<PAGE>
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NORWEST ASSET SECURITIES CORPORATION
(Exact name of registrant as specified in governing instruments)
11000 BROKEN LAND PARKWAY
COLUMBIA, MARYLAND 21044-3562
(410) 884-2000
(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
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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. / /
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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
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
--------------------------
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
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<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>
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*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 APRIL 3, 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 AND SPECIAL CONSIDERATIONS" 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
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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 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.
The Offered Certificates may not be an appropriate investment for individual
investors. 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
S-3
<PAGE>
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
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<S> <C>
Summary Information....................................................................................... S-7
Risk Factors and Special Considerations................................................................... 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-51
Allocation of Losses.................................................................................. S-52
Description of the Mortgage Loans......................................................................... S-56
General................................................................................................. S-56
Mortgage Loan Data...................................................................................... S-58
Mandatory Repurchase or Substitution of Mortgage Loans.................................................. S-62
Optional Repurchase of Defaulted Mortgage Loans......................................................... S-62
Mortgage Underwriting Standards......................................................................... S-62
Norwest Mortgage Delinquency and Foreclosure Experience................................................... S-63
Prepayment and Yield Considerations....................................................................... S-67
Sensitivity of the Class AP Certificates................................................................ S-73
Pooling and Servicing Agreement........................................................................... S-74
General................................................................................................. S-74
Distributions........................................................................................... S-75
Voting.................................................................................................. S-75
Trustee................................................................................................. S-75
Master Servicer......................................................................................... S-76
Optional Termination.................................................................................... S-76
Servicing of the Mortgage Loans........................................................................... S-77
The Servicers........................................................................................... S-77
Servicer Custodial Accounts............................................................................. S-77
Fixed Retained Yield; Servicing Compensation and Payment of Expenses.................................... S-78
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Servicer Defaults....................................................................................... S-79
Federal Income Tax Considerations......................................................................... S-79
Regular Certificates.................................................................................... S-79
Residual Certificate.................................................................................... S-79
ERISA Considerations...................................................................................... S-81
Legal Investment.......................................................................................... S-82
Secondary Market.......................................................................................... S-82
Underwriting.............................................................................................. S-83
Legal Matters............................................................................................. S-83
[Experts.................................................................................................. S-83]
Use of Proceeds........................................................................................... S-83
Ratings................................................................................................... S-84
Index of Significant Prospectus Supplement Definitions.................................................... S-85
</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>
S-7
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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>
S-8
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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
</TABLE>
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
<PAGE>
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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
<PAGE>
<TABLE>
<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
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
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 AND SPECIAL CONSIDERATIONS
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 and Special Considerations" 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, securities
administration 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 on March 16, 1984 under the laws of the
State of New York. Financial Security received its New York State insurance
license and commenced operations on September 23, 1985. Financial Security is
licensed directly, or through its subsidiaries to engage in financial guaranty
insurance business in all 50 states, the District of Columbia, Puerto Rico, and
the United Kingdom.
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.
Holdings is owned approximately 50% by U S WEST Capital Corporation ("U S
WEST"); 8% by Fund American Enterprises Holdings, Inc. ("Fund American"); and 6%
by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine"). U S WEST is a
subsidiary of U S WEST, Inc., which operates businesses involved in
communications, data solutions, marketing services and capital assets, including
the provision of telephone services in 14 states in the western and midwestern
United States. Fund American is a financial services holding company whose
principal operating subsidiary is one of the nation's largest mortgage
servicers. Tokio Marine is a major Japanese property and casualty insurance
company. U S WEST has announced its intention to dispose of its interest in
Holdings as part of its strategic plan to withdraw from businesses not directly
involved in telecommunications. Fund American has certain rights to acquire
additional shares of Holdings from U S WEST and Holdings. 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.
S-48
<PAGE>
On December 20, 1995, Capital Guaranty Corporation ("CGC") merged with a
subsidiary of Holdings and Capital Guaranty Insurance Company ("CGIC"), CGC's
principal operating subsidiary, became a wholly-owned subsidiary of Financial
Security. CGIC was a financial guaranty insurer of municipal bonds in the
domestic market.
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 September 30, 1995, Financial Security and its
subsidiaries had 167 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
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.
RATINGS OF CLAIMS-PAYING ABILITY. Financial Security's claims-paying
ability is rated "Aaa" by Moody's and "AAA" by Standard & Poor's Corporation,
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 September 30, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
(UNAUDITED)
------------------
(IN THOUSANDS)
<S> <C>
Unearned Premium Reserve (net of prepaid reinsurance premiums)............ $ 216,931
Shareholder's Equity:
Common Stock............................................................ 15,000
Additional Paid-In Capital.............................................. 497,506
Unrealized Gain on Investments (net of deferred income taxes)........... 7,790
Accumulated Earnings.................................................... 70,177
Total Shareholder's Equity................................................ $ 590,473
Total Unearned Premium Reserve and Shareholder's Equity................... $ 807,404
</TABLE>
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 included as exhibits to the following documents, which have 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, 1994, which Report included as an exhibit Financial Security's audited
consolidated financial statements for the year ended December 31, 1994 and
(b) Quarterly Report on Form 10-Q of Holdings for the period ended
September 30, 1995, which Report included as an exhibit Financial Security's
unaudited consolidated financial statements for the quarter ended September
30, 1995.
S-49
<PAGE>
All financial statements of Financial Security 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 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,
S-50
<PAGE>
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.
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
S-51
<PAGE>
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.
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.
S-52
<PAGE>
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."
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
S-53
<PAGE>
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 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.
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<PAGE>
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 "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.
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. A certain percentage of the Bulk
Purchase Underwritten Loans might not have qualified initially under Norwest
Mortgage's underwriting standards, in most cases because the loan-to-value or
debt-to-income ratio exceeded Norwest Mortgage's thresholds. However, Norwest
Mortgage has in each case reviewed the underwriting standards applied and
determined that such variances were justifiable or did not depart materially
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
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<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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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, Norwest Mortgage 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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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, 1994 and December 31, 1993, 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, 1994,
incorporated by reference in this Prospectus Supplement have been incorporated
herein, in reliance on the report of , independent accountants, and
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
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<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 APRIL 3, 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. Unless otherwise specified in the
applicable Prospectus Supplement, 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. Unless otherwise
specified in the applicable prospectus supplement, 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. Unless otherwise specified 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, c/o Norwest Bank Minnesota,
National Association, 11000 Broken Land Parkway, Columbia, Maryland 21044-3562,
telephone number (410) 884-2000.
