<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 1997
REGISTRATION NO. 333-21263
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
NORWEST ASSET SECURITIES CORPORATION
(Exact name of registrant as specified in governing instruments)
7485 NEW HORIZON WAY
FREDERICK, MARYLAND 21703
(301) 846-8881
(Address of principal executive offices)
LAWRENCE D. RUBENSTEIN, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
NORWEST ASSET SECURITIES CORPORATION
C/O NORWEST MORTGAGE, INC.
343 THORNALL STREET, 5TH FLOOR
EDISON, NEW JERSEY 08837
(908) 906-3909
(Name and address of agent for service)
------------------
COPIES TO:
JORDAN M. SCHWARTZ, ESQ.
CADWALADER, WICKERSHAM & TAFT
100 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 504-6000
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------
If the only securities being registered on this Form are being offered pur-
suant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
If this form is filed to register additional securities for an offering pur-
suant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier ef-
fective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) un-
der the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration state-
ment for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- --------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED BEING REGISTERED PER UNIT OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through
Certificates......... $10,000,000,000 100%(1) $10,000,000,000 $3,030,303.03(2)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2)$303.03 Previously Paid.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
PURSUANT TO RULE 429 OF THE SECURITIES AND EXCHANGE COMMISSION'S RULES AND
REGULATIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE PROSPECTUS AND
PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION NO. 333-
02209).
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT, SUBJECT TO COMPLETION, DATED MARCH 12, 1997
$ (APPROXIMATE)
[LOGO OF NORWEST APPEARS HERE]
NORWEST ASSET SECURITIES CORPORATION
("NASCOR")
SELLER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199 -
PRINCIPAL AND INTEREST PAYABLE MONTHLY, COMMENCING IN 199
------------
The Series 199 - Mortgage Pass-Through Certificates (the "Series 199 - Cer-
tificates") will consist of two classes of senior certificates (the "Class A
Certificates" and the "Class AP Certificates," respectively, and together, the
"Senior Certificates") and two classes of subordinated certificates (the "Class
M Certificates" and the "Class B Certificates," respectively, and together, the
"Subordinated Certificates"). The Senior Certificates are entitled to a certain
priority, relative to the Class M and Class B Certificates, in right of distri-
butions on the Mortgage Loans. As between the Class M Certificates and the
Class B Certificates, the Class M Certificates are entitled to a certain prior-
ity in right of distributions on the Mortgage Loans. The Class A Certificates
will consist of six subclasses of Certificates designated as the Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5 and Class A-R Certificates. The
Class AP and Class M Certificates will not be divided into Subclasses. The
Class B Certificates will consist of five Subclasses of Certificates designated
as the Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates,
none of which is offered hereby. Each subclass of Class A Certificates or Class
B Certificates is referred to herein as a "Subclass." The Class A Certificates,
the Class AP Certificates and the Class M Certificates are the only Series
199 - Certificates being offered hereby and are referred to herein collec-
tively as the "Offered Certificates."
The Class A-1 Certificates are planned amortization class certificates and
are referred to herein as the "PAC Certificates." The Class A-2 Certificates
are targeted amortization class certificates and are referred to herein as the
"TAC Certificates." The Class A-3 Certificates are companion certificates and
are referred to herein as the "Companion Certificates."
(Continued on next page)
PROSPECTIVE INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT ON PAGE S-28 AND
IN THE PROSPECTUS ON PAGE 13.
------------
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>
PASS-
SUBCLASS OR CLASS INITIAL SUBCLASS OR CLASS THROUGH
DESIGNATION PRINCIPAL BALANCE (1) RATE
- ------------------------------------------------------
<S> <C> <C>
Class A-1........ $ %
Class A-2........ $ %
Class A-3........ $ %
Class A-4........ $ %
</TABLE>
<TABLE>
<CAPTION>
PASS-
SUBCLASS OR CLASS INITIAL SUBCLASS OR CLASS THROUGH
DESIGNATION PRINCIPAL BALANCE (1) RATE
<S> <C> <C>
Class A-5........ $ %
Class A-R........ $ %
Class AP......... $ (2)
Class M.......... $ %
</TABLE>
================================================================================
(1) Approximate. The initial Subclass or Class Principal Balances are subject
to adjustment as described herein.
(2) The Class AP Certificates are principal-only certificates and will not be
entitled to distributions in respect of interest.
The Offered Certificates will be purchased by [Underwriter] (the "Underwrit-
er") 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 ap-
proximately % of the initial aggregate principal balance of the Class A,
Class AP and Class M Certificates plus accrued interest thereon, other than on
an amount equal to the initial aggregate principal balance of the Class AP Cer-
tificates, before deducting expenses payable by the Seller estimated to be
$ . The price to be paid to the Seller for the Class A, Class AP and Class M
Certificates has not been allocated among the Class A, Class AP and Class M
Certificates nor among the Subclasses of Class A Certificates. See "Underwrit-
ing" herein.
The Offered Certificates are offered by the Underwriter subject to prior
sale, when, as and if accepted by the Underwriter and subject to certain condi-
tions. It is expected that the Offered Certificates will be available for de-
livery through the facilities of The Depository Trust Company or, in the case
of the Class A-R, Class AP and Class M Certificates, at the offices of , New
York, New York , in each case, on or about , 199 .
[UNDERWRITER]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 199 .
<PAGE>
(Continued from previous page)
The credit enhancement for the Series 199 - Certificates is provided through
the use of a "shifting interest" type subordination, which has the effect of
allocating all or a disproportionate amount of principal prepayments and other
unscheduled receipts of principal to the Class A Certificates in the aggregate
for at least nine years beginning on the first Distribution Date. See "Summary
Information -- Credit Enhancement" and "-- Effects of Prepayments on Investment
Expectations," "Description of the Certificates" and "Prepayment and Yield Con-
siderations" herein.
The Series 199 - 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 of approximately years (the "Mortgage Loans"), other than the
Fixed Retained Yield described herein, together with certain related property.
Certain of the Mortgage Loans may be secured primarily by shares issued by co-
operative housing corporations. The servicing of the Mortgage Loans will be
performed by various servicers identified herein (each, a "Servicer"), includ-
ing Norwest Mortgage, Inc. ("Norwest Mortgage"), an affiliate of both the
Seller and Norwest Bank Minnesota, National Association ("Norwest Bank"), and
will be supervised by Norwest Bank (in such capacity, the "Master Servicer").
The Mortgage Loans will be acquired by the Seller on the date of issuance of
the Series 199 - Certificates from Norwest Mortgage, and will have been origi-
nated by Norwest Mortgage or acquired by Norwest Mortgage from various entities
(each, a "Correspondent"). The Mortgage Loans not originated by Norwest Mort-
gage were originated by the Correspondents or acquired by the Correspondents
pursuant to mortgage loan purchase programs operated by such Correspondents.
See "Description of the Mortgage Loans" herein. The Senior Certificates will
initially evidence in the aggregate an approximate % undivided interest in
the principal balance of the Mortgage Loans. The Class M Certificates will ini-
tially evidence in the aggregate an approximate % interest in the principal
balance of the Mortgage Loans. The remaining approximate % undivided interest
in the principal balance of the Mortgage Loans will be evidenced by the Class B
Certificates.
Distributions in respect of interest and principal will be made on the 25th
day of each month or, if such day is not a business day, on the succeeding
business day (each a "Distribution Date"), commencing in 199 , to the
holders of Offered Certificates, as described herein. The amount of interest
accrued on any Subclass or Class of Offered Certificates (other than the
Class AP Certificates) will be reduced by any prepayment interest shortfalls
and certain other shortfalls in the collection of interest from mortgagors, as
well as certain losses, as described herein under "Description of the Certifi-
cates -- Interest." The Class AP Certificates are principal-only certificates
and will not be entitled to distributions of interest. On any Distribution
Date, the holders of the Class M Certificates will receive distributions of in-
terest only if the holders of the Senior Certificates have received all amounts
due them (other than the Class AP Deferred Amount) on such date. Distributions
of principal to holders of the Class M Certificates will be made only after the
holders of the Class AP Certificates have received the Class AP Deferred Amount
and the holders of the Class M Certificates have received the amount of inter-
est due them with respect to such Distribution Date. On any Distribution Date,
the holders of a Subclass of Class B Certificates will receive distributions of
interest only if the holders of the Senior Certificates and Class M Certifi-
cates and each Subclass of Class B Certificates with a lower numerical designa-
tion have received all amounts of interest and of principal (other than the
Class AP Deferred Amount) to which they are entitled on such date. Distribu-
tions of principal to holders of a Subclass of Class B Certificates will be
made only after the Senior Certificates, the Class M Certificates and each
Subclass of Class B Certificates with a lower numerical designation have re-
ceived all distributions to which they are entitled (including in the case of
the Class AP Certificates, the Class AP Deferred Amount) and such Subclass has
received the amount of interest due with respect to such Distribution Date.
Distributions in reduction of the principal balance of the
S-2
<PAGE>
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)." Distri-
butions to each Subclass or undivided Class of Offered Certificates will be
made pro rata among Certificateholders of such Subclass or Class.
The Offered Certificates may not be an appropriate investment for individual
investors who do not have sufficient resources or expertise to evaluate the
particular characteristics of the applicable Classes or Subclasses of Offered
Certificates. This may be the case because:
. The yield to maturity of Offered Certificates purchased at a price other
than par will be sensitive to the uncertain rate and timing of principal
prepayments on the Mortgage Loans;
. The rate of principal distributions on, and the weighted average life of,
the Offered Certificates will be sensitive to the uncertain rate and tim-
ing of principal prepayments on the Mortgage Loans;
. As discussed below, there can be no assurance that a secondary market for
the Offered Certificates will develop or provide Certificateholders with
liquidity of investment; and
. The Offered Certificates are subject to the further risks and other spe-
cial 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 AP CERTIFICATES, THE RISK THAT A SLOWER THAN ANTICIPATED RATE
OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE
LOANS, OR IN THE CASE OF THE CLASS AP CERTIFICATES, ON THE DISCOUNT MORTGAGE
LOANS, COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED. A FASTER
THAN ANTICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAY-
MENTS) ON THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN
ANTICIPATED FOR INVESTORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM. INVEST-
ORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM SHOULD ALSO CONSIDER THE RISK
THAT A RAPID RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS)
ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY
RECOVER THEIR INITIAL INVESTMENTS. THE YIELD TO INVESTORS IN THE CLASS AP CER-
TIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS OF THOSE MORTGAGE
LOANS WITH NET MORTGAGE INTEREST RATES LESS THAN % (THE "DISCOUNT MORTGAGE
LOANS"). THE YIELD TO MATURITY OF THE CLASS M CERTIFICATES WILL BE MORE SENSI-
TIVE THAN THE SENIOR CERTIFICATES TO THE AMOUNT AND TIMING OF LOSSES DUE TO
LIQUIDATIONS OF THE MORTGAGE LOANS, IN THE EVENT THAT THE CLASS B PRINCIPAL
BALANCE HAS BEEN REDUCED TO ZERO. SEE "DESCRIPTION OF THE CERTIFICATES -- IN-
TEREST," "-- PRINCIPAL (INCLUDING PREPAYMENTS)" AND "-- SUBORDINATION OF CLASS
M AND CLASS B CERTIFICATES" HEREIN AND "PREPAYMENT AND YIELD CONSIDERATIONS"
HEREIN AND IN THE PROSPECTUS.
THE WEIGHTED AVERAGE LIFE OF THE COMPANION CERTIFICATES WILL BE HIGHLY SENSI-
TIVE TO THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS. AT RATES AT OR ABOVE
CERTAIN PREPAYMENT LEVELS, PAYMENTS OF PRINCIPAL ALLOCATED TO THE CLASS A CER-
TIFICATES IN EXCESS OF AMOUNTS RESULTING FROM SUCH PREPAYMENT LEVELS WILL BE
PAID TO THE HOLDERS OF THE COMPANION CERTIFICATES PRIOR TO BEING PAID TO THE
HOLDERS OF THE TAC CERTIFICATES AND THE PAC CERTIFICATES, RESULTING IN A REDUC-
TION IN THE WEIGHTED AVERAGE LIFE OF THE COMPANION CERTIFICATES. AT OR BELOW
CERTAIN PREPAYMENT LEVELS, THE COMPANION CERTIFICATES MAY RECEIVE NO PRINCIPAL
PAYMENTS FOR EXTENDED PERIODS OF TIME, RESULTING IN AN EXTENSION OF THE
WEIGHTED AVERAGE LIFE THEREOF. SEE "PREPAYMENT AND YIELD CONSIDERATIONS" HERE-
IN.
The Offered Certificates, other than the Class A-R, Class AP and Class M Cer-
tificates, will be issued only in book-entry form (the "Book-Entry Certifi-
cates"), and purchasers thereof will not be entitled to receive definitive cer-
tificates except in the limited circumstances set forth herein. The Book-Entry
Certificates will be registered in the name of Cede & Co., as nominee of The
Depository Trust Company, which will be the "holder" or "Certificateholder" of
such Certificates, as such terms are used herein. See "Description of the Cer-
tificates" herein.
S-3
<PAGE>
Each Subclass and Class of Offered Certificates is offered in the minimum de-
nominations described herein under "Summary Information -- Forms of Certifi-
cates; Denominations." It is intended that the Offered Certificates not be di-
rectly 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
CERTIFICATES MAY NOT BE TRANSFERRED UNLESS THE TRANSFEREE HAS DELIVERED (I) A
REPRESENTATION LETTER TO THE TRUSTEE AND THE SELLER STATING EITHER (A) THAT THE
TRANSFEREE IS NOT A PLAN AND IS NOT ACTING ON BEHALF OF A PLAN OR USING THE AS-
SETS OF A PLAN TO EFFECT SUCH PURCHASE OR (B) SUBJECT TO CERTAIN CONDITIONS DE-
SCRIBED HEREIN, THAT THE SOURCE OF FUNDS USED TO PURCHASE THE CERTIFICATES IS
AN "INSURANCE COMPANY GENERAL ACCOUNT" OR (II) AN OPINION OF COUNSEL AS PRO-
VIDED IN THIS PROSPECTUS SUPPLEMENT. IN ADDITION, THE CLASS A-R CERTIFICATE MAY
NOT BE PURCHASED BY OR TRANSFERRED TO (I) A "DISQUALIFIED ORGANIZATION,"
(II) EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES, A PERSON WHO IS NOT A "U.S.
PERSON," (III) A PLAN OR (IV) ANY PERSON OR ENTITY WHO THE TRANSFEROR KNOWS OR
HAS REASON TO KNOW WILL BE UNWILLING OR UNABLE TO PAY WHEN DUE FEDERAL, STATE
OR LOCAL TAXES WITH RESPECT THERETO. See "ERISA Considerations" and "Descrip-
tion of the Certificates -- Restrictions on Transfer of the Class A-R and Class
M Certificates" herein and "Certain Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates" in the Prospectus.
An election will be made to treat the Trust Estate as a real estate mortgage
investment conduit (the "REMIC") for federal income tax purposes. As described
more fully herein and in the Prospectus, the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class AP, Class M, Class B-1, Class B-2, Class B-3, Class
B-4 and Class B-5 Certificates will constitute "regular interests" in the REMIC
and the Class A-R Certificate will constitute the "residual interest" in the
REMIC. PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE CLASS A-R
CERTIFICATEHOLDER'S REMIC TAXABLE INCOME AND THE LIABILITY THEREON MAY EXCEED,
AND MAY SUBSTANTIALLY EXCEED, CASH DISTRIBUTIONS TO SUCH HOLDER DURING CERTAIN
PERIODS, IN WHICH EVENT SUCH HOLDER MUST HAVE SUFFICIENT ALTERNATIVE SOURCES OF
FUNDS TO PAY SUCH TAX LIABILITY. See "Summary Information -- Federal Income Tax
Status" and "Federal Income Tax Considerations" herein and "Certain Federal In-
come Tax Consequences -- Federal Income Tax Consequences for REMIC Certifi-
cates" in the Prospectus.
The Class A Certificates represent six Subclasses of a Class, and the Class
AP and Class M Certificates each represent a Class, all of which are part of a
separate Series of Certificates being offered by the Seller pursuant to the
Prospectus dated , 199 accompanying this Prospectus Supplement. Any pro-
spective investor should not purchase any Offered Certificates described herein
unless it has received the Prospectus and this Prospectus Supplement. The Pro-
spectus shall not be considered complete without this Prospectus Supplement.
The Prospectus contains important information regarding this offering which is
not contained herein, and prospective investors are urged to read, in full, the
Prospectus and this Prospectus Supplement.
UNTIL , 199 , ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFI-
CATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE OB-
LIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
S-4
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary Information...................................................... S-7
Risk Factors............................................................. S-28
General................................................................. S-28
Subordination........................................................... S-28
Book-Entry System for Certain Classes and Subclasses of Certificates.... S-28
Description of the Certificates.......................................... S-29
Denominations........................................................... S-29
Definitive Form......................................................... S-29
Book-Entry Form......................................................... S-29
Distributions........................................................... S-29
Interest................................................................ S-32
Principal (Including Prepayments)....................................... S-36
Calculation of Amount to be Distributed to the Class A Certificates.... S-36
Calculation of Amount to be Distributed to the Class AP Certificates... S-39
Calculation of Amount to be Distributed to the Class M Certificates.... S-40
Allocation of Amount to be Distributed................................. S-43
Principal Payment Characteristics of the PAC Certificates, the TAC
Certificates and the Companion Certificates........................... S-46
Example of Distribution to Certificateholders........................... S-48
Additional Rights of the Class A-R Certificateholder.................... S-49
Periodic Advances....................................................... S-50
[Financial Security Assurance Inc. ..................................... S-50]
Restrictions on Transfer of the Class A-R and Class M Certificates...... S-52
Reports................................................................. S-53
Subordination of Class M and Class B Certificates....................... S-54
Allocation of Losses................................................... S-54
Description of the Mortgage Loans........................................ S-59
General................................................................. S-59
Mortgage Loan Data...................................................... S-62
Mandatory Repurchase or Substitution of Mortgage Loans.................. S-64
Optional Repurchase of Defaulted Mortgage Loans......................... S-64
Mortgage Underwriting Standards......................................... S-65
Norwest Mortgage Delinquency and Foreclosure Experience.................. S-66
Prepayment and Yield Considerations...................................... S-69
Sensitivity of the Class AP Certificates................................ S-75
Pooling and Servicing Agreement.......................................... S-77
General................................................................. S-77
Distributions........................................................... S-77
Voting.................................................................. S-77
Trustee................................................................. S-78
Master Servicer......................................................... S-78
Optional Termination.................................................... S-78
Servicing of the Mortgage Loans.......................................... S-79
The Servicers........................................................... S-79
Servicer Custodial Accounts............................................. S-79
Fixed Retained Yield; Servicing Compensation and Payment of Expenses.... S-80
Servicer Defaults....................................................... S-81
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Federal Income Tax Considerations......................................... S-81
Regular Certificates..................................................... S-81
Residual Certificate..................................................... S-82
ERISA Considerations...................................................... S-83
Legal Investment.......................................................... S-84
Secondary Market.......................................................... S-84
Underwriting.............................................................. S-85
Legal Matters............................................................. S-85
[Experts.................................................................. S-85]
Use of Proceeds........................................................... S-85
Ratings................................................................... S-86
Index of Significant Prospectus Supplement Definitions.................... S-87
</TABLE>
S-6
<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 199 -
Certificates (the "Series 199 - Certificates" or
the "Certificates").
Seller.................. Norwest Asset Securities Corporation (the "Seller").
Participant............. Norwest Mortgage, Inc. ("Norwest Mortgage"). The
Mortgage Loans that Norwest Mortgage sells to the
Seller will either have been originated by Norwest
Mortgage or acquired by Norwest Mortgage from vari-
ous entities (each, a "Correspondent"), which either
originated the Mortgage Loans or acquired the Mort-
gage Loans pursuant to mortgage loan purchase pro-
grams operated by the Correspondents. None of the
Correspondents is an affiliate of Norwest Mortgage.
Servicing/Servicers..... Norwest Mortgage and one or more other Servicers
(which will be Correspondents) approved by the Mas-
ter Servicer will provide customary servicing func-
tions with respect to the Mortgage Loans pursuant to
servicing agreements (each, an "Underlying Servicing
Agreement") assigned to the Trust Estate. Servicers
servicing more than % of the Mortgage Loans by
Cut-Off Date Aggregate Principal Balance are Norwest
Mortgage and . Among other things, the Servicers
are obligated under certain circumstances to advance
delinquent payments of principal and interest with
respect to the Mortgage Loans. Each of the Servicers
will be entitled to (i) a monthly Servicing Fee with
respect to each Mortgage Loan it services payable on
each Distribution Date that is expressed as one-
twelfth of a fixed percentage per annum multiplied
by the Scheduled Principal Balance of such Mortgage
Loan on the first day of the preceding Due Period
and (ii) other additional servicing compensation de-
scribed herein. The weighted average of the Servic-
ing Fee Rates is expected to be approximately %
as of the Cut-Off Date. See "Servicing of the Mort-
gage 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. The Master
Servicer will (a) monitor certain aspects of the
servicing of the Mortgage Loans, (b) cause the Mort-
gage Loans to be serviced in the event that a
Servicer is terminated and a successor Servicer is
not appointed, (c) provide administrative services
with respect to the Certificates, (d) provide cer-
tain reports to the Trustee regarding the Mortgage
Loans and the Certificates and (e) make advances, to
the extent described herein, with respect to the
Mortgage Loans if a Servicer
S-7
<PAGE>
(other than Norwest Mortgage) fails to make a re-
quired advance. The Master Servicer will be entitled
to (i) a monthly Master Servicing Fee with respect
to each Mortgage Loan, payable on each Distribution
Date, in an amount equal to one-twelfth of a fixed
percentage per annum multiplied by the Scheduled
Principal Balance of such Mortgage Loan on the first
day of the preceding month and (ii) any interest
earned on funds in the Certificate Account. See "The
Pooling and Servicing Agreement -- Master Servicer"
herein and "Norwest Bank," "Servicing of the Mort-
gage Loans -- The Master Servicer" and "Certain Mat-
ters Regarding the Master Servicer" in the Prospec-
tus.
Trustee................. [Trustee], a national banking association (the
"Trustee") will, in addition to performing the nor-
mal duties of trustee with respect to the Certifi-
cates, make advances, to the extent described here-
in, with respect to the Mortgage Loans if Norwest
Mortgage, as Servicer, fails to make a required ad-
vance. The Trustee will be entitled to a monthly
Trustee Fee with respect to each Mortgage Loan, pay-
able on each Distribution Date, in an amount equal
to one-twelfth of a fixed percentage per annum mul-
tiplied by the Scheduled Principal Balance of such
Mortgage Loan on the first day of the preceding
month. See "Pooling and Servicing Agreement --
Trustee" in this Prospectus Supplement.
Rating of
Certificates........... It is a condition to the issuance of the Series
199 - Certificates offered by this Prospectus Sup-
plement and the Prospectus that they shall have been
rated [["Aaa" by Moody's Investors Service, Inc.
("Moody's")] ["AAA" by [Fitch Investors Service,
L.P. ("Fitch")] [Duff & Phelps Credit Rating Co.
("DCR")]] [and] ["AAA" and "AAAr" by Standard and
Poor's ("S&P")]] and [["Aa" by Moody's] ["AA" by
[Fitch] [DCR] [S&P]] [and] ["A" by [Moody's] [Fitch]
[DCR] [S&P]] [and] [["Baa" by Moody's] ["BBB" by
[Fitch] [DCR] [S&P]. The ratings by [Moody's]
[Fitch] [DCR] [S&P] are not recommendations to buy,
sell or hold such certificates and may be subject to
revision or withdrawal at any time by the assigning
rating agency. The ratings do not address the possi-
bility that, as a result of principal prepayments,
holders of such certificates may receive a lower
than anticipated yield. See "-- Effects of Prepay-
ments on Investment Expectations" below and "Rat-
ings" in this Prospectus Supplement.
Description of
Certificates........... The Series 199 - Certificates will consist of the
Class A Certificates, the Class AP Certificates, the
Class M Certificates and the Class B Certificates.
The Class A and Class AP Certificates represent a
type of interest referred to in the Prospectus as
"Senior Certificates" and the Class M and Class B
Certificates represent a type of interest referred
to in the Prospectus as "Subordinated Certificates."
As these designations suggest, the Senior Certifi-
cates are entitled to a certain priority, relative
to the Class M and Class B Certificates, in right of
distributions on the mortgage loans underlying the
Series
S-8
<PAGE>
199 - Certificates (the "Mortgage Loans"). As be-
tween the Class M Certificates and the Class B Cer-
tificates, the Class M Certificates are entitled to
a certain priority in right of distributions on the
Mortgage Loans. See "-- Distributions of Principal
and Interest" below.
The Senior Certificates will initially evidence in
the aggregate an approximate % interest in the
principal balance of the Mortgage Loans. The Class M
Certificates will initially evidence in the aggre-
gate an approximate % interest in the principal
balance of the Mortgage Loans. The remaining approx-
imate % interest in the principal balance of the
Mortgage Loans will be evidenced by the Class B Cer-
tificates. The Class AP Certificates will evidence
an interest in portions of the principal balances of
Mortgage Loans that have Net Mortgage Interest
Rates, as defined on page S- , less than % (the
"Discount Mortgage Loans"), such initial interest in
the aggregate representing an approximate % inter-
est by principal balance of the Mortgage Loans (the
"Pool Balance (Class AP Portion)"). In addition, the
Class AP Certificates will represent an approximate
% initial interest in the principal balance of the
Discount Mortgage Loans. By virtue of the subordina-
tion of the Class M and Class B Certificates, it is
possible that the Class AP Certificates may also re-
ceive support from certain payments made with re-
spect to the other Mortgage Loans in the Trust Es-
tate. The Class A, Class M and Class B Certificates
will evidence the entire remaining interest in the
principal balance of the Mortgage Loans (the "Pool
Balance (Classes A/M/B Portion)"). Initially, the
Class A Certificates will evidence in the aggregate
an approximate % (approximately $ ) undivided in-
terest in the initial Pool Balance (Classes A/M/B
Portion); the Class M Certificates will evidence in
the aggregate an approximate % (approximately $ )
undivided interest in the initial Pool Balance
(Classes A/M/B Portion); and the Class B Certifi-
cates will evidence in the aggregate an approximate
% (approximately $ ) undivided interest in the
initial Pool Balance (Classes A/M/B Portion). The
relative interests in the initial Pool Balance
(Classes A/M/B Portion) represented by the Class A,
Class M and Class B Certificates are subject to
change over time because of the disproportionate al-
location of certain unscheduled principal payments
to the Class A Certificates for a specified period
and the allocation of certain losses and certain
shortfalls first to the Class B Certificates in re-
verse numerical order, and then to the Class M Cer-
tificates, prior to the allocation of such losses
and shortfalls to the Class A Certificates, as dis-
cussed in "-- Distributions of Principal and Inter-
est" and "-- Credit Enhancement" below.
The Class A Certificates will consist of six
Subclasses designated as the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5 and Class A-R Cer-
tificates. The Class AP Certificates are a separate
class and are not a Subclass of the Class A Certifi-
S-9
<PAGE>
cates. The Class AP and Class M Certificates will
not be divided into Subclasses. The Class B Certifi-
cates will consist of five Subclasses, designated as
the Class B-1, Class B-2, Class B-3, Class B-4 and
Class B-5 Certificates which are not offered hereby
and may be retained or sold by the Seller. The Class
A Certificates, the Class AP Certificates and the
Class M Certificates are referred to in this Pro-
spectus Supplement as the "Offered Certificates."
The Class A-1 Certificates are planned amortization
class certificates (referred to herein as the "PAC
Certificates") because, based on certain assumptions
described in the paragraph on page S- , if pre-
payments on the Mortgage Loans occur at any constant
rate between approximately % SPA (as defined herein
under "Prepayment and Yield Considerations") and ap-
proximately % SPA, it is expected that their prin-
cipal balances would be reduced to the percentages
of their initial principal balances indicated in the
tables on page . The Class A-2 Certificates are
targeted amortization class certificates (referred
to herein as the "TAC Certificates") because, based
on certain assumptions described in the paragraph on
page S- , at a constant prepayment level of approxi-
mately % SPA, it is expected that their principal
balances would be reduced to the percentages of
their initial principal balances indicated in the
tables on page . However, it is highly unlikely
that principal prepayments on the Mortgage Loans
will occur at any constant rate or that the Mortgage
Loans will prepay at the same rate. The Class A-3
Certificates are companion certificates (referred to
herein as the "Companion Certificates") because pay-
ments of principal allocated to the Class A Certifi-
cates in excess of amounts resulting from certain
prepayment levels will be paid first to the holders
of the Companion Certificates for so long as such
Certificates remain outstanding, prior to being paid
to the holders of the TAC Certificates and the PAC
Certificates. See "Description of the Certifi-
cates -- Principal (Including Prepayments) -- Allo-
cation of Amount to be Distributed" and "-- Princi-
pal Payment Characteristics of the PAC Certificates,
the TAC Certificates and the Companion Certificates"
in this Prospectus Supplement.
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 AP and Class M Certificates as of the date
of issuance of the Series 199 - Certificates and
the approximate initial aggregate principal balance
of such Subclasses and Classes as of the date of
this Prospectus Supplement will not, with respect to
the Senior Certificates, exceed 5% of the initial
aggregate principal balance of the Class A and Class
AP Certificates as stated on the cover of this Pro-
spectus Supplement and, with respect to the Class M
Certificates, will depend on the final subordination
S-10
<PAGE>
levels for the Series 199 - Certificates. Any dif-
ference allocated to the Class A Certificates will
be allocated to one or more of the Subclasses of
Class A Certificates, other than the Class A-R Cer-
tificate, and to the Class AP Certificates.
Forms of Certificates;
Denominations.......... The Offered Certificates will be issued either in
book-entry form or in fully registered, certificated
form ("Definitive Certificates"). The following ta-
ble sets forth the original certificate form, the
minimum denomination and the incremental denomina-
tion of the Offered Certificates. The Offered Cer-
tificates are not intended to be directly or indi-
rectly held or beneficially owned in amounts lower
than such minimum denominations. See "Descriptions
of the Certificates -- Denominations" in this Pro-
spectus Supplement.
- --------------------------------------------------------------------------------
FORM AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
ORIGINAL CERTIFICATE MINIMUM INCREMENTAL
SUBCLASS FORM DENOMINATION DENOMINATION
-------- --------------------- ------------ ------------
<S> <C> <C> <C>
Classes A-1, A-2, A-3, A-4 and
A-5.......................... Book-Entry $100,000 $1,000
Class A-R..................... Definitive $ N/A
Class AP...................... Definitive $100,000 $ 1
Class M....................... Definitive $100,000 $1,000
</TABLE>
- -------------------
In order to aggregate the original principal balance of such Subclass, one
certificate will be issued with an incremental denomination of less than
that shown.
- --------------------------------------------------------------------------------
Book-Entry Form. The Offered Certificates, other
than the Class A-R, Class AP and Class M Certifi-
cates, will be issued in book-entry form, through
the facilities of The Depository Trust Company
("DTC"). These Certificates are referred to collec-
tively in this Prospectus Supplement as the "Book-
Entry Certificates." An investor in a Subclass of
Book-Entry Certificates will not receive a physical
certificate representing its ownership interest in
such Book-Entry Certificates, except under extraor-
dinary 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 recordkeep-
ing services, acting through certain participating
organizations. This may result in certain delays in
receipt 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 "De-
scription of the Certificates -- Denominations" and
"-- Book-Entry Form" in this Prospectus Supplement
and "Description of the Certificates -- Book-Entry
Form" in the Prospectus.
Definitive Form. The Class A-R, Class AP and Class M
Certificates will each be issued as Definitive Cer-
tificates. See "Description of the Certificates --
Denominations" and "-- Definitive Form" in this
Prospectus Supplement and
S-11
<PAGE>
"Description of the Certificates -- Definitive Form"
in the Prospectus.
