<PAGE>
Pursuant to Rule 424(b)(5)
Registration No. 333-21263
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 17, 1997)
$466,260,582 (APPROXIMATE)
NORWEST ASSET SECURITIES CORPORATION
("NASCOR")
SELLER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-6 PRINCIPAL AND INTERESTLOGO
PAYABLE MONTHLY, COMMENCING IN MAY 1997
-----------------
The Series 1997-6 Mortgage Pass-Through Certificates (the "Series 1997-6
Certificates") will consist of one class of senior certificates (the "Class A
Certificates") and two classes of subordinated certificates (the "Class M
Certificates" and the "Class B Certificates," respectively, and together, the
"Subordinated Certificates"). The Class A Certificates are entitled to a
certain priority, relative to the Class M and Class B Certificates, in right of
distributions on the Mortgage Loans. The Class A Certificates will consist of
eighteen subclasses of Certificates designated as the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8, Class A-9,
Class A-10, Class A-11, Class A-12, Class A-13, Class A-14, Class A-15, Class
A-PO, Class A-WIO and Class A-R Certificates. The 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. Each subclass of Class A and Class B
Certificates is referred to herein as a "Subclass." The Class A Certificates
(other than the Class A-WIO Certificates), the Class M Certificates and the
Class B-1 and Class B-2 Certificates are the only Series 1997-6 Certificates
being offered hereby and are referred to herein collectively as the "Offered
Certificates." The Class A Certificates (other than the Class A-WIO
Certificates) are referred to herein as the "Offered Class A Certificates." The
Class B-1 and Class B-2 Certificates are referred to herein collectively as the
"Offered Class B Certificates."
(Continued on next 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>
ubclass or ClassS Initial Subclass or Class Pass-Through
Designation Principal Balance(1) Rate
- ---------------------------------------------------------
<S> <C> <C>
Class A-1...... $24,793,000 7.500%
Class A-2...... $ 9,677,000 7.750%
Class A-3...... $ 5,710,800 7.500%
Class A-4...... $90,240,000 7.500%
Class A-5...... $ 6,369,000 7.500%
Class A-6...... $ 9,136,584 7.500%
Class A-7...... $ 3,697,000 7.500%
Class A-8...... $30,000,000 7.500%
Class A-9...... _70,381,820$ 7.500%
Class A-10..... $19,135,000 7.500%
</TABLE>
<TABLE>
<CAPTION>
ubclass or ClassS Initial Subclass or Class Pass-Through
Designation Principal Balance(1) Rate
<S> <C> <C>
Class A-11..... $41,600,000 7.500%
Class A-12..... $99,126,696 7.500%
Class A-13..... $22,812,000 7.500%
Class A-14..... $15,901,000 7.500%
Class A-15..... $ 323,000 (2)
Class A-PO..... $ 2,089,582 (2)
Class A-R...... $ 100 7.500%
Class M........ $ 5,872,000 7.500%
Class B-1...... $ 7,282,000 7.500%
Class B-2...... $ 2,114,000 7.500%
</TABLE>
- --------------------------------------------------------------------------------
(1) Approximate. The initial Subclass or Class Principal Balances are subject
to adjustment as described herein.
(2) The Class A-15 and Class A-PO Certificates are principal-only certificates
and will not be entitled to distributions in respect of interest.
-----------------
PROSPECTIVE INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT ON PAGE S-31 AND
IN THE PROSPECTUS ON PAGE 12.
The Offered Certificates will be purchased by Donaldson, Lufkin & Jenrette
Securities Corporation (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 99.08% of the aggregate initial
principal balance of the Offered Class A Certificates (other than the Class A-
PO Certificates), approximately 56.50% of the aggregate initial principal
balance of the Class A-PO Certificates, approximately 97.95% of the aggregate
initial principal balance of the Class M Certificates, approximately 97.26% of
the aggregate initial principal balance of the Class B-1 Certificates and
approximately 96.24% of the aggregate initial principal balance of the Class B-
2 Certificates, plus, in each case, accrued interest thereon at the rate of
7.500% per annum, other than on an amount equal to the aggregate initial
principal balance of the Class A-PO Certificates, from April 1, 1997 to (but
not including) April 29, 1997, before deducting expenses payable by the Seller
estimated to be $450,000. The price to be paid to the Seller for the Subclasses
of Offered Class A Certificates (other than the Class A-PO Certificates) has
not been allocated among such Subclasses. 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 approval of
certain legal matters by Brown & Wood LLP, counsel for the Underwriter. It is
expected that delivery of the Offered Certificates will be made on or about
April 29, 1997 through the facilities of The Depository Trust Company, or in
the case of the Class A-15, Class A-PO, Class A-R, Class M and Offered Class B
Certificates, at the office of Donaldson, Lufkin & Jenrette Securities
Corporation, New York, N.Y. against payment therefor in immediately available
funds.
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL 22, 1997.
<PAGE>
(Continued from previous page)
The Class A-8 Certificates are planned amortization certificates and are re-
ferred to herein as the "Group I PAC Certificates." The Class A-1, Class A-11,
Class A-13 and Class A-14 Certificates are planned amortization certificates
and are referred to herein as the "Group II PAC Certificates." The Group I PAC
Certificates and the Group II PAC Certificates are referred to herein collec-
tively as the "PAC Certificates." The Class A-9 Certificates are targeted amor-
tization certificates and are referred to herein as the "Group I TAC Certifi-
cates." The Class A-12 Certificates are targeted amortization certificates and
are referred to herein as the "Group II TAC Certificates." The Group I TAC Cer-
tificates and the Group II TAC Certificates are referred to herein collectively
as the "TAC Certificates." The Class A-3, Class A-5 and Class A-7 Certificates
are referred to herein as the "Class A-6 Accretion Directed Certificates." The
Class A-10 Certificates will be deemed to consist of two components (each a
"Component" or a "Class A-10 Component," and respectively, the "Class A-10
Group I Accrual Companion Component" and the "Class A-10 Group II Accrual Com-
panion Component"). The beneficial owner of a Class A-10 Certificate will not
have a severable interest in either Component, but will have an undivided in-
terest in the entire Subclass.
The credit enhancement for the Series 1997-6 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 (other than the
Class A-PO Certificates) in the aggregate for at least nine years beginning on
the first Distribution Date. See "Summary Information -- Distributions of Prin-
cipal and Interest -- Principal Distributions," "-- Credit Enhancement" and "--
Effects of Prepayments on Investment Expectations," "Description of the Cer-
tificates" and "Prepayment and Yield Considerations" herein.
The Series 1997-6 Certificates will evidence in the aggregate the entire ben-
eficial 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 ranging from approximately 20 years to approximately 30 years
(the "Mortgage Loans"), 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 1997-6 Certifi-
cates from Norwest Mortgage, and will have been originated by Norwest Mortgage
or acquired by Norwest Mortgage from The Prudential Home Mortgage Company, Inc.
("PHMC") or various other entities (each such other entity, a "Norwest Mortgage
Correspondent"). The Mortgage Loans not originated by Norwest Mortgage or ac-
quired from PHMC were originated by the Norwest Mortgage Correspondents or ac-
quired by the Norwest Mortgage Correspondents pursuant to mortgage loan pur-
chase programs operated by such Norwest Mortgage Correspondents. See "Descrip-
tion of the Mortgage Loans" herein. The Class A Certificates will initially ev-
idence in the aggregate an approximate 96.00% undivided interest in the princi-
pal balance of the Mortgage Loans. The Class M Certificates will initially evi-
dence in the aggregate an approximate 1.25% undivided interest in the principal
balance of the Mortgage Loans. The Class B-1 Certificates will initially evi-
dence in the aggregate an approximate 1.55% undivided interest in the principal
balance of the Mortgage Loans. The Class B-2 Certificates will initially evi-
dence in the aggregate an approximate 0.45% undivided interest in the principal
balance of the Mortgage Loans. The remaining approximate 0.75% undivided inter-
est in the principal balance of the Mortgage Loans will be evidenced by the
Class B-3, Class B-4 and Class B-5 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 May 1997, to the hold-
ers of Offered Certificates, as described herein. The Class A-6 Certificates
and each Component of the Class A-10 Certificates will accrete interest as de-
scribed herein. Holders of
S-2
<PAGE>
(Continued from previous page)
the Class A-6 Certificates will not be entitled to interest until the Class A-6
Accretion Termination Date. Instead, on each Distribution Date prior to the
Class A-6 Accretion Termination Date, an amount equal to the accrued and unpaid
interest on the Class A-6 Certificates will be added to the principal balance
thereof and will be distributed in reduction of the principal balances of the
Class A-6 Accretion Directed Certificates and the Class A-6 Certificates, to
the extent described herein under "Description of the Certificates -- Principal
(Including Prepayments) -- Allocation of Amount to be Distributed." Holders of
the Class A-10 Certificates will not be entitled to current distributions of
interest with respect to the Class A-10 Group I Accrual Companion Component and
the Class A-10 Group II Accrual Companion Component until the Class A-10 Group
I Accrual Companion Component Accretion Termination Date and the Class A-10
Group II Accrual Companion Component Accretion Termination Date, respectively.
Prior to such time, an amount equal to the accrued and unpaid interest on each
Component will be added to the Component Principal Balance thereof and distrib-
uted in reduction of (i) in the case of the Class A-10 Group I Accrual Compan-
ion Component, the principal balance of the Class A-9 Certificates and the Com-
ponent Principal Balance of such Component or (ii) in the case of the Class A-
10 Group II Accrual Companion Component, the principal balance of the Class A-
12 Certificates and the Component Principal Balance of such Component, in each
case to the extent described herein under "Description of the Certificates --
Principal (Including Prepayments) -- Allocation of Amount to be Distributed."
The amount of interest accrued on any Subclass or Class of Offered Certificates
will be reduced by certain 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 -- Inter-
est." The Class A-15 and Class A-PO Certificates are principal-only certifi-
cates and will not be entitled to distributions of interest. On any Distribu-
tion Date, the holders of the Class M Certificates will receive distributions
of interest only if the holders of the Class A Certificates have received all
amounts due them (other than the Class A-PO Deferred Amount) on such date. Dis-
tributions of principal to holders of the Class M Certificates will be made
only after the holders of the Class A Certificates have received all distribu-
tions to which they are entitled (including, in the case of the Class A-PO Cer-
tificates, the Class A-PO Deferred Amount) and the holders of the Class M Cer-
tificates 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 Class A Certificates and the 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 A-PO 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 hold-
ers of the Class A Certificates, the Class M Certificates and each Subclass of
Class B Certificates with a lower numerical designation have received all dis-
tributions to which they are entitled (including in the case of the Class A-PO
Certificates, the Class A-PO Deferred Amount) and such Subclass of Class B Cer-
tificates has received the amount of interest due with respect to such Distri-
bution 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 Certificates in the manner described herein under "Description of
the Certificates -- Principal (Including Prepayments)." Distributions to each
Subclass or undivided Class of Offered Certificates will be made pro rata among
Certificateholders of such Subclass or Class.
The Offered Certificates may not be an appropriate investment for individual
investors who do not have sufficient resources or expertise to evaluate the
particular characteristics of the applicable Subclass or Class of Offered Cer-
tificates. This may be the case because:
. The yield to maturity of Offered Certificates purchased at a price other
than par will be sensitive to the uncertain rate and timing of principal
prepayments on the Mortgage Loans;
. The rate of principal distributions on, and the weighted average life of,
the Offered Certificates will be sensitive to the uncertain rate and
timing of principal prepayments on the Mortgage Loans, and as such the
Offered Certificates may be inappropriate investments for an investor
requiring a distribution of a particular amount of principal on a
specific date or an otherwise predictable stream of distributions;
S-3
<PAGE>
(Continued from previous page)
. There can be no assurance that an investor will be able to reinvest
amounts distributed in respect of principal on an Offered Certificate
(which, in general, are expected to be greater during periods of
relatively low interest rates) at a rate at least as high as the Pass-
Through Rate applicable thereto;
. As discussed below, there can be no assurance that a secondary market for
the Offered Certificates will develop or provide Certificateholders with
liquidity of investment; and
. The Offered Certificates are subject to the further risks and other
special considerations discussed herein and in the Prospectus under the
heading "Risk Factors."
THE YIELD TO MATURITY OF THE OFFERED CERTIFICATES WILL BE SENSITIVE IN VARY-
ING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAY-
MENTS, WHICH MAY BE MADE AT ANY TIME WITHOUT PENALTY) ON THE MORTGAGE LOANS.
INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE ASSOCIATED RISKS, IN-
CLUDING, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT, PARTICU-
LARLY THE CLASS A-15 AND CLASS A-PO 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 A-PO CERTIFICATES, ON THE DIS-
COUNT MORTGAGE LOANS, COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTIC-
IPATED AND, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A PREMIUM, THAT 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. INVESTORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM
SHOULD ALSO CONSIDER THE RISK THAT A RAPID RATE OF PAYMENTS IN RESPECT OF PRIN-
CIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE
OF SUCH INVESTORS TO FULLY RECOVER THEIR INITIAL INVESTMENTS. THE YIELD TO IN-
VESTORS IN THE CLASS A-PO CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCI-
PAL PAYMENTS (INCLUDING PREPAYMENTS) OF THOSE MORTGAGE LOANS WITH NET MORTGAGE
INTEREST RATES LESS THAN 7.500% (THE "DISCOUNT MORTGAGE LOANS").
THE YIELD TO MATURITY OF THE CLASS M CERTIFICATES WILL BE MORE SENSITIVE THAN
THAT OF THE CLASS A CERTIFICATES TO THE AMOUNT AND TIMING OF LOSSES DUE TO LIQ-
UIDATIONS OF THE MORTGAGE LOANS IN THE EVENT THAT THE CLASS B PRINCIPAL BALANCE
HAS BEEN REDUCED TO ZERO. THE YIELD TO MATURITY OF EACH SUBCLASS OF OFFERED
CLASS B CERTIFICATES WILL BE MORE SENSITIVE THAN THAT OF THE CLASS A CERTIFI-
CATES, THE CLASS M CERTIFICATES AND, IN THE CASE OF THE CLASS B-2 CERTIFICATES,
THE CLASS B-1 CERTIFICATES, TO THE AMOUNT AND TIMING OF LOSSES DUE TO LIQUIDA-
TIONS OF THE MORTGAGE LOANS IN THE EVENT THAT THE PRINCIPAL BALANCES OF THE
SUBCLASSES OF CLASS B CERTIFICATES WITH HIGHER NUMERICAL DESIGNATIONS HAVE BEEN
REDUCED TO ZERO. SEE "DESCRIPTION OF THE CERTIFICATES -- INTEREST," "-- PRINCI-
PAL (INCLUDING PREPAYMENTS)" AND "-- SUBORDINATION OF CLASS M AND CLASS B CER-
TIFICATES" HEREIN AND "PREPAYMENT AND YIELD CONSIDERATIONS" HEREIN AND IN THE
PROSPECTUS.
THE WEIGHTED AVERAGE LIFE OF THE CLASS A-10 CERTIFICATES WILL BE HIGHLY SEN-
SITIVE, AND THE WEIGHTED AVERAGE LIFE OF EACH SUBCLASS OF TAC CERTIFICATES WILL
BE SENSITIVE, TO THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS. AT RATES ABOVE
CERTAIN PREPAYMENT LEVELS, PAYMENTS OF PRINCIPAL ALLOCATED TO THE CLASS A CER-
TIFICATES (OTHER THAN THE CLASS A-PO CERTIFICATES) IN EXCESS OF THE AMOUNTS RE-
SULTING FROM SUCH PREPAYMENT LEVELS WILL BE PAID TO THE HOLDERS OF THE CLASS A-
10 CERTIFICATES WITH RESPECT TO THE CLASS A-10 GROUP I ACCRUAL COMPANION COMPO-
NENT OR THE CLASS A-10 GROUP II ACCRUAL COMPANION COMPONENT AND THE RELATED
SUBCLASS OF TAC CERTIFICATES PRIOR TO BEING PAID TO THE HOLDERS OF THE RELATED
SUBCLASS OR SUBCLASSES OF PAC CERTIFICATES, RESULTING IN A REDUCTION IN THE
WEIGHTED AVERAGE LIVES OF THE CLASS A-10 CERTIFICATES AND SUCH SUBCLASS OF TAC
CERTIFICATES. AT OR BELOW CERTAIN PREPAYMENT LEVELS, A CLASS A-10 COMPONENT AND
THE RELATED SUBCLASS OF TAC CERTIFICATES MAY RECEIVE NO PRINCIPAL PAYMENTS
(OTHER THAN AMOUNTS REPRESENTING THE CLASS A-10 GROUP I ACCRUAL COMPANION COM-
PONENT DISTRIBUTION AMOUNT OR CLASS A-10 GROUP II ACCRUAL COMPANION COMPONENT
DISTRIBUTION AMOUNT, AS APPLICABLE) FOR EXTENDED PERIODS OF TIME RESULTING IN
AN EXTENSION OF THE WEIGHTED AVERAGE LIVES OF THE CLASS A-10 CERTIFICATES AND
SUCH SUBCLASS OF TAC CERTIFICATES. SEE "PREPAYMENT AND YIELD CONSIDERATIONS"
HEREIN.
The Offered Certificates, other than the Class A-15, Class A-PO, Class A-R,
Class M and Offered Class B Certificates, will be issued only in book-entry
form (the "Book-Entry Certificates"), and pur-
S-4
<PAGE>
(Continued from previous page)
chasers 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 Certifi-
cates, as such terms are used herein. See "Description of the Certificates"
herein.
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 invest-
ment 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, sub-
ject to applicable provisions of federal and state securities laws and other
regulatory requirements, but is under no obligation to do so and any such mar-
ket 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 AND
OFFERED CLASS B CERTIFICATES MAY NOT BE TRANSFERRED UNLESS THE TRANSFEREE HAS
DELIVERED (I) A REPRESENTATION LETTER TO THE TRUST ADMINISTRATOR AND THE SELLER
STATING EITHER (A) THAT THE TRANSFEREE IS NOT A PLAN AND IS NOT ACTING ON BE-
HALF 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 OR OFFERED CLASS B CERTIFICATES IS AN "INSURANCE COM-
PANY GENERAL ACCOUNT" OR (II) AN OPINION OF COUNSEL AND SUCH OTHER DOCUMENTA-
TION AS PROVIDED IN THIS PROSPECTUS SUPPLEMENT. IN ADDITION, THE CLASS A-R CER-
TIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO (I) A "DISQUALIFIED ORGANI-
ZATION," (II) EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES, A PERSON WHO IS NOT A
"U.S. PERSON," (III) A PLAN OR A PERSON ACTING ON BEHALF OF OR INVESTING THE
ASSETS OF 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, Class M and
Offered Class B Certificates" herein and "Certain Federal Income Tax Conse-
quences -- 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"). 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 A-
6, Class A-7, Class A-8, Class A-9, Class A-10, Class A-11, Class A-12, Class
A-13, Class A-14, Class A-15, Class A-PO and Class A-WIO 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.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE CLASS A-R CERTIFICATEHOLDER'S
REMIC TAXABLE INCOME AND THE TAX LIABILITY THEREON MAY EXCEED, AND MAY SUBSTAN-
TIALLY 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, other than the Class A-WIO Certificates, represent
seventeen Subclasses of a Class, the Class M Certificates represent a Class and
the Offered Class B Certificates represent two Subclasses of a Class, all of
which are part of a separate Series of Certificates being offered by the Seller
pursuant to the Prospectus dated April 17, 1997 accompanying this Prospectus
Supplement. Any prospective investor should not purchase any Offered Certifi-
cates described herein unless it shall have received the Prospectus and this
Prospectus Supplement. The Prospectus shall not be considered complete without
this Prospectus Supplement. The Prospectus contains important information
regard-
S-5
<PAGE>
(Continued from previous page)
ing this offering which is not contained herein, and prospective investors are
urged to read, in full, the Prospectus and this Prospectus Supplement.
---------------
UNTIL JULY 23, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CER-
TIFICATES, 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-6
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY INFORMATION.................. S-8
RISK FACTORS......................... S-31
General............................. S-31
Subordination....................... S-31
Book-Entry System for Certain
Subclasses of Class A Certificates.. S-31
DESCRIPTION OF THE CERTIFICATES...... S-32
Denominations....................... S-32
Definitive Form..................... S-32
Book-Entry Form..................... S-32
Distributions....................... S-32
Interest............................ S-35
Principal (Including Prepayments)... S-43
Calculation of Amount to be
Distributed to the Class A
Certificates (other than the Class
A-PO Certificates)................. S-43
Calculation of Amount to be
Distributed to the Class A-PO
Certificates....................... S-46
Calculation of Amount to be
Distributed to the Class M and
Class B Certificates............... S-47
Allocation of Amount to be
Distributed........................ S-50
Principal Payment Characteristics
of the PAC Certificates, the TAC
Certificates and the Class A-10
Components......................... S-57
Additional Rights of the Class A-R
Certificateholder................... S-60
Periodic Advances................... S-61
Restrictions on Transfer of the
Class A-R, Class M and Offered Class
B Certificates...................... S-61
Reports............................. S-62
Subordination of Class M and Class B
Certificates........................ S-63
Allocation of Losses............... S-64
DESCRIPTION OF THE MORTGAGE LOANS.... S-68
General............................. S-68
PHMC Acquisition.................... S-69
Mortgage Loan Underwriting.......... S-70
Mortgage Loan Data.................. S-71
Mandatory Repurchase or Substitution
of Mortgage Loans................... S-73
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Optional Repurchase of Defaulted
Mortgage Loans..................... S-73
DELINQUENCY AND FORECLOSURE
EXPERIENCE.......................... S-74
PREPAYMENT AND YIELD
CONSIDERATIONS..................... S-78
Sensitivity of the Class A-15 and
Class A-PO Certificates............ S-86
Historic Loss Experience of
Securitized Mortgage Loans......... S-87
Yield Considerations with respect
to the Class B-1 and Class B-2
Certificates....................... S-88
POOLING AND SERVICING AGREEMENT..... S-91
General............................ S-91
Distributions...................... S-91
Voting............................. S-91
Trustee............................ S-92
Master Servicer.................... S-92
Special Servicing Agreements....... S-92
Optional Termination............... S-93
SERVICING OF THE MORTGAGE LOANS..... S-93
The Servicers...................... S-93
Servicer Custodial Accounts........ S-94
Unscheduled Principal Receipts..... S-94
Anticipated Changes in Servicing... S-95
Servicing Compensation and Payment
of Expenses........................ S-95
Servicer Defaults.................. S-96
FEDERAL INCOME TAX CONSIDERATIONS... S-96
Regular Certificates............... S-97
Residual Certificates.............. S-97
ERISA CONSIDERATIONS................ S-99
LEGAL INVESTMENT.................... S-100
SECONDARY MARKET.................... S-100
UNDERWRITING........................ S-101
LEGAL MATTERS....................... S-101
USE OF PROCEEDS..................... S-101
RATINGS............................. S-101
INDEX OF SIGNIFICANT PROSPECTUS
SUPPLEMENT DEFINITIONS.............. S-103
</TABLE>
S-7
<PAGE>
SUMMARY INFORMATION
The following is qualified in its entirety by reference to the detailed in-
formation appearing elsewhere in this Prospectus Supplement and in the accompa-
nying 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.
Title of Securities.... Mortgage Pass-Through Certificates, Series 1997-6
(the "Series 1997-6 Certificates" or the "Certifi-
cates").
Seller.................
Norwest Asset Securities Corporation (the "Seller").
The Mortgage Loans will have been acquired by the
Seller from Norwest Mortgage, Inc. ("Norwest Mort-
gage"), an affiliate of the Seller and the Master
Servicer. The Mortgage Loans that the Seller acquires
from Norwest Mortgage will either have been origi-
nated by Norwest Mortgage or acquired by Norwest
Mortgage, or an affiliate of Norwest Mortgage, from
The Prudential Home Mortgage Company, Inc. ("PHMC")
or various other entities (each such other entity, a
"Norwest Mortgage Correspondent"), which either orig-
inated the Mortgage Loans or acquired the Mortgage
Loans pursuant to mortgage loan purchase programs op-
erated by the Norwest Mortgage Correspondents. The
Mortgage Loans acquired by Norwest Mortgage from PHMC
will either have been originated by PHMC or acquired
by PHMC from various other entities (each such other
entity, a "PHMC Correspondent"). None of the Norwest
Mortgage Correspondents or PHMC Correspondents is an
affiliate of Norwest Mortgage. See "Description of
the Mortgage Loans" in this Prospectus Supplement.
Servicing/Servicers.... Norwest Mortgage and one or more other Servicers
(which will be Norwest Mortgage Correspondents or
PHMC Correspondents) approved by the Master Servicer
will provide customary servicing functions with re-
spect to the Mortgage Loans pursuant to servicing
agreements (each, an "Underlying Servicing Agree-
ment") assigned to the Trust Estate. Among other
things, the Servicers are obligated under certain
circumstances to advance delinquent payments of prin-
cipal 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 0.25% multiplied
by the scheduled principal balance of such Mortgage
Loan on the first day of the preceding month and (ii)
other additional servicing compensation described
herein. 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 Corpora-
tion and is an affiliate of the Seller and Norwest
Mortgage. The Master Servicer will (a) monitor cer-
tain 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, including
the computation of the amount of distributions to be
made on the Certificates and any losses to be allo-
cated to the Certificates, (d) provide certain re-
ports to the Trustee regarding the Mortgage Loans and
the Certificates, (e) make advances, to
S-8
<PAGE>
the extent described herein, with respect to the
Mortgage Loans if a Servicer (other than Norwest
Mortgage) fails to make a required advance and (f)
make payments to cover certain prepayment interest
shortfalls. 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 amount equal to one-twelfth of 0.016%
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 Certifi-
cate Account. See "Description of the Certificates --
Interest" and "The Pooling and Servicing Agree-
ment -- 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................ Firstar Trust Company, a banking corporation orga-
nized under the laws of Wisconsin (the "Trustee").
See "Pooling and Servicing Agreement --Trustee" in
this Prospectus Supplement.
Trust Administrator....
First Union National Bank of North Carolina (the
"Trust Administrator"). The Trust Administrator will
perform certain administrative functions on behalf of
the Trustee and will act as the initial paying agent,
certificate registrar and custodian. The Trust Admin-
istrator will be required to make advances, to the
extent described herein, with respect to the Mortgage
Loans if Norwest Mortgage, as Servicer, fails to make
a required advance. See "Pooling and Servicing Agree-
ment -- Trust Administrator" in this Prospectus Sup-
plement.
Rating of It is a condition to the issuance of the Offered
Certificates.......... Class A Certificates that they shall have been rated
"AAA" by Duff & Phelps Credit Rating Co. ("DCR") and
"Aaa" by Moody's Investors Service, Inc. ("Moody's").
It is a condition to the issuance of the Class M Cer-
tificates that they shall have been rated at least
"AA" by DCR and "Aa2" by Moody's. It is a condition
to the issuance of the Class B-1 and Class B-2 Cer-
tificates that they shall have been rated at least
"A" and "BBB," respectively, by DCR. The ratings of
DCR and Moody's on mortgage pass-through certificates
address the likelihood of the receipt by the
certificateholders of all distributions of principal
and interest to which such certificateholders are en-
titled. The ratings of DCR and Moody's are not recom-
mendations 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 princi-
pal prepayments, holders of such Certificates may re-
ceive a lower than anticipated yield. See "-- Effects
of Prepayments on Investment Expectations" below and
"Ratings" in this Prospectus Supplement.
Description of The Series 1997-6 Certificates will consist of the
Certificates.......... Class A Certificates, the Class M Certificates and
the Class B Certificates. The Class A Certificates
represent a type of interest referred to in the Pro-
spectus as "Senior Certificates" and the Class M and
Class B Certificates represent a type of interest re-
ferred to in the Prospectus as "Subordinated Certifi-
cates." As these designations suggest, the Class A
Certificates are entitled to a certain priority, rel-
ative to the Class M and Class B Certificates, in
right of distributions on the mortgage loans under-
lying the Series 1997-6 Certificates (the "Mortgage
Loans"). As between the Class M Certificates and the
Class B Certificates, the Class M Certificates are
entitled to a certain
S-9
<PAGE>
priority in right of distributions on the Mortgage
Loans and, as among the Subclasses of Class B Certif-
icates, the Subclasses with lower numerical designa-
tions are entitled to a certain priority in right of
distributions on the Mortgage Loans relative to those
Subclasses with higher numerical designations. See
"-- Distributions of Principal and Interest" below.
The Class A Certificates will consist of eighteen
Subclasses, designated as the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6, Class A-
7, Class A-8, Class A-9, Class A-10, Class A-11,
Class A-12, Class A-13, Class A-14, Class A-15, Class
A-PO, Class A-WIO and Class A-R Certificates. The
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 Certif-
icates. The Class A Certificates (other than the
Class A-WIO Certificates), the Class M Certificates
and the Class B-1 and Class B-2 Certificates are re-
ferred to in this Prospectus Supplement collectively
as the "Offered Certificates." The Class A Certifi-
cates (other than the Class A-WIO Certificates) are
referred to in this Prospectus Supplement collec-
tively as the "Offered Class A Certificates." The
Class B-1 and Class B-2 Certificates are referred to
in this Prospectus Supplement collectively as the
"Offered Class B Certificates." The Class A-WIO,
Class B-3, Class B-4 and Class B-5 Certificates are
not offered hereby and may be retained or sold by the
Seller.
The Offered Certificates have the approximate aggre-
gate initial principal balances set forth on the
cover of this Prospectus Supplement. Any difference
between the aggregate principal balance of the Class
A, Class M and Offered Class B Certificates as of the
date of issuance of the Series 1997-6 Certificates
and the approximate aggregate initial principal bal-
ance of such Subclasses and Class as of the date of
this Prospectus Supplement will not, with respect to
the Class A Certificates, exceed 5% of the aggregate
initial principal balance of the Class A Certificates
stated on the cover of this Prospectus Supplement
and, with respect to the Class M Certificates and Of-
fered Class B Certificates, will depend on the final
subordination levels for the Series 1997-6 Certifi-
cates. Any difference allocated to the Class A Cer-
tificates will be allocated to one or more of the
Subclasses of Class A Certificates, other than the
Class A-WIO and Class A-R Certificates.
S-10
<PAGE>
The following table sets forth for each Class and
Subclass indicated the approximate undivided interest
in the principal balance of the Mortgage Loans that
is expected to be evidenced in the aggregate by such
Class or Subclass as of the Closing Date (as defined
herein).
------------------------------------------------------
<TABLE>
<CAPTION>
APPROXIMATE INITIAL
CLASS OR SUBCLASS UNDIVIDED INTEREST
------------------------------- ---------------------
<S> <C> <C>
Class A (other than Class A-PO) 95.56%
Class A-PO* 0.44%
---------
Class A (all Subclasses) 96.00%
Class M 1.25%
Class B-1 1.55%
Class B-2 0.45%
Classes B-3, B-4 and B-5 0.75%
----------
Total 100.00%
==========
</TABLE>
-------
* The Class A-PO Certificates in the aggregate repre-
sent an approximate 1.94% initial interest in the
principal balances of the Mortgage Loans (such in-
terest in the aggregate, the "Pool Balance (PO Por-
tion)") that have Net Mortgage Interest Rates, as
defined on page S-38, of less than 7.500% (the
"Discount Mortgage Loans").
------------------------------------------------------
By virtue of the subordination of the Class M and
Class B Certificates, it is possible that the Class
A-PO Certificates may receive support from certain
payments made with respect to the Mortgage Loans in
the Trust Estate other than Discount Mortgage Loans.
The Class A Certificates (other than the Class A-PO
Certificates) and the Class M and Class B Certifi-
cates will evidence the entire interest in the prin-
cipal balance of the Mortgage Loans other than the
Pool Balance (PO Portion) (such remaining interest,
the "Pool Balance (Non-PO Portion)").
The following table sets forth for each Class indi-
cated the approximate undivided interest in the Pool
Balance (Non-PO Portion) that is expected to be evi-
denced in the aggregate by such Class as of the Clos-
ing Date.
------------------------------------------------------
<TABLE>
<CAPTION>
APPROXIMATE INITIAL
UNDIVIDED INTEREST
-----------------------
CLASS PERCENTAGE IN DOLLARS
------------------------------- ---------- ------------
<S> <C> <C>
Class A (other than Class A-PO) 95.98% $448,903,000
Class M 1.26 5,872,000
Class B 2.76 12,920,017
------ ------------
Totals 100.00% $467,695,017
====== ============
------------------------------------------------
</TABLE>
The relative interests in the initial Pool Balance
(Non-PO Portion) represented by the Class A Certifi-
cates (other than the Class A-PO Certificates) and
the Class M and Class B Certificates are subject to
change over time because of the disproportionate al-
location of certain unscheduled principal payments to
the Class A Certificates (other than the Class A-PO
Certificates) for a specified period and the alloca-
tion of certain losses and certain shortfalls first
to the Subclasses of Class B Certificates in reverse
numerical order, and then to the Class M Certifi-
cates, prior to the allocation of such losses and
shortfalls to the Class A Certificates, as discussed
in
S-11
<PAGE>
"-- Distributions of Principal and Interest" and "--
Credit Enhancement" below.
The Class A-8 Certificates are referred to herein as
the "Group I PAC Certificates." The Class A-1, Class
A-11, Class A-13 and Class A-14 Certificates are re-
ferred to herein collectively as the "Group II PAC
Certificates." The Group I PAC Certificates and the
Group II PAC Certificates are referred to herein col-
lectively as the "PAC Certificates." The Class A-9
Certificates are referred to herein as the "Group I
TAC Certificates." The Class A-12 Certificates are
referred to herein as the "Group II TAC Certifi-
cates." The Group I TAC Certificates and the Group II
TAC Certificates are referred to herein collectively
as the "TAC Certificates." The Class A-3, Class A-5
and Class A-7 Certificates are referred to herein as
the "Class A-6 Accretion Directed Certificates."
The Class A-10 Certificates will be deemed to consist
of two components (each a "Component" or a "Class A-
10 Component," and respectively, the "Class A-10
Group I Accrual Companion Component" and the "Class
A-10 Group II Accrual Companion Component").
- --------------------------------------------------------------------------------
COMPONENT PRINCIPAL BALANCES AND COMPONENT RATES
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL COMPONENT COMPONENT
COMPONENT PRINCIPAL BALANCE RATE
--------- ----------------- ---------
<S> <C> <C>
Class A-10 Group I Accrual Companion................ $ 2,485,000 7.50%
Class A-10 Group II Accrual Companion............... $16,650,000 7.50%
- --------------------------------------------------------------------------------
</TABLE>
The principal balance of the Class A-10 Certificates
will equal the sum of the Component Principal Bal-
ances of the Components. The holder of a Class A-10
Certificate will not have a severable interest in any
Component but will have an undivided interest in the
entire Subclass.
The Group I PAC Certificates are planned amortization
certificates because, based on certain assumptions
described in the first full paragraph on page S-82,
if prepayments on the Mortgage Loans occur at any
constant rate between approximately 65% SPA (as de-
fined herein under "Prepayment and Yield Considera-
tions") and approximately 305% SPA, it is expected
that their principal balance would be reduced to the
percentage of their initial principal balance for
each Distribution Date indicated in the table on page
S-54. The Group II PAC Certificates are planned amor-
tization certificates because, based on certain as-
sumptions described in the first full paragraph on
page S-82, if prepayments on the Mortgage Loans occur
at any constant rate between approximately 100% SPA
and approximately 300% SPA, it is expected that their
principal balances would be reduced to the percentage
of their initial principal balances for each Distri-
bution Date indicated in the tables beginning on page
S-54. The Group I TAC Certificates are targeted amor-
tization certificates because, based on certain as-
sumptions described in the first full paragraph on
page S-82, if prepayments on the Mortgage Loans occur
at a constant level of approximately 235% SPA, it is
expected that their principal balance will be reduced
to the percentage of their initial principal balance
for each Distribution Date indicated in the table on
page S-56. The Group II TAC Certificates are targeted
amortization certificates because, based on certain
S-12
<PAGE>
assumptions described in the first full paragraph on
page S-82, if prepayments on the Mortgage Loans occur
at a constant level of approximately 235% SPA, it is
expected that their principal balance will be reduced
to the percentage of their initial principal balance
for each Distribution Date indicated in the table on
page S-57. However, it is highly unlikely that prin-
cipal 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-10 Components
are companion components because payments of princi-
pal allocated to the Class A Certificates (other than
the Class A-PO Certificates) in excess of amounts re-
sulting from certain prepayment levels will be paid
(i) to the holders of the Class A-10 Certificates
with respect to the Class A-10 Group I Accrual Com-
panion Component, for so long as the Component Prin-
cipal Balance of such Component remains outstanding,
prior to being paid to the holders of the Group I PAC
Certificates and the Group I TAC Certificates and
(ii) to the holders of the Class A-10 Certificates
with respect to the Class A-10 Group II Accrual Com-
panion Component, for so long as the Component Prin-
cipal Balance of such Component remains outstanding,
prior to being paid to the holders of the Group II
PAC Certificates and the Group II TAC Certificates.
See "Description of the Certificates -- Principal
(Including Prepayments) -- Allocation of Amount to be
Distributed" and "-- Principal Payment Characteris-
tics of the PAC Certificates, the TAC Certificates
and the Class A-10 Components" in this Prospectus
Supplement.
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 Certifi-
cates -- Denominations" in this Prospectus Supple-
ment.
- --------------------------------------------------------------------------------
FORM AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
ORIGINAL CERTIFICATE MINIMUM INCREMENTAL
CLASS OR SUBCLASS FORM DENOMINATION DENOMINATION
----------------- -------------------- ------------ ------------
<S> <C> <C> <C>
Classes A-1, A-3(/1/), A-4, A-5,
A-6(/1/), A-7, A-8, A-9(/1/),
A-10, A-11 and A-12(/1/)....... Book-Entry $100,000 $1,000
Classes A-2, A-13 and A-14...... Book-Entry $ 1,000 $1,000
Class A-15...................... Definitive $323,000 N/A
Class A-PO(/1/)................. Definitive $100,000 $1,000
Class A-R....................... Definitive $ 100 N/A
Class M......................... Definitive _100,000$ _1,000$
Classes B-1 and B-2............. Definitive _100,000$ _1,000$
</TABLE>
- -------
(1) In order to aggregate the original principal balance of such Subclass, one
Certificate of such Subclass will be issued in an incremental denomination
of less than that shown.
- --------------------------------------------------------------------------------
Book-Entry Form. The Offered Certificates, other than
the Class A-15, Class A-PO, Class A-R, Class M and
Offered Class B Certificates, will be issued in book-
entry form, through the facilities of The Depository
Trust
S-13
<PAGE>
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 physi-
cal certificate representing its ownership interest
in such Book-Entry Certificates, except under ex-
traordinary circumstances which are discussed in "De-
scription 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 orga-
nizations. This may result in certain delays in re-
ceipt of distributions by an investor and may re-
strict an investor's ability to pledge its securi-
ties. The rights of investors in the Book-Entry Cer-
tificates may generally only be exercised through DTC
and its participating organizations. See "Description
of the Certificates -- Book-Entry Form" in this Pro-
spectus Supplement.
Definitive Form. The Class A-15, Class A-PO, Class A-
R, Class M and Offered Class B Certificates will each
be issued as Definitive Certificates. See "Descrip-
tion of the Certificates -- Denominations" and "--
Definitive Form" in this Prospectus Supplement.
Mortgage Loans......... General. The Mortgage Loans, which are the source of
distributions to holders of the Series 1997-6 Certif-
icates, will consist of conventional, fixed interest
rate, monthly pay, fully amortizing, one- to four-
family, residential first mortgage loans, which have
original terms to stated maturity ranging from ap-
proximately 20 years to approximately 30 years, and
which may include loans secured by cooperative hous-
ing 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.
- --------------------------------------------------------------------------------
SELECTED MORTGAGE LOAN DATA(/1/)
(AS OF THE CUT-OFF DATE)
<TABLE>
<S> <C> <C>
Cut-Off Date: April 1, 1997
Number of Mortgage Loans: 1,625
Aggregate Unpaid Principal Balance(/2/): $469,784,598
Range of Unpaid Principal Balances(/2/): $27,962 to $999,425
Average Unpaid Principal Balance(/2/): $289,098
Range of Mortgage Interest Rates: 6.750% to 9.500%
Weighted Average Mortgage Interest Rate(/2/): 8.023%
Range of Remaining Terms to Stated Maturity: 233 months to 360 months
Weighted Average Remaining Term to Stated
Maturity(/2/): 357 months
Range of Original Loan-to-Value Ratios(/2/): 15.63% to 95.00%
Weighted Average Original Loan-to-Value Ratio(/2/): 75.61%
Geographic Concentration of Mortgaged Properties
Securing Mortgage Loans in Excess of 5% of the
Aggregate Unpaid Principal Balance(/2/): California 26.82%
New Jersey 7.90%
New York 6.87%
Maximum Five-Digit Zip Code Concentration(/2/): 1.02%
</TABLE>
- -----------------
(1) Information concerning the Discount Mortgage Loans and Premium Mortgage
Loans is set forth under "Description of the Mortgage Loans -- General."
(2) Approximate.
S-14
<PAGE>
PHMC Acquisition. On May 7, 1996, Norwest Mortgage
and an affiliate acquired from PHMC certain mortgage
loans and a substantial portion of PHMC's mortgage
servicing portfolio (such transaction, the "PHMC Ac-
quisition"). The Mortgage Loans included in the Trust
Estate consist of (i) Mortgage Loans originated by
Norwest Mortgage or an affiliate or purchased by
Norwest Mortgage or an affiliate from originators
other than PHMC and (ii) Mortgage Loans originated or
purchased by PHMC and acquired by Norwest Mortgage or
an affiliate from PHMC as part of the PHMC Acquisi-
tion. See "Description of the Mortgage Loans -- PHMC
Acquisition" in this Prospectus Supplement and
"Norwest Mortgage" in the Prospectus.
Changes to Pool. 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 Se-
ries 1997-6 Certificates (which is expected to occur
on or about April 29, 1997 (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 delinquen-
cies or otherwise, the Seller otherwise deems such
exclusion necessary or desirable. In either event,
other Mortgage Loans may be included in the Trust Es-
tate. 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
1997-6 Certificates vary materially from those de-
scribed herein, revised information regarding the
Mortgage Loans will be made available to purchasers
of the Offered Certificates on or before such issu-
ance date, and a Current Report on Form 8-K contain-
ing such information will be filed with the Securi-
ties 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 1997-6 Cer-
tificates, certain Mortgage Loans may be removed from
the pool through repurchase or, under certain circum-
stances, through substitution by the Seller, if the
Mortgage Loans are discovered to have defective docu-
mentation 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 Re-
purchase or Substitution of Mortgage Loans" in this
Prospectus Supplement.
Optional Termination... The Seller 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
1997-6 Certificates. See "Pooling and Servicing
Agreement -- Optional Termination" in this Prospectus
Supplement.
Underwriting
Standards............. All of the Mortgage Loans were generally originated
in conformity with the underwriting standards de-
scribed in the Prospectus under the heading "The
Mortgage Loan Programs -- Mortgage Loan Underwrit-
ing -- Norwest Mortgage Underwriting" (the "Under-
writing Standards"). In certain instances, exceptions
to the Underwriting Standards may have been granted
by Norwest Mortgage or PHMC. See "The Mortgage Loan
Programs --Mortgage Loan Underwriting" in the Pro-
spectus.
S-15
<PAGE>
Distributions of
Principal and Distributions in General. Distributions on the Series
Interest.............. 1997-6 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 re-
ferred to in this Prospectus Supplement as a "Distri-
bution Date"), commencing in May 1997, 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 Cede
& Co., as nominee of DTC.
The amount available for distribution on any Distri-
bution Date is primarily a function of (i) the amount
remitted by mortgagors of the Mortgage Loans in pay-
ment 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 Cer-
tificates will be entitled to receive all amounts due
them (other than the Class A-PO Deferred Amount, as
defined on page S-47) before any distributions are
made to holders of the Class M or Class B Certifi-
cates on that Distribution Date. The Class A-PO Cer-
tificates will be entitled to receive the Class A-PO
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 to
the holders of the Class A Certificates (including
the amount added to the principal balance of the
Class A-6 Certificates or to the Component Principal
Balance of either Class A-10 Component) and then, if
the amount available for distribution exceeds the
amount of interest due to the holders of such Certif-
icates, to pay the principal due to the holders of
the Class A Certificates. As described under "-- In-
terest Distributions" below, prior to the Class A-6
Accretion Termination Date (as defined on page S-40)
an amount equal to the amount accrued in respect of
interest on the Class A-6 Certificates will be dis-
tributed in reduction of the principal balances of
the Class A-6 Accretion Directed Certificates and the
Class A-6 Certificates to the extent described herein
under "Description of the Certificates -- Principal
(Including Prepayments) -- Allocation of Amount to be
Distributed," rather than as interest to the holders
of the Class A-6 Certificates. Prior to the Class A-
10 Group I Accrual Companion Component Accretion Ter-
mination Date and the Class A-10 Group II Accrual
Companion Component Accretion Termination Date (each
as defined on page S-40), the amount accrued in re-
spect of interest on each Class A-10 Component will
be distributed in reduction of (i) in the case of the
Class A-10 Group I Accrual Companion Component, the
principal balance of the Class A-9 Certificates and
Component Principal Balance of such Component and
(ii) in the case of the Class A-10 Group II Accrual
Companion Component, the principal balance of the
Class A-12 Certificates and Component Principal Bal-
ance of such Component, in each case to the extent
described herein under "Description of the Certifi-
cates -- Principal (Including Prepayments) -- Alloca-
tion of Amount to be Distributed." The likelihood
that a holder of a particular Subclass of Class A
Certificates (other than the Class A-PO Certificates)
will receive principal distributions on any Distribu-
tion Date will depend on the priority in which such
Subclass is entitled to principal distributions, as
set forth under the headings "Description of the Cer-
tificates -- Principal (Including Prepayments) -- Al-
location of Amount to be Distributed" and "-- Calcu-
lation
S-16
<PAGE>
of Amount to be Distributed to the Class A Certifi-
cates (other than the Class A-PO Certificates)" in
this Prospectus Supplement.
After all amounts due on the Class A Certificates
(other than the Class A-PO Deferred Amount) have been
paid, the amount remaining will be distributed, in
the following order, to pay (i) any Class A-PO De-
ferred Amount first from amounts otherwise distribut-
able as principal on the Subclasses of Class B Cer-
tificates in reverse numerical order (i.e., first
from amounts otherwise distributable as principal on
the Class B-5 Certificates, then from amounts other-
wise distributable as principal on the Class B-4 Cer-
tificates, and so on), and then from amounts other-
wise distributable as principal on the Class M Cer-
tificates, (ii) interest due to the holders of the
Class M Certificates, (iii) principal due to the
holders of the Class M Certificates less any amounts
used to pay the Class A-PO Deferred Amount and (iv)
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 numer-
ical designations receive any payments in respect of
interest or principal, provided that the principal
due to the holders of any Subclass of Class B Certif-
icates will be reduced by any amount used to pay the
Class A-PO 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 pro-
ceeds or other recoveries on the related Mortgage
Loan. The Master Servicer or Trust Administrator 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 Subclass or Class of Offered
Certificates, other than the Class A-10, Class A-15
and Class A-PO Certificates, will be entitled during
each month is calculated based on the outstanding
principal balance of such Subclass or Class as of the
related Distribution Date. Interest will accrue dur-
ing each month on each such Subclass or Class accord-
ing to the following formula: 1/12th of the Pass-
Through Rate for such Subclass or Class multiplied by
the outstanding principal balance of such Subclass or
Class as of the related Distribution Date. Holders of
the Class A-15 and Class A-PO Certificates will not
be entitled to receive distributions of interest.
The "Pass-Through Rate" for each Subclass and Class
of Offered Certificates (other than the Class A-15
and Class A-PO Certificates) is the percentage set
forth on the cover of this Prospectus Supplement.
Interest will accrue on the Class A-10 Certificates
during each month in an amount equal to the sum of
the interest accrued on the Class A-10 Components.
Interest will accrue on each Class A-10 Component at
the rate of 1/12th of the Component Rate for such
Component on the Component Principal Balance of such
Component.
S-17
<PAGE>
Holders of each Subclass or Class of Certificates,
other than the Class A-6 and Class A-10 Certificates,
will be entitled to receive distributions of interest
on each Distribution Date. Holders of the Class A-6
Certificates will not be entitled to receive distri-
butions of interest until the Class A-6 Accretion
Termination Date. See "Description of the Certifi-
cates -- Interest" in this Prospectus Supplement. Un-
til the Class A-6 Accretion Termination Date, the
amount of interest to which the holders of the Class
A-6 Certificates are entitled will not be distributed
as interest to such holders but instead will be added
to the principal balance of the Class A-6 Certifi-
cates. An amount equal to the amount of interest that
has accrued but is not currently distributable on the
Class A-6 Certificates will instead be distributed in
reduction of the principal balances of the A-6 Accre-
tion Directed Certificates and the Class A-6 Certifi-
cates to the extent described under the heading "De-
scription of the Certificates -- Principal (Including
Prepayments) -- Allocation of Amount to be Distribut-
ed" in this Prospectus Supplement. Holders of the
Class A-10 Certificates will not be entitled to cur-
rent distributions of interest with respect to the
Class A-10 Group I Accrual Companion Component and
the Class A-10 Group II Accrual Companion Component
until the Class A-10 Group I Accrual Companion Compo-
nent Accretion Termination Date and the Class A-10
Group II Accrual Companion Component Accretion Termi-
nation Date, respectively. Prior to such time, an
amount equal to the accrued and unpaid interest on
each Component will be added to the Component Princi-
pal Balance thereof and distributed in reduction of
(i) in the case of the Class A-10 Group I Accrual
Companion Component, the principal balance of the
Class A-9 Certificates and the Component Principal
Balance of such Component or (ii) in the case of the
Class A-10 Group II Accrual Companion Component, the
principal balance of the Class A-12 Certificates and
the Component Principal Balance of such Component, in
each case to the extent described herein under "De-
scription of the Certificates -- Principal (Including
Prepayments) -- Allocation of Amount to be Distribut-
ed." As a result, distributions in reduction of the
Component Principal Balances of the Class A-10 Compo-
nents may be made prior to the Class A-10 Group I Ac-
crual Companion Component Accretion Termination Date
or Class A-10 Group II Accrual Companion Component
Accretion Termination Date, as applicable, and, the
Component Principal Balance of either or both Compo-
nents may be reduced to zero prior to the time that
any distributions of interest with respect to such
Component or Components have been made.
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 nature of the event resulting in the interest
shortfall.
In the case of principal prepayments in full by mort-
gagors, the Master Servicer will be obligated to
cover resulting interest shortfalls with respect to a
Distribution Date in an amount (such amount, "Compen-
sating Interest") up to the lesser of (a) the product
of (i) 1/12th of 0.20% and (ii) the aggregate sched-
uled principal balance of the Mortgage Loans with re-
spect
S-18
<PAGE>
to such Distribution Date and (b) the Available Mas-
ter Servicing Compensation for such Distribution
Date.
Shortfalls in collection of interest resulting from
principal prepayments in full by mortgagors, to the
extent they exceed the amount of Compensating Inter-
est with respect to a Distribution Date ("Non-Sup-
ported Interest Shortfalls"), will be allocated pro
rata among the Class A Certificates (other than the
Class A-PO Certificates), the Class M Certificates
and the Class B Certificates, based on their then-
outstanding principal balances. The amount allocated
to the Class A Certificates will be allocated pro
rata among the Subclasses of Class A Certificates,
based on interest accrued. The amount allocated to
the Class A-10 Certificates will be allocated pro
rata between the Class A-10 Components based on in-
terest accrued. The amount allocated to the Class B
Certificates will be allocated pro rata among the
Subclasses of Class B Certificates based on interest
accrued. See "Description of the Certificates -- In-
terest" in this Prospectus Supplement.
Interest shortfalls resulting from partial principal
prepayments and other unscheduled principal receipts
(other then principal prepayments in full by mortga-
gors) will not be covered by the Master Servicer, but
instead will be borne first by the Class B Certifi-
cates in reverse numerical order, second by the Class
M Certificates and, finally, pro rata by the Class A
Certificates based on interest accrued. The amount
allocated to the Class A-10 Certificates will be al-
located pro rata between the Class A-10 Components
based on interest accrued. See "Description of the
Certificates -- Subordination of Class M and Class B
Certificates" in this Prospectus Supplement.
In addition, the amount of interest required to be
distributed to holders of the Series 1997-6 Certifi-
cates will be reduced by a portion of certain Special
Hazard Losses, Fraud Losses and Bankruptcy Losses at-
tributable to interest. See "-- Credit Enhancement --
Extent of Loss Coverage" below and "Description of
the Certificates -- Interest" in this Prospectus Sup-
plement.
To the extent that the amount available for distribu-
tion on any Distribution Date is insufficient to per-
mit the distribution of the applicable amount of ac-
crued interest on the Class A Certificates (net of
any Non-Supported Interest Shortfall, other
shortfalls and losses allocable to the Class A Cer-
tificates as described above), the amount of interest
to be distributed will be allocated among the out-
standing Subclasses of Class A Certificates pro rata
in accordance with their respective entitlements to
interest. The amount of any deficiency will be added
to the amount of interest that such Class A Certifi-
cates are entitled to receive on subsequent Distribu-
tion Dates. No interest will accrue on such deficien-
cies.
To the extent that the amount available for distribu-
tion on any Distribution Date, after the payment of
all amounts due the Class A Certificates (other than
any Class A-PO Deferred Amount) have been made, is
insufficient to permit distribution in full of ac-
crued interest on the Class M Certificates (net of
any Non-Supported Interest Shortfall, other
shortfalls and losses allocable to the Class M Cer-
tificates as described above), the amount of any de-
ficiency will be added to the amount of interest that
the Class M
S-19
<PAGE>
Certificates are entitled to receive on subsequent
Distribution Dates. No interest will accrue on such
deficiencies.
To the extent that the amount available for distribu-
tion on any Distribution Date, after the payment of
all amounts due the Class A Certificates (other than
the Class A-PO Deferred Amount), the Class M Certifi-
cates and each Subclass of Class B Certificates with
a lower numerical designation has been made, is in-
sufficient to permit distribution in full of accrued
interest as a Subclass of Class B Certificates (net
of any Non-Supported Interest Shortfall, other
shortfalls and losses allocable to such Subclass of
Class B Certificates as described above), the amount
of any deficiency will be added to the amount of in-
terest that such Subclass of Class B Certificates is
entitled to receive on subsequent Distribution Dates.
No interest will accrue on such deficiencies.
Interest on the Class A Certificates, the Class M
Certificates and the Class B 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 Certif-
icates (other than the holders of the Class A-PO Cer-
tificates) are entitled each month will equal the sum
for each Mortgage Loan of the product of (a) the Non-
PO Fraction applicable to such Mortgage Loan and (b)
the sum of (i) a percentage (the "Class A Percent-
age") of scheduled payments of principal on each
Mortgage Loan and (ii) a percentage (the "Class A
Prepayment Percentage") of certain unscheduled pay-
ments of principal on each Mortgage Loan. The "Non-PO
Fraction" with respect to any Mortgage Loan will
equal the lesser of (a) the Net Mortgage Interest
Rate for such Mortgage Loan divided by 7.500% and (b)
1.0. 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 Certifi-
cates (other than the Class A-PO Certificates) to the
Pool Balance (Non-PO 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 dis-
tributable to the holders of the Subordinated Certif-
icates. As a result, the percentage of certain
unscheduled principal payments otherwise distributa-
ble to the holders of the Subordinated Certificates
that is instead distributable to the holders of the
Class A Certificates (other than the Class A-PO Cer-
tificates) 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 Cer-
tificates --Principal (Including Prepayments) -- Cal-
culation of Amount to be Distributed to the Class A
Certificates (other than the Class A-PO Certifi-
cates)" in this Prospectus Supplement, until the
ninth anniversary of the first Distribution Date and
thereafter will likely be equal to zero. On each Dis-
tribution 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 repre-
senting the Non-PO Fraction of such Mortgage Loan
equal, in each
S-20
<PAGE>
case, to 100% less the applicable percentage for the
Class A Certificates (other than the Class A-PO Cer-
tificates) described above.
As a result of the method of calculating the Class A-
4 Priority Amount (as defined herein) and the priori-
ties for the allocation of the Class A Non-PO Princi-
pal Distribution Amount (as defined herein), it is
expected that, absent an exceptionally high rate of
principal prepayments on the Mortgage Loans, no prin-
cipal prepayments will be made on the Class A-4 Cer-
tificates during the first five years following the
issuance of the Series 1997-6 Certificates. Thereaf-
ter, while the percentage of principal prepayments
allocated to the Class A-4 Certificates during the
following four years will gradually increase, such
percentage, until the tenth year following the issu-
ance of the Series 1997-6 Certificates, will be dis-
proportionately lower than the percentage of princi-
pal prepayments allocated to the other Class A Cer-
tificates (other than the Class A-PO Certificates).
See "Description of the Certificates -- Principal
(Including Prepayments) -- Allocation of Amount to be
Distributed" and "Prepayment and Yield Considera-
tions" in this Prospectus Supplement.
The aggregate amount of principal to which holders of
the Class A-PO Certificates are entitled each month
will equal the sum for each Discount Mortgage Loan of
the product of (a) the PO Fraction for such Mortgage
Loan and (b) the sum of (i) scheduled principal pay-
ments on such Mortgage Loan and (ii) certain
unscheduled payments of principal on such Mortgage
Loan. See "Description of the Certificates -- Princi-
pal (Including Prepayments) -- Calculation of Amount
to be Distributed to the Class A-PO Certificates" in
this Prospectus Supplement. In addition, the Class A-
PO Certificates will be entitled to receive any pre-
viously unpaid amounts of principal to which such
Certificates were entitled on prior Distribution
Dates as part of the Class A-PO Deferred Amount. The
"PO Fraction" with respect to any Discount Mortgage
Loan will equal the difference between 1.0 and the
Non-PO Fraction for such Discount Mortgage Loan. The
PO Fraction with respect to each Mortgage Loan that
is not a Discount Mortgage Loan will be equal to ze-
ro. See "Description of the Certificates -- Principal
(Including Prepayments)" in this Prospectus Supple-
ment.
The holders of the Class A-PO Certificates will also
be entitled each month to an amount equal to the
Class A-PO Deferred Amount. The Class A-PO Deferred
Amount will be paid to holders of the Class A-PO Cer-
tificates only from amounts otherwise distributable
as principal to the Subclasses of Class B Certifi-
cates in reverse numerical order and then from
amounts otherwise distributable as principal to the
Class M Certificates. No interest will accrue on any
Class A-PO Deferred Amount.
Except as described below under "-- Effect of Subor-
dination Level on Principal Distributions," on each
Distribution Date, the Class M, Class B-1 and Class
B-2 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, Class B-1 or Class B-2 Certificates, as the
case may be, to the then-outstanding principal bal-
ance of the Subordinated Certificates.
