Distribution Date occurs and prior
to the Determination Date occurring in the month in which such Distribution
Date occurs; and
(vi) the Class B-2 Prepayment Percentage of the difference between the
unpaid principal balance of such Mortgage Loan substituted for a defective
Mortgage Loan during the month preceding the month in which such
Distribution Date occurs and the unpaid principal balance of such defective
Mortgage Loan, less the amount allocable to the principal portion of any
unreimbursed Periodic Advances previously
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made by the Servicer, the Master Servicer or the Trustee in respect of such
defective Mortgage Loan;
PROVIDED, HOWEVER, that if an Optimal Adjustment Event occurs with respect to
such Subclass and such Distribution Date, the Class B-2 Optimal Principal Amount
will equal the lesser of (A) the Class B-2 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-2 Certificates.
CLASS B-2 PERCENTAGE: As to any Distribution Date, except as set
forth in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-2 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class M
Principal Balance and the Class B Subclass Principal Balances of the Class B
Subclasses eligible to receive principal distributions for such Distribution
Date in accordance with the provisions of Section 4.01(d). Except as set forth
in Section 4.01(d)(ii), in the event that the Class B-2 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-2 Percentage for such Distribution Date will be zero.
CLASS B-2 PREPAYMENT PERCENTAGE: As to any Distribution Date, except
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated Prepayment Percentage by (ii) a fraction, the numerator of
which is the Class B-2 Principal Balance (determined as of the Determination
Date preceding such Distribution Date) and the denominator of which is the sum
of the Class M Principal Balance and the Class B Subclass Principal Balances of
the Class B Subclasses eligible to receive principal distributions for such
Distribution Date in accordance with the provisions of Section 4.01(d). Except
as set forth in Section 4.01(d)(ii), in the event that the Class B-2
Certificates are not eligible to receive distributions of principal in
accordance with Section 4.01(d)(i), the Class B-2 Prepayment Percentage for such
Distribution Date will be zero.
CLASS B-2 PRINCIPAL BALANCE: As to the first Determination Date, the
Original Class B-2 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-2 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-2 Certificates on
prior Distribution Dates (A) pursuant to Paragraph THIRTEENTH of Section 4.01(a)
and (B) as a result of a Principal Adjustment and (b) the Realized Losses
previously allocated to the Class B-2 Certificates pursuant to Section 4.02(b)
and (ii) the Adjusted Pool Amount as of the preceding Distribution Date less the
sum of the Class A Principal Balance, the Class AP Principal Balance, the Class
M Principal Balance and the Class B-1 Principal Balance as of such Determination
Date.
CLASS B-2 UNPAID INTEREST SHORTFALL: As to any Distribution Date, the
amount, if any, by which the aggregate of the Class B-2 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-2 Certificates on prior Distribution Dates pursuant to
Paragraph TWELFTH of Section 4.01(a).
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CLASS B-3 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-3 and Exhibit D hereto.
CLASS B-3 CERTIFICATEHOLDER: The registered holder of a Class B-3
Certificate.
CLASS B-3 DISTRIBUTION AMOUNT: As to any Distribution Date, any
amount distributable to the Holders of the Class B-3 Certificates pursuant to
Paragraphs FOURTEENTH, FIFTEENTH AND SIXTEENTH of Section 4.01(a).
CLASS B-3 INTEREST SHORTFALL AMOUNT: As to any Distribution Date, any
amount by which the Class B Subclass Interest Accrual Amount of the Class B-3
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-3 Certificates on such Distribution Date
pursuant to Paragraph FOURTEENTH of Section 4.01(a).
CLASS B-3 OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Classes A/M/B Fraction with respect to such Mortgage Loan and (y) the
sum of:
(i) the Class B-3 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-3 Prepayment Percentage of the Scheduled Principal
Balance of each Mortgage Loan that was repurchased by the Seller during
such preceding month pursuant to Section 2.02 or 2.03, net of any
unreimbursed Periodic Advances in respect of principal previously made by
the Servicer, Master Servicer or Trustee with respect to such Mortgage
Loan;
(iii) the Class B-3 Prepayment Percentage of (a) the aggregate Net
Liquidation Proceeds (other than Net Partial Liquidation Proceeds) of any
such Mortgage Loan that became a Liquidated Loan in the month preceding the
month of such Distribution Date (excluding the portion thereof, if any,
constituting Net Foreclosure Profits) less the sum of (A) any unreimbursed
Periodic Advances in respect of principal previously made by the Servicer,
the Master Servicer or the Trustee with respect to such Liquidated Loan and
(B) the portion of the Net Liquidation Proceeds allocable to interest and
(b) the aggregate Net Partial Liquidation Proceeds on any such Mortgage
Loan received by the related Servicer during the related Partial
Liquidation Receipt Period, less the sum of (A) the amounts allocable to
principal of any unreimbursed Periodic Advances previously made by such
Servicer, the Master Servicer or the Trustee and (B) the portion of the Net
Partial Liquidation Proceeds allocable to interest;
(iv) the Class B-3 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan if such Mortgage Loan was the subject of a
Prepayment in Full
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<PAGE>
during the period from and including the Determination Date in the month
preceding the month of such Distribution Date up to (but not including) the
Determination Date;
(v) the Class B-3 Prepayment Percentage of all partial principal
prepayments received on or after the Determination Date occurring in the
month preceding the month in which such Distribution Date occurs and prior
to the Determination Date occurring in the month in which such Distribution
Date occurs; and
(vi) the Class B-3 Prepayment Percentage of the difference between the
unpaid principal balance of such Mortgage Loan substituted for a defective
Mortgage Loan during the month preceding the month in which such
Distribution Date occurs and the unpaid principal balance of such defective
Mortgage Loan, less the amount allocable to the principal portion of any
unreimbursed Periodic Advances previously made by the Servicer, the Master
Servicer or the Trustee in respect of such defective Mortgage Loan;
PROVIDED, HOWEVER, that if an Optimal Adjustment Event occurs with respect to
such Subclass and such Distribution Date, the Class B-3 Optimal Principal Amount
will equal the lesser of (A) the Class B-3 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-3 Certificates.
CLASS B-3 PERCENTAGE: As to any Distribution Date, except as set
forth in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-3 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class M
Principal Balance and the Class B Subclass Principal Balances of the Class B
Subclasses eligible to receive principal distributions for such Distribution
Date in accordance with the provisions of Section 4.01(d). Except as set forth
in Section 4.01(d)(ii), in the event that the Class B-3 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-3 Percentage for such Distribution Date will be zero.
CLASS B-3 PREPAYMENT PERCENTAGE: As to any Distribution Date, except
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated Prepayment Percentage by (ii) a fraction, the numerator of
which is the Class B-3 Principal Balance (determined as of the Determination
Date preceding such Distribution Date) and the denominator of which is the sum
of the Class M Principal Balance and the Class B Subclass Principal Balances of
the Class B Subclasses eligible to receive principal distributions for such
Distribution Date in accordance with the provisions of Section 4.01(d). Except
as set forth in Section 4.01(d)(ii), in the event that the Class B-3
Certificates are not eligible to receive distributions of principal in
accordance with Section 4.01(d)(i), the Class B-3 Prepayment Percentage for such
Distribution Date will be zero.
CLASS B-3 PRINCIPAL BALANCE: As to the first Determination Date, the
Original Class B-3 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-3 Principal Balance less the sum of (a)
all amounts previously distributed in
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<PAGE>
respect of the Class B-3 Certificates on prior Distribution Dates (A) pursuant
to Paragraph SIXTEENTH of Section 4.01(a) and (B) as a result of a Principal
Adjustment and (b) the Realized Losses previously allocated to the Class B-3
Certificates pursuant to Section 4.02(b) and (ii) the Adjusted Pool Amount as of
the preceding Distribution Date less the sum of the Class A Principal Balance,
the Class AP Principal Balance, the Class M Principal Balance, the Class B-1
Principal Balance and the Class B-2 Principal Balance as of such Determination
Date.
CLASS B-3 UNPAID INTEREST SHORTFALL: As to any Distribution Date, the
amount, if any, by which the aggregate of the Class B-3 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-3 Certificates on prior Distribution Dates pursuant to
Paragraph FIFTEENTH of Section 4.01(a).
CLASS B-4 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-4 and Exhibit D hereto.
CLASS B-4 CERTIFICATEHOLDER: The registered holder of a Class B-4
Certificate.
CLASS B-4 DISTRIBUTION AMOUNT: As to any Distribution Date, any
amount distributable to the Holders of the Class B-4 Certificates pursuant to
Paragraphs SEVENTEENTH, EIGHTEENTH and NINETEENTH of Section 4.01(a).
CLASS B-4 INTEREST SHORTFALL AMOUNT: As to any Distribution Date, any
amount by which the Class B Subclass Interest Accrual Amount of the Class B-4
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-4 Certificates on such Distribution Date
pursuant to Paragraph SEVENTEENTH of Section 4.01(a).
CLASS B-4 OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Classes A/M/B Fraction with respect to such Mortgage Loan and (y) the
sum of:
(i) the Class B-4 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-4 Prepayment Percentage of the Scheduled Principal
Balance of each Mortgage Loan that was repurchased by the Seller during
such preceding month pursuant to Section 2.02 or 2.03, net of any
unreimbursed Periodic Advances in respect of principal previously made by
the Servicer, Master Servicer or Trustee with respect to such Mortgage
Loan;
(iii) the Class B-4 Prepayment Percentage of (a) the aggregate Net
Liquidation Proceeds (other than Net Partial Liquidation Proceeds) of any
such Mortgage Loan that became a Liquidated Loan in the month preceding the
month of such Distribution Date (excluding the portion thereof, if any,
constituting Net
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<PAGE>
Foreclosure Profits) less the sum of (A) any unreimbursed Periodic Advances
in respect of principal previously made by the Servicer, the Master
Servicer or the Trustee with respect to such Liquidated Loan and (B) the
portion of the Net Liquidation Proceeds allocable to interest and (b) the
aggregate Net Partial Liquidation Proceeds on any such Mortgage Loan
received by the related Servicer during the related Partial Liquidation
Receipt Period, less the sum of (A) the amounts allocable to principal of
any unreimbursed Periodic Advances previously made by such Servicer, the
Master Servicer or the Trustee and (B) the portion of the Net Partial
Liquidation Proceeds allocable to interest;
(iv) the Class B-4 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan if such Mortgage Loan was the subject of a
Prepayment in Full during the period from and including the Determination
Date in the month preceding the month of such Distribution Date up to (but
not including) the Determination Date;
(v) the Class B-4 Prepayment Percentage of all partial principal
prepayments received on or after the Determination Date occurring in the
month preceding the month in which such Distribution Date occurs and prior
to the Determination Date occurring in the month in which such Distribution
Date occurs; and
(vi) the Class B-4 Prepayment Percentage of the difference between the
unpaid principal balance of such Mortgage Loan substituted for a defective
Mortgage Loan during the month preceding the month in which such
Distribution Date occurs and the unpaid principal balance of such defective
Mortgage Loan, less the amount allocable to the principal portion of any
unreimbursed Periodic Advances previously made by the Servicer, the Master
Servicer or the Trustee in respect of such defective Mortgage Loan;
PROVIDED, HOWEVER, that if an Optimal Adjustment Event occurs with respect to
such Subclass and such Distribution Date, the Class B-4 Optimal Principal Amount
will equal the lesser of (A) the Class B-4 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-4 Certificates.
CLASS B-4 PERCENTAGE: As to any Distribution Date, except as set
forth in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-4 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class M
Principal Balance and the Class B Subclass Principal Balances of the Class B
Subclasses eligible to receive principal distributions for such Distribution
Date in accordance with the provisions of Section 4.01(d). Except as set forth
in Section 4.01(d)(ii), in the event that the Class B-4 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-4 Percentage for such Distribution Date will be zero.
CLASS B-4 PREPAYMENT PERCENTAGE: As to any Distribution Date, except
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated
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<PAGE>
Prepayment Percentage by (ii) a fraction, the numerator of which is the Class B-
4 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class M
Principal Balance and the Class B Subclass Principal Balances of the Class B
Subclasses eligible to receive principal distributions for such Distribution
Date in accordance with the provisions of Section 4.01(d). Except as set forth
in Section 4.01(d)(ii), in the event that the Class B-4 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-4 Prepayment Percentage for such Distribution Date will
be zero.
CLASS B-4 PRINCIPAL BALANCE: As to the first Determination Date, the
Original Class B-4 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-4 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-4 Certificates on
prior Distribution Dates (A) pursuant to Paragraph NINETEENTH of Section 4.01(a)
and (B) as a result of a Principal Adjustment and (b) the Realized Losses
previously allocated to the Class B-4 Certificates pursuant to Section 4.02(b)
and (ii) the Adjusted Pool Amount as of the preceding Distribution Date less the
sum of the Class A Principal Balance, the Class AP Principal Balance, the Class
M Principal Balance, the Class B-1 Principal Balance, the Class B-2 Principal
Balance and the Class B-3 Principal Balance as of such Determination Date.
CLASS B-4 UNPAID INTEREST SHORTFALL: As to any Distribution Date, the
amount, if any, by which the aggregate of the Class B-4 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-4 Certificates on prior Distribution Dates pursuant to
Paragraph EIGHTEENTH of Section 4.01(a).
CLASS B-5 CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-5 and Exhibit D hereto.
CLASS B-5 CERTIFICATEHOLDER: The registered holder of a Class B-5
Certificate.
CLASS B-5 DISTRIBUTION AMOUNT: As to any Distribution Date, any
amount distributable to the Holders of the Class B-5 Certificates pursuant to
Paragraphs TWENTIETH, TWENTY-FIRST, AND TWENTY-SECOND of Section 4.01(a).
CLASS B-5 INTEREST SHORTFALL AMOUNT: As to any Distribution Date, any
amount by which the Class B Subclass Interest Accrual Amount of the Class B-5
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-5 Certificates on such Distribution Date
pursuant to Paragraph TWENTIETH of Section 4.01(a).
CLASS B-5 OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Classes A/M/B Fraction with respect to such Mortgage Loan and (y) the
sum of:
(i) the Class B-5 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such
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<PAGE>
Mortgage Loan, less (B) if the Bankruptcy Loss Amount has been reduced to
zero, the principal portion of any Debt Service Reduction with respect to
such Mortgage Loan;
(ii) the Class B-5 Prepayment Percentage of the Scheduled Principal
Balance of each Mortgage Loan that was repurchased by the Seller during
such preceding month pursuant to Section 2.02 or 2.03, net of any
unreimbursed Periodic Advances in respect of principal previously made by
the Servicer, Master Servicer or Trustee with respect to such Mortgage
Loan;
(iii) the Class B-5 Prepayment Percentage of (a) the aggregate Net
Liquidation Proceeds (other than Net Partial Liquidation Proceeds) of any
such Mortgage Loan that became a Liquidated Loan in the month preceding the
month of such Distribution Date (excluding the portion thereof, if any,
constituting Net Foreclosure Profits) less the sum of (A) any unreimbursed
Periodic Advances in respect of principal previously made by the Servicer,
the Master Servicer or the Trustee with respect to such Liquidated Loan and
(B) the portion of the Net Liquidation Proceeds allocable to interest and
(b) the aggregate Net Partial Liquidation Proceeds on any such Mortgage
Loan received by the related Servicer during the related Partial
Liquidation Receipt Period, less the sum of (A) the amounts allocable to
principal of any unreimbursed Periodic Advances previously made by such
Servicer, the Master Servicer or the Trustee and (B) the portion of the Net
Partial Liquidation Proceeds allocable to interest;
(iv) the Class B-5 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan if such Mortgage Loan was the subject of a
Prepayment in Full during the period from and including the Determination
Date in the month preceding the month of such Distribution Date up to (but
not including) the Determination Date;
(v) the Class B-5 Prepayment Percentage of all partial principal
prepayments received on or after the Determination Date occurring in the
month preceding the month in which such Distribution Date occurs and prior
to the Determination Date occurring in the month in which such Distribution
Date occurs; and
(vi) the Class B-5 Prepayment Percentage of the difference between the
unpaid principal balance of such Mortgage Loan substituted for a defective
Mortgage Loan during the month preceding the month in which such
Distribution Date occurs and the unpaid principal balance of such defective
Mortgage Loan, less the amount allocable to the principal portion of any
unreimbursed Periodic Advances previously made by the Servicer, the Master
Servicer or the Trustee in respect of such defective Mortgage Loan;
PROVIDED, HOWEVER, that if an Optimal Adjustment Event occurs with respect to
such Subclass and such Distribution Date, the Class B-5 Optimal Principal Amount
will equal the lesser of (A) the Class B-5 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-5 Certificates.
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<PAGE>
CLASS B-5 PERCENTAGE: As to any Distribution Date, except as set
forth in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-5 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class M
Principal Balance and the Class B Subclass Principal Balances of the Class B
Subclasses eligible to receive principal distributions for such Distribution
Date in accordance with the provisions of Section 4.01(d). Except as set forth
in Section 4.01(d)(ii), in the event that the Class B-5 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-5 Percentage for such Distribution Date will be zero.
CLASS B-5 PREPAYMENT PERCENTAGE: As to any Distribution Date, except
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated Prepayment Percentage by (ii) a fraction, the numerator of
which is the Class B-5 Principal Balance (determined as of the Determination
Date preceding such Distribution Date) and the denominator of which is the sum
of the Class M Principal Balance and the Class B Subclass Principal Balances of
the Class B Subclasses eligible to receive principal distributions for such
Distribution Date in accordance with the provisions of Section 4.01(d). Except
as set forth in Section 4.01(d)(ii), in the event that the Class B-5
Certificates are not eligible to receive distributions of principal in
accordance with Section 4.01(d)(i), the Class B-5 Prepayment Percentage for such
Distribution Date will be zero.
CLASS B-5 PRINCIPAL BALANCE: As to the first Determination Date, the
Original Class B-5 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-5 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-5 Certificates on
prior Distribution Dates pursuant to Paragraph TWENTY-SECOND of Section 4.01(a)
and (b) the Realized Losses previously allocated to the Class B-5 Certificates
pursuant to Section 4.02(b) and (ii) the Adjusted Pool Amount as of the
preceding Distribution Date less the sum of the Class A Principal Balance, the
Class AP Principal Balance, the Class M Principal Balance, the Class B-1
Principal Balance, the Class B-2 Principal Balance, the Class B-3 Principal
Balance and the Class B-4 Principal Balance as of such Determination Date.
CLASS B-5 UNPAID INTEREST SHORTFALL: As to any Distribution Date, the
amount, if any, by which the aggregate of the Class B-5 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-5 Certificates on prior Distribution Dates pursuant to
Paragraph TWENTY-FIRST of Section 4.01(a).
CLASS M CERTIFICATE: Any one of the Certificates executed by the
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit C and Exhibit D hereto.
CLASS M CERTIFICATEHOLDER: The registered holder of a Class M
Certificate.
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<PAGE>
CLASS M DISTRIBUTION AMOUNT: As to any Distribution Date, the
aggregate amount distributable to the Class M Certificates pursuant to
Paragraphs FIFTH, SIXTH, and SEVENTH of Section 4.01(a) on such Distribution
Date.
CLASS M INTEREST ACCRUAL AMOUNT: As to any Distribution Date, an
amount equal to (i) the product of 1/12th of the Class M Pass-Through Rate and
the Class M Principal Balance as of the Determination Date preceding such
Distribution Date minus (ii) (x) any Non-Supported Interest Shortfall allocated
to the Class M Certificates with respect to such Distribution Date and (y) the
interest portion of any Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses allocated to the Class M Certificates with respect to
such Distribution Date pursuant to Section 4.02(e).
CLASS M INTEREST SHORTFALL AMOUNT: As to any Distribution Date, any
amount by which the Class M Interest Accrual Amount with respect to such
Distribution Date exceeds the amount distributed in respect of the Class M
Certificates pursuant to Paragraph FIFTH of Section 4.01(a).
CLASS M OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Classes A/M/B Fraction with respect to such Mortgage Loan and (y) the
sum of:
(i) the Class M Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class M Prepayment Percentage of the Scheduled Principal
Balance of each Mortgage Loan that was repurchased by the Seller during
such preceding month pursuant to Section 2.02 or 2.03, net of any
unreimbursed Periodic Advances in respect of principal previously made by
the Servicer, Master Servicer or Trustee with respect to such Mortgage
Loan;
(iii) the Class M Prepayment Percentage of (a) the aggregate Net
Liquidation Proceeds (other than Net Partial Liquidation Proceeds) of any
such Mortgage Loan that became a Liquidated Loan in the month preceding the
month of such Distribution Date (excluding the portion thereof, if any,
constituting Net Foreclosure Profits) less the sum of (A) any unreimbursed
Periodic Advances in respect of principal previously made by the Servicer,
the Master Servicer or the Trustee with respect to such Liquidated Loan and
(B) the portion of the Net Liquidation Proceeds allocable to interest and
(b) the aggregate Net Partial Liquidation Proceeds on any such Mortgage
Loan received by the related Servicer during the related Partial
Liquidation Receipt Period, less the sum of (A) the amounts allocable to
principal of any unreimbursed Periodic Advances previously made by such
Servicer, the Master Servicer or the Trustee and (B) the portion of the Net
Partial Liquidation Proceeds allocable to interest;
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<PAGE>
(iv) the Class M Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan if such Mortgage Loan was the subject of a
Prepayment in Full during the period from and including the Determination
Date in the month preceding the month of such Distribution Date up to (but
not including) the Determination Date;
(v) the Class M Prepayment Percentage of all partial principal
prepayments received on or after the Determination Date occurring in the
month preceding the month in which such Distribution Date occurs and prior
to the Determination Date occurring in the month in which such Distribution
Date occurs; and
(vi) the Class M Prepayment Percentage of the difference between the
unpaid principal balance of such Mortgage Loan substituted for a defective
Mortgage Loan during the month preceding the month in which such
Distribution Date occurs and the unpaid principal balance of such defective
Mortgage Loan, less the amount allocable to the principal portion of any
unreimbursed Periodic Advances previously made by the Servicer, the Master
Servicer or the Trustee in respect of such defective Mortgage Loan.
PROVIDED, HOWEVER, that if an Optimal Adjustment Event occurs with respect to
such Class and such Distribution Date, the Class M Optimal Principal Amount will
equal the lesser of (A) the Class M Optimal Principal Amount calculated as
described in the preceding provisions and (B) the Adjusted Principal Balance for
the Class M Certificates.
CLASS M PASS-THROUGH RATE: As to any Distribution Date, ___% per
annum.
CLASS M PERCENTAGE: As to any Distribution Date, the percentage
calculated by multiplying the Subordinated Percentage by either (a) if the Class
B Certificates are eligible to receive principal distributions for such
Distribution Date in accordance with the provisions of Section 4.01(d), a
fraction, the numerator of which is the Class M Principal Balance (determined as
of the Determination Date preceding such Distribution Date) and the denominator
of which is the sum of the Class M Principal Balance and the Class B Subclass
Principal Balances of the Class B Subclasses eligible to receive principal
distributions for such Distribution Date in accordance with the provisions of
Section 4.01(d) or (b) except as set forth in Section 4.01(d)(ii), if the Class
B Certificates are not eligible to receive principal distributions for such
Distribution Date in accordance with the provisions of Section 4.01(d)(i), one.
CLASS M PREPAYMENT PERCENTAGE: As to any Distribution Date, the
percentage calculated by multiplying the Subordinated Prepayment Percentage by
either (a) if the Class B Certificates are eligible to receive principal
distributions for such Distribution Date in accordance with the provisions of
Section 4.01(d), a fraction, the numerator of which is the Class M Principal
Balance (determined as of the Determination Date preceding such Distribution
Date) and the denominator of which is the sum of the Class M Principal Balance
and the Class B Subclass Principal Balances of the Class B Subclasses eligible
to receive principal distributions for such Distribution Date in accordance with
the provisions of Section 4.01(d) or (b) except as set forth in Section
4.01(d)(ii), if the Class B Certificates are not
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<PAGE>
eligible to receive principal distributions for such Distribution Date in
accordance with the provisions of Section 4.01(d)(i), one.
CLASS M PRINCIPAL BALANCE: As to the first Determination Date, the
Original Class M Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class M Principal Balance less the sum of (a) all
amounts previously distributed in respect of the Class M Certificates on prior
Distribution Dates (A) pursuant to Paragraph SEVENTH of Section 4.01(a) and (B)
as a result of a Principal Adjustment and (b) the Realized Losses previously
allocated to the Class M Certificates pursuant to Section 4.02(b) and (ii) the
Adjusted Pool Amount as of the preceding Distribution Date less the sum of the
Class A Principal Balance and the Class AP Principal Balance as of such
Determination Date.
CLASS M UNPAID INTEREST SHORTFALL: As to any Distribution Date, the
amount, if any, by which the aggregate of the Class M Interest Shortfall Amounts
for prior Distribution Dates is in excess of the amounts distributed in respect
of the Class M Certificates on prior Distribution Dates pursuant to Paragraph
SIXTH of Section 4.01(a).
CLASSES A/M/B FRACTION: With respect to any Mortgage Loan, the
quotient obtained by dividing the Net Mortgage Interest Rate for such Mortgage
Loan by ___%.
CLASSES A/M/B VOTING INTEREST: The ratio obtained by dividing the
Pool Balance (Classes A/M/B Portion) by the sum of the Pool Balance (Classes
A/M/B Portion) and the Pool Balance (Class AP Portion).
CLEARING AGENCY: An organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. The
initial Clearing Agency shall be The Depository Trust Company.
CLEARING AGENCY PARTICIPANT: A broker, dealer, bank, financial
institution or other Person for whom a Clearing Agency effects book-entry
transfers of securities deposited with the Clearing Agency.
CLOSING DATE: The date of initial issuance of the Certificates, as
set forth in Section 11.24.
CODE: The Internal Revenue Code of 1986, as it may be amended from
time to time, any successor statutes thereto, and applicable U.S. Department of
the Treasury temporary or final regulations promulgated thereunder.
CO-OP SHARES: Shares issued by private non-profit housing
corporations.
CORPORATE TRUST OFFICE: The principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at
______________________________________.
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<PAGE>
CROSS-OVER DATE: The first Distribution Date with respect to which
the Class A Percentage (determined pursuant to clause (ii) of the definition
thereof) equals or exceeds 100%.
CURRENT CLASS A INTEREST DISTRIBUTION AMOUNT: As to any Distribution
Date, the amount distributed in respect of the Class A Subclasses pursuant to
Paragraph FIRST of Section 4.01(a) on such Distribution Date.
CURRENT CLASS B INTEREST DISTRIBUTION AMOUNT: As to any Distribution
Date, the amount distributed in respect of the Class B Certificates pursuant to
Paragraphs EIGHTH, ELEVENTH, FOURTEENTH, SEVENTEENTH and TWENTIETH of Section
4.01(a) on such Distribution Date.
CURRENT CLASS B-1 FRACTIONAL INTEREST: As to any Distribution Date
subsequent to the first Distribution Date, the percentage obtained by dividing
the sum of the Class B Subclass Principal Balances of the Class B-2, Class B-3,
Class B-4 and Class B-5 Certificates by the sum of the Class A Principal
Balance, the Class M Principal Balance and the Class B Principal Balance. As to
the first Distribution Date, the Original Class B-1 Fractional Interest.
CURRENT CLASS B-2 FRACTIONAL INTEREST: As to any Distribution Date
subsequent to the first Distribution Date, the percentage obtained by dividing
the sum of the Class B Subclass Principal Balances of the Class B-3, Class B-4
and Class B-5 Certificates by the sum of the Class A Principal Balance, the
Class M Principal Balance and the Class B Principal Balance. As to the first
Distribution Date, the Original Class B-2 Fractional Interest.
CURRENT CLASS B-3 FRACTIONAL INTEREST: As to any Distribution Date
subsequent to the first Distribution Date, the percentage obtained by dividing
the Class B Subclass Principal Balances of the Class B-4 and Class B-5
Certificates by the sum of the Class A Principal Balance, the Class M Principal
Balance and the Class B Principal Balance. As to the first Distribution Date,
the Original Class B-3 Fractional Interest.
CURRENT CLASS B-4 FRACTIONAL INTEREST: As to any Distribution Date
subsequent to the first Distribution Date, the percentage obtained by dividing
the Class B Subclass Principal Balance of the Class B-5 Certificates by the sum
of the Class A Principal Balance, the Class M Principal Balance and the Class B
Principal Balance. As to the first Distribution Date, the Original Class B-4
Fractional Interest.
CURRENT CLASS M FRACTIONAL INTEREST: As to any Distribution Date
subsequent to the first Distribution Date, the percentage obtained by dividing
the Class B Principal Balance by the sum of the Class A Principal Balance, the
Class M Principal Balance and the Class B Principal Balance. As to the first
Distribution Date, the Original Class M Fractional Interest.
CURRENT CLASS M INTEREST DISTRIBUTION AMOUNT: As to any Distribution
Date, the amount distributed in respect of the Class M Certificates pursuant to
Paragraph FIFTH of Section 4.01(a) on such Distribution Date.
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CURTAILMENT: Any Principal Prepayment made by a Mortgagor which is
not a Prepayment in Full.
CURTAILMENT INTEREST SHORTFALL: On any Distribution Date which occurs
on or after the Cross-Over Date, the amount of interest, if any, that would have
accrued on the amount of any Curtailment with respect to a Mortgage Loan that
was received on or after the Determination Date in the month preceding the month
in which such Distribution Date occurs but prior to the first day of the month
in which such Distribution Date occurs at the Net Mortgage Interest Rate for
such Mortgage Loan from the date of application of such Curtailment through the
last day of the month in which received.
CUSTODIAL AGREEMENT: The Custodial Agreement, if any, from time to
time in effect between the Custodian named therein, a Servicer and the Trustee,
substantially in the form of Exhibit E hereto, as the same may be amended or
modified from time to time in accordance with the terms thereof.
CUSTODIAL P&I ACCOUNT: The Custodial P&I Account, as defined in each
of the Servicing Agreements, with respect to the Mortgage Loans. In determining
whether the Custodial P&I Account under any Servicing Agreement is "acceptable"
to the Master Servicer (as may be required by the definition of "Eligible
Account" contained in the Servicing Agreements relating to six of the
Servicers), the Master Servicer shall require that any such account shall be
acceptable to each of the Rating Agencies.
CUSTODIAN: Initially, the Trustee, and thereafter the Custodian, if
any, hereafter appointed by the Trustee pursuant to Section 8.13, or its
successor in interest under the Custodial Agreement. The Custodian may (but
need not) be the Trustee or any Person directly or indirectly controlling or
controlled by or under common control with it. Neither a Servicer, nor the
Seller nor the Master Servicer nor any Person directly or indirectly controlling
or controlled by or under common control with any such Person may be appointed
Custodian.
CUT-OFF DATE: The first day of the month of initial issuance of the
Certificates as set forth in Section 11.02.
CUT-OFF DATE AGGREGATE PRINCIPAL BALANCE: The aggregate of the Cut-
Off Date Principal Balances of the Mortgage Loans is as set forth in Section
11.03.
CUT-OFF DATE PRINCIPAL BALANCE: As to each Mortgage Loan, its unpaid
principal balance as of the close of business on the Cut-Off Date (but without
giving effect to any Principal Prepayments received or applied on the Cut-Off
Date), reduced by all payments of principal due on or before the Cut-Off Date
and not paid, and increased by scheduled monthly payments of principal due after
the Cut-Off Date but received by the related Servicer on or before the Cut-Off
Date.
[DCR: Duff & Phelps Credit Rating Co., or its successor in interest.]
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DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation.
DEFICIENT VALUATION: With respect to any Mortgage Loan, a valuation
by a court of competent jurisdiction of the Mortgaged Property in an amount less
than the then-outstanding indebtedness under the Mortgage Loan, or any reduction
in the amount of principal to be paid in connection with any scheduled Monthly
Payment that results in a permanent forgiveness of principal, which valuation or
reduction results from a proceeding under the Bankruptcy Code.
DEFINITIVE CERTIFICATES: As defined in Section 5.07.
DENOMINATION: The amount, if any, specified on the face of each
Certificate representing the principal portion of the Cut-Off Date Aggregate
Principal Balance evidenced by such Certificate.
DETERMINATION DATE: The 17th day of the month in which the related
Distribution Date occurs, or if such 17th day is not a Business Day, the
Business Day preceding such 17th day.
DISCOUNT MORTGAGE LOAN: A Mortgage Loan with a Net Mortgage Interest
Rate of less than ___%.
DISTRIBUTION DATE: The 25th day of any month, beginning in the month
following the month of initial issuance of the Certificates, or if such 25th day
is not a Business Day, the Business Day following such 25th day.
DUE DATE: With respect to any Mortgage Loan, the day of the month in
which the Monthly Payment on such Mortgage Loan is scheduled to be paid.
ELIGIBLE ACCOUNT: One or more accounts (i) that are maintained with a
depository institution (which may be the Master Servicer) whose long-term debt
obligations (or, in the case of a depository institution which is part of a
holding company structure, the long-term debt obligations of such parent holding
company) at the time of deposit therein are rated at least "AA" (or the
equivalent) by each of the Rating Agencies, (ii) the deposits in which are fully
insured by the FDIC through either the Bank Insurance Fund or the Savings
Association Insurance Fund, (iii) the deposits in which are insured by the FDIC
through either the Bank Insurance Fund or the Savings Association Insurance Fund
(to the limit established by the FDIC) and the uninsured deposits in which
accounts are otherwise secured, as evidenced by an Opinion of Counsel delivered
to the Trustee, such that the Trustee, on behalf of the Certificateholders has a
claim with respect to the funds in such accounts or a perfected first security
interest against any collateral securing such funds that is superior to claims
of any other depositors or creditors of the depository institution with which
such accounts are maintained, (iv) that are trust accounts maintained with the
trust department of a federal or
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state chartered depository institution or trust company acting in its fiduciary
capacity or (v) such other account that is acceptable to each of the Rating
Agencies and would not cause the Trust Estate to fail to qualify as a REMIC or
result in the imposition of any federal tax on the REMIC.
ELIGIBLE INVESTMENTS: At any time, any one or more of the following
obligations and securities which shall mature not later than the Business Day
preceding the Distribution Date next succeeding the date of such investment,
provided that such investments continue to qualify as "cash flow investments" as
defined in Code Section 860G(a)(6):
(i) obligations of the United States of America or any agency
thereof, provided such obligations are backed by the full faith and credit
of the United States of America;
(ii) general obligations of or obligations guaranteed by any state of
the United States of America or the District of Columbia receiving the
highest short-term or highest long-term rating of each Rating Agency, or
such lower rating as would not result in the downgrading or withdrawal of
the rating then assigned to any of the Certificates by either Rating Agency
or result in any of such rated Certificates being placed on credit review
status (other than for possible upgrading) by either Rating Agency;
(iii) commercial or finance company paper which is then rated in the
highest long-term commercial or finance company paper rating category of
each Rating Agency or the highest short-term rating category of each Rating
Agency, or such lower rating category as would not result in the
downgrading or withdrawal of the rating then assigned to any of the
Certificates by either Rating Agency or result in any of such rated
Certificates being placed on credit review status (other than for possible
upgrading) by either Rating Agency;
(iv) certificates of deposit, demand or time deposits, federal funds
or banker's acceptances issued by any depository institution or trust
company incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or state
banking authorities, provided that the commercial paper and/or debt
obligations of such depository institution or trust company (or in the case
of the principal depository institution in a holding company system, the
commercial paper or debt obligations of such holding company) are then
rated in the highest short-term or the highest long-term rating category
for such securities of each of the Rating Agencies, or such lower rating
categories as would not result in the downgrading or withdrawal of the
rating then assigned to any of the Certificates by either Rating Agency or
result in any of such rated Certificates being placed on credit review
status (other than for possible upgrading) by either Rating Agency;
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(v) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation acceptable to each Rating Agency at the time
of the issuance of such agreements;
(vi) repurchase agreements on obligations with respect to any security
described in clauses (i) or (ii) above or any other security issued or
guaranteed by an agency or instrumentality of the United States of America,
in either case entered into with a depository institution or trust company
(acting as principal) described in (iv) above;
(vii) securities (other than stripped bonds or stripped coupon
securities) bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any state thereof which, at the time of such investment or contractual
commitment providing for such investment, are then rated in the highest
short-term or the highest long-term rating category by each Rating Agency,
or in such lower rating category as would not result in the downgrading or
withdrawal of the rating then assigned to any of the Certificates by either
Rating Agency or result in any of such rated Certificates being placed on
credit review status (other than for possible upgrading) by either Rating
Agency; and
(viii) such other investments acceptable to each Rating Agency as would
not result in the downgrading of the rating then assigned to the
Certificates by either Rating Agency or result in any of such rated
Certificates being placed on credit review status (other than for possible
upgrading) by either Rating Agency.
In no event shall an instrument be an Eligible Investment if such
instrument evidences either (i) a right to receive only interest payments with
respect to the obligations underlying such instrument, or (ii) both principal
and interest payments derived from obligations underlying such instrument and
the interest and principal payments with respect to such instrument provide a
yield to maturity at the date of investment of greater than 120% of the yield to
maturity at par of such underlying obligations.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
ERISA PLAN: Any Person which is an employee benefit plan within the
meaning of Section 3(3) of ERISA.
ERISA PROHIBITED HOLDER: As defined in Section 5.02(d).
ERRORS AND OMISSIONS POLICY: As defined in each of the Servicing
Agreements.
EVENT OF DEFAULT: Any of the events specified in Section 7.01.
EXCESS BANKRUPTCY LOSS: With respect to any Distribution Date and any
Mortgage Loan as to which a Bankruptcy Loss is realized in the month preceding
the month of such Distribution Date, (i) if the Aggregate Current Bankruptcy
Losses with respect to such
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Distribution Date exceed the then-applicable Bankruptcy Loss Amount, then the
portion of such Bankruptcy Loss represented by the ratio of (a) the excess of
the Aggregate Current Bankruptcy Losses over the then-applicable Bankruptcy Loss
Amount, divided by (b) the Aggregate Current Bankruptcy Losses or (ii) if the
Aggregate Current Bankruptcy Losses with respect to such Distribution Date are
less than or equal to the then-applicable Bankruptcy Loss Amount, then zero. In
addition, any Bankruptcy Loss occurring with respect to a Mortgage Loan on or
after the Cross-Over Date will be an Excess Bankruptcy Loss.
EXCESS FRAUD LOSS: With respect to any Distribution Date and any
Mortgage Loan as to which a Fraud Loss is realized in the month preceding the
month of such Distribution Date, (i) if the Aggregate Current Fraud Losses with
respect to such Distribution Date exceed the then-applicable Fraud Loss Amount,
then the portion of such Fraud Loss represented by the ratio of (a) the excess
of the Aggregate Current Fraud Losses over the then-applicable Fraud Loss
Amount, divided by (b) the Aggregate Current Fraud Losses, or (ii) if the
Aggregate Current Fraud Losses with respect to such Distribution Date are less
than or equal to the then-applicable Fraud Loss Amount, then zero. In addition,
any Fraud Loss occurring with respect to a Mortgage Loan on or after the
Cross-Over Date will be an Excess Fraud Loss.
EXCESS SPECIAL HAZARD LOSS: With respect to any Distribution Date and
any Mortgage Loan as to which a Special Hazard Loss is realized in the month
preceding the month of such Distribution Date, (i) if the Aggregate Current
Special Hazard Losses with respect to such Distribution Date exceed the
then-applicable Special Hazard Loss Amount, then the portion of such Special
Hazard Loss represented by the ratio of (a) the excess of the Aggregate Current
Special Hazard Losses over the then-applicable Special Hazard Loss Amount,
divided by (b) the Aggregate Current Special Hazard Losses, or (ii) if the
Aggregate Current Special Hazard Losses with respect to such Distribution Date
are less than or equal to the then-applicable Special Hazard Loss Amount, then
zero. In addition, any Special Hazard Loss occurring with respect to a Mortgage
Loan on or after the Cross-Over Date will be an Excess Special Hazard Loss.
FDIC: The Federal Deposit Insurance Corporation or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation or any successor
thereto.
FIDELITY BOND: As defined in each of the Servicing Agreements.
FINAL DISTRIBUTION DATE: The Distribution Date on which the final
distribution in respect of the Certificates is made pursuant to Section 9.01.
[FITCH: Fitch Investors Service, L.P., or its successor in interest.]
FIXED RETAINED YIELD: The fixed percentage of interest on each
Mortgage Loan with a Mortgage Interest Rate greater than the sum of (a) ___%,
(b) the Servicing Fee Rate, (c) the Master Servicing Fee Rate and (d) the
Trustee Fee Rate, which will be determined on a
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loan by loan basis and will equal the Mortgage Interest Rate on each Mortgage
Loan minus the sum of (a), (b), (c) and (d), which is not assigned to and not
part of the Trust Estate.
FIXED RETAINED YIELD RATE: With respect to each Mortgage Loan, a per
annum rate equal to the greater of (a) zero and (b) the Mortgage Interest Rate
on such Mortgage Loan minus the sum of (i) ___%, (ii) the Servicing Fee Rate,
(iii) the Master Servicing Fee Rate and (iv) the Trustee Fee Rate.
FNMA: The Federal National Mortgage Association or any successor
thereto.
FORECLOSURE PROFITS: As to any Distribution Date, the excess, if any,
of (i) Net Liquidation Proceeds (other than Net Partial Liquidation Proceeds) in
respect of each Mortgage Loan that became a Liquidated Loan during the month
preceding the month in which such Distribution Date occurs over (ii) the sum of
the unpaid principal balance of each such Liquidated Loan plus accrued and
unpaid interest at the applicable Mortgage Interest Rate on the unpaid principal
balance thereof from the Due Date to which interest was last paid by the
Mortgagor (or, in the case of a Liquidated Loan that had been an REO Mortgage
Loan, from the Due Date to which interest was last deemed to have been paid) to
the first day of the month following the month in which such Mortgage Loan
became a Liquidated Loan.
FRAUD LOSS: A Liquidated Loan Loss as to which there was fraud in the
origination of such Mortgage Loan.
FRAUD LOSS AMOUNT: As of any Distribution Date after the Cut-Off Date
an amount equal to: (X) prior to the first anniversary of the Cut-Off Date an
amount equal to $_____________ minus the aggregate amount of Fraud Losses
allocated solely to the Class B Certificates or, following the reduction of the
Class B Principal Balance to zero, solely to the Class M Certificates in
accordance with Section 4.02(a) since the Cut-Off Date, and (Y) from the first
through fifth anniversary of the Cut-Off Date, an amount equal to (1) the lesser
of (a) the Fraud Loss Amount as of the most recent anniversary of the Cut-Off
Date and (b) 1.00% of the aggregate outstanding principal balance of all of the
Mortgage Loans as of the most recent anniversary of the Cut-Off Date minus (2)
the Fraud Losses allocated solely to the Class B Certificates or, following the
reduction of the Class B Principal Balance to zero, solely to the Class M
Certificates in accordance with Section 4.02(a) since the most recent
anniversary of the Cut-Off Date. On and after the Cross-Over Date or after the
fifth anniversary of the Cut-Off Date the Fraud Loss Amount shall be zero.
HOLDER: See "Certificateholder."
INDEPENDENT: When used with respect to any specified Person, such
Person who (i) is in fact independent of the Seller, the Master Servicer and any
Servicer, (ii) does not have any direct financial interest or any material
indirect financial interest in the Seller or the Master Servicer or any Servicer
or in an affiliate of either, and (iii) is not connected with the Seller, the
Master Servicer or any Servicer as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions.
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INSURANCE POLICY: Any insurance or performance bond relating to a
Mortgage Loan or the Mortgage Loans, including any hazard insurance, special
hazard insurance, flood insurance, primary mortgage insurance, mortgagor
bankruptcy bond or title insurance.
INSURANCE PROCEEDS: Proceeds paid by any insurer pursuant to any
Insurance Policy covering a Mortgage Loan.
INSURED EXPENSES: Expenses covered by any Insurance Policy covering a
Mortgage Loan.
LIQUIDATED LOAN: A Mortgage Loan with respect to which the related
Mortgaged Property has been acquired, liquidated or foreclosed and with respect
to which the applicable Servicer determines that all Liquidation Proceeds which
it expects to recover have been recovered.
LIQUIDATED LOAN LOSS: With respect to any Distribution Date, the
aggregate of the amount of losses with respect to each Mortgage Loan which
became a Liquidated Loan prior to the Due Date preceding such Distribution Date,
equal to the excess of (i) the unpaid principal balance of each such Liquidated
Loan, plus accrued interest thereon in accordance with the amortization schedule
at the time applicable thereto at the applicable Net Mortgage Interest Rate from
the Due Date as to which interest was last paid with respect thereto through the
last day of the month in which such Mortgage Loan became a Liquidated Loan, over
(ii) Net Liquidation Proceeds (other than Net Partial Liquidation Proceeds) with
respect to such Liquidated Loan.
LIQUIDATION EXPENSES: Expenses incurred by a Servicer in connection
with the liquidation of any defaulted Mortgage Loan or property acquired in
respect thereof (including, without limitation, legal fees and expenses,
committee or referee fees, and, if applicable, brokerage commissions and
conveyance taxes), any unreimbursed advances expended by such Servicer pursuant
to its Servicing Agreement or the Master Servicer or Trustee pursuant hereto
respecting the related Mortgage Loan, including any unreimbursed advances for
real property taxes or for property restoration or preservation of the related
Mortgaged Property. Liquidation Expenses shall not include any previously
incurred expenses in respect of an REO Mortgage Loan which have been netted
against related REO Proceeds.
LIQUIDATION PROCEEDS: Amounts received by a Servicer (including
Insurance Proceeds) in connection with the liquidation of defaulted Mortgage
Loans or property acquired in respect thereof, whether through foreclosure, sale
or otherwise, including payments in connection with such Mortgage Loans received
from the Mortgagor, other than amounts required to be paid to the Mortgagor
pursuant to the terms of the applicable Mortgage or to be applied otherwise
pursuant to law.
LOAN-TO-VALUE RATIO: The ratio, expressed as a percentage, the
numerator of which is the principal balance of a particular Mortgage Loan at
origination and the denominator of which is the lesser of (x) the appraised
value of the related Mortgaged Property determined in the appraisal used by the
originator at the time of origination of such
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Mortgage Loan, and (y) if the Mortgage is originated in connection with a sale
of the Mortgaged Property, the sale price for such Mortgaged Property.
MASTER SERVICER: Norwest Bank Minnesota, National Association, or any
successor master servicer appointed as herein provided.
MASTER SERVICING FEE: With respect to any Mortgage Loan and any
Distribution Date, the fee payable monthly to the Master Servicer pursuant to
Section 6.05 equal to a fixed percentage (expressed as a per annum rate) of the
unpaid principal balance of such Mortgage Loan.
MASTER SERVICING FEE RATE: As set forth in Section 11.11.
MONTHLY PAYMENT: As to any Mortgage Loan (including any REO Mortgage
Loan) and any Due Date, the payment of principal and interest due thereon in
accordance with the amortization schedule at the time applicable thereto (after
adjustment for any Curtailments and Deficient Valuations occurring prior to such
Due Date but before any adjustment to such amortization schedule, other than for
Deficient Valuations, by reason of any bankruptcy or similar proceeding or any
moratorium or similar waiver or grace period).
[MOODY'S: Moody's Investors Service, Inc., or its successor in
interest.]
MORTGAGE: The mortgage, deed of trust or other instrument creating a
first lien on Mortgaged Property securing a Mortgage Note together with any
Mortgage Loan Rider, if applicable.
MORTGAGE INTEREST RATE: As to any Mortgage Loan, the per annum rate
at which interest accrues on the unpaid principal balance thereof as set forth
in the related Mortgage Note, which rate is as indicated on the Mortgage Loan
Schedule.
MORTGAGE LOAN RIDER: The standard FNMA/FHLMC riders to the Mortgage
Note and/or Mortgage riders required when the Mortgaged Property is a
condominium unit or a unit in a planned unit development.
MORTGAGE LOAN SCHEDULE: The list of the Mortgage Loans transferred to
the Trustee on the Closing Date as part of the Trust Estate and attached hereto
as Exhibit F, which list may be amended following the Closing Date upon
conveyance of a substitute Mortgage Loan pursuant to Section 2.02 or 2.03 and
which list shall set forth at a minimum the following information as of the
close of business on the Cut-Off Date (or, with respect to substitute Mortgage
Loans, as of the close of business on the day of substitution) as to each
Mortgage Loan:
(i) the Mortgage Loan identifying number;
(ii) the city, state and zip code of the Mortgaged Property;
(iii) the type of property;
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(iv) the Mortgage Interest Rate;
(v) the Net Mortgage Interest Rate;
(vi) the Monthly Payment;
(vii) the original number of months to maturity;
(viii) the scheduled maturity date;
(ix) the Cut-Off Date Principal Balance;
(x) the Loan-to-Value Ratio at origination;
(xi) whether such Mortgage Loan is a Subsidy Loan;
(xii) whether such Mortgage Loan is covered by primary mortgage
insurance;
(xiii) whether such Mortgage Loan is a T.O.P. Mortgage Loan;
(xiv) the Servicing Fee Rate;
(xv) Fixed Retained Yield, if applicable;
(xvi) the name of the Servicer with respect thereto; and
(xvii) the name of the Norwest Mortgage Loan Seller with respect
thereto, if applicable.
Such schedule may consist of multiple reports that collectively set
forth all of the information required.
MORTGAGE LOANS: Each of the mortgage loans transferred and assigned
to the Trustee on the Closing Date pursuant to Section 2.01 and any mortgage
loans substituted therefor pursuant to Section 2.02 or 2.03, in each case as
from time to time are included in the Trust Estate as identified in the Mortgage
Loan Schedule.
MORTGAGE NOTE: The note or other evidence of indebtedness evidencing
the indebtedness of a Mortgagor under a Mortgage Loan together with any related
Mortgage Loan Riders, if applicable.
MORTGAGED PROPERTY: The property subject to a Mortgage, which may
include Co-op Shares.
MORTGAGOR: The obligor on a Mortgage Note.
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NET FORECLOSURE PROFITS: As to any Distribution Date, the amount, if
any, by which (i) Aggregate Foreclosure Profits with respect to such
Distribution Date exceed (ii) Liquidated Loan Losses with respect to such
Distribution Date.
NET LIQUIDATION PROCEEDS: As to any Liquidated Loan, Liquidation
Proceeds net of Liquidation Expenses. For all purposes of this Agreement, Net
Liquidation Proceeds shall be allocated first to accrued and unpaid interest on
the related Mortgage Loan and then to the unpaid principal balance thereof.
NET MORTGAGE INTEREST RATE: With respect to each Mortgage Loan, a
rate equal to (i) the Mortgage Interest Rate on such Mortgage Loan minus (ii)
the sum of (a) the Servicing Fee Rate, as set forth on Exhibit F with respect to
such Mortgage Loan, (b) the Master Servicing Fee Rate, as set forth in Section
11.11, (c) the Trustee Fee Rate as set forth in Section 11.29 and (d) the Fixed
Retained Yield Rate, if any, with respect to such Mortgage Loan. Any regular
monthly computation of interest at such rate shall be based upon annual interest
at such rate on the applicable amount divided by twelve.
NET PARTIAL LIQUIDATION PROCEEDS: Partial Liquidation Proceeds with
respect to a Mortgage Loan net of unreimbursed Liquidation Expenses incurred
with respect to such Mortgage Loan. For all purposes of this Agreement, Net
Partial Liquidation Proceeds shall be allocated first to accrued and unpaid
interest on the related Mortgage Loan and then to the unpaid principal balance
thereof.
NET REO PROCEEDS: As to any REO Mortgage Loan, REO Proceeds net of
any related expenses of the Servicer.
NON-PERMITTED FOREIGN HOLDER: As defined in Section 5.02(d).
NONRECOVERABLE ADVANCE: Any portion of a Periodic Advance previously
made or proposed to be made in respect of a Mortgage Loan which has not been
previously reimbursed to the Servicer, the Master Servicer or the Trustee, as
the case may be, and which the Servicer or the Master Servicer or the Trustee
determines will not, or in the case of a proposed Periodic Advance would not, be
ultimately recoverable from Liquidation Proceeds or other recoveries in respect
of the related Mortgage Loan. The determination by the Servicer, the Master
Servicer or the Trustee (i) that it has made a Nonrecoverable Advance or (ii)
that any proposed Periodic Advance, if made, would constitute a Nonrecoverable
Advance, shall be evidenced by an Officer's Certificate of the Servicer
delivered to the Master Servicer for redelivery to the Trustee or, in the case
of a Master Servicer or Trustee determination, an Officer's Certificate of the
Master Servicer or the Trustee delivered to the Trustee, in each case detailing
the reasons for such determination.
NON-SUPPORTED INTEREST SHORTFALL: With respect to any Distribution
Date, the sum of the excess, if any, with respect to the Mortgage Loans serviced
under each of the respective Servicing Agreements, of the aggregate Prepayment
Interest Shortfall on such Mortgage Loans over the aggregate Servicing Fee owed
under such Servicing Agreement with respect to such Distribution Date. With
respect to each Distribution Date occurring on or after
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the Cross-Over Date, the Non-Supported Interest Shortfall as determined pursuant
to the preceding sentence shall be increased by the Curtailment Interest
Shortfall and the Partial Liquidation Interest Shortfall, if any, for such
Distribution Date.
NON-U.S. PERSON: As defined in Section 4.01(g).
NORWEST MORTGAGE: Norwest Mortgage, Inc.
NORWEST MORTGAGE LOAN SELLERS: The entities listed on the Mortgage
Loan Schedule, from which Norwest Mortgage purchased the Mortgage Loans.
NORWEST MORTGAGE SERVICING AGREEMENT: The Servicing Agreement dated
_______________, 1996 by and between Norwest Mortgage and Norwest Bank
Minnesota, National Association providing for the servicing of certain Mortgage
Loans initially by Norwest Mortgage.
OFFICERS' CERTIFICATE: With respect to any Person, a certificate
signed by the Chairman of the Board, the President or a Vice President, and by
the Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of such Person (or, in the case of a Person which is not a
corporation, signed by the person or persons having like responsibilities), and
delivered to the Trustee.
OPINION OF COUNSEL: A written opinion of counsel, who may be outside
or salaried counsel for the Seller, a Servicer or the Master Servicer, or any
affiliate of the Seller, a Servicer or the Master Servicer, acceptable to the
Trustee; PROVIDED, HOWEVER, that with respect to REMIC matters, matters relating
to the determination of Eligible Accounts or matters relating to transfers of
Certificates, such counsel shall be Independent.
OPTIMAL ADJUSTMENT EVENT: With respect to the Class M Certificates or
any Class B Subclass and any Distribution Date, an Optimal Adjustment Event will
occur with respect to such Class or Subclass if: (i) the principal balance of
such Class or Subclass on the Determination Date succeeding such Distribution
Date would have been reduced to zero (regardless of whether such principal
balance was reduced to zero as a result of principal distribution or the
allocation of Realized Losses) and (ii) any Class A Subclass Principal Balance
or Class AP Principal Balance would be subject to further reduction as a result
of the third sentence of the definition of Class A Subclass Principal Balance or
Class AP Principal Balance or, with respect to any Class B Subclass, the Class M
Principal Balance or the Class B Subclass Principal Balance of a Class B
Subclass with a lower numerical designation would be reduced with respect to
such Distribution Date as a result of the application of clause (ii) of the
definition of Class M Principal Balance, Class B-1 Principal Balance, Class B-2
Principal Balance, Class B-3 Principal Balance, Class B-4 Principal Balance or
Class B-5 Principal Balance.
ORIGINAL CLASS A PERCENTAGE: The Class A Percentage as of the Cut-Off
Date, as set forth in Section 11.04.
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ORIGINAL CLASS A PRINCIPAL BALANCE: The sum of the Original Class A
Subclass Principal Balances of each Class A Subclass, as set forth in Section
11.06.
ORIGINAL CLASS A SUBCLASS PRINCIPAL BALANCE: Any of the Original
Class A Subclass Principal Balances as set forth in Section 11.05.
ORIGINAL CLASS AP PRINCIPAL BALANCE: The Original Class AP Principal
Balance, as set forth in Section 11.07.
ORIGINAL CLASS B PRINCIPAL BALANCE: The sum of the Original Class B-1
Principal Balance, Original Class B-2 Principal Balance, Original Class B-3
Principal Balance, Original Class B-4 Principal Balance and Original Class B-5
Principal Balance, as set forth in Section 11.18.
ORIGINAL CLASS B-1 PERCENTAGE: The Class B-1 Percentage as of the
Cut-Off Date, as set forth in Section 11.12.
ORIGINAL CLASS B-2 PERCENTAGE: The Class B-2 Percentage as of the
Cut-Off Date, as set forth in Section 11.13.
ORIGINAL CLASS B-3 PERCENTAGE: The Class B-3 Percentage as of the
Cut-Off Date, as set forth in Section 11.14.
ORIGINAL CLASS B-4 PERCENTAGE: The Class B-4 Percentage as of the
Cut-Off Date, as set forth in Section 11.15.
ORIGINAL CLASS B-5 PERCENTAGE: The Class B-5 Percentage as of the
Cut-Off Date, as set forth in Section 11.16.
ORIGINAL CLASS B-1 PRINCIPAL BALANCE: The Class B-1 Principal Balance
as of the Cut-Off Date, as set forth in Section 11.18.
ORIGINAL CLASS B-2 PRINCIPAL BALANCE: The Class B-2 Principal Balance
as of the Cut-Off Date, as set forth in Section 11.18.
ORIGINAL CLASS B-3 PRINCIPAL BALANCE: The Class B-3 Principal Balance
as of the Cut-Off Date, as set forth in Section 11.18.
ORIGINAL CLASS B-4 PRINCIPAL BALANCE: The Class B-4 Principal Balance
as of the Cut-Off Date, as set forth in Section 11.18.
ORIGINAL CLASS B-5 PRINCIPAL BALANCE: The Class B-5 Principal Balance
as of the Cut-Off Date, as set forth in Section 11.18.
ORIGINAL CLASS B-1 FRACTIONAL INTEREST: As to the first Distribution
Date, the percentage obtained by dividing the sum of the Original Class B-2
Principal Balance, the Original Class B-3 Principal Balance, the Original Class
B-4 Principal Balance and the
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Original Class B-5 Principal Balance by the sum of the Original Class A
Principal Balance, the Original Class M Principal Balance and the Original Class
B Principal Balance. The Original Class B-1 Fractional Interest is specified in
Section 11.19.
ORIGINAL CLASS B-2 FRACTIONAL INTEREST: As to the first Distribution
Date, the percentage obtained by dividing the sum of the Original Class B-3
Principal Balance, the Original Class B-4 Principal Balance and the Original
Class B-5 Principal Balance by the sum of the Original Class A Principal
Balance, the Original Class M Principal Balance and the Original Class B
Principal Balance. The Original Class B-2 Fractional Interest is specified in
Section 11.20.
ORIGINAL CLASS B-3 FRACTIONAL INTEREST: As to the first Distribution
Date, the percentage obtained by dividing the sum of the Original Class B-4
Principal Balance and the Original Class B-5 Principal Balance by the sum of the
Original Class A Principal Balance, the Original Class M Principal Balance and
the Original Class B Principal Balance. The Original Class B-3 Fractional
Interest is specified in Section 11.21.
ORIGINAL CLASS B-4 FRACTIONAL INTEREST: As to the first Distribution
Date, the percentage obtained by dividing the Original Class B-5 Principal
Balance by the sum of the Original Class A Principal Balance, the Original Class
M Principal Balance and the Original Class B Principal Balance. The Original
Class B-4 Fractional Interest is specified in Section 11.22.
ORIGINAL CLASS M FRACTIONAL INTEREST: As to the first Distribution
Date, the percentage obtained by dividing the Original Class B Principal Balance
by the sum of the Original Class A Principal Balance, the Original Class M
Principal Balance and the Original Class B Principal Balance. The Original
Class M Fractional Interest is specified in Section 11.10.
ORIGINAL CLASS M PERCENTAGE: The Class M Percentage as of the Cut-Off
Date, as set forth in Section 11.08.
ORIGINAL CLASS M PRINCIPAL BALANCE: The Class M Principal Balance as
of the Cut-Off Date, as set forth in Section 11.09.
ORIGINAL SUBORDINATED PERCENTAGE: The Subordinated Percentage as of
the Cut-Off Date, as set forth in Section 11.23.
ORIGINAL SUBORDINATED PRINCIPAL BALANCE: The sum of the Original Class
M Principal Balance and the Original Class B Principal Balance.
OTHER SERVICER: Any of the Servicers other than Norwest Mortgage.
OTHER SERVICING AGREEMENTS: The Servicing Agreements other than the
Norwest Mortgage Servicing Agreement.
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OUTSTANDING MORTGAGE LOAN: As to any Due Date, a Mortgage Loan
(including an REO Mortgage Loan) which was not the subject of a Prepayment in
Full prior to such Due Date, which did not become a Liquidated Loan prior to
such Due Date and which was not repurchased by the Seller prior to such Due Date
pursuant to Section 2.02 or 2.03.