Mortgage Loans.......... Mortgage Loan Data. The Mortgage Loans, which are
the source of distributions to holders of the Series
199 - Certificates, will consist of conventional,
fixed interest rate, monthly pay, fully amortizing,
one- to four-family, residential first mortgage
loans, having original terms to stated maturity of
approximately years, which may include loans se-
cured by shares issued by cooperative housing corpo-
rations. 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(2)
(AS OF THE CUT-OFF DATE)
<TABLE>
<S> <C>
Cut-Off Date: 1,199
Number of Mortgage Loans:
Aggregate Unpaid Principal Balance(1) $
Range of Unpaid Principal Balances(1): $ to $
Average Unpaid Principal Balance(1): $
Range of Mortgage Interest Rates: % to %
Weighted Average Mortgage Interest Rate(1): %
Range of Remaining Terms to Stated Maturity: months to months
Weighted Average Remaining Term to Stated
Maturity(1): months
Range of Original Loan-to-Value Ratios(1): % to %
Weighted Average Original Loan-to-Value Ratio(1): %
Geographic Concentration of Mortgaged Properties
Securing Mortgage Loans in Excess of 5% of the
Aggregate Unpaid Principal Balance(1): [States] %
Maximum Five-Digit Zip Code Concentration(1): %
</TABLE>
- -------------------
(1) Approximate.
(2) Information concerning the Discount Mortgage Loans is set forth under "De-
scription of the Mortgage Loans -- General."
- --------------------------------------------------------------------------------
Changes to Pool. A number of Mortgage Loans may be
removed from the pool, or a substitution may be made
for certain Mortgage Loans, in advance of the issu-
ance of the Series 199 - Certificates (which is ex-
pected to occur on or about , 199 ) (the "Clos-
ing Date"). Any of such Mortgage Loans may be
excluded from the Trust Estate (i) as a result of
principal prepayment thereof in full or (ii) if, as
a result of delinquencies or otherwise, the Seller
otherwise deems such exclusion necessary or desir-
able. In either event, other Mortgage Loans may be
included in the Trust Estate. This may result in
changes in certain of the pool characteristics set
forth in the table above and elsewhere in this Pro-
spectus Supplement. In the event that any of the
characteristics as of the Cut-Off Date of the Mort-
gage Loans that constitute the Trust
S-12
<PAGE>
Estate on the date of initial issuance of the Series
199 - 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 199 - Cer-
tificates, certain Mortgage Loans may be removed
from the pool through repurchase or, under certain
circumstances, through substitution by the Seller,
if the Mortgage Loans are discovered to have defec-
tive documentation or if they otherwise do not con-
form to the standards established by the Seller's
representations and warranties concerning the Mort-
gage Loans. See "Description of the Mortgage
Loans -- Mandatory Repurchase or Substitution of
Mortgage Loans" in this Prospectus Supplement.
Optional Termination.... Norwest Mortgage is entitled, subject to certain
conditions relating to the then-remaining size of
the pool, to purchase all outstanding Mortgage Loans
in the pool and thereby effect early retirement of
the Series 199 - Certificates. See "Pooling and Ser-
vicing Agreement -- Optional Termination" in this
Prospectus Supplement.
Underwriting
Standards.............. Approximately % (by Cut-Off Date Aggregate Prin-
cipal Balance) of the Mortgage Loans (the "Norwest
Mortgage Underwritten Loans") were generally origi-
nated in conformity with Norwest Mortgage's under-
writing standards applied either by Norwest Mortgage
or by Correspondents to whom Norwest Mortgage had
delegated all underwriting functions. In certain in-
stances, exceptions to Norwest Mortgage's underwrit-
ing standards may have been granted by Norwest Mort-
gage to such Correspondents. See "The Mortgage Loan
Programs -- Mortgage Loan Underwriting" in the Pro-
spectus. Approximately % and % (by Cut-Off
Date Aggregate Principal Balance) of the Mortgage
Loans (the "Pool Certification Underwritten Loans")
will have been reviewed by General Electric Mortgage
Insurance Corporation ("GEMICO") and United Guaranty
Residential Insurance Company ("UGRIC"), respective-
ly, to ensure compliance with their respective cred-
it, appraisal and underwriting standards. Neither
the Series 199 - Certificates nor the Mortgage
Loans are insured or guaranteed under a mortgage
pool insurance policy issued by GEMICO or UGRIC.
[The Pool Certification Underwritten Loans were
evaluated by Norwest Mortgage using credit scoring
as described in the Prospectus under "The Mortgage
Loan Programs -- Mortgage Loan Underwriting -- Pool
Certification Underwriting" and, based on the credit
scores of such Mortgage Loans, some of such Mortgage
Loans were re-underwritten by Norwest Mortgage. The
S-13
<PAGE>
remaining approximate % (by Cut-Off Date Aggregate
Principal Balance) of the Mortgage Loans (the "Bulk
Purchase Underwritten Loans") were purchased by
Norwest Mortgage from one or more Correspondents and
were underwritten using underwriting standards which
may vary from Norwest Mortgage's underwriting stan-
dards. However, Norwest Mortgage has in each case
reviewed the underwriting standards applied and de-
termined that such variances did not depart materi-
ally from Norwest Mortgage's underwriting stan-
dards.] See "Description of the Mortgage Loans --
Mortgage Underwriting Standards" in this Prospectus
Supplement and "The Mortgage Loan Programs -- Mort-
gage Loan Underwriting" in the Prospectus.
Distributions of
Principal and
Interest............... Distributions in General. Distributions on the Se-
ries 199 - Certificates will be made on the 25th
day of each month, or, if such day is not a business
day, on the succeeding business day (each such date
is referred to in this Prospectus Supplement as a
"Distribution Date"), commencing in 199 , to
holders of record at the close of business on the
last business day of the preceding month. In the
case of the Book-Entry Certificates, the holder of
record will be DTC.
The amount available for distribution on any Distri-
bution Date is primarily a function of (i) the
amount remitted by mortgagors of the Mortgage Loans
in payment of their scheduled installments of prin-
cipal and interest, (ii) the amount of prepayments
made by the mortgagors and (iii) proceeds from liq-
uidations of defaulted Mortgage Loans.
On any Distribution Date, holders of the Class A and
Class AP Certificates will be entitled to receive
all amounts due them (other than the Class AP De-
ferred Amount, as defined on page S- ) before any
distributions are made to holders of the Class M and
Class B Certificates on that Distribution Date. The
Class AP Certificates will be entitled to receive
the Class AP Deferred Amount as described below. The
amount that is available to be distributed on any
Distribution Date will be allocated first to pay in-
terest due holders of the Class A Certificates and
then, if the amount available for distribution ex-
ceeds the amount of interest due holders of the
Class A Certificates, to reduce the outstanding
principal balances of the Class A and Class AP Cer-
tificates. The likelihood that a holder of a partic-
ular Subclass of Class A Certificates will receive
principal distributions on any Distribution Date
will depend on the priority in which such Subclass
is entitled to principal distributions, as set forth
under the heading "Description of the Certifi-
cates -- Principal (Including Prepayments) -- Allo-
cation of Amount to be Distributed" and "-- Calcula-
tion of Amount to be Distributed to the Class A
Certificates" in this Prospectus Supplement.
After all amounts due on the Class A and Class AP
Certificates (other than the Class AP Deferred
Amount) have been
S-14
<PAGE>
paid, the amount remaining will be distributed, in
the following order, to (i) pay any Class AP De-
ferred Amount first from amounts otherwise distrib-
utable as principal on the Subclasses of Class B
Certificates in reverse numerical order (i.e., first
from amounts otherwise distributable as principal on
the Class B-5 Certificates, then from amounts other-
wise distributable as principal on the Class B-4
Certificates, and so on), and then from amounts oth-
erwise distributable as principal on the Class M
Certificates, (ii) pay interest due to the holders
of the Class M Certificates, (iii) pay principal due
to the holders of the Class M Certificates less any
amounts used to pay the Class AP Deferred Amount and
(iv) pay with respect to each Subclass of Class B
Certificates sequentially in numerical order inter-
est due and then principal due to the holders of
each such Subclass of Class B Certificates before
any Subclasses of Class B Certificates with higher
numerical designations receive any payments in re-
spect of interest or principal, provided that the
principal due any Subclass will be reduced by any
amount used to pay the Class AP Deferred Amount. See
"Description of the Certificates -- Distributions"
in this Prospectus Supplement.
If any mortgagor is delinquent in the payment of
principal or interest on a Mortgage Loan in any
month, the respective Servicer is required to ad-
vance such payment unless such Servicer determines
that the delinquent amount will not be recoverable
by such Servicer from insurance proceeds, liquida-
tion proceeds or other recoveries on the related
Mortgage Loan. The Master Servicer or Trustee may,
in certain circumstances, be required to make such
advances upon a Servicer's default on its obligation
to advance. See "Description of the Certificates --
Periodic Advances" in this Prospectus Supplement.
Interest Distributions. The amount of interest to
which holders of each Class or Subclass of Offered
Certificates, other than the Class AP Certificates,
will be entitled each month is calculated based on
the outstanding principal balance of such Class or
Subclass, as of the related Distribution Date. In-
terest will accrue each month on each such Class or
Subclass according to the following formula: 1/12th
of the Pass-Through Rate for such Class or Subclass
multiplied by the outstanding principal balance of
such Class or Subclass as of the related Distribu-
tion Date. Holders of the Class AP Certificates will
not be entitled to receive distributions of inter-
est. The "Pass-Through Rate" for each Class and
Subclass of Offered Certificates is the percentage
set forth on the cover of this Prospectus Supple-
ment.
When mortgagors prepay principal or when principal
is recovered through foreclosures or other liquida-
tions 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
S-15
<PAGE>
handled, depending on the Servicer and the nature of
the event resulting in the interest shortfall.
In the case of principal prepayments in full the re-
spective Servicer will be obligated to cover result-
ing interest shortfalls up to the aggregate amount
of Servicing Fees payable thereunder on such Distri-
bution Date to the related Servicer. Interest
shortfalls resulting from partial principal prepay-
ments occurring with respect to Mortgage Loans will
not be offset by Servicing Fees, but instead will be
borne first by the Class B Certificates and then by
the Class A Certificates. See "Description of the
Certificates -- Subordination of the Class B Certif-
icates" in this Prospectus Supplement. Shortfalls in
collections of interest resulting from principal
prepayments in full, to the extent they exceed the
aggregate amount of Servicing Fees payable with re-
spect to a Distribution Date to the related Servicer
("Non-Supported Interest Shortfalls"), will be allo-
cated pro rata among the Classes of the Series 199 -
Certificates (other than the Class AP Certifi-
cates) based on their then-outstanding principal
balances and will be allocated pro rata among the
Subclasses of Class A Certificates based on interest
accrued.
In addition, the amount of interest required to be
distributed to holders of the Series 199 - Certifi-
cates will be reduced by a portion of certain Spe-
cial Hazard Losses, Fraud Losses and Bankruptcy
Losses attributable to interest. See "-- Credit En-
hancement -- Extent of Loss Coverage" below and "De-
scription of the Certificates -- Interest" in this
Prospectus Supplement.
To the extent that the amount available for distri-
bution on any Distribution Date is insufficient to
permit the distribution of the applicable amount of
accrued interest on the Class A Certificates (net of
any Non-Supported Interest Shortfall, other
shortfalls and losses allocable to the Class A Cer-
tificates as described above), the amount of inter-
est to be distributed will be allocated among the
outstanding Subclasses of Class A Certificates pro
rata in accordance with their respective entitle-
ments to interest and the amount of any deficiency
will be added to the amount of interest that the
Class A Certificates are entitled to receive on sub-
sequent Distribution Dates. No interest will accrue
on such deficiencies.
To the extent that the amount available for distri-
bution on any Distribution Date, after the payment
of all amounts due the Class A and Class AP Certifi-
cates (other than any Class AP Deferred Amount) has
been made, is insufficient to permit distribution in
full of accrued interest on the Class M Certificates
(net of any Non-Supported Interest Shortfall, other
shortfalls and losses allocable to the Class M Cer-
tificates as described above), the amount of any de-
ficiency will be added to the amount of interest
that the Class M Certificates are entitled to re-
ceive on subsequent Distribution Dates. No interest
will accrue on such deficiencies.
S-16
<PAGE>
Interest on the Class A Certificates and Class M
Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
See "Description of the Certificates -- Interest" in
this Prospectus Supplement.
Principal Distributions. The aggregate amount of
principal to which the holders of the Class A Cer-
tificates are entitled each month will equal the sum
for each Mortgage Loan of the product of (a) the
Classes A/M/B Fraction applicable to such Mortgage
Loan and (b) the sum of (i) a percentage (the "Class
A Percentage") of scheduled payments of principal on
each Mortgage Loan and (ii) a percentage (the "Class
A Prepayment Percentage") of certain unscheduled
payments of principal on each Mortgage Loan. The
"Classes A/M/B Fraction" with respect to any Mort-
gage Loan will equal the lesser of (a) 1.0 and (b)
the Net Mortgage Interest Rate for such Mortgage
Loan divided by %. The Class A Percentage will be
equal, on each Distribution Date, to the percentage
corresponding to the fraction that represents the
ratio of the then-outstanding principal balance of
the Class A Certificates to the Pool Balance (Clas-
ses A/M/B Portion). The Class A Prepayment Percent-
age will be equal to the percentage described in the
preceding sentence plus an additional amount equal
to a percentage of the principal otherwise distrib-
utable to the holders of the Subordinated Certifi-
cates. 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 will be equal to 100% during
the first five years beginning on the first Distri-
bution Date and, subject to meeting certain condi-
tions, will likely decline during the subsequent
four years, as described under the heading "Descrip-
tion of the Certificates -- Principal (Including
Prepayments) -- Calculation of Amount to be Distrib-
uted to the Class A Certificates" in this Prospectus
Supplement, until the ninth anniversary of the first
Distribution Date and thereafter it is equal to ze-
ro. On each Distribution Date, the Subordinated Cer-
tificates will collectively be entitled to receive
the percentages of the scheduled and certain
unscheduled payments of principal on the portion of
each Mortgage Loan representing the Classes A/M/B
Fraction of such Mortgage Loan equal, in each case,
to 100% less the applicable percentage for the Class
A Certificates described above.
The aggregate amount of principal to which holders
of the Class AP Certificates are entitled each month
will equal the sum for each Discount Mortgage Loan
of the product of (a) the Class AP Fraction for such
Mortgage Loan and (b) the sum of (i) scheduled prin-
cipal payments on such Mortgage Loan and (ii) cer-
tain unscheduled payments of principal on such Mort-
gage Loan. In addition, the Class AP Certificates
will be entitled to receive any previously unpaid
amounts of principal to
S-17
<PAGE>
which such Certificates were entitled on prior Dis-
tribution Dates as part of the Class AP Deferred
Amount. The "Class AP Fraction" with respect to any
Discount Mortgage Loan will equal the difference be-
tween 1.0 and the Classes A/M/B Fraction for such
Discount Mortgage Loan. The Class AP Fraction with
respect to each Mortgage Loan that is not a Discount
Mortgage Loan will be equal to zero. See "Descrip-
tion of the Certificates -- Principal (Including
Prepayments)" in this Prospectus Supplement.
The holders of the Class AP Certificates will also
be entitled each month to an amount equal to the
Class AP Deferred Amount. The Class AP Deferred
Amount will be paid to holders of the Class AP Cer-
tificates only from amounts otherwise distributable
as principal to the Subordinated Certificates. The
Class AP Deferred Amount will be paid first from
amounts otherwise distributable as principal to the
Subclasses of Class B Certificates in reverse numer-
ical order and then from amounts otherwise distrib-
utable as principal to the Class M Certificates. No
interest will accrue on any Class AP Deferred
Amount.
Except as described below under "-- Effect of Subor-
dination Level on Principal Distributions," on each
Distribution Date, the Class M Certificates will be
entitled to a portion of scheduled payments and cer-
tain unscheduled payments of principal on the Mort-
gage Loans allocable to the Subordinated Certifi-
cates that represents the ratio of the then-
outstanding principal balance of the Class M
Certificates to the then-outstanding principal bal-
ance of the Subordinated Certificates.
The amount that is available for distribution to the
holders of the Class A and Class AP Certificates on
any Distribution Date as a distribution of principal
(other than any Class AP Deferred Amount) is equal
to the amount remaining after deducting the amount
of interest distributable on the Class A Certifi-
cates from the total amount collected that is avail-
able to be distributed to holders of the Series
199 - Certificates on such Distribution Date. Prin-
cipal will be distributed to the holders of the
Class A Certificates in accordance with the payment
priorities described under the heading "Description
of the Certificates -- Principal (Including Prepay-
ments) -- 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, all
principal distributions on the Class AP Certificates
(including any Class AP Deferred Amount) and inter-
est due on the Class M Certificates have been de-
ducted from the total amount collected that is
available to be distributed to holders of the Series
199 - Certificates.
S-18
<PAGE>
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 Certif-
icates, some or all of the Subclasses of Class B
Certificates, as described below, may not be enti-
tled to distributions of principal on certain Dis-
tribution Dates and the principal balance of such
Subclasses will not be considered for purposes of
allocation of principal among the Subordinated Cer-
tificates.
In the case of the Class M Certificates, if on any
Distribution Date the percentage obtained by divid-
ing the outstanding principal balance of the Class B
Certificates by the sum of the outstanding principal
balances of the Class A, Class M and Class B Certif-
icates is less than such percentage was upon the
initial issuance of the Series 199 - Certificates,
then the Class B Certificates will not be entitled
to distributions of principal on such Distribution
Date and the Class M Certificates will be entitled
to all distributions of principal allocable to the
Subordinated Certificates for such Distribution
Date.
In the case of the Class B-1, Class B-2, Class B-3
or Class B-4 Certificates, if on any Distribution
Date the percentage obtained by dividing the then-
outstanding principal balances of the Subclasses of
Class B Certificates with higher numerical designa-
tions by the sum of the then-outstanding principal
balances of the Class A, Class M and Class B Certif-
icates is less than such percentage at the time of
the initial issuance of the Series 199 - Certifi-
cates, then such Subclasses of Class B Certificates
with higher numerical designations will not be enti-
tled to distributions of principal and the principal
balances of such Subclasses will not be taken into
account for purposes of calculating the portions of
scheduled and unscheduled principal payments alloca-
ble to the Class M Certificates and to the
Subclasses of Class B Certificates with lower numer-
ical designations.
In any such case, the Class M Certificates and those
Subclasses of Class B Certificates with lower numer-
ical designation will receive a greater portion of
scheduled and unscheduled payments of principal on
the Mortgage Loans allocable to the Subordinated
Certificates than the Class M Certificates and those
Subclasses of Class B Certificates with lower numer-
ical designation would have received had all
Subclasses of Class B Certificates been entitled to
their portion of such principal payments. See "De-
scription of the Certificates -- Principal (Includ-
ing Prepayments) -- Calculation of Amount to be Dis-
tributed to the Class M Certificates" in this
Prospectus Supplement.
Credit Enhancement...... Description of "Shifting-Interest" Subordination.
The rights of the holders of the Class M Certifi-
cates to receive distributions will be subordinated
to the rights of the holders of the Senior Certifi-
cates to receive distributions, to the extent de-
S-19
<PAGE>
scribed herein. The rights of the holders of the
Class B Certificates to receive distributions will
be subordinated to the rights of the holders of the
Senior Certificates and the Class M Certificates to
receive distributions, to the extent described here-
in. This subordination provides a certain amount of
protection to the holders of the Senior Certificates
(to the extent of the subordination of the Class M
and Class B Certificates) and the Class M Certifi-
cates (to the extent of the subordination of the
Class B Certificates) against delays in the receipt
of scheduled payments of interest and principal and
against losses associated with the liquidation of
defaulted Mortgage Loans and certain losses result-
ing from the bankruptcy of a mortgagor.
In general, the protection afforded the holders of
the Senior Certificates by means of this subordina-
tion will be effected in two ways: (i) by the pref-
erential right of the holders of the Senior 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 in-
terest and principal due the holders of the Class A
Certificates and the amount of principal due the
holders of the Class AP Certificates on such date
and, if necessary, by the right of such holders to
receive future distributions on the Mortgage Loans
that would otherwise have been allocated to the
holders of the Class M and Class B Certificates and
(ii) by the allocation to the Class M and Class B
Certificates, until their respective principal bal-
ances are reduced to zero, of certain losses result-
ing from the liquidation of defaulted Mortgage Loans
or the bankruptcy of mortgagors prior to the alloca-
tion of such losses to the Senior Certificates. See
"Description of the Certificates -- Distributions"
in this Prospectus Supplement.
In general, the protection afforded the holders of
the Class M Certificates by means of this subordina-
tion will also be effected in two ways: (i) by the
preferential right of the holders of the Class M
Certificates to receive, prior to any distribution
being made on any Distribution Date in respect of
the Class B Certificates, the amounts of interest
and principal due the holders of the Class M Certif-
icates on such date and, if necessary, by the right
of such holders to receive future distributions on
the Mortgage Loans that would otherwise have been
allocated to the holders of the Class B Certificates
and (ii) by the allocation to the Class B Certifi-
cates, until their principal balance has been re-
duced to zero, of certain losses resulting from the
liquidation of defaulted Mortgage Loans or the bank-
ruptcy of mortgagors prior to the allocation of such
losses to the Class M Certificates. See "Description
of the Certificates-- Distributions" in this Pro-
spectus 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 en-
hancement to the Senior Certificates, a dispropor-
tionate amount of prepayments and certain
S-20
<PAGE>
unscheduled recoveries with respect to the Mortgage
Loans will be allocated to the Class A Certificates.
This allocation has the effect of accelerating the
amortization of the Class A Certificates while, in
the absence of losses in respect of the liquidation
of defaulted Mortgage Loans or losses resulting from
the bankruptcy of mortgagors, increasing the respec-
tive percentage interests in the principal balance
of the Mortgage Loans evidenced by the Class M and
Class B Certificates.
Extent of Loss Coverage. Realized losses on Mortgage
Loans, other than losses that are (i) attributable
to "special hazards" not insured against under a
standard hazard insurance policy, (ii) incurred on
defaulted Mortgage Loans as to which there was fraud
in the origination of such Mortgage Loans or (iii)
attributable to certain actions which may be taken
by a bankruptcy court in connection with a Mortgage
Loan, including a reduction by a bankruptcy court of
the principal balance of or the interest rate on a
Mortgage Loan or an extension of its maturity, will
not be allocated to the Senior Certificates until
the date on which the aggregate principal balance of
the Class M and Class B Certificates (which aggre-
gate balance is expected initially to be approxi-
mately $ ) has been reduced to zero and will not
be allocated to the Class M Certificates until the
date on which the aggregate principal balance of the
Class B Certificates (which aggregate balance is ex-
pected initially to be approximately $ ) has been
reduced to zero. Such losses will be allocated first
among the Subclasses of Class B Certificates, in re-
verse numerical order (that is, to the Class B-5,
Class B-4, Class B-3, Class B-2 and Class B-1 Cer-
tificates, respectively).
With respect to any Distribution Date subsequent to
the first Distribution Date, the availability of the
credit enhancement provided by the Class M and Class
B Certificates will be affected by the prior reduc-
tion of the principal balance of the Class M Certif-
icates and such Subclasses of Class B Certificates.
Reduction of the principal balance of the Class M
and Class B Certificates will result from (i) the
prior allocation of losses due to the liquidation of
defaulted Mortgage Loans, including losses due to
special hazards and fraud losses up to the respec-
tive limits referred to below, (ii) the prior allo-
cation of bankruptcy losses up to the limit referred
to below and (iii) the prior receipt of principal
distributions by the holders of such Certificates.
As of the date of issuance of the Series 199 - 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 Class B
Certificates and then solely by the holders of the
Class M Certificates will be approximately %, %
and %, respectively, of the Cut-Off Date Aggregate
Principal Balance of the Mortgage Loans (approxi-
mately $ , $ and $ , respectively). If losses
due to special hazards, fraud or bankruptcy exceed
any of such amounts prior to the princi-
S-21
<PAGE>
pal balances of the Class M and Class B Certificates
being reduced to zero, (a) the principal portion of
any such excess losses with respect to the Mortgage
Loans will generally be shared pro rata by (i) the
Class A, Class M and Subclasses of Class B Certifi-
cates and (ii) to the extent such losses arise with
respect to Discount Mortgage Loans, the Class AP
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 Certifi-
cates based on their respective interest accrual
amounts. Under certain circumstances, the limits set
forth above may be reduced as described under "De-
scription of the Certificates -- Subordination of
Class M and Class B Certificates -- Allocation of
Losses" in this Prospectus Supplement.
After the principal balances of the Class M and
Class B Certificates have been reduced to zero, the
principal portion of all losses (other than the por-
tion attributable to the Class AP Certificates, if
any) will be allocated to the Class A Certificates.
To the extent such losses arise with respect to Dis-
count Mortgage Loans, such losses will be shared be-
tween the Class A and Class AP Certificates, accord-
ing to their respective interests in such Mortgage
Loans. The interest portion of such losses will be
borne by the Class A Certificates. Any losses borne
by the Class A Certificates will be shared pro rata
by the Subclasses of Class A Certificates based on
their then-outstanding principal balances with re-
spect to the principal portion of such losses, and
based on their accrued interest, with respect to the
interest portion of such losses. See "Description of
the Certificates -- Interest" and "-- Subordination
of Class M and Class B Certificates -- Allocation of
Losses" in this Prospectus Supplement.
THE YIELD TO MATURITY ON THE CLASS M CERTIFICATES
WILL BE MORE SENSITIVE TO LOSSES DUE TO LIQUIDATIONS
OF THE MORTGAGE LOANS (AND THE TIMING THEREOF) THAN
THE SENIOR CERTIFICATES, IN THE EVENT THAT THE AG-
GREGATE PRINCIPAL BALANCE OF THE CLASS B CERTIFI-
CATES HAS BEEN REDUCED TO ZERO.
See "Description of the Certificates -- Subordina-
tion of Class M and Class B Certificates" in this
Prospectus Supplement.
Effects of Prepayments
on Investment
Expectations........... The actual rate of prepayment of principal on the
Mortgage Loans cannot be predicted. The investment
performance of the Offered Certificates may vary ma-
terially and adversely from the investment expecta-
tions of investors due to prepayments on the Mort-
gage Loans being higher or lower than anticipated by
investors. In addition, the Class A Certificates in
the aggregate will be more sensitive to prepayments
on the Mortgage Loans than the Subordinated Certifi-
cates due to the disproportionate allocation of such
prepayments to investors in the Class A Certificates
then entitled to principal distributions during the
nine years beginning on the first Distribution
S-22
<PAGE>
Date. The actual yield to the holder of an Offered
Certificate may not be equal to the yield antici-
pated at the time of purchase of the Certificate or,
notwithstanding that the actual yield is equal to
the yield anticipated at that time, the total return
on investment expected by the investor or the 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 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 in-
vestor pays less or more than the unpaid principal
balance of an Offered Certificate (that is, buys the
Certificate at a "discount" or "premium," respec-
tively), then, based on the assumptions set forth in
the preceding sentence, the effective yield to the
investor will be higher or lower, respectively, than
the stated interest rate on the Certificate, 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 dis-
count or premium will be amortized and, consequent-
ly, will change the investor's actual yield from
that anticipated. The timing of receipt of prepay-
ments may also affect the investor's actual yield.
The yield experienced by an investor in the Class AP
Certificates, which do not bear interest, is solely
a function of the price paid by such investor, the
rate and timing of principal payments on the Dis-
count Mortgage Loans and losses incurred on and af-
ter the Cross-Over Date. The particular sensitivity
of the Class AP Certificates is displayed in a table
appearing under the heading "Prepayment and Yield
Considerations" in this Prospectus Supplement. AN
INVESTOR THAT PURCHASES ANY OFFERED CERTIFICATES AT
A DISCOUNT, PARTICULARLY THE CLASS AP CERTIFICATES,
SHOULD CONSIDER THE RISK THAT A SLOWER THAN ANTICI-
PATED RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE
LOANS, OR IN THE CASE OF THE CLASS AP CERTIFICATES,
ON THE DISCOUNT MORTGAGE LOANS, WILL RESULT IN AN
ACTUAL YIELD THAT IS LOWER THAN SUCH INVESTOR'S EX-
PECTED YIELD. AN INVESTOR THAT PURCHASES ANY OFFERED
CERTIFICATES AT A PREMIUM SHOULD CONSIDER THE RISK
THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL
PAYMENTS ON THE MORTGAGE LOANS WILL RESULT IN AN AC-
TUAL YIELD THAT IS LOWER THAN SUCH INVESTOR'S EX-
PECTED YIELD AND SHOULD CONSIDER THE RISK THAT A
RAPID RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE
LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTOR
TO FULLY RECOVER ITS INITIAL INVESTMENT. THE YIELD
ON THE CLASS AP CERTIFICATES WILL BE INFLUENCED BY
PRINCIPAL PAYMENTS SOLELY WITH RESPECT TO THE DIS-
COUNT MORTGAGE LOANS.
S-23
<PAGE>
Reinvestment Risk. As stated above, if an Offered
Certificate is purchased at an amount equal to its
unpaid principal balance (that is, at "par"), fluc-
tuations in the rate of distributions of principal
will generally not affect the yield to maturity of
that Certificate. However, the total return on any
investor's investment, including an investor who
purchases at par, will be reduced to the extent that
principal distributions received on its Certificate
cannot be reinvested at a rate as high as the stated
interest rate of the Certificate or, in the case of
the Class AP Certificates, the expected yield, which
is based on the price paid by the investor and the
rate of prepayments anticipated by such investor.
Investors in the Offered Certificates should con-
sider the risk that rapid rates of prepayments on
the Mortgage Loans may coincide with periods of low
prevailing market interest rates. During periods of
low prevailing market interest rates, mortgagors may
be expected to prepay or refinance Mortgage Loans
that carry interest rates significantly higher than
then-current interest rates for mortgage loans. Con-
sequently, the amount of principal distributions
available to an investor for reinvestment at such
low prevailing interest rates may be relatively
large. Conversely, slow rates of prepayments on the
Mortgage Loans may coincide with periods of high
prevailing market interest rates. During such peri-
ods, it is less likely that mortgagors will elect to
prepay or refinance Mortgage Loans and, therefore,
the amount of principal distributions available to
an investor for reinvestment at such high prevailing
interest rates may be relatively small.
Weighted Average Life Volatility. One indication of
the impact of varying prepayment speeds on a secu-
rity 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
extension 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 Certificate purchased at par is extended
beyond that initially anticipated, such Certifi-
cate's market value may be adversely affected even
though the yield to maturity on the Certificate is
unaffected. The weighted average life of the Class
AP Certificates will be determined by the rate of
prepayment of the Discount Mortgage Loans and gener-
ally will not be affected by the rate of prepayment
on other Mortgage Loans.
THE WEIGHTED AVERAGE LIFE OF THE COMPANION CERTIFI-
CATES WILL BE HIGHLY SENSITIVE TO THE RATE OF PRE-
PAYMENTS ON THE MORTGAGE LOANS AT RATES AT OR ABOVE
CERTAIN PREPAYMENT LEVELS BECAUSE PAYMENTS OF PRIN-
CIPAL ALLOCATED TO THE CLASS A CERTIFICATES IN EX-
CESS OF SUCH PREPAYMENT LEVELS WILL BE PAID TO THE
HOLDERS OF THE COMPANION
S-24
<PAGE>
CERTIFICATES WHILE SUCH CERTIFICATES REMAIN OUT-
STANDING PRIOR TO BEING PAID TO THE HOLDERS OF THE
TAC CERTIFICATES AND THE PAC CERTIFICATES.
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.
See "Description of the Certificates -- Principal
(Including Prepayments) -- Allocation of Amount to
be Distributed" and "-- Principal Payment Character-
istics of the PAC Certificates, the TAC Certificates
and the Companion Certificates" in this Prospectus
Supplement.
Federal Income Tax
Status.................. An election will be made to treat the Trust Estate
as a real estate mortgage investment conduit (the
"REMIC") for federal income tax purposes. The Class
A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates, the Class AP Certificates, the Class M
Certificates, and the Class B-1, Class B-2, Class B-
3, Class B-4 and Class B-5 Certificates will consti-
tute "regular interests" in the REMIC and the Class
A-R Certificate will constitute the "residual inter-
est" in the REMIC.