S-21
<PAGE>
The amount that is available for distribution to the
holders of the Class A Certificates on any Distribu-
tion Date as a distribution of principal (other than
any Class A-PO Deferred Amount) is the sum of (i) the
amount remaining after deducting the amount of inter-
est distributable on the Class A Certificates (in-
cluding the amount added to the principal balance of
the Class A-6 Certificates and the Component Princi-
pal Balances of the Class A-10 Components) from the
total amount collected that is available to be dis-
tributed to holders of the Series 1997-6 Certificates
on such Distribution Date and (ii) the amount of in-
terest, if any, added to the principal balance of the
Class A-6 Certificates and the Component Principal
Balances of the Class A-10 Components) with respect
to such Distribution Date. Accordingly, even though
the Class A Certificates may not receive all accrued
interest to which they are entitled on a given Dis-
tribution Date, the Class A-6 Accretion Directed Cer-
tificates, the Class A-6 Certificates, the Class A-9
Certificates, the Class A-12 Certificates, and/or the
Class A-10 Certificates with respect to either or
both Components may receive distributions of princi-
pal as a result of the application of clause (ii)
above. Principal will be distributed to the holders
of the Class A Certificates in accordance with the
payment priorities described under the heading "De-
scription 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 Distribu-
tion Date as a distribution of principal is the
amount remaining after all interest and principal
distributions due on the Class A Certificates (in-
cluding any Class A-PO 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 1997-6 Cer-
tificates.
The amount that is available for distribution to the
holders of a Subclass of Class B 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 (in-
cluding any Class A-PO Deferred Amount), all interest
and principal distributions on the Class M Certifi-
cates and the Subclasses of Class B Certificates with
lower numerical designations and interest due on such
Subclass of Class B Certificates have been deducted
from the total amount collected that is available to
be distributed to holders of the Series 1997-6 Cer-
tificates.
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 Certifi-
cates, some or all of the Subclasses of Class B Cer-
tificates, as described below, may not be entitled to
distributions of principal on certain Distribution
Dates and the principal balances 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 Cer-
tificates by the sum of the outstanding principal
balances of the Class A Certificates (other than the
Class A-PO Certificates), the
S-22
<PAGE>
Class M Certificates and the Class B Certificates is
less than such percentage was upon the initial issu-
ance of the Series 1997-6 Certificates, then the
Class B Certificates will not be entitled to distri-
butions of principal on such Distribution Date and
the Class M Certificates will be entitled to all dis-
tributions 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 sum of the
then-outstanding principal balances of the Subclasses
of Class B Certificates with higher numerical desig-
nations by the sum of the then-outstanding principal
balances of the Class A Certificates (other than the
Class A-PO Certificates), the Class M Certificates
and the Class B Certificates is less than such per-
centage at the time of the initial issuance of the
Series 1997-6 Certificates, then such Subclasses of
Class B Certificates with higher numerical designa-
tions will not be entitled to distributions of prin-
cipal and the principal balances of such Subclasses
will not be taken into account for purposes of calcu-
lating the portions of scheduled and unscheduled
principal payments allocable to the Class M Certifi-
cates and to the Subclasses of Class B Certificates
with lower numerical designations.
In either of the cases described above, the Class M
Certificates and those Subclasses of Class B Certifi-
cates with lower numerical designations will receive
a greater portion of scheduled and unscheduled pay-
ments of principal on the Mortgage Loans allocable to
the Subordinated Certificates than the Class M Cer-
tificates and those Subclasses of Class B Certifi-
cates with lower numerical designations would have
received had all Subclasses of Class B Certificates
been entitled to their portion of such principal pay-
ments. See "Description of the Certificates -- Prin-
cipal (Including Prepayments) -- Calculation of
Amount to be Distributed to the Class M and Class B
Certificates" in this Prospectus Supplement.
Credit Enhancement..... Description of "Shifting-Interest" Subordination. The
rights of the holders of the Class M and Class B Cer-
tificates to receive distributions will be subordi-
nated to the rights of the holders of the Class A
Certificates to receive distributions, to the extent
described herein. This subordination provides a cer-
tain amount of protection to the holders of the Class
A Certificates against delays in the receipt of
scheduled payments of interest and principal and
against losses associated with the liquidation of de-
faulted Mortgage Loans and certain losses resulting
from the bankruptcy of a mortgagor.
In general, the protection afforded the holders of
the Class A Certificates by means of this subordina-
tion will be effected in two ways: (i) by the prefer-
ential right of the holders of the Class A Certifi-
cates to receive, prior to any distribution being
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 Certifi-
cates (other than the Class A-PO Deferred Amount)
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 hold-
ers of the Class M and Class B Certificates and (ii)
by the allocation to the Class M and Class B Certifi-
cates, until their respective principal balances have
been reduced to zero, of certain losses
S-23
<PAGE>
resulting from the liquidation of defaulted Mortgage
Loans or the bankruptcy of mortgagors prior to the
allocation of such losses to the Class A Certifi-
cates. See "Description of the Certificates -- Dis-
tributions" in this Prospectus Supplement.
In general, the protection afforded the holders of
the Class M Certificates by means of this subordina-
tion will also be effected in two ways: (i) by the
preferential right of the holders of the Class M Cer-
tificates 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 hold-
ers of the Class B Certificates and (ii) by the allo-
cation to the Class B Certificates, until their prin-
cipal 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 Cer-
tificates. See "Description of the Certificates--Dis-
tributions" in this Prospectus Supplement.
In general, the protection afforded the holders of a
Subclass of Class B Certificates by means of this
subordination will also be effected in two ways: (i)
by the preferential right of the holders of such
Subclass to receive, prior to any distribution being
made on any Distribution Date in respect of the
Subclasses of Class B Certificates with higher numer-
ical designations, the amounts of interest and prin-
cipal due the holders of such Subclass 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 hold-
ers of the Subclasses of Class B Certificates with
higher numerical designations and (ii) by the alloca-
tion to the Subclasses of Class B Certificates with
higher numerical designations, until their principal
balances have 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 such Subclass. See "De-
scription 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 Class A Certificates, a disproportionate
amount of prepayments and certain unscheduled recov-
eries with respect to the Mortgage Loans will be al-
located to the Class A Certificates (other than the
Class A-PO Certificates). This allocation has the ef-
fect of accelerating the amortization of the Class A
Certificates (other than the Class A-PO Certificates)
while, in the absence of losses in respect of the
liquidation of defaulted Mortgage Loans or losses re-
sulting 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. See "-- Distributions of
Principal and Interest -- Principal Distributions"
and "Prepayment and Yield Considerations" in this
Prospectus Supplement.
Extent of Loss Coverage. Realized losses on Mortgage
Loans, other than losses that are (i) attributable to
"special hazards" not insured against
S-24
<PAGE>
under a standard hazard insurance policy, (ii) in-
curred 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 matu-
rity, will not be allocated to the Class A Certifi-
cates 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 $18,792,017) has been reduced to zero
and will not be allocated to the Class M Certificates
until the date on which the aggregate principal bal-
ance of the Class B Certificates (which aggregate
balance is expected initially to be approximately
$12,920,017) 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 Certifi-
cates and the Subclasses of 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 Certificates and any
Subclass of 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 be-
low and (iii) the prior receipt of principal distri-
butions by the holders of such Certificates.
As of the date of issuance of the Series 1997-6 Cer-
tificates, the amount of losses attributable to spe-
cial hazards, fraud and bankruptcy that will be ab-
sorbed solely by the holders of the Subclasses of
Class B Certificates in reverse numerical order and
then solely by the holders of the Class M Certifi-
cates will be approximately 1.02%, 2.00% and 0.02%,
respectively, of the Cut-Off Date Aggregate Principal
Balance of the Mortgage Loans (approximately
$4,803,023, $9,395,692 and $100,000, 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 be-
ing 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
Certificates (other than the Class A-PO Certifi-
cates), the Class M Certificates and the Class B Cer-
tificates and (ii) to the extent such losses arise
with respect to Discount Mortgage Loans, the Class A-
PO Certificates, in each case according to their re-
spective 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.
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<PAGE>
After the principal balances of the Class M and Class
B Certificates have been reduced to zero, the princi-
pal portion of all losses (other than the portion at-
tributable to the Class A-PO Certificates, if any)
will be allocated to the Class A Certificates (other
than the Class A-PO Certificates). To the extent such
losses arise with respect to Discount Mortgage Loans,
principal losses will be shared among the Class A
Certificates, according to their respective interests
in such Mortgage Loans. The principal portion of any
losses borne by the Class A Certificates (other than
losses borne by the Class A-PO Certificates) will be
shared pro rata by the Subclasses of Class A Certifi-
cates (other than the Class A-10 and Class A-PO Cer-
tificates) and the Class A-10 Components based on
their then-outstanding principal balances, or in the
case of the Class A-6 Certificates and each Class A-
10 Component, the initial principal balance or ini-
tial Component Principal Balance, as applicable, if
lower. The interest portion of such losses borne by
the Subclasses of Class A Certificates will be shared
pro rata by such Subclasses based on interest ac-
crued. The interest portion of such losses allocated
to the Class A-10 Certificates will be shared pro
rata by the Class A-10 Components based on interest
accrued. See "Description of the Certificates -- In-
terest" and "-- Subordination of Class M and Class B
Certificates -- Allocation of Losses" in this Pro-
spectus 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
THAT ON THE CLASS A CERTIFICATES, IN THE EVENT THAT
THE AGGREGATE PRINCIPAL BALANCE OF THE CLASS B CER-
TIFICATES HAS BEEN REDUCED TO ZERO.
THE YIELD TO MATURITY ON EACH SUBCLASS OF OFFERED
CLASS B CERTIFICATES WILL BE MORE SENSITIVE TO LOSSES
DUE TO LIQUIDATIONS OF THE MORTGAGE LOANS (AND THE
TIMING THEREOF) THAN THAT ON THE CLASS A CERTIFICATES
AND THE CLASS M CERTIFICATES AND, IN THE CASE OF THE
CLASS B-2 CERTIFICATES, THE CLASS B-1 CERTIFICATES,
IN THE EVENT THAT THE PRINCIPAL BALANCES OF THE
SUBCLASSES OF CLASS B CERTIFICATES WITH HIGHER NUMER-
ICAL DESIGNATIONS HAVE BEEN REDUCED TO ZERO.
See "Description of the Certificates -- Subordination
of Class M and Class B Certificates" in this Prospec-
tus Supplement.
Effects of Prepayments
on Investment The actual rate of prepayment of principal on the
Expectations.......... Mortgage Loans cannot be predicted. The investment
performance of the Offered Certificates may vary ma-
terially and adversely from the investment expecta-
tions of investors due to prepayments on the Mortgage
Loans being higher or lower than anticipated by in-
vestors. In addition, the Class A Certificates (other
than the Class A-PO 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 such Class A Certificates then entitled
to principal distributions during the nine years be-
ginning on the first Distribution Date. See "--Dis-
tributions of Principal and Interest -- Principal
Distributions" and "Prepayment and Yield Considera-
tions" in this Prospectus Supplement. The actual
yield to the holder of an Offered Certificate may not
be equal to the yield anticipated at the time of pur-
chase of the Certificate or, notwithstanding that the
actual yield is equal to the yield anticipated at
that time, the total return
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<PAGE>
on investment expected by the investor or the ex-
pected weighted average life of the Certificate may
not be realized. These effects are summarized below.
IN DECIDING WHETHER TO PURCHASE ANY OFFERED CERTIFI-
CATES, AN INVESTOR SHOULD MAKE AN INDEPENDENT DECI-
SION AS TO THE APPROPRIATE PREPAYMENT ASSUMPTIONS TO
BE USED.
Yield. If an investor purchases an Offered Certifi-
cate (other than a Class A-15 or Class A-PO Certifi-
cate) at an amount equal to its unpaid principal bal-
ance (that is, at "par"), the effective yield to that
investor (assuming that there are no interest
shortfalls and assuming the full return of the in-
vestor'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 Certifi-
cate at a "discount" or "premium," respectively),
then, based on the assumptions set forth in the pre-
ceding sentence, the effective yield to the investor
will be higher or lower, respectively, than the
stated interest rate on the Certificate, 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 antici-
pated. The timing of receipt of prepayments may also
affect the investor's actual yield. The yield experi-
enced by an investor in the Class A-15 and Class A-PO
Certificates, which do not bear interest, is primar-
ily a function of the price paid by such investor,
the rate and timing of principal payments on the
Mortgage Loans, or in the case of the Class A-PO Cer-
tificates, the Discount Mortgage Loans and losses in-
curred on and after the Cross-Over Date. The particu-
lar sensitivities of the ClassA-15 and Class A-PO
Certificates are separately displayed in the tables
appearing under the heading "Prepayment and Yield
Considerations" in this Prospectus Supplement. AN IN-
VESTOR THAT PURCHASES ANY OFFERED CERTIFICATES AT A
DISCOUNT, PARTICULARLY THE CLASS A-15 AND CLASS A-PO
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 A-PO CER-
TIFICATES, ON THE DISCOUNT MORTGAGE LOANS, WILL RE-
SULT IN AN ACTUAL YIELD THAT IS LOWER THAN SUCH IN-
VESTOR'S EXPECTED YIELD. AN INVESTOR THAT PURCHASES
ANY OFFERED CERTIFICATES AT A PREMIUM SHOULD CONSIDER
THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRIN-
CIPAL 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.
Reinvestment Risk. As stated above, if an Offered
Certificate (other than a Class A-15 or Class A-PO
Certificate) is purchased 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 invest-
ment, including an investor who purchases at par,
will be reduced to the extent that principal distri-
butions received on its Certificate cannot be rein-
vested at a rate as high as the stated interest rate
of the Certificate or, in the case of the Class A-15
or Class A-PO Certificates, the expected yield, which
is based on the price paid by the investor and the
rate of
S-27
<PAGE>
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 mar-
ket interest rates, mortgagors may be expected to
prepay or refinance Mortgage Loans that carry inter-
est rates significantly higher than then-current in-
terest rates for mortgage loans. Consequently, the
amount of principal distributions available to an in-
vestor for reinvestment at such low prevailing inter-
est rates may be relatively large. Conversely, slow
rates of prepayments on the Mortgage Loans may coin-
cide with periods of high prevailing market interest
rates. During such periods, it is less likely that
mortgagors will elect to prepay or refinance Mortgage
Loans and, therefore, the amount of principal distri-
butions 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 in-
vestor. Low rates of prepayment may result in the ex-
tension of the weighted average life of a Certifi-
cate; high rates, in the shortening of such weighted
average life.
In general, if the weighted average life of a Certif-
icate purchased at par is extended beyond that ini-
tially 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 A-PO Certificates
will be determined by the rate of prepayment of the
Discount Mortgage Loans and generally will not be af-
fected by the rate of prepayment on other Mortgage
Loans.
THE WEIGHTED AVERAGE LIFE OF THE CLASS A-10 CERTIFI-
CATES WILL BE HIGHLY SENSITIVE, AND THE WEIGHTED AV-
ERAGE LIFE OF EACH SUBCLASS OF TAC CERTIFICATES WILL
BE SENSITIVE, TO THE RATE OF PREPAYMENTS ON THE MORT-
GAGE LOANS. AT RATES ABOVE CERTAIN PREPAYMENT LEVELS,
PAYMENTS OF PRINCIPAL ALLOCATED TO THE CLASS A CER-
TIFICATES (OTHER THAN THE CLASS A-PO CERTIFICATES) IN
EXCESS OF SUCH PREPAYMENT LEVELS WILL BE PAID TO
HOLDERS OF SUCH CLASS A-10 CERTIFICATES WITH RESPECT
TO THE CLASS A-10 GROUP I ACCRUAL COMPANION COMPONENT
OR THE CLASS A-10 GROUP II ACCRUAL COMPANION COMPO-
NENT AND THE RELATED SUBCLASS OF TAC CERTIFICATES
WHILE SUCH CERTIFICATES REMAIN OUTSTANDING PRIOR TO
BEING PAID TO THE HOLDERS OF THE RELATED SUBCLASS OR
SUBCLASSES OF PAC CERTIFICATES. FURTHER, AT OR BELOW
CERTAIN PREPAYMENT LEVELS, A CLASS A-10 COMPONENT AND
THE RELATED SUBCLASS OF TAC CERTIFICATES MAY RECEIVE
NO PRINCIPAL PAYMENTS (OTHER THAN AMOUNTS NOT CUR-
RENTLY DISTRIBUTABLE TO THE CLASS A-10 CERTIFICATES
AS INTEREST BUT WHICH ARE ADDED TO THE COMPONENT
PRINCIPAL BALANCES OF THE CLASS A-10 COMPONENTS) FOR
EXTENDED PERIODS OF TIME RESULTING IN AN EXTENSION OF
THE WEIGHTED AVERAGE LIVES OF THE CLASS A-10 CERTIFI-
CATES AND SUCH SUBCLASS OF TAC CERTIFICATES.
See "Prepayment and Yield Considerations" and "De-
scription of the Certificates -- Principal (Including
Prepayments) -- Principal Payment
S-28
<PAGE>
Characteristics of the PAC Certificates, the TAC Cer-
tificates and the Class A-10 Certificates" in this
Prospectus Supplement.
The weighted average lives of the Offered Certifi-
cates, under various prepayment scenarios, are dis-
played in the tables appearing under the heading
"Prepayment and Yield Considerations" in this Pro-
spectus Supplement.
Federal Income Tax An election will be made to treat the Trust Estate as
Status................ an estate mortgage investment conduit (the "REMIC").
The Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6, Class A-7, Class A-8, Class A-9,
Class A-10, Class A-11, Class A-12, Class A-13, Class
A-14, Class A-15, Class A-PO and Class A-WIO Certifi-
cates, the Class M Certificates, and the Class B-1,
Class B-2, Class B-3, Class B-4 and Class B-5 Certif-
icates 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) gener-
ally will be treated as newly originated debt instru-
ments for federal income tax purposes. Beneficial
owners of the Regular Certificates will be required
to report income thereon in accordance with the ac-
crual method of accounting. The Class A-15 and Class
A-PO Certificates will be issued with original issue
discount in an amount equal to the excess of the ini-
tial principal balances thereof over their respective
issue prices. The Class A-6 and Class A-10 Certifi-
cates will be issued with original issue discount in
an amount equal to the excess of the sum of all ex-
pected distributions of principal and interest
thereon (whether current or accrued) over their re-
spective issue prices (including accrued interest).
It is anticipated that the Class A-12 and Class B-2
Certificates will be issued with original issue dis-
count in an amount equal to the excess of their ini-
tial principal balances (plus four days of interest
at the Pass-Through Rates thereon) over their respec-
tive issue prices (including accrued interest). It is
further anticipated that the Class A-7 Certificates
will not be issued with original issue discount for
federal income tax purposes. It is also anticipated
that the Class A-1, Class A-2, Class A-3, Class A-4,
Class A-8, Class A-11, Class A-13 and Class A-14 Cer-
tificates will be issued at a premium and that the
Class A-5, Class A-9, Class M and Class B-1 Certifi-
cates will be issued with de minimis original issue
discount for federal income tax purposes. Finally, it
is anticipated that the Class A-WIO, Class B-3, Class
B-4 and Class B-5 Certificates, which are not offered
hereby, will be issued with original issue discount
for federal income tax purposes.
The holder of the Class A-R Certificate will be re-
quired 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 "ex-
cess inclusion" income subject to special limitations
for federal income tax purposes. AS A RESULT, THE EF-
FECTIVE 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 IN-
STRUMENT, OR MAY BE NEGATIVE. FURTHER, SIGNIFICANT
RESTRICTIONS APPLY TO THE TRANSFER OF THE CLASS A-R
CERTIFICATE. THE CLASS A-R CERTIFICATE WILL BE CON-
SIDERED A "NONECONOMIC RESIDUAL INTEREST," CERTAIN
TRANSFERS OF WHICH MAY BE DISREGARDED FOR FEDERAL IN-
COME TAX PURPOSES.
S-29
<PAGE>
See "Description of the Certificates -- Restrictions
on Transfer of the Class A-R, Class M and Offered
Class B Certificates" and "Federal Income Tax Consid-
erations" in this Prospectus Supplement and "Certain
Federal Income Tax Consequences -- Federal Income Tax
Consequences for REMIC Certificates" in the Prospec-
tus.
ERISA Considerations... A fiduciary of any employee benefit plan subject to
Title I of 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 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, a "Plan"), should carefully re-
view 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 AND OFFERED CLASS B CERTIFICATES ARE SUBORDI-
NATED TO THE CLASS A CERTIFICATES, WITH RESPECT TO
CERTAIN LOSSES, THE CLASS M AND OFFERED CLASS B CER-
TIFICATES MAY NOT BE TRANSFERRED UNLESS THE TRANS-
FEREE HAS DELIVERED (I) A REPRESENTATION LETTER TO
THE TRUST ADMINISTRATOR 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 CONDI-
TIONS DESCRIBED HEREIN, THAT THE SOURCE OF FUNDS USED
TO PURCHASE THE CLASS M OR OFFERED CLASS B CERTIFI-
CATES IS AN "INSURANCE COMPANY GENERAL ACCOUNT" OR
(II) AN OPINION OF COUNSEL AND SUCH OTHER DOCUMENTA-
TION AS DESCRIBED UNDER "ERISA CONSIDERATIONS" IN
THIS PROSPECTUS SUPPLEMENT RELATING TO THE OFFERING
OF SUCH CERTIFICATES. 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 Class A Certificates and the Class M Cer-
tificates will constitute "mortgage related securi-
ties" 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 higher rat-
ing categories by at least one nationally recognized
statistical rating organization. As such, the Offered
Class A Certificates and the Class M Certificates are
legal investments for certain entities to the extent
provided in the Enhancement Act. However, there are
regulatory requirements and considerations applicable
to regulated financial institutions and restrictions
on the ability of such institutions to invest in cer-
tain types of mortgage related securities. The Class
B-1 and Class B-2 Certificates will not constitute
"mortgage related securities" under the Enhancement
Act. The appropriate characterization of the Class B-
1 and Class B-2 Certificates under various legal in-
vestment restrictions, and thus the ability of in-
vestors subject to these restrictions to purchase the
Class B-1 and Class B-2 Certificates, may be subject
to significant interpretive uncertainties. Prospec-
tive 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.
S-30
<PAGE>
RISK FACTORS
GENERAL
The rate of distributions in reduction of the principal balance of any
Subclass of Offered Certificates, the aggregate amount of distributions of
principal and interest on any Subclass of Offered Certificates and the yield to
maturity of any Subclass 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 A-PO Certificates, on the Discount Mortgage Loans and
to 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, among other things, the amortization schedules of the Mortgage Loans, the
rate of principal prepayments (including partial prepayments and those result-
ing from refinancing) thereon by mortgagors, liquidations of defaulted Mortgage
Loans, repurchases of Mortgage Loans by the Seller as a result of defective
documentation or breaches of representations and warranties, optional purchase
by the Seller of defaulted Mortgage Loans and optional purchase by the Seller
of all of the Mortgage Loans in connection with the termination of the Trust
Estate. See "Prepayment and Yield Considerations" and "Pooling and Servicing
Agreement -- Optional Termination" herein and "The Pooling and Servicing Agree-
ment -- 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, particu-
larly the Class A-15 and Class A-PO Certificates, should consider the risk that
a slower than anticipated rate of principal payments (including prepayments) on
the Mortgage Loans or, in the case of the Class A-PO Certificates, on the Dis-
count 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 (including prepayments) on the Mortgage Loans will result in
an actual yield that is lower than such investor's expected yield. See "Prepay-
ment and Yield Considerations" herein.
SUBORDINATION
The rights of the holders of the Class M Certificates to receive distribu-
tions with respect to the Mortgage Loans in the Trust Estate will be subordi-
nated to such rights of the holders of the Class A Certificates and the rights
of the holders of a Subclass of 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 Class A Certificates, the Class M Certifi-
cates and the Subclasses of Class B Certificates with lower numerical designa-
tions, all to the extent described herein under "Description of the Certifi-
cates -- Subordination of Class M and Class B Certificates."
BOOK-ENTRY SYSTEM FOR CERTAIN SUBCLASSES OF CLASS A CERTIFICATES
Transactions in the Book-Entry Certificates 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 -- Book-
Entry System for Certain Classes and Subclasses of Certificates" and "Descrip-
tion of the Certificates -- Book-Entry Form" in the Prospectus.
See "Risk Factors" in the Prospectus for a description of certain other risks
and special considerations applicable to the Offered Certificates.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
DENOMINATIONS
The Offered Certificates, other than the Class A-2, Class A-13, Class A-14,
Class A-15 and Class A-R 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, except that one of each of the Class A-3,
Class A-6, Class A-9, Class A-12 and Class A-PO Certificates may be issued in
any denomination in excess of $100,000. The Class A-2, Class A-13 and Class A-
14 Certificates will be issued in minimum denominations of $1,000 initial prin-
cipal balance and integral multiples of $1,000 initial principal balance in ex-
cess thereof. The Class A-15 Certificate will be issued as a single Certificate
with a denomination equal to its initial Class A Subclass Principal Balance.
The Class A-R Certificate will be issued as a single Certificate with a denomi-
nation of $100 initial principal balance.
DEFINITIVE FORM
Offered Certificates issued in fully registered, certificated form are re-
ferred to herein as "Definitive Certificates." The Class A-15, Class A-PO,
Class A-R, Class M and Offered Class B Certificates will be issued as Defini-
tive Certificates. Distributions of principal of, and interest on, the Defini-
tive Certificates will be made by the Trust Administrator or other paying agent
directly to holders of Definitive Certificates in accordance with the proce-
dures set forth in the Pooling and Servicing Agreement. The Definitive Certifi-
cates will be transferable and exchangeable at the offices of the Trust Admin-
istrator or other certificate registrar. No service charge will be imposed for
any registration of transfer or exchange, but the Trust Administrator may re-
quire 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 nom-
inee of DTC, which will be the "holder" or "Certificateholder" of such Certifi-
cates, 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-En-
try Form" in the Prospectus), and all references herein to distributions, no-
tices, 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 Cer-
tificates, as the case may be, for distribution to Beneficial Owners in accor-
dance 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
each Subclass of Class A and Class B Certificates and the Class M Certificates
will be made monthly, to the extent of each Subclass's 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 May
1997. 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 pre-
ceding month (each, a "Record Date"), except that the final distribution in re-
spect of any Certificate will only be made upon presentation and surrender of
such Certificate at the office or agency appointed by the Trust Administrator
and specified in the notice of final distribution in respect of such Certifi-
cate.
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 prepay-
ments and Liquidation Proceeds in respect of principal, if any), and interest
on or in respect of the Mortgage Loans received by the Master Servicer, includ-
ing 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
S-32
<PAGE>
Property by a Servicer in connection with the liquidation of the related Mort-
gage Loan on or prior to the Remittance Date in the month in which such Distri-
bution Date occurs, plus (i) all Periodic Advances made and (ii) all other
amounts (including any insurance proceeds and Compensating Interest) 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 repre-
sents 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 and (ii) the Master
Servicing Fee;
(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, all partial principal prepayments,
all proceeds of any Mortgage Loans or property acquired in respect thereof,
or liquidated pursuant to the Pooling and Servicing Agreement, including
net Partial Liquidation Proceeds but excluding any Net Foreclosure Profits
(as defined under "-- Additional Rights of the Class A-R Certificateholder"
below), and other unscheduled receipts in respect of principal of the Mort-
gage Loans other than proceeds of a repurchase of a Mortgage Loan by the
Seller or amounts deposited by the Seller in the Certificate Account in
connection with the substitution of a Mortgage Loan (collectively,
"Unscheduled Principal Receipts") that were received by each Servicer after
the Unscheduled Principal Receipt Period (as described under "Servicing of
the Mortgage Loans -- Unscheduled Principal Receipts" below) relating to
the Distribution Date for the applicable type of Unscheduled Principal Re-
ceipt, and all related payments of interest on such amounts;
(f) all repurchase proceeds with respect to Mortgage Loans repurchased by
the Seller on or following the Due Date in the month in which such Distri-
bution Date occurs and the excess of the unpaid principal balance of any
defective Mortgage Loan for which a Mortgage Loan was substituted over the
unpaid principal balance of such substituted Mortgage Loan on or following
the Due Date in the month in which such Distribution Date occurs;
(g) 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 or Master Servicing
Fee to which such Servicer or the Master Servicer, respectively, is enti-
tled, and the portion of net Liquidation Proceeds used to reimburse any
unreimbursed Periodic Advances;
(h) 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;
(i) reinvestment earnings on payments received in respect of the Mortgage
Loans or on other amounts on deposit in the Certificate Account;
(j) Net Foreclosure Profits;
(k) Month End Interest; and
(l) generally, the amount of any recoveries in respect of principal which
had previously been allocated as a loss to one or more Subclasses of the
Class A or Class B Certificates or the Class M Certificates.
The "Remittance Date" with respect to any Distribution Date and any Mortgage
Loan serviced by an Other Servicer will be the 18th day of each month or, if
any such day is not a business day, the preceding business day. The "Remittance
Date" with respect to any Distribution Date and any Mortgage Loan serviced by
Norwest
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Mortgage will, except as described below under "Servicing of the Mortgage
Loans -- Anticipated Changes in Servicing," be the 24th day of each month or,
if any such day is not a business day, the preceding business day.
"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.
Each Servicer is required to deposit in the Certificate Account on the Remit-
tance 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 Trust Administrator on or before the Dis-
tribution 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
Trust Administrator is obligated to remit any amounts which a Servicer was re-
quired 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 Distribu-
tion Amount Allocation"):
first, to the Subclasses of Class A Certificates, pro rata based on their re-
spective 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; provided, that prior to the applicable Accretion Termination
Date, an amount equal to the amount that would otherwise be distributable in
respect of interest to the Class A-6 Certificates or the Class A-10 Certifi-
cates with respect to a Class A-10 Component pursuant to this provision will be
distributed in reduction of the Class A Subclass Principal Balance and Compo-
nent Principal Balances thereof and the Class A Subclass Principal Balances of
the Class A-6 Accretion Directed Certificates, the Class A-9 Certificates and
the Class A-12 Certificates, as set forth below under "-- Principal (Including
Prepayments) -- Allocation of Amount to be Distributed";
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 Class A Subclass Interest Shortfall Amounts; pro-
vided, that prior to the applicable Accretion Termination Date, an amount equal
to the amount that would otherwise be distributable as interest shortfalls to
the Class A-6 Certificates or the Class A-10 Certificates with respect to a
Class A-10 Component pursuant to this provision will be distributed in reduc-
tion of the Class A Subclass Principal Balance and Component Principal Balances
thereof and the Class A Subclass Principal Balances of the Class A-6 Accretion
Directed Certificates, the Class A-9 Certificates and the Class A-12 Certifi-
cates, as set forth below under "-- Principal (Including Prepayments) -- Allo-
cation of Amount to be Distributed";
third, concurrently, pro rata to the Class A Certificates (other than the
Class A-PO Certificates), based on the Class A Non-PO Optimal Principal Amount,
and the Class A-PO Certificates, based on the Class A-PO Optimal Principal
Amount, (A) to the Subclasses of Class A Certificates (other than the Class A-
PO Certificates) in an aggregate amount up to the Class A Non-PO Optimal Prin-
cipal Amount, such distribution to be allocated among such Subclasses in accor-
dance with the priorities set forth below under "-- Principal (Including Pre-
payments) -- Allocation of Amount to be Distributed" and (B) to the Class A-PO
Certificates in an amount up to the Class A-PO Optimal Principal Amount;
fourth, to the Class A-PO Certificates in an amount up to the Class A-PO De-
ferred Amount, but only from amounts otherwise distributable (without regard to
this priority) to: first the Subclasses of Class B Certificates pursuant to
priorities fourteenth clause (C), thirteenth and tenth of this Pool Distribu-
tion Amount Allocation; and then 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 previ-
ously unpaid Class M Interest Shortfall Amounts;
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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 A-PO Deferred Amount in accordance with priority fourth;
eighth, to the Class B-1 Certificates in an amount up to the Class B Subclass
Interest Accrual Amount for such Subclass with respect to such Distribution
Date;
ninth, to the Class B-1 Certificates in an amount up to the sum of the previ-
ously unpaid Class B Subclass Interest Shortfall Amounts for such Subclass;
tenth, to the Class B-1 Certificates in an amount up to the Subclass B Opti-
mal Principal Amount for such Subclass; provided, however, that the amount dis-
tributable pursuant to this priority tenth will be reduced by the amount, if
any, otherwise distributable as principal hereunder used to pay the Class A-PO
Deferred Amount in accordance with priority fourth;
eleventh, to the Class B-2 Certificates in an amount up to the Class B
Subclass Interest Accrual Amount for such Subclass with respect to such Distri-
bution Date;
twelfth, to the Class B-2 Certificates in an amount up to the sum of the pre-
viously unpaid Class B Subclass Interest Shortfall Amounts for such Subclass;
thirteenth, to the Class B-2 Certificates in an amount up to the Subclass B
Optimal Principal Amount for such Subclass; provided, however, that the amount
distributable pursuant to this priority thirteenth will be reduced by the
amount, if any, otherwise distributable as principal hereunder used to pay the
Class A-PO Deferred Amount in accordance with priority fourth; and
fourteenth, sequentially, to the Class B-3, Class B-4 and Class B-5 Certifi-
cates so that each such Subclass shall receive (A) first, 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 Class B Subclass Interest
Shortfall Amounts and (C) finally, an amount up to its Subclass B Optimal Prin-
cipal Amount before any Subclasses of Class B Certificates with higher numeri-
cal designations receive any payments in respect of interest or principal; pro-
vided, however, that the amount distributable pursuant to this priority four-
teenth 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 A-PO Deferred Amount in accordance with priority fourth.
The "Class A Non-PO 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 "Class B Subclass Distribution Amount" for any Distribution Date and the
Class B-1 or Class B-2 Certificates will be equal to the sum of the amounts
distributed in accordance with priorities eighth through tenth of the Pool Dis-
tribution Amount Allocation set forth above with respect to the Class B-1 Cer-
tificates and priorities eleventh through thirteenth of the Pool Distribution
Amount Allocation set forth above with respect to the Class B-2 Certificates.
The undivided percentage interest (the "Percentage Interest") represented by
any Offered Certificate 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.
INTEREST
The amount of interest that will accrue on each Subclass of Class A Certifi-
cates (other than the Class A-15 and Class A-PO 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
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<PAGE>
of Class A Certificates, other than the Class A-10, Class A-15 and Class A-PO
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 or, in the case of the Class A-WIO
Certificates, the outstanding Class A-WIO Notional Amount 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 por-
tion of any Realized Losses, other than the interest portion of any Excess Spe-
cial Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocable
to such Subclass on or after the Cross-Over Date.
The pass-through rate (the "Pass-Through Rate") for each Subclass of Class A
Certificates, other than the Class A-15, Class A-PO and Class A-WIO Certifi-
cates, is the percentage set forth on the cover of this Prospectus Supplement.
The Pass-Through Rate for the Class A-WIO Certificates with respect to any
Distribution Date will be a per annum rate equal to the difference between (A)
the weighted average of the Net Mortgage Interest Rates of the Mortgage Loans
that have Net Mortgage Interest Rates greater than 7.500% (the "Premium Mort-
gage Loans") (based on the Scheduled Principal Balances of the Premium Mortgage
Loans as of such Distribution Date) and (B) 7.500%.
The Class A Subclass Interest Accrual Amount for the Class A-10 Certificates
will equal the sum of the Component Interest Accrual Amounts for the Class A-10
Group I Accrual Companion Component and Class A-10 Group II Accrual Companion
Component. The amount of interest that will accrue on each such Component dur-
ing each month, after taking into account any Non-Supported Interest Shortfalls
and the interest portion of certain losses allocated to such Component, is re-
ferred to herein as the "Component Interest Accrual Amount" for such Component.
The component rate for each Component (the "Component Rate") is 7.500% per an-
num.
The Component Interest Accrual Amount for each Component during each month
will equal the difference between (a) the product of (i) 1/12th of the Compo-
nent Rate for such Component and (ii) the outstanding Component Principal Bal-
ance of such Component and (b) the sum of such Component's pro rata share based
on interest accrued of (i) any Non-Supported Interest Shortfall allocable to
the Class A-10 Certificates, (ii) the interest portion of any Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocable to
the Class A-10 Certificates 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 the Class A-10
Certificates on or after the Cross-Over Date.
The Class A-WIO Certificates are interest-only certificates and have no prin-
cipal balance. The "Class A-WIO Notional Amount" with respect to each Distribu-
tion Date will be equal to the aggregate Scheduled Principal Balance of the
Premium Mortgage Loans as of such Distribution Date. The Class A-WIO Notional
Amount with respect to the first Distribution Date will be approximately
$362,120,139 less any Unscheduled Principal Receipts received in April 1997 and
applied as of the Cut-Off Date.
No interest will accrue on the Class A-15 or Class A-PO 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
7.500% 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 Certifi-
cates 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 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 7.500% 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 Ex-
cess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
allocable to such Subclass.
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The "Class A Subclass Principal Balance" of a Subclass of Class A Certifi-
cates (other than the Class A-10 and Class A-PO Certificates) as of any Deter-
mination Date will be the principal balance of such Subclass on the date of
initial issuance of the Class A Certificates plus, in the case of the Class A-6
Certificates, the Class A-6 Accrual Distribution Amount, as described under "--
Principal (Including Prepayments)" below, previously added to the Class A
Subclass Principal Balance of the Class A-6 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's pro rata
share of the principal portion of Excess Special Hazard Losses, Excess Fraud
Losses and Excess Bankruptcy Losses allocated through such Determination Date
to the holders of Class A Certificates (other than the Class A-PO 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 of Class A Certificates (other than
the Class A-PO Certificates) may be subject to further reduction in an amount
equal to such Subclass's pro rata share of the difference, if any, between (a)
the Class A Non-PO Principal Balance as of such Determination Date without re-
gard to this provision and (b) the difference between (i) the Adjusted Pool
Amount for the preceding Distribution Date and (ii) the Adjusted Pool Amount
(PO 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 (other than the Class A-10 and
Class A-PO Certificates) and the Class A-10 Components on the basis of their
then-outstanding Class A Subclass Principal Balances or Component Principal
Balances or, in the case of the Class A-6 Certificates and the Class A-10 Com-
ponents, their initial Class A Subclass Principal Balance or initial Component
Principal Balances, if lower.
The Class A Subclass Principal Balance of the Class A-10 Certificates as of
any Determination Date will be equal to the sum of the Component Principal Bal-
ances of the Class A-10 Components.
The "Component Principal Balance" of each Class A-10 Component as of any De-
termination Date will be the principal balance of such Component on the date of
initial issuance of the Class A Certificates plus the Class A-10 Group I Ac-
crual Companion Component Distribution Amount or Class A-10 Group II Accrual
Companion Component Distribution Amount, as applicable, as described under "--
Principal (Including Prepayments)" below, previously added to the Component
Principal Balance of such Component, less (i) all amounts previously distrib-
uted to holders of the Class A-10 Certificates in reduction of the principal
balance of such Component and (ii) such Component's pro rata share of the prin-
cipal portion of Excess Special Hazard Losses, Excess Fraud Losses and Excess
Bankruptcy Losses allocated through such Determination Date to the Class A Cer-
tificates (other than the Class A-PO Certificates) in the manner described
herein under "-- Subordination of Class M and Class B Certificates -- Alloca-
tion of Losses." After the Cross-Over Date, the Component Principal Balance of
each Component may be subject to further reduction in an amount equal to such
Component's pro rata share of the difference, if any, between (a) the Class A
Non-PO 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 (PO Portion) for
the preceding Distribution Date. Any pro rata allocation described in this par-
agraph will be made among the Subclasses of Class A Certificates (other than
the Class A-10 and Class A-PO Certificates) and the Class A-10 Components on
the basis of their then-outstanding Class A Subclass Principal Balances or Com-
ponent Principal Balances or, in the case of the Class A-6 Certificates and the
Class A-10 Components, their initial Class A Subclass Principal Balance or ini-
tial Component Principal Balances, if lower, immediately prior to the preceding
Distribution Date.
The Class A-WIO Certificates are interest-only Certificates and do not have a
principal balance.
The "Class A Subclass Principal Balance" of the Class A-PO Certificates as of
any Determination Date will be the principal balance of such Subclass on the
date of initial issuance of the Class A Certificates less (i) all amounts pre-
viously distributed to the holders of the Class A-PO Certificates pursuant to
priorities third clause (B) and fourth of the Pool Distribution Amount Alloca-
tion and (ii) the principal portion of Excess Special Hazard Losses, Excess
Fraud Losses and Excess Bankruptcy Losses allocated through such Determination
Date to the Class A-PO 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 the Class
A-PO Certificates will be subject to further reduction in an amount equal to
the excess, if any, of (a) the Class A Subclass Principal Balance of the Class
A-PO Certificates as of such Determination Date without regard to this provi-
sion over (b) the Adjusted Pool Amount (PO Portion) for the preceding Distribu-
tion Date.
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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 A Non-PO 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 (other than the Class A-PO Certificates).
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 princi-
pal balance thereof and (ii) the principal portion of Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocated through such
Determination Date to the holders of the Class M Certificates in the manner de-
scribed 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 Class A Principal Balance as of such Determination
Date.
The "Class B Subclass Principal Balance" of a Subclass of Class B Certifi-
cates as of any Determination Date will be the lesser of (a) the principal bal-
ance of such Subclass on the date of initial issuance of the Class B Certifi-
cates 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
allocated through such Determination Date to the holders of such Subclass in
the manner described under "-- Subordination of Class M and Class B Certifi-
cates -- Allocation of Losses" and (b) the Adjusted Pool Amount as of the pre-
ceding Distribution Date less the sum of (i) the Class A Principal Balance,
(ii) the Class M Principal Balance and (iii) the Class B Subclass Principal
Balances of the Subclasses of Class B Certificates with lower numerical desig-
nations, 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 Certifi-
cates 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 Mort-
gage Loans (including amounts received as Periodic Advances, principal prepay-
ments and Liquidation Proceeds in respect of principal) and distributed to
holders of the Series 1997-6 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 (PO Por-
tion)" will equal the sum as to each Mortgage Loan outstanding at the Cut-Off
Date of the product of (A) the PO 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 1997-6 Certificates on such Distribution Date and all prior Distri-
bution 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 of 0.25% per annum and (ii)
the Master Servicing Fee Rate. See "Servicing of the Mortgage Loans -- Servic-
ing Compensation and Payment of Expenses" herein.
When mortgagors prepay principal, or when principal is recovered through
foreclosure sales or other liquidations of defaulted Mortgage Loans, or when
other Unscheduled Principal Receipts occur, a full month's interest for the
month of payment or recovery may not be paid or recovered, resulting in inter-
est shortfalls to the extent that such payment or recovery is not included in
the distribution to Certificateholders made in the month in which it is re-
ceived. Interest shortfalls resulting from principal prepayments in full made
by mortgagors ("Prepayments in Full") are referred to herein as "Prepayment In-
terest Shortfalls." The Master Servicer will be obligated, on or before each
Distribution Date, to pay to the Trust Administrator for the benefit of
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<PAGE>
Certificateholders, from the Master Servicer's own funds (including amounts
otherwise payable to the Master Servicer in respect of such Distribution Date
as Master Servicing Fees) an amount (such amount, "Compensating Interest")
equal to the lesser of (i) the aggregate Prepayment Interest Shortfall with re-
spect to such Distribution Date and (ii) the lesser of (X) the product of (A)
1/12th of 0.20% and (B) the Pool Scheduled Principal Balance for such Distribu-
tion Date and (Y) the Available Master Servicing Compensation for such Distri-
bution Date.
The "Available Master Servicing Compensation" for any Distribution Date will
be equal to the sum of (a) the Master Servicing Fee for such Distribution Date,
(b) interest earned through the business day preceding the applicable Distribu-
tion Date on any Prepayments in Full remitted to the Master Servicer and depos-
ited in the Certificate Account (which amount of interest with respect to Pre-
payments in Full on the Mortgage Loans serviced by Norwest Mortgage is expected
to be zero unless the Remittance Date for such Mortgage Loans changes as de-
scribed below under "Servicing of the Mortgage Loans -- Anticipated Changes in
Servicing") and (c) the aggregate amount of Month End Interest remitted by the
Servicers to the Master Servicer pursuant to the related Underlying Servicing
Agreements. With respect to the Mortgage Loans serviced by Norwest Mortgage,
"Month End Interest" for each Distribution Date will be equal to the lesser of
(i) the aggregate Prepayment Interest Shortfalls with respect to the Mortgage
Loans serviced by Norwest Mortgage and (ii) the product of 1/12th of 0.20% and
the aggregate scheduled principal balance (as determined in the applicable Un-
derlying Servicing Agreement) of the Mortgage Loans serviced by Norwest Mort-
gage. With respect to the Mortgage Loans serviced by each Other Servicer,
"Month End Interest" for each Distribution Date will be equal to the lesser of
(i) the sum of the aggregate Prepayment Interest Shortfalls and aggregate Cur-
tailment Interest Shortfalls with respect to the Mortgage Loans serviced by
such Other Servicer and (ii) the sum of (X) the product of 1/12th of 0.25% and
the aggregate scheduled principal balance (as determined in the applicable Un-
derlying Servicing Agreement) of the Mortgage Loans serviced by such Other
Servicer and (Y) reinvestment earnings on payments received in respect of the
Mortgage Loans or on other amounts on deposit in the related Servicer Custodial
Account pursuant to the related Underlying Servicing Agreement on such Distri-
bution Date (other than with respect to the Mortgage Loans serviced by Country-
wide Home Loans, Inc.). As described below under "Servicing of the Mortgage
Loans -- Anticipated Changes in Servicing," any or all of the Servicers may be
required to begin to remit to the Master Servicer Unscheduled Principal Re-
ceipts in full for deposit into the Certificate Account daily on a specified
business day following receipt thereof which will generally result in a deposit
earlier than on the following Remittance Date and, in conjunction therewith,
may be relieved of its obligation to remit Month End Interest. Any such change
may have an impact on the amount of Compensating Interest by increasing the
amount described in clause (b) of the definition of Available Master Servicing
Compensation and decreasing the amount described in clause (c) of the defini-
tion thereof. No assurance can be given as to the timing of any such changes or
that any such changes will occur.
As to any Distribution Date, Prepayment Interest Shortfalls to the extent
that they exceed Compensating Interest are referred to herein as "Non-Supported
Interest Shortfalls" and will be allocated to (i) the Class A Certificates ac-
cording to the percentage obtained by dividing the then-outstanding Class A
Non-PO Principal Balance by the sum of the then-outstanding Class A Non-PO
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 Non-PO Principal Balance, Class M Principal Balance and
Class B Principal Balance and (iii) the Class B Certificates according to the
percentage obtained by dividing the then-outstanding Class B Principal Balance
by the sum of the then-outstanding Class A Non-PO 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 dis-
tributed to holders of the Class A Certificates then entitled to distributions
in respect of interest or, in the case of the Class A-6 Certificates and Class
A-10 Certificates with respect to the Class A-10 Components prior to the appli-
cable Accretion Termination Date, will reduce the amount of interest accrued on
and then added to the Class A Subclass Principal Balance or Component Principal
Balance thereof. 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 re-
spect of interest allocated to the Class A Certificates or Class B Certificates
will be allocated among such Subclasses of Class A or Class B Certificates, as
the case may be, pro rata on the basis of their respective Class A Subclass In-
terest Accrual Amount or Class B Subclass Interest Accrual Amount, without re-
gard to any reduction pursuant to this paragraph, for such Distribution Date.
Any Non-Supported Interest Shortfall allocated to the Class A-10 Certificates
will be allocated
S-39
<PAGE>
between the Class A-10 Components pro rata on the basis of their respective
Component Interest Accrual Amounts, without regard to any reduction pursuant to
this paragraph, for such Distribution Date.
Any interest shortfalls arising from Unscheduled Principal Receipts in full
that are not Prepayments in Full and any interest shortfalls resulting from the
timing of the receipt of partial principal prepayments by mortgagors ("Curtail-
ment Interest Shortfalls") or of other partial Unscheduled Principal Receipts
with respect to the Mortgage Loans will not be offset by Compensating Interest,
but instead will be borne first by the Subclasses of Class B Certificates in
reverse numerical order, second by the Class M Certificates, and then pro rata
by the Class A Certificates based on interest accrued. See "Description of the
Certificates -- Subordination of Class M and Class B Certificates" herein. Af-
ter the Cross-Over Date all interest shortfalls arising from Unscheduled Prin-
cipal Receipts, other than Prepayment Interest Shortfalls covered by Compensat-
ing Interest, will be treated as Non-Supported Interest Shortfalls and allo-
cated in reduction of interest accrued on the Class A Certificates.
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
and among the Subclasses of Class A Certificates or Class B Certificates, as
the case may be, pro rata on the basis of their respective Class A Subclass In-
terest Accrual Amounts or Class B Subclass Interest Accrual Amounts, without
regard to any reduction pursuant to this paragraph, for such Distribution Date.
Any amount allocated to the Class A-10 Certificates will be allocated between
the Class A-10 Components pro rata on the basis of their respective Component
Interest Accrual Amounts, without regard to any reduction pursuant to this par-
agraph, 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 Subclasses of Class B Certificates in reverse numerical order and then
to the Class M Certificates will result from the priority of distributions
first to the holders of the Class A Certificates, second to the holders of the
Class M Certificates and finally to the holders of the Subclasses of Class B
Certificates in numerical order 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 ex-
ceeds 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's Class A Subclass Interest Accrual Amount. On each Distribution Date,
interest in an amount equal to the Class A Subclass Interest Accrual Amount of
the Class A-6 Certificates will accrue thereon, but such amount will not be
distributed as interest to the Class A-6 Certificates until the Class A-6 Ac-
cretion Termination Date. Prior to such time, an amount equal to the Class A
Subclass Interest Accrual Amount for the Class A-6 Certificates will instead be
distributed in reduction of the Class A Subclass Principal Balances of the
Class A-6 Accretion Directed Certificates and the Class A-6 Certificates, as
described under "--Principal (Including Prepayments)--Allocation of Amount to
be Distributed" below, and the Class A Subclass Principal Balance of the Class
A-6 Certificates will be increased by a corresponding amount. The "Class A-6
Accretion Termination Date" will be the earlier to occur of (i) the Distribu-
tion Date following the Distribution Date on which the Class A Subclass Princi-
pal Balance of the Class A-5 Certificates has been reduced to zero or (ii) the
Cross-Over Date. On each Distribution Date, interest in an amount equal to the
Component Interest Accrual Amount for each Class A-10 Component will accrue on
such Component, but such amount will not be distributed as interest to the
Class A-10 Certificates with respect to such Component until the Class A-10
Group I Accrual Companion Component Accretion Termination Date or the Class A-
10 Group II Accrual Companion Component Accretion Termination Date, as applica-
ble. Prior to such time, an amount equal to the accrued and unpaid interest on
each Component will be added to the Component Principal Balance thereof and
distributed in reduction of (i) in the case of the Class A-10 Group I Accrual
Companion Component, the Class A Subclass Principal Balance of the Class A-9
Certificates and the Component Principal Balance of such Component or (ii) in
the case of the Class A-10 Group II Accrual Companion Component, the Class A
Subclass Principal Balance of the Class A-12 Certificates and the Component
Principal Balance of such Component, to the extent described under "-- Princi-
pal (Including Prepayments) -- Allocation of Amount to be Distributed" below.
The "Class A-10 Group I Accrual Companion Component Accretion Termination Date"
will be the earlier to occur of (i) the Distribution Date following the Distri-
bution Date on which the Class A Subclass Principal Balance of the Class A-9
Certificates has been reduced to zero or (ii) the Cross-Over Date. The "Class
A-10 Group II Accrual Companion Component Accretion Termination Date" will be
the earlier to occur of (i) the Distribution Date
S-40
<PAGE>
following the Distribution Date on which the Class A Subclass Principal Balance
of the Class A-12 Certificates has been reduced to zero or (ii) the Cross-Over
Date. Each of the Class A-6 Accretion Termination Date, the Class A-10 Group I
Accrual Companion Component Accretion Termination Date and the Class A-10 Group
II Accrual Companion Component Accretion Termination Date is referred to herein
as an "Accretion Termination Date."
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 Distribu-
tion Amount and will be allocated among the Subclasses of Class A Certificates
pro rata in accordance with each such Subclass's Class A Subclass Interest Ac-
crual Amount. Amounts so allocated will be distributed in respect of interest
to each Subclass of Class A Certificates, with the exception of the Class A-6
and Class A-10 Certificates prior to the applicable Accretion Termination Date.
In the case of the Class A-6 Certificates prior to the Class A-6 Accretion Ter-
mination Date, amounts so allocated will be added to the Class A Subclass Prin-
cipal Balance of the Class A-6 Certificates and distributed in reduction of the
Class A Subclass Principal Balances of the Class A-6 Accretion Directed Certif-
icates and Class A-6 Certificates, as described under "-- Principal (Including
Prepayments) -- Allocation of Amount to be Distributed" below. On each Distri-
bution Date, interest in an amount equal to the Component Interest Accrual
Amount for each Class A-10 Component will accrue on such Component, but such
amount will not be distributed as interest to the Class A-10 Certificates with
respect to such Component until the Class A-10 Group I Accrual Companion Compo-
nent Accretion Termination Date or the Class A-10 Group II Accrual Companion
Component Accretion Termination Date, as applicable. In the case of the Class
A-10 Certificates with the respect to the Class A-10 Components prior to the
Class A-10 Group I Accrual Companion Component Accretion Termination Date and
Class A-10 Group II Accrual Companion Component Accretion Termination Date, re-
spectively, any amounts so allocated will be added to the Component Principal
Balances thereof and distributed in reduction of the Class A Subclass Principal
Balances and Component Principal Balances of the Class A-9 Certificates, the
Class A-12 Certificates and the Class A-10 Components to the extent and in the
manner described under "-- Principal (Including Prepayments) -- Allocation of
Amount to be Distributed" below. Any difference between the portion of the Pool
Distribution Amount distributed in respect of current interest to each such
Subclass of Class A Certificates or, in the case of the Class A-6 and Class A-
10 Certificates prior to the applicable Accretion Termination Date, accrued on
and added to the Class A Subclass Principal Balance or Component Principal Bal-
ances thereof, 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 such Subclass, but only
so long as it is outstanding, to the extent that the Pool Distribution Amount
is sufficient therefor. No interest will accrue on the unpaid Class A Subclass
Interest Shortfall Amounts. In the event that on any Distribution Date prior to
an applicable Accretion Termination Date, the Pool Distribution Amount is less
than the sum of the Class A Subclass Interest Accrual Amounts, resulting in
Class A Subclass Interest Shortfall Amounts, as described above, amounts equal
to the Class A-6 Accrual Distribution Amount, Class A-10 Group I Accrual Com-
panion Component Distribution Amount or Class A-10 Group II Accrual Companion
Component Distribution Amount would be distributed to the Class A-6 Accretion
Directed Certificates, Class A-6 Certificates, Class A-9 Certificates, Class A-
12 Certificates and/or either or both Class A-10 Components, in reduction of
their Class A Subclass Principal Balances or Component Principal Balances, as
the case may be, notwithstanding that the holders of the Class A Certificates
of the Subclasses then entitled to receive distributions of interest have re-
ceived less than their respective Class A Subclass Interest Accrual Amounts
with respect to such Distribution Date.
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 Certif-
icates pro rata in accordance with their respective unpaid Class A Subclass In-
terest Shortfall Amounts immediately prior to such Distribution Date. Prior to
the Class A-6 Accretion Termination Date, the amount so allocated to the Class
A-6 Certificates will not be distributed as interest to the holders of the
Class A-6 Certificates, but instead will be distributed in reduction of the
Class A Subclass Principal Balances of the Class A-6 Accretion Directed Certif-
icates and the Class A-6 Certificates, and the Class A Subclass Principal Bal-
ance of the Class A-6 Certificates will be increased by a corresponding amount.
Prior to the Class A-10 Group I Accrual Companion Component Accretion Termina-
tion Date and Class A-10 Group II Accrual Companion Component Accretion Termi-
nation
S-41
<PAGE>
Date, respectively, the amount so allocated to each Component will not be dis-
tributed as interest to such Component but will be added to the Component Prin-
cipal Balance thereof and distributed, in the case of the Class A-10 Group I
Accrual Companion Component, in reduction of the Class A Subclass Principal
Balance of the Class A-9 Certificates or the Component Principal Balance of
such Component, and in the case of the Class A-10 Group II Accrual Companion
Component, in reduction of the Class A Subclass Principal Balance of the Class
A-12 Certificates or the Component Principal Balance of such Component, and the
Component Principal Balance of such Component will be increased by a corre-
sponding amount.
On each Distribution Date on which the Pool Distribution Amount equals or ex-
ceeds 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 the Subclasses of
Class A Certificates, (ii) the sum of the unpaid Class A Subclass Interest
Shortfall Amounts with respect to the Subclasses of Class A Certificates and
(iii) the Class A Non-PO Optimal Principal Amount (collectively with the
amounts described in clauses (i) and (ii), the "Class A Non-PO Optimal
Amount"), (B) the Class A-PO Optimal Principal Amount (collectively with the
amount described in clause (A), the "Class A 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 Class A 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
Class A Certificates with respect to such Distribution Date. Any difference be-
tween 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 Distribu-
tion Dates to the Class M Certificates, but only so long as they are outstand-
ing, to the extent that the Pool Distribution Amount is sufficient therefor. No
interest will accrue on the unpaid Class M Interest Shortfall Amount.
Subject to the payment of any Class A-PO Deferred Amount, on each Distribu-
tion Date on which the Pool Distribution Amount exceeds the sum of the Class A
Optimal Amount and the Class M Interest Accrual Amount, any excess will be al-
located first to pay previously unpaid Class M Interest Shortfall Amounts and
then to make distributions in respect of principal on the Class M Certificates.
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 In-
terest Shortfall Amount and (iii) the Class M Optimal Principal Amount.
On each Distribution Date on which the Pool Distribution Amount equals or ex-
ceeds the sum of (i) the Class B Subclass Interest Accrual Amount for a partic-
ular Subclass of Class B Certificates and (ii) all amounts senior in priority
to such Class B Subclass Interest Accrual Amount as set forth in the Pool Dis-
tribution Amount Allocation, the distribution in respect of current interest to
such Subclass of Class B Certificates will equal such Subclass's Class B
Subclass Interest Accrual Amount.