OWNER MORTGAGE LOAN FILE: A file maintained by the Trustee (or the
Custodian, if any) for each Mortgage Loan that contains the documents specified
in the Servicing Agreements under their respective "Owner Mortgage Loan File"
definition or similar definition and/or other provisions requiring delivery of
specified documents to the owner of the Mortgage Loan in connection with the
purchase thereof, and any additional documents required to be added to the Owner
Mortgage Loan File pursuant to this Agreement.
PAC CERTIFICATES: The Class A-1 Certificates.
PAC PRINCIPAL AMOUNT: As defined in Section 4.01(b).
PARTIAL LIQUIDATION INTEREST SHORTFALL: On any Distribution Date
which occurs on or after the Cross-Over Date, the amount of interest, if any,
that would have accrued on the amount of any Partial Liquidation Proceeds with
respect to a Mortgage Loan that was received on or after the Determination Date
in the month preceding the month in which such Distribution Date occurs but
prior to the first day of the month in which such Distribution Date occurs at
the Net Mortgage Interest Rate for such Mortgage Loan from the date of
application of such Partial Liquidation Proceeds through the last day of the
month in which received.
PARTIAL LIQUIDATION PROCEEDS: Liquidation Proceeds received prior to
the month in which the related Mortgage Loan became a Liquidated Loan.
PARTIAL LIQUIDATION RECEIPT PERIOD: As to any Distribution Date and
any Mortgage Loan, the period from and including the Determination Date
occurring in the month preceding the month of such Distribution Date (or, in the
case of the first Distribution Date, from and including the Cut-Off Date) to but
not including the Determination Date occurring in the month of such Distribution
Date.
PAYING AGENT: The Person authorized on behalf of the Trustee, as
agent for the Master Servicer, to make distributions to Certificateholders with
respect to the Certificates and to forward to Certificateholders the periodic
and annual statements required by Section 4.04. The Paying Agent may be any
Person directly or indirectly controlling or controlled by or under common
control with the Master Servicer and may be the Trustee. The initial Paying
Agent is appointed in Section 4.03(a).
PAYMENT ACCOUNT: The account maintained pursuant to Section 4.03(b).
PERCENTAGE INTEREST: With respect to a Class A Certificate, the
undivided percentage interest obtained by dividing the original principal
balance of such Certificate by the aggregate original principal balance of all
Certificates of such Class A Subclass. With
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respect to a Class AP Certificate, the undivided percentage interest obtained by
dividing the original principal balance of such Certificate by the aggregate
original principal balance of all Certificates of such Class. With respect to a
Class M Certificate, the undivided percentage interest obtained by dividing the
original principal balance of such Certificate by the aggregate original
principal balance of all Certificates of such Class. With respect to a Class B
Certificate, the undivided percentage interest obtained by dividing the original
principal balance of such Certificate by the aggregate original principal
balance of all Certificates of such Class B Subclass.
PERIODIC ADVANCE: The aggregate of the advances required to be made
by a Servicer on any Distribution Date pursuant to its Servicing Agreement or by
the Master Servicer or the Trustee hereunder, the amount of any such advances
being equal to the total of all Monthly Payments (adjusted, in each case (i) in
respect of interest, to the applicable Mortgage Interest Rate less the
applicable Servicing Fee in the case of Periodic Advances made by a Servicer and
to the applicable Net Mortgage Interest Rate in the case of Periodic Advances
made by the Master Servicer or Trustee and (ii) by the amount of any related
Debt Service Reductions or reductions in the amount of interest collectable from
the Mortgagor pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended, or similar legislation or regulations then in effect) on the
Mortgage Loans, that (x) were delinquent as of the close of business on the
related Determination Date, (y) were not the subject of a previous Periodic
Advance by such Servicer or of a Periodic Advance by the Master Servicer or the
Trustee, as the case may be and (z) have not been determined by the Master
Servicer, such Servicer or Trustee to be Nonrecoverable Advances.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
PLAN: As defined in Section 5.02(c).
POOL BALANCE (CLASSES A/M/B PORTION): As of any Distribution Date,
the sum of the amounts for each Mortgage Loan that is an Outstanding Mortgage
Loan of the product of (i) the Classes A/M/B Fraction for such Mortgage Loan and
(ii) the Scheduled Principal Balance of such Mortgage Loan.
POOL BALANCE (CLASS AP PORTION): As of any Distribution Date, the sum
of the amounts for each Mortgage Loan that is an Outstanding Mortgage Loan of
the product of (i) the Class AP Fraction for such Mortgage Loan and (ii) the
Scheduled Principal Balance of such Mortgage Loan.
POOL DISTRIBUTION AMOUNT: As of any Distribution Date, the funds
eligible for distribution to the Holders of the Certificates on such
Distribution Date, which shall be the sum of (i) all previously undistributed
payments or other receipts on account of principal and interest on or in respect
of the Mortgage Loans (including, without limitation, Principal Prepayments, Net
REO Proceeds, Insurance Proceeds, Liquidation Proceeds, the proceeds of any
repurchase of a Mortgage Loan by the Seller and any Substitution Principal
Amount)
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received by the Master Servicer on or prior to the Remittance Date in the month
of such Distribution Date, (ii) all Periodic Advances made by a Servicer
pursuant to the related Servicing Agreement or Periodic Advances made by the
Master Servicer or the Trustee pursuant to Section 3.03 and (iii) all other
amounts required to be placed in the Certificate Account by the Servicer on or
before the Remittance Date or by the Master Servicer or the Trustee on or prior
to the Distribution Date, but excluding the following:
(a) amounts received as late payments of principal or interest
and respecting which the Master Servicer or the Trustee has made one or
more unreimbursed Periodic Advances;
(b) the portion of Net Liquidation Proceeds used to reimburse
any unreimbursed Periodic Advances by the Master Servicer or the Trustee;
(c) those portions of each payment of interest on a particular
Mortgage Loan which represent (i) the Fixed Retained Yield, if any, (ii)
the Master Servicing Fee and (iii) the Trustee Fee;
(d) the Amount Held for Future Distribution;
(e) that portion of Liquidation Proceeds, Insurance Proceeds and
REO Proceeds which represents any unpaid Master Servicing Fee or Trustee
Fee;
(f) all income from Eligible Investments that is held in the
Certificate Account for the account of the Master Servicer;
(g) all other amounts permitted to be withdrawn from the
Certificate Account in respect of the Mortgage Loans, to the extent not
covered by clauses (a) through (f) above, or not required to be deposited
in the Certificate Account under this Agreement;
(h) Net Foreclosure Profits; and
(i) the amount of any recoveries in respect of principal which
had previously been allocated as a loss to one or more Classes or
Subclasses of Certificates pursuant to Section 4.02.
POOL SCHEDULED PRINCIPAL BALANCE: As to any Distribution Date, the
aggregate Scheduled Principal Balances of all Mortgage Loans that were
Outstanding Mortgage Loans on the Due Date in the month preceding the month of
such Distribution Date.
PREPAYMENT IN FULL: With respect to any Mortgage Loan, a payment
consisting of a Principal Prepayment in the amount of the outstanding principal
balance of such loan and resulting in the full satisfaction of such obligation.
PREPAYMENT INTEREST SHORTFALL: On any Distribution Date, the amount
of interest, if any, that would have accrued on any Mortgage Loan which was the
subject of a
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Prepayment in Full at the Net Mortgage Interest Rate for such Mortgage Loan from
the date of its Prepayment in Full, through the last day of the month in which
such Prepayment in Full occurred.
PRINCIPAL ADJUSTMENT: In the event that the Class M Optimal Principal
Amount, Class B-1 Optimal Principal Amount, Class B-2 Optimal Principal Amount,
Class B-3 Optimal Principal Amount, Class B-4 Optimal Principal Amount or Class
B-5 Optimal Principal Amount is calculated in accordance with the proviso in
such definition with respect to any Distribution Date, the Principal Adjustment
for the Class M Certificates or such Class B Subclass shall equal the difference
between (i) the amount that would have been distributed to such Class or
Subclass as principal in accordance with Section 4.01(a) for such Distribution
Date, calculated without regard to such proviso and assuming there are no
Principal Adjustments for such Distribution Date and (ii) the Adjusted Principal
Balance for such Subclass.
PRINCIPAL PREPAYMENT: Any Mortgagor payment or other recovery of
principal on a Mortgage Loan which is received in advance of its Due Date and is
not accompanied by an amount representing scheduled interest for any period
subsequent to the date of prepayment, including, without limitation, all
proceeds received from any condemnation award or proceeds in lieu of
condemnation other than that portion of such proceeds released to the Mortgagor
in accordance with the terms of the Mortgage or Prudent Servicing Practices.
PROHIBITED TRANSACTION TAX: Any tax imposed under Section 860F of the
Code.
PRUDENT SERVICING PRACTICES: The standard of care set forth in each
Servicing Agreement.
RATING AGENCY: Any nationally recognized statistical credit rating
agency, or its successor, that rated one or more Classes of the Certificates at
the request of the Seller at the time of the initial issuance of the
Certificates. The Rating Agenc[y][ies] for the Class A Certificates, Class AP
Certificates and Class M Certificates [is][are] [Fitch][DCR][Moody's][S&P]. The
Rating Agenc[y][ies] for the Class B-1, Class B-2, Class B-3 and Class B-4
Certificates [is][are] [Fitch][DCR][Moody's][S&P]. If any such agency or a
successor is no longer in existence, "Rating Agency" shall be such statistical
credit rating agency, or other comparable Person, designated by the Seller,
notice of which designation shall be given to the Trustee and the Master
Servicer. References herein to the highest short-term rating category of a
Rating Agency shall mean F-1+ in the case of Fitch, A-1+ in the case of S&P and
in the case of any other Rating Agency shall mean its equivalent of such
ratings. References herein to the highest long-term rating categories of a
Rating Agency shall mean AAA and in the case of any other Rating Agency shall
mean its equivalent of such rating without any plus or minus.
REALIZED LOSSES: With respect to any Distribution Date, (i)
Liquidated Loan Losses (including Special Hazard Losses and Fraud Losses) and
(ii) Bankruptcy Losses incurred in the month preceding the month of such
Distribution Date.
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RECORD DATE: The last Business Day of the month preceding the month
of the related Distribution Date.
RELEVANT ANNIVERSARY: See "Bankruptcy Loss Amount."
REMIC: A "real estate mortgage investment conduit" as defined in Code
Section 860D.
REMIC PROVISIONS: Provisions of the federal income tax law relating
to REMICs, which appear at Sections 860A through 860G of Part IV of
Subchapter M of Chapter 1 of Subtitle A of the Code, and related provisions, and
U.S. Department of the Treasury temporary, proposed or final regulations
promulgated thereunder, as the foregoing are in effect (with respect to proposed
regulations, are proposed to be in effect) from time to time.
REMITTANCE DATE: The 18th day of each month or, if such day is not a
Business Day, the preceding Business Day.
REO MORTGAGE LOAN: Any Mortgage Loan which is not a Liquidated Loan
and as to which the indebtedness evidenced by the related Mortgage Note is
discharged and the related Mortgaged Property is held as part of the Trust
Estate.
REO PROCEEDS: Proceeds received in respect of any REO Mortgage Loan
(including, without limitation, proceeds from the rental of the related
Mortgaged Property).
REQUEST FOR RELEASE: A request for release in substantially the form
attached as Exhibit G hereto.
RESPONSIBLE OFFICER: When used with respect to the Trustee, the
Chairman or Vice-Chairman of the Board of Directors or Trustees, the Chairman or
Vice-Chairman of the Executive or Standing Committee of the Board of Directors
or Trustees, the President, the Chairman of the Committee on Trust Matters, any
Vice President, the Secretary, any Assistant Secretary, the Treasurer, any
Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or
Assistant Trust Officer, the Controller and any Assistant Controller or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above-designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
RULE 144A: Rule 144A promulgated under the Securities Act of 1933, as
amended.
[S&P: Standard & Poor's, or its successor in interest.]
SCHEDULED PRINCIPAL BALANCE: As to any Mortgage Loan and Distribution
Date, the principal balance of such Mortgage Loan as of the Due Date in the
month preceding the
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month of such Distribution Date as specified in the amortization schedule at the
time relating thereto (before any adjustment to such amortization schedule by
reason of any bankruptcy (other than Deficient Valuations) or similar proceeding
or any moratorium or similar waiver or grace period) after giving effect to (A)
Principal Prepayments received prior to such Due Date, (B) Deficient Valuations
incurred prior to such Due Date, (C) any Curtailments and Net Partial
Liquidation Proceeds applied by the Servicer in reduction of the unpaid
principal balance of such Mortgage Loan as of such Due Date, (D) the payment of
principal due on such Due Date and irrespective of any delinquency in payment by
the related Mortgagor and (E) any Principal Prepayments in Full received prior
to the Determination Date in the month of such Due Date. Accordingly, the
Scheduled Principal Balance of a Mortgage Loan which becomes a Liquidated Loan
prior to such Due Date shall be zero.
SELLER: Norwest Mortgage Securities, Inc., or its successor in
interest.
SENIOR OPTIMAL AMOUNT: As to any Distribution Date, the sum for such
Distribution Date of (a) the Class A Optimal Amount and (b) the Class AP Optimal
Principal Amount.
SERVICER MORTGAGE LOAN FILE: As defined in each of the Servicing
Agreements.
SERVICERS: Each of Norwest Mortgage and [other servicers].
SERVICING AGREEMENTS: Each of the Servicing Agreements executed with
respect to a portion of the Mortgage Loans by one of the Servicers, which
agreements are attached hereto, collectively, as Exhibit L.
SERVICING FEE: With respect to any Servicer, as defined in its
Servicing Agreement.
SERVICING FEE RATE: With respect to a Mortgage Loan, as set forth on
Exhibit F.
SERVICING OFFICER: Any officer of a Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans.
SIMILAR LAW: As defined in Section 5.02(e).
SINGLE CERTIFICATE: A Certificate of any Class or Subclass that
evidences the smallest permissible Denomination for such Class or Subclass, as
set forth in Section 11.27.
SPECIAL HAZARD LOSS: (i) A Liquidated Loan Loss suffered by a
Mortgaged Property on account of direct physical loss, exclusive of (a) any loss
covered by a hazard policy or a flood insurance policy maintained in respect of
such Mortgaged Property pursuant to a Servicing Agreement and (b) any loss
caused by or resulting from:
(1) normal wear and tear;
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(2) infidelity, conversion or other dishonest act on the part of the
Trustee, the Servicer or any of their agents or employees; or
(3) errors in design, faulty workmanship or faulty materials, unless the
collapse of the property or a part thereof ensues;
or (ii) any Liquidated Loan Loss suffered by the Trust Estate arising from or
related to the presence or suspected presence of hazardous wastes or hazardous
substances on a Mortgaged Property unless such loss to a Mortgaged Property is
covered by a hazard policy or a flood insurance policy maintained in respect of
such Mortgaged Property pursuant to a Servicing Agreement.
SPECIAL HAZARD LOSS AMOUNT: As of any Distribution Date, an amount
equal to $____________ minus the sum of (i) the aggregate amount of Special
Hazard Losses allocated solely to the Class B Certificates in accordance with
Section 4.02(a) and (ii) the Special Hazard Adjustment Amount (as defined below)
as most recently calculated. For each anniversary of the Cut-Off Date, the
Special Hazard Adjustment Amount shall be calculated and shall be equal to the
amount, if any, by which the amount calculated in accordance with the preceding
sentence (without giving effect to the deduction of the Special Hazard
Adjustment Amount for such anniversary) exceeds the greater of (A) the product
of the Special Hazard Percentage for such anniversary multiplied by the
outstanding principal balance of all the Mortgage Loans on the Distribution Date
immediately preceding such anniversary, (B) twice the outstanding principal
balance of the Mortgage Loan in the Trust Estate which has the largest
outstanding principal balance on the Distribution Date immediately preceding
such anniversary and (C) that which is necessary to maintain the original
ratings on the Certificates, other than the Class B-5 Certificates, as evidenced
by letters to that effect delivered by Rating Agencies to the Master Servicer
and the Trustee. On and or after the Cross-Over Date, the Special Hazard Loss
Amount shall be zero.
SPECIAL HAZARD PERCENTAGE: As of each anniversary of the Cut-Off
Date, the greater of (i) 1.00% and (ii) the largest percentage obtained by
dividing the aggregate outstanding principal balance (as of the immediately
preceding Distribution Date) of the Mortgage Loans secured by Mortgaged
Properties located in a single, five-digit zip code area in the State of
California by the outstanding principal balance of all the Mortgage Loans as of
the immediately preceding Distribution Date.
STARTUP DAY: As defined in Section 2.05.
SUBCLASS: Each subdivision of the Class A Certificates, denominated
respectively as Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class
A-R and each subdivision of the Class B Certificates, denominated respectively
as Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5.
SUBORDINATED PERCENTAGE: As to any Distribution Date, the percentage
which is the difference between 100% and the Class A Percentage for such date.
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SUBORDINATED PREPAYMENT PERCENTAGE: As to any Distribution Date, the
percentage which is the difference between 100% and the Class A Prepayment
Percentage for such date.
SUBSIDY LOAN: Any Mortgage Loan subject to a temporary interest
subsidy agreement pursuant to which the monthly interest payments made by the
related Mortgagor will be less than the scheduled monthly interest payments on
such Mortgage Loan, with the resulting difference in interest payments being
provided by the employer of the Mortgagor. Each Subsidy Loan will be identified
as such in the Mortgage Loan Schedule.
SUBSTITUTION PRINCIPAL AMOUNT: With respect to any Mortgage Loan
substituted in accordance with Section 2.02 or pursuant to Section 2.03, the
excess of (x) the unpaid principal balance of the Mortgage Loan which is
substituted for over (y) the unpaid principal balance of the substitute Mortgage
Loan, each balance being determined as of the date of substitution.
TAC CERTIFICATES: The Class A-2 Certificates.
TAC PRINCIPAL AMOUNT: As defined in 4.01(b).
T.O.P. MORTGAGE LOAN: Any Mortgage Loan that was originated by
Norwest Mortgage or an affiliate in connection with the "Title Option Plus"
program and which is not covered by a title insurance policy. Each T.O.P.
Mortgage Loan will be identified as such in the Mortgage Loan Schedule.
TRUST ESTATE: The corpus of the trust created by this Agreement,
consisting of the Mortgage Loans, other than any Fixed Retained Yield, such
amounts as may be held from time to time in the Certificate Account, other than
any Fixed Retained Yield and the rights of the Trustee to receive the proceeds
of all insurance policies and performance bonds, if any, required to be
maintained hereunder or under the related Servicing Agreement, property which
secured a Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure.
TRUSTEE: [Trustee], or any successor trustee appointed as herein
provided.
TRUSTEE FEE: With respect to any Mortgage Loan and any Distribution
Date, the fee payable monthly to the Master Servicer pursuant to Section 6.05
equal to a fixed percentage (expressed as a per annum rate) of the unpaid
principal balance of such Mortgage Loan.
TRUSTEE FEE RATE: As set forth in Section 11.29.
VOTING INTEREST: With respect to any provisions hereof providing for
the action, consent or approval of the Holders of all Certificates evidencing
specified Voting Interests in the Trust Estate, (a) the Holders of the Class A
Certificates will collectively be
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entitled to the Class A Voting Interest, (b) the Holders of the Class AP
Certificates will collectively be entitled to a percentage of the aggregate
Voting Interest represented by all Certificates equal to the percentage obtained
by dividing the Pool Balance (Class AP Portion) by the sum of the Pool Balance
(Classes A/M/B Portion) and the Pool Balance (Class AP Portion), (c) the Holders
of the Class M Certificates will collectively be entitled to the then applicable
percentage of the aggregate Voting Interest represented by all Certificates
equal to the product of (i) the ratio obtained by dividing the Class M Principal
Balance by the sum of the Class A Principal Balance, the Class M Principal
Balance and the Class B Principal Balance and (ii) the Classes A/M/B Voting
Interest and (d) the Holders of the Class B Certificates will collectively be
entitled to the balance of the aggregate Voting Interest represented by all
Series 199_-__ Certificates. The aggregate Voting Interests of each Subclass of
Class A Certificates on any date will be equal to the product of (a) the Class A
Voting Interest on such date and (b) the fraction obtained by dividing the Class
A Subclass Principal Balance of such Subclass on such date by the Class A
Principal Balance on such date. The aggregate Voting Interests of each Subclass
of Class B Certificates will equal such Subclass' pro rata portion of the Voting
Interest allocated to the Class B Certificates based on such Subclass'
outstanding principal balance. Each Certificateholder of a Class or Subclass
will have a Voting Interest equal to the product of the Voting Interest to which
such Class or Subclass is collectively entitled and the Percentage Interest in
such Class or Subclass represented by such Holder's Certificates. With respect
to any provisions hereof providing for action, consent or approval of each Class
or Subclass of Certificates or specified Classes or Subclasses of Certificates,
each Certificateholder of a Class or Subclass will have a Voting Interest in
such Class or Subclass equal to such Holder's Percentage Interest in such Class
or Subclass.
WEIGHTED AVERAGE NET MORTGAGE INTEREST RATE: As to any Distribution
Date, a rate per annum equal to the average, expressed as a percentage of the
Net Mortgage Interest Rates of all Mortgage Loans that were Outstanding Mortgage
Loans as of the Due Date in the month preceding the month of such Distribution
Date, weighted on the basis of the respective Scheduled Principal Balances of
such Mortgage Loans.
Section 1.02. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing. Except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Agreement
and conclusive in favor of the Trustee, if made in the manner provided in this
Section 1.02. The Trustee shall promptly notify the Master Servicer in writing
of the receipt of any such instrument or writing.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying
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that the individual signing such instrument or writing acknowledged to him the
execution thereof. When such execution is by a signer acting in a capacity
other than his or her individual capacity, such certificate or affidavit shall
also constitute sufficient proof of his or her authority. The fact and date of
the execution of any such instrument or writing, or the authority of the
individual executing the same, may also be proved in any other manner which the
Trustee deems sufficient.
(c) The ownership of Certificates (whether or not such Certificates
shall be overdue and notwithstanding any notation of ownership or other writing
thereon made by anyone other than the Trustee and the Authenticating Agent)
shall be proved by the Certificate Register, and neither the Trustee, the Seller
nor the Master Servicer shall be affected by any notice to the contrary.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action of the Holder of any Certificate shall bind every future
Holder of the same Certificate and the Holder of every Certificate issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee, the
Seller or the Master Servicer in reliance thereon, whether or not notation of
such action is made upon such Certificate.
Section 1.03. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article
and Section headings in this Agreement and the Table of Contents are for
convenience of reference only and shall not affect the interpretation or
construction of this Agreement.
Section 1.04. BENEFITS OF AGREEMENT. Nothing in this Agreement or in
the Certificates, express or implied, shall give to any Person, other than the
parties to this Agreement and their successors hereunder, the Holders of the
Certificates, any benefit or any legal or equitable right, power, remedy or
claim under this Agreement.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF THE CERTIFICATES
Section 2.01. CONVEYANCE OF MORTGAGE LOANS. The Seller, concurrently
with the execution and delivery hereof, does hereby assign to the Trustee
without recourse all the right, title and interest of the Seller in and to (a)
the Trust Estate, including all interest (other than the portion, if any,
representing the Fixed Retained Yield) and principal received by the Seller on
or with respect to the Mortgage Loans after the Cut-Off Date (and including
scheduled payments of principal and interest due after the Cut-Off Date but
received by the Seller on or before the Cut-Off Date and Principal Prepayments
received or applied on the Cut-Off Date, but not including payments of principal
and interest due on the Mortgage Loans on or before the Cut-Off Date), (b) the
Insurance Policies, (c) the obligations of the Servicers under the Servicing
Agreements with respect to the Mortgage Loans and (d) proceeds of all the
foregoing.
In connection with such assignment, the Seller shall, with respect to
each Mortgage Loan, deliver, or cause to be delivered, to the Trustee, as
initial custodian, on or before the Closing Date, an Owner Mortgage Loan File.
If any Mortgage or an assignment of a Mortgage to the Trustee or any prior
assignment is in the process of being recorded on the Closing Date, the Seller
shall deliver a copy thereof, certified by Norwest Mortgage or the applicable
Norwest Mortgage Loan Seller to be a true and complete copy of the document sent
for recording, and the Seller shall use its best efforts to cause each such
original recorded document or certified copy thereof to be delivered to the
Trustee promptly following its recordation. The Seller shall also cause to be
delivered to the Trustee any other original mortgage loan document to be
included in the Owner Mortgage Loan File if a copy thereof has been delivered.
In lieu of recording an assignment of any Mortgage the Seller may, to
the extent set forth in any Servicing Agreement, deliver or cause to be
delivered to the Trustee the assignment of the Mortgage Loan from the Seller to
the Trustee in a form suitable for recordation, together with an Opinion of
Counsel (of which [S&P] will be an addressee or with respect to which [S&P]
shall be delivered a reliance letter) to the effect that recording is not
required to protect the Trustee's right, title and interest in and to the
related Mortgage Loan or, in case a court should recharacterize the sale of the
Mortgage Loans as a financing, to perfect a first priority security interest in
favor of the Trustee in the related Mortgage Loan. In the event that the Master
Servicer receives notice that recording is required to protect the right, title
and interest of the Trustee in and to any such Mortgage Loan for which
recordation of an assignment has not previously been required, the Master
Servicer shall promptly notify the Trustee and the Trustee shall within five
Business Days (or such other reasonable period of time mutually agreed upon by
the Master Servicer and the Trustee) of its receipt of such notice deliver each
previously unrecorded assignment to the related Servicer for recordation.
<PAGE>
Section 2.02. ACCEPTANCE BY TRUSTEE. The Trustee acknowledges
receipt of the Mortgage Notes, the Mortgages, the assignments and other
documents referred to in Section 2.01 above and declares that it holds and will
hold such documents and the other documents constituting a part of the Owner
Mortgage Loan Files delivered to it in trust, upon the trusts herein set forth,
for the use and benefit of all present and future Certificateholders. The
Trustee agrees, for the benefit of Certificateholders, to review each Owner
Mortgage Loan File within 45 days after execution of this Agreement in order to
ascertain that all required documents set forth in Section 2.01 have been
executed and received and appear regular on their face, and that such documents
relate to the Mortgage Loans identified in the Mortgage Loan Schedule, and in so
doing the Trustee may rely on the purported due execution and genuineness of any
such document and on the purported genuineness of any signature thereon. If
within such 45 day period the Trustee finds any document constituting a part of
an Owner Mortgage Loan File not to have been executed or received or to be
unrelated to the Mortgage Loans identified in the Mortgage Loan Schedule or not
to appear regular on its face, the Trustee shall promptly notify the Seller,
which shall have a period of 60 days after such notice within which to correct
or cure any such defect. The Seller hereby covenants and agrees that, if any
material defect is not so corrected or cured, the Seller will, not later than 60
days after the Trustee's notice to it referred to above respecting such defect,
either (i) repurchase the related Mortgage Loan or any property acquired in
respect thereof from the Trustee at a price equal to (a) 100% of the unpaid
principal balance of such Mortgage Loan plus (b) accrued interest at the
Mortgage Interest Rate less any Fixed Retained Yield of such Mortgage Loan
through the last day of the month in which such repurchase takes place or (ii)
if within two years of the Startup Day, or such other period permitted by the
REMIC Provisions, substitute for any Mortgage Loan to which such material defect
relates, a new mortgage loan (a "Substitute Mortgage Loan") having such
characteristics so that the representations and warranties of the Seller set
forth in Section 2.03(b) hereof (other than Section 2.03(b)(i)) would not have
been incorrect had such substitute Mortgage Loan originally been a Mortgage
Loan. In no event shall any substitute Mortgage Loan have an unpaid principal
balance, as of the date of substitution, greater than the Scheduled Principal
Balance (reduced by the scheduled payment of principal due on the Due Date in
the month of substitution) of the Mortgage Loan for which it is substituted. In
addition, such substitute Mortgage Loan shall have a Loan-to-Value Ratio less
than or equal to and a Mortgage Interest Rate equal to that of the Mortgage Loan
for which it is substituted.
In the case of a repurchased Mortgage Loan or property, the purchase
price shall be deposited by the Seller in the Certificate Account maintained by
the Master Servicer pursuant to Section 3.02. In the case of a substitute
Mortgage Loan, the Mortgage File relating thereto shall be delivered to the
Trustee and the Substitution Principal Amount, together with (i) interest on
such Substitution Principal Amount at the applicable Net Mortgage Interest Rate
to the following Due Date of such Mortgage Loan which is being substituted for
and (ii) an amount equal to the aggregate amount of unreimbursed Periodic
Advances in respect of interest previously made by the Servicer, Master Servicer
or Trustee with respect to such Mortgage Loan, shall be deposited in the
Certificate Account. The Monthly Payment on the substitute Mortgage Loan for
the Due Date in the month of substitution shall not be part of the Trust Estate.
Upon receipt by the Trustee of written notification of any such deposit signed
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by an officer of the Seller, or the new Mortgage File, as the case may be, the
Trustee shall release to the Seller the related Mortgage File and shall execute
and deliver such instrument of transfer or assignment, in each case without
recourse, as shall be necessary to vest in the Seller legal and beneficial
ownership of such substituted or repurchased Mortgage Loan or property. It is
understood and agreed that the obligation of the Seller to substitute a new
Mortgage Loan for or repurchase any Mortgage Loan or property as to which such a
material defect in a constituent document exists shall constitute the sole
remedy respecting such defect available to the Certificateholders or the Trustee
on behalf of the Certificateholders. The failure of the Trustee to give any
notice contemplated herein within forty-five (45) days after the execution of
this Agreement shall not affect or relieve the Seller's obligation to repurchase
any Mortgage Loan pursuant to this Section 2.02.
The Trustee may, concurrently with the execution and delivery hereof
or at any time thereafter, enter into a Custodial Agreement substantially in the
form of Exhibit E hereto pursuant to which the Trustee appoints a Custodian to
hold the Mortgage Notes, the Mortgages, the assignments and other documents
related to the Mortgage Loans received by the Trustee, as agent for the Trustee,
in trust for the benefit of all present and future Certificateholders, which may
provide, among other things, that the Custodian shall conduct the review of such
documents required under the first paragraph of this Section 2.02.
Section 2.03. REPRESENTATIONS AND WARRANTIES OF THE MASTER SERVICER
AND THE SELLER. (a) The Master Servicer hereby represents and warrants to the
Trustee for the benefit of Certificateholders that, as of the date of execution
of this Agreement:
(i) The Master Servicer is a corporation duly formed and validly
existing under the laws of the State of New Jersey;
(ii) The execution and delivery of this Agreement by the Master
Servicer and its performance and compliance with the terms of this Agreement
will not violate the Master Servicer's corporate charter or by-laws or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach of, any material
contract, agreement or other instrument to which the Master Servicer is a party
or which may be applicable to the Servicer or any of its assets;
(iii) This Agreement, assuming due authorization, execution and
delivery by the Trustee and the Seller, constitutes a valid, legal and binding
obligation of the Master Servicer, enforceable against it in accordance with the
terms hereof subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors' rights
generally and to general principles of equity, regardless of whether such
enforcement is considered in a proceeding in equity or at law;
(iv) The Master Servicer is not in default with respect to any order
or decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Master Servicer or its properties or might have consequences
that would affect its performance hereunder; and
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(v) No litigation is pending or, to the best of the Master Servicer's
knowledge, threatened against the Master Servicer which would prohibit its
entering into this Agreement or performing its obligations under this Agreement.
It is understood and agreed that the representations and warranties
set forth in this Section 2.03(a) shall survive delivery of the respective
Owner Mortgage Loan Files to the Trustee or the Custodian.
(b) The Seller hereby represents and warrants to the Trustee for the
benefit of Certificateholders that, as of the date of execution of this
Agreement, with respect to the Mortgage Loans, or each Mortgage Loan, as the
case may be:
(i) The information set forth in the Mortgage Loan Schedule was true
and correct in all material respects at the date or dates respecting which
such information is furnished as specified in the Mortgage Loan Schedule;
(ii) Immediately prior to the transfer and assignment contemplated
herein, the Seller was the sole owner and holder of the Mortgage Loan free
and clear of any and all liens, pledges, charges or security interests of
any nature and has full right and authority to sell and assign the same;
(iii) The Mortgage is a valid, subsisting and enforceable first lien on
the property therein described, and the Mortgaged Property is free and
clear of all encumbrances and liens having priority over the first lien of
the Mortgage except for liens for real estate taxes and special assessments
not yet due and payable and liens or interests arising under or as a result
of any federal, state or local law, regulation or ordinance relating to
hazardous wastes or hazardous substances, and, if the related Mortgaged
Property is a condominium unit, any lien for common charges permitted by
statute or homeowners association fees; and if the Mortgaged Property
consists of shares of a cooperative housing corporation, any lien for
amounts due to the cooperative housing corporation for unpaid assessments
or charges or any lien of any assignment of rents or maintenance expenses
secured by the real property owned by the cooperative housing corporation;
and any security agreement, chattel mortgage or equivalent document related
to, and delivered to the Trustee or to the Custodian with, any Mortgage
establishes in the Seller a valid and subsisting first lien on the property
described therein and the Seller has full right to sell and assign the same
to the Trustee;
(iv) Neither the Seller nor any prior holder of the Mortgage or the
related Mortgage Note has modified the Mortgage or the related Mortgage
Note in any material respect, satisfied, canceled or subordinated the
Mortgage in whole or in part, released the Mortgaged Property in whole or
in part from the lien of the Mortgage, or executed any instrument of
release, cancellation, modification or satisfaction, except in each case as
is reflected in an agreement delivered to the Trustee or the Custodian
pursuant to Section 2.01;
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(v) All taxes, governmental assessments, insurance premiums, and
water, sewer and municipal charges, which previously became due and owing
have been paid, or an escrow of funds has been established, to the extent
permitted by law, in an amount sufficient to pay for every such item which
remains unpaid; and the Seller has not advanced funds, or received any
advance of funds by a party other than the Mortgagor, directly or
indirectly (except pursuant to any Subsidy Loan arrangement) for the
payment of any amount required by the Mortgage, except for interest
accruing from the date of the Mortgage Note or date of disbursement of the
Mortgage Loan proceeds, whichever is later, to the day which precedes by
thirty days the first Due Date under the related Mortgage Note;
(vi) The Mortgaged Property is undamaged by water, fire, earthquake,
earth movement other than earthquake, windstorm, flood, tornado or similar
casualty (excluding casualty from the presence of hazardous wastes or
hazardous substances, as to which the Seller makes no representations), so
as to affect adversely the value of the Mortgaged Property as security for
the Mortgage Loan or the use for which the premises were intended and to
the best of the Seller's knowledge, there is no proceeding pending or
threatened for the total or partial condemnation of the Mortgaged Property;
(vii) The Mortgaged Property is free and clear of all mechanics' and
materialmen's liens or liens in the nature thereof; PROVIDED, HOWEVER, that
this warranty shall be deemed not to have been made at the time of the
initial issuance of the Certificates if a title policy affording, in
substance, the same protection afforded by this warranty is furnished to
the Trustee by the Seller;
(viii) Except for Mortgage Loans secured by Co-op Shares, the Mortgaged
Property consists of a fee simple estate in real property; all of the
improvements which are included for the purpose of determining the
appraised value of the Mortgaged Property lie wholly within the boundaries
and building restriction lines of such property and no improvements on
adjoining properties encroach upon the Mortgaged Property (unless insured
against under the related title insurance policy); and to the best of the
Seller's knowledge, the Mortgaged Property and all improvements thereon
comply with all requirements of any applicable zoning and subdivision laws
and ordinances;
(ix) The Mortgage Loan meets, or is exempt from, applicable state or
federal laws, regulations and other requirements, pertaining to usury, and
the Mortgage Loan is not usurious;
(x) To the best of the Seller's knowledge, all inspections, licenses
and certificates required to be made or issued with respect to all occupied
portions of the Mortgaged Property and, with respect to the use and
occupancy of the same, including, but not limited to, certificates of
occupancy and fire underwriting certificates, have been made or obtained
from the appropriate authorities;
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(xi) All payments required to be made up to the Due Date immediately
preceding the Cut-Off Date for such Mortgage Loan under the terms of the
related Mortgage Note have been made and no Mortgage Loan had more than one
delinquency in the 13 months preceding the Cut-Off Date;
(xii) The Mortgage Note, the related Mortgage and other agreements
executed in connection therewith are genuine, and each is the legal, valid
and binding obligation of the maker thereof, enforceable in accordance with
its terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and by general equity principles (regardless
of whether such enforcement is considered in a proceeding in equity or at
law); and, to the best of the Seller's knowledge, all parties to the
Mortgage Note and the Mortgage had legal capacity to execute the Mortgage
Note and the Mortgage and each Mortgage Note and Mortgage has been duly and
properly executed by the Mortgagor;
(xiii) Any and all requirements of any federal, state or local law with
respect to the origination of the Mortgage Loans including, without
limitation, truth-in-lending, real estate settlement procedures, consumer
credit protection, equal credit opportunity or disclosure laws applicable
to the Mortgage Loans have been complied with;
(xiv) The proceeds of the Mortgage Loans have been fully disbursed,
there is no requirement for future advances thereunder and any and all
requirements as to completion of any on-site or off-site improvements and
as to disbursements of any escrow funds therefor have been complied with
(except for escrow funds for exterior items which could not be completed
due to weather); and all costs, fees and expenses incurred in making,
closing or recording the Mortgage Loan have been paid, except recording
fees with respect to Mortgages not recorded as of the Closing Date;
(xv) The Mortgage Loan (except any Mortgage Loan identified on the
Mortgage Loan Schedule as a T.O.P. Mortgage Loan and any Mortgage Loan
secured by Mortgaged Property located in Iowa, as to which an opinion of
counsel of the type customarily rendered in such State in lieu of title
insurance is instead received) is covered by an American Land Title
Association mortgagee title insurance policy or other generally acceptable
form of policy or insurance acceptable to FNMA or FHLMC, issued by a title
insurer acceptable to FNMA or FHLMC insuring the originator, its successors
and assigns, as to the first priority lien of the Mortgage in the original
principal amount of the Mortgage Loan and subject only to (A) the lien of
current real property taxes and assessments not yet due and payable, (B)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mortgage
acceptable to mortgage lending institutions in the area in which the
Mortgaged Property is located or specifically referred to in the appraisal
performed in connection with the origination of the related Mortgage Loan,
(C) liens created pursuant to any federal, state or local law, regulation
or ordinance affording liens for the costs of clean-up of hazardous
substances or hazardous wastes or
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for other environmental protection purposes and (D) such other matters to
which like properties are commonly subject which do not individually, or in
the aggregate, materially interfere with the benefits of the security
intended to be provided by the Mortgage; the Seller is the sole insured of
such mortgagee title insurance policy, the assignment to the Trustee of the
Seller's interest in such mortgagee title insurance policy does not require
any consent of or notification to the insurer which has not been obtained
or made, such mortgagee title insurance policy is in full force and effect
and will be in full force and effect and inure to the benefit of the
Trustee, no claims have been made under such mortgagee title insurance
policy, and no prior holder of the related Mortgage, including the Seller,
has done, by act or omission, anything which would impair the coverage of
such mortgagee title insurance policy;
(xvi) The Mortgaged Property securing each Mortgage Loan is insured by
an insurer acceptable to FNMA or FHLMC against loss by fire and such
hazards as are covered under a standard extended coverage endorsement, in
an amount which is not less than the lesser of 100% of the insurable value
of the Mortgaged Property and the outstanding principal balance of the
Mortgage Loan, but in no event less than the minimum amount necessary to
fully compensate for any damage or loss on a replacement cost basis; if the
Mortgaged Property is a condominium unit, it is included under the coverage
afforded by a blanket policy for the project; if upon origination of the
Mortgage Loan, the improvements on the Mortgaged Property were in an area
identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards, a flood insurance policy meeting
the requirements of the current guidelines of the Federal Insurance
Administration is in effect with a generally acceptable insurance carrier,
in an amount representing coverage not less than the least of (A) the
outstanding principal balance of the Mortgage Loan, (B) the full insurable
value of the Mortgaged Property and (C) the maximum amount of insurance
which was available under the Flood Disaster Protection Act of 1973; and
each Mortgage obligates the Mortgagor thereunder to maintain all such
insurance at the Mortgagor's cost and expense;
(xvii) To the best of the Seller's knowledge, there is no default,
breach, violation or event of acceleration existing under the Mortgage or
the related Mortgage Note and no event which, with the passage of time or
with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration; the
Seller has not waived any default, breach, violation or event of
acceleration; and no foreclosure action is currently threatened or has
been commenced with respect to the Mortgage Loan;
(xviii) No Mortgage Note or Mortgage is subject to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury, nor will the operation of any of the terms of the Mortgage Note or
Mortgage, or the exercise of any right thereunder, render the Mortgage Note
or Mortgage unenforceable, in whole or in part, or subject it to any right
of rescission, set-off, counterclaim or defense, including the
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defense of usury, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(xix) Each Mortgage Note is payable in monthly payments, resulting in
complete amortization of the Mortgage Loan over a term of not more than 360
months;
(xx) Each Mortgage contains customary and enforceable provisions such
as to render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security,
including realization by judicial foreclosure (subject to any limitation
arising from any bankruptcy, insolvency or other law for the relief of
debtors), and there is no homestead or other exemption available to the
Mortgagor which would interfere with such right of foreclosure;
(xxi) To the best of the Seller's knowledge, no Mortgagor is a debtor
in any state or federal bankruptcy or insolvency proceeding;
(xxii) Each Mortgaged Property is located in the United States and
consists of a one- to four-unit residential property, which may include a
detached home, townhouse, condominium unit or a unit in a planned unit
development or, in the case of Mortgage Loans secured by Co-op Shares,
leases or occupancy agreements; and
(xxiii) The Mortgage Loan is a "qualified mortgage" within the meaning of
Section 860G of the Code.
Notwithstanding the foregoing, no representations or warranties are
made by the Seller as to the absence or effect of hazardous wastes or hazardous
substances on any of the Mortgaged Properties or on the lien of any Mortgage.
In addition, no representations or warranties are made by the Seller with
respect to the absence or effect of fraud in the origination of any Mortgage
Loan.
It is understood and agreed that the representations and warranties
set forth in this Section 2.03(b) shall survive delivery of the respective
Owner Mortgage Loan Files to the Trustee and shall inure to the benefit of the
Trustee notwithstanding any restrictive or qualified endorsement or assignment.
(c) Upon discovery by either the Seller, the Master Servicer, the
Trustee or the Custodian that any of the representations and warranties made in
subsection (b) above is not accurate (referred to herein as a "breach") and that
such breach materially and adversely affects the interests of the
Certificateholders in the related Mortgage Loan, the party discovering such
breach shall give prompt written notice to the other parties (any Custodian
being so obligated under a Custodial Agreement). Within 60 days of its
discovery or its receipt of notice of any such breach, the Seller shall cure
such breach in all material respects or shall either (i) repurchase the Mortgage
Loan or any property acquired in respect thereof from the Trustee at a price
equal to (A) 100% of the unpaid principal balance of such Mortgage Loan plus (B)
accrued interest at the Net Mortgage Interest Rate for such Mortgage Loan
through the last day of the month in which such repurchase took place or (ii) if
within
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two years of the Startup Day, or such other period permitted by the REMIC
Provisions, substitute for such Mortgage Loan in the manner described in Section
2.02. The purchase price of any repurchase described in this paragraph and the
Substitution Principal Amount, if any, plus accrued interest thereon and the
other amounts referred to in Section 2.02, shall be deposited in the Certificate
Account. It is understood and agreed that the obligation of the Seller to
repurchase or substitute for any Mortgage Loan or property as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to Certificateholders, or to the Trustee on
behalf of Certificateholders, and such obligation shall survive until
termination of the Trust Estate hereunder.
Section 2.04. EXECUTION AND DELIVERY OF CERTIFICATES. The Trustee
acknowledges the assignment to it of the Mortgage Loans and the delivery of the
Owner Mortgage Loan Files to it, and, concurrently with such delivery, has
executed and delivered to or upon the order of the Seller, in exchange for the
Mortgage Loans together with all other assets included in the definition of
"Trust Estate," receipt of which is hereby acknowledged, Certificates in
authorized denominations which evidence ownership of the entire Trust Estate.
Section 2.05. DESIGNATION OF CERTIFICATES; DESIGNATION OF STARTUP DAY
AND LATEST POSSIBLE MATURITY DATE. The Seller hereby designates the Subclasses
of Class A Certificates (other than the Class A-R Certificate), the Class AP
Certificates, the Class M Certificates and the Subclasses of Class B
Certificates as classes of "regular interests" and the Class A-R Certificate as
the single class of "residual interest" in the REMIC for the purposes of Code
Sections 860G(a)(1) and 860G(a)(2), respectively. The Closing Date is hereby
designated as the "Startup Day" of the REMIC within the meaning of Code Section
860G(a)(9). The "latest possible maturity date" of the regular interests in the
REMIC is __________, 20__ for purposes of Code Section 860G(a)(1).
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ARTICLE III
ADMINISTRATION OF THE TRUST ESTATE; SERVICING
OF THE MORTGAGE LOANS
Section 3.01. CERTIFICATE ACCOUNT. (a) The Master Servicer shall
establish and maintain a Certificate Account for the deposit of funds received
by the Master Servicer with respect to the Mortgage Loans serviced by each
Servicer pursuant to each of the Servicing Agreements. Such account shall be
maintained as an Eligible Account. The Master Servicer shall give notice to
each Servicer and the Seller of the location of the Certificate Account and of
any change in the location thereof.
(b) The Master Servicer shall deposit into the Certificate Account on
the day of receipt thereof all amounts received by it from any Servicer pursuant
to any of the Servicing Agreements, and shall, in addition, deposit into the
Certificate Account the following amounts, in the case of amounts specified in
clause (i), not later than the Distribution Date on which such amounts are
required to be distributed to Certificateholders and, in the case of the amounts
specified in clause (ii), not later than the Business Day next following the day
of receipt and posting by the Master Servicer:
(i) Periodic Advances pursuant to Section 3.03(a) made by the Master
Servicer or the Trustee, if any; and
(ii) in the case of any Mortgage Loan that is repurchased by the
Seller pursuant to Section 2.02 or 2.03 or that is auctioned by the Master
Servicer pursuant to Section 3.08 or purchased by the Master Servicer or
the Seller pursuant to Section 3.08 or 9.01, the purchase price therefor
or, where applicable, any Substitution Principal Amount and any amounts
received in respect of the interest portion of unreimbursed Periodic
Advances.
(c) The Master Servicer shall cause the funds in the Certificate
Account to be invested in Eligible Investments. No such Eligible Investments
will be sold or disposed of at a gain prior to maturity unless the Master
Servicer has received an Opinion of Counsel or other evidence satisfactory to it
that such sale or disposition will not cause the Trust Estate to be subject to
Prohibited Transactions Tax, otherwise subject the Trust Estate to tax, or cause
the Trust Estate to fail to qualify as a REMIC while any Certificates are
outstanding. Any amounts deposited in the Certificate Account prior to the
Distribution Date shall be invested for the account of the Master Servicer and
any investment income thereon shall be additional compensation to the Master
Servicer for services rendered under this Agreement. The amount of any losses
incurred in respect of any such investments shall be deposited in the
Certificate Account by the Master Servicer out of its own funds immediately as
realized.
Section 3.02. PERMITTED WITHDRAWALS FROM THE CERTIFICATE ACCOUNT.
(a) The Master Servicer may, from time to time, make withdrawals from the
Certificate Account for
<PAGE>
the following purposes (limited, in the case of Servicer reimbursements, to
cases where funds in the respective Custodial P&I Account are not sufficient
therefor):
(i) to reimburse the Master Servicer, the Trustee or any Servicer for
Periodic Advances made by the Master Servicer or the Trustee pursuant to
Section 3.03(a) or any Servicer pursuant to any Servicing Agreement with
respect to previous Distribution Dates, such right to reimbursement
pursuant to this subclause (i) being limited to amounts received on or in
respect of particular Mortgage Loans (including, for this purpose,
Liquidation Proceeds, Insurance Proceeds, REO Proceeds and proceeds from
the purchase, sale, repurchase or substitution of Mortgage Loans pursuant
to Sections 2.02, 2.03, 3.08 or 9.01) respecting which any such Periodic
Advance was made;
(ii) to reimburse any Servicer, the Master Servicer or the Trustee for
any Periodic Advances determined in good faith to have become
Nonrecoverable Advances; provided, however, that any portion of
Nonrecoverable Advances representing Fixed Retained Yield shall be
reimbursable only from amounts constituting Fixed Retained Yield and not
from the assets of the Trust Estate;
(iii) to reimburse the Master Servicer or any Servicer from Liquidation
Proceeds or Insurance Proceeds for Liquidation Expenses and for amounts
expended by the Master Servicer or any Servicer pursuant hereto or to any
Servicing Agreement, respectively, in good faith in connection with the
restoration of damaged property or for foreclosure expenses;
(iv) from any Mortgagor payment on account of interest or other
recovery (including Net REO Proceeds) with respect to a particular Mortgage
Loan, to pay the Master Servicing Fee and the Trustee Fee with respect to
such Mortgage Loan to the Master Servicer and the Trustee, respectively;
(v) to reimburse the Master Servicer, any Servicer or the Trustee
(or, in certain cases, the Seller) for expenses incurred by it (including
taxes paid on behalf of the Trust Estate) and recoverable by or
reimbursable to it pursuant to Section 3.03(c), 3.03(d) or 6.03 or the
second sentence of Section 8.14(a) or pursuant to such Servicer's Servicing
Agreement;
(vi) to pay to the Seller or other purchaser with respect to each
Mortgage Loan or property acquired in respect thereof that has been
repurchased or replaced pursuant to Section 2.02 or 2.03 or auctioned
pursuant to Section 3.08 or to pay to the Master Servicer with respect to
each Mortgage Loan or property acquired in respect thereof that has been
purchased pursuant to Section 3.08 or 9.01, all amounts received thereon
and not required to be distributed as of the date on which the related
repurchase or purchase price or Scheduled Principal Balance was determined;
(vii) to remit funds to the Paying Agent in the amounts and in the
manner provided for herein;
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(viii) to pay to the Master Servicer any interest earned on or
investment income with respect to funds in the Certificate Account;
(ix) to pay to the Master Servicer, any Servicer or the Trustee out of
Net Liquidation Proceeds allocable to interest the amount of any unpaid
Master Servicing Fee, Servicing Fee (as adjusted pursuant to such
Servicer's Servicing Agreement) or Trustee Fee and any unpaid assumption
fees, late payment charges or other Mortgagor charges on the related
Mortgage Loan;
(x) to withdraw from the Certificate Account any amount deposited in
the Certificate Account that was not required to be deposited therein;
(xi) to clear and terminate the Certificate Account pursuant to
Section 9.01; and
(xii) to pay to Norwest Mortgage from any Mortgagor payment on account
of interest or other recovery (including Net REO Proceeds) with respect to
a particular Mortgage Loan, the Fixed Retained Yield, if any, with respect
to such Mortgage Loan; provided, however, that with respect to any payment
of interest received by the Master Servicer in respect of a Mortgage Loan
(whether paid by the Mortgagor or received as Liquidation Proceeds,
Insurance Proceeds or otherwise) which is less than the full amount of
interest then due with respect to such Mortgage Loan, only that portion of
such payment of interest that bears the same relationship to the total
amount of such payment of interest as the Fixed Retained Yield Rate, if
any, in respect of such Mortgage Loan bears to the Mortgage Interest Rate
shall be allocated to the Fixed Retained Yield with respect thereto.
(b) The Master Servicer shall keep and maintain separate accounting,
on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
payment to and withdrawal from the Certificate Account.
Section 3.03 ADVANCES BY MASTER SERVICER AND TRUSTEE. (a) In the
event an Other Servicer fails to make any required Periodic Advances of
principal and interest on a Mortgage Loan as required by the related Other
Servicing Agreement prior to the Distribution Date occurring in the month during
which such Periodic Advance is due, the Master Servicer shall make Periodic
Advances to the extent provided hereby. In the event Norwest Mortgage fails to
make any required Periodic Advances of principal and interest on a Mortgage Loan
as required by the Norwest Servicing Agreement prior to the Distribution Date
occurring in the month during which such Periodic Advance is due, the Trustee
Servicer shall, to the extent required by Section 8.15, make such Periodic
Advance to the extent provided hereby. The Master Servicer shall certify to the
Trustee with respect to any such Distribution Date (i) the amount of Periodic
Advances required of Norwest Mortgage or such Other Servicer, as the case may
be, (ii) the amount actually advanced, (iii) the amount that the Trustee or
Master Servicer is required to advance hereunder and (iv) whether the Master
Servicer has determined that it reasonably believes that such Periodic Advance
is a Nonrecoverable Advance. Amounts advanced by the Trustee or Master Servicer
shall be deposited in the Certificate Account on
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the related Distribution Date. Notwithstanding the foregoing, neither the
Master Servicer nor the Trustee will be obligated to make a Periodic Advance
that it reasonably believes to be a Nonrecoverable Advance. The Trustee may
conclusively rely for any determination to be made by it hereunder upon the
determination of the Master Servicer as set forth in its certificate.
(b) To the extent an Other Servicer fails to make an advance on
account of the taxes or insurance premiums with respect to a Mortgage Loan
required pursuant to Section 17.3 of the related Other Servicing Agreement, the
Master Servicer shall, if the Master Servicer knows of such failure of the
Servicer, advance such funds and take such steps as are necessary to pay such
taxes or insurance premiums. To the extent Norwest Mortgage fails to make an
advance on account of the taxes or insurance premiums with respect to a Mortgage
Loan required pursuant to Section 17.3 of the Norwest Servicing Agreement, the
Master Servicer shall, if the Master Servicer knows of such failure of Norwest
Mortgage, certify to the Trustee that such failure has occurred. Upon receipt
of such certification, the Trustee shall advance such funds and take such steps
as are necessary to pay such taxes or insurance premiums.
(c) The Master Servicer and the Trustee shall each be entitled to be
reimbursed from the Certificate Account for any Periodic Advance made by it
under Section 3.03(a) to the extent described in Section 3.02(a)(i) or with
respect to any such Periodic Advance which the Master Servicer or the Trustee
shall ultimately determine in its good faith judgment to be a Nonrecoverable
Advance from funds generally available in the Certificate Account. The Master
Servicer and the Trustee shall be entitled to be reimbursed pursuant to Section
3.02(a)(v) for any advance by it pursuant to Section 3.03(b). The Master
Servicer shall diligently pursue restoration of such amount to the Certificate
Account from the related Servicer.
(d) Except as provided in Section 3.03(a) and (b), neither the Master
Servicer nor the Trustee shall be required to pay or advance any amount which
any Servicer was required, but failed, to deposit in the Certificate Account.
Section 3.04. TRUSTEE TO COOPERATE; RELEASE OF OWNER MORTGAGE LOAN
FILES. Upon the receipt by the Master Servicer of a Request for Release in
connection with the deposit by a Servicer into the Certificate Account of the
proceeds from a Liquidated Loan or of a Prepayment in Full, the Master Servicer
shall confirm to the Trustee that all amounts required to be remitted to the
Certificate Account in connection with such Mortgage Loan have been so
deposited, and shall deliver such Request for Release to the Trustee. The
Trustee shall, within five Business Days of its receipt of such a Request for
Release, release the related Owner Mortgage Loan File to the Master Servicer or
such Servicer, as requested by the Master Servicer. No expenses incurred in
connection with any instrument of satisfaction or deed of reconveyance shall be
chargeable to the Certificate Account.
From time to time and as appropriate for the servicing or foreclosure
of any Mortgage Loan, including but not limited to, collection under any
insurance policies, or to
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effect a partial release of any Mortgaged Property from the lien of the
Mortgage, the Servicer of such Mortgage Loan shall deliver to the Master
Servicer a Request for Release. Upon the Master Servicer's receipt of any such
Request for Release, the Master Servicer shall promptly forward such request to
the Trustee and the Trustee shall, within five Business Days, release the
related Owner Mortgage Loan File to the Master Servicer or such Servicer, as
requested by the Master Servicer. Any such Request for Release shall obligate
the Master Servicer or such Servicer, as the case may be, to return each and
every document previously requested from the Owner Mortgage Loan File to the
Trustee by the twenty-first day following the release thereof, unless (i) the
Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the
Mortgage Loan have been deposited in the Certificate Account or (ii) the Owner
Mortgage Loan File or such document has been delivered to an attorney, or to a
public trustee or other public official as required by law, for purposes of
initiating or pursuing legal action or other proceedings for the foreclosure of
the Mortgaged Property either judicially or non-judicially, and the Master
Servicer has delivered to the Trustee a certificate of the Master Servicer or
such Servicer certifying as to the name and address of the Person to which such
Owner Mortgage Loan File or such document was delivered and the purpose or
purposes of such delivery. Upon receipt of an Officer's Certificate of the
Master Servicer or such Servicer stating that such Mortgage Loan was liquidated
and that all amounts received or to be received in connection with such
liquidation which are required to be deposited into the Certificate Account have
been so deposited, or that such Mortgage Loan has become an REO Mortgage Loan,
the Request for Release shall be released by the Trustee to the Master Servicer
or such Servicer, as appropriate.
Upon written certification of the Master Servicer or the Servicer of
such Mortgage Loan, the Trustee shall execute and deliver to the Master Servicer
or such Servicer, as directed by the Master Servicer, court pleadings, requests
for trustee's sale or other documents necessary to the foreclosure or trustee's
sale in respect of a Mortgaged Property or to any legal action brought to obtain
judgment against any Mortgagor on the Mortgage Note or Mortgage or to obtain a
deficiency judgment, or to enforce any other remedies or rights provided by the
Mortgage Note or Mortgage or otherwise available at law or in equity. Each such
certification shall include a request that such pleadings or documents be
executed by the Trustee and a statement as to the reason such documents or
pleadings are required and that the execution and delivery thereof by the
Trustee will not invalidate or otherwise affect the lien of the Mortgage, except
for the termination of such a lien upon completion of the foreclosure proceeding
or trustee's sale.
Section 3.05. REPORTS TO THE TRUSTEE; ANNUAL COMPLIANCE STATEMENTS.
(a) Not later than 15 days after each Distribution Date, the Master Servicer
shall deliver to the Trustee a statement setting forth the status of the
Certificate Account as of the close of business on such Distribution Date
stating that all distributions required to be made by the Master Servicer under
this Agreement have been made (or, if any required distribution has not been
made by the Master Servicer, specifying the nature and status thereof) and
showing, for the period covered by such statement, the aggregate amount of
deposits into and withdrawals from such account for each category of deposit and
withdrawal specified in Sections 3.01 and 3.02. Such statement may be in the
form of the then current FNMA monthly accounting report for its
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Guaranteed Mortgage Pass-Through Program with appropriate additions and changes,
and shall also include information as to the aggregate unpaid principal balance
of all of the Mortgage Loans as of the close of business as of the last day of
the calendar month immediately preceding such Distribution Date. Copies of such
statement shall be provided by the Trustee to any Certificateholder upon written
request, provided such statement is delivered, or caused to be delivered, by the
Master Servicer to the Trustee.
(b) The Master Servicer shall deliver to the Trustee on or before
April 30 of each year, an Officers' Certificate signed by an officer of the
Master Servicer, certifying that (i) such officer has reviewed the activities of
the Master Servicer during the preceding calendar year or portion thereof and
its performance under this agreement and (ii) to the best of such officer's
knowledge, based on such review, the Master Servicer has performed and fulfilled
its duties, responsibilities and obligations under this agreement in all
material respects throughout such year, or, if there has been a default in the
fulfillment of any such duties, responsibilities or obligations, specifying each
such default known to such officer and the nature and status thereof, and, (iii)
(A) an officer of the Master Servicer has conducted an examination of the
activities of the Servicers during the preceding calendar year and their
performance under the Servicing Agreements, (B) an officer of the Master
Servicer has examined the Servicers' Fidelity Bond and Errors and Omissions
Policies and each such bond or policy is in effect and conforms to the
requirements of the applicable Servicing Agreement, (C) the Master Servicer has
received from each Servicer any required financial statements and such other
information as is required by such Servicer's Servicing Agreement and (D) to the
best of such officer's knowledge, based on such examination, each Servicer has
performed and fulfilled its duties, responsibilities and obligations under its
Servicing Agreement in all material respects throughout such year, or, if there
has been a default in the performance or fulfillment of any such duties,
responsibilities or obligations, specifying each such default known to such
officer and the nature and status thereof. Copies of such Officer's Certificate
shall be provided by the Trustee to any Certificateholder upon written request
provided such certificate is delivered, or caused to be delivered, by the Master
Servicer to the Trustee.
(c) Each year the Master Servicer shall review each Servicer's
performance under its Servicing Agreement and the status of any fidelity bond
and errors and omissions policy required to be maintained by such Servicer under
its Servicing Agreement.