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
2
<PAGE>
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, c/o
Norwest Bank Minnesota, National Association, 11000 Broken Land Parkway,
Columbia, Maryland 21044-3562, telephone number (410) 884-2000.
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, 11000 Broken Land Parkway, Columbia, Maryland
21044-3562, telephone number (410) 884-2000.
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 and Special Considerations.................................................................... 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.................................................................................. 16
Graduated Payment Loans................................................................................ 17
Subsidy Loans.......................................................................................... 17
Buy-Down Loans......................................................................................... 18
Balloon Loans.......................................................................................... 18
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............................................................................... 21
Norwest Mortgage Underwriting............................................................................ 21
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Pool Certification Underwriting.......................................................................... 25
Representations and Warranties........................................................................... 26
Description of the Certificates............................................................................ 30
General.................................................................................................. 30
Definitive Form.......................................................................................... 31
Book-Entry Form.......................................................................................... 32
Distributions to Certificateholders...................................................................... 33
General................................................................................................ 33
Distributions of Interest.............................................................................. 35
Distributions of Principal............................................................................. 35
Other Credit Enhancement................................................................................. 37
Limited Guarantee...................................................................................... 37
Financial Guaranty Insurance Policy or Surety Bond..................................................... 37
Letter of Credit....................................................................................... 37
Pool Insurance Policies................................................................................ 37
Special Hazard Insurance Policies...................................................................... 38
Mortgagor Bankruptcy Bond.............................................................................. 38
Reserve Fund........................................................................................... 38
Cross Support.......................................................................................... 38
Prepayment and Yield Considerations........................................................................ 38
Pass-Through Rates....................................................................................... 38
Scheduled Delays in Distributions........................................................................ 39
Effect of Principal Prepayments.......................................................................... 39
Weighted Average Life of Certificates.................................................................... 39
Servicing of the Mortgage Loans............................................................................ 41
The Master Servicer...................................................................................... 41
The Servicers............................................................................................ 42
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....................................................................................... 49
Fixed Retained Yield, Servicing Compensation and Payment of Expenses..................................... 50
Evidence as to Compliance................................................................................ 51
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
Events of Default........................................................................................ 56
Rights Upon Event of Default............................................................................. 56
Amendment................................................................................................ 57
Termination; Optional Purchase of Mortgage Loans......................................................... 58
The Trustee.............................................................................................. 58
Certain Legal Aspects of the Mortgage Loans................................................................ 59
General.................................................................................................. 59
Foreclosure.............................................................................................. 59
Foreclosure on Shares of Cooperatives.................................................................... 60
Rights of Redemption..................................................................................... 61
Anti-Deficiency Legislation and Other Limitations on Lenders............................................. 61
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Soldiers' and Sailors' Civil Relief Act and Similar Laws................................................. 63
Environmental Considerations............................................................................. 63
"Due-on-Sale" Clauses.................................................................................... 64
Applicability of Usury Laws.............................................................................. 65
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................................................................................. 67
Taxation of Regular Certificates......................................................................... 69
General................................................................................................ 69
Original Issue Discount................................................................................ 69
Acquisition Premium.................................................................................... 72
Variable Rate Regular Certificates..................................................................... 72
Market Discount........................................................................................ 72
Premium................................................................................................ 74
Election to Treat All Interest Under the Constant Yield Method......................................... 74
Treatment of Losses.................................................................................... 75
Sale or Exchange of Regular Certificates............................................................... 76
Taxation of Residual Certificates........................................................................ 76
Taxation of REMIC Income............................................................................... 76
Basis and Losses....................................................................................... 77
Treatment of Certain Items of REMIC Income and Expense................................................. 78
Original Issue Discount and Premium.................................................................... 78
Market Discount........................................................................................ 78
Premium................................................................................................ 78
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................................................................... 83
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....................................................................................... 85
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............................................................ 92
Taxation of Certain Foreign Investors.................................................................... 93
ERISA Considerations....................................................................................... 93
General.................................................................................................. 93
Certain Requirements Under ERISA......................................................................... 93
General................................................................................................ 93
Parties in Interest/Disqualified Persons............................................................... 94
Delegation of Fiduciary Duty........................................................................... 94
Administrative Exemptions................................................................................ 94
Individual Administrative Exemptions................................................................... 94
PTE 83-1............................................................................................... 96
Exempt Plans............................................................................................. 96
Unrelated Business Taxable Income -- Residual Certificates............................................... 97
Legal Investment........................................................................................... 97
Plan of Distribution....................................................................................... 98
Use of Proceeds............................................................................................ 99
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, unless otherwise specified in the applicable
Prospectus Supplement, the Master Servicer will be
required to make Periodic Advances (to the extent de-
scribed 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
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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 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 distribu-
tions, 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,
unless otherwise specified in the applicable Prospectus
Supplement, principal payments (including prepayments)
will be passed through to holders of the related
Certificates 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................ Unless otherwise specified in the applicable Prospectus
Supplement, distributions on the Certificates will
generally be made on the 25th day (or, if such day is
not a business day, the
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business day following the 25th day) of each month, com-
mencing 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 Certificates may be made
monthly, 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
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Mortgage Loan. Any such Periodic Advances will be reim-
bursable to such Servicer as described herein and in the
applicable Prospectus Supplement. Unless otherwise
specified in the Prospectus Supplement, the Master
Servicer or Trustee will, 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
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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 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").
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RISK FACTORS AND SPECIAL CONSIDERATIONS
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, 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. 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
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
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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 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 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, (vi) if applicable and to the extent set forth in
the applicable Prospectus Supplement, an interest rate, currency or other swap,
cap, floor or other similar yield support agreement and (vii) such other assets
as may be specified in the applicable Prospectus Supplement. Unless otherwise
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. 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. 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 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.