If on any Distribution Date, the Pool Distribution Amount is less than the
sum of (i) the Class B Subclass Interest Accrual Amount for a particular
Subclass of Class B Certificates and (ii) all amounts senior in priority to
such Class B Subclass Interest Accrual Amount based on the priorities in the
Pool Distribution Amount Allocation, the amount of current interest distributed
on such Subclass of Class B Certificates will equal the Pool Distribution
Amount less all amounts senior in priority to such Class B Subclass Interest
Accrual Amount as set forth in the Pool Distribution Amount Allocation. Any
difference between the amount distributed in respect of current interest to
such Subclass of Class B Certificates and the Class B Subclass Interest Accrual
Amount for such Subclass with respect to the related Distribution Date (as to
such Subclass, the "Class B Subclass Interest Shortfall Amount") will be added
to the amount to be distributed on subsequent Distribution Dates to such
Subclass, but only so long as it is outstanding, to the extent the Pool Distri-
bution Amount is sufficient therefor. No interest will accrue on such Class B
Subclass Interest Shortfall Amount.
For a particular Subclass of Class B Certificates, subject to the payment of
any Class A-PO Deferred Amount, on each Distribution Date on which the Pool
Distribution Amount exceeds the sum of the Class A Optimal Amount, the Class M
Optimal Amount, the Subclass B Optimal Amount for each Subclass of Class B Cer-
tificates with a lower numerical designation and the Class B Subclass Interest
Accrual Amount for such Subclass, any excess will be allocated first to pay
previously unpaid Class B Subclass Interest Shortfall Amounts
S-42
<PAGE>
of such Subclass and then to make distributions in respect of principal on such
Subclass. With respect to each Distribution Date, the "Subclass B Optimal
Amount" for any Subclass of Class B Certificates will equal the sum of (i) the
Class B Subclass Interest Accrual Amount, (ii) the unpaid Class B Subclass In-
terest Shortfall Amounts and (iii) the Subclass B Optimal Principal Amount.
On any Distribution Date on which the Pool Distribution Amount is less than
the Class A 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 or Class B Certificate of any Subclass or
of any Class M Certificate at any time is equal to the product of the Class A
Subclass Principal Balance or Class B Subclass Principal Balance of such
Subclass or the Class M Principal Balance, as the case may be, and such Certif-
icate's Percentage Interest, and represents the maximum specified dollar amount
(exclusive of (i) any interest that may accrue on such Class A Certificate
(other than interest added to the Class A Subclass Principal Balance of the
Class A-6 Certificates or the Component Principal Balance of a Class A-10 Com-
ponent), such Class M Certificate or such Class B Certificate and (ii) in the
case of the Class A-R Certificate, any additional amounts to which the holder
of such Certificates may be entitled as described below under "-- Additional
Rights of the Class A-R Certificateholder") to which the holder thereof is en-
titled 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 or Class B Subclass Principal Balance of each
Subclass of Offered Class A and Offered Class B Certificates and the approxi-
mate initial Class M Principal Balance are set forth on the cover of this Pro-
spectus Supplement. The Class A-WIO Certificates will have no Class A Subclass
Principal Balance.
Calculation of Amount to be Distributed to the Class A Certificates (other
than the Class A-PO Certificates)
Distributions in reduction of the principal balance of the Class A Certifi-
cates (other than the Class A-PO Certificates) will be made on each Distribu-
tion Date pursuant to the Pool Distribution Amount Allocation, in an aggregate
amount equal to the Class A Non-PO Principal Distribution Amount. The "Class A
Non-PO Principal Distribution Amount" with respect to any Distribution Date
will be equal to the sum of (i) the Class A-6 Accrual Distribution Amount, if
any, with respect to such Distribution Date, (ii) the Class A-10 Group I Ac-
crual Companion Component Accrual Distribution Amount, if any, with respect to
such Distribution Date, (iii) the Class A-10 Group II Accrual Companion Compo-
nent Accrual Distribution Amount, if any, with respect to such Distribution
Date and (iv) the Class A Non-PO Principal Amount with respect to such Distri-
bution Date.
The "Class A-6 Accrual Distribution Amount" with respect to any Distribution
Date will be equal to the sum of (i) the portion, if any, of current interest
allocated but not distributed with respect to the Class A-6 Certificates on
such Distribution Date in accordance with priority first of the Pool Distribu-
tion Amount Allocation and (ii) the portion, if any, of the unpaid Class A In-
terest Shortfall Amount allocated but not distributed with respect to the Class
A-6 Certificates on such Distribution Date in accordance with priority second
of the Pool Distribution Amount Allocation.
The "Class A-10 Group I Accrual Companion Component Accrual Distribution
Amount" with respect to any Distribution Date will be equal to the sum of (i)
the portion, if any, of current interest allocated but not distributed with re-
spect to the Class A-10 Certificates in respect of the Class A-10 Group I Ac-
crual Companion Component on such Distribution Date in accordance with priority
first of the Pool Distribution Amount Allocation and (ii) the portion, if any,
of the unpaid Class A Interest Shortfall Amount allocated but not distributed
with respect to the Class A-10 Certificates in respect of the Class A-10 Group
I Accrual Companion Component on such Distribution Date in accordance with pri-
ority second of the Pool Distribution Amount Allocation.
The "Class A-10 Group II Accrual Companion Component Accrual Distribution
Amount" with respect to any Distribution Date will be equal to the sum of (i)
the portion, if any, of current interest allocated but not distributed with re-
spect to the Class A-10 Certificates in respect of the Class A-10 Group II Ac-
crual Companion Component on such Distribution Date in accordance with priority
first of the Pool Distribution Amount Allocation and (ii) the portion, if any,
of the unpaid Class A Interest Shortfall Amount allocated but not distributed
with respect to the Class A-10 Certificates in respect of the Class A-10 Group
II Accrual Companion Component on such Distribution Date in accordance with
priority second of the Pool Distribution Amount Allocation.
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<PAGE>
The "Class A Non-PO Principal Amount" with respect to any Distribution Date
will be equal to the amount distributed pursuant to priority third clause (A)
of the Pool Distribution Amount Allocation, in an aggregate amount up to the
Class A Non-PO Optimal Principal Amount.
The "Class A Non-PO Optimal Principal Amount" with respect to each Distribu-
tion 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 re-
spect to which the related Mortgaged Property has been acquired by the Trust
Estate) of the product of (A) the Non-PO 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 Distribu-
tion Date occurs, less (B) if the Bankruptcy Loss Amount is zero, the prin-
cipal portion of Debt Service Reductions with respect to such Mortgage
Loan,
(ii) the Class A Prepayment Percentage of all Unscheduled Principal Re-
ceipts that were received by a Servicer with respect to such Mortgage Loan
during the Unscheduled Principal Receipt Period relating to such Distribu-
tion Date for each applicable type of Unscheduled Principal Receipt,
(iii) the Class A Prepayment Percentage of the Scheduled Principal Bal-
ance of such Mortgage Loan which, during the month preceding the month of
such Distribution Date was repurchased by the Seller, as described under
the heading "Description of the Mortgage Loans -- Mandatory Repurchase or
Substitution of Mortgage Loans" herein, and
(iv) the Class A Percentage of the excess of the unpaid principal balance
of any defective Mortgage Loan for which a Mortgage Loan was substituted
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such substituted 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 the Mortgage Loans to the Trustee" in the Pro-
spectus.
Generally, 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 (other than the Class A-PO Certificates) each Subclass of Class A
Certificates, provided that its principal balance has not previously been re-
duced to zero, 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 "Non-PO Fraction" with respect to any Mortgage Loan will equal the Net
Mortgage Interest Rate for such Mortgage Loan divided by 7.500%, but shall not
be greater than 1.0.
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), mora-
torium 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 princi-
pal previously received, to any partial principal prepayments and Deficient
Valuations occurring prior to such Due Date, to the payment of principal due on
such Due Date irrespective of any delinquency in payment by the mortgagor and
to any Unscheduled Principal Receipts received or applied during the applicable
Unscheduled Principal Receipt Period for the Distribution Date in the month
preceding the month in which such Distribution Date occurs.
A "Realized Loss" is any Liquidated Loan Loss (including any Special Hazard
Loss and any Fraud Loss) or any Bankruptcy Loss. A "Liquidated Loan" is a de-
faulted Mortgage Loan as to which the Servicer has determined that all recover-
able 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 ac-
cordance 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
S-44
<PAGE>
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 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 Trust-
ee, the Trust Administrator, 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 sub-
stances on a Mortgaged Property. A "Fraud Loss" is a Liquidated Loan Loss in-
curred on a Liquidated Loan as to which there was fraud in the origination of
such Mortgage Loan. A "Bankruptcy Loss" is a Debt Service Reduction or a Defi-
cient Valuation. 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 for-
giveness of principal, which valuation or reduction results from a bankruptcy
proceeding.
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 Non-PO Principal Balance as
of such date (before taking into account distributions in reduction of princi-
pal balance on such date) by the Pool Balance (Non-PO Portion). The "Pool Bal-
ance (Non-PO Portion)" is the sum for each outstanding Mortgage Loan of the
product of (i) the Non-PO Fraction for such Mortgage Loan and (ii) the Sched-
uled Principal Balance of such Mortgage Loan as of such Distribution Date. The
Class A Percentage for the first Distribution Date will be approximately
95.98%. 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 (other
than the Class A-PO Certificates) and will increase as a result of the alloca-
tion of Realized Losses to the Class M and Class B 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
- ------------------------------ ---------------------------------
<S> <C>
May 1997 through April 2002.................... 100%;
May 2002 through April 2003.................... the Class A Percentage, plus 70%
of the Subordinated Percentage;
May 2003 through April 2004.................... the Class A Percentage, plus 60%
of the Subordinated Percentage;
May 2004 through April 2005.................... the Class A Percentage, plus 40%
of the Subordinated Percentage;
May 2005 through April 2006.................... the Class A Percentage, plus 20%
of the Subordinated Percentage;
and
May 2006 and thereafter........................ the Class A Percentage;
</TABLE>
S-45
<PAGE>
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 "Prepay-
ment 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 Distribu-
tion 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 Mort-
gaged 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) for any Distribution Date,
cumulative Realized Losses with respect to the Mortgage Loans exceed the per-
centages of the principal balance of the Subordinated Certificates as of the
Cut-Off Date (the "Original Subordinated Principal Balance") indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
ORIGINAL SUBORDINATED
DISTRIBUTION DATE OCCURRING IN PRINCIPAL BALANCE
- ------------------------------ ---------------------
<S> <C>
May 2002 through April 2003............................... 30%
May 2003 through April 2004............................... 35%
May 2004 through April 2005............................... 40%
May 2005 through April 2006............................... 45%
May 2006 and thereafter................................... 50%
</TABLE>
This disproportionate allocation of certain unscheduled payments in respect
of principal will have the effect of accelerating the amortization of the Class
A Certificates (other than the Class A-PO 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 (other than the Class A-PO 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 Prepay-
ment Percentage for such date. If on any Distribution Date the allocation to
the Class A Certificates (other than the Class A-PO Certificates) of full and
partial principal prepayments and other amounts in the percentage required
above would reduce the outstanding Class A Non-PO 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 Non-PO Principal Balance to ze-
ro.
Calculation of Amount to be Distributed to the Class A-PO Certificates
Distributions in reduction of the Class A Subclass Principal Balance of the
Class A-PO Certificates will be made on each Distribution Date in an aggregate
amount equal to the Class A-PO Distribution Amount. The "Class A-PO Distribu-
tion 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 A-PO Op-
timal 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 A-PO Deferred Amount.
The "Class A-PO Optimal Principal Amount" with respect to each Distribution
Date will be an amount equal to the sum for each outstanding Mortgage Loan (in-
cluding each defaulted Mortgage Loan, other than a Liquidated Loan, with re-
spect to which the related Mortgaged Property has been acquired by the Trust
Estate) of the product of (A) the PO 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 Re-
ductions with respect to such Mortgage Loan,
S-46
<PAGE>
(ii) all Unscheduled Principal Receipts that were received by a Servicer
with respect to such Mortgage Loan during the Unscheduled Principal Receipt
Period relating to such Distribution Date for each applicable type of
Unscheduled Principal Receipt,
(iii) the Scheduled Principal Balance of such Mortgage Loan which, during
the month preceding the month of such Distribution Date was repurchased by
the Seller, as described under the heading "Description of the Mortgage
Loans -- Mandatory Repurchase or Substitution of Mortgage Loans" herein,
and
(iv) the excess of the unpaid principal balance of any defective Mortgage
Loan for which a Mortgage Loan was substituted during the month preceding
the month in which such Distribution Date occurs over the unpaid principal
balance of such substituted 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 A-PO 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 A-PO Optimal Principal Amount for all prior Distribution
Dates exceeds the amounts distributed to the Class A-PO 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 A-PO Certificates as de-
scribed 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 at any time on or prior to the last day of
the applicable Unscheduled Principal Receipt Period for the current Distribu-
tion Date of (a) the PO 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 A-PO Certifi-
cates on prior Distribution Dates pursuant to priority fourth of the Pool Dis-
tribution Amount Allocation. On or after the Cross-Over Date, the Class A-PO
Deferred Amount will be zero. No interest will accrue on any Class A-PO De-
ferred Amount.
Generally, 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-PO Certificates, such Subclass, provided that its principal balance has not
previously been reduced to zero, will be entitled to its share of such recovery
in an amount up to the amount by which the Class A Subclass Principal Balance
of the Class A-PO Certificates was reduced as a result of such Realized Loss.
The "PO Fraction" with respect to any Discount Mortgage Loan will equal the
difference between 1.0 and the Non-PO Fraction for such Mortgage Loan. The PO
Fraction with respect to each Mortgage Loan that is not a Discount Mortgage
Loan will be zero.
The "Pool Balance (PO Portion)" is the sum for each Discount Mortgage Loan of
the product of the Scheduled Principal Balance of such Discount Mortgage Loan
and the PO Fraction for such Discount Mortgage Loan.
Calculation of Amount to be Distributed to the Class M and Class B
Certificates
Distributions in reduction of the principal balance of the Class M Certifi-
cates 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 (includ-
ing 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 Non-PO 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 Distribu-
tion Date occurs, less (B) if the Bankruptcy Loss Amount is zero, the prin-
cipal portion of Debt Service Reductions with respect to such Mortgage
Loan,
S-47
<PAGE>
(ii) the Class M Prepayment Percentage of all Unscheduled Principal Re-
ceipts that were received by a Servicer with respect to such Mortgage Loan
during the Unscheduled Principal Receipt Period relating to such Distribu-
tion Date for each applicable type of Unscheduled Principal Receipt,
(iii) the Class M Prepayment Percentage of the Scheduled Principal Bal-
ance of such Mortgage Loan which, during the month preceding the month of
such Distribution Date was repurchased by the Seller, as described under
the heading "Description of the Mortgage Loans -- Mandatory Repurchase or
Substitution of Mortgage Loans" herein, and
(iv) the Class M Percentage of the excess of the unpaid principal balance
of any defective Mortgage Loan for which a Mortgage Loan was substituted
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such substituted 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 the Mortgage Loans to the Trustee" in the Pro-
spectus.
Distributions in reduction of the principal balances of the Class B-1 and
Class B-2 Certificates will be made on each Distribution Date, pursuant to pri-
orities tenth and thirteenth, respectively, of the Pool Distribution Amount Al-
location, in an aggregate amount with respect to each such Subclass (the "Class
B-1 Principal Distribution Amount" and "Class B-2 Principal Distribution
Amount," respectively) up to the Subclass B Optimal Principal Amount for such
Subclass.
The "Subclass B Optimal Principal Amount" for a particular Subclass of Class
B Certificates with respect to each Distribution Date will be an amount equal
to the sum for each outstanding Mortgage Loan (including each defaulted Mort-
gage 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 Non-PO Fraction for such Mortgage Loan and (B) the sum of:
(i) the Subclass B Percentage for such Subclass of (A) the scheduled pay-
ment 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 re-
spect to such Mortgage Loan,
(ii) the Subclass B Prepayment Percentage for such Subclass of all
Unscheduled Principal Receipts that were received by a Servicer with re-
spect to such Mortgage Loan during the Unscheduled Principal Receipt Period
relating to such Distribution Date for each applicable type of Unscheduled
Principal Receipt,
(iii) the Subclass B Prepayment Percentage for such Subclass of the
Scheduled Principal Balance of such Mortgage Loan which, during the month
preceding the month of such Distribution Date was repurchased by the Sell-
er, as described under the heading "Description of the Mortgage Loans --
Mandatory Repurchase or Substitution of Mortgage Loans" herein, and
(iv) the Subclass B Percentage for such Subclass of the excess of the un-
paid principal balance of any defective Mortgage Loan for which a Mortgage
Loan was substituted during the month preceding the month in which such
Distribution Date occurs over the unpaid principal balance of such substi-
tuted 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 the Mortgage Loans to
the Trustee" in the Prospectus.
The principal distribution to the holders of Class M Certificates or a
Subclass of Class B Certificates will be reduced on any Distribution Date on
which (i) the principal balance of the Class M Certificates or such Subclass of
Class B 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 Class A Certificates, and in the case of a
Subclass of Class B Certificates, the principal balances of the Class M Certif-
icates or any Subclass of Class B Certificates with a lower numerical designa-
tion, 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 reduc-
tion in the principal distributed to the holders of Class M Certificates or
such Subclass of Class B Certificates will instead be distributed pro rata to
the holders of any
S-48
<PAGE>
Subclass (other than the Class A-PO Certificates) and Class senior in priority
to receive distributions in accordance with the Pool Distribution Amount Allo-
cation.
Generally, 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 or any Subclass of Class B Certificates, the Class M Certificates
or such Subclass, provided that the principal balance of such Class or Subclass
has not previously been reduced to zero, will be entitled to their pro rata
share of such recovery up to the amount by which the Class M Principal Balance
or Class B Subclass Principal Balance was reduced as a result of such Realized
Loss.
The "Class M Percentage" and "Class M Prepayment Percentage" for any Distri-
bution Date will equal that portion of the Subordinated Percentage and Subordi-
nated 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 distribu-
tions.
The "Subclass B Percentage" and "Subclass B Prepayment Percentage" for a
Subclass of Class B Certificates will equal the portion of the Subordinated
Percentage and Subordinated Prepayment Percentage, as the case may be, repre-
sented by the fraction, the numerator of which is the then-outstanding Class B
Subclass Principal Balance for such Subclass of Class B Certificates and the
denominator of which is the sum of the Class M Principal Balance and the Class
B Subclass Principal Balances of the Subclasses entitled to principal distribu-
tions for such Distribution Date as described below. In the event that a
Subclass of Class B Certificates is not entitled to principal distributions for
such Distribution Date, the Subclass B Percentage and Subclass B Prepayment
Percentage for such Subclass will both be 0% with respect to such Distribution
Date.
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 en-
titled to distributions in respect of principal and the Class B Subclass Prin-
cipal 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, respective-
ly. 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 dis-
tributions in respect of principal and the Class B Subclass Principal Balances
of such Subclasses will not be used to determine the Class M Percentage, the
Class M Prepayment Percentage, the Subclass B Percentage for the Class B-1 Cer-
tificates and the Subclass B Prepayment Percentage for the Class B-1 Certifi-
cates 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 ex-
ceeds the Original Class M Fractional Interest and the Original Class B-1 Frac-
tional 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, the Class M Prepayment Per-
centage, the Subclass B Percentages for the Subclasses of Class B Certificates
with lower numerical designations and the Subclass B Prepayment Percentages for
the Subclasses of Class B Certificates with lower numerical designations for
such Distribution Date. In the event that each of the Current Class M Frac-
tional 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 Inter-
est 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, the Class M Prepayment Per-
centage, the Subclass B Percentages for the Subclasses of Class B Certificates
with lower numerical designations and the Subclass B Prepayment Percentages for
the Subclasses of Class B Certificates with lower numerical designations for
such Distribution Date. In the event that each of the Current Class M Frac-
tional 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 Frac-
tional Interest, the Original Class B-2 Fractional Interest and the Original
Class B-3 Fractional
S-49
<PAGE>
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, the Class M Prepayment Percentage, the Subclass B Percent-
ages for the Subclasses of Class B Certificates with lower numerical designa-
tions and the Subclass B Prepayment Percentages for the Subclasses of Class B
Certificates with lower numerical designations 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 di-
viding 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 Non-PO Principal Balance, initial Class M Principal Balance
and initial Class B Principal Balance. The Original Class M Fractional Interest
is expected to be approximately 2.76%. The "Current Class M Fractional Inter-
est" 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 Non-PO Principal Balance, the Class M Principal Bal-
ance 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 Non-PO 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 1.21%. The "Current Class B-1 Fractional Inter-
est" 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-out-
standing Class A Non-PO Principal Balance, the Class M Principal Balance and
the Class B Principal Balance.
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 Non-PO 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 0.75%. 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 Non-PO Prin-
cipal 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 Non-PO
Principal Balance, initial Class M Principal Balance and initial Class B Prin-
cipal Balance. The Original Class B-3 Fractional Interest is expected to be ap-
proximately 0.45%. The "Current Class B-3 Fractional Interest" for any Distri-
bution Date is the percentage obtained by dividing the sum of the then-out-
standing Class B Subclass Principal Balances of the Class B-4 and Class B-5
Certificates by the sum of the then-outstanding Class A Non-PO Principal Bal-
ance, 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 Cer-
tificates by the sum of the initial Class A Non-PO 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 0.25%. The "Cur-
rent 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 Non-PO
Principal Balance, the Class M Principal Balance and the Class B Principal Bal-
ance.
Allocation of Amount to be Distributed
The Class A-WIO Certificates are interest-only certificates and are not enti-
tled to distributions in respect of principal.
On each Distribution Date occurring prior to the Class A-10 Group I Accrual
Companion Component Accretion Termination Date, an amount equal to the Class A-
10 Group I Accrual Companion Component
S-50
<PAGE>
Distribution Amount, if any, for such Distribution Date will be allocated as
follows: first, to be Class A-9 Certificates up to their Group I TAC Principal
Amount for such Distribution Date and second, to the Class A-10 Group I Accrual
Companion Component, until the Component Principal Balance thereof has been re-
duced to zero.
On each Distribution Date occurring prior to the Class A-10 Group II Accrual
Companion Component Accretion Termination Date, an amount equal to the Class A-
10 Group II Accrual Companion Component Distribution Amount, if any, for such
Distribution Date will be allocated as follows: first, to the Class A-12 Cer-
tificates up to their Group II TAC Principal Amount for such Distribution Date
and second, to the Class A-10 Group II Accrual Companion Component, until the
Component Principal Balance thereof has been reduced to zero.
On each Distribution Date occurring prior to the Class A-6 Accretion Termina-
tion Date, an amount equal to the Class A-6 Accrual Distribution Amount, if
any, for such Distribution Date will be allocated sequentially in reduction of
the principal balances of the Class A-3, Class A-7, Class A-5 and Class A-6
Certificates, in that order, until the Class A Subclass Principal Balance of
each such Subclass has been reduced to zero.
On each Distribution Date occurring prior to the Cross-Over Date, the Class A
Non-PO Principal Distribution Amount (other than the Class A-6 Accrual Distri-
bution Amount, the Class A-10 Group I Accrual Companion Component Distribution
Amount and the Class A-10 Group II Accrual Companion Component Distribution
Amount) will be allocated among and distributed in reduction of the Class A
Subclass Principal Balances of the Class A Certificates (other than the Class
A-PO Certificates) as follows:
first, to the Class A-4 Certificates up to the Class A-4 Priority Amount;
second, to the Class A-R Certificate until the Class A Subclass Principal
Balance thereof has been reduced to zero;
third, concurrently, as follows until the Class A Subclass Principal Balances
of the Class A-8 and Class A-9 Certificates and the Component Principal Balance
of the Class A-10 Group I Accrual Companion Component have been reduced to ze-
ro:
(i) approximately 64.6875764877%, sequentially, as follows:
(a) sequentially, to the Class A-11, Class A-1, Class A-13 and Class
A-14 Certificates, in that order, up to their respective Group II PAC
Principal Amounts for such Distribution Date;
(b) to the Class A-12 Certificates up to their Group II TAC Principal
Amount for such Distribution Date;
(c) to the Class A-10 Group II Accrual Companion Component, until the
Component Principal Balance thereof has been reduced to zero;
(d) to the Class A-12 Certificates, without regard to their Group II
TAC Principal Amount, until the Class A Subclass Principal Balance
thereof has been reduced to zero;
(e) sequentially, to the Class A-11, Class A-1, Class A-13 and Class
A-14 Certificates, in that order, without regard to their respective
Group II PAC Principal Amounts, until the Class A Subclass Principal
Balance of each such Subclass has been reduced to zero;
(ii) approximately 35.3124235123%, sequentially, as follows:
(a) to the Class A-8 Certificates, up to their Group I PAC Principal
Amount with respect to such Distribution Date;
(b) to the Class A-9 Certificates, up to their Group I TAC Principal
Amount with respect to such Distribution Date;
(c) to the Class A-10 Group I Accrual Companion Component, until the
Component Principal Balance thereof has been reduced to zero;
S-51
<PAGE>
(d) to the Class A-9 Certificates, without regard to their Group I TAC
Principal Amount, until the Class A Subclass Principal Balance thereof
has been reduced to zero;
(e) to the Class A-8 Certificates, without regard to their Group I PAC
Principal Amount, until the Class A Subclass Principal Balance thereof
has been reduced to zero;
fourth, concurrently, as follows:
(i) approximately 23.5601141969%, concurrently, to the Class A-2 and
Class A-15 Certificates, pro rata, until the Class A Subclass Principal
Balance of each such Subclass has been reduced to zero;
(ii) approximately 76.4398858031%, sequentially, as follows:
(a) sequentially, to the Class A-11, Class A-1, Class A-13 and Class
A-14 Certificates, up to their respective Group II PAC Principal Amounts
for such Distribution Date;
(b) to the Class A-12 Certificates up to their Group II TAC Principal
Amount for such Distribution Date;
(c) to the Class A-10 Group II Accrual Companion Component until the
Component Principal Balance thereof has been reduced to zero;
(d) to the Class A-12 Certificates, without regard to their Group II
TAC Principal Amount, until the Class A Subclass Principal Balance has
been reduced to zero;
(e) sequentially, to the Class A-11, Class A-1, Class A-13 and Class
A-14 Certificates, in that order, without regard to their respective
Group II PAC Principal Amounts, until the Class A Subclass Principal
Balance of each such Subclass has been reduced to zero.
fifth, sequentially, to the Class A-3, Class A-7, Class A-5 and Class A-6
Certificates, in that order, until the Class A Subclass Principal Balance of
each such Subclass has been reduced to zero; and
sixth, to the Class A-4 Certificates, without regard to the Class A-4 Prior-
ity Amount, until the Class A Subclass Principal Balance thereof has been re-
duced to zero.
The "Class A-4 Priority Amount" for any Distribution Date means the lesser of
(i) the Class A Subclass Principal Balance of the Class A-4 Certificates and
(ii) the sum of (A) the product of (1) the Class A-4 Percentage and (2) the
Scheduled Principal Amount and (B) the product of (1) the Class A-4 Percentage,
(2) the Class A-4 Prepayment Shift Percentage and (3) the Unscheduled Principal
Amount.
The "Class A-4 Percentage" means the Class A Subclass Principal Balance of
the Class A-4 Certificates divided by the Pool Balance (Non-PO Portion).
The "Scheduled Principal Amount" means 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 Non-PO Fraction for such Mortgage Loan
and (B) the sum of the amounts described in clauses B(i) and B(iv) of the defi-
nition of "Class A Non-PO Optimal Principal Amount" on page S-44, but without
that amount being multiplied by the Class A Percentage.
The "Unscheduled Principal Amount" means the sum for each outstanding Mort-
gage Loan (including each defaulted Mortgage Loan, other than a Liquidated
Loan, with respect to which the related Mortgage Property has been acquired by
the Trust Estate) of the product of (A) the Non-PO Fraction for such Mortgage
Loan and (B) the sum of the amounts described in clauses B(ii) and B(iii) of
the definition of "Class A Non-PO Optimal Principal Amount" on page S-44, but
without that amount being multiplied by the Class A Prepayment Percentage.
S-52
<PAGE>
The "Class A-4 Prepayment Shift Percentage" for any Distribution Date will be
the percentage indicated below:
<TABLE>
<CAPTION>
CLASS A-4
PREPAYMENT
DISTRIBUTION DATE OCCURRING IN SHIFT PERCENTAGE
- ------------------------------ ----------------
<S> <C>
May 1997 through April 2002.................................... 0%
May 2002 through April 2003.................................... 30%
May 2003 through April 2004.................................... 40%
May 2004 through April 2005.................................... 60%
May 2005 through April 2006.................................... 80%
May 2006 and thereafter........................................ 100%
</TABLE>
As used above, the "Group I PAC Principal Amount" for any Distribution Date
and for the Group I PAC Certificates means the amount, if any, that would re-
duce the Class A Subclass Principal Balance of such Subclass to the percentage
of its initial Class A Subclass Principal Balance shown in the tables set forth
below with respect to such Distribution Date.
As used above, the "Group II PAC Principal Amount" for any Distribution Date
and Subclass of Group II PAC Certificates means the amount, if any, that would
reduce the Class A Subclass Principal Balance of such Subclass to the percent-
age of its initial Class A Subclass Principal Balance shown in the tables set
forth below with respect to such Distribution Date.
As used above, the "Group I TAC Principal Amount" for any Distribution Date
and for the Group I TAC Certificates means the amount, if any, that would re-
duce the Class A Subclass Principal Balance of such Subclass to the percentage
of its initial Class A Subclass Principal Balance shown in the tables set forth
below with respect to such Distribution Date.
As used above, the "Group II TAC Principal Amount" for any Distribution Date
and for the Group II TAC Certificates means the amount, if any, that would re-
duce the Class A Subclass Principal Balance of such Subclass to the percentage
of its initial Class A Subclass Principal Balance shown in the tables set forth
below with respect to such Distribution Date.
Notwithstanding the foregoing, on each Distribution Date occurring on or af-
ter the Cross-Over Date, the Class A Non-PO Principal Distribution Amount will
be distributed among the Subclasses of Class A Certificates (other than the
Class A-PO Certificates) pro rata in accordance with their respective outstand-
ing Class A Subclass Principal Balances without regard to the proportions and
priorities set forth above.
Any amounts distributed on a Distribution Date to the holders of Class A Cer-
tificates of any Subclass in reduction of principal balance will be allocated
among the holders of Class A Certificates of such Subclass pro rata in accor-
dance with their respective Percentage Interests.
Amounts distributed on any Distribution Date to the holders of the Class M
and Offered Class B Certificates in reduction of principal balance will be al-
located among the holders of each such Class or Subclass pro rata in accordance
with their respective Percentage Interests.
S-53
<PAGE>
The following tables set forth for each Distribution Date the planned Class A
Subclass Principal Balance for each Subclass of PAC Certificates and the
targeted Class A Subclass Principal Balance for each Subclass of TAC Certifi-
cates, expressed as a percentage of the initial Class A Subclass Principal Bal-
ance of such Subclass.
PLANNED CLASS A SUBCLASS PRINCIPAL BALANCES
AS PERCENTAGES OF INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE
CLASS A-1 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
Up to and in-
cluding
December 2000... 100.00000000%
January 2001.... 98.81783479
February 2001... 93.00374537
March 2001...... 87.22124459
April 2001...... 81.47018860
May 2001........ 75.75043436
June 2001....... 70.06183971
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
July 2001....... 64.40426346%
August 2001..... 58.77756512
September 2001.. 53.18160517
October 2001.... 47.61624491
November 2001... 42.08134655
December 2001... 36.57677304
January 2002.... 31.10238830
February 2002... 25.65805703
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
March 2002...... 20.24364478%
April 2002...... 14.85901795
May 2002........ 9.92039116
June 2002....... 5.00974005
July 2002....... 0.12692764
August 2002
and thereafter.. 0.00000000
</TABLE>
CLASS A-8 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
Up to and in-
cluding
August 1998..... 100.00000000%
September 1998.. 98.57662380
October 1998.... 97.09633773
November 1998... 95.55974780
December 1998... 93.96734973
January 1999.... 92.31965293
February 1999... 90.61729093
March 1999...... 88.86101113
April 1999...... 87.05151847
May 1999........ 85.18948720
June 1999....... 83.27640643
July 1999....... 81.31618953
August 1999..... 79.31953847
September 1999.. 77.30461330
October 1999.... 75.29008703
November 1999... 73.28184897
December 1999... 71.27988057
January 2000.... 69.28416337
February 2000... 67.29467903
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
March 2000...... 65.31140923%
April 2000...... 63.33433583
May 2000........ 61.36344073
June 2000....... 59.39870590
July 2000....... 57.44011350
August 2000..... 55.48764567
September 2000.. 53.54128470
October 2000.... 51.60101300
November 2000... 49.66681297
December 2000... 47.73866723
January 2001.... 45.81655840
February 2001... 43.90046920
March 2001...... 41.99038253
April 2001...... 40.08628123
May 2001........ 38.18814840
June 2001....... 36.29596713
July 2001....... 34.40972060
August 2001..... 32.52939210
September 2001.. 30.65496503
October 2001.... 28.78642290
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
November 2001... 26.92374923%
December 2001... 25.06692773
January 2002.... 23.21594213
February 2002... 21.37077627
March 2002...... 19.53141410
April 2002...... 17.69783967
May 2002........ 15.99090893
June 2002....... 14.28935217
July 2002....... 12.59315150
August 2002..... 10.90228927
September 2002.. 9.21674777
October 2002.... 7.53650943
November 2002... 5.86155673
December 2002... 4.19187227
January 2003.... 2.52743863
February 2003... 0.86823853
March 2003
and thereafter.. 0.00000000
</TABLE>
USING CUSTOMER FILE(S): PACA1.002
USING CUSTOMER FILE(S): PACA8.002
S-54
<PAGE>
CLASS A-11 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
Up to and in-
cluding
August 1998..... 100.00000000%
September 1998.. 97.34485055
October 1998.... 94.57789034
November 1998... 91.70068317
December 1998... 88.71458560
January 1999.... 85.62099916
February 1999... 82.42159300
March 1999...... 79.11828163
April 1999...... 75.71290714
May 1999........ 72.20726317
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
June 1999....... 68.60480197%
July 1999....... 64.91387356
August 1999..... 61.15650577
September 1999.. 57.36968183
October 1999.... 53.59124935
November 1999... 49.83308810
December 1999... 46.09510365
January 2000.... 42.37720219
February 2000... 38.67929036
March 2000...... 35.00127550
April 2000...... 31.34306538
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
May 2000........ 27.70456837%
June 2000....... 24.08569334
July 2000....... 20.48634981
August 2000..... 16.90644774
September 2000.. 13.34589764
October 2000.... 9.80461063
November 2000... 6.28249825
December 2000... 2.77947269
January 2001
and thereafter.. 0.00000000
</TABLE>
CLASS A-13 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
Up to and in-
cluding
July 2002....... 100.00000000%
August 2002..... 94.86122094
September 2002.. 89.61445252
October 2002.... 84.39749838
November 2002... 79.21021274
December 2002... 74.05245082
January 2003.... 68.92406856
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
February 2003... 63.82492272%
March 2003...... 58.75487095
April 2003...... 53.71377152
May 2003........ 48.84754927
June 2003....... 44.00912542
July 2003....... 39.19836056
August 2003..... 34.41511604
September 2003.. 29.65925399
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
October 2003.... 24.93063734%
November 2003... 20.22912976
December 2003... 15.55459556
January 2004.... 10.90690005
February 2004... 6.28590900
March 2004...... 1.69148913
April 2004
and thereafter.. 0.00000000
</TABLE>
CLASS A-14 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
Up to and in-
cluding
March 2004...... 100.00000000%
April 2004...... 95.87330734
May 2004........ 89.76050588
June 2004....... 83.68213276
July 2004....... 77.63800660
August 2004..... 71.62794711
September 2004.. 65.65177479
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
October 2004.... 59.70931118%
November 2004... 53.86483869
December 2004... 48.15104648
January 2005.... 42.56542582
February 2005... 37.10551305
March 2005...... 31.76888831
April 2005...... 26.55317508
May 2005........ 22.66208911
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
June 2005....... 18.85615848%
July 2005....... 15.13369656
August 2005..... 11.49304830
September 2005.. 7.93258952
October 2005.... 4.45072631
November 2005... 1.04589466
December 2005
and thereafter.. 0.00000000
</TABLE>
S-55
USING CUSTOMER FILE(S): PACA11.002
USING CUSTOMER FILE(S): PACA13.002
USING CUSTOMER FILE(S): PACA14.002
<PAGE>
TARGETED CLASS A SUBCLASS PRINCIPAL BALANCES
AS PERCENTAGES OF INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE
CLASS A-9 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
May 1997........ 99.61412730%
June 1997....... 99.13843420
July 1997....... 98.57314433
August 1997..... 97.91854047
September 1997.. 97.17501331
October 1997.... 96.34306152
November 1997... 95.42329164
December 1997... 94.41641772
January 1998.... 93.32326079
February 1998... 92.14474810
March 1998...... 90.88192694
April 1998...... 89.53593320
May 1998........ 88.10800541
June 1998....... 86.59948303
July 1998....... 85.01180464
August 1998..... 83.34655428
September 1998.. 82.19137885
October 1998.... 80.98552598
November 1998... 79.73079910
December 1998... 78.42893725
January 1999.... 77.08174806
February 1999... 75.69122020
March 1999...... 74.25950531
April 1999...... 72.78874843
May 1999........ 71.28109959
June 1999....... 69.73958370
July 1999....... 68.16972082
August 1999..... 66.58391082
September 1999.. 65.00185791
October 1999.... 63.44316913
November 1999... 61.91370537
December 1999... 60.41307406
January 2000.... 58.94088763
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
February 2000... 57.49676358%
March 2000...... 56.08032435
April 2000...... 54.69119722
May 2000........ 53.32901431
June 2000....... 51.99341252
July 2000....... 50.68403341
August 2000..... 49.40052317
September 2000.. 48.14253263
October 2000.... 46.90971705
November 2000... 45.70173626
December 2000... 44.51825439
January 2001.... 43.35893998
February 2001... 42.22346586
March 2001...... 41.11150911
April 2001...... 40.02275096
May 2001........ 38.95687679
June 2001....... 37.91357611
July 2001....... 36.89254236
August 2001..... 35.89347307
September 2001.. 34.91606962
October 2001.... 33.96003729
November 2001... 33.02508521
December 2001... 32.11092626
January 2002.... 31.21727709
February 2002... 30.34385799
March 2002...... 29.49039292
April 2002...... 28.65660942
May 2002........ 27.98171913
June 2002....... 27.32500917
July 2002....... 26.68621940
August 2002..... 26.06509306
September 2002.. 25.46137673
October 2002.... 24.87482033
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
November 2002... 24.30517700%
December 2002... 23.75220315
January 2003.... 23.21565835
February 2003... 22.69530531
March 2003...... 21.86741065
April 2003...... 20.69992051
May 2003........ 19.60953029
June 2003....... 18.53587495
July 2003....... 17.47872927
August 2003..... 16.43787097
September 2003.. 15.41308068
October 2003.... 14.40414181
November 2003... 13.41084060
December 2003... 12.43296607
January 2004.... 11.47030996
February 2004... 10.52266671
March 2004...... 9.58983343
April 2004...... 8.67160986
May 2004........ 7.87808534
June 2004....... 7.09710278
July 2004....... 6.32848542
August 2004..... 5.57205891
September 2004.. 4.82765120
October 2004.... 4.09509254
November 2004... 3.37421546
December 2004... 2.66485473
January 2005.... 1.96684733
February 2005... 1.28003242
March 2005...... 0.60425131
April 2005
and thereafter.. 0.00000000
</TABLE>
S-56
USING CUSTOMER FILE(S): PACA9.002
<PAGE>
CLASS A-12 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
May 1997........ 99.55511673%
June 1997....... 99.00667704
July 1997....... 98.35493876
August 1997..... 97.60022793
September 1997.. 96.74299498
October 1997.... 95.78381484
November 1997... 94.72338679
December 1997... 93.56253409
January 1998.... 92.30220335
February 1998... 90.94346360
March 1998...... 89.48752226
April 1998...... 87.93568898
May 1998........ 86.28939168
June 1998....... 84.55017466
July 1998....... 82.71969648
August 1998..... 80.79978343
September 1998.. 79.74634132
October 1998.... 78.64763326
November 1998... 77.50546427
December 1998... 76.32158717
January 1999.... 75.09782426
February 1999... 73.83616933
March 1999...... 72.53876988
April 1999...... 71.20777175
May 1999........ 69.84532934
June 1999....... 68.45439653
July 1999....... 67.04019487
August 1999..... 65.61418556
September 1999.. 64.19441765
October 1999.... 62.79876108
November 1999... 61.43249999
December 1999... 60.09520686
January 2000.... 58.78645985
February 2000... 57.50584273
March 2000...... 56.25294487
April 2000...... 55.02736105
May 2000........ 53.82869147
June 2000....... 52.65654165
July 2000....... 51.51052242
August 2000..... 50.39024977
September 2000.. 49.29534479
October 2000.... 48.22543368
November 2000... 47.18014763
December 2000... 46.15912274
January 2001.... 45.16199999
February 2001... 44.18842517
March 2001...... 43.23804884
April 2001...... 42.31052618
May 2001........ 41.40551705
June 2001....... 40.52268583
July 2001....... 39.66170145
August 2001..... 38.82223724
September 2001.. 38.00397096
October 2001.... 37.20658466
November 2001... 36.42976471
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
December 2001... 35.67320166%
January 2002.... 34.93659026
February 2002... 34.21962934
March 2002...... 33.52202182
April 2002...... 32.84347461
May 2002........ 32.31272526
June 2002....... 31.79949654
July 2002....... 31.30350938
August 2002..... 30.82448855
September 2002.. 30.36216253
October 2002.... 29.91626349
November 2002... 29.48652721
December 2002... 29.07269312
January 2003.... 28.67450415
February 2003... 28.29170673
March 2003...... 27.92405076
April 2003...... 27.57128954
May 2003........ 27.27296215
June 2003....... 26.98845160
July 2003....... 26.71752571
August 2003..... 26.45995555
September 2003.. 26.21551532
October 2003.... 25.98398237
November 2003... 25.76513709
December 2003... 25.55876296
January 2004.... 25.36464643
February 2004... 25.18257693
March 2004...... 25.01234683
April 2004...... 24.85375133
May 2004........ 24.77841928
June 2004....... 24.71281871
July 2004....... 24.65677080
August 2004..... 24.61009927
September 2004.. 24.57263040
October 2004.... 24.54419302
November 2004... 24.51576536
December 2004... 24.48266733
January 2005.... 24.44505552
February 2005... 24.40308288
March 2005...... 24.35689880
April 2005...... 24.29394479
May 2005........ 24.07205878
June 2005....... 23.85011488
July 2005....... 23.62817789
August 2005..... 23.40631062
September 2005.. 23.18457385
October 2005.... 22.96302647
November 2005... 22.74172544
December 2005... 22.20711369
January 2006.... 21.53937355
February 2006... 20.88199884
March 2006...... 20.23484024
April 2006...... 19.59775049
May 2006........ 19.08796095
June 2006....... 18.58492374
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A
SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- -----------------
<S> <C>
July 2006....... 18.08855188%
August 2006..... 17.59875945
September 2006.. 17.11546167
October 2006.... 16.63857482
November 2006... 16.16801622
December 2006... 15.70370428
January 2007.... 15.24555843
February 2007... 14.79349914
March 2007...... 14.34744788
April 2007...... 13.90732710
May 2007........ 13.47306029
June 2007....... 13.04457187
July 2007....... 12.62178724
August 2007..... 12.20463275
September 2007.. 11.79303568
October 2007.... 11.38692424
November 2007... 10.98622756
December 2007... 10.59087567
January 2008.... 10.20079950
February 2008... 9.81593084
March 2008...... 9.43620235
April 2008...... 9.06154758
May 2008........ 8.69190089
June 2008....... 8.32719750
July 2008....... 7.96737345
August 2008..... 7.61236558
September 2008.. 7.26211157
October 2008.... 6.91654987
November 2008... 6.57561970
December 2008... 6.23926110
January 2009.... 5.90741482
February 2009... 5.58002242
March 2009...... 5.25702617
April 2009...... 4.93836909
May 2009........ 4.62399491
June 2009....... 4.31384812
July 2009....... 4.00787386
August 2009..... 3.70601802
September 2009.. 3.40822715
October 2009.... 3.11444851
November 2009... 2.82463001
December 2009... 2.53872022
January 2010.... 2.25666839
February 2010... 1.97842441
March 2010...... 1.70393880
April 2010...... 1.43316272
May 2010........ 1.16604795
June 2010....... 0.90254690
July 2010....... 0.64261257
August 2010..... 0.38619858
September 2010.. 0.13325912
October 2010
and thereafter.. 0.00000000
</TABLE>
Principal Payment Characteristics of the PAC Certificates, the TAC
Certificates and the Class A-10 Components
The percentages of the initial Class A Subclass Principal Balances of the PAC
Certificates set forth in the preceding table were calculated using the Struc-
turing Assumptions. Based on such assumptions, (i) the Class A Subclass Princi-
pal Balance of the Group I PAC Certificates would be reduced to the percentage
of its initial Class A Subclass Principal Balance indicated in the preceding
table for each Distribution Date if prepayments
S-57
USING CUSTOMER FILE(S): PACA12.002
<PAGE>
on the Mortgage Loans occur at any constant rate between approximately 65% SPA
(as defined herein under "Prepayment and Yield Considerations") and approxi-
mately 305% SPA and (ii) the Class A Subclass Principal Balance of each
Subclass of Group II PAC Certificates would be reduced to the percentage of its
initial Class A Subclass Principal Balance indicated in the preceding table for
each Distribution Date if prepayments on the Mortgage Loans occur at any con-
stant rate between approximately 100% SPA and approximately 300% SPA. However,
it is highly unlikely that principal prepayments on the Mortgage Loans will oc-
cur 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 a 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
expected to be included as described herein. Therefore, there can be no assur-
ance that the Class A Subclass Principal Balances of the PAC Certificates, af-
ter 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 Balances for such Distribution Date specified in the tables above.
The weighted average lives of the Subclasses of PAC Certificates will vary
under different prepayment scenarios. To the extent that principal prepayments
occur at a constant rate that is slower than approximately 65% SPA or 100% SPA,
the Class A Non-PO Principal Amount on each Distribution Date may be insuffi-
cient to make distributions in reduction of the principal balance of the Group
I PAC Certificates or the Group II PAC Certificates, respectively, in amounts
that would reduce their principal balances to their planned principal balances
for such Distribution Date. The weighted average lives of the Subclasses of PAC
Certificates may therefore be extended, as illustrated for the PAC Certificates
by the tables beginning on page S-83. To the extent that such principal prepay-
ments occur at a constant rate that is higher than approximately 305% SPA or
300% SPA, the weighted average lives of the Group I PAC Certificates or Group
II PAC Certificates may be shortened as illustrated by the tables beginning on
page S-83.
Because any Group I Excess Principal Payments and Group II Excess Principal
Payments for any Distribution Date will be distributed to Certificateholders on
such Distribution Date, the ability to distribute the Group I PAC Principal
Amount, Group I TAC Principal Amount, Group II PAC Principal Amounts and Group
II 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 Group I Excess
Principal Payments and Group II Excess Principal Payments were held for future
applications and not distributed monthly. There is no assurance that, with re-
spect to the Class A Non-PO Principal Amount (i) distributions in reduction of
the Class A Subclass Principal Balance of a Subclass of PAC Certificates will
not commence significantly earlier than the first Distribution Date shown in
the preceding table relating to such Subclass, (ii) distributions in reduction
of the Class A Subclass Principal Balance of a Subclass of PAC Certificates or
TAC Certificates will not commence later than the first Distribution Date shown
in the preceding table relating to such Subclass, or (iii) the Class A Subclass
Principal Balance of a Subclass of PAC Certificates or TAC Certificates will
not be reduced to zero significantly earlier or significantly later than the
last Distribution Date shown in the preceding tables.
The extent to which the planned principal balances of the Group I PAC Certif-
icates will be achieved and the sensitivity of the Group I PAC Certificates to
principal prepayments on the Mortgage Loans will depend, in part, upon the pe-
riod of time during which the Group I TAC Certificates and the Class A-10 Group
I Accrual Companion Component remain outstanding. On each Distribution Date,
the excess of the portion of the Class A Non-PO Principal Amount available to
make distributions of principal to the Group I PAC Certificates over the Group
I PAC Principal Amount (the "Group I Excess Principal Payments") for such Dis-
tribution Date will be distributed to the Class A-10 Certificates with respect
to the Class A-10 Group I Accrual Companion Component and the Group I TAC Cer-
tificates before being distributed to the Group I PAC Certificates in accor-
dance with the priorities set forth above under "-- Allocation of Amount to be
Distributed." This is intended to decrease the likelihood that the Group I PAC
Certificates will be reduced below their planned principal balance on a given
Distribution Date. As such, and in accordance with the priorities described
above, the Class A-10 Certificates with respect to the Class A-10 Group I Ac-
crual Companion Component and the Group I TAC Certificates support the Group I
PAC Certificates. However, under certain relatively fast prepayment scenarios,
the Group I PAC Certificates may continue to be outstanding when the Class A-10
Group I Accrual Companion Component and the Group I TAC Certificates are no
longer outstanding. Under such circumstances, all Group I Excess Principal Pay-
ments will be applied to the Group I PAC Certificates in accordance with the
priorities described herein. Thus, when the Component Principal Balance of the
Class A-10 Group I Accrual Companion Component and
S-58
<PAGE>
principal balance of the Group I TAC Certificates have been reduced to zero,
the Group I PAC Certificates if outstanding will, in accordance with the prior-
ities set forth above, become more sensitive to the rate of prepayment on the
Mortgage Loans as such Subclass will receive all Group I Excess Principal Pay-
ments until the principal balance of the Group I PAC Certificates has been re-
duced to zero. Conversely, under certain relatively slow prepayment scenarios,
the portion of the Class A Non-PO Principal Amount available to make distribu-
tions of principal to the Group I PAC Certificates may not be sufficient to pay
the Group I PAC Principal Amount for the Group I PAC Certificates on a given
Distribution Date. In such cases, the portion of the Class A Non-PO Principal
Amount available to make distributions of principal to the Group I PAC Certifi-
cates for each subsequent Distribution Date will be applied in accordance with
the priorities described herein such that the Group I TAC Certificates and the
Class A-10 Certificates with respect to the Class A-10 Group I Accrual Compan-
ion Component will not receive any distributions in reduction of their princi-
pal balances from the Class A Non-PO Principal Amount until the outstanding
principal balance of the Group I PAC Certificates has reached its planned prin-
cipal balance for such Distribution Date. As a result, the weighted average
life of the Group I PAC Certificates if they did not receive the Group I PAC
Principal Amount on a Distribution Date may be extended.
The extent to which the planned principal balances of the Group II PAC Cer-
tificates will be achieved and the sensitivity of the Group II PAC Certificates
to prepayments on the Mortgage Loans will depend, in part, upon the period of
time during which the Group II TAC Certificates and the Class A-10 Group II Ac-
crual Companion Component remain outstanding. On each Distribution Date, the
excess of the portion of the Class A Non-PO Principal Amount available to make
distributions of principal to the Group II PAC Certificates over the Group II
PAC Principal Amounts (the "Group II Excess Principal Payments") for such Dis-
tribution Date will be distributed to the Class A-10 Certificates with respect
to the Class A-10 Group II Accrual Companion Component and the Group II TAC
Certificates before being distributed to the Group II PAC Certificates in ac-
cordance with the priorities set forth above under "--Allocation of Amount to
be Distributed." This is intended to decrease the likelihood that the Group II
PAC Certificates will be reduced below their planned principal balances on a
given Distribution Date. As such, and in accordance with the priorities de-
scribed above, the Class A-10 Certificates with respect to the Class A-10 Group
II Accrual Companion Component and the Group II TAC Certificates support the
Group II PAC Certificates. However, under certain relatively fast prepayment
scenarios, one or more Subclasses of the Group II PAC Certificates may continue
to be outstanding when the Class A-10 Group II Accrual Companion Component and
the Group II TAC Certificates are no longer outstanding. Under such circum-
stances, all Group II Excess Principal Payments will be applied to the Group II
PAC Certificates then outstanding in accordance with the priorities described
herein. Thus, when the Component Principal Balance of the Class A-10 Group II
Accrual Companion Component and principal balance of the Group II TAC Certifi-
cates have been reduced to zero, the Group II PAC Certificates if outstanding
will, in accordance with the priorities set forth above, become more sensitive
to the rate of prepayment on the Mortgage Loans as such Subclasses will receive
all Group II Excess Principal Payments until the principal balances of the
Subclasses of Group II PAC Certificates have been reduced to zero. Conversely,
under certain relatively slow prepayment scenarios, the portion of the Class A
Non-PO Principal Amount available to make distributions of principal to the
Group II PAC Certificates may not be sufficient to pay the Group II PAC Princi-
pal Amounts for the Group II PAC Certificates on a given Distribution Date. In
such cases, the portion of the Class A Non-PO Principal Amount available to
make distributions of principal to the Group II PAC Certificates for each sub-
sequent Distribution Date will be applied in accordance with the priorities de-
scribed herein such that the Group II TAC Certificates and the Class A-10 Cer-
tificates with respect to the Class A-10 Group II Accrual Companion Component
will not receive any distributions in reduction of their principal balances
from the Class A Non-PO Principal Amount until the outstanding principal bal-
ance of the Group II PAC Certificates has reached its planned principal balance
for such Distribution Date. As a result, the weighted average lives of the
Subclasses of Group II PAC Certificates if they did not receive their Group II
PAC Principal Amount on a Distribution Date may be extended.
The extent to which the targeted principal balance of the Group I TAC Certif-
icates will be achieved and the sensitivity to principal prepayments on the
Mortgage Loans will depend, in part, upon the period of time during which the
Class A-10 Group I Accrual Companion Component remains outstanding. On each
Distribution Date, the excess of the portion of the Class A Non-PO Principal
Amount available to make distributions of principal to the Group I TAC Certifi-
cates over the Group I PAC Principal Amounts and the Group I TAC Principal
Amount for such Distribution Date will be distributed first to the Class A-10
Group I Accrual Companion Component before being distributed to the Group I TAC
Certificates in accordance with the priorities set forth
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above under "--Allocation of Amount to be Distributed." As such, and in accor-
dance with such priorities described above, the Class A-10 Group I Accrual Com-
panion Component support the Group I TAC Certificates. This is intended to de-
crease the likelihood that the principal balance of the Group I TAC Certifi-
cates will be reduced below their targeted principal balance on a given Distri-
bution Date. However, under certain relatively fast prepayment scenarios, the
Group I TAC Certificates may continue to be outstanding when the Class A-10
Group I Accrual Companion Component is no longer outstanding. Under such cir-
cumstances, all Group I Excess Principal Payments will be applied first to the
Group I TAC Certificates. Thus, when the Component Principal Balance of the
Class A-10 Group I Accrual Companion Component has been reduced to zero, the
Group I TAC Certificates, if outstanding, will become more sensitive to the
rate of prepayment on the Mortgage Loans as the Group I TAC Certificates will
receive all Group I Excess Principal Prepayments until the principal balance of
such Group I TAC Certificates has been reduced to zero. Conversely, under cer-
tain relatively slow prepayment scenarios, the Group I Excess Principal Pay-
ments, if any, may not be sufficient to pay the Group I TAC Principal Amount of
the Group I TAC Certificates on a given Distribution Date. In such cases, the
Group I Excess Principal Payments for each subsequent Distribution Date will be
applied in accordance with the priorities described herein such that the Class
A-10 Group I Accrual Companion Component will not receive any distributions in
reduction of their principal balance until the outstanding principal balance of
the Group I TAC Certificates has reached its targeted principal balance for
such Distribution Date. As a result, the weighted average life of the Group I
TAC Certificates may be extended.
The extent to which the targeted principal balance of the Group II TAC Cer-
tificates will be achieved and the sensitivity of the Group II TAC Certificates
to principal prepayments on the Mortgage Loans will depend, in part, upon the
period of time during which the Class A-10 Group II Accrual Companion Component
remains outstanding. On each Distribution Date, the excess of the portion of
the Class A Non-PO Principal Amount available to make distributions of princi-
pal to the Group II TAC Certificates over the Group II PAC Principal Amounts
and the Group II TAC Principal Amount for such Distribution Date will be dis-
tributed first to the Class A-10 Certificates with respect to Class A-10 Group
II Accrual Companion Component before being distributed to the Group II TAC
Certificates in accordance with the priorities set forth above under "--Alloca-
tion of Amount to be Distributed." As such, and in accordance with such priori-
ties described above, the Class A-10 Certificates with respect to the Class A-
10 Group II Accrual Companion Component support the Group II TAC Certificates.
This is intended to decrease the likelihood that the principal balance of the
Group II TAC Certificates will be reduced below their targeted principal bal-
ance on a given Distribution Date. However, under certain relatively fast pre-
payment scenarios, the Group II TAC Certificates may continue to be outstanding
when the Class A-10 Group II Accrual Companion Component is no longer outstand-
ing. Under such circumstances, all Group II Excess Principal Payments will be
applied first to the Group II TAC Certificates. Thus, when the Component Prin-
cipal Balance of the Class A-10 Group II Accrual Companion Component has been
reduced to zero, the Group II TAC Certificates, if outstanding, will become
more sensitive to the rate of prepayment on the Mortgage Loans as the Group II
TAC Certificates will receive all Group II Excess Principal Prepayments until
the principal balance of the Group II TAC Certificates has been reduced to ze-
ro. Conversely, under certain relatively slow prepayment scenarios, the Group
II Excess Principal Payments, if any, may not be sufficient to pay the Group II
TAC Principal Amount of the Group II TAC Certificates on a given Distribution
Date. In such cases, the Group II Excess Principal Payments for each subsequent
Distribution Date will be applied in accordance with the priorities described
herein such that the Class A-10 Certificates with respect to the Class A-10
Group II Accrual Companion Component will not receive any distributions in re-
duction of their principal balance until the outstanding principal balance of
the Group II TAC Certificates has reached its targeted principal balance for
such Distribution Date. As a result, the weighted average life of the Group II
TAC Certificates may be extended.
THE WEIGHTED AVERAGE LIFE OF THE CLASS A-10 CERTIFICATES WILL BE HIGHLY SEN-
SITIVE, AND THE WEIGHTED AVERAGE LIFE OF THE TAC CERTIFICATES WILL BE SENSI-
TIVE, TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE MORTGAGE
LOANS. See "Prepayment and Yield Considerations" herein.
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 1997-6 Certifi-
cates, after distributions in respect of any accrued but unpaid
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interest on the Series 1997-6 Certificates and after distributions in reduction
of principal balance have reduced the principal balances of the Series 1997-6
Certificates to zero. It is not anticipated that there will be any assets re-
maining in the Trust Estate on the final Distribution Date following the dis-
tributions of interest and in reduction of principal balance made on the Series
1997-6 Certificates on such date.