Section 3.06. TITLE, MANAGEMENT AND DISPOSITION OF ANY REO MORTGAGE
LOAN. In the event that a Servicer is unable to dispose of any REO Mortgage
Loan within the period mandated by Section 14.4.2 of each of the Servicing
Agreements, the Master Servicer shall monitor such Servicer to verify that such
REO Mortgage Loan is auctioned to the highest bidder within the period so
specified. In the event of any such sale of REO Mortgage Loan, the Trustee
shall, at the written request of the Master Servicer and upon being supported
with appropriate forms therefor, within five Business Days of the deposit by the
Master Servicer of the proceeds of such sale or auction into the Certificate
Account, release or cause to be released to the entity identified by the Master
Servicer the related Owner Mortgage Loan File and Servicer Mortgage Loan File
and shall execute and deliver such instruments of transfer or assignment, in
each case without recourse, as shall be necessary to vest in the auction
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purchaser title to the REO Mortgage Loan and the Trustee shall have no further
responsibility with regard to such Owner Mortgage Loan File or Servicer Mortgage
Loan File. Neither the Trustee, the Master Servicer nor any Servicer, acting on
behalf of the Trust Estate, shall provide financing from the Trust Estate to any
purchaser of REO Mortgage Loan.
Section 3.07. AMENDMENTS TO SERVICING AGREEMENTS, MODIFICATION OF
STANDARD PROVISIONS. (a) Subject to the prior written consent of the Trustee
pursuant to Section 3.07(b), the Master Servicer from time to time may, to the
extent permitted by the applicable Servicing Agreement, make such modifications
and amendments to such Servicing Agreement as the Master Servicer deems
necessary or appropriate to confirm or carry out more fully the intent and
purpose of such Servicing Agreement and the duties, responsibilities and
obligations to be performed by the Servicer thereunder. Such modifications may
only be made if they are consistent with the REMIC Provisions, as evidenced by
an Opinion of Counsel. Prior to the issuance of any modification or amendment,
the Master Servicer shall deliver to the Trustee such Opinion of Counsel and an
Officer's Certificate setting forth (i) the provision that is to be modified or
amended, (ii) the modification or amendment that the Master Servicer desires to
issue and (iii) the reason or reasons for such proposed amendment or
modification.
(b) The Trustee shall consent to any amendment or supplement to a
Servicing Agreement proposed by the Master Servicer pursuant to Section 3.07(a),
which consent and amendment shall not require the consent of any
Certificateholder if it is (i) for the purpose of curing any mistake or
ambiguity or to further effect or protect the rights of the Certificateholders
or (ii) for any other purpose, provided such amendment or supplement for such
other purpose cannot reasonably be expected to adversely affect
Certificateholders. The lack of an adverse effect on Certificateholders may be
established through various means, including the delivery to the Trustee of (i)
an Opinion of Counsel to such effect or (ii) written notification from each
Rating Agency to the effect that such amendment or supplement will not result in
reduction of the current rating assigned by that Rating Agency to the
Certificates. The Trustee may, in its discretion, decline to enter into or
consent to any such supplement or amendment if its own rights, duties or
immunities shall be adversely affected.
Section 3.08. OVERSIGHT OF SERVICING. The Master Servicer shall
supervise, monitor and oversee the servicing of the Mortgage Loans by each
Servicer and the performance by each Servicer of all services, duties,
responsibilities and obligations that are to be observed or performed by the
Servicer under its respective Servicing Agreement. In performing its
obligations hereunder, the Master Servicer shall act in a manner consistent with
Accepted Master Servicing Practices and with the Trustee's and the
Certificateholders' reliance on the Master Servicer, and in a manner consistent
with the terms and provisions of any insurance policy required to be maintained
by the Master Servicer or any Servicer pursuant to this Agreement or any
Servicing Agreement. The Master Servicer acknowledges that prior to taking
certain actions required to service the Mortgage Loans, each Servicing Agreement
provides that the Servicer thereunder must notify, consult with, obtain the
consent of or otherwise follow the instructions of the Master Servicer. The
Master Servicer is also given authority to waive compliance by a Servicer with
certain provisions of its Servicing Agreement. In each such instance, the
Master Servicer shall promptly instruct such Servicer
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or otherwise respond to such Servicer's request. In no event will the Master
Servicer instruct such Servicer to take any action, give any consent to action
by such Servicer or waive compliance by such Servicer with any provision of such
Servicer's Servicing Agreement if any resulting action or failure to act would
be inconsistent with the requirements of the Rating Agencies that rated the
Certificates or would otherwise have an adverse effect on the
Certificateholders. Any such action or failure to act shall be deemed to have
an adverse effect on the Certificateholders if such action or failure to act
either results in (i) the downgrading of the rating assigned by any Rating
Agency to the Certificates, (ii) the loss by the Trust Estate of REMIC status
for federal income tax purposes or (iii) the imposition of any Prohibited
Transaction Tax or any federal taxes on the REMIC or the Trust Estate. The
Master Servicer shall have full power and authority in its sole discretion to
take any action with respect to the Trust Estate as may be necessary or
advisable to avoid the circumstances specified including clause (ii) or (iii) of
the preceding sentence.
For the purposes of determining whether any modification of a Mortgage
Loan shall be permitted by the Trustee or the Master Servicer, such modification
shall be construed as a substitution of the modified Mortgage Loan for the
Mortgage Loan originally deposited in the Trust Estate. No modification shall
be approved unless (i) the modified Mortgage Loan would qualify as a substitute
Mortgage Loan under Section 2.02 and (ii) with respect to any modification that
occurs more than three months after the Closing Date and is not the result of a
default or a reasonably foreseeable default under the Mortgage Loan, there is
delivered to the Trustee an Opinion of Counsel (at the expense of the party
seeking to modify the Mortgage Loan) to the effect that such modification would
not be treated as giving rise to a new debt instrument for federal income tax
purposes.
During the term of this Agreement, the Master Servicer shall consult
fully with each Servicer as may be necessary from time to time to perform and
carry out the Master Servicer's obligations hereunder and otherwise exercise
reasonable efforts to encourage such Servicer to perform and observe the
covenants, obligations and conditions to be performed or observed by it under
its Servicing Agreement.
The relationship of the Master Servicer to the Trustee under this
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
The Master Servicer shall administer the Trust Estate on behalf of the
Trustee and shall have full power and authority, acting alone or (subject to
Section 6.06) through one or more subcontractors, to do any and all things in
connection with such administration which it may deem necessary or desirable.
Upon the execution and delivery of this Agreement, and from time to time as may
be required thereafter, the Trustee shall furnish the Master Servicer or its
subcontractors with any powers of attorney and such other documents as may be
necessary or appropriate to enable the Master Servicer to carry out its
administrative duties hereunder.
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The Master Servicer or the Seller shall be entitled, at its option, to
repurchase any defaulted Mortgage Loan or any Mortgage Loan as to which default
is reasonably foreseeable from the Trust Estate if, in the Master Servicer's or
Seller's judgment, the default is not likely to be cured by the Mortgagor. The
purchase price for any such Mortgage Loan shall be 100% of the unpaid principal
balance of such Mortgage Loan plus accrued interest thereon at the Mortgage
Interest Rate less any Fixed Retained Yield for such Mortgage Loan through the
last day of the month in which such repurchase occurs. Upon the receipt of such
purchase price, the Master Servicer shall provide to the Trustee the
certification required by Section 3.04 and the Trustee and the Custodian, if
any, shall promptly release to the Master Servicer or the Seller the Owner
Mortgage Loan File relating to the Mortgage Loan being repurchased.
In the event that (i) the Master Servicer determines at any time that,
notwithstanding the representations and warranties set forth in Section 2.03(b),
any Mortgage Loan is not a "qualified mortgage" within the meaning of Section
860G of the Code and (ii) the Master Servicer is unable to enforce the
obligation of the Seller to purchase such Mortgage Loan pursuant to Section 2.02
within two months of such determination, the Master Servicer shall cause such
Mortgage Loan to be auctioned to the highest bidder and sold out of the Trust
Estate no later than the date 90 days after such determination. In the event of
any such sale of a Mortgage Loan, the Trustee shall, at the written request of
the Master Servicer and upon being supported with appropriate forms therefor,
within five Business Days of the deposit by the Master Servicer of the proceeds
of such auction into the Certificate Account, release or cause to be released to
the entity identified by the Master Servicer the related Owner Mortgage Loan
File and Servicer Mortgage Loan File and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in the auction purchaser title to the Mortgage Loan and the
Trustee shall have no further responsibility with regard to such Owner Mortgage
Loan File or Servicer Mortgage Loan File. Neither the Trustee, nor the Master
Servicer nor any Servicer, acting on behalf of the Trustee, shall provide
financing from the Trust Estate to any purchaser of a Mortgage Loan.
The Master Servicer, on behalf of the Trustee, shall, pursuant to the
Servicing Agreements, object to the foreclosure upon, or other related
conversion of the ownership of, any Mortgaged Property by the related Servicer
if (i) the Master Servicer believes such Mortgaged Property may be contaminated
with or affected by hazardous wastes or hazardous substances or (ii) such
Servicer does not agree to administer such Mortgaged Property, once the related
Mortgage Loan becomes an REO Mortgage Loan, in a manner which would not result
in a federal tax being imposed upon the Trust Estate or the REMIC.
The Master Servicer may enter into a special servicing agreement with
an unaffiliated holder of 100% Percentage Interest of a Class B Subclass or a
holder of a class of securities representing interests in the Class B
Certificates and/or other subordinated mortgage pass-through certificates, such
agreement to be substantially in the form of Exhibit M hereto or subject to each
Rating Agency's acknowledgment that the ratings of the Certificates in effect
immediately prior to the entering into of such agreement would not be qualified,
downgraded or withdrawn and the Certificates would not be placed on credit
review status (except for
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possible upgrading) as a result of such agreement. Any such agreement may
contain provisions whereby such holder may instruct the Master Servicer to
instruct a Servicer to the extent provided in the applicable Servicing Agreement
to commence or delay foreclosure proceedings with respect to delinquent Mortgage
Loans and will contain provisions for the deposit of cash by the holder that
would be available for distribution to Certificateholders if Liquidation
Proceeds are less than they otherwise may have been had the Servicer acted in
accordance with its normal procedures.
Section 3.09. TERMINATION AND SUBSTITUTION OF SERVICING AGREEMENTS.
Upon the occurrence of any event for which a Servicer may be terminated pursuant
to its Servicing Agreement, the Master Servicer shall promptly deliver to the
Seller and the Trustee an Officer's Certificate certifying that an event has
occurred which may justify termination of such Servicing Agreement, describing
the circumstances surrounding such event and recommending what action should be
taken by the Trustee with respect to such Servicer. If the Master Servicer
recommends that such Servicing Agreement be terminated, the Master Servicer's
certification must state that the breach is material and not merely technical in
nature. Upon written direction of the Master Servicer, based upon such
certification, the Trustee shall promptly terminate such Servicing Agreement.
The Master Servicer shall indemnify the Trustee and hold it harmless
from and against any and all claims, liabilities, costs and expenses (including,
without limitation, reasonable attorneys' fees) arising out of, or assessed
against the Trustee in connection with termination of such Servicing Agreement
at the direction of the Master Servicer. If the Trustee terminates such
Servicing Agreement, the Trustee may enter into a substitute Servicing Agreement
with the Master Servicer or, at the Master Servicer's nomination, with another
mortgage loan service company acceptable to the Trustee, the Master Servicer and
each Rating Agency under which the Master Servicer or such substitute servicer,
as the case may be, shall assume, satisfy, perform and carry out all
liabilities, duties, responsibilities and obligations that are to be, or
otherwise were to have been, satisfied, performed and carried out by such
Servicer under such terminated Servicing Agreement. Until such time as the
Trustee enters into a substitute servicing agreement with respect to the
Mortgage Loans previously serviced by such Servicer, the Master Servicer shall
assume, satisfy, perform and carry out all obligations which otherwise were to
have been satisfied, performed and carried out by such Servicer under its
terminated Servicing Agreement. However, in no event shall the Master Servicer
be deemed to have assumed the obligations of a Servicer to advance payments of
principal and interest on a delinquent Mortgage Loan in excess of the Master
Servicer's independent Periodic Advance obligation under Section 3.03 of this
Agreement. As compensation for the Master Servicer of any servicing obligations
fulfilled or assumed by the Master Servicer, the Master Servicer shall be
entitled to any servicing compensation to which a Servicer would have been
entitled if the Servicing Agreement with such Servicer had not been terminated.
Section 3.10. 1934 ACT REPORTS. The Master Servicer shall, on behalf
of the Seller, make all filings required to be made by the Seller with respect
to the Class A Certificates pursuant to the Securities Exchange Act of 1934, as
amended.
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ARTICLE IV
DISTRIBUTIONS IN RESPECT OF CERTIFICATES;
PAYMENTS TO CERTIFICATEHOLDERS;
STATEMENTS AND REPORTS
Section 4.01. DISTRIBUTIONS. (a) On each Distribution Date,
the Pool Distribution Amount will be applied in the following amounts, to the
extent the Pool Distribution Amount is sufficient therefor, in the manner and in
the order of priority as follows:
FIRST, to the Subclasses of Class A Certificates, pro rata, based upon
their respective Class A Subclass Interest Accrual Amounts, in an aggregate
amount up to the Class A Interest Accrual Amount;
SECOND, to the Subclasses of Class A Certificates, pro rata, based
upon their respective Class A Subclass Unpaid Interest Shortfalls in an
aggregate amount up to the Class A Unpaid Interest Shortfall;
THIRD, concurrently, to the Class A and Class AP Certificates, pro
rata based on their respective Class A Optimal Principal Amount and Class AP
Optimal Principal Amount, (A) to the Subclasses of Class A Certificates, in an
aggregate amount up to the Class A Optimal Principal Amount, such distribution
to be allocated among such Subclasses in accordance with Section 4.01(b) or
Section 4.01(c), as applicable and (B) to the Class AP Certificates up to the
Class AP Optimal Principal Amount;
FOURTH, to the Class AP Certificates in an amount up to the Class AP
Deferred Amount first from amounts otherwise distributable (without regard to
this Paragraph FOURTH) first to the Class B-5 Certificates pursuant to Paragraph
TWENTY-SECOND, below, second to the Class B-4 Certificates pursuant to Paragraph
NINETEENTH, below, third to the Class B-3 Certificates pursuant to Paragraph
SIXTEENTH, below, fourth to the Class B-2 Certificates pursuant to Paragraph
THIRTEENTH, below and fifth to the Class B-1 Certificates pursuant to Paragraph
TENTH below and then from amounts otherwise distributable (without regard to
this paragraph FOURTH) to the Class M Certificates pursuant to Paragraph
SEVENTH, below;
FIFTH, to the Class M Certificates in an amount up to the Class M
Interest Accrual Amount;
SIXTH, to the Class M Certificates in an amount up to the Class M
Unpaid Interest Shortfall;
SEVENTH, to the Class M Certificates in an amount up to the Class M
Optimal Principal Amount; provided, however, that the amount distributable to
the Class M Certificates pursuant to this Paragraph SEVENTH will be reduced by
the amount, if any, that
<PAGE>
would have been distributable to the Class M Certificates hereunder used to pay
the Class AP Deferred Amount as provided in Paragraph FOURTH above;
EIGHTH, to the Class B-1 Certificates in an amount up to the Class B
Subclass Interest Accrual Amount for the Class B-1 Certificates with respect to
such Distribution Date;
NINTH, to the Class B-1 Certificates in an amount up to the Class B-1
Unpaid Interest Shortfall;
TENTH, to the Class B-1 Certificates in an amount up to the Class B-1
Optimal Principal Amount; provided, however, that the amount distributable to
the Class B-1 Certificates pursuant to this Paragraph TENTH will be reduced by
the amount, if any, that would have been distributable to the Class B-1
Certificates hereunder used to pay the Class AP Deferred Amount as provided in
Paragraph FOURTH above;
ELEVENTH, to the Class B-2 Certificates in an amount up to the Class B
Subclass Interest Accrual Amount for the Class B-2 Certificates with respect to
such Distribution Date;
TWELFTH, to the Class B-2 Certificates in an amount up to the Class B-
2 Unpaid Interest Shortfall;
THIRTEENTH, to the Class B-2 Certificates in an amount up to the Class
B-2 Optimal Principal Amount; provided, however, that the amount distributable
to the Class B-2 Certificates pursuant to this Paragraph THIRTEENTH will be
reduced by the amount, if any, that would have been distributable to the Class
B-2 Certificates hereunder used to pay the Class AP Deferred Amount as provided
in Paragraph FOURTH above;
FOURTEENTH, to the Class B-3 Certificates in an amount up to the Class
B Subclass Interest Accrual Amount for the Class B-3 Certificates with respect
to such Distribution Date;
FIFTEENTH, to the Class B-3 Certificates in an amount up to the Class
B-3 Unpaid Interest Shortfall;
SIXTEENTH, to the Class B-3 Certificates in an amount up to the Class
B-3 Optimal Principal Amount; provided, however, that the amount distributable
to the Class B-3 Certificates pursuant to this Paragraph SIXTEENTH will be
reduced by the amount, if any, that would have been distributable to the Class
B-3 Certificates hereunder used to pay the Class AP Deferred Amount as provided
in Paragraph FOURTH above;
SEVENTEENTH, to the Class B-4 Certificates in an amount up to the
Class B Subclass Interest Accrual Amount for the Class B-4 Certificates with
respect to such Distribution Date;
EIGHTEENTH, to the Class B-4 Certificates in an amount up to the Class
B-4 Unpaid Interest Shortfall;
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NINETEENTH, to the Class B-4 Certificates in an amount up to the Class
B-4 Optimal Principal Amount; provided, however, that the amount distributable
to the Class B-4 Certificates pursuant to this Paragraph NINETEENTH will be
reduced by the amount, if any, that would have been distributable to the Class
B-4 Certificates hereunder used to pay the Class AP Deferred Amount as provided
in Paragraph FOURTH above;
TWENTIETH, to the Class B-5 Certificates in an amount up to the Class
B Subclass Interest Accrual Amount for the Class B-5 Certificates with respect
to such Distribution Date;
TWENTY-FIRST, to the Class B-5 Certificates in an amount up to the
Class B-5 Unpaid Interest Shortfall;
TWENTY-SECOND, to the Class B-5 Certificates in an amount up to the
Class B-5 Optimal Principal Amount; provided, however, that the amount
distributable to the Class B-5 Certificates pursuant to this Paragraph TWENTY-
SECOND will be reduced by the amount, if any, that would have been distributable
to the Class B-5 Certificates hereunder used to pay the Class AP Deferred Amount
as provided in Paragraph FOURTH above; and
TWENTY-THIRD, to the Holder of the Class A-R Certificate.
In addition, Net Foreclosure Profits, if any, with respect to such
Distribution Date minus any portion thereof payable to a Servicer pursuant to
Section 3.02(ix) hereof shall be distributed to the Holder of the Class A-R
Certificate.
With respect to any Distribution Date, the amount of the Principal
Adjustment, if any, attributable to any Class B Subclass will be allocated pro
rata based on principal balance among the Class A and Class M Certificates and
any Class B Subclass with a lower numerical designation and the amount of the
Principal Adjustment, if any, attributable to the Class M Certificates will be
allocated to the Subclasses of Class A Certificates pro rata based on Class A
Subclass Principal Balance.
(b) On each Distribution Date occurring prior to the Cross-Over Date,
the Class A Principal Distribution Amount shall be allocated among and
distributed, pursuant to Section 4.01(e) hereof, in reduction of the principal
balances of the Subclasses of Class A Certificates as follows:
[INSERT DISTRIBUTION PRIORITIES
As used above, the "PAC Principal Amount" for any Distribution Date
and for the PAC Certificates means the amount, if any, that would reduce the
Class A Subclass Principal Balance of such Subclass to the percentage of its
initial Class A Subclass Principal Balance shown in the following tables with
respect to such Distribution Date.
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<PAGE>
As used above, the "TAC Principal Amount" for any Distribution Date
and for the TAC Certificates means the amount, if any, that would reduce the
Class A Subclass Principal Balance of such Subclass to the percentage of its
initial Class A Subclass Principal Balance shown in the following tables with
respect to such Distribution Date.
The following tables set forth for each Distribution Date the planned
Class A Subclass Principal Balance of the PAC Certificates and the targeted
Class A Subclass Principal Balance of the TAC Certificates, each expressed as a
percentage of the initial Class A Subclass Principal Balance.
IV-4
<PAGE>
PLANNED CLASS A SUBCLASS PRINCIPAL BALANCE AS PERCENTAGE
OF THE INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE OF THE PAC CERTIFICATES
PERCENTAGE OF
INITIAL CLASS A SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
TARGETED CLASS A SUBCLASS PRINCIPAL BALANCE AS PERCENTAGE
OF THE INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE OF THE TAC CERTIFICATES
PERCENTAGE OF
INITIAL CLASS A SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
IV-5
<PAGE>
(c) On each Distribution Date occurring on or subsequent to the
Cross-Over Date, the Class A Principal Distribution Amount shall be distributed
among the Subclasses of Class A Certificates pro rata in accordance with their
outstanding Class A Subclass Principal Balances.
(d) (i) For purposes of determining whether the Subclasses of Class
B Certificates are eligible to receive distributions of principal with respect
to any Distribution Date, the following tests shall apply:
(a) if the Current Class M Fractional Interest is less than the
Original Class M Fractional Interest and the Class M Principal Balance is
greater than zero, the Class B-1, Class B-2, Class B-3, Class B-4 and Class
B-5 Certificates shall not be eligible to receive distributions of
principal; or
(b) if the Current Class B-1 Fractional Interest is less than the
Original Class B-1 Fractional Interest and the Class B-1 Principal Balance
is greater than zero, the Class B-2, Class B-3, Class B-4 and Class B-5
Certificates shall not be eligible to receive distributions of principal;
or
(c) if the Current Class B-2 Fractional Interest is less than the
Original Class B-2 Fractional Interest and the Class B-2 Principal Balance
is greater than zero, the Class B-3, Class B-4 and Class B-5 Certificates
shall not be eligible to receive distributions of principal; or
(d) if the Current Class B-3 Fractional Interest is less than the
Original Class B-3 Fractional Interest and the Class B-3 Principal Balance
is greater than zero, the Class B-4 and Class B-5 Certificates shall not be
eligible to receive distributions of principal; or
(e) if the Current Class B-4 Fractional Interest is less than the
Original Class B-4 Fractional Interest and the Class B-4 Principal Balance
is greater than zero, the Class B-5 Certificates shall not be eligible to
receive distributions of principal.
(ii) Notwithstanding the foregoing, if on any Distribution Date the
aggregate distributions to Holders of the Class M Certificates and/or the
Subclasses of Class B Certificates entitled to receive distributions of
principal would reduce the Subclasses of Class B Certificates entitled to
receive distributions of principal below zero, first the Class M Prepayment
Percentage and/or the Class B Subclass Prepayment Percentage of any affected
Class B Subclass for such Distribution Date beginning with the affected Subclass
with the lowest numerical Subclass designation and then, if necessary, the Class
M Percentage and/or the Class B Subclass Percentage of such Subclass of the
Class B Certificates for such Distribution Date shall be reduced to the
respective percentages necessary to bring the Class M Principal Balance and/or
the Class B Subclass Principal Balance of such Class B Subclass to zero. The
Class B Subclass Prepayment Percentages and the Class B Subclass Percentages of
the remaining Class B Subclasses will be recomputed substituting for the
Subordinated Prepayment Percentage and Subordinated Percentage in such
computations the difference
IV-6
<PAGE>
between (A) the Subordinated Prepayment Percentage or Subordinated Percentage,
as the case may be, and (B) the percentages determined in accordance with the
preceding sentence necessary to bring the Class M Principal Balance and/or the
Class B Subclass Principal Balance of the affected Class B Subclasses to zero;
provided, however, that if the Class B Subclass Principal Balances of all the
Class B Subclasses eligible to receive distributions of principal shall be
reduced to zero on such Distribution Date the Class B Subclass Prepayment
Percentage and the Class B Subclass Percentage of the Class B Subclass with the
lowest numerical Subclass designation which would otherwise be ineligible to
receive distributions of principal in accordance with this Section shall equal
the remainder of the Subordinated Prepayment Percentage for such Distribution
Date minus the sum of the Class M Prepayment Percentage and the Class B Subclass
Prepayment Percentages of the Class B Subclasses having lower numerical Subclass
designations, if any, and the remainder of the Subordinated Percentage for such
Distribution Date minus the sum of the Class M Percentage and the Class B
Subclass Percentages of the Class B Subclasses having lower numerical Subclass
designations, if any, respectively. Any entitlement of any Class B Subclass to
principal payments solely pursuant to this clause (ii) shall not cause such
Subclass to be regarded as being eligible to receive principal distributions for
the purpose of applying the definition of its Class B Subclass Percentage or
Class B Subclass Prepayment Percentage.
(e) On each Distribution Date other than the Final Distribution Date
(if such Final Distribution Date is in connection with a purchase of the assets
of the Trust Estate by the Master Servicer), the Paying Agent shall, on behalf
of the Master Servicer, from funds remitted to it by the Master Servicer,
distribute to each Certificateholder of record on the preceding Record Date
(other than as provided in Section 9.01 respecting the final distribution to
Certificateholders or in the last paragraph of this Section 4.01(e) respecting
the final distribution in respect of any Class or Subclass) either in
immediately available funds by wire transfer to the account of such
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder holds Certificates having a Denomination at
least equal to that specified in Section 11.26, and has so notified the Master
Servicer or, if applicable, the Paying Agent at least seven Business Days prior
to the Distribution Date or, if such Holder holds Certificates having, in the
aggregate, a Denomination less than the requisite minimum Denomination or if
such Holder holds the Class A-R Certificate or has not so notified the Paying
Agent, by check mailed to such Holder at the address of such Holder appearing in
the Certificate Register, such Holder's share (based on the aggregate of the
Percentage Interests represented by Certificates of the applicable Subclass or
Class of Certificates held by such Holder) of the Class A Subclass Distribution
Amount with respect to each Subclass of Class A Certificates, the Class AP
Distribution Amount with respect to the Class AP Certificates, the Class M
Distribution Amount with respect to the Class M Certificates and the Class B
Subclass Distribution Amount with respect to each such Subclass of Class B
Certificates.
In the event that, on any Distribution Date prior to the Final
Distribution Date, the Class A Subclass Principal Balance of any Subclass of
Class A Certificates (other than the Class A-R Certificate), the Class AP
Principal Balance of the Class AP Certificates, the Class M Principal Balance of
the Class M Certificates or the Class B Subclass Principal Balance of
IV-7
<PAGE>
any Subclass of Class B Certificates would be reduced to zero, the Master
Servicer shall, as soon as practicable after the Determination Date relating to
such Distribution Date, send a notice to the Trustee. The Trustee will then
send a notice to each Certificateholder of such Subclass or Class with a copy to
the Certificate Registrar, specifying that the final distribution with respect
to such Subclass will be made on such Distribution Date only upon the
presentation and surrender of such Certificateholder's Certificates at the
office or agency of the Trustee therein specified; PROVIDED, HOWEVER, that the
failure to give such notice will not entitle a Certificateholder to any interest
beyond the interest payable with respect to such Distribution Date in accordance
with Section 4.01(a).
(g) The Paying Agent (or if no Paying Agent is appointed by the
Master Servicer, the Master Servicer) shall withhold or cause to be withheld
such amounts as may be required by the Code (giving full effect to any
exemptions from withholding and related certifications required to be furnished
by Certificateholders and any reductions to withholding by virtue of any
bilateral tax treaties and any applicable certification required to be furnished
by Certificateholders with respect thereto) from distributions to be made to
Non-U.S. Persons. For the purposes of this paragraph, a "Non-U.S. Person" is an
individual, corporation, partnership or other person other than a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust that is subject to U.S. federal
income tax regardless of the source of its income.
Section 4.02. ALLOCATION OF REALIZED LOSSES. (a) With respect to any
Distribution Date, the principal portion of Realized Losses (other than Debt
Service Reductions, Excess Special Hazard Losses, Excess Fraud Losses and Excess
Bankruptcy Losses) will be allocated as follows:
FIRST, to the Class B-5 Certificates until the Class B-5 Principal
Balance has been reduced to zero;
SECOND, to the Class B-4 Certificates until the Class B-4 Principal
Balance has been reduced to zero;
THIRD, to the Class B-3 Certificates until the Class B-3 Principal
Balance has been reduced to zero;
FOURTH, to the Class B-2 Certificates until the Class B-2 Principal
Balance has been reduced to zero;
FIFTH, to the Class B-1 Certificates until the Class B-1 Principal
Balance has been reduced to zero;
SIXTH, to the Class M Certificates until the Class M Principal Balance
has been reduced to zero; and
IV-8
<PAGE>
SEVENTH, to the Class A and Class AP Certificates pro rata based on
the Classes A/M/B Fraction and the Class AP Fraction, respectively.
This allocation of Realized Losses will be effected through the
reduction of the applicable Subclass principal balance.
(b) With respect to any Distribution Date, the principal portion of
Excess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
occurring with respect to any Mortgage Loan allocable to the Class AP
Certificates will equal the product of the amount of any such principal loss and
the Class AP Fraction for such Mortgage Loan. The principal portion of any
Excess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
remaining after allocation to the Class AP Certificates in accordance with the
preceding sentence shall be allocated pro rata among the Class A, Class M and
Class B Certificates based on the Class A Principal Balance, the Class M
Principal Balance and the Class B Principal Balance. Any such loss allocated to
the Class A Certificates shall be allocated on the subsequent Determination Date
among the outstanding Subclasses of Class A Certificates in accordance with the
Class A Subclass Loss Percentages as of such Determination Date. Any such loss
allocated to the Class B Certificates shall be allocated pro rata among the
outstanding Subclasses of Class B Certificates based on their Class B Subclass
Principal Balances.
(c) Any Realized Losses allocated to a Subclass of Class A
Certificates or Class B Certificates or to the Class AP Certificates or Class M
Certificates pursuant to Section 4.02(a) or Section 4.02(b) shall be allocated
among the Certificates of such Subclass or Class based on their Percentage
Interests.
(d) In the event that there is a recovery of an amount in respect of
principal of a Mortgage Loan which had previously been allocated as a Realized
Loss to any Subclasses of Class A Certificates, the Class AP Certificates, the
Class M Certificates or any Subclasses of Class B Certificates, each outstanding
Subclass or Class to which such Realized Loss had previously been allocated
shall be entitled to its share (with respect to the Class AP Certificates, based
on the Class AP Fraction of such Mortgage Loan and, with respect to the Class A
Certificates, Class M Certificates and Class B Certificates, based on their pro
rata share of the Classes A/M/B Fraction of such Mortgage Loan) of such recovery
up to the amount of such Realized Loss previously allocated to such Subclass or
Class on the Distribution Date in the month following the month in which such
recovery is received. A Subclass or Class of Certificates that is no longer
outstanding shall not be entitled to any share of such recovery. In the event
that the amount of such recovery exceeds the amount of such recovery allocated
to each outstanding Subclass or Class in accordance with the preceding
provisions, each outstanding Subclass or Class shall be entitled to its pro rata
share (determined as described above) of such excess up to the amount of any
unrecovered Realized Loss previously allocated to such Subclass or Class .
(e) The interest portion of Excess Special Hazard Losses, Excess
Fraud Losses and Excess Bankruptcy Losses shall be allocated among the Class A
Certificates, the
IV-9
<PAGE>
Class M Certificates and the Class B Certificates, pro rata based on the Class A
Interest Accrual Amount, the Class M Interest Accrual Amount and the Class B
Interest Accrual Amount for the related Distribution Date. Any such loss
allocated to the Class A Certificates shall be allocated among the outstanding
Subclasses of Class A Certificates based on their Class A Subclass Interest
Percentages. Any such loss allocated to the Class B Certificates will be
allocated among the outstanding Subclasses of Class B Certificates based on
their Class B Subclass Interest Percentages. In addition, after the Class M
Principal Balance and the Class B Principal Balance have been reduced to zero,
the interest portion of Realized Losses (other than Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses) will be allocated
among the outstanding Subclasses of Class A Certificates based on their Class A
Subclass Interest Percentages.
(f) Realized Losses allocated in accordance with this Section 4.02
will be allocated on the Determination Date in the second month following the
month in which such loss was incurred with respect to the preceding Distribution
Date.
Section 4.03 PAYING AGENT. (a) The Master Servicer hereby appoints
the Trustee as initial Paying Agent to make distributions to Certificateholders
and to forward to Certificateholders the periodic statements and the annual
statements required by Section 4.04 as agent of the Master Servicer.
The Master Servicer may, at any time, remove or replace the Paying
Agent.
The Master Servicer shall cause any Paying Agent that is not the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent agrees with the Trustee that such Paying Agent shall:
(i) hold all amounts remitted to it by the Master Servicer for
distribution to Certificateholders in trust for the benefit of
Certificateholders until such amounts are distributed to Certificateholders or
otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the Master Servicer in
remitting any required amount; and
(iii) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all amounts
held in trust by such Paying Agent.
(b) The Paying Agent shall establish and maintain a Payment Account,
which shall be a separate trust account and an Eligible Account, in which the
Master Servicer shall cause to be deposited from funds in the Certificate
Account or, to the extent required hereunder, from its own funds (i) at or
before 10:00 a.m., New York time, on the Business Day preceding each
Distribution Date, by wire transfer of immediately available funds, any Periodic
Advance for such Distribution Date, pursuant to Section 3.03 and (ii) at or
before 10:00 a.m., New York time, on the Business Day preceding each
Distribution Date, by wire transfer of immediately available funds, (a) an
amount equal to the Pool Distribution Amount,
IV-10
<PAGE>
(b) Net Foreclosure Profits, if any, with respect to such Distribution Date and
(c) the amount of any recovery in respect of a Realized Loss. The Master
Servicer may cause the Paying Agent to invest the funds in the Payment Account.
Any such investment shall be in Eligible Investments, which shall mature not
later than the Business Day preceding the related Distribution Date (unless the
Eligible Investments are obligations of the Trustee, in which case such Eligible
Investments shall mature not later than the Distribution Date), and shall not be
sold or disposed of prior to maturity. All income and gain realized from any
such investment shall be for the benefit of the Master Servicer and shall be
subject to its withdrawal or order from time to time. The amount of any losses
incurred in respect of any such investments shall be deposited in the Payment
Account by the Master Servicer out of its own funds immediately as realized.
The Paying Agent may withdraw from the Payment Account any amount deposited in
the Payment Account that was not required to be deposited therein and may clear
and terminate the Payment Account pursuant to Section 9.01.
Section 4.04. STATEMENTS TO CERTIFICATEHOLDERS; REPORT TO THE TRUSTEE
AND THE SELLER. Concurrently with each distribution pursuant to Section
4.01(e), the Master Servicer, or the Paying Agent appointed by the Master
Servicer (upon receipt of such statement from the Master Servicer), shall
forward or cause to be forwarded by mail to each Holder of a Certificate and the
Seller a statement setting forth:
(i) the amount of such distribution to Holders of each Class A
Subclass allocable to principal, separately identifying the aggregate
amount of any Principal Prepayments included therein;
(ii) (a) the amount of such distribution to Holders of each
Subclass of Class A Certificates allocable to interest, (b) the amount of
the Current Class A Interest Distribution Amount allocated to each Class A
Subclass, (c) any Class A Subclass Interest Shortfall Amounts arising with
respect to such Distribution Date and any remaining Class A Subclass Unpaid
Interest Shortfall with respect to each Subclass after giving effect to
such distribution, (d) the amount of any Non-Supported Interest Shortfall
allocated to each Class A Subclass for such Distribution Date and (e) the
interest portion of Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses allocated to each Subclass for such Distribution
Date;
(iii) the amount of such distribution to Holders of the Class AP
Certificates, identifying the aggregate amount of any Principal Prepayments
included therein;
(iv) the amount of such distribution to Holders of the Class M
Certificates allocable to principal, separately identifying the aggregate
amount of any Principal Prepayments included therein;
(v) (a) the amount of such distribution to Holders of the Class M
Certificates allocable to interest, (b) the amount of the Current Class M
Interest Distribution Amount, (c) any Class M Interest Shortfall Amount
arising with respect to such Distribution Date and any remaining Class M
Unpaid Interest Shortfall after
IV-11
<PAGE>
giving effect to such distribution, (d) the amount of any Non-Supported
Interest Shortfall allocated to the Class M Certificates for such
Distribution Date and (e) the interest portion of Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocated to the
Class M Certificates for such Distribution Date;
(vi) the amount of such distribution to Holders of each Class B
Subclass allocable to principal, separately identifying the aggregate
amount of any Principal Prepayments included therein;
(vii) (a) the amount of such distribution to Holders of each Class B
Subclass allocable to interest, (b) the amount of the Current Class B
Interest Distribution Amount allocated to each Class B Subclass and the
Pass-Through Rate applicable to such Distribution Date, (c) any Class B
Subclass Interest Shortfall Amounts arising with respect to such
Distribution Date and any remaining Class B Subclass Unpaid Interest
Shortfall with respect to each Class B Subclass after giving effect to such
distribution, (d) the amount of any Non-Supported Interest Shortfall
allocated to each Class B Subclass for such Distribution Date, and (e) the
interest portion of Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses allocated to each Class B Subclass for such
Distribution Date;
(viii) the amount of any Periodic Advance by any Servicer, the Master
Servicer or the Trustee pursuant to the Servicing Agreements or this
Agreement;
(ix) the number of Mortgage Loans outstanding as of the preceding
Determination Date;
(x) the Class A Principal Balance, the Class A Subclass Principal
Balance of each Subclass of Class A Certificates, the Class AP Principal
Balance, the Class M Principal Balance, the Class B Principal Balance and
the Class B Subclass Principal Balance of each Subclass of Class B
Certificates as of the following Determination Date after giving effect to
the distributions of principal made, and the principal portion of Realized
Losses, if any, allocated with respect to such Distribution Date;
(xi) the Adjusted Pool Amount, the Adjusted Pool Amount (Class AP
Portion), the Pool Scheduled Principal Balance of the Mortgage Loans for
such Distribution Date and the aggregate Scheduled Principal Balance of the
Discount Mortgage Loans for such Distribution Date;
(xii) the aggregate Scheduled Principal Balances of the Mortgage
Loans serviced by Norwest Mortgage and, collectively, by the Other
Servicers as of such Distribution Date;
(xiii) the Class A Percentage for the following Distribution Date
(without, giving effect to Curtailments and Net Partial Liquidation
Proceeds received after the
IV-12
<PAGE>
Determination Date in the current month which are applied as of the Due
Date occurring in such month);
(xiv) the Class A Prepayment Percentage for the following
Distribution Date (without giving effect to Curtailments and Net Partial
Liquidation Proceeds received after the Determination Date in the current
month which are applied as of the Due Date occurring in such month);
(xv) the Class M Percentage for the following Distribution Date
(without giving effect to Curtailments and Net Partial Liquidation Proceeds
received after the Determination Date in the current month which are
applied as of the Due Date occurring in such month);
(xvi) the Class M Prepayment Percentage for the following
Distribution Date (without giving effect to Curtailments and Net Partial
Liquidation Proceeds received after the Determination Date in the current
month which are applied as of the Due Date occurring in such month);
(xvii) the Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5
Percentages for the following Distribution Date (without giving effect to
Curtailments and Net Partial Liquidation Proceeds received after the
Determination Date in the current month which are applied as of the Due
Date occurring in such month);
(xviii) the Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5
Prepayment Percentages for the following Distribution Date (without giving
effect to Curtailments and Net Partial Liquidation Proceeds received after
the Determination Date in the current month which are applied as of the Due
Date occurring in such month);
(xix) the number and aggregate principal balances of Mortgage Loans
delinquent (a) one month, (b) two months and (c) three months or more;
(xx) the number and aggregate principal balances of the Mortgage
Loans in foreclosure as of the preceding Determination Date;
(xxi) the book value of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure;
(xxii) the amount of the remaining Special Hazard Loss Amount, Fraud
Loss Amount and Bankruptcy Loss Amount as of the close of business on such
Distribution Date;
(xxiii) the principal and interest portions of Realized Losses
allocated as of such Distribution Date and the amount of such Realized
Losses constituting Excess Special Hazard Losses, Excess Fraud Losses or
Excess Bankruptcy Losses;
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<PAGE>
(xxiv) the aggregate amount of Bankruptcy Losses allocated to each
Subclass of Class B Certificates or, following the reduction of the Class B
Principal Balance to zero, solely to the Class M Certificates in accordance
with Section 4.02(a) since the Relevant Anniversary;
(xxv) the amount by which the Class B Subclass Principal Balance of
each Subclass of Class B Certificates and the Class M Principal Balance has
been reduced as a result of Realized Losses allocated as of such
Distribution Date;
(xxvi) the unpaid principal balance of any Mortgage Loan as to which
the Servicer of such Mortgage Loan has determined not to foreclose because
it believes the related Mortgaged Property may be contaminated with or
affected by hazardous wastes or hazardous substances;
(xxvii) the amount of the aggregate Servicing Fees, Master Servicing
Fees, and Trustee Fees paid (and not previously reported) with respect to
the related Distribution Date and the amount by which the aggregate
Servicing Compensation has been reduced by the Prepayment Interest
Shortfall or Curtailment Interest Shortfall for the related Distribution
Date;
(xxviii) the Class AP Deferred Amount, if any; and
(xxix) such other customary information as the Master Servicer deems
necessary or desirable to enable Certificateholders to prepare their tax
returns; and
deliver a copy of each type of statement to the Trustee, who shall provide
copies thereof to Persons making written request therefor at the Corporate Trust
Office.
In the case of information furnished with respect to a Class A
Subclass pursuant to clauses (i) and (ii) above, with respect to the Class AP
Certificates pursuant to clause (iii) above, with respect to the Class M
Certificates pursuant to clauses (iv) and (v) above and with respect to a Class
B Subclass pursuant to clauses (vi) and (vii) above, the amounts shall be
expressed as a dollar amount per Class A Certificate with a $1,000 Denomination,
and as a dollar amount per Class B Certificate with a $1 Denomination.
Within a reasonable period of time after the end of each calendar
year, the Master Servicer shall furnish or cause to be furnished to each Person
who at any time during the calendar year was the Holder of a Certificate a
statement containing the information set forth in clauses (i) and (ii)(a) above
in the case of a Class A Certificateholder, the information contained in clause
(iii) above in the case of a Class AP Certificateholder, the information
contained in clauses (iv) and (v)(a) above in the case of a Class M
Certificateholder and the information contained in clauses (vi) and (vii)(a)
above in the case of a Class B Certificateholder aggregated for such calendar
year or applicable portion thereof during which such Person was a
Certificateholder. Such obligation of the Master Servicer shall be deemed to
have been satisfied to the extent that substantially comparable information
shall be provided by the Master Servicer pursuant to any requirements of the
Code.
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<PAGE>
Prior to the close of business on the third Business Day preceding
each Distribution Date, the Master Servicer shall furnish a statement to the
Trustee, any Paying Agent and the Seller (the information in such statement to
be made available to Certificateholders by the Master Servicer on written
request) setting forth the Class A Subclass Distribution Amount with respect to
each Class A Subclass, the Class AP Distribution Amount, the Class M
Distribution Amount and the Class B Subclass Distribution Amount with respect to
each Class B Subclass. The determination by the Master Servicer of such amounts
shall, in the absence of obvious error, be presumptively deemed to be correct
for all purposes hereunder and the Trustee and the Paying Agent shall be
protected in relying upon the same without any independent check or
verification.
In addition to the reports required pursuant to this Section 4.04, the
Master Servicer shall make available upon request to each Holder and each
proposed transferee of a Class B-3, Class B-4 or Class B-5 Certificate such
additional information, if any, as may be required to permit the proposed
transfer to be effected pursuant to Rule 144A.
Section 4.05 REPORTS TO MORTGAGORS AND THE INTERNAL REVENUE SERVICE.
The Master Servicer shall, in each year beginning after the Cut-Off Date, make
the reports of foreclosures and abandonments of any Mortgaged Property as
required by Code Section 6050J. In order to facilitate this reporting process,
the Master Servicer shall request that each Servicer, on or before January 15th
of each year, shall provide to the Internal Revenue Service, with copies to the
Master Servicer, reports relating to each instance occurring during the previous
calendar year in which such Servicer (i) on behalf of the Trustee acquires an
interest in a Mortgaged Property through foreclosure or other comparable
conversion in full or partial satisfaction of a Mortgage Loan serviced by such
Servicer, or (ii) knows or has reason to know that a Mortgaged Property has been
abandoned. Reports from the Servicers shall be in form and substance sufficient
to meet the reporting requirements imposed by Code Section 6050J. In addition,
each Servicer shall provide the Master Servicer with sufficient information to
allow the Master Servicer to, for each year ending after the Cut-Off Date,
provide, or cause to be provided, to the Internal Revenue Service and the
Mortgagors such information as is required under Code Sections 6050H (regarding
payment of interest) and 6050P (regarding cancellation of indebtedness).
IV-15
<PAGE>
ARTICLE V
THE CERTIFICATES
Section 5.01. THE CERTIFICATES. (a) The Class A, Class AP, Class M
and Class B Certificates shall be issued only in minimum denominations of a
Single Certificate and, except for the Class A-R and Class B Certificates,
integral multiples of $1,000 (or $1 in the case of the Class AP Certificates and
Class B-5 Certificates) in excess thereof (except, if necessary, for one
Certificate of each Subclass (other than the Class A-R Certificate) that
evidences one Single Certificate plus such additional principal portion as is
required in order for all Certificates of such Subclass to equal the aggregate
Original Class A Subclass Principal Balance, Original Class AP Principal
Balance, Original Class M Principal Balance or the aggregate Original Class B
Subclass Principal Balance of such Subclass, as the case may be), and shall be
substantially in the respective forms set forth as Exhibits A-1, A-2, A-3, A-4,
A-5, A-R, B-1, B-2, B-3, B-4, B-5, C, C-1 and D (reverse side of Certificates)
hereto. On original issue the Certificates shall be executed and delivered by
the Trustee to or upon the order of the Seller upon receipt by the Trustee or
the Custodian of the documents specified in Section 2.01. The aggregate
principal portion evidenced by the Class A, Class AP, Class M and Class B
Certificates shall be the sum of the amounts specifically set forth in the
respective Certificates. The Certificates shall be executed by manual or
facsimile signature on behalf of the Trustee by any Responsible Officer thereof.
Certificates bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Trustee shall bind the Trustee
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates. No Certificate shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
unless manually countersigned by a Responsible Officer of the Trustee, or unless
there appears on such Certificate a certificate of authentication executed by
the Authenticating Agent by manual signature, and such countersignature or
certificate upon a Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
Until such time as Definitive Certificates are issued pursuant to
Section 5.07, each Book-Entry Certificate shall bear the following legend:
"Unless this certificate is presented by an authorized representative
of [the Clearing Agency] to the Trustee or its agent for registration of
transfer, exchange or payment, and any certificate issued is registered in the
name of [the Clearing Agency] or such other name as requested by an authorized
representative of [the Clearing Agency] and any payment is made to [the Clearing
Agency], any transfer, pledge or other use hereof for value or otherwise by or
to any person is wrongful since the registered owner hereof, [the Clearing
Agency], has an interest herein."
<PAGE>
(b) Upon original issuance, the Book-Entry Certificates shall be
issued in the form of one or more typewritten certificates, to be delivered to
The Depository Trust Company, the initial Clearing Agency, by, or on behalf of,
the Seller. Such Certificates shall initially be registered in the Certificate
Register in the name of the nominee of the initial Clearing Agency, and no
Beneficial Owner will receive a definitive certificate representing such
Beneficial Owner's interest in the Book-Entry Certificates, except as provided
in Section 5.07. Unless and until definitive, fully registered certificates
("Definitive Certificates") have been issued to Beneficial Owners pursuant to
Section 5.07:
(i) the provisions of this Section 5.01(b) shall be in full force and
effect;
(ii) the Seller, the Master Servicer, the Certificate Registrar and
the Trustee may deal with the Clearing Agency for all purposes (including
the making of distributions on the Book-Entry Certificates and the taking
of actions by the Holders of Book-Entry Certificates) as the authorized
representative of the Beneficial Owners;
(iii) to the extent that the provisions of this Section 5.01(b)
conflict with any other provisions of this Agreement, the provisions of
this Section 5.01(b) shall control;
(iv) the rights of Beneficial Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law, the
rules, regulations and procedures of the Clearing Agency and agreements
between such Beneficial Owners and the Clearing Agency and/or the Clearing
Agency Participants, and all references in this Agreement to actions by
Certificateholders shall, with respect to the Book-Entry Certificates,
refer to actions taken by the Clearing Agency upon instructions from the
Clearing Agency Participants, and all references in this Agreement to
distributions, notices, reports and statements to Certificateholders shall,
with respect to the Book-Entry Certificates, refer to distributions,
notices, reports and statements to the Clearing Agency or its nominee, as
registered holder of the Book-Entry Certificates, as the case may be, for
distribution to Beneficial Owners in accordance with the procedures of the
Clearing Agency; and
(v) the initial Clearing Agency will make book-entry transfers among
the Clearing Agency Participants and receive and transmit distributions of
principal and interest on the Certificates to the Clearing Agency
Participants, for distribution by such Clearing Agency Participants to the
Beneficial Owners or their nominees.
For purposes of any provision of this Agreement requiring or
permitting actions with the consent of, or at the direction of, Holders of Book-
Entry Certificates evidencing specified Voting Interests, such direction or
consent shall be given by Beneficial Owners having the requisite Voting
Interests, acting through the Clearing Agency.
Unless and until Definitive Certificates have been issued to
Beneficial Owners pursuant to Section 5.07, copies of the reports or statements
referred to in Section 4.04 shall be available to Beneficial Owners upon written
request to the Trustee at the Corporate Trust Office.
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Section 5.02. REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES.
(a) The Trustee shall cause to be kept at one of the offices or agencies to be
maintained in accordance with the provisions of Section 5.06 a Certificate
Register in which, subject to such reasonable regulations as it may prescribe,
the Trustee shall provide for the registration of Certificates and of transfers
and exchanges of Certificates as herein provided. The Trustee shall act as, or
shall appoint, a Certificate Registrar for the purpose of registering
Certificates and transfers and exchanges of Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at any
office or agency maintained for such purpose pursuant to Section 5.06 (and
subject to the provisions of this Section 5.02) the Trustee shall execute, and
shall date, authenticate (or cause the Authenticating Agent to authenticate) and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of a like aggregate principal portion or Percentage Interest
and of the same Class or Subclass.
At the option of the Certificateholders, Certificates may be exchanged
for other Certificates of authorized Denominations of a like aggregate principal
portion or Percentage Interest and of the same Class or Subclass upon surrender
of the Certificates to be exchanged at any such office or agency. Whenever any
Certificates are so surrendered for exchange, the Trustee shall execute, and
shall date, authenticate (or cause the Authenticating Agent to authenticate) and
deliver, the Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for transfer or
exchange shall (if so required by the Certificate Registrar or the Trustee) be
duly endorsed by, or be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar, duly executed by the Holder thereof
or his attorney duly authorized in writing.
No service charge shall be made for any transfer or exchange of
Certificates, but the Trustee or the Certificate Registrar may require payment
of a sum sufficient to cover any tax or governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall be
canceled by the Certificate Registrar, the Trustee or the Authenticating Agent
in accordance with their standard procedures.
(b) No transfer of a Class B-3, Class B-4 or Class B-5 Certificate
shall be made unless the registration requirements of the Securities Act of
1933, as amended, and any applicable State securities laws are complied with, or
such transfer is exempt from the registration requirements under said Act and
laws. In the event that a transfer is to be made in reliance upon an exemption
from said Act or laws, (i) unless such transfer is made in reliance on Rule
144A, the Trustee or the Seller may, if such transfer is to be made within three
years from the date of the initial sale of Certificates, require a Class B-3,
Class B-4 or Class B-5 Certificateholder to deliver a written Opinion of Counsel
acceptable to and in form and substance satisfactory to the Trustee and the
Seller, to the effect that such transfer may be made pursuant to an exemption,
describing the applicable exemption and the basis therefor,
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from said Act and laws or is being made pursuant to said Act and laws, which
Opinion of Counsel shall not be an expense of the Trustee, the Seller or the
Master Servicer, and (ii) the Trustee shall require the transferee to execute an
investment letter in the form of Exhibit J hereto certifying to the Seller and
the Trustee the facts surrounding such transfer, which investment letter shall
not be an expense of the Trustee, the Seller or the Master Servicer. The Holder
of a Class B-3, Class B-4 or Class B-5 Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee, the Seller, the
Master Servicer and any Paying Agent acting on behalf of the Trustee against any
liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws. Neither the Seller nor the Trustee
is under an obligation to register the Class B-3, Class B-4 or Class B-5
Certificates under said Act or any other securities law.
(c) No transfer of a Class M or Class B Certificate shall be made
unless the Trustee shall have received (i) a representation letter from the
transferee in the form of Exhibit J hereto, to the effect that either (a) such
transferee is not an employee benefit plan subject to the fiduciary
responsibility provisions of ERISA, or a governmental plan as defined in Section
3(32) of ERISA or Code Section 4975 or subject to any federal, state or local
law ("Similar Law") which is to a material extent, similar to the foregoing
provisions of ERISA or the Code (collectively, a "Plan") and is not a person
acting on behalf of any such Plan, which representation letter shall not be an
expense of the Trustee, the Seller or the Master Servicer or (b) if such
transferee is an insurance company, the source of funds used to purchase the
Class M or Class B Certificate is an "insurance company general account" (as
such term is defined in Section V(e) of Prohibited Transaction Class Exemption
95-60 ("PTE 95-60"), 60 Fed. Reg. 35925 (July 12, 1995) and there is no Plan
with respect to which the amount of such general account's reserves and
liabilities for the contract(s) held by or on behalf of such Plan and all other
Plans maintained by the same employer (or affiliate thereof as defined in
Section V(a)(1) of PTE 95-60) or by the same employee organization, exceed 10%
of the total of all reserves and liabilities of such general account (as such
amounts are determined under Section I(a) of PTE 95-60) at the date of
acquisition or (ii) in the case of any such Class M or Class B Certificate
presented for registration in the name of a Plan, or a trustee of any such Plan,
an Opinion of Counsel satisfactory to the Trustee and the Seller to the effect
that the purchase or holding of such Class M or Class B Certificate will not
result in the assets of the Trust Estate being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code or
Similar Law and will not subject the Trustee, the Seller or the Master Servicer
to any obligation in addition to those undertaken in this Agreement, which
Opinion of Counsel shall not be an expense of the Trustee, the Seller or the
Master Servicer. The Class M or Class B Certificates shall bear a legend
referring to the foregoing restrictions contained in this paragraph.
(d) No legal or beneficial interest in all or any portion of the Class
A-R Certificate may be transferred directly or indirectly to a "disqualified
organization" within the meaning of Code Section 860E(e)(5) or an agent of a
disqualified organization (including a broker, nominee, or middleman), to a Plan
or a Person investing the assets of a Plan (such plan or Person, an "ERISA
Prohibited Holder") or to an individual, corporation, partnership or other
person unless such transferee (i) is not a Non-U.S. Person or (ii) is a Non-U.S.
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Person that holds the Class A-R Certificate in connection with the conduct of a
trade or business within the United States and has furnished the transferor and
the Trustee with an effective Internal Revenue Service Form 4224 or (iii) is a
Non-U.S. Person that has delivered to both the transferor and the Trustee an
opinion of a nationally recognized tax counsel to the effect that the transfer
of the Class A-R Certificate to it is in accordance with the requirements of the
Code and the regulations promulgated thereunder and that such transfer of the
Class A-R Certificate will not be disregarded for federal income tax purposes
(any such person who is not covered by clauses (i), (ii) or (iii) above being
referred to herein as a "Non-permitted Foreign Holder"), and any such purported
transfer shall be void and have no effect. The Trustee shall not execute, and
shall not authenticate (or cause the Authenticating Agent to authenticate) and
deliver, a new Class A-R Certificate in connection with any such transfer to a
disqualified organization or agent thereof (including a broker, nominee or
middleman), an ERISA Prohibited Holder or a Non-permitted Foreign Holder, and
neither the Certificate Registrar nor the Trustee shall accept a surrender for
transfer or registration of transfer, or register the transfer of, the Class A-R
Certificate, unless the transferor shall have provided to the Trustee an
affidavit, substantially in the form attached as Exhibit H hereto, signed by the
transferee, to the effect that the transferee is not such a disqualified
organization, an agent (including a broker, nominee, or middleman) for any
entity as to which the transferee has not received a substantially similar
affidavit, an ERISA Prohibited Holder or a Non-permitted Foreign Holder, which
affidavit shall contain the consent of the transferee to any such amendments of
this Agreement as may be required to further effectuate the foregoing
restrictions on transfer of the Class A-R Certificate to disqualified
organizations, ERISA Prohibited Holders or Non-permitted Foreign Holders. Such
affidavit shall also contain the statement of the transferee that (i) the
transferee has historically paid its debts as they have come due and intends to
do so in the future, (ii) the transferee understands that it may incur
liabilities in excess of cash flows generated by the residual interest, (iii)
the transferee intends to pay taxes associated with holding the residual
interest as they become due and (iv) the transferee will not transfer the Class
A-R Certificate to any Person who does not provide an affidavit substantially in
the form attached as Exhibit H hereto.
The affidavit described in the preceding paragraph, if not executed in
connection with the initial issuance of the Class A-R Certificate, shall be
accompanied by a written statement in the form attached as Exhibit I hereto,
signed by the transferor, to the effect that as of the time of the transfer, the
transferor has no actual knowledge that the transferee is a disqualified
organization, ERISA Prohibited Holder or Non-permitted Foreign Holder, and has
no knowledge or reason to know that the statements made by the transferee with
respect to clauses (i) and (iii) of the last sentence of the preceding paragraph
are not true. The Class A-R Certificate shall bear a legend referring to the
foregoing restrictions contained in this paragraph and the preceding paragraph.
Upon notice to the Master Servicer that any legal or beneficial
interest in any portion of the Class A-R Certificate has been transferred,
directly or indirectly, to a disqualified organization or agent thereof
(including a broker, nominee, or middleman) in contravention of the foregoing
restrictions, (i) such transferee shall be deemed to hold the Class A-R
Certificate in constructive trust for the last transferor who was not a
disqualified
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<PAGE>
organization or agent thereof, and such transferor shall be restored as the
owner of such Class A-R Certificate as completely as if such transfer had never
occurred, provided that the Master Servicer may, but is not required to, recover
any distributions made to such transferee with respect to the Class A-R
Certificate, and (ii) the Master Servicer agrees to furnish to the Internal
Revenue Service and to any transferor of the Class A-R Certificate or such agent
(within 60 days of the request therefor by the transferor or agent) such
information necessary to the application of Code Section 860E(e) as may be
required by the Code, including but not limited to the present value of the
total anticipated excess inclusions with respect to the Class A-R Certificate
(or portion thereof) for periods after such transfer. At the election of the
Master Servicer, the cost to the Master Servicer of computing and furnishing
such information may be charged to the transferor or such agent referred to
above; however, the Master Servicer shall in no event be excused from furnishing
such information.
Section 5.03. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If
(i) any mutilated Certificate is surrendered to the Trustee or the
Authenticating Agent, or the Trustee or the Authenticating Agent receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Trustee or the Authenticating
Agent such security or indemnity as may be required by them to hold each of them
harmless, then, in the absence of notice to the Trustee or the Authenticating
Agent that such Certificate has been acquired by a bona fide purchaser, the
Trustee shall execute and authenticate (or cause the Authenticating Agent to
authenticate) and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor and
principal portion or Percentage Interest and of the same Class or Subclass.
Upon the issuance of any new Certificate under this Section, the Trustee or the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expense (including the fees and expenses of the Trustee or the
Authenticating Agent) in connection therewith. Any duplicate Certificate issued
pursuant to this Section shall constitute complete and indefeasible evidence of
ownership in the Trust Estate, as if originally issued, whether or not the lost,
stolen, or destroyed Certificate shall be found at any time.
Section 5.04. PERSONS DEEMED OWNERS. Prior to the due presentation
of a Certificate for registration of transfer, the Seller, the Master Servicer,
the Trustee, the Certificate Registrar and any agent of the Seller, the Master
Servicer, the Trustee or the Certificate Registrar may treat the Person in whose
name any Certificate is registered as the owner of such Certificate for the
purpose of receiving distributions pursuant to Section 4.01, and for all other
purposes whatsoever, and neither the Seller, the Master Servicer, the Trustee,
the Certificate Registrar nor any agent of the Seller, the Master Servicer, the
Trustee or the Certificate Registrar shall be affected by notice to the
contrary.
Section 5.05. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. (a) If the Trustee is not acting as Certificate Registrar, the
Certificate Registrar shall furnish or cause to be furnished to the Trustee,
within 15 days after receipt by the Certificate Registrar of a request by the
Trustee in writing, a list, in such form as the Trustee may reasonably require,
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<PAGE>
of the names and addresses of the Certificateholders of each Class or Subclass
as of the most recent Record Date.
(b) If five or more Certificateholders (hereinafter referred to as
"applicants") apply in writing to the Trustee, and such application states that
the applicants desire to communicate with other Certificateholders with respect
to their rights under this Agreement or under the Certificates and is
accompanied by a copy of the communication which such applicants propose to
transmit, then the Trustee shall, within five Business Days following the
receipt of such application, afford such applicants access during normal
business hours to the most recent list of Certificateholders held by the
Trustee. If such a list is as of the date more than 90 days prior to the date
of receipt of such applicants' request and the Trustee is not the Certificate
Registrar, the Trustee shall promptly request from the Certificate Registrar a
current list as provided in paragraph (a) hereof, and shall afford such
applicants access to such list promptly upon receipt.