The Regular Certificates (as defined herein) gener-
ally will be treated as newly originated debt in-
struments for federal income tax purposes. Benefi-
cial owners of the Regular Certificates will be
required to report income thereon in accordance with
the accrual method of accounting. The Class Cer-
tificates will be issued with original issue dis-
count in an amount equal to the excess of the ini-
tial principal balance thereof over their issue
price. It is anticipated that the Class Certifi-
cates will be issued with original issue discount in
an amount equal to the excess of their initial prin-
cipal balances (plus days of interest at the pass-
through rates thereon) over their respective issue
prices. It is also anticipated that the Class A-
and Class A- Certificates will be issued at a pre-
mium and that the Class Certificates will be is-
sued with de minimis original issue discount for
federal income tax purposes. It is further antici-
pated that the Class B-1, Class B-2, Class B-3,
Class B-4 and Class B-5 Certificates will be issued
with original issue discount for federal income tax
purposes.
The holder of the Class A-R Certificate will be 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 limita-
tions for federal income tax purposes. AS A RESULT,
THE EFFECTIVE AFTER-TAX RETURN OF THE CLASS A-R CER-
TIFICATE MAY BE SIGNIFICANTLY LOWER THAN WOULD BE
THE CASE IF THE CLASS A-R CERTIFICATE WERE TAXED AS
A DEBT INSTRUMENT, OR MAY BE NEGATIVE. FURTHER, SIG-
NIFICANT RESTRICTIONS APPLY TO THE TRANSFER OF THE
CLASS A-R CERTIFICATE. THE CLASS A-R CERTIFICATE
WILL BE CONSIDERED A "NONECONOMIC RESIDUAL INTER-
EST,"
LOGO
S-25
<PAGE>
CERTAIN TRANSFERS OF WHICH MAY BE DISREGARDED FOR
FEDERAL INCOME TAX PURPOSES.
See "Description of the Certificates -- Restrictions
on Transfer of the Class A-R and Class M Certifi-
cates" and "Federal Income Tax Considerations" in
this Prospectus Supplement and "Certain Federal In-
come Tax Consequences -- Federal Income Tax Conse-
quences for REMIC Certificates" in the Prospectus.
ERISA Considerations.... A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of the Inter-
nal Revenue Code of 1986, as amended (the "Code"),
or a governmental plan subject to any federal, state
or local law ("Similar Law") which is, to a material
extent, similar to the foregoing provisions of ERISA
or the Code (collectively, a "Plan"), should care-
fully review with its legal advisors whether the
purchase or holding of Offered Certificates could
give rise to a transaction prohibited or not other-
wise permissible under ERISA, the Code or Similar
Law. BECAUSE THE CLASS M CERTIFICATES ARE SUBORDI-
NATED TO THE SENIOR CERTIFICATES, THE CLASS M CER-
TIFICATES MAY NOT BE TRANSFERRED UNLESS THE TRANS-
FEREE HAS DELIVERED (I) A REPRESENTATION LETTER TO
THE TRUSTEE AND SELLER STATING EITHER (A) THAT THE
TRANSFEREE IS NOT A PLAN AND IS NOT ACTING ON BEHALF
OF A PLAN OR USING THE ASSETS OF A PLAN TO EFFECT
SUCH PURCHASE OR (B) SUBJECT TO CERTAIN CONDITIONS
DESCRIBED HEREIN, THAT THE SOURCE OF FUNDS USED TO
PURCHASE THE CLASS M CERTIFICATES IS AN "INSURANCE
COMPANY GENERAL ACCOUNT" OR (II) AN OPINION OF COUN-
SEL 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 Certificates will constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the "En-
hancement Act") so long as they are rated in one of
the two highest rating categories by at least one
nationally recognized statistical rating organiza-
tion. As such, the Offered Certificates are legal
investments for certain entities to the extent pro-
vided in such act. However, there are regulatory re-
quirements and considerations applicable to regu-
lated financial institutions and restrictions on the
ability of such institutions to invest in certain
types of mortgage rated securities.] [The Offered
Certificates will not constitute "mortgage related
securities" under the Secondary Mortgage Market En-
hancement Act of 1984 (the "Enhancement Act"). The
appropriate characterization of the Offered Certifi-
cates under various legal investment restrictions,
and thus the ability of investors subject to these
restrictions to purchase Offered Certificates, may
be subject to significant interpretive uncertain-
ties. All investors whose investment authority is
subject to legal restrictions should consult their
own legal advisors to determine, whether, and to
what extent, the
S-26
<PAGE>
Offered Certificates will constitute legal invest-
ments for them.] Prospective purchasers of the Of-
fered Certificates should consult their own legal,
tax and accounting advisors in determining the suit-
ability of and consequences to them of the purchase,
ownership and disposition of the Offered Certifi-
cates. See "Legal Investment" in this Prospectus
Supplement.
S-27
<PAGE>
RISK FACTORS
GENERAL
The rate of distributions in reduction of the principal balance of any
Subclass or Class of Offered Certificates, the aggregate amount of distribu-
tions of principal and interest on any Subclass or Class of Offered Certifi-
cates and the yield to maturity of any Subclass or Class of Offered Certifi-
cates will be directly related to the rate of payments of principal on the
Mortgage Loans in the Trust Estate or, in the case of the Class AP Certifi-
cates, on the Discount Mortgage Loans, and the amount and timing of mortgagor
defaults resulting in Realized Losses. The rate of principal payments on the
Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans, the rate of principal prepayments (including partial prepay-
ments and those resulting from refinancing) thereon by mortgagors, liquidations
of defaulted Mortgage Loans, repurchases by Norwest Mortgage of Mortgage Loans
as a result of defective documentation or by the appropriate Representing Party
for breaches of representations and warranties, optional purchase by the Seller
of defaulted Mortgage Loans and optional purchase by Norwest Mortgage of all of
the Mortgage Loans in connection with the termination of the Trust Estate. See
"Pooling and Servicing Agreement -- Optional Termination" herein and "The 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.
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 AP Certificates, should consider the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans, or in the case of
the Class AP Certificates, on the Discount Mortgage Loans, will result in an
actual yield that is lower than such investor's expected yield. An investor
that purchases any Offered Certificates at a premium should consider the risk
that a faster than anticipated rate of principal payments on the Mortgage Loans
will result in an actual yield that is lower than such investor's expected
yield. See "Prepayment and Yield Considerations" herein.
SUBORDINATION
The rights of the holders of the Class M Certificates to receive distribu-
tions with respect to the Mortgage Loans in the Trust Estate will be subordi-
nated to such rights of the holders of the Senior Certificates and the rights
of the holders of the Class B Certificates to receive distributions with re-
spect to the Mortgage Loans in the Trust Estate will be subordinated to such
rights of the holders of the Senior Certificates and the Class M Certificates,
all to the extent described herein under "Description of the Certificates --
Subordination of Class M and Class B Certificates."
BOOK-ENTRY SYSTEM FOR CERTAIN CLASSES AND SUBCLASSES OF CERTIFICATES
Transactions in the Classes and Subclasses of Book-Entry Certificates of any
Series generally can be effected only through DTC, DTC Participants and Indi-
rect 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 Certifi-
cates. In addition, Beneficial Owners may experience delays in their receipt of
payments. See "Risk Factors and Special Considerations -- Book-Entry System for
Certain Classes and Subclasses of Certificates" and "Description of the Certif-
icates -- Book-Entry Form" in the Prospectus.
See "Risk Factors" in the Prospectus.
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DESCRIPTION OF THE CERTIFICATES
DENOMINATIONS
The Offered Certificates, other than the Class A-R and Class AP Certificates,
will be issued in minimum denominations of $100,000 initial principal balance
and integral multiples of $1,000 initial principal balance in excess thereof.
The Class A-R Certificate will be issued as a single Certificate with a denomi-
nation of $ initial principal balance. The Class AP Certificates will be is-
sued in minimum denominations of $100,000 initial principal balance and inte-
gral multiples of $1 initial principal balance in excess thereof, except that
one of the Class AP Certificates may be issued in any denomination in excess of
$100,000 initial principal balance.
DEFINITIVE FORM
Offered Certificates issued in fully registered, certificated form are re-
ferred to herein as "Definitive Certificates." The Class A-R, Class AP and
Class M Certificates will be issued as Definitive Certificates. Distributions
of principal of, and interest on, the Definitive Certificates will be made by
the Trustee or other paying agent directly to holders of Definitive Certifi-
cates in accordance with the procedures set forth in the Pooling and Servicing
Agreement. The Definitive Certificates will be transferable and exchangeable at
the offices of the Trustee or other certificate registrar. No service charge
will be imposed for any registration of transfer or exchange, but the Trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
BOOK-ENTRY FORM
Each Subclass of the Book-Entry Certificates initially will be represented by
one physical certificate registered in the name of Cede & Co. ("Cede"), as 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
the Class A, Class AP, Class M and Class B Certificates will be made monthly,
to the extent of each Subclass' or Class's entitlement thereto, on the 25th day
of each month or, if such day is not a business day, on the succeeding business
day (each, a "Distribution Date"), beginning in 199 . With respect to the
Class A Certificates, such distributions will be made, to the extent of each
Subclass's entitlement thereto, in an aggregate amount equal to the Class A
Distribution Amount. With respect to the Class AP Certificates, such distribu-
tions will be made, to the extent of the Class AP Certificates' entitlement
thereto, on each Distribution Date in an amount equal to the Class AP Principal
Distribution Amount after all amounts in respect of interest due on the Class A
Certificates for such Distribution Date including all previously unpaid Class A
Subclass Interest Shortfall Amounts with respect to any Subclass of Class A
Certificates have been paid. With respect to the Class M Certificates, such
distributions will be made, to the extent of the Class M Certificates' entitle-
ment thereto, on each Distribution Date in an aggregate amount equal to the
Class M Distribution Amount after all amounts in respect of interest and prin-
cipal due on the
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Class A Certificates and principal due on the Class AP Certificates for such
Distribution Date including all previously unpaid Class A Subclass Interest
Shortfall Amounts with respect to any Subclass of Class A Certificates have
been paid. See "Description of the Certificates -- Interest" herein. The "De-
termination Date" with respect to each Distribution Date will be the 17th day
of each month, or if such day is not a business day, the preceding business
day. Distributions will be made on each Distribution Date to holders of record
(which, in the case of the Book-Entry Certificates, will be Cede, as nominee
for DTC) at the close of business on the last business day of the preceding
month (each, a "Record Date"), except that the final distribution in respect of
any Certificate will only be made upon presentation and surrender of such Cer-
tificate at the office or agency appointed by the Trustee and specified in the
notice of final distribution in respect of such Certificate.
The aggregate amount available for distribution to Certificateholders on each
Distribution Date will be the Pool Distribution Amount. The "Pool Distribution
Amount" for a Distribution Date will be the sum of all previously undistributed
payments or other receipts on account of principal (including principal prepay-
ments and Liquidation Proceeds in respect of principal, if any), and interest
(net of related servicing, master servicing and trustee fees) on or in respect
of the Mortgage Loans received by the Master Servicer, including without limi-
tation any related insurance proceeds and the proceeds of any purchase of a re-
lated Mortgage Loan for breach of a representation or warranty or the sale of a
Mortgaged Property by a Servicer in connection with the liquidation of the re-
lated Mortgage Loan on or prior to the Remittance Date in the month in which
such Distribution Date occurs, plus (i) all Periodic Advances made and (ii) all
other amounts (including any insurance proceeds) placed in the Certificate Ac-
count 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 Servic-
ing 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 as adjusted in re-
spect of Prepayment Interest Shortfalls and, if applicable, Curtailment In-
terest Shortfalls as described under "Description of the Certificates --
Interest" below, (ii) the Master Servicer Fee, (iii) the Trustee Fee and
(iv) the Fixed Retained Yield, if any;
(d) all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such Distribution
Date occurs;
(e) all principal prepayments in full, partial principal prepayments and
Partial Liquidation Proceeds received by the related Servicer on or after
the Determination Date occurring in the month in which such Distribution
Date occurs, and all related payments of interest on such amounts;
(f) to the extent permitted by the Pooling and Servicing Agreement, that
portion of Liquidation Proceeds or insurance proceeds with respect to a
Mortgage Loan or proceeds of any Mortgaged Property that becomes owned by
the Trustee which represents any unpaid Servicing Fee, Master Servicer Fee
or Trustee Fees to which such Servicer, the Master Servicer or the Trustee,
respectively, is entitled, or which represents unpaid Fixed Retained Yield,
and the portion of net Liquidation Proceeds used to reimburse any
unreimbursed Periodic Advances;
(g) all amounts representing certain expenses reimbursable to the Master
Servicer and other amounts permitted to be retained by the Master Servicer
or withdrawn by the Master Servicer from the Certificate Account pursuant
to the Pooling and Servicing Agreement;
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(h) reinvestment earnings on payments received in respect of the Mortgage
Loans or on other amounts on deposit in the Certificate Account;
(i) Net Foreclosure Profits; and
(j) the amount of any recoveries in respect of principal which had previ-
ously been allocated as a loss to one or more Classes or Subclasses of the
Certificates.
The "Remittance Date" with respect to any Distribution Date will be the 18th
day of each month, or if any day is not a business day, the preceding business
day.
Each Servicer is required to deposit in the Certificate Account on the 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 Trustee on or before the Distribution Date
any payments constituting part of the Pool Distribution Amount that are re-
ceived 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 Cer-
tificates -- Periodic Advances," neither the Master Servicer nor the Trustee is
obligated to remit any amounts which a Servicer was required but failed to de-
posit 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;
second, to the Subclasses of Class A Certificates, pro rata based on their
respective unpaid Class A Subclass Interest Shortfall Amounts, in an aggregate
amount up to the sum of the previously unpaid Class A Subclass Interest
Shortfall Amounts;
third, concurrently, to the Class A and Class AP Certificates pro rata, based
on their respective class optimal principal amounts, (A) to the Subclasses of
Class A Certificates, in an aggregate amount up to the Class A Optimal Princi-
pal 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 to the Class A
Certificates" and (B) to the Class AP Certificates in an amount up to the Class
AP Optimal Principal Amount;
fourth, to the Class AP Certificates in an amount up to the Class AP Deferred
Amount, but only, first from amounts otherwise distributable (without regard to
this priority) to the Subclasses of Class B Certificates pursuant to priority
eighth clause (C) of this Pool Distribution Amount Allocation and then from
amounts otherwise distributable (without regard to this priority) to the Class
M Certificates pursuant to priority seventh of this Pool Distribution Amount
Allocation;
fifth, to the Class M Certificates in an amount up to the Class M Interest
Accrual Amount with respect to such Distribution Date;
sixth, to the Class M Certificates in an amount up to the sum of the previ-
ously unpaid Class M Interest Shortfall Amounts;
seventh, to the Class M Certificates in an amount up to the Class M Optimal
Principal Amount; provided, however, that the amount distributable pursuant to
this priority seventh to the Class M Certificates will be reduced by the
amount, if any, otherwise distributable as principal hereunder used to pay the
Class AP Deferred Amount in accordance with priority fourth; and
eighth, sequentially, to the Class B-1, Class B-2, Class B-3, Class B-4 and
Class B-5 Certificates so that each such Subclass shall receive (A) an amount
up to its Class B Subclass Interest Accrual Amount with respect to such Distri-
bution Date, (B) then, an amount up to its previously unpaid interest shortfall
amount and (C) finally, an amount up to its optimal principal amount
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<PAGE>
before any Subclasses of Class B Certificates with higher numerical designa-
tions receive any payments in respect of interest or principal; provided, how-
ever, that the amount distributable pursuant to this priority eighth clause (C)
to any Subclasses of Class B Certificates will be reduced by the amount, if
any, otherwise distributable as principal hereunder used to pay the Class AP
Deferred Amount in accordance with priority fourth.
The "Class A Distribution Amount" for any Distribution Date will be equal to
the sum of the amounts distributed in accordance with priorities first, second
and third clause (A) of the Pool Distribution Amount Allocation set forth
above.
The "Class M Distribution Amount" for any Distribution Date will be equal to
the sum of the amounts distributed in accordance with priorities fifth through
seventh of the Pool Distribution Amount Allocation set forth above.
The undivided percentage interest (the "Percentage Interest") represented by
any Offered Certificate of a Subclass or any Class in distributions to such
Subclass or Class will be equal to the percentage obtained by dividing the ini-
tial principal balance of such Certificate by the aggregate initial principal
balance of all Certificates of such Subclass or Class, as the case may be.
INTEREST
The amount of interest that will accrue on each Subclass of Class A 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 A Subclass Interest Accrual
Amount" for such Subclass. The Class A Subclass Interest Accrual Amount for
each Subclass of Class A Certificates will equal the difference between (a) the
product of (i) 1/12th of the Pass-Through Rate for such Subclass and (ii) the
outstanding Class A Subclass Principal Balance of such Subclass and (b) the sum
of (i) any Non-Supported Interest Shortfall allocable to such Subclass, (ii)
the interest portion of any Excess Special Hazard Losses, Excess Fraud Losses
and Excess Bankruptcy Losses allocable to such Subclass and (iii) the interest
portion of any Realized Losses, other than the interest portion of any Excess
Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses, allo-
cable to such Subclass on or after the Cross-Over Date. The pass-through rate
for each Subclass of Offered Certificates (the "Pass-Through Rate") is the per-
centage set forth on the cover of this Prospectus Supplement.
No interest will accrue on the Class AP Certificates.
The amount of interest that will accrue on the Class M Certificates during
each month, after taking into account any Non-Supported Interest Shortfalls and
the interest portion of certain losses allocated to such Class, is referred to
herein as the "Class M Interest Accrual Amount." The Class M Interest Accrual
Amount will equal the difference between (a) the product of (i) 1/12th of %
and (ii) the outstanding Class M Principal Balance and (b) the sum of (i) any
Non-Supported Interest Shortfall allocable to such Class and (ii) the interest
portion of any Excess Special Hazard Losses, Excess Fraud Losses and Excess
Bankruptcy Losses allocable to such Class.
The amount of interest that will accrue on each Subclass of Class B Certifi-
cates during each month, after taking into account any Non-Supported Interest
Shortfalls and the interest portion of certain losses allocated to such Class,
is referred to herein as the "Class B Subclass Interest Accrual Amount." The
Class B Subclass Interest Accrual Amount will equal the difference between (a)
the product of (i) 1/12th of % and (ii) the outstanding Class B Subclass Prin-
cipal Balance and (b) the sum of (i) any Non-Supported Interest Shortfall allo-
cable to such Subclass and (ii) the interest portion of any Excess Special Haz-
ard Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocable to such
Subclass.
The "Class A Subclass Principal Balance" of a Subclass of Class A Certifi-
cates 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 previously distributed to holders of Certificates of such Subclass
in reduction of the principal balance of such Subclass and (ii) such Subclass'
pro
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<PAGE>
rata share of the principal portion of Excess Special Hazard Losses, Excess
Fraud Losses and Excess Bankruptcy Losses previously allocated to the holders
of Class A Certificates in the manner described herein under "-- Subordination
of Class M and Class B Certificates -- Allocation of Losses." After the Cross-
Over Date, the Class A Subclass Principal Balance of a Subclass may be subject
to further reduction in an amount equal to such Subclass' pro rata share of the
difference, if any, between (a) the Class A Principal Balance as of such Deter-
mination Date without regard to this provision and (b) the difference between
(i) the Adjusted Pool Amount for the preceding Distribution Date and (ii) the
Adjusted Pool Amount (Class AP Portion) for the preceding Distribution Date.
Any pro rata allocation among the Subclasses of Class A Certificates described
in this paragraph will be made among the Subclasses of Class A Certificates on
the basis of their then-outstanding Class A Subclass Principal Balances immedi-
ately prior to the preceding Distribution Date.
The "Class A Principal Balance" as of any Determination Date will be equal to
the sum of the Class A Subclass Principal Balances of the Subclasses of Class A
Certificates as of such date.
The "Class AP Principal Balance" as of any Determination Date will be the
principal balance of the Class AP Certificates on the date of initial issuance
of the Class AP Certificates less (i) all amounts previously distributed to
holders of the Class AP Certificates in reduction of the principal balance of
such Class pursuant to priorities third clause (B) and fourth of the Pool Dis-
tribution Amount Allocation and (ii) the principal portion of Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses previously al-
located to the holders of the Class AP Certificates in the manner described
herein under "-- Subordination of Class M and Class B Certificates-- Allocation
of Losses." After the Cross-Over Date, the Class AP Principal Balance will be
subject to further reduction in an amount equal to the excess, if any, of (a)
the Class AP Principal Balance as of such Determination Date without regard to
this provision over (b) the Adjusted Pool Amount (Class AP Portion) for the
preceding Distribution Date.
The "Class M Principal Balance" as of any Determination Date will be the
lesser of (a) the principal balance of the Class M Certificates on the date of
initial issuance of the Class M Certificates less (i) all amounts previously
distributed to holders of the Class M Certificates in reduction of the princi-
pal balance thereof and (ii) the principal portion of Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses previously allocated
to the holders of the Class M Certificates in the manner described herein under
"-- Subordination of Class M and Class B Certificates -- Allocation of Losses"
and (b) the Adjusted Pool Amount as of the preceding Distribution Date less the
sum of (i) the Class A Principal Balance and (ii) the Class AP Principal Bal-
ance, each 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
previously allocated to the holders of such Subclass in the manner described
under "-- Subordination of Class M and Class B Certificates -- Allocation of
Losses" and (b) the Adjusted Pool Amount as of the preceding Distribution Date
less the sum of (i) Class A Principal Balance, (ii) the Class AP Principal Bal-
ance, (iii) the Class M Principal Balance and (iv) the Class B Subclass Princi-
pal Balances of the Subclasses of Class B Certificates with lower numerical
designations, each as of such Determination Date.
The "Class B Principal Balance" as of any date will be equal to the sum of
the Class B Subclass Principal Balances of the Subclasses of Class B 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 199 - Certificates on such Distribution Date and all
prior
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Distribution Dates and (ii) the principal portion of all Realized Losses (other
than Debt Service Reductions) incurred on the Mortgage Loans from the Cut-Off
Date through the end of the month preceding such Distribution Date.
With respect to any Distribution Date, the "Adjusted Pool Amount (Class AP
Portion)" will equal the sum as to each Mortgage Loan outstanding at the Cut-
Off Date of the product of (A) the Class AP Fraction for such Mortgage Loan and
(B) the principal balance of such Mortgage Loan as of the Cut-Off Date less the
sum of (i) all amounts in respect of principal received in respect of such
Mortgage Loan (including amounts received as Periodic Advances, principal pre-
payments and Liquidation Proceeds in respect of principal) and distributed to
holders of the Series 199 - Certificates on such Distribution Date and all
prior Distribution Dates and (ii) the principal portion of any Realized Loss
(other than a Debt Service Reduction) incurred on such Mortgage Loan from the
Cut-Off Date through the end of the month preceding the month in which such
Distribution Date occurs.
The "Net Mortgage Interest Rate" on each Mortgage Loan will be equal to the
Mortgage Interest Rate on such Mortgage Loan as stated in the related mortgage
note minus the sum of (i) the Servicing Fee Rate ranging from % to % per an-
num, (ii) the Master Servicing Fee Rate as set forth in the Pooling and Servic-
ing Agreement, (iii) the Trustee Fee Rate and (iv) the Fixed Retained Yield
Rate, if any, for such Mortgage Loan. The initial weighted average Servicing
Fee Rate of the Mortgage Loans is approximately % per annum. See "Servicing of
the Mortgage Loans -- Fixed Retained Yield; Servicing Compensation and Payment
of Expenses" herein.
When mortgagors prepay principal or when principal is recovered through fore-
closures or other liquidations of defaulted Mortgage Loans, a full month's in-
terest for the month of payment or recovery may not be paid or recovered, re-
sulting in interest shortfalls. [Interest shortfalls resulting from principal
prepayments in full are referred to herein as "Prepayment Interest Shortfalls."
Prepayment Interest Shortfalls occurring with respect to Mortgage Loans will be
offset to the extent of the aggregate Servicing Fees due to the related
Servicer in respect of the related Distribution Date. Interest shortfalls re-
sulting from the timing of the receipt of partial principal prepayments and of
net Partial Liquidation Proceeds with respect to the Mortgage Loans will not be
offset by Servicing Fees payable to the related Servicer, but instead will be
borne first by the Class B Certificates, then by the Class M Certificates and
finally by the Class A Certificates. See "Description of the Certificates --
Subordination of Class M and Class B Certificates" herein. As to any Distribu-
tion Date, Prepayment Interest Shortfalls to the extent that they exceed the
aggregate Servicing Fees payable to the related Servicer or Servicers on such
Distribution Date are referred to herein as "Non-Supported Interest
Shortfalls"] and will be allocated to (i) the Class A Certificates according to
the percentage obtained by dividing the then-outstanding Class A Principal Bal-
ance by the sum of the then-outstanding Class A Principal Balance, Class M
Principal Balance and Class B Principal Balance, (ii) the Class M Certificates
according to the percentage obtained by dividing the then-outstanding Class M
Principal Balance by the sum of the then-outstanding Class A Principal Balance,
Class M Principal Balance and Class B Principal Balance and (iii) the
Subclasses of Class B Certificates according to the percentage obtained by di-
viding the then-outstanding Class B Subclass Principal Balance of each such
Subclass by the sum of the then-outstanding Class A Principal Balance, Class M
Principal Balance and Class B Principal Balance. Such allocation of the Non-
Supported Interest Shortfall will reduce the amount of interest due to be dis-
tributed to holders of the Class A Certificates then entitled to distributions
in respect of interest. Such allocation of the Non-Supported Interest Shortfall
will also reduce the amount of interest due to be distributed to the holders of
the Class M Certificates and the Class B Certificates. Any such reduction in
respect of interest will be allocated among the Subclasses of Class A Certifi-
cates pro rata on the basis of their respective Class A Subclass Interest Ac-
crual Amounts without regard to any reduction pursuant to this paragraph, for
such Distribution Date. See "Servicing of the Mortgage Loans -- Adjustment to
Servicing Fee in Connection with Prepaid Mortgage Loans" in the Prospectus.
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The interest portion of any Excess Special Hazard Losses, Excess Fraud Losses
or Excess Bankruptcy Losses will be allocated among the Class A, Class M and
Class B Certificates pro rata based on the interest accrued on each such Class
or Subclass and among the Subclasses of Class A Certificates pro rata on the
basis of their respective Class A Subclass Interest Accrual Amounts, without
regard to any reduction pursuant to this paragraph, for such Distribution Date.
Allocations of the interest portion of Realized Losses (other than Excess
Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses) first
to the Class B Certificates and then to the Class M Certificates will result
from the priority of distributions first to the holders of the Senior Certifi-
cates and then to the Class M Certificateholders of the Pool Distribution
Amount as described above under "Description of the Certificates -- Distribu-
tions."
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' Class A Subclass Interest Accrual Amount.
If, on any Distribution Date, the Pool Distribution Amount is less than the
sum of the Class A Subclass Interest Accrual Amounts, the amount of interest
currently distributed on the Class A Certificates will equal the Pool Distribu-
tion Amount and will be allocated among the Subclasses of Class A Certificates
pro rata in accordance with each such Subclass' Class A Subclass Interest Ac-
crual Amount. Amounts so allocated will be distributed in respect of interest
to each Subclass of Class A Certificates. Any difference between the portion of
the Pool Distribution Amount distributed in respect of current interest to each
Subclass of Class A Certificates and the Class A Subclass Interest Accrual
Amount for such Subclass with respect to the related Distribution Date (as to
each Subclass, the "Class A Subclass Interest Shortfall Amount") will be added
to the amount to be distributed on subsequent Distribution Dates to the extent
that the Pool Distribution Amount is sufficient therefor. No interest will ac-
crue on the unpaid Class A Subclass Interest Shortfall Amounts.
On each Distribution Date on which the Pool Distribution Amount exceeds the
sum of the Class A Subclass Interest Accrual Amounts, any excess will then be
allocated first to pay previously unpaid Class A Subclass Interest Shortfall
Amounts. Such amounts will be allocated among the Subclasses of Class A Certif-
icates pro rata in accordance with the respective unpaid Class A Subclass In-
terest Shortfall Amounts immediately prior to such Distribution Date.
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 each Subclass of
Class A Certificates, (ii) the sum of the unpaid Class A Subclass Interest
Shortfall Amounts with respect to each Subclass of Class A Certificates and
(iii) the Class A Optimal Principal Amount (collectively with the amounts de-
scribed in clauses (i) and (ii), the "Class A Optimal Amount"), (B) the Class
AP Optimal Principal Amount (collectively with the amount described in clause
(A), the "Senior Optimal Amount") and (C) the Class M Interest Accrual Amount,
distributions in respect of current interest to the Class M Certificates will
equal the Class M Interest Accrual Amount.
If, on any Distribution Date, the Pool Distribution Amount is less than the
sum of (i) the Senior Optimal Amount and (ii) the Class M Interest Accrual
Amount, the amount of current interest distributed on the Class M Certificates
will equal the Pool Distribution Amount minus the amounts distributed to the
Senior Certificates with respect to such Distribution Date. Any difference 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.
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<PAGE>
Subject to the payment of any Class AP Deferred Amount, on each Distribution
Date on which the Pool Distribution Amount exceeds the sum of the Senior Opti-
mal Amount and the Class M Interest Accrual Amount, any excess will be allo-
cated first to pay previously unpaid Class M Interest Shortfall Amounts and
then to make distributions in respect of principal on the Class M Certificates
and in respect of interest and then principal on the Subclasses of Class B Cer-
tificates in numerical order. With respect to each Distribution Date, the
"Class M Optimal Amount" will equal the sum of (i) the Class M Interest Accrual
Amount, (ii) the unpaid Class M Interest Shortfall Amount and (iii) the Class M
Optimal Principal Amount.
On any Distribution Date on which the Pool Distribution Amount is less than
the Senior Optimal Amount, the Class M Certificates and the Subclasses of Class
B Certificates will not be entitled to any distributions of interest or princi-
pal.
PRINCIPAL (INCLUDING PREPAYMENTS)
The principal balance of a Class A Certificate of any Subclass or of any
Class AP or Class M Certificate at any time is equal to the product of the
Class A Subclass Principal Balance of such Subclass or the Class AP Principal
Balance or the Class M Principal Balance, as the case may be, and such Certifi-
cate's Percentage Interest, and represents the maximum specified dollar amount
(exclusive of (i) any interest that may accrue on such Class A or Class M Cer-
tificate and (ii) in the case of the Class A-R Certificate, any additional
amounts to which the holder of such Certificate may be entitled as described
below under "-- Additional Rights of the Class A-R Certificateholder") to which
the holder thereof is entitled from the cash flow on the Mortgage Loans at such
time, and will decline to the extent of distributions in reduction of the prin-
cipal balance of, and allocations of losses to, such Certificate. The approxi-
mate initial Class A Subclass Principal Balance of each Subclass of Class A
Certificates and the approximate initial Class AP and Class M Principal Bal-
ances are set forth on the cover of this Prospectus Supplement.
Calculation of Amount to be Distributed to the Class A Certificates
Distributions in reduction of the principal balance of the Class A Certifi-
cates will be made on each Distribution Date pursuant to priority third clause
(A) of the Pool Distribution Amount Allocation, in an aggregate amount (the
"Class A Principal Distribution Amount") up to the Class A Optimal Principal
Amount.
The "Class A Optimal Principal Amount" with respect to each Distribution Date
will be an amount equal to the sum for each outstanding Mortgage Loan (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 Classes A/M/B Fraction for such Mortgage Loan and (B)
the sum of:
(i) the Class A Percentage of (A) the scheduled payment of principal due on
such Mortgage Loan on the first day of the month in which the Distribu-
tion Date occurs, less (B) if the Bankruptcy Loss Amount is zero, the
principal portion of Debt Service Reductions with respect to such Mort-
gage Loan,
(ii) the Class A Prepayment Percentage of the Scheduled Principal Balance
of such Mortgage Loan which, during the month preceding the month of
such Distribution Date was repurchased by a Representing Party, as
described under the heading "Description of the Mortgage Loans --
Mandatory Repurchase or Substitution of Mortgage Loans" herein,
(iii) The Class A Prepayment Percentage of (a) the aggregate net Liquida-
tion Proceeds (other than net Partial Liquidation Proceeds) on any
such Mortgage Loan that became a Liquidated Loan during such preced-
ing month (excluding the portion thereof, if any, constituting Net
Foreclosure Profits, as defined under "-- Additional Rights of the
Class A-R Certificateholder" below), less the amounts allocable to
principal of any unreimbursed Periodic Advances previously made with
respect to such Liquidated Loan and the portion of such net Liquida-
tion Proceeds allocable to interest and (b) the aggregate net Par-
tial Liquidation Proceeds on any such Mortgage Loan received by any
Servicer on or after the
S-36
<PAGE>
Determination Date occurring in the month preceding the month in which
such Distribution Date occurs and prior to the Determination Date occur-
ring in the month in which such Determination Date occurs, less the
amounts allocable to principal of any unreimbursed Periodic Advances and
the portion of the net Partial Liquidation Proceeds allocable to inter-
est,
(iv) the Class A Prepayment Percentage of the Scheduled Principal Balance
of each Mortgage Loan which was the subject of a principal prepayment
in full during the period from and including the Determination Date
in the month preceding the month of such Distribution Date up to (but
not including) the Determination Date occurring in the month of such
Distribution Date,
(v) the Class A Prepayment Percentage of all partial principal prepayments
received by any Servicer with respect to such Mortgage Loan on or af-
ter the Determination Date occurring in the month preceding the month
in which such Distribution Date occurs and prior to the Determination
Date occurring in the month in which such Distribution Date occurs,
and
(vi) the Class A Percentage of the difference between the unpaid principal
balance of any such Mortgage Loan substituted for a defective Mort-
gage Loan during the month preceding the month in which such Distri-
bution Date occurs and the unpaid principal balance of such defective
Mortgage Loan, less the amount allocable to the principal portion of
any unreimbursed advances in respect of such defective Mortgage Loan.