In addition, the Class A-R Certificateholder will be entitled on each Distri-
bution Date to receive any Pool Distribution Amount remaining after all distri-
butions 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 Liq-
uidated Loans in the related period with respect to which net Liquidation Pro-
ceeds exceed the unpaid principal balance thereof plus accrued interest thereon
at the Mortgage Interest Rate over (ii) the aggregate Realized Losses on Liqui-
dated Loans in the related period with respect to which net Liquidation Pro-
ceeds 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 Distribu-
tion 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 re-
ceived, 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 1997-6 Certificates an amount in cash equal to all de-
linquent payments of principal and interest due on each Mortgage Loan in the
Trust Estate (with interest adjusted to the applicable Net Mortgage Interest
Rate) not previously advanced, but only to the extent that such Servicer be-
lieves that such amounts will be recoverable by it from liquidation proceeds or
other recoveries in respect of the related Mortgage Loan (each, a "Periodic Ad-
vance"). Upon a Servicer's failure to make a required Periodic Advance, the
Trust Administrator, 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 Trust Ad-
ministrator, 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 Trust Administrator , as
applicable, has determined in good faith that the advancing party will be un-
able to recover such advance from funds of the type referred to in clause (i)
above.
RESTRICTIONS ON TRANSFER OF THE CLASS A-R, CLASS M AND OFFERED CLASS B
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 Disquali-
fied Organization. The Pooling and Servicing Agreement will provide that no le-
gal 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 pro-
vides to the Trust Administrator an affidavit (or, to the extent acceptable to
the Trust Administrator, a representation letter signed under penalty of perju-
ry) to the effect that, among other items, such transferee is not a Disquali-
fied 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 Trust Administrator that it has no actual knowledge that such
affidavit or letter 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 Trust
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Administrator that, as of the date of the transfer, it had no knowledge or rea-
son to know that the affirmations made by the transferee pursuant to the pre-
ceding 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 Trust Administra-
tor with an effective Internal Revenue Service Form 4224 or (ii) the transferee
delivers to both the transferor and the Trust Administrator an opinion of a na-
tionally recognized tax counsel to the effect that such transfer is in accor-
dance with the requirements of the Code and the regulations promulgated there-
under and that such transfer of the Class A-R Certificate will not be disre-
garded for federal income tax purposes. The term "U.S. Person" means a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate that is subject to United States federal income
tax regardless of the source of its income, or a trust if (A) for taxable years
beginning after December 31, 1996 (or for taxable years ending after August 20,
1996, if the trustee has made an applicable election), a court within the
United States is able to exercise primary supervision over the administration
of such trust, and one or more United States fiduciaries have the authority to
control all substantial decisions of such trust or (B) for all other taxable
years, such trust is subject to United States federal income tax regardless of
the source of its income.
The Pooling and Servicing Agreement will provide that any attempted or pur-
ported 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 Trust Administrator 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 Conse-
quences -- 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 OR
A PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN. See "ERISA Con-
siderations" herein and in the Prospectus.
Because the Class M and Offered Class B Certificates are subordinated to the
Class A Certificates, the Class M and Offered Class B Certificates may not be
transferred unless the transferee has delivered (i) a representation letter to
the Trust Administrator 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 or Offered Class B Cer-
tificates is an "insurance company general account" or (ii) an opinion of coun-
sel and such other documentation as described herein under "ERISA Considera-
tions." See "ERISA Considerations" herein and in the Prospectus.
REPORTS
In addition to the applicable information specified in the Prospectus, the
Master Servicer will include in the statement delivered to holders of Class A,
Class M and Class B Certificates with respect to each Distribution Date the
following information: (i) the amount of such distribution allocable to inter-
est, the amount of interest currently distributable to each Subclass of Class A
and Class B Certificates and to the Class M Certificates, any Class A Subclass
Interest Shortfall Amount or Class B 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 or Class B Subclass Interest Shortfall Amount with respect to each
Subclass, or any remaining unpaid Class M Interest Shortfall Amount, after giv-
ing 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 alloca-
ble to principal, (iii) the Class A Non-PO Principal Balance, the Class M Prin-
cipal Balance, the Class B Principal Balance, the Class A Subclass Principal
Balance of each Subclass of Class A Certificates and the Class B Subclass Prin-
cipal Balance of each Subclass of Class B Certificates in each case after giv-
ing effect to the distribution of principal and the allocation of the principal
portion of Realized Losses to such Subclass or Class with respect to such Dis-
tribution Date, (iv) the Adjusted Pool Amount, the Adjusted Pool Amount (PO
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, Class M Percentage and Subclass
B Percentage of each Subclass of Class B Certificates for the following Distri-
bution Date (without giving effect to Unscheduled Principal Receipts received
after the applicable Unscheduled Principal Receipt Period for the current Dis-
tribution
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Date that are applied during such Unscheduled Principal Receipt Period), 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 Dis-
tribution 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
Trust Administrator at its corporate trust office. See "Pooling and Servicing
Agreement -- Trust Administrator" herein.
SUBORDINATION OF CLASS M AND CLASS B CERTIFICATES
The rights of the holders of the Class M Certificates to receive distribu-
tions with respect to the Mortgage Loans in the Trust Estate will be subordi-
nated to such rights of the holders of the Class A Certificates, 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 Class A Certificates and the holders of the Class M Cer-
tificates and the rights of the holders of the Subclasses of Class B Certifi-
cates with higher numerical designations to receive distributions with respect
to the Mortgage Loans in the Trust Estate will be subordinated to such rights
of the holders of Subclasses of Class B Certificates with lower numerical des-
ignations, all to the extent described below. This subordination is intended to
enhance the likelihood of timely receipt by the holders of the Class A Certifi-
cates (to the extent of the subordination of the Class M and Class B Certifi-
cates), the holders of the Class M Certificates (to the extent of the subordi-
nation of the Class B Certificates) and the holders of a Subclass of Class B
Certificates (to the extent of the subordination of Subclasses of Class B Cer-
tificates with higher numerical designations) of the full amount of their
scheduled monthly payments of interest and principal and to afford the holders
of the Class A Certificates (to the extent of the subordination of the Class M
and Class B Certificates), the holders of the Class M Certificates (to the ex-
tent of the subordination of the Class B Certificates) and the holders of the
Subclasses of Class B Certificates (to the extent of the subordination of
Subclasses of Class B Certificates with higher numerical designations) protec-
tion against Realized Losses, as more fully described below. If Realized Losses
exceed the credit support provided through subordination to the Class A Certif-
icates, the Class M Certificates or a Subclass of Class B 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 Class A Certifi-
cates, the Class M Certificates or such Subclass of Class B Certificates.
The protection afforded to the holders of Class A 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 princi-
pal and interest due the Class A Certificateholders on each Distribution Date
out of the Pool Distribution Amount with respect to such date and, if neces-
sary, by the right of such holders to receive future distributions on the Mort-
gage 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 A-PO Deferred Amount) and interest due
the Class M Certificateholders on each Distribution Date from the Pool Distri-
bution Amount with respect to such date (after all required payments on the
Class A Certificates have been made) and, if necessary, by the right of such
holders to receive future distributions on the Mortgage Loans that would other-
wise have been payable to the holders of the Class B Certificates.
A Subclass 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 Class A Optimal Amount, the Class A-PO Deferred
Amount, the Class M Optimal Amount and the Subclass B Optimal Amount of each
Subclass of Class B Certificates with a lower numerical designation for such
date. Amounts so distributed to Class B Certificateholders will not be avail-
able to cover delinquencies or Realized Losses in respect of subsequent Distri-
bution Dates.
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Allocation of Losses
Realized Losses (other than Excess Special Hazard Losses, Excess Fraud Losses
and Excess Bankruptcy Losses) will not be allocated to the holders of the Class
A Certificates until the date on which the amount of principal payments on the
Mortgage Loans to which the holders of the Subordinated Certificates are enti-
tled has been reduced to zero as a result of the allocation of losses to the
Subordinated Certificates, i.e., the Distribution Date preceding the Distribu-
tion Date for which the Subordinated Percentage is equal 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 or-
der, 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 bal-
ance 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 M Principal Balance and the Class B Subclass Principal Balances to equal
the Adjusted Pool Amount.
Allocations to the Class M Certificates or the Subclasses of Class B Certifi-
cates of (i) the principal portion of Debt Service Reductions, (ii) the inter-
est portion of Realized Losses (other than Excess Special Hazard Losses, Excess
Fraud Losses and Excess Bankruptcy Losses), (iii) any interest shortfalls re-
sulting from delinquencies for which the Servicer, the Master Servicer or the
Trust Administrator does not advance, (iv) any interest shortfalls or losses
resulting from the application of the Soldiers' and Sailors' Civil Relief Act
of 1940, as more fully described under "Certain Legal Aspects of the Mortgage
Loans--Soldiers' and Sailors' Civil Relief Act" in the Prospectus and (v) any
interest shortfalls resulting from the timing of the receipt of Unscheduled
Principal Receipts (other than Prepayments in Full) with respect to Mortgage
Loans will result from the priority of distributions of the Pool Distribution
Amount first to the holders of the Class A Certificates, second to the Class M
Certificates and finally to the Subclasses of Class B Certificates in numerical
order as described above under "--Distributions."
The allocation of the principal portion of Realized Losses (other than Excess
Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses) in re-
spect 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 Non-PO
Principal Balance and the Class A Subclass Principal Balance of the Class A-PO
Certificates such that (i) the Class A Non-PO Principal Balance equals the Ad-
justed Pool Amount less the Adjusted Pool Amount (PO Portion) as of the preced-
ing Distribution Date and (ii) the Class A Subclass Principal Balance of the
Class A-PO Certificates equals the Adjusted Pool Amount (PO Portion) as of the
preceding Distribution Date. The principal portion of such Realized Losses al-
located to the Class A Certificates (other than the Class A-PO Certificates)
will be allocated to such outstanding Subclasses of Class A Certificates (other
than the Class A-10 Certificates) and the Class A-10 Components pro rata in ac-
cordance with their Class A Subclass Principal Balances or Component Principal
Balances or, in the case of the Class A-6 Certificates and the Class A-10 Com-
ponents, their initial Class A Subclass Principal Balance or initial Component
Principal Balances, if lower. The interest portion of any Realized Loss allo-
cated on or after the Cross-Over Date will be allocated among the outstanding
Subclasses of Class A Certificates (other than the Class A-10 Certificates) and
the Class A-10 Components pro rata in accordance with their respective Class A
Subclass Interest Accrual Amounts and Component Interest Accrual Amounts, with-
out 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 of the Class A Certificates (other
than the Class A-PO Certificates), Class M Certificates and Class B Certifi-
cates pro rata based on their outstanding principal balances in proportion to
the Non-PO Fraction of such losses and (b) in respect of Discount Mortgage
Loans, to the Class A-PO Certificates in proportion to the PO 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 ac-
crued. The principal portion of any such losses so allocated to the Class A
Certificates (other than
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the Class A-PO Certificates) will be allocated among such outstanding
Subclasses of Class A Certificates (other than the Class A-10 Certificates) and
the Class A-10 Components pro rata in accordance with their then-outstanding
Class A Subclass Principal Balances or Component Principal Balances or, in the
case of the Class A-6 Certificates and the Class A-10 Components, their initial
Class A Subclass Principal Balance or initial Component Principal Balances, if
lower. The interest portion of any such losses will be allocated among the out-
standing Subclasses of Class A Certificates (other than the Class A-10 Certifi-
cates) and the Class A-10 Components in accordance with their Class A Subclass
Interest Accrual Amounts and Component Interest Accrual Amounts, without regard
to any reduction pursuant to this sentence. Any losses allocated to a Subclass
of Class A Certificates will be allocated among the outstanding Class A Certif-
icates within such Subclass pro rata in accordance with their respective Per-
centage 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 In-
terest 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 re-
spect 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 suffi-
cient to cover the amount of principal payable to the holders of the Class A
Certificates on a particular Distribution Date, then the percentage of princi-
pal payments on the Mortgage Loans to which the holders of the Class A Certifi-
cates (other than the Class A-PO Certificates) will be entitled (i.e., the
Class A Percentage) on and after the next Distribution Date will be proportion-
ately increased, thereby reducing, as a relative matter, the respective inter-
est 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 exam-
ple, 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 allo-
cated solely to the Subclasses of Class B Certificates in reverse numerical or-
der or, following the reduction of the Class B Principal Balance to zero,
solely to the Class M Certificates. Special Hazard Losses in excess of the Spe-
cial Hazard Loss Amount are "Excess Special Hazard Losses." Excess Special Haz-
ard Losses will be allocated among (i) the Class A Certificates (other than the
Class A-PO Certificates), the Class M Certificates and the Class B Certificates
and (ii) to the extent such Excess Special Hazard Losses arise with respect to
Discount Mortgage Loans, the Class A-PO 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 Haz-
ard 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 Spe-
cial Hazard Loss Amount is zero, all Special Hazard Losses will be regarded as
Excess Special Hazard Losses. Upon initial issuance of the Series 1997-6 Cer-
tificates, the "Special Hazard Loss Amount" with respect thereto will be equal
to approximately 1.02% (approximately $4,803,023) of the Cut-Off Date Aggregate
Principal Balance of the Mortgage Loans. As of any Distribution Date, the Spe-
cial 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 assigned to the Class A and
Class M Certificates by DCR and Moody's and the original ratings assigned to
the Class B Certificates by DCR, as evidenced by letters to that effect deliv-
ered by DCR and Moody's to the Master Servicer and the Trust Administrator. On
and after the Cross-Over Date, the Special Hazard Loss Amount will be zero.
S-65
<PAGE>
Fraud Losses, other than Excess Fraud Losses, will be allocated solely to the
Subclasses of Class B Certificates in reverse numerical order or, following the
reduction of the Class B Principal Balance to zero, solely to the Class M Cer-
tificates. Fraud Losses in excess of the Fraud Loss Amount are "Excess Fraud
Losses." Excess Fraud Losses will be allocated among (i) the Class A Certifi-
cates (other than the Class A-PO Certificates), the Class M Certificates and
the Class B Certificates and (ii) to the extent such Excess Fraud Losses arise
with respect to Discount Mortgage Loans, the Class A-PO 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 re-
garded as Excess Fraud Losses. If Aggregate Current Fraud Losses exceed the
then-applicable Fraud Loss Amount, a portion of each Fraud Loss will be re-
garded 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 1997-6 Certificates, the "Fraud Loss
Amount" with respect thereto will be equal to approximately 2.00% (approxi-
mately $9,395,692) of the Cut-Off Date Aggregate Principal Balance of the Mort-
gage 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 Distri-
bution 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 allo-
cated 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 re-
lated Determination Date. On and after the Cross-Over Date or after the fifth
anniversary of the Cut-Off Date, the Fraud Loss Amount will be zero.
Bankruptcy Losses, other than Excess Bankruptcy Losses, will be allocated
solely to the Subclasses of Class B Certificates in reverse numerical order 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
among (i) the Class A Certificates (other than the Class A-PO Certificates),
the Class M Certificates and the Class B Certificates and (ii) to the extent
such Excess Bankruptcy Losses arise with respect to Discount Mortgage Loans,
the Class A-PO Certificates. If the aggregate of all Bankruptcy Losses incurred
in the month preceding the month of the related Distribution Date (the "Aggre-
gate Current Bankruptcy Losses") is less than or equal to the then applicable
Bankruptcy Loss Amount, no Bankruptcy Losses will be regarded as Excess Bank-
ruptcy Losses. If Aggregate Current Bankruptcy Losses exceed the then-applica-
ble 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 Bank-
ruptcy 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 1997-6 Certif-
icates, the "Bankruptcy Loss Amount" with respect thereto will be equal to ap-
proximately 0.02% (approximately $100,000) of the Cut-Off Date Aggregate Prin-
cipal 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 or Class M Certificates through the re-
lated Determination Date. As of any Distribution Date on or after the first an-
niversary of the Cut-Off Date, the Bankruptcy Loss Amount will equal the ex-
cess, 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 Ser-
vicing 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 since such anniversary. The Bank-
ruptcy Loss Amount and the related coverage levels described above may be re-
duced or modified upon written confirmation from DCR and Moody's that such re-
duction or modification will not adversely affect the then-current ratings as-
signed to the Class A and Class M Certificates by DCR and Moody's and the then-
current ratings assigned to the Class B Certificates by DCR. 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 Bank-
ruptcy Loss Amount will be zero.
S-66
<PAGE>
Notwithstanding the foregoing, the provisions relating to subordination will
not be applicable in connection with a Bankruptcy Loss so long as the applica-
ble Servicer has notified the Trust Administrator 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 re-
lated 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 prin-
cipal and interest under the related Mortgage Loan and any premiums on any ap-
plicable 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 aggregate initial principal balance of the Class M and Class B Cer-
tificates will be approximately $18,792,017, the risk of Special Hazard Losses,
Fraud Losses and Bankruptcy Losses will be separately borne by the Class B Cer-
tificates and, after the principal balance of the Class B Certificates has been
reduced to zero, by the Class M 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 will be al-
located first to the Class B Certificates and then the Class M Certificates to
the full extent of their initial principal balances. 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; Realiza-
tion Upon Defaulted Mortgage Loans" in the Prospectus.
S-67
<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, resi-
dential first mortgage loans having original terms to stated maturity ranging
from approximately 20 years to approximately 30 years, which may include loans
secured by shares ("Co-op Shares") issued by private non-profit housing corpo-
rations ("Cooperatives"), and the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specified units in such Coopera-
tives' buildings. The Mortgage Loans are expected to include 1,625 promissory
notes, to have an aggregate unpaid principal balance as of the Cut-Off Date
(the "Cut-Off Date Aggregate Principal Balance") of approximately $469,784,598
to be secured by first liens (the "Mortgages") on one- to four-family residen-
tial properties (the "Mortgaged Properties") and to have the additional charac-
teristics described below and in the Prospectus.
As of the Cut-Off Date, it is expected that two of the Mortgage Loans, repre-
senting approximately 0.20% of the Cut-Off Date Aggregate Principal Balance of
the Mortgage Loans, will be Buy-Down Loans. As of the Cut-Off Date, it is ex-
pected that none of the Mortgage Loans will be secured by Co-op Shares. See
"The Trust Estates -- Mortgage Loans" in the Prospectus.
It is expected that two of the Mortgage Loans, representing approximately
0.14% of the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans,
will be Subsidy Loans. See "The Trust Estates -- Mortgage Loans" and "The Mort-
gage Loan Programs -- Mortgage Loan Underwriting" 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 De-
faulted 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 $27,962 or more than approxi-
mately $999,425, and the average unpaid principal balance of the Mortgage Loans
is expected to be approximately $289,098. The latest stated maturity date of
any of the Mortgage Loans is expected to be April 1, 2027; 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 origi-
nation, 1,575 of the Mortgaged Properties, which secure approximately 97.22% of
the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans, are ex-
pected to be owner occupied primary residences, 49 of the Mortgaged Properties,
which secure approximately 2.73% of the Cut-Off Date Aggregate Principal Bal-
ance of the Mortgage Loans, are expected to be second homes and one of the
Mortgaged Properties, which secures approximately 0.05% of the Cut-Off Date Ag-
gregate Principal Balance of the Mortgage Loans, is expected to be an invest-
ment property. See "The Mortgage Loan Programs -- Mortgage Loan Underwriting"
in the Prospectus.
As of the Cut-Off Date, there were 359 Discount Mortgage Loans having an ag-
gregate unpaid principal balance of approximately $107,664,460, a range of un-
paid principal balances of approximately $49,893 to
- -------
(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 prin-
cipal 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 nec-
essary 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 1997-6 Certificates are issued,
although the Cut-Off Date Aggregate Principal Balance, the range of Mort-
gage 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 con-
stitute the Trust Estate on the date of initial issuance of the Series
1997-6 Certificates vary materially from those described herein, revised
information regarding the Mortgage Loans will be made available to purchas-
ers 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-68
<PAGE>
approximately $936,173, an average unpaid principal balance of approximately
$299,901, a range of Mortgage Interest Rates from 6.750% to 7.750% per annum, a
weighted average Mortgage Interest Rate of approximately 7.620% per annum, a
range of remaining terms to stated maturity of 237 months to 360 months, a
weighted average remaining term to stated maturity of approximately 356 months,
a range of original Loan-to-Value Ratios of 20.35% to 95.00%, a weighted aver-
age original Loan-to-Value Ratio of approximately 73.64% and the following geo-
graphic concentration of Mortgaged Properties securing Mortgage Loans in excess
of 5.00% of the aggregate unpaid principal balance of the Discount Mortgage
Loans: approximately 23.35% in California, 9.03% in New Jersey, 9.00% in Vir-
ginia, 6.35% in New York, and 5.45% in Colorado.
As of the Cut-Off Date, there were 1,266 Premium Mortgage Loans having an ag-
gregate unpaid principal balance of approximately $362,120,139, a range of un-
paid principal balances of approximately $27,962 to approximately $999,425, an
average unpaid principal balance of approximately $286,035, a range of Mortgage
Interest Rates from 7.875% to 9.500% per annum, a weighted average Mortgage In-
terest Rate of approximately 8.142% per annum, a range of remaining terms to
stated maturity of 233 months to 360 months, a weighted average remaining term
to stated maturity of approximately 358 months, a range of original Loan-to-
Value Ratios of 15.63% to 95.00%, a weighted average original Loan-to-Value Ra-
tio of approximately 76.19% and the following geographic concentration of Mort-
gaged Properties securing Mortgage Loans in excess of 5.00% of the aggregate
unpaid principal balance of the Premium Mortgage Loans: approximately 27.87% in
California, 7.57% in New Jersey, and 7.02% in New York.
Certain geographic regions, including California, have in recent years expe-
rienced, and such regions or others in the future may experience, natural di-
sasters, including, without limitation, earthquakes, fires, floods and hurri-
canes. Any deterioration in housing prices in the states in which the Mortgaged
Properties are located and any deterioration in the economic conditions in such
states which adversely affects the ability of borrowers to make payments on the
Mortgage Loans may increase the likelihood of losses on the Mortgage Loans. A
concentration of the Mortgage Loans in such states may therefore result in a
greater risk of loss than had such concentration not been present. Such losses,
if they occur, may have an adverse effect on the yield to maturity of the Of-
fered Certificates.
As to Mortgaged Properties in regions that have recently experienced natural
disasters, neither the Seller nor Norwest Mortgage has undertaken the physical
inspection of such Mortgaged Properties. As a result, there can be no assurance
that material damage to any Mortgaged Property in an affected region has not
occurred. In the Pooling and Servicing Agreement, the Seller will represent and
warrant that, as of the date of issuance of the Certificates, each Mortgaged
Property is undamaged by flood, water, fire, earthquake or earth movement,
windstorm, tornado or similar casualty (excluding casualty from the presence of
hazardous wastes or hazardous substances, as to which the Seller makes no rep-
resentation) so as to adversely affect the value of such Mortgaged Property as
security for such Mortgage Loan or the use for which such premises were intend-
ed. In the event of a breach of such representation with respect to a Mortgaged
Property which materially and adversely affects the interests of
Certificateholders in the related Mortgage Loan, the Seller will be obligated
to repurchase or substitute for such Mortgage Loan, as described under "The
Mortgage Loan Programs--Representations and Warranties" and "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans to the Trustee" in the Pro-
spectus. Repurchase of any such Mortgage Loan will affect in varying degrees
the yields and weighted average lives of the Subclasses and Classes of Offered
Certificates and could adversely affect the yield of any Offered Certificates
purchased at a premium.
PHMC ACQUISITION
The Mortgage Loans will have been acquired by the Seller from Norwest Mort-
gage. On May 7, 1996 Norwest Mortgage and an affiliate acquired from PHMC cer-
tain mortgage loans and a substantial portion of PHMC's mortgage servicing
portfolio (such transaction, the "PHMC Acquisition"). The Mortgage Loans in-
cluded in the Trust Estate consist of (i) Mortgage Loans originated by Norwest
Mortgage or an affiliate or purchased by Norwest Mortgage or an affiliate from
originators other than PHMC and (ii) Mortgage Loans originated or purchased by
PHMC and acquired by Norwest Mortgage or an affiliate from PHMC as part of the
PHMC Acquisition. See "Norwest Mortgage" in the Prospectus. The Mortgage Loans
that were not originated by Norwest Mortgage or acquired by Norwest Mortgage
from PHMC were acquired by Norwest Mortgage or an affiliate from various enti-
ties (each, a "Norwest Mortgage Correspondent") which either originated the
Mort-
S-69
<PAGE>
gage Loans or acquired the Mortgage Loans pursuant to mortgage loan purchase
programs operated by such Norwest Mortgage Correspondents. The Mortgage Loans
acquired by Norwest Mortgage from PHMC that were not originated by PHMC were
acquired by PHMC from various entities (each a "PHMC Correspondent") which ei-
ther originated the Mortgage Loans or acquired the Mortgage Loans pursuant to
mortgage loan purchase programs operated by such PHMC Correspondents.
MORTGAGE LOAN UNDERWRITING
All of the Mortgage Loans were originated in conformity with the underwriting
standards described in the Prospectus under the heading "The Mortgage Loan Pro-
grams -- Mortgage Loan Underwriting -- Norwest Mortgage Underwriting" (the "Un-
derwriting Standards") as applied by Norwest Mortgage, PHMC, or by eligible
originators to whom Norwest Mortgage or PHMC had delegated all underwriting
functions. In certain instances, exceptions to the Underwriting Standards may
have been granted by Norwest Mortgage or by PHMC. See "The Mortgage Loan Pro-
grams -- Mortgage Loan Underwriting" in the Prospectus.
S-70
<PAGE>
MORTGAGE LOAN DATA
Set forth below is a description of certain additional expected characteris-
tics of the Mortgage Loans as of the Cut-Off Date (except as otherwise indicat-
ed).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE MORTGAGE PRINCIPAL PRINCIPAL
INTEREST RATE LOANS BALANCE BALANCE
- ------------- --------- --------------- -------------
<S> <C> <C> <C>
6.750%.......... 1 $ 229,060.47 0.05%
6.875%.......... 2 433,281.40 0.09
7.000%.......... 4 1,400,957.65 0.30
7.125%.......... 2 743,874.96 0.16
7.250%.......... 17 4,584,117.91 0.98
7.375%.......... 24 6,236,491.25 1.33
7.500%.......... 57 17,504,282.08 3.73
7.625%.......... 77 22,548,770.78 4.80
7.750%.......... 175 53,983,623.14 11.49
7.875%.......... 281 86,761,184.17 18.45
8.000%.......... 290 85,201,035.86 18.14
8.125%.......... 194 54,948,590.20 11.70
8.250%.......... 202 57,106,229.97 12.16
8.375%.......... 107 30,462,229.11 6.48
8.500%.......... 83 21,771,994.09 4.63
8.625%.......... 52 12,919,486.06 2.75
8.750%.......... 34 7,983,141.43 1.70
8.875%.......... 16 3,293,984.93 0.70
9.000%.......... 5 1,216,433.65 0.26
9.500%.......... 2 455,829.34 0.10
----- --------------- ------
Total....... 1,625 $469,784,598.45 100.00%
===== =============== ======
</TABLE>
As of the Cut-Off Date, the
weighted average Mortgage Interest
Rate of the Mortgage Loans is ex-
pected to be approximately 8.023%
per annum. The Net Mortgage Inter-
est Rate of each Mortgage Loan
will be equal to the Mortgage In-
terest Rate of such Mortgage Loan
minus the sum of (a) the applica-
ble Servicing Fee Rate and (b) the
Master Servicing Fee Rate. As of
the Cut-Off Date, the weighted av-
erage Net Mortgage Interest Rate
of the Mortgage Loans is expected
to be approximately 7.757% per an-
num.
MORTGAGE LOAN DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
DOCUMENTATION LEVEL LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
Full Documenta-
tion........... 1,418 $427,537,465.05 91.01%
Income Verifica-
tion........... 1 288,000.00 0.06
Asset Verifica-
tion........... 177 33,500,742.79 7.13
Preferred
Processing..... 29 8,458,390.61 1.80
----- --------------- ------
Total....... 1,625 $469,784,598.45 100.00%
===== =============== ======
</TABLE>
Documentation levels vary depend-
ing upon several factors, includ-
ing loan amount, Loan-to-Value Ra-
tio and the type and purpose of
the Mortgage Loan. Asset, income
and mortgage verifications were
obtained for Mortgage Loans proc-
essed with "full documentation."
In the case of "preferred process-
ing," neither asset nor income
verifications were obtained. In
most instances, a verification of
the borrower's employment was ob-
tained. However, for all of the
Mortgage Loans, a credit report on
the borrower and a property ap-
praisal were obtained. See "The
Mortgage Loan Programs--Mortgage
Loan Underwriting" in the Prospec-
tus.
REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
REMAINING STATED MORTGAGE PRINCIPAL PRINCIPAL
TERM (MONTHS) LOANS BALANCE BALANCE
- ---------------- --------- --------------- -------------
<S> <C> <C> <C>
233............. 1 $ 247,320.12 0.05%
235............. 1 309,079.69 0.07
237............. 3 655,840.21 0.14
238............. 3 992,845.09 0.21
239............. 3 756,673.04 0.16
296............. 1 238,980.42 0.05
319............. 1 229,060.47 0.05
329............. 1 347,899.67 0.07
336............. 1 318,180.58 0.07
340............. 1 77,538.52 0.02
341............. 1 297,021.46 0.06
342............. 1 573,094.72 0.12
344............. 1 578,240.86 0.12
345............. 1 258,870.74 0.06
346............. 1 266,834.43 0.06
347............. 3 1,156,040.24 0.25
348............. 4 1,341,553.49 0.29
349............. 4 1,321,841.78 0.28
350............. 2 283,574.90 0.06
351............. 4 1,560,419.92 0.33
352............. 8 2,394,793.16 0.51
353............. 4 942,757.62 0.20
354............. 4 964,546.67 0.21
355............. 26 6,675,122.47 1.42
356............. 92 26,490,915.98 5.64
357............. 282 81,614,318.42 17.37
358............. 507 143,051,991.22 30.45
359............. 505 148,296,649.56 31.56
360............. 159 47,542,593.00 10.12
----- --------------- ------
Total....... 1,625 $469,784,598.45 100.00%
===== =============== ======
</TABLE>
As of the Cut-Off Date, the
weighted average remaining term to
stated maturity of the Mortgage
Loans is expected to be approxi-
mately 357 months.
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
YEAR OF ORIGINATION LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
1993............ 1 $ 229,060.47 0.05%
1994............ 1 347,899.67 0.07
1995............ 2 336,409.26 0.07
1996............ 434 125,147,839.64 26.64
1997............ 1,187 343,723,389.41 73.17
----- --------------- ------
Total....... 1,625 $469,784,598.45 100.00%
===== =============== ======
</TABLE>
It is expected that the earliest
month and year of origination of
any Mortgage Loan was October 1993
and the latest month and year of
origination was March 1997.
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY LOANS BALANCE BALANCE
- -------- --------- --------------- -------------
<S> <C> <C> <C>
Single-family de-
tached.......... 1,485 $432,462,574.03 92.06%
Two- to four-
family units 5 1,533,569.78 0.33
Condominiums
High-rise
(greater
than four
stories)....... 13 3,760,173.36 0.80
Low-rise (four
stories or
less).......... 47 10,147,119.89 2.16
Planned unit
developments 71 20,966,333.68 4.46
Townhouses....... 4 914,827.71 0.19
----- --------------- ------
Total........ 1,625 $469,784,598.45 100.00%
===== =============== ======
</TABLE>
USING CUSTOMER FILE(S): MORTRAT.001 USING CUSTOMER FILE(S): REMMAT.001
USING CUSTOMER FILE(S): LEVELS.001 USING CUSTOMER FILE(S): YRSORG.001
USING CUSTOMER FILE(S): MORTPRO.001
S-71
<PAGE>
GEOGRAPHIC DISTRIBUTION OF
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
GEOGRAPHIC AREA LOANS BALANCE BALANCE
- --------------- --------- --------------- -------------
<S> <C> <C> <C>
Alabama......... 4 $ 1,120,493.28 0.24%
Alaska.......... 2 589,027.91 0.13
Arizona......... 60 17,603,524.28 3.75
Arkansas........ 5 1,602,400.89 0.34
California...... 417 126,061,061.03 26.82
Colorado........ 65 18,589,354.72 3.96
Connecticut..... 34 10,881,147.42 2.32
Delaware........ 5 1,580,722.82 0.34
District of Co-
lumbia......... 6 1,753,702.79 0.37
Florida......... 66 17,271,155.42 3.68
Georgia......... 44 13,679,485.41 2.91
Hawaii.......... 6 1,589,451.50 0.34
Idaho........... 5 1,398,854.79 0.30
Illinois........ 32 9,144,739.34 1.95
Indiana......... 14 4,442,339.04 0.95
Iowa............ 5 1,573,744.70 0.33
Kansas.......... 5 1,277,306.46 0.27
Kentucky........ 6 1,830,242.24 0.39
Louisiana....... 8 2,084,564.46 0.44
Maryland........ 59 16,330,327.15 3.48
Massachusetts... 41 12,621,515.43 2.69
Michigan........ 11 3,201,498.72 0.68
Minnesota....... 58 20,289,533.04 4.32
Mississippi..... 3 836,248.77 0.18
Missouri........ 7 2,213,443.41 0.47
Montana......... 5 1,133,339.38 0.24
Nebraska........ 2 533,304.56 0.11
Nevada.......... 14 3,469,268.19 0.74
New Hampshire... 6 1,317,348.28 0.28
New Jersey...... 142 37,120,819.70 7.90
New Mexico...... 6 1,402,488.35 0.30
New York........ 126 32,254,100.52 6.87
North Carolina.. 28 7,525,779.17 1.60
Ohio............ 16 4,733,108.49 1.01
Oklahoma........ 5 1,712,052.76 0.36
Oregon.......... 38 9,873,038.79 2.10
Pennsylvania.... 22 5,369,087.60 1.14
Rhode Island.... 4 978,286.15 0.21
South Carolina.. 8 2,135,066.85 0.45
South Dakota.... 1 219,531.15 0.05
Tennessee....... 19 5,701,630.58 1.21
Texas........... 62 18,798,930.61 4.00
Utah............ 35 10,766,832.03 2.29
Vermont......... 1 239,656.95 0.05
Virginia........ 66 21,331,194.70 4.54
Washington...... 41 10,851,071.91 2.31
Wisconsin....... 7 1,915,326.15 0.41
Wyoming......... 3 837,450.56 0.18
----- --------------- ------
Total....... 1,625 $469,784,598.45 100.00%
===== =============== ======
</TABLE>
No more than approximately 1.02%
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.
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
ORIGINAL LOAN- MORTGAGE PRINCIPAL PRINCIPAL
TO-VALUE RATIO LOANS BALANCE BALANCE
- ---------------- --------- --------------- -------------
<S> <C> <C> <C>
50% or less..... 69 $ 17,515,920.14 3.73%
50.01- 55.00%... 44 13,369,845.16 2.85
55.01- 60.00%... 46 13,565,581.99 2.89
60.01- 65.00%... 92 27,316,627.94 5.81
65.01- 70.00%... 153 49,744,089.45 10.59
70.01- 75.00%... 220 68,025,248.78 14.48
75.01- 80.00%... 663 190,121,613.55 40.47
80.01- 85.00%... 27 7,524,513.68 1.60
85.01- 90.00%... 236 64,889,598.63 13.81
90.01- 95.00%... 75 17,711,559.13 3.77
----- --------------- ------
Total....... 1,625 $469,784,598.45 100.00%
===== =============== ======
</TABLE>
As of the Cut-Off Date, the mini-
mum and maximum Loan-to-Value Ra-
tios at origination of the Mort-
gage Loans are expected to be
15.63% and 95.00%, respectively,
and the weighted average Loan-to-
Value Ratio at origination of the
Mortgage Loans is expected to be
approximately 75.61%. The Loan-to-
Value Ratio of a Mortgage Loan is
calculated using the lesser of (i)
the appraised value of the related
Mortgaged Property, as established
by an appraisal obtained by the
originator from an appraiser at
the time of origination and (ii)
the sale price for such property.
See "The Trust Estates--Mortgage
Loans" in the Prospectus. No as-
surance can be given that the val-
ues of the Mortgaged Properties
securing the Mortgage Loans have
remained or will remain at the
levels used in calculating the
Loan-to-Value Ratios shown above.
See "Risk Factors--Risks of the
Mortgage Loans" in the Prospectus.
It is expected that 30 of the
Mortgage Loans having Loan-to-
Value Ratios at origination in ex-
cess of 80%, representing approxi-
mately 1.82% (by Cut-Off Date Ag-
gregate Principal Balance) of the
Mortgage Loans, were originated
without primary mortgage insur-
ance.
FICO SCORES
<TABLE>
<CAPTION>
PERCENTAGE OF WEIGHTED
NUMBER AGGREGATE CUT-OFF DATE AVERAGE
RANGE OF OF UNPAID AGGREGATE LOAN-TO-
FICO MORTGAGE PRINCIPAL PRINCIPAL VALUE
SCORES LOANS BALANCE BALANCE RATIO
-------- -------- --------------- ------------- --------
<S> <C> <C> <C> <C>
250-300......................... 0 $ 0.00 0.00% 0.00%
301-350......................... 0 0.00 0.00 0.00
351-400......................... 0 0.00 0.00 0.00
401-450......................... 0 0.00 0.00 0.00
451-500......................... 1 275,182.86 0.06 80.00
501-550......................... 2 430,224.02 0.09 80.01
551-600......................... 38 10,224,747.37 2.18 80.36
601-650......................... 113 33,421,035.75 7.11 77.15
651-700......................... 327 94,103,018.67 20.03 76.09
701-750......................... 565 165,628,021.67 35.25 75.70
751-800......................... 547 158,175,278.33 33.67 74.71
801-850......................... 18 4,026,644.84 0.86 71.74
851-900......................... 0 0.00 0.00 0.00
NOT AVAILABLE 14 3,500,444.94 0.75 73.77
----- --------------- ------ -----
Total......................... 1,625 $469,784,598.45 100.00% 75.61%
===== =============== ====== =====
</TABLE>
The weighted average FICO Score is
expected to be 722. "FICO Scores"
are statistical credit scores ob-
tained by many mortgage lenders in
connection with the loan applica-
tion to help assess a borrower's
credit-worthiness. FICO Scores are
generated by models developed by a
third party and are made available
to lenders through three national
credit bureaus. The models were
derived by analyzing data on con-
sumers in order to establish pat-
terns which are believed to be in-
dicative of the borrower's proba-
bility of default. The FICO Score
is based on a borrower's histori-
cal credit data, including, among
other things, payment history, de-
linquencies on accounts, levels of
outstanding indebtedness, length
of credit history, types of cred-
it, and bankruptcy experience.
FICO Scores range from approxi-
mately 250 to approximately 900,
with higher scores indicating an
individual with a more favorable
credit history compared to an in-
dividual with a lower score. How-
ever, a FICO Score purports only
to be a measurement of the rela-
tive degree of risk a borrower
represents to a lender, i.e., that
a borrower with a higher score is
statistically expected to be less
likely to default in payment than
a borrower with a lower score. In
addition, it should be noted that
FICO Scores were developed to in-
dicate a level of default proba-
bility over a two-year period
which does not correspond to the
life of a mortgage loan. Further-
more, FICO Scores were not devel-
oped specifically for use in con-
nection with mortgage loans, but
for consumer loans in general.
Therefore, a FICO Score does not
take into consideration the effect
of mortgage loan characteristics
on the probability of repayment by
the borrower. The FICO Scores set
forth in the table above were ob-
tained at either the time of orig-
ination of the Mortgage Loan or
more recently. Neither the Seller
nor Norwest Mortgage make any rep-
resentations or warranties as to
the actual performance of any
Mortgage Loan or that a particular
FICO Score should be relied upon
as a basis for an expectation that
the borrower will repay the Mort-
gage Loan according to its terms.
See "The Mortgage Loan Programs--
Mortgage Loan Underwriting" in the
Prospectus.
USING CUSTOMER FILE(S): GEOMORT.001 USING CUSTOMER FILE(S): FICO.001
USING CUSTOMER FILE(S): LOANRAT.001
S-72
<PAGE>
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
ORIGINAL MORTGAGE LOAN MORTGAGE PRINCIPAL PRINCIPAL
PRINCIPAL BALANCE LOANS BALANCE BALANCE
- ---------------- --------- --------------- -------------
<S> <C> <C> <C>
Less than or
equal to
$200,000....... 151 $ 18,304,555.07 3.90%
$200,001-
$250,000....... 486 112,443,805.94 23.94
$250,001-
$300,000....... 448 122,873,955.35 26.14
$300,001-
$350,000....... 224 73,019,237.02 15.54
$350,001-
$400,000....... 141 53,001,532.25 11.28
$400,001-
$450,000....... 62 26,613,824.23 5.67
$450,001-
$500,000....... 48 23,067,475.05 4.91
$500,001-
$550,000....... 17 8,965,176.66 1.91
$550,001-
$600,000....... 24 13,859,308.68 2.95
$600,001-
$650,000....... 10 6,370,641.43 1.36
$650,001-
$700,000....... 1 699,505.94 0.15
$700,001-
$750,000....... 6 4,351,382.27 0.93
$750,001-
$800,000....... 2 1,551,842.34 0.33
$800,001-
$850,000....... 1 819,463.60 0.17
$900,001-
$950,000....... 2 1,845,546.10 0.39
$950,001-
$1,000,000..... 2 1,997,346.52 0.43
----- --------------- ------
Total....... 1,625 $469,784,598.45 100.00%
===== =============== ======
</TABLE>
As of the Cut-Off Date, the av-
erage unpaid principal balance of
the Mortgage Loans is expected to
be approximately $289,098. As of
the Cut-Off Date, the weighted av-
erage Loan-to-Value Ratio at orig-
ination 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 ap-
proximately 66.44% and 80.00%, re-
spectively. See "The Trust Es-
tates -- Mortgage Loans" in the
Prospectus.
ORIGINATORS OF MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
ORIGINATOR LOANS BALANCE BALANCE
- ---------- --------- --------------- -------------
<S> <C> <C> <C>
NMI or Affili-
ate............ 824 $235,210,094.09 50.07%
Other Origina-
tors........... 801 234,574,504.36 49.93
----- --------------- ------
Total....... 1,625 $469,784,598.45 100.00%
===== =============== ======
</TABLE>
It is expected that as of the
Mortgage Loan Cut-Off Date, one of
the "Other Originators" will have
accounted for approximately 8.44%
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 Cut-Off
Date Aggregate Principal Balance.
PURPOSES OF MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
LOAN PURPOSE LOANS BALANCE BALANCE
- ------------ --------- --------------- -------------
<S> <C> <C> <C>
Purchase........ 1,041 $288,898,372.21 61.50%
Equity Take Out
Refinance...... 116 35,338,258.53 7.52
Rate/Term Refi-
nance.......... 468 145,547,967.71 30.98
----- --------------- ------
Total....... 1,625 $469,784,598.45 100.00%
===== =============== ======
</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 Mort-
gaged Property and to pay origina-
tion 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 substan-
tial. See "The Mortgage Loan
Servicer -- Mortgage Loan Under-
writing."
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 1997-6
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
Subject to certain limitations, the Seller may, in its sole discretion, re-
purchase 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 -- Op-
tional Purchases" in the Prospectus. A Servicer may, in its sole discretion,
allow the assumption of a defaulted Mortgage Loan serviced by such Servicer,
subject to certain conditions specified in the applicable Underlying Servicing
Agreement, or encourage the refinancing of a defaulted Mortgage Loan. See "Pre-
payment and Yield Considerations" herein and "Servicing of the Mortgage
Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mort-
gage Loans" in the Prospectus.
USING CUSTOMER FILE(S): MORTBAL.001 USING CUSTOMER FILE(S): MORTLOA.001
USING CUSTOMER FILE(S): PURP.001
S-73
<PAGE>
DELINQUENCY AND FORECLOSURE EXPERIENCE
The following tables set forth certain information concerning recent
delinquency, foreclosure and loan loss experience on (i) the conventional
mortgage loans included in various mortgage pools underlying all series of The
Prudential Home Mortgage Securities Company, Inc.'s or NASCOR's mortgage pass-
through certificates or mortgage loans owned by third-party, non-governmental
entities included in Norwest Mortgage's servicing portfolio and serviced from
Norwest Mortgage's servicing center located in Frederick, Maryland, which
mortgage loans either (A) were originated by Norwest Mortgage for its own
account or the account of an affiliate, (B) were acquired by Norwest Mortgage
for its own account or the account of an affiliate, or (C) are loans as to
which Norwest Mortgage acquired the servicing rights or as to which Norwest
Mortgage acts as subservicer (collectively, the "NMI Frederick Portfolio
Loans"), (ii) the NMI Frederick Portfolio Loans which are fixed interest rate
mortgage loans (the "Fixed NMI Frederick Portfolio Loans"), including, in both
clause (i) and this clause (ii) mortgage loans originated in connection with
the purchases of residences by relocated employees ("Relocation Mortgage
Loans"), (iii) the Fixed NMI Frederick Portfolio Loans, other than Relocation
Mortgage Loans, having original terms to maturity of approximately 20 years to
approximately 30 years (the "Fixed 30-Year Non-Relocation NMI Frederick
Portfolio Loans"), (iv) the conventional mortgage loans having an original
principal balance in excess of the principal balance acceptable for purchase by
FNMA or FHLMC ("Jumbo Loans") included in Norwest Mortgage's servicing
portfolio and serviced from servicing centers other than in Frederick, Maryland
(the "NMI Non-Frederick Portfolio Loans") and (v) the NMI Non-Frederick
Portfolio Loans which are fixed interest rate Jumbo Loans having original terms
to maturity of approximately 20 to approximately 30 years (the "Fixed 30-Year
NMI Non-Frederick Portfolio Loans"), including in both clause (iv) and this
clause (v) Relocation Mortgage Loans. Mortgage loans previously included in
PHMC's mortgage servicing portfolio prior to the PHMC Acquisition became
serviced or subserviced by Norwest Mortgage on May 7, 1996 and, to the extent
described above, are included in the NMI Frederick Portfolio Loans. Prior to
May 7, 1996 such mortgage loans were serviced by PHMC. 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 and, in the
case of NMI Frederick Portfolio Loans prior to May 7, 1996, that of PHMC. There
can be no assurance that the delinquency, foreclosure and loan loss experience
set forth with respect to the NMI Frederick Portfolio Loans or NMI Non-
Frederick Portfolio Loans, which include 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 the Fixed NMI Frederick Portfolio Loans, the Fixed 30-Year NMI Non-
Frederick Portfolio Loans, or the Fixed 30-Year Non-Relocation NMI Frederick
Portfolio 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.
Historically, Relocation Mortgage Loans, which constitute a significant
percentage of the NMI Frederick Portfolio Loans, have experienced a
signficantly lower rate of delinquency and foreclosure than other mortgage
loans included in the NMI Frederick Portfolio Loans, the NMI Non-Frederick
Portfolio Loans, the Fixed NMI Frederick Portfolio Loans and the Fixed 30-Year
NMI Non-Frederick Portfolio 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
ranging from approximately 20 years to approximately 30 years and none of which
are Relocation Mortgage Loans, will be comparable to that of the NMI Frederick
Portfolio Loans, the NMI Non-Frederick Portfolio Loans, the Fixed NMI Frederick
Portfolio Loans, the Fixed 30-Year NMI Non-Frederick Portfolio Loans or the
Fixed 30-Year Non-Relocation NMI Frederick Portfolio 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 the portfolio of NMI Frederick Portfolio
Loans and NMI Non-Frederick Portfolio Loans could rise significantly above the
rates indicated in the following tables.
S-74
<PAGE>
TOTAL NMI FREDERICK PORTFOLIO 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, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------- --------------------- ---------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total NMI Frederick
Portfolio Loans........ 145,339 $37,213,000 147,478 $36,537,000 142,566 $34,734,000
======= =========== ======= =========== ======= ===========
Period of Delinquency(1)
30 to 59 days.......... 1,165 $ 303,741 1,502 $ 359,137 1,574 $ 365,341
60 to 89 days.......... 294 75,871 310 75,162 309 73,349
90 days or more........ 697 217,595 277 77,103 362 94,275
------- ----------- ------- ----------- ------- -----------
Total Delinquent Loans.. 2,156 $ 597,207 2,089 $ 511,402 2,245 $ 532,965
======= =========== ======= =========== ======= ===========
Percent of NMI Frederick
Portfolio Loans........ 1.48% 1.60% 1.42% 1.40% 1.57% 1.53%
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------- --------------------- ---------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $277,406 $346,096 $294,843
Foreclosure Ratio(3).... 0.75% 0.95% 0.85%
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------- --------------------- ---------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss)(4)...... $(95,087) $(150,948) $(112,566)
Net Gain (Loss) Ra-
tio(5)................. (0.26)% (0.41)% (0.32)%
FIXED NMI FREDERICK PORTFOLIO LOANS
<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, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------- --------------------- ---------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Fixed NMI Freder-
ick Portfolio Loans.... 112,820 $28,295,000 119,734 $29,152,000 120,471 $28,964,000
======= =========== ======= =========== ======= ===========
Period of Delinquency(1)
30 to 59 days.......... 781 $ 195,686 1,073 $ 241,976 1,150 $ 251,566
60 to 89 days.......... 192 46,754 200 44,225 217 47,229
90 days or more........ 424 127,441 171 46,094 219 56,197
------- ----------- ------- ----------- ------- -----------
Total Delinquent Loans.. 1,397 $ 369,881 1,444 $ 332,295 1,586 $ 354,992
======= =========== ======= =========== ======= ===========
Percent of Fixed NMI
Frederick Portfolio
Loans.................. 1.24% 1.31% 1.21% 1.14% 1.32% 1.23%
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------- --------------------- ---------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $151,448 $186,359 $161,960
Foreclosure Ratio(3).... 0.54% 0.64% 0.56%
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------- --------------------- ---------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss)(4)...... $(78,946) $(115,100) $(80,410)
Net Gain (Loss) Ra-
tio(5)................. (0.28)% (0.39)% (0.28)%
</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 proceed-
ings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceed-
ings 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 port-
folio for which foreclosure proceedings had been instituted but not com-
pleted 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-75
<PAGE>
FIXED 30-YEAR NON-RELOCATION NMI FREDERICK PORTFOLIO 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, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- -------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Fixed 30-Year Non-
Relocation NMI
Frederick Portfolio
Loans.................. 74,414 $19,044,000 79,900 $19,893,000 79,011 $19,463,000
====== =========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 618 $ 156,775 829 $ 190,349 889 $ 196,309
60 to 89 days.......... 160 39,575 157 35,979 183 40,552
90 days or more........ 368 111,620 142 37,925 176 46,391
------ ----------- ------ ----------- ------ -----------
Total Delinquent Loans.. 1,146 $ 307,970 1,128 $ 264,253 1,248 $ 283,252
====== =========== ====== =========== ====== ===========
Percent of Fixed 30-Year
Non-Relocation NMI
Frederick Portfolio
Loans.................. 1.54% 1.62% 1.41% 1.33% 1.58% 1.46%
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- -------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $139,344 $166,590 $142,599
Foreclosure Ratio(3).... 0.73% 0.84% 0.73%
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- -------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss)(4)...... $(53,444) $(80,680) $(52,187)
Net Gain (Loss) Ra-
tio(5)................. (0.28)% (0.41)% (0.27)%
TOTAL NMI NON-FREDERICK PORTFOLIO LOANS
<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, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- -------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total NMI Non-Frederick
Portfolio Loans........ 15,516 $ 4,348,072 27,984 $ 7,811,431 39,792 $10,874,939
====== =========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 125 $ 38,300 330 $ 96,145 501 $ 138,209
60 to 89 days.......... 56 9,404 68 21,389 73 21,109
90 days or more........ 31 9,972 97 30,867 83 25,494
------ ----------- ------ ----------- ------ -----------
Total Delinquent Loans.. 212 $ 57,676 495 $ 148,401 657 $ 184,812
====== =========== ====== =========== ====== ===========
Percent of NMI Non-Fred-
erick Portfolio Loans.. 1.37% 1.33% 1.77% 1.90% 1.65% 1.70%
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- -------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $9,755 $30,626 $40,385
Foreclosure Ratio(3).... 0.22% 0.39% 0.37%
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- -------------------- --------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss)(4)...... $(982) $(1,530) $(474)
Net Gain (Loss) Ra-
tio(5)................. (0.02)% (0.02)% (0.00)%
</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 proceed-
ings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceed-
ings 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 port-
folio for which foreclosure proceedings had been instituted but not com-
pleted 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-76
<PAGE>
FIXED 30-YEAR NMI NON-FREDERICK PORTFOLIO 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, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
------------------- ------------------- -------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Fixed 30-Year NMI
Non-Frederick Portfolio
Loans.................. 7,574 $2,114,666 14,485 $3,993,876 23,555 $6,214,542
===== ========== ====== ========== ====== ==========
Period of Delinquency(1)
30 to 59 days.......... 60 $ 16,797 167 $ 49,830 274 $ 71,146
60 to 89 days.......... 47 7,036 30 9,507 41 12,147
90 days or more........ 13 3,874 49 14,756 41 12,172
----- ---------- ------ ---------- ------ ----------
Total Delinquent Loans.. 120 $ 27,707 246 $ 74,093 356 $ 95,465
===== ========== ====== ========== ====== ==========
Percent of Fixed 30-Year
NMI Non-Frederick Port-
folio Loans............ 1.58% 1.31% 1.70% 1.86% 1.51% 1.54%
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
------------------- ------------------- -------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $4,605 $13,806 $23,445
Foreclosure Ratio(3).... 0.22% 0.35% 0.38%
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
------------------- ------------------- -------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss)(4)...... * * *
Net Gain (Loss) Ra-
tio(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 proceed-
ings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceed-
ings 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 port-
folio for which foreclosure proceedings had been instituted but not com-
pleted 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.
* Not available.
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, unemploy-
ment or change in employment (or in the case of self-employed mortgagors or
mortgagors relying on commission income, fluctuations in income), marital sepa-
ration and the mortgagor's equity in the related mortgaged property. In addi-
tion, delinquency, foreclosure and loan loss experience may be sensitive to ad-
verse economic conditions, either nationally or regionally, may exhibit sea-
sonal variations and may be influenced by the level of interest rates and ser-
vicing 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 mort-
gaged properties are concentrated in certain geographic areas. Furthermore, the
level of foreclosures reported is affected by the length of time legally re-
quired to complete the foreclosure process and take title to the related prop-
erty, which varies from jurisdiction to jurisdiction. The changes in the delin-
quency, foreclosure and loan loss experience of Norwest Mortgage's servicing
portfolio during the periods set forth in the preceding tables may be attribut-
able to factors such as those described above, although there can be no assur-
ance 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.
S-77
<PAGE>
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 distri-
butions 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 princi-
pal 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 pre-
payments and those resulting from refinancing) thereon by mortgagors, liquida-
tions of defaulted Mortgage Loans, repurchases by the Seller of Mortgage Loans
as a result of defective documentation or breaches of representations and war-
ranties and optional purchases by the Seller 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 Pool-
ing 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 dispropor-
tionate percentage of principal prepayments on the Mortgage Loans (including
liquidations and repurchases of Mortgage Loans) will be distributed, to the ex-
tent of the Non-PO Fraction, to the holders of the Class A Certificates (other
than the Class A-PO 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 A-PO Certificates in proportion to the interest of
the Class A-PO Certificates in such Discount Mortgage Loan represented by the
PO Fraction. As a result of the method of calculating the Class A-4 Priority
Amount and the priorities for the allocation of the Class A Non-PO Principal
Distribution Amount, it is expected that, absent an exceptionally high rate of
principal prepayment on the Mortgage Loans, no principal prepayments will be
made on the Class A-4 Certificates during the first five years following the
issuance of the Series 1997-6 Certificates. Thereafter, while the percentage of
principal prepayments allocated to the Class A-4 Certificates during the fol-
lowing four years will gradually increase, such percentage, until the tenth
year following the issuance of the Series 1997-6 Certificates, will be dispro-
portionately lower than the percentage of principal prepayments allocated to
the other Class A Certificates (other than the Class A-PO Certificates). See
"Description of the Certificates -- Principal (Including Prepayments) -- Allo-
cation of Amount to be Distributed." Prepayments (which, as used herein, in-
clude 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 dis-
tributions in respect of principal of amounts which would otherwise be distrib-
uted over the remaining terms of such Mortgage Loans. Since the rate of prepay-
ment on the Mortgage Loans will depend on future events and a variety of fac-
tors (as described more fully below and in the Prospectus under "Prepayment and
Yield 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 (in-
cluding 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 mort-
gage 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 refi-
nanced 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
S-78
<PAGE>
borrowers providing for the bi-weekly payment of principal and interest on the
related mortgage loan, thereby accelerating payment of the mortgage loan re-
sulting in partial prepayments.
Other factors affecting prepayment of mortgage loans include changes in mort-
gagors' housing needs, job transfers, unemployment or, in the case of self-em-
ployed mortgagors or mortgagors relying on commission income, substantial fluc-
tuations in income, significant declines in real estate values and adverse eco-
nomic conditions either generally or in particular geographic areas, mortga-
gors' 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, such as, without limitation, the deci-
sion as to whether to foreclose on a Mortgage Loan or to modify the terms of
the related Mortgage Note and decisions as to the timing of any foreclosure. In
addition, all of the Mortgage Loans contain due-on-sale clauses which will gen-
erally be exercised upon the sale of the related Mortgaged Properties. Conse-
quently, 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 de-
faulted Mortgage Loans are assumed by transferees of the related Mortgaged
Properties will also affect the rate of principal payments. The rate of prepay-
ment and, therefore, the yield to maturity of the Offered Certificates will be
affected by the extent to which (i) the Seller elects to repurchase, rather
than substitute for, Mortgage Loans which are found by the Trustee to have de-
fective documentation or with respect to which the Seller has breached a repre-
sentation or warranty, (ii) a Servicer elects to encourage the refinancing of
any defaulted Mortgage Loan rather than to permit an assumption thereof by a
mortgagor or (iii) a Servicer agrees to modify the payment terms of a Mortgage
Note rather than foreclose on the related Mortgage Loan. 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 Se-
ries 1997-6 Certificates. See "Prepayment and Yield Considerations" in the Pro-
spectus.
THE YIELD TO MATURITY OF THE OFFERED CERTIFICATES WILL BE SENSITIVE IN VARY-
ING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAY-
MENTS, WHICH MAY BE MADE AT ANY TIME WITHOUT PENALTY) ON THE MORTGAGE LOANS.
INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE ASSOCIATED RISKS, IN-
CLUDING, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT, PARTICU-
LARLY THE CLASS A-15 AND CLASS A-PO 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 A-PO CERTIFICATES, THE DISCOUNT
MORTGAGE LOANS, COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED
AND, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A PREMIUM, THAT A FASTER
THAN ANTICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAY-
MENTS) ON THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN
ANTICIPATED. THE YIELD ON THE CLASS A-PO CERTIFICATES WILL BE INFLUENCED PRI-
MARILY BY PRINCIPAL PAYMENTS 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 av-
erage 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 pay-
ments 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 in-
crease) 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 Class A 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 alloca-
ble to the Class M Certificates prior to the Class A Certificates, except as
otherwise provided herein. To the extent not covered by Periodic Advances, de-
linquencies 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 Class A Certificates against interruptions in distributions due
to certain mortgagor delinquencies. Such delinquencies, to the extent not cov-
ered 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 Class A Certificates.
S-79
<PAGE>
The yield to maturity on the Subclasses of Class B Certificates with higher
numerical designations will generally be more sensitive to losses than the
Subclasses with lower numerical designations, and the yield to maturity on the
Class B Certificates in the aggregate will generally be more sensitive to
losses than the other Classes of the Series 1997-6 Certificates, because the
entire amount of such losses (except for the portion of Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocated to the Class
A Certificates, Class M Certificates and Subclasses of Class B Certificates
with lower numerical designations) will be allocable to the Subclasses of Class
B Certificates in reverse numerical order, except as provided herein. To the
extent not covered by Periodic Advances, delinquencies on Mortgage Loans will
also have a relatively greater effect (i) on the yield to maturity on the
Subclasses of Class B Certificates with higher numerical designations and (ii)
on the yield to maturity on the Class B Certificates in the aggregate than on
the Class A Certificates and Class M Certificates. Amounts otherwise distribut-
able to holders of the Class B Certificates will be made available to protect
the holders of the Class A and Class M Certificates against interruptions in
distributions due to certain mortgagor delinquencies. Such delinquencies, even
if subsequently cured, may affect the timing of the receipt of distributions by
the holders of the Class B Certificates.
The actual yield to maturity experienced by an investor may also be affected
by the occurrence of interest shortfalls resulting from Unscheduled Principal
Receipts to the extent, if any, to which such interest shortfalls are not cov-
ered by Compensating Interest or the subordination of, (i) in the case of the
Class A Certificates (other than the Class A-PO Certificates), the Class M and
Class B Certificates, (ii) in the case of the Class M Certificates, the Class B
Certificates and, (iii) in the case of a Subclass of Class B Certificates, the
Subclass or Subclasses of Class B Certificates having higher numerical designa-
tions. See "Description of the Certificates --Interest" and "Servicing of the
Mortgage Loans -- Anticipated Changes in Servicing."
The yield to maturity on the Offered Certificates and more particularly on
the Class M Certificates and the Offered Class B Certificates, especially the
Class B-2 Certificates, may be affected by the geographic concentration of the
Mortgaged Properties securing the Mortgage Loans, and the yield to maturity on
the Class A-PO Certificates may be particularly affected by the geographic con-
centration of the Mortgaged Properties securing the Discount Mortgage Loans. In
recent periods, California, the New York metropolitan area, the Washington D.C.
metropolitan area and several other regions in the United States have experi-
enced significant declines in housing prices. In addition, California and sev-
eral other regions have experienced natural disasters, including earthquakes,
floods and hurricanes, which may adversely affect property values. See "De-
scription of the Mortgage Loans." Any deterioration in housing prices in Cali-
fornia, as well as New Jersey and New York and the other states in which the
Mortgaged Properties are located, and any deterioration of economic conditions
in such states which adversely affects the ability of borrowers to make pay-
ments on the Mortgage Loans, may increase the likelihood of losses on the Mort-
gage 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 and the Offered Class B Certificates, especially the Class B-2
Certificates.
No representation is made as to the rate of principal payments on the Mort-
gage Loans or as to the yield to maturity of any Subclass of Offered Certifi-
cates. An investor is urged to make an investment decision with respect to any
Subclass of Offered Certificates based on the anticipated yield to maturity of
such Subclass 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 of Offered
Certificates is purchased at a discount or a premium and the degree to which
such Subclass is sensitive to the timing of prepayments will determine the ex-
tent to which the yield to maturity of such Subclass may vary from the antici-
pated yield. An investor should carefully consider the associated risks, in-
cluding, in the case of any Subclass of Offered Certificates purchased at a
discount, particularly the Class A-15 and Class A-PO Certificates, the risk
that a slower than anticipated rate of principal payments on the Mortgage Loans
or, in the case of the Class A-PO Certificates, on the Discount Mortgage Loans,
could result in an actual yield to such investor that is lower than the antici-
pated yield and, in the case of any Subclass of Offered Certificates purchased
at a premium, the risk that a faster than anticipated rate of principal pay-
ments 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 princi-
pal balance of the Offered Certificates, may coincide with periods of low pre-
vailing interest rates. During such periods, the effective interest rates on
securities in which an investor
S-80
<PAGE>
may choose to reinvest amounts distributed in reduction of the principal bal-
ance of such investor's Offered Certificate may be lower than the applicable
Pass-Through Rate or, in the case of the Class A-15 or Class A-PO Certificates,
the anticipated yield thereon. Conversely, slower rates of prepayments on the
Mortgage Loans, and therefore of amounts distributable in reduction of princi-
pal balance of the Offered Certificates, may coincide with periods of high pre-
vailing interest rates. During such periods, the amount of principal distribu-
tions available to an investor for reinvestment at such high prevailing inter-
est 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 ex-
ceed, and may substantially exceed, cash distributions to such holder during
certain periods. There can be no assurance as to the amount by which such tax-
able 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
Offered Certificates refers to the average amount of time that will elapse from
the date of issuance of such Subclass until each dollar in reduction of the
principal balance of such Subclass is distributed to the investor. The weighted
average life of each Subclass or Class of the Offered Certificates will be in-
fluenced by, among other things, the rate and timing of principal payments on
the Mortgage Loans, which may be in the form of scheduled amortization, prepay-
ments or other recoveries of principal.
THE WEIGHTED AVERAGE LIFE OF THE CLASS A-10 CERTIFICATES WILL BE HIGHLY SEN-
SITIVE, AND THE WEIGHTED AVERAGE LIFE OF THE TAC CERTIFICATES WILL BE SENSI-
TIVE, TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE MORTGAGE
LOANS. Specifically, on each Distribution Date up to and including the Distri-
bution Date on which the Component Principal Balance and Class A Subclass Prin-
cipal Balance of the Class A-10 Group I Accrual Companion Component and Group I
TAC Certificates are reduced to zero, after the Group I PAC Principal Amount
has been distributed for such Distribution Date any Group I Excess Principal
Payments for such Distribution Date will be applied to the Class A-10 Group I
Accrual Companion Component and the Group I TAC Certificates, without regard to
their Group I TAC Principal Amount, before being distributed to the Group I PAC
Certificates in the priorities set forth above under "Description of the Cer-
tificates--Principal (Including Prepayments)--Principal Payment Characteristics
of the PAC Certificates, the TAC Certificates and the Class A-10 Components."
Further, the Class A-10 Certificates with respect to the Class A-10 Group I Ac-
crual Companion Component and the Group I TAC Certificates will receive no dis-
tributions in reduction of principal on such Distribution Date from the Class A
Non-PO Principal Amount if the portion of the Class A Non-PO Principal Amount
available to make distributions of principal to the Group I PAC Certificates in
accordance with the priorities set forth under "Description of the Certifi-
cates--Principal (Including Prepayments)--Allocation of Amount to be Distribut-
ed" is equal to or less than the Group I PAC Principal Amount on such Distribu-
tion Date. On each Distribution Date up to and including the Distribution Date
on which the Component Principal Balance and Class A Subclass Principal Balance
of the Class A-10 Group II Accrual Companion Component and Group II TAC Certif-
icates are reduced to zero, after the Group II PAC Principal Amounts have been
distributed for such Distribution Date any Group II Excess Principal Payments
for such Distribution Date will be applied to the Class A-10 Group II Accrual
Companion Component and the Group II TAC Certificates, without regard to their
Group II TAC Principal Amount, before being distributed to the Group II PAC
Certificates in the priorities set forth above under "Description of the Cer-
tificates--Principal (Including Prepayments)--Principal Payment Characteristics
of the PAC Certificates, the TAC Certificates and the Class A-10 Components."
Further, the Class A-10 Certificates with respect to the Class A-10 Group II
Accrual Companion Component and the Group II TAC Certificates will receive no
distributions in reduction of principal on such Distribution Date from the
Class A Non-PO Principal Amount if the portion of the Class A Non-PO Principal
Amount available to make distributions of principal to the Group II PAC Certif-
icates in accordance with the priorities set forth under "Description of the
Certificates--Principal (Including Prepayments)--Allocation of Amount to be
Distributed" is equal to or less than the Group II PAC Principal Amounts on
such Distribution Date.
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
S-81
<PAGE>
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 mort-
gage loans in the first month of the life of the mortgage loans and an addi-
tional 0.2% per annum in each month thereafter until the thirtieth month. Be-
ginning 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, "65% SPA" assumes prepay-
ment rates equal to 65% of SPA. SPA does not purport to be a historical de-
scription 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 character-
istics of the Mortgage Loans that are expected to be included in the Trust Es-
tate, as described under "Description of the Mortgage Loans." The tables have
been prepared assuming, among other things, the following (the "Structuring As-
sumptions"): (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 preced-
ing the month of such payment, its Mortgage Interest Rate and its remaining
term to stated maturity, so that such scheduled payments would amortize the re-
maining balance by its remaining term to maturity, (ii) scheduled monthly pay-
ments of the principal and interest on the Mortgage Loans will be timely re-
ceived on the first day of each month (with no defaults), commencing in May
1997, (iii) the Seller does not repurchase any Mortgage Loan, as described un-
der "Description of the Mortgage Loans -- Mandatory Repurchase or Substitution
of Mortgage Loans" herein, and the Seller does not exercise its option to pur-
chase 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 April 1997 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 1997-6 Certifi-
cates will be issued on April 29, 1997 and (vi) distributions to
Certificateholders will be made on the 25th day of each month, commencing in
May 1997.
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 dif-
ferences 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 Offered
Class A Certificates, initial principal balance of the Class M Certificates and
initial Class B Subclass Principal Balance of the Subclasses of Offered Class B
Certificates outstanding, the actual weighted average lives of the Subclasses
of Offered Class A Certificates, the Class M Certificates and the Subclasses of
Offered Class B Certificates and the date on which the Class A Subclass Princi-
pal Balance of any Subclass of Offered Class A Certificates, the principal bal-
ance of the Class M Certificates and the Class B Subclass Principal Balance of
any Subclass of Offered Class B 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 Subclass of Offered Class A Certificates, the initial principal balance of
the Class M Certificates and the initial Class B Subclass Principal Balance of
each Subclass of Offered Class B Certificates that would be outstanding after
each of the dates shown at constant percentages of SPA presented.
S-82
<PAGE>
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-1 CLASSES A-2 AND A-15 CLASS A-3
CERTIFICATES AT THE CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
----------------------------------- -------------------------------------- ----------------------------------
DISTRIBUTION DATE 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500%
- ----------------- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
April 1998... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 88 88 88 88 88 88 88
April 1999... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 74 74 74 74 74 74 74
April 2000... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 60 60 60 60 60 60 60
April 2001... 100 100 81 81 81 81 0 100 100 100 100 100 100 75 44 44 44 44 44 44 44
April 2002... 100 85 15 15 15 15 0 100 100 100 100 100 100 0 27 27 27 27 27 27 0
April 2003... 100 41 0 0 0 0 0 100 100 100 100 100 98 0 9 9 9 9 9 9 0
April 2004... 100 0 0 0 0 0 0 100 100 100 100 50 44 0 0 0 0 0 0 0 0
April 2005... 100 0 0 0 0 0 0 100 100 100 100 15 10 0 0 0 0 0 0 0 0
April 2006... 100 0 0 0 0 0 0 100 100 100 70 0 0 0 0 0 0 0 0 0 0
April 2007... 100 0 0 0 0 0 0 100 100 100 50 0 0 0 0 0 0 0 0 0 0
April 2008... 100 0 0 0 0 0 0 100 100 100 32 0 0 0 0 0 0 0 0 0 0
April 2009... 100 0 0 0 0 0 0 100 100 100 18 0 0 0 0 0 0 0 0 0 0
April 2010... 100 0 0 0 0 0 0 100 100 100 5 0 0 0 0 0 0 0 0 0 0
April 2011... 81 0 0 0 0 0 0 100 100 100 0 0 0 0 0 0 0 0 0 0 0
April 2012... 56 0 0 0 0 0 0 100 100 100 0 0 0 0 0 0 0 0 0 0 0
April 2013... 30 0 0 0 0 0 0 100 100 100 0 0 0 0 0 0 0 0 0 0 0
April 2014... 1 0 0 0 0 0 0 100 100 100 0 0 0 0 0 0 0 0 0 0 0
April 2015... 0 0 0 0 0 0 0 100 100 100 0 0 0 0 0 0 0 0 0 0 0
April 2016... 0 0 0 0 0 0 0 100 100 95 0 0 0 0 0 0 0 0 0 0 0
April 2017... 0 0 0 0 0 0 0 100 100 77 0 0 0 0 0 0 0 0 0 0 0
April 2018... 0 0 0 0 0 0 0 100 100 60 0 0 0 0 0 0 0 0 0 0 0
April 2019... 0 0 0 0 0 0 0 100 100 44 0 0 0 0 0 0 0 0 0 0 0
April 2020... 0 0 0 0 0 0 0 100 91 28 0 0 0 0 0 0 0 0 0 0 0
April 2021... 0 0 0 0 0 0 0 100 69 14 0 0 0 0 0 0 0 0 0 0 0
April 2022... 0 0 0 0 0 0 0 100 46 0 0 0 0 0 0 0 0 0 0 0 0
April 2023... 0 0 0 0 0 0 0 100 24 0 0 0 0 0 0 0 0 0 0 0 0
April 2024... 0 0 0 0 0 0 0 100 3 0 0 0 0 0 0 0 0 0 0 0 0
April 2025... 0 0 0 0 0 0 0 67 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2026... 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2027... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(1).. 15.23 5.83 4.50 4.50 4.50 4.50 3.43 28.29 24.88 21.71 10.25 7.16 7.01 4.23 3.54 3.54 3.54 3.54 3.54 3.54 3.22
</TABLE>
<TABLE>
<CAPTION>
CLASS A-4 CLASS A-5
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA
---------------------------------------- --------------------------------------
DISTRIBUTION DATE 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500%
- ----------------- ----- ----- ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100
April 1998... 99 99 99 99 99 99 99 100 100 100 100 100 100 100
April 1999... 98 98 98 98 98 98 98 100 100 100 100 100 100 100
April 2000... 97 97 97 97 97 97 97 100 100 100 100 100 100 100
April 2001... 96 96 96 96 96 96 96 100 100 100 100 100 100 100
April 2002... 95 95 95 95 95 95 95 100 100 100 100 100 100 0
April 2003... 94 93 92 90 88 88 68 100 100 100 100 100 100 0
April 2004... 92 90 88 83 80 80 44 100 100 100 100 100 100 0
April 2005... 91 86 84 75 70 70 29 100 100 100 100 100 100 0
April 2006... 89 82 78 65 59 58 19 100 100 100 100 76 45 0
April 2007... 87 77 72 55 47 47 13 88 88 88 88 0 0 0
April 2008... 86 73 66 46 38 37 9 65 65 65 65 0 0 0
April 2009... 83 68 61 38 30 30 6 39 39 39 39 0 0 0
April 2010... 81 64 56 32 24 24 4 12 12 12 12 0 0 0
April 2011... 79 59 51 27 19 19 3 0 0 0 0 0 0 0
April 2012... 76 55 46 22 15 15 2 0 0 0 0 0 0 0
April 2013... 73 51 42 18 12 12 1 0 0 0 0 0 0 0
April 2014... 70 47 38 15 9 9 1 0 0 0 0 0 0 0
April 2015... 67 43 34 12 7 7 1 0 0 0 0 0 0 0
April 2016... 63 39 30 10 6 6 * 0 0 0 0 0 0 0
April 2017... 60 35 26 8 4 4 * 0 0 0 0 0 0 0
April 2018... 55 32 23 7 3 3 * 0 0 0 0 0 0 0
April 2019... 51 28 20 5 3 2 * 0 0 0 0 0 0 0
April 2020... 46 24 17 4 2 2 * 0 0 0 0 0 0 0
April 2021... 41 21 14 3 1 1 * 0 0 0 0 0 0 0
April 2022... 35 17 11 2 1 1 * 0 0 0 0 0 0 0
April 2023... 29 13 9 2 1 1 * 0 0 0 0 0 0 0
April 2024... 22 10 6 1 * * * 0 0 0 0 0 0 0
April 2025... 15 6 4 1 * * * 0 0 0 0 0 0 0
April 2026... 7 3 2 * * * * 0 0 0 0 0 0 0
April 2027... 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(1).. 20.32 16.56 15.10 11.59 10.60 10.54 7.39 11.57 11.57 11.57 11.57 9.31 9.03 4.84
<CAPTION>
CLASS A-6
CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF
SPA
----------------------------------------
DISTRIBUTION DATE 0% 65% 100% 235% 300% 305% 500%
- ----------------- ----- ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100
April 1998... 108 108 108 108 108 108 108
April 1999... 116 116 116 116 116 116 116
April 2000... 125 125 125 125 125 125 125
April 2001... 135 135 135 135 135 135 135
April 2002... 145 145 145 145 145 145 90
April 2003... 157 157 157 157 157 157 0
April 2004... 169 169 169 169 169 169 0
April 2005... 182 182 182 182 182 182 0
April 2006... 196 196 196 196 196 196 0
April 2007... 211 211 211 211 200 182 0
April 2008... 228 228 228 228 161 146 0
April 2009... 245 245 245 245 128 116 0
April 2010... 264 264 264 264 103 92 0
April 2011... 273 273 273 247 82 73 0
April 2012... 273 273 273 205 65 58 0
April 2013... 273 273 273 170 51 45 0
April 2014... 273 273 273 140 40 36 0
April 2015... 273 273 273 114 31 28 0
April 2016... 273 273 273 93 24 21 0
April 2017... 273 273 273 75 19 16 0
April 2018... 273 273 273 60 14 12 0
April 2019... 273 273 273 47 11 9 0
April 2020... 273 273 273 37 8 7 0
April 2021... 273 273 273 28 6 5 0
April 2022... 273 273 271 21 4 4 0
April 2023... 273 273 210 15 3 2 0
April 2024... 273 273 152 10 2 1 0
April 2025... 273 184 96 6 1 1 0
April 2026... 273 84 43 2 * * 0
April 2027... 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(1).. 29.47 28.51 27.35 18.19 14.12 13.75 5.10
</TABLE>
- -------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net 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 net reduction of principal balance referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
principal balance.
USING CUSTOMER FILE(S): DECA1.002 AND DECA2.002 AND DECA3.002
USING CUSTOMER FILE(S): DECA4.002 AND DECA5.002 AND DECA6.002
S-83
<PAGE>
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-7 CLASS A-8 CLASS A-9
CERTIFICATES AT THE CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
---------------------------------- ---------------------------------- ------------------------------------
DISTRIBUTION DATE 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500%
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
April 1998... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 98 96 94 90 90 90 82
April 1999... 100 100 100 100 100 100 100 97 87 87 87 87 87 87 97 93 89 73 67 67 43
April 2000... 100 100 100 100 100 100 100 93 63 63 63 63 63 63 97 93 84 55 42 41 3
April 2001... 100 100 100 100 100 100 100 89 40 40 40 40 40 0 97 92 80 40 23 22 0
April 2002... 100 100 100 100 100 100 0 84 18 18 18 18 18 0 96 92 76 29 9 8 0
April 2003... 100 100 100 100 100 100 0 78 0 0 0 0 0 0 96 91 72 21 1 0 0
April 2004... 85 85 85 85 85 85 0 72 0 0 0 0 0 0 95 82 62 9 0 0 0
April 2005... 52 52 52 52 52 52 0 66 0 0 0 0 0 0 95 74 53 0 0 0 0
April 2006... 17 17 17 17 0 0 0 59 0 0 0 0 0 0 95 67 45 0 0 0 0
April 2007... 0 0 0 0 0 0 0 52 0 0 0 0 0 0 94 60 37 0 0 0 0
April 2008... 0 0 0 0 0 0 0 44 0 0 0 0 0 0 93 54 30 0 0 0 0
April 2009... 0 0 0 0 0 0 0 35 0 0 0 0 0 0 93 47 24 0 0 0 0
April 2010... 0 0 0 0 0 0 0 26 0 0 0 0 0 0 92 41 18 0 0 0 0
April 2011... 0 0 0 0 0 0 0 16 0 0 0 0 0 0 91 34 11 0 0 0 0
April 2012... 0 0 0 0 0 0 0 5 0 0 0 0 0 0 91 28 6 0 0 0 0
April 2013... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 87 22 * 0 0 0 0
April 2014... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 80 15 0 0 0 0 0
April 2015... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 73 9 0 0 0 0 0
April 2016... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 66 3 0 0 0 0 0
April 2017... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 58 0 0 0 0 0 0
April 2018... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 49 0 0 0 0 0 0
April 2019... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 40 0 0 0 0 0 0
April 2020... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 29 0 0 0 0 0 0
April 2021... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 18 0 0 0 0 0 0
April 2022... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6 0 0 0 0 0 0
April 2023... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2024... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2025... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2026... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2027... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted
Average
Life
(years)(1).. 8.07 8.07 8.07 8.07 7.98 7.91 4.72 9.68 3.62 3.62 3.62 3.62 3.62 3.02 19.79 11.46 8.34 3.68 2.86 2.81 1.82
</TABLE>
<TABLE>
<CAPTION>
CLASS A-10 CLASS A-11 CLASS A-12
CERTIFICATES AT THE CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
DISTRIBUTION ------------------------------------- ---------------------------------- ------------------------------------
DATE 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500%
- ------------ ----- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
April 1998... 108 108 108 88 61 59 5 100 100 100 100 100 100 100 97 93 92 88 88 88 88
April 1999... 116 116 116 71 7 3 0 97 83 76 76 76 76 76 95 89 86 71 71 71 41
April 2000... 125 125 125 55 0 0 0 91 52 31 31 31 31 19 93 88 85 55 46 44 0
April 2001... 135 135 135 42 0 0 0 85 21 0 0 0 0 0 91 86 83 42 26 24 0
April 2002... 145 145 145 32 0 0 0 78 0 0 0 0 0 0 90 84 81 33 12 10 0
April 2003... 157 157 157 27 0 0 0 71 0 0 0 0 0 0 88 82 79 28 6 4 0
April 2004... 169 169 169 23 0 0 0 64 0 0 0 0 0 0 86 80 77 25 1 0 0
April 2005... 182 182 182 21 0 0 0 55 0 0 0 0 0 0 84 78 75 24 1 0 0
April 2006... 196 196 196 17 0 0 0 46 0 0 0 0 0 0 81 76 67 20 0 0 0
April 2007... 211 211 211 12 0 0 0 36 0 0 0 0 0 0 79 73 56 14 0 0 0
April 2008... 228 228 228 8 0 0 0 26 0 0 0 0 0 0 76 70 45 9 0 0 0
April 2009... 245 245 245 4 0 0 0 14 0 0 0 0 0 0 73 64 34 5 0 0 0
April 2010... 264 264 264 1 0 0 0 2 0 0 0 0 0 0 70 53 23 1 0 0 0
April 2011... 285 285 285 0 0 0 0 0 0 0 0 0 0 0 66 42 13 0 0 0 0
April 2012... 307 307 307 0 0 0 0 0 0 0 0 0 0 0 63 32 3 0 0 0 0
April 2013... 331 331 291 0 0 0 0 0 0 0 0 0 0 0 59 21 0 0 0 0 0
April 2014... 356 356 245 0 0 0 0 0 0 0 0 0 0 0 54 9 0 0 0 0 0
April 2015... 384 373 200 0 0 0 0 0 0 0 0 0 0 0 50 0 0 0 0 0 0
April 2016... 414 343 161 0 0 0 0 0 0 0 0 0 0 0 45 0 0 0 0 0 0
April 2017... 446 301 130 0 0 0 0 0 0 0 0 0 0 0 39 0 0 0 0 0 0
April 2018... 481 250 101 0 0 0 0 0 0 0 0 0 0 0 33 0 0 0 0 0 0
April 2019... 518 199 74 0 0 0 0 0 0 0 0 0 0 0 21 0 0 0 0 0 0
April 2020... 558 154 48 0 0 0 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0
April 2021... 514 116 23 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2022... 451 79 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2023... 358 42 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2024... 232 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2025... 113 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2026... 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2027... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(1).. 26.51 22.45 19.60 4.55 1.22 1.18 0.62 8.19 3.08 2.60 2.60 2.60 2.60 2.49 15.86 11.74 9.50 4.68 3.03 2.93 1.80
</TABLE>
- -------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net 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 net reduction of principal balance referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
principal balance.
USING CUSTOMER FILE(S): DECA7.002 AND DECA8.002 AND DECA9.002
USING CUSTOMER FILE(S): DECA10.002 AND DECA11.002 AND DECA12.002
S-84
<PAGE>
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-13 CLASS A-14 CLASS A-R
CERTIFICATES AT THE CERTIFICATES AT THE CERTIFICATE AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
----------------------------------- ------------------------------------ ----------------------------------
DISTRIBUTION DATE 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500%
- ----------------- ----- ---- ---- ---- ---- ---- ---- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
April 1998... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 0 0 0 0 0 0
April 1999... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 0 0 0 0 0 0
April 2000... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 0 0 0 0 0 0
April 2001... 100 100 100 100 100 100 37 100 100 100 100 100 100 100 0 0 0 0 0 0 0
April 2002... 100 100 100 100 100 100 0 100 100 100 100 100 100 0 0 0 0 0 0 0 0
April 2003... 100 100 54 54 54 54 0 100 100 100 100 100 100 0 0 0 0 0 0 0 0
April 2004... 100 99 0 0 0 0 0 100 100 96 96 96 90 0 0 0 0 0 0 0 0
April 2005... 100 57 0 0 0 0 0 100 100 27 27 27 20 0 0 0 0 0 0 0 0
April 2006... 100 19 0 0 0 0 0 100 100 0 0 0 0 0 0 0 0 0 0 0 0
April 2007... 100 0 0 0 0 0 0 100 76 0 0 0 0 0 0 0 0 0 0 0 0
April 2008... 100 0 0 0 0 0 0 100 27 0 0 0 0 0 0 0 0 0 0 0 0
April 2009... 100 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2010... 100 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2011... 100 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2012... 100 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2013... 100 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2014... 100 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2015... 67 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2016... 31 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2017... 0 0 0 0 0 0 0 88 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2018... 0 0 0 0 0 0 0 27 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2019... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2020... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2021... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2022... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2023... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2024... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2025... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2026... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
April 2027... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(1).. 18.49 8.23 6.11 6.11 6.11 6.10 3.97 20.65 10.56 7.71 7.71 7.71 7.60 4.43 0.07 0.07 0.07 0.07 0.07 0.07 0.07
</TABLE>
<TABLE>
<CAPTION>
CLASS A-PO CLASSES M, B-1 AND B-2
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA
------------------------------------- ----------------------------------------
DISTRIBUTION DATE 0% 65% 100% 235% 300% 305% 500% 0% 65% 100% 235% 300% 305% 500%
- ----------------- ----- ----- ----- ---- ---- ---- ---- ----- ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............... 100 100 100 100 100 100 100 100 100 100 100 100 100 100
April 1998............ 99 98 97 95 94 93 90 99 99 99 99 99 99 99
April 1999............ 98 94 92 85 81 81 70 98 98 98 98 98 98 98
April 2000............ 97 89 86 72 66 65 49 97 97 97 97 97 97 97
April 2001............ 96 85 80 61 53 53 34 96 96 96 96 96 96 96
April 2002............ 94 80 74 52 43 42 23 95 95 95 95 95 95 95
April 2003............ 93 76 68 44 35 34 16 94 93 92 90 88 88 84
April 2004............ 91 72 63 37 28 27 11 92 90 88 83 80 80 72
April 2005............ 90 68 58 31 23 22 8 91 86 84 75 70 70 57
April 2006............ 88 64 54 26 18 18 5 89 82 78 65 59 58 42
April 2007............ 86 60 49 22 15 14 4 87 77 72 55 47 47 29
April 2008............ 84 56 45 18 12 11 2 86 73 66 46 38 37 20
April 2009............ 82 53 41 15 9 9 2 83 68 61 38 30 30 14
April 2010............ 79 49 38 13 7 7 1 81 64 56 32 24 24 9
April 2011............ 77 46 34 11 6 6 1 79 59 51 27 19 19 6
April 2012............ 74 42 31 9 5 4 1 76 55 46 22 15 15 4
April 2013............ 71 39 28 7 4 3 * 73 51 42 18 12 12 3
April 2014............ 67 36 25 6 3 3 * 70 47 38 15 9 9 2
April 2015............ 64 33 22 5 2 2 * 67 43 34 12 7 7 1
April 2016............ 60 29 20 4 2 2 * 63 39 30 10 6 6 1
April 2017............ 56 26 17 3 1 1 * 60 35 26 8 4 4 1
April 2018............ 52 24 15 3 1 1 * 55 32 23 7 3 3 *
April 2019............ 48 21 13 2 1 1 * 51 28 20 5 3 2 *
April 2020............ 43 18 11 2 1 1 * 46 24 17 4 2 2 *
April 2021............ 38 15 9 1 * * * 41 21 14 3 1 1 *
April 2022............ 32 13 7 1 * * * 35 17 11 2 1 1 *
April 2023............ 27 10 6 1 * * * 29 13 9 2 1 1 *
April 2024............ 20 7 4 * * * * 22 10 6 1 * * *
April 2025............ 14 5 3 * * * * 15 6 4 1 * * *
April 2026............ 6 2 1 * * * * 7 3 2 * * * *
April 2027............ 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (years)(1)...... 19.77 13.63 11.45 6.78 5.62 5.54 3.70 20.32 16.56 15.10 11.59 10.60 10.54 8.84
</TABLE>
- -------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net 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 net reduction of principal balance referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
principal balance.
USING CUSTOMER FILE(S): DECA13.002 AND DECA14.002 AND DECAR.002
USING CUSTOMER FILE(S): DECAP.002 AND DECM.002
S-85
<PAGE>
Interest accrued on the Offered Certificates will be reduced by the amount of
any interest portions of Realized Losses allocated to such Certificates as de-
scribed under "Description of the Certificates--Interest" herein. The yield on
the Offered 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 computa-
tional materials with respect to one or more Subclasses of Offered Certificates
with the Securities and Exchange Commission in a Report on Form 8-K. See "In-
corporation Of Certain Document By Reference" in the Prospectus. Such tables
and materials will have been prepared by the Underwriter at the request of cer-
tain 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 Structuring Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for in-
vestors other than those specifically requesting them.
SENSITIVITY OF THE CLASS A-15 AND CLASS A-PO CERTIFICATES
THE YIELD TO AN INVESTOR IN THE CLASS A-15 AND CLASS A-PO CERTIFICATES WILL
BE HIGHLY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS, IN THE CASE OF THE CLASS A-15 CERTIFICATE,
OR THE DISCOUNT MORTGAGE LOANS, IN THE CASE OF THE CLASS A-PO CERTIFICATES,
WHICH RATES 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 MORTGAGE LOANS, IN
THE CASE OF THE CLASS A-15 CERTIFICATE, OR THE DISCOUNT MORTGAGE LOANS, IN THE
CASE OF THE CLASS A-PO CERTIFICATES, WILL HAVE A NEGATIVE EFFECT ON THE YIELD
TO AN INVESTOR IN THE CLASS A-15 AND CLASS A-PO CERTIFICATES. THE DISCOUNT
MORTGAGE LOANS WILL HAVE LOWER NET MORTGAGE INTEREST RATES THAN THE OTHER MORT-
GAGE 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 MORT-
GAGE 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 MORT-
GAGE LOANS, RESULTING IN A LOWER YIELD ON THE CLASS A-PO CERTIFICATES THAN
WOULD BE THE CASE IF THE DISCOUNT MORTGAGE LOANS PREPAID AT THE SAME RATE AS
THE OTHER MORTGAGE LOANS.
The following tables indicate the sensitivity to various rates of prepayments
on the Mortgage Loans in the case of the Class A-15 Certificate or the Discount
Mortgage Loans in the case of the Class A-PO Certificates of the pre-tax yields
to maturity on a corporate bond equivalent ("CBE") basis of the Class A-15 and
Class A-PO Certificates. Such calculations are based on distributions made in
accordance with "Description of the Certificates" above, on the Structuring As-
sumptions and on the further assumptions that the Class A-15 and Class A-PO
Certificates will be purchased on April 29, 1997 at an aggregate purchase price
of 37.00% of the initial Class A Subclass Principal Balance of the Class A-15
Certificate and at an aggregate purchase price of 61.00% of the initial Class A
Subclass Principal Balance of the Class A-PO Certificates.
SENSITIVITY OF THE PRE-TAX YIELD TO MATURITY ON THE CLASS A-15 CERTIFICATE TO
PREPAYMENTS
<TABLE>
<CAPTION>
PERCENTAGES OF SPA
---------------------------------------------
0% 65% 100% 235% 300% 305% 500%
----- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield to
Maturity (CBE)......... 3.55% 4.04% 4.65% 10.06% 14.45% 14.77% 24.98%
</TABLE>
SENSITIVITY OF THE PRE-TAX YIELD TO MATURITY ON THE CLASS A-PO CERTIFICATES TO
PREPAYMENTS
<TABLE>
<CAPTION>
PERCENTAGES OF SPA
--------------------------------------------
0% 65% 100% 235% 300% 305% 500%
----- ----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield to Maturity (CBE)... 2.62% 4.07% 4.97% 8.76% 10.59% 10.73% 15.88%
</TABLE>
USING CUSTOMER FILE(S): SENSA15.002
USING CUSTOMER FILE(S): SENSAP.002
S-86
<PAGE>
The pre-tax yields to maturity set forth in the preceding table were calcu-
lated by (i) determining the monthly discount rates which, when applied to the
assumed stream of cash flows to be paid on the Class A-15 and Class A-PO Cer-
tificates, would cause the discounted present value of such assumed stream of
cash flows to equal, in the case of the Class A-15 Certificate, an assumed ag-
gregate purchase price of 37.00% of their initial Class A Subclass Principal
Balance and, in the case of the Class A-PO Certificates, an assumed aggregate
purchase price of 61.00% of their initial Class A Subclass 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 A-
15 or Class A-PO Certificates and consequently does not purport to reflect the
return on any investment in the Class A-15 or Class A-PO Certificates when such
reinvestment rates are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding ta-
ble, it is highly unlikely that the Mortgage Loans, in the case of the Class A-
15 Certificate, or the Discount Mortgage Loans, in the case of the Class A-PO
Certificates, will prepay at a constant rate until maturity, that all of the
Mortgage Loans, in the case of the Class A-15 Certificate, or the Discount
Mortgage Loans, in the case of the Class A-PO Certificates, will prepay at the
same rate or that the Mortgage Loans or Discount Mortgage Loans, as the case
may be, will not experience any losses. The Mortgage Loans ultimately 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 sub-
stitutions. As a result of these factors, the pre-tax yields to maturity on the
Class A-15 and Class A-PO Certificates are likely to differ from those shown in
such table, even if all of the Mortgage Loans or Discount Mortgage Loans, as
the case may be, prepay at the indicated percentages of SPA.
HISTORIC LOSS EXPERIENCE OF SECURITIZED MORTGAGE LOANS
The historic experience as of March 1997 regarding the cumulative amount of
losses and the frequency of liquidations experienced on securitized(/1/) con-
ventional mortgage loans having original terms to stated maturity of approxi-
mately 30 years ("30 Year Mortgage Loans") have varied based on the year of
origination as set forth below.
<TABLE>
<CAPTION>
LIQUIDATION LOSS
YEAR OF FREQUENCY SEVERITY
ORIGINATION PERCENTAGE(A) PERCENTAGE(B)
----------- ------------- -------------
<S> <C> <C>
1987............................................. 1.80% 66.49%
1988............................................. 8.33% 60.53%
1989............................................. 9.93% 45.85%
1990............................................. 5.58% 42.73%
1991............................................. 3.45% 34.17%
1992............................................. 1.14% 34.07%
1993............................................. 0.36% 27.66%
1994............................................. 0.17% 21.00%
1995............................................. 0.02% 14.83%
1996............................................. 0.00% 0.00%
</TABLE>
- -------
(a) The liquidation frequency percentage is determined by dividing the original
principal balance of liquidated 30 Year Mortgage Loans originated during
such year by the original principal balance of 30 Year Mortgage Loans orig-
inated during such year.
(b) The loss severity percentage is determined by dividing the amount of losses
resulting from liquidated 30 Year Mortgage Loans originated during such
year by the original principal balance of liquidated 30 Year Mortgage Loans
originated during such year.
- -------
(1) Mortgage loans included in a mortgage pool underlying a series of The Pru-
dential Home Mortgage Securities Company, Inc.'s mortgage pass-through cer-
tificates (a "PHMSC Pool"), mortgage loans sold by PHMC to Securitized As-
set Sales, Inc. ("SASI") and included in a mortgage pool underlying SASI's
mortgage pass-through certificates (a "SASI Pool") or mortgage loans in-
cluded in a mortgage pool underlying a series of NASCOR's mortgage pass-
through certificates which are serviced or subserviced by Norwest Mortgage.
Prior to the PHMC Acquisition, PHMC was the servicer for those 30 Year
Mortgage Loans included in the PHMSC Pools and SASI Pools.
S-87
<PAGE>
The loss severity percentages for the more recent years of origination may
not be representative of the loss severity percentages in the future for the
indicated years of origination in part because the severity of loss on a liqui-
dated mortgage loan is generally expected to increase as the length of time in-
creases from the initial delinquency of such mortgage loan to the final dispo-
sition of the mortgaged property. In addition, it is possible that because the
more recent loss severity percentages resulted from relatively low levels of
liquidations (which do not include those mortgage loans currently delinquent
but not yet liquidated) such percentages may not be representative of future
loss severity percentages arising from the liquidation of a larger number of
mortgage loans. The frequency of liquidations of the Mortgage Loans and the
amount of loss experienced as a result thereof may vary significantly from the
historic experience set forth above in part because the underwriting standards
applied at origination of the 30 Year Mortgage Loans have changed over time and
may differ from those applied at origination of the Mortgage Loans. Similarly,
servicing practices with respect to delinquent 30 Year Mortgage Loans have
changed over time. In addition, delinquencies, foreclosures and loan losses
generally are expected to occur with increasing frequency after the first full
year of the life of a mortgage loan. Many factors contribute to the severity of
losses, particularly the length of time from the initial delinquency of such
mortgage loan to the final disposition of the mortgaged property and the state
in which the mortgaged property is located. The Seller and Norwest Mortgage
make no representation that the actual losses and liquidation frequency experi-
enced on the Mortgage Loans currently serviced by Norwest Mortgage, on the
Mortgage Loans generally (which include Mortgage Loans serviced by Other
Servicers) or on the Mortgage Loans originated by Norwest Mortgage or a Norwest
Mortgage Correspondent will in any way correspond to the historic experience
with respect to the 30 Year Mortgage Loans.
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS B-1 AND CLASS B-2 CERTIFICATES
Defaults on mortgage loans may be measured relative to a default standard or
model. The model used in this Prospectus Supplement, the standard default as-
sumption ("SDA"), represents an assumed rate of default each month relative to
the then-outstanding performing principal balance of a pool of new mortgage
loans. A default assumption of 100% SDA assumes constant default rates of 0.02%
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 0.02% per
annum in each month thereafter until the 30th month. Beginning in the 30th
month and in each month thereafter through the 60th month of the life of the
mortgage loans, 100% SDA assumes a constant default rate of 0.60% per annum
each month. Beginning in the 61st month and in each month thereafter through
the 120th month of the life of the mortgage loans, 100% SDA assumes that the
constant default rate declines each month by 0.0095% per annum, and that the
constant default rate remains at 0.03% per annum in each month after the 120th
month. For the purposes of the following tables, it is assumed that there is no
delay between the default and liquidation of the mortgage loans. As used in the
following tables, "0% SDA" assumes default rates equal to 0% of SDA (no de-
faults). Correspondingly, "50% SDA" assumes default rates equal to 50% of SDA,
and so forth. SDA does not purport to be a historical description of default
experience or a prediction of the anticipated rate of default of any pool of
mortgage loans, including the Mortgage Loans.
The following tables indicate the sensitivity of the pre-tax yield to matu-
rity on the Class B-1 and Class B-2 Certificates to various rates of prepayment
and varying levels of aggregate Realized Losses. The tables set forth below are
based upon, among other things, the Structuring Assumptions (other than the as-
sumption that no defaults shall have occurred with respect to the Mortgage
Loans) and the additional assumptions that liquidations (other than those sce-
narios indicated as 0% of SDA (no defaults)) occur monthly on the last day of
the preceding month (other than on a Due Date) at the percentages of SDA set
forth in the table.
In addition, it was assumed that (i) Realized Losses on liquidations of 25%
or 50% of the outstanding principal balance of such liquidated Mortgage Loans,
as indicated in the tables below (referred to as a "Loss Severity Percentage")
will occur at the time of liquidation, (ii) there are no Special Hazard Losses,
Fraud Losses or Bankruptcy Losses and (iii) the Class B-1 and Class B-2 Certif-
icates are purchased on April 29, 1997 at assumed purchase prices equal to
97.50% and 97.00%, respectively, of the Class B Subclass Principal Balances
thereof plus accrued interest from April 1, 1997 to (but not including) April
29, 1997.
It is unlikely that the Mortgage Loans will have the precise characteristics
referred to herein or that they will prepay or liquidate at any of the rates
specified. The assumed percentages of SDA and SPA shown in the table below are
for illustrative purposes only and the Seller makes no representations with re-
spect to the
S-88
<PAGE>
reasonableness of such assumptions or that the actual rates of prepayment and
liquidation and loss severity experience of the Mortgage Loans will in any way
correspond to any of the assumptions made herein. Consequently, there can be no
assurance that the pre-tax yield to maturity of the Class B-1 and Class B-2
Certificates will correspond to any of the pre-tax yields to maturity shown be-
low.
The pre-tax yields to maturity set forth in the following tables were calcu-
lated by determining the monthly discount rates which, when applied to the as-
sumed streams of cash flows to be paid on the Class B-1 and Class B-2 Certifi-
cates, would cause the discounted present value of such assumed streams of cash
flows to equal the aggregate assumed purchase prices of the Class B-1 and Class
B-2 Certificates set forth above. In all cases, monthly rates were then con-
verted to the semi-annual corporate bond equivalent yields shown below. Im-
plicit in the use of any discounted present value or internal rate of return
calculations such as these is the assumption that intermediate cash flows are
reinvested at the discount rate or internal rate of return. Thus, these calcu-
lations do not take into account the different interest rates at which invest-
ors may be able to reinvest funds received by them as distributions on the
Class B-1 and Class B-2 Certificates. Consequently, these yields do not purport
to reflect the total return on any investment in the Class B-1 and Class B-2
Certificates when such reinvestment rates are considered.
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS B-1 CERTIFICATES TO
PREPAYMENTS AND REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGES OF SPA
PERCENTAGE SEVERITY -----------------------------------------------------------
OF SDA PERCENTAGE 0% 65% 100% 235% 300% 305% 500%
- ------------------------ ---------- ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0%.................... 0% 7.83% 7.86% 7.87% 7.90% 7.92% 7.92% 7.95%
50%.................... 25% 7.82% 7.87% 7.87% 7.91% 7.92% 7.92% 7.95%
50%.................... 50% 7.81% 7.85% 7.88% 7.91% 7.92% 7.92% 7.95%
75%.................... 25% 7.81% 7.87% 7.88% 7.91% 7.92% 7.92% 7.95%
75%.................... 50% 7.07% 7.72% 7.85% 7.91% 7.92% 7.92% 7.95%
100%.................... 25% 7.81% 7.86% 7.88% 7.91% 7.92% 7.92% 7.95%
100%.................... 50% 4.83% 6.02% 6.46% 7.91% 7.93% 7.93% 7.96%
150%.................... 25% 7.14% 7.76% 7.86% 7.91% 7.92% 7.92% 7.95%
150%.................... 50% (17.41)% (0.10)% 1.70% 4.43% 5.69% 5.78% 7.96%
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS B-2
CERTIFICATES TO PREPAYMENTS AND REALIZED LOSSES
<CAPTION>
LOSS PERCENTAGES OF SPA
PERCENTAGE SEVERITY -----------------------------------------------------------
OF SDA PERCENTAGE 0% 65% 100% 235% 300% 305% 500%
- ------------------------ ---------- ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0%.................... 0% 7.89% 7.92% 7.93% 7.98% 8.00% 8.00% 8.04%
50%.................... 25% 7.85% 7.90% 7.94% 7.98% 8.00% 8.00% 8.04%
50%.................... 50% 5.05% 6.99% 7.68% 7.98% 8.00% 8.00% 8.04%
75%.................... 25% 7.85% 7.87% 7.90% 7.98% 8.00% 8.00% 8.04%
75%.................... 50% (23.10)% (17.10)% (2.01)% 5.61% 7.45% 7.59% 8.04%
100%.................... 25% 5.21% 7.07% 7.74% 7.98% 8.00% 8.00% 8.04%
100%.................... 50% (36.76)% (33.31)% (31.17)% (5.06)% 0.84% 1.10% 8.04%
150%.................... 25% (22.66)% (15.60)% (1.06)% 5.78% 7.59% 7.72% 8.04%
150%.................... 50% (57.33)% (54.85)% (53.40)% (46.80)% (42.81)% (42.47)% (5.63)%
</TABLE>
The following table sets forth the amount of Realized Losses that would be
incurred with respect to the Mortgage Loans, expressed as a percentage of the
aggregate outstanding principal balance of the Mortgage Loans as of the Cut-Off
Date.
AGGREGATE REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGES OF SPA
PERCENTAGE SEVERITY ----------------------------------------
OF SDA PERCENTAGE 0% 65% 100% 235% 300% 305% 500%
- --------------------------- ---------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50%....................... 25% 0.49% 0.42% 0.39% 0.30% 0.26% 0.26% 0.19%
50%....................... 50% 0.99% 0.84% 0.78% 0.59% 0.52% 0.52% 0.37%
75%....................... 25% 0.74% 0.63% 0.58% 0.44% 0.39% 0.39% 0.28%
75%....................... 50% 1.47% 1.26% 1.16% 0.88% 0.78% 0.77% 0.56%
100%....................... 25% 0.98% 0.83% 0.77% 0.59% 0.52% 0.51% 0.37%
100%....................... 50% 1.95% 1.67% 1.54% 1.17% 1.04% 1.03% 0.74%
150%....................... 25% 1.45% 1.24% 1.15% 0.87% 0.77% 0.77% 0.55%
150%....................... 50% 2.90% 2.48% 2.29% 1.75% 1.55% 1.54% 1.10%
</TABLE>
USING CUSTOMER FILE(S): SENSB1.002
USING CUSTOMER FILE(S): SENSB2.002
USING CUSTOMER FILE(S): AGGLOSS.002
S-89
<PAGE>
Notwithstanding the assumed percentages of SDA, Loss Severity Percentages and
prepayment rates reflected in the preceding tables, it is highly unlikely that
the Mortgage Loans will be prepaid or that the Realized Losses will be incurred
according to one particular pattern. For this reason, and because the timing of
cash flows is critical to determining yields, the pre-tax yields to maturity on
the Class B-1 and Class B-2 Certificates are likely to differ from those shown
in the tables. There can be no assurance that the Mortgage Loans will prepay at
any particular rate or that Realized Losses will be incurred at any particular
level or that the yields on the Class B-1 and Class B-2 Certificates will con-
form to any of the yields described herein.
Investors are urged to make their investment decisions based on their deter-
minations as to anticipated rates of prepayment and Realized Losses under a va-
riety of scenarios. Investors in Class B-1 and Class B-2 Certificates should
fully consider the risk that Realized Losses on the Mortgage Loans could result
in the failure of such investors to fully recover their investments.
S-90
<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Series 1997-6 Certificates will be issued pursuant to a Pooling and Ser-
vicing Agreement to be dated as of the date of initial issuance of the Series
1997-6 Certificates (the "Pooling and Servicing Agreement") among the Seller,
the Master Servicer, the Trustee and the Trust Administrator. Reference is made
to the Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Series 1997-6 Certif-
icates. 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 Mort-
gage 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 Mort-
gaged Properties acquired on behalf of the Certificateholders by foreclosure or
by deed in lieu of foreclosure after the date of original issuance of the Cer-
tificates and (iv) the rights of the Trust Administrator to receive the pro-
ceeds of all insurance policies and performance bonds, if any, required to be
maintained pursuant to the Pooling and Servicing Agreement.
DISTRIBUTIONS
Distributions (other than the final distribution in retirement of the Offered
Certificates of each Class or Subclass) will be made by check mailed to the ad-
dress of the person entitled thereto as it appears on the Certificate Register.
However, with respect to any holder of an Offered Certificate evidencing at
least a $5,000,000 initial principal balance, 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 Class or Subclass of Offered Certificates will
be made only upon presentation and surrender of the related Certificate at the
office or agency appointed by the Trust Administrator 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 and the Trust Administrator 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 re-
ceive distributions on the Book-Entry Certificates from the Trust Administrator
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 provid-
ing for the action, consent or approval of the holders of all Series 1997-6
Certificates evidencing specified Voting Interests in the Trust Estate, the
holders of the Class A Certificates will collectively be entitled to a percent-
age (the "Class A Voting Interest") of the aggregate Voting Interest repre-
sented by all Series 1997-6 Certificates equal to the sum of (A) the product of
(i) the then applicable Class A Percentage and (ii) the ratio obtained by di-
viding the Pool Balance (Non-PO Portion) by the sum of the Pool Balance (Non-PO
Portion) and the Pool Balance (PO Portion) (the "Non-PO Voting Interest") and
(B) the Pool Balance (PO Portion) divided by the sum of the Pool Balance (Non-
PO Portion) and the Pool Balance (PO Portion); the holders of the Class M Cer-
tificates will collectively be entitled to the then applicable percentage of
the aggregate Voting Interest represented by all Series 1997-6 Certificates
equal to the product of (i) the ratio obtained by dividing the Class M Princi-
pal Balance by the sum of the Class A Non-PO Principal Balance, the Class M
Principal Balance and the Class B Principal Balance and (ii) the Non-PO Voting
Interest; and the holders of the Class B Certificates will collectively be en-
titled to the balance of the aggregate Voting Interest represented by all Se-
ries 1997-6 Certificates (the "Class B Voting Interest"). The aggregate Voting
Interest of each Subclass of Class A Certificates (other than the Class A-WIO
and Class A-PO Certificates) on any date will be equal to the product of (a)
99% of the portion the Class A Voting Interest on such date represented by
clause (A) above and (b) the fraction obtained by dividing the Class A Subclass
Principal Balance of such Subclass by the Class A Non-PO Principal Balance on
such date. The aggregate Voting Interest of the Class A-WIO Certificates on any
date will be equal to 1% of the Class A Voting
S-91
<PAGE>
Interest represented by clause (A) above. The aggregate Voting Interest of the
Class A-PO Certificates on any date will be equal to the portion of the Class A
Voting Interest on such date represented by clause (B) above. The aggregate
Voting Interest of each Subclass of Class B Certificates on any date will be
equal to the product of (a) the Class B Voting Interest on such date and (b)
the fraction obtained by dividing the Class B Subclass Principal Balance of
such Subclass on such date by the Class B Principal Balance 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 collec-
tively entitled and the Percentage Interest in such Class or Subclass repre-
sented 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 Class or Subclass will have a Voting
Interest in such Class or Subclass equal to such holder's Percentage Interest
in such Class or Subclass. Unless Definitive Certificates are issued as de-
scribed above, Beneficial Owners of Book-Entry Certificates may exercise their
voting rights only through Participants.
TRUSTEE
The Trustee for the Series 1997-6 Certificates will be Firstar Trust Company,
a banking corporation organized under the laws of the State of Wisconsin. The
Corporate Trust Office of the Trustee is located at 615 East Michigan Street,
Lewis Center 4th Floor, Milwaukee, Wisconsin 53202. The Trustee will be respon-
sible for monitoring the compliance of the Master Servicer with the Pooling and
Servicing Agreement and the Underlying Servicing Agreements. See '"The Pooling
and Servicing Agreement -- The Trustee" in the Prospectus.
TRUST ADMINISTRATOR
First Union National Bank of North Carolina will act as Trustee Administrator
for the Series 1997-6 Certificates. The corporate trust office of the Trust Ad-
ministrator is located at 230 South Tryon Street, North Carolina 28288. The
Trust Administrator will perform certain administrative functions on behalf of
the Trustee and will act as the initial paying agent, certificate registrar and
custodian. In addition, the Trust Administrator will be required to make Peri-
odic Advances to the limited extent described herein with respect to the Mort-
gage Loans serviced by Norwest Mortgage if Norwest Mortgage, as Servicer, fails
to make a Periodic Advance required by the related Underlying Servicing Agree-
ment. See "Description of the Certificates -- Periodic Advances" herein.
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, cause the Mort-
gage Loans to be serviced 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, compute the amount of distributions to be
made on the Certificates and any losses to be allocated to 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. Under
the Pooling and Servicing Agreement, any good faith interpretation of the Mas-
ter Servicer of any provisions of the Pooling and Servicing Agreement relating
to the distributions to be made on or the allocation of any losses to the Cer-
tificates which the Master Servicer concludes are ambiguous or unclear will be
binding on Certificateholders. The Master Servicer will be entitled to a "Mas-
ter Servicing Fee" payable monthly equal to the product of (i) 1/12th of 0.016%
(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.
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement may permit the Master Servicer to enter
into a special servicing agreement with an unaffiliated holder of a Subclass of
Class B Certificates or of a class of securities representing interests in the
Class B Certificates and/or other subordinated mortgage pass-through certifi-
cates. Pursuant to such an agreement, such holder may instruct the Master
Servicer to instruct the Servicers, to the extent provided in the applicable
Underlying Servicing Agreement to commence or delay foreclosure proceedings
with respect to delinquent Mortgage Loans. Such commencement or delay at such
holder's direction will be taken by the Master Servicer only after such holder
deposits a specified amount of cash with the Master Servicer. Such cash
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will be available for distribution to Certificateholders if Liquidation Pro-
ceeds are less than they otherwise may have been had the Servicers acted pursu-
ant to their normal servicing procedures.
OPTIONAL TERMINATION
At its option, the Seller may purchase from the Trust Estate all of the Mort-
gage Loans, and thereby effect early retirement of the Series 1997-6 Certifi-
cates, on any Distribution Date when the Pool Scheduled Principal Balance is
less than 10% of the Cut-Off Date Aggregate Principal Balance. Any such pur-
chase 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 Servic-
ing Agreement -- Termination; Purchase of Mortgage Loans" in the Prospectus.
The exercise of the foregoing option will be in the Seller's sole discretion.
Without limitation, the Seller may enter into agreements with third parties to
(i) exercise such option at the direction of such third party or (ii) forbear
from the exercise of such option.
SERVICING OF THE MORTGAGE LOANS
Norwest Mortgage will service approximately 87.14% (by Cut-Off Date Aggregate
Principal Balance) of the Mortgage Loans and the other 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 Trust Admin-
istrator on behalf of the Trustee, for the benefit of Certificateholders. Among
other things, the Servicers are obligated under certain circumstances to ad-
vance delinquent payments of principal and interest with respect to the Mort-
gage 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. .................... 87.14%
First Union Mortgage Corp. ................ 8.43%
Suntrust Mortgage, Inc. ................... 2.07%
National City Mortgage Company............. 1.69%
First Bank National Assoc. ................ 0.25%
Countrywide Home Loans, Inc. .............. 0.17%
Huntington Mortgage Company................ 0.16%
BankAmerica Mortgage....................... 0.09%
------
Total.................................... 100.00%
======
</TABLE>
Certain information with respect to the loan servicing experience of Norwest
Mortgage is set forth under "Delinquency and Foreclosure Experience."
The Mortgage Loans serviced by Norwest Mortgage are serviced either from
Norwest Mortgage's servicing center located in Frederick, Maryland (the
"Norwest Frederick-Serviced Loans") or from one of several other regional ser-
vicing centers (the "Norwest Non-Frederick-Serviced Loans"). As of the Cut-Off
Date, it is expected that 901 of the Mortgage Loans in the Trust Estate, repre-
senting approximately 54.22% of the Cut-Off Date Aggregate Principal Balance of
the Mortgage Loans will be Norwest Frederick-Serviced Loans and 525 of the
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Mortgage Loans in the Trust Estate, representing approximately 32.92% of the
Cut-Off Date Aggregate Principal Balance of the Mortgage Loans will be Norwest
Non-Frederick-Serviced Loans.
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, ad-
vances 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 Ser-
vicing 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 Ac-
counts 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;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent the applicable Servicing Fee, as adjusted where appli-
cable in respect of Month End Interest 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) unless the applicable Underlying Servicing Agreement provides for
daily remittances of Unscheduled Principal Receipts, as described below un-
der "-- Anticipated Changes in Servicing," all Unscheduled Principal Re-
ceipts received by such Servicer after the applicable Unscheduled Principal
Receipt Period with respect thereto specified in the applicable Underlying
Servicing Agreement, 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 addi-
tional 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 Ac-
count.
UNSCHEDULED PRINCIPAL RECEIPTS
The Pooling and Servicing Agreement specifies, as to each type of Unscheduled
Principal Receipt, a period (as to each type of Unscheduled Principal Receipt,
the "Unscheduled Principal Receipt Period") during which all Unscheduled Prin-
cipal Receipts of such type received by the Servicer will be distributed to
Certificateholders on the related Distribution Date. Each Unscheduled Principal
Receipt Period will either be (i) the one month period ending on the last day
of the calendar month preceding the month in which the applicable Remittance
Date occurs (such period a "Prior Month Receipt Period") or (ii) the one month
period ending on the day preceding the Determination Date preceding the appli-
cable Remittance Date (such period a "Mid-Month Receipt Period").
With respect to the Norwest Frederick-Serviced Loans, the Unscheduled Princi-
pal Receipt Period with respect to all types of Unscheduled Principal Receipts
is a Mid-Month Receipt Period. With respect to the
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Norwest Non-Frederick-Serviced Loans and Mortgage Loans serviced by Other
Servicers, the Unscheduled Principal Receipt Period with respect to all types
of Unscheduled Principal Receipts is a Prior Month Receipt Period.