(c) Every Certificateholder, by receiving and holding a Certificate,
agrees with the Seller, the Master Servicer, the Certificate Registrar and the
Trustee that neither the Seller, the Master Servicer, the Certificate Registrar
nor the Trustee shall be held accountable by reason of the disclosure of any
such information as to the names, addresses and Percentage Interests of the
Certificateholders hereunder, regardless of the source from which such
information was delivered.
Section 5.06. MAINTENANCE OF OFFICE OR AGENCY. The Trustee will
maintain, at its expense, an office or agency where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Certificate Registrar in respect of the Certificates and
this Agreement may be served. The Trustee initially designates the Corporate
Trust Office and the principal corporate trust office of the Authenticating
Agent, if any, as its offices and agencies for said purposes.
Section 5.07. DEFINITIVE CERTIFICATES. If (i)(A) the Master Servicer
advises the Trustee in writing that the Clearing Agency is no longer willing or
able properly to discharge its responsibilities as depository with respect to
the Book-Entry Certificates, and (B) the Master Servicer is unable to locate a
qualified successor, (ii) the Master Servicer, at its option, advises the
Trustee in writing that it elects to terminate the book-entry system through the
Clearing Agency or (iii) after the occurrence of dismissal or resignation of the
Master Servicer, Beneficial Owners representing aggregate Voting Interests of
not less than 51% of the aggregate Voting Interests of each outstanding Subclass
of Book-Entry Certificates advise the Trustee through the Clearing Agency and
Clearing Agency Participants in writing that the continuation of a book-entry
system through the Clearing Agency is no longer in the best interests of the
Beneficial Owners, the Trustee shall notify the Beneficial Owners, through the
Clearing Agency, of the occurrence of any such event and of the availability of
Definitive Certificates to Beneficial Owners requesting the same. Upon
surrender to the Trustee by the Clearing Agency of the Certificates held of
record by its nominee, accompanied by reregistration instructions and directions
to execute and authenticate new Certificates from the Master Servicer, the
Trustee shall execute and authenticate Definitive Certificates for delivery
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at its Corporate Trust Office. The Master Servicer shall arrange for, and will
bear all costs of, the printing and issuance of such Definitive Certificates.
Neither the Seller, the Master Servicer nor the Trustee shall be liable for any
delay in delivery of such instructions by the Clearing Agency and may
conclusively rely on, and shall be protected in relying on, such instructions.
Section 5.08. NOTICES TO CLEARING AGENCY. Whenever notice or other
communication to the Holders of Book-Entry Certificates is required under this
Agreement, unless and until Definitive Certificates shall have been issued to
Beneficial Owners pursuant to Section 5.07, the Trustee shall give all such
notices and communications specified herein to be given to Holders of Book-Entry
Certificates to the Clearing Agency.
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ARTICLE VI
THE SELLER AND THE MASTER SERVICER
Section 6.01. LIABILITY OF THE SELLER AND THE MASTER SERVICER. The
Seller and the Master Servicer shall each be liable in accordance herewith only
to the extent of the obligations specifically imposed by this Agreement and
undertaken hereunder by the Seller and the Master Servicer.
Section 6.02. MERGER OR CONSOLIDATION OF THE SELLER OR THE MASTER
SERVICER. Subject to the following paragraph, the Seller and the Master
Servicer each will keep in full effect its existence, rights and franchises as a
corporation under the laws of the jurisdiction of its incorporation, and will
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, the Certificates or
any of the Mortgage Loans and to perform its respective duties under this
Agreement.
The Seller or the Master Servicer may be merged or consolidated with
or into any Person, or transfer all or substantially all of its assets to any
Person, in which case any Person resulting from any merger or consolidation to
which the Seller or Master Servicer shall be a party, or any Person succeeding
to the business of the Seller or Master Servicer, shall be the successor of the
Seller or Master Servicer hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding; PROVIDED, HOWEVER, that, in the case of
the Master Servicer, any such successor or resulting Person shall be qualified
to service mortgage loans for FNMA or FHLMC.
Section 6.03. LIMITATION ON LIABILITY OF THE SELLER, THE MASTER
SERVICER AND OTHERS. Neither the Seller nor the Master Servicer nor any
subcontractor nor any of the partners, directors, officers, employees or agents
of any of them shall be under any liability to the Trust Estate or the
Certificateholders and all such Persons shall be held harmless for any action
taken or for refraining from the taking of any action in good faith pursuant to
this Agreement, or for errors in judgment; PROVIDED, HOWEVER, that this
provision shall not protect any such Person against any breach of warranties or
representations made herein or against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties hereunder. The Seller, the Master Servicer, any subcontractor, and any
partner, director, officer, employee or agent of either of them shall be
entitled to indemnification by the Trust Estate and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence in the performance of his or its duties hereunder or by reason
of reckless disregard of his or its obligations and duties hereunder. The
Seller, the Master Servicer and any of the directors, officers, employees or
agents of either may rely in good faith on any document of
<PAGE>
any kind which, PRIMA FACIE, is properly executed and submitted by any Person
respecting any matters arising hereunder. Neither the Seller nor the Master
Servicer shall be under any obligation to appear in, prosecute or defend any
legal action unless such action is related to its respective duties under this
Agreement and which in its opinion does not involve it in any expense or
liability; PROVIDED, HOWEVER, that the Seller or the Master Servicer may in its
discretion undertake any such action which it may deem necessary or desirable
with respect to this Agreement and the rights and duties of the parties hereto
and the interests of the Certificateholders hereunder if the Certificateholders
offer to the Seller or the Master Servicer, as the case may be, reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Estate, and the Seller or the Master Servicer shall be
entitled to be reimbursed therefor out of the Certificate Account, and such
amounts shall, on the following Distribution Date or Distribution Dates, be
allocated in reduction of distributions on the Class A, Class AP, Class M and
Subclasses of Class B Certificates in the same manner as Realized Losses are
allocated pursuant to Section 4.02(a).
Section 6.04. RESIGNATION OF THE MASTER SERVICER. The Master
Servicer shall not resign from the obligations and duties hereby imposed on it
without the consent of the Trustee, except upon determination that its duties
hereunder are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities carried on by it.
Any such determination permitting the resignation of the Master Servicer shall
be evidenced by an Opinion of Counsel to such effect delivered to the Trustee.
No such resignation shall become effective until the Trustee or a successor
servicer shall have assumed the Master Servicer's responsibilities, duties,
liabilities and obligations hereunder.
Section 6.05. COMPENSATION TO THE MASTER SERVICER. The Master
Servicer shall be entitled to receive a monthly fee equal to the Master
Servicing Fee, as compensation for services rendered by the Master Servicer
under this Agreement. The Master Servicer also will be entitled to any late
reporting fees paid by a Servicer pursuant to its Servicing Agreement and any
investment income on funds on deposit in the Certificate Account as additional
compensation.
Section 6.06. ASSIGNMENT OR DELEGATION OF DUTIES BY MASTER SERVICER.
The Master Servicer shall not assign or transfer any of its rights, benefits or
privileges under this Agreement to any other Person, or delegate to or
subcontract with, or authorize or appoint any other Person to perform any of the
duties, covenants or obligations to be performed by the Master Servicer without
the prior written consent of the Trustee, and any agreement, instrument or act
purporting to effect any such assignment, transfer, delegation or appointment
shall be void. Notwithstanding the foregoing, the Master Servicer shall have
the right without the prior written consent of the Trustee (i) to assign its
rights and delegate its duties and obligations hereunder; PROVIDED, HOWEVER,
that (a) the purchaser or transferee accepting such assignment or delegation is
qualified to service mortgage loans for FNMA or FHLMC, is satisfactory to the
Trustee, in the exercise of its reasonable judgment, and executes and delivers
to the Trustee an agreement, in form and substance reasonably satisfactory to
the
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Trustee, which contains an assumption by such purchaser or transferee of the due
and punctual performance and observance of each covenant and condition to be
performed or observed by the Master Servicer hereunder from and after the date
of such agreement; and (b) each applicable Rating Agency's rating of any
Certificates in effect immediately prior to such assignment, sale or transfer is
not reasonably likely to be qualified, downgraded or withdrawn as a result of
such assignment, sale or transfer and the Certificates are not reasonably likely
to be placed on credit review status by any such Rating Agency; and (ii) to
delegate to, subcontract with, authorize, or appoint an affiliate of the Master
Servicer to perform and carry out any duties, covenants or obligations to be
performed and carried out by the Master Servicer under this Agreement and hereby
agrees so to delegate, subcontract, authorize or appoint to an affiliate of the
Master Servicer any duties, covenants or obligations to be performed and carried
out by the Master Servicer to the extent that such duties, covenants or
obligations are to be performed in any state or states in which the Master
Servicer is not authorized to do business as a foreign corporation but in which
the affiliate is so authorized. In no case, however, shall any permitted
assignment and delegation relieve the Master Servicer of any liability to the
Trustee or the Seller under this Agreement, incurred by it prior to the time
that the conditions contained in clause (i) above are met.
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ARTICLE VII
DEFAULT
Section 7.01. EVENTS OF DEFAULT. In case one or more of the following
Events of Default by the Master Servicer shall occur and be continuing, that is
to say:
(i) any failure by the Master Servicer (a) to remit any funds to the
Paying Agent as required by Section 4.03 or (b) to distribute or cause to
be distributed to Certificateholders any payment required to be made by the
Master Servicer under the terms of this Agreement which, in either case,
continues unremedied for a period of three business days after the date
upon which written notice of such failure, requiring the same to be
remedied, shall have been given to the Master Servicer by the Trustee or to
the Master Servicer and the Trustee by the holders of Certificates
evidencing in the aggregate not less than 25% of the aggregate Voting
Interest represented by all Certificates; or
(ii) any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other of the covenants or agreements on
the part of the Master Servicer in the Certificates or in this Agreement
which continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Master Servicer by the Trustee, or to the Master
Servicer and the Trustee by the holders of Certificates evidencing in the
aggregate not less than 25% of the aggregate Voting Interest represented by
all Certificates; or
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a trustee,
conservator, receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Master Servicer and such decree or order
shall have remained in force undischarged and unstayed for a period of 60
days; or
(iv) the Master Servicer shall consent to the appointment of a
trustee, conservator, receiver or liquidator or liquidating committee in
any bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities, voluntary liquidation or similar proceedings of or relating to
the Master Servicer, or of or relating to all or substantially all of its
property; or
(v) the Master Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage
of any applicable insolvency, bankruptcy or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend payment
of its obligations; or
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(vi) the Master Servicer shall be dissolved, or shall dispose of all
or substantially all of its assets; or consolidate with or merge into
another entity or shall permit another entity to consolidate or merge into
it, such that the resulting entity does not meet the criteria for a
successor servicer, as specified in Section 6.02 hereof;
(vii) the Master Servicer and any subservicer appointed by it becomes
ineligible to service for both FNMA and FHLMC, which ineligibility
continues unremedied for a period of 90 days;
then, and in each and every such case, subject to applicable law, so long as an
Event of Default shall not have been remedied, either the Trustee or the holders
of Certificates evidencing in the aggregate not less than 662/3% of the
aggregate Voting Interest represented by all Certificates, by notice in writing
to the Master Servicer (and to the Trustee if given by the Certificateholders)
may terminate all of the rights and obligations of the Master Servicer under
this Agreement and in and to the Mortgage Loans, but without prejudice to any
rights which the Master Servicer may have to the aggregate Master Servicing Fees
due prior to the date of transfer of the Master Servicer's responsibilities
hereunder, reimbursement of expenses to the extent permitted by this Agreement,
Periodic Advances and other advances of its own funds. Upon receipt by the
Master Servicer of such written notice, all authority and power of the Master
Servicer under this Agreement, whether with respect to the Certificates or the
Mortgage Loans or otherwise, shall pass to and be vested in the Trustee pursuant
to and under this Section, subject to the provisions of Section 7.05; and,
without limitation, the Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise,
any and all documents and other instruments, and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents or otherwise. The Master Servicer
agrees to cooperate with the Trustee in effecting the termination of the Master
Servicer's responsibilities and rights hereunder and shall promptly provide the
Trustee all documents and records reasonably requested by it to enable it to
assume the Master Servicer's functions hereunder and shall promptly also
transfer to the Trustee all amounts which then have been or should have been
deposited in the Certificate Account by the Master Servicer or which are
thereafter received by the Master Servicer with respect to the Mortgage Loans.
Section 7.02. OTHER REMEDIES OF TRUSTEE. During the continuance of
any Event of Default, so long as such Event of Default shall not have been
remedied, the Trustee, in addition to the rights specified in Section 7.01,
shall have the right, in its own name as trustee of an express trust, to take
all actions now or hereafter existing at law, in equity or by statute to
enforce its rights and remedies and to protect the interests, and enforce the
rights and remedies, of the Certificateholders (including the institution and
prosecution of all judicial, administrative and other proceedings and the filing
of proofs of claim and debt in connection therewith). Except as otherwise
expressly provided in this Agreement, no remedy provided for by this Agreement
shall be exclusive of any other remedy, and each and every remedy shall be
cumulative and in addition to any other remedy and no delay or omission to
exercise
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any right or remedy shall impair any such right or remedy or shall be deemed to
be a waiver of any Event of Default.
Section 7.03. DIRECTIONS BY CERTIFICATEHOLDERS AND DUTIES OF TRUSTEE
DURING EVENT OF DEFAULT. During the continuance of any Event of Default,
Holders of Certificates evidencing in the aggregate not less than 25% of the
aggregate Voting Interest represented by all Certificates may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee, under this
Agreement; PROVIDED, HOWEVER, that the Trustee shall be under no obligation to
pursue any such remedy, or to exercise any of the trusts or powers vested in it
by this agreement (including, without limitation, (i) the conducting or
defending of any administrative action or litigation hereunder or in relation
hereto and (ii) the terminating of the Master Servicer from its rights and
duties as servicer hereunder) at the request, order or direction of any of the
Certificateholders, unless such Certificateholders shall have offered to the
Trustee reasonable security or indemnity against the cost, expenses and
liabilities which may be incurred therein or thereby and, provided further,
that, subject to the provisions of Section 8.01, the Trustee shall have the
right to decline to follow any such direction if the Trustee, in accordance with
an Opinion of Counsel, determines that the action or proceeding so directed may
not lawfully be taken or if the Trustee in good faith determines that the action
or proceeding so directed would involve it in personal liability or be unjustly
prejudicial to the nonassenting Certificateholders.
Section 7.04. ACTION UPON CERTAIN FAILURES OF THE MASTER SERVICER AND
UPON EVENT OF DEFAULT. In the event that the Trustee shall have knowledge of
any failure of the Master Servicer specified in Section 7.01(i) or (ii) which
would become an Event of Default upon the Master Servicer's failure to remedy
the same after notice, the Trustee may, but need not if the Trustee deems it not
in the Certificateholders' best interest, give notice thereof to the Master
Servicer. For all purposes of this Agreement, in the absence of actual
knowledge by a corporate trust officer of the Trustee, the Trustee shall not be
deemed to have knowledge of any failure of the Master Servicer as specified in
Section 7.01(i) and (ii) or any Event of Default unless notified thereof in
writing by the Master Servicer or by a Certificateholder.
Section 7.05. TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. When the
Master Servicer receives notice of termination pursuant to Section 7.01 or the
Trustee receives the resignation of the Master Servicer evidenced by an Opinion
of Counsel pursuant to Section 6.04, the Trustee shall be the successor in all
respects to the Master Servicer in its capacity as master servicer under this
Agreement and the transactions set forth or provided for herein and shall have
the rights and powers and be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Master Servicer by the terms and
provisions hereof and in its capacity as such successor shall have the same
limitation of liability herein granted to the Master Servicer. In the event
that the Trustee is succeeding to the Master Servicer as the Master Servicer, as
compensation therefor, the Trustee shall be entitled to receive monthly such
portion of the Master Servicing Fee, together with such other servicing
compensation as is agreed to at such time by the Trustee and the Master
Servicer, but in no event more than 25% thereof until the date of final
cessation of the Master Servicer's servicing activities
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hereunder. Notwithstanding the above, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act or to obtain a
qualifying bid as described below, appoint, or petition a court of competent
jurisdiction to appoint, any housing and home finance institution, bank or
mortgage servicing institution having a net worth of not less than $10,000,000
and meeting such other standards for a successor servicer as are set forth
herein, as the successor to the Master Servicer hereunder in the assumption of
all or any part of the responsibilities, duties or liabilities of the Master
Servicer hereunder; PROVIDED, HOWEVER, that until such a successor master
servicer is appointed and has assumed the responsibilities, duties and
liabilities of the Master Servicer hereunder, the Trustee shall continue as the
successor to the Master Servicer as provided above. The compensation of any
successor master servicer so appointed shall not exceed the compensation
specified in Section 6.05 hereof. In the event the Trustee is required to
solicit bids as provided above, the Trustee shall solicit, by public
announcement, bids from housing and home finance institutions, banks and
mortgage servicing institutions meeting the qualifications set forth in the
preceding sentence for the purchase of the master servicing functions. Such
public announcement shall specify that the successor master servicer shall be
entitled to the full amount of the Master Servicing Fee as compensation together
with the other servicing compensation in the form of late reporting fees or
otherwise as provided in Section 6.05. Within 30 days after any such public
announcement, the Trustee shall negotiate and effect the sale, transfer and
assignment of the master servicing rights and responsibilities hereunder to the
qualified party submitting the highest qualifying bid. The Trustee shall
deduct all costs and expenses of any public announcement and of any sale,
transfer and assignment of the servicing rights and responsibilities hereunder
from any sum received by the Trustee from the successor to the Master Servicer
in respect of such sale, transfer and assignment. After such deductions, the
remainder of such sum shall be paid by the Trustee to the Master Servicer at the
time of such sale, transfer and assignment to the Master Servicer's successor.
The Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. The Master
Servicer agrees to cooperate with the Trustee and any successor servicer in
effecting the termination of the Master Servicer's servicing responsibilities
and rights hereunder and shall promptly provide the Trustee or such successor
master servicer, as applicable, all documents and records reasonably requested
by it to enable it to assume the Master Servicer's function hereunder and shall
promptly also transfer to the Trustee or such successor master servicer, as
applicable, all amounts which then have been or should have been deposited in
the Certificate Account by the Master Servicer or which are thereafter received
by the Master Servicer with respect to the Mortgage Loans. Neither the Trustee
nor any other successor master servicer shall be deemed to be in default
hereunder by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Master Servicer to deliver, or any delay in delivering, cash, documents or
records to it, or (ii) restrictions imposed by any regulatory authority having
jurisdiction over the Master Servicer. Notwithstanding anything to the contrary
contained in Section 7.01 above or this Section 7.05, the Master Servicer shall
retain all of its rights and responsibilities hereunder, and no successor
(including the Trustee) shall succeed thereto, if the assumption thereof by such
successor would cause the rating assigned to any Certificates to be revoked,
downgraded or placed on credit review status (other than for possible upgrading)
by either Rating Agency and
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the retention thereof by the Master Servicer would avert such revocation,
downgrading or review.
Section 7.06. NOTIFICATION TO CERTIFICATEHOLDERS. Upon any
termination of the Master Servicer or appointment of a successor master
servicer, in each case as provided herein, the Trustee shall give prompt written
notice thereof to Certificateholders at their respective addresses appearing in
the Certificate Register. The Trustee shall also, within 45 days after the
occurrence of any Event of Default known to the Trustee, give written notice
thereof to Certificateholders at their respective addresses appearing in the
Certificate Register, unless such Event of Default shall have been cured or
waived within said 45 day period.
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ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. DUTIES OF TRUSTEE. The Trustee, prior to the
occurrence of an Event of Default and after the curing of all Events of Default
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. In case an Event of Default
has occurred (which has not been cured), the Trustee, subject to the provisions
of Sections 7.01, 7.03, 7.04 and 7.05, shall exercise such of the rights and
powers vested in it by this Agreement, and use the same degree of care and skill
in its exercise as a prudent investor would exercise or use under the
circumstances in the conduct of such investor's own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee, which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they are in
the form required by this Agreement; PROVIDED, HOWEVER, that the Trustee shall
not be responsible for the accuracy or content of any certificate, statement,
instrument, report, notice or other document furnished by the Servicers pursuant
to Articles III, IV and IX.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; PROVIDED, HOWEVER, that:
(i) Prior to the occurrence of an Event of Default and after the
curing of all such Events of Default which may have occurred, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall be read
into this Agreement against the Trustee and, in the absence of bad faith on
the part of the Trustee, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Trustee, and
conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of holders of Certificates which evidence in
the aggregate not less than 25% of the Voting Interest represented by all
Certificates relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Agreement; and
<PAGE>
(iii) the Trustee shall not be liable for any error of judgment made in
good faith by any of its Responsible Officers, unless it shall be proved
that the Trustee, or such Responsible Officer was negligent in ascertaining
the pertinent facts.
None of the provisions contained in this Agreement shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers if there is reasonable ground for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
Section 8.02. CERTAIN MATTERS AFFECTING THE TRUSTEE. Except as
otherwise provided in Section 8.01:
(i) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(ii) The Trustee may consult with counsel, and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in good faith and in
accordance with such Opinion of Counsel;
(iii) The Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Agreement; and
(iv) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys.
Section 8.03. TRUSTEE NOT REQUIRED TO MAKE INVESTIGATION. Prior to
the occurrence of an Event of Default hereunder and after the curing of all
Events of Default which may have occurred, the Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond, Mortgage, Mortgage Note or other paper or document
(provided the same appears regular on its face), unless requested in writing to
do so by holders of Certificates evidencing in the aggregate not less than 51%
of the Voting Interest represented by all Certificates; PROVIDED, HOWEVER, that
if the payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or liability as a condition to so
proceeding. The reasonable expense of every such investigation shall be paid by
the Master Servicer or, if paid by the Trustee, shall be repaid by the Master
Servicer upon demand.
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Section 8.04. TRUSTEE NOT LIABLE FOR CERTIFICATES OR MORTGAGE LOANS.
The recitals contained herein and in the Certificates (other than the
certificate of authentication on the Certificates) shall be taken as the
statements of the Seller, and the Trustee assumes no responsibility as to the
correctness of the same. The Trustee makes no representation for the
correctness of the same. The Trustee makes no representation as to the validity
or sufficiency of this Agreement or of the Certificates or of any Mortgage Loan
or related document. Subject to Section 2.04, the Trustee shall not be
accountable for the use or application by the Seller of any of the Certificates
or of the proceeds of such Certificates, or for the use or application of any
funds paid to the Master Servicer in respect of the Mortgage Loans deposited
into the Certificate Account by the Master Servicer or, in its capacity as
trustee, for investment of any such amounts.
Section 8.05. TRUSTEE MAY OWN CERTIFICATES. Each of the Trustee and
any agent thereof, in its individual or any other capacity, may become the owner
or pledgee of Certificates with the same rights it would have if it were not
Trustee or such agent.
Section 8.06. COMPENSATION OF THE TRUSTEE. The Trustee shall be
entitled to receive a monthly fee equal to the Trustee Fee, as compensation for
services rendered by the Trustee under this Agreement. The Master Servicer will
pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by it in accordance with any of the
provisions of this Agreement (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement, or advance as may arise from
its negligence or bad faith.
Section 8.07. ELIGIBILITY REQUIREMENTS. The Trustee hereunder shall
at all times be a corporation having its principal office in a state and city
acceptable to the Seller, organized and doing business under the laws of such
state or the United States of America, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, or shall be a member of a bank holding system, the aggregate
combined capital and surplus of which is at least $50,000,000, provided that its
separate capital and surplus shall at all times be at least the amount specified
in Section 310(a)(2) of the Trust Indenture Act of 1939, and shall be subject to
supervision or examination by federal or state authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, such
entity shall resign immediately in the manner and with the effect specified in
Section 8.08.
Section 8.08. RESIGNATION AND REMOVAL. The Trustee may at any time
resign and be discharged from the trust hereby created by giving written notice
of resignation to the Master Servicer, such resignation to be effective upon the
appointment of a successor trustee. Upon receiving such notice of resignation,
the Master Servicer shall promptly appoint a
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successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning entity and one copy to its
successor. If no successor trustee shall have been appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.07 and shall fail to resign after written
request for its resignation by the Master Servicer, or if at any time the
Trustee shall become incapable of acting, or an order for relief shall have been
entered in any bankruptcy or insolvency proceeding with respect to such entity,
or a receiver of such entity or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of the property or
affairs of the Trustee for the purpose of rehabilitation, conversion or
liquidation, or the Master Servicer shall deem it necessary in order to change
the situs of the Trust Estate for state tax reasons, then the Master Servicer
shall remove the Trustee and appoint a successor trustee by written instrument,
in duplicate, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee.
The Holders of Certificates evidencing in the aggregate not less than
51% of the Voting Interests represented by all Certificates (except that any
Certificate registered in the name of the Seller, the Master Servicer or any
affiliate thereof will not be taken into account in determining whether the
requisite Voting Interests has been obtained) may at any time remove the Trustee
and appoint a successor by written instrument or instruments, in triplicate,
signed by such holders or their attorneys-in-fact duly authorized, one complete
set of which instruments shall be delivered to the Master Servicer, one complete
set of which shall be delivered to the entity so removed and one complete set of
which shall be delivered to the successor so appointed.
Any resignation or removal of the Trustee and appointment of a
successor pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor as provided in Section
8.09.
Section 8.09. SUCCESSOR. Any successor trustee appointed as provided
in Section 8.08 shall execute, acknowledge and deliver to the Master Servicer
and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Trustee
shall become effective, and such successor, without any further act, deed or
reconveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee herein. The predecessor Trustee shall deliver to its successor
all Owner Mortgage Loan Files and related documents and statements held by it
hereunder (other than any Owner Mortgage Loan Files at the time held by a
Custodian, which Custodian shall become the agent of any successor trustee
hereunder), and the Seller, the Master Servicer and the predecessor entity shall
execute and deliver such instruments and do such other things as may reasonably
be required for more fully and certainly vesting and confirming in the successor
trustee all such rights, powers, duties and obligations. No successor shall
accept
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appointment as provided in this Section unless at the time of such acceptance
such successor shall be eligible under the provisions of Section 8.07.
Upon acceptance of appointment by a successor as provided in this
Section, the Master Servicer shall mail notice of the succession of such Trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register. If the Master Servicer fails to mail such notice within
ten days after acceptance of the successor trustee, the successor trustee shall
cause such notice to be mailed at the expense of the Master Servicer.
Section 8.10. MERGER OR CONSOLIDATION. Any Person into which the
Trustee may be merged or converted or with which it may be consolidated, to
which it may sell or transfer its corporate trust business and assets as a whole
or substantially as a whole or any Person resulting from any merger, sale,
transfer, conversion or consolidation to which the Trustee shall be a party, or
any Person succeeding to the business of such entity, shall be the successor of
the Trustee hereunder; PROVIDED, HOWEVER, that (i) such Person shall be eligible
under the provisions of Section 8.07, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding, and (ii) the Trustee shall deliver an
Opinion of Counsel to the Seller and the Master Servicer to the effect that such
merger, consolidation, sale or transfer will not subject the REMIC to federal,
state or local tax or cause the Trust Estate to fail to qualify as a REMIC,
which Opinion of Counsel shall be at the sole expense of the Trustee.
Section 8.11. AUTHENTICATING AGENT. The Trustee may appoint an
Authenticating Agent, which shall be authorized to act on behalf of the Trustee
in authenticating Certificates. Wherever reference is made in this Agreement to
the authentication of Certificates by the Trustee or the Trustee's
countersignature, such reference shall be deemed to include authentication on
behalf of the Trustee by the Authenticating Agent and a certificate of
authentication executed on behalf of the Trustee by the Authenticating Agent.
The Authenticating Agent must be acceptable to the Seller and the Master
Servicer and must be a corporation organized and doing business under the laws
of the United States of America or of any state, having a principal office and
place of business in a state and city acceptable to the Seller and the Master
Servicer, having a combined capital and surplus of at least $15,000,000,
authorized under such laws to do a trust business and subject to supervision or
examination by federal or state authorities.
Any corporation into which the Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency business
of the Authenticating Agent, shall be the Authenticating Agent without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
The Authenticating Agent may at any time resign by giving at least 30
days' advance written notice of resignation to the Trustee, the Seller and the
Master Servicer. The Trustee may at any time terminate the agency of the
Authenticating Agent by giving written
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notice thereof to the Authenticating Agent, the Seller and the Master Servicer.
Upon receiving a notice of resignation or upon such a termination, or in case at
any time the Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section 8.11, the Trustee promptly shall appoint a
successor Authenticating Agent, which shall be acceptable to the Master
Servicer, and shall give written notice of such appointment to the Seller, and
shall mail notice of such appointment to all Certificateholders. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers, duties and responsibilities of its
predecessor hereunder, with like effect as if originally named as Authenticating
Agent herein. No successor Authenticating Agent shall be appointed unless
eligible under the provisions of this Section 8.11.
The Authenticating Agent shall have no responsibility or liability for
any action taken by it as such at the direction of the Trustee. Any reasonable
compensation paid to the Authenticating Agent shall be a reimbursable expense
under Section 8.06.
Section 8.12. SEPARATE TRUSTEES AND CO-TRUSTEES. The Trustee shall
have the power from time to time to appoint one or more persons or corporations
to act either as co-trustees jointly with the Trustee, or as separate trustees,
for the purpose of holding title to, foreclosing or otherwise taking action with
respect to any Mortgage Loan outside the state where the Trustee has its
principal place of business, where such separate trustee or co-trustee is
necessary or advisable (or the Trustee is advised by the Master Servicer that
such separate trustee or co-trustee is necessary or advisable) under the laws of
any state in which a Mortgaged Property is located or for the purpose of
otherwise conforming to any legal requirement, restriction or condition in any
state in which a Mortgaged Property is located or in any state in which any
portion of the Trust Estate is located. The Master Servicer shall advise the
Trustee when, in its good faith opinion, a separate trustee or co-trustee is
necessary or advisable as aforesaid. The separate trustees or co-trustees so
appointed shall be trustees for the benefit of all of the Certificateholders and
shall have such powers, rights and remedies as shall be specified in the
instrument of appointment; PROVIDED, HOWEVER, that no such appointment shall, or
shall be deemed to, constitute the appointee an agent of the Trustee. The
Seller and the Master Servicer shall join in any such appointment, but such
joining shall not be necessary for the effectiveness of such appointment.
Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(i) all powers, duties, obligations and rights conferred upon the
Trustee, in respect of the receipt, custody and payment of moneys shall be
exercised solely by the Trustee;
(ii) all other rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed (whether as Trustee
hereunder or as successor to the Master Servicer hereunder) the
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Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the
holding of title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed by such separate trustee or
co-trustee;
(iii) no separate trustee or co-trustee hereunder shall be personally
liable by reason of any act or omission of any other separate trustee or
co-trustee hereunder; and
(iv) the Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee so appointed by it, if such resignation
or removal does not violate the other terms of this Agreement.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee, co-trustee, or custodian shall refer to this Agreement and the
conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Trustee, or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating to
the conduct of, affecting the liability of, or affording protection to, the
Trustee. Every such instrument shall be furnished to the Trustee.
Any separate trustee, co-trustee, or custodian may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Trustee to the extent permitted by law, without the
appointment of a new or successor trustee.
No separate trustee or co-trustee hereunder shall be required to meet
the terms of eligibility as a successor trustee under Section 8.07 hereunder and
no notice to Certificateholders of the appointment thereof shall be required
under Section 8.09 hereof.
The Trustee agrees to instruct its co-trustees, if any, to the extent
necessary to fulfill such entity's obligations hereunder.
The Master Servicer shall pay the reasonable compensation of the co-
trustees to the extent, and in accordance with the standards, specified in
Section 8.06 hereof.
Section 8.13. APPOINTMENT OF CUSTODIANS. The Trustee may at any time
on or after the Closing Date, with the consent of the Master Servicer and the
Seller, appoint one or more Custodians to hold all or a portion of the Owner
Mortgage Loan Files as agent for the Trustee, by entering into a Custodial
Agreement. Subject to this Article VIII, the Trustee agrees to comply with the
terms of each Custodial Agreement and to enforce the terms and provisions
thereof against the Custodian for the benefit of the Certificateholders. Each
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Custodian shall be a depository institution subject to supervision by federal or
state authority, shall have a combined capital and surplus of at least
$10,000,000 and shall be qualified to do business in the jurisdiction in which
it holds any Mortgage File. Each Custodial Agreement may be amended only as
provided in Section 10.01.
Section 8.14. TAX MATTERS; COMPLIANCE WITH REMIC PROVISIONS. (a)
Each of the Trustee and the Master Servicer covenants and agrees that it shall
perform its duties hereunder in a manner consistent with the REMIC Provisions
and shall not knowingly take any action or fail to take any action that would
(i) affect the determination of the Trust Estate's status as a REMIC; or (ii)
cause the imposition of any federal, state or local income, prohibited
transaction, contribution or other tax on either the REMIC or the Trust Estate.
The Master Servicer, or, in the case of the execution of any tax return or other
action required by law to be performed directly by the Trustee, the Trustee,
shall (i) prepare, or cause to be prepared, and timely cause to be signed by the
Trustee and file annual federal and applicable state and local income tax
returns using a calendar year as the taxable year for the REMIC and the accrual
method of accounting; (ii) in the first such federal tax return, make, or cause
to be made, elections satisfying the requirements of the REMIC Provisions, on
behalf of the Trust Estate, to treat the Trust Estate as a REMIC; (iii) prepare,
execute and forward, or cause to be prepared, executed and forwarded, to the
Certificateholders all information reports or tax returns required with respect
to the Trust Estate, as and when required to be provided to the
Certificateholders, and to the Internal Revenue Service and any other relevant
governmental taxing authority in accordance with the REMIC Provisions and any
other applicable federal, state or local laws, including without limitation
information reports relating to "original issue discount" and "market discount"
as defined in the Code based upon the issue prices, prepayment assumption and
cash flows provided by the Seller to the Trustee and calculated on a monthly
basis by using the issue price of the Certificates; (iv) make available
information necessary for the application of any tax imposed on transferors of
residual interests to "disqualified organizations" (as defined in the REMIC
Provisions); (v) file Forms SS-4 and 8811 and respond to inquiries by
Certificateholders or their nominees concerning information returns, reports or
tax returns; (vi) maintain (or cause to be maintained by the Servicers) such
records relating to the Trust Estate, including but not limited to the income,
expenses, individual Mortgage Loans (including REO Mortgage Loans, other assets
and liabilities of the Trust Estate, and the fair market value and adjusted
basis of the Trust Estate property determined at such intervals as may be
required by the Code, as may be necessary to prepare the foregoing returns or
information reports; (vii) exercise reasonable care not to allow the creation of
any "interests" in the REMIC within the meaning of Code Section 860D(a)(2) other
than the interests represented by the Class A-l, Class A-2, Class A-3, Class A-5
and Class A-R Certificates, the Class AP Certificates, the Class M Certificates
and the Class B-l, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates;
(viii) exercise reasonable care not to allow the occurrence of any "prohibited
transactions" within the meaning of Code Section 860F(a), unless the Master
Servicer shall have provided an Opinion of Counsel to the Trustee that such
occurrence would not (a) result in a taxable gain, (b) otherwise subject either
the Trust Estate or the REMIC to tax or (c) cause the Trust Estate to fail to
qualify as a REMIC; (ix) exercise reasonable care not to allow the Trust Estate
to receive income from the performance of services or from assets not permitted
under the REMIC Provisions to be held
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by a REMIC; (x) pay (on behalf of the Trust Estate) the amount of any federal
income tax, including, without limitation, prohibited transaction taxes, taxes
on net income from foreclosure property, and taxes on certain contributions to a
REMIC after the Startup Day, imposed on the Trust Estate when and as the same
shall be due and payable (but such obligation shall not prevent the Master
Servicer or any other appropriate Person from contesting any such tax in
appropriate proceedings and shall not prevent the Master Servicer from
withholding or depositing payment of such tax, if permitted by law, pending the
outcome of such proceedings); and (xi) if required or permitted by the Code and
applicable law, act as "tax matters person" for the REMIC within the meaning of
Treasury Regulations Section 1.860F-4(d), and the Master Servicer is hereby
designated as agent of the Class A-R Certificateholder for such purpose (or if
the Master Servicer is not so permitted, the Holder of the Class A-R Certificate
shall be tax matters person in accordance with the REMIC Provisions). The
Master Servicer shall be entitled to be reimbursed pursuant to Section 3.02 for
any taxes paid by it pursuant to clause (x) of the preceding sentence, except to
the extent that such taxes are imposed as a result of the bad faith, willful
misfeasance or gross negligence of the Master Servicer in the performance of its
obligations hereunder. The Trustee shall sign the Tax Returns referred to in
clause (i) of the preceding sentence. In order to enable the Master Servicer or
the Trustee, as the case may be, to perform its duties as set forth above, the
Seller shall provide, or cause to be provided, to the Master Servicer within ten
days after the Closing Date all information or data that the Master Servicer
determines to be relevant for tax purposes to the valuations and offering prices
of the Certificates, including, without limitation, the price, yield, prepayment
assumption and projected cash flows of each Class and Subclass of Certificates
and the Mortgage Loans in the aggregate. Thereafter, the Seller shall provide
to the Master Servicer or the Trustee, as the case may be, promptly upon request
therefor, any such additional information or data that the Master Servicer or
the Trustee, as the case may be, may from time to time, request in order to
enable the Master Servicer to perform its duties as set forth above. The Seller
hereby indemnifies the Master Servicer or the Trustee, as the case may be, for
any losses, liabilities, damages, claims or expenses of the Master Servicer or
the Trustee arising from any errors or miscalculations by the Master Servicer or
the Trustee pursuant to this Section that result from any failure of the Seller
to provide, or to cause to be provided, accurate information or data to the
Master Servicer or the Trustee, as the case may be, on a timely basis. The
Master Servicer hereby indemnifies the Seller and the Trustee for any losses,
liabilities, damages, claims or expenses of the Seller or the Trustee arising
from the Master Servicer's willful misfeasance, bad faith or gross negligence in
preparing any of the federal, state and local tax returns of the REMIC as
described above. In the event that the Trustee prepares any of the federal,
state and local tax returns of the REMIC as described above, the Trustee hereby
indemnifies the Seller and the Master Servicer for any losses, liabilities,
damages, claims or expenses of the Seller or the Master Servicer arising from
the Trustee's willful misfeasance, bad faith or negligence in connection with
such preparation.
(b) Notwithstanding anything in this Agreement to the contrary, each
of the Master Servicer and the Trustee shall pay from its own funds, without any
right of reimbursement therefor, the amount of any costs, liabilities and
expenses incurred by the Trust Estate (including, without limitation, any and
all federal, state or local taxes, including taxes
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imposed on "prohibited transactions" within the meaning of the REMIC Provisions)
if and to the extent that such costs, liabilities and expenses arise from a
failure of the Master Servicer or the Trustee to perform its obligations under
this Section 8.14.
Section 8.15. MONTHLY ADVANCES. In the event that Norwest Mortgage
fails to make a Periodic Advance required to be made pursuant to the Norwest
Servicing Agreement on or before the Distribution Date, the Trustee shall make a
Periodic Advance as required by Section 3.03 hereof; PROVIDED that the Trustee
shall not be required to make such Periodic Advances if prohibited by law or if
it determines that such Periodic Advance would be a Nonrecoverable Advance. The
Trustee shall be entitled to be reimbursed from the Certificate Account for
Periodic Advances and Nonrecoverable Advances made by it pursuant to Section
3.03 pursuant to Section 3.02(a)(v) hereof.
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ARTICLE IX
TERMINATION
Section 9.01. TERMINATION UPON PURCHASE BY THE SELLER OR LIQUIDATION
OF ALL MORTGAGE LOANS. Subject to Section 9.02, the respective obligations and
responsibilities of the Seller, the Master Servicer and the Trustee created
hereby (other than the obligation of the Trustee to make certain payments after
the Final Distribution Date to Certificateholders and the obligation of the
Master Servicer to send certain notices as hereinafter set forth and the tax
reporting obligations under Sections 4.05 and 8.14 hereof) shall terminate upon
the last action required to be taken by the Trustee on the Final Distribution
Date pursuant to this Article IX following the earlier of (i) the purchase by
the Seller of all Mortgage Loans and all property acquired in respect of any
Mortgage Loan remaining in the Trust Estate at a price equal to the sum of (x)
100% of the unpaid principal balance of each Mortgage Loan (other than any REO
Mortgage Loan) as of the Final Distribution Date and (y) the fair market value
of the Mortgaged Property related to any REO Mortgage Loan (as determined by the
Seller 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 pursuant to the third paragraph of this Section 9.01), plus
any accrued and unpaid interest through the last day of the month preceding the
month of such purchase at the applicable Mortgage Interest Rate less any Fixed
Retained Yield on each Mortgage Loan (including any REO Mortgage Loan) and (ii)
the final payment or other liquidation (or any advance with respect thereto) of
the last Mortgage Loan remaining in the Trust Estate (including for this purpose
the discharge of any Mortgagor under a defaulted Mortgage Loan on which a
Servicer is not obligated to foreclose due to environmental impairment) or the
disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan; PROVIDED, HOWEVER, that in no event shall the
trust created hereby continue beyond the expiration of 21 years from the death
of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James's, living on the date
hereof.
The right of the Seller to purchase all the assets of the Trust Estate
pursuant to clause (i) of the preceding paragraph are subject to Section 9.02
and conditioned upon the Pool Scheduled Principal Balance of the Mortgage Loans
as of the Final Distribution Date being less than the amount set forth in
Section 11.25. In the case of any purchase by the Seller pursuant to said
clause (i), the Seller shall provide to the Trustee the certification required
by Section 3.04 and the Trustee and the Custodian shall, promptly following
payment of the purchase price, release to the Seller the Owner Mortgage Loan
Files pertaining to the Mortgage Loans being purchased.
Notice of any termination, specifying the Final Distribution Date
(which shall be a date that would otherwise be a Distribution Date) upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Master Servicer (if it is exercising its right to purchase the assets of the
Trust Estate) or by the Trustee (in any other case) by letter to
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Certificateholders mailed not earlier than the 15th day of the month preceding
the month of such final distribution and not later than the twentieth day of the
month of such final distribution specifying (A) the Final Distribution Date upon
which final payment of the Certificates will be made upon presentation and
surrender of Certificates at the office or agency of the Trustee therein
designated, (B) the amount of any such final payment and (C) that the Record
Date otherwise applicable to such Distribution Date is not applicable, payments
being made (except in the case of any Class A Certificate surrendered on a prior
Distribution Date pursuant to Section 4.01) only upon presentation and surrender
of the Certificates at the office or agency of the Trustee therein specified.
If the Master Servicer is obligated to give notice to Certificateholders as
aforesaid, it shall give such notice to the Trustee and the Certificate
Registrar at the time such notice is given to Certificateholders. In the event
such notice is given by the Master Servicer, the Master Servicer shall deposit
in the Certificate Account on or before the Final Distribution Date in
immediately available funds an amount equal to the purchase price for the assets
of the Trust Estate computed as above provided. Failure to give notice of
termination as described herein shall not entitle a Certificateholder to any
interest beyond the interest payable on the Final Distribution Date.
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed to Certificateholders on the Final Distribution Date in
proportion to their respective Percentage Interests an amount equal to (i) as to
the Subclasses of Class A Certificates, the respective Class A Subclass
Principal Balance together with any related Class A Subclass Unpaid Interest
Shortfall and one month's interest in an amount equal to the respective Class A
Subclass Interest Accrual Amount, (ii) as to the Class AP Certificates, the
Class AP Principal Balance, (iii) as to the Class M Certificates, the Class M
Principal Balance together with any Class M Unpaid Interest Shortfall and one
month's interest at the Class M Pass-Through Rate on the Class M Principal
Balance, (iv) as to the Subclasses of Class B Certificates, the respective Class
B Subclass Principal Balance together with any related Class B Subclass Unpaid
Interest Shortfall and one month's interest in an amount equal to the respective
Class B Subclass Interest Accrual Amount and (v) as to the Class A-R
Certificate, the amount, if any, which remains on deposit in the Certificate
Account (other than amounts retained to meet claims) after application pursuant
to clauses (i), (ii) and (iii) above and payment to the Master Servicer of any
amounts it is entitled as reimbursement or otherwise hereunder; PROVIDED,
HOWEVER, that if the price paid pursuant to clause (i) of the first paragraph of
this Section 9.01, after reimbursement to the Servicers, the Master Servicer and
the Trustee of any Periodic Advances, is insufficient to pay in full the amounts
set forth in clauses (i), (ii), (iii) and (iv) of this paragraph, then any
shortfall in the amount available for distribution to Certificateholders shall
be allocated in reduction of the amounts otherwise distributable on the Final
Distribution Date in the same manner as Realized Losses are allocated pursuant
to Section 4.02(b) hereof. Such distribution on the Final Distribution Date
shall be in lieu of the distribution otherwise required to be made on such
Distribution Date in respect of each Class of Certificates.
In the event that all of the Certificateholders shall not surrender
their Certificates for final payment and cancellation within three months
following the Final Distribution Date, the Trustee shall on such date cause all
funds, if any, in the Certificate
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Account not distributed in final distribution to Certificateholders to be
withdrawn therefrom and credited to the remaining Certificateholders by
depositing such funds in a separate escrow account for the benefit of such
Certificateholders, and the Master Servicer (if it exercised its right to
purchase the assets of the Trust Estate) or the Trustee (in any other case)
shall give a second written notice to the remaining Certificateholders to
surrender their Certificates for cancellation and receive the final distribution
with respect thereto. If within three months after the second notice all the
Certificates shall not have been surrendered for cancellation, the Trustee may
take appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds on deposit in
such escrow account.
Section 9.02. ADDITIONAL TERMINATION REQUIREMENTS. In the event of a
termination of the Trust Estate upon the exercise by the Seller of its purchase
option as provided in Section 9.01, the Trust Estate shall be terminated in
accordance with the following additional requirements, provided that the Trustee
has received an Opinion of Counsel or other evidence to the effect that such
termination (i) will constitute a "qualified liquidation" of the Trust Estate
within the meaning of Code Section 860F(a)(4)(A) and (ii) will not subject
either the Trust Estate or the REMIC to federal tax or cause the Trust Estate to
fail to qualify as a REMIC at any time that any Certificates are outstanding:
(i) The notice given by the Master Servicer under Section 9.01 shall
provide that such notice constitutes the adoption of a plan of complete
liquidation of the REMIC as of the date of such notice (or, if earlier, the
date on which the first such notice is mailed to Certificateholders). The
Master Servicer shall also specify such date in a statement attached to the
final tax returns of the REMIC; and
(ii) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the Final Distribution Date, the Trustee
shall sell all of the assets of the Trust Estate to the Master Servicer for
cash at the purchase price specified in Section 9.01 and shall distribute
such cash in the manner specified in Section 9.01.
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ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. AMENDMENT. This Agreement or any Custodial Agreement
may be amended from time to time by the Seller, the Master Servicer and the
Trustee, without the consent of any of the Certificateholders, (i) to cure any
ambiguity or mistake, (ii) to correct or supplement any provisions herein or
therein which may be inconsistent with any other provisions herein or therein,
(iii) to modify, eliminate or add to any of its provisions to such extent as
shall be necessary to maintain the qualification of the Trust Estate as a REMIC
at all times that any Certificates are outstanding or to avoid or minimize the
risk of the imposition of any federal tax on the Trust Estate or the REMIC
pursuant to the Code that would be a claim against the Trust Estate, provided
that (a) the Trustee have received an Opinion of Counsel to the effect that such
action is necessary or desirable to maintain such qualification or to avoid or
minimize the risk of the imposition of any such tax and (b) such action shall
not, as evidenced by such Opinion of Counsel, adversely affect in any material
respect the interests of any Certificateholder, (iv) to change the timing and/or
nature of deposits into the Certificate Account provided that (a) such change
shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Certificateholder and (b) such change
shall not adversely affect the then-current rating of the Certificates as
evidenced by a letter from each Rating Agency to such effect, (v) to modify,
eliminate or add to the provisions of Section 5.02 or any other provisions
hereof restricting transfer of the Certificates, provided that the Master
Servicer for purposes of Section 5.02 has determined in its sole discretion that
any such modifications to this Agreement will neither adversely affect the
rating on the Certificates nor give rise to a risk that either the Trust Estate
or the REMIC or any of the Certificateholders will be subject to a tax caused by
a transfer to a non-permitted transferee and (vi) to make any other provisions
with respect to matters or questions arising under this Agreement or such
Custodial Agreement which shall not be materially inconsistent with the
provisions of this Agreement, provided that such action shall not, as evidenced
by an Opinion of Counsel, adversely affect in any material respect the interests
of any Certificateholder.
This Agreement or any Custodial Agreement may also be amended from
time to time by the Seller, the Master Servicer and the Trustee with the consent
of the Holders of Certificates evidencing in the aggregate not less than 66-2/3%
of the aggregate Voting Interests of each Class or Subclass of Certificates
affected thereby for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or such Custodial
Agreement or of modifying in any manner the rights of the Holders of
Certificates of such Class or Subclass; PROVIDED, HOWEVER, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate, (ii)
adversely affect in any material respect the interest of the Holders of
Certificates of any Class or Subclass in a manner other than as described in
clause
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(i) hereof without the consent of Holders of Certificates of such Class or
Subclass evidencing, as to such Class or Subclass, Voting Interests aggregating
not less than 66-2/3% or (iii) reduce the aforesaid percentage of Certificates
of any Class or Subclass the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all Certificates of such
Class or Subclass then outstanding.
Notwithstanding any contrary provision of this Agreement, the Trustee
shall not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel to the effect that such amendment will not
subject either the Trust Estate or the REMIC to tax or cause the Trust Estate to
fail to qualify as a REMIC at any time that any Certificates are outstanding.
Promptly after the execution of any amendment requiring the consent of
Certificateholders, the Trustee shall furnish written notification of the
substance of such amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders under
this Section 10.01 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Section 10.02. RECORDATION OF AGREEMENT. This Agreement (or an
abstract hereof, if acceptable to the applicable recording office) is subject to
recordation in all appropriate public offices for real property records in all
the towns or other comparable jurisdictions in which any or all of the Mortgaged
Properties are situated, and in any other appropriate public office or
elsewhere, such recordation to be effected by the Master Servicer and at its
expense on direction by the Trustee, but only upon direction accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 10.03. LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. The death
or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Estate, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or take any action or proceeding
in any court for a partition or winding up of the Trust Estate, nor otherwise
affect the rights, obligations and liabilities of the parties hereto or any of
them.
Except as otherwise expressly provided herein, no Certificateholder,
solely by virtue of its status as a Certificateholder, shall have any right to
vote or in any manner otherwise control the operation and management of the
Trust Estate, or the obligations of the parties hereto, nor shall anything
herein set forth, or contained in the terms of the Certificates,
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be construed so as to constitute the Certificateholders from time to time as
partners or members of an association, nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof.
No Certificateholder, solely by virtue of its status as
Certificateholder, shall have any right by virtue or by availing of any
provision of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of default
and of the continuance thereof, as hereinbefore provided, and unless also the
Holders of Certificates evidencing not less than 25% of the Voting Interest
represented by all Certificates shall have made written request upon the Trustee
to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the cost, expenses and liabilities to be incurred therein or
thereby, and the Trustee, for 60 days after its receipt of such notice, request
and offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and for the benefit
of all Certificateholders. For the protection and enforcement of the provisions
of this Section, each and every Certificateholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
Section 10.04. GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.05. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified or registered mail, return
receipt requested (i) in the case of the Seller, to Norwest Mortgage Securities,
Inc., 5325 Spectrum Drive, Frederick, Maryland 21701, Attention: Chief
Executive Officer, or such other address as may hereafter be furnished to the
Master Servicer and the Trustee in writing by the Seller, (ii) in the case of
the Master Servicer, to Norwest Bank Minnesota National Association,
_________________, __________, _______ ______, Attention: Vice President or
such other address as may hereafter be furnished to the Seller and the Trustee
in writing by the Master Servicer and (iii) in the case of the Trustee, to the
Corporate Trust Office, or such other address as may hereafter be furnished to
the Seller and the Master Servicer in writing by the Trustee, in each case
Attention: Corporate Trust Department. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register.
Any notice mailed or transmitted within the time
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prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the addressee receives such notice, PROVIDED, HOWEVER,
that any demand, notice or communication to or upon the Seller, the Master
Servicer or the Trustee shall not be effective until received.
For all purposes of this Agreement, in the absence of actual knowledge
by an officer of the Master Servicer, the Master Servicer shall not be deemed to
have knowledge of any act or failure to act of any Servicer unless notified
thereof in writing by the Trustee, such Servicer or a Certificateholder.
Section 10.06. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
Section 10.07. SPECIAL NOTICES TO RATING AGENCIES. (a) The Trustee
shall give prompt notice to each Rating Agency of the occurrence of any of the
following events of which it has notice:
(i) any amendment to this Agreement pursuant to Section 10.01;
(ii) any sale or transfer of the Class B Certificates pursuant to
Section 5.02 to an affiliate of the Seller;
(iii) any assignment by the Master Servicer of its rights and
delegation of its duties pursuant to Section 6.06;
(iv) any resignation of the Master Servicer pursuant to Section 6.04;
(v) the occurrence of any of the Events of Default described in
Section 7.01;
(vi) any notice of termination given to the Master Servicer pursuant
to Section 7.01;
(vii) the appointment of any successor to the Master Servicer
pursuant to Section 7.05; or
(viii) the making of a final payment pursuant to Section 9.01.
(b) The Master Servicer shall give prompt notice to each Rating
Agency of the occurrence of any of the following events:
(i) the appointment of a Custodian pursuant to Section 2.02;
(ii) the resignation or removal of the Trustee pursuant to Section
8.08;
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(iii) the appointment of a successor trustee pursuant to Section
8.09; or
(iv) the sale, transfer or other disposition in a single transaction
of 50% or more of the equity interests in the Master Servicer, other than
to any affiliate of Norwest Corporation;
(c) The Master Servicer shall deliver to each Rating Agency:
(i) reports prepared pursuant to Section 3.05; and
(ii) statements prepared pursuant to Section 4.04.
Section 10.08. COVENANT OF SELLER. The Seller shall not amend
Article Third of its Certificate of Incorporation without the prior written
consent of each Rating Agency rating the Certificates.
Section 10.09. RECHARACTERIZATION. The Parties intend the conveyance
by the Seller to the Trustee of all of its right, title and interest in and to
the Mortgage Loans pursuant to this Agreement to constitute a purchase and sale
and not a loan. Notwithstanding the foregoing, to the extent that such
conveyance is held not to constitute a sale under applicable law, it is intended
that this Agreement shall constitute a security agreement under applicable law
and that the Seller shall be deemed to have granted to the Trustee a first prior
security interest in all of the Seller's right, title and interest in and to the
Mortgage Loans.
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ARTICLE XI
TERMS FOR CERTIFICATES
Section 11.01. CLASS A FIXED PASS-THROUGH RATE. The Class A Fixed
Pass-Through Rate is ___% per annum.
Section 11.02. CUT-OFF DATE. The Cut-Off Date for the Certificates is
________ __, 199_.
Section 11.03. CUT-OFF DATE AGGREGATE PRINCIPAL BALANCE. The Cut-Off
Date Aggregate Principal Balance is $_____________.
Section 11.04. ORIGINAL CLASS A PERCENTAGE. The Original Class A
Percentage is ___%.
Section 11.05. ORIGINAL CLASS A SUBCLASS PRINCIPAL BALANCES. As to
the following Subclasses of Class A Certificates, the Class A Subclass Principal
Balance of such Subclass as of the Cut-Off Date, as follows:
Original Class A
CLASS A SUBCLASS SUBCLASS PRINCIPAL BALANCE
Class A-1 $ ____________
Class A-2 $ ____________
Class A-3 $ ____________
Class A-4 $ ____________
Class A-5 $ ____________
Class A-R $ ____________
Section 11.06. ORIGINAL CLASS A PRINCIPAL BALANCE. The Original Class
A Principal Balance is $_____________.
Section 11.07. ORIGINAL CLASS AP PRINCIPAL BALANCE. The Original
Class AP Principal Balance is $_____________.
Section 11.08. ORIGINAL CLASS M PERCENTAGE. The Original Class M
Percentage is ___%.
Section 11.09. ORIGINAL CLASS M PRINCIPAL BALANCE. The Original Class
M Principal Balance is $_____________.
Section 11.10. ORIGINAL CLASS M FRACTIONAL INTEREST. The Original
Class M Fractional Interest is ___%.
<PAGE>
Section 11.11. MASTER SERVICING FEE RATE. The rate used to calculate
the Master Servicing Fee for each Mortgage Loan is ___% per annum.
Section 11.12. ORIGINAL CLASS B-1 PERCENTAGE. The Original Class B-1
Percentage is ___%.
Section 11.13. ORIGINAL CLASS B-2 PERCENTAGE. The Original Class B-2
Percentage is ___%.
Section 11.14. ORIGINAL CLASS B-3 PERCENTAGE. The Original Class B-3
Percentage is ___%.
Section 11.15. ORIGINAL CLASS B-4 PERCENTAGE. The Original Class B-4
Percentage is ___%.
Section 11.16. ORIGINAL CLASS B-5 PERCENTAGE. The Original Class B-5
Percentage is ___%.
Section 11.17. ORIGINAL CLASS B PRINCIPAL BALANCE. The Original Class
B Principal Balance is $____________.
Section 11.18. ORIGINAL CLASS B SUBCLASS PRINCIPAL BALANCES. As to
any Class B Certificate, the Class B Subclass Principal Balance of such Subclass
as of the Cut-Off Date, is as follows:
Original Class B
CLASS B SUBCLASS SUBCLASS PRINCIPAL BALANCE
Class B-1 $ ___________
Class B-2 $ ___________
Class B-3 $ ___________
Class B-4 $ ___________
Class B-5 $ ___________
Section 11.19. ORIGINAL CLASS B-1 FRACTIONAL INTEREST. The Original
Class B-1 Fractional Interest is ___%.
Section 11.20. ORIGINAL CLASS B-2 FRACTIONAL INTEREST. The Original
Class B-2 Fractional Interest is ___%.
Section 11.21. ORIGINAL CLASS B-3 FRACTIONAL INTEREST. The Original
Class B-3 Fractional Interest is ___%.
Section 11.22. ORIGINAL CLASS B-4 FRACTIONAL INTEREST. The Original
Class B-4 Fractional Interest is ___%.
XI-2
<PAGE>
Section 11.23. ORIGINAL SUBORDINATED PERCENTAGE. The Original
Subordinated Percentage is ___%.
Section 11.24. CLOSING DATE. The Closing Date is __________ __, 199_.
Section 11.25. RIGHT TO PURCHASE. The right of the Seller to purchase
all of the Mortgage Loans pursuant to Section 9.01 hereof shall be conditioned
upon the Pool Scheduled Principal Balance of the Mortgage Loans being less than
$____________ (10% of the Cut-Off Date Aggregate Principal Balance) at the time
of any such purchase.
Section 11.26. WIRE TRANSFER ELIGIBILITY. With respect to the
Certificates (other than the Class AP, Class M, Class A-R, Class B-1, Class B-2,
Class B-3, Class B-4 and Class B-5 Certificates), the minimum Denomination
eligible for wire transfer on each Distribution Date is $5,000,000. The minimum
Denomination eligible for wire transfer on each Distribution Date for the Class
AP, Class M, Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5
Certificates is 100% Percentage Interest. The Class A-R Certificate is not
eligible for wire transfer.
Section 11.27. SINGLE CERTIFICATE. A Single Certificate for each
Subclass of Class A Certificates, the Class AP Certificates, the Class M
Certificates, and each Subclass of Class B Certificates represents a $100,000
Denomination. A Single Certificate for the Class A-R Certificate represents a
$1000 Denomination.
Section 11.28. SERVICING FEE RATE. The rate used to calculate the
Servicing Fee which ranges from ___% to ___% per annum and, as to each Mortgage
Loan, is set forth on Exhibit F-1 or F-2 hereto.
Section 11.29. TRUSTEE FEE RATE. The rate used to calculate the
Trustee Fee for each Mortgage Loan is ___% per annum.
XI-3
<PAGE>
[LETTERHEAD] Exhibit 5.1
May 15, 1996
Norwest Asset Securities Corporation
5325 Spectrum Drive
Frederick, Maryland 21701
Re: Mortgage Pass-Through Certificates
----------------------------------
Gentlemen:
We have acted as your counsel in connection with the Registration
Statement (File No. 333-02209) filed with the Securities and Exchange Commission
(the "Commission") on the date hereof, pursuant to the Securities Act of 1933,
as amended, and as amended by Pre-Effective Amendment No. 1 thereto to be filed
with the Commission on the date hereof (as amended, the "Registration
Statement"). The Registration Statement covers Mortgage Pass-Through
Certificates ("Certificates") to be sold by Norwest Asset Securities Corporation
("NASCOR") in one or more series (each, a "Series") of Certificates. Each
Series of Certificates will be issued under a separate pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") among NASCOR, a trustee to
be identified in the Prospectus Supplement for such Series of Certificates (a
"Trustee"), and Norwest Bank Minnesota, National Association, as master servicer
(the "Master Servicer"). A form of Pooling and Servicing Agreement is included
as a Exhibit to the Registration Statement. Capitalized terms used and not
otherwise defined herein have the respective meanings ascribed to such terms in
the Registration Statement.