In addition, in the event that there is any recovery of an amount in respect
of principal which had previously been allocated as a Realized Loss to the
Class A Certificates, each Subclass of Class A Certificates then outstanding
will be entitled to its pro rata share of such recovery in an amount up to the
amount by which the Class A Subclass Principal Balance of such Subclass was re-
duced as a result of such Realized Loss.
The "Classes A/M/B Fraction" with respect to any Mortgage Loan will equal the
Net Mortgage Interest Rate for such Mortgage Loan divided by %.
The "Scheduled Principal Balance" of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy (other than Deficient Valuations), 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 and to the payment of principal due
on such Due Date, and irrespective of any delinquency in payment by the mortga-
gor and any net Partial Liquidation Proceeds applied as of such Due Date and
any principal prepayments in full received prior to the Determination Date in
the month of such Due Date.
"Partial Liquidation Proceeds" are Liquidation Proceeds received by a
Servicer on a Mortgage Loan prior to such Mortgage Loan becoming a Liquidated
Loan and "net Partial Liquidation Proceeds" are Partial Liquidation Proceeds
less expenses incurred with respect to such liquidation. A "Liquidated Loan" is
a defaulted Mortgage Loan as to which the Servicer has determined that all re-
coverable 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 un-
paid principal balance of such Liquidated Loan, plus accrued interest thereon
in accordance with the amortization schedule at the Net Mortgage Interest Rate
through the last day of the month in which such Mortgage Loan was liquidated,
over (ii) net Liquidation Proceeds. For purposes of calculating the amount of
any Liquidated Loan Loss, all net Liquidation Proceeds (after reimbursement of
any previously unreimbursed Periodic Advance) will be applied first to accrued
interest and then to the unpaid principal balance of the Liquidated Loan. A
"Special Hazard Loss" is (A) a Liquidated Loan Loss
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<PAGE>
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 Mort-
gaged 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 Es-
tates -- Mortgage Loans -- Insurance Policies" and (ii) any loss caused by or
resulting from (a) normal wear and tear, (b) dishonest acts of the Trustee, the
Master Servicer or the Servicer or (c) errors in design, faulty workmanship or
faulty materials, unless the collapse of the property or a part thereof ensues
or (B) a Liquidated Loan Loss arising from or relating to the presence or sus-
pected presence of hazardous wastes or substances on a Mortgaged Property. A
"Fraud Loss" is a Liquidated Loan Loss incurred on a Liquidated Loan as to
which there was fraud in the origination of such Mortgage Loan. A "Bankruptcy
Loss" is a loss attributable to certain actions which may be taken by a bank-
ruptcy court in connection with a Mortgage Loan, including a reduction by a
bankruptcy court of the principal balance of or the interest rate on a Mortgage
Loan or an extension of its maturity. A "Debt Service Reduction" means a reduc-
tion in the amount of monthly payments due to certain bankruptcy proceedings,
but does not include any permanent forgiveness of principal. A "Deficient Valu-
ation" 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 re-
sults in a permanent forgiveness of principal, which valuation or reduction re-
sults from a bankruptcy proceeding. Liquidated Loan Losses (including Special
Hazard Losses and Fraud Losses) and Bankruptcy Losses are referred to herein as
"Realized Losses."
The "Class A Percentage" for any Distribution Date occurring on or prior to
the Cross-Over Date is the percentage (subject to rounding), which in no event
will exceed 100%, obtained by dividing the Class A Principal Balance as of such
date (before taking into account distributions in reduction of principal bal-
ance on such date) by the Pool Balance (Classes A/M/B Portion). The "Pool Bal-
ance (Classes A/M/B Portion)" is the sum for each outstanding Mortgage Loan of
the product of (i) the Classes A/M/B Fraction for such Mortgage Loan and (ii)
the Scheduled Principal Balance of such Mortgage Loan as of such Distribution
Date. The Class A Percentage for the first Distribution Date will be approxi-
mately %. The Class A Percentage will decrease as a result of the allocation
of certain unscheduled payments in respect of principal according to the Class
A Prepayment Percentage for a specified period to the Class A Certificates and
will increase as a result of the allocation of Realized Losses to the Class B
and Class M Certificates. The Class A Percentage for each Distribution Date oc-
curring 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>
through ............................. 100%;
through ............................. the Class A Percentage, plus 70%
of the Subordinated Percentage;
through ............................. the Class A Percentage, plus 60%
of the Subordinated Percentage;
through ............................. the Class A Percentage, plus 40%
of the Subordinated Percentage;
through ............................. the Class A Percentage, plus 20%
of the Subordinated Percentage;
and
and thereafter........................... the Class A Percentage;
</TABLE>
provided, however, that if on any of the foregoing Distribution Dates the Class
A Percentage exceeds the initial Class A Percentage, the Class A Prepayment
Percentage for such Distribution Date will once again equal 100%. See "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
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<PAGE>
preceding five Distribution Dates on the Mortgage Loans that were delinquent 60
days or more (including for this purpose any Mortgage Loans in foreclosure and
Mortgage Loans with respect to which the related Mortgaged Property has been
acquired by the Trust Estate) is greater than or equal to 50% of the sum of the
then-outstanding Class M Principal Balance and the then-outstanding Class B
Principal Balance, or (ii) cumulative Realized Losses with respect to the Mort-
gage Loans exceed (a) 30% of the principal balance of the Subordinated Certifi-
cates as of the Cut-Off Date (the "Original Subordinated Principal Balance") if
such Distribution Date occurs between and including and , (b) 35% of
the Original Subordinated Principal Balance if such Distribution Date occurs
between and including and , (c) 40% of the Original Subordinated
Principal Balance if such Distribution Date occurs between and including
and , (d) 45% of the Original Subordinated Principal Balance if such
Distribution Date occurs between and including and , and (e) 50% of
the Original Subordinated Principal Balance if such Distribution Date occurs
during or after . This disproportionate allocation of certain unscheduled
payments in respect of principal will have the effect of accelerating the amor-
tization of the Class A Certificates while, in the absence of Realized Losses,
increasing the interest in the principal balance of the Mortgage Loans evi-
denced by the Class M and Class B Certificates. Increasing the respective in-
terest of the Class M and Class B Certificates relative to that of the Class A
Certificates is intended to preserve the availability of the subordination pro-
vided by the Class M and Class B Certificates. See "-- Subordination of Class M
and Class B Certificates" below. The "Subordinated Percentage" for any Distri-
bution Date will be calculated as the difference between 100% and the Class A
Percentage for such date. The "Subordinated Prepayment Percentage" for any Dis-
tribution Date will be calculated as the difference between 100% and the Class
A Prepayment Percentage for such date. If on any Distribution Date the alloca-
tion to the Class A Certificates of full and partial principal prepayments and
other amounts in the percentage required above would reduce the outstanding
Class A Principal Balance below zero, the Class A Prepayment Percentage for
such Distribution Date will be limited to the percentage necessary to reduce
the Class A Principal Balance to zero.
Calculation of Amount to be Distributed to the Class AP Certificates
Distributions in reduction of the Class AP Principal Balance will be made on
each Distribution Date in an aggregate amount equal to the Class AP Principal
Distribution Amount. The "Class AP Principal Distribution Amount" with respect
to any Distribution Date will be equal to the sum of (i) the amount distributed
pursuant to priority third clause (B) of the Pool Distribution Amount Alloca-
tion, in an aggregate amount up to the Class AP Optimal Principal Amount and
(ii) the amount distributed pursuant to priority fourth of the Pool Distribu-
tion Amount Allocation, in an aggregate amount up to the Class AP Deferred
Amount.
The "Class AP Optimal Principal Amount" with respect to each Distribution
Date will be an amount equal to the sum for each outstanding Mortgage Loan (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 Class AP Fraction for such Mortgage Loan and
(B) the sum of:
(i) the scheduled payment of principal due on such Mortgage Loan on the
first day of the month in which the Distribution Date occurs, less, if
the Bankruptcy Loss Amount is zero, the principal portion of Debt
Service Reductions with respect to such Mortgage Loan,
(ii) the Scheduled Principal Balance of such Mortgage Loan which, during
the month preceding the month of such Distribution Date was repur-
chased by a Representing Party, as described under the heading "De-
scription of the Mortgage Loans -- Mandatory Repurchase or Substitu-
tion of Mortgage Loans" herein,
(iii) the sum of (a) the aggregate net Liquidation Proceeds (other than
net Partial Liquidation Proceeds) on any such Mortgage Loan that be-
came a Liquidated Loan during such preceding month (excluding the
portion thereof, if any, constituting Net Foreclosure Profits),
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<PAGE>
less the amounts allocable to principal of any unreimbursed Periodic Ad-
vances previously made with respect to such Liquidated Loan and the por-
tion of such net Liquidation Proceeds allocable to interest and (b) the
aggregate net Partial Liquidation Proceeds on any such Mortgage Loan re-
ceived by a Servicer on or after the Determination Date occurring in the
month preceding the month in which such Distribution Date occurs and
prior to the Determination Date occurring in the month in which such
Distribution Date occurs, less the amounts allocable to principal of any
unreimbursed Periodic Advances and the portion of the net Partial Liqui-
dation Proceeds allocable to interest,
(iv) the Scheduled Principal Balance of such Mortgage Loan which was the
subject of a principal prepayment in full during the period from and
including the Determination Date in the month preceding the month of
such Distribution Date up to (but not including) the Determination
Date occurring in the month of such Distribution Date,
(v) all partial principal prepayments received by a Servicer on or after
the Determination Date occurring in the month preceding the month in
which such Distribution Date occurs and prior to the Determination Date
occurring in the month in which such Distribution Date occurs, and
(vi) the difference between the unpaid principal balance of any such Mort-
gage Loan substituted for a defective Mortgage Loan during the month
preceding the month in which such Distribution Date occurs and the un-
paid principal balance of such defective Mortgage Loan, less the
amount allocable to the principal portion of any unreimbursed advances
in respect of such defective Mortgage Loan. See "The Pooling and Ser-
vicing Agreement --Assignment of Mortgage Loans to the Trustee" in the
Prospectus.
The "Class AP Deferred Amount" for any Distribution Date prior to the Cross-
Over Date will equal the difference between (A) the sum of (i) the amount by
which the Class AP Optimal Principal Amount for all prior Distribution Dates
exceeds the amounts distributed on the Class AP Certificates on such prior Dis-
tribution Dates pursuant to priority third, clause (B) of the Pool Distribution
Amount Allocation, but only to the extent such shortfall is not attributable to
Realized Losses allocated to the Class AP Certificates as described in "-- Sub-
ordination of Class M and Class B Certificates -- Allocation of Losses" below
and (ii) the sum of the product for each Discount Mortgage Loan which became a
Liquidated Loan in any month preceding the month of the current Distribution
Date of (a) the Class AP Fraction for such Discount Mortgage Loan and (b) an
amount equal to the principal portion of Realized Losses (other than Bankruptcy
Losses due to Debt Service Reductions) incurred with respect to such Discount
Mortgage Loan other than Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses and (B) amounts distributed on the Class AP 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 AP De-
ferred Amount will be zero. No interest will accrue on any Class AP Deferred
Amount.
The "Class AP Fraction" with respect to any Discount Mortgage Loan will equal
the difference between 1.0 and the Classes A/M/B Fraction for such Mortgage
Loan. The Class AP Fraction with respect to each Mortgage Loan that is not a
Discount Mortgage Loan will be zero.
The "Pool Balance (Class AP Portion)" is the sum for each Discount Mortgage
Loan of the product of the Scheduled Principal Balance of such Mortgage Loan
and the Class AP Fraction for such Mortgage Loan.
Calculation of Amount to be Distributed to the Class M Certificates
Distributions in reduction of the principal balance of the Class M 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.
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<PAGE>
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 Classes A/M/B Fraction for such Mortgage Loan and (B)
the sum of:
(i) the Class M Percentage of (a) the scheduled payment of principal due on
such Mortgage Loan on the first day of the month in which the Distribu-
tion Date occurs, less (b) if the Bankruptcy Loss Amount is zero, the
principal portion of Debt Service Reductions with respect to such Mort-
gage Loan,
(ii) the Class M Prepayment Percentage of the Scheduled Principal Balance
of such Mortgage Loan which, during the month preceding the month of
such Distribution Date was repurchased by a Representing Party, as de-
scribed under the heading "Description of the Mortgage Loans -- Manda-
tory Repurchase or Substitution of Mortgage Loans" herein,
(iii) the Class M Prepayment Percentage of (a) the aggregate net Liquida-
tion Proceeds (other than net Partial Liquidation Proceeds) on any
such Mortgage Loan that became a Liquidated Loan during such preced-
ing month (excluding the portion thereof, if any, constituting Net
Foreclosure Profits), less the amounts allocable to principal of any
unreimbursed Periodic Advances previously made with respect to such
Liquidated Loan and the portion of such net Liquidation Proceeds al-
locable to interest and (b) the aggregate net Partial Liquidation
Proceeds on any such Mortgage Loan received by a Servicer on or after
the Determination Date occurring in the month preceding the month in
which such Distribution Date occurs and prior to the Determination
Date occurring in the month in which such Distribution Date occurs,
less the amounts allocable to principal of any unreimbursed Periodic
Advances and the portion of the net Partial Liquidation Proceeds al-
locable to interest,
(iv) the Class M Prepayment Percentage of the Scheduled Principal Balance
of such Mortgage Loan which was the subject of a principal prepayment
in full during the period from and including the Determination Date in
the month preceding the month of such Distribution Date up to (but not
including) the Determination Date occurring in the month of such Dis-
tribution Date,
(v) the Class M Prepayment Percentage of all partial principal prepayments
received by a Servicer with respect to such Mortgage Loan on or after
the Determination Date occurring in the month preceding the month in
which such Distribution Date occurs and prior to the Determination Date
occurring in the month in which such Distribution Date occurs, and
(vi) the Class M Percentage of the difference between the unpaid principal
balance of any such Mortgage Loan substituted for a defective Mortgage
Loan during the month preceding the month in which such Distribution
Date occurs and the unpaid principal balance of such defective Mort-
gage Loan, less the amounts allocable to principal of any unreimbursed
Periodic Advances with respect to such defective Mortgage Loan. See
"The Pooling and Servicing Agreement -- Assignment of Mortgage Loans
to the Trustee" in the Prospectus.
The principal distribution to the holders of Class M Certificates will be re-
duced on any Distribution Date on which (i) the principal balance of the Class
M Certificates on the following Determination Date would be reduced to zero as
a result of principal distributions or allocation of losses and (ii) the prin-
cipal balance of any Senior Certificates would be subject to reduction on such
Determination Date as a result of allocation of Realized Losses (other than Ex-
cess Bankruptcy Losses, Excess Fraud Losses and Excess Special Hazard Losses).
The amount of any such reduction in the principal distributed to the holders of
Class M Certificates will instead be distributed pro rata to the holders of the
Class A Certificates.
S-41
<PAGE>
In addition, in the event that there is any recovery of an amount in respect
of principal which had previously been allocated as a Realized Loss to the
Class M Certificates, the Class M Certificates will be entitled to their pro
rata share of such recovery up to the amount by which the Class M Principal
Balance was reduced as a result of such Realized Loss.
The "Class M Percentage" and "Class M Prepayment Percentage" for any 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.
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
distributions in respect of principal and the Class B Subclass Principal Bal-
ances of such Subclasses will not be used to determine the Class M Percentage
and the Class M Prepayment Percentage for such Distribution Date. In the event
that each of the Current Class M Fractional Interest and the Current Class B-1
Fractional Interest equals or exceeds the Original Class M Fractional Interest
and the Original Class B-1 Fractional Interest, respectively, but the Current
Class B-2 Fractional Interest is less than the Original Class B-2 Fractional
Interest, the Class B-3, Class B-4 and Class B-5 Certificates will not be enti-
tled to distributions in respect of principal and the Class B Subclass Princi-
pal Balances of such Subclasses will not be used to determine the Class M Per-
centage and the Class M Prepayment Percentage for such Distribution Date. In
the event that each of the Current Class M Fractional Interest, the Current
Class B-1 Fractional Interest and the Current Class B-2 Fractional Interest
equals or exceeds the Original Class M Fractional Interest, the Original Class
B-1 Fractional Interest and the Original Class B-2 Fractional Interest, respec-
tively, but the Current Class B-3 Fractional Interest is less than the Original
Class B-3 Fractional Interest, the Class B-4 and Class B-5 Certificates will
not be entitled to distributions in respect of principal and the Class B
Subclass Principal Balances of such Subclasses will not be used to determine
the Class M Percentage and the Class M Prepayment Percentage for such Distribu-
tion Date. In the event that each of the Current Class M Fractional Interest,
the Current Class B-1 Fractional Interest, the Current Class B-2 Fractional In-
terest and the Current Class B-3 Fractional Interest equals or exceeds the
Original Class M Fractional Interest, the Original Class B-1 Fractional Inter-
est, the Original Class B-2 Fractional Interest and the Original Class B-3
Fractional Interest, respectively, but the Current Class B-4 Fractional Inter-
est is less than the Original Class B-4 Fractional Interest, the Class B-5 Cer-
tificates 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 deter-
mine the Class M Percentage and the Class M Prepayment Percentage for such Dis-
tribution 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 Principal Balance, initial Class M Principal Balance and
initial Class B Principal Balance. The Original Class M Fractional Interest is
expected to be approximately %. The "Current Class M Fractional Interest" for
any Distribu-
LOGO
S-42
<PAGE>
tion Date is the percentage obtained by dividing the sum of the then-outstand-
ing Class B Subclass Principal Balances of the Class B-1, Class B-2, Class B-3,
Class B-4 and Class B-5 Certificates by the sum of the then-outstanding Class A
Principal Balance, the Class M Principal Balance and the Class B Principal Bal-
ance.
The "Original Class B-1 Fractional Interest" is the percentage obtained by
dividing the sum of the initial Class B Subclass Principal Balances of the
Class B-2, Class B-3, Class B-4 and Class B-5 Certificates by the sum of the
initial Class A Principal Balance, initial Class M Principal Balance and ini-
tial Class B Principal Balance. The Original Class B-1 Fractional Interest is
expected to be approximately %. The "Current Class B-1 Fractional Interest"
for any Distribution Date is the percentage obtained by dividing the sum of the
then-outstanding Class B Subclass Principal Balances of the Class B-2, Class B-
3, Class B-4 and Class B-5 Certificates by the sum of the then-outstanding
Class A Principal Balance, the Class M Principal Balance and the Class B Prin-
cipal 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 Principal Balance, initial Class M Principal Balance and initial Class B
Principal Balance. The Original Class B-2 Fractional Interest is expected to be
approximately %. The "Current Class B-2 Fractional Interest" for any Distribu-
tion Date is the percentage obtained by dividing the sum of the then-outstand-
ing Class B Subclass Principal Balances of the Class B-3, Class B-4 and Class
B-5 Certificates by the sum of the then-outstanding Class A Principal Balance,
the Class M Principal Balance and the Class B Principal Balance.
The "Original Class B-3 Fractional Interest" is the percentage obtained by
dividing the sum of the initial Class B Subclass Principal Balances of the
Class B-4 and Class B-5 Certificates by the sum of the initial Class A Princi-
pal Balance, initial Class M Principal Balance and initial Class B Principal
Balance. The Original Class B-3 Fractional Interest is expected to be approxi-
mately %. The "Current Class B-3 Fractional Interest" for any Distribution
Date is the percentage obtained by dividing the sum of the then-outstanding
Class B Subclass Principal Balances of the Class B-4 and Class B-5 Certificates
by the sum of the then-outstanding Class A Principal Balance, the Class M Prin-
cipal 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 Principal Balance, initial Class M
Principal Balance and initial Class B Principal Balance. The Original Class B-4
Fractional Interest is expected to be approximately %. The "Current Class B-4
Fractional Interest" for any Distribution Date is the percentage obtained by
dividing the then-outstanding Class B Subclass Principal Balance of the Class
B-5 Certificates by the sum of the then-outstanding Class A Principal Balance,
the Class M Principal Balance and the Class B Principal Balance.
Allocation of Amount to be Distributed
On each Distribution Date occurring prior to the Cross-Over Date, the Class A
Principal Distribution Amount will be allocated among and distributed in reduc-
tion of the Class A Subclass Principal Balances of the other Subclasses of
Class A Certificates as follows:
[INSERT DISTRIBUTION PRIORITIES]
LOGO
S-43
<PAGE>
As used above, the "PAC Principal Amount" for any Distribution Date and for
the PAC Certificates means the amount, if any, that would reduce the Class A
Subclass Principal Balance of such Subclass to the percentage of its initial
Class A Subclass Principal Balance shown in the following tables with respect
to such Distribution Date.
As used above, the "TAC Principal Amount" for any Distribution Date and for
the TAC Certificates means the amount, if any, that would reduce the Class A
Subclass Principal Balance of such Subclass to the percentage of its initial
Class A Subclass Principal Balance shown in the following tables with respect
to such Distribution Date.
Notwithstanding the foregoing, on each Distribution Date occurring on or af-
ter the Cross-Over Date, the Class A Principal Distribution Amount will be dis-
tributed among the Subclasses of Class A Certificates pro rata in accordance
with their respective outstanding Class A Subclass Principal Balances without
regard to either the proportions or the priorities set forth above.
S-44
<PAGE>
Any amounts distributed on a Distribution Date to the holders of Class A Cer-
tificates in reduction of principal balance will be allocated among the holders
of Class A Certificates of such Subclass pro rata in accordance with their re-
spective Percentage Interests. Amounts distributed on any Distribution Date to
the holders of the Class AP and Class M Certificates in reduction of principal
balance will be allocated among the holders of each such Class pro rata in ac-
cordance with their respective Percentage Interests.
The following tables set forth for each Distribution Date the planned Class A
Subclass Principal Balance for the PAC Certificates and the targeted Class A
Subclass Principal Balance of the TAC Certificates, each expressed as a per-
centage of the initial Class A Subclass Principal Balance.
PLANNED CLASS A SUBCLASS PRINCIPAL BALANCE AS PERCENTAGE
OF THE INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE OF THE PAC CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ------------------------
<S> <C>
</TABLE>
TARGETED CLASS A SUBCLASS PRINCIPAL BALANCE AS PERCENTAGE
OF THE INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE OF THE TAC CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL CLASS A SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ------------------------
<S> <C>
</TABLE>
S-45
<PAGE>
Principal Payment Characteristics of the PAC Certificates, the TAC
Certificates and the Companion Certificates
The percentages of the initial Class A Subclass Principal Balances of the PAC
Certificates and the TAC Certificates set forth in the preceding tables were
calculated using the assumptions described in the paragraph on page S- here-
in. Based on such assumptions, the Class A Subclass Principal Balance of the
PAC Certificates would be reduced to the percentage of its initial Class A
Subclass Principal Balance indicated in the preceding tables for each Distribu-
tion Date if prepayments on the Mortgage Loans occur at any constant rate be-
tween approximately % SPA (as defined herein under "Prepayment and Yield Con-
siderations") and approximately % SPA. Based on such assumptions, the Class A
Subclass Principal Balance of the TAC Certificates would be reduced to the per-
centage of its Class A Subclass Principal Balance indicated in the preceding
tables for each Distribution Date if prepayments on the Mortgage Loans occur at
a constant rate of approximately % SPA. However, it is highly unlikely that
principal prepayments on the Mortgage Loans will occur at any constant rate or
that the Mortgage Loans will prepay at the same rate. In addition, even if
principal prepayments were to occur at constant rate, there may be differences
between the characteristics of the mortgage loans ultimately included in the
Trust Estate and the Mortgage Loans which are expected to be included, as de-
scribed herein. Therefore, there can be no assurance that the Class A Subclass
Principal Balance of the PAC Certificates or the TAC Certificates, after the
application of the distributions to be made on any Distribution Date, will be
equal to the applicable percentage of the initial Class A Subclass Principal
Balance for such Distribution Date specified in the preceding tables.
As discussed under "Prepayment and Yield Considerations" herein, the weighted
average life of a Subclass or Class of Offered Certificates refers to the aver-
age amount of time that will elapse from the date of issuance of such Subclass
or Class until each dollar in reduction of the principal balance of such
Subclass or Class is distributed to investors. The weighted average life of
each Subclass of Class A Certificates will be affected, to varying degrees, by
the rate of principal payments (including prepayments) on the Mortgage Loans,
the timing of changes in such rate of payment and the priority of distributions
in reduction of principal of the Class A Certificates and the timing of reduc-
tions of the principal balances of the PAC Certificates and the TAC Certifi-
cates and to their respective planned principal balances and targeted principal
balances. The interaction of these factors may have different effects on the
Subclasses of Class A Certificates, including the PAC Certificates and the TAC
Certificates, and the effects on any Subclass may vary at different times dur-
ing the life of such Subclass. Further, to the extent that the purchase prices
paid by investors for the Class A Certificates, including the PAC Certificates
and the TAC Certificates represent discounts or premiums to their respective
initial principal balances, variability in the weighted average lives of such
Certificates could result in variability in the related yields to maturity. See
"Prepayment and Yield Considerations" herein.
The weighted average lives of the PAC Certificates will vary under different
prepayment scenarios. To the extent that principal prepayments occur at a con-
stant rate that is slower than approximately % SPA with respect to the PAC
Certificates, the Class A Principal Distribution Amount on each Distribution
Date may be insufficient to make distributions in reduction of the principal
balances of the PAC Certificates in an amount that would reduce their principal
balance to their planned principal balance for such Distribution Date. The
weighted average lives of the PAC Certificates may therefore be extended, as
illustrated by the tables on page S- .
To the extent that such principal prepayments occur at a constant rate that
is higher than approximately % SPA with respect to the PAC Certificates, the
weighted average lives of the PAC Certificates may be shortened, as illustrated
by the tables on page S- .
To the extent that principal prepayments are made at a constant rate that is
slower than approximately % SPA, the Class A Principal Distribution Amount on
each Distribution Date may be insufficient to make distributions in reduction
of the principal balance of the TAC Certificates in an amount that would reduce
their principal balance to their targeted principal balance
S-46
<PAGE>
for such Distribution Date. The weighted average lives of the TAC Certificates
may therefore be extended, as illustrated by the tables on page S- . To the ex-
tent that such principal prepayments occur at a constant rate that is higher
than approximately % SPA, the weighted average lives of the TAC Certificates
may be shortened as illustrated by the tables on page S- .
The weighted average life of the Companion Certificates will be highly sensi-
tive to the rate of principal payments (including prepayments) on the Mortgage
Loans. See "Prepayment and Yield Considerations" herein.
The extent to which the planned principal balances will be achieved and the
sensitivity of the PAC Certificates to principal prepayments on the Mortgage
Loans will depend, in part, upon the period of time during which the Companion
Certificates and the TAC Certificates remain outstanding. On each Distribution
Date, the excess of the Class A Principal Amount of the PAC Principal Amounts
("Excess Principal Payment") for such Distribution Date will be distributed to
the Companion Certificates and the TAC Certificates before being distributed to
the PAC Certificates, in accordance with the proportions and priorities set
forth above under "-- Allocation of Amount to be Distributed." This is intended
to decrease the likelihood that the principal balance of the PAC Certificates
will be reduced below the planned principal balance on a given Distribution
Date. As such, and in accordance with the priorities described above, the Com-
panion Certificates and the TAC Certificates support the PAC Certificates. How-
ever, under certain relatively fast prepayment scenarios, the PAC Certificates
may continue to be outstanding when the Subclasses of Class A Certificates that
support the PAC Certificates are no longer outstanding. Under such circumstanc-
es, all Excess Principal Payments will be applied to the PAC Certificates and
in accordance with the priorities described herein. Thus, when the principal
balances of the Companion Certificates and the TAC Certificates have been re-
duced to zero, the PAC Certificates, if then outstanding will, in accordance
with the proportions and priorities set forth above, become more sensitive to
the rate of prepayment on the Mortgage Loans as such Subclass will receive all
Excess Principal Payments until the principal balance of the PAC Certificates
has been reduced to zero. Conversely, under certain relatively slow prepayment
scenarios, the Class A Principal Distribution Amount may not be sufficient to
pay the PAC Principal Amount for the PAC Certificates on a given Distribution
Date. In such cases, the Class A Principal Amount for each subsequent Distribu-
tion Date will be applied in accordance with the priorities described herein
such that the Companion Certificates and the TAC Certificates will not receive
any distributions in reduction of their principal balances until the outstand-
ing principal balance of the PAC Certificates has reached the planned principal
balance for such Distribution Date. As a result, the weighted average life of
the PAC Certificates may be extended if such Subclass does not receive its PAC
Principal Amount on a Distribution Date.
The extent to which the targeted principal balances will be achieved and the
sensitivity of the TAC Certificates to principal prepayments on the Mortgage
Loans will depend, in part, upon the period of time during which the Companion
Certificates remain outstanding. On each Distribution Date, Excess Principal
Payments over the TAC Principal Amount for such Distribution Date will be dis-
tributed to the Companion Certificates, before being distributed to the TAC
Certificates, in accordance with the priorities set forth above under "-- Allo-
cation of Amount to be Distributed." This is intended to decrease the likeli-
hood that the principal balance of the TAC Certificates will be reduced below
the targeted principal balance on such Distribution Date. As such, and in ac-
cordance with the priorities described above, the Companion Certificates sup-
port the TAC Certificates. However, under certain relatively fast prepayment
scenarios, the TAC Certificates may continue to be outstanding when the Compan-
ion Certificates are no longer outstanding. Under such circumstances, all Ex-
cess Principal Payments will be applied to the TAC Certificates. Thus, when the
principal balance of the Companion Certificates has been reduced to zero, the
TAC Certificates, if then outstanding, will, in accordance with the proportions
and priorities set forth herein, become more sensitive to the rate of prepay-
ment on the Mortgage Loans as such Subclass will receive all Excess Principal
Payments until the principal balance of the TAC Certificates has
S-47
<PAGE>
been reduced to zero. Conversely, under certain relatively slow prepayment sce-
narios, Excess Principal Payments, if any, may not be sufficient to pay the TAC
Principal Amount for the TAC Certificates on a given Distribution Date. In such
cases, Excess Principal Payments for such subsequent Distribution Date will be
applied in accordance with the proportions and priorities described herein such
that the Companion Certificates will not receive any distributions in reduction
of their principal balance until the outstanding principal balance of the TAC
Certificates has reached the targeted principal balance for such Distribution
Date. As a result, the weighted average life of the TAC Certificates may be ex-
tended if such Subclass does not receive its TAC Principal Amount on such Dis-
tribution Date.
Because any Excess Principal Payments for any Distribution Date will be dis-
tributed to Certificateholders on such Distribution Date, the ability to dis-
tribute the PAC Principal Amount and TAC Principal Amount on any Distribution
Date will not be enhanced by the averaging of high and low principal prepayment
rates on the Mortgage Loans over several Distribution Dates, as might be the
case if any such Excess Principal Payments were held for future applications
and not distributed monthly. There is no assurance that, with respect to the
Class A Principal Amount (i) distributions in reduction of the Class A Subclass
Principal Balance of the PAC Certificates or the TAC Certificates will not com-
mence significantly earlier than the first Distribution Date shown in the pre-
ceding tables relating to such Subclass, (ii) distributions in reduction of the
Class A Subclass Principal Balance of PAC Certificates or the TAC Certificates
will not commence significantly later than the first Distribution Date shown in
the preceding tables relating to such Subclass or (iii) the Class A Subclass
Principal Balance of PAC Certificates or the TAC Certificates will not be re-
duced to zero significantly earlier or significantly later than the last Dis-
tribution Date shown in the preceding tables.