ANTICIPATED CHANGES IN SERVICING
Changes in Timing of Remittances of Unscheduled Principal Receipts in Full
and Elimination of Month End Interest. The Pooling and Servicing Agreement will
provide that the Master Servicer may (but is not required), from time to time
and without the consent of any Certificateholder, the Trustee or the Trust Ad-
ministrator, require Norwest Mortgage as Servicer under the related Underlying
Servicing Agreement to, or enter into an amendment to any applicable Underlying
Servicing Agreement to require any Other Servicer to, remit Unscheduled Princi-
pal Receipts in full to the Master Servicer for deposit into the Certificate
Account daily on a specified business day following receipt thereof which will
generally result in a deposit earlier than on the following Remittance Date. In
conjunction with any such change, the applicable Servicer would be relieved of
its obligation to remit Month End Interest and certain other conforming changes
may be made. Such changes would have an effect on the amount of Compensating
Interest as described herein under the heading "Description of the Certifi-
cates -- Interest." Further, the Pooling and Servicing Agreement will provide
that the Master Servicer may (but is not required to), without the consent of
any Certificateholder, the Trustee or the Trust Administrator, require Norwest
Mortgage or any successor thereto under the applicable Underlying Servicing
Agreement to make remittances to the Certificate Account (other than any remit-
tances which are required to be made daily) on the 18th day of each month, or
if such 18th day is not a business day, on the preceding business day. No as-
surance can be given as to the timing of any such changes or that any such
changes will occur.
Changes in Unscheduled Principal Receipt Period. The Pooling and Servicing
Agreement will provide that the Master Servicer may (but is not required to),
from time to time and without the consent of any Certificateholder, the Trustee
or the Trust Administrator, (i) direct Norwest Mortgage as Servicer under the
related Underlying Servicing Agreement to change the Unscheduled Principal Re-
ceipt Period applicable to any type of Unscheduled Principal Receipt within the
parameters described in (i), (ii) and (iii) below or (ii) with respect to any
Other Servicer, enter into an amendment to any applicable Underlying Servicing
Agreement for the purpose of changing the Unscheduled Principal Receipt Period
applicable to any type of Unscheduled Principal Receipt within the parameters
described in (iv) below and making any necessary conforming changes incident
thereto. In connection therewith, (i) the Unscheduled Principal Receipt Period
for the Norwest Non-Frederick-Serviced Loans may be changed (to achieve consis-
tency with the Norwest Frederick-Serviced Loans) to a Mid-Month Receipt Period
with respect to all types of Unscheduled Principal Receipts; (ii) the
Unscheduled Principal Receipt Period for the Norwest Non-Frederick-Serviced
Loans may be changed to achieve an Unscheduled Principal Receipt Period regime
(the "Target Regime") under which the Unscheduled Principal Receipt Period with
respect to partial Unscheduled Principal Receipts would be a Prior Month Re-
ceipt Period and the Unscheduled Principal Receipt Period with respect to
Unscheduled Principal Receipts in full would be a Mid-Month Receipt Period;
(iii) the Unscheduled Principal Receipt Period for the Norwest Frederick-Serv-
iced Loans may be changed to the Target Regime; and (iv) the Unscheduled Prin-
cipal Receipt Periods for the Mortgage Loans serviced by Other Servicers may be
changed to the Target Regime.
Because Unscheduled Principal Receipts will result in interest shortfalls to
the extent that they are not distributed to Certificateholders in the month in
which they are received by the applicable Servicer, changing the applicable
Unscheduled Principal Receipt Period from a Mid-Month Receipt Period to a Prior
Month Receipt Period may have the effect of increasing the amount of interest
shortfalls with respect to the applicable type of Unscheduled Principal Re-
ceipt. Conversely, changing the applicable Unscheduled Principal Receipt Period
from a Prior Month Receipt Period to a Mid-Month Receipt Period may decrease
the amount of interest shortfalls with respect to the applicable type of
Unscheduled Principal Receipt. See "Description of the Certificates--Interest."
No assurance can be given as to the timing of any change to any Unscheduled
Principal Receipt Period or that any such changes will occur.
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 "Ser-
vicing Fee Rate") of the scheduled principal balance (as defined in the Under-
lying Servicing
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Agreements) of such Mortgage Loan as of the first day of each month. The Ser-
vicing Fee Rate for each Mortgage Loan will be a fixed percentage rate per an-
num. The Servicing Fee Rate for each Mortgage Loan is 0.25% per annum. In addi-
tion to the Servicing Fees, late payment fees, loan assumption fees and prepay-
ment 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 ad-
ditional servicing compensation. No Fixed Retained Yield (as defined in the
Prospectus) will be retained with respect to any of the Mortgage Loans.
The Master Servicer will pay all routine expenses, including fees of the
Trustee and the Trust Administrator incurred in connection with its responsi-
bilities under the Pooling and Servicing Agreement, subject to certain rights
of reimbursement as described in the Prospectus. The servicing fees and other
expenses of the REMIC will be allocated to a holder of the Class A-R Certifi-
cate, 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 Prospec-
tus.
SERVICER DEFAULTS
The Trustee will have the right pursuant to the Underlying Servicing Agree-
ments 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 cer-
tain of the Servicer's servicing obligations under such Underlying Servicing
Agreement, including the obligation to make Periodic Advances (limited as pro-
vided herein under the heading "Pooling and Servicing Agreement -- Periodic Ad-
vances"), 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 "Ser-
vicing 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 pur-
chase, 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, Class A-5, Class A-6, Class A-7, Class A-8, Class A-9,
Class A-10, Class A-11, Class A-12, Class A-13, Class A-14, Class A-15 and
Class A-PO Certificates, and Class M Certificates and the Class B-1 and Class
B-2 Certificates (collectively, the "Regular Certificates"), together with the
Class A-WIO, Class B-3, Class B-4 and Class B-5 Certificates, will be desig-
nated 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 assets of the
REMIC will include the Mortgage Loans, together with the amounts held by the
Master Servicer in a separate account in which collections on the Mortgage
Loans will be deposited (the "Certificate Account"), the hazard insurance poli-
cies and primary mortgage insurance policies, if any, relating to the Mortgage
Loans and any property that secured a Mortgage Loan that is acquired by fore-
closure or deed in lieu of foreclosure.
The Offered Certificates will be treated as "loans . . . secured by an
interest in real property which is . . . residential real property" for do-
mestic building and loan associations and "real estate assets" for real estate
investment trusts, to the extent described in the Prospectus.
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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 re-
quired to report income on such Certificates in accordance with the accrual
method of accounting.
The Class A-15 and Class A-PO Certificates will be issued with original issue
discount in an amount equal to the excess of the initial principal balances
thereof over their respective issue prices. The Class A-6 and Class A-10 Cer-
tificates will be issued with original issue discount in an amount equal to the
excess of the sum of all expected distributions of principal and interest
thereon (whether current or accrued) over their respective issue prices (in-
cluding accrued interest). It is anticipated that the Class A-12 and Class B-2
Certificates will be issued with original issue discount in an amount equal to
the excess of their initial principal balances (plus four days of interest at
the Pass-Through Rate thereon) over their respective issue prices (including
accrued interest). It is further anticipated that the Class A-7 Certificates
will not be issued with original issue discount for federal income tax purpos-
es. It is also anticipated that the Class A-1, Class A-2, Class A-3, Class A-4,
Class A-8, Class A-11, Class A-13 and Class A-14 Certificates will be issued at
a premium and that the Class A-5, Class A-9, Class M and Class B-1 Certificates
will be issued with de minimis original issue discount for federal income tax
purposes. Finally, it is anticipated that the Class A-WIO, Class B-3, Class B-4
and Class B-5 Certificates, which are not offered hereby, will be 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 and whether the original issue discount is considered de minimis will
be calculated using 235% of 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 Cer-
tificate will remain outstanding for federal 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 DISTRIBU-
TIONS 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.
The Class A-R Certificate will be considered a "noneconomic residual inter-
est," 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 Trust Administrator 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 Certifi-
cates -- Restrictions on Transfer of the Class A-R, Class M and Offered Class B
Certificates" herein and "Certain Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates," "-- Taxation of Residual Cer-
tificates -- Limitations on Offset or Exemption of REMIC Income" and "-- Tax-
Related Restrictions on Transfer of Residual Certificates -- Noneconomic Resid-
ual Interests" in the Prospectus.
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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 of the 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 ad-
dition, some portion of a purchaser's basis, if any, in the Class A-R Certifi-
cate may not be recovered until termination of the REMIC. Furthermore, the fed-
eral 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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ERISA CONSIDERATIONS
The Class A-R Certificate may not be purchased by or transferred to any per-
son 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 Title I 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 acting on behalf of or investing the as-
sets of a Plan. Accordingly, the following discussion does not purport to dis-
cuss the considerations under ERISA, Code Section 4975 or Similar Law with re-
spect to the purchase, acquisition or resale of the Class A-R Certificate and
for purposes of the following discussion all references to the Offered Certifi-
cates are deemed to exclude the Class A-R Certificate.
In addition, under current law the purchase and holding of the Class M or Of-
fered Class B 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 or Offered Class B Certificates will not be made unless
the transferee (i) executes a representation letter in form and substance sat-
isfactory to the Trust Administrator 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 ef-
fect such purchase or (b) if it is an insurance company, that the source of
funds used to purchase the Class M or Offered Class B Certificates is an "in-
surance 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 af-
filiate thereof as defined in Section V(a)(1) of PTE 95-60) or by the same em-
ployee organization exceeds 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 (A) an opinion of counsel in
form and substance satisfactory to the Trust Administrator that the purchase or
holding of the Class M or Offered Class B 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, the Code
or Similar Law and will not subject the Seller, the Master Servicer, the
Trustee or the Trust Administrator to any obligation in addition to those un-
dertaken in the Pooling and Servicing Agreement and (B) such other opinions of
counsel, officers' certificates and agreements as the Seller or the Master
Servicer may require in connection with such transfer. Accordingly, the follow-
ing 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 or Offered Class B Certificates and for purposes of the follow-
ing discussion all references to the Offered Certificates are deemed to exclude
the Class M or Offered Class B 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 Plans. 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 a
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 in-
vestment by an ERISA Plan in the Offered Certificates, including the individual
administrative exemption described below and Prohibited Transaction Class Ex-
emption 83-1 ("PTE 83-1"). For a further discussion of the individual adminis-
trative exemption and PTE 83-1, including the necessary conditions to their ap-
plicability, and other important factors to be considered by an ERISA Plan con-
templating investing in the Offered Certificates, see "ERISA Considerations" in
the Prospectus.
On February 22, 1991, the DOL issued to the Underwriter an individual admin-
istrative exemption, Prohibited Transaction Exemption 90-83, 55 Fed. Reg. 50250
(the "Exemption") from 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 acquisi-
tion, holding and resale of the Offered Certificates by an ERISA Plan, provided
that specified conditions are met.
S-99
<PAGE>
Among the conditions which would have to be satisfied the Exemption to apply
to the acquisition by an ERISA Plan of the Offered Certificates is the condi-
tion that the ERISA Plan investing in the Offered Certificates be an "accred-
ited 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 "Se-
curities 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 pro-
vided in the Exemption or the availability of any other prohibited transaction
exemptions (including PTE 83-1), and whether the conditions of any such exemp-
tion will be applicable to the Offered Certificates, and a fiduciary of a gov-
ernmental plan should make its own determination as to the need for and avail-
ability of any exemptive relief under Similar Law. Any fiduciary of an ERISA
Plan considering whether to purchase an Offered Certificate should also care-
fully review with its own legal advisors the applicability of the fiduciary
duty provisions of ERISA and the prohibited transaction provisions of ERISA and
the Code to such investment. See "ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT
The Offered Class A and Class M Certificates constitute "mortgage related se-
curities" 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 or-
ganization. As such, the Class A and Class M 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 Class A and Class M Certificates, as cer-
tain Subclasses of the Offered 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 invest-
ments in other Subclasses of the Offered Class A Certificates or the Class M
Certificates. It should also be noted that certain states recently have en-
acted, or have proposed enacting, legislation limiting to varying extents the
ability of certain entities (in particular insurance companies) to invest in
mortgage related securities. Investors should consult with their own legal ad-
visors in determining whether and to what extent the Offered Class A and Class
M Certificates constitute legal investments for such investors. See "Legal In-
vestment" in the Prospectus.
The Class B-1 and Class B-2 Certificates will not constitute "mortgage re-
lated securities" under the Enhancement Act. The appropriate characterization
of the Class B-1 and Class B-2 Certificates under various legal investment re-
strictions, and thus the ability of investors subject to these restrictions to
purchase the Class B-1 and Class B-2 Certificates, may be subject to signifi-
cant interpretative uncertainties. All investors whose investment authority is
subject to legal restrictions should consult their own legal advisors to deter-
mine whether, and to what extent, the Class B-1 and Class B-2 Certificates will
constitute legal investments for them. See "Legal Investment" in the Prospec-
tus.
SECONDARY MARKET
There will not be any market for the Offered Certificates prior to the issu-
ance 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 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.
S-100
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated July
12, 1996 and the terms agreement dated February 27, 1997 (together, the "Under-
writing Agreement") among Norwest Mortgage, the Seller and Donaldson, Lufkin &
Jenrette Securities Corporation (the "Underwriter"), as underwriter, the Of-
fered Certificates are being purchased from the Seller by the Underwriter upon
issuance thereof. The Underwriter is committed to purchase all of the Offered
Certificates if any such Certificates are purchased. The Underwriter has ad-
vised 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 Cer-
tificates are expected to be approximately 99.08% of the initial aggregate
principal balance of the Offered Class A Certificates (other than the Class A-
PO Certificates), approximately 56.50% of the aggregate initial principal bal-
ance of the Class A-PO Certificates, approximately 97.95% of the aggregate ini-
tial principal balance of the Class M Certificates, approximately 97.26% of the
aggregate initial principal balance of the Class B-1 Certificates and approxi-
mately 96.24% of the aggregate initial principal balance of the Class B-2 Cer-
tificates plus, in each case, other than the case of the Class A-PO Certifi-
cates, accrued interest thereon at the rate of 7.500% per annum, from April 1,
1997 to (but not including) April 29, 1997, before deducting expenses payable
by the Seller. The Underwriter is not an affiliate of the Seller. The Under-
writer has advised the Seller that it has not allocated the purchase price paid
to the Seller for the Offered Class A Certificates (other than the Class A-PO
Certificates) among such Subclasses of Offered Class A Certificates. The Under-
writer and any dealers that participate with the Underwriter in the distribu-
tion of the Offered Certificates may be deemed to be underwriters, and any dis-
counts 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 Securi-
ties 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 Under-
writer by Brown & Wood LLP, New York, New York.
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 1997-6 Certificates.
RATINGS
It is a condition to the issuance of the Offered Class A Certificates that
each Subclass will have been rated "AAA" by DCR and "Aaa" by Moody's. It is a
condition to the issuance of the Class M Certificates that they will have been
rated at least "AA" by DCR and "Aa2" by Moody's. It is a condition to the issu-
ance of the Class B-1 and Class B-2 Certificates that they will have been rated
"A" and "BBB," respectively, by DCR. 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 evalu-
ated independently of any other security rating.
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 struc-
ture of the transaction as set forth in the operative documents. DCR's ratings
do not address the effect on the certificates' yield attributable to prepay-
ments 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 an in-
vestor in the Class A-R Certificate, except to the extent of the Class A
Subclass Principal Balance thereof and interest thereon.
S-101
<PAGE>
The ratings of Moody's on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions of princi-
pal and interest 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 and conse-
quently any adverse effect the timing of such prepayments could have on an in-
vestor'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 DCR and Moody's, 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 DCR and Moody's.
S-102
<PAGE>
INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
30 Year Mortgage Loans.............. S-87
Accretion Termination Date.......... S-41
Adjusted Pool Amount................ S-38
Adjusted Pool Amount (PO Portion)... S-38
Adjustment Amount................... S-65
Aggregate Current Bankruptcy
Losses............................. S-66
Aggregate Current Fraud Losses...... S-66
Aggregate Current Special Hazard
Losses............................. S-65
Available Master Servicing
Compensation....................... S-39
Bankruptcy Loss..................... S-44
Bankruptcy Loss Amount.............. S-66
Beneficial Owner.................... S-32
Book-Entry Certificates............. S-4
CBE................................. S-86
Cede................................ S-32
Certificate Account................. S-96
Certificateholder................... S-5
Certificates........................ S-8
Class A Certificates................ Cover
Class A Non-PO Distribution Amount.. S-35
Class A Non-PO Optimal Amount....... S-42
Class A Non-PO Optimal Principal
Amount............................. S-44
Class A Non-PO Principal Amount..... S-44
Class A Non-PO Principal Balance.... S-38
Class A Non-PO Principal
Distribution Amount................ S-43
Class A Optimal Amount.............. S-42
Class A Percentage.................. S-20
Class A Prepayment Percentage....... S-20
Class A Principal Balance........... S-38
Class A Subclass Interest Accrual
Amount............................. S-35
Class A Subclass Interest Shortfall
Amount............................. S-41
Class A Subclass Principal Balance.. S-37
Class A Voting Interest............. S-91
Class A-4 Percentage................ S-52
Class A-4 Prepayment Shift
Percentage......................... S-53
Class A-4 Priority Amount........... S-52
Class A-6 Accretion Directed
Certificates....................... S-2
Class A-6 Accretion Termination
Date............................... S-40
Class A-6 Accrual Distribution
Amount............................. S-43
Class A-10 Component................ S-2
Class A-10 Group I Accrual Companion
Component.......................... S-2
Class A-10 Group I Accrual Companion
Component Accretion Termination
Date............................... S-40
Class A-10 Group I Accrual Companion
Component Accrual Distribution
Amount............................. S-43
Class A-10 Group II Accrual
Companion Component................ S-2
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Class A-10 Group II Accrual Companion Component Accretion Termination Date... S-40
Class A-10 Group II Accrual Companion Component Accrual Distribution Amount.. S-43
Class A-PO Certificates...................................................... S-19
Class A-PO Deferred Amount................................................... S-47
Class A-PO Distribution Amount............................................... S-46
Class A-PO Optimal Principal Amount.......................................... S-46
Class A-WIO Notional Amount.................................................. S-36
Class B Certificates......................................................... Cover
Class B Principal Balance.................................................... S-38
Class B Subclass Distribution Amount......................................... S-35
Class B Subclass Interest Accrual Amount..................................... S-36
Class B Subclass Interest Shortfall Amount................................... S-42
Class B Subclass Principal Balance........................................... S-38
Class B Voting Interest...................................................... S-91
Class B-1 Principal Distribution Amount...................................... S-48
Class B-2 Principal Distribution Amount...................................... S-48
Class M Certificates......................................................... Cover
Class M Distribution Amount.................................................. S-35
Class M Interest Accrual Amount.............................................. S-36
Class M Interest Shortfall Amount............................................ S-42
Class M Optimal Amount....................................................... S-42
Class M Optimal Principal Amount............................................. S-47
Class M Percentage........................................................... S-49
Class M Prepayment Percentage................................................ S-49
Class M Principal Balance.................................................... S-38
Class M Principal Distribution Amount........................................ S-47
Closing Date................................................................. S-15
Code......................................................................... S-30
Compensating Interest........................................................ S-18
Component.................................................................... S-2
Component Interest Accrual Amount............................................ S-36
Component Principal Balance.................................................. S-37
Co-op Shares................................................................. S-68
Cooperatives................................................................. S-68
Cross-Over Date.............................................................. S-64
Current Class B-1 Fractional Interest........................................ S-50
Current Class B-2 Fractional Interest........................................ S-50
Current Class B-3 Fractional Interest........................................ S-50
Current Class B-4 Fractional Interest........................................ S-50
Current Class M Fractional Interest.......................................... S-50
Curtailment Interest Shortfalls.............................................. S-40
Cut-Off Date Aggregate Principal Balance..................................... S-68
DCR.......................................................................... S-9
</TABLE>
S-103
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Debt Service Reduction.............. S-45
Deficient Valuation................. S-45
Definitive Certificates............. S-13
Determination Date.................. S-32
Discount Mortgage Loans............. S-4
Disqualified Organization........... S-5
Distribution Date................... S-2
DOL................................. S-99
DTC................................. S-14
Enhancement Act..................... S-30
ERISA............................... S-30
ERISA Plan.......................... S-99
Excess Bankruptcy Loss.............. S-66
Excess Bankruptcy Losses............ S-66
Excess Fraud Loss................... S-66
Excess Fraud Losses................. S-66
Excess Special Hazard Loss.......... S-65
Excess Special Hazard Losses........ S-65
Exemption........................... S-99
FICO Scores......................... S-72
Fixed 30-Year NMI Non-Frederick
Portfolio Loans.................... S-74
Fixed 30-Year Non-Relocation NMI
Frederick Portfolio Loans.......... S-74
Fixed NMI Frederick Portfolio
Loans.............................. S-74
Fraud Loss.......................... S-45
Fraud Loss Amount................... S-66
Group I Excess Principal Payments... S-58
Group I PAC Certificates............ S-2
Group I PAC Principal Amount........ S-53
Group I TAC Certificates............ S-2
Group I TAC Principal Amount........ S-53
Group II Excess Principal Payments.. S-59
Group II PAC Certificates........... S-2
Group II PAC Principal Amount....... S-53
Group II TAC Certificates........... S-2
Group II TAC Principal Amount....... S-53
Jumbo Loans......................... S-74
Liquidated Loan..................... S-44
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
Net Partial Liquidation Proceeds................. S-34
NMI Frederick Portfolio Loans.................... S-74
NMI Non-Frederick Portfolio Loans................ S-74
Non-PO Fraction.................................. S-20
Non-PO Voting Interest........................... S-91
Non-Supported Interest Shortfalls................ S-19
Norwest Bank..................................... S-2
Norwest Frederick-Serviced Loans................. S-93
Norwest Mortgage................................. S-2
Norwest Mortgage Correspondent................... S-2
Norwest Non-Frederick-Serviced Loans............. S-93
Offered Certificates............................. Cover
Offered Class A Certificates..................... Cover
Offered Class B Certificates..................... Cover
Original Class B-1 Fractional Interest........... S-50
Original Class B-2 Fractional Interest........... S-50
Original Class B-3 Fractional Interest........... S-50
Original Class B-4 Fractional Interest........... S-50
Original Class M Fractional Interest............. S-50
Original Subordinated Principal Balance.......... S-46
Other Originator................................. S-73
Other Servicers.................................. S-93
PAC Certificates................................. S-2
Partial Liquidation Proceeds..................... S-34
Pass-Through Rate................................ S-17
Percentage Interest.............................. S-35
Periodic Advance................................. S-61
PHMC............................................. S-2
PHMC Acquisition................................. S-15
PHMC Correspondent............................... S-8
PHMSC Pool....................................... S-87
Plan............................................. S-30
PO Fraction...................................... S-21
Pool Balance (Non-PO Portion).................... S-11
Pool Balance (PO Portion)........................ S-11
Pool Distribution Amount......................... S-32
Pool Distribution Amount Allocation.............. S-34
Pooling and Servicing Agreement.................. S-91
Premium Mortgage Loans........................... S-36
Liquidated Loan Loss................ S-44
Loss Severity Percentage............ S-88
Master Servicer..................... S-2
Master Servicing Fee................ S-92
Master Servicing Fee Rate........... S-92
Mid-Month Receipt Period............ S-94
Month End Interest.................. S-39
Moody's............................. S-9
Mortgage Loans...................... S-2
Mortgaged Properties................ S-68
Mortgages........................... S-68
NASCOR.............................. Cover
Net Foreclosure Profits............. S-61
Net Mortgage Interest Rate.......... S-38
</TABLE>
<TABLE>
<S> <C>
Prepayments in Full.............................. S-38
Prepayment Interest Shortfalls................... S-38
Prior Month Receipt Period....................... S-94
Prospectus....................................... S-8
PTE 83-1......................................... S-99
PTE 95-60........................................ S-99
Realized Loss.................................... S-44
Record Date...................................... S-32
Regular Certificates............................. S-96
REMIC............................................ S-5
Relocation Mortgage Loans........................ S-74
Remittance Date.................................. S-33
REO Property..................................... S-93
Residual Certificate............................. S-96
</TABLE>
S-104
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
SASI.................................. S-87
SASI Pool............................. S-87
Scheduled Principal Amount............ S-52
Scheduled Principal Balance........... S-44
Securities Act........................ S-100
Seller................................ S-2
Series 1997-6 Certificates............ Cover
Servicer.............................. S-2
Servicers............................. S-93
Servicer Custodial Account............ S-94
Servicing Fee Rate.................... S-95
Similar Law........................... S-30
SPA................................... S-81
Special Hazard Loss................... S-44
Special Hazard Loss Amount............ S-65
Structuring Assumptions............... S-82
Subclass.............................. Cover
Subclass B Optimal Amount............. S-43
Subclass B Optimal Principal Amount... S-48
Subclass B Percentage................. S-49
Subclass B Prepayment Percentage...... S-49
Subordinated Certificates............. Cover
Subordinated Percentage............... S-46
Subordinated Prepayment Percentage.... S-46
TAC Certificates...................... S-2
Target Regime......................... S-95
Trust Administrator................... S-9
Trust Estate.......................... S-2
Trustee............................... S-9
U.S. Person........................... S-62
Underlying Servicing Agreement........ S-8
Underwriter........................... Cover
Underwriting Agreement................ S-101
Underwriting Standards................ S-70
Unscheduled Principal Amount.......... S-52
Unscheduled Principal Receipt Period.. S-94
Unscheduled Principal Receipts........ S-33
</TABLE>
S-105
<PAGE>
NORWEST ASSET SECURITIES CORPORATION
("NASCOR")
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 Supple-
ments, Mortgage Pass-Through Certificates (the "Certificates"), issuable in
series (each, a "Series") consisting of one or more classes (each, a "Class")
of Certificates. Any Class of Certificates may be divided into two or more
subclasses (each, a "Subclass").
The Certificates of a Series will represent beneficial ownership interests
in a separate trust formed by the Seller. The property of each such trust (for
each Series, the "Trust Estate") will be comprised primarily of fixed or ad-
justable interest rate, conventional, first mortgage loans (the "Mortgage
Loans"), secured by one- to four-family residential properties. The Mortgage
Loans will have been acquired by the Seller from its affiliate, Norwest Mort-
gage, Inc. ("Norwest Mortgage"), and will have been underwritten either to
Norwest Mortgage's underwriting standards, to the underwriting standards of a
Pool Insurer (as defined herein) or to such other standards as are described
in the applicable Prospectus Supplement. All of the Mortgage Loans will be
serviced by Norwest Mortgage individually or together with one or more other
servicers (each, a "Servicer"). Norwest Bank Minnesota, National Association
("Norwest Bank"), an affiliate of Norwest Mortgage, will act as master
servicer with respect to each Trust Estate (in such capacity, the "Master
Servicer").
Each Series of Certificates may include one or more Classes of Certificates
(the "Subordinated Certificates") that are subordinate in right of distribu-
tions 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 Certif-
icates 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 obli-
gations of the Master Servicer and Norwest Mortgage's obligations as Servicer,
the Certificates will not represent obligations of the Seller, the Master
Servicer or Norwest Mortgage, or any affiliate of the Seller, the Master
Servicer or Norwest Mortgage.
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 in-
vestment 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 Cer-
tificates.
--------------
THE DATE OF THIS PROSPECTUS IS APRIL 17, 1997
<PAGE>
REPORTS
The Master Servicer will prepare, and the Trustee or other Paying Agent ap-
pointed for each Series by the Master Servicer will forward to the
Certificateholders of each Series statements containing information with re-
spect to principal and interest payments and the related Trust Estate, as de-
scribed 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 Agree-
ment--Reports to Certificateholders." In addition, each Servicer for each Se-
ries 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 indepen-
dent 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 Com-
pliance." 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 Prospec-
tus is a part. For further information, reference is made to such Registration
Statement and the exhibits thereto which the Seller has filed with the Securi-
ties and Exchange Commission (the "Commission"), Washington, D.C., under the
Securities Act of 1933, as amended (the "Securities Act"). Statements con-
tained in this Prospectus and any Prospectus Supplement as to the contents of
any contract or other document referred to are summaries and, in each in-
stance, reference is made to the copy of the contract or other document filed
as an exhibit to the Registration Statement, each such statement being quali-
fied in all respects by such reference. Copies of the Registration Statement
may be obtained from the Public Reference Section of the Commission, Washing-
ton, 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 Suite 1300,
7 World Trade Center, New York, New York 10048 and Suite 1400, Citicorp Cen-
ter, 500 West Madison Street, Chicago, Illinois 60661-2511. The Commission
also maintains a site on the World Wide Web at "http://www.sec.gov" at which
users can view and download copies of reports, proxy and information state-
ments and other information filed electronically through the Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. The Seller has filed the
Registration Statement, including all exhibits thereto, through the EDGAR sys-
tem and therefore such materials should be available by logging onto the Com-
mission's Web site. The Commission maintains computer terminals providing ac-
cess to the EDGAR system at each of the offices referred to above. 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, 7485 New Horizon Way, Frederick, Mary-
land 21703, telephone number (301) 846-8881.
ADDITIONAL DETAILED INFORMATION
The Seller intends to offer by subscription detailed mortgage loan informa-
tion in machine readable format updated on a monthly basis (the "Detailed In-
formation") with respect to each outstanding Series of Certificates. The De-
tailed 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 vari-
ous characteristics of the mortgage loans. Subscribers of the Detailed Infor-
mation 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(R)" service and Merrill Lynch Mortgage Capital Inc. through the "CMO
Passport(R)" service, may, in accordance with their individual business prac-
tices and fee schedules, if any, make portions of, or summaries of portions
of, the Detailed Information available to their customers and subscribers. The
Seller, the Master Servicer and their respective affiliates have no control
over and take no responsibility for the actions of such firms in processing,
analyzing or disseminating such information. For further information regarding
the Detailed Information and subscriptions thereto, please contact Norwest As-
set Securities Corporation, 7485 New Horizon Way, Frederick, Maryland 21703,
telephone number (301) 846-8881.
2
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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 termina-
tion of an offering of Certificates evidencing interests therein. Upon re-
quest, 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 of-
fering 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 re-
late to one or more of such Classes of such Certificates, other than the ex-
hibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Requests to the Master Servicer should be di-
rected to: Norwest Asset Securities Corporation, 7485 New Horizon Way, Freder-
ick, Maryland 21703, telephone number (301) 846-8881.
3
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TABLE OF CONTENTS
PROSPECTUS
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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............................................................. 9
Credit Enhancement....................................................... 9
Periodic Advances........................................................ 10
Forms of Certificates.................................................... 10
Optional Purchase of Defaulted Mortgage Loans............................ 10
Optional Purchase of All Mortgage Loans.................................. 11
ERISA Limitations........................................................ 11
Tax Status............................................................... 11
Legal Investment......................................................... 11
Rating................................................................... 11
Risk Factors............................................................... 12
Limited Liquidity........................................................ 12
Limited Obligations...................................................... 12
Limitations, Reduction and Substitution of Credit Enhancement............ 12
Risks of the Mortgage Loans.............................................. 12
Yield and Prepayment Considerations...................................... 13
Book-Entry System for Certain Classes and Subclasses of Certificates..... 13
The Trust Estates.......................................................... 14
General.................................................................. 14
Mortgage Loans........................................................... 14
Fixed Rate Loans....................................................... 15
Adjustable Rate Loans.................................................. 15
Graduated Payment Loans................................................ 16
Subsidy Loans.......................................................... 16
Buy-Down Loans......................................................... 17
Balloon Loans.......................................................... 17
Pledged Asset Mortgage Loans........................................... 17
The Seller................................................................. 17
Norwest Mortgage........................................................... 18
Norwest Bank............................................................... 18
The Mortgage Loan Programs................................................. 19
Mortgage Loan Production Sources......................................... 19
Acquisition of Mortgage Loans from Correspondents........................ 19
Mortgage Loan Underwriting............................................... 20
Norwest Mortgage Underwriting.......................................... 20
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Pool Certification Underwriting....................................... 23
Representations and Warranties.......................................... 24
Description of the Certificates........................................... 28
General................................................................. 28
Definitive Form......................................................... 28
Book-Entry Form......................................................... 29
Distributions to Certificateholders..................................... 30
General............................................................... 30
Distributions of Interest............................................. 31
Distributions of Principal............................................ 32
Other Credit Enhancement................................................ 33
Limited Guarantee..................................................... 34
Financial Guaranty Insurance Policy or Surety Bond.................... 34
Letter of Credit...................................................... 34
Pool Insurance Policies............................................... 34
Special Hazard Insurance Policies..................................... 34
Mortgagor Bankruptcy Bond............................................. 34
Reserve Fund.......................................................... 34
Cross Support......................................................... 35
Prepayment and Yield Considerations....................................... 35
Pass-Through Rates...................................................... 35
Scheduled Delays in Distributions....................................... 35
Effect of Principal Prepayments......................................... 35
Weighted Average Life of Certificates................................... 36
Servicing of the Mortgage Loans........................................... 37
The Master Servicer..................................................... 37
The Servicers........................................................... 38
Payments on Mortgage Loans.............................................. 39
Periodic Advances and Limitations Thereon............................... 41
Collection and Other Servicing Procedures............................... 42
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans.................................................................. 42
Insurance Policies...................................................... 44
Fixed Retained Yield, Servicing Compensation and Payment of Expenses.... 45
Evidence as to Compliance............................................... 45
Certain Matters Regarding the Master Servicer............................. 46
The Pooling and Servicing Agreement....................................... 47
Assignment of Mortgage Loans to the Trustee............................. 47
Optional Purchases...................................................... 48
Reports to Certificateholders........................................... 48
List of Certificateholders.............................................. 49
Events of Default....................................................... 49
Rights Upon Event of Default............................................ 50
Amendment............................................................... 50
Termination; Optional Purchase of Mortgage Loans........................ 51
The Trustee............................................................. 51
Certain Legal Aspects of the Mortgage Loans............................... 52
General................................................................. 52
Foreclosure............................................................. 52
Foreclosure on Shares of Cooperatives................................... 53
Rights of Redemption.................................................... 54
Anti-Deficiency Legislation and Other Limitations on Lenders............ 54
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5
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Soldiers' and Sailors' Civil Relief Act and Similar Laws................ 55
Environmental Considerations............................................ 56
"Due-on-Sale" Clauses................................................... 57
Applicability of Usury Laws............................................. 58
Enforceability of Certain Provisions.................................... 58
Certain Federal Income Tax Consequences................................... 59
Federal Income Tax Consequences for REMIC Certificates.................. 59
General................................................................. 59
Status of REMIC Certificates............................................ 59
Qualification as a REMIC................................................ 60
Taxation of Regular Certificates........................................ 61
General............................................................... 61
Original Issue Discount............................................... 62
Acquisition Premium................................................... 64
Variable Rate Regular Certificates.................................... 64
Market Discount....................................................... 65
Premium............................................................... 65
Election to Treat All Interest Under the Constant Yield Method........ 66
Treatment of Losses................................................... 66
Sale or Exchange of Regular Certificates.............................. 67
Taxation of Residual Certificates....................................... 67
Taxation of REMIC Income.............................................. 67
Basis and Losses...................................................... 68
Treatment of Certain Items of REMIC Income and Expense................ 69
Original Issue Discount and Premium................................... 69
Market Discount....................................................... 69
Premium............................................................... 69
Limitations on Offset or Exemption of REMIC Income.................... 69
Tax-Related Restrictions on Transfer of Residual Certificates......... 70
Disqualified Organizations............................................ 70
Noneconomic Residual Interests........................................ 71
Foreign Investors..................................................... 72
Sale or Exchange of a Residual Certificate............................ 72
Mark to Market Regulations............................................ 72
Taxes That May Be Imposed on the REMIC Pool............................. 73
Prohibited Transactions............................................... 73
Contributions to the REMIC Pool After the Startup Day................. 73
Net Income from Foreclosure Property.................................. 73
Liquidation of the REMIC Pool........................................... 73
Administrative Matters.................................................. 74
Limitations on Deduction of Certain Expenses............................ 74
Taxation of Certain Foreign Investors................................... 74
Regular Certificates.................................................. 74
Residual Certificates................................................. 75
Backup Withholding...................................................... 75
Reporting Requirements.................................................. 75
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election is Made....................................................... 76
General............................................................... 76
Tax Status............................................................ 76
Premium and Discount.................................................. 77
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Premium................................................................ 77
Original Issue Discount................................................ 77
Market Discount........................................................ 77
Recharacterization of Servicing Fees................................... 77
Sale or Exchange of Certificates....................................... 78
Stripped Certificates.................................................... 78
General................................................................ 78
Status of Stripped Certificates........................................ 79
Taxation of Stripped Certificates...................................... 80
Original Issue Discount................................................ 80
Sale or Exchange of Stripped Certificates.............................. 80
Purchase of More Than One Class of Stripped Certificates............... 80
Possible Alternative Characterizations................................. 80
Reporting Requirements and Backup Withholding............................ 81
Taxation of Certain Foreign Investors.................................... 81
ERISA Considerations....................................................... 81
General.................................................................. 81
Certain Requirements Under ERISA......................................... 82
General................................................................ 82
Parties in Interest/Disqualified Persons............................... 82
Delegation of Fiduciary Duty........................................... 82
Administrative Exemptions................................................ 83
Individual Administrative Exemptions................................... 83
PTE 83-1............................................................... 84
Exempt Plans............................................................. 84
Unrelated Business Taxable Income--Residual Certificates................. 84
Legal Investment........................................................... 85
Plan of Distribution....................................................... 86
Use of Proceeds............................................................ 87
Legal Matters.............................................................. 87
Rating..................................................................... 87
Index of Significant Definitions........................................... 88
</TABLE>
7
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SUMMARY OF PROSPECTUS
The following is qualified in its entirety by reference to the detailed in-
formation appearing elsewhere in this Prospectus, and by reference to the in-
formation with respect to each Series of Certificates contained in the applica-
ble Prospectus Supplement. Certain capitalized terms used and not otherwise de-
fined herein shall have the meanings given elsewhere in this Prospectus. See
the "Index of Significant Definitions" beginning on page 88.
Title of Securities...... Mortgage Pass-Through Certificates (Issuable in
Series).
Seller................... Norwest Asset Securities Corporation (the "Seller"),
a direct, wholly-owned subsidiary of Norwest
Mortgage, Inc. ("Norwest Mortgage"), which is an
indirect, wholly-owned subsidiary of Norwest
Corporation ("Norwest Corporation"). See "The
Seller."
Servicers................ Norwest Mortgage and, to the extent specified in the
applicable Prospectus Supplement, one or more other
entities identified therein (each, a "Servicer")
will service the Mortgage Loans contained in each
Trust Estate. Each Servicer will perform certain
servicing functions with respect to the Mortgage
Loans serviced by it pursuant to a related Servicing
Agreement (each, an "Underlying Servicing
Agreement"). See "Servicing of the Mortgage Loans."
Master Servicer.......... Norwest Bank Minnesota, National Association
("Norwest Bank" and, in such capacity, the "Master
Servicer"). Norwest Bank is a direct, wholly-owned
subsidiary of Norwest Corporation and an affiliate
of the Seller. The Master Servicer will perform
certain administration, calculation and reporting
functions with respect to each Trust Estate and will
supervise the Servicers, in each case, pursuant to a
Pooling and Servicing Agreement. In addition, the
Master Servicer will generally be required to make
Periodic Advances (to the extent described herein)
with respect to the Mortgage Loans in each Trust
Estate to the extent that the related Servicer
(other than Norwest Mortgage) fails to make a
required Periodic Advance. See "Servicing of the
Mortgage Loans--The Master Servicer" and "--Periodic
Advances and Limitations Thereon."
The Trust Estates........ Each Trust Estate will be formed and each Series of
Certificates will be issued pursuant to a pooling
and servicing agreement (each, a "Pooling and
Servicing Agreement") among the Seller, the Master
Servicer and the Trustee specified in the applicable
Prospectus Supplement. Each Trust Estate will
consist of the related Mortgage Loans (other than
the Fixed Retained Yield (as defined herein), if
any) and certain other related property, as
specified in the applicable Prospectus Supplement.
The Mortgage Loans will be conventional, fixed or
adjustable interest rate, mortgage loans secured by
first liens on one- to four-family residential
properties.
The Mortgage Loans will have been acquired by the
Seller from its affiliate Norwest Mortgage. The
Mortgage Loans will have been originated by Norwest
Mortgage or an affiliate or will have been acquired
by Norwest Mortgage directly or indirectly from
other mortgage loan originators. All of the Mortgage
Loans will have been underwritten either to Norwest
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."
8
<PAGE>
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 Each Series of Certificates will include one or more
Certificates............. Classes, any of which may consist of multiple
Subclasses. A Class or Subclass of Certificates will
be entitled, to the extent of funds available, to
either (i) principal and interest payments in
respect of the related Mortgage Loans, (ii)
principal distributions, with no interest
distributions, (iii) interest distributions, with no
principal distributions or (iv) such other
distributions as are described in the applicable
Prospectus Supplement.
Distributions on the Interest. With respect to each Series of
Certificates............. Certificates, interest on the related Mortgage Loans
at the weighted average of the applicable Mortgage
Interest Rates thereof (net of servicing fees and
certain other amounts as described herein or in the
applicable Prospectus Supplement), will be passed
through to holders of the related Classes of
Certificates in the aggregate, in accordance with
the particular terms of each such Class of
Certificates. See "Description of the Certificates--
Distributions to Certificateholders--Distributions
of Interest" herein. Except as otherwise specified
in the applicable Prospectus Supplement, interest on
each Class and Subclass of Certificates of each
Series will accrue at the pass-through rate for each
Class and Subclass indicated in the applicable
Prospectus Supplement (each, a "Pass-Through Rate")
on the outstanding principal balance or notional
amount thereof.
Principal. With respect to a Series of Certificates,
principal payments (including prepayments) will be
passed through to holders of the related
Certificates or otherwise applied in accordance with
the related Pooling and Servicing Agreement on each
Distribution Date. Distributions in reduction of
principal balance will be allocated among the
Classes and Subclasses of Certificates of a Series
in the manner specified in the applicable Prospectus
Supplement. See "Description of the Certificates--
Distributions to Certificateholders--Distributions
of Principal."
Cut-Off Date............. The date specified in the applicable Prospectus
Supplement.
Distribution Dates....... Distributions on the Certificates will generally be
made on the 25th day (or, if such day is not a
business day, the business day following the 25th
day) of each month, commencing with the month
following the month in which the applicable Cut-Off
Date occurs (each, a "Distribution Date"). If so
specified in the applicable Prospectus Supplement,
distributions on Certificates may be made on a
different day of each month or may be made
quarterly, or semi-annually, on the dates specified
in such Prospectus Supplement.
Record Dates............. Distributions will be made on each Distribution Date
to Certificateholders of record at the close of
business on (unless a different date is specified in
the applicable Prospectus Supplement) the last
business day of the month preceding the month in
which such Distribution Date occurs (each, a "Record
Date").
Credit Enhancement....... A Series of Certificates may include one or more
Classes of Senior Certificates and one or more
Classes of Subordinated Certificates. The rights of
the holders of Subordinated Certificates of a Series
to receive distributions with respect to the related
Mortgage Loans will be subordinated to such rights
of the holders of the
9
<PAGE>
Senior Certificates of the same Series to the extent
and in the manner specified in the applicable
Prospectus 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
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 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 Certificates--Other Credit
Enhancement."
Periodic Advances........ In the event of delinquencies in payments on any
Mortgage Loan, the Servicer servicing such Mortgage
Loan will be obligated to make advances of cash
("Periodic Advances") to the Servicer Custodial
Account (as defined herein) to the extent that such
Servicer determines such Periodic Advances would be
recoverable from future payments and collections on
such Mortgage Loan. Any such Periodic Advances will
be reimbursable to such Servicer as described herein
and in the applicable Prospectus Supplement. The
Master Servicer or Trustee will, 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 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."
10
<PAGE>
Optional Purchase of All
Mortgage Loans..........
If so specified in the Prospectus Supplement with
respect to a Series, all, but not less than all, of
the Mortgage Loans in the related Trust Estate and
any property acquired in respect thereof at the
time, may be purchased by the Seller, Norwest
Mortgage or such other party as is specified in the
applicable Prospectus Supplement, in the manner and
at the price specified in such Prospectus
Supplement. In the event that an election is made to
treat the related Trust Estate (or one or more
segregated pools of assets therein) as a REMIC, any
such purchase will be effected only pursuant to a
"qualified liquidation," as defined under Section
860F(a)(4)(A) of the Internal Revenue Code of 1986,
as amended (the "Code"). Exercise of the right of
purchase will effect the early retirement of the
Certificates of that Series. See "Prepayment and
Yield Considerations."
ERISA Limitations........ A fiduciary of any employee benefit plan subject to
the fiduciary responsibility provisions of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including the "prohibited
transaction" rules thereunder, and to the
corresponding provisions of the Code, should
carefully review with its own legal advisors whether
the purchase or holding of Certificates could give
rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. See "ERISA
Considerations."
Tax Status............... The treatment of the Certificates for federal income
tax purposes will be determined by whether a REMIC
election is made with respect to a Series of
Certificates and, if a REMIC election is made, by
whether the Certificates are Regular Interests or
Residual Interests. See "Certain Federal Income Tax
Consequences."
Legal Investment......... The applicable Prospectus Supplement will specify
whether the Class or Classes of Certificates offered
will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984. Investors whose investment
authority is subject to legal restrictions should
consult their own legal advisors to determine
whether and to what extent such Certificates
constitute legal investments for them. See "Legal
Investment" herein and in the applicable Prospectus
Supplement.
Rating................... It is a condition to the issuance of the
Certificates of any Series offered pursuant to this
Prospectus and a Prospectus Supplement that each
Class or Subclass be rated in one of the four
highest rating categories by at least one nationally
recognized statistical rating organization (a
"Rating Agency"). A security rating is not a
recommendation to buy, sell or hold the Certificates
of any Series and is subject to revision or
withdrawal at any time by the assigning rating
agency. Further, such ratings do not address the
effect of prepayments on the yield anticipated by an
investor.
11
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in con-
nection 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 in-
tends to establish a secondary market in such Certificates, however no under-
writer will be obligated to do so. Unless specified in the applicable Prospec-
tus Supplement, the Certificates will not be listed on any securities ex-
change.
LIMITED OBLIGATIONS
Except for any related insurance policies and any reserve fund or credit en-
hancement 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 repre-
sent an interest in or obligation of NASCOR, Norwest Mortgage, Norwest Bank,
the Trustee or any of their affiliates, except for NASCOR's limited obliga-
tions 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 Mort-
gage Loans will be guaranteed or insured by any governmental agency or instru-
mentality, 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 pay-
ments required on the Certificates, there will be no recourse to NASCOR,
Norwest Mortgage, Norwest Bank, the Trustee or, except as specified in the ap-
plicable Prospectus Supplement, any other entity.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT
With respect to each Series of Certificates, credit enhancement may be pro-
vided 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 fi-
nancial 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 "De-
scription of the Certificates--Other Credit Enhancement" herein. Regardless of
the form of credit enhancement provided, the amount of coverage will be lim-
ited in amount and in most cases will be subject to periodic reduction in ac-
cordance with a schedule or formula. Furthermore, such credit enhancements may
provide only very limited coverage as to certain types of losses, and may pro-
vide no coverage as to certain other types of losses. All or a portion of the
credit enhancement for any Series of Certificates will generally be permitted
to be reduced, terminated or substituted for, in the sole discretion of the
Master Servicer, if each applicable Rating Agency indicates that the then cur-
rent 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 ob-
ligation 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."
RISKS OF THE MORTGAGE LOANS
An investment in securities such as the Certificates, which generally repre-
sent interests in pools of residential mortgage loans, may be affected by,
among other things, a decline in real estate values and changes in the mortga-
gor's financial condition. No assurance can be given that the values of the
Mortgaged Properties (as defined herein) securing the Mortgage Loans under-
lying 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
12
<PAGE>
Mortgage Loans contained in a particular Trust Estate, and any secondary fi-
nancing 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 mort-
gage 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 con-
ditions and housing markets or be directly or indirectly affected by natural
disasters or civil disturbances such as earthquakes, hurricanes, floods, erup-
tions or riots and, consequently, will experience higher rates of loss and de-
linquency than on mortgage loans generally. Although Mortgaged Properties lo-
cated in certain identified flood zones will be required to be covered, to the
maximum extent available, by flood insurance, as described under "Servicing of
the Mortgage Loans--Insurance Policies," no Mortgaged Properties will other-
wise be required to be insured against earthquake damage of any other loss not
covered by Standard Hazard Insurance Policies, as described under "Servicing
of the Mortgage Loans--Insurance Policies." Adverse economic conditions gener-
ally, 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 re-
gions, 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 Certifi-
cates" herein. To the extent that such losses are not covered by the applica-
ble credit enhancement, holders of Certificates of the Series evidencing in-
terests 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 in-
terest 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, liquida-
tions due to defaults and mortgage loan repurchases). Such yield may be ad-
versely 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 pay-
ments 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, homeowner mobility and the ability of the
borrower to obtain refinancing. In addition, the yield to investors may be ad-
versely 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 Clas-
ses and may be adversely affected to the extent of unadvanced delinquencies on
the Mortgage Loans in the related Trust Estate. Classes of Certificates iden-
tified 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 Cer-
tificates. In addition, under a book-entry format, Beneficial Owners may expe-
rience 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 mar-
ket that may develop therefor because investors
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may be unwilling to purchase securities for which they cannot obtain delivery
of physical certificates. See "Description of the Certificates--Book-Entry
Form" herein.
THE TRUST ESTATES
GENERAL
The Trust Estate for each Series of Certificates will consist primarily of
Mortgage Loans evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages, deeds of trust or other instruments creating first liens (the
"Mortgages") on some or all of the following six types of property (as so se-
cured, the "Mortgaged Properties"), to the extent set forth in the applicable
Prospectus Supplement: (i) one- to four-family detached residences, (ii) town-
houses, (iii) condominium units, (iv) units within planned unit developments,
(v) long-term leases with respect to any of the foregoing, and (vi) shares is-
sued by private non-profit housing corporations ("cooperatives") and the re-
lated 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 insur-
ance, 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 Sup-
plement, contractual obligations of any person to make payments in respect of
any form of credit enhancement or any interest subsidy agreement and (vi) such
other assets as may be specified in the applicable Prospectus Supplement. The
Trust Estate will not include the portion of interest on the Mortgage Loans
which constitutes the Fixed Retained Yield, if any. See "Servicing of the
Mortgage Loans--Fixed Retained Yield, Servicing Compensation and Payment of
Expenses."
MORTGAGE LOANS
The Mortgage Loans will have been acquired by the Seller from its affiliate,
Norwest Mortgage. The Mortgage Loans will have been originated by Norwest
Mortgage or will have been acquired by Norwest Mortgage from other affiliated
or unaffiliated mortgage loan originators. Each Mortgage Loan will have been
underwritten either to Norwest Mortgage's standards, to the extent specified
in the applicable Prospectus Supplement, to the standards of a Pool Insurer or
to such other standards set forth in the applicable Prospectus Supplement. See
"The Mortgage Loan Programs--Mortgage Loan Production Sources" and "--Mortgage
Loan Underwriting." The Prospectus Supplement for each Series will set forth
the respective number and principal amounts of Mortgage Loans (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. General-
ly, 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
borrowers for each of the Mortgage Loans will be natural persons or, under
certain conditions, borrowers may be inter vivos revocable trusts established
by natural persons.
If specified in the applicable Prospectus Supplement, the Mortgage Loans may
be secured by leases on real property under circumstances that Norwest Mort-
gage determines in its discretion are commonly acceptable to institutional
mortgage investors. A Mortgage Loan secured by a lease on real property is se-
cured not by a fee simple interest in the Mortgaged Property but rather by a
lease under which the mortgagor has the right, for a specified term, to use
the related real estate and the residential dwelling located thereon. General-
ly, a Mortgage Loan will be secured by a lease only if the use of leasehold
estates as security for mortgage loans is customary in the area, the lease is
not subject to any prior lien that could result in termination of the lease
and the term of the lease ends at least five years beyond the maturity date of
the related Mortgage Loan. The provisions of each lease securing a Mortgage
Loan will expressly permit (i) mortgaging of the leasehold estate, (ii) as-
signment of the lease without the lessor's consent and (iii) acquisition by
the holder of the Mortgage, in its own or its nominee's name, of the rights of
the lessee upon foreclosure or assignment in lieu of foreclosure, unless al-
ternative arrangements provide the holder of the Mortgage with substantially
similar protections. No lease will contain provisions which (i) provide for
termination upon the lessee's default without the holder of the Mortgage being
entitled to receive written notice of, and opportunity to cure, such default,
(ii) provide for termination in the event of damage or destruction as long as
the Mortgage is in existence or (iii) prohibit the holder of the Mortgage from
being insured under the hazard insurance policy or policies related to the
premises.
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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 Supple-
ment for each Series will also set forth the range of original terms to matu-
rity 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 earli-
est and latest months of origination of such Mortgage Loans, the range of
Mortgage Interest Rates borne by such Mortgage Loans, if such Mortgage Loans
have varying Net Mortgage Interest Rates, the weighted average Net Mortgage
Interest Rate at the Cut-Off Date of such Mortgage Loans, the range of Loan-
to-Value Ratios at the time of origination of such Mortgage Loans and the
range of principal balances at origination of such Mortgage Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the Prospectus
Supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such
cases, information as to the final characteristics of the Mortgage Loans and
Mortgaged Properties will be available in a Current Report on Form 8-K which
will be filed with the Commission within 15 days of the initial issuance of
the related Series.
The Mortgage Loans in a Trust Estate will generally have monthly payments
due on the first of each month (each, a "Due Date") but may, if so specified
in the applicable Prospectus Supplement, have payments due on a different day
of each month and will be of one of the following types of mortgage loans:
a. Fixed Rate Loans. If so specified in the applicable Prospectus Supple-
ment, 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 ap-
plicable 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 Prospec-
tus Supplement. If so specified in the applicable Prospectus Supplement, the
Pooling and Servicing Agreement will require the Seller or another party to
repurchase each such converted Mortgage Loan at the price set forth in the ap-
plicable Prospectus Supplement. A Trust Estate containing fixed rate Mortgage
Loans may contain convertible Mortgage Loans which have converted from an ad-
justable 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 Sup-
plement, 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 ini-
tial payment date, and thereafter at either six-month, one-year or other in-
tervals over the term of the mortgage loan to equal the sum of a fixed margin
set forth in the related Mortgage Note and an index. The applicable Prospectus
Supplement will set forth the relevant index and the highest, lowest and
weighted average margin with respect to the adjustable rate mortgage loans in
the related Trust Estate. The applicable Prospectus Supplement will also indi-
cate any periodic or lifetime limitations on changes in any per annum Mortgage
Rate at the time of any adjustment.
If specified in the applicable Prospectus Supplement, adjustable rates on
certain Mortgage Loans may be converted to fixed rates after origination of
such Mortgage Loans and upon the satisfaction of the conditions specified in
the applicable Prospectus Supplement. If specified in the applicable Prospec-
tus Supplement, the Seller or another party will generally be required to re-
purchase each such converted Mortgage Loan at the price set forth in the ap-
plicable 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 in-
tervals 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 ap-
plicable 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
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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 pay-
able ("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 as-
sumed 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 pre-
ceding year and each year specified thereafter to the extent necessary to am-
ortize the mortgage loan over the remainder of its term or other shorter peri-
od. Mortgage loans incorporating such graduated payment features may include
(i) "Graduated Pay Mortgage Loans," pursuant to which amounts constituting De-
ferred Interest are added to the principal balances of such mortgage loans,
(ii) "Tiered Payment Mortgage Loans," pursuant to which, if the amount of in-
terest accrued in any month exceeds the current scheduled payment for such
month, such excess amounts are paid from a subsidy account (usually funded by
a home builder or family member) established at closing and (iii) "Growing Eq-
uity Mortgage Loans," for which the monthly payments increase at a rate which
has the effect of amortizing the loan over a period shorter than the stated
term.
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 pay-
ment ("Subsidy Payments") being provided by the employer of the mortgagor,
generally on an annual basis. Subsidy Payments will generally be placed in a
custodial account ("Subsidy Account") by the related Servicer. Despite the ex-
istence of a subsidy program, a mortgagor remains primarily liable for making
all scheduled payments on a Subsidy Loan and for all other obligations pro-
vided 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 sub-
sidy 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 Mort-
gage Loan will increase approximately one percentage point per year until it
equals the full Mortgage Interest Rate. For example, if the initial subsidized
interest rate is five percentage points below the Mortgage Interest Rate in
year one, the subsidized rate will increase to four percentage points below
the Mortgage Interest Rate in year two, and likewise until year six, when the
subsidized rate will equal the Mortgage Interest Rate. Where the subsidy
agreements relating to Subsidy Loans are in effect for longer than five years,
the subsidized interest rates generally increase at smaller percentage incre-
ments for each year. The subsidy agreements relating to Subsidy Loans made un-
der 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 ex-
cess 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 per-
centage 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 Inter-
est 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 in-
terest 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 mortga-
gor refinance such Subsidy Loan and may terminate the related subsidy agree-
ment 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 mort-
gagor's reduced monthly housing expense as a consequence of payments under a
subsidy
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agreement is used by Norwest Mortgage in determining certain expense-to-income
ratios utilized in underwriting a Subsidy Loan. See "The Mortgage Loan Pro-
grams--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 mortga-
gor during the early years of the Mortgage Loan will be less than the sched-
uled monthly payments on the Mortgage Loan. The resulting difference in pay-
ment 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 applica-
ble 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 pe-
riod not exceeding 30 years but which have shorter terms to maturity (each
such Mortgage Loan, a "Balloon Loan") that causes the outstanding principal
balance of the related Mortgage Loan to be due and payable at the end of a
certain specified period (the "Balloon Period"). The borrower of such Balloon
Loan will be obligated to pay the entire outstanding principal balance of the
Balloon Loan at the end of the related Balloon Period. In the event Norwest
Mortgage refinances a mortgagor's Balloon Loan at maturity, the new loan will
not be included in the Trust Estate. See "Prepayment and Yield Considerations"
herein.
g. Pledged Asset Mortgage Loans. If so specified in the applicable Prospec-
tus Supplement, a Trust Estate may contain fixed rate mortgage loans having
original terms to stated maturity of not more than 30 years which are either
(i) secured by a security interest in additional collateral (normally securi-
ties) owned by the borrower or (ii) supported by a third party guarantee (usu-
ally a parent of the borrower); which is in turn secured by a security inter-
est in collateral (usually securities) owned by such guarantor (any such
loans, "Pledged Asset Mortgage Loans," and any such collateral, "Additional
Collateral"). Generally, the amount of such Additional Collateral will not ex-
ceed 30% of the amount of such loan, and the requirement to maintain Addi-
tional Collateral will terminate when the principal amount of the loan is paid
down to a predetermined amount.
A Trust Estate may also include other types of first lien, residential Mort-
gage 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 7485 New Horizon Way, Freder-
ick, Maryland 21703. Its telephone number is (301) 846-8881.