We have examined originals or copies certified or otherwise identified
to our satisfaction of such documents and records of NASCOR, and such public
documents and records as we have deemed necessary as a basis for the opinions
hereinafter expressed.
Based on the foregoing, we are of the opinion that:
<PAGE>
Norwest Asset Securities Corporation -2- May 14, 1996
1. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and
delivered by NASCOR, a Trustee and the Master Servicer, such
Pooling and Servicing Agreement will constitute a valid and
legally binding agreement of NASCOR, enforceable against NASCOR
in accordance with its terms, subject to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting
the enforcement of rights of creditors generally and to general
principles of equity and the discretion of the court (regardless
of whether enforceability is considered in a proceeding in equity
or at law); and
2. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and
delivered by NASCOR, a Trustee and the Master Servicer, and the
Certificates of such Series have been duly executed,
authenticated, delivered and sold as contemplated in the
Registration Statement, such Certificates will be legally and
validly issued, fully paid and nonassessable, and the holders of
such Certificates will be entitled to the benefits of such
Pooling and Servicing Agreement.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
This consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Act.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
<PAGE>
[LETTERHEAD] Exhibit 8.1
May 15, 1996
Norwest Asset Securities Corporation
5325 Spectrum Drive
Frederick, Maryland 21701
Re: Mortgage Pass-Through Certificates
----------------------------------
Gentlemen:
We have acted as your counsel in connection with the Registration
Statement (File No. 333-02209) filed with the Securities and Exchange Commission
(the "Commission") on the date hereof, pursuant to the Securities Act of 1933,
as amended, and as amended by Pre-Effective Amendment No. 1 thereto to be filed
with the Commission on the date hereof (as amended, the "Registration
Statement"). Capitalized terms used and not otherwise defined herein have the
respective meanings ascribed to such terms in the Registration Statement.
In rendering the opinion set forth below, we have examined and relied
upon the following: (1) the Registration Statement, the Prospectus and the form
of Prospectus Supplement constituting a part thereof, each substantially in the
form being filed with the Commission; (2) the form of the Pooling and Servicing
Agreement, substantially in the form being filed with the Commission; and (3)
such other documents, materials, and authorities as we have deemed necessary in
order to enable us to render our opinion set forth below.
As counsel to Norwest Asset Securities Corporation ("NASCOR"), we have
advised NASCOR with respect to certain federal income tax aspects of the
proposed issuance of the Certificates. Such advice has formed the basis for the
description of material federal income tax consequences for holders of the
Certificates that appears under the heading "Certain Federal Income Tax
Consequences" in the Prospectus and under the headings "Summary Information --
Federal Income Tax Status" and "Federal Income Tax Considerations" in the form
of Prospectus Supplement. Such descriptions do not purport to discuss all
possible federal income tax ramifications of the proposed issuance of the
<PAGE>
Norwest Asset Securities Corporation -2- May 14, 1996
Certificates, but, with respect to those federal income tax consequences that
are discussed, in our opinion, the description is accurate in all material
respects.
This opinion is based on the facts and circumstances set forth in the
Prospectus and the Prospectus Supplement and in the other documents reviewed by
us. Our opinion as to the matters set forth herein could change with respect to
a particular Series of Certificates as a result of changes in facts and
circumstances, changes in the terms of the documents reviewed by us, or changes
in the law subsequent to the date hereof. As the Registration Statement
contemplates Series of Certificates with numerous different characteristics, the
particular characteristics of each Series of Certificates must be considered in
determining the applicability of this opinion to a particular Series of
Certificates. The opinion contained in each Prospectus Supplement and
Prospectus prepared pursuant to the Registration Statement is, accordingly,
deemed to be incorporated herein.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the references to our firm under the heading
"Certain Federal Income Tax Consequences" in the Prospectus. This consent is
not to be construed as an admission that we are a person whose consent is
required to be filed with the Registration Statement under the provisions of the
Act.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
<PAGE>
[FORM OF SERVICING AGREEMENT]
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Principal)
and
NORWEST MORTGAGE, INC.
(Servicer)
SERVICING AGREEMENT
Dated as of , 199
<PAGE>
This Servicing Agreement, made as of this ___st day of _______, 1996 (the
"Agreement"), between Norwest Mortgage, Inc., a California corporation (the
"Servicer") and Norwest Bank Minnesota, National Association, a national banking
association, (the "Principal"), recites and provides as follows:
RECITALS
WHEREAS, the Servicer is engaged in the business of servicing residential
mortgage loans, and the Principal, on behalf of the owners of the related
Mortgage Loans, desires to retain the Servicer, and the Servicer desires to be
retained, to service the Mortgage Loans identified on Schedule I hereto subject
to and in accordance with the terms of this Agreement; and
WHEREAS, the Master Servicer acting pursuant to a Supervision Agreement
will supervise, monitor and oversee the performance of the Servicer under this
Agreement; and
WHEREAS, the Principal may, at its sole discretion, assign an undivided
interest in its rights hereunder with respect to certain Mortgage Loans to the
respective Owner of such Mortgage Loans;
NOW THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Servicer and the Principal agree as follows:
ARTICLE 1
DEFINITIONS
ACH: Automated Clearing House.
ADJUSTED TANGIBLE NET WORTH: As of the date of determination thereof,
the sum of: (i) Servicer's Tangible Net Worth; plus (ii) one percent (1%) of
the amount of Servicer's servicing portfolio, as determined by the Master
Servicer in the Master Servicer's reasonable discretion.
ADVANCE: Any payment made with respect to a Mortgage Loan or the
related Mortgaged Property by the Servicer from its own funds made in the nature
of an advance pursuant to the provisions of this Agreement.
AFFILIATE: Any person or entity controlling, controlled by or under
common control with a specified entity. The term "control" means the power to
direct the management and policies of a person or entity, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise. "controlling" and "controlled" shall have meanings correlative to
the foregoing.
-2-
<PAGE>
AMOUNTS HELD FOR FUTURE DISTRIBUTION: As to any Remittance Date,
amounts on account of (i) all prepayments of principal received in the month of
such Remittance Date and all related payments of interest on such principal
prepayments (other than Prepayments in Full or Curtailments received by the
Servicer prior to the related Determination Date), Liquidation Proceeds received
in the month of such Remittance Date (other than Partial Liquidation Proceeds
received by the Servicer prior to the related Determination Date), and amounts
received from the Servicer or a Representing Party in the month of such
Remittance Date as the Purchase Price for any repurchased Mortgage Loan and (ii)
payments which represent early receipt of scheduled payments of principal and
interest due on a date or dates subsequent to the related Due Date.
APPRAISAL REPORT: A report setting forth the fair market value of a
Mortgaged Property as determined by an appraiser who, at the time the appraisal
was conducted, met the minimum qualifications of FNMA and FHLMC for appraisers
of conventional residential mortgage loans.
ARM LOAN: An "adjustable rate" Mortgage Loan, the Mortgage Interest
Rate of which is subject to periodic adjustment in accordance with the terms of
the related Mortgage Note.
ASSIGNMENT: The document which transfers all the rights of the
secured party pursuant to a Security Instrument to a transferee for valid
consideration.
ASSUMPTION: The process whereby, on sale or transfer of a legal or
beneficial interest in a Mortgaged Property, the new owner of such Mortgaged
Property becomes legally obligated under the terms of the related existing
Security Instrument, Mortgage Note and any addenda and riders to such Security
Instrument or Mortgage Note. Subsequent to the Assumption, the new owner of the
property shall be deemed to be the Borrower under the related Mortgage Loan
Documents.
BALLOON AMOUNT: The remaining principal balance to be paid at
maturity of a Balloon Loan by the related Borrower pursuant to the terms of the
related Mortgage Note.
BALLOON LOAN: A Mortgage Loan which amortizes its principal payments
over a period which is longer than the stated maturity of such Mortgage Loan
pursuant to the terms of the related Mortgage Note so as to require the payment
of the Balloon Amount at maturity in order to retire the Mortgage Loan.
BANKRUPTCY CODE: The Bankruptcy Code of 1978, as amended.
BIF: The Bank Insurance Fund.
BORROWER: The individual obligated to repay a Mortgage Loan. (The
Borrower may be the beneficiary or beneficiaries of an Illinois land trust when
the Mortgaged Property is located in Illinois.)
-3-
<PAGE>
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday, or (ii)
a legal holiday in the City of New York, State of Maryland, State of Minnesota
or State of Iowa or (iii) a day on which banking institutions in the City of New
York, or the State of Maryland, State of Minnesota or State of Iowa are
authorized or obligated by law or executive order to be closed.
BUYDOWN AGREEMENT: An agreement governing the application of Buydown
Funds with respect to a Mortgage Loan.
BUYDOWN FUNDS: Money advanced by a builder, seller or other
interested party to reduce a Borrower's Monthly Payment during the initial years
of a Mortgage Loan.
CERTIFICATE: A mortgage backed security issued by an Owner of the
related Mortgage Loans which is secured, in whole or in part, by such Mortgage
Loans.
CODE: The Internal Revenue Code of 1986, as it may be amended from
time to time, any successor statutes thereto, and applicable U.S. Department of
the Treasury temporary or final regulations promulgated thereunder.
CONDOMINIUM PROJECT: Real estate including the separate ownership in
fee, or on a satisfactory leasehold estate, of a particular residential unit
with an indivisible interest in the real estate designated for common ownership
strictly by unit owners.
CONDOMINIUM UNIT: A Single Family Property within a Condominium
Project.
CONVERTED MORTGAGE LOAN: An ARM Loan with respect to which the
Borrower has complied with the applicable requirements of the related Mortgage
Note to convert the related Mortgage Interest Rate to a fixed rate of interest,
and the Servicer has processed such conversion.
CO-OP SHARES: Shares issued by private non-profit housing
corporations.
CURRENT VALUE: The appraised value of the related Mortgaged Property
from an Appraisal Report conducted within six (6) months of the use of such
value under this Agreement.
CURTAILMENT: A partial prepayment by the Borrower of principal on a
Mortgage Loan that otherwise is current, which prepayment is not accompanied by
an amount representing the full amount of scheduled interest due on the related
Mortgage Loan.
CUSTODIAL BUYDOWN ACCOUNT: An account maintained by the Servicer
specifically to hold all Buydown Funds to be applied to individual Mortgage
Loans.
-4-
<PAGE>
CUSTODIAL PRINCIPAL AND INTEREST (P&I) ACCOUNT: An account
maintained by the Servicer, specifically for the collection of principal and
interest, Insurance Proceeds, Liquidation Proceeds and other amounts received
with respect to Mortgage Loans.
CUSTODIAL SUBSIDY ACCOUNT: An account maintained by the Servicer
specifically to hold all Subsidy Funds to be applied to individual Mortgage
Loans.
CUSTODIAL TAXES AND INSURANCE (T&I) ACCOUNT: An account maintained
by the Servicer, specifically for the payment of real estate tax assessments and
insurance premiums in respect of Mortgaged Property related to Mortgage Loans.
CUSTODIAN: [_____________________], which shall hold all or part of
the Owner Mortgage Loan File with respect to a Mortgage Loan on behalf of the
Master Servicer as agent for the Owner of such Mortgage Loan.
CUT-OFF DATE: With respect to any Mortgage Loan, the date set forth
on Schedule I, or on Schedule II as to a subsequent Owner, after which any
payments of principal or interest that become due, whether received before, on
or after such date are to be deposited to the Custodial P&I Account for the
benefit of the Owner of the related Mortgage Loan.
DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation.
DEFICIENT VALUATION: With respect to any Mortgage Loan the related
Mortgaged Property of which is involved in a bankruptcy proceeding, the
reduction by the bankruptcy court of the Unpaid Principal Balance of the
Mortgage Note.
DELINQUENCY/DELINQUENT: A Delinquency with respect to a Mortgage
Loan occurs, or a Mortgage Loan is Delinquent when all or part of a Borrower's
Monthly Payment or, where applicable, an Escrow Item is paid after the
applicable Due Date. For reporting purposes, a Delinquency that remains uncured
for 30 days or more, but less than 60 days, is considered a 30-day Delinquency.
A Delinquency that has been uncured for more than 60 days, but less than 90
days, is considered a 60-day Delinquency. A Delinquency that has been uncured
for 90 days or more is considered a 90-day Delinquency. The foregoing shall be
determined based on an assumption of a year comprised of twelve 30-day months.
DETERMINATION DATE: The 17th day of the month in which the related
Remittance Date occurs, or if such 17th day is not a Business Day, the Business
Day preceding such 17th day.
DIRECTLY OPERATE: With respect to any REO, the direct or indirect
furnishing or rendering of services to the tenants thereof, management or
operation of such REO, the holding of such REO primarily for sale to customers,
performance of any construction work thereon or any use of such REO in a trade
or business, in each case other than with the
-5-
<PAGE>
approval of the Master Servicer; provided, however, that the Servicer shall not
be considered to Directly Operate an REO solely because it establishes rental
terms, chooses tenants, enters into or renews leases, deals with taxes and
insurance, or makes decisions as to repairs or capital expenditures with respect
to such REO.
DUE DATE: With respect to a Mortgage Loan, the day of each month on
which a Monthly Payment and, where applicable, an Escrow Funds payment is due as
stated in the related Mortgage Note. The Due Date for all Mortgage Loans will
be the first day of each month.
DUE-ON-SALE CLAUSE: The clause in a Security Instrument requiring
the payment of the Unpaid Principal Balance of the related Mortgage Loan upon
the sale of, or the transfer of an interest in, the related Mortgaged Property.
DUFF & PHELPS: Duff & Phelps Credit Rating Co. or its successor-in-
interest.
ELIGIBLE ACCOUNT: One or more accounts (i) that are maintained with
a depository institution whose long-term debt obligations (or, in the case of a
depository institution which is part of a holding company structure, the long-
term debt obligations of which holding company structure) at the time of deposit
therein are rated in one of the two highest rating categories by each of
Moody's, S&P, Fitch and Duff & Phelps (if so rated by such entity), (ii) the
deposits in which are fully insured by the FDIC through either BIF or SAIF,
(iii) the deposits in which are insured by the FDIC through either BIF or SAIF
(to the limit established by the FDIC) and the uninsured deposits in which
accounts are otherwise secured such that, as evidenced by an Opinion of Counsel
delivered to the Master Servicer which is satisfactory to the Master Servicer,
the Owners of the related Mortgage Loans, and where there are beneficial owners
as to any such Owners, on behalf of any such beneficial owners, has a claim with
respect to the funds in such accounts or a perfected first priority security
interest against any collateral securing such funds that is superior to claims
of any other depositors or creditors of the depository institution with which
such accounts are maintained, (iv) maintained as a trust account or accounts
with the trust department of a federal or state chartered depository institution
or trust company acting in its fiduciary capacity or (v) such other account that
is acceptable to the Master Servicer.
ELIGIBLE CUSTODIAL P&I ACCOUNT: As defined in Section 6.1.2.
ELIGIBLE INVESTMENTS: Any one or more of the following obligations
or securities:
(i) direct obligations of, and obligations fully guaranteed
as to timely payment of principal and interest by, the United States of
America, FNMA, FHLMC or any agency or instrumentality of the United States
of America the obligations of which are backed by the full faith and credit
of the United States of America; PROVIDED, HOWEVER, that any obligation of,
or guarantee by, FNMA or FHLMC, other than an unsecured senior debt
obligation of FNMA or FHLMC or a mortgage participation or pass-through
certificate guaranteed by FNMA or FHLMC,
-6-
<PAGE>
shall be an Eligible Investment only if, at the time of investment, such
investment would not adversely affect the rating, if any, on any class of
Certificates which are secured by Mortgage Loans that are the source of
funds which are the subject of such investment (as confirmed in writing by
the Rating Agencies);
(ii) demand and time deposits in, certificates of deposits
of, or bankers' acceptances issued by, any depository institution or trust
company incorporated or organized under the laws of the United States of
America or any state thereof and subject to supervision and examination by
federal or state banking authorities, so long as at the time of investment
or the contractual commitment providing for such investment the commercial
paper or other short-term debt obligations of such depository institution
or trust company are rated "A-1+" by S&P, "Duff-1+" by Duff & Phelps (if
rated by Duff & Phelps), rated in the highest category by Fitch (if rated
by Fitch) and "P-1" by Moody's and the long-term debt obligations of such
depository institution or trust company are rated at least "Aa2" by
Moody's, "AA" by Duff & Phelps (if rated by Duff & Phelps), "AA" by Fitch
(if rated by Fitch) and "AA" by S&P;
(iii) repurchase agreements or obligations with respect to
any security described in clause (i) above where such security has a
remaining maturity of one year or less and where such repurchase obligation
has been entered into with a depository institution or trust company
(acting as principal) described in clause (ii) above and where such
repurchase obligation will mature prior to the next Remittance Date;
(iv) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United States
of America or any state thereof, which securities have a credit rating from
S&P, Duff & Phelps (if rated by Duff & Phelps), Fitch (if rated by Fitch)
and Moody's, at the time of investment or the contractual commitment
providing for such investment, at least equal to the second highest long-
term credit rating assigned by S&P, Duff & Phelps (if rated by Duff &
Phelps), Fitch (if rated by Fitch) and Moody's to the Certificates;
PROVIDED, HOWEVER, that securities issued by any particular corporation
will not be Eligible Investments to the extent the investment therein will
cause the then outstanding principal amount of securities issued by such
corporation and held as part of the Custodial Accounts to exceed 10% of (a)
the aggregate Unpaid Principal Balance of the Mortgage Loans serviced by
the Servicer or (b) the aggregate principal amount of all Eligible
Investments in the Custodial Accounts;
(v) commercial paper (including both noninterest-bearing
discount obligations and interest-bearing obligations payable on demand or
on a specified date not more than one year after the date of issuance
thereof) rated "A-1" by S&P, rated "Duff-1" by Duff & Phelps (if rated by
Duff & Phelps), rated in the highest category by Fitch (if rated by Fitch)
and rated "P-1" by Moody's;
-7-
<PAGE>
(vi) units of investment funds rated in the highest
category by S&P, Duff & Phelps (if rated by Duff & Phelps), Fitch (if rated
by Fitch) and Moody's;
(vii) a qualified guaranteed investment contract; and
(viii) any other demand, money market or time deposit or
obligation, or interest-bearing or other security or investment, acceptable
to the Master Servicer;
PROVIDED, HOWEVER, that no such instrument shall be an Eligible Investment if
such instrument evidences either (i) a right to receive only interest payments
with respect to the obligations underlying such instrument or (ii) both
principal and interest payments derived from obligations underlying such
instrument and the interest payments with respect to such instrument provide a
yield to maturity of greater than 120% of the yield to maturity at par of such
underlying obligations.
Eligible Investments that are subject to prepayment or call may not be
purchased at a price in excess of par.
ERRORS AND OMISSIONS POLICY: An insurance policy naming the initial
Owner of the related Mortgage Loans, its successors and assigns as loss payees
relative to losses caused by errors or omissions of the Servicer and its
personnel, including, but not limited to losses caused by the failure to pay
insurance premiums or taxes, to record or perfect liens, to effect valid
transfers of Mortgage Notes, or to properly service Mortgage Loans.
ESCROW FUNDS: All funds collected with respect to a Mortgage Loan by
the Servicer to cover related Escrow Items according to the provisions of this
Agreement.
ESCROW ITEM: An expense required to be paid by a Borrower under the
related Security Instrument including, without limitation, taxes, special
assessments, ground rents, water, sewer and other governmental impositions or
charges that are or may become liens on the related Mortgaged Property prior to
that of the related Security Instrument, as well as Hazard Insurance, Flood
Insurance and Primary Mortgage Insurance premiums.
FDIC: Federal Deposit Insurance Corporation and its successors.
FHA: The Federal Housing Administration and its successors.
FHLMC: Federal Home Loan Mortgage Corporation and its successors.
FIDELITY BOND: An insurance policy naming the initial Owner of the
related Mortgage Loans, its successors and assigns as loss payees relative to
losses caused by improper or unlawful acts of the Servicer's personnel.
FITCH: Fitch Investors Service, L.P. or its successor-in-interest.
-8-
<PAGE>
FLOOD INSURANCE: An insurance policy insuring against flood damage
to a Mortgaged Property, where required.
FNMA: Federal National Mortgage Association and its successors.
GNMA: Government National Mortgage Association and its successors.
GPM (OR GPARM) LOAN: A fixed rate Mortgage Loan or ARM Loan that
provides during a portion of its term that the interest portion of the Monthly
Payment on such Mortgage Loan shall be less than the full amount of interest due
on such Mortgage Loan based on the related Mortgage Interest Rate.
GROSS MARGIN: With respect to each ARM Loan, the fixed percentage
specified in the related Mortgage Note that is added to the applicable Index on
each Interest Adjustment Date to determine the new Mortgage Interest Rate for
such ARM Loan.
HAZARD INSURANCE: A fire and casualty extended coverage insurance
policy insuring against loss or damage from fire and other perils covered within
the scope of standard extended hazard coverage naming the Owner of the related
Mortgage Loan, its successors and assigns, as a mortgagee under a standard
mortgagee clause, together with all riders and endorsements thereto.
HUD: The United States Department of Housing and Urban Development
and its successors.
INDEX: With respect to each ARM Loan, the applicable index specified
in the related Mortgage Note that is added to the related Gross Margin on each
Interest Adjustment Date to determine the new Mortgage Interest Rate for such
ARM Loan.
INSURANCE POLICY: Any insurance policy for a Mortgage Loan required
hereunder, including, without limitation, Primary Mortgage Insurance, Hazard
Insurance, Flood Insurance, Pool Insurance and Title Insurance policies.
INSURANCE PROCEEDS: Proceeds from an Insurance Policy, other than
such proceeds which are applied by the Borrower or held to be applied by the
Borrower to the restoration of the related Mortgaged Property.
INTEREST ADJUSTMENT DATE: With respect to each ARM Loan, the date on
which the related Mortgage Interest Rate changes in accordance with the terms of
such Mortgage Note, the first of which is set forth in such Mortgage Note and on
the respective Mortgage Loan Schedule.
LIQUIDATION: Application of full payment to a Mortgage Loan which
results in the release of the lien of the related Security Instrument on any
related Mortgaged Property,
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whether through foreclosure and sale of the related REO, condemnation,
prepayment in full or otherwise, or the realization of all sums from the final
disposition of the related REO.
LIQUIDATION PROCEEDS: The amount received by the Servicer which
ultimately relate to the Liquidation of a Mortgage Loan.
LOAN ORIGINATOR: The entity that closes a Mortgage Loan in its own
name.
LOAN-TO-VALUE (LTV): The ratio that results when the Unpaid
Principal Balance of a Mortgage Loan is divided by the Value of the related
Mortgaged Property.
MASTER SERVICER: Norwest Bank Minnesota, National Association, or
any successors and assigns.
MASTER SERVICER CUSTODIAL ACCOUNT: A segregated custodial account
established by the Master Servicer into which the Servicer shall remit funds
from the related Custodial P&I Account.
MASTER SERVICER LOAN NUMBER: A unique number assigned by the Master
Servicer to each Mortgage Loan set forth in Schedule I.
MAXIMUM LIFETIME MORTGAGE INTEREST RATE: With respect to each ARM
(or GPARM) Loan, the interest rate set forth in the related Mortgage Note as the
maximum Mortgage Interest Rate thereunder.
MAXIMUM NEGATIVE AMORTIZATION AMOUNT: With respect to any Mortgage
Loan that provides for negative amortization, the maximum principal balance
which is permitted under the terms of the related Mortgage Note.
MINIMUM LIFETIME MORTGAGE INTEREST RATE: With respect to each ARM
Loan, the interest rate set forth in the related Mortgage Note as the minimum
Mortgage Interest Rate thereunder, if any.
MONTH END INTEREST: In the event of any Prepayment in Full of a
Mortgage Loan received by the Servicer on or after the Determination Date in the
month in which such prepayment occurred, the difference between the interest
payment that would have been paid on such Mortgage Loan or portion thereof that
was prepaid through the last day of the month in which such prepayment occurred
and the interest payment actually received by the Servicer on such Mortgage Loan
or portion thereof that was prepaid.
MONTH END INTEREST SHORTFALL: The portion of Month End Interest for
all Mortgage Loans for any month unable to be paid by the Servicer out of the
portion of its Monthly Servicing Compensation pursuant to clause (a) of Section
4.8.1 for such month due to the exhaustion of such portion of such Monthly
Servicing Compensation in paying such Month End Interest.
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MONTHLY ACCOUNTING REPORTS: The reports due from a Servicer on a
monthly basis (due no later than the eighteenth calendar day of the month, or
the preceding Business Day if the 18th day is not a Business Day) relative to
all Mortgage Loans serviced by the Servicer, which reports are required to be
submitted to the Master Servicer.
MONTHLY PAYMENT: With respect to any Mortgage Loan, the scheduled
monthly payment of principal and interest due in the applicable month under the
terms of the related Mortgage Note.
MONTHLY REMITTANCE: The Servicer's aggregate payment due each month
with respect to all Mortgage Loans owned by a common Owner to the appropriate
Master Servicer Custodial Account as specified in Section 18.3.1.
MONTHLY SERVICING COMPENSATION: The aggregate servicing compensation
due the Servicer in each month.
MOODY'S: Moody's Investors Service, Inc. or its successor-in-interest.
MORTGAGE INTEREST RATE: The interest rate payable by the Borrower on
a Mortgage Loan according to the terms of the Mortgage Note which, in the case
of ARM Loans, may be adjusted periodically as provided in such Mortgage Note.
MORTGAGE LOAN: A mortgage loan identified on Schedule I which is
owned by the respective Owner shown on Schedule II. "Mortgage Loan" includes
all of the respective Owner's right, title and interest in and to such Mortgage
Loan, including, without limitation, the related Mortgage Loan Documents and all
other material and information collected by the Servicer in connection with the
Mortgage Loan including Monthly Payments, Liquidation Proceeds, Insurance
Proceeds and all other rights, benefits and proceeds arising from or in
connection with such Mortgage Loan.
MORTGAGE LOAN DOCUMENTS: With respect to a Mortgage Loan, the
original related Mortgage Note with applicable addenda and riders, the original
related Security Instrument and the originals of any required addenda and
riders, the original related Assignment and any original intervening related
Assignments, the original related Title Insurance policy, related Primary
Mortgage Insurance policy, if any, and the related Appraisal Report made at the
time such Mortgage Loan was originated, and all other documents described in
Article 9 hereof.
MORTGAGE NOTE: A manually executed written instrument evidencing the
related Borrower's promise to repay a stated sum of money, plus interest, to the
related Loan Originator by a specific date according to a schedule of monthly
principal and interest payments.
MORTGAGE NOTE ASSUMPTION RIDER: A rider attached to a Mortgage Note
which states the terms upon which an Assumption may occur, including, but not
limited to, consent
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in writing by the insurer under any Primary Mortgage Insurance Policy with
respect to the related Mortgage Loan.
MORTGAGED PROPERTY: Land, improvements thereon and other property
subject to the lien of a Security Instrument, which may include Co-op Shares or
residential long-term leases, securing repayment of the debt evidenced by the
related Mortgage Note.
MORTGAGEE: The secured party to which a Security Instrument
initially grants a lien on the related Mortgaged Property.
NET MORTGAGE INTEREST RATE: With respect to a Mortgage Loan, the
difference between (a) the Mortgage Interest Rate on such Mortgage Loan and (b)
the Servicing Fee Percentage for such Mortgage Loan.
NON-RECOVERABLE ADVANCE: Any amount previously advanced by the
Servicer with respect to a Mortgage Loan, which the Servicer has determined,
pursuant to the terms of this Agreement, not to be recoverable from Insurance
Proceeds, Liquidation Proceeds or other payments with respect to such Mortgage
Loan.
NOTICE OF PERIODIC ADJUSTMENT: With respect to each ARM Loan, a
notice provided to the Borrower of any changes or adjustments to the related
Mortgage Interest Rate or the related Monthly Payment.
OFFICER: An officer of a corporation or a principal of a
partnership, who is authorized to execute documents on behalf of his corporation
or partnership, respectively.
OPINION OF COUNSEL: A written opinion of counsel, reasonably
acceptable in form and substance to the Master Servicer, and who may be in-house
or outside counsel to the Servicer but which must be Independent outside counsel
with respect to any such opinion of counsel concerning the taxation, or status
for tax purposes, of the Owner.
OWNER OR OWNER OF THE MORTGAGE LOANS: With respect to each Mortgage
Loan, the respective Person listed on Schedule II.
OWNER MORTGAGE LOAN FILE: With respect to each Mortgage Loan, a file
maintained by the Owner of the related Mortgage Loan or the Custodian for such
Mortgage Loan, which file contains the documents specified in Section 9.1
hereof, as well as any other documents that come into the Custodian's possession
with respect to such Mortgage Loan.
OWNER-OCCUPIED PROPERTY: A one- to four-unit property which is the
Primary Residence of the owner of record.
P&I ADVANCE: With respect to any Mortgage Loan, an advance by the
Servicer of any principal and interest payments not timely paid by the related
Borrower (other than with respect to a Balloon Loan, any amounts of principal
payments in respect of Balloon Amounts), excluding the amount of the related
Servicing Fee.
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PARTIAL LIQUIDATION PROCEEDS: As to any Remittance Date, Liquidation
Proceeds received by the Servicer on a Mortgage Loan during the related Partial
Liquidation Receipt Period other than those Liquidation Proceeds received during
such Partial Liquidation Receipt Period which result from the complete and final
Liquidation of such Mortgage Loan.
PARTIAL LIQUIDATION RECEIPT PERIOD: As to any Remittance Date, the
period from and including the Determination Date occurring in the month
preceding the month of such Remittance Date (or, in the case of the first
Remittance Date, from and including the Cut-off Date) to but not including the
Determination Date occurring in the month of such Remittance Date.
PAYMENT ADJUSTMENT DATE: With respect to each ARM Loan, the date on
which the Borrower's Monthly Payment changes in accordance with the terms of the
related Mortgage Note.
PERIODIC PAYMENT CAP: With respect to an ARM Loan, the limit on the
percentage increase that may be made on the related Monthly Payment on any
Payment Adjustment Date, as set forth in the related Mortgage Note.
PERIODIC RATE CAP: With respect to an ARM Loan, the limit, expressed
as incremental percentage points, on the increase or decrease that may be made
to the related Mortgage Interest Rate on any Interest Adjustment Date from such
Mortgage Interest Rate immediately prior to such Interest Adjustment Date, as
set forth in the related Mortgage Note.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust or unincorporated organization.
POOL INSURANCE: An insurance policy insuring against certain credit
risk losses on certain Mortgage Loans up to a certain amount.
POOL INSURER: With respect to any Mortgage Loan, the insurer under
the Pool Insurance policy relating to such Mortgage Loan.
POOL [X] MORTGAGE LOAN: Any Mortgage Loan listed on Schedule I hereto
under the heading "Pool [X]".
PRELIMINARY TITLE REPORT: A report issued by a title insurance
company in anticipation of issuing a Title Insurance policy which evidences
existing liens and gives a preliminary opinion as to the absence of any
encumbrance on title to a Mortgaged Property, except liens to be removed on or
before purchase or refinance, as the case may be, by the Borrower and Permitted
Encumbrances.
PREPAYMENT IN FULL: With respect to any Mortgage Loan, any payment by
the Borrower in the amount of the outstanding principal balance of such Mortgage
Loan which is
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received in advance of its Due Date and is not accompanied by an amount
representing scheduled interest for any period subsequent to the date of
prepayment.
PRIMARY MORTGAGE INSURANCE: Insurance obtained from a Primary
Mortgage Insurer which insures the holder of a Mortgage Note against loss in the
event the related Borrower defaults under such Mortgage Note or the related
Security Instrument, including all riders and endorsements thereto.
PRIMARY MORTGAGE INSURER: With respect to any Mortgage Loan, the
insurer under the Primary Mortgage Insurance policy relating to such Mortgage
Loan.
PRIMARY RESIDENCE: The principal and permanent residence of a
Borrower.
PRINCIPAL: Norwest Bank Minnesota National Association, or any
successors, or any assigns.
PROPERTY INSPECTION REPORT: A report, submitted by the Servicer to
the Master Servicer, describing the related Mortgaged Property.
PRUDENT SERVICING PRACTICES: Such practices observed generally by
servicers in discharging their servicing obligations in a prudent manner in
accordance with industry standards for mortgage loans similar to the Mortgage
Loans.
PUD (PLANNED UNIT DEVELOPMENT): A parcel of real estate that
contains property and improvements owned and maintained by a homeowners'
association, corporation or trust for the enjoyment and use of individual PUD
Unit owners within that parcel of land. The shared portions of the parcel are
known as common property.
PUD UNIT: A single family residential property within a PUD.
PURCHASE AGREEMENT: Any mortgage loan purchase agreement to which
the initial Owner of a related Mortgage Loan, as the purchaser thereunder, is a
party and by which the Mortgage Loan was acquired by such Owner.
PURCHASE PRICE: An amount equal to (a) the Unpaid Principal Balance
of the Mortgage Loan, plus (b) accrued interest thereon at the Mortgage Interest
Rate through the last day of the month in which the purchase occurs, and, if the
Servicer is the entity paying the Purchase Price, minus (c) any unreimbursed
advances of principal and interest made by the Servicer on such Mortgage Loan
and any outstanding Servicing Fee owed with respect to such Mortgage Loan.
Further, in connection with any such purchase of a Mortgage Loan as a result of
a breach of a representation or warranty under this Agreement, the Servicer
shall provide the Owner with an indemnity, in form and substance satisfactory to
the Master Servicer, against additional costs, expenses and taxes arising out of
the repurchase.
REAL ESTATE OWNED (REO): Any Mortgaged Property the title to which
is acquired on behalf of the Owner of the related Mortgage Loan through
foreclosure, deed-in-
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lieu of foreclosure, abandonment or reclamation from bankruptcy in connection
with a defaulted Mortgage Loan.
REALIZED LOSS: As to any defaulted Mortgage Loan, any loss realized
by the Owner of such Mortgage Loan as calculated pursuant to Section 7.7 hereof.
REFERENCE BANK: [Bankers Trust] or if such entity is no longer
lending money or no longer quoting a prime rate, such other entity as the Master
Servicer may specify by written notice to the Servicer.
REMIC: The segregated pool or pools of assets designated as a real
estate mortgage investment conduit pursuant to, and within the meaning of, the
REMIC Provisions, or as the context requires, a particular REMIC to which a
Mortgage Loan has been transferred.
REMIC PROVISIONS: The provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of the Code, and related provisions, and regulations and
rulings promulgated thereunder, as the foregoing may be in effect from time to
time and including any proposed legislation or regulations which, as proposed,
would have an effective date prior to enactment thereof.
REMITTANCE DATE: The 18th day of each month (or the preceding
Business Day if the 18th day is not a Business Day). Each month, the Servicer
must transfer all required funds from the Custodial P&I Account to the Master
Servicer Custodial Account on or before the Remittance Date.
RENTS FROM REAL PROPERTY: With respect to any REO, gross income of
the character described in Section 856(d) of the Code (generally, rent for the
use of real property, the amount of which is not dependent, in whole or in part,
upon the income or profit of any person, including certain payments for certain
services and personal property incidental to and customarily provided in
connection with the rental of such real property.)
REO DISPOSITION: The receipt by the Servicer of Liquidation Proceeds
and other payments and recoveries (including proceeds of a final sale) from the
sale or other disposition of the REO.
REPRESENTING PARTY: A Person that has sold or intends to sell
Mortgage Loans, directly or through one or more intermediaries, to the initial
Owner of the related Mortgage Loans pursuant to an agreement for the sale of
Mortgage Loans pursuant to which a Representing Party has made representations
and warranties with respect to certain Mortgage Loans, and under which the Owner
of such Mortgage Loans, its successors and assigns has recourse against such
Representing Party for any breach thereunder.
S&P: Standard & Poor's, or its successor-in-interest.
SAIF: The Savings Association Insurance Fund.
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SCHEDULED PRINCIPAL BALANCE: With respect to each Mortgage Loan (or
related REO), the principal balance of such Mortgage Loan as of the applicable
Due Date calculated by taking into account the application of any Monthly
Payments due on or before such Due Date (whether or not such Monthly Payments
were received from the Borrower), and Curtailments, Insurance Proceeds or
Liquidation Proceeds, and Realized Losses received or realized by the Servicer
prior to such Due Date.
SECURITY INSTRUMENT: A written instrument creating a valid first
lien on a Mortgaged Property. A Security Instrument may be in the form of a
mortgage, deed of trust, deed to secure debt or security deed, including any
riders and addenda thereto.
SERVICER: Norwest Mortgage, Inc., the entity that has entered into
this Agreement with the Principal, any successors, or any assigns.
SERVICER LOAN MORTGAGE NUMBER: A unique number assigned by the
Servicer to a Loan.
SERVICER MORTGAGE LOAN FILE: A file maintained by the Servicer for
each Mortgage Loan that contains the documents specified in Section 9.2 hereof,
as well as any other documents that come into the Servicer's possession with
respect to a Mortgage Loan.
SERVICER NUMBER: A three digit number assigned to the Servicer by
the Master Servicer. The Servicer Number shall be used on all correspondence
and forms and in all telephone conversations with the Master Servicer.
SERVICING FEE: For each Mortgage Loan, the compensation due the
Servicer in an amount equal to the product of (i) one-twelfth of the Servicing
Fee Percentage and (ii) the Scheduled Principal Balance of the Mortgage Loan as
of the immediately preceding Due Date (without taking into account any payment
of principal due on such Due Date).
SERVICING FEE PERCENTAGE: With respect to each Mortgage Loan, the
Servicing Fee Percentage shall be identified on Schedule I hereto.
SINGLE FAMILY PROPERTY: A one-unit residential property.
SUBPOOL [X] MORTGAGE LOAN: Any Mortgage Loan listed on Schedule I
hereto under the heading "Subpool [X]".
SUBSIDY FUNDS: Funds contributed by the employer of a Borrower in
order to reduce the payments required from the Borrower for a specified period
in specified amounts.
SUBSIDY LOAN: Any Mortgage Loan subject to a temporary interest
subsidy agreement pursuant to which the monthly interest payments made by the
related Borrower will be less than the scheduled monthly interest payments on
such Mortgage Loan, with the resulting difference in interest payments being
provided by the employer of the Borrower.
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SUPERVISION AGREEMENT: A supervision agreement between the Master
Servicer and the Principal.
TANGIBLE NET WORTH: As of the date of determination thereof, the par
value (or value stated on the Servicer's books) of the capital stock of all
classes of the Servicer, plus, or minus in the case of a deficiency, the amount
of paid in capital and retained earnings of the Servicer, all determined in
accordance with generally accepted accounting principles as are then in effect.
The Master Servicer may exclude assets that are unacceptable, in the Master
Servicer's reasonable discretion, from the determination of the Servicer's
Tangible Net Worth.
T&I ADVANCE: An advance by the Servicer of any taxes and insurance
premiums due with respect to any Mortgage Loan.
THRESHOLD AMOUNT: With respect to any Custodial P&I Account, (i)
$100,000 or, in the case of any Eligible Custodial P&I Account, the aggregate
amount on deposit therein (I.E., an unlimited amount); or (ii) after any notice
has been given pursuant to Section 19.2.6, the amount specified in such notice.
TITLE INSURANCE: An American Land Title Association (ALTA) mortgage
loan title policy form 1970, or other form of Title Insurance Policy acceptable
to FNMA or FHLMC, including all riders and endorsements thereto, insuring that
the Security Instrument constitutes a valid first lien on the related Mortgaged
Property subject only to permitted encumbrances.
TRANSFER OF OWNERSHIP: Includes, but is not limited to, the
conveyance of a Mortgaged Property, whether legal or equitable, voluntary or
involuntary, by any of the following methods:
(a) outright sale;
(b) deed;
(c) installment sale contract;
(d) land contract;
(e) contract for deed;
(f) leasehold interest with the term greater than three years;
(g) lease with option to purchase;
(h) land trust; or
(i) any other conveyance of an interest in real property, including
those involving secondary financing.
UNPAID PRINCIPAL BALANCE: With respect to any Mortgage Loan, the
outstanding principal balance payable by the Borrower under the terms of the
Mortgage Note.
UNPOOLED MORTGAGE LOAN: Any Mortgage Loan listed on the Schedule I
hereto under the heading "Unpooled Mortgage Loans."
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VA: The Department of Veterans Affairs and its successors.
VALUE: The lesser of the appraised value or sales price of the
related Mortgaged Property at the time the Mortgage Loan is closed. For a
refinanced Mortgage Loan, the Value of the related Mortgaged Property is its
appraised value at the time the refinanced Mortgage Loan is closed.
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ARTICLE 2
CONSTRUCTION
Section 2.1 LEGAL CONSTRUCTION
2.1.1 COMPLIANCE WITH APPLICABLE LAW. The obligations of the Servicer
pursuant to this Agreement shall at all times be performed in compliance
with all applicable laws.
2.1.2 POTENTIAL CONFLICT. If any obligation of the Servicer pursuant
to this Agreement shall give rise to a potential conflict with applicable
law, such obligation shall be construed so as to (a) comply with all
applicable laws and (b) effectuate with respect to such obligations, to the
fullest extent permitted by law, the intention of the parties hereto as
expressed in this Agreement.
2.1.3 CONSISTENT LEGAL COMPLIANCE. The fact that certain provisions of
this Agreement contain language which expressly requires compliance with
all applicable laws, shall not give rise to an implication that other
provisions, which do not expressly include such language, operate in
derogation of the requirement for such legal compliance.
2.1.4 GENERAL INTERPRETIVE RULES. For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise
requires, (i) the terms defined in this Agreement have the meanings
assigned to them in this Agreement and include the plural as well as the
singular, and the use of any gender herein shall be deemed to include the
other gender; (ii) reference herein to "Article", "Section", "Clause", and
other subdivisions, and to "Exhibits", without reference to a document, are
to designated Articles, Sections, Clauses and other subdivisions of, and to
Exhibits to, this Agreement; (iii) reference to a Clause without further
reference to a Section is a reference to such Clause as contained in the
same Section in which the reference appears, and this rule shall also apply
to other subdivisions; (iv) "including" means "including but not limited
to"; and (v) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision.
2.1.5 CONSTRUCTION OF PROVISIONS. Although certain provisions of this
Agreement contain express language which precludes the Servicer's recovery
of, or reimbursement for, expenses incurred hereunder, no inference to the
contrary shall be drawn from absence of such, or similar, language in any
other provision hereof regarding expenses.
Section 2.2 SERVICER PRACTICES
2.2.1 PRUDENT SERVICING PRACTICES. Where not inconsistent with the
provisions of this Agreement, the Servicer shall at all times perform its
obligations hereunder in accordance with Prudent Servicing Practices, which
shall not be less exacting than the Servicer employs and exercises in
servicing and administering mortgage loans for its
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own account, or for the account of FNMA or FHLMC, including exploring
alternatives to foreclosure to mitigate Realized Losses.
2.2.2 NON-DISCRIMINATION PRACTICES. The Servicer shall at all times
perform its obligations under this Agreement so as to (a) treat Borrowers
on the basis of their individual merits and (b) not discriminate against
Borrowers on the basis of their race, creed or national origin.
Section 2.3 GENERAL PROVISIONS
2.3.1 SERVICER'S AGREEMENT. The Servicer agrees with the Principal, on
behalf of the owners of the related Mortgage Loans, to service the Mortgage
Loans in accordance with the provisions of this Agreement and, to the
extent of any instructions of the Master Servicer that are given, such
instructions and, subject to the provisions hereof and without any further
instruction by the Master Servicer except as shall be expressly provided
for herein, shall have full power and authority to do all things necessary
in connection therewith.
2.3.2 TERM OF AGREEMENT. Except as otherwise provided herein, the
duties, responsibilities and obligations to be performed and carried out by
the Servicer under this Agreement shall commence upon the execution of this
Agreement and shall continue until (a) each Mortgage Loan is (i) liquidated
or (ii) otherwise paid in full, (b) all payments related thereto are
remitted in accordance with this Agreement, and (c) all obligations
hereunder related thereto are discharged.
2.3.3 AMENDED MORTGAGE LOAN SCHEDULE. From time to time as additional
Mortgage Loans are transferred to be serviced hereunder by the Servicer,
Schedule I shall be amended by the Principal to include the new Mortgage
Loans. Due to defects in documentation and for other reasons, certain
Mortgage Loans referred to in the Mortgage Loan Schedule may be deleted and
other Mortgage Loans may be added. The Servicer hereby agrees to any such
addition and/or deletion of any Mortgage Loans and, in the event any
Mortgage Loans are added and/or deleted from the Mortgage Loan Schedule,
the Servicer authorizes the Master Servicer to amend and attach hereto a
corrected Mortgage Loan Schedule, as Schedule I, reflecting only those
Mortgage Loans that are serviced hereunder. The Master Servicer will
provide the Servicer with the corrected and updated Mortgage Loan Schedule.
The Principal, with the consent of the related Owner of the Mortgage Loans
may group, and may alter such groupings of, certain Mortgage Loans under
headings of a specific pool, subpool or as unpooled Mortgage Loans and may
alter Schedules I and II to reflect such groupings.
2.3.4 ASSIGNMENT AND REPLACEMENT. The Servicer acknowledges and agrees
that in the event that the Master Servicer resigns as Master Servicer under
this Agreement, the Principal or any successor master servicer has the
right to assume the Master Servicer's rights and obligations and to enforce
the Servicer's obligations under this Agreement.
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2.3.5 NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received upon actual receipt of
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:
(a) if to the Principal:
Norwest Bank Minnesota, National Association
11000 Broken Land Parkway
Columbia, Maryland 21044 - 3562
Attention: Vice President
(b) if to the Master Servicer:
Norwest Bank Minnesota, National Association
11000 Broken Land Parkway
Columbia, Maryland 21044 - 3562
Attention: Director of Master Servicing
(c) if to the Servicer:
Norwest Mortgage, Inc.
405 Southwest 5th Street
Des Moines, Iowa 50309
Attention: Senior Vice President, Servicing
(d) if to the Custodian:
[CUSTODIAN]
[STREET ADDRESS]
[ADDRESS]
ATTENTION:
(e) if to the Owner of a related Mortgage Loan to such address as is shown
on Schedule II for such Owner.
Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
2.3.6 CHANGE OF ACCOUNTANTS. During the term of this Agreement, the
Servicer shall not change, or make any substitution of, its certified
public accountants except upon written notice to the Master Servicer given
30 days prior to such change or substitution.
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Section 2.4 SERVICING OF MORTGAGE LOANS FOR MULTIPLE OWNERS
2.4.1 TRANSFER OF MORTGAGE. An Owner may, from time to time, (i) sell
its interest in any Mortgage Loan or Mortgage Loans to another person who
would become the Owner thereof, and (ii) assign an interest in this
Agreement to such person with respect to such Mortgage Loan or Mortgage
Loans. Without the consent of the Master Servicer, no transfer of
ownership of an interest in the Mortgage Loans or this Agreement will be
permitted if it would result in there being more than four distinct owners
of the Mortgage Loans at any one time (without regard to any beneficial
owners of a trust where such trust owns Mortgage Loans serviced hereunder)
which Mortgage Loans comprise a pool of mortgage loans sold or transferred
by Norwest Mortgage, Inc. to a purchaser or a transferee on any one day,
excluding from such computation, Mortgage Loans owned by Norwest Mortgage,
Inc., an Affiliate thereof, or an entity formed by either of the foregoing.
The transfer of ownership and assignment of interest will be reflected as
provided for in Section 2.4.2 hereof. The Servicer agrees (a) to continue
to service each Mortgage Loan for the benefit of the related Owner of such
Mortgage Loan in accordance with the terms of this Agreement, and (b) to
obey the instructions of the Master Servicer regarding the performance of
this Agreement.
2.4.2 OWNERSHIP SCHEDULE. The Master Servicer shall amend Schedule II
to reflect the change of ownership of any Mortgage Loan which is serviced
hereunder, upon thirty (30) days prior written notice, which shall specify
the ownership transfer date (referred to as the Cut-Off Date in clause (c)
below), given by an Owner with respect to such Mortgage Loans which notice
shall include a signed writing, in the form set forth as Exhibit A hereto,
evidencing the transfer of such Mortgage Loans executed by both the
transferor Owner which transferred the Mortgage Loans and the transferee to
which such Mortgage Loans were transferred, which party shall become the
Owner at the time of such amendment to Schedule II. The signed writing
described in Exhibit A hereof shall be accompanied by incumbency
certificates of the transferor and the transferee which indicate the
appropriate signatory authority. The entry in Schedule II shall (a)
identify the Mortgage Loan by its respective Master Servicer Loan Number,
(b) specify the name and mailing address of the Owner of such Mortgage Loan
and (c) indicate the Cut-Off Date which applies to the change of ownership
of the Mortgage Loan to the listed Owner.
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ARTICLE 3
REMIC COMPLIANCE
Section 3.1 GENERAL
3.1.1 APPLICABILITY. The provisions of this Article 3 apply to all the
Mortgage Loans or Mortgaged Property unless the Mortgage Loan has not been
transferred (or been identified for a future transfer) to an entity with
respect to which an election to be characterized as a REMIC has been (or is
expected to be) made.
3.1.2 MODIFICATIONS OF MORTGAGE. With the prior written consent of the
Master Servicer, the Servicer may modify the terms of a Mortgage Loan which
is in default or a Mortgage Loan as to which default is reasonably
foreseeable; PROVIDED, however, that (i) such modification may not reduce
the amount of principal owed under the related Mortgage Note or permanently
reduce the Mortgage Interest Rate for such Mortgage Loan and (ii) the
Servicer and the Master Servicer have determined that such modification is
likely to increase the proceeds of such Mortgage Loan over the amount
expected to be collected pursuant to foreclosure. Notwithstanding anything
to the contrary in this Agreement, the Servicer shall not permit any
modification of any material term of a Mortgage Loan (including the
Mortgage Interest Rate, the principal balance, the amortization schedule,
or any other term affecting the amount or timing of payments on the
Mortgage Loan) where such modification is not the result of a default or as
to which default is reasonably foreseeable under the Mortgage Loan unless
the Master Servicer has consented thereto and the Servicer has received an
Opinion of Counsel or a ruling from the Internal Revenue Service (at the
expense of the Servicer or the party making the request of the Servicer to
modify the Mortgage Loan) to the effect that such modification would not be
treated as giving rise to a new debt instrument for federal income tax
purposes or a disposition of the modified Mortgage Loan and that such
modification is permitted under the REMIC Provisions.
3.1.3 INDEMNIFICATION WITH RESPECT TO CERTAIN TAXES AND LOSS OF REMIC
STATUS. In the event that the REMIC fails to qualify as a REMIC, loses its
status as a REMIC, or incurs state or local taxes, or tax as a result of a
prohibited transaction or contribution subject to taxation under the REMIC
Provisions due to the negligent performance by the Servicer of its duties
and obligations set forth herein, the Servicer shall indemnify the
respective trustee, the Master Servicer and the holders of the related
Certificates against any and all losses, claims, damages, liabilities or
expenses ("REMIC Failure Losses") resulting from such negligence; PROVIDED,
HOWEVER, that the Servicer shall not be liable for any such REMIC Failure
Losses attributable to the action or inaction of the Master Servicer or the
holders of such Certificates nor for any such REMIC Failure Losses
resulting from misinformation provided by the Master Servicer on which the
Servicer has relied. The foregoing shall not be deemed to limit or
restrict the rights and remedies of the other holders of the Certificates
now or hereafter existing at law or in equity.
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Section 3.2 REO QUALIFICATION
3.2.1 FORECLOSURE PROPERTY. Notwithstanding any other provision of
this Agreement, the Servicer, shall not rent, lease, or otherwise earn
income on behalf of the REMIC with respect to any REO which might cause
such REO to fail to qualify as "foreclosure" property within the meaning of
section 860G(a)(8) of the Code (E.G., rent based upon the earnings of the
lessee) or result in the receipt by the REMIC of any "income from non-
permitted assets" within the meaning of section 860F(a)(2) of the Code
(E.G., income attributable to any asset which is not a qualified mortgage,
a cash flow or reserve fund investment, or personal property not incidental
to the REO) or any "net income from foreclosure property" which is subject
to tax under the REMIC Provisions unless the Master Servicer has received
an Opinion of Counsel (at the Servicer's expense) to the effect that, under
the REMIC Provisions and (where appropriate, any relevant proposed
legislation) any income generated for the REMIC by the REO would not result
in the imposition of a tax upon the REMIC. In general, the purpose of this
Section 3.2 and the REMIC Provisions (which this section is intended to
implement) is to ensure that the income earned by the REMIC is passive type
income such as interest on mortgages and passive type rental income on real
property.
3.2.2 FORECLOSURE PROPERTY QUALIFICATION RESTRICTIONS. Without
limiting the generality of the foregoing, the Servicer shall not:
(i) permit the REMIC to enter into, renew or extend any lease
with respect to any REO, if the lease by its terms will give
rise to any income that does not constitute Rents from Real
Property;
(ii) permit any amount to be received or accrued under any lease
other than amounts that will constitute Rents from Real
Property;
(iii)authorize or permit any construction on any REO, other than
the completion of a building or other improvement thereon,
and then only if more than ten percent of the construction
of such building or other improvement was completed before
default on the related Mortgage Loan became imminent, all
within the meaning of Section 856(e)(4)(B) of the Code; or
(iv) Directly Operate or allow any other Person to Directly
Operate, any REO on any date more than 90 days after its
acquisition date;
unless, in any such case, the Servicer has requested and received an
Opinion of Counsel (at the Servicer's expense) to the effect that such
action will not cause such REO to fail to qualify as "foreclosure property"
within the meaning of Section
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860G(a)(8) of the Code at any time that it is held by the REMIC, in which
case the Servicer may take such actions as are specified in such Opinion of
Counsel.
3.2.3 REO DISPOSITION. Within 30 days following an REO Disposition,
the Servicer shall provide to the Master Servicer a statement of accounting
for the related REO, including without limitation, (i) the loan number of
the related Mortgage Loan, (ii) the date such Mortgaged Property was
acquired in foreclosure or by deed in lieu of foreclosure, (iii) the date
of REO Disposition, (iv) the gross sales price and related selling and
other expenses, (v) accrued interest calculated from the date of
acquisition to the disposition date and (vi) such other information as the
related trustee may reasonably request.
Section 3.3 PROHIBITED TRANSACTIONS AND ACTIVITIES
3.3.1 MORTGAGE LOAN DISPOSITION RESTRICTION. The Servicer shall not
permit the sale, disposition or substitution for any of the Mortgage Loans
(except in a disposition pursuant to (i) the foreclosure or default of a
Mortgage Loan, (ii) the bankruptcy or insolvency of the REMIC, (iii) the
termination of the REMIC in a "qualified liquidation" or "clean-up" call as
defined in Section 860F of the Code or (iv) a substitution of a Qualifying
Substitution Mortgage Loan as permitted under the REMIC Provisions), nor
acquire any assets for the REMIC, after the startup day of the REMIC, nor
sell or dispose of any investments in any of the accounts established by
the Servicer for the REMIC for gain, nor accept any contributions to the
REMIC (other than a cash contribution during the 3-month period beginning
on the startup day of the REMIC), unless it has received an Opinion of
Counsel (at the expense of the Person requesting the Servicer to take such
action) to the effect that such disposition, acquisition, substitution, or
acceptance will not (a) affect adversely the status of the REMIC as a REMIC
or of the Certificates, other than the Certificates representing the
residual interest in the REMIC, as the regular interests therein within the
meaning of the REMIC Provisions, (b) affect the distribution of interest or
principal on the Certificates, (c) result in the encumbrance of the assets
transferred or assigned to the REMIC (except pursuant to the provisions of
this Agreement) or (d) cause the REMIC to be subject to a tax on
"prohibited transactions" or "prohibited contributions" pursuant to the
REMIC Provisions.
3.3.2 PERSONAL PROPERTY. The Servicer shall not acquire any personal
property relating to any Mortgage Loan unless either:
(a) such personal property is incident to real property (within
the meaning of Section 856(e)(1) of the Code) so acquired by
the Servicer; or
(b) the Servicer shall have requested and received an Opinion of
Counsel, at the expense of the Servicer, to the effect that
the holding of such personal property by the REMIC will not
cause the imposition of a tax on the REMIC under the REMIC
Provisions or cause the REMIC to fail to qualify as a REMIC
at any time that any Certificate is outstanding.
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Section 3.4 ELIGIBLE INVESTMENTS
3.4.1 CUSTODIAL ACCOUNT. Funds in any custodial accounts established
by the Servicer and maintained in respect of the REMIC may be invested and,
if invested, shall be invested in Eligible Investments selected by the
Servicer which shall mature not later than the Business Day immediately
preceding the next Remittance Date, and any such Eligible Investment shall
not be sold or disposed of prior to its maturity. All such Eligible
Investments shall be made in the name of the REMIC or its nominee. All
income and gain realized from any such investment shall be, as long as the
Servicer is servicing the Mortgage Loans held by the REMIC, for the benefit
of the Servicer as additional compensation and shall be subject to its
withdrawal or order from time to time. The amount of any losses incurred
in respect of any such investments shall be deposited in the relevant
account by the Servicer out of its own funds immediately as realized. The
foregoing requirements for deposit in such account are exclusive, it being
understood and agreed that, without limiting the generality of the
foregoing, payments of interest on funds in such account and, as long as
the Servicer is servicing the Mortgage Loans held by the REMIC, payments in
the nature of prepayment fees, late payment charges, assumption fees or any
similar fees customarily associated with the servicing mortgage loans paid
by any mortgagor need not be deposited by the Servicer in such account and
may be retained by the Servicer as additional servicing compensation. If
the Servicer deposits in such account any amount not required to be
deposited therein, it may at any time withdraw such amount, any provision
herein to the contrary notwithstanding.
3.4.2 ESCROW ACCOUNT. Subject to the terms of the related Mortgage
Notes and Security Instrument, and further subject to applicable law, any
funds in any escrow account shall be invested in Eligible Investments that
mature prior to the date on which payments have to be made out of the
related escrow account and any such Eligible Investment shall not be sold
or disposed of prior to its maturity; provided that, if any loss is
incurred on any such investment, the Servicer shall cover such loss by
making a deposit into the appropriate escrow account out of its own funds
in the amount of such loss. Withdrawals from any escrow account may be
made (to the extent amounts have been escrowed for such purpose and to the
extent permitted by the related Security Interest and Mortgage Note) only
(i) to effect timely payment of Escrow Items in connection with the related
Mortgage Loan, (ii) to reimburse the Master Servicer or Servicer out of
related collections for advances with respect to Escrow Items, (iii) to
refund to any mortgagors any sums determined to be overages, (iv) to pay
interest, if any, owed to mortgagors on such account to the extent required
by law, (v) for application to restoration or repair of the Mortgaged
Property or (vi) to clear and terminate the escrow account on the
termination of this Agreement. The Servicer shall be entitled to all
investment income on any escrow account not required to be paid to
mortgagors pursuant to the preceding sentence.
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ARTICLE 4
SERVICER CONSIDERATIONS
Section 4.1 [RESERVED]
Section 4.2 SERVICER ELIGIBILITY STANDARDS
To service Mortgage Loans under this Agreement the Servicer must satisfy
the eligibility standards set forth in this Section 4.2 initially and at
all times thereafter.
4.2.1 REGULATORY APPROVALS AND LICENSING. A Servicer must be:
(a) FNMA or FHLMC approved and in good standing;
(b) a HUD approved mortgagee in good standing;
(c) in compliance with all applicable capital requirements and
other requirements from time to time specified by any
governmental agency or quasi-governmental authority having
jurisdiction over the Servicer; and
(d) properly licensed to service the Mortgage Loans in all
relevant jurisdictions where such licenses are required.
4.2.2 NET WORTH AND PORTFOLIO REQUIREMENTS.
(a) The Servicer must maintain a Tangible Net Worth of at least
$1,000,000.
(b) The Servicer must maintain an Adjusted Tangible Net Worth of
at least $1,000,000.
(c) The Servicer must maintain a servicing portfolio of at least
$1,000,000,000.