Unless otherwise specified in the applicable Prospectus Supplement, all of
the Mortgage Loans in a Trust Estate will have monthly payments due on the first
of each month (each, a "Due Date") 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. Unless otherwise specified in the applicable Prospectus Supplement,
the Pooling and Servicing Agreement will require the Seller 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
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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. Unless otherwise specified in the applicable
Prospectus Supplement, the Seller will 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. Unless otherwise specified in the applicable Prospectus
Supplement, Subsidy Payments will be placed in a custodial account ("Subsidy
Account") 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
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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-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"). Unless otherwise specified in
the applicable Prospectus Supplement, the borrower of such Balloon Loan will be
obligated to pay the entire outstanding
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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 11000 Broken Land Parkway,
Columbia, Maryland 21044-3562. Its telephone number is (410) 884-2000.
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 [April 30, 1996] Norwest Mortgage and Norwest Funding acquired all of the
mortgage origination, servicing and secondary marketing operations of The
Prudential Home Mortgage Company, Inc. ("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
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$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. As of March 31, 1996, Norwest Bank had
assets of $18,233,000,000, deposits of $8,476,000,000 and shareholders' equity
of $1,125,000,000.
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.
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.
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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.
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
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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 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,
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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 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.
Unless otherwise specified in the applicable Prospectus Supplement, no
Mortgage Loan will have had at origination a Loan-to-Value Ratio in excess of
95%. The Loan-to-Value Ratio is the ratio,
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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 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.
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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 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.
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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.
Unless otherwise specified in the applicable Prospectus Supplement, 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.
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
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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 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
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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 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
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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;
(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
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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 (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
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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.
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
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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 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-
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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.
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.
Unless otherwise specified in the applicable Prospectus Supplement, 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
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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;
(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.
"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
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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.
Unless otherwise specified in the applicable Prospectus Supplement, interest
will accrue on the aggregate 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. Unless
otherwise specified in the applicable Prospectus Supplement, distributions
allocable to interest on each Certificate that is not entitled to distributions
allocable to principal will 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.
Unless otherwise specified in the applicable Prospectus Supplement,
distributions of interest on each Class of Accrual Certificates will commence
only after the occurrence of the events specified in such Prospectus Supplement
and, prior to such time, the principal balance of such Class will increase on
each Distribution Date by the amount of interest that accrued on such 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. Unless otherwise specified in the applicable
Prospectus Supplement, the principal balance of any Class of Certificates
entitled to distributions of principal will 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 (i)
in the case of Accrual Certificates, unless otherwise specified in the
applicable Prospectus Supplement, 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, unless otherwise specified in the applicable Prospectus
Supplement, 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
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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 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
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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.
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 a monoline 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.
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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.
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
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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 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. Unless otherwise specified in the applicable
Prospectus Supplement, 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
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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. Unless
otherwise specified in the applicable Prospectus Supplement, no Mortgage Loan
will provide for a prepayment penalty. Unless otherwise specified in the
applicable Prospectus Supplement, all fixed rate Mortgage Loans 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 all
adjustable-rate Mortgage Loans 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 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.
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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 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
Unless otherwise specified in the applicable Prospectus Supplement, the
Master Servicer with respect to each Series of Certificates will be Norwest
Bank. See "Norwest Bank" above. Unless otherwise specified in the applicable
Prospectus Supplement, the Master Servicer 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
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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 will pay all fees or other amounts payable
pursuant to any applicable agreement for the provision of credit enhancement for
such Series, unless otherwise specified in the applicable Prospectus Supplement.
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."
Unless otherwise specified in the applicable Prospectus Supplement, the
Master Servicer will 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; if specified in the applicable Prospectus
Supplement, payment of 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.
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
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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, certain servicing obligations of a Servicer may be delegated to
another person approved by the Master Servicer.
The Master Servicer or the Trustee 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 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
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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
(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.
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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;
(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);
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(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 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
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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 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 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 (the
"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
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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, unless
otherwise specified in the applicable Prospectus Supplement, the applicable
Underlying Servicing Agreement will 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 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.
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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 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
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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 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
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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 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
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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 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
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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, 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
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"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 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
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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. Unless otherwise specified in the applicable
Prospectus Supplement, 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;
(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;
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(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."
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).
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
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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 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
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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 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
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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 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-
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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.
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-
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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 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.
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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 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
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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 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
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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 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
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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 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.
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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 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.
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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 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
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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 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
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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.
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
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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 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
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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.
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
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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 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
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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 otherwise specified in the
applicable Prospectus Supplement, 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 otherwise specified in
the applicable Prospectus Supplement, 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.
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
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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 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
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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 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.
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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 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
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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.
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.
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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."
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
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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 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
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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 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
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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 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."
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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 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.
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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.
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.
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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 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
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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) 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
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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 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
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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 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
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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 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
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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 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.
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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 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
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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.
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
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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 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
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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, 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.
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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, 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.
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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.
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
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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 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
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<PAGE>
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,
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
97
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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.
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.
98
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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, unless otherwise 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 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.
99
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LEGAL MATTERS
Certain legal matters 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.
100
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INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<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
<PAGE>
<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...................................................................................... 36
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>
103
<PAGE>
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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 and Special Considerations........ S-27
Description of the Certificates................ S-28
Description of Mortgage Loans.................. S-56
Norwest Mortgage Delinquency and Foreclosure
Experience.................................... S-63
Prepayment and Yield Considerations............ S-67
Pooling and Servicing Agreement................ S-74
Servicing of the Mortgage Loans................ S-77
Federal Income Tax Considerations.............. S-79
ERISA Considerations........................... S-81
Legal Investment............................... S-82
Secondary Market............................... S-82
Underwriting................................... S-83
Legal Matters.................................. S-83
[Experts....................................... S-83]
Use of Proceeds................................ S-83
Ratings........................................ S-84
Index of Significant Prospectus Supplement
Definitions................................... S-85
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 and Special Considerations........ 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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- ------------------------------------------------
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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............................................. *
Legal Fees and Expenses.......................................... *
Accounting Fees and Expenses..................................... *
Trustee's Fees and Expenses
(including counsel fees)........................................ *
Printing and Engraving Fees...................................... *
Rating Agency Fees............................................... *
Miscellaneous.................................................... *
---------
Total........................................................ *
---------
---------
</TABLE>
- ------------------------
*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.*
23.2 Consent of Coopers & Lybrand regarding Financial Security Assurance Inc.*
24.1 Power of Attorney (included on page II-5 of this Registration Statement).
</TABLE>
- ------------------------
*To be provided by amendment.