At the time of the formation of any Trust Estate, the Seller will be the
sole owner of all the related Mortgage Loans. The Seller will have acquired
the Mortgage Loans included in any Trust Estate from Norwest Mortgage. Except
to the extent otherwise specified in the applicable Prospectus Supplement, the
Seller's only obligation with respect to the Certificates of any Series will
be
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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--As-
signment 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 cor-
poration 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 residen-
tial 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 in-
direct, wholly owned subsidiary of Norwest Corporation. The executive offices
of Norwest Mortgage are located at 405 Southwest 5th Street, Des Moines, Iowa
50309-4603, and its telephone number is (515) 221-7300.
On May 7, 1996 Norwest Mortgage and Norwest Funding acquired all of the
mortgage origination, servicing and secondary marketing operations of The Pru-
dential Home Mortgage Company, Inc. ("PHMC"), an indirect, wholly owned sub-
sidiary of The Prudential Insurance Company of America, and purchased certain
mortgage loans from PHMC and a substantial portion of PHMC's mortgage servic-
ing 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.
On January 7, 1997, a complaint was served on PHMC with respect to an indi-
vidual and purported class action filed by The Capitol Life Insurance Company
(the "plaintiff") in the Superior Court of New Jersey against PHMC. The Pru-
dential Home Mortgage Securities Company, Inc. ("PHMSC") and certain of their
affiliates and 100 unnamed "Doe defendants" (collectively, the "defendants").
The complaint alleges, among other things, that the defendants made false and
misleading statements and/or omissions of material fact and fraudulently con-
cealed material facts in connection with the purchase in 1993 by the plaintiff
of certain of PHMSC's Subordinated Mortgage Securities, Series 1992-A. The
complaint alleges and implies that, in connection therewith, certain false and
misleading statements were made to the plaintiffs by then-officers and employ-
ees of PHMC or PHMSC, certain of whom may now be officers or employees of the
Seller or Norwest Mortgage. The Seller has been advised by a representative of
PHMC and PHMSC that PHMC and PHMSC will deny the allegations in their answers
to the complaint and intend to vigorously defend the action. Based on the
foregoing, the Seller does not believe that this litigation will have an ad-
verse effect on any Series of Certificates.
Norwest Mortgage is an approved servicer of FNMA, FHLMC and the Government
National Mortgage Association. As of December 31, 1995, Norwest Mortgage had a
net worth of approximately $314.8 million.
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 ac-
tivities typical of a national bank.
Norwest Bank's principal office is located at Norwest Center, Sixth and Mar-
quette, Minneapolis, Minnesota 55479. Norwest Bank conducts its master servic-
ing and securities administration services at its offices in Columbia, Mary-
land. Its address there is 11000 Broken Land Parkway, Columbia, Maryland
21044-3662 and its telephone number is (410) 884-2000.
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THE MORTGAGE LOAN PROGRAMS
MORTGAGE LOAN PRODUCTION SOURCES
Norwest Mortgage conducts a significant portion of its mortgage loan origi-
nations through more than 700 loan production offices (the "Loan Stores") lo-
cated throughout all 50 states. Norwest Mortgage also conducts a significant
portion of its mortgage loan originations through centralized production of-
fices located in 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 origi-
nations: (i) direct contact with prospective borrowers (including borrowers
with mortgage loans currently serviced by Norwest Mortgage or borrowers re-
ferred by borrowers with mortgage loans currently serviced by Norwest Mort-
gage), (ii) referrals by realtors, other real estate professionals and pro-
spective borrowers to the Loan Stores, (iii) referrals from selected corporate
clients, (iv) originations by Norwest Mortgage's Private Mortgage Banking di-
vision (including referrals from the private banking group of Norwest Bank and
other affiliated banks), which division specializes in providing services to
individuals meeting certain earnings, liquidity or net worth parameters, (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 origina-
tions, Norwest Mortgage acquires qualifying mortgage loans from other unaffil-
iated 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 ac-
quisition of properties marketed by such Joint Venture partners. Applications
for mortgage loans originated through Joint Ventures are generally taken by
Joint Venture employees and underwritten by Norwest Mortgage in accordance
with its standard underwriting criteria. Such mortgage loans are then closed
by the Joint Ventures in their own names and subsequently purchased by Norwest
Mortgage or Norwest Funding.
Norwest Mortgage may directly contact prospective borrowers (including bor-
rowers 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 ad-
vertisements 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 spon-
sor 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 Sub-
sidy 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 gener-
ated 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 Mort-
gage 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 originat-
ing 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 In-
surer and represent that each loan was
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<PAGE>
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 deliv-
ery of mortgage loans one at a time or in multiples as aggregated by the Cor-
respondent. The contractual arrangements with Correspondents may also involve
the delegation of all underwriting functions to such Correspondents ("Dele-
gated 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 re-
views 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 stan-
dards of a Pool Insurer. Norwest Mortgage may also acquire portfolios of sea-
soned 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 Mort-
gage's guidelines for underwriting may vary according to the nature of the
borrower or the type of loan, since differing characteristics may be perceived
as presenting different levels of risk. With respect to certain Mortgage
Loans, the originators of such loans may have contracted with unaffiliated
third parties to perform the underwriting process. Except as described below,
Mortgage Loans were underwritten by or on behalf of Norwest Mortgage or, in
the case of PHMC Mortgage Loans, PHMC, generally in accordance with the stan-
dards 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 consis-
tent, objective measures of borrower credit and loan attributes. Such objec-
tive measures are used to evaluate loan applications and assign each applica-
tion a "Credit Score."
The portion of the Credit Score related to borrower credit history is gener-
ally based on computer models developed by a third party. These models evalu-
ate information available from three major credit reporting bureaus regarding
historical patterns of consumer credit behavior in relation to default experi-
ence for similar types of borrower profiles. A particular borrower's credit
patterns are then considered in order to derive a "FICO Score" which indicates
a level of default probability over a two-year period.
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 cir-
cumstances 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 indepen-
dent 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
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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 al-
though 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 under-
written 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 origi-
nator 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 lend-
ers. Significant unfavorable credit information reported by the applicant or a
credit reporting agency must be explained by the applicant. The credit review
process generally is streamlined for borrowers with a qualifying Credit Score.
Verifications of employment, income, assets or mortgages may be used to
supplement the loan application and the credit report in reaching a
determination as to the applicant's ability to meet his or her monthly
obligations on the proposed mortgage loan, as well as his or her other
mortgage payments (if any), living expenses and financial obligations. A
mortgage verification involves obtaining information regarding the borrower's
payment history with respect to any existing mortgage the applicant may have.
This verification is accomplished by either having the present lender complete
a verification of mortgage form, evaluating the information on the credit
report concerning the applicant's payment history for the existing mortgage,
communicating, either verbally or in writing, with the applicant's present
lender or analyzing cancelled checks provided by the applicant. Verifications
of income, assets or mortgages may be waived under certain programs offered by
Norwest Mortgage, but Norwest Mortgage's underwriting guidelines require, in
most instances, a verbal or written verification of employment to be obtained.
In some cases, employment histories may be obtained through V.I.E., Inc., an
affiliate of Norwest Mortgage, that obtains employment data from state
unemployment insurance departments or other state agencies. 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, except for borrowers meeting certain standards who apply for
loans with certain qualifying characteristics under Norwest Mortgage's "reten-
tion program" applicable to then-current borrowers, borrowers applying for
loans must demonstrate that the ratio of their total monthly housing debt to
their monthly gross income (except for borrowers who apply through Norwest
Mortgage's Private Mortgage Banking division), and the ratio of their total
monthly debt to their monthly gross income do not exceed certain maximum lev-
els. Such maximum levels vary and under the "retention program" may not be ap-
plied, depending on a number of factors including Loan-to-Value Ratio, a bor-
rower's credit history, a borrower's liquid net worth, the potential of a bor-
rower 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 ra-
tio being computed on the basis of the proposed monthly mortgage payment. In
the case of adjustable-rate mortgage loans, the interest rate used to deter-
mine 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 applica-
tions for Subsidy Loans and Buy-Down Loans, such ratios are determined by in-
cluding 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
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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." In the case of a mortgage loan referred by Norwest Mortgage's Private
Mortgage Banking division, only one qualifying ratio is calculated (the appli-
cant's ratio of total monthly debt to monthly gross income). In addition, for
certain applicants referred by this division, qualifying income may be based
on an "asset dissipation" approach under which future income is projected from
the assumed liquidation of a portion of the applicant's specified assets. Sec-
ondary financing is permitted on mortgage loans under certain circumstances.
In those cases, the payment obligations under both primary and secondary fi-
nancing 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 calcu-
late 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 resi-
dence), Norwest Mortgage will include projected rental income net of certain
mortgagor obligations and other assumed expenses or loss from such property to
be included in the applicant's monthly gross income or total monthly debt in
calculating the foregoing ratios. A mortgage loan secured by a two- to four-
family Mortgaged Property is considered to be an owner-occupied property if
the borrower occupies one of the units; rental income on the other units is
generally taken into account in evaluating the borrower's ability to repay the
mortgage loan.
Mortgage Loans will not generally have had at origination a Loan-to-Value
Ratio in excess of 95%. However, if so specified in the applicable Prospectus
Supplement, Mortgage Loans that had Loan-to-Value Ratios at origination in ex-
cess of 95% may be included in the related Trust Estate. The Loan-to-Value Ra-
tio is the ratio, expressed as a percentage, of the principal amount of the
Mortgage Loan at origination to the lesser of (i) the appraised value of the
related Mortgaged Property, as established by an appraisal obtained by the
originator generally no more than four months prior to origination (or, with
respect to newly constructed properties, no more than twelve months prior to
origination), or (ii) the sale price for such property. In some instances, the
Loan-to-Value Ratio may be based on an appraisal that was obtained by the
originator more than four months prior to origination, provided that (i) a
recertification of the original appraisal is obtained and (ii) the original
appraisal was obtained no more than twelve months prior to origination. For
the purpose of calculating the Loan-to-Value Ratio of any Mortgage Loan that
is the result of the refinancing (including a refinancing for "equity take
out" purposes) of an existing mortgage loan, the appraised value of the re-
lated Mortgaged Property is generally determined by reference to an appraisal
obtained in connection with the origination of the replacement loan. In con-
nection 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.
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Norwest originates mortgage loans with Loan-to-Value Ratios in excess of 80%
either with or without the requirement to obtain primary mortgage insurance.
In cases for which such primary mortgage insurance is obtained, the excess
over 75% (or such lower percentage as Norwest Mortgage may require at
origination) will be covered by primary mortgage insurance from an approved
primary mortgage insurance company 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%. However, Norwest Mortgage does not require
primary mortgage insurance on loans that have Loan-to-Value Ratios exceeding
80% if such loans are secured by primary residences or second homes (excluding
cooperatives). Each loan originated without primary mortgage insurance will
have been made at an interest rate that was higher than the rate would have
been if the Loan-to-Value Ratios was 80% or less or if primary mortgage
insurance was obtained. The Prospectus Supplement will specify the number and
percentage of Mortgage Loans contained in the Trust Estate for a particular
Series of Certificates with Loan-to-Value Ratios at origination in excess of
80% which were originated without primary mortgage insurance.
Except as described below, Mortgage Loans will generally be covered by an
appropriate standard form American Land Title Association ("ALTA") title in-
surance policy, or a substantially similar policy or form of insurance accept-
able 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 "Ti-
tle 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 represen-
tation and warranty. The Trustee will not have recourse against any title in-
surance 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, assess-
ments, primary mortgage insurance (if applicable), and hazard insurance premi-
ums 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 Residen-
tial Insurance Company ("UGRIC") or a similar entity (collectively, the "Pool
Insurers") to determine conformity, in the aggregate, with such company's re-
spective credit, appraisal and underwriting guidelines. Norwest Mortgage will
not have underwritten such Mortgage Loans. Neither GEMICO nor UGRIC have un-
derwritten any of the Mortgage Loans for compliance with any investor guide-
lines.
Based on information provided by the relevant company, as a condition to el-
igibility 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 pro-
viding pertinent credit information. The loan originator obtains a credit re-
port, which summarizes the prospective borrower's credit history with mer-
chants and lenders and any record of bankruptcy, or other pertinent legal his-
tory. 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-em-
ployed, 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 borrow-
er's tax returns. In the case of refinancings, the loan originator must re-
quire, 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 in-
dependent 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
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completed. The appraisal is based on the market value of comparable homes. No
appraisal more than six months old will be accepted by GEMICO and no appraisal
more than 120 days old will be accepted by UGRIC.
Once all applicable employment, credit and property information is received,
a determination must be made by the loan originator (and confirmed on review
by GEMICO or UGRIC) as to whether the prospective borrower has sufficient
monthly income to meet (i) the monthly payment obligations on the proposed
mortgage loan (including principal and interest payments, real estate taxes,
insurance on the subject property, and homeowners' association dues and sec-
ondary 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, UGRIC permits a maximum ratio of a prospective bor-
rower'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 and
for adjustable rate loans with Loan-to-Value Ratios of 75% or less. Maximum
ratios of 28% and 33%, respectively, are permitted for adjustable rate loans
with Loan-to-Value Ratios above 75%. The general rule may be varied, and
higher debt-to-income ratios may be permitted, in appropriate cases character-
ized by lower Loan-to-Value Ratios or other favorable factors. GEMICO's under-
writing process relies on a combination of its own proprietory credit score
model (which includes factors related to a borrower's credit history as well
as specific loan attributes) and the consideration of borrower debt-to-income
ratios. Depending upon the credit score, GEMICO will permit maximum ratios, as
described in clauses (i) and (ii) above, of 40% and 50%, respectively.
In some special cases, GEMICO and UGRIC may underwrite loans under a "lim-
ited 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 ap-
praisal 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 per-
formed 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 bor-
rowers.
For any rate or term refinance of a mortgage loan, or conversion of an ad-
justable 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 lim-
ited to, reviewing sales contracts, verifying deposits and other assets and
examining additional supporting documentation in certain instances such as di-
vorce decrees and separation agreements. Investors should consult the particu-
lar Pool Insurer's underwriting guidelines for more specific and complete re-
quirements regarding underwriting standards. Furthermore, the underwriting
process often results in certain compensating factors being considered to off-
set the existence of other negative factors in a loan file.
The use of pool certification underwriting by a Pool Insurer in no way indi-
cates that the related Certificates or Mortgage Loans are insured or guaran-
teed under a mortgage pool insurance policy unless the applicable Prospectus
Supplement so specifies.
REPRESENTATIONS AND WARRANTIES
In connection with the transfer of the Mortgage Loans related to any Series
by the Seller to the Trust Estate, the Seller will generally make certain rep-
resentations and warranties regarding the Mortgage Loans. In certain cases
where the Seller acquired some or all of the Mortgage Loans related to a Se-
ries from a Correspondent, if so indicated in the applicable Prospectus Sup-
plement, the Seller may, rather than itself making representations and warran-
ties, cause the representations and warranties made by the Correspondent in
connection with its sale of Mortgage Loans to Norwest Mortgage or Norwest
Funding to be assigned to the Trust Estate. In such cases, the Correspondent's
representations and warranties may have been made as of a date prior to the
date of execution of the Pooling and Servicing Agreement. Unless otherwise
provided in the applicable Prospectus Supplement,
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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 ma-
terial 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 secu-
rity agreement, chattel mortgage or equivalent document related to, and de-
livered 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 re-
lated Mortgage Note has modified the Mortgage in any material respect; sat-
isfied, 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, can-
cellation, modification or satisfaction, except in each case as reflected
in a document delivered by the Seller to the Trustee or a custodian to-
gether 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 pro-
ceeds, whichever is later, to the date which precedes by 30 days the first
Due Date under the related Mortgage Note;
(vi) the Mortgaged Property is undamaged by water, fire, earthquake or
earth movement, windstorm, flood, tornado or similar casualty (excluding
casualty from the presence of hazardous wastes or hazardous substances, as
to which the Seller makes no representation), so as to affect adversely the
value of the Mortgaged Property as security for the Mortgage Loan or the
use for which the premises were intended and to the best of the Seller's
knowledge, there is no proceeding pending or threatened for the total or
partial condemnation of the Mortgaged Property;
(vii) the Mortgaged Property is free and clear of all mechanics' and
materialmen's liens or liens in the nature thereof; provided, however, that
this warranty shall be deemed not to have been made at the time of the ini-
tial issuance of the Certificates if a title policy affording, in sub-
stance, 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 de-
termining the appraised value of the Mortgaged Property lie wholly within
the boundaries and building restriction lines of such property and no im-
provements 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 improve-
ments 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 fed-
eral laws, regulations and other requirements pertaining to usury, and the
Mortgage Loan is not usurious;
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(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 occu-
pancy of the same, including, but not limited to, certificates of occupancy
and fire underwriting certificates, have been made or obtained from the ap-
propriate authorities;
(xi) all payments required to be made up to the Due Date immediately pre-
ceding the Cut-Off Date for such Mortgage Loan under the terms of the re-
lated Mortgage Note have been made and no Mortgage Loan had more than one
delinquency in the 12 months preceding the Cut-Off Date;
(xii) the Mortgage Note, the related Mortgage and other agreements exe-
cuted 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 credi-
tors' 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 Mort-
gage 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 limita-
tion, 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 require-
ments 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 re-
spect 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 sub-
ject only to (A) the lien of current real property taxes and assessments
not yet due and payable, (B) covenants, conditions and restrictions,
rights-of-way, easements and other matters of public record as of the date
of recording of such Mortgage acceptable to mortgage lending institutions
in the area in which the Mortgaged Property is located or specifically re-
ferred 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 environ-
mental protection purposes and (D) such other matters to which like proper-
ties are commonly subject which do not individually, or in the aggregate,
materially interfere with the benefits of the security intended to be pro-
vided by the Mortgage; the Seller is the sole insured of such mortgagee ti-
tle insurance policy, the assignment to the Trustee of the Seller's inter-
est 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 com-
pensate for any damage or loss on a replacement cost basis; if the Mort-
gaged Property is a condominium unit, it is included under the coverage af-
forded 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 Admin-
istration 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
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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 consti-
tute 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 rescis-
sion, 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 re-
spect thereto;
(xix) each Mortgage Note is payable in monthly payments, resulting in
complete amortization of the Mortgage Loan over a term of not more than 360
months;
(xx) each Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security,
including realization by judicial foreclosure (subject to any limitation
arising from any bankruptcy, insolvency or other law for the relief of
debtors), and there is no homestead or other exemption available to the
mortgagor which would interfere with such right of foreclosure;
(xxi) to the best of the Seller's knowledge, no mortgagor is a debtor in
any state or federal bankruptcy or insolvency proceeding;
(xxii) each Mortgaged Property is located in the United States and con-
sists 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 forego-
ing 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;
(xxiv) each Mortgage Loan is a "Qualified Mortgage" within the meaning of
Section 860G of the Code; and
(xxv) with respect to each Mortgage where a lost note affidavit has been
delivered to the Trustee in place of the related Mortgage Note, the related
Mortgage Note is no longer in existence.
No representations or warranties are made by the Seller or any other party
as to the environmental condition of such Mortgaged Property; the absence,
presence or effect of hazardous wastes or hazardous substances on any
Mortgaged Property; any casualty resulting from the presence or effect of
hazardous wastes or hazardous substances on, near or emanating from such
Mortgaged Property; the impact on Certificateholders of any environmental
condition or presence of any substance on or near such Mortgaged Property; or
the compliance of any Mortgaged Property with any environmental laws, nor is
any agent, person or entity otherwise affiliated with the Seller authorized or
able to make any such representation, warranty or assumption of liability
relative to any such Mortgaged Property. 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.
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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 char-
acteristics of a Class of Certificates may also describe the characteristics
of a Subclass of Certificates. In addition, any Class or Subclass of Certifi-
cates 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) in-
terest distributions, with no principal distributions or (iv) such other dis-
tributions as are described in the applicable Prospectus Supplement.
Each Series of Certificates will be issued pursuant to a Pooling and Servic-
ing 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 Pro-
spectus 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 Sup-
plement. Wherever particular sections or defined terms of the Pooling and Ser-
vicing Agreement are referred to, such sections or defined terms are thereby
incorporated herein by reference from the form of Pooling and Servicing Agree-
ment filed as an exhibit to the Registration Statement.
Unless otherwise specified in the applicable Prospectus Supplement, distri-
butions 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 re-
spect to any holder of a Certificate evidencing not less than a certain mini-
mum denomination set forth in the applicable Prospectus Supplement, distribu-
tions 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 fi-
nal distribution in retirement of Certificates will be made only upon presen-
tation 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 dis-
tribution notice to Certificateholders.
Each Series of Certificates will represent ownership interests in the re-
lated 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 Cer-
tificates 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 collec-
tively referred to as the "Regular Certificates") and one Class or Subclass of
Certificates with respect to each REMIC that will be designated as the "resid-
ual 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 pri-
vately 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 di-
rectly 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 Supple-
ments 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 applica-
ble Prospectus Supplement. No service charge will be made for any transfer or
exchange of Definitive Certificates, but the Trustee or such other entity may
require payment of a sum sufficient to cover any tax or other governmental
charge in connection with such transfer or exchange.
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In the event that an election is made to treat the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC, the "residual interest"
thereof will be issued as a Definitive Certificate. No legal or beneficial in-
terest 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 associ-
ated with holding the residual interest as they become due. The transferor
must certify to the Trustee that, as of the time of the transfer, it has no
actual knowledge that any of the statements made in the transferee affidavit
are false and no reason to know that the statements made by the transferee
pursuant to clauses (x), (y) and (z) of the preceding sentence are false. See
"Certain Federal Income Tax Consequences--Federal Income Tax Consequences for
REMIC Certificates--Taxation of Residual Certificates--Tax-Related Restric-
tions 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 Own-
er") 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 circum-
stances described herein, all references to actions taken by
Certificateholders or holders shall, in the case of the Book-Entry Certifi-
cates, refer to actions taken by DTC upon instructions from its DTC Partici-
pants, and all references herein to distributions, notices, reports and state-
ments 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 proce-
dures.
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 or-
ganizations ("DTC Participants") and to facilitate the clearance and settle-
ment of securities transactions among DTC Participants through electronic
book-entries, thereby eliminating the need for physical movement of certifi-
cates. DTC Participants include securities brokers and dealers (which may in-
clude 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 compa-
nies and other institutions that clear through or maintain a custodial rela-
tionship 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 distribu-
tions of principal of and interest on the Book-Entry Certificates. DTC Partic-
ipants and Indirect DTC Participants with which Beneficial Owners have ac-
counts 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 in-
terests 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 for-
ward 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.
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<PAGE>
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 Bene-
ficial 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 certifi-
cate for such Book-Entry Certificates. In addition, under a book-entry format,
Beneficial Owners may experience delays in their receipt of payments, since
distributions will be made by the Master Servicer, or a paying agent on behalf
of the Master Servicer, to Cede, as nominee for DTC.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Pooling and Servicing Agreement only at
the direction of one or more DTC Participants to whose accounts with DTC the
Book-Entry Certificates are credited. Additionally, DTC has advised the Seller
that it will take such actions with respect to specified Voting Interests only
at the direction of and on behalf of DTC Participants whose holdings of Book-
Entry Certificates evidence such specified Voting Interests. DTC may take con-
flicting actions with respect to Voting Interests to the extent that DTC Par-
ticipants whose holdings of Book-Entry Certificates evidence such Voting In-
terests authorize divergent action.
Neither the Seller, the Master Servicer nor the Trustee will have any re-
sponsibility for any aspect of the records relating to or payments made on ac-
count 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, ulti-
mate payment, of amounts distributable with respect to such Book-Entry Certif-
icates 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 termi-
nate the book-entry system through DTC or (iii) after the occurrence of a dis-
missal or resignation of the Master Servicer under the Pooling and Servicing
Agreement, Beneficial Owners representing not less than 51% of the Voting In-
terests 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 par-
agraph, the Trustee will be required to notify all Beneficial Owners through
DTC Participants of the availability of Definitive Certificates. Upon surren-
der by DTC of the physical certificates representing the Book-Entry Certifi-
cates and receipt of instructions for re-registration, the Trustee will reis-
sue the Book- Entry Certificates as Definitive Certificates to Beneficial Own-
ers. The procedures relating to payment on and transfer of Certificates ini-
tially 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 por-
tion of the Pool Distribution Amount (as defined below) allocated to such
Class. The undivided percentage interest (the "Percentage Interest") repre-
sented 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 ag-
gregate initial principal balance (or notional amount) of all Certificates of
such Subclass or Class, as the case may be.
In general, the funds available for distribution to Certificateholders of a
Series of Certificates with respect to each Distribution Date for such Series
(the "Pool Distribution Amount") will be the sum of all previously undistrib-
uted payments or other receipts on account of principal (including principal
prepayments and Liquidation Proceeds, if any) and interest on or in respect of
the related Mortgage Loans received by the related Servicer after the Cut-Off
Date (except for amounts due on or prior to the Cut-Off Date), or received by
the related Servicer on or prior to the Cut-Off Date but due after the Cut-Off
Date, in either case received on or prior to the business day preceding the
Determination Date in the month in which such Distribution Date occurs, plus
all
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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 fol-
lowing:
(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 appli-
cable Servicing Fee, (iii) the applicable Master Servicing Fee, (iv) the
Trustee's fee and (v) any other amounts described in the applicable Pro-
spectus 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 ac-
quired 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 re-
ceived 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 Ser-
vicing 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 prepay-
ments received on or after the first day of the month in which a Distribu-
tion 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 previ-
ously been allocated as a realized loss to such Series of Certificates.
The applicable Prospectus Supplement for a Series will describe any varia-
tion in the calculation of the Pool Distribution Amount for such Series.
"Net Foreclosure Profits" with respect to a Distribution Date will be the
excess of (i) the portion of aggregate net Liquidation Proceeds which repre-
sents the amount by which aggregate profits on Liquidated Loans with respect
to which net Liquidation Proceeds exceed the unpaid principal balance thereof
plus accrued interest thereon at the Mortgage Interest Rate over (ii) aggre-
gate realized losses on Liquidated Loans with respect to which net Liquidation
Proceeds are less than the unpaid principal balance thereof plus accrued in-
terest thereon at the Mortgage Interest Rate.
Distributions of Interest. With respect to each Series of Certificates, in-
terest 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 In-
terest
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Rate" for each Mortgage Loan in a given period will equal the mortgage inter-
est 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 "Servic-
ing Fee"), the fee payable to the Master Servicer (the "Master Servicing
Fee"), the fee payable to the Trustee (the "Trustee Fee") and any related ex-
penses specified in the applicable Prospectus.
Interest will accrue on the principal balance (or notional amount, as de-
scribed 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 Dis-
tribution 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 distributa-
ble on the Distribution Dates specified in the applicable Prospectus Supple-
ment until the principal balance (or notional amount) of such Class has been
reduced to zero. Distributions allocable to interest on each Certificate that
is not entitled to distributions allocable to principal will generally be cal-
culated based on the notional amount of such Certificate. The notional amount
of a Certificate will not evidence an interest in or entitlement to distribu-
tions 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 ac-
crued but is not paid on a given Distribution Date will be added to the prin-
cipal balance of such Class of Certificates on that Distribution Date. Distri-
butions of interest on each Class of Accrual Certificates will commence only
after the occurrence of the events or the existence of the circumstance speci-
fied in such Prospectus Supplement and, prior to such time, or in the absence
of such circumstances, the principal balance of such Class will increase on
each Distribution Date by the amount of interest that accrued on such 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 bal-
ance as so adjusted.
Distributions of Principal. The principal balance of any Class of Certifi-
cates entitled to distributions of principal will generally be the original
principal balance of such Class specified in such Prospectus Supplement, re-
duced by all distributions reported to the holders of such Certificates as al-
locable to principal and any losses on the related Mortgage Loans allocated to
such Class of Certificates and (i) in the case of Accrual Certificates, in-
creased by all interest accrued but not then distributable on such Accrual
Certificates and (ii) in the case of a Series of Certificates representing in-
terests in a Trust Estate containing adjustable rate Mortgage Loans, increased
by any Deferred Interest allocable to such Class. The principal balance of a
Class or Subclass of Certificates generally represents the maximum specified
dollar amount (exclusive of (i) any interest that may accrue on such Class or
Subclass to which the holder thereof is entitled from the cash flow on the re-
lated Mortgage Loans at such time) and will decline to the extent of distribu-
tions in reduction of the principal balance of, and allocations of losses to
such Class or Subclass. Certificates with no principal balance will not re-
ceive distributions in respect of principal. The applicable Prospectus Supple-
ment will specify the method by which the amount of principal to be distrib-
uted on the Certificates on each Distribution Date will be calculated and the
manner in which such amount will be allocated among the Classes of Certifi-
cates 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 repre-
senting 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 re-
coveries in respect of principal to such Class or Classes of Senior Certifi-
cates will have the effect of accelerating the amortization of such Senior
Certificates while increasing the interests evidenced by the Subordinated Cer-
tificates in the Trust Estate. Increasing the interests of the Subordinated
Certificates relative to that of the Senior Certificates is intended to pre-
serve the availability of the subordination provided by the Subordinated Cer-
tificates.
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 subor-
dinated 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 likeli-
hood of regular receipt by holders of Senior Certificates of the full amount
of scheduled monthly payments of principal
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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 prefer-
ential 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 oth-
erwise 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 Haz-
ard Losses, Excess Fraud Losses and Excess Bankruptcy Losses as described be-
low) 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 re-
spect 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 "Bank-
ruptcy 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. Spe-
cial Hazard Losses in excess of the amount specified in the applicable Pro-
spectus Supplement (the "Special Hazard Loss Amount") are "Excess Special Haz-
ard 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 Prospec-
tus Supplement (the "Bankruptcy Loss Amount") are "Excess Bankruptcy Losses."
Any Excess Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy
Losses with respect to a Series will be allocated on a pro rata basis among
the related Classes of Senior and Subordinated Certificates. An allocation of
a loss on a "pro rata basis" among two or more Classes of Certificates means
an allocation on a pro rata basis to each such Class of Certificates on the
basis of their then-outstanding principal balances in the case of the princi-
pal 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 Cer-
tificates 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 ex-
ample, 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 distri-
bution 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 Sup-
plement, including, but not limited to, credit enhancement through an alterna-
tive form of subordination and/or one or more of the methods described below.
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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 an insurer named therein.
Letter of Credit
Alternative credit support with respect to a Series of Certificates may be
provided by the issuance of a letter of credit by the bank or financial insti-
tution specified in the applicable Prospectus Supplement. The coverage, amount
and frequency of any reduction in coverage provided by a letter of credit is-
sued with respect to a Series of Certificates will be set forth in the Pro-
spectus Supplement relating to such Series.
Pool Insurance Policies
If so specified in the Prospectus Supplement relating to a Series of Certif-
icates, the Seller will obtain a pool insurance policy for the Mortgage Loans
in the related Trust Estate. The pool insurance policy will cover any loss
(subject to the limitations described in the applicable Prospectus Supplement)
by reason of default to the extent a related Mortgage Loan is not covered by
any primary mortgage insurance policy. The amount and principal terms of any
such coverage will be set forth in the Prospectus Supplement.
Special Hazard Insurance Policies
If so specified in the applicable Prospectus Supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Seller will
also obtain a special hazard insurance policy for the related Trust Estate in
the amount set forth in such Prospectus Supplement. The special hazard insur-
ance policy will, subject to the limitations described in the applicable Pro-
spectus 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 Mort-
gaged Properties are located. The amount and principal terms of any such cov-
erage 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 cov-
ered 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 bank-
ruptcy bond or such other instrument will provide for coverage in an amount
meeting the criteria of the Rating Agency or Rating Agencies rating the Cer-
tificates of the related Series, which amount will be set forth in the appli-
cable Prospectus Supplement. The amount and principal terms of any such cover-
age 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 princi-
pal or interest payments thereon, letters of credit, demand notes, certifi-
cates of deposit or a combination thereof in the aggregate amount specified in
the applicable Prospectus Supplement, (ii) by the deposit therein from time to
time of certain amounts, as specified in the applicable Prospectus Supplement,
to which the certain Classes of Certificates would otherwise be entitled or
(iii) in such other manner as may be specified in the applicable Prospectus
Supplement.
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Cross Support
If specified in the applicable Prospectus Supplement, the beneficial owner-
ship 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 ap-
plicable Prospectus Supplement for a Series that includes a cross support fea-
ture 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 Mort-
gage Interest Rates for the Mortgage Loans underlying such Series as of the
Cut-Off Date. If the Trust Estate includes adjustable-rate Mortgage Loans or
includes Mortgage Loans with different Net Mortgage Interest Rates, the
weighted average Net Mortgage Interest Rate may vary from time to time as set
forth below. See "The Trust Estates." The Prospectus Supplement for a Series
will also specify the initial weighted average Pass-Through Rate for each
Class of Certificates of such Series and will specify whether each such Pass-
Through Rate is fixed or is variable.
The Net Mortgage Interest Rate for any adjustable-rate Mortgage Loan will
change with any changes in the index specified in the applicable Prospectus
Supplement on which such Mortgage Interest Rate adjustments are based, subject
to any applicable periodic or aggregate caps or floors on the related Mortgage
Interest Rate. The weighted average Net Mortgage Interest Rate with respect to
any Series may vary due to changes in the Net Mortgage Interest Rates of ad-
justable-rate Mortgage Loans, to the timing of the Mortgage Interest Rate re-
adjustments of such Mortgage Loans and to different rates of payment of prin-
cipal 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 prin-
cipal 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 immedi-
ately following such 25th day) of the month in which such Due Date occurs (or
until such other Distribution Date specified in the applicable Prospectus Sup-
plement).
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 set-
tlement. 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 Under-
lying Servicing Agreements relating to a Series may provide, to the extent
specified in the applicable Prospectus Supplement, that with respect to cer-
tain principal prepayments received, the Master Servicer will be obligated, on
or before each Distribution Date, to pay an amount equal to the lesser of (i)
the aggregate interest shortfall with respect to such Distribution Date re-
sulting from principal prepayments in full by mortgagors and (ii) the portion
of the Master Servicer's master servicing compensation for such Distribution
Date specified in the applicable Prospectus Supplement. No comparable interest
shortfall coverage will be provided by the Master Servicer with respect to
liquidations of any Mortgage Loans or partial principal payments. Any interest
shortfall arising from prepayments not so covered
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or from liquidations will be covered by means of the subordination of the
rights of Subordinated Certificateholders or any other credit support arrange-
ments.
A lower rate of principal prepayments than anticipated would negatively af-
fect 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 in-
vestors in the Certificates of a Series that are offered at a premium to their
principal amount. The yield on Certificates that are entitled solely or dis-
proportionately to distributions of principal or interest may be particularly
sensitive to prepayment rates, and further information with respect to yield
on such Certificates will be included in the applicable Prospectus Supplement.
WEIGHTED AVERAGE LIFE OF CERTIFICATES
The Mortgage Loans may be prepaid in full or in part at any time. Mortgage
Loan generally will not provide for a prepayment penalty but may so provide if
indicated in the related Prospectus Supplement. Fixed rate Mortgage Loans gen-
erally will contain due-on-sale clauses permitting the mortgagee to accelerate
the maturities of the Mortgage Loans upon conveyance of the related Mortgaged
Properties, and adjustable-rate Mortgage Loans generally will permit credit-
worthy 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 ta-
bles setting forth the weighted average life of each Class and the percentage
of the original aggregate principal balance of each Class that would be out-
standing on specified Distribution Dates for such Series and the projected
yields to maturity on certain Classes thereof, in each case based on the as-
sumptions 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 Se-
ries 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 af-
fect 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. Accord-
ingly, 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 con-
veyance or the proposed conveyance of the underlying Mortgaged Property; pro-
vided, however, that any enforcement action that the Servicer determines would
jeopardize any recovery under any related primary mortgage insurance policy
will not be required and provided, further, that the Servicer may permit the
assumption of defaulted Mortgage Loans. See "Servicing of the Mortgage Loans--
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans"
and "Certain Legal Aspects of the Mortgage Loans--Due-On-Sale Clauses" for a
description of certain provisions of each Pooling and Servicing Agreement and
certain legal developments that may affect the prepayment experience on the
Mortgage Loans.
At the request of the mortgagor, a Servicer, including Norwest Mortgage, may
allow the refinancing of a Mortgage Loan in any Trust Estate serviced by such
Servicer by accepting prepayments thereon and permitting a new loan secured by
a Mortgage on the
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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, and the terms of certain insurance policies relating
to the Mortgage Loans may permit the applicable insurer, to purchase any Mort-
gage Loan which is in default or as to which default is reasonably foresee-
able. 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 Seller or another person identified therein will have the op-
tion to purchase all, but not less than all, of the Mortgage Loans in any
Trust Estate under the limited conditions specified in such Prospectus Supple-
ment. 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 Under-
lying 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
The Master Servicer with respect to each Series of Certificates will be
Norwest Bank. See "Norwest Bank" above. The Master Servicer generally will (a)
be responsible under each Pooling and Servicing Agreement for providing gen-
eral administrative services for the Trust Estate for any such Series, includ-
ing, 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) calcu-
lation 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 appli-
cable state and local tax and information returns; (vii) preparation of re-
ports, if any, required under the Securities and Exchange Act of 1934, as
amended and (viii) performing certain of the servicing obligations of a termi-
nated Servicer as described below under "--The Servicers"; (b) maintain any
mortgage pool insurance policy, mortgagor bankruptcy bond, special hazard in-
surance policy or other form of credit support that may be required with re-
spect to any Series and (c) make advances of delinquent payments of principal
and interest on the Mortgage Loans to the limited extent described herein un-
der the heading "Servicing of Mortgage Loans--Periodic Advances and Limita-
tions Thereon," if such amounts are not advanced by a Servicer (other than
Norwest Mortgage). The Master Servicer will also perform additional duties as
described in the applicable Pooling and Servicing Agreement. The Master
Servicer will be entitled to receive a portion of the interest payments on the
Mortgage Loans included in the Trust Estate for such a Series to cover its
fees as Master Servicer. The Master Servicer may subcontract with Norwest
Mortgage or any other entity the obligations of the Master Servicer under any
Pooling and Servicing Agreement. The Master Servicer will remain primarily li-
able 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 Mas-
ter Servicer."
The Master Servicer will generally be required to pay all expenses incurred
in connection with the administration of the Trust Estate, including, without
limitation, fees or other amounts payable pursuant to any applicable agreement
for the provision of credit
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enhancement for such Series, the fees and disbursements of the Trustee and any
custodian, fees due to the independent accountants and expenses incurred in
connection with distributions and reports to Certificateholders. Certain of
these expenses may be reimbursable to the Master Servicer pursuant to the
terms of the applicable Pooling and Servicing Agreement.
Each Prospectus Supplement relating to such a Series of Certificates will
contain information concerning recent delinquency, foreclosure and loan loss
experience on the mortgage loans included in Norwest Mortgage's servicing
portfolio which were originated or acquired by Norwest Mortgage for its own
account or for the account of its affiliates ("Program Loans"), and, if avail-
able, 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 loans loss experi-
ence prior to the PHMC Acquisition. Norwest Mortgage's total servicing portfo-
lio of Program Loans as of any date may include (and PHMC's servicing portfo-
lio included) loans having a variety of payment characteristics, including ad-
justable 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 mort-
gage servicers generally.
THE SERVICERS
For each Series, Norwest Mortgage and, if specified in the applicable Pro-
spectus Supplement, one or more other Servicers will provide certain customary
servicing functions with respect to Mortgage Loans pursuant to separate ser-
vicing agreements ("Underlying Servicing Agreements") with the Seller or an
affiliate thereof. The rights of the Seller or such affiliate under the appli-
cable Underlying Servicing Agreements in respect of the Mortgage Loans in-
cluded 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 remit-
tances 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 obliga-
tions. In addition, the Master Servicer's mortgage servicing personnel will
review the Servicer's servicing record and evaluate the ability of the
Servicer to conform with required servicing procedures. Once a Servicer is ap-
proved, 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 remit-
tance of principal and interest payments on the Mortgage Loans, administration
of mortgage escrow accounts, collection of insurance claims, foreclosure pro-
cedures, and, if necessary, the advance of funds to the extent certain pay-
ments 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 serv-
ices as are necessary to enable the Master Servicer to provide required infor-
mation to the Trustee with respect to the Mortgage Loans included in the Trust
Estate for such Series. Each Servicer is entitled to a periodic Servicing Fee
equal to a specified percentage of the outstanding principal balance of each
Mortgage Loan serviced by such Servicer. With the consent of the Master
Servicer, any of the servicing obligations of a Servicer may be delegated to
another person approved by the Master Servicer. In addition, certain limited
duties of a Servicer may be delegated without consent.
The Trustee, or if so provided in the applicable Servicing Agreement, the
Master Servicer, may terminate a Servicer who has failed to comply with its
covenants or breached one of its representations contained in the Underlying
Servicing Agreement or in certain other circumstances. Upon termination of a
Servicer by the Master Servicer, the Master Servicer will assume certain ser-
vicing 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.
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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 Es-
tate (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 sub-
ject 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 Es-
tate for such Series, as more fully described below. Each Servicer Custodial
Account must be a separate custodial account insured to the available limits
by the FDIC and limited to funds held with respect to a particular Series, un-
less the Underlying Servicing Agreement specifies that a Servicer may estab-
lish 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 Mort-
gage 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 Pool-
ing and Servicing Agreement or Underlying Servicing Agreement, will deposit in
the Servicer Custodial Account on receipt and, thereafter, not later than the
24th calendar day of each month or such earlier day as may be specified in the
Underlying Servicing Agreement (the "Remittance Date"), will remit to the Mas-
ter 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 in-
terest;
(ii) all amounts received by the Servicer in connection with the liquida-
tion of defaulted Mortgage Loans or property acquired in respect thereof,
whether through foreclosure sale or otherwise, including payments in con-
nection 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 Under-
lying 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 re-
spect thereof purchased or repurchased pursuant to the Pooling and Servic-
ing Agreement or the Underlying Servicing Agreement; and
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(vii) all other amounts required to be deposited therein pursuant to the
applicable Pooling and Servicing Agreement or the Underlying Servicing
Agreement.
Notwithstanding the foregoing, if at any time the sums in (x) any Servicer
Custodial Account, other than any Eligible Custodial Account, exceed $100,000
or (y) any such Servicer Custodial Account, in certain circumstances, exceed
such amount less than $100,000 as shall have been specified by the Master
Servicer, the Servicer will be required within one business day to withdraw
such excess funds from such account and remit such amounts to the Certificate
Account.
Notwithstanding the foregoing, each Servicer will be entitled, at its elec-
tion, 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 re-
covery has been deposited in such account.
The Master Servicer or Trustee will deposit in the Certificate Account any
Periodic Advances made by the Master Servicer or Trustee in the event of a
Servicer default not later than the Distribution Date on which such amounts
are required to be distributed. All other amounts will be deposited in the
Certificate Account not later than the business day next following the day of
receipt and posting by the Master Servicer. On or before each Distribution
Date, the Master Servicer will withdraw from the Certificate Account and remit
to the Trustee for distribution to Certificateholders all amounts allocable to
the Pool Distribution Amount for such Distribution Date.
If a Servicer, the Master Servicer or the Trustee deposits in the Certifi-
cate 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 it-
self 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 matu-
rity 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 "pro-
hibited transactions" imposed by Code Section 860F(a)(1), otherwise subject
the Trust Estate (or segregated pool of assets) to tax, or cause the Trust Es-
tate (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 permit-
ted 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 Ad-
vances;
(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 Mort-
gage 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 pur-
chase 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 in-
come 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 "Pay-
ing 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 withdraw-
als 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 Dis-
tribution 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 distri-
bution to Certificateholders in trust for the benefit of Certificateholders
until such amounts are distributed to Certificateholders or otherwise dis-
posed 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 fore-
closure 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 ter-
minated. 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 poli-
cy, the Seller may obtain an endorsement to the mortgage pool insurance policy
which obligates the Pool Insurer to advance delinquent payments of principal
and interest. The Pool Insurer would only be obligated under such endorsement
to the extent the mortgagor fails to make such payment and the Master Servicer
or Trustee fails to make a required advance.
The advance obligation of the Master Servicer and Trustee may be further
limited to an amount specified by the Rating Agency rating the Certificates.
Any such Periodic Advances by the Servicers or the Master Servicer or Trustee,
as the case may be, must be deposited into the applicable Servicer Custodial
Account or the Certificate Account and will be due no later than the business
day before the Distribution Date to which such delinquent payment relates. Ad-
vances 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 Agree-
ment.
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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 distri-
butions 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 in-
cluded in the Trust Estate for any Certificates.
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 Mort-
gage Loans and, consistent with the applicable Underlying Servicing Agreement
and any applicable agreement governing any form of credit enhancement, to fol-
low 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 (or such
longer period to which the Master Servicer and any applicable Pool Insurer or
primary mortgage insurer have consented) after the applicable Due Date.
Under each Underlying Servicing Agreement, each Servicer, to the extent per-
mitted by law, will establish and maintain one or more escrow accounts (each
such account, a "Servicing Account") in which each such Servicer will be re-
quired to deposit any payments made by mortgagors in advance for taxes, as-
sessments, primary mortgage (if applicable) and hazard insurance premiums and
other similar items. Withdrawals from the Servicing Account may be made to ef-
fect 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 administra-
tion of its Servicing Account. A Servicer will be obligated to advance certain
amounts which are not timely paid by the mortgagors, to the extent that it de-
termines, in good faith, that they will be recoverable out of insurance pro-
ceeds, liquidation proceeds, or otherwise. Alternatively, in lieu of estab-
lishing a Servicing Account, a Servicer may procure a performance bond or
other form of insurance coverage, in an amount acceptable to the Master
Servicer and each Rating Agency rating the related Series of Certificates,
covering loss occasioned by the failure to escrow such amounts.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE LOANS
With respect to each Mortgage Loan having a fixed interest rate, the appli-
cable Underlying Servicing Agreement will generally provide that, when any
Mortgaged Property is about to be conveyed by the mortgagor, the Servicer
will, to the extent it has knowledge of such prospective conveyance, exercise
its rights to accelerate the maturity of such Mortgage Loan under the "due-on-
sale" clause applicable thereto, if any, unless it is not exercisable under
applicable law or if such exercise would result in loss of insurance coverage
with respect to such Mortgage Loan or would, in the Servicer's judgment, be
reasonably likely to result in litigation by the mortgagor and such Servicer
has not obtained the Master Servicer's consent to such exercise. In either
case, the Servicer is authorized to take or enter into an assumption and modi-
fication 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 con-
tinue to be covered by any pool insurance policy and any related primary mort-
gage 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 pri-
mary mortgage insurer, if any, to enter into a substitution of liability
agreement with such person, pursuant to which the original mortgagor is re-
leased 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 Agree-
ment 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
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lending institutions which service mortgage loans of the same type in the same
jurisdictions. In addition, the Servicer is authorized under the applicable
Underlying Servicing Agreement to permit the assumption of a defaulted Mort-
gage 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 assum-
ing borrower meets Norwest Mortgage's applicable underwriting guidelines. In
connection with any such assumption, the Mortgage Interest Rate and the pay-
ment 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 fore-
seeable, that remain in the Trust Estate rather than foreclose on such Mort-
gage Loans; provided that no such modification shall forgive principal owing
under such Mortgage Loan or permanently reduce the interest rate on such Mort-
gage Loan. Any such modification will be made only upon the determination by
the Servicer and the Master Servicer that such modification is likely to in-
crease the proceeds of such Mortgage Loan over the amount expected to be col-
lected pursuant to foreclosure. See also "The Pooling and Servicing Agree-
ment--Optional Purchases," above, with respect to the Seller's right to repur-
chase Mortgage Loans that are in default, or as to which default is reasonably
foreseeable. Further, a Servicer may encourage the refinancing of such de-
faulted Mortgage Loans, including Mortgage Loans that would permit credit-
worthy borrowers to assume the outstanding indebtedness. In connection with
the decision of the Servicer regarding the foreclosure or assumption of a
Mortgage Loan, the modification of the related Mortgage Note or any other ac-
tion to be taken with respect to a defaulted Mortgage Loan, the Servicer is
expressly permitted by the Underlying Servicing Agreement to take into account
the interests of the borrower.
In the case of foreclosure or of damage to a Mortgaged Property from an un-
insured 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 ex-
penses will be recoverable to it through Liquidation Proceeds or any applica-
ble 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 af-
fected 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 Se-
ries 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 defi-
ciency 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 defi-
ciency 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 de-
fault 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 re-
quired to administer the Mortgaged Property in a manner which does not cause
the Mortgaged Property to fail to qualify as "foreclosure property" within
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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 prop-
erty 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 pol-
icy 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 Ser-
vicing 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 re-
placement 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 in-
terest and liquidation expenses; provided, however, that such insurance may
not be less than the minimum amount required to fully compensate for any dam-
age 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 ser-
vicing procedures) will be deposited in the Servicer Custodial Account for re-
mittance 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 exclu-
sions particularized in each policy. Because the Standard Hazard Insurance
Policies relating to such Mortgage Loans will be underwritten by different in-
surers 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 gener-
ally 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 re-
quirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable insurance carrier. Generally, the Underlying Ser-
vicing 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, un-
realistically low.
Each Servicer may maintain a blanket policy insuring against hazard losses
on all of the Mortgaged Properties in lieu of maintaining the required Stan-
dard 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.
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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 re-
lated Trust Estate. The Prospectus Supplement for a Series will specify
whether there is any Fixed Retained Yield with respect to the Mortgage Loans
of such Series. If so, the Fixed Retained Yield will be established on a loan-
by-loan basis and will be specified in the schedule of Mortgage Loans attached
as an exhibit to the applicable Pooling and Servicing Agreement. Norwest Mort-
gage as Servicer may deduct the Fixed Retained Yield from mortgagor payments
as received or deposit such payments in the Servicer Custodial Account or Cer-
tificate Account for such Series and then either withdraw the Fixed Retained
Yield from the Servicer Custodial Account or Certificate Account or request
the Master Servicer to withdraw the Fixed Retained Yield from the Certificate
Account for remittance to Norwest Mortgage. In the case of any Fixed Retained
Yield with respect to Mortgage Loans serviced by a Servicer other than Norwest
Mortgage, the Master Servicer will make withdrawals from the Certificate Ac-
count for the purpose of remittances to Norwest Mortgage as owner of the Fixed
Retained Yield. 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 un-
til termination of the applicable Underlying Servicing Agreement. 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 de-
posit thereof in such accounts, or if such Liquidation Proceeds or other re-
coveries 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 appli-
cable 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 servic-
ing of the Mortgage Loans serviced by such Servicer underlying a Series, in-
cluding, 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 restora-
tion, foreclosure or liquidation 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 reim-
bursement 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 and related
Mortgaged Properties. 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 reim-
bursement 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 Ser-
vicing Agreement, an Officer's Certificate stating that (i) a review of the
activities of such Servicer during the preceding calendar year and of perfor-
mance under the applicable Underlying Servicing Agreement has been made under
the supervision of such officer, and (ii) to the best of such officer's knowl-
edge, 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
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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 Au-
dit Program for Mortgage Bankers, the servicing of such mortgage loans was
conducted in compliance with the provisions of the applicable Underlying Ser-
vicing 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.
The Master Servicer will deliver annually to the Trustee, on or before the
date specified in the applicable Pooling and Servicing Agreement, an Officer's
Certificate stating that such officer has received, with respect to each
Servicer, the Officer's Certificate and accountant's statement described in
the preceding paragraph, and, that on the basis of such officer's review of
such information, each 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.
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 Se-
ries or a successor master servicer has assumed the Master Servicer's obliga-
tions 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 Ser-
vicing Agreement, it may appoint another institution to so act as described
under "The Pooling and Servicing Agreement--Rights Upon Event of Default" be-
low.
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 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 pro-
vided 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.
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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 Se-
ries; 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 exe-
cutes and delivers to the Trustee an agreement, in form and substance reasona-
bly satisfactory to the Trustee, which contains an assumption by such pur-
chaser 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 Certifi-
cates 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 re-
main 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 Es-
tate 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 mate-
rial respect, or which Mortgage Loan is discovered at any time not to be in
conformance with any representation and warranty Norwest Mortgage has made to
the Seller and the breach of such representation and warranty materially and
adversely affects the interests of the Certificateholders in the related Mort-
gage Loan, if Norwest Mortgage cannot deliver such document or cure such de-
fect 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 per-
formance of its limited obligation to repurchase or substitute for Mortgage
Loans. See "The Mortgage Loan Programs--Representations and Warranties" above.
At the time of issuance of each Series of Certificates, the Mortgage Loans
in the related Trust Estate will, pursuant to the applicable Pooling and
Servicing Agreement, be assigned to the Trustee, together with all principal
and interest received on or with respect to such Mortgage Loans after the
applicable Cut-Off Date other than principal and interest due and payable on
or before such Cut-Off Date and interest attributable to the Fixed Retained
Yield on such Mortgage Loans, if any. See "Servicing of the Mortgage Loans--
Fixed Retained Yield, Servicing Compensation and Payment of Expenses." The
Trustee or its agent will, concurrently with such assignment, authenticate and
deliver the Certificates evidencing such Series to the Seller in exchange for
the Mortgage Loans. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the applicable Pooling and Servicing Agreement.
Each such schedule will include, among other things, the unpaid principal
balance as of the close of business on the applicable Cut-Off Date, the
maturity date and the Mortgage Interest Rate for each Mortgage Loan in the
related Trust Estate.
In addition, with respect to each Mortgage Loan in a Trust Estate, the mort-
gage or other promissory note or a lost note affidavit executed by the appli-
cable Servicer, 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 docu-
ments cannot be delivered due to delays in connection with recording, copies
thereof, certified by the Seller to be true and complete copies of such docu-
ments 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 re-
lated Trust Estate, except in states where, in the opinion of counsel accept-
able 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 origi-
nator of such Mortgage Loan.
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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 war-
ranties, and such breach materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, and the Seller cannot deliver such doc-
ument or cure such defect or breach within 60 days after written notice there-
of, the Seller will, within 60 days of such notice, either repurchase the re-
lated Mortgage Loan from the Trustee at a price equal to the then unpaid prin-
cipal 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 applica-
ble 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 Mort-
gage 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 deliv-
ered to the Trustee or the custodian and the Seller will deposit in the Cer-
tificate 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 sched-
uled 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 substitut-
ed. If substitution is to be made for an adjustable rate Mortgage Loan, the
substitute Mortgage Loan will have an unpaid principal balance no greater than
the Scheduled Principal Balance of the Mortgage Loan for which it is substi-
tuted (after giving effect to the scheduled principal payment due in the month
of substitution on the Mortgage Loan substituted for), a Loan-to-Value Ratio
less than or equal to, and a Mortgage Interest Rate at least equal to, that of
the Mortgage Loan for which it is substituted, and will bear interest based on
the same index, margin and frequency of adjustment as the substituted Mortgage
Loan. The repurchase obligation and the mortgage substitution referred to
above will constitute the sole remedies available to the Certificateholders or
the Trustee with respect to missing or defective documents or breach of the
Seller's representations and warranties.
If no custodian is named in the Pooling and Servicing Agreement, the Trustee
will be authorized to appoint a custodian to maintain possession of the docu-
ments relating to the Mortgage Loans and to conduct the review of such docu-
ments 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 fore-
seeable if, in the Seller's or the Master Servicer's judgment, the related de-
fault 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 Prospec-
tus 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 princi-
pal prepayments included therein, the amount of such distribution allocable
to interest on the
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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 enhance-
ment or from any such Reserve Fund on the applicable Distribution Date;
and
(b) the amount of coverage remaining under any such form of credit en-
hancement and the balance in any such Reserve Fund, after giving effect
to any payments thereunder and other amounts charged thereto on the Dis-
tribution Date;
(vi) in the case of a Series of Certificates with a variable Pass-Through
Rate, such Pass-Through Rate;
(vii) the book value of any collateral acquired by the Trust Estate
through foreclosure or otherwise;
(viii) the unpaid principal balance of any Mortgage Loan as to which the
Servicer has notified the Master Servicer that such Servicer has determined
not to foreclose because it believes the related Mortgaged Property may be
contaminated with or affected by hazardous wastes or hazardous substances;
and
(ix) the number and aggregate principal amount of Mortgage Loans one
month, two months and three or more months delinquent.
In addition, within a reasonable period of time after the end of each calen-
dar 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 regula-
tions 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 re-
quired to sign the federal and applicable state and local income tax returns
of the REMIC (which will be prepared by the Master Servicer). See "Certain
Federal Income Tax Consequences--Administrative Matters."
LIST OF CERTIFICATEHOLDERS
The Pooling and Servicing Agreement for each Series will require the Trustee
to provide access to the most current list of names and addresses of
Certificateholders of such Series to any group of five or more
Certificateholders who advise the Trustee in writing that they desire to com-
municate with other Certificateholders with respect to their rights under the
Pooling and Servicing Agreement or under the Certificates.
EVENTS OF DEFAULT
Events of Default under the Pooling and Servicing Agreement for each Series
include (i) any failure by the Master Servicer to make a required deposit
which continues unremedied for three business days after the giving of written
notice of such failure to the Master Servicer by the Trustee for such Series,
or to the Master Servicer and the Trustee by the holders of Certificates of
such Series having voting rights allocated to such Certificates ("Voting In-
terests") 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 insur-
ance 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
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Servicer indicating its insolvency, reorganization or inability to pay its ob-
ligations 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 Ser-
vicing Agreement for a Series, the Trustee for such Series or holders of Cer-
tificates of such Series evidencing not less than 66 2/3% of the Voting Inter-
ests 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 ter-
mination, 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 re-
sponsibilities, duties and liabilities of the Master Servicer under the Pool-
ing and Servicing Agreement and will be entitled to monthly compensation not
to exceed the aggregate Master Servicing Fees together with the other compen-
sation to which the Master Servicer is entitled under the Pooling and Servic-
ing 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 applica-
ble Pooling and Servicing Agreement, or petition a court of competent juris-
diction 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 suc-
cessor to the Master Servicer under the provisions of the Pooling and Servic-
ing Agreement; provided however, that until such a successor Master Servicer
is appointed and has assumed the responsibilities, duties and liabilities of
the Master Servicer under the Pooling and Servicing Agreement, the Trustee
shall continue as the successor to the Master Servicer as described above. In
the event such public bid procedure is utilized, the successor would be enti-
tled to compensation in an amount equal to the aggregate Master Servicing
Fees, together with the other compensation to which the Master Servicer is en-
titled 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. (Sec-
tions 7.01 and 7.05).
During the continuance of any Event of Default under the Pooling and Servic-
ing 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 Se-
ries 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 law-
fully be taken or would involve it in personal liability or be unjustly preju-
dicial 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 reason-
able indemnity and the Trustee for 60 days has neglected or refused to insti-
tute any such proceeding. (Section 10.03).