4.2.3 AUDITOR'S OPINION AND OTHER ANNUAL REPORTS. The Servicer must
provide the Master Servicer, as part of the application process (except as
to clause (c)) and annually thereafter within 120 days after the close of
the Servicer's fiscal year, with the following reports and opinions:
(a) financial statements for the most recently closed fiscal
year, together with an unqualified opinion thereon of an
independent certified public accountant who is a member of
the American Institute of Certified Public Accountants,
unless the Master Servicer, in its reasonable discretion,
decides to waive this requirement regarding qualification;
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(b) a statement from the independent certified public accountant
who prepared the above-referenced financial statements for
the Servicer, certifying that, on the basis of an
examination of certain documents and records relating to the
mortgage loans being serviced by the Servicer conducted
substantially in compliance with the Uniform Single Audit
Program for Mortgage Bankers, the servicing of such mortgage
loans was conducted in compliance with the provisions of
this Agreement and other similar agreements, except for (i)
such exceptions as such firm believes to be immaterial and
(ii) such other exceptions as are set forth in such
statement; and
(c) a certificate signed by any Officer of the Servicer involved
in, or responsible for, the administration and servicing of
the Mortgage Loans certifying that the Officer signing such
certificate has supervised a review of the activities of the
Servicer during the preceding fiscal year and of the
Servicer's performance during the most recently closed
fiscal year under this Agreement and that to the best of
such officer's knowledge, based on such review, the Servicer
has fulfilled its duties, responsibilities and obligations
under this Agreement throughout such year, or, if there has
been failure by the Servicer to fulfill any duty,
responsibility or obligation under this Agreement,
specifying the nature and status of each such failure.
4.2.4 SERVICING EXPERIENCE. The Servicer shall satisfactorily
demonstrate to the Master Servicer, in the Master Servicer's reasonable
discretion, the following experience:
(a) that it has at least three (3) years of conventional
mortgage loan servicing experience;
(b) that it has a staff knowledgeable in servicing of Mortgage
Loans and the administration of REO; and
(c) that it has experience maintaining a servicing portfolio in
excess of $1 billion.
4.2.5 MATERIAL CHANGES. The Servicer shall promptly report to the
Master Servicer any change in its business operations, financial condition,
properties or assets since the date of the latest submitted financial
statements which could have a material adverse effect on the Servicer's
ability to perform its obligations hereunder. Events for which the Master
Servicer must receive notice include, but are not limited to, the
following:
(a) any change in the Servicer's business address and/or
telephone number;
(b) any merger, consolidation, or significant reorganization;
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(c) any changes in the Servicer's ownership whether by direct or
indirect means. Indirect means include any change in
ownership of the Servicer's parent;
(d) any change in the Servicer's corporate name;
(e) if the Servicer is a savings and loan association, any
change in the Servicer's charter from federal to state or
vice versa;
(f) any decreases in capital, adverse alteration of debt/equity
ratios, or changes in management ordered or required by a
regulatory authority supervising or licensing the Servicer;
(g) any significant adverse change in the Servicer's financial
position;
(h) entry of any court judgment or regulatory order in which the
Servicer is or may be required to pay a claim or claims
which, in the Master Servicer's reasonable opinion, have a
material adverse effect on the Servicer's financial
condition; and
(i) the Servicer admits to committing, or is found to have
committed, a material, in the Master Servicer's reasonable
opinion, violation of any law, regulation, or order.
Section 4.3 ERRORS AND OMISSIONS INSURANCE
4.3.1 E & O REQUIREMENT. A Servicer must maintain, at all times and at
its own expense and consistent with FNMA or FHLMC requirements, an Errors
and Omissions Policy, in the amount and having the other terms described
below, with broad coverage from an incorporated surety company authorized
to do business in the Servicer's state of domicile.
4.3.2 E & O COVERAGE. The Servicer must maintain an Errors and
Omissions Policy in a minimum amount per occurrence equal to the greater of
(i) $1,000,000 or (ii) the Fidelity Bond coverage amount required of the
Servicer as set forth in Section 4.4 hereof. This coverage may not be
changed except as to an increase in the amount of coverage.
4.3.3 E & O SCOPE. The Errors and Omissions Policy must explicitly
insure the Servicer, its successors and assigns, against any losses
resulting from negligence, errors or omissions on the part of officers,
employees or other persons acting on behalf of the Servicer in the
performance of its duties as a Servicer pursuant to this Agreement,
including, but not limited to, the following:
(a) payment when due of all applicable insurance premiums,
including, but not limited to, any Primary Mortgage
Insurance, Hazard Insurance and
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any Flood Insurance in accordance with the insurance
requirements in Articles 15 and 16 of this Agreement;
(b) where applicable, compliance with Primary Mortgage Insurance
and/or Pool Insurance requirements for Mortgage Loans
serviced under this Agreement;
(c) payment of real estate taxes and special assessments; and
(d) determination of whether any Mortgaged Property is located
in an area where Flood Insurance is available and required
by the Flood Disaster Protection Act of 1973, as amended.
4.3.4 E & O POLICY MAINTENANCE. The Servicer must maintain in effect
the Errors and Omissions Policy at all times and the Errors and Omissions
Policy may not be canceled, permitted to lapse or otherwise terminated
without thirty Business Days' prior written notice by registered mail to
the Master Servicer. Further, the Errors and Omissions Policy must provide
that, or the insurer must state in writing to the Master Servicer that, the
Errors and Omissions Policy shall not be cancelable without the giving of
notice as provided for in the prior sentence.
4.3.5 E & O DEDUCTIBLE. The terms of the Errors and Omissions Policy
must provide for a deductible amount that does not exceed the greater of
$100,000 per occurrence or 5.0% of the coverage amount per occurrence.
4.3.6 E & O QUALIFICATIONS. The Errors and Omissions Policy must be
obtained by the Servicer from an insurer which satisfies FNMA or FHLMC
standards in this regard.
4.3.7 NOTICE OF CLAIM. The Servicer must immediately report to the
Master Servicer all claims made against the insurer under the Errors and
Omissions Policy, and shall promptly follow such report with a written
notice to the Master Servicer.
Section 4.4 FIDELITY BOND COVERAGE
4.4.1 FIDELITY BOND REQUIREMENT. A Servicer must maintain, at all
times, at its own expense and consistent with FNMA requirements, a Fidelity
Bond, in the amounts and having the other terms described below with broad
coverage from an incorporated surety company authorized to do business in
the Servicer's state of domicile. The Fidelity Bond may be in the form of
either individual bonds or a blanket bond.
4.4.2 FIDELITY BOND COVERAGE. The amount of Fidelity Bond coverage
shall be as follows:
(a) a minimum of $300,000 for the Servicer's servicing
portfolio, the current principal amount of which totals $100
million or less; plus
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(b) an additional 0.15% of the amount of the current principal
amount of the Servicer's servicing portfolio between $100
million and $500 million; plus
(c) an additional 0.125% of the amount of the current principal
amount of the Servicer's servicing portfolio between $500
million and $1 billion; plus
(d) an additional 0.1% of the amount of the current principal
amount of the Servicer's servicing portfolio in excess of $1
billion.
This coverage may not be changed except as to an increase in the amount of
coverage.
4.4.3 FIDELITY BOND SCOPE. The coverage of the Fidelity Bond must
explicitly insure the Servicer, its successors and assigns, against any
losses resulting from dishonest, fraudulent or criminal acts on the part of
Officers, employees or other persons acting on behalf of the Servicer.
4.4.4 FIDELITY BOND MAINTENANCE. The Servicer must maintain in effect
the Fidelity Bond at all times and the Fidelity Bond may not be canceled,
permitted to lapse or otherwise terminated without thirty Business Days'
prior written notice by registered mail to the Master Servicer. Further,
the Fidelity Bond must provide that, or the insurer must state in writing
to the Master Servicer that, the Fidelity Bond shall not be cancelable
without the giving of notice as provided for in the prior sentence.
4.4.5 FIDELITY BOND DEDUCTIBLE. The terms of the Fidelity Bond must
provide for a deductible amount that does not exceed the greater of
$100,000 per occurrence or 5.0% of the coverage amount per occurrence.
4.4.6 FIDELITY BOND RATING REQUIREMENT. The Fidelity Bond must be
obtained from a company which satisfies FNMA or FHLMC standards in this
regard.
4.4.7 NOTICE OF EVENT. The Servicer must promptly report to the Master
Servicer any and all occurrences against the Fidelity Bond of the Servicer.
Section 4.5 SERVICER'S LIABILITY
4.5.1 LIABILITY EXPOSURE. Any and all losses not covered under the
Fidelity Bond or Errors and Omissions Policy, as a result of (i) the
respective deductible provisions thereof, (ii) the limits of coverage of
the Fidelity Bond or Errors and Omissions Policy or (iii) any claim denied
which should have been covered by the Fidelity Bond or the Errors and
Omissions Policy, as the case may be, according to the terms of this
Agreement had the Fidelity Bond or Errors and Omissions Policy been
properly obtained and maintained and respective claim been properly
submitted for payment,
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shall be borne by the Servicer, where the Servicer has acted in a manner in
which the Servicer is not relieved from liability as described in Section
4.5.2 hereof.
4.5.2 SCOPE OF LIABILITY. Neither the Servicer or any subservicer
appointed by it, nor any of their respective partners, directors, officers,
employees or agents, or its delegees pursuant to Section 11.2.1 hereof,
shall be under any liability to the Principal, the Master Servicer or the
Owners of the related Mortgage Loan for any action taken or for refraining
from the taking of any action in good faith pursuant to this Agreement, or
for errors in judgment; PROVIDED, HOWEVER, that this provision shall not
protect the Servicer, any subservicer or any of their respective partners,
directors, officers, employees or agents, or its delegees pursuant to
Section 11.2.1 hereof, against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in
the performance of his or its duties or by reason of reckless disregard of
his or its obligations and duties hereunder. The Servicer, any subservicer
and any of their respective partners, directors, officers, employees or
agents, or its delegees pursuant to Section 11.2.1 hereof, may rely in good
faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder.
Section 4.6 [RESERVED]
Section 4.7 INDEMNIFICATION
4.7.1 SCOPE OF INDEMNITY. The Servicer hereby agrees to indemnify and
hold harmless (a) the Master Servicer, (b) the Principal, (c) each Owner of
any Mortgage Loan and (d) the officers, directors, employees, agents and
Affiliates of any of the foregoing (any of the foregoing hereinafter
referred to as the "Indemnified Party"), from and against any and all
claims, losses, damages, liabilities, fines, settlements, awards, offsets,
defenses, counterclaims, actions, penalties, forfeitures, legal fees,
judgments and any other costs, fees and expenses (including, without
limitation, reasonable attorneys' fees and court costs) (any of the
foregoing which satisfy the criteria of this paragraph are collectively
referred to as "Claims"), either directly or indirectly arising out of,
based upon, or relating to (i) a breach by the Servicer, its officers,
directors, employees, or agents, or its delegees pursuant to Section 11.2.1
hereof, of any representation or warranty contained herein, or any failure
to disclose any matter that makes such representation and warranty
misleading or inaccurate, or any inaccuracy in material information
furnished by the Servicer regarding itself, (ii) a breach of any
representation or warranty made by any Indemnified Party in reliance upon
any such representation or warranty, failure to disclose, or inaccuracy in
information furnished by the Servicer regarding itself, (iii) any failure
of the Servicer, its officers, directors, employees, or agents, or its
delegees pursuant to Section 11.2.1 hereof, to perform any of its
obligations under this Agreement in a manner in which the Servicer is not
relieved from liability as described in Section 4.5.2 hereof and (iv) any
acts or omissions of the Servicer, its officers, directors, employees, or
agents, or its delegees pursuant to Section 11.2.1 hereof, in a manner in
which the Servicer is not relieved from liability as described in Section
4.5.2 hereof. Each Indemnified Party
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shall cooperate with the Servicer in the defense of such Claims and shall
not settle any such Claim without the prior written consent of the
Servicer.
4.7.2 SURVIVAL OF INDEMNITY. This indemnification shall survive
purchase, transfer of any interest in a Mortgage Loan by any indemnified
party, the Liquidation of such Mortgage Loan, termination of any such
Servicer's servicing rights with respect to such Mortgage Loan and
termination or expiration of this Agreement between the Servicer and the
Principal and its successors and assigns.
Section 4.8 SERVICER'S COMPENSATION
4.8.1 SERVICING FEE AMOUNT. In consideration of the services rendered
under this Agreement, absent default by the Servicer, the Servicer shall on
each Remittance Date be entitled to a monthly aggregate servicing
compensation (the "Monthly Servicing Compensation") for the preceding month
which shall equal the sum of (a) the Servicing Fee payable with respect to
each Mortgage Loan serviced during such month and (b) any interest earnings
on each Custodial P&I Account with respect to such month other than
interest earnings thereon which are payable to the Borrower pursuant to the
Security Instrument or applicable law, subject to any adjustment for Month
End Interest as described in Section 7.6.1. Absent default by the
Servicer, the Servicer shall also be entitled to retain in addition to the
Monthly Servicing Compensation any late charges, prepayment fees, penalty
interest, assumption fees, modification fees or deficiency recovery fees
paid by the Borrower or any other customary income or any payments of
interest related to any Prepayment in Full received by the Servicer prior
to the Determination Date in the month in which such prepayment occurs,
which amounts are not required to be deposited into the Custodial P&I
Account. The Servicer shall be required to pay all expenses incurred by it
in connection with its servicing activities hereunder and shall not be
entitled to reimbursement therefor except as specifically provided for
herein
4.8.2 SERVICING FEE SOURCE. The Servicing Fee for each Mortgage Loan
shall be payable solely from the interest portion of the related Monthly
Payment paid by the Borrower or other payment of interest paid with respect
to the Mortgage Loan, whether from the proceeds of foreclosure or any
judgment, writ of attachment or levy against the Borrower or his assets, or
from funds paid in connection with any prepayment in full or from Insurance
Proceeds or Liquidation Proceeds.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Section 5.1 GENERAL
5.1.1 RELIANCE. The Master Servicer and the Principal rely upon the
representations and warranties contained in this Article 5 hereof, in the
acceptance of the Servicer. The representations and warranties contained
herein shall inure to the benefit of the Master Servicer and the Principal,
and to each Owner of the related Mortgage Loans with respect to such
Mortgage Loans.
5.1.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties made herein shall survive termination of this Agreement, and
shall inure to the benefit of the Master Servicer and the Principal, to
their respective successors, Affiliates and assigns and each indemnified
party under Section 4.7.1, and to each Owner of the related Mortgage Loans
with respect to such Mortgage Loans, and its successors and assigns, in
each case, regardless of any review or investigation made by or on behalf
of such parties with respect to any Mortgage Loan.
5.1.3 BREACH OF REPRESENTATION OR WARRANTY. Upon breach of any
requirement or representation or warranty included in this Agreement
relative to any Mortgage Loan, the Servicer must:
(a) Promptly notify the Master Servicer in writing of the nature
of the breach, the date on which the breach occurred or
began and the Servicer's plans, if any, for curing the
breach;
(b) Effect a cure of the breach within 30 days after its
occurrence or onset and a reasonable extension will be
granted if warranted and necessary to fully cure the breach
but in no event greater than 90 days; and
(c) If no complete cure has been effected within such period in
the Master Servicer's reasonable discretion, purchase any
Mortgage Loan in which the Owner's interest has been
impaired or which, in the reasonable opinion of the Master
Servicer, has suffered a material impairment of Value;
provided that purchase shall be within five days after
receipt by the Servicer of written notice from the Master
Servicer requesting the Servicer's purchase of the Mortgage
Loan at the Purchase Price.
5.1.4 ASSIGNMENT OF REPRESENTATIONS AND WARRANTIES. The Servicer
agrees that each Owner of the related Mortgage Loans with respect to such
Mortgage Loans may, at any time, assign the representations and warranties
given by the Servicer as set forth in this Article 5 which it then
possesses, in whole or in part, or an undivided interest therein, to one or
more Persons.
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Section 5.2 SERVICER REPRESENTATIONS AND WARRANTIES
The Servicer represents and warrants, as of the date of this Agreement and,
except as otherwise provided, throughout the term of this Agreement, that
the statements set forth below in this Section 5.2 are true and accurate.
RELATIVE TO THE SERVICER:
5.2.1 QUALIFICATION OF SERVICER. The Servicer is duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation and is duly qualified to do business and is in good standing
under the laws of each jurisdiction that requires such qualification
wherein it owns or leases any material properties, or in which it conducts
any material business or in which the performance of its duties under this
Agreement would require such qualification, except where the failure to so
qualify would not have a material adverse effect on (a) the Servicer's
performance of its obligations under this Agreement, (b) the value or
marketability of the Mortgage Loans, or (c) the ability to foreclose on the
related Mortgaged Properties.
5.2.2 REQUISITE. The Servicer has the corporate power and authority to
own its properties and conduct any and all business required or
contemplated by this Agreement and to perform the covenants and obligations
to be performed by it under this Agreement. The Servicer holds all
material licenses, certificates and permits from all governmental
authorities necessary for conducting its business as it is presently
conducted.
5.2.3 NO CONFLICTS. The execution and delivery of this Agreement are
within the corporate power of the Servicer and have been duly authorized by
all necessary actions on the part of the Servicer; neither the execution
and delivery of this Agreement by the Servicer, nor the consummation by the
Servicer of the transactions herein contemplated, nor compliance with the
provisions hereof by the Servicer, will (i) conflict with or result in a
breach of, or constitute a default under, any of the provisions of the
articles of incorporation or bylaws of the Servicer or any law,
governmental rule or regulation, or any judgment, decree or order binding
on the Servicer or any of its properties, or any of the provisions of any
indenture, mortgage, deed of trust, contract or other instrument to which
it is a party or by which it is bound or (ii) result in the creation or
imposition of any lien, charge or encumbrance upon any of its properties
pursuant to the terms of any such indenture, mortgage, deed of trust,
contract or other instrument.
5.2.4 ENFORCEABLE AGREEMENT. This Agreement, when duly executed and
delivered by the Servicer, will constitute a legal, valid and binding
agreement of the Servicer, enforceable in accordance with its terms,
subject, as to enforcement or remedies, to applicable bankruptcy,
reorganization, insolvency or other similar laws affecting creditors'
rights generally from time to time in effect, and to general principles of
equity.
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5.2.5 NO CONSENTS. No consent, approval, order or authorization of
any governmental authority or registration, qualification or declaration
with any such authority is required in order for the Servicer to perform
its obligations under this Agreement.
5.2.6 AGENCY APPROVAL. The Servicer has been approved by FNMA or FHLMC
and will remain approved as an "eligible seller/servicer" of conventional,
residential mortgage loans as provided in FNMA or FHLMC guidelines and in
good standing. The Servicer has not received any notification from FNMA or
FHLMC that the Servicer is not in compliance with the requirements of the
approved seller/servicer status or that such agencies have threatened the
servicer with revocation of its approved seller/servicer status.
5.2.7 FINANCIAL CONDITION. The Servicer is not, and, with passage of
time, does not expect to become, insolvent or bankrupt. The Servicer shall
promptly notify the Master Servicer of any material adverse change of its
financial condition.
5.2.8 SERVICING. The servicing practices used by the Servicer under
this Agreement have been and are in all respects in compliance with all
federal, state and local laws, rules, regulations and requirements in
connection therewith and are in accordance with Prudent Servicing
Practices.
5.2.9 NO IMPAIRMENT. There is no action, suit, proceeding or
investigation pending or, to the best of the Servicer's knowledge after due
inquiry, threatened, against the Servicer which, either in any one instance
or in the aggregate, may result in any material adverse change in business
operations, financial condition, properties or assets of the Servicer, or
in any material impairment of the right or ability of the Servicer to carry
on its business substantially as now conducted, or in any material
liability on the part of the Servicer, or which if adversely determined
would affect the validity of this Agreement or of any action taken or to be
taken in connection with the obligations of the Servicer contemplated
herein, or which would be likely to impair materially the ability of the
Servicer to perform under the terms of this Agreement.
5.2.10 NO INQUIRIES. The Servicer has not been the subject of an
audit by any of the Master Servicer, FHA, HUD, FDIC, FNMA, FHLMC, GNMA or
any Primary Mortgage Insurer, which audit included material allegations of
failure to comply with applicable loan origination, servicing or claims
procedures, or resulted in a request for repurchase of Mortgage Loans or
indemnification in connection with the Mortgage Loans.
RELATIVE TO THE MORTGAGE LOANS:
5.2.11 CUSTODIAL AND ESCROW ACCOUNTS CURRENT. All Custodial P&I
Accounts, Custodial T&I Accounts, Custodial Buydown Accounts and Escrow
Funds are maintained by the Servicer and have been maintained in accordance
with applicable law and the terms of the Mortgage Loans. The Escrow Items
required by the Mortgages
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which have been paid to the Servicer for the account of the Borrower are on
deposit in the appropriate Custodial Account. All funds received by the
Servicer in connection with the Mortgage Loans, including, without
limitation, foreclosure proceeds, Insurance Proceeds, condemnation proceeds
and principal reductions, have promptly been deposited in the appropriate
Custodial Account, and all such funds have been applied to reduce the
principal balance of the Mortgage Loans in question, or for reimbursement
of repairs to the Mortgaged Property or as otherwise required by applicable
law.
5.2.12 INSURANCE MAINTENANCE. Pursuant to the terms of the related
Security Instrument, all buildings or other improvements upon the related
Mortgaged Property are insured by an insurance policy or policies meeting
the requirements of Articles 15 and 16 hereof. The related Security
Instrument obligates the Borrower thereunder to maintain the hazard
insurance policy at the Borrower's cost and expense and, upon the
Borrower's failure to do so, authorizes the Mortgagee under the related
Security Instrument to obtain and maintain such insurance at the Borrower's
cost and expense and to seek reimbursement therefor from the Borrower. The
hazard insurance policy is the valid and binding obligation of the insurer,
is in full force and effect, and will be in full force and effect and inure
to the benefit of the Owner of the related Mortgage Loan. The Servicer and
the Borrower have not engaged in any act or omission that would impair the
coverage of any such policy, the benefits of the endorsement provided for
herein, or the validity and binding effect of either. The Mortgage Loan
Documents permit the maintenance of an escrow account to pay the premiums
for the above mentioned insurance, and the requirement for such escrows has
not been waived, unless otherwise required by applicable state law.
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ARTICLE 6
CUSTODIAL ACCOUNTING
Section 6.1 IN GENERAL
6.1.1 CUSTODIAL ACCOUNT ESTABLISHMENT. The Servicer must establish
appropriate custodial accounts for the benefit of the Owner of the related
Mortgage Loans, its successors and assigns for the deposit of funds
collected in connection with such Mortgage Loans. All custodial accounts
and related records must be maintained in accordance with sound and
controlled accounting practices.
6.1.2 CUSTODIAL ACCOUNT SEPARATENESS. At least one custodial account
for principal and interest (I.E., a Custodial P&I Account), one custodial
account for taxes and insurance (I.E., a Custodial T&I Account), one
custodial account for Subsidy Funds, if applicable (I.E., a Custodial
Subsidy Account) and one custodial account for Buydown Funds, if applicable
(I.E., a Custodial Buydown Account), shall be established and maintained
for the Mortgage Loans. Without the written consent of the Master
Servicer, funds in these accounts may not be commingled with other funds
held by the Servicer. If the Mortgage Loans are owned by more than one
Owner, the Servicer shall establish an Eligible Account ("Eligible
Custodial P&I Account") to serve as the Custodial P&I Account.
6.1.3 CUSTODIAL ACCOUNT MAINTENANCE. The Servicer must ensure that
each Custodial P&I Account, Custodial T&I Account, Custodial Subsidy
Account and Custodial Buydown Account (if applicable) meets the following
guidelines:
(a) the accounts must be Eligible Accounts;
(b) the name of each Custodial P&I Account, Custodial T&I
Account and Custodial Buydown Account shall include a
reference to the name of the Owner of the related Mortgage
Loans or the designation of the respective pool or subpool
of such Mortgage Loans as prescribed by the Master Servicer;
(c) the Servicer must transfer all funds on hand relating to
such Mortgage Loans, Monthly Payments due on or after the
related Cut-Off Date and any principal prepayments received
after the related Cut-Off Date, into the appropriate
custodial accounts meeting the requirements of Sections
6.1.1 and 6.1.2 hereof;
(d) beginning with any payment due on or after the related Cut-
Off Date, all collections on the Mortgage Loans must be
credited to the appropriate custodial account no later than
the first Business Day following receipt;
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(e) (i) the Servicer shall not permit the balance of any
Custodial P&I Account to exceed the Threshold Amount or
include any amounts then required to be remitted to the
Master Servicer Custodial Account pursuant to Section
18.3.1, (ii) in the event the Servicer collects amounts in
excess of the Threshold Amount prior to the next scheduled
transfer of funds to the respective Master Servicer
Custodial Account, the Servicer must transfer the excess
funds directly to the related Master Servicer Custodial
Account by wire before the close of business on any day on
which the amount on deposit in such account exceeds the
Threshold Amount and (iii) in the event that the Servicer
fails to transfer the funds in excess of the Threshold
Amount to the related Master Servicer Custodial Account or
to remit to the Master Servicer Custodial Account the
Monthly Remittance on the Remittance Date pursuant to
Section 18.3.1, the Master Servicer is authorized to debit
such Custodial P&I Account and transfer such amounts to the
related Master Servicer Custodial Account;
(f) (i) the Servicer must file with the Master Servicer the
appropriate ACH Debit Form for each Custodial P&I Account;
(ii) the Master Servicer may monitor the principal balance
of each Custodial P&I Account and may issue an ACH debit for
amounts on deposit in any such account in excess of the
Threshold Amount or otherwise in violation of Section
6.1.3(e); (iii) such amounts will immediately be deposited
into the appropriate Master Servicer Custodial Account; and
(iv) the ability of the Master Servicer to withdraw and
remit such funds to the appropriate Master Servicer
Custodial Account does not relieve the Servicer of its
obligations to remit such funds to the related Master
Servicer Custodial Account;
(g) upon the establishment of a Custodial P&I Account, Custodial
T&I Account or Custodial Buydown Account, the Servicer shall
promptly advise the Master Servicer in writing of, or of any
change in, the name and address of the depository, the
individual employee of the depository who is responsible for
overseeing such account, the account number, the title of
the account and the individuals whose names appear on the
signature card; and
(h) (i) establishment and maintenance of the Custodial P&I
Account, Custodial T&I Account and Custodial Buydown Account
will be an expense of the Servicer; (ii) such custodial
accounts may be interest-bearing accounts provided that such
accounts comply with all local, state and federal laws and
regulations governing interest-bearing accounts and, in the
case of a Custodial T&I Account or Custodial Buydown
Account, governing Borrower escrow accounts; and (iii) the
Servicer must ensure that all interest credited to any
custodial account that is not
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due the Borrower is removed by the Servicer within 30 days
after receipt of such interest.
6.1.4 ESCROW INVESTMENT. If the Servicer elects or is required by law
to deposit the Borrower's Escrow Funds into an interest-bearing custodial
account, the Servicer shall either (a) deposit such funds into an account
which permits withdrawal on demand so as to pay Escrow Items as they come
due, or (b) invest such funds in an Eligible Account so that adequate funds
mature the Business Day prior to the date payment is due for each Escrow
Item.
6.1.5 CLEARING ACCOUNT. If the Servicer finds it necessary to use a
clearing account, the following guidelines must be followed:
(a) the titles of such accounts must reflect that they are
custodial in nature, and the depository in which the
accounts are maintained must be informed in writing that the
accounts are custodial accounts;
(b) a check drawn on or funds transferred from a Custodial P&I
Account or Custodial T&I Account must be deposited to a
disbursement clearing account before or at the same time as
any checks on the clearing account are issued;
(c) a single clearing account must not be utilized both as a
collection and disbursement clearing account;
(d) the accounts must be held at depository institutions in
which accounts are insured by the FDIC, through either the
BIF or SAIF;
(e) the Servicer must maintain adequate records and audit trails
to support all debits and credits of each Borrower's payment
records and accounts; and
(f) collections deposited to a depository clearing account must
be credited to the appropriate custodial account no later
than one Business Day following receipt by the Servicer.
6.1.6 CUSTODIAL BUYDOWN ACCOUNT. The Servicer must establish a
separate custodial account to hold Buydown Funds on Mortgage Loans being
serviced for the Owner of the related Mortgage Loans, its successors and
assigns. These accounts must be clearly marked to indicate that the
Servicer is a custodian for Buydown Funds being held for the Owner of the
related Mortgage Loans, its successors and assigns.
6.1.7 MASTER SERVICER CUSTODIAL ACCOUNT. The Master Servicer shall
establish a segregated Master Servicer Custodial Account which relates to
all the Mortgage Loans owned by each common Owner into which the Servicer
shall remit, on or before each Remittance Date, all amounts due pursuant to
Section 18.3 hereof. The name assigned
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to each Master Servicer Custodial Account shall include a reference to the
Owner of the related Mortgage Loans. The Master Servicer shall be the only
party authorized to direct the withdrawal of funds from each Master
Servicer Custodial Account. In the Master Servicer's reasonable discretion
and where the Owner of the related Mortgage Loans is a trust which has
issued mortgage backed securities backed by such Mortgage Loans, the Master
Servicer may elect to employ a certificate account created under the
related pooling and servicing agreement as the related Master Servicer
Custodial Account.
6.1.8 CUSTODIAL SUBSIDY ACCOUNT. The Servicer must establish a
separate custodial account to hold Subsidy Funds on Mortgage Loans being
serviced for the Owner of the related Mortgage Loans, its successors and
assigns. These accounts must be clearly marked to indicate that the
Servicer is a custodian for Subsidy Funds being held for the Owner of the
related Mortgage Loans, its successors and assigns.
Section 6.2 CUSTODIAL P&I ACCOUNT
6.2.1 MANDATORY DEPOSITS. The following funds must be deposited into
each related Custodial P&I Account within one Business Day after the
Servicer's receipt of such amounts, or in the case of clause (d) hereof, on
the Remittance Date or, in the case of clause (f) hereof, on the Business
Day after the Servicer's receipt of the Borrower's required monthly payment
under the related subsidy agreement:
(a) Principal collections from related Mortgage Loans (including
Prepayments in Full and Curtailments), together with Month
End Interest, if applicable, other than the Month End
Interest Shortfall;
(b) Interest collections from related Mortgage Loans (net of
Servicing Fees or other compensation of the Servicer as set
forth in Section 4.8.1);
(c) Liquidation Proceeds and Insurance Proceeds from related
Mortgage Loans other than proceeds held in an escrow account
and applied to the restoration and repair of the related
Mortgaged Property;
(d) related P&I Advances;
(e) the proceeds of any purchase, or substitution under a
purchase agreement, of a related Mortgage Loan by the
Servicer or a Representing Party, or sale of an REO; and
(f) an amount from the Custodial Subsidy Account that when added
to the Borrower's payment will equal the full monthly amount
due under the related Mortgage Note.
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6.2.2 OPTIONAL DEPOSITS. The following funds may, but are not required
to, be deposited into each related Custodial P&I Account:
(a) late charges;
(b) prepayment fees;
(c) penalty interest;
(d) assumption fees; and
(e) unapplied funds if the Borrower that remitted such funds is
not required to maintain Escrow Funds.
The Servicer shall maintain separate accounting for each of the foregoing
types of funds. Provided that the Servicer is not in default of its
obligations hereunder, the Servicer may retain any late charges, prepayment
fees, penalty interest and assumption fees as additional servicing
compensation.
6.2.3 PERMISSIBLE WITHDRAWALS. The Servicer may make withdrawals from
each related Custodial P&I Account solely for the following:
(a) remittances to the related Master Servicer Custodial
Account;
(b) reimbursement to itself for advances which have been
recovered by subsequent collections including late payments,
Liquidation Proceeds or Insurance Proceeds, to the extent
funds on deposit recovered by such subsequent collections
relate to the Mortgage Loans as to which such advances were
made;
(c) interest earnings on deposits to the related Custodial P&I
Account, but only to the extent that such interest has been
credited;
(d) removal of amounts deposited in error;
(e) removal of charges or other such amounts deposited on a
temporary basis in the account;
(f) removal of Servicing Fees to the extent deposited therein;
and
(g) termination of the account.
6.2.4 ACCOUNT BENEFICIARY. Each Custodial P&I Account (other than any
Eligible Custodial P&I Account) must be titled to show the respective
interests of the Servicer as trustee and of the Master Servicer as
beneficiary.
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6.2.5 USE OF ACCOUNTS. The Servicer shall not use the Custodial P&I
Account as a collection clearing account.
Section 6.3 CUSTODIAL T&I ACCOUNT
6.3.1 MANDATORY DEPOSITS. The following funds must be deposited into
each respective Custodial T&I Account:
(a) related Borrowers' Escrow Funds;
(b) related T&I Advances;
(c) the remaining balance of Title Insurance loss drafts;
(d) rent receipts to offset any related T&I Advances by the
Servicer;
(e) unapplied funds; and
(f) Liquidation Proceeds from a related Mortgage Loan that
offset a deficit balance in the related Borrower's Escrow
Funds.
6.3.2 PERMISSIBLE WITHDRAWALS. With respect to each related Borrower,
the Servicer may make withdrawals from each respective Custodial T&I
Account to the extent of the balance of such related Borrower's Escrow
Funds for the following:
(a) timely payment of such related Borrower's taxes and
insurance premiums;
(b) refunds to such related Borrower of excess Escrow Funds
collected from him;
(c) recovering T&I Advances made with respect to such related
Borrower by the Servicer;
(d) payment of interest, if required, to such related Borrower
on his Escrow Funds;
(e) removal of any deposits made in error; and
(f) termination of the account.
6.3.3 ACCOUNT REQUIREMENTS. Each Custodial T&I Account is to be
designated in the name of the Servicer acting as an agent for the
individual related Borrowers to make such Escrow Item payments in order to
show that the account is custodial in nature. The Servicer is required to
keep records identifying each Borrower's payment deposited into the
account.
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6.3.4 ACCOUNT BALANCE. The Servicer must never allow any Custodial T&I
Account to become overdrawn as to any individual related Borrower. If
there are insufficient funds in the account, the Servicer must advance its
own funds to cure the overdraft.
Section 6.4 ELIGIBLE ACCOUNT INVESTMENTS
6.4.1 ELIGIBLE INVESTMENTS PERMITTED. Unless prevented or restricted
by written notice of the Master Servicer pursuant to Section 6.4.5 hereof,
the Servicer may, from time to time, withdraw funds from an Eligible
Account, other than a Custodial T&I Account, and immediately invest such
funds in Eligible Investments in accordance with this Agreement. Upon the
maturity of such Eligible Investments, such funds shall be redeposited into
the Eligible Account which they were drawn from or into the Master Servicer
Custodial Account. Where the Owner of the related Mortgage Loans is a
trust which has issued mortgage backed securities securitized by such
Mortgage Loans and where a statistical rating agency selected by such Owner
to rate such mortgage backed securities shall require that Eligible
Investments can only be made if such funds remain within an Eligible
Account, then the Master Servicer shall notify the Servicer, pursuant to
Section 6.4.5 hereof, that the Servicer's ability to invest in Eligible
Investments shall be so restricted and that no withdrawal of funds from an
Eligible Account for the purpose of making an Eligible Investment shall be
allowed.
6.4.2 ELIGIBLE INVESTMENT RESTRICTIONS. No Eligible Investment shall
be sold or disposed of at a gain prior to maturity unless the Servicer has
obtained the consent of the Master Servicer.
6.4.3 ELIGIBLE INVESTMENT INCOME. All income (other than any gain from
a sale or disposition of the type referred to in Section 6.4.2 hereof)
realized from any such Eligible Investment shall be for the benefit of the
Servicer as additional servicing compensation.
6.4.4 ELIGIBLE INVESTMENT LOSSES. The amount of any losses incurred in
respect of any investments permitted under this Section 6.4 shall be
deposited in the Master Servicer Custodial Account by the Servicer out of
its own funds immediately as realized. The Master Servicer may, in its
reasonable discretion, from time to time, require the Servicer to provide a
reasonable amount of security to cover the risk of such investment losses.
To the extent that the Servicer shall not immediately deposit the amount of
such losses in the Master Servicer Custodial Account, the Master Servicer
may immediately act against such security as well as pursue all other
remedies permitted by law.
6.4.5 ELIGIBLE INVESTMENT LIMITATIONS. At any time, the Master
Servicer, in its reasonable discretion, may restrict or totally limit the
ability of the Servicer to invest in Eligible Investments pursuant to this
Section 6.4.
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6.4.6 ELIGIBLE INVESTMENTS REPORTS. The Servicer shall, at any time
provide such information and reports regarding its Eligible Investments
under this Agreement as the Master Servicer may request.
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ARTICLE 7
MORTGAGE LOAN ACCOUNTING
Section 7.1 IN GENERAL
7.1.1 MORTGAGE LOAN ACCOUNTING PRACTICES. The Servicer shall
administer the application and accounting of payments made on the Mortgage
Loans in accordance with the provisions of this Agreement.
7.1.2 RECORD KEEPING. The Servicer must maintain complete and accurate
records of all transactions affecting any Mortgage Loan. Each Mortgage
Loan must be clearly marked to indicate that it is being serviced for the
Owner of such Mortgage Loan, its successors and assigns.
7.1.3 RECORD REVIEW. The Master Servicer and its designee have the
right to:
(a) conduct reviews and audits of the Servicer's records and
operating procedures during any Business Day; and
(b) examine the Servicer's financial records, the Borrowers'
Escrow Funds records and any and all other relevant
documents and materials, whether held by the Servicer or by
another on behalf of the Servicer, to ensure compliance with
terms and conditions of this Agreement and the Master
Servicer's standards.
Section 7.2 MORTGAGE LOAN RECORDS
7.2.1 ACCOUNT RECORDS. Permanent Mortgage Loan account records must be
maintained by the Servicer for each Mortgage Loan. Each account record
must be identifiable by the Servicer Loan Number.
7.2.2 ACCOUNT RECORD INFORMATION. The Servicer shall maintain the
following information for each Mortgage Loan in a readily accessible form:
(a) the Master Servicer Loan Number;
(b) the current Unpaid Principal Balance;
(c) the date of receipt, amount of payment and distribution of
such payment for each Monthly Payment received with respect
to such Mortgage Loan as to each related Due Date;
(d) for ARM Loans, the current Mortgage Interest Rate, all
limitations contained in the Mortgage Note with respect to
periodic adjustments in
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the Mortgage Interest Rate, the scheduled Interest
Adjustment Dates, Payment Adjustment Dates, the Gross
Margin and the Index;
(e) other transactions affecting the amounts due from or payable
to the related Borrower;
(f) the current outstanding balances of principal and interest
deposits, advances, taxes and insurance deposits and
unapplied payments with respect to such Mortgage Loan;
(g) any overdraft of the Borrower's Escrow Funds;
(h) any servicing reports or loan histories; and
(i) any other information customarily maintained by a mortgage
loan servicer of one to four family residential mortgages.
7.2.3 ACCOUNTING PRACTICE. Except as otherwise provided herein, all
Mortgage Loan account records must be maintained according to (a) the
Uniform Single Audit Program for Mortgage Bankers and (b) where applicable,
sound and generally accepted accounting practices.
7.2.4 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING THE
MORTGAGE LOANS. At the request of the Master Servicer, the Servicer shall
provide to the Master Servicer, the Office of Thrift Supervision, the FDIC
and the supervisory agents and examiners of the Office of Thrift
Supervision and the examiners of the FDIC, as appropriate, access to the
documentation regarding the Mortgage Loans required by applicable
regulations of the Office of Thrift Supervision or the FDIC, such access
being afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Servicer designated by it. The
Servicer shall permit such representatives to photocopy any such
documentation and shall provide equipment for that purpose at a charge
reasonably approximating the cost of such photocopying to the Servicer.
Section 7.3 ACCOUNTING PROCEDURES
7.3.1 PRINCIPAL AND INTEREST COMPUTATION. All Mortgage Loans must
amortize with interest calculated and paid in arrears. Under this method,
the interest due from a Borrower on a Due Date is calculated based on (a)
the Unpaid Principal Balance of the related Mortgage Loan prior to
application of the principal portion of the related current Monthly
Payment, (b) thirty days interest at the related Mortgage Interest Rate and
(c) adjusted as herein provided for the effects of Curtailments, Partial
Liquidation Proceeds, Prepayments in Full and Liquidations. The calculated
interest portion is then subtracted from the related Monthly Payment to
obtain the principal portion. The principal portion is then applied to the
Unpaid Principal Balance of the related Mortgage Loan. The amount to be
applied to interest for a multiple installment must
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be calculated using the Unpaid Principal Balance of the related Mortgage
Loan remaining after the previous interest calculation and principal
application.
7.3.2 AMORTIZATION REQUIREMENT. The amortization of each Mortgage Loan
must reduce to zero, or as to Balloon Loans, the respective Balloon Amount,
at the end of the Mortgage Loan term through the application of regular
monthly payments. Capitalization of interest is not permitted, except as
provided by the terms of any Mortgage Loan that provides for negative
amortization.
7.3.3 NEGATIVE AMORTIZATION. To the extent any Mortgage Loan provides
for negative amortization, such as a GPM or GPARM Loan, the Servicer must
assure that the Unpaid Principal Balance of such Mortgage Loan never
exceeds the related Maximum Negative Amortization Amount, and that the
related Monthly Payment is recast as provided for in the Mortgage Note such
that the balance fully amortizes within the remaining term of such Mortgage
Loan.
7.3.4 INTEREST CALCULATIONS. Monthly interest calculations for periods
of a full month must be based on a 30-day month and a 360-day year.
Factors used for such calculations should be carried to ten decimal places.
The dollar amount of any interest payment shall be carried out to four
decimal places. Interest calculations for a period of less than a full
month must be based on a 365-day year.
7.3.5 BUYDOWN LOANS. The Servicer must amortize a Mortgage Loan for
which Buydown Funds are applied at the Mortgage Interest Rate, not at the
buy-down rate, in order to ensure that payments are collected to amortize
properly the Mortgage Loan.
Section 7.4 APPLICATION PROCEDURE
7.4.1 APPLICATION PRIORITY. A payment from a Borrower will normally
consist of interest, principal, deposits for insurance and taxes and late
charges, if applicable. Payments received from Borrowers must be applied
in the order provided for in the related Security Instrument. To the
extent not inconsistent with the related Security Instrument, such payments
shall be applied in the following order:
(a) required monthly interest;
(b) required monthly principal;
(c) deposits for taxes and insurance;
(d) prepayment charges; and
(e) any fees which may be retained by the Servicer, including
late charges, returned check fees, and assumption fees.
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7.4.2 REAPPLICATION OF PRIOR PAYMENTS. The Servicer may not reapply
prior prepayments or accumulated Curtailments for payment of subsequent
installments.
7.4.3 ADVANCE PAYMENTS. Payments made by the Borrower to satisfy
future installments must be accounted for as prepaid installments of
principal and interest. The Servicer should contact the Borrower if there
is a question about the Borrower's intention in making any unscheduled
payment.
Section 7.5 CURTAILMENTS
7.5.1 CURTAILMENT AMOUNT. The Servicer may accept Curtailments at any
time. If a Mortgage Loan is delinquent, funds received must first be
applied to bring the Mortgage Loan current. If there are excess funds
after the application of amounts received from the Borrower to pay the
related Monthly Payment, the excess funds represent a Curtailment and may
be applied as a partial principal prepayment.
7.5.2 CURTAILMENT APPLICATION. If a Curtailment is received on or
after the Due Date, the Servicer may either (i) retroactively apply the
Curtailment to the Scheduled Principal Balance of the related Mortgage Loan
as of the Due Date, or (ii) to the extent permitted by law and the Mortgage
Loan, apply such Curtailment at the end of the current period. The
interest portion of the next installment due is then calculated based on
the Unpaid Principal Balance of the related Mortgage Loan after application
of the Curtailment.
7.5.3 EFFECT OF CURTAILMENT. A Curtailment may not be used to reduce
the related Monthly Payment or the related Mortgage Interest Rate for any
Mortgage Loan, or to postpone the Due Date of any payment.
7.5.4 CURTAILMENT TRANSMISSION. Each Curtailment must be deposited into
the related Custodial P&I Account within one Business Day after receipt and
must be remitted no later than the regularly scheduled Monthly Remittance
to the related Master Servicer Custodial Account.
Section 7.6 LIQUIDATIONS
7.6.1 MONTH END INTEREST. If a Prepayment in Full of a Mortgage Loan
occurs, such prepayment is received by the Servicer on or after the
Determination Date in the month in which such prepayment occurs, and the
Servicer does not receive a full 30 days of interest (calculated on a 30-
day month, 360-day year basis) on the prepaid amount for the month in which
such Prepayment in Full occurs, the Servicer must pay, to the extent of the
portion of its Monthly Servicing Compensation pursuant to clause (a) of
Section 4.8.1 for all Mortgage Loans, the Month End Interest
on all such Mortgage Loans so prepaid in full on the Remittance Date in the
month following the month of such prepayment. To the extent that the
portion of Servicer's Monthly Servicing Compensation pursuant to clause (a)
of Section 4.8.1 for all Mortgage Loans is insufficient funds to pay all
such Month End Interest, the resulting Month End Interest
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Shortfall for any month shall not be recoverable from the Servicer or any
other source in the future. The payment of Month End Interest by the
Servicer, as provided for above, shall not be an "advance" and shall not be
reimbursable from the proceeds of any Mortgage Loan.
7.6.2 LIQUIDATION REPORTS. The Servicer will report information with
respect to Liquidations in the monthly reports delivered to the Master
Servicer by the eighteenth calendar day of each succeeding month.
7.6.3 DEPOSIT OF FUNDS. Within one day after the Liquidation of a
Mortgage Loan, the Servicer shall deposit the related Liquidation Proceeds
together with the related Month End Interest into the related Custodial P&I
Account.
7.6.4 DOCUMENT REQUEST. Within five Business Days after any
Liquidation, the Servicer must complete and send a Request for Release of
Documents to the Master Servicer.
Section 7.7 REALIZED LOSSES
7.7.1 LIQUIDATION REALIZED LOSS DETERMINATION. With respect to the
calculation of a Realized Loss suffered on the related Mortgage Loan on a
Liquidation of such Mortgage Loan, the amount of such Realized Loss is
equal to (a) the sum of:
(i) Unpaid Principal Balance;
(ii) unpaid interest accrued at the related Mortgage
Interest Rate;
(iii) attorneys' fees and other foreclosure and sale
expenses;
(iv) unpaid taxes;
(v) unpaid property maintenance expenses;
(vi) unpaid insurance premiums; and
(vii) hazard loss expenses;
less (b) the sum of:
(i) the balance of Escrow Funds, if any;
(ii) any refund of any Hazard Insurance premium;
(iii) rental income receipts;
(iv) Insurance Proceeds;
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(v) cash proceeds of any foreclosure sale;
(vi) proceeds from sale of a REO; and
(vii) any amounts received pursuant to bankruptcy or
insolvency proceedings.
7.7.2 BANKRUPTCY REALIZED LOSS DETERMINATION. With respect to the
calculation of a Realized Loss on a Mortgage Loan subject to a Deficient
Valuation, the amount of the Realized Loss is the difference between the
Unpaid Principal Balance of the related Mortgage Loan immediately prior to
the Deficient Valuation and the Unpaid Principal Balance as reduced by the
Deficient Valuation.
7.7.3 REPORTING REQUIREMENT. As to any defaulted Mortgage Loan, the
Servicer must account to, and report in writing to, the Master Servicer as
to any Realized Loss (or gain) upon the Liquidation or Deficient Valuation
in respect of such Mortgage Loan.
7.7.4 SERVICER'S LIABILITY. Except in the case of a purchase by the
Servicer of a Mortgage Loan from the Owner thereof due to a breach of a
representation or warranty by the Servicer or failure to perform the
servicing procedures as set forth in this Agreement, the Servicer is not
liable for any Realized Loss on any Mortgage Loan.
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ARTICLE 8
ARM LOANS
Section 8.1 ARM LOAN SERVICING
8.1.1 IN GENERAL. It is the Servicer's responsibility to enforce each
ARM Loan (and any other Mortgage Loan) according to its terms and in
conformity with all applicable law. The Servicer's records must, at all
times, reflect the then-current Mortgage Interest Rate and Monthly Payment
for such ARM Loan and the Servicer must timely notify the Borrower of any
changes to the Mortgage Interest Rate and/or the Borrower's Monthly
Payment.
8.1.2 SERVICER'S LIABILITY. If the Servicer fails to make either a
timely or accurate adjustment to the Mortgage Interest Rate or Monthly
Payment for an ARM Loan or to notify the Borrower of such adjustments, and
subsequently receives a short Monthly Payment, the Servicer must pay from
its own funds any shortage until the Servicer has made the necessary
corrections in conformance with applicable law so as to secure the correct
Monthly Payment from the Borrower. In the event that such error results in
the Borrower making a Monthly Payment in excess of the amount which he
should have made if such adjustment were properly calculated, then the
Servicer shall promptly (a) make the required adjustment to the Borrower's
Monthly Payment and Mortgage Interest Rate so that they reflect the amounts
as properly calculated as of the related Payment Adjustment Date, (b)
refund to the Borrower the amount of any such excess received by the
Servicer from the related Payment Adjustment Date and (c) deduct from the
respective Custodial P&I Account or the Master Servicer Custodial Account
the amount of such refund to reimburse the Servicer for making such refund.
If the Servicer's failure to make a scheduled change affects the Owner of
the ARM Loan's rights to make future adjustments under the terms of the ARM
Loan, the Servicer shall be required to purchase the ARM Loan. Any amounts
paid by the Servicer pursuant to this Section shall not be an advance and
shall not be reimbursable from the proceeds of any Mortgage Loan.
8.1.3 ADJUSTMENT REPORTS. All Mortgage Interest Rate and Monthly
Payment adjustments must be reported to the Master Servicer in a ARM Loan
change report.
8.1.4 SUBSTITUTE INDEX. If the Index required to be used to determine
the Mortgage Interest Rate for a Mortgage Loan is not available on an
Interest Adjustment Date, the Servicer, after consultation with the Master
Servicer, will select an alternative interest rate index that is readily
verifiable by Borrowers.
Section 8.2 NOTICE OF PERIODIC ADJUSTMENT
8.2.1 NOTICE REQUIREMENT. The Notice of Periodic Adjustment is the
legal and official announcement to the Borrower of an ARM Loan of a change
in the Mortgage Interest Rate or the Monthly Payment. The Servicer must
send this notice to the
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Borrower, as stated in the related Mortgage Note and in accordance with
applicable law, and at least 25 days before each Payment Adjustment Date.
8.2.2 NOTICE CONTENTS. Each Notice of Periodic Adjustment pertaining to
an ARM Loan shall include the following information:
(a) the new Mortgage Interest Rate;
(b) the date on which the new Mortgage Interest Rate becomes
effective, that is, the Interest Adjustment Date;
(c) the Index value on which the new Mortgage Interest Rate is
based, the Gross Margin, and how the new Mortgage Interest
Rate was calculated;
(d) the projected Unpaid Principal Balance on the upcoming
Payment Adjustment Date, assuming timely payment of the
remaining Monthly Payments due prior to the Payment
Adjustment Date;
(e) the new Monthly Payment;
(f) the Payment Adjustment Date, that is, the date on which the
new Monthly Payment becomes effective;
(g) the dates of the next Interest Adjustment Date and Payment
Adjustment Date;
(h) the fact that the Borrower may repay the ARM Loan in whole
or in part without penalty at any time;
(i) the title and telephone number of an employee of the
Servicer who can answer questions about the notice; and
(j) if the Borrower is eligible and has the right to convert the
ARM Loan to a fixed rate Mortgage Loan, such shall be
stated.
8.2.3 LEGAL COMPLIANCE. The Servicer also must ensure that the Notice
of Periodic Adjustment provides the Borrower with any other disclosure
information required by applicable federal or state laws or regulations.
Section 8.3 ARM LOAN CONVERSION
8.3.1 SERVICER'S DETERMINATION. In the event a Borrower with a
convertible ARM Loan exercises its option to convert such Mortgage Loan to
a fixed interest rate, the Servicer will determine whether the conditions
and qualifications for conversion have been met and determine the fixed
rate to be applied to such Mortgage Loan pursuant to the terms of the
related Mortgage Note.
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8.3.2 CONVERSION NOTIFICATION. Upon any such conversion, the Servicer
shall prepare an ARM Loan conversion notification and send such
notification to the Master Servicer within three Business Days after the
conversion.
8.3.3 PURCHASE BY SERVICER. If a Converted Mortgage Loan is owned by a
trust which has issued mortgage-backed securities, then the Servicer will
purchase such Converted Mortgage Loan from the applicable trust at the
Purchase Price by depositing the Purchase Price into the respective
Custodial P&I Account.
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ARTICLE 9
MORTGAGE LOAN FILES
Section 9.1 OWNER MORTGAGE LOAN FILES
9.1.1 OWNER MORTGAGE LOAN FILE REQUIREMENTS. For each Mortgage Loan,
the Servicer will ensure that an appropriate Custodian will maintain an
Owner Mortgage Loan File on behalf of the Owner of such Mortgage Loan that
contains each of the following documents:
(a) the original related Mortgage Note pertaining to such
Mortgage Loan endorsed by the respective prior owner of such
Mortgage Loan to the Owner of such Mortgage Loan, in the
manner described in Section 9.3.1 hereof (which may be
endorsed in blank); the Servicer will assure that the
related Mortgage Note shall include all prior and
intervening endorsements as are necessary to show a complete
chain of endorsements from the respective Loan Originator to
the respective prior owner of such Mortgage Loan;
(b) either the recorded original related Security Instrument
pertaining to such Mortgage Loan, together with any addenda
and riders, certified by the recording office, or, if the
related Security Instrument is in the process of being
recorded, a photocopy of the related Security Instrument,
certified by an Officer of the respective prior owner of
such Mortgage Loan or by the applicable title insurance
company, closing/settlement/escrow agent or company or
closing attorney to be a true and correct copy of the
related Security Instrument transmitted for recordation;
(c) either a recorded original Assignment of the related
Security Instrument from the respective prior owner of such
Mortgage Loan assigning the related Security Instrument to
the Owner of such Mortgage Loan, in the manner described in
Section 9.3.2 hereof (which may be assigned in blank),
certified by the recording office, or, if such Assignment is
in the process of being recorded, a photocopy of the related
Security Instrument transmitted for recordation certified by
an Officer of the respective prior owner of such Mortgage
Loan to be a true and correct copy of such Assignment
submitted for recordation; if recordation is waived by the
Servicer pursuant to the provisions of Section 11.6.4
hereof, the Custodian will hold such an Assignment in
recordable form (which may be assigned in blank);
(d) each recorded original intervening Assignment of the
Security Instrument as is necessary to show a complete chain
of title from the respective Loan Originator to the
respective prior owner of such Mortgage Loan or, if any such
original is unavailable because it is in the process of
being recorded, a photocopy of such intervening Assignment
certified by an
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Officer of the prior owner of such Mortgage Loan to be
a true and correct copy of such intervening Assignment
submitted for recordation;
(e) an original Title Insurance policy pertaining to such
Mortgage Loan or, with respect to loans secured by
properties in jurisdictions where title policies are not
available, the original attorney's opinion of title; in the
event that the policy has not been issued or is not
otherwise available, (i) a written binding ALTA commitment
for such a policy (or a photocopy thereof) issued by the
respective title insurance company or (ii) a Preliminary
Title Report (or a photocopy thereof) if the Mortgaged
Property are in a state designated by the Master Servicer as
a Preliminary Title Report state;
(f) for each Mortgage Loan listed on Schedule I to this
Agreement which is required to have Primary Mortgage
Insurance pursuant to this Agreement or the related Mortgage
Loan Documents, a Primary Mortgage Insurance policy or a
certificate of Primary Mortgage Insurance (or a photocopy
thereof) issued by the respective insurer or its agent
indicating that such a policy is in effect;
(g) for each Mortgage Loan listed on Schedule I to this
Agreement which is required to have Pool Insurance pursuant
to this Agreement or the related Mortgage Loan Documents, a
Pool Insurance certificate (or a photocopy thereof) issued
by the respective insurer or its agent indicating the
eligibility of such Mortgage Loan for such Pool Insurance;
(h) originals of each assumption agreement, modification,
written assurance or substitution agreement pertaining to
such Mortgage Loan, if any, or, if any such document is in
the process of being recorded, a photocopy of such document,
certified by an Officer of the respective prior owner of
such Mortgage Loan or by the applicable title insurance
company, closing/settlement/escrow agent or company or
closing attorney to be a true and correct copy of such
document transmitted for recordation;
(i) for each Mortgage Loan which is secured by a residential
long-term lease, a copy of the lease with evidence of
recording indicated thereon, or, if the lease is in the
process of being recorded, a photocopy of the lease,
certified by an Officer of the respective prior owner of
such Mortgage Loan or by the applicable title insurance
company, closing/settlement/escrow agent or company or
closing attorney to be a true and correct copy of the lease
transmitted for recordation; and
(j) for each Mortgage Loan secured by Co-op Shares, the
originals of the following documents or instruments:
(i) The stock certificate;
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(ii) The stock power executed in blank;
(iii) The executed proprietary lease;
(iv) The executed recognition agreement;
(iv) The executed assignment of recognition agreement;
(v) The executed UCC-1 financing statement with evidence of
recording thereon; and
(vi) Executed UCC-3 financing statements or other appropriate
UCC financing statements required by state law, evidencing
a complete and unbroken line from the mortgagee to the
Trustee with evidence of recording thereon (or in a form
suitable for recordation).
9.1.2 CUSTODIAN. The Custodian will hold originals of all documents
included in each Owner Mortgage Loan File charged to his custody except
that copies of recorded Security Instruments or Assignments will be held if
the originals are held by the recording office. If the original Security
Instrument, Assignment from the respective prior owner of the related
Mortgage Loan to the Owner of the related Mortgage Loan or any prior
Assignment of the Security Instrument has not been delivered to the
Custodian on the date of the transfer of ownership of such Mortgage Loan to
the Owner because it is in the process of being recorded, the Servicer will
within five Business Days after its receipt of the original recorded
document, deliver it to the Custodian. The Servicer will promptly deliver
to the Custodian any other Mortgage Loan Document to be included in an
Owner Mortgage Loan File, charged to the custody of the Custodian, that
comes into Servicer's possession.
Notwithstanding any other provision of this Agreement, to the extent
that certain Mortgage Loans are owned by a trust which has issued mortgage-
backed securities which are securitized by such Mortgage Loans and the
Master Servicer has given prior written notice to the Servicer, the related
Owner and the existing Custodian, if any, the trustee acting on behalf of
such trust shall be regarded as the Custodian hereunder and the custodial
arrangements pursuant to the related Pooling and Servicing Agreement shall
instead control the custody of the related Mortgage Loan Documents.
9.1.3 RELEASE OF DOCUMENTS FROM OWNER MORTGAGE LOAN FILE. In the event
any document contained in an Owner Mortgage Loan File is needed by the
Servicer for the proper servicing of a Mortgage Loan, the Servicer must
send to the Owner of the related Mortgage Loan or the Custodian, as the
case may be, a request for release of documents. The Master Servicer
hereby authorizes the Owner of the related Mortgage Loan, or the Custodian,
as the case may be, to release such Mortgage Loan Documents after receipt
of such Servicer's request (i) upon payment in full of such Mortgage Loan,
(ii) when necessary for foreclosure or (iii) for such other cause as the
Master
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Servicer deems appropriate, in its reasonable discretion. The Servicer
will be responsible for such Mortgage Loan Documents while they are in
transit and while they are in its possession and will be deemed to hold
such Mortgage Loan Documents in trust for the benefit of the Owner of the
related Mortgage Loan. If such Mortgage Loan has not been paid in full or
otherwise liquidated, the Servicer shall promptly return such Mortgage Loan
Documents when they are no longer required. Notwithstanding the foregoing,
unless such Mortgage Loan has been liquidated or the related Mortgage Loan
Documents have been delivered to an attorney, a public trustee or other
public official in order to foreclose on the related Mortgaged Property,
all such Mortgage Loan Documents released by the Owner of the related
Mortgage Loan, or the respective Custodian, as the case may be, must be
returned within 21 calendar days after their release.
9.1.4 EXECUTION BY OWNER. In the event the Owner of the related
Mortgage Loan's signature is required on any document with respect to a
Mortgage Loan for any reason, including payment in full, assumption or
foreclosure, the Servicer shall deliver to the Master Servicer a written
notice requesting that the Owner of the related Mortgage Loan execute such
documents and certifying as to the reason such documents are required.
Upon receipt of such executed documents, the Servicer will record, file or
deliver such documents as appropriate for the proper servicing of such
Mortgage Loan.
9.1.5 CUSTODIAL FEES. The Servicer is responsible for the related
ongoing fees of each Custodian. Each Custodian shall bill the Servicer
directly for its fees. If for any reason at any time the Master Servicer
pays custodial fees, the Servicer will promptly reimburse the Master
Servicer for such payments.
9.1.6 REPRESENTING PARTY OFFICERS' CERTIFICATE. If it is necessary for
the respective Representing Party to deliver an Officers' certificate with
respect to the existence of a Title Insurance policy or a Primary Mortgage
Insurance policy for several Mortgage Loans, the Master Servicer may
consent to the delivery of a single Officers' certificate of the respective
Representing Party for a schedule of mortgage loans in lieu of a separate
Officers' certificate for each such Mortgage Loan.