EXAMPLE OF DISTRIBUTION TO CERTIFICATEHOLDERS
The following chart sets forth an example of the application of the provi-
sions described above under "-- Distributions" to the first two months of the
Trust Estate's existence:
<TABLE>
<C> <S>
1(A).................. Cut-Off Date.
2 -- 31(B).......... The applicable Servicer receives any liquidation
proceeds for liquidated Mortgage Loans and interest
thereon to date of liquidation.
31(C)................. Record Date.
1 -- 16(D).......... The applicable Servicer receives scheduled payments
of principal and interest due on 1.
17(E)................. Determination Date.
18(F)................. Remittance Date.
25(G)................. Distribution Date
</TABLE>
- -------------------
(A) The initial unpaid principal balance of the Mortgage Loans in a Trust Es-
tate would be the aggregate unpaid principal balance of the Mortgage Loans
at the close of business on 1, after deducting principal payments due
on or before such date. Those principal payments due on or before 1 and
the related interest payments, would not be part of the Trust Estate and
would be remitted by the applicable Servicer to the Seller when received.
(B) Liquidation Proceeds received during this period would be credited to the
Certificate Account for distribution to Certificateholders on the February
25 Distribution Date. When a Mortgage Loan is liquidated or an insurance
claim with respect to a Mortgage Loan is settled, interest on the amount
liquidated or received in settlement is collected only from the last sched-
uled Due Date to the date of liquidation or settlement.
(C) Distributions in the month of February will be made to Certificateholders
of record at the close of business on this date.
S-48
<PAGE>
(D) Schedule monthly payments on the Mortgage Loans due on February 1, and
principal prepayments and Partial Liquidation Proceeds received by the
applicable Servicer in reduction of the unpaid principal balance of any
Mortgage Loan prior to February 17, will be deposited in the Servicer
Custodial Account as received by such Servicer and will be distributed
to Certificateholders on the February 25 Distribution Date. Liquidation
Proceeds (other than Partial Liquidation Proceeds), and proceeds with
respect to the repurchase or purchase of any of the Mortgage Loans, in
each case received during this period, and principal prepayments and
Partial Liquidation Proceeds received on or after February 17, will be
deposited in the Certificate Account but will not be distributed to
Certificateholders on the February 25 Distribution Date. Instead, such
amounts will be credited to the Certificate Account for distribution to
Certificateholders on the March 25 Distribution Date. When a Mortgage
Loan is prepaid in part and such payment is applied as of a date other
than a Due Date, interest is charged on such payment only to the date
applied. To the extent funds are available from the aggregate Servicing
Fees relating to mortgagor payments or other recoveries distributed to
Certificateholders on the related Distribution Date, the applicable
Servicer would make an additional payment to Certificateholders with
respect to any Mortgage Loan that prepaid in full on or after the De-
termination Date in the month preceding the month in which such Distri-
bution Date occurs equal to the amount of interest on such Mortgage
Loan at the Net Mortgage Interest Rate for such Mortgage Loan from the
date of such prepayment in full through the end of the month preceding
the month in which such Distribution Date occurs.
(E) As of the close of business on February 17, each Servicer will deter-
mine the amounts of Periodic Advances to be made by such Servicer in
respect of Mortgage Loans serviced thereby and the Master Servicer
will determine the amounts of principal and interest which will be
distributed to the Certificateholders, including scheduled payments
due on or before February 1 which have been received on or before the
close of business on February 16, principal prepayments and Partial
Liquidation Proceeds received by each Servicer in reduction of the un-
paid principal balance of any Mortgage Loan prior to February 17 and
liquidation proceeds (other than Partial Liquidation Proceeds), and
proceeds with respect to the repurchase or purchase of any of the
Mortgage Loans, received during the period commencing January 2 and
ending on January 31. The Master Servicer will calculate the amounts
to be distributed to each Class of Certificates and will determine the
Percentage Interest of each Subclass or Subclass of Certificates to be
used in connection with the March 25 Distribution Date.
(F) Each Servicer will be required to remit to the Certificate Account on
the February 18 Remittance Date all amounts on deposit in the respec-
tive Servicer Custodial Account (other than amounts held for future
distribution).
(G) The Master Servicer, or the paying agent acting on behalf of the Mas-
ter Servicer, will make distributions to Certificateholders on the
25th day of each month or if such 25th day is not a business day, on
the next business day.
Succeeding monthly periods follow the pattern of (B) through (F), except that
the period in (B) begins on the seventeenth of the previous month.
ADDITIONAL RIGHTS OF THE CLASS A-R CERTIFICATEHOLDER
The Class A-R Certificate will remain outstanding for as long as the Trust
Estate shall exist, whether or not either such Subclass is receiving current
distributions of principal or interest. The holder of the Class A-R Certificate
will be entitled to receive the proceeds of the remaining assets of the Trust
Estate, if any, on the final Distribution Date for the Series 199 - Certifi-
cates, after distributions in respect of any accrued but unpaid interest on the
Series 199 - Certificates and after distributions in reduction of principal
balance have reduced the principal balances of the Series 199 - Certificates
to zero. It is not anticipated that there will be any assets remaining in
S-49
<PAGE>
the Trust Estate on the final Distribution Date following the distributions of
interest and in reduction of principal balance made on the Series 199 - Cer-
tificates 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 199 - 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
Trustee, if such Servicer is Norwest Mortgage, or the Master Servicer, if such
Servicer is not Norwest Mortgage, will be required to make such Periodic Ad-
vance.
The Underlying Servicing Agreements and the Pooling and Servicing Agreement
provide that any advance of the kind described in the preceding paragraph may
be reimbursed to the related Servicer or the Master Servicer or the Trustee, as
applicable, at any time from funds available in the Servicer Custodial Account
or the Certificate Account, as the case may be, to the extent that (i) such
funds represent receipts on, or liquidation, insurance, purchase or repurchase
proceeds in respect of, the Mortgage Loans to which the advance relates or (ii)
the Servicer, the Master Servicer or Trustee, as applicable, has determined in
good faith that the advancing party will be unable to recover such advance from
funds of the type referred to in clause (i) above.
[FOR SERIES WITH A FINANCIAL GUARANTY INSURANCE POLICY:
FINANCIAL SECURITY ASSURANCE INC.
General. Financial Security Assurance Inc. ("Financial Security") is a
monoline insurance company incorporated in 1984 under the laws of the State of
New York. Financial Security is licensed to engage in financial guaranty insur-
ance business in all 50 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the busi-
ness of writing financial guaranty insurance, principally in respect of securi-
ties offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities -- thereby enhancing the credit rating of those securi-
ties -- in consideration for the payment of a premium to the insurer. Financial
Security and its subsidiaries principally insure asset-backed, collateralized
and municipal securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or other
assets having an ascertainable cash flow or market value. Collateralized secu-
rities include public utility first mortgage bonds and sale/leaseback obliga-
tion bonds. Municipal securities consist largely of general obligation bonds,
special revenue bonds and other special obligations of state and local govern-
ments. Financial Security insures both newly issued securities sold in the pri-
mary market and outstanding securities sold in the secondary market that sat-
isfy Financial Security's underwriting criteria.
S-50
<PAGE>
Financial Security is a wholly owned subsidiary of Financial Security Assur-
ance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company. Ma-
jor shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
U.S.WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security
or any claim under any insurance policy issued by Financial Security or to make
any additional contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at 350 Park
Avenue, New York, New York 10022, and its telephone number at that location is
(212) 826-0100.
Reinsurance. Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by Financial Secu-
rity or any of its domestic operating insurance company subsidiaries are rein-
sured among such companies on an agreed-upon percentage substantially propor-
tional to their respective capital, surplus and reserves, subject to applicable
statutory risk limitations. In addition, Financial Security reinsures a portion
of its liabilities under certain of its financial guaranty insurance policies
with other reinsurers under various quota share treaties and on a transaction-
by-transaction basis. Such reinsurance is utilized by Financial Security as a
risk management device and to comply with certain statutory and rating agency
requirements; it does not alter or limit Financial Security's obligations under
any financial guaranty insurance policy.
Rating of Claims-Paying Ability. Financial Security's claims-paying ability
is rated "Aaa" by Moody's and "AAA" by S&P, Nippon Investors Service Inc. and
Standard & Poor's (Australia) Pty. Ltd. Such ratings reflect only the views of
the respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies.
Capitalization. The following table sets forth the capitalization of Finan-
cial Security and its wholly owned subsidiaries on the basis of generally ac-
cepted accounting principles as of September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
(UNAUDITED)
<S> <C>
Deferred Premium Revenue (net of prepaid reinsurance
premiums)........................................... $ 358,145
----------
Shareholder's Equity:
Common Stock........................................ 15,000
Additional Paid-In Capital.......................... 666,470
Unrealized Gain on Investments (net of deferred
income taxes)...................................... 2,482
Accumulated Earnings................................ 111,231
----------
Total Shareholder's Equity........................... $ 795,183
----------
Total Unearned Premium Revenue and Shareholder's
Equity.............................................. $1,153,328
==========
</TABLE>
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated by reference herein. Copies of the statutory quarterly
and annual statements filed with the State of New York Insurance Department by
Financial Security are available upon request to the State of New York Insur-
ance Department.
Incorporation of Certain Documents by Reference. In addition to the documents
described under "Incorporation of Certain Information by Reference" in the Pro-
spectus, the consolidated financial statements of Financial Security and Sub-
sidiaries included as exhibits to the following documents, which have been
filed with the Securities and Exchange Commission by Holdings, are hereby in-
corporated by reference in the Registration Statement to which the Prospectus
and this Prospectus Supplement form a part:
S-51
<PAGE>
(a) Annual Report on Form 10-K of Holdings for the year ended December
31, 1995, which Report included as an exhibit Financial Security and Sub-
sidiaries' audited consolidated financial statements for the year ended De-
cember 31, 1995.
[(b) Reference quarterly reports, as applicable.]
All financial statements of Financial Security and Subsidiaries included in
documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), subse-
quent to the date of this Prospectus Supplement and prior to the termination of
the offering of the Certificates shall be deemed to be incorporated by refer-
ence into this Prospectus Supplement and to be a part hereof from the respec-
tive dates of filing such documents.
Insurance Regulation. Financial Security is licensed and subject to regula-
tion as a financial guaranty insurance corporation under the laws of the State
of New York, its state of domicile. In addition, Financial Security and its in-
surance subsidiaries are subject to regulation by insurance laws of the various
other jurisdictions in which they are licensed to do business. As a financial
guaranty insurance corporation licensed to do business in the State of New
York, Financial Security is subject to Article 69 of the New York Insurance Law
which, among other things, limits the business of each such insurer to finan-
cial guaranty insurance and related lines, requires that each such insurer
maintain a minimum surplus to policyholders, establishes contingency, loss and
unearned premium reserve requirements for each such insurer, and limits the
size of individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other provi-
sions of the New York Insurance Law, applicable to non-life insurance companies
such as Financial Security, regulate, among other things, permitted invest-
ments, payment of dividends, transactions with affiliates, mergers, consolida-
tions, acquisitions or sales of assets and incurrence of liability for
borrowings.]
RESTRICTIONS ON TRANSFER OF THE CLASS A-R AND CLASS M CERTIFICATES
The Class A-R Certificate will be subject to the following restrictions on
transfer, and the Class A-R Certificate will contain a legend describing such
restrictions.
The REMIC provisions of the Code impose certain taxes on (i) transferors of
residual interests to, or agents that acquire residual interests on behalf of,
Disqualified Organizations and (ii) certain Pass-Through Entities (as defined
in the Prospectus) that have Disqualified Organizations as beneficial owners.
No tax will be imposed on a Pass-Through Entity with respect to the Class A-R
Certificate to the extent it has received an affidavit from the owner thereof
that such owner is not a Disqualified Organization or a nominee for a 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 Trustee an affidavit (or, to the extent acceptable to the Trustee,
a representation letter signed under penalty of perjury) to the effect that,
among other items, such transferee is not a Disqualified Organization (as de-
fined in the Prospectus) and is not purchasing the Class A-R Certificate as an
agent for a Disqualified Organization (i.e., as a broker, nominee, or other
middleman thereof) and (ii) the transferor states in writing to the Trustee
that it has no actual knowledge that such affidavit is false. Further, such af-
fidavit (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 en-
tity that does not provide a similar affidavit (or letter). The transferor must
certify in writing to the Trustee that, as of the date of the transfer, it had
no knowledge or reason to know that the affirmations made by the transferee
pursuant to the preceding sentence were false.
S-52
<PAGE>
In addition, the Class A-R Certificate may not be purchased by or transferred
to any person that is not a "U.S. Person," unless (i) such person holds such
Class A-R Certificate in connection with the conduct of a trade or business
within the United States and furnishes the transferor and the Trustee with an
effective Internal Revenue Service Form 4224 or (ii) the transferee delivers to
both the transferor and the Trustee an opinion of a nationally recognized tax
counsel to the effect that such transfer is in accordance with the requirements
of the Code and the regulations promulgated thereunder and that such transfer
of the Class A-R Certificate will not be disregarded for federal income tax
purposes. The term "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income.
The Pooling and Servicing Agreement will provide that any attempted or 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 Trustee provides information as to any applicable tax imposed
on such transferor or agent may be required to bear the cost of computing or
providing such information. See "Certain Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Tax-Related Restrictions on Transfer of Residual Certificates"
in the Prospectus.
The Class A-R Certificate may not be purchased by or transferred to a Plan.
Because the Class M Certificates are subordinated to the Senior Certificates,
the Class M Certificates may not be transferred unless the transferee has de-
livered (i) a representation letter to the Trustee and the Seller stating ei-
ther (a) that the transferee is not a Plan and is not acting on behalf of a
Plan or using the assets of a Plan to effect such purchase or (b) subject to
the conditions described herein, that the source of funds used to purchase the
Class M Certificates is an "insurance company general account" or (ii) an opin-
ion of counsel as described herein under "ERISA Considerations." See "ERISA
Considerations" herein and in the Prospectus.
REPORTS
In addition to the applicable information specified in the Prospectus, the
Master Servicer will cause to be included in the statement delivered to holders
of Class A, Class AP and Class M Certificates with respect to each Distribution
Date the following information: (i) the amount of such distribution allocable
to interest, the amount of interest currently distributable to each Subclass of
Class A Certificates and to the Class M Certificates, any Class A Subclass In-
terest Shortfall Amount arising with respect to each Subclass or any Class M
Interest Shortfall Amount on such Distribution Date, any remaining unpaid Class
A Subclass Interest Shortfall Amount with respect to each Subclass, or any re-
maining unpaid Class M Interest Shortfall Amount, after giving effect to such
distribution and any Non-Supported Interest Shortfall or the interest portion
of Realized Losses allocable to such Subclass or Class with respect to such
Distribution Date, (ii) the amount of such distribution allocable to principal,
(iii) the Class A Principal Balance, the Class AP Principal Balance, the Class
M Principal Balance, the Class A Subclass Principal Balance of each Subclass of
Class A Certificates after giving effect to the distribution of principal and
the allocation of the principal portion of Realized Losses to such Subclass
with respect to such Distribution Date, (iv) the Adjusted Pool Amount, the Ad-
justed Pool Amount (Class AP Portion) and the Pool Scheduled Principal Balance
of the Mortgage Loans and the aggregate Scheduled Principal Balance of the Dis-
count Mortgage Loans for such Distribution Date, (v) the Class A Percentage and
Class M Percentage for the following Distribution Date (without giving effect
to partial prepayments and net Partial Liquidation Proceeds received after the
Determination Date in the current month that are applied as of the Due Date oc-
curring in such month), and (vi) the amount of the remaining Special Hazard
Loss Amount, the Fraud Loss Amount and the Bankruptcy Loss Amount as of the
close of business on such Distribution Date. See "Servicing of the Mortgage
Loans -- Reports to Certificateholders" in the Prospectus.
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<PAGE>
Copies of the foregoing reports are available upon written request to the
Trustee at its corporate trust office. See "Pooling and Servicing Agreement --
Trustee" herein.
SUBORDINATION OF CLASS M AND CLASS B CERTIFICATES
The rights of the holders of the Class M Certificates to receive distribu-
tions with respect to the Mortgage Loans in the Trust Estate will be subordi-
nated to such rights of the holders of the Senior Certificates and the rights
of the holders of the Class B Certificates to receive distributions with re-
spect to the Mortgage Loans in the Trust Estate will be subordinated to such
rights of the holders of the Senior Certificates and the Class M Certificates,
all to the extent described below. This subordination is intended to enhance
the likelihood of timely receipt by the holders of the Senior Certificates (to
the extent of the subordination of the Class M and Class B Certificates) and
the holders of the Class M Certificates (to the extent of the subordination of
the Class B Certificates) of the full amount of their scheduled monthly pay-
ments of interest and principal and to afford the holders of the Senior Certif-
icates (to the extent of the subordination of the Class M and Class B Certifi-
cates) and the holders of the Class M Certificates (to the extent of the
subordination of the Class B Certificates) protection against Realized Losses,
as more fully described below. If Realized Losses exceed the credit support
provided through subordination to the Senior Certificates and the Class M Cer-
tificates or if Excess Special Hazard Losses, Excess Fraud Losses or Excess
Bankruptcy Losses occur, all or a portion of such losses will be borne by the
Senior Certificates and the Class M Certificates.
The protection afforded to the holders of Senior Certificates by means of the
subordination feature will be accomplished by the preferential right of such
holders to receive, prior to any distribution being made on a Distribution Date
in respect of the Class M and Class B Certificates, the amounts of principal
and interest due the Class A Certificateholders and the amount of principal due
the Class AP Certificateholders on each Distribution Date out of the Pool Dis-
tribution Amount with respect to such date and, if necessary, by the right of
such holders to receive future distributions on the Mortgage Loans that would
otherwise have been payable to the holders of Class M and Class B Certificates.
The application of this subordination to cover Realized Losses experienced in
periods prior to the periods in which a Subclass of Class A Certificates is en-
titled to distributions in reduction of principal balance will decrease the
protection provided by the subordination to any such Subclass.
The protection afforded to the holders of Class M Certificates by means of
the subordination feature will be accomplished by the preferential right of
such holders to receive, prior to any distribution being made on a Distribution
Date in respect of the Class B Certificates, the amounts of principal (other
than any amount used to pay the Class AP Deferred Amount) and interest due the
Class M Certificateholders on each Distribution Date from the Pool Distribution
Amount with respect to such date (after all required payments on the Senior
Certificates have been made) and, if necessary, by the right of such holders to
receive future distributions on the Mortgage Loans that would otherwise have
been payable to the holders of the Class B Certificates.
The Subclasses of Class B Certificates will be entitled, on each Distribution
Date, to the remaining portion, if any, of the applicable Pool Distribution
Amount, after payment of the Senior Optimal Amount, the Class AP Deferred
Amount and the Class M Optimal Amount for such date. Amounts so distributed to
Class B Certificateholders will not be available to cover delinquencies or Re-
alized Losses in respect of subsequent Distribution Dates.
Allocation of Losses
Realized Losses (other than Excess Special Hazard Losses, Excess Fraud Losses
or Excess Bankruptcy Losses) will not be allocated to the holders of the Senior
Certificates until the date on which the amount of principal payments on the
Mortgage Loans to which the holders of the Subordinated Certificates are enti-
tled has been reduced to zero as a result of the allocation of losses to the
Subordinated Certificates, i.e., the date on which the Subordinated Percentage
has been reduced to zero (the "Cross-Over Date"). Prior to such time, such Re-
alized Losses will be allocated
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<PAGE>
first to the Subclasses of Class B Certificates sequentially in reverse numeri-
cal order, until the Class B Subclass Principal Balance of each such Subclass
has been reduced to zero and then to the Class M Certificates until the Class M
Principal Balance has been reduced to zero.
The allocation of the principal portion of a Realized Loss (other than a Debt
Service Reduction, Excess Special Hazard Loss, Excess Fraud Loss or Excess
Bankruptcy Loss) will be effected through the adjustment of the principal 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 AP Principal Balance, the Class M Principal Balance and the Class B
Subclass Principal Balances to equal the Adjusted Pool Amount.
Allocations to the Class M Certificates or Class B Certificates of (i) the
principal portion of Debt Service Reductions, (ii) the interest portion of Re-
alized Losses (other than Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses), (iii) any interest shortfalls resulting from delin-
quencies for which the Servicer, the Master Servicer or the Trustee does not
advance and (iv) any interest shortfalls resulting from the timing of the re-
ceipt of partial principal prepayments and net Partial Liquidation Proceeds
with respect to Mortgage Loans will result from the priority of distributions
of the Pool Distribution Amount first to the holders of the Senior Certificates
and then to the Class M Certificateholders as described above under "-- Distri-
butions."
The allocation of the principal portion of Realized Losses in respect of the
Mortgage Loans allocated on or after the Cross-Over Date will be effected
through the adjustment on any Determination Date of the Class A Principal Bal-
ance and Class AP Principal Balance such that (i) the Class A Principal Balance
equals the Adjusted Pool Amount less the Adjusted Pool Amount (Class AP Por-
tion) as of the preceding Distribution Date and (ii) the Class AP Principal
Balance equals the Adjusted Pool Amount (Class AP Portion) as of the preceding
Distribution Date. The principal portion of such Realized Losses allocated to
the Class A Certificates will be allocated to the outstanding Subclasses of
Class A Certificates pro rata in accordance with their Class A Subclass Princi-
pal Balances. The interest portion of any Realized Loss allocated on or after
the Cross-Over Date will be allocated among the outstanding Subclasses of Class
A Certificates pro rata in accordance with their respective Class A Subclass
Interest Accrual Amounts, without regard to any reduction pursuant to this sen-
tence. Any such losses will be allocated among the outstanding Class A Certifi-
cates within each Subclass pro rata in accordance with their respective Per-
centage Interests.
Any Excess Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy
Losses will be allocated (i) with respect to the principal portion of such
losses (a) to the outstanding Subclasses and Classes of the Class A, Class M
and Class B Certificates pro rata based on their outstanding principal balances
in proportion to the Classes A/M/B Fraction of such losses and (b) in respect
of Discount Mortgage Loans, to the Class AP Certificates in proportion to the
Class AP Fraction of such losses and (ii) with respect to the interest portion
of such losses, to the Class A, Class M and Class B Certificates pro rata based
on the interest accrued. (Any such losses so allocated to the Class A Certifi-
cates will be allocated among the outstanding Subclasses of Class A Certifi-
cates pro rata in accordance with their then-outstanding Class A Subclass Prin-
cipal Balances with respect to the principal portion of such losses and their
Class A Subclass Interest Accrual Amounts without regard to any reduction pur-
suant to this sentence, with respect to the interest portion of such losses,
and among the outstanding Class A Certificates within each Subclass pro rata in
accordance with their respective Percentage Interests).
The interest portion of Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses will be allocated by reducing the Class A Subclass In-
terest Accrual Amounts, Class M Interest Accrual Amount and Class B Subclass
Interest Accrual Amounts.
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<PAGE>
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 Senior
Certificates on a particular Distribution Date (other than any portion thereof
representing the difference between the Class A Percentage of the Scheduled
Principal Balances of Liquidated Loans and the Class A Prepayment Percentage of
such amounts), then the percentage of principal payments on the Mortgage Loans
to which the holders of the Class A Certificates will be entitled (i.e., the
Class A Percentage) on and after the next Distribution Date will be 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 Class B Certificates, or following the reduction of the
Class B Principal Balance to zero, solely to the Class M Certificates. Special
Hazard Losses in excess of the Special Hazard Loss Amount are "Excess Special
Hazard Losses." Excess Special Hazard Losses will be allocated (i) among the
Class A, Class M and Class B Certificates and (ii) to the extent such Excess
Special Hazard Losses arise with respect to Discount Mortgage Loans, the Class
AP Certificates. If the aggregate of all Special Hazard Losses incurred in the
month preceding the month of the related Distribution Date (the "Aggregate Cur-
rent Special Hazard Losses") is less than or equal to the then-applicable Spe-
cial Hazard Loss Amount, no Special Hazard Losses will be regarded as Excess
Special Hazard Losses. If Aggregate Current Special Hazard Losses exceed the
then-applicable Special Hazard Loss Amount, a portion of each Special Hazard
Loss will be regarded as an "Excess Special Hazard Loss" in proportion to the
ratio of (a) the excess of (i) Aggregate Current Special Hazard Losses over
(ii) the then-applicable Special Hazard Loss Amount, to (b) the Aggregate Cur-
rent Special Hazard Losses. Thereafter, when the Special Hazard Loss Amount is
zero, all Special Hazard Losses will be regarded as Excess Special Hazard Loss-
es. Upon initial issuance of the Series 199 - Certificates, the "Special Haz-
ard Loss Amount" with respect thereto will be equal to approximately % (ap-
proximately $ ) of the Cut-Off Date Aggregate Principal Balance of the
Mortgage Loans. As of any Distribution Date, the Special Hazard Loss Amount
will equal the initial Special Hazard Loss Amount less the sum of (A) any Spe-
cial Hazard Losses allocated solely to the Class B or Class M Certificates and
(B) the Adjustment Amount. The "Adjustment Amount" on each anniversary of the
Cut-Off Date will be equal to the amount, if any, by which the Special Hazard
Amount, without giving effect to the deduction of the Adjustment Amount for
such anniversary, exceeds the greater of (i) 1.00% (or, if greater than 1.00%,
the highest percentage of Mortgage Loans by principal balance in any California
zip code) times the aggregate principal balance of all the Mortgage Loans on
such anniversary (ii) twice the principal balance of the single Mortgage Loan
having the largest principal balance, and (iii) that which is necessary to
maintain the original ratings on the Class A, Class AP and Class M Certifi-
cates, as evidenced by letters to that effect delivered by [Moody's] [Fitch]
[DCR] and [S&P] to the Master Servicer and the Trustee. On and after the Cross-
Over Date, the Special Hazard Loss Amount will be zero.
Fraud Losses, other than Excess Fraud Losses, will be allocated solely to the
Class B Certificates, or following the reduction of the Class B Principal Bal-
ance to zero, solely to the Class M Certificates. Fraud Losses in excess of the
Fraud Loss Amount are "Excess Fraud Losses." Excess Fraud Losses will be allo-
cated (i) among the Class A, Class M and Class B Certificates and (ii) to the
extent such Excess Fraud Losses arise with respect to Discount Mortgage Loans,
the Class AP Certificates. If the aggregate of all Fraud Losses incurred in the
month preceding the month of the related Distribution Date (the "Aggregate Cur-
rent Fraud Losses") is less than or equal to the then-applicable Fraud Loss
Amount, no Fraud Losses will be regarded as Excess Fraud Losses. If Aggregate
Current Fraud Losses exceed the then-applicable Fraud Loss Amount, a portion of
each Fraud Loss will be regarded as an "Excess Fraud Loss" in proportion to the
ratio of
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<PAGE>
(a) the excess of (i) Aggregate Current Fraud Losses over (ii) the then-appli-
cable Fraud Loss Amount, to (b) the Aggregate Current Fraud Losses. Thereafter,
when the Fraud Loss Amount is zero, all Fraud Losses will be regarded as Excess
Fraud Losses. Upon initial issuance of the Series 199 - Certificates, the
"Fraud Loss Amount" with respect thereto will be equal to approximately % (ap-
proximately $ ) 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 Class B Certificates, or following the reduction of the Class B
Principal Balance to zero, solely to the Class M Certificates. Bankruptcy
losses in excess of the Bankruptcy Loss Amount are "Excess Bankruptcy Losses."
Excess Bankruptcy Losses will be allocated (i) among the Class A, Class M and
Class B Certificates and (ii) to the extent such Excess Bankruptcy Losses arise
with respect to Discount Mortgage Loans, the Class AP Certificates. If the ag-
gregate of all Bankruptcy Losses incurred in the month preceding the month of
the related Distribution Date (the "Aggregate Current Bankruptcy Losses") is
less than or equal to the then applicable Bankruptcy Loss Amount, no Bankruptcy
Losses will be regarded as Excess Bankruptcy Losses. If Aggregate Current Bank-
ruptcy Losses exceed the then-applicable Bankruptcy Loss Amount, a portion of
each Bankruptcy Loss will be regarded as an "Excess Bankruptcy Loss" in propor-
tion to the ratio of (a) the excess of (i) Aggregate Current Bankruptcy Losses
over (ii) the then-applicable Bankruptcy Loss Amount, to (b) the Aggregate Cur-
rent Bankruptcy Losses. Thereafter, when the Bankruptcy Loss Amount is zero,
all Bankruptcy Losses will be regarded as Excess Bankruptcy Losses. Upon ini-
tial issuance of the Series 199 - Certificates, the "Bankruptcy Loss Amount"
with respect thereto will be equal to approximately % (approximately $ ) of
the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans. As of any
Distribution Date prior to the first anniversary of the Cut-Off Date, the Bank-
ruptcy Loss Amount will equal the initial Bankruptcy Loss Amount minus the ag-
gregate amount of Bankruptcy Losses allocated solely to the Class B and Class M
Certificates through the related Determination Date. As of any Distribution
Date on or after the first anniversary of the Cut-Off Date, the Bankruptcy Loss
Amount will equal the excess, if any, of (1) the lesser of (a) the Bankruptcy
Loss Amount as of the business day next preceding the most recent anniversary
of the Cut-Off Date and (b) an amount, if any, calculated pursuant to the terms
of the Pooling and Servicing Agreement, which amount as calculated will provide
for a reduction in the Bankruptcy Loss Amount, over (2) the aggregate amount of
Bankruptcy Losses allocated solely to the Class B Certificates or Class M Cer-
tificates since such anniversary. The Bankruptcy Loss Amount and the related
coverage levels described above may be reduced or modified upon written confir-
mation from [Moody's] [Fitch] [DCR] and [S&P] that such reduction or modifica-
tion will not adversely affect the then-current ratings assigned to the Class
A, Class AP and Class M Certificates by [Moody's] [Fitch] [DCR] and [S&P]. Such
a reduction or modification may adversely affect the coverage provided by sub-
ordination with respect to Bankruptcy Losses. On and after the Cross-Over Date,
the Bankruptcy Loss Amount will be zero.
Notwithstanding the foregoing, the provisions relating to subordination will
not be applicable in connection with a Bankruptcy Loss so long as the applica-
ble Servicer has notified the Trustee
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<PAGE>
and the Master Servicer in writing that such Servicer is diligently pursuing
any remedies that may exist in connection with the representations and warran-
ties made regarding the related Mortgage Loan and when (A) the related Mortgage
Loan is not in default with regard to the payments due thereunder or (B) delin-
quent payments of principal and interest under the related Mortgage Loan and
any premiums on any applicable Standard Hazard Insurance Policy and any related
escrow payments in respect of such Mortgage Loan are being advanced on a cur-
rent basis by such Servicer, in either case without giving effect to any Debt
Service Reduction.
Since the initial principal balance of the Class B Certificates in the aggre-
gate will be approximately $ , the risk of Special Hazard Losses, Fraud
Losses and Bankruptcy Losses will be separately borne by the Class B Certifi-
cates to a lesser extent (i.e., only up to the Special Hazard Loss Amount,
Fraud Loss Amount and Bankruptcy Loss Amount, respectively) than the risk of
other Realized Losses, which they will bear to the full extent of their initial
principal balance. See "The Trust Estates -- Mortgage Loans -- Representations
and Warranties" and "-- Insurance Policies," "Certain Legal Aspects of the
Mortgage Loans -- Environmental Considerations" and "Servicing of the Mortgage
Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mort-
gage Loans" in the Prospectus.
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<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 of ap-
proximately years, which may include loans secured by shares ("Co-op Shares")
issued 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. The Mortgage Loans are
expected to include promissory notes, to have an aggregate unpaid principal
balance as of the Cut-Off Date (the "Cut-Off Date Aggregate Principal Balance")
of approximately $ to be secured by first liens (the "Mortgages") on one- to
four-family residential properties (the "Mortgaged Properties") and to have the
additional characteristics described below and in the Prospectus.