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 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 March 29, 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 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 March 29, 1996
Stephen D. Morrison
/s/ ALTA JONES
------------------------------------------- Senior Vice President and Chief March 29, 1996
Alta Jones Financial Officer
/s/ MARK FARIS
------------------------------------------- Executive Vice President and Director March 29, 1996
Mark Faris
/s/ ROBERT GORSCHE
------------------------------------------- Director March 29, 1996
Robert Gorsche
</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.*
23.2 Consent of Coopers & Lybrand regarding Financial Security Assurance, Inc.*
24.1 Power of Attorney (included on page II-5 of this Registration Statement)
</TABLE>
- ------------------------
* To be provided by amendment.
<PAGE>
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT
NORWEST ASSET SECURITIES CORPORATION
Mortgage Pass-Through Certificates, Series 199_-_
UNDERWRITING AGREEMENT
_______, 199_
[Underwriter]
Ladies and Gentlemen:
Norwest Asset Securities Corporation, a Delaware corporation
("NASCOR"), proposes to issue and sell to you, as underwriter (the
"Underwriter"), the Mortgage Pass-Through Certificates having the respective
approximate principal amounts and the other characteristics set forth in
Schedule I hereto (the "Certificates") evidencing ownership interests in a trust
consisting of mortgage loans acquired by NASCOR (the "Mortgage Loans") and
related property but excluding the Fixed Retained Yield as set forth in Schedule
I hereto, 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 Schedule I, by and among NASCOR, as depositor,
Norwest Bank Minnesota, National Association, a national banking
association ("Norwest Bank"), as master servicer (in such capacity, the "Master
Servicer") and [____________], as trustee (the "Trustee"). The Certificates
will be issued in the denominations specified in Schedule I hereto. The
Certificates will conform in all material respects to the description thereof
contained in Schedule I hereto and the Prospectus Supplement.
1. REPRESENTATIONS AND WARRANTIES. (a) NASCOR represents and
warrants to, and agrees with, the Underwriter that:
(i) A registration statement (File No. 33-_________),
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
<PAGE>
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 this 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 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 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.
-2-
<PAGE>
(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 entitled to the
benefits of the Pooling and Serving 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 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 of
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
-3-
<PAGE>
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.
(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
-4-
<PAGE>
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 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 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.
(v) Norwest Bank has been duly [chartered] and is validly
existing as a national banking association in good standing under the
laws of the United States with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus.
-5-
<PAGE>
(vi) Norwest Bank is qualified to do business in all
jurisdictions in which its activities as Master Servicer and as
Securities Administrator require such qualification, except where
failure to be so qualified will not have a material adverse effect on
such activities.
(vii) As of the Closing Date, the execution and delivery by
Norwest Bank of the Pooling and Servicing Agreement will have been
duly authorized by all necessary corporate action on the part of
Norwest Bank.
(viii) Neither the execution and delivery of the Pooling and
Servicing Agreement, nor the consummation by Norwest Bank of any other
of the transactions contemplated therein, nor compliance by Norwest
Bank with the provisions of the Pooling and Servicing Agreement, will
conflict with or result in the breach of any material term or
provision of the [charter] or bylaws of Norwest Bank, and Norwest Bank
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
Norwest Bank is a party or by which it or its properties are bound, or
(ii) any law, decree, order, rule or regulation applicable to Norwest
Bank or any court or supervisory, regulatory, administrative or
governmental agency, body or authority, or arbitrator having
jurisdiction over Norwest Bank, or its properties, the default in or
the breach or violation of which would have a material adverse effect
on Norwest Bank or the ability of Norwest Bank to perform its
obligations under the Pooling and Servicing Agreement; and neither the
execution of the Pooling and Servicing Agreement, nor the consummation
of any other of the transactions contemplated therein, nor the
compliance with the provisions of the Pooling and Servicing Agreement
will result in such a breach, violation or default which would have
such a material adverse effect.
2. PURCHASE PRICE. The purchase price at which the Underwriter will
purchase the Certificates in the approximate principal amount for each
subclass set forth in Schedule I hereto shall be in the aggregate purchase price
set forth therein.
3. DELIVERY AND PAYMENT. The Certificates shall be delivered at the
office, on the date and at the time specified in Schedule I hereto, 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,
checking and packaging in New York, New York, on the business day prior to the
Closing Date.
-6-
<PAGE>
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, 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) hereof, NASCOR will not file
prior to the termination of such offering any amendment to the Regisration
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.
-7-
<PAGE>
(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, 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.
(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,
-8-
<PAGE>
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 hereof 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 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
(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.
-9-
<PAGE>
(c) Norwest Mortgage shall have furnished 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 of 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;
(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;
-10-
<PAGE>
(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 in the Registration Statement or the Prospectus or any
material incorporated by reference in the Registration Statement or
the Prospectus;
(vii) This Underwriting Agreement has been duly authorized,
executed and delivered by NASCOR;
-11-
<PAGE>
(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 application 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 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
-12-
<PAGE>
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) NASCOR shall have caused Norwest Bank to furnish 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 New
Jersey 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 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 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
-13-
<PAGE>
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 portions 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 prospectus 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.
(i) The Certificates shall be rated not lower than the required
ratings set forth in Schedule I hereto, such rating 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
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<PAGE>
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 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 preparation thereof; 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
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<PAGE>
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, 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. This indemnity agreement will be in addition to any liability which the
Underwriter may otherwise have.
(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 in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
NASCOR on the one hand and the Underwriter on the other from the offering of the
Certificates or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, or if the indemnified party failed to give the
notice required under subsection (c) above, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also 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. The relative benefits received by NASCOR on the one hand and the
Underwriter on the other shall be deemed to be
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<PAGE>
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 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 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 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 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.
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.
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<PAGE>
9. TERMINATION. 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 Schedule I
hereto, 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.
10. 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.
11. REIMBURSEMENT OF UNDERWRITER'S EXPENSES. If for any reason, other
than default by the Underwriter in its obligation to purchase the Certificates
or termination by the Underwriter pursuant to Section 9 hereof,the Certificates
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.
12. 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.
13. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE>
14. 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 Schedule I hereto 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.
15. 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 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.