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9.1.7 FINANCING ARRANGEMENTS. To the extent that the Owner of a
Mortgage Loan shall utilize such Mortgage Loan as collateral for a
financing, the endorsements which are required pursuant to Section 9.1.1
hereof with respect to the original related Mortgage Note, the original
related Security Instrument, and the original and each intervening
Assignment of the related Security Instrument shall also include such
further endorsements as such Owner, in accordance with the relevant
financing documents, shall direct.
Section 9.2 SERVICER MORTGAGE LOAN FILES
9.2.1 SERVICER MORTGAGE LOAN FILE REQUIREMENTS. The Servicer must
maintain a Servicer Mortgage Loan File for each Mortgage Loan, which may be
distributed among several different files, each of which shall be clearly
marked with the Servicer Loan Number and shall be readily accessible to the
Master Servicer during regular business hours, that includes the following:
(a) copies of each of the documents listed in Section 9.1.1 that
are held by the Custodian;
(b) an original Hazard Insurance policy, or a copy thereof, or a
certificate of insurance issued by the applicable insurer or
its agent indicating such a policy is in effect for the
related Mortgaged Property;
(c) a Flood Insurance policy or a certificate of insurance
issued by the insurer or its agent indicating that such a
policy is in effect with respect to the related Mortgaged
Property, if Flood Insurance is required pursuant to the
provisions of Section 15.4 or Section 16.6 hereof for such
Mortgaged Property;
(d) originals or copies of all documents submitted to a Primary
Mortgage Insurer for credit and property underwriting
approval with respect to the related Mortgaged Property, if
Primary Mortgage Insurance is required pursuant to the
provisions of Section 15.2 hereof for such Mortgaged
Property;
(e) the originals of all RESPA and Regulation Z disclosure
statements executed by the Borrower with respect to such
Mortgage Loan;
(f) the related Appraisal Report made at the time such Mortgage
Loan was originated;
(g) the HUD-1 or other settlement statement for the purchase or
refinance, as the case may be, of the Mortgaged Property by
the Borrower and mortgagor under the related Mortgage Note
and Security Instrument with respect to such Mortgage Loan;
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(h) evidence of any tax service contract, if any;
(i) copies of documentation, including the appropriate approval
by the Master Servicer, relating to any modifications to the
related original Mortgage Loan Documents;
(j) documentation, including the appropriate approval by the
Master Servicer, relating to any releases of any collateral
supporting such Mortgage Loan;
(k) collection letters or form notices sent to the Borrower with
respect to such Mortgage Loan, but only if the Servicer does
not maintain separate collection files, including all
collection letters or notices, indexed by Borrower;
(l) foreclosure correspondence, bankruptcy correspondence and
legal notifications, if applicable with respect to the
related Mortgaged Property; and
(m) all other related Mortgage Loan Documents which are
customarily maintained in accordance with Prudent Servicing
Practices in a mortgage loan file in order to properly
service a mortgage loan including, without limitation,
documents regarding title claims.
9.2.2 SERVICER MORTGAGE LOAN FILE ACCESS. The Servicer acknowledges
that each Servicer Mortgage Loan File will be held in trust for the Owner
of such Mortgage Loan. The Servicer further acknowledges that the Master
Servicer may, from time-to-time, request immediate delivery of any or all
Mortgage Loan records and documents to the Master Servicer, the Owner of
such Mortgage Loan, the Custodian or another entity designated by the
Master Servicer, and the Servicer shall thereupon immediately deliver such
records and documents, at the expense of the Servicer. The Servicer agrees
to permit the Master Servicer, from time to time to conduct audits or
inspections of any Servicer Mortgage Loan Files at one or more of the
Servicer's offices during normal business hours with advance notice. The
Servicer must grant the Master Servicer access to all books, records and
files relating to the Servicer's systems and procedures for servicing
Mortgage Loans as to all Servicer Mortgage Loan Files or to the Servicer's
compliance with the terms and conditions of this Agreement.
9.2.3 ALTERNATE MEDIA. Subject to any applicable law concerning
document retention requirements, the Servicer may transfer any Servicer
Mortgage Loan File, or any portion thereof, to microfilm, microfiche,
optical storage or magnetic media and may retain the microfilm, microfiche,
optical storage or magnetic media in lieu of hard copies of the documents
required to be maintained in such Servicer Mortgage Loan Files. The
following requirements must be met:
(a) the process must accurately reproduce originals onto a
durable medium;
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(b) unless the Master Servicer provides otherwise by notice to
the Servicer, the Master Servicer Loan Number must be
clearly marked on the copies or optical storage or magnetic
media;
(c) the copies or optical storage or magnetic media must be
easily transferable to legible hard copies of the material
relating to the Mortgage Loans; and
(d) backup copies of the microfilm, microfiche, optical storage
or magnetic media must be made by the Servicer and retained
off-site to protect against fire and other hazard losses.
If the copies, optical storage or magnetic media become damaged or lost for
any reason, the Servicer must bear the entire cost of restoring each
Servicer Mortgage Loan File and any other related documents which had been
transferred to microfilm, microfiche, optical storage or magnetic media.
The Servicer also must bear all costs of reproducing legible hard copies
reasonably requested by the Master Servicer. The Master Servicer may
reasonably request copies of any Servicer Mortgage Loan File in optical
storage or magnetic media which the Servicer has previously transferred to
magnetic media or optical storage, as the case may be. The Servicer shall
furnish to the Master Servicer optical storage or magnetic media copies of
the requested Servicer Mortgage Loan File in such format as maintained by
the Servicer at the Servicer's expense.
Section 9.3 REQUISITE FORM
9.3.1 FORM OF ENDORSEMENTS. Except where endorsements in blank are
authorized by the Master Servicer, the Servicer shall require that
endorsements of any Mortgage Notes comply with the format stated herein.
If the Owner of the related Mortgage Loan is a trust, then the following
format shall be employed:
WITHOUT RECOURSE
PAY TO THE ORDER OF
[Name of trustee], AS
TRUSTEE under the agreement dated as of [Date of
trust agreement], and its successors and assigns,
[Name of prior owner]
[Signature of Officer]
[Officer's Name and Title]
Otherwise, except as the Master Servicer shall otherwise require, the
following format shall be employed:
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WITHOUT RECOURSE
PAY TO THE ORDER OF
[Name of Owner], and its successors and assigns
[Name of prior owner]
[Signature of Applicable Officer]
[Applicable Officer's Name and Title]
9.3.2 FORM OF ASSIGNMENT. Except where assignments in blank are
authorized by the Master Servicer, the Servicer shall require that
assignments of any Security Instrument comply with the format stated
herein, including, without limitation, as to the name of the assignee. If
the Owner of the related Mortgage Loan is a trust then the following format
shall be employed:
[Name of trustee], AS
TRUSTEE under the agreement dated as of
[Date of trust agreement], and its successors and assigns
Otherwise, except as the Master Servicer shall otherwise require, the
following format shall be employed:
[Name of Owner], and its successors and assigns
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ARTICLE 10
ESCROWS
Section 10.1 ESCROW CRITERIA
10.1.1 ESCROW REQUIREMENT. Unless, (a) at the origination of a
Mortgage Loan the Borrower is not required to make Escrow Item payments
thereafter, (b) Escrow Funds collection has been waived pursuant to Section
10.5.1 hereof, or (c) the collection of Escrow Funds is precluded by
applicable law, the Servicer must continue to collect 1/12th of the annual
total for all Escrow Items with each Monthly Payment on such Mortgage Loan,
as determined pursuant to Section 10.3.1 hereof.
10.1.2 MORTGAGE LOANS WITHOUT ESCROW. If the Servicer is not required
to collect Escrow Funds on a Mortgage Loan, the Servicer shall require
proof of payment of all taxes, ground rents, assessments, insurance or
other charges, or use other means commonly used in the mortgage industry to
ascertain that such items are paid on a timely basis.
Section 10.2 PAYMENT OF ESCROW ITEMS
10.2.1 ESCROW PAYMENT OBLIGATION. Where the Servicer is responsible
for the collection of Escrow Funds with respect to a Mortgage Loan, the
Servicer shall promptly pay all bills for any Escrow Items in such a manner
as to avoid late charges or penalties and to take advantage of any availabl
e discount.
10.2.2 ESCROW ITEM PAYMENTS. Where (a) the Servicer has been
collecting Escrow Funds with respect to a Mortgage Loan, or (b) the
Borrower has not been obliged to make Escrow Funds payments or such
payments have been waived and such Borrower has failed to timely pay
obligations which otherwise would be Escrow Items, the Servicer must pay
any obligation (i) which could become a first lien on the related Mortgaged
Property, or (ii) to maintain in force the applicable Insurance Policies.
Where Escrow Funds are maintained by the Servicer, such obligations should
be paid from the Borrower's Escrow Funds, or in accordance with Section
10.2.3 hereof.
10.2.3 ESCROW FUND INSUFFICIENCY. When a Borrower's Escrow Funds are
insufficient to pay taxes, assessments and premiums, when due, subject to
applicable law, the Servicer must attempt to obtain the additional funds
from such Borrower. If sufficient additional funds have not been recovered
by the time the payment is due, the Servicer must advance its own funds to
ensure prompt payment. The Servicer may elect to advance funds prior to
attempting to obtain the additional funds from such Borrower; however, to
the extent permitted by applicable law, the Servicer shall thereafter
attempt to obtain the advanced funds from the Borrower.
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10.2.4 NONPAYMENT NOTICE. The Servicer must notify the Master
Servicer immediately of any Escrow Item that does not conform to either
FNMA or FHLMC standards.
Section 10.3 ESCROW FUND DETERMINATION
10.3.1 ESCROW FUNDS ANALYSIS. Subject to all applicable Federal, State
and local laws, the Servicer must conduct an analysis of each Borrower's
Escrow Funds at least annually to determine the monthly deposits which must
be made by such Borrower. The analysis will be performed based upon (a)
reasonable projections of the expenses to be paid from the Escrow Funds and
(b) that as such expenses come due, the Escrow Funds balance shall at all
times be sufficient to effect the payment of such expenses, unless a lower
amount is required by applicable law. Each Borrower must receive a
statement of this analysis. The analysis also must determine whether there
is a surplus or deficiency in such Borrower's Escrow Funds.
10.3.2 ESCROW FUND SURPLUS. As a Borrower may direct, a surplus in such
Borrower's Escrow Funds shall be (a) used as a Curtailment as to the
related Mortgage Loan, (b) refunded to such Borrower or (c) taken into
consideration in determining the amount to be collected for Escrow Funds
during the next twelve months.
10.3.3 ESCROW FUND DEFICIENCY. Where it is determined that a deficiency
exists in such Borrower's Escrow Funds, such Borrower may be requested to
pay the shortage in full or the deficiency may be taken into consideration
in determining the amount to be collected for Escrow Funds during the next
twelve months.
Section 10.4 RECORDS
10.4.1 ESCROW FUNDS RECORDS. The Servicer shall keep records of Escrow
Funds collected from each Borrower.
10.4.2 ESCROW OBLIGATIONS RECORDS. The Servicer must maintain
accurate records of the imposition of Escrow Item obligations and the
payment of Escrow Items.
Section 10.5 ESCROW WAIVER
10.5.1 WAIVER CONDITIONS. For any Mortgage Loan (other than a GPM or
GPARM Loan which provides for negative amortization in the future) that has
amortized down so that its current LTV is 80% or less, the Servicer may
waive the Borrower's future obligation to make Escrow Funds payments
provided:
(a) the Unpaid Principal Balance of such Mortgage Note divided
by the value of the Mortgaged Property based on an appraisal
made within 60 days of the date of determination is 80% or
less;
(b) such Mortgage Loan is at least 12 months old; and
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(c) such Mortgage Loan has not been more than 30 days delinquent
during the preceding 12 months.
10.5.2 WAIVER RESCISSION. The Servicer shall enforce the Escrow Funds
requirements with respect to any Mortgage Loan if the related Borrower
fails to act responsibly in making the required payments.
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ARTICLE 11
COLLECTION AND SERVICING PRACTICES
Section 11.1 GENERAL SERVICING REQUIREMENTS
11.1.1 SERVICING PRACTICES. The Servicer agrees to service Mortgage
Loans in accordance with the requirements of this Agreement. In general,
where not otherwise expressly required by the provisions of this Agreement,
the Servicer shall service the Mortgage Loans in accordance with Prudent
Servicing Practices and generally in accordance with FNMA guidelines. As
to each Mortgage Loan, the Servicer shall take all such actions as may be
necessary to preserve the lien of the related Security Instrument upon the
related Mortgaged Property.
11.1.2 TAX RETURNS AND OTHER REPORTS. Unless otherwise instructed by
notice from the Master Servicer, the Servicer shall forward to each
Mortgagor such forms and furnish such information within the control of the
Servicer as are required by the Code to be furnished to them and will
prepare and file annual reports required by the state authorities. By way
of example, the Servicer shall provide the Mortgagors with the reports
required under Code Sections 6050H (E.G., reporting on Form 1098 any
mortgage interest, including points, received and any reimbursements of
qualified mortgage interest) and 6050J (Abandonments and Foreclosure of
Real Property, Form 1099-A).
11.1.3 SERVICER INTERNAL CONTROLS. The Servicer shall maintain at all
times an adequate system of audit and internal controls in accordance with
Prudent Servicing Practices.
11.1.4 POOL INSURANCE COMPLIANCE. Notwithstanding any other provision
of this Agreement, the Servicer shall at all times comply with all
applicable Pool Insurance policy requirements so as to assure the full
benefit of such Pool Insurance policy to the Owner of the related Mortgage
Loan.
11.1.5 PRIMARY MORTGAGE INSURANCE COMPLIANCE. Notwithstanding any
other provision of this Agreement, the Servicer shall at all times comply
with all applicable Primary Mortgage Insurance policy requirements so as to
assure the full benefit of such Primary Mortgage Insurance policy to the
Owner of the related Mortgage Loan.
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Section 11.2 DELEGATION OF DUTIES
11.2.1 PERMISSIBLE DELEGATIONS. Without the written consent of the
Master Servicer authorizing further delegations, the only servicing duties
which the Servicer may elect to delegate, by agency, subcontract or
otherwise, and the only categories of such delegees, are as follows:
(a) professional collection agencies to perform those duties and
functions for the collection of delinquent amounts due on
any Mortgage Loan that are customarily performed by such
agencies in the locality where the related Mortgaged
Property are located;
(b) title insurance companies, escrow companies and trust
companies to issue or provide reports reflecting the
condition of title to any Mortgaged Property and services
incidental to the foreclosure or acquisition in lieu of
foreclosure of any Mortgaged Property, or the sale or
disposition of any Mortgaged Property acquired by the
Servicer;
(c) attorneys licensed to practice in the state where the
related Mortgaged Property is located to perform customary
legal services in connection with the foreclosure or
acquisition of such Mortgaged Property or the sale or
disposition of such Mortgaged Property acquired by the
Servicer at or in lieu of foreclosure, or for the collection
of delinquent sums owed on any Mortgage Loan;
(d) professional property inspection companies and appraisers to
conduct routine inspections of, and provide written
inspection reports on, any Mortgaged Property as required by
this Agreement;
(e) title companies, escrow companies and real estate tax
service companies to provide periodic reports as to the
amount of real estate taxes due on any Mortgaged Property
and the due date or dates of each required installment;
(f) credit bureaus or credit reporting companies to provide
credit reports on Borrowers or persons who have applied to
assume any Mortgage Loans;
(g) construction companies, contractors and laborers to provide
labor, materials and supplies necessary to protect, preserve
and repair any Mortgaged Property as required by this
Agreement; and
(h) lock box providers or payment processing administrators to
provide payment processing services.
11.2.2 DELEGEE'S QUALIFICATIONS. The Servicer shall assure that each
Person retained to provide any of the services set forth in Section 11.2.1
hereof is fully licensed and
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holds all required Federal, State or local governmental franchises,
certificates and permits necessary to conduct the business in which he is
engaged and that such Person is reputable, knowledgeable, skilled and
experienced and has the necessary personnel, facilities and equipment
required to provide the services for which he is retained.
11.2.3 RESPONSIBILITY FOR COSTS. Any Person retained in accordance with
Section 11.2.1 hereof shall be retained solely for the Servicer's account
and at the Servicer's sole expense and shall not be deemed to be an agent
or representative of the Owners of the related Mortgage Loans, their
successors or assigns, or the Master Servicer or its successors or assigns.
11.2.4 SERVICER'S LIABILITY. The Servicer shall remain liable to the
Principal, for the performance of the Servicer's duties and obligations
under this Agreement, notwithstanding the delegation of any servicing
function pursuant to this Section 11.2.
Section 11.3 DUE-ON-SALE CLAUSE ENFORCEMENT
11.3.1 ENFORCEMENT REQUIREMENT. The Servicer is required to enforce the
Due-on-Sale Clause on any Mortgage Loan to the extent permitted by
applicable law upon the transfer of title of the related Mortgaged Property
unless (a) a Mortgage Loan is assumable pursuant to the terms of the
related Mortgage Note Assumption Rider, or (b) enforcement of the Due-on-
Sale Clause will jeopardize the Primary Mortgage Insurance coverage on such
Mortgage Loan.
11.3.2 LITIGATION CONSIDERATIONS. Where, in the Servicer's judgment,
the issue of enforceability is reasonably expected to be litigated, the
Servicer will obtain the written consent of the Master Servicer before
enforcing any Due-on-Sale Clause.
11.3.3 APPROVAL REQUIREMENT. In all circumstances of an unapproved
transfer of a Mortgaged Property initiated by the Borrower, the Servicer is
required to promptly notify the Master Servicer and, where applicable, the
respective Primary Mortgage Insurer and/or the respective Pool Insurer, of
such transfer and obtain written approval before initiating enforcement
proceedings.
11.3.4 EXEMPT TRANSACTIONS. (a) The Servicer will not be required to
enforce the due-on-sale (or transfer) provision of this Agreement for
certain types of property transfers or related transactions. The Servicer
will process these exempt transactions without the approval or notification
of the Master Servicer. In each case, the Mortgaged Property will remain
subject to the lien of the related Mortgage Loan, and each transferee or
grantee described below shall take subject to such lien. The following
transactions shall be deemed to be exempt transactions and will require the
review and approval of the Servicer only prior to transfer:
(i) a transfer of the Mortgaged Property to the surviving party on
the death of a joint tenant or a tenant by the entirety;
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(ii) a transfer of the Mortgaged Property to a junior lienholder as
the result of a foreclosure or the acceptance of a deed in lieu
of foreclosure for the subordinate mortgage;
(iii) a transfer of the Mortgaged Property (or, if the Borrower is an
INTER VIVOS revocable trust, a transfer of a beneficial interest
in such trust) to a relative of a deceased Borrower (or, in the
case of an INTER VIVOS revocable trust Borrower, to a relative of
the individual who established the trust), provided that the tran
sferee will occupy the Mortgaged Property;
(iv) a transfer of the Mortgaged Property (or, if the Borrower is an
INTER VIVOS revocable trust, a transfer of a beneficial interest
in such trust) to the spouse, child(ren), parent(s), brother(s),
or sister(s), grandparent(s), or grandchild(ren) of the Borrower
(or, in the case of an INTER VIVOS revocable trust Borrower, of
the individual who established the trust), provided that the
transferee will occupy the Mortgaged Property;
(v) a transfer of the Mortgaged Property (or, if the Borrower is an
INTER VIVOS revocable trust, a transfer of a beneficial interest
in such trust) to a spouse of the Borrower (or, in the case of an
INTER VIVOS revocable trust Borrower, of the individual who
established the trust) under a divorce decree or legal separation
agreement or from an incidental property settlement agreement,
provided that the transferee will occupy the Mortgaged Property;
(vi) a transfer of a Mortgaged Property that is jointly owned by
unrelated co-borrowers from one of the Borrowers to the other,
provided that the Borrower who is gaining full ownership of the
Mortgaged Property will continue to occupy it and the transfer
occurs after at least 12 months have elapsed since the Mortgage
Loan was closed;
(vii) a transfer of the Mortgaged Property (or, if the Borrower is an
INTER VIVOS revocable trust, a transfer of a beneficial interest
in such trust) into an INTER VIVOS revocable trust (or, if the
Borrower is an INTER VIVOS revocable trust, into a new trust), so
long as the Borrower (or the individual who established the
original INTER VIVOS revocable trust) will be the beneficiary of
the trust and the occupant of the Mortgaged Property;
(viii) the granting of a leasehold interest in the Mortgaged Property
that has a term of three or fewer years and does not provide an
option to purchase the Mortgaged Property, or a renewal option
that would allow the term to extend beyond three years;
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(ix) the creation of a subordinate lien upon the Mortgaged Property,
provided that there is no transfer of occupancy rights therein;
or
(x) the creation of a purchase money security interest for household
appliances which are situated in or upon the Mortgaged Property.
(b) If the individual or entity transferring the Mortgaged Property
requests a release of liability, the Servicer must review the credit and
financial capacity of the individual or entity receiving the Mortgaged
Property. The Servicer may approve the release of liability if it believes
the recipient is capable of assuming the mortgage obligations and, where
applicable, with the consent of the respective Primary Mortgage Insurer
and/or the respective Pool Insurer. If the Servicer does not believe that
the recipient is credit worthy or if the consent of the respective Primary
Mortgage Insurer and/or the respective Pool Insurer is required but not
obtained, the Servicer shall deny the request for the release of liability,
although the transfer may still be processed without the release. If the
request is denied based solely on the Primary Mortgage Insurer's or the
respective Pool Insurer's decision, the denial letter should state that
fact.
(c) The Servicer shall advise (i) each insurance company providing Hazard
Insurance and Flood Insurance, where applicable, (ii) the relevant tax
authorities, where applicable, (iii) the respective Primary Mortgage
Insurer and/or the respective Pool Insurer and (iv) other interested
parties when it processes transactions under this Section 11.3.4. The
Master Servicer does not need to be notified about such a transaction
unless the Servicer agrees to a release of liability under Section
11.3.4(b).
Section 11.4 ASSUMPTIONS
11.4.1 ASSUMPTION REQUIREMENTS. Any Assumption permitted under this
Agreement shall be performed in accordance with Prudent Servicing
Practices. In connection with an Assumption of an assumable Mortgage Loan,
the Servicer shall process such Assumption as provided for in the Mortgage
Note or the Mortgage Note Assumption Rider and shall verify that:
(a) no material term of the Mortgage Note (including, but not
limited to, the Mortgage Interest Rate, the remaining term
to maturity, the Gross Margin, the Index, the Maximum
Lifetime Mortgage Interest Rate, the Minimum Lifetime
Mortgage Interest Rate, and any Periodic Rate Cap or any
Periodic Payment Cap) may be changed in connection with such
Assumption;
(b) that the new Borrower qualifies for credit under the Master
Servicer's criteria and standards for similar loans;
(c) where applicable, the respective Primary Mortgage Insurer,
and/or the respective Pool Insurer has in advance approved
in writing such Assumption of such Mortgage Loan by the new
Borrower and such
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Mortgage Loan will continue to be insured by such Primary
Mortgage Insurer and/or such Pool Insurer;
(d) the documents relating to such Assumption (i) create a valid
and enforceable promise to pay the Unpaid Principal Balance
of the related Mortgage Loan, together with interest thereon
in accordance with the related Mortgage Note by the new
Borrower and (ii) the related Security Instrument continues
to evidence a valid and perfected first lien on the related
Mortgaged Property; and
(e) such Mortgage Loan will continue to be a valid first
priority security interest upon the related Mortgaged
Property.
11.4.2 APPROVAL AND RELEASE. In connection with an Assumption of an
assumable Mortgage Loan and in accordance with the provisions of the
related Mortgage Loan Documents, upon such verification, (a) the Servicer
may approve such Assumption and (b) only with the prior written approval
of, where applicable, the Primary Mortgage Insurer and/or the Pool Insurer,
unless such approval is precluded by the terms of the Mortgage Loan
Documents, release the previous Borrower from liability.
11.4.3 NOTIFICATION OF ASSUMPTION. The Servicer shall notify the
Master Servicer of any Assumption by the eighteenth calendar day of the
month following the month in which the Assumption took place using the
Assumption Report and shall provide to the Custodian the original
assumption agreement.
11.4.4 ASSUMPTION FEES. Subject to applicable law or regulation and
the provisions of the related Mortgage Note, the Servicer may charge the
Borrower and retain a reasonable and customary assumption fee. Such fee is
receivable only from the Borrower directly and may not be withdrawn from
any of the custodial accounts maintained hereunder.
11.4.5 DISCLOSURE REQUIREMENT. In connection with an Assumption of an
assumable Mortgage Loan, the Servicer shall make all disclosures required
by applicable law.
Section 11.5 PARTIAL RELEASES AND EASEMENTS
11.5.1 PREREQUISITES. The Servicer must take the following actions
prior to permitting the grant of a partial release of a Mortgaged Property
from the lien of the related Security Instrument, easement, consent to
substantial alterations and any other changes affecting the related
Mortgage Loan or such Mortgaged Property:
(a) where applicable, obtain the respective Primary Mortgage
Insurer's and/or the respective Pool Insurer's prior written
approval;
(b) if the value of the released property is more than five
thousand ($5,000) dollars, obtain an acceptable Appraisal
Report showing the current
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market value of such Mortgaged Property before and after the
release and showing individually both the value of the land
and of the improvements thereon;
(c) ensure that any and all cash consideration received at least
equals the current market value of property or rights to be
released regarding such Mortgaged Property;
(d) ensure that any and all cash consideration received is
applied to the Unpaid Principal Balance of such Mortgage
Loan to the extent of the diminution of the value of such
Mortgaged Property;
(e) cause all legal documents for the transaction to be
reviewed;
(f) ensure that such Mortgaged Property, following such release
or change, adequately secures the Unpaid Principal Balance
of the Mortgage Loan and accrued interest thereon and that
the related Loan-to-Value ratio will not be greater than
80%, after giving effect to clause (d) hereof; and
(g) obtain written notification from the respective Title
Insurer that the related Title Insurance policy remains
fully in effect with respect to such Mortgaged Property, as
modified, following such release or change.
11.5.2 RELEASE OR MODIFICATION OF LIEN. With the consent, where
applicable, of the respective Primary Mortgage Insurer, and/or the
respective Pool Insurer, the Servicer may approve applications for partial
release of a Mortgaged Property from the lien of the related Security
Instrument, easements, consent to substantial alterations and any other
changes affecting the related Mortgage Loan or such Mortgaged Property if
the perquisites in Section 11.5.1 have been satisfied. The Servicer shall
promptly notify the Master Servicer of any approval under Section 11.5.1.
and this Section 11.5.2 affecting the lien upon a Mortgaged Property.
11.5.3 MASTER SERVICER'S APPROVAL. If the Servicer is not able to
meet the prerequisites specified in Section 11.5.1 or if the amount of
consideration received is less than the reduction in the value of the
Mortgaged Property due to the partial release or other changes, the
Servicer must obtain the approval of the Master Servicer prior to
permitting an application described in Section 11.5.2. The Servicer shall
furnish such information as the Master Servicer shall request in connection
with an application under this Section 11.5.3.
Section 11.6 RECORDATION OF ASSIGNMENTS
11.6.1 RECORDATION REQUIREMENT. Regarding the initial acquisition of
the Mortgage Loans pursuant to the Sales Agreement, the Servicer must, at
its own expense, record the Assignment of each Security Instrument to the
Owner of the related Mortgage Loan, as well as any previously unrecorded
intervening Assignments. If any such
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Security Instrument or Assignment is not recorded within the later to occur
of (i) the date 120 days after the acquisition of the related Mortgage Loan
by its Owner, if the Servicer has been servicing such Mortgage Loan from
such Owner's date of acquisition or (ii) the date 120 days after the date
the Servicer began servicing such Mortgage Loan, the Master Servicer will
have the right to so effect such recordation at the Servicer's expense.
11.6.2 EXTENSION OF RECORDING PERIOD. The time to record an
Assignment of a Security Instrument may be extended from the end of
permissible recordation period set forth in Section 11.6.1 if the Servicer
provides an Officer's certificate acceptable to the Master Servicer
certifying that the Servicer has used its best efforts to complete the
recordation process for the Security Instrument and/or Assignment, as
applicable, and that the factors preventing completion of the recordation
process are beyond the Servicer's control.
11.6.3 DELIVERY REQUIREMENT. Promptly following the recordation of
any Security Instrument or an Assignment, the Servicer will deliver to the
Custodian, unless otherwise directed in writing by the Master Servicer,
such Security Instrument or Assignment bearing evidence of recordation or,
if the original Security Instrument or Assignment is retained by the
recording office, a certified copy of the original recorded Security
Instrument or Assignment.
11.6.4 WAIVER OF RECORDATION. The Master Servicer will generally
require the Servicer to record an Assignment of the Security Instrument for
each Mortgage Loan to the Owner of related Mortgage Loan. However, the
recordation requirement with respect to an Assignment may be waived for a
Mortgage Loan if (a) the related Mortgaged Property is in a state in which
recordation of such an Assignment is not required to protect the Owner of
the related Mortgage Loan's right, title and interest in and to the related
Mortgage Loan and (b) the Seller or the Servicer has delivered to the
Master Servicer an opinion of counsel, acceptable to the Master Servicer,
to that effect.
Section 11.7 GENERAL SERVICING CONSIDERATIONS
11.7.1 ABANDONMENT. If the Servicer discovers that any Mortgaged
Property is not occupied, the Servicer must immediately attempt to contact
the Borrower in order to determine the reason for the vacancy. If the
Servicer determines that such Mortgaged Property has been abandoned, the
Servicer, at its own expense, must take all necessary actions to protect
such Mortgaged Property from waste, damage and vandalism. Such expenses
shall be recoverable by the Servicer solely from the Liquidation Proceeds
of the related Mortgage Loan, if any, or directly from the Borrower.
11.7.2 BUYDOWN FUNDS. The Servicer must distribute any Buydown Funds
in each Custodial Buydown Account in accordance with the terms of the
applicable Buydown Agreement.
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11.7.3 NOTIFICATION MATTERS. Based upon information obtained pursuant
to its obligations under Section 12.2.6, the Servicer shall (i) maintain
accurate records of and (ii) except in the case of paragraph (f) hereof
involving a monetary default of the Borrower addressed by Article 12
hereof, immediately notify the Master Servicer upon discovering any of the
following:
(a) deterioration of, waste of, or lack of repair to, any
Mortgaged Property, which materially and adversely affects
the Value of such Mortgaged Property and the Borrower
refuses or is not financially able to make the necessary
repairs;
(b) sale or transfer of any Mortgaged Property in a manner not
approved by the Servicer pursuant to the provisions of this
Agreement;
(c) material litigation involving any Mortgaged Property;
(d) abandonment of any Mortgaged Property;
(e) a material default, determined in accordance with Prudent
Servicing Practices, under the terms of any Security
Instrument, Mortgage Note, Condominium Project or PUD
constituent document or similar obligations of a Borrower;
or
(f) any other situation that may materially and adversely affect
the value of any Mortgage Loan.
11.7.4 EMINENT DOMAIN. The Servicer must submit appropriate
recommendations and documentation to the Master Servicer and, where
applicable the respective Primary Mortgage Insurer and/or the respective
Pool Insurer, of any taking by eminent domain if:
(a) the Mortgaged Property will be taken in whole and the consideration to
be paid to the Borrower will be insufficient to satisfy the Unpaid
Principal Balance (plus any unreimbursed Advances of the related
Mortgage Loan, or
(b) the Mortgaged Property will be taken in part and (i) the ratio of the
(A) Unpaid Principal Balance (plus any unreimbursed Advances) of the
Mortgage Loan to (B) the Current Value of the remaining Mortgaged
Property is higher than (ii) the LTV ratio of the Mortgage Loan
immediately before the taking, even after applying any consideration
to the Unpaid Principal Balance of the Mortgage Loan.
The Servicer must take all steps necessary to prevent loss of any Primary
Mortgage Insurance or Pool Insurance benefits due to any taking by eminent
domain.
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11.7.5 LATE CHARGES. Late charges may not be assessed unless a
Borrower failed to make payments in accordance with the Mortgage Note.
Section 11.8 BORROWER BANKRUPTCY
11.8.1 SERVICER'S DUTY. The Servicer will be responsible for
representing the interests of the Owner of the related Mortgage Loan in any
bankruptcy proceedings involving a Borrower.
11.8.2 RESPONSIBILITY FOR COSTS. The costs of protecting the
interests of the Owner of a Mortgage Loan shall be advanced by the Servicer
and are not (a) chargeable to the related Borrower's Escrow Funds or (b)
reimbursable from the Master Servicer.
11.8.3 CHALLENGE BANKRUPTCY REDUCTIONS. If the bankruptcy judge or
trustee should propose to (a) reduce the Unpaid Principal Balance of a
Mortgage Note, (b) reduce the related Mortgage Interest Rate, (c) extend
the final maturity of such Mortgage Note, or (d) reduce the level of any
monthly payment on such Mortgage Note, the Servicer shall (i) challenge any
such modification on a timely basis, (ii) notify the Master Servicer
immediately and (iii) follow the Master Servicer's instructions regarding
the bankruptcy proceedings, and in the absence of explicit instructions,
exercise reasonable judgment to protect the interests of the Owner of such
Mortgage Loan.
11.8.4 BANKRUPTCY ADJUSTMENTS. If the action of any court results in
a Deficient Valuation or Debt Service Reduction, the Servicer will provide
a calculation of the effects of such modification notifying the Master
Servicer of the new principal balance, Mortgage Interest Rate, new final
maturity, or monthly payment level, as the case may be, of such Mortgage
Loan.
11.8.5 BANKRUPTCY PLAN SURVEILLANCE. With respect to each Mortgage
Loan which is the subject of a Deficient Valuation or a Debt Service
Reduction, the Servicer shall verify that payments are being made in
accordance with the plan approved in the related bankruptcy proceedings.
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ARTICLE 12
DELINQUENCY MANAGEMENT
Section 12.1 IN GENERAL
12.1.1 SERVICING PRACTICES. The provisions set forth in this Article
constitute the minimum guidelines and procedures for servicing Delinquent
Mortgage Loans. The Servicer must use collection procedures which meet or
exceed these guidelines. The Servicer's procedures must be sufficient for
promptly dealing with delinquencies. The Master Servicer retains the right
to require the Servicer to perform additional collection procedures which
the Master Servicer deems, in its reasonable discretion, necessary to
realize the objectives set forth herein or otherwise to protect the
interests of the Owner of the related Mortgage Loan.
12.1.2 SERVICER'S CAPABILITIES. The Servicer's collection staff must
be sufficiently skilled in financial counseling and mortgage servicing
techniques to assist a Borrower to bring his Mortgage Loan current and to
protect his equity and credit rating, while at the same time protecting the
interests of the Owner of the related Mortgage Loan and of the Master
Servicer.
12.1.3 SERVICING OBJECTIVES. The purpose of any collection effort is
to cure a Delinquency in the shortest possible time. The Servicer should
treat each Delinquency individually. Discussions with the Borrower must
cover the cause of such Delinquency and the time frame in which such
Delinquency will be cured. The Servicer should use notices, letters,
telegrams, telephone calls, face-to-face contact and other responsible
collection techniques consistent with Prudent Servicing Practices. The
Servicer is required to maintain all collection records. The Servicer must
vary its collection techniques to fit individual circumstances, avoiding a
fixed collection pattern which may be ineffective in dealing with
particular Borrowers. The Servicer should recognize the importance of
telephone and face-to-face contact in any collection program. As part of
its collection procedures, the Servicer shall closely monitor all newly
originated Mortgage Loans.
12.1.4. SERVICER'S EXPENSES. Unless otherwise specified, the cost of any
of the servicing procedures detailed in this Agreement shall be borne
solely by the Servicer. The Servicer may not charge such expenses against
the Borrower's Escrow Funds. The foregoing shall not preclude the Servicer
from recovering such expenses from the Borrower to the extent permitted by
applicable law and the related Mortgage Loan Documents.
Section 12.2 DELINQUENCY SERVICING PROCEDURES
12.2.1 LATE NOTICE. A late notice shall be mailed by the Servicer to
the Borrower by the 18th day of such Delinquency.
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12.2.2 TELEPHONIC INQUIRY. The Servicer shall use best efforts to
make telephone contact with the Borrower by the 20th day of such
Delinquency.
12.2.3 NOTICE OF DEFAULT. Notification of default of such Mortgage
Loan shall be mailed by the Servicer to the Borrower by the 35th day of
such Delinquency.
12.2.4 BORROWER INTERVIEW. The Servicer shall use best efforts to
conduct a face-to-face interview between the 45th day and the 60th day of
such Delinquency if satisfactory arrangements to cure the Delinquency have
not been made. If, for geographic reasons, a face-to-face meeting is not
feasible, an in-depth telephone interview may be conducted instead.
12.2.5 CONTINUING CONTACTS. If satisfactory arrangements have not
been made to cure such Delinquency by the 90th day, the Servicer must
continue to contact the Borrower until either the related Mortgage Loan has
been brought current or the Servicer has made a recommendation in writing
to the Master Servicer for foreclosure of such Mortgaged Property or other
action.
12.2.6 PROPERTY INSPECTION. The Servicer is required to inspect each
Mortgaged Property no later than the 60th day of the Delinquency if no
satisfactory arrangements have been made to cure such Delinquency of the
related Mortgage Loan. The inspecti"on should determine the physical
condition and the occupancy status of such Mortgaged Property. The
Servicer is required to inspect such Mortgaged Property monthly after the
60th day of such Delinquency until such Delinquency is cured or the related
Mortgage Loan is Liquidated. The results of any inspection should be used
in determining whether a recommendation for foreclosure or for the transfer
of deed-in-lieu of foreclosure is necessary. The Servicer must prepare a
Property Inspection Report following each inspection. All Property
Inspection Reports must be retained by the Servicer and copies thereof must
be forwarded to the Master Servicer promptly upon request. All expenses
related to the foregoing shall be borne by the Servicer and such expenses
shall not be recoverable by the Servicer from the Master Servicer or the
Principal or from Liquidation Proceeds, Insurance Proceeds, payments on the
related Mortgage Loan or any other source relating to the related Mortgage
Loan or the related Mortgaged Property. The foregoing shall not preclude
the Servicer from recovering such expenses from the Borrower to the extent
permitted by applicable law and the related Mortgage Loan Documents.
Section 12.3 RELIEF OF BORROWERS
12.3.1 SERVICER'S ROLE. The Servicer shall be readily available to
Borrowers to offer skilled financial counsel and advice and shall make
personal contact with delinquent Borrowers as often as possible to achieve
a solution that will bring the Mortgage Loan current as soon as possible.
The Servicer shall be fully familiar with the form of relief to Borrowers
provided for herein and will employ such relief.
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12.3.2 SERVICER'S DISCRETION. The Servicer shall have reasonable
discretion to extend appropriate relief to Borrowers who encounter hardship
and who are cooperative and demonstrate proper regard for their
obligations. However, no such relief shall be granted to any Borrower
under a Mortgage Loan unless the Servicer reasonably believes that there is
a reasonable expectation that such Borrower will bring his Mortgage Loan
current within 180 days following the onset of Delinquency. Further,
without the consent of the Master Servicer, no such relief shall be granted
other than with respect to a Mortgage Loan that has at least a 31-day
Delinquency.
12.3.3 RELIEF REQUIREMENT. Prior to granting relief with respect to a
delinquent Mortgage Loan as herein provided, the Servicer shall ascertain
that (i) the reasons for the default and (ii) the attitude and
circumstances of such Borrower justify the relief to be granted.
12.3.4 PRIMARY MORTGAGE INSURANCE CONSIDERATIONS. Where applicable,
the Servicer shall satisfy all requirements under the applicable Primary
Mortgage Insurance policy regarding the relief granted with respect to a
delinquent Mortgage Loan.
12.3.5 RESPONSIBILITY FOR COSTS. The Servicer is responsible for
collection from such Borrower of any recording or similar costs or expenses
incidental to the granting of relief with respect to a delinquent Mortgage
Loan.
12.3.6 FORBEARANCE PLAN. Where relief is appropriate, the Servicer
shall arrange with a Borrower a "Forbearance Plan" giving such Borrower a
definite period in which to reinstate his Mortgage Loan by immediately
commencing payments in excess of the regular Monthly Payments. Without the
prior written consent of the Master Servicer, special forbearance relief
agreements reducing or suspending the regular Monthly Payment of the
related Mortgage Loan for a specified period of time are not permitted. To
the extent that (i) the priority of the lien represented by such Mortgage
Loan remains in effect and is not adversely affected, (ii) where
applicable, the related Primary Mortgage Insurance policy remains in full
force and effect and (iii) where applicable, the related Pool Insurance
policy remains in full force and effect, the Servicer, in its discretion,
may enter into a Forbearance Plan that provides that the total amount owed
during such Delinquency, including costs and expenses, will be repaid
within the shortest period practicable, commencing immediately. With
respect to such Mortgage Loan, the Forbearance Plan shall provide that such
Delinquency will be cured within 180 days after the Due Date of the
earliest unpaid installment, unless the Master Servicer and, where
applicable, the respective Pool Insurer and/or the respective Primary
Mortgage Insurer, consent to a longer period of time. The Forbearance Plan
for such Mortgage Loan shall be set forth in writing and executed by the
Borrower and by the Servicer in the form of a letter agreement if the
earliest unpaid installment is more than 60 days past due.
12.3.7 ACCOMMODATION LIMITATIONS. No modification, recast, extension,
or capitalization of delinquent payments of a Mortgage Loan other than as
provided in Section 12.3.6 hereof shall be permitted with respect to a
Mortgage Loan unless there
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is at least a 90-day Delinquency with respect to such Mortgage Loan unless
permitted by the Master Servicer.
12.3.8 POOL INSURANCE CONSIDERATIONS. Where applicable, the Servicer
shall satisfy all requirements under the applicable Pool Insurance policy
regarding the relief granted with respect to a delinquent Mortgage Loan,
including, without limitation, securing the prior written consent of the
respective Pool Insurer regarding (a) any change in any term of such
Mortgage Loan, (b) the release of the related Borrower from any liability
related to such Mortgage Loan, or (c) the release of any portion of, or
interest in, the Mortgaged Property from the lien of the related Security
Instrument.
Section 12.4 SPECIAL DELINQUENCY SERVICING CONSIDERATIONS
12.4.1 ADVANCE RESPONSIBILITY DURING DELINQUENCY. In the event of a
Delinquency with respect to a Mortgage Loan, the Servicer agrees to advance
from its own funds the full amount of Monthly Payments (which may be net of
the related Servicing Fee) for such Mortgage Loan. These advances shall
provide the Owner of such Mortgage Loan with a regular flow of funds on
such delinquent Mortgage Loan. The advance obligation stated above is in
addition to any other advance obligations which the Servicer has pursuant
to the provisions of this Agreement. The Servicer must still advance funds
in accordance with the provisions of this Agreement even if a forbearance
has been granted.
12.4.2 PRIMARY MORTGAGE INSURANCE COMPLIANCE. Where applicable, the
Servicer shall be familiar with and shall satisfy all requirements of the
applicable Primary Mortgage Insurance policy with respect to a delinquent
Borrower. The Servicer shall have adequate controls to assure timely
filing of all notices to the appropriate Primary Mortgage Insurer. The
Servicer shall prepare and file all appropriate claims with respect to the
applicable Primary Mortgage Insurance policy, and the Servicer shall
prepare and deliver to the Master Servicer copies of all claims forms and
other papers received from or presented to any Primary Mortgage Insurer in
connection with any claims presented under any such policy, unless the
Servicer is otherwise instructed by the Master Servicer.
12.4.3 POOL INSURANCE COMPLIANCE. Where applicable, the Servicer
shall be familiar with and shall satisfy all requirements of the applicable
Pool Insurance policy with respect to a delinquent Borrower. The Servicer
shall have adequate controls to assure timely filing of all notices to the
appropriate Pool Insurer. Copies of all such notices shall be sent to the
Master Servicer, unless otherwise instructed. The Servicer shall prepare
and file all appropriate claims with respect to the applicable Pool
Insurance policy, and the Servicer shall prepare and deliver to the Master
Servicer copies of all claims forms and other papers received from or
presented to any Pool Insurer in connection with any claims presented under
any such policy, unless the Servicer is otherwise instructed by the Master
Servicer.
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ARTICLE 13
FORECLOSURE ADMINISTRATION
Section 13.1 FORECLOSURE PREREQUISITES
13.1.1 CHRONIC DELINQUENCY. If a Borrower is chronically delinquent
and the Servicer, based upon Prudent Servicing Practices, has exhausted all
reasonable means of curing the Delinquency, the Servicer must realize upon
the related defaulted Mortgage Loan in accordance with Prudent Servicing
Practices and recommend either (i) the commencement of foreclosure
procedures or (ii) an alternate to foreclosure, each in accordance with the
terms of the related Security Instrument and applicable law.
13.1.2 LIQUIDATION RECOMMENDATION. Prior to the commencement of any
action to foreclose on a Mortgaged Property, or prior to the acceptance of
a deed-in-lieu of foreclosure, the Servicer shall notify the Master
Servicer and, where applicable, the respective Primary Mortgage Insurer
and/or the respective Pool Insurer, of the Servicer's recommendation as to
whether foreclosure should be commenced, or a deed-in-lieu of foreclosure
accepted, and, where applicable, shall provide all other notices, reports
or information required by the Master Servicer or the applicable Primary
Mortgage Insurance policy and/or Pool Insurance policy. If the respective
prior approval of the Master Servicer and, where applicable, the respective
Primary Mortgage Insurer and/or the respective Pool Insurer, is not
withheld, the Servicer shall initiate foreclosure or accept a deed-in-lieu
of foreclosure, as the case may be. Where such Mortgaged Property is
covered by a Primary Mortgage Insurance policy and/or Pool Insurance
policy, if the respective Primary Mortgage Insurer or the respective Pool
Insurer, as the case may be, withhold its approval, the Servicer shall act
according to the respective Primary Mortgage Insurer's instructions or the
respective Pool Insurer's instructions provided such actions are consistent
with, and contemplated by, the applicable Primary Mortgage Insurance policy
or the applicable Pool Insurance policy, as the case may be.
Notwithstanding any of the foregoing, if the Master Servicer directs the
Servicer to follow a course of action regarding the liquidation of a
Mortgaged Property, the Servicer shall follow the Master Servicer's
instructions.
13.1.3 FORECLOSURE EXPENSES. All fees and expenses shall be
consistent with FNMA standards and, where applicable, shall not exceed
those permitted under the respective Pool Insurance policy and/or the
respective Primary Mortgage Insurance policy. Fees in excess of the amount
permitted by FNMA guidelines or extraordinary legal services must be
approved in writing in advance by the Master Servicer, and, where
applicable, by the respective Primary Mortgage Insurer or the respective
Pool Insurer, as the case may be, if required by the applicable policy.
All attorneys' fees, and other costs in excess of FNMA's standards in
respect of any foreclosure or acquisition in lieu of foreclosure shall be
identified in advance and a detailed estimate of the amounts thereof shall
be set forth in the Servicer's written recommendation. The billing by a
foreclosure attorney must demonstrate the appropriateness of any
extraordinary fees by
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the services required. In cases of full or partial reinstatement of the
related Mortgage Loan, the fees shall be reasonable and in proportion to
the authorized fee for services rendered for a completed foreclosure.
Unless otherwise expressly agreed in writing, neither the Master Servicer,
any of its Affiliates, their respective officers, directors, employees,
agents, successors or assigns, the Owner of the related Mortgage Loan, nor
any beneficial owners thereof shall be liable for any attorneys' fees,
trustees' fees, witness fees, title search fees, court costs or other
expenses incurred by the Servicer in respect of any foreclosure or
acquisition in lieu of foreclosure, except to the extent that such fees,
costs and expenses are fully reimbursable under a Primary Mortgage
Insurance policy and in fact are reimbursed.
13.1.4 HAZARDOUS WASTES. In the event that the Mortgaged Property,
related to a Mortgage Loan which is being considered for liquidation by
foreclosure or the transfer of a deed-in-lieu of foreclosure, contains, and
the Servicer has reason to believe that it contains, hazardous or regulated
substances which may impose liability, for damages, remediation or
otherwise, upon the owner of such Mortgaged Property pursuant to Federal,
State or local law, the Servicer shall not, except with the express prior
written approval of the Master Servicer, which approval makes specific
reference to the presence of such hazardous or regulated substances,
undertake or continue the process of foreclosure with respect to such
Mortgaged Property.
Section 13.2 DEED-IN-LIEU OF FORECLOSURE
13.2.1 CONDITIONS. If the Master Servicer and the respective Primary
Mortgage Insurer and/or the respective Pool Insurer, if applicable, have
approved the liquidation of a Mortgage Loan by accepting a deed-in-lieu of
foreclosure of the related Mortgaged Property, the Servicer may accept such
deed without any further action or approval by the Master Servicer or,
where applicable, the respective Primary Mortgage Insurer and/or the
respective Pool Insurer, provided that:
(a) the Servicer determines that the pursuit of a deficiency
judgment is not practical or warranted;
(b) the Mortgaged Property has been listed for sale at a market
value for three months or more without a reasonable sales
offer;
(c) there reasonably appear to be legal impediments to pursuing
foreclosure;
(d) the acceptance of the deed-in-lieu of foreclosure will
enable the Owner of the related Mortgage Loan to acquire the
Mortgaged Property earlier than under a foreclosure action;
(e) the Borrower acknowledges in writing that the deed is being
accepted as an accommodation to him or her;
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(f) where applicable, the respective Primary Mortgage Insurer
and/or the respective Pool Insurer has agreed to the
acceptance of a deed-in-lieu;
(g) the Borrower has not received cash consideration to deed the
Mortgaged Property over to the Owner of the related Mortgage
Loan, unless the Master Servicer otherwise approves;
(h) the Borrower can convey acceptable marketable title,
evidenced by a Title Insurance policy;
(i) the Mortgaged Property is vacant (unless, where applicable,
the respective Primary Mortgage Insurer and/or the
respective Pool Insurer has agreed to accept an occupied
property);
(j) the Mortgaged Property is not subject to liens (held by
others), judgments, or attachments; and
(k) the Borrower agrees to assign and transfer to the benefit of
the Owner of the related Mortgage Loan, where applicable,
any rents if the Mortgaged Property is rented, and the
Servicer agrees to collect any rental income.
13.2.2 SUBSEQUENT ACTIONS. Upon acquisition by the Owner of the
related Mortgage Loan of such Mortgaged Property, the Servicer shall
promptly notify the Master Servicer and, if applicable, the respective
Primary Mortgage Insurer and/or the respective Pool Insurer, indicating the
details of the transaction and reasons for the conveyance and providing
such other information as is required under a Primary Inspection Report to
the Master Servicer and, if applicable, to the Primary Mortgage Insurer
and/or the Pool Insurer. Title shall be conveyed directly from the
Borrower to the Owner of the related Mortgage Loan or to such other Person
designated by the Master Servicer.
Section 13.3 ACTIONS PRIOR TO FORECLOSURE
13.3.1 NOTICE REQUIREMENTS. The Servicer shall send the Borrower a
letter, not less than 30 days before the commencement of foreclosure
proceedings, setting out (i) the nature of the default, (ii) the steps that
must be taken by the Borrower to cure the default and (iii) the date when
foreclosure proceedings will begin. If the Servicer has reason to believe
that the related Mortgaged Property has been abandoned or if the Borrower
has displayed an obvious disregard for his obligations under such Mortgage
Loan, the foregoing notice shall be forwarded at the earliest possible date
following the Borrower's default.
13.3.2 INITIATION OF PROCEEDINGS. If foreclosure approval has not
been withheld by the Master Servicer and, where applicable, by the
respective Primary Mortgage Insurer and/or the respective Pool Insurer,
with respect to a Mortgaged Property, including Co-op Shares, the Servicer
shall, unless it arranges for the sale by the Borrower of the
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Mortgaged Property to a third party pursuant to Section 13.3.3, initiate
or cause to be initiated such foreclosure actions as are authorized by law
and consistent with practices in the locality where the Mortgaged Property
is located, including, in the case where such Mortgaged Property includes a
residential long-term lease, the succession by the Servicer to the rights
of the Borrower under the lease by foreclosure, assignment in lieu of
foreclosure or other comparable means. If such Mortgaged Property has been
abandoned or vacated by the Borrower and the Borrower has evidenced no
intention of honoring his obligations under the related Mortgage Loan, the
foreclosure process shall be expedited to the fullest extent permitted by
law.
13.3.3 SHORT SALE OF DEFAULTED MORTGAGE LOANS IN LIEU OF FORECLOSURE.
With respect to any defaulted Mortgage Loan for which the Servicer would
otherwise be required to initiate foreclosure proceedings, the Servicer may
arrange for the sale of the Mortgaged Property by the Borrower to a third
party if, in the good faith judgment of the Servicer, the net proceeds from
such sale would be equal to or greater than the net proceeds of a bid
conducted in accordance with Section 13.4.2(b).
Section 13.4 FORECLOSURE PROCEDURES
13.4.1 FORECLOSURE EXPENSES. During the period in which the Mortgaged
Property related to a Mortgage Loan is being foreclosed, remaining Escrow
Funds, if any, as well as any rent receipts, shall be used to pay all taxes
and insurance premiums that become due with respect to such Mortgaged
Property to the extent permitted by law. Except where other arrangements
have been made with the applicable Primary Mortgage Insurer, the Servicer
shall, with respect to each Mortgaged Property undergoing foreclosure,
advance payment of attorneys' fees, trustees' fees and other foreclosure
costs from the commencement of foreclosure proceedings pertaining to such
Mortgaged Property.
13.4.2 BIDDING INSTRUCTIONS. (a) The Servicer shall issue bidding
instructions to the attorney or trustee in a foreclosure proceeding. Where
applicable, the Servicer shall incorporate any bidding requirements issued
by the respective Primary Mortgage Insurer and/or the respective Pool
Insurer. Any proceeds received from an insurance loss settlement shall be
included as part of the bid amount. Where a claim or claim settlement
under a Hazard Insurance or Flood Insurance policy is pending, the Servicer
shall contact the Hazard Insurance or Flood Insurance carrier to verify
that the proposed bid will not invalidate the claim, in that, in certain
jurisdictions, a bid for the total indebtedness will be considered as
satisfaction of the debt and would thus bar the Hazard Insurance or Flood
Insurance claim.
(b) The Servicer's bidding instructions to the attorney or trustee in a
foreclosure proceeding shall be to enter a bid amount which is the lesser
of (i) the total amount of indebtedness, which shall include the Unpaid
Principal Balance, unpaid accrued interest up to, and including, the date
of the sale (calculated using the interest rate in effect for each payment
on the date it became due), any T&I Advances and other servicing Advances
including, without limitation, foreclosure costs and any reimbursable
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property inspection fees or (ii) the fair market value of the related
Mortgaged Property established by a current broker's price opinion.
(c) If the Servicer is not able to comply with the bidding instructions
outlined in subsection (b) hereof, the Servicer shall request from the
Master Servicer an initial bid amount and bidding instructions for the
Servicer to follow at the applicable foreclosure sale. In no event shall
the bidding instructions from the Master Servicer supersede or invalidate
the bidding instructions provided by the respective Primary Mortgage
Insurer and/or respective Pool Insurer, where applicable.
13.4.3 BUYDOWN FUNDS USE. Unless the related Buydown Agreement
provides otherwise, the Servicer may not use Buydown Funds relating to a
Mortgage Loan to cure a Delinquency with respect to such Mortgage Loan.
Any Buydown Funds remaining in the associated Custodial Buydown Account of
a Mortgage Loan in foreclosure must be disposed of in accordance with the
terms of the related Buydown Agreement.
13.4.4 SERVICER'S RESPONSIBILITIES. Subject to the provisions of
Article Three hereof, after acquisition of a Mortgaged Property, through
foreclosure or a deed-in-lieu of foreclosure, or after the Servicer shall
have taken possession of the Mortgaged Property, whichever occurs first,
the Servicer shall be responsible for the management of such Mortgaged
Property. The Servicer shall remain responsible until possession has been
assumed by the applicable Primary Mortgage Insurer or the applicable Pool
Insurer or until such Mortgaged Property are otherwise disposed of, as the
case may be. The Servicer shall take such action as is necessary to
protect the Owner of the related Mortgage Loan's security or, after
acquisition thereof, ownership interest in such Mortgaged Property. Such
action shall include, without limitation, (i) management of such Mortgaged
Property, (ii) maintenance of such Mortgaged Property and (iii) if such
Mortgaged Property are vacant, protection of such Mortgaged Property
against vandals and the elements.
13.4.5 CONVEYANCE DOCUMENTS. Where applicable, any conveyance by the
Servicer to the respective Primary Mortgage Insurer or the respective Pool
Insurer of a Mortgaged Property shall be made by the form of deed commonly
used in the particular jurisdiction where such Mortgaged Property is
located. The Servicer shall prepare the necessary documents within two
weeks after the date of sale at foreclosure or confirmation of sale, if
applicable, or within a reasonable time frame. The documents shall be
forwarded to the Master Servicer for approval and execution. After
execution by the Owner of the related Mortgage Loan, such documents will be
returned to the Servicer for delivery to the respective Primary Mortgage
Insurer or the respective Pool Insurer which is acquiring such Mortgaged
Property.
Section 13.5 MORTGAGE LOAN REINSTATEMENT
13.5.1 BORROWER'S FULL PAYMENT. If a Borrower offers to fully
reinstate his Mortgage Loan during the foreclosure process, the Servicer
shall accept the offer. To achieve
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full reinstatement of his Mortgage Loan, a Borrower shall make payment of
all (i) payments due to bring such Mortgage Loan current, (ii) attorneys'
fees, (iii) trustees' fees, (iv) any additional legal costs, (v) all
applicable late fees and (vi) any other expenditures or Advances made by
the Servicer during the foreclosure process.
13.5.2 BORROWER'S PARTIAL PAYMENT. Except where otherwise required by
applicable law, the Servicer may not accept an amount in payment from a
Borrower which is less than the amount required for full reinstatement
pursuant to Section 13.5.1 hereof toward reinstatement of a Mortgage Loan
during the foreclosure process without the prior written approval from the
Master Servicer and, where applicable, the respective Primary Mortgage
Insurer and/or the respective Pool Insurer.
13.5.3 OBLIGATIONS UPON REINSTATEMENT. Upon accepting the
reinstatement of a Mortgage Loan, the Servicer shall immediately contact
the appropriate foreclosure attorney or trustee to avoid incurring
additional legal costs or fees. The Servicer must apply the reinstatement
Funds upon receipt from a Borrower in payment of the expenses enumerated in
Section 13.5.1 hereof. Upon receipt of the reinstatement funds from a
Borrower the Servicer must (i) notify the Master Servicer of the
reinstatement of the related Mortgage Loan and (ii) return to the Master
Servicer, the related Mortgage Note and other related Mortgage Loan
Documents for reinclusion in the related Mortgage Loan File.
13.5.4 CERTAIN ASSUMPTIONS PERMITTED. The Servicer is authorized,
notwithstanding the other provisions of this Article 13, to permit the
assumption of a defaulted Mortgage Loan rather than to foreclose or accept
a deed-in-lieu of foreclosure if, in the Servicer's judgment, the default
is unlikely to be cured and the assuming borrower meets the underwriting
guidelines that originally applied to such Mortgage Loan.
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ARTICLE 14
REO ADMINISTRATION
Section 14.1 GENERAL PROVISIONS
14.1.1 REO ACTION PLAN. With regard to each REO which is acquired,
the Servicer shall prepare a plan of action within 30 Business Days after
the date on which the Owner of the related Mortgage Loan acquires
marketable title to such REO. Each plan of action shall set forth (i) a
recommendation for the most effective manner to dispose of the REO, based
on a current appraisal report, a broker's price opinion and a market
analysis; (ii) the steps to be taken by the Servicer to secure such REO;
and (iii) an estimate of the amount of time that is required to dispose of
such REO. The Servicer shall promptly submit copies of each plan of action
to the Master Servicer and, where applicable, to the respective Primary
Mortgage Insurer, and/or the respective Pool Insurer. Unless otherwise
directed by the Master Servicer, the Servicer shall implement each plan of
action in an expeditious manner. Further, the Master Servicer may instruct
the Servicer to modify any plan of action as the Master Servicer shall
direct. The Servicer shall provide the Master Servicer with monthly
progress reports with regard to each plan of action detailing the status of
the related REO and the progress achieved in implementing the plan of
action.
Section 14.2 REO SERVICING
14.2.1 REO SERVICING REQUIREMENTS. The Servicer shall service each
REO from its acquisition through its disposition and shall ensure that all
funds received with respect to such REO are deposited to the appropriate
Custodial P&I Account for remittance to the Owner of the related Mortgage
Loan, unless the Master Servicer has relieved the Servicer of these
responsibilities by written notification.