As of the Cut-Off Date, it is expected that of the Mortgage Loans in the
Trust Estate, representing approximately % of the Cut-Off Date Aggregate Prin-
cipal Balance of the Mortgage Loans will be secured by Co-op Shares and that
of the Mortgage Loans, representing approximately % of the Cut-Off Date
Aggregate Principal Balance of the Mortgage Loans, will be Buy-Down Loans. See
"The Trust Estates -- Mortgage Loans" in the Prospectus.
Each of the Mortgage Loans is subject to a due-on-sale clause. See "Certain
Legal Aspects of the Mortgage Loans -- "Due-on-Sale' Clauses" and "Servicing of
the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon 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 $ or more than approxi-
mately $ , and the average unpaid principal balance of the Mortgage Loans is
expected to be approximately $ . The latest stated maturity date of any of
the Mortgage Loans is expected to be , ; however, the actual date on
which any Mortgage Loan is paid in full may be earlier than the stated maturity
date due to unscheduled payments of principal. Based on information supplied by
the mortgagors in connection with their loan applications at origination,
of the Mortgaged Properties, which secure approximately % of the Cut-Off Date
Aggregate Principal Balance of the Mortgage Loans, are expected to be owner oc-
cupied primary residences and of the
- -------------------
/(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 199 - 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
199 - 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 land Exchange Commission within 15 days following such date.
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<PAGE>
Mortgaged Properties, which secure approximately % of the Cut-Off Date
Aggregate Principal Balance of the Mortgage Loans, are expected to be non-owner
occupied or second homes. See "The Mortgage Loan Programs -- Mortgage Loan
Underwriting" in the Prospectus.
It is expected that one of the Mortgage Loans representing approximately %
of the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans will be
subject to a subsidy agreement, which, except under certain limited circum-
stances, requires the employer of the mortgagor to make a portion of the pay-
ments on the related Mortgage Loans (a "Subsidy Loan") for specified periods.
The Subsidy Loan was underwritten by Norwest Mortgage. The subsidy agreement
relating to the Subsidy Loan generally will provide that monthly payments made
by the related mortgagor will be less than the scheduled monthly payments on
such Mortgage Loans, with the present value of the resulting difference in pay-
ments being provided by the employer of the mortgagor in advance, generally on
an annual basis. Subsidy Loans are offered by employers generally through ei-
ther a graduated or fixed subsidy loan program, or a combination thereof. The
effective subsidized rates under the various programs offered generally range
from one to five percentage points below the interest rate specified in the re-
lated mortgage note. These subsidized rates are used to calculate the applica-
ble debt-to-income ratios that are used to evaluate the creditworthiness of
prospective borrowers. This procedure may enable certain mortgagors who other-
wise would not meet Norwest Mortgage's underwriting guidelines to obtain mort-
gage loans. As of the Cut-Off Date, it is expected that the Subsidy Loan in the
Trust Estate will be offered by an employer through a graduated subsidy loan
program with a term of five years or less. See "Prepayment and Yield Considera-
tions" herein.
Subsidy amounts paid by the employer will be deposited by the Servicer in an
account (the "Subsidy Account") maintained by the Servicer, which will not be
part of the Trust Estate or the REMIC. Funds in the Subsidy Account with re-
spect to each Subsidy Loan will be withdrawn by the Servicer and deposited in
the Servicer Custodial Account on the business day following the receipt by the
Servicer of the mortgagor's monthly payment to which such funds relate. Funds
in the Subsidy Account with respect to a Subsidy Loan will not be withdrawn by
the Servicer, and are not permitted to be applied under the related subsidy
agreement, during any period in which such Subsidy Loan is in default. Despite
the existence of the subsidy agreement, the mortgagor remains liable for making
all scheduled payments on a Subsidy Loan. From time to time, the amount of a
subsidy payment or the term of a subsidy agreement may, upon the request of a
corporate employer, be modified.
As of the Cut-Off Date, there were Mortgage Loans having an aggregate un-
paid principal balance of approximately $ , a range of unpaid principal bal-
ances of approximately $ to approximately $ , an average unpaid principal
balance of approximately $ , a range of interest rates from % to %
per annum, a weighted average interest rate of approximately % per annum, a
range of remaining terms to stated maturity of months to months, a weighted
average remaining term to stated maturity of approximately months, a range of
original Loan-to-Value Ratios of % to %, a weighted average original Loan-to-
Value Ratio of approximately % and the following geographic concentration of
Mortgaged Properties securing Mortgage Loans in excess of 5.00% of the aggre-
gate unpaid principal balance of the Discount Mortgage Loans: approximately %
in [STATES].
As of the Cut-Off Date, there were Mortgage Loans other than Discount
Mortgage Loans having an aggregate unpaid principal balance of approximately
$ , a range of unpaid principal balances of approximately $ to approxi-
mately $ , an average unpaid principal balance of approximately $ , a
range of interest rates from % to % per annum, a weighted average interest
rate of approximately % per annum, a range of remaining terms to stated matu-
rity of months to months, a weighted average remaining term to stated matu-
rity of approximately months, a range of original Loan-to-Value Ratios of % to
%, a weighted average original Loan-to-Value Ratio of approximately % and the
following geographic concentration of Mortgaged Properties securing Mortgage
Loans in excess of 5.00% of the aggregate
S-60
<PAGE>
unpaid principal balance of the Mortgage Loans other than Discount Mortgage
Loans: approximately % in [STATES].
The Mortgage Loans have been acquired by the Seller from Norwest Mortgage.
The Mortgage Loans that Norwest Mortgage sells to the Seller will have been ei-
ther originated by Norwest Mortgage or acquired by Norwest Mortgage from vari-
ous entities (each, a "Correspondent") which either originated the Mortgage
Loans or acquired the Mortgage Loans pursuant to mortgage loan purchase pro-
grams operated by such Correspondents. Approximately % (by Cut-Off Date Ag-
gregate Principal Balance) of the Mortgage Loans (the "Norwest Mortgage Under-
written Loans") were generally originated in conformity with Norwest Mortgage's
underwriting standards applied either by Norwest Mortgage or by eligible origi-
nators to whom Norwest Mortgage had delegated all underwriting functions. In
certain instances, exceptions to Norwest Mortgage's underwriting standards may
have been granted by Norwest Mortgage to such originators. See "The Mortgage
Loan Programs -- Mortgage Loan Underwriting" in the Prospectus. Approximately
% and % (by Cut-Off Date Aggregate Principal Balance) of the Mortgage Loans
(the "Pool Certification Underwritten Loans") will have been reviewed by GEMICO
and UGRIC, respectively, to ensure compliance with such company's credit, ap-
praisal and underwriting standards. Neither the Series 199 - Certificates nor
the Mortgage Loans are insured or guaranteed under a mortgage pool insurance
policy issued by GEMICO or UGRIC. The Pool Certification Underwritten Loans
were evaluated by Norwest Mortgage using credit scoring as described in the
Prospectus under "The Mortgage Loan Programs -- Mortgage Loan Underwriting"
and, based on the credit scores of such Mortgage Loans, some of such Mortgage
Loans were re-underwritten by Norwest Mortgage. The remaining approximate %
(by Cut-Off Date Aggregate Principal Balance) of the Mortgage Loans (the "Bulk
Purchase Underwritten Loans") will have been underwritten under varying stan-
dards which have been reviewed and accepted by Norwest Mortgage. Neither the
Seller nor Norwest Mortgage has underwritten any of the Bulk Purchase Under-
written Loans. See "-- Mortgage Underwriting Standards" below and "The Mortgage
Loan Programs -- Mortgage Loan Underwriting" in the Prospectus.
S-61
<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>
--- --- ---
=== === ===
</TABLE>
As of the Cut-Off Date, the weighted average Mortgage Interest Rate of the
Mortgage Loans is expected to be approximately % per annum. The Net Mortgage
Interest Rate of each Mortgage Loan will be equal to the Mortgage Interest Rate
of such Mortgage Loan minus the sum of (a) the applicable Servicing Fee Rate,
(b) the Master Servicing Fee Rate as set forth in the Pooling and Servicing
Agreement and (c) the Fixed Retained Yield, if any, for such Mortgage Loan. As
of the Cut-Off Date, the weighted average Net Mortgage Interest Rate of the
Mortgage Loans is expected to be approximately % per annum.
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>
--- --- ---
=== === ===
</TABLE>
As of the Cut-Off Date, the
weighted average remaining term
to stated maturity of the Mort-
gage Loans is expected to be ap-
proximately 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>
</TABLE>
It is expected that the earliest
month and year of origination of
any Mortgage Loan was and the
latest month and year of origina-
tion was .
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>
</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 %
and %, respectively, and the
weighted average Loan-to-Value
Ratio at origination of the Mort-
gage Loans is expected to be ap-
proximately %. The Loan-to-Value
Ratio of a Mortgage Loan is cal-
culated using the lesser of (i)
the appraised value of the re-
lated Mortgaged Property, as es-
tablished by an appraisal ob-
tained by the originator from an
appraiser at the time of origina-
tion and (ii) the sale price for
such property. See "The Trust Es-
tates -- Mortgage Loans" in the
Prospectus. No assurance can be
given that the values of the
Mortgaged Properties securing the
Mortgage Loans have remained or
will remain at the levels used in
calculating the Loan-to-Value Ra-
tios shown above. See "Risk Fac-
tors -- Risks of the Mortgage
Loans" in the Prospectus. It is
expected that of the Mortgage
Loans having Loan-to-Value Ratios
at origination in excess of 80%,
representing approximately % (by
Cut-Off Date Aggregate Principal
Balance) of the Mortgage Loans,
were originated without primary
mortgage insurance.
S-62
<PAGE>
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>
--- --- ---
=== === ===
</TABLE>
Documentation levels vary de-
pending upon several factors, in-
cluding loan amount, Loan-to-
Value Ratio and the type and
purpose of the Mortgage Loan. As-
set, income and mortgage verifi-
cations were obtained for Mort-
gage Loans processed with "full
documentation."
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
ORIGINAL MORTGAGE NUMBER OF UNPAID AGGREGATE
LOAN PRINCIPAL MORTGAGE PRINCIPAL PRINCIPAL
BALANCE LOANS BALANCE BALANCE
- ---------------- --------- --------- -------------
<S> <C> <C> <C>
--- --- ---
=== === ===
</TABLE>
As of the Cut-Off Date, the
average unpaid principal balance
of the Mortgage Loans is expected
to be approximately $ . As of
the Cut-Off Date, the weighted
average Loan-to-Value Ratio at
origination and the maximum Loan-
to-Value Ratio at origination of
the Mortgage Loans which had
original principal balances in
excess of $600,000 are expected
to be approximately % and
%, respectively. See "The Trust
Estates -- Mortgage Loans" in the
Prospectus.
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY LOANS BALANCE BALANCE
- -------- --------- --------- -------------
<S> <C> <C> <C>
--- --- ---
=== === ===
</TABLE>
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>
--- --- ---
=== === ===
</TABLE>
No more than approximately %
of the Cut-Off Date Aggregate
Principal Balance of the Mortgage
Loans is expected to be secured
by Mortgaged Properties located
in any one five-digit zip code.
S-63
<PAGE>
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>
--- --- ---
=== === ===
</TABLE>
It is expected that, as of the
Mortgage Loan Cut-off Date,
of the "Other Originators" will
have accounted for approximately
% of the Mortgage Loan Cut-off
Date Aggregate Principal Balance.
No other single "Other Origina-
tor" is expected to have ac-
counted for more than 5.00% of
the Mortgage Loan 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>
--- --- ---
=== === ===
</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 prin-
cipal balance of a previous mort-
gage loan of the mortgagor with
respect to a Mortgaged Property
and to pay origination and clos-
ing costs associated with such
refinancing. However, in the case
of a Mortgage Loan made for "eq-
uity take out" refinance purpos-
es, all or a portion of the pro-
ceeds 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 Trust Estates --
Mortgage Loans" and "The Mort-
gage Loan Programs -- Mortgage
Loan Underwriting" in the Pro-
spectus.
SUBSIDY LOAN PROGRAMS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER UNPAID AGGREGATE
PROGRAM AND OF MORTGAGE PRINCIPAL PRINCIPAL
TERM LOANS BALANCE BALANCE
- ----------- ----------- --------- -------------
<S> <C> <C> <C>
--- --- ---
=== === ===
</TABLE>
MANDATORY REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
The Seller is required, with respect to Mortgage Loans that are found by the
Trustee to have defective documentation, or in respect of which the Seller has
breached a representation or warranty, either to repurchase such Mortgage Loans
or, if within two years of the date of initial issuance of the Series 199 -
Certificates, to substitute new Mortgage Loans therefor. Any Mortgage Loan so
substituted must, among other things, have an unpaid principal balance equal to
or less than the Scheduled Principal Balance of the Mortgage Loan for which it
is being substituted (after giving effect to the scheduled principal payment
due in the month of substitution on the Mortgage Loan for which a new Mortgage
Loan is being substituted), a Loan-to-Value Ratio less than or equal to, and a
Mortgage Interest Rate equal to that of the Mortgage Loan for which it is being
substituted. See "Prepayment and Yield Considerations" herein and "The Pooling
and Servicing Agreement -- Assignment of Mortgage Loans to the Trustee" in the
Prospectus.
OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS
The [Master Servicer][Seller] may, in its sole discretion, repurchase any de-
faulted Mortgage Loan, or any Mortgage Loan as to which default is reasonably
foreseeable, from the Trust Estate at a price equal to the unpaid principal
balance of such Mortgage Loan, together with accrued interest at a rate equal
to the Mortgage Interest Rate through the last day of the month in which such
repurchase occurs. See "The Pooling and Servicing Agreement -- Optional Pur-
chases" in the Prospectus. A Servicer may, in its sole discretion, allow the
assumption of a defaulted Mortgage
S-64
<PAGE>
Loan serviced by such Servicer by a borrower meeting Norwest Mortgage's under-
writing guidelines or encourage the refinancing of a defaulted Mortgage Loan.
See "Prepayment and Yield Considerations" herein and "Servicing of the Mortgage
Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mort-
gage Loans" in the Prospectus.
MORTGAGE UNDERWRITING STANDARDS
Approximately % (by Cut-Off Date Aggregate Principal Balance) of the Mort-
gage Loans (the "Norwest Mortgage Underwritten Loans") were generally origi-
nated in conformity with Norwest Mortgage's underwriting standards. In the case
of certain Mortgage Loans underwritten pursuant to a Delegated Underwriting (as
defined in the Prospectus under "The Mortgage Loan Programs -- Mortgage Loan
Underwriting") arrangement, exceptions to Norwest Mortgage's underwriting stan-
dards may have been approved by Norwest Mortgage. See "The Mortgage Loan Pro-
grams -- Mortgage Loan Underwriting" in the Prospectus.
Approximately % and % (by Cut-Off Date Aggregate Principal Balance) of the
Mortgage Loans will have been reviewed by GEMICO and UGRIC, respectively, to
ensure compliance with such company's respective credit, appraisal and under-
writing standards generally to assess the eligibility of such Mortgage Loans
for inclusion in a mortgage pool to be insured by such company. See "The Mort-
gage Loan Programs -- Mortgage Loan Underwriting" in the Prospectus.
Neither the Series 199 - Certificates nor the Mortgage Loans are insured or
guaranteed under a mortgage pool insurance policy issued by GEMICO or UGRIC.
The Pool Certification Underwritten Loans were evaluated by Norwest Mortgage
using credit scoring as described in the Prospectus under "The Mortgage Loan
Programs -- Mortgage Loan Underwriting" and, based on the Credit Scores of such
Mortgage Loans, some of such Mortgage Loans were re-underwritten by Norwest
Mortgage.
[The remaining approximate % (by Cut-Off Date Aggregate Principal Balance)
of the Mortgage Loans (the "Bulk Purchase Underwritten Loans") will have been
underwritten under varying standards. Norwest Mortgage has in each case re-
viewed the underwriting standards applied and determined that the Bulk Purchase
Underwritten Loans would have qualified for origination under Norwest Mort-
gage's underwriting standards together with customary exceptions therefrom re-
flecting the exercise of underwriting discretion. Any such exceptions did not
constitute material departures from Norwest Mortgage's underwriting standards.]
S-65
<PAGE>
NORWEST MORTGAGE DELINQUENCY AND FORECLOSURE EXPERIENCE
The following tables set forth certain information concerning recent delin-
quency, foreclosure and loan loss experience on the conventional mortgage loans
included in Norwest Mortgage's mortgage loan servicing portfolio which were
originated by Norwest Mortgage for its own account or for the account of an af-
filiate or acquired by Norwest Mortgage for its own account or for the account
of an affiliate and underwritten to Norwest Mortgage's underwriting standards
(the "Program Loans"), on the Program Loans which are fixed interest rate mort-
gage loans ("Fixed Program Loans"), including, in both cases, mortgage loans
originated in connection with the purchases of residences by relocated employ-
ees ("Relocation Mortgage Loans") and on the Fixed Program Loans other than the
Relocation Mortgage Loans ("Fixed Non-relocation Program Loans"). See "Descrip-
tion of the Mortgage Loans" herein and "The Mortgage Loan Programs -- Mortgage
Loan Underwriting" in the Prospectus. The delinquency, foreclosure and loan
loss experience represents the recent experience of Norwest Mortgage. There can
be no assurance that the delinquency, foreclosure and loan loss experience set
forth with respect to Norwest Mortgage's total servicing portfolio of Program
Loans, which includes both fixed and adjustable interest rate mortgage loans
and loans having a variety of original terms to stated maturity including Relo-
cation Mortgage Loans and non-relocation mortgage loans, and Norwest Mortgage's
servicing portfolios of Fixed Program Loans or Fixed Non-relocation Program
Loans, each of which includes loans having a variety of payment characteris-
tics, such as Subsidy Loans, Buy-Down Loans and Balloon Loans, will be repre-
sentative of the results that may be experienced with respect to the Mortgage
Loans included in the Trust Estate. Furthermore, there can be no assurance that
the future experience on the Mortgage Loans generally or the Mortgage Loans
serviced by Norwest Mortgage, all of which are fixed interest rate mortgage
loans having original terms to stated maturity of months, approximately
% (by Cut-Off Date Aggregate Principal Balance) of which are serviced by
Other Servicers and approximately % (by Cut-Off Date Aggregate Principal
Balance) of which were underwritten to various pool insurers' standards will be
comparable to that of the total Program Loans or Fixed Program Loans.
Historically, Relocation Mortgage Loans, which constitute a significant per-
centage of the Mortgage Loans currently serviced by Norwest Mortgage, have ex-
perienced a significantly lower rate of delinquency and foreclosure than other
mortgage loans included in the portfolios of total Program Loans and Fixed Pro-
gram Loans. There can be no assurance that the future experience on the Mort-
gage Loans contained in the Trust Estate, all of which are fixed interest rate
mortgage loans having original terms to stated maturity of approximately
years and none of which are Relocation Mortgage Loans, will be comparable to
that of the total Program Loans, the Fixed Program Loans or the Fixed Non-relo-
cation Program Loans.
The following tables reflect rapid growth during recent periods in Norwest
Mortgage's mortgage loan servicing portfolio as a result of the substantially
higher volume of new loan originations and acquisitions of recently originated
mortgage loans. Delinquencies, foreclosures and loan losses generally are ex-
pected to occur more frequently after the first full year of the life of mort-
gage loans. Accordingly, because a large number of mortgage loans serviced by
Norwest Mortgage have been recently originated, the current level of delinquen-
cies, foreclosures and loan losses may not be representative of the levels
which may be experienced over the lives of such mortgage loans. If the volume
of Norwest Mortgage's new loan originations and acquisitions does not continue
to grow at the rate experienced in recent years, the levels of delinquencies,
foreclosures and loan losses as percentages of Norwest Mortgage's total servic-
ing portfolio could rise significantly above the rates indicated in the follow-
ing tables.
S-66
<PAGE>
TOTAL PROGRAM LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- --------- -------- ---------
AS OF AS OF AS OF
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31 1995
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio of
Program Loans.......... $ $ $
=== ==== === ==== === ====
Period of Delinquency(1)
30 to 59 days.......... $ $ $
60 to 89 days..........
90 days or more........
--- ---- --- ---- --- ----
Total Delinquent Loans.. $ $ $
=== ==== === ==== === ====
Percent of Portfolio.... % % % % % %
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 1995
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $ $ $
Foreclosure Ratio(3).... % % %
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 1995
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss)(4)...... $( ) $( ) $( )
Net Gain (Loss)
Ratio(5)............... ( )% ( )% ( )%
</TABLE>
- -------------------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure 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.
FIXED PROGRAM LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- --------- -------- ---------
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio of Fixed
Program Loans.......... $ $ $
=== ==== === === === ====
Period of Delinquency(1)
30 to 59 days.......... $ $ $
60 to 89 days..........
90 days or more........
--- ---- --- --- --- ----
Total Delinquent Loans.. $ $ $
=== ==== === === === ====
Percent of Fixed Program
Loan Portfolio......... % % % % % %
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $ $ $
Foreclosure Ratio(3).... % % %
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain (Loss)(4)...... $ $ $
Net Gain (Loss)
Ratio(5)............... % % %
</TABLE>
- -------------------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent
for these purposes until one month has passed since its contractual due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure 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
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(5) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
S-67
<PAGE>
FIXED NON-RELOCATION PROGRAM LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR BY DOLLAR
BY NO. AMOUNT OF BY NO. AMOUNT OF BY NO. AMOUNT OF
OF LOANS LOANS OF LOANS LOANS OF LOANS LOANS
-------- --------- -------- --------- -------- ---------
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio of Fixed
Non-relocation Program
Loans.................. $ $ $
=== ==== === ==== === ====
Period of Delinquency(1)
30 to 59 days.......... $ $ $
60 to 89 days..........
90 days or more........
--- ---- --- ---- --- ----
Total Delinquent Loans.. $ $ $
=== ==== === ==== === ====
Percent of Fixed Non-
relocation Program Loan
Portfolio.............. % % % % % %
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $ $ $
Foreclosure Ratio(3).... % % %
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 199 DECEMBER 31, 199 JUNE 30, 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Gain (Loss)(4)...... $ $ $
Net Gain (Loss)
Ratio(5)............... % % %
</TABLE>
- -------------------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent
for these purposes until one month has passed since its contractual due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure 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
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(5) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
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
seasonal variations and may be influenced by the level of interest rates and
servicing decisions on the applicable mortgage loans. Regional economic condi-
tions (including declining real estate values) may particularly affect delin-
quency, foreclosure and loan loss experience on mortgage loans to the extent
that mortgaged properties are concentrated in certain geographic areas. Fur-
thermore, the level of foreclosures reported is affected by the length of time
legally required to complete the foreclosure process and take title to the re-
lated property, which varies from jurisdiction to jurisdiction. The changes in
the delinquency, foreclosure and loan loss experience of Norwest Mortgage's
servicing portfolio during the periods set forth in the preceding table may be
attributable to factors such as those described above, although there can be no
assurance as to whether these changes are the result of any particular factor
or a combination of factors. The delinquency, foreclosure and loan loss experi-
ence on the Mortgage Loans serviced by Norwest Mortgage may be particularly af-
fected 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-68
<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 Representing Party of
Mortgage Loans as a result of defective documentation or breaches of represen-
tations and warranties and optional purchases by Norwest Mortgage of all of the
Mortgage Loans in connection with the termination of the Trust Estate. See "De-
scription of the Mortgage Loans -- Mandatory Repurchase or Substitution of
Mortgage Loans" and "Pooling and Servicing Agreement -- Optional Termination"
herein and "The Pooling and Servicing Agreement -- Assignment of Mortgage Loans
to the Trustee," "-- Optional Purchases" and "-- Termination; Purchase of Mort-
gage Loans" in the Prospectus. Mortgagors are permitted to prepay the Mortgage
Loans, in whole or in part, at any time without penalty. As described under
"Description of the Certificates -- Principal (Including Prepayments)" herein,
all or a disproportionate percentage of principal prepayments on the Mortgage
Loans (including liquidations and repurchases of Mortgage Loans) will be dis-
tributed, to the extent of the Classes A/M/B Fraction, to the holders of the
Class A Certificates then entitled to distributions in respect of principal
during the nine years beginning on the first Distribution Date, and, to the ex-
tent that such principal prepayments are made in respect of a Discount Mortgage
Loan, to the Class AP Certificates in proportion to the interest of the Class
AP Certificates in such Discount Mortgage Loan represented by the Class AP
Fraction. Prepayments (which, as used herein, include all unscheduled payments
of principal, including payments as the result of liquidations, purchases and
repurchases) of the Mortgage Loans in the Trust Estate will result in distribu-
tions to Certificateholders then entitled to distributions in respect of prin-
cipal of amounts which would otherwise be distributed over the remaining terms
of such Mortgage Loans. Since the rate of prepayment on the Mortgage Loans will
depend on future events and a variety of factors (as described more fully below
and in the Prospectus under "Prepayment and Yield Considerations"), no assur-
ance 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 dis-
tributions 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 Certifi-
cates" in the Prospectus. In addition, Norwest Mortgage or third parties may
enter into agreements with borrowers providing for the bi-weekly payment of
principal and interest on the related mortgage loan, thereby accelerating pay-
ment of the mortgage loan resulting in partial prepayments.
S-69
<PAGE>
The effect of subsidy agreements on the rate of prepayment of Subsidy Loans
is uncertain. The rate of prepayment on Subsidy Loans may be affected by such
factors as the relationship between prevailing mortgage rates and the effective
interest rates on such Subsidy Loans, the remaining term of the subsidy agree-
ments, and requests by the related employers for refinance or modification. The
subsidy agreement relating to a Subsidy Loan generally provides that if pre-
vailing market rates of interest on mortgage loans similar to such Subsidy Loan
decline relative to the Mortgage Interest Rate of such Subsidy Loan by the per-
centage set forth in the subsidy agreement, the employer may request that the
mortgagor refinance such Subsidy Loan. In the event the mortgagor refinances
such Subsidy Loan, the Subsidy Loan will be prepaid, and the new loan will not
be included in the Trust Estate. If the mortgagor fails to refinance such Sub-
sidy Loan, the employer may terminate the related subsidy agreement. In addi-
tion, the termination of the subsidy agreement relating to a Subsidy Loan for
any reason (whether due to the mortgagor's failure to refinance or otherwise)
may increase the financial burden of the mortgagor, who may not have otherwise
qualified for a mortgage under Norwest Mortgage's mortgage loan underwriting
guidelines, and may consequently increase the risk of default with respect to
the related Mortgage Loan. See "The Trust Estates -- Mortgage Loans" and "The
Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospectus. From
time to time, the amount of the subsidy payment or the term of the subsidy
agreement may, upon the request of the corporate employer, be modified.
Other factors affecting prepayment of mortgage loans include changes in 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
economic 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. In addition, all of the Mortgage Loans
contain due-on-sale clauses which will generally be exercised upon the sale of
the related Mortgaged Properties. Consequently, acceleration of mortgage pay-
ments as a result of any such sale will affect the level of prepayments on the
Mortgage Loans. The extent to which defaulted Mortgage Loans are assumed by
transferees of the related Mortgaged Properties will also affect the rate of
principal payments. The rate of prepayment and, therefore, the yield to matu-
rity 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 defective documentation or with respect
to which the Seller has breached a representation or warranty or (ii) the
Servicer elects to encourage the refinancing of any defaulted Mortgage Loan
rather than to permit an assumption thereof by a mortgagor meeting the
Servicer's underwriting guidelines. See "Servicing of the Mortgage Loans -- En-
forcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans" in
the Prospectus. There can be no certainty as to the rate of prepayments on the
Mortgage Loans during any period or over the life of the Series 199 - Certifi-
cates. See "Prepayment and Yield Considerations" in the Prospectus.
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 AP CERTIFICATES, THE RISK THAT A SLOWER THAN ANTICIPATED RATE
OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE
LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED. A FASTER
THAN ANTICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAY-
MENTS) ON THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN
ANTICIPATED FOR INVESTORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM. INVEST-
ORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM SHOULD ALSO CONSIDER THE RISK
THAT A RAPID RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS)
ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY
RECOVER THEIR INITIAL INVESTMENTS. THE YIELD ON THE CLASS AP CERTIFICATES WILL
BE INFLUENCED BY PRINCIPAL PAYMENTS SOLELY WITH RESPECT TO DISCOUNT MORTGAGE
LOANS.
S-70
<PAGE>
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 Senior Certificates to losses due to defaults on
the Mortgage Loans (and the timing thereof), to the extent not covered by the
Class B Certificates, because the entire amount of such losses will be alloca-
ble to the Class M Certificates prior to the Senior 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 Senior 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 Senior Certificates.
The yield to maturity on the Offered Certificates and more particularly on
the Class M Certificates may be affected by the geographic concentration of the
Mortgaged Properties securing the Mortgage Loans, and the yield to maturity on
the Class AP Certificates may be particularly affected by the geographic con-
centration of the Mortgaged Properties securing the Discount Mortgage Loans. In
recent periods, California and several other regions in the United States have
experienced significant declines in housing prices. In addition, California and
several other regions have experienced natural disasters, including earthquakes
and floods, which may adversely affect property values. Any deterioration in
housing prices in California, as well as and the other states in which
the Mortgaged Properties are located, and any deterioration of economic condi-
tions 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. Such losses, if they occur, may have an adverse effect on the
yield to maturity of the Offered Certificates and more particularly on the
Class M Certificates.
No representation is made as to the rate of principal payments on the Mort-
gage Loans or as to the yield to maturity of any Subclass or Class of Offered
Certificates. An investor is urged to make an investment decision with respect
to any Subclass or Class of Offered Certificates based on the anticipated yield
to maturity of such Subclass or Class of Offered Certificates resulting from
its purchase price and such investor's own determination as to anticipated
Mortgage Loan prepayment rates under a variety of scenarios. The extent to
which any Subclass or Class of Offered Certificates are purchased at a discount
or a premium and the degree to which such Subclass or Class is sensitive to the
timing of prepayments will determine the extent to which the yield to maturity
of such Subclass or Class may vary from the anticipated yield. An investor
should carefully consider the associated risks, including, in the case of any
Subclass or Class of Offered Certificates purchased at a discount, particularly
the Class AP Certificates, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans, or in the case of the Class AP Cer-
tificates, on the Discount Mortgage Loans, could result in an actual yield to
such investor that is lower than the anticipated yield and, in the case of any
Subclass or Class of Offered Certificates purchased at a premium the risk that
a faster than anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield.
S-71
<PAGE>
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 may choose to reinvest amounts distributed in
reduction of the principal balance of such investor's Offered Certificate may
be lower than the applicable Pass-Through Rate or, in the case of the Class AP
Certificates, the anticipated yield thereon. Conversely, slower rates of pre-
payments on the Mortgage Loans, and therefore of amounts distributable in re-
duction of principal balance of the Offered Certificates, may coincide with pe-
riods of high prevailing interest rates. During such periods, the amount of
principal distributions available to an investor for reinvestment at such high
prevailing interest rates may be relatively small.
As indicated under "Federal Income Tax Considerations" herein, the Class A-R
Certificateholder's REMIC taxable income and the tax liability thereon may ex-
ceed, and may substantially exceed, cash distributions to such holders 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
the Offered Certificates refers to the average amount of time that will elapse
from the date of issuance of such Subclass or Class until each dollar in reduc-
tion of the principal balance of such Subclass or Class is distributed to the
investor. The weighted average life of each Subclass or Class of the Offered
Certificates will be influenced by, among other things, the rate and timing of
principal payments on the Mortgage Loans, which may be in the form of scheduled
amortization, prepayments or other recoveries of principal.
THE WEIGHTED AVERAGE LIFE OF THE COMPANION CERTIFICATES WILL BE HIGHLY SENSI-
TIVE TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE MORTGAGE
LOANS. Specifically, if prepayments result in a Class A Principal Amount equal
to or less than the sum of the PAC Principal Amount and the TAC Principal
Amount on any Distribution Date, the Companion Certificates will receive no
distributions in reduction of principal on such Distribution Date. Further, on
each Distribution Date up to an including the Distribution Date on which the
Class A Subclass Principal Balance of the Companion Certificates is reduced to
zero, any Excess Principal Payments for such Distribution Date will be applied
to the Companion Certificates before being distributed to the TAC Certificates
and the PAC Certificates in the proportions and priorities set forth above un-
der "Description of the Certificates -- Principal (Including Prepayments)." See
"Description of the Certificates -- Principal (Including Prepayments) -- Prin-
cipal Payment Characteristics of the PAC Certificates, the TAC Certificates and
the Companion Certificates."