16. 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:
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<PAGE>
Schedule I
NORWEST ASSET SECURITIES CORPORATION
Mortgage Pass-Through Certificates, Series 199_-_
Underwriting Agreement dated_______, 199__.
Title of Certificates: Mortgage Pass-Through Certificates,
Series 199_-_, [Classes] (the "Offered
Certificates").
Aggregate Principal Amount of the
Offered Certificates: $_______(+/-5%) Principal Amount
Certificates Not Offered Hereby: [Classes]
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.
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.
<PAGE>
Securities Administrator Fee
(Monthly fee payable to
the Securities Administrator): [ ]% per annum.
Fixed Retained Yield: [Yes][No].
Trustee: [First Trust National Association].
Book-Entry Registration: [Yes][No].
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.
S-2
<PAGE>
Exhibit A
[Reserved]
<PAGE>
CERTIFICATE OF INCORPORATION
OF
NORWEST ASSET SECURITIES CORPORATION
___________________________________________
ADOPTED IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 101 OF THE
DELAWARE GENERAL CORPORATION LAW
___________________________________________
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware") hereby
certifies that:
1. The name of the corporation is Norwest Asset Securities
Corporation (the "Corporation").
2. The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle 19801. The name of the registered agent at such registered office is
The Corporation Trust Company.
3. The purpose for which the Corporation is organized is (a) to
purchase or otherwise acquire, own, hold, sell, transfer, assign, pledge,
finance, refinance and otherwise deal with (i) mortgage loans, certificates or
other securities issued or guaranteed by the Government National Mortgage
Association, (ii) mortgage loans, certificates or other
<PAGE>
securities issued or guaranteed by the Federal National Mortgage Association,
(iii) mortgage loans, certificates or other securities issued or guaranteed by
the Federal Home Loan Mortgage Corporation, (iv) deeds of trust, mortgage loans,
mortgage participations, mortgage pass-through certificates or collateralized
mortgage obligations issued by any person or entity or other types of mortgage-
related securities including residual interests, (v) direct obligations of, and
obligations fully guaranteed by, the United States of America or any agency or
instrumentality of the United States the obligations of which are backed by the
full faith and credit of the United States of America, (vi) certificates
representing interests in the principal and/or interest payable on any of the
foregoing and (vii) such other securities and investments as may be permitted by
or acceptable to the applicable nationally-recognized statistical rating agency
or agencies referred to in subsection (b) of this Article 3; and (b) to issue,
offer, sell and own one or more series of mortgage pass-through certificates,
collateralized mortgage obligations, mortgage-backed bonds or other debt or
equity securities (the "Securities") representing ownership interests in, or
collateralized by, any of the foregoing, related property and/or collections and
proceeds in respect thereof; PROVIDED, HOWEVER, that the acts and activities and
exercise of any powers permitted in subsections (a) and (b) of this Article 3
shall be limited solely to matters (1) related to the Securities or (2) related
to such other similar transactions which do not result in a downgrade by the
nationally-recognized statistical rating agency or agencies which will rate,
upon issuance, each series of the Securities of the ratings accorded to such
series of the Securities; and (c) to engage in any activity and to exercise any
powers permitted to corporations under the laws of the State of Delaware that
are incident to the foregoing and necessary or convenient to accomplish the
foregoing.
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4. The total number of shares of stock that the Corporation shall
have authority to issue is 1,000 shares of Common Stock, $.01 par value.
5. Election of directors need not be by ballot unless the By-Laws of
the Corporation shall so provide. The books of the Corporation may (subject to
any statutory requirements) be kept at such place whether within or outside the
State of Delaware as may be designated by the Board of Directors or in the By-
Laws of the Corporation.
6. (a) The affairs of the Corporation shall be managed by a Board
of Directors. The number of directors of the Corporation shall be from time to
time fixed by, or in the manner provided in, the By-Laws of the Corporation with
the initial Board of Directors consisting of three members.
(b) At least one director of the Corporation (the "Outside
Director") shall not be, and for at least five years prior thereto shall not
have been, a director, officer or employee of, or direct or indirect beneficial
owner of 5% or more of the voting securities of, Norwest Mortgage, Inc.
("Norwest Mortgage"), or any corporate affiliate of Norwest Mortgage.
Notwithstanding the foregoing, the Outside Director may be a director or officer
of one or more other corporations that is an affiliate or are affiliates of
Norwest Mortgage provided that (i) each such corporation is or was formed with
limited purposes similar to the Corporation and (ii) such person does not earn,
in the aggregate, material compensation for serving in such positions. For the
purposes of the foregoing, an "affiliate" of an entity is an entity controlling,
controlled by, or under common control with such entity. Notwithstanding any
other provision of this Certificate of Incorporation or any other provision of
law that so
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empowers the Corporation, in the event of the death, incapacity, or resignation
of the Outside Director, or if such position is otherwise vacated, a successor
Outside Director shall be appointed by the remaining directors of the
Corporation and no action requiring the unanimous affirmative vote of the Board
of Directors of the Corporation shall be taken until a successor Outside
Director is elected and qualified and approves such action.
(c) The Corporation shall maintain a separate principal office
through which its business shall be conducted, which office may be located in
identifiable space within the headquarters of Norwest Mortgage or any affiliate
thereof pursuant to a lease on commercially reasonable terms.
(d) The Corporation shall maintain corporate records and books
of account and shall not commingle its corporate records and books of account
with the corporate records and books of account of Norwest Mortgage or any other
entity.
(e) The Board of Directors of the Corporation shall hold
appropriate meetings to authorize all of its corporate actions.
(f) The funds and other assets of the Corporation shall not be
commingled with those of any other entity.
(g) The Corporation shall pay its own expenses, including
salaries for its employees, if any, and shall not guarantee or hold itself out
as being liable for the debts of any other party.
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(h) The Corporation shall not form, or cause to be formed, any
subsidiaries.
(i) The Corporation shall act solely in its corporate name and
through its duly authorized officers or agents in the conduct of its business,
and shall conduct its business so as not to mislead others as to the identity of
the entity with which they are concerned.
(j) Meetings of the stockholders of the Corporation shall be
held not less frequently than one time per annum.
(k) The Corporation shall operate in such a manner that it would
not be substantively consolidated with any other entity.