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Seller, the Mas-
ter Servicer and the Trustee without the consent of the Certificateholders,
(i) to cure any ambiguity or mistake, (ii) to correct or supplement any provi-
sion 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 Certifi-
cates 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, ad-
versely affect in any material respect the interests of any Certificateholder,
(iv) to change the timing and/or nature of deposits into the Certificate Ac-
count, provided that such change
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will not, as evidenced by an opinion of counsel, adversely affect in any mate-
rial 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 "Cer-
tain Federal Income Tax Consequences--Federal Income Tax Consequences for
REMIC Certificates--Taxation of Residual Certificates--Tax-Related Restric-
tions 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 in-
consistent with the provisions thereof, provided that such action will not, as
evidenced by an opinion of counsel, adversely affect in any material respect
the interests of the Certificateholders of the related Series. The Pooling and
Servicing Agreement may also be amended by the Seller, the Master Servicer and
the Trustee with the consent of the holders of Certificates evidencing inter-
ests 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 evi-
denced 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 Certifi-
cates of such Class or Subclass affected then outstanding. Notwithstanding the
foregoing, the Trustee will not consent to any such amendment if such amend-
ment 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 Servic-
ing Agreement continue beyond the expiration of 21 years from the death of the
last survivor of certain persons named in such Pooling and Servicing Agree-
ment. 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 speci-
fied in the notice of termination.
If so provided in the applicable Prospectus Supplement, the Pooling and Ser-
vicing Agreement for each Series of Certificates will permit, but not require,
the Seller, Norwest Mortgage or such other party as is specified in the appli-
cable 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 sub-
ject the Trust Estate to tax, or (iii) cause the Trust Estate (or any segre-
gated 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 bal-
ance 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.
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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 re-
move 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 be-
coming 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 Inter-
ests 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 sep-
arate 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 particu-
lar 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 evi-
dencing 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 mort-
gagee), 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 au-
thority 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. Gen-
erally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in comple-
tion of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right of foreclosure is con-
tested, the legal proceedings necessary to resolve the issue can be time-con-
suming. 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 fore-
closed by advertisement, pursuant to a power of sale provided in the mortgage.
Foreclosure of a mortgage by advertisement is essentially similar to foreclo-
sure 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 bor-
rower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide
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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 gener-
al, 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 en-
tire 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 condi-
tion 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 ex-
pense 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 re-
ceipt 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 ob-
ligations 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 pro-
prietary lease or occupancy agreement. A default by the tenant-stockholder un-
der the proprietary lease or occupancy agreement will usually constitute a de-
fault under the security agreement between the lender and the tenant-stock-
holder.
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 de-
fault. 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, sub-
ject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding prin-
cipal 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 accor-
dance 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 rea-
sonableness, a court will look to the
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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 in-
debtedness secured by the lender's security interest. The recognition agree-
ment, 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. Con-
sequently, the practical effect of the redemption right is to force the lender
to maintain the property and pay the expenses of ownership until the redemp-
tion 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 ob-
tain 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 at-
tempt 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 pre-
cluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from ob-
taining 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 im-
paired 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 estab-
lishes 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 pro-
prietary lease or occupancy agreement) was conducted in a commercially reason-
able 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.
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In addition to anti-deficiency and related legislation, numerous other fed-
eral and state statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the abil-
ity 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 af-
fect the ability of the Seller to obtain payment of a Mortgage Loan, to real-
ize 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 juris-
diction 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 fi-
nal judgment of foreclosure had been entered in state court (provided no fore-
closure 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 debt-
or'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 sched-
ule, 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 per-
sonal 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 origina-
tion, servicing and enforcement of mortgage loans. These laws include the fed-
eral Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit
Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and re-
lated statutes and regulations. These federal laws and state laws impose spe-
cific 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 applica-
tion 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. Cer-
tain 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.
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ENVIRONMENTAL CONSIDERATIONS
A lender may be subject to unforeseen environmental risks when taking a se-
curity interest in real or personal property. Property subject to such a secu-
rity interest may be subject to federal, state, and local laws and regulations
relating to environmental protection. Such laws may regulate, among other
things: emissions of air pollutants; discharges of wastewater or storm water;
generation, transport, storage or disposal of hazardous waste or hazardous
substances; operation, closure and removal of underground storage tanks; re-
moval and disposal of asbestos-containing materials; management of electrical
or other equipment containing polychlorinated biphenyls ("PCBs"). Failure to
comply with such laws and regulations may result in significant penalties, in-
cluding civil and criminal fines. Under the laws of certain states, environ-
mental contamination on a property may give rise to a lien on the property to
ensure the availability and/or reimbursement of cleanup costs. Generally all
subsequent liens on such property are subordinated to such a lien and, in some
states, even prior recorded liens are subordinated to such liens
("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.
Under the federal Comprehensive Environmental Response, Compensation and Li-
ability 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, operates a mortgaged property or undertakes
certain types of activities that may constitute management of the 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 substan-
tial. CERCLA imposes strict, as well as joint and several liability for envi-
ronmental remediation and/or damage costs on several classes of "potentially
responsible parties," including current "owners and/or operators" of property,
irrespective of whether those owners or operators caused or contributed to
contamination on the property. In addition, owners and operators of properties
that generate hazardous substances that are disposed of at other "off-site"
locations may held strictly, jointly and severally liable for environmental
remediation and/or damages at those off-site locations. Many states also have
laws that are similar to CERCLA. Liability under CERCLA or under similar state
law could exceed the value of the property itself as well as the aggregate as-
sets of the property owner.
The law is unclear as to whether and under what precise 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 mort-
gaged property if such lender or its agents or employees have "participated in
the management" of the operations of the borrower, even though the environmen-
tal 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 opera-
tor," is a person "who without participating in the management of . . . [the]
facility, holds indicia of ownership primarily to protect his security inter-
est" (the "secured-creditor exemption"). This exemption for holders of a secu-
rity interest such as a secured lender applies only to the extent that a
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 man-
agement 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 po-
tential 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 Elev-
enth Circuit in United States v. Fleet Factors Corp. very narrowly construed
CERCLA's secured-creditor exemption. The court's opinion suggested that a
lender need not have involved itself in the day-to-day operations of the fa-
cility 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 were broad enough to support the inference
that the lender had the capacity to influence the borrower's treatment of haz-
ardous waste. The court added that a lender's capacity to influence such deci-
sions could be inferred from the extent of its involvement in the facility's
financial management. A subsequent decision by the United States Court of Ap-
peals for the Ninth Circuit in In re Bergsoe Metal Corp., apparently disagree-
ing with, but not expressly contradicting, the Fleet Factors court, held that
a secured lender had no liability absent "some actual management of the facil-
ity" on the part of the lender.
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On April 29, 1992, the United States Environmental Protection Agency (the
"EPA") issued a final rule interpreting and delineating CERCLA's secured-cred-
itor exemption and the range of permissible actions that may be undertaken by
a holder of a contaminated facility without exceeding the bounds of the se-
cured-creditor exemption. However, on February 4, 1994, the United States
Court of Appeals for the District of Columbia Circuit in Kelley v. EPA invali-
dated the EPA rule. As a result of the Kelley case, the state of the law with
respect to the secured creditor exemption was, until recently, very unclear.
On September 28, 1996, Congress enacted, and on September 30, 1996 the Pres-
ident signed into law the Asset Conservation Lender Liability and Deposit In-
surance Protection Act of 1996 (the "Asset Conservation Act"). The Asset Con-
servation Act was intended to clarify the scope of the secured creditor exemp-
tion. This legislation more clearly defines the kinds of activities that would
constitute "participation in management" and that therefore would trigger lia-
bility for secured parties under CERCLA. It also identified certain activities
that ordinarily would not trigger liability, provided, however, that such ac-
tivities did not otherwise rise to the level of "participation in management."
The Asset Conservation Act specifically reverses the Fleet Factors "capacity
to influence" standard. The Asset Conservation Act also provides additional
protection against liability in the event of foreclosure. However, since the
courts have not yet had the opportunity to interpret the new statutory provi-
sions, the scope of the additional protections offered by the Asset Conserva-
tion Act is not fully defined. It also is important to note that the Asset
Conservation Act does not offer complete protection to lenders and that the
risk of liability remains.
If a secured lender does become liable, it may be entitled to bring an ac-
tion for contribution against the owner or operator who created the environ-
mental contamination or against some other liable party, but that person or
entity may be bankrupt or otherwise judgment-proof. It is therefore possible
that cleanup or other environmental liability costs could become a liability
of the Trust Estate and occasion a loss to the Trust Estate and to
Certificateholders in certain circumstances. The new secured creditor amend-
ments to CERCLA, also, would not necessarily affect the potential for liabil-
ity in actions by either a state or a private party under other federal or
state laws which may impose liability on "owners or operators" but do not in-
corporate 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, nei-
ther the Seller, Norwest Mortgage nor Norwest Funding has made such evalua-
tions prior to the origination of the Mortgage Loans, nor does Norwest Mort-
gage 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 fore-
closure or accepting a deed-in-lieu of foreclosure. Neither the Seller nor the
Master Servicer makes any representations or warranties or assumes any liabil-
ity with respect to: the environmental condition of such Mortgaged Property;
the absence, presence or effect of hazardous wastes or hazardous substances on
any Mortgaged Property; any casualty resulting from the presence or effect of
hazardous wastes or hazardous substances on, near or emanating from such Mort-
gaged Property; the impact on Certificateholders of any environmental condi-
tion or presence of any substance on or near such Mortgaged Property; or the
compliance of any Mortgaged Property with any environmental laws, nor is any
agent, person or entity otherwise affiliated with the Seller authorized or
able to make any such representation, warranty or assumption of liability rel-
ative to any such Mortgaged Property. See "The Trust Estates--Mortgage Loans--
Representations and Warranties" and "Servicing of the Mortgage Loans--Enforce-
ment 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 Mort-
gage 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 re-
strictions on the right of lenders to enforce such clauses in many states.
However, effective October 15, 1982, Congress enacted the Garn-St Germain De-
pository Institutions Act of 1982 (the "Garn Act") which purports to preempt
state laws which prohibit the enforcement of "due-on-sale" clauses by provid-
ing 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 con-
tained in mortgage loans originated by federal savings and loan associations
or federal savings banks are fully enforceable pursuant to regulations of the
Office of Thrift Supervision ("OTS"), as successor to the Federal Home Loan
Bank Board ("FHLBB"), which preempt state law restrictions on the enforcement
of such clauses. Similarly, "due-on-sale" clauses in
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mortgage loans made by national banks and federal credit unions are now fully
enforceable pursuant to preemptive regulations of the Comptroller of the Cur-
rency and the National Credit Union Administration, respectively.
The Garn Act created a limited exemption from its general rule of enforce-
ability 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 re-
spect to mortgage loans which it has purchased, that the Window Period States
were: Arizona, Arkansas, California, Colorado, Georgia, Iowa, Michigan, Minne-
sota, New Mexico, Utah and Washington. Under the Garn Act, unless a Window Pe-
riod 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 acceler-
ate 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 cer-
tain 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 bor-
rower, or a transfer where the spouse or children become an owner of the prop-
erty 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 re-
late 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 pre-
dicted. 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 limita-
tions 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 inter-
pretations 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 re-
jected, any state is authorized to adopt a provision limiting certain other
loan charges.
The Seller will represent and warrant in the Pooling and Servicing Agreement
to the Trustee for the benefit of Certificateholders that all Mortgage Loans
are originated in full compliance with applicable state laws, including usury
laws. See "The Pooling and Servicing Agreement--Assignment of Mortgage Loans
to the Trustee."
ENFORCEABILITY OF CERTAIN PROVISIONS
Standard forms of note, mortgage and deed of trust generally contain provi-
sions 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 pre-
paid. 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.
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Courts have imposed general equitable principles upon foreclosure. These eq-
uitable principles are generally designed to relieve the borrower from the le-
gal 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 sched-
ules to accommodate borrowers who are suffering from temporary financial dis-
ability. 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 bor-
rower 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 constitu-
tional 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 conse-
quences of the purchase, ownership and disposition of Certificates. The dis-
cussion 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 ap-
plicable provisions of the Code, as well as regulations (the "REMIC Regula-
tions") promulgated by the U.S. Department of the Treasury on December 23,
1992. Investors should consult their own tax advisors in determining the fed-
eral, 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 re-
fer to that portion of the Mortgage Loans held by the Trust Estate that does
not include the Fixed Retained Yield. References to a "Holder" or
"Certificateholder" in this discussion generally mean the beneficial owner of
a Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular Series of Certificates, an election may be made
to treat the Trust Estate or one or more segregated pools of assets therein as
one or more REMICs within the meaning of Code Section 860D. A Trust Estate or
a portion or portions thereof as to which one or more REMIC elections will be
made will be referred to as a "REMIC Pool." For purposes of this discussion,
Certificates of a Series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more Classes of
"Regular Certificates" and one Class of "Residual Certificates" in the case of
each REMIC Pool. Qualification as a REMIC requires ongoing compliance with
certain conditions. With respect to each Series of REMIC Certificates, Cadwal-
ader, 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 inter-
ests" 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 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
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be treated as "loans.....secured by an interest in real property which is . . .
residential 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 Cer-
tificates 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 as-
sets 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 entire-
ty. For purposes of Code Section 856(c)(5)(A), payments of principal and in-
terest on the Mortgage Loans that are reinvested pending distribution to hold-
ers 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 pur-
poses 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 ""loans . . . se-
cured by an interest in real property which is . . . residential real proper-
ty" for purposes of Code Section 7701(a)(19)(C)(v) may be required to be re-
duced 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). The Small Business Job Protec-
tion Act of 1996 (the "SBJPA of 1996") repealed the reserve method for bad
debts of domestic building and loan associations and mutual savings banks, and
thus has eliminated the asset category of "qualifying real property loans" in
former Code Section 593(d) for taxable years beginning after December 31,
1995. The requirement in the SBJPA of 1996 that such institutions must "recap-
ture" a portion of their existing bad debt reserves is suspended if a certain
portion of their assets are maintained in "residential loans" under Code Sec-
tion 7701(a)(19)(C)(v), but only if such loans were made to acquire, construct
or improve the related real property and not for the purpose of refinancing.
However, no effort will be made to identify the portion of the Mortgage Loans
of any Series meeting this requirement, and no representation is made in this
regard.
QUALIFICATION AS A REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in
the Code. The REMIC Pool must fulfill an asset test, which requires that no
more than a de minimis portion of the assets of the REMIC Pool, as of the
close of the third calendar month beginning after the "Startup Day" (which for
purposes of this discussion is the date of issuance of the REMIC Certificates)
and at all times thereafter, may consist of assets other than "qualified mort-
gages" and "permitted investments." The REMIC Regulations provide a safe har-
bor 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 pro-
vide "reasonable arrangements" to prevent its residual interests from being
held by "disqualified organizations" or agents thereof and must furnish appli-
cable 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 in-
terest 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 ex-
change for a "defective obligation" within a two-year period thereafter. A
"defective obligation" includes (i) a mortgage in default or as to which de-
fault is reasonably foreseeable, (ii) a mortgage as to which a customary rep-
resentation or warranty made at the time of transfer to the REMIC Pool has
been breached, (iii) a mortgage that was fraudulently procured by the mortga-
gor, 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 discov-
ery). A Mortgage Loan that is "defective" as described in clause (iv) that is
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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 as-
sets, and foreclosure property. A cash flow investment is an investment, earn-
ing 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 pro-
vide 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 regu-
lar interests caused by a default on one or more qualified mortgages. A re-
serve 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 quali-
fied 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 inter-
est, and unconditionally entitles the holder to receive a specified principal
amount (or other similar amount), and provides that interest payments (or
other similar amounts), if any, at or before maturity either are payable based
on a fixed rate or a qualified variable rate, or consist of a specified,
nonvarying portion of the interest payments on qualified mortgages. Such a
specified portion may consist of a fixed number of basis points, a fixed per-
centage 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 inter-
est. 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 pay-
ments 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 Se-
ries will constitute one or more classes of regular interests, and the Resid-
ual 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 eq-
uity 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 re-
quirements for REMIC status are not satisfied.
TAXATION OF REGULAR CERTIFICATES
General
In general, interest, original issue discount, and market discount on a Reg-
ular Certificate will be treated as ordinary income to a holder of the Regular
Certificate (the "Regular Certificateholder"), and principal payments on a
Regular Certificate will be treated as a return of capital to the extent of
the Regular Certificateholder's basis in the Regular Certificate allocable
thereto. Regular Certificateholders must use the accrual method of accounting
with regard to Regular Certificates, regardless of the method of accounting
otherwise used by such Regular Certificateholders.
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Original Issue Discount
Compound Interest Certificates will be, and other classes of Regular
Certificates may be, issued with "original issue discount" within the meaning
of Code Section 1273(a). Holders of any Class or Subclass of Regular
Certificates having original issue discount generally must include original
issue discount in ordinary income for federal income tax purposes as it
accrues, in accordance with a constant interest method that takes into account
the compounding of interest, in advance of receipt of the cash attributable to
such income. The following discussion is based in part on temporary and final
Treasury regulations issued on February 2, 1994, as amended on June 14, 1996,
(the "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 do not adequately address certain
issues relevant to prepayable securities, such as the Regular Certificates. To
the extent such issues are not addressed in such regulations, the Seller
intends to apply the methodology described in the Conference Committee Report
to the 1986 Act. No assurance can be provided that the Internal Revenue
Service will not take a different position as to those matters not currently
addressed by the OID Regulations. 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 in-
stallment 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 of-
fered pursuant to this Prospectus generally is the first price at which a sub-
stantial 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 prin-
cipal amount of the Regular Certificate, but generally will not include dis-
tributions of interest if such distributions constitute "qualified stated in-
terest." Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or a qualified variable rate (as de-
scribed below) provided that such interest payments are unconditionally pay-
able 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 non-
payment 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 ac-
crue, will not constitute qualified stated interest, in which case the stated
redemption price at maturity of such Regular Certificates includes all distri-
butions 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 ma-
turity.
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 com-
puted 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 dis-
tribution 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 distribu-
tion included in the stated redemption price at maturity of the Regular Cer-
tificate and the denominator of which is the stated redemption price at matu-
rity of the Regular Certificate. The Conference Committee Report to
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the 1986 Act provides that the schedule of such distributions should be deter-
mined in accordance with the assumed rate of prepayment of the Mortgage Loans
(the "Prepayment Assumption") and the anticipated reinvestment rate, if any,
relating to the Regular Certificates. The Prepayment Assumption with respect
to a Series of Regular Certificates will be set forth in the applicable Pro-
spectus 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 pre-
mium, under the constant yield method. See "Election to Treat All Interest Un-
der 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 origi-
nal 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 ac-
crual 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 dis-
tributions 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 redemp-
tion price at maturity, over (ii) the adjusted issue price of the Regular Cer-
tificate at the beginning of the accrual period. The present value of the re-
maining 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, in-
creased 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 re-
demption 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 dis-
count required to be included in income by a Regular Certificateholder gener-
ally will increase to take into account prepayments on the Regular Certifi-
cates as a result of prepayments on the Mortgage Loans that exceed the Prepay-
ment Assumption, and generally will decrease (but not below zero for any peri-
od) if the prepayments are slower than the Prepayment Assumption. An increase
in prepayments on the Mortgage Loans with respect to a Series of Regular Cer-
tificates can result in both a change in the priority of principal payments
with respect to certain Classes of Regular Certificates and either an increase
or decrease in the daily portions of original issue discount with respect to
such Regular Certificates.
In the case of a Non-Pro Rata Certificate, the Seller intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Non-Pro Rata Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with
the preceding paragraph. However, in the case of a distribution in retirement
of the entire unpaid principal balance of any Non-Pro Rata Certificate (or
portion of such unpaid principal balance), (a) the remaining unaccrued origi-
nal issue discount allocable to such Certificate (or to such portion) will ac-
crue at the time of such distribution, and (b) the accrual of original issue
discount allocable to each remaining Certificate of such Class (or the remain-
ing unpaid principal balance of a partially redeemed Non-Pro Rata Certificate
after a distribution of principal has been received) will be adjusted by re-
ducing the present value of the remaining payments on such Class and the ad-
justed 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 treat-
ment.
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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 re-
quired to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the numer-
ator 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 re-
demption 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. Un-
der 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 quali-
fied 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 fixed multiple that is greater than 0.65 but not
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 signifi-
cantly. An objective rate is 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 cir-
cumstances 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 never-
theless 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 dur-
ing 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. The 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
OID Regulations, such regulations may lead to different timing of income in-
clusion than would be the case under the OID Regulations for non-contingent
debt instruments. Furthermore, application of such principles could lead to
the characterization of gain on the sale of contingent interest Regular Cer-
tificates as ordinary income. Investors should consult their tax advisors re-
garding 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 oth-
erwise 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 pay-
ments on such Regular Certificate generally to be determined by assuming that
interest will be payable for the life of the Regular Certificate based on the
initial rate (or, if different, the value of the applicable variable rate as
of the pricing date) for the relevant Class. Unless required otherwise by ap-
plicable final regulations, the Seller intends to treat such variable interest
as qualified stated interest, other than variable interest on an interest-only
or super-premium Class, which will be treated as non-qualified stated interest
includible in the stated redemption price at maturity. Ordinary income report-
able for any period will be adjusted based on subsequent changes in the appli-
cable interest rate index.
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Although unclear under the OID Regulations, unless required otherwise by ap-
plicable final regulations, the Seller intends to treat Regular Certificates
bearing an interest rate that is a weighted average of the net interest rates
on Mortgage Loans as having qualified stated interest, except to the extent
that initial "teaser" rates cause sufficiently "back-loaded" interest to cre-
ate more than de minimis original issue discount. The yield on such Regular
Certificates for purposes of accruing original issue discount will be a hypo-
thetical fixed rate based on the fixed rates, in the case of fixed rate Mort-
gage Loans, and initial "teaser rates" followed by fully indexed rates, in the
case of adjustable rate Mortgage Loans. In the case of adjustable rate Mort-
gage 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 dis-
count 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 Certifi-
cate 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 un-
til such regulations are issued, such market discount would accrue either (i)
on the basis of a constant interest rate, or (ii) in the ratio of stated in-
terest 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 ra-
tio of original issue discount accrued for the relevant period to the sum of
the original issue discount accrued for such period plus the remaining origi-
nal 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 re-
ceived. 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 de-
ferred 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 inter-
est 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 Certif-
icate (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 regula-
tions implementing the market discount rules have not yet been issued, and
therefore investors should consult their own tax advisors regarding the appli-
cation 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 pre-
mium. 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
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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 Congres-
sional 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 Certifi-
cate, rather than as a separate deduction item. See "Election to Treat All In-
terest 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 sub-
ject to such an election, (i) "interest" includes stated interest, original
issue discount, de minimis original issue discount, market discount and de
minimis market discount, as adjusted by any amortizable bond premium or acqui-
sition 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 ad-
justed 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 ex-
cept with the approval of the Internal Revenue Service. Investors should con-
sult their own tax advisors regarding the advisability of making such an elec-
tion.
Treatment of Losses
Regular Certificateholders will be required to report income with respect to
Regular Certificates on the accrual method of accounting, without giving ef-
fect to delays or reductions in distributions attributable to defaults or de-
linquencies on the Mortgage Loans, except to the extent it can be established
that such losses are uncollectible. Accordingly, the holder of a Regular Cer-
tificate, particularly a Subordinated Certificate, may have income, or may in-
cur 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 cor-
responding 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 Reve-
nue 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 re-
garding bad debts are applicable, it appears that Regular Certificateholders
that are corporations or that otherwise hold the Regular Certificates in con-
nection 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 cor-
porations 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 Certifi-
cates 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 oth-
erwise 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.
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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 ac-
crued 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 con-
nection with a trade or business. Special loss rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts.
Such taxpayers are advised to consult their tax advisors regarding the treat-
ment 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 Cer-
tificate. 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 pre-
viously 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 Reg-
ular 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 previ-
ously 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). 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 corpora-
tions 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 in-
come 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 in-
terest 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 limita-
tion on the deductibility of interest and expenses related to tax-exempt in-
come will apply. The REMIC Pool's gross income includes interest, original is-
sue discount income, and market discount income, if any, on the Mortgage
Loans, reduced by amortization of any premium on the Mortgage Loans, plus in-
come from amortization of issue premium, if any, on the Regular Certificates,
plus income on reinvestment of cash flows and reserve assets, plus any cancel-
lation of indebtedness income upon allocation of realized losses to the Regu-
lar 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 con-
tinue until there are no Certificates of any class of the related Series out-
standing.
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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 dis-
count) or income from amortization of issue premium on the Regular Certifi-
cates, 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 be-
ing entitled to receive a corresponding amount of cash because (i) the prepay-
ment 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 mis-
matching of income and deductions is particularly likely to occur in the early
years following issuance of the Regular Certificates when distributions in re-
duction 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 at-
tributable to such a mismatching is realized, in general, losses would be al-
lowed 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 Regu-
lar 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 re-
sult of such mismatching or unrelated deductions against which to offset such
income, subject to the discussion of "excess inclusions" below under "--Limi-
tations on Offset or Exemption of REMIC Income." The timing of such mismatch-
ing of income and deductions described in this paragraph, if present with re-
spect 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 ac-
counting 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 Cer-
tificate as of the close of the quarter (or time of disposition of the Resid-
ual 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 re-
portable by the Residual Holder and will be decreased (but not below zero),
first, by a cash distribution from the REMIC Pool and, second, by the amount
of loss of the REMIC Pool reportable by the Residual Holder. Any loss that is
disallowed on account of this limitation may be carried over indefinitely with
respect to the Residual Holder as to whom such loss was disallowed and may be
used by such Residual Holder only to offset any income generated by the same
REMIC Pool.
A Residual Holder will not be permitted to amortize directly the cost of its
Residual Certificate as an offset to its share of the taxable income of the
related REMIC Pool. However, that taxable income will not include cash re-
ceived 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 resid-
ual interest as zero rather than such negative amount for purposes of deter-
mining the REMIC Pool's basis in its assets. The preamble to the REMIC Regula-
tions 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 Hold-
ers should consult their own tax advisors in this regard.
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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 adjust-
ments to the REMIC income otherwise reportable by such holder. The REMIC Regu-
lations 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 Cer-
tificate" 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 accor-
dance 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 Re-
sidual 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--Orig-
inal Issue Discount" and "--Variable Rate Regular Certificates," without re-
gard 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 Reg-
ulations 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 Regu-
lar Certificates--Market Discount."
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans ex-
ceeds the unpaid principal balances thereof, the REMIC Pool will be considered
to have acquired such Mortgage Loans at a premium equal to the amount of such
excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the fair
market value of the Mortgage Loans, based on the aggregate of the issue prices
of the regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Certificates--Premium," a person that holds a
Mortgage Loan as a capital asset under Code Section 1221 may elect under Code
Section 171 to amortize premium on Mortgage Loans originated after September
27, 1985 under the constant yield method. Amortizable bond premium will be
treated as an offset to interest income on the Mortgage Loans, rather than as
a separate deduction item. Because substantially all of the mortgagors on the
Mortgage Loans are expected to be individuals, Code Section 171 will not be
available for premium on Mortgage Loans originated on or prior to September
27, 1985. Premium with respect to such Mortgage Loans may be deductible in ac-
cordance 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 ar-
gue that such premium should be allocated in a different manner, such as allo-
cating such premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
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 Re-
sidual 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 Re-
sidual Certificate at the beginning of such quarterly period. For this pur-
pose, 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
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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 in-
come 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. However,
net operating loss carryovers are determined without regard to excess inclu-
sion income. 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 in-
come 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 Restric-
tions on Transfer of Residual Certificates--Foreign Investors"), and the por-
tion thereof attributable to excess inclusions is not eligible for any reduc-
tion 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 Cer-
tificate, 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. The SBJPA of 1996 has eliminated the special rule permitting
Section 593 institutions ("thrift institutions") to use net operating losses
and other allowable deductions to offset their excess inclusion income from
Residual Certificates that have "significant value" within the meaning of the
REMIC Regulations, effective for taxable years beginning after December 31,
1995, except with respect to Residual Certificates continuously held by a
thrift institution since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the ef-
fect of excess inclusions on the alternative minimum taxable income of a Re-
sidual Holder. First, alternative minimum taxable income for a Residual Holder
is determined without regard to the special rule, discussed above, that tax-
able income cannot be less than excess inclusions. Second, a Residual Holder's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum
tax net operating loss deduction must be computed without regard to any excess
inclusions. These rules are effective for taxable years beginning after Decem-
ber 31, 1986, unless a Residual Holder elects to have such rules apply only to
taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a Resid-
ual Certificate is transferred to a Disqualified Organization (as defined be-
low), 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 mar-
ginal federal income tax rate applicable to corporations. The REMIC Regula-
tions provide that the anticipated excess inclusions are based on actual pre-
payment experience to the date of the transfer and projected payments based on
the Prepayment Assumption. The present value rate equals the applicable Fed-
eral 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 Re-
sidual Certificate, except that where such transfer is through an agent (in-
cluding a broker, nominee, or other middleman) for a Disqualified Organiza-
tion, 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 stat-
ing 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 affi-
davit 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 Dis-
qualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess inclu-
sion 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 lia-
ble for such tax if it has received an affidavit from such record holder that
it is not a
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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 inter-
national 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 fur-
nishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on un-
related 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 oper-
ating on a cooperative basis. Except as may be provided in Treasury regula-
tions, 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 trans-
ferred or registered unless (i) the proposed transferee furnishes to the
Seller and the Trustee an affidavit providing its taxpayer identification num-
ber 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 bro-
ker, nominee or middleman thereof) and (ii) the transferor provides a state-
ment 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 re-
strictions. 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 cer-
tain 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 Re-
sidual Holder who is not a U.S. Person, as defined below under "Foreign In-
vestors") 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 ef-
fect for the year in which the transfer occurs, and (ii) the transferor rea-
sonably expects that the transferee will receive distributions from the REMIC
at or after the time at which taxes accrue on the anticipated excess inclu-
sions in an amount sufficient to satisfy the accrued taxes on each excess in-
clusion. The anticipated excess inclusions and the present value rate are de-
termined in the same manner as set forth above under "Disqualified Organiza-
tions." 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 un-
willing 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 trans-
feree 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 Re-
sidual 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 pro-
vide 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 re-
strictions pursuant to which such a transfer may be made. The term "U.S. Per-
son" means a citizen or resident of the United States, a corporation, partner-
ship or other entity created or organized in or under the laws of the United
States or any political subdivision thereof, an estate that is subject to U.S.
federal income tax regardless of the source of its income, or a trust if (A)
for taxable years beginning after December 31, 1996 (or for taxable years end-
ing after August 20, 1996, if the trustee has made an applicable election), a
court within the United States is able to exercise primary supervision over
the administration of such trust, and one or more United States fiduciaries
have the authority to control all substantial decisions of such trust, or (B)
for all other taxable years, such trust 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 real-
ized over the adjusted basis (as described above under "Taxation of Residual
Certificates--Basis and Losses") of such Residual Holder in such Residual Cer-
tificate 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 Certifi-
cate as a capital asset under Code Section 1221, then it will recognize a cap-
ital 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 transac-
tion" 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 be-
fore the sale or disposition of the Residual Certificate and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any residual interest in
any REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC
owner trust) that is economically comparable to a Residual Certificate.
Mark to Market Regulations
The Internal Revenue Service has issued final regulations (the "Mark to Mar-
ket 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
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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
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 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 trans-
actions, 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) substi-
tution within two years of the Startup Day for a defective (including a de-
faulted) obligation (or repurchase in lieu of substitution of a defective (in-
cluding 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 fa-
cilitate a clean-up call (generally, an optional termination to save adminis-
trative costs when no more than a small percentage of the Certificates is out-
standing). 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 adjust-
able 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. Ex-
ceptions 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 facili-
tate 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 corpo-
rate 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 prop-
erty" for a period of two years, with possible extensions. Net income from
foreclosure property generally means gain from the sale of a foreclosure prop-
erty that is inventory property and gross income from foreclosure property
other than qualifying rents and other qualifying income for a real estate in-
vestment trust. It is not anticipated that the REMIC Pool will have any tax-
able net income from foreclosure property.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC Pool's final tax return a date on which such adoption is deemed to oc-
cur, and sells all of its assets (other than cash) within a 90-day period be-
ginning 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 Certifi-
cates and Residual Holders within the 90-day period.
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ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year ba-
sis 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 regula-
tions provide that, except where there is a single Residual Holder for an en-
tire taxable year, the REMIC Pool will be subject to the procedural and admin-
istrative rules of the Code applicable to partnerships, including the determi-
nation 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 re-
spect 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 limi-
tation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not ex-
ceed 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 un-
der 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 limi-
tation on deductions. In addition, such expenses are not deductible at all for
purposes of computing the alternative minimum tax, and may cause such invest-
ors 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 in-
vestment 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 Re-
sidual Certificates, where such Regular Certificates are issued in a manner
that is similar to pass-through certificates in a fixed investment trust. Un-
less indicated otherwise in the applicable Prospectus Supplement, all such ex-
penses will be allocable to the Residual Certificates. In general, such allo-
cable 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, partner-
ship, S corporation, REMIC, or certain other pass-through entities described
in the foregoing temporary Treasury regulations) may have taxable income in
excess of the interest income at the pass-through rate on Regular Certificates
that are issued in a single class or otherwise consistently with fixed invest-
ment 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 corpo-
ration 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 dis-
tributions under Code Section 1441 or 1442, with an appropriate statement,
signed under penalties of perjury, identifying the beneficial owner and stat-
ing, 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
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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 con-
sequences 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 with-
holding tax. Treasury regulations provide that amounts distributed to Residual
Holders may qualify as "portfolio interest," subject to the conditions de-
scribed 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). Gen-
erally, 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 in-
come that constitutes an "excess inclusion." See "Taxation of Residual Certif-
icates--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 disposi-
tion 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 poten-
tial." Investors who are Non-U.S. Persons should consult their own tax advi-
sors regarding the specific tax consequences to them of owning Residual Cer-
tificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable pay-
ments" (including interest distributions, original issue discount, and, under
certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification proce-
dures, including the provision of its taxpayer identification number to the
Trustee, its agent or the broker who effected the sale of the Regular Certifi-
cate, or such Certificateholder is otherwise an exempt recipient under appli-
cable 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 neces-
sary to compute the accrual of market discount will be made annually to the
Internal Revenue Service and to individuals, estates, non-exempt and non-char-
itable trusts, and partnerships who are either holders of record of Regular
Certificates or beneficial owners who own Regular Certificates through a bro-
ker or middleman as nominee. All brokers, nominees and all other non-exempt
holders of record of Regular Certificates (including corporations, non-calen-
dar 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 Reve-
nue 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 pro-
posed Treasury regulations) in which the REMIC Pool is in existence.
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Treasury regulations require that, in addition to the foregoing require-
ments, information must be furnished quarterly to Residual Holders, furnished
annually, if applicable, to holders of Regular Certificates, and filed annu-
ally 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 Cer-
tificates, and filed annually with the Internal Revenue Service concerning the
percentage of the REMIC Pool's assets meeting the qualified asset tests de-
scribed 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 segre-
gated 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 cor-
poration 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 un-
divided interest in each of the Mortgage Loans, subject to the discussion be-
low 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, as-
sumption fees, and late payment charges received by the Servicer, in accor-
dance with such Certificateholder's method of accounting. A Certificateholder
generally will be able to deduct its share of the Servicing Fee and all admin-
istrative 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 individu-
als, estates or trusts who own Certificates, either directly or indirectly
through certain pass-through entities, will be subject to limitation with re-
spect to certain itemized deductions described in Code Section 67, including
deductions under Code Section 212 for the Servicing Fee and all such adminis-
trative and other expenses of the Trust Estate, to the extent that such deduc-
tions, 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 re-
duced 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 ex-
penses are not deductible at all for purposes of computing the alternative
minimum tax, and may cause such investors to be subject to significant addi-
tional tax liability. Moreover, where there is Fixed Retained Yield with re-
spect to the Mortgage Loans underlying a Series of Certificates or where the
servicing fees are in excess of reasonable servicing compensation, the trans-
action 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 de-
scribed 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 repre-
sent "loans. . .secured by an interest in real property which
is. . .residential 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 sec-
tion of the Code.
2. A Certificate owned by a real estate investment trust will be consid-
ered 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 con-
sist of qualified assets, and interest income on such assets will be con-
sidered "interest on obligations secured by mortgages on real property" to
such extent within the meaning of Code Section 856(c)(3)(B).
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3. A Certificate owned by a REMIC will be considered to represent an "ob-
ligation (including any participation or certificate of beneficial owner-
ship 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 as-
sets 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 and 2 of the immediately
preceding paragraph. 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. According-
ly, 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 ini-
tial acquisition of Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Certifi-
cate will be determined generally as described above under "Federal Income Tax
Consequences for REMIC Certificates--Taxation of Residual Certificates--Premi-
um."
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 dis-
count income are applicable to mortgages of corporations originated after May
27, 1969, mortgages of noncorporate mortgagors (other than individuals) origi-
nated 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 prepay-
ment 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 obli-
gation after its initial issuance at a price greater than the sum of the orig-
inal 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 dis-
count rules to the extent that the conditions for application of those sec-
tions 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 meth-
ods 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 Prospec-
tus 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 in-
come nor a deduction to Certificateholders. In this regard, there are no au-
thoritative guidelines for federal income tax purposes as to either the maxi-
mum amount of servicing compensation that may be considered reasonable in the
context
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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 appropri-
ate, the likelihood that such amount would exceed reasonable servicing compen-
sation 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 har-
bors for servicing deemed to be reasonable and requires taxpayers to demon-
strate 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 pay-
ments on the Mortgage Loans. Under the rules of Code Section 1286, the separa-
tion 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 pay-
ments on the obligation would result in treatment of such Mortgage Loans as
"stripped coupons" and "stripped bonds." Subject to the de minimis rule dis-
cussed below under "--Stripped Certificates," each stripped bond or stripped
coupon could be considered for this purpose as a non-interest bearing obliga-
tion 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 sec-
ond 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 de-
scription 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 repre-
sented 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 Certifi-
cate 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 Cer-
tificate 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 Recon-
ciliation Act of 1993 capital gains of certain noncorporate taxpayers are sub-
ject to a lower maximum tax rate than ordinary income of such taxpayers. The
maximum tax rate for corporations is the same with respect to both ordinary
income and capital gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates." The Certificates will be subject to those rules if (i) the
Seller or any of its affiliates retains (for its own account or for purposes
of resale), in the form of Fixed Retained Yield or otherwise, an ownership in-
terest 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 Mort-
gage Loans to the extent it is paid (or retains) servicing compensation in an
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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 repre-
senting 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 re-
spect 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 re-
spective entitlements to distributions of each Class (or Subclass) of Stripped
Certificates for the related period or periods. The holder of a Stripped Cer-
tificate 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 Certifi-
cates 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 asso-
ciation taxable as a corporation or a "taxable mortgage pool" within the mean-
ing of Code Section 7701(i), and (ii) each Stripped Certificate should be
treated as a single installment obligation for purposes of calculating origi-
nal 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 re-
spect to Stripped Certificates could be made in one of the ways described be-
low under "Taxation of Stripped Certificates Possible Alternative Characteri-
zations," the OID Regulations state, in general, that two or more debt instru-
ments 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 de-
scribed below using this aggregate approach, unless substantial legal author-
ity 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 is-
sued 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, as-
suming it is not an interest-only or super-premium Stripped Certificate. Fur-
ther, these final regulations provide that the purchaser of such a Stripped
Certificate will be required to account for any discount as market discount
rather than original issue discount if either (i) the initial discount with
respect to the Stripped Certificate was treated as zero under the de minimis
rule, or (ii) no more than 100 basis points in excess of reasonable servicing
is stripped off the related Mortgage Loans. Any such market discount would be
reportable as described above under "Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Market Discount," without re-
gard 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 "real estate assets" within the meaning of
Code Section 856(c)(5)(A), "obligation[s] . . . principally secured by an in-
terest 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 dis-
count) 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 treat-
ment. The application of such Code provisions to Buy-Down Loans is uncertain.
See "Certificates--Tax Status" above.
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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 is-
sue discount for federal income tax purposes. Original issue discount with re-
spect to a Stripped Certificate must be included in ordinary income as it ac-
crues, 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 at-
tributable to such income. Based in part on the OID Regulations and the amend-
ments 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 in-
come 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 qualfying as a market discount obligation as de-
scribed 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 un-
der the Prepayment Assumption, other than qualified stated interest.
If the Mortgage Loans prepay at a rate either faster or slower than that un-
der 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 Regula-
tions. The OID Regulations, as they relate to the treatment of contingent in-
terest, 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 OID Regulations, such regulations may lead to different timing of in-
come inclusion than would be the case under the OID Regulations for non-con-
tingent debt instruments. 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 un-
clear whether for federal income tax purposes such Classes of Stripped Certif-
icates 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 interpreta-
tions of the applicable Code provisions. For example, the Stripped
Certificateholder may be treated as the owner of (i) one installment obliga-
tion consisting of such Stripped Certificate's pro rata share of the payments
attributable to principal on each Mortgage Loan and a second installment obli-
gation consisting of such Stripped Certificate's pro rata share of the pay-
ments 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. Alter-
natively, the
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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 obli-
gation, as to the remainder. Final regulations issued on December 28, 1992 re-
garding original issue discount on stripped obligations make the foregoing in-
terpretations 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 fed-
eral income tax returns. Such information will include the amount of original
issue discount accrued on Certificates held by persons other than
Certificateholders exempted from the reporting requirements. The amount re-
quired 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, un-
less provided otherwise in the applicable Prospectus Supplement, such report-
ing will be based upon a representative initial offering price of each Class
of Stripped Certificates. The Master Servicer will also file such original is-
sue 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 fed-
eral income tax return, 31% backup withholding may be required in respect of
any reportable payments, as described above under "Federal Income Tax Conse-
quences 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 own-
ership interest in Mortgage Loans issued after July 18, 1984 will be "portfo-
lio interest" and will be treated in the manner, and such persons will be sub-
ject 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 ap-
plies ("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.
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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 be-
low) applies, including whether the appropriate conditions set forth therein
would be met, or whether any statutory prohibited transaction exemption is ap-
plicable, and further should consult the applicable Prospectus Supplement re-
lating to such Series of Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
General. In accordance with ERISA's general fiduciary standards, before in-
vesting 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 diversifica-
tion of its portfolio. A Plan fiduciary should especially consider the ERISA
requirement of investment prudence and the sensitivity of the return on the
Certificates to the rate of principal repayments (including prepayments) on
the Mortgage Loans, as discussed in "Prepayment and Yield Considerations"
herein.
Parties in Interest/Disqualified Persons. Other provisions of ERISA (and
corresponding provisions of the Code) prohibit certain transactions involving
the assets of a Plan and persons who have certain specified relationships to
the Plan (so-called "parties in interest" within the meaning of ERISA or "dis-
qualified 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 Sell-
er, 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 Es-
tate were deemed to constitute Plan assets, it is possible that a Plan's in-
vestment 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 Es-
tate) for purposes of the reporting and disclosure and general fiduciary re-
sponsibility 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 Certifi-
cates 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 con-
tinuing 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), and any entity whose assets include "plan
assets" by reason of benefit plan investment in such entity, but this excep-
tion is tested immediately after each acquisition of an equity interest in the
entity whether upon initial issuance or in the secondary market.
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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 under-
writer serves as the sole or a managing underwriter, or as a selling or place-
ment agent. If such an Underwriter's Exemption might be applicable to a Series
of Certificates, the applicable Prospectus Supplement will refer to such pos-
sibility.
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 Serv-
ice, Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch In-
vestors Service, L.P. ("Fitch");
(4) The Trustee must not be an affiliate of any other member of the Re-
stricted 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 mar-
ketplace;
(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 Certif-
icates; 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 Certifi-
cates by Plans would be exempt from the prohibited transaction provisions of
ERISA and the Code.
Moreover, an Underwriter's Exemption can provide relief from certain self-
dealing/conflict of interest prohibited transactions that may occur if a Plan
fiduciary causes a Plan to acquire Certificates in a Trust Estate in which the
fiduciary (or its affiliate) is an obligor on the Mortgage Loans held in the
Trust Estate provided that, among other requirements: (i) in the case of an
acquisition in connection with the initial issuance of Certificates, at least
fifty percent of each class of Certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the Trust Estate is acquired by persons
independent of the Restricted Group (as defined below); (ii) such fiduciary
(or its affiliate) is an obligor with respect to five percent or less of the
fair market value of the Mortgage Loans contained in the Trust Estate; (iii)
the Plan's investment in Certificates of any Class does not exceed twenty-five
percent of all of the Certificates of that Class outstanding at the time of
the acquisition and (iv) immediately after the acquisition no more than twen-
ty-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.
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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 Transac-
tions 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 residen-
tial mortgage pool pass-through certificates by Plans, whether or not the
Plan's assets would be deemed to include an ownership interest in the mort-
gages in such mortgage pools, and whether or not such transactions would oth-
erwise 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 deduc-
tions) on a Trust Estate or only of a specified percentage of future principal
payments on a Trust Estate, (b) Residual Certificates, (c) Certificates evi-
dencing 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 condi-
tions 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 reduc-
tions in pass-through payments due to property damage or defaults in loan pay-
ments; (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 rea-
sonable 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 exemp-
tion), the Department did not have under its consideration interests in pools
of the exact nature as some of the Certificates described herein.
EXEMPT PLANS
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA), and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements and assets of such plans may be
invested in Certificates without regard to the ERISA considerations described
above but such plans may be subject to the provisions of other applicable fed-
eral and state law.
UNRELATED BUSINESS TAXABLE INCOME--RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan quali-
fied 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. Fur-
ther, 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 Organiza-
tion," 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--
84
<PAGE>
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 POTEN-
TIAL INVESTORS WHO ARE PLAN FIDUCIARIES CONSULT WITH THEIR COUNSEL REGARDING
THE CONSEQUENCES UNDER ERISA OF THEIR ACQUISITION AND OWNERSHIP OF CERTIFI-
CATES.
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 PAR-
TICULAR 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 Clas-
ses 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, associa-
tions, 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 re-
tirement 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 ex-
tent 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 enti-
ties (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 de-
pository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with mortgage re-
lated securities without limitation as to the percentage of their assets rep-
resented thereby, federal credit unions may invest in mortgage related securi-
ties, and national banks may purchase mortgage related securities for their
own account without regard to the limitations generally applicable to invest-
ment securities set forth in 12 U.S.C. (S) 24 (Seventh), subject in each case
to such regulations as the applicable federal regulatory authority may pre-
scribe. In this connection, federal credit unions should review National
Credit Union Administration ("NCUA") Letter to Credit Unions No. 96, as modi-
fied by Letter to Credit Unions No. 108, which includes guidelines to assist
federal credit unions in making investment decisions for mortgage related se-
curities. The NCUA has adopted rules, codified as 12 C.F.R.(S) 703.5(f)-(k),
which prohibit federal credit unions from investing in certain mortgage re-
lated securities (such as the Residual Certificates and the Stripped Certifi-
cates), 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 Sys-
tem, the Federal Deposit Insurance Corporation, the Comptroller of the Cur-
rency and the Office of Thrift Supervision and by the NCUA (with certain modi-
fications), 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 in-
stitutions.
Institutions whose investment activities are subject to regulation by fed-
eral or state authorities should review rules, policies and guidelines adopted
from time to time by such authorities before purchasing any of the Certifi-
cates, as certain Series or Classes (in particular, Certificates which are en-
titled 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).
85
<PAGE>
The foregoing does not take into consideration the applicability of stat-
utes, 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 se-
curities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage re-
lated securities," no representation is made as to the proper characterization
of the Certificates for legal investment purposes, financial institution regu-
latory purposes, or other purposes, or as to the ability of particular invest-
ors to purchase Certificates under applicable legal investment restrictions.
The uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteris-
tics of the Certificates) may adversely affect the liquidity of the Certifi-
cates.
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 Se-
ries will describe the method of offering being utilized for that Series and
will state the public offering or purchase price of each Class of Certificates
of such Series, or the method by which such price is to be determined, and the
net proceeds to the Seller from such sale.
The Certificates will be offered through the following methods from time to
time and offerings may be made concurrently through more than one of these
methods or an offering of a particular Series of Certificates may be made
through a combination of two or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters specified in the applicable Prospectus Supplement;
2. By placements by the Seller with investors through dealers; and
3. By direct placements by the Seller with investors.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated transac-
tions, 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 un-
derwriting and public reoffering by underwriters may be done through under-
writing 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 un-
derwriting syndicate, if any, will be named in such Prospectus Supplement. The
Prospectus Supplement will describe any discounts and commissions to be al-
lowed or paid by the Seller to the underwriters, any other items constituting
underwriting compensation and any discounts and commissions to be allowed or
paid to the dealers. The obligations of the underwriters will be subject to
certain conditions precedent. The underwriters with respect to a sale of any
Class of Certificates will be obligated to purchase all such Certificates if
any are purchased. The Seller, and, if specified in the applicable Prospectus
Supplement, Norwest Mortgage, will indemnify the applicable underwriters
against certain civil liabilities, including liabilities under the Securities
Act.
The Prospectus Supplement with respect to any Series of Certificates offered
other than through underwriters will contain information regarding the nature
of such offering and any agreements to be entered into between the Seller and
dealers and/or the Seller and purchasers of Certificates of such Series.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
86
<PAGE>
If specified in the Prospectus Supplement relating to a Series of Certifi-
cates, 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 underwrit-
ers at a price specified or described in such Prospectus Supplement. Such pur-
chaser may thereafter from time to time offer and sell, pursuant to this Pro-
spectus, 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 Cer-
tificates 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 partici-
pating in such purchaser's offering of such Certificates may receive compensa-
tion 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 Cer-
tificates 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 Se-
ries.
LEGAL MATTERS
Certain legal matters, including the federal income tax consequences to
Certificateholders of an investment in the Certificates of a Series, will be
passed upon for the Seller by Cadwalader, Wickersham & Taft, New York.
RATING
It is a condition to the issuance of the Certificates of any Series offered
pursuant to this Prospectus and a Prospectus Supplement that they be rated in
one of the four highest categories by at least one Rating Agency.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rat-
ing Agency. Each securities rating should be evaluated independently of any
other rating.
87
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
1986 Act.................................................................. 61
Accrual Certificates...................................................... 32
Additional Collateral..................................................... 17
Advances.................................................................. 41
ALTA...................................................................... 23
Asset Conservation Act.................................................... 57
Balloon Loan.............................................................. 17
Balloon Period............................................................ 17
Bankruptcy Code........................................................... 55
Bankruptcy Loss........................................................... 33
Bankruptcy Loss Amount.................................................... 33
Beneficial Owner.......................................................... 29
Book-Entry Certificates................................................... 10
Buy-Down Fund............................................................. 17
Buy-Down Loans............................................................ 17
Cede...................................................................... 29
CERCLA.................................................................... 56
Certificate Account....................................................... 39
Certificateholder......................................................... 29
Certificates.............................................................. Cover
Class..................................................................... Cover
Cleanup Costs............................................................. 56
CMO Passpsort............................................................. 2
Code...................................................................... 11
Commission................................................................ 2
Cooperatives.............................................................. 14
Correspondents............................................................ 19
Credit Score.............................................................. 20
DCR....................................................................... 83
Deferred Interest......................................................... 16
Definitive Certificates................................................... 10
Delegated Underwriting.................................................... 20
Department................................................................ 82
Depository................................................................ 39
Detailed Information...................................................... 2
Disqualified Organization................................................. 71
Distribution Date......................................................... 9
DTC....................................................................... 10
DTC Participants.......................................................... 29
Due Date.................................................................. 15
Due on Sale............................................................... 57
EDGAR..................................................................... 2
Eligible Custodial Account................................................ 39
Eligible Investments...................................................... 40
EPA....................................................................... 57
ERISA..................................................................... 11
Excess Bankruptcy Losses.................................................. 33
Excess Fraud Losses....................................................... 33
Excess Special Hazard Losses.............................................. 33
FDIC...................................................................... 39
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
FHLBB..................................................................... 57
FHLMC..................................................................... 23
FICO Score................................................................ 20
Fitch..................................................................... 83
Fixed Retained Yield...................................................... 32
FNMA...................................................................... 23
Fraud Loss................................................................ 33
Fraud Loss Amount......................................................... 33
Garn Act.................................................................. 57
GEMICO.................................................................... 23
Government Securities..................................................... 60
Graduated Pay Mortgage Loans.............................................. 16
Growing Equity Mortgage Loans............................................. 16
Holder.................................................................... 29
Indirect DTC Participants................................................. 29
IRA....................................................................... 81
Joint Ventures............................................................ 19
Liquidation Proceeds...................................................... 39
Loan Stores............................................................... 19
Mark to Market Regulations................................................ 72
Master Servicer........................................................... Cover
Master Servicing Fee...................................................... 32
Moody's................................................................... 83
Mortgage Interest Rate.................................................... 32
Mortgage Loans............................................................ Cover
Mortgage Notes............................................................ 14
Mortgaged Properties...................................................... 14
Mortgages................................................................. 14
NASCOR.................................................................... Cover
NCUA...................................................................... 85
Net Foreclosure Profits................................................... 31
Net Mortgage Interest Rate................................................ 31
Non-Pro Rata Certificate.................................................. 62
Non-U.S. Person........................................................... 75
Norwest Bank.............................................................. Cover
Norwest Corporation....................................................... 2
Norwest Funding........................................................... 18
Norwest Mortgage.......................................................... Cover
Norwest Mortgage Loans.................................................... 18
Norwest Mortgage Sale Agreement........................................... 47
OID Regulations........................................................... 62
Other Advances............................................................ 41
OTS....................................................................... 57
Partial Liquidation Proceeds.............................................. 31
Pass-Through Rate......................................................... 9
Pass-Through Entity....................................................... 70
Paying Agent.............................................................. 41
PCBS...................................................................... 56
Percentage Interest....................................................... 30
Periodic Advances......................................................... 10
PHMC...................................................................... 18
PHMC Acquisition.......................................................... 18
</TABLE>
89
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
PHMC Mortgage Loans....................................................... 18
PHMSC..................................................................... 18
Plans..................................................................... 81
Pledged Asset Mortgage Loans.............................................. 17
Policy Statement.......................................................... 85
Pool Distribution Amount.................................................. 30
Pool Insurers............................................................. 23
Pooling and Servicing Agreement........................................... 8
Prepayment Assumption..................................................... 63
Program Loans............................................................. 38
PTE 83-1.................................................................. 84
Qualified Mortgage........................................................ 27
Rating Agency............................................................. 11
Record Date............................................................... 9
Regular Certificateholder................................................. 61
Regular Certificates...................................................... 28
Regulations............................................................... 82
Relief Act................................................................ 55
REMIC..................................................................... Cover
REMIC Certificates........................................................ 59
REMIC Pool................................................................ 59
REMIC Regulations......................................................... 59
Remittance Date........................................................... 39
Reserve Fund.............................................................. 34
Residual Certificates..................................................... 28
Residual Holders.......................................................... 67
Restricted Group.......................................................... 84
Rules..................................................................... 29
S&P....................................................................... 83
SBJPA of 1996............................................................. 60
Scheduled Principal Balance............................................... 48
Securities Act............................................................ 2
Seller.................................................................... Cover
Senior Certificates....................................................... Cover
Series.................................................................... Cover
Servicer.................................................................. Cover
Servicer Custodial Account................................................ 39
Servicing Account......................................................... 42
Servicing Fee............................................................. 32
SMMEA..................................................................... 85
Special Hazard Loss....................................................... 33
Special Hazard Loss Amount................................................ 33
Standard Hazard Insurance Policy.......................................... 44
Startup Day............................................................... 60
Stripped Certificateholder................................................ 80
Stripped Certificates..................................................... 76
Subclass.................................................................. Cover
Subordinated Certificates................................................. Cover
Subsidy Account........................................................... 16
Subsidy Loans............................................................. 16
Subsidy Payments.......................................................... 16
</TABLE>
90
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Superliens................................................................ 56
The Bloomberg............................................................. 2
Tiered Payment Mortgage Loans............................................. 16
Title V................................................................... 58
Title Option Plus......................................................... 23
T.O.P. Loans.............................................................. 23
Treasury Regulations...................................................... 48
Trust Estate.............................................................. Cover
Trustee................................................................... 51
Trustee Fee............................................................... 32
U.S. Person............................................................... 72
UCC....................................................................... 53
UGRIC..................................................................... 23
Underlying Servicing Agreement............................................ 8
Underlying Servicing Agreements........................................... 38
Underwriter's Exemption................................................... 83
Voting Interests.......................................................... 49
Window Period............................................................. 58
Window Period Loans....................................................... 58
Window Period States...................................................... 58
</TABLE>
91
<PAGE>
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS SUP-
PLEMENT OR THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
SELLER, OR BY THE UNDERWRITER. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE AC-
COMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OF-
FER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PER-
SON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF
OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER OR SINCE SUCH
DATE.
---------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TABLE OF CONTENTS......................................................... S-7
SUMMARY INFORMATION....................................................... S-8
RISK FACTORS.............................................................. S-31
DESCRIPTION OF THE CERTIFICATES........................................... S-32
DESCRIPTION OF THE MORTGAGE LOANS......................................... S-68
DELINQUENCY AND FORECLOSURE EXPERIENCE.................................... S-74
PREPAYMENT AND YIELD CONSIDERATIONS....................................... S-78
POOLING AND SERVICING AGREEMENT........................................... S-91
SERVICING OF THE MORTGAGE LOANS........................................... S-93
FEDERAL INCOME TAX CONSIDERATIONS......................................... S-96
ERISA CONSIDERATIONS...................................................... S-99
LEGAL INVESTMENT.......................................................... S-100
SECONDARY MARKET.......................................................... S-100
UNDERWRITING.............................................................. S-101
LEGAL MATTERS............................................................. S-101
USE OF PROCEEDS........................................................... S-101
RATINGS................................................................... S-101
INDEX OF SIGNIFICANT PROSPECTUS SUPPLEMENT DEFINITIONS.................... S-103
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.............................................................. 12
THE TRUST ESTATES......................................................... 14
THE SELLER................................................................ 17
NORWEST MORTGAGE.......................................................... 18
NORWEST BANK.............................................................. 18
THE MORTGAGE LOAN PROGRAMS................................................ 19
DESCRIPTION OF THE CERTIFICATES........................................... 28
PREPAYMENT AND YIELD CONSIDERATIONS....................................... 35
SERVICING OF THE MORTGAGE LOANS........................................... 37
CERTAIN MATTERS REGARDING THE MASTER SERVICER............................. 46
THE POOLING AND SERVICING AGREEMENT....................................... 47
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS............................... 52
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 59
ERISA CONSIDERATIONS...................................................... 81
LEGAL INVESTMENT.......................................................... 85
PLAN OF DISTRIBUTION...................................................... 86
USE OF PROCEEDS........................................................... 87
LEGAL MATTERS............................................................. 87
RATING.................................................................... 87
INDEX OF SIGNIFICANT DEFINITIONS.......................................... 88
</TABLE>
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LOGO
$466,260,582
(APPROXIMATE)
NORWEST ASSET
SECURITIES CORPORATION
("NASCOR")
SELLER
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 1997-6
---------------
PROSPECTUS SUPPLEMENT
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
April 22, 1997
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LOGO