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new mort-
gage 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, " % SPA" assumes prepay-
ment rates equal to % of SPA, and so forth. SPA does not purport to be a his-
torical description of prepayment experience or a prediction of the anticipated
rate of prepayment of any pool of mortgage loans, including the Mortgage Loans.
S-72
<PAGE>
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 above under "Description of the Mortgage Loans." The tables
assume, among other things, that (i) the scheduled payment in each month for
each Mortgage Loan has been based on its outstanding balance as of the first
day of the month preceding the month of such payment, its Mortgage Interest
Rate and its remaining term to stated maturity, so that such scheduled payments
would amortize the remaining balance by its remaining term to maturity, (ii)
scheduled monthly payments of principal and interest on the Mortgage Loans will
be timely received on the first day of each month (with no defaults), commenc-
ing in 199 , (iii) the Seller does not repurchase any Mortgage Loan, as
described under "Description of the Mortgage Loans -- Mandatory Repurchase or
Substitution of Mortgage Loans" herein, and Norwest Mortgage does not exercise
its option to purchase the Mortgage Loans and thereby cause a termination of
the Trust Estate, (iv) principal prepayments in full on the Mortgage Loans will
be received on the last day of each month commencing in 199 at the re-
spective constant percentages of SPA set forth in the tables and there are no
partial principal prepayments or Prepayment Interest Shortfalls, (v) the Series
199 Certificates will be issued on , 199 and (vi) distributions to
Certificateholders will be made on the 25th day of each month, commencing in
199 . It is highly unlikely that the Mortgage Loans will prepay at any constant
rate, that all of the Mortgage Loans will prepay at the same rate or that the
Mortgage Loans will not experience any losses. In addition, there may be 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 Class A Cer-
tificates, initial principal balances of the Class AP and Class M Certificates,
the actual weighted average lives of the Subclasses of Class A Certificates and
the Class AP and Class M Certificates and the date on which the Class A
Subclass Principal Balance of any Subclass of Class A Certificates and the
principal balances of the Class AP and Class M Certificates are reduced to ze-
ro.
Based upon the foregoing assumptions, the following tables indicate the
weighted average life of each Subclass and Class of Offered Certificates, and
set forth the percentages of the initial Class A Subclass Principal Balance of
each such Subclass and, in the case of the Class AP and Class M Certificates,
of the initial principal balances of the Class AP and Class M Certificates that
would be outstanding after each of the dates shown at constant percentages of
SPA presented.
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF SPA OF SPA
ISTRIBUTIOND --------------------------- ---------------------------
DATE 0% % % % % % % 0% % % % % % %
- ------------ --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- -------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of principal bal-
ance by the number of years from the date of the issuance of such Certifi-
cate to the related Distribution Date, (ii) adding the results and (iii)
dividing the sum by the aggregate distributions in reduction of principal
balance referred to in clause (i).
S-73
<PAGE>
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF SPA OF SPA
ISTRIBUTIOND --------------------------- ---------------------------
DATE 0% % % % % % % 0% % % % % % %
- ------------ --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
CLASS A-5 CLASS A-R
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF SPA OF SPA
ISTRIBUTIOND --------------------------- ---------------------------
DATE 0% % % % % % % 0% % % % % % %
- ------------ --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- -------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of principal bal-
ance by the number of years from the date of the issuance of such Certifi-
cate to the related Distribution Date, (ii) adding the results and (iii)
dividing the sum by the aggregate distributions in reduction of principal
balance referred to in clause (i).
S-74
<PAGE>
Interest accrued on the Class A and Class M Certificates will be reduced by
the amount of any interest portions of Realized Losses allocated to such Cer-
tificates as described under "Description of the Certificates -- Interest"
herein. The yield on the Class A Certificates and the Class M Certificates will
be less than the yield otherwise produced by their respective Pass-Through
Rates and the prices at which such Certificates are purchased because the in-
terest 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 busi-
ness day).
[The Seller intends to file certain additional yield tables and other compu-
tational materials with respect to one or more Subclasses or Classes of Offered
Certificates with the Securities and Exchange Commission in a Report on Form 8-
K. See "Incorporation Of Certain Documents By Reference" in the Prospectus.
Such tables and materials will have been prepared by the Underwriter at the re-
quest of certain prospective investors, based on assumptions provided by, and
satisfying the special requirements of, such investors. Such tables and assump-
tions may be based on assumptions that differ from the assumptions set forth in
clauses (i) through (vii) of the first full paragraph on page S- hereof. Ac-
cordingly, such tables and other materials may not be relevant to or appropri-
ate for investors other than those specifically requesting them.]
SENSITIVITY OF THE CLASS AP CERTIFICATES
THE YIELD TO AN INVESTOR IN THE CLASS AP CERTIFICATES WILL BE HIGHLY SENSI-
TIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF
THE DISCOUNT MORTGAGE LOANS, WHICH RATE MAY FLUCTUATE SIGNIFICANTLY FROM TIME
TO TIME. AN INVESTOR SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE
RISK THAT A RELATIVELY SLOW RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS)
ON THE DISCOUNT MORTGAGE LOANS WILL HAVE A NEGATIVE EFFECT ON THE YIELD TO AN
INVESTOR IN THE CLASS AP CERTIFICATES. THE DISCOUNT MORTGAGE LOANS WILL HAVE
LOWER NET MORTGAGE INTEREST RATES THAN THE OTHER MORTGAGE LOANS. IN GENERAL,
MORTGAGE LOANS WITH LOWER MORTGAGE INTEREST RATES MAY TEND TO PREPAY AT A
SLOWER RATE OF PAYMENT IN RESPECT OF PRINCIPAL THAN MORTGAGE LOANS WITH RELA-
TIVELY HIGHER MORTGAGE INTEREST RATES, IN RESPONSE TO CHANGES IN MARKET INTER-
EST RATES. AS A RESULT, THE DISCOUNT MORTGAGE LOANS MAY PREPAY AT A SLOWER RATE
OF PAYMENT IN RESPECT OF PRINCIPAL THAN THE OTHER MORTGAGE LOANS, RESULTING IN
A LOWER YIELD ON THE CLASS AP CERTIFICATES THAN WOULD BE THE CASE IF THE DIS-
COUNT MORTGAGE LOANS PREPAID AT THE SAME RATE AS THE OTHER MORTGAGE LOANS.
The following table indicates the sensitivity to various rates of prepayment
on the Discount Mortgage Loans of the pre-tax yields to maturity on a corporate
bond equivalent ("CBE") basis of the Class AP Certificates. Such calculations
are based on distributions made in accordance with "Description of the Certifi-
cates" above, on the assumptions described in clauses (i) through (vii) of the
first full paragraph on page S- and on the further assumptions that (i) the
Class AP Certificates will be purchased on , 199 at an aggregate purchase
price of % of the initial Class AP Principal Balance and (ii) distributions
to holders of the Class AP Certificates will be made on the 25th day of each
month commencing in 199 .
SENSITIVITY OF THE PRE-TAX YIELD ON THE CLASS AP CERTIFICATES TO PREPAYMENTS
<TABLE>
<CAPTION>
PERCENTAGES OF SPA
---------------------------
0% % % % % % %
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield (CBE)........................... % % % % % % %
</TABLE>
The pre-tax yields set forth in the preceding table were calculated by (i)
determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on the Class AP Certificates, would cause the
discounted present value of such assumed stream of cash flows to equal an as-
sumed aggregate purchase price for the Class AP Certificates of approximately
% of the initial Class AP Principal Balance and (ii) converting such monthly
rates to corporate bond equivalent rates. Such calculation does not take into
account the interest rates at which investors may be able to reinvest funds re-
ceived by them as distributions on the Class AP
S-75
<PAGE>
Certificates and consequently does not purport to reflect the return on any in-
vestment in the Class AP Certificates when such reinvestment rates are consid-
ered.
Notwithstanding the assumed prepayment rates reflected in the preceding ta-
ble, it is highly unlikely that the Discount Mortgage Loans will prepay at a
constant rate until maturity or that all of the Discount Mortgage Loans will
prepay at the same rate. The Discount Mortgage Loans initially included in the
Trust Estate may differ from those currently expected to be included in the
Trust Estate, and thereafter may be changed as a result of permitted substitu-
tions. As a result of these factors, the pre-tax yields on the Class AP Certif-
icates are likely to differ from those shown in such table, even if all of the
Discount Mortgage Loans prepay at the indicated percentages of SPA.
S-76
<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Series 199 - 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
199 - Certificates (the "Pooling and Servicing Agreement") among the Seller,
the Master Servicer and the Trustee. Reference is made to the Prospectus for
important additional information regarding the terms and conditions of the
Pooling and Underlying Servicing Agreement and the Series 199 - Certificates.
See "Description of the Certificates," "Servicing of the Mortgage Loans" and
"The Pooling and Servicing Agreement" in the Prospectus.
The Trust Estate created pursuant to the Pooling and Servicing Agreement will
consist of (i) the Mortgage Loans as described under "Description of the 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, (iv) the rights of the Trustee to receive the proceeds of all insur-
ance policies and performance bonds, if any, required to be maintained pursuant
to the Pooling and Servicing Agreement, (v) certain rights of the Seller to the
enforcement of representations and warranties made by the Representing Parties
relating to the Mortgage Loans, and (vi) the rights of the Trustee under the
Norwest Mortgage Loan Purchase Agreement.
DISTRIBUTIONS
Distributions (other than the final distribution in retirement of the Class A
Certificates of each Subclass) will be made by check mailed to the address of
the person entitled thereto as it appears on the Certificate Register. However,
with respect to any holder of a Class A Certificate evidencing at least a
$5,000,000 initial principal balance or any holder of a Class AP, Class M or
Offered Class B Certificate evidencing a 100% Percentage Interest, distribu-
tions 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 Dis-
tribution Date. The final distribution in respect of each Subclass of Offered
Certificates will be made only upon presentation and surrender of the related
Certificate at the office or agency appointed by the Trustee specified in the
notice of final distribution with respect to the related Subclass or Class.
Unless Definitive Certificates are issued as described above, the Master
Servicer, the Trustee and the Master Servicer will treat DTC as the Holder of
the Book-Entry Certificates for all purposes, including making distributions
thereon and taking actions with respect thereto. DTC will make book-entry
transfers among its participants with respect to the Book-Entry Certificates;
it will also receive distributions on the Book-Entry Certificates from the
Trustee and transmit them to participants for distribution to Beneficial Owners
or their nominees.
VOTING
With respect to any provisions of the Pooling and Servicing Agreement provid-
ing for the action, consent or approval of the holders of all Series 199 - Cer-
tificates evidencing specified Voting Interests in the Trust Estate, the hold-
ers of the Class A Certificates will collectively be entitled to a percentage
(the "Class A Voting Interest") of the aggregate Voting Interest represented by
all Series 199 - Certificates equal to the product of (i) the then applicable
Class A Percentage and (ii) the ratio obtained by dividing the Pool Balance
(Classes A/M/B Portion) by the sum of the Pool Balance (Classes A/M/B Portion)
and the Pool Balance (Class AP Portion) (the "Classes A/M/B Voting Interest");
the holders of the Class AP Certificates will collectively be entitled to a
percentage of the aggregate Voting Interest represented by all Series 199 -
Certificates equal to the percentage obtained by dividing the Pool Balance
(Class AP Portion) by the sum of the Pool Balance (Class A/M/B Portion) and the
Pool Balance (Class AP Portion); the holders of the Class M Certificates will
collectively be entitled to the then applicable percentage of the aggregate
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Voting Interest represented by all Series 199 - Certificates equal to the prod-
uct of (i) the ratio obtained by dividing the Class M Principal Balance by the
sum of the Class A Principal Balance, the Class M Principal Balance and the
Class B Principal Balance and (ii) the Classes A/M/B Voting Interest. The ag-
gregate Voting Interests of each Subclass of Class A Certificates on any date
will be equal to the product of (a) the Class A Voting Interest on such date
and (b) the fraction obtained by dividing the Class A Subclass Principal Bal-
ance of such Subclass on such date by the aggregate Class A Subclass Principal
Balance of the Class A Certificates on such date. Each Certificateholder of a
Class or Subclass will have a Voting Interest equal to the product of the Vot-
ing Interest to which such Class or Subclass is collectively entitled and the
Percentage Interest in such Class or Subclass represented by such holder's Cer-
tificates. With respect to any provisions of the Pooling and Servicing Agree-
ment providing for action, consent or approval of each Class or Subclass of
Certificates or specified Classes or Subclasses of Certificates, each
Certificateholder of a Subclass will have a Voting Interest in such Subclass
equal to such holder's Percentage Interest in such Subclass. Unless Definitive
Certificates are issued as described above, Beneficial Owners of Book-Entry
Certificates may exercise their voting rights only through DTC Participants.
TRUSTEE
The Trustee for the Series 199 - Certificates will be , a [national
banking association]. The Corporate Trust Office of the Trustee is located at
. The Trustee will be responsible for monitoring the compliance of
the Master Servicer with the Pooling and Servicing Agreement and the Underlying
Servicing Agreements and make Periodic Advances to the limited extent described
herein with respect to the Mortgage Loans serviced by Norwest Mortgage if
Norwest Mortgage, as Servicer, fails to make a Periodic Advance required by the
Underlying Servicing Agreement. See "The Pooling and Servicing Agreement -- The
Trustee" in the Prospectus. The Trustee will be entitled to a "Trustee Fee"
payable monthly equal to the product of (i) 1/12th of a fixed percentage per
annum as set forth in the Pooling and Servicing Agreement (the "Trustee Fee
Rate") and (ii) the aggregate Scheduled Principal Balances of the Mortgage
Loans as of the first day of each month.
MASTER SERVICER
Norwest Bank will act as "Master Servicer" of the Mortgage Loans and, in that
capacity, will supervise the servicing of the Mortgage Loans, service Mortgage
Loans in the event a Servicer is terminated and a successor servicer is not ap-
pointed, provide certain reports to the Trustee regarding the Mortgage Loans
and the Certificates and make Periodic Advances to the limited extent described
herein with respect to the Mortgage Loans if a Servicer other than Norwest
Mortgage fails to make a Periodic Advance required by the related Underlying
Servicing Agreement. The Master Servicer will be entitled to a "Master Servic-
ing Fee" payable monthly equal to the product of (i) 1/12th of a fixed percent-
age per annum as set forth in the Pooling and Servicing Agreement (the "Master
Servicing Fee Rate") and (ii) the aggregate Scheduled Principal Balances of the
Mortgage Loans as of the first day of each month. The Master Servicer will pay
all administrative expenses to the Trust Estate subject to reimbursement as de-
scribed under "Master Servicer" in the Prospectus.
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 199 - Certifi-
cates, on any Distribution Date when the Pool Scheduled Principal Balance is
less than % 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
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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 "De-
scription of the Certificates -- Additional Rights of the Class A-R
Certificateholder" herein and "The Pooling and Servicing Agreement -- Termina-
tion; Purchase of Mortgage Loans" in the Prospectus.
SERVICING OF THE MORTGAGE LOANS
Norwest Mortgage will service approximately % (by Cut-Off Date Aggregate
Principal Balance) of the Mortgage Loans and the servicers listed below (the
"Other Servicers", and collectively with Norwest Mortgage, the "Servicers")
will service the balance of the Mortgage Loans, as indicated, each pursuant to
a separate Underlying Servicing Agreement. The rights to enforce the related
Servicer's obligations under each Underlying Servicing Agreement with respect
to the related Mortgage Loans will be assigned to the Trustee for the benefit
of Certificateholders. Among other things, the Servicers are obligated under
certain circumstances to advance delinquent payments of principal and interest
with respect to the Mortgage Loans. See "Servicing of the Mortgage Loans" in
the Prospectus.
THE SERVICERS
The Mortgage Loans initially will be serviced by the following entities:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF CUT-OFF
DATE AGGREGATE PRINCIPAL BALANCE
NAME OF SERVICER SERVICED
---------------- ----------------------------------
<S> <C>
Norwest Mortgage, Inc.................... %
%
%
%
%
%
%
%
%
------
Total.................................. 100.00%
======
</TABLE>
Certain information with respect to the loan servicing experience of Norwest
Mortgage is set forth under "Norwest Mortgage -- Delinquency and Foreclosure
Experience."
SERVICER CUSTODIAL ACCOUNTS
Each Servicer is required to establish and maintain a custodial account for
principal and interest (each such account, a "Servicer Custodial Account"),
into which it will deposit all collections of principal (including principal
prepayments and Liquidation Proceeds in respect of principal, if any) on any
Mortgage Loan that such Servicer services, interest (net of Servicing Fees) on
any Mortgage Loan that such Servicer services, related insurance proceeds, 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:
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(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 Prepayment Interest Shortfalls as described under "De-
scription of the Certificates -- Interest";
(d) all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such Distribution
Date occurs;
(e) all proceeds of any Mortgage Loans, or property acquired in respect
thereof, liquidated, foreclosed, purchased or repurchased pursuant to the
Pooling and Servicing Agreement (other than Partial Liquidation Proceeds)
received by such Servicer on or after the Due Date occurring in the month
in which such Distribution Date occurs, all principal prepayments in full,
partial principal prepayments and Partial Liquidation Proceeds on Mortgage
Loans received on or after the Determination Date occurring in the month in
which such Distribution Date occurs, and all related payments of interest
on such amounts;
(f) all amounts representing certain expenses reimbursable to such
Servicer and any other amounts permitted to be retained by such Servicer or
withdrawn by such Servicer from the Servicer Custodial Account pursuant to
the applicable Underlying Servicing Agreement;
(g) all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees which such Servicer is entitled to retain as 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.
FIXED RETAINED YIELD; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The primary compensation payable to each of the Servicers is the aggregate of
the Servicing Fees applicable to the related Mortgage Loans. The Servicing Fee
applicable to each Mortgage Loan is expressed as a fixed percentage (the "Ser-
vicing Fee Rate") of the Scheduled Principal Balance of such Mortgage Loan as
of the first day of each month. The Servicing Fee Rate for each Mortgage Loan
will be a fixed percentage rate per annum. The Servicing Fee Rate, as of the
Cut-Off Date, is expected to range from approximately % to % per annum. In
addition to the Servicing Fees, late payment fees, loan assumption fees and
prepayment fees with respect to the Mortgage Loans, and any interest or other
income earned on collections with respect to the Mortgage Loans pending remit-
tance to the Certificate Account, will be paid to or retained by the Servicers
as additional servicing compensation. The Servicing Fees payable to such
Servicer with respect to the Mortgage Loans serviced by Norwest Mortgage are
subject to reduction in any month to cover Prepayment Interest Shortfalls with
respect to such Mortgage Loans.
A fixed percentage of the interest on each Mortgage Loan (the "Fixed Retained
Yield") with a per annum Mortgage Interest Rate greater than (i) the sum of (a)
%, (b) the Servicing Fee Rate, (c) the Master Servicing Fee Rate and (d) the
Trustee Fee Rate, which will be determined on a loan by loan basis and will
equal the Mortgage Interest Rate on each Mortgage Loan minus the rate described
in clause (i), will not be included in the Trust Estate. There will be no Fixed
Retained Yield on any Mortgage Loan with a Mortgage Interest Rate equal to or
less than the rate described in clause (i). See "Servicing of the Mortgage
Loans -- Fixed Retained Yield, Servicing Compensation and Payment of Expenses"
in the Prospectus for information regarding other possible compensation to the
Servicer. The servicing fees and other expenses of the REMIC will be allocated
to a holder of the Class A-R Certificate who is an individual, estate or trust
(whether such Certificate is held directly or through certain pass-through en-
tities) as additional gross income without a corresponding distribution of
cash, and any such investor (or its owners, in the
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case of a pass-through entity) may be limited in its ability to deduct such ex-
penses for regular tax purposes and may not be able to deduct such expenses to
any extent for alternative minimum tax purposes. See "Certain Federal Income
Tax Consequences -- Federal Income Tax Consequences for REMIC Certificates --
Limitations on Deduction of Certain Expenses" in the Prospectus.
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 and Class A-5 Certificates, the Class AP Certificates and
the Class M Certificates (collectively, the "Regular Certificates"), together
with the Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates,
will be designated as the regular interests in the REMIC, and the Class A-R
Certificate will be designated as the residual interest in the REMIC. The Class
A-R Certificate is a "Residual Certificate" for purposes of the Prospectus.
The Offered Certificates will be treated as "qualifying real property loans"
for mutual savings banks and domestic building and loan associations, "regular
or residual interests in a REMIC" for domestic building and loan associations,
and "real estate assets" for real estate investment trusts, to the extent de-
scribed in the Prospectus.
REGULAR CERTIFICATES
The Regular Certificates generally will be treated as newly originated debt
instruments for federal income tax purposes. Beneficial Owners (or in the case
of Definitive Certificates, holders) of the Regular Certificates will be re-
quired to report income on such Certificates in accordance with the accrual
method of accounting.
The Class AP Certificates will be issued with original issue discount in an
amount equal to the excess of the initial principal balance thereof over their
respective issue prices. It is anticipated that the Class A- and Class A-
Certificates and the Class M Certificates will be issued with original issue
discount in an amount equal to the excess of the initial principal balances of
such Subclasses or Class over their respective issue prices (including accrued
interest). It is further anticipated that the Class A- and Class A- Certifi-
cates will be issued at a premium and that the Class A- Certificates will be
issued with de minimis original issue discount for federal income tax purposes.
Each Subclass of the Class B Certificates, which are not offered hereby, also
will be treated as issued with original issue discount for federal income tax
purposes.
The Prepayment Assumption (as defined in the Prospectus) that the Master
Servicer intends to use in determining the rate of accrual of original issue
discount will be calculated using % SPA. No representation is made as to the
actual rate at which the Mortgage Loans will prepay.
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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.
Under the REMIC Regulations, because the fair market value of the Class A-R
Certificate will not exceed 2% of the fair market value of the REMIC the Class
A-R Certificate will not have "significant value," and thrift institutions will
not be permitted to offset their net operating losses against such excess in-
clusion income. In addition, the Class A-R Certificate will be considered a
"noneconomic residual interest," with the result that transfers thereof would
be disregarded for federal income tax purposes if any significant purpose of
the transferor was to impede the assessment or collection of tax. Accordingly,
the transferee affidavit used for transfer of the Class A-R Certificate will
require the transferee to affirm that it (i) historically has paid its debts as
they have come due and intends to do so in the future, (ii) understands that it
may incur tax liabilities with respect to the Class A-R Certificate in excess
of cash flows generated thereby, (iii) intends to pay taxes associated with
holding the Class A-R Certificate as such taxes become due and (iv) will not
transfer the Class A-R Certificate to any person or entity that does not pro-
vide a similar affidavit. The transferor must certify in writing to the Trustee
that, as of the date of the transfer, it had no knowledge or reason to know
that the affirmations made by the transferee pursuant to the preceding sentence
were false. Additionally, the Class A-R Certificate generally may not be trans-
ferred to certain persons who are not U.S. Persons (as defined herein). See
"Description of the Certificates -- Restrictions on Transfer of the Class A-R
and Class M Certificates" herein and "Certain Federal Income Tax Conse-
quences -- Federal Income Tax Consequences For REMIC Certificates," "-- Taxa-
tion of Residual Certificates -- Limitations on Offset or Exemption of REMIC
Income" and "-- Tax-Related Restrictions on Transfer of Residual Certifi-
cates -- Noneconomic Residual Interests" in the Prospectus.
An individual, trust or estate that holds the Class A-R Certificate (whether
such Certificate is held directly or indirectly through certain pass-through
entities) also may have additional gross income with respect to, but may be
subject to limitations on the deductibility of, Servicing Fees on the Mortgage
Loans and other administrative expenses properly allocable to the applicable
REMIC in computing such holder's regular tax liability, and may not be able to
deduct such fees or expenses to any extent in computing such holder's alterna-
tive minimum tax liability. In addition, some portion of a purchaser's basis,
if any, in the Class A-R Certificate may not be recovered until termination of
the respective REMIC. Furthermore, the federal income tax consequences of any
consideration paid to a transferee on a transfer of the Class A-R Certificate
are unclear. The preamble to the REMIC Regulations indicates that the Internal
Revenue Service anticipates providing guidance with respect to the federal tax
treatment of such consideration. Any transferee receiving consideration with
respect to the Class A-R Certificate should consult its tax advisors.
DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTERESTS, THE EFFECTIVE AFTER-TAX
RETURN OF THE CLASS A-R CERTIFICATE MAY BE SIGNIFICANTLY LOWER THAN WOULD BE THE
CASE IF THE CLASS A-R CERTIFICATE WERE TAXED AS A DEBT INSTRUMENT, OR MAY BE
NEGATIVE.
See "Certain Federal Income Tax Consequences" in the Prospectus.
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<PAGE>
ERISA CONSIDERATIONS
The Class A-R Certificate may not be purchased by or transferred to any 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 the fiduciary responsibility rules of Sections 401-414 of
ERISA or Code Section 4975 (an "ERISA Plan") or which is a governmental plan,
as defined in Section 3(32) of ERISA, subject to any federal, state or local
law ("Similar Law") which is, to a material extent, similar to the foregoing
provisions of ERISA or the Code (collectively, with an ERISA Plan, a "Plan"),
or any person utilizing the assets of such Plan. Accordingly, the following
discussion does not purport to discuss the considerations under ERISA, Code
Section 4975 or Similar Law with respect to the purchase, acquisition or resale
of the Class A-R Certificate and for purposes of the following discussion all
references to the Offered Certificates are deemed to exclude the Class A-R Cer-
tificate.
In addition, under current law the purchase and holding of the Class M Cer-
tificates by or on behalf of a Plan may result in "prohibited transactions"
within the meaning of ERISA and Code Section 4975 or Similar Law. Transfer of
the Class M Certificates will not be made unless the transferee (i) executes a
representation letter in form and substance satisfactory to the Trustee stating
that (a) it is not, and is not acting on behalf of, any such Plan or using the
assets of any such Plan to effect such purchase or (b) if it is an insurance
company, that the source of funds used to purchase the Class M Certificates is
an "insurance company general account" (as such term is defined in Section V(e)
of Prohibited Transaction Class Exemption 95-60 ("PTE 95-60"), 60 Fed. Reg.
35925 (July 12, 1995) and there is no Plan with respect to which the amount of
such general account's reserves and liabilities for the contract(s) held by or
on behalf of such Plan and all other Plans maintained by the same employer (or
affiliate thereof as defined in Section V(a)(1) of PTE 95-60) or by the same
employee organization, exceed 10% of the total of all reserves and liabilities
of such general account (as such amounts are determined under Section I(a) of
PTE 95-60) at the date of acquisition or (ii) provides an opinion of counsel in
form and substance satisfactory to the Trustee that the purchase or holding of
the Class M Certificates by or on behalf of such Plan will not result in the
assets of the Trust Estate being deemed to be "plan assets" and subject to the
prohibited transaction provisions of ERISA and the Code or Similar Law and will
not subject the Seller, the Master Servicer, the Master Servicer or the Trustee
to any obligation in addition to those undertaken in the Pooling and Servicing
Agreement. The Class M Certificates will contain a legend describing such re-
strictions on transfer and the Pooling and Servicing Agreement will provide
that any attempted or purported transfer in violation of these transfer re-
strictions will be null and void and will vest no rights in any purported
transferee. Accordingly, the following discussion does not purport to discuss
the considerations under ERISA, Code Section 4975 or Similar Law with respect
to the purchase, acquisition or resale of the Class M Certificates and for pur-
poses of the following discussion all references to the Offered Certificates
are deemed to exclude the Class M Certificates.
As described in the Prospectus under "ERISA Considerations," ERISA and the
Code impose certain duties and restrictions on ERISA Plans and certain persons
who perform services for ERISA Plan. Comparable duties and restrictions may ex-
ist under Similar Law on governmental plans and certain persons who perform
services for governmental plans. For example, unless exempted, investment by an
ERISA Plan in the Offered Certificates may constitute a prohibited transaction
under ERISA, the Code or Similar Law. There are certain exemptions issued by
the United States Department of Labor (the "DOL") that may be applicable to an
investment by an ERISA Plan in the Offered Certificates, including the individ-
ual administrative exemption described below and Prohibited Transaction Class
Exemption 83-1 ("PTE 83-1"). For a further discussion of the individual admin-
istrative exemption and PTE 83-1, including the necessary conditions to their
applicability, and other important factors to be considered by an ERISA Plan
contemplating investing in the Offered Certificates, see "ERISA Considerations"
in the Prospectus.
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[On , the DOL issued to the Underwriter an individual administrative
exemption, Prohibited Transaction Exemption , Fed. Reg. (the "Ex-
emption"), from certain of the prohibited transaction rules of ERISA with re-
spect to the initial purchase, the holding and the subsequent resale by an
ERISA Plan of certificates in pass-through trusts that meet the conditions and
requirements of the Exemption. The Exemption might apply to the acquisition,
holding and resale of the Offered Certificates, other than the Class A-R Cer-
tificate, by an ERISA Plan, provided that specified conditions are met.
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by an ERISA Plan of the Offered Certificates is the
condition that the ERISA Plan investing in the Offered Certificates be an "ac-
credited investor" as defined in Rule 501(a)(1) of Regulation D of the Securi-
ties and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act").]
Before purchasing an Offered Certificate, a fiduciary of an ERISA Plan should
make its own determination as to the [availability of the exemptive relief pro-
vided in the Exemption or the] availability of any [other] prohibited transac-
tion exemptions (including PTE 83-1), and whether the conditions of any such
exemption will be applicable to the Offered Certificates and a fiduciary of a
governmental plan should make its own determination as to the need for and
availability of any exemptive relief under Similar Law. Any fiduciary of an
ERISA Plan considering whether to purchase an Offered Certificate should also
carefully review with its own legal advisors the applicability of the fiduciary
duty and prohibited transaction provisions of ERISA, the Code and Similar Law
to such investment. See "ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT
[The Offered Certificates constitute "mortgage related securities" for pur-
poses of the Secondary Mortgage Market Enhancement Act of 1984 (the "Enhance-
ment Act") so long as they are rated in one of the two highest rating catego-
ries by at least one nationally recognized statistical rating organization. As
such, the Offered Certificates are legal investments for certain entities to
the extent provided in the Enhancement Act. However, institutions subject to
the jurisdiction of the Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance Corpora-
tion, the Office of Thrift Supervision, the National Credit Union Administra-
tion or state banking or insurance authorities should review applicable rules,
supervisory policies and guidelines of these agencies before purchasing any of
the Offered Certificates, as certain Subclasses of the Class A Certificates or
the Class M Certificates may be deemed to be unsuitable investments under one
or more of these rules, policies and guidelines and whether certain restric-
tions may apply to investments in other Subclasses of the Class A Certificates
or the Class M Certificates. It should also be noted that certain states re-
cently have enacted, or have proposed enacting, legislation limiting to varying
extents the ability of certain entities (in particular insurance companies) to
invest in mortgage related securities.] [The Offered Certificates will not con-
stitute "mortgage related securities" under the Secondary Mortgage Market En-
hancement Act of 1984 (the "Enhancement Act"). The appropriate characterization
of the Offered Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase Offered
Certificates, may be subject to significant interpretive uncertainties. All in-
vestors whose investment authority is subject to legal restrictions should con-
sult their own legal advisors to determine, whether, and to what extent, the
Offered Certificates will constitute legal investments for them.] Investors
should consult with their own legal advisors in determining whether and to what
extent Offered Certificates constitute legal investments for such investors.
See "Legal Investment" in the Prospectus.