7. In furtherance and not in limitation of the powers conferred upon
the Board of Directors by law, the Board of Directors shall have the power to
adopt, amend and repeal from time to time By-Laws of the Corporation.
8. Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation shall not, without the unanimous approval of the
Board of Directors of the Corporation, being comprised of at least one Outside
Director, do any of the following:
(i) dissolve or liquidate, in whole or in part;
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(ii) merge or consolidate with any other corporation other
than a corporation wholly owned, directly or
indirectly, by any entity owning 100% of the stock of
the Corporation and having a certificate of
incorporation containing provisions substantially
identical to the provisions of Articles 3 and 6 and
this Article 8;
(iii) sell all or substantially all of the assets of the
Corporation;
(iv) institute proceedings to be adjudicated a bankrupt or
insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against it, or file a
petition or answer or consent seeking reorganization or
relief under the Federal bankruptcy laws, or consent to
the filing of any such petition or to the appointment
of a receiver, liquidator, assignee, trustee,
conservator, sequestrator (or other similar official)
of the Corporation or of any substantial part of the
Corporation's property, or make an assignment for the
benefit of creditors, or admit in writing its inability
to pay its debts generally as they become due, or take
corporate action in furtherance of any such action; or
(v) amend this Certificate of Incorporation to alter in any
manner or delete Article 3, Article 6 or this
Article 8.
9. The Corporation is to have perpetual existence.
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10. Subject to the limitation in Article 8 of this Certificate of
Incorporation, the Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
11. No director shall have any personal liability to the Corporation
or its stockholders for any monetary damages for breach of fiduciary duty as a
director, except that this Article 11 shall not eliminate or limit the liability
of each director (i) for any breach of such director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which such director derived an improper personal benefit.
12. The incorporator of the Corporation is Stephen D. Morrison, Esq.,
whose mailing address is Norwest Mortgage, Inc., 405 S.W. 5th Street, Des
Moines, Iowa 50309.
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IN WITNESS WHEREOF, the undersigned, being the sole incorporator of
the Corporation, does now make this Certificate, hereby declaring and certifying
that this is my act and deed and that the facts herein stated are true, and
accordingly have hereunto set my hand this 28th day of March, 1996.
/s/ Stephen D. Morrison
------------------------
Incorporator
<PAGE>
BY-LAWS
OF
NORWEST ASSET SECURITIES CORPORATION
(A Delaware corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK.
(a) Every holder of stock in Norwest Asset Securities Corporation (the
"Corporation") shall be entitled to have a certificate signed by, or in the name
of, the Corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or by the President or a Vice-President and by the Chief Financial
Officer or an Assistant Financial Officer or the Secretary or an Assistant
Secretary of the Corporation representing the number of shares owned by such
person in the Corporation. If such certificate is countersigned by a transfer
agent other than the Corporation or its employee or by a registrar other than
the Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
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(b) Whenever the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
Corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
Delaware General Corporation Law. Any restrictions on the transfer or
registration of transfer of any shares of stock of any class or series shall be
noted conspicuously on the certificate representing such shares.
(c) The Corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require the owner of any lost, stolen
or destroyed certificate, or such person's legal representative, to give the
Corporation a bond sufficient to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTERESTS.
The Corporation may, but shall not be required to, issue fractions of a
share.
3. STOCK TRANSFERS.
Upon compliance with provisions restricting the transfer or registration of
transfer of shares of stock, if any, transfers or registration of transfer of
shares of stock of the Corporation shall be made only on the stock ledger of the
Corporation by the registered holder thereof, or by such person's attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation or with a transfer agent or a registrar, if any,
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and on surrender of the certificate or certificates for such shares of stock
properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than sixty
nor less than ten days before the date of such meeting. If no record date has
been fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; PROVIDED, HOWEVER, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date has been fixed, the record date for determining
stockholders for any such purpose
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shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
5. MEANING OF CERTAIN TERMS.
As used herein in respect of the right to notice of a meeting of
stockholders or a waiver thereof or to participate or vote thereat or to consent
or dissent in writing in lieu of a meeting, as the case may be, the term "share"
or "shares" or "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a holder
or holders of record of outstanding shares of stock when the Corporation is
authorized to issue only one class of shares of stock, and said reference is
also intended to include any outstanding share or shares of stock and any holder
or holders of record of outstanding shares of stock of any class upon which or
upon whom the Certificate of Incorporation confers such rights where there are
two or more classes or series of shares of stock or upon which or upon whom the
Delaware General Corporation Law confers such rights notwithstanding that the
Certificate of Incorporation may provide for more than one class or series of
shares of stock, one or more of which are limited or denied such rights
thereunder; PROVIDED, HOWEVER, that no such right shall vest in the event of an
increase or a decrease in the authorized number of shares of stock of any class
or series which is otherwise denied voting rights under the provisions of the
Certificate of Incorporation, including any preferred stock which is denied
voting rights under the provisions of the resolution or resolutions adopted by
the Board of Directors with respect to the issuance thereof.
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6. STOCKHOLDER MEETINGS.
(a) TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the Board of Directors. A special meeting shall be
held on the date and at the time fixed by the Board of Directors.
(b) PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the Board of Directors may,
from time to time, fix. Whenever the Board of Directors shall fail to fix such
place, the meeting shall be held at the registered office of the Corporation in
the State of Delaware.
(c) CALL. Annual meetings and special meetings may be called by the Board
of Directors or by any officer instructed by the Board of Directors to call the
meeting.
(d) NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date and hour of the meeting. The notice of an annual
meeting shall state that the meeting is called for the election of Directors and
for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting), state such other action or
actions as are known at the time of such notice. The notice of a special
meeting shall in all instances state the purpose or purposes for which the
meeting is called. If any action is proposed to be taken which would, if taken,
entitle stockholders to receive payment for their shares of stock, the notice
shall include a statement of that purpose and to that effect. Except as
otherwise provided by the Delaware General Corporation Law, a copy of the notice
of any meeting shall be given, personally or by mail, not less than ten days nor
more than sixty days before the date of the meeting, unless the lapse of the
prescribed period of time shall have
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been waived, and directed to each stockholder at such person's address as it
appears on the records of the Corporation. Notice by mail shall be deemed to be
given when deposited, with postage thereon prepaid, in the United States mail.