14.2.2 SERVICER'S RESPONSIBILITIES. In addition to any other
obligations set forth herein, upon acquisition of each REO, the Servicer
shall be responsible for:
(a) managing, maintaining and securing such REO until it is
conveyed or sold;
(b) inspecting such REO at least once every 30 days and promptly
sending the Master Servicer an updated Property Inspection
Report;
(c) paying all taxes, insurance, maintenance, management and
foreclosure costs relating to such REO;
(d) submitting recommendations for listing and soliciting offers
on such REO;
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(e) marketing such REO;
(f) completing the sale of such REO;
(g) depositing sales proceeds relating to such REO into the
appropriate Custodial P&I Account for remittance to the
Owner of the related Mortgage Loan;
(h) where applicable, satisfying all of the Primary Mortgage
Insurer's procedural requirements and filing all required
forms and claims;
(i) where applicable, depositing Primary Mortgage Insurance or
Pool Insurance proceeds relating to such REO into the
applicable Custodial P&I Account for remittance to the Owner
of the related Mortgage Loan;
(j) processing the conveyance of such REO to the Primary
Mortgage Insurer, where applicable; and
(k) reporting (1) all changes in status of such REO and (2) all
material expenses relating to such REO to the Master
Servicer on a monthly basis.
14.2.3 NOTICE. The Servicer shall notify the Master Servicer in
writing as soon as each REO is acquired.
Section 14.3 REO RECORDS AND REPORTS
14.3.1 RECORDS RETENTION. The Servicer shall retain in its files
copies of all documents, reports and invoices described in this Section.
14.3.2 EVIDENCE OF TITLE. Evidence that title to a REO is held by the
Owner of the related Mortgage Loan shall be submitted by the Servicer to
the Master Servicer and, if applicable, to the Primary Mortgage Insurer
and/or the Pool Insurer, within ten Business Days after marketable title to
such REO has been acquired.
14.3.3 REO EXPENSES. At the end of each month following the receipt
of any invoice relating to expenses incurred in administering each REO, the
Servicer shall send a report listing such expenses to the Master Servicer
and, if applicable, to the Primary Mortgage Insurer and/or the Pool
Insurer. The Servicer shall retain such invoices in its records and shall,
by request, (i) produce any such invoices for inspection or (ii) at its own
expense, provide copies of any such invoices to the Master Servicer and, if
applicable, to the Primary Mortgage Insurer and/or the Pool Insurer, as
directed. The foregoing expense invoices shall include, without
limitation, the following:
(a) insurance premiums;
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(b) real estate tax bills;
(c) special assessments;
(d) owners' association dues; and
(e) utility bills.
14.3.4 REO DOCUMENTS. Promptly upon receipt, the Servicer shall send
copies to the Master Servicer and, where applicable, to the respective
Primary Mortgage Insurer and/or the respective Pool Insurer, of the
following documents relating to each REO:
(a) any forced placed Hazard Insurance policy or Flood Insurance
policy, if applicable;
(b) any maintenance contracts;
(c) any contractor bids relating to the rehabilitation of such
REO pursuant to Section 14.5.3 hereof;
(d) an updated Title Insurance policy which reflects the
occurrence of foreclosure; and
(e) plat map or house location survey, if already available.
Section 14.4 REO MARKETING
14.4.1 REO MARKETING EFFORTS. The Servicer shall begin efforts to
market a REO as soon as marketable title is acquired by the Owner of the
related Mortgage Loan.
14.4.2 REO SALES. The Servicer shall obtain the best market price for
a REO for the Owner of the related Mortgage Loan while disposing of such
REO in a timely and efficient manner. Unless otherwise directed by the
Master Servicer, the Servicer, acting on behalf of the Owner of the related
Mortgage Loan, shall dispose or cooperate with the Owner of the related
Mortgage Loan in disposing of such REO within 24 months after its
acquisition by the Owner of the related Mortgage Loan. If the Servicer is
otherwise unable to sell such REO, unless otherwise directed by the Master
Servicer, the Servicer shall before the end of the 24-month period
following the acquisition of such REO, auction such REO to the highest
bidder in an auction reasonably designed to bring a fair price. The
Servicer shall consult with the Master Servicer prior to holding such
auction. The Servicer is eligible to bid in such an auction.
14.4.3 PRIMARY MORTGAGE INSURANCE CONSIDERATIONS. The Servicer must
ensure that any action taken with respect to the sale of a REO does not
jeopardize the maximum benefits available under the related Primary
Mortgage Insurance Policy, if any, with respect to the related Mortgage
Loan. The Servicer must inform the related Primary
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Mortgage Insurer of any listing agreements or purchase offers that are
received before the related Primary Mortgage Insurer has finalized the
disposition of the claim.
14.4.4 MASTER SERVICER INSTRUCTIONS. Where the Servicer receives
instructions from the Master Servicer regarding the marketing and sale of a
REO, either with respect to a specific property or generally, such
instructions shall govern the Servicer's actions, notwithstanding any
provision herein.
14.4.5 POOL INSURANCE CONSIDERATIONS. The Servicer must ensure that
any action taken with respect to the sale of a REO does not jeopardize the
maximum benefits available under the related Pool Insurance Policy, if any,
with respect to the related Mortgage Loan. The Servicer must inform the
related Pool Insurer of any listing agreements or purchase offers that are
received before the Primary Mortgage Insurer has finalized the disposition
of the claim.
Section 14.5 REO REHABILITATION
14.5.1 REO REHABILITATION REQUIREMENT. Unless the Master Servicer
shall otherwise direct, and subject to Section 17.6.2, the Servicer must
ensure that any rehabilitation work (which shall not include the cleaning
of a recently acquired REO property) to any REO which is necessary to
restore such REO to a marketable condition is performed and that such work
is performed in a professional and workmanlike manner.
14.5.2 MASTER SERVICER APPROVAL. The Servicer must obtain the Master
Servicer's prior written approval for rehabilitation work (which shall not
include the cleaning of a recently acquired REO property) when the
aggregate rehabilitation expenses with regard to a REO exceeds seven
thousand five hundred dollars ($7,500.00).
14.5.3 WRITTEN CONTRACTOR BIDS. The Servicer shall solicit detailed
written bids from independent contractors when the value of a contract for
rehabilitation of a REO exceeds five hundred dollars ($500.00) (which shall
not include the cleaning of a recently acquired REO property). Where the
value of a contract exceeds five thousand dollars ($5,000.00) (which shall
not include the cleaning of a recently acquired REO property), the Servicer
shall receive bids from a minimum of two independent and unrelated
contractors and, upon request, forward copies of such bids to the Master
Servicer. Where the value of a contract exceeds fifty thousand dollars
($50,000.00) (which shall not include the cleaning of a recently acquired
REO property), the Servicer shall receive bids from a minimum of three
independent and unrelated contractors and, upon request, forward copies of
such bids to the Master Servicer.
14.5.4 PRIMARY MORTGAGE INSURANCE CONSIDERATIONS. If a Mortgaged
Property which has become a REO and the related Mortgage Loan is covered by
a policy of Primary Mortgage Insurance, the Servicer shall notify the
related Primary Mortgage Insurer of such rehabilitation plans before the
completion of the Primary Mortgage Insurance claim to ensure reimbursement
from the Primary Mortgage Insurer. If the related Primary Mortgage Insurer
elects not to reimburse all rehabilitation expenses, work
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should be postponed until after final disposition of the Primary Mortgage
Insurance claim.
Section 14.6 REO ADMINISTRATION FAILURE.
14.6.1 SERVICER REMOVAL. The Master Servicer may in its reasonable
discretion, in the event that the Servicer's actions or omissions result in
damage to any REO or a failure to sell any REO property within a reasonable
time, the Master Servicer may remove the servicing of such REO from the
Servicer and assume responsibility for management, control, maintenance,
security, rehabilitation and disposition of such REO.
14.6.2 SERVICER'S CONTINUING OBLIGATIONS. In the event that the
Servicer is removed from servicing a REO by virtue of the provisions of
Section 14.6.1, the Servicer, as to such REO, will nevertheless remain
responsible to (a) pay when due all insurance premiums, property taxes and
assessments; (b) file when due all claims for Primary Mortgage Insurance,
Pool Insurance, Hazard Insurance and, if applicable, Flood Insurance
benefits; and (c) fulfill any other related responsibilities required by
the Master Servicer.
14.6.3 SERVICER'S DUTY TO COMPENSATE. Whether or not a Servicer is
removed from servicing with respect to a particular REO, the Servicer must
compensate the Master Servicer for any damages caused as a result of the
Servicer's breach of its obligation to service efficiently each REO. The
Servicer acknowledges that any damages suffered as a result of the
Servicer's inefficiency in managing a REO may not be quantified in advance
of the Master Servicer assuming responsibility for such REO.
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ARTICLE 15
INSURANCE
Section 15.1 GENERAL PROVISIONS
15.1.1 INSURANCE REQUIREMENTS
The Servicer must verify that each Mortgage Loan has the insurance coverage
required pursuant to Article 15 and 16. All claims arising under Insurance
Policies maintained hereunder must be settled or otherwise disposed of by
the Servicer, and all such Insurance Policies must be maintained,
including, without limitation, the payment of premiums on a timely basis,
by the Servicer at no expense to the Owner of the related Mortgage Loan, or
the Master Servicer.
If the Insurance Proceeds paid in respect of any Mortgage Loan are not used
to repair the related Mortgaged Property due to the particular
circumstances of the loss, and instead such Insurance Proceeds are applied
to reduce the Unpaid Principal Balance of such Mortgage Loan and such
application causes the Unpaid Principal Balance of such Mortgage Loan to
reduce to zero, the Servicer must treat the application of such proceeds as
a Liquidation, and notify the Master Servicer of such Liquidation.
15.1.2 UNINSURED LOSSES. The Servicer must take the following actions
in the event of loss or damage to any Mortgaged Property caused by an
earthquake, flood, tornado or other natural disaster immediately following,
the earlier to occur of (x) its notification or discovery of such loss or
damage or (y) the time at which the Servicer reasonably should have known
of such loss or damage in the exercise of Prudent Servicing Practices:
(a) determine the extent of the losses or damages;
(b) secure any abandoned Mortgaged Property from vandalism and
the elements;
(c) communicate with and counsel the respective Borrower on any
disaster relief programs or other assistance which is
available; and
(d) notify the Master Servicer and recommend appropriate action
to protect the interests of the Owner of the related
Mortgage Loan and the respective Borrower.
15.1.3 SERVICER'S OBLIGATION TO MAINTAIN INSURANCE. If the Servicer
discovers that a Borrower does not have adequate insurance coverage as
required pursuant to the provisions of this Article, the Servicer must
obtain and maintain at its own expense the required insurance coverage on
the related Mortgaged Property. The Servicer may, in
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its discretion, cause the required coverage to be maintained through a
blanket insurance policy. Such expenses shall not be recoverable by the
Servicer from the Master Servicer or the Principal or from payments on the
Mortgage Loan or any other source relating to the related Mortgage Loan or
the related Mortgaged Property, other than from Liquidation Proceeds or
Insurance Proceeds from the related Mortgage Loan. To the extent permitted
by applicable law and the related Mortgage Loan Documents, the Servicer may
initiate forced placed coverage with respect to such Mortgaged Property and
thereafter attempt to recover such expenses from the related Borrower.
15.1.4 INSURANCE NOTICES. The Servicer must arrange for all insurance
drafts, notices, policies, invoices, or other correspondence to be
delivered directly to the Servicer. The Owner of the related Mortgage
Loan, its successors and assigns, must be named as the Mortgagee, the
endorsement must show the Servicer's address as shown in the following
example:
[Owner of the Mortgage Loan, its successors and
assigns]
c/o [Servicer]
[Servicer's Address]
15.1.5 DEFAULT BY INSURER. If the Servicer knows or has reasonable
cause to suspect that an insurer under any applicable insurance policy
required pursuant to the provisions of this Article will, for any reason,
be unable to pay a valid claim, the Servicer shall immediately notify the
Master Servicer upon receipt of such information or formulation of such
belief. The Servicer shall then (i) find a substitute insurer and (ii) pay
any premiums to the insurer. In any case, the Servicer shall not be liable
in any way for the financial inability of any insurer under any insurance
policy required herein to pay a valid claim so long as the provisions of
Article 15 and 16 hereof are complied with.
15.1.6 INSURANCE CARRIER RATING. Each Insurance Policy must be
underwritten by an insurance carrier that is a FNMA approved Mortgage
Insurer.
15.1.7 INSURANCE CARRIER LICENSES. Each insurance carrier must be
licensed or otherwise authorized by law to conduct business in each state
in which a related Mortgaged Property is located.
15.1.8 RISK EXPOSURE. If any Mortgaged Property is exposed to hazards
not fully covered by Hazard Insurance or Flood Insurance, the Servicer must
notify the Master Servicer immediately with a recommendation for additional
coverage.
15.1.9 EVIDENCE OF INSURANCE. (a) The Servicer must maintain the
following documentation with respect to insurance coverage on each Mortgage
Loan:
(i) if Primary Mortgage Insurance is required, a copy of
the Primary Mortgage Insurance policy and any related
endorsements;
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(ii) for one- to four-unit dwellings, an original of the
Hazard Insurance policy, if applicable, and any related
endorsements;
(iii) a copy of the Title Insurance policy and any related
endorsements;
(iv) For properties covered under a blanket policy, an
original of any blanket policy, and any related
endorsements; and
(v) an original of any Flood Insurance policy, if Flood
Insurance is required, and any related endorsements.
(b) A certificate of insurance is acceptable in lieu of any of the
foregoing policies if it contains the following information:
(i) named insured and Mortgagee or, for PUD or Condominium
Units, named insured association, unit owner and unit
owner Mortgagee;
(ii) address of the Mortgaged Property;
(iii) type, amount and effective dates of coverage;
(iv) deductible amount;
(v) any endorsement or optional coverage obtained and made
part of the original policy;
(vi) insurer's agreement to provide at least ten day's prior
written notice to the Servicer and Borrower (or
applicable unit owner Mortgagee if for a PUD or
Condominium Unit) before any reduction in coverage or
cancellation of the policy; and
(vii) signature of an authorized representative of the
insurer, if required by applicable law.
Section 15.2 PRIMARY MORTGAGE INSURANCE
15.2.1 PRIMARY MORTGAGE INSURANCE REQUIREMENT. Unless Primary
Mortgage Insurance coverage with respect to a Mortgage Loan has been waived
in writing by the Owner of the Mortgage Loan at the time it purchases such
Mortgage Loan or such Primary Mortgage Insurance is canceled as provided in
Section 15.2.4 herein, the Servicer must maintain at all times Primary
Mortgage Insurance on any Mortgage Loan with an original LTV ratio in
excess of 80%.
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15.2.2 PRIMARY MORTGAGE INSURANCE COVERAGE. As to each Mortgage Loan
which is required to have Primary Mortgage Insurance, pursuant to this
Agreement or the related Mortgage Loan Documents, Primary Mortgage
Insurance must at least provide coverage which insures against loss of that
portion of the Unpaid Principal Balance of the Mortgage Loan that exceeds
75% of the Value of the Mortgaged Property. If the Mortgage Loan provides
for negative amortization or for the potential of negative amortization,
the Primary Mortgage Insurance policy must also insure any increase in the
Unpaid Principal Balance from the original principal balance of the related
Mortgage Note.
15.2.3 PRIMARY MORTGAGE INSURER DOWNGRADING. In the event that the
rating assigned by a Rating Agency to the claims paying ability of any
Primary Mortgage Insurer is reduced below the level permitted under Section
15.1.6, the Servicer will use its best efforts to replace each Primary
Mortgage Insurance Policy issued by such Primary Mortgage Insurer with a
new Primary Mortgage Insurance policy issued by an insurer whose claims
paying ability is acceptable to the Master Servicer. The premium for any
replacement Primary Mortgage Insurance policy shall not exceed the premium
for the discontinued Primary Mortgage Insurance policy.
15.2.4 PRIMARY MORTGAGE INSURANCE CANCELLATION. If a Borrower
requests cancellation of the Primary Mortgage Insurance policy with respect
to his Mortgaged Property, the following requirements must be met:
(a) The current LTV ratio must be 80% or less. The current LTV
ratio must be calculated by dividing the Unpaid Principal
Balance of the related Mortgage Loan by the Current Value of
the Mortgaged Property;
(b) The related Mortgage Loan may not have been 30 days or more
delinquent within the preceding twelve months; and
(c) There may not have been any other default under the terms of
the related Mortgage Loan at any time during the preceding
twelve months.
If the foregoing requirements are met, the Servicer may request the
cancellation of such Primary Mortgage Insurance policy by submitting to the
Master Servicer a Request for Primary Mortgage Insurance Cancellation. If
there are indications that the Current Value of the Mortgaged Property has
declined, the Servicer shall obtain an Appraisal Report with respect to
such Mortgaged Property that is not more than 60 days old. The expense of
such an Appraisal Report shall not be borne by the Master Servicer. The
Current Value of such Mortgaged Property set forth the Appraisal Report
shall be used as the divisor in clause (a) hereof to determine whether the
recalculated current LTV is 80% or less. If the recalculated current LTV
is greater, the Primary Mortgage Insurance cancellation request will be
denied. In addition, the Master Servicer may deny such a request if it
determines, in its reasonable discretion, that the interests of the Owner
of the related Mortgage Loan may be harmed by such cancellation.
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15.2.5 PRIMARY MORTGAGE INSURANCE CLAIMS. The Servicer must take all
steps to ensure the payment of the maximum benefits payable under the terms
of any Primary Mortgage Insurance policy. The Servicer must work
diligently with each Primary Mortgage Insurer to determine whether such
insurer will settle the claim by taking title to the Mortgaged Property in
question or in some other manner. The Servicer also must notify the Master
Servicer immediately in writing of any decision made by the applicable
Primary Mortgage Insurer relative to a claim. Upon receipt of any Primary
Mortgage Insurance proceeds, the Servicer must deposit such amounts in the
appropriate Custodial P&I Account. The Servicer shall promptly notify the
Master Servicer in writing if any Primary Mortgage Insurer at any time
denies any or all of a claim filed under its Primary Mortgage Insurance
policy.
Section 15.3 HAZARD INSURANCE
15.3.1 HAZARD INSURANCE REQUIREMENT. Unless alternative coverage is
provided pursuant to Section 16.3 hereunder, the Servicer must ensure that
each Mortgaged Property is covered at all times by Hazard Insurance.
15.3.2 HAZARD INSURANCE COVERAGE. As to each Mortgaged Property, the
amount of Hazard Insurance must be at least equal to the lesser of (a) the
Unpaid Principal Balance of the related Mortgage Loan or (b) 100% of the
insurable value of the improvements on the Mortgaged Property; provided,
however, that in no case shall the amount of Hazard Insurance be less than
the amount required to fully compensate for any damage to the improvements
on the Mortgaged Property on a replacement cost basis.
15.3.3 HAZARD INSURANCE DEDUCTIBLE. Except as a greater amount may be
required by an applicable law, each Hazard Insurance deductible may not
exceed the lesser of (a) $1,000 or (b) one percent of the applicable amount
of coverage.
15.3.4 HAZARD INSURANCE VACANCY COVERAGE. The Servicer must ensure
that each Mortgaged Property is adequately covered even when vacant and,
where available, must obtain a vacancy permit endorsement.
15.3.5 HAZARD INSURANCE MORTGAGEE PROVISIONS. Each Hazard Insurance
Policy must contain or have attached a standard mortgagee clause in the
form customarily used by or required by private institutional mortgage loan
investors. Such clause must provide that the Hazard Insurance carrier will
notify the named Mortgagee at least ten days before any reduction in
coverage or cancellation of the policy. All mortgagee clauses must be
properly endorsed, necessary notices of transfer must be given and any
other action must be taken that is necessary in order to protect the
interests of the Owner of the related Mortgage Loan, its successors and/or
assigns. The standard mortgagee clause should read as follows: "Insuring
[Servicer's Name], as agent for the [Owner of the Mortgage Loan], its
successors and/or assigns."
Section 15.4 FLOOD INSURANCE
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15.4.1 FLOOD INSURANCE REQUIREMENT. Unless alternate coverage is
provided pursuant to Section 16.6 hereunder, the Servicer must ensure that
Flood Insurance is maintained at all times on Mortgaged Property that are
in a special flood hazard area identified by the Secretary of HUD or the
Director of the Federal Emergency Management Agency.
15.4.2 FLOOD INSURANCE COVERAGE. As to each Mortgaged Property, the
amount of Flood Insurance must be at least equal to the lesser of (a) the
maximum amount available under the National Flood Insurance Program's
regular program or its emergency program, (b) the Unpaid Principal Balance
of the related Mortgage Loan or (c) 100% of the replacement cost of the
improvements on the Mortgaged Property.
15.4.3 FLOOD INSURANCE DEDUCTIBLE. Except as a greater amount may be
required by applicable law, each Flood Insurance deductible may not exceed
the lesser of (a) $1,000 or (b) one percent of the applicable amount of
coverage.
Section 15.5 TITLE INSURANCE
15.5.1 TITLE INSURANCE REQUIREMENT. Unless otherwise directed by the
Master Servicer, the Servicer shall maintain at all times with respect to
each Mortgage Loan and the related Mortgaged Property a Title Insurance
policy in full force and effect until such Mortgage Loan is fully paid.
15.5.2 TITLE INSURANCE COVERAGE. The Servicer shall not reduce the
amount of or otherwise change the scope of the coverage under, or otherwise
do or authorize any act or omission that would affect the coverage of, any
Title Insurance policy, unless the Servicer has received written direction
from the Master Servicer specifying the amount or amounts or scope to which
the coverage is to be changed.
15.5.3 SERVICER'S OBLIGATIONS. The Servicer shall perform and comply
with all requirements and conditions of each Title Insurance policy for
each Mortgage Loan and the related Mortgaged Property that are to be
performed or observed by the "Insured" or obligee thereunder as a condition
to maintaining and keeping it in force, or making a claim under, such Title
Insurance policy. The Servicer shall be named as a payee on all Title
Insurance policy loss drafts, and upon receipt thereof, the funds shall be
credited to the extent of the sum of (i) the Unpaid Principal Balance of
such Mortgage Loan and any interest accrued thereon, (ii) any outstanding
advances thereon and (iii) any expenses owed by such Borrower which are due
the Owner of such Mortgage Loan, the Master Servicer or the Servicer,
whether for its own account or others, to the appropriate Custodial P&I
Account and the balance of such funds, if any, shall be credited to the
appropriate Custodial T&I Account.
15.5.4 POLICY CUSTODY. The Servicer shall cause the original of such
Title Insurance policy to be sent directly to the Custodian.
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15.5.5 TITLE INSURANCE CLAIMS. The Master Servicer must be notified
contemporaneously with the making of any claim under the Title Insurance
policy. The Servicer shall disburse the proceeds of any such settlement in
accordance with the instructions and requirements of the Master Servicer.
Section 15.6 INSURANCE LOSS SETTLEMENTS
15.6.1 SETTLEMENT APPROVAL. The approval of the Master Servicer need
not be requested for disposition of insurance loss settlements where
property damage is $10,000 or less, and the Servicer may disburse the loss
proceeds as provided herein. The Master Servicer must be notified before
disposition of any insurance loss settlement involving property damage over
$10,000.
15.6.2 SETTLEMENT DISBURSEMENTS. For each Mortgage Loan, including a
Mortgage Loan secured by Mortgaged Property located in a Condominium
Project or PUD, the Servicer is fully responsible for the disbursement of
insurance loss settlements under each Hazard Insurance policy and each
Flood Insurance policy, including but not limited to:
(a) arranging for and authorizing the restoration and
rehabilitation of the related damaged Mortgaged Property in
cooperation with the Borrower;
(b) subject to applicable law, applying the Insurance Proceeds
to reduction of the Unpaid Principal Balance of such
Mortgage Loan, provided that the Servicer (i) shall have
determined that such proceeds are insufficient to repair and
restore the related Mortgaged Property, or that the repair
and restoration of such Mortgaged Property is not feasible;
and (ii) shall have obtained authorization of the Master
Servicer to make such application of the Insurance Proceeds;
(c) collecting, endorsing and disbursing the Insurance Proceeds
and arranging for progress inspections and payments, if
necessary;
(d) complying with all requirements of any Primary Mortgage
Insurance policy pertaining to the filing of claims and the
settlement of insurance losses to assure that the security
of such Mortgage Loan is not impaired and that the coverage
of such Primary Mortgage Insurance policy is not jeopardized
or otherwise adversely affected;
(e) assuring, through the receipt of Borrower's affidavits,
repair contract copies, lien waivers and the like, that the
priority of the lien of the Security Instrument is
preserved, and that the Insurance Proceeds are applied to
the restoration or repair of the related Mortgaged Property
if not applied in payment of such Mortgage Loan;
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(f) obtain releases or waivers of liens and taking such other
actions as are necessary to avoid the filing of laborers',
materialmen's or mechanic's liens against the related
Mortgaged Property; and
(g) maintaining procedures and practices acceptable to the
Master Servicer and in conformity with Prudent Servicing
Practices for the control and disposition of insurance loss
drafts.
15.6.3 SETTLEMENT FUNDS. The Servicer shall be named as a payee on
all insurance loss drafts and upon receipt thereof, the funds shall be
credited to the Borrower's Insurance Proceeds balance and deposited into
(a) where such funds will be applied to the repair and restoration of the
related Mortgaged Property, one or more separate escrow accounts, so that
the balance on deposit in such accounts is fully insured at all times by
the FDIC through either the BIF or SAIF or (b) where such funds will not be
applied to the repair and restoration of the related Mortgaged Property,
the respective Custodial P&I Account.
15.6.4 SETTLEMENT NOTICE. The Servicer shall report any such
settlement to the Master Servicer on a Hazard Insurance Loss Draft
Notification, together with a summary of the disposition of the proceeds.
15.6.5 CONTINUING COVERAGE. If a letter of assurance is obtained from
any insurer under a Hazard Insurance policy or a Flood Insurance policy
that the insurance coverage will continue in full force and effect, the
Servicer shall deposit such letter in the appropriate Servicer Mortgage
Loan File.
15.6.6 PROPERTY INSPECTIONS. The Servicer shall conduct property
inspections in accordance with the milestones of the repair and
rehabilitation plan for such Mortgaged Property and prepare Property
Inspection Reports on any Mortgaged Property involving property damage over
$15,000. The Servicer shall furnish a copy of the repair and
rehabilitation plan for such Mortgaged Property to the Master Servicer upon
request.
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ARTICLE 16
CONDOMINIUM AND PUD INSURANCE
Section 16.1 GENERAL PROVISIONS
16.1.1 APPLICABILITY. The provisions of this Article pertain solely
to Mortgage Loans secured by Condominium Units or PUD Units.
16.1.2 PREMIUMS. The premiums for insurance policies required
pursuant to this Article must be paid as a common expense by the Owners'
Association.
16.1.3 DEDUCTIBLE RESERVES. Funds for each of the deductibles
associated with the insurance policies required pursuant to this Article
must be included in the Owners' Association's reserves and must be so
designated.
16.1.4 NAME OF INSURED. The name of the insured stated under each
Insurance Policy required pursuant to the provisions of this Article must
be similar in form and substance to the following:
"Association of Owners of the [Name of Condominium Project or PUD] for
use and benefit of the individual Condominium or PUD Unit owners"
(designated by name, if required).
16.1.5 MORTGAGEE CLAUSE. Each insurance policy required pursuant to
the provisions of this Article must contain the standard mortgagee clause
endorsed to provide that any disbursements will be paid to the Owners'
Association for the use and benefit of Mortgagees as their interests may
appear, or otherwise endorsed to fully protect the interest of (a) the
Owner of the respective Mortgage Loan and (b) the holders of a beneficial
interest therein, if any.
16.1.6 RECONSTRUCTION COVERAGE. If, with respect to a PUD or
Condominium Project in which a Mortgaged Property is located, there is a
construction code provision that would require changes to undamaged
portions of the PUD or Condominium Project's building(s) even when only
part of a building is destroyed by an insured hazard, then the Servicer
must ensure that each insurance policy required by this Article contains
the necessary construction code endorsements to cover this exposure.
Section 16.2 COMMON AREA MULTIPLE PERIL INSURANCE
16.2.1 COMMON AREA MULTIPLE PERIL INSURANCE REQUIREMENT. The Servicer
must ensure that the Owner's Association maintains, with respect to the PUD
or Condominium Project in which a Mortgaged Property is located, a policy
of Common Area Multiple Peril Insurance, with premiums being paid as a
common expense. The Common Area Multiple Peril Insurance policy must at
least protect against loss or
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damage by fire and all other hazards that are normally covered by the
standard extended coverage endorsement, and all of the perils customarily
covered for similar types of projects, including those covered by the
standard "all risk" endorsement.
16.2.2 COMMON AREA MULTIPLE PERIL INSURANCE COVERAGE. As to each
Condominium Project or PUD in which a Mortgaged Property is located, a
Common Area Multiple Peril Insurance policy must cover 100% of the current
replacement cost of all of the common areas (other than the land and
foundation), common elements including fixtures and building service
equipment, as well as common personal property and supplies.
16.2.3 COMMON AREA MULTIPLE PERIL INSURANCE DEDUCTIBLE. Except as a
greater amount may be required by applicable law, each Common Area Multiple
Peril Insurance deductible may not exceed the lesser of (a) $10,000 or (b)
one percent of the applicable amount of coverage.
16.2.4 BOILER AND MACHINERY COVERAGE. If a steam boiler is operating
within the Condominium Project or PUD in which a Mortgaged Property is
located, then the Servicer must ensure that boiler and machinery coverage
is in force at all times. This coverage must be evidenced by the standard
form of boiler and machinery endorsement. The minimum liability coverage
per accident under boiler and machinery coverage must equal the insurable
value of the boiler and equipment and the building housing such boiler or
machinery, based upon current replacement cost, or $2 million, whichever is
less.
Section 16.3 BLANKET HAZARD INSURANCE
16.3.1 BLANKET HAZARD INSURANCE REQUIREMENT. Unless alternative
coverage is provided pursuant to Section 16.3 hereunder, the Servicer must
verify that each such Mortgaged Property is covered at all times by Hazard
Insurance policy which provides blanket coverage for the individual units
in the Condominium Project or PUD.
16.3.2 BLANKET HAZARD INSURANCE COVERAGE. As to each Condominium
Project or PUD which contains a Mortgaged Property for which its Hazard
Insurance coverage is provided through a blanket policy, the amount of
Hazard Insurance for a blanket policy a Condominium Project or PUD must be
at least equal to the lesser of (a) the aggregate of the outstanding
principal balances of all mortgage notes secured by units within the
Condominium Project or PUD (including the Mortgage Notes secured by
Mortgaged Properties) or (b) 100% of the replacement cost of the
improvements on the Condominium Project or PUD Unit site.
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16.3.3 BLANKET HAZARD INSURANCE DEDUCTIBLE. Except as a greater
amount may be required by an applicable law, each Hazard Insurance
deductible for a blanket policy covering a Condominium Project or PUD may
not exceed the lesser of (a) $10,000 or (b) one percent of the applicable
amount of coverage.
Section 16.4 COMMON AREA COMPREHENSIVE GENERAL LIABILITY (CGL) INSURANCE
16.4.1 COMMON AREA CGL INSURANCE REQUIREMENT. The Servicer must
ensure that the Owners' Association maintains a Comprehensive General
Liability Insurance policy covering all of the common areas, common
elements, commercial spaces and public ways in the Condominium Project or
PUD in which a Mortgaged Property is located.
16.4.2 COMMON AREA CGL INSURANCE COVERAGE. As to each Condominium
Project or PUD in which a Mortgaged Property is located, a CGL Insurance
policy should provide coverage of at least $1,000,000 for personal injury,
bodily injury or property damage for any single occurrence. Each CGL
Insurance policy must contain a severability of interest endorsement
preventing the insurer from denying the claim of a Condominium or PUD Unit
owner because of negligent acts of the Owners' Association or other unit
owners. Each CGL Insurance policy must include all other types of coverage
and endorsements in the types and amounts required by private institutional
mortgage loan investors for developments similar in construction, location
and use.
Section 16.5 OWNERS' ASSOCIATION FIDELITY INSURANCE
16.5.1 OWNERS' ASSOCIATION FIDELITY INSURANCE REQUIREMENT. The
Servicer must ensure that the Owners' Association maintains a fidelity bond
or insurance against dishonest and fraudulent acts on the part of
directors, managers, trustees, employees or volunteers responsible for
handling funds belonging to or administered by the association.
16.5.2 OWNERS' ASSOCIATION FIDELITY INSURANCE COVERAGE. The Owners'
Association fidelity bond or insurance must name the Owners' Association as
the insured and must be written in an amount sufficient to provide
protection at least 150% of the insured's estimated annual operating
expenses and reserves. An appropriate endorsement to the policy to cover
any persons who serve without remuneration must be added if the policy
would not otherwise cover volunteers. Owners' Association fidelity
insurance coverage must be in an amount equal to at least 3 months
assessments on all units in the Condominium Project or PUD. Owners'
Association fidelity insurance coverage is not required if the Condominium
Project or the PUD have fewer than 20 units.
Section 16.6 BLANKET FLOOD INSURANCE
16.6.1 BLANKET FLOOD INSURANCE REQUIREMENT. Where a Mortgaged
Property is a Condominium Unit or PUD Unit and is not individually covered
by a Flood Insurance policy in accordance with the provisions of Section
15.4 hereof, the Servicer must
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verify that a Flood Insurance policy which provides blanket coverage for
the individual units in the Condominium Project or PUD, is maintained at
all times on Mortgaged Property that are in a special flood hazard area
identified by the Secretary of HUD or the Director of the Federal Emergency
Management Agency.
16.6.2 BLANKET FLOOD INSURANCE COVERAGE. As to each Condominium
Project or PUD which contains a Mortgaged Property for which its Flood
Hazard Insurance coverage is provided through a blanket policy, the amount
of Flood Insurance must be at least equal to the lesser of (a) the maximum
amount available under the National Flood Insurance Program's regular
program or the its emergency program, (b) the aggregate of the outstanding
principal balances of all mortgage notes secured by units within the
Condominium Project or PUD (including the Mortgage Notes secured by
Mortgaged Properties), or (c) 100% of the replacement cost of the
improvements on the Condominium Project or PUD Unit site.
16.6.3 BLANKET FLOOD INSURANCE DEDUCTIBLE. Except as a greater amount
may be required by applicable law, each Flood Insurance deductible for a
blanket policy covering a Condominium Project or PUD may not exceed the
lesser of (a) $5,000 or (b) one percent of the applicable amount of
coverage.
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ARTICLE 17
ADVANCES
Section 17.1 PRINCIPAL AND INTEREST ADVANCES
17.1.1 P&I ADVANCE REQUIREMENT. The Servicer shall advance P&I
Advances and deposit to the respective Custodial P&I Account on or before
each Remittance Date an amount equal to the aggregate of the difference, if
any, with respect to each Mortgage Loan, between (a) the Monthly Payment
that each Borrower was required to pay to the Servicer on the immediately
preceding Due Date (excluding the amount of the related Servicing Fee) and
(b) the amount actually received with respect to the related Monthly
Payment by the Servicer (excluding the amount of the related Servicing
Fee).
17.1.2 P&I ADVANCE LIMITATION. The Servicer is required to make P&I
Advances with respect to a Mortgage Loan unless a P&I Advance is reasonably
determined by the Servicer to be eventually non-recoverable from any
Insurance Proceeds, Liquidation Proceeds, or the Borrower.
17.1.3 P&I ADVANCE RECOVERY. The Servicer's P&I Advance will be
recoverable from subsequent Borrower Monthly Payments, Insurance Proceeds,
Liquidation Proceeds or, if the Representing Party is obligated to purchase
a Mortgage Loan from its Owner, from the price paid for such Mortgage Loan.
17.1.4 ADVANCE DURING BANKRUPTCY AND FORECLOSURE. During litigation,
bankruptcy proceedings or foreclosure proceedings pertaining to any
Mortgage Loan or while REO transferred to the Owner of a related Mortgage
Loan through foreclosure or a deed-in-lieu of foreclosure is held by such
Owner or its successors, the Servicer must continue to make monthly P&I
Advances in respect of each such Mortgage Loan or REO to the respective
Custodial P&I Account. Subject to the provisions of Section 17.1.2 hereof,
these P&I Advances must be made until the (i) Liquidation of each Mortgage
Loan subject to such proceedings or (ii) in the case of REO transferred to
the Owner of Mortgage Loan through foreclosure or a deed-in-lieu of
foreclosure, the Liquidation of such REO. Advances with respect to REO will
be made as if the related Mortgage Loan and Mortgage Note remained in
effect.
Section 17.2 FORECLOSURE ADVANCES
17.2.1 FORECLOSURE ADVANCE REQUIREMENT. During foreclosure
proceedings, the Servicer must advance from its own funds all foreclosure
expenses as they occur in accordance with the terms of this Agreement.
Such advances must be made by the Servicer up to the time of final
disposition of the related Mortgaged Property.
17.2.2 FORECLOSURE ADVANCE LIMITATION. The Servicer is required to
make advances pursuant to Section 17.2.1 with respect to a Mortgage Loan
unless the Servicer
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reasonably determines (i) that such foreclosure will not increase the
proceeds to the Owner thereof or the beneficial owners thereof of
liquidation of such Mortgage Loan after reimbursement of the Servicer for
its expenses or (ii) that such expenses will be eventually non-recoverable
from any Insurance Proceeds, Liquidation Proceeds or the Borrower.
17.2.3 FORECLOSURE ADVANCE RECOVERY. If foreclosure proceedings are
terminated, the Servicer must collect all legal fees and costs from the
Borrower. Otherwise, the Servicer's advances for reasonable foreclosure
expenses will be recoverable from Insurance Proceeds, Liquidation Proceeds
or, if the Representing Party is obligated to purchase a Mortgage Loan from
its Owner, from the price paid for such Mortgage Loan.
17.2.4 FORECLOSURE ADVANCE RECORDS. All foreclosure advances by the
Servicer and reimbursements to the Servicer must be clearly identifiable in
the respective Custodial T & I Account.
Section 17.3 TAX & INSURANCE ADVANCES
17.3.1 T&I ADVANCE REQUIREMENT. If a Borrower's Escrow Funds are
insufficient to pay taxes or insurance premiums, the Servicer must advance
from its own funds to the respective Custodial T&I Account an amount
sufficient to cover the shortage and so as to assure the maintenance of a
first lien position of the related Security Instrument on the related
Mortgaged Property.
17.3.2 T&I ADVANCE RECOVERY. T&I Advances may be recovered from the
Borrower's subsequent monthly escrow payments, Insurance Proceeds,
Liquidation Proceeds or the Borrower, but must never be recovered from
scheduled principal or interest collections. The Servicer may not recover
T&I Advances from another Borrower's Escrow Funds.
17.3.3 T&I ADVANCE LIMITATION. The Servicer is required to make a T&I
Advance with respect to a Mortgage Loan unless such T&I Advance is
reasonably determined by the Servicer to be eventually non-recoverable from
any Insurance Proceeds, Liquidation Proceeds, or the Borrower.
17.3.4 ADVANCE DURING BANKRUPTCY AND FORECLOSURE. During litigation,
bankruptcy proceedings or foreclosure proceedings pertaining to any
Mortgage Loan or while REO transferred to the Owner of a related Mortgage
Loan through foreclosure or a deed-in-lieu of foreclosure is held by such
Owner, the Servicer must continue to make required T&I Advances in respect
of each such Mortgage Loan or REO to the respective Custodial T&I Account.
These T&I Advances must be made until each Mortgage Loan subject to such
proceedings is liquidated or in the case of REO transferred to the Owner of
the related Mortgage Loan through foreclosure or a deed-in-lieu of
foreclosure is liquidated. Advances with respect to REO will be made as if
the related Mortgage Loan and Mortgage Note remained in effect.
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Section 17.4 NON-RECOVERABLE ADVANCES
17.4.1 ORDINARY RECOVERY. If at any time an advance made by a
Servicer hereunder is determined by the Servicer to be a Non-Recoverable
Advance, then the Servicer shall be entitled to be reimbursed for such
advance by withdrawing from the Custodial P&I Account an amount equal to
the Non-Recoverable Advance.
17.4.2 FINAL RECOVERY. If the amounts on deposit in the related
Custodial P&I Account are insufficient to reimburse the Servicer, then
prior to any distribution to the Owner of the related Mortgage Loan, the
Servicer shall be entitled to reimbursement from the payments made and the
proceeds received with respect to such Mortgage Loan.
17.4.3 NON-RECOVERABLE ADVANCE DETERMINATION. To determine whether an
Advance is a Non-Recoverable Advance, the Servicer shall employ a broker's
price opinion, which is no more than twelve months old when so employed, of
the fair market value of the Mortgaged Property related to the Mortgage
Loan which is subject to such Advance, and calculate the difference between
(a) the fair market value of such Mortgaged Property and (b) the sum of (i)
a reasonable estimate of foreclosure costs which may be incurred in the
foreclosure of such Mortgaged Property, and (ii) the amount of unreimbursed
Advances made by the Servicer with respect to the related Mortgage Loan
pursuant to the terms of this Agreement, is greater than zero. If such a
difference is greater than zero, then such difference represents the
maximum amount of additional Advances which the Servicer shall make before
determining that any additional Advances in excess of such amount are Non-
Recoverable Advances. If such difference is negative, then the magnitude
of such difference is the amount of previously made unreimbursed Advances
which the Servicer may now regard as Non-Recoverable Advances. The
Servicer shall provide the Master Servicer with an Officer's certificate
upon the determination that any Advance is a Non-Recoverable Advance.
Section 17.5 FAILURE TO ADVANCE
17.5.1 GROUNDS FOR TERMINATION. The failure of the Servicer to
advance any funds required to be advanced by the Servicer under this
Article 17 is cause for termination of Servicer under this Agreement.
17.5.2 SERVICER REIMBURSEMENT. To the extent the Master Servicer or
the respective trustee, if any, must advance their respective funds due to
the failure of the Servicer to advance as provided for in this Agreement or
to remit funds to the Master Servicer Custodial Account as required by
Section 18.3.1, the Servicer shall reimburse the advancing party for such
amounts, on demand, together with all costs and expenses incurred by the
advancing party, including, but not limited to, interest on the funds
advanced. Such interest will be calculated at the lesser of the "prime
rate" publicly
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announced in effect from time to time at the Reference Bank plus one
percentage point and the maximum interest rate permitted by law.
Section 17.6 REHABILITATION ADVANCE
17.6.1 REHABILITATION ADVANCE REQUIREMENT. The Servicer must advance
from its own funds such amounts as are necessary to restore any damaged REO
not covered by Hazard Insurance or Special Hazard Insurance in accordance
with Section 14.5.
17.6.2 REHABILITATION ADVANCE LIMITATION. The Servicer is required to
make advances pursuant to Sections 17.6.1 and 14.5 with respect to a
Mortgage Loan unless the Servicer reasonably determines (i) that such
rehabilitation will not increase the proceeds to the Owner thereof or the
beneficial owners thereof on liquidation of such Mortgage Loan after
reimbursement of the Servicer for its expenses or (ii) that such expenses
will be eventually non-recoverable from any Insurance Proceeds, Liquidation
Proceeds or the Borrower.
17.6.3 REHABILITATION ADVANCE RECOVERY. The Servicer's advances for
reasonable rehabilitation expenses will be recoverable from Insurance
Proceeds, Liquidation Proceeds, or, if the Representing Party is obligated
to purchase a Mortgage Loan from its Owner, from the price paid for such
Mortgage Loan.
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ARTICLE 18
REPORTING REQUIREMENTS
Section 18.1 MONTHLY ACCOUNTING REPORTS
18.1.1 MONTHLY ACCOUNTING REPORT REQUIREMENT. With respect to any
Remittance Date, the period for monthly accounting reports shall be from
the first Business Day of the prior month through the last Business Day of
the prior month, provided that (I) the reporting period for Prepayments in
Full, Curtailments and Partial Liquidation Proceeds shall be from the
Determination Date in the month of such Remittance Date, and (ii) such
report shall include only (a) Monthly Payments received by the Servicer by
the close of business on the Business Day preceding the Determination
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Date in the month of such Remittance Date which relate to the Due Date in
such month, or in prior months to the extent not previously remitted and
reported, and (b) any P&I Advances made in respect of such Monthly
Payments. All monthly reports prepared by the Servicer must be complete
and must be received by the Master Servicer by the eighteenth calendar day
of the following month. All monthly accounting reports must show
information in, and must be submitted in, a sequence according to Servicer
Loan Number order.
18.1.2 MONTHLY ACCOUNTING REPORT ELEMENTS. The Servicer shall forward
to the Master Servicer a Monthly Accounting Report setting forth
substantially the information required by FNMA Form 2010.
The Servicer must also complete and forward to the Master Servicer any
other form or report as provided for in this Agreement, or as reasonably
requested by the Master Servicer.
18.1.3 AUTOMATED REPORTS. The Servicer may submit to the Master
Servicer for review the Servicer's automated reports which include all of
the information required by the provisions of Section 18.1.2 hereof. Upon
approval by the Master Servicer, the Servicer may submit approved automated
reports to the Master Servicer instead of the Forms listed in Section
18.1.2 hereof.
18.1.4 ELECTRONIC REPORTING. With the prior written consent of the
Master Servicer, all reports to be made by the Servicer to the Master
Servicer may be transmitted electronically in lieu of written reporting.
If the Servicer services more than one hundred Mortgage Loans for the
Master Servicer, it shall arrange for electronic transmission of the
required reports. Any expenses occasioned by the electronic transmission
of reports shall be borne by the Servicer.
18.1.5 MACHINE READABLE RECORDS. At the request of the Master
Servicer, the Servicer will provide to the Master Servicer, in a mutually
agreed machine readable format, the current names and mailing addresses of
each Borrower. The Master Servicer will utilize such information solely
for audit purposes, or in the event the Servicer is terminated hereunder.
Section 18.2 ACCOUNT RECONCILIATIONS
18.2.1 RECONCILIATION PREPARATION. The Servicer shall prepare
reconciliations for each Custodial P&I Account, Custodial T&I Account and
Custodial Buydown Account on a monthly basis and shall forward the same to
the Master Servicer upon request.
18.2.2 ACCOUNT RECORDS. Upon request of the Master Servicer, the
Servicer shall also cause the depository for each of the accounts described
in Section 18.2.1 hereof to forward directly to the Master Servicer, copies
of all monthly account statements for the preceding monthly reporting
period.
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Section 18.3 MONTHLY REMITTANCE REQUIREMENTS
18.3.1 REMITTANCE OF FUNDS. On each Remittance Date with respect to each
distinct Owner of Mortgage Loans, the Servicer shall transfer, to the
extent not previously transferred as required pursuant to Section 6.1.3(e),
from the funds in (or required hereunder to be in) the respective Custodial
P&I Account as of the close of the Business Day immediately preceding the
Determination Date in the month of such Remittance Date to the related
Master Servicer Custodial Account, the following (other than any Amounts
Held for Future Distribution in respect of such Remittance Date not
exceeding the Threshold Amount and any amounts permitted to be retained by
the Servicer or withdrawn from such account by the Servicer pursuant to the
terms of this Agreement):
(i) all payments on account of principal, including prepayments
of principal (whether full or partial) and interest (other
than payments of interest related to any Prepayment in Full
received by the Servicer prior to the Determination Date in
the month in which such prepayment occurs), and all net REO
Disposition proceeds;
(ii) all net Liquidation Proceeds, all net Partial Liquidation
Proceeds and Insurance Proceeds, other than any portion of
Insurance Proceeds to be applied to the restoration or
repair of the related Mortgaged Property or released to the
Borrower in accordance with the requirements of law or
Prudent Servicing Practices;
(iii)all P&I Advances made by the Servicer;
(iv) the Purchase Price, or portion thereof, paid for any
Mortgage Loans or property acquired in respect thereof
repurchased or substituted by the Servicer or a Representing
Party; and
(v) all other amounts required to be deposited in the Custodial
P&I Account or the Master Servicer Custodial Account
pursuant to this Agreement.
Notwithstanding Section 18.3.1, the Servicer shall be entitled to withhold
and to pay to itself the applicable Servicing Fee (as adjusted pursuant to
Section 7.6.1) from any payment on account of interest or other recovery
(including Net REO Proceeds) as received and prior to deposit of such
payments in the Master Servicer Custodial Account; PROVIDED FURTHER that
with respect to any payment of interest received by the Servicer in respect
of a Mortgage Loan (whether paid by the Mortgagor or received as
Liquidation Proceeds, Insurance Proceeds or otherwise) which is less than
the full amount of interest then due with respect to such Mortgage Loan,
only that portion of such payment that bears the same relationship to the
total amount of such payment of interest as the per annum rate used to
calculate the Servicing Fee, as set forth in
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Section 4.8, bears to the Mortgage Interest Rate borne by such Mortgage
Loan shall be allocated to the Servicing Fee with respect to such Mortgage
Loan.
18.3.2 SERVICER COMPENSATION. The Servicer shall withdraw its
Servicing Fee for each Mortgage Loan net of any Month End Interest payable
pursuant to Section 7.6.1 from the related Custodial P&I Account prior to
the remittance of such amounts to the Master Servicer Custodial Account
with all other payments received with respect to the Mortgage Loans.
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ARTICLE 19
TRANSFERS AND TERMINATION OF SERVICING
Section 19.1 TRANSFER OF SERVICING
19.1.1 TRANSFER PROHIBITION. The Servicer may not sell or transfer
its portfolio serviced hereunder without the prior written consent of the
Master Servicer, which consent cannot be unreasonably withheld. Further,
the Servicer may not subcontract any of its servicing duties, except as set
forth in Section 11.2.1.
19.1.2 TRANSFER REQUEST. Any request for sale or transfer of
servicing will be reviewed on an individual basis. For a request to be
considered, however, the transferor must submit a written request to the
Master Servicer. The transferee must agree to enter into a servicing
agreement with the Master Servicer substantially in the form of this
Agreement and must be approved by the Master Servicer, and, if applicable,
any rating agency with respect Mortgage Loans which are owned by a trust
which has issued mortgage-backed securities, securitized by such Mortgage
Loans, which have been rated at the request of such trust by such rating
agency. The Master Servicer must receive this documentation at least 45
days prior to the requested date of transfer. The transferor will be
notified in writing of the Master Servicer's approval or denial. Such
transfer will be denied if the transferee does not meet the approval
requirements of the Master Servicer, or any such rating agency.
19.1.3 SERVICER LIABILITY. The transferor of servicing shall be
liable to the Master Servicer, and the Owner of the related Mortgage Loans
for any servicing obligation violations that occur before, during, and up
to and including the day the portfolio is actually transferred. The
transferee of servicing shall be liable for any breach of servicing
obligations that occurs after the transfer of the servicing portfolio.
19.1.4 MASTER SERVICER'S DETERMINATION. If the transferor and
transferee disagree about liability for violations of representations and
warranties and servicing requirements hereunder, the Master Servicer has
the right, in its reasonable discretion, to determine which party or
parties are liable for such violations.
Section 19.2 TERMINATION OF SERVICING
19.2.1 GROUNDS FOR TERMINATION. The Owners of the related Mortgage
Loans, will have the right to terminate for cause the servicing privileges
of the Servicer under this Agreement, either with respect to certain
Mortgage Loans serviced hereunder or with respect to all Mortgage Loans
serviced hereunder in the event that (i) any of the following occur, (ii)
the related Owner or the Master Servicer on its behalf has given the
Servicer prior written notice of the occurrence of such event and (iii)
with respect to clauses (a), (b) or (f) hereof, the Servicer has failed to
cure such event within a reasonable time, which shall in all cases be no
less than ninety (90) days:
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(a) the Servicer has breached any material obligation set forth
or incorporated by reference in this Agreement or any Sales
Agreement, including, without limitation, the Servicer's
failure to maintain the requisite Fidelity Bond and Errors
and Omissions Policy in the amounts specified herein;
(b) the Servicer has made one or more false or misleading
representations or warranties in this Agreement or any Sales
Agreement, or in any documents relating to the foregoing
agreements;
(c) the appointment of a trustee or receiver for the Servicer or
any of its property;
(d) the execution by the Servicer of an assignment for the
benefit of its creditors;
(e) any material change in the financial status of the Servicer
that, in the opinion of the Master Servicer, could
materially adversely affect the Owner of the related
Mortgage Loans, the Master Servicer or the Servicer's
ability to service the Mortgage Loans;
(f) the Servicer's placement on probation or suspension by a
federal or state government agency, including, without
limitation, FHLMC, FNMA or GNMA;
(g) the Servicer's assignment or attempted assignment of any of
its interests, rights, or obligations set forth herein
without the Master Servicer's prior written consent; or
(h) the Servicer has been terminated for cause pursuant to the
terms of another servicing agreement with the Principal.
19.2.2 OWNER NOTIFICATION. The Master Servicer shall notify the
Owners of the related Mortgage Loans of the occurrence of any of the events
set forth in Section 19.2.1, together with the Master Servicer's
recommended course of action regarding the termination of the Servicer.
19.2.3 SERVICER TERMINATION. Following the occurrence of any of the
events set forth in Section 19.2.1, each Owner of the related Mortgage
Loans may elect, at its reasonable discretion, to terminate the Servicer
under this Agreement with respect to the Mortgage Loans owned by such Owner
as shown on Schedule II hereof. Each such Owner shall provide a written
termination notice to the Servicer.
19.2.4 CONSEQUENCES OF TERMINATION. If this Agreement with the
Servicer is terminated pursuant to Section 19.2.3 hereof, the Servicer will
deliver all Servicer
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Mortgage Loan Files, in their entirety, for those Mortgage Loans serviced
under this Agreement, as well as any other documents or reports held by the
Servicer concerning such Mortgage Loans, to the transferee designated by
the Master Servicer, which may be the Master Servicer, and will assist in
the efficient and timely transfer of the servicing to such transferee. The
Servicer shall not be entitled to compensation for servicing following its
termination.
19.2.5 EFFECT OF TERMINATION. In the event of the termination of this
Agreement, the Servicer is not released from its obligations under this
Agreement. If its servicing is terminated for cause, the Servicer must pay
the expenses of the Master Servicer incurred in connection with transfer of
the servicing and any actual and direct damages, including, without
limitation, actual and direct damages or losses, of the Owner of the
related Mortgage Loans, or the Master Servicer resulting from such
termination.
19.2.6 CUSTODIAL ACCOUNT THRESHOLD REDUCTION. In the event that any
of the events specified in clauses (a) through (h) of Section 19.2.1 or in
clauses (g), (h) or (i) of Section 4.2.5 occur, the Master Servicer, in its
reasonable discretion, may notify the Servicer in writing that the
applicable Threshold Amount has been reduced to such amount not less than
$1,000 as shall be specified in such notice.
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ARTICLE 20
MISCELLANEOUS PROVISIONS
Section 20.1 AMENDMENTS
20.1.1 UNILATERAL AUTHORITY. The Servicer acknowledges that the
Master Servicer, acting on behalf of the Principal and its successors and
assigns, may, upon written notice, supplement or amend the provisions of
this Agreement from time to time, without the need to obtain the Servicer's
consent to (a) correct ambiguous or erroneous provisions in this Agreement;
(b) make changes necessary or helpful to maintain compliance with
applicable law; (c) conform to evolving industry standards regarding the
servicing of residential mortgage loans generally; or (d) make such other
modifications or amendments thereto, which the Master Servicer deems
advisable, provided that no such modification or amendment shall have a
material adverse impact so as to materially increase the obligations of, or
to materially decrease the benefits to, the Servicer.
20.1.2 CONSENSUAL AMENDMENT. Except as provided for in Section 20.1.1
hereof, the Master Servicer, acting on behalf of the Principal and its
successors and assigns, must obtain the written consent of the Servicer to
any amendment hereto that would either increase materially the obligations
of the Servicer or decrease materially the benefits to the Servicer.
20.1.3 OWNER NOTIFICATION. The Owners of the related Mortgage Loans
shall be provided with notice of the substance of any amendments or
modifications made to this Servicing Agreement pursuant to the provisions
of this Section 20.1.
20.1.4 OWNER DISAPPROVAL. With regard to any proposed modification or
amendment to this Agreement which shall have a material adverse impact upon
the beneficial rights enjoyed hereunder by an Owner of the related Mortgage
Loans, each such Owner shall receive written notice of the substance of any
proposed amendments or modifications at least ten business days prior to
the proposed date of enactment of such amendment or modification which
shall also state therein the proposed date of enactment. If a majority
vote of the Owners so materially adversely affected, with the vote of each
such Owner weighted in proportion to the aggregate of the Unpaid Principal
Balance of Mortgage Loans serviced hereunder for such Owner, notify the
Master Servicer in writing, prior to the proposed date of enactment, of
their opposition to the adoption of such an amendment or modifications, the
Master Servicer shall not proceed with such modification or amendment.
Section 20.2 GENERAL CONSTRUCTION
20.2.1 BINDING NATURE. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
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20.2.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
and understanding between the parties hereto with respect to the subject
matter hereof and supersedes all prior and contemporaneous servicing
agreements, understandings, inducements and conditions, expressed or
implied, oral or written, of any nature whatsoever with respect to the
subject matter thereof. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of
the terms hereof.
20.2.3 GOVERNING LAW. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement shall be governed
by, construed, interpreted and enforced in accordance with the laws of the
State of New York, notwithstanding any New York or other choice-of-law
rules to the contrary.
20.2.4 INDULGENCES NOT WAIVERS. Neither the failure nor any delay on
the part of a party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or
privilege, with respect to any occurrence be construed as a waiver of such
right, remedy, power or privilege with respect to any other occurrence. No
waiver shall be effective unless it is in writing and is signed by the
party asserted to have granted such waiver.
20.2.5 TITLES NOT TO AFFECT INTERPRETATION. The titles of the
articles and sections contained in this Agreement are for convenience only,
and they neither form a part of this Agreement nor are they to be used in
the construction or interpretation hereof.
20.2.6 PROVISIONS SEVERABLE. The provisions of this Agreement are
independent of and severable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
20.2.7 SERVICER AN INDEPENDENT CONTRACTOR. All services, duties and
responsibilities of the Servicer under this Agreement shall be performed
and carried out by the Servicer as an independent contractor, and none of
the provisions of this Agreement shall be deemed to make, authorize or
appoint the Servicer as agent or representative of any Owner of any
Mortgage Loans, of the Principal, or of the Master Servicer.
20.2.8 THIRD PARTY BENEFICIARY. The parties agree that the Master
Servicer and any Owner are intended third party beneficiaries of the
representations, warranties, covenants and agreements of the Servicer set
forth in this Agreement. The Master Servicer shall have full authorization
to enforce directly against the Servicer any of the obligations of the
Servicer provided for herein.
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20.2.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and such counterparts shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date set forth
above.
NORWEST MORTGAGE, INC.
as Servicer
By: ____________________________________________
Name:
Title: Vice President
NORWEST BANK MINNESOTA;
NATIONAL ASSOCIATION
as Principal
By: ____________________________________________
Name:
Title: Vice President
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SCHEDULE I
MORTGAGE LOAN SCHEDULE
CUT-OFF DATE
CUT-OFF DATE REGARDING
UNPAID INITIAL COVERAGE
MASTER SERVICER PRINCIPAL UNDER THIS SERVICING FEE
LOAN NUMBER BALANCE AGREEMENT PERCENTAGE
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<PAGE>
SCHEDULE II
LIST OF OWNERS OF THE MORTGAGE LOANS
CUT-OFF
DATE RELATING
MASTER SERVICERS OWNER'S TO OWNER'S
LOAN NUMBER OWNER ADDRESS ACQUISITION
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<PAGE>
EXHIBIT A
NOTIFICATION OF SALE OF MORTGAGE LOANS
RE: NORWEST MORTGAGE LOAN POOL 199 - W
For the purpose of the registration of the transfer of ownership of the
mortgage loans set forth below (the "Mortgage Loans") pursuant to Section 2.4.2
of the Servicing Agreement, dated March 1, 1996, between Norwest Bank Minnesota
National Association and Norwest Mortgage, Inc. (the "Servicing Agreement"), the
Current Owner, , hereby notifies the Master Servicer
of its sale of the Mortgage Loans to the indicated New Owner. The right to
register a transfer of ownership of the Mortgage Loans under Section 2.4.1 of
the Servicing Agreement is subject at any time to certain numerical limits
regarding the number of simultaneous Owners of Mortgage Loans for a given
mortgage loan pool. Please contact, [Bond Administration], Norwest Bank
Minnesota National Association at [NUMBER] or by facsimile at [NUMBER] regarding
the status of such numerical limits with respect to any particular mortgage loan
pool. If the transfer of ownership of the Mortgage Loans is registered, the
Master Servicer will effect payments to the New Owner following the related Cut-
Off Date. The New Owner agrees to provide the same notification to the Master
Servicer for subsequent sales of the Mortgage Loans.
Attached hereto are incumbency certificates of the Current Owner and the
New Owner which indicate the signatory authority of the parties executing this
notification.
This notification, dated this ____ day of ______ , ______ , has been agreed
to by the following parties.
________________________ ________________________
Current Owner New Owner
By:_____________________ By:_____________________
Name: Name:
Title: Title:
CUT-OFF
NEW DATE RELATING
MASTER SERVICER NEW OWNER'S TO NEW OWNER'S
LOAN NUMBER OWNER ADDRESS ACQUISITION
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<PAGE>
COOPERS & LYBRAND LETTERHEAD
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Pre-Effective Amendment No. 1
to Form S-3 of Norwest Asset Securities Corporation of our report dated
January 17, 1996 on our audits of the consolidated financial statements of
Financial Security Assurance Inc. and Subsidiaries as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31,
1995. We also consent to the reference to our Firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
May 13, 1996