If a meeting is adjourned to another time, not more than thirty days hence,
and/or to another place, and if an announcement of the adjourned time and place
is made at the meeting, it shall not be necessary to give notice of the
adjourned meeting unless the Board of Directors, after adjournment, fixes a new
record date for the adjourned meeting. Notice need not be given to any
stockholder who submits a written waiver of notice before or after the time
stated therein. Attendance of a person at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders need be specified in any
written waiver of notice.
(e) STOCKHOLDER LIST. There shall be prepared and made, at least ten days
before every meeting of stockholders, a complete list of the stockholders,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected
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by any stockholder who is present. The stock ledger shall be the only evidence
as to who are the stockholders entitled to examine the stock ledger, the list
required by this section or the books of the Corporation, or to vote at any
meeting of stockholders.
(f) CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting: the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice President, a chairman for the meeting chosen by
the Board of Directors or, if none of the foregoing is in office and present and
acting, by a chairman to be chosen by the stockholders. The Secretary of the
Corporation or, in such person's absence, an Assistant Secretary, shall act as
secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman for the meeting shall appoint a secretary of
the meeting.
(g) PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for such stockholder by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by such
person's authorized officer, director, employee or agent. No proxy shall be
voted or acted upon after three years from its date unless such proxy provides
for a longer period. A duly executed proxy shall be irrevocable if it states
that it is irrevocable and, if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
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(h) INSPECTORS AND JUDGES. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election or judges
of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If an inspector or inspectors or judge or judges are not appointed by
the Board of Directors, the person presiding at the meeting may, but need not,
appoint one or more inspectors or judges. In case any person who may be
appointed as an inspector or judge fails to appear or act, the vacancy may be
filled by appointment made by the person presiding thereat. Each inspector or
judge, if any, before entering upon the discharge of such person's duties, shall
take and sign an oath faithfully to execute the duties of inspector or judge at
such meeting with strict impartiality and according to the best of his ability.
The inspectors or judges, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum and the validity and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such other acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors or
judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by such person or persons and execute a
certificate of any fact so found.
(i) QUORUM. Except as the Delaware General Corporation Law or these By-
Laws may otherwise provide, the holders of a majority of the outstanding shares
of stock entitled to vote shall constitute a quorum at a meeting of stockholders
for the transaction of any business. The stockholders present may adjourn the
meeting despite the absence of a
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quorum. When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any shareholders.
(j) VOTING. Each stockholder entitled to vote in accordance with the
terms of the Certificate of Incorporation and of these By-Laws, or, with respect
to the issuance of preferred stock, in accordance with the terms of a resolution
or resolutions of the Board of Directors, shall be entitled to one vote, in
person or by proxy, for each share of stock entitled to vote held by such
stockholder. In the election of Directors, a plurality of the votes present at
the meeting shall elect. Any other action shall be authorized by a majority of
the votes cast except where the Certificate of Incorporation or the Delaware
General Corporation Law prescribes a different percentage of votes and/or a
different exercise of voting power.
Voting by ballot shall not be required for corporate action except as
otherwise provided by the Delaware General Corporation Law.
7. STOCKHOLDER ACTION WITHOUT MEETINGS.
Any action required to be taken, or any action which may be taken, at any
annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of the
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by
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hand or by certified or registered mail, return receipt requested. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION.
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors of the Corporation. The use of the
phrase "whole Board" herein refers to the total number of Directors which the
Corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER.
A Director need not be a stockholder, a citizen of the United States, or a
resident of the State of Delaware. The initial Board of Directors shall consist
of three persons. Thereafter the number of Directors constituting the whole
Board shall be at least one. Subject to the foregoing limitation and except for
the first Board of Directors, such number may be fixed from time to time by
action of the stockholders or of the Board of Directors, or, if the number is
not fixed, the number shall be three. The number of Directors may be increased
or decreased by action of the stockholders or of the Board of Directors. At
least one director of the Corporation (the "Outside Director") shall not be, and
for at least five years prior thereto shall not have been, a director, officer
or employee of, or direct or indirect beneficial owner of 5% or more of the
voting securities of, Norwest Mortgage, Inc. ("Norwest Mortgage"), or
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any corporate affiliate of Norwest Mortgage. Notwithstanding the foregoing, an
Outside Director may be a director of one or more other corporations that is an
affiliate or are affiliates of Norwest Mortgage, provided that (i) each such
corporation is or was formed with limited purposes similar to the Corporation
and (ii) such person does not earn, in the aggregate, material compensation for
serving in such positions. For the purposes of the foregoing, an "affiliate" of
an entity is an entity controlling, controlled by, or under common control with
such entity.
3. ELECTION AND TERM.
The first Board of Directors, unless the members thereof shall have been
named in the Certificate of Incorporation, shall be elected by the incorporator
or incorporators and shall hold office until the first annual meeting of
stockholders and until their successors have been elected and qualified or until
their earlier resignation or removal. Any Director may resign at any time upon
written notice to the Corporation. Thereafter, Directors who are elected at an
annual meeting of stockholders and Directors who are elected in the interim to
fill vacancies and newly created Directorships, shall hold office until the next
annual meeting of stockholders and until their successors have been elected and
qualified or until their earlier resignation or removal. In the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of Directors and/or for the removal of one or more Directors
and for the filling of any vacancies in the Board of Directors, including
vacancies resulting from the removal of Directors for cause or without cause,
any vacancy in the Board of Directors may be filled by the vote of a majority of
the remaining Directors then in office, although less than a quorum, or by the
sole remaining Director. Should any Outside
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Director resign, die, become disabled or incapacitated, or be prevented from
acting, the affairs of the Corporation shall and may be managed by the remaining
directors, who shall promptly replace the aforementioned Outside Director with a
person meeting the requirement set forth above.
4. MEETINGS.
(a) TIME. Regular meetings shall be held at such time as the Board shall
fix. Special meetings may be called upon notice.
(b) FIRST MEETING. The first meeting of each newly elected Board may be
held immediately after each annual meeting of the stockholders at the same place
at which the meeting is held, and no notice of such meeting shall be necessary
to call the meeting, provided a quorum shall be present. In the event such first
meeting is not so held immediately after the annual meeting of the stockholders,
it may be held at such time and place as shall be specified in the notice given
as provided for special meetings of the Board of Directors, or at such time and
place as shall be fixed by the consent in writing of all of the Directors.
(c) PLACE. Meetings, both regular and special, shall be held at such
place within or without the State of Delaware as shall be fixed by the Board.
(d) CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, or the President, or of a majority of the Directors.
(e) NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written, oral
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or any other mode of notice of the time and place shall be given for special
meetings at least twenty-four hours prior to the meeting; notice may be given by
telephone or telecopy (in which case it is effective when given) or by mail (in
which case it is effective seventy-two hours after mailing by prepaid first
class mail). The notice of any meeting need not specify the purpose of the
meeting. Any requirement of furnishing a notice shall be waived by any Director
who signs a written waiver of such notice before or after the time stated
therein. Attendance of a Director at a meeting of the Board shall constitute a
waiver of notice of such meeting, except when the Director attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevent such majority, whereupon a
majority of the Directors in office shall constitute a quorum, provided that
such majority shall constitute at least one-third (1/3) of the whole Board. Any
Director may participate in a meeting of the Board by means of a conference
telephone or similar communications equipment by means of which all Directors
participating in the meeting can hear each other, and such participation in a
meeting of the Board shall constitute presence in person at such meeting. A
majority of the Directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the Delaware General Corporation
Law, the act of the Board shall be the act by vote of a majority of the
Directors present at a meeting, a quorum being present. The quorum and voting
provisions herein stated shall not be construed as conflicting with any
provisions of the
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Delaware General Corporation Law and these By-Laws which govern a meeting of
Directors held to fill vacancies and newly created Directorships in the Board.
(g) CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other Director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS.
Any or all of the Directors may be removed for cause or without cause by
the stockholders.
6. COMMITTEES.
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, each committee to consist of one or
more of the Directors of the Corporation. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution of the Board, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it. In the absence or disqualification of any
member of any such committee or committees, the members thereof present at any
meeting and not disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another
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member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
7. ACTION IN WRITING.
Any action required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
ARTICLE III
OFFICERS
1. EXECUTIVE OFFICERS.
The Board of Directors may elect or appoint a Chairman of the Board of
Directors, a President, one or more Vice Presidents (which may be denominated
with additional descriptive titles), a Secretary, one or more Assistant
Secretaries, a Chief Financial Officer, one or more Assistant Financial Officers
and such other officers as it may determine. Any number of offices may be held
by the same person.
2. TERM OF OFFICE; REMOVAL.
Unless otherwise provided in the resolution of election or appointment,
each officer shall hold office until the meeting of the Board of Directors
following the next annual meeting of stockholders and until such officer's
successor has been elected and qualified or until the
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earlier resignation or removal of such officer. The Board of Directors may
remove any officer for cause or without cause.
3. AUTHORITY AND DUTIES.
All officers, as between themselves and the Corporation, shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-Laws, or, to the extent not so provided, by the Board of
Directors.
4. THE CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board of Directors, if present and acting, shall
preside at all meetings of the Board of Directors, otherwise, the President, if
present, shall preside, or if the President does not so preside, any other
Director chosen by the Board shall preside.
5. THE PRESIDENT.
The President shall be the chief executive officer of the Corporation.
6. VICE PRESIDENTS.
Any Vice President that may have been appointed, in the absence or
disability of the President, shall perform the duties and exercise the powers of
the President, in the order of their seniority, and shall perform such other
duties as the Board of Directors shall prescribe.
7. THE SECRETARY.
The Secretary shall keep in safe custody the seal of the Corporation and
shall perform such other duties as may be prescribed by the Board of Directors.
The Secretary (or in such officer's absence, an Assistant Secretary, but if
neither is present another person selected by
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the Chairman for the meeting) shall have the duty to record the proceedings of
the meetings of the stockholders and Directors in a book to be kept for that
purpose and shall affix the seal of the Corporation to any instrument when
authorized by the Board of Directors.
8. THE CHIEF FINANCIAL OFFICER.
The Chief Financial Officer shall have the care and custody of the
corporate funds, and other valuable effects, including securities, and shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Chief Financial Officer shall
disburse the funds of the Corporation as may be ordered by the Board, taking
proper vouchers for such disbursements, and shall render to the President and
Directors, at the regular meetings of the Board, or whenever they may require
it, an account of all transactions as Chief Financial Officer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Chief Financial Officer shall give the Corporation a bond for such term, in
such sum and with such surety or sureties as shall be satisfactory to the Board
for the faithful performance of the duties of such office and for the
restoration to the Corporation, in case of such person's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in such person's possession or under such
person's control belonging to the Corporation.
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ARTICLE IV
CORPORATE SEAL AND
CORPORATE BOOKS
The corporate seal shall be in such form as the Board of Directors shall
prescribe. The books of the Corporation may be kept within or without the State
of Delaware, at such place or places as the Board of Directors may, from time to
time, determine.
ARTICLE V
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VI
INDEMNITY
(a) Any person who was or is a party or threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was a
Director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including employee benefit plans) (hereinafter an "indemnitee"), shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such
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amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification than permitted prior thereto), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such indemnitee in connection with such
action, suit or proceeding, if the indemnitee acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful. The
termination of the action, suit or proceeding, whether by judgment, order,
settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe such conduct was
unlawful.
(b) Any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a Director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation, partnership, joint venture, trust or
other enterprise (including employee benefit plans) shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification than permitted prior
thereto), against expenses (including attorneys' fees) actually and
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reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court in which
such suit or action was brought, shall determine, upon application, that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
(c) All reasonable expenses incurred by or on behalf of the indemnitee in
connection with any suit, action or proceeding, may be advanced to the
indemnitee by the Corporation.
(d) The rights to indemnification and to advancement of expenses conferred
in this article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, the Certificate of Incorporation, a
By-Law of the Corporation, agreement, vote of stockholders or disinterested
Directors or otherwise.
(e) The indemnification and advancement of expenses provided by this
article shall continue as to a person who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE VII
MISCELLANEOUS
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Any capitalized terms not defined herein shall have the meaning ascribed to
them in Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof
and supplemental thereto, and known, identified and referred to as the Delaware
General Corporation Law.
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