SECONDARY MARKET
There will not be any market for the Offered Certificates prior to the issu-
ance thereof. The Underwriter intends to act as a market maker in the Offered
Certificates, subject to applicable
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<PAGE>
provisions of federal and state securities laws and other regulatory require-
ments, 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 liquid-
ity of investment at any particular time or for the life of the Offered Certif-
icates. 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 "Descrip-
tion of Certificates -- Reports" upon written request to the Trustee at the
Corporate Trust Office.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated as of
, 199 (the "Underwriting Agreement") among Norwest Mortgage, the Seller
and [Underwriter], as underwriter (the "Underwriter"), the Offered Certificates
offered hereby are being purchased from the Seller by the Underwriter upon is-
suance. The Underwriter is committed to purchase all of the Offered Certifi-
cates if any Offered Certificates are purchased. The Underwriter has advised
the Seller that it proposes to offer the Offered Certificates, from time to
time, for sale in negotiated transactions or otherwise at prices determined at
the time of sale. Proceeds to the Seller from the sale of the Offered Certifi-
cates are expected to be approximately % of the initial aggregate principal
balance of the Class A, Class AP and Class M Certificates plus accrued interest
thereon, other than on an amount equal to the initial aggregate principal bal-
ance of the Class AP Certificates, from 1, 199 to (but not including)
, 199 , before deducting expenses payable by the Seller. The Underwriter,
which is not an affiliate of the Seller, has advised the Seller that the Under-
writer has not allocated the purchase price paid to the Seller for the Class A,
Class AP and Class M Certificates has not been allocated among the Class A,
Class AP and Class M Certificates nor among the Subclasses of Class A Certifi-
cates. The Underwriter and any dealers that participate with the Underwriter in
the distribution of the Offered Certificates may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the resale
of Offered Certificates by them may be deemed to be underwriting discounts or
commissions, under the Securities Act.
The Underwriting Agreement provides that the Seller or Norwest Mortgage will
indemnify the Underwriter against certain civil liabilities under the 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 , .
[FOR SERIES WITH A FINANCIAL GUARANTY INSURANCE POLICY:
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and Sub-
sidiaries as of December 31, 1995 and December 31, 1994, and the related con-
solidated statements of income, changes in shareholder's equity, and cash flows
for each of the three years in the period ended December 31, 1995, incorporated
by reference in this Prospectus Supplement, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.]
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from Norwest Mortgage of the
Mortgage Loans underlying the Series 199 - ] Certificates.
S-85
<PAGE>
RATINGS
It is a condition to the issuance of the Class A and Class AP Certificates
that they will have been rated [["Aaa" by Moody's Investors Service, Inc.
("Moody's")] ["AAA" by [Fitch Investors Service, L.P. ("Fitch")] [Duff & Phelps
Credit Rating Co. ("DCR")]] [and] ["AAA" and "AAAr" by Standard and Poor's
("S&P")]] and [["Aa" by Moody's] ["AA" by [Fitch] [DCR] [S&P]] [and]["A" by
[Moody's] [Fitch] [DCR] [S&P]] [and] [["Baa" by Moody's] ["BBB" by [Fitch]
[DCR] [S&P]. A security rating is not a recommendation to buy, sell or hold se-
curities and may be subject to revision or withdrawal at any time by the as-
signing rating agency. Each security rating should be evaluated independently
of any other security rating.
[The ratings of Moody's on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
such certificateholders are entitled. Moody's rating opinions address the
structural, legal and issuer aspects associated with the certificates, includ-
ing the nature of the underlying mortgage loans and the credit quality of the
credit support provider, if any. Moody's ratings on pass-through certificates
do not represent any assessment of the likelihood that principal prepayments
may differ from those originally anticipated.]
[The ratings assigned by DCR to mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of all distributions to
which they are entitled under the transaction structure. DCR's ratings reflect
its analysis of the riskiness of the mortgage loans and its analysis of the
structure of the transaction as set forth in the operative documents. DCR's
ratings do not address the effect on the certificates' yield attributable to
prepayments or recoveries on the underlying mortgage loans. In addition, the
rating of the Class A-R Certificate does not assess the likelihood of return to
the investor in the Class A-R Certificate, except to the extent of the Class A
Subclass Principal Balance thereof and interest thereon.]
[The ratings of S&P on mortgage pass-through certificates address the likeli-
hood of the receipt by certificateholders of timely payments of interest and
the ultimate return of principal. S&P ratings take into consideration the
credit quality of the mortgage pool, including any credit support providers,
structural and legal aspects associated with the certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make payments
required under the certificates. S&P's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the mort-
gage loans. S&P's rating does not address the possibility that investors may
suffer a lower than anticipated yield as a result of prepayments of the under-
lying mortgages. In addition, it should be noted that in some structures a de-
fault on a mortgage is treated as a prepayment and may have the same effect on
yield as a prepayment.]
[The ratings of Fitch on mortgage pass-through certificates address the like-
lihood of the receipt by certificateholders of all distributions to which such
certificateholders are entitled. Fitch's rating opinions address the structural
and legal aspects associated with the certificates, including the nature of the
underlying mortgage loans. Fitch's ratings on pass-through certificates do not
represent any assessment of the likelihood or rate of principal prepayments and
consequently any adverse effect the timing of such prepayments could have on an
investor's anticipated yield.]
The Seller has not requested a rating on the Offered Certificates of any
Subclass or Class by any rating agency other than [Moody's] [DCR] [S&P] and
[Fitch], although data with respect to the Mortgage Loans may have been pro-
vided to other rating agencies solely for their informational purposes. There
can be no assurance that any rating assigned by any other rating agency to the
Offered Certificates will be as high as those assigned by [Moody's] [DCR] [S&P]
and [Fitch].
S-86
<PAGE>
INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Adjusted Pool Amount...................................................... S-32
Adjusted Pool Amount (Class AP Portion)................................... S-33
Adjustment Amount......................................................... S-54
Aggregate Current Bankruptcy Losses....................................... S-55
Aggregate Current Fraud Losses............................................ S-54
Aggregate Current Special Hazard Losses................................... S-54
Bankruptcy Loss........................................................... S-37
Bankruptcy Loss Amount.................................................... S-55
Beneficial Owner.......................................................... S-28
Book-Entry Certificates................................................... S-3
Bulk Purchase Underwritten Loans.......................................... S-13
CBE....................................................................... S-74
Cede...................................................................... S-28
Certificateholder......................................................... S-28
Certificates.............................................................. S-7
CGC....................................................................... S-49
CGIC...................................................................... S-49
Class A Certificates...................................................... Cover
Class A Distribution Amount............................................... S-31
Class A Optimal Amount.................................................... S-34
Class A Optimal Principal Amount.......................................... S-35
Class A Percentage........................................................ S-37
Class A Prepayment Percentage............................................. S-37
Class A Principal Balance................................................. S-32
Class A Principal Distribution Amount..................................... S-35
Class A Subclass Interest Accrual Amount.................................. S-31
Class A Subclass Interest Shortfall Amount................................ S-34
Class A Subclass Principal Balance........................................ S-31
Class A Voting Interest................................................... S-75
Class AP Certificates..................................................... Cover
Class AP Deferred Amount.................................................. S-39
Class AP Fraction......................................................... S-39
Class AP Optimal Principal Amount......................................... S-38
Class AP Principal Balance................................................ S-32
Class AP Principal Distribution Amount.................................... S-38
Class B Certificates Cover................................................ Cover
Class B Principal Balance................................................. S-32
Class B Subclass Interest Accrual Amount.................................. S-31
Class B Subclass Principal Balance........................................ S-32
Class M Certificates...................................................... Cover
Class M Distribution Amount............................................... S-31
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Class M Interest Accrual Amount........................................... S-31
Class M Interest Shortfall Amount......................................... S-34
Class M Optimal Amount.................................................... S-35
Class M Optimal Principal Amount.......................................... S-39
Class M Percentage........................................................ S-40
Class M Prepayment Percentage............................................. S-40
Class M Principal Balance................................................. S-32
Class M Principal Distribution Amount..................................... S-39
Classes A/M/B Fraction.................................................... S-36
Classes A/M/B Voting Interest............................................. S-75
Closing Date.............................................................. S-12
Co-op Shares.............................................................. S-56
Code...................................................................... S-25
Companion Certificates.................................................... Cover
Cooperatives.............................................................. S-56
Correspondent............................................................. S-2
Cross-Over Date........................................................... S-52
Current Class B-1 Fractional Interest..................................... S-41
Current Class B-2 Fractional Interest..................................... S-42
Current Class B-3 Fractional Interest..................................... S-42
Current Class B-4 Fractional Interest..................................... S-42
Current Class M Fractional Interest....................................... S-41
Cut-Off Date Aggregate Principal Balance.................................. S-56
DCR....................................................................... S-8
Debt Service Reduction.................................................... S-37
Deficient Valuation....................................................... S-37
Definitive Certificates................................................... S-10
Determination Date........................................................ S-29
Discount Mortgage Loans................................................... S-3
Distribution Date......................................................... S-2
DOL....................................................................... S-81
DTC....................................................................... S-10
Enhancement Act........................................................... S-26
ERISA..................................................................... S-25
ERISA Plan................................................................ S-81
Excess Bankruptcy Losses.................................................. S-55
Excess Fraud Losses....................................................... S-54
Excess Principal Payment.................................................. S-44
Excess Special Hazard Loss................................................ S-54
Exchange Act ............................................................. S-50
Exemption................................................................. S-81
Financial Security........................................................ S-48
Fitch..................................................................... S-8
</TABLE>
S-87
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Fixed Non-relocation Program Loans........................................ S-63
Fixed Program Loans....................................................... S-63
Fixed Retained Yield...................................................... S-78
Fraud Loss................................................................ S-37
Fraud Loss Amount......................................................... S-54
Fund American............................................................. S-48
GEMICO.................................................................... S-13
Holdings.................................................................. S-48
Liquidated Loan........................................................... S-36
Liquidated Loan Loss...................................................... S-36
Master Servicer........................................................... S-2
Master Servicing Fee...................................................... S-76
Master Servicing Fee Rate................................................. S-76
Moody's................................................................... S-8
Mortgage Loans............................................................ S-2
Mortgaged Properties...................................................... S-56
Mortgages................................................................. S-56
NASCOR.................................................................... S-2
Net Foreclosure Profits................................................... S-47
Net Mortgage Interest Rate................................................ S-33
Net Partial Liquidation Proceeds.......................................... S-36
Non-Supported Interest Shortfalls......................................... S-16
Norwest Bank.............................................................. S-2
Norwest Mortgage.......................................................... S-2
Norwest Mortgage Underwritten Loans....................................... S-13
Offered Certificates...................................................... Cover
Original Class B-1 Fractional Interest.................................... S-41
Original Class B-2 Fractional Interest.................................... S-42
Original Class B-3 Fractional Interest.................................... S-42
Original Class B-4 Fractional Interest.................................... S-42
Original Class M Fractional Interest...................................... S-41
Original Subordinated Principal Balance................................... S-37
Other Servicers........................................................... S-77
PAC Certificates.......................................................... Cover
PAC Principal Amount...................................................... S-42
Partial Liquidation Proceeds.............................................. S-36
Pass-Through Rate......................................................... S-15
Percentage Interest....................................................... S-31
Periodic Advance.......................................................... S-48
Plan...................................................................... S-25
Pool Balance (Class AP Portion)........................................... S-19
Pool Balance (Classes A/M/B Portion)...................................... S-19
Pool Certification Underwritten Loans..................................... S-13
<CAPTION>
TERM PAGE
- ---- ------
<S> <C>
Pool Distribution Amount................................................. S-29
Pool Distribution Amount Allocation...................................... S-30
Pooling and Servicing Agreement.......................................... S-74
Prepayment Interest Shortfalls........................................... S-33
Program Loans............................................................ S-63
Prospectus............................................................... S-7
PTE 83-1................................................................. S-81
PTE 95-60................................................................ S-81
Realized Losses.......................................................... S-37
Record Date.............................................................. S-29
Regular Certificates..................................................... S-79
Relocation Mortgage Loans................................................ S-63
REMIC.................................................................... S-4
Remittance Date.......................................................... S-30
REO Property............................................................. S-76
Residual Certificate..................................................... S-79
S&P...................................................................... S-8
Scheduled Principal Balance.............................................. S-36
Securities Act........................................................... S-82
Seller................................................................... S-2
Senior Certificates...................................................... Cover
Senior Optimal Amount.................................................... S-34
Series 199 - Certificates................................................ Cover
Servicer................................................................. S-2
Servicer Custodial Account............................................... S-77
Servicers................................................................ S-77
Servicing Fee Rate....................................................... S-78
Similar Law.............................................................. S-25
SPA...................................................................... S-71
Special Hazard Loss...................................................... S-36
Special Hazard Loss Amount............................................... S-54
Subclass................................................................. Cover
Subordinated Certificates................................................ Cover
Subordinated Percentage.................................................. S-38
Subordinated Prepayment Percentage....................................... S-38
Subsidy Account.......................................................... S-57
Subsidy Loan............................................................. S-57
TAC Certificates......................................................... Cover
TAC Principal Amount..................................................... S-42
Tokio Marine............................................................. S-48
Trust Estate............................................................. S-2
Trustee.................................................................. S-8
Trustee Fee.............................................................. S-76
Trustee Fee Rate......................................................... S-76
U.S. Person.............................................................. S-50
UGRIC.................................................................... S-13
Underlying Servicing Agreement........................................... S-7
Underwriter.............................................................. Cover
Underwriting Agreement................................................... S-83
US WEST.................................................................. 1 S-48
</TABLE>
S-88
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS, SUBJECT TO COMPLETION, DATED MARCH 12, 1997
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 Supplements,
Mortgage Pass-Through Certificates (the "Certificates"), issuable in series
(each, a "Series") consisting of one or more classes (each, a "Class") of Cer-
tificates. 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 serv-
iced 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 "Se-
nior Certificates"). If specified in the applicable Prospectus Supplement, the
relative interests of the Senior Certificates and the Subordinated Certificates
of a Series in the Trust Estate may be subject to adjustment from time to time
on the basis of distributions received in respect thereof and losses allocated
to the Subordinated Certificates. If and to the extent specified in the Pro-
spectus Supplement, credit support may be provided for any Series of Certifi-
cates, or any Classes or Subclasses thereof, in the form of a limited guaran-
tee, 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 invest-
ment 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.
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE FACTORS DIS-
CUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS ON PAGE 13.
------------
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 , 199
<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 ad-
dressed to the Trustee for the applicable Series or to the Master Servicer c/o
Norwest Bank Minnesota, National Association, 11000 Broken Land Parkway, Colum-
bia, Maryland 21044-3562, Attention: Securities Administration Services Manag-
er.
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 re-
ferred to herein and therein, but neither contains nor will contain all of the
information set forth in the Registration Statement of which this Prospectus is
a part. For further information, reference is made to such Registration State-
ment and the exhibits thereto which the Seller has filed with the Securities
and Exchange Commission (the "Commission"), Washington, D.C., under the Securi-
ties Act of 1933, as amended (the "Securities Act"). Statements contained in
this Prospectus and any Prospectus Supplement as to the contents of any con-
tract or other document referred to are summaries and, in each instance, refer-
ence is made to the copy of the contract or other document filed as an exhibit
to the Registration Statement, each such statement being qualified in all re-
spects by such reference. Copies of the Registration Statement may be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549
upon payment of the prescribed charges, or may be examined free of charge at
the Commission's offices, 450 Fifth Street N.W., Washington, D.C. 20549 or at
the regional offices of the Commission located at Suite 1300, 7 World Trade
Center, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Mad-
ison 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 statements and other informa-
tion 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 system and therefore such ma-
terials should be available by logging onto the Commission's Web site. The Com-
mission maintains computer terminals providing access 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 de-
livered upon written or oral request directed to Norwest Asset Securities Cor-
poration, 7485 New Horizon Way, Frederick, Maryland 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 various char-
acteristics of the mortgage loans. Subscribers of the Detailed Information are
expected to include a num-
2
<PAGE>
ber of major investment brokerage firms as well as financial information serv-
ice 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 practices and fee schedules, if any, make por-
tions of, or summaries of portions of, the Detailed Information available to
their customers and subscribers. The Seller, the Master Servicer and their re-
spective affiliates have no control over and take no responsibility for the ac-
tions of such firms in processing, analyzing or disseminating such information.
For further information regarding the Detailed Information and subscriptions
thereto, please contact Norwest Asset Securities Corporation, 7485 New Horizon
Way, Frederick, Maryland 21703, telephone number (301) 846-8881.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed or
caused to be filed by NASCOR with respect to a Trust Estate pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of an
offering of Certificates evidencing interests therein. Upon request, the Master
Servicer will provide or cause to be provided without charge to each person to
whom this Prospectus is delivered in connection with the offering of one or
more Classes of Certificates a list identifying all filings with respect to a
Trust Estate pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
since NASCOR's latest fiscal year covered by its annual report on Form 10-K and
a copy of any or all documents or reports incorporated herein by reference, in
each case to the extent such documents or reports relate to one or more of such
Classes of such Certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests to the Master Servicer should be directed to: Norwest Asset Securities
Corporation, 7485 New Horizon Way, Frederick, Maryland 21703, telephone number
(301) 846-8881.
3
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports................................................................... 2
Additional Information.................................................... 2
Additional Detailed Information........................................... 2
Incorporation of Certain Information by Reference......................... 3
Summary of Prospectus..................................................... 8
Title of Securities...................................................... 8
Seller................................................................... 8
Servicers................................................................ 8
Master Servicer.......................................................... 8
The Trust Estates........................................................ 8
Description of the Certificates.......................................... 9
Distributions on the Certificates........................................ 9
Cut-Off Date............................................................. 9
Distribution Dates....................................................... 9
Record Dates............................................................. 10
Credit Enhancement....................................................... 10
Periodic Advances........................................................ 10
Forms of Certificates.................................................... 11
Optional Purchase of Defaulted Mortgage Loans............................ 11
Optional Purchase of All Mortgage Loans.................................. 11
ERISA Limitations........................................................ 11
Tax Status............................................................... 12
Legal Investment......................................................... 12
Rating................................................................... 12
Risk Factors.............................................................. 13
Limited Liquidity........................................................ 13
Limited Obligations...................................................... 13
Limitations, Reduction and Substitution of Credit Enhancement............ 13
Risks of the Mortgage Loans.............................................. 14
Yield and Prepayment Considerations...................................... 14
Book-Entry System for Certain Classes and Subclasses of Certificates..... 15
The Trust Estates......................................................... 15
General.................................................................. 15
Mortgage Loans........................................................... 15
Fixed Rate Loans........................................................ 16
Adjustable Rate Loans................................................... 17
Graduated Payment Loans................................................. 17
Subsidy Loans........................................................... 17
Buy-Down Loans.......................................................... 18
Balloon Loans........................................................... 19
The Seller................................................................ 19
Norwest Mortgage.......................................................... 19
Norwest Bank.............................................................. 20
The Mortgage Loan Programs................................................ 20
Mortgage Loan Production Sources.......................................... 20
Acquisition of Mortgage Loans from Correspondents........................ 21
Mortgage Loan Underwriting............................................... 21
Norwest Mortgage Underwriting........................................... 21
Pool Certification Underwriting......................................... 25
Representations and Warranties.......................................... 27
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of the Certificates.......................................... 31
General................................................................. 31
Definitive Form......................................................... 32
Book-Entry Form......................................................... 32
Distributions to Certificateholders..................................... 34
General................................................................ 34
Distributions of Interest.............................................. 35
Distributions of Principal............................................. 36
Other Credit Enhancement................................................ 37
Limited Guarantee...................................................... 38
Financial Guaranty Insurance Policy or Surety Bond..................... 38
Letter of Credit....................................................... 38
Pool Insurance Policies................................................ 38
Special Hazard Insurance Policies...................................... 38
Mortgagor Bankruptcy Bond.............................................. 38
Reserve Fund........................................................... 38
Cross Support.......................................................... 39
Prepayment and Yield Considerations...................................... 39
Pass-Through Rates...................................................... 39
Scheduled Delays in Distributions....................................... 39
Effect of Principal Prepayments......................................... 39
Weighted Average Life of Certificates................................... 40
Servicing of the Mortgage Loans.......................................... 41
The Master Servicer..................................................... 42
The Servicers........................................................... 42
Payments on Mortgage Loans.............................................. 43
Periodic Advances and Limitations Thereon............................... 46
Collection and Other Servicing Procedures............................... 47
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans.................................................................. 48
Insurance Policies...................................................... 49
Fixed Retained Yield, Servicing Compensation and Payment of Expenses.... 50
Evidence as to Compliance............................................... 51
Certain Matters Regarding the Master Servicer............................ 52
The Pooling and Servicing Agreement...................................... 53
Assignment of Mortgage Loans to the Trustee............................. 53
Optional Purchases...................................................... 55
Reports to Certificateholders........................................... 55
List of Certificateholders.............................................. 56
Events of Default....................................................... 56
Rights Upon Event of Default............................................ 56
Amendment............................................................... 57
Termination; Optional Purchase of Mortgage Loans........................ 58
The Trustee............................................................. 59
Certain Legal Aspects of the Mortgage Loans.............................. 59
General................................................................. 59
Foreclosure............................................................. 59
Foreclosure on Shares of Cooperatives................................... 60
Rights of Redemption.................................................... 61
Anti-Deficiency Legislation and Other Limitations on Lenders............ 61
Soldiers' and Sailors' Civil Relief Act and Similar Laws................ 63
Environmental Considerations............................................ 63
"Due-on-Sale" Clauses................................................... 65
</TABLE>
5
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Applicability of Usury Laws.............................................. 66
Enforceability of Certain Provisions..................................... 67
Certain Federal Income Tax Consequences................................... 67
Federal Income Tax Consequences for REMIC Certificates................... 67
General.................................................................. 67
Status of REMIC Certificates............................................. 68
Qualification as a REMIC................................................. 68
Taxation of Regular Certificates......................................... 70
General................................................................. 70
Original Issue Discount................................................. 70
Acquisition Premium..................................................... 73
Variable Rate Regular Certificates...................................... 73
Market Discount......................................................... 74
Premium................................................................. 75
Election to Treat All Interest Under the Constant Yield Method.......... 75
Treatment of Losses..................................................... 76
Sale or Exchange of Regular Certificates................................ 77
Taxation of Residual Certificates........................................ 77
Taxation of REMIC Income................................................ 77
Basis and Losses........................................................ 78
Treatment of Certain Items of REMIC Income and Expense.................. 79
Original Issue Discount and Premium..................................... 79
Market Discount......................................................... 79
Premium................................................................. 79
Limitations on Offset or Exemption of REMIC Income...................... 80
Tax-Related Restrictions on Transfer of Residual Certificates........... 81
Disqualified Organizations.............................................. 81
Noneconomic Residual Interests.......................................... 82
Foreign Investors....................................................... 83
Sale or Exchange of a Residual Certificate.............................. 83
Mark to Market Regulations.............................................. 84
Taxes That May Be Imposed on the REMIC Pool.............................. 84
Prohibited Transactions................................................. 84
Contributions to the REMIC Pool After the Startup Day................... 85
Net Income from Foreclosure Property.................................... 85
Liquidation of the REMIC Pool............................................ 85
Administrative Matters................................................... 85
Limitations on Deduction of Certain Expenses............................. 85
Taxation of Certain Foreign Investors.................................... 86
Regular Certificates.................................................... 86
Residual Certificates................................................... 86
Backup Withholding....................................................... 87
Reporting Requirements................................................... 87
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election is Made........................................................ 88
General................................................................. 88
Tax Status.............................................................. 88
Premium and Discount.................................................... 89
Premium................................................................. 89
Original Issue Discount................................................. 89
Market Discount......................................................... 89
Recharacterization of Servicing Fees.................................... 90
Sale or Exchange of Certificates........................................ 90
</TABLE>
6
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Stripped Certificates.................................................... 91
General................................................................. 91
Status of Stripped Certificates......................................... 92
Taxation of Stripped Certificates....................................... 92
Original Issue Discount................................................. 92
Sale or Exchange of Stripped Certificates............................... 93
Purchase of More Than One Class of Stripped Certificates................ 93
Possible Alternative Characterizations.................................. 93
Reporting Requirements and Backup Withholding............................ 94
Taxation of Certain Foreign Investors.................................... 94
ERISA Considerations...................................................... 94
General.................................................................. 94
Certain Requirements Under ERISA......................................... 95
General................................................................. 95
Parties in Interest/Disqualified Persons................................ 95
Delegation of Fiduciary Duty............................................ 95
Administrative Exemptions................................................ 96
Individual Administrative Exemptions.................................... 96
PTE 83-1................................................................ 97
Exempt Plans............................................................. 98
Unrelated Business Taxable Income -- Residual Certificates............... 98
Legal Investment.......................................................... 98
Plan of Distribution...................................................... 100
Use of Proceeds........................................................... 101
Legal Matters............................................................. 101
Rating.................................................................... 101
Index of Significant Definitions.......................................... 102
</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
defined herein shall have the meanings given elsewhere in this Prospectus. See
the "Index of Significant Definitions" beginning on page 102.
Title of Securities..... Mortgage Pass-Through Certificates (Issuable in Se-
Seller.................. ries).
Norwest Asset Securities Corporation (the "Seller"),
a direct, wholly-owned subsidiary of Norwest Mort-
gage, Inc. ("Norwest Mortgage"), which is an indi-
rect, 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 Agree-
ment"). 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 cer-
tain administration, calculation and reporting func-
tions with respect to each Trust Estate and will su-
pervise 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 Es-
tate to the extent that the related Servicer (other
than Norwest Mortgage) fails to make a required Pe-
riodic Advance. See "Servicing of the Mortgage
Loans -- The Master Servicer" and "-- Periodic Ad-
vances 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 Ser-
vicing Agreement") among the Seller, the Master
Servicer and the Trustee specified in the applicable
Prospectus Supplement. Each Trust Estate will con-
sist 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 in-
terest 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 Mort-
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8
<PAGE>
- --------------------------------------------------------------------------------
gage Loans will have been underwritten either to
Norwest Mortgage's standards, to the extent speci-
fied in the applicable Prospectus Supplement, to the
standards of a Pool Insurer or to standards other-
wise specified in the Prospectus Supplement. See
"The Trust Estates" and "The Mortgage Loan Pro-
grams -- Mortgage Loan Underwriting."
The particular characteristics or expected charac-
teristics of the Mortgage Loans and a description of
the other property, if any, included in a Trust Es-
tate will be set forth in the applicable Prospectus
Supplement.
Description of the
Certificates............ Each Series of Certificates will include one or more
Classes, any of which may consist of multiple
Subclasses. A Class or Subclass of Certificates will
be entitled, to the extent of funds available, to
either (i) principal and interest payments in re-
spect of the related Mortgage Loans, (ii) principal
distributions, with no interest distributions, (iii)
interest distributions, with no principal distribu-
tions or (iv) such other distributions as are de-
scribed in the applicable Prospectus Supplement.
Distributions on the
Certificates........... Interest. With respect to each Series of Certifi-
cates, 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 applica-
ble 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 "De-
scription of the Certificates -- Distributions to
Certificateholders -- Distributions of Interest"
herein. Except as otherwise specified in the appli-
cable Prospectus Supplement, interest on each Class
and Subclass of Certificates of each Series will ac-
crue at the pass-through rate for each Class and
Subclass indicated in the applicable Prospectus Sup-
plement (each, a "Pass-Through Rate") on the out-
standing principal balance or notional amount there-
of.
Principal. With respect to a Series of Certificates,
principal payments (including prepayments) will be
passed through to holders of the related Certifi-
cates or otherwise applied in accordance with the
related Pooling and Servicing Agreement on each Dis-
tribution Date. Distributions in reduction of prin-
cipal balance will be allocated among the Classes
and Subclasses of Certificates of a Series in the
manner specified in the applicable Prospectus Sup-
plement. See "Description of the Certificates --
Distributions to Certificateholders -- Distribu-
tions of Principal."
Cut-Off Date............ The date specified in the applicable Prospectus Sup-
plement.
Distribution Dates...... Distributions on the Certificates will generally be
made on the 25th day (or, if such day is not a busi-
ness 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 oc-
curs (each, a "Distribution Date"). If so speci-
- --------------------------------------------------------------------------------
9
<PAGE>
fied in the applicable Prospectus Supplement, dis-
tributions on Certificates may be made on a differ-
ent day of each month or may be made quarterly, or
semi-annually, on the dates specified in such Pro-
spectus 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 busi-
ness 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 Clas-
ses of Subordinated Certificates. The rights of the
holders of Subordinated Certificates of a Series to
receive distributions with respect to the related
Mortgage Loans will be subordinated to such rights
of the holders of the Senior Certificates of the
same Series to the extent and in the manner speci-
fied 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 distri-
bution being made in respect of the related Subordi-
nated Certificates on each Distribution Date, cur-
rent 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 re-
ceive future distributions on the Mortgage Loans
that would otherwise have been payable to the hold-
ers of Subordinated Certificates and/or (iii) by the
prior allocation to the Subordinated Certificate of
all or a portion of losses realized on the under-
lying Mortgage Loans.
If so specified in the applicable Prospectus Supple-
ment, the Certificates of any Series, or any one or
more Classes thereof, may be entitled to the bene-
fits of a limited guarantee, financial guaranty in-
surance policy, surety bond, letter of credit, mort-
gage 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 Ac-
count (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
10
<PAGE>
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 Ad-
vances 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 ("De-
finitive 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-En-
try Certificates, except under extraordinary circum-
stances 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, act-
ing through certain participating organizations.
This may result in certain delays in receipt of dis-
tributions by an investor and may restrict an in-
vestor'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 applica-
ble Pooling and Servicing Agreement, purchase any
defaulted Mortgage Loan or any Mortgage Loan as to
which default is reasonably foreseeable from the re-
lated Trust Estate. See "Pooling and Servicing
Agreement -- Optional Purchases."
Optional Purchase of
All Mortgage Loans.....
If so specified in the Prospectus Supplement with
respect to a Series, all, but not less than all, of
the Mortgage Loans in the related Trust Estate and
any property acquired in respect thereof at the
time, may be purchased by the Seller, Norwest Mort-
gage or such other party as is specified in the ap-
plicable 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 pur-
chase 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 Considera-
tions."
ERISA Limitations....... A fiduciary of any employee benefit plan subject to
the fiduciary responsibility provisions of the Em-
ployee Retirement Income Security Act of 1974, as
amended ("ERISA"), including the "prohibited trans-
action" rules thereunder, and to the corresponding
provisions of the Code, should carefully review
11
<PAGE>
with its own legal advisors whether the purchase or
holding of Certificates could give rise to a trans-
action 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 Certif-
icates and, if a REMIC election is made, by whether
the Certificates are Regular Interests or Residual
Interests. See "Certain Federal Income Tax Conse-
quences."
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 Enhance-
ment Act of 1984. Investors whose investment author-
ity is subject to legal restrictions should consult
their own legal advisors to determine whether and to
what extent such Certificates constitute legal in-
vestments for them. See "Legal Investment" herein
and in the applicable Prospectus Supplement.
Rating.................. It is a condition to the issuance of the Certifi-
cates of any Series offered pursuant to this Pro-
spectus and a Prospectus Supplement that each Class
or Subclass be rated in one of the four highest rat-
ing 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.
12
<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 exchange.
LIMITED OBLIGATIONS
Except for any related insurance policies and any reserve fund or credit en-
hancement described in the applicable Prospectus Supplement, Mortgage Loans in-
cluded in the related Trust Estate will be the sole source of payments on the
Certificates of a Series. The Certificates of any Series will not represent an
interest in or obligation of NASCOR, Norwest Mortgage, Norwest Bank, the
Trustee or any of their affiliates, except for NASCOR's limited obligations
with respect to certain breaches of its representations and warranties, Norwest
Mortgage's obligations as Servicer and Norwest Bank's obligations as Master
Servicer. Neither the Certificates of any Series nor the related Mortgage Loans
will be guaranteed or insured by any governmental agency or instrumentality,
NASCOR, Norwest Mortgage, Norwest Bank, the Trustee, any of their affiliates or
any other person. Consequently, in the event that payments on the Mortgage
Loans are insufficient or otherwise unavailable to make all payments required
on the Certificates, there will be no recourse to NASCOR, Norwest Mortgage,
Norwest Bank, the Trustee or, except as specified in the applicable Prospectus
Supplement, any other entity.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT
With respect to each Series of Certificates, credit enhancement may be 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 Clas-
ses of Certificates of the same Series; a limited guarantee; a financial guar-
anty insurance policy; a surety bond; a letter of credit; a pool insurance pol-
icy; a special hazard insurance policy; a mortgagor bankruptcy bond; a reserve
fund; cross-support; and any combination thereof. See "Description of the Cer-
tificates -- Other Credit Enhancement" herein. Regardless of the form of credit
enhancement provided, the amount of coverage will be limited in amount and in
most cases will be subject to periodic reduction in accordance with a schedule
or formula. Furthermore, such credit enhancements may provide only very limited
coverage as to certain types of losses, and may provide no coverage as to cer-
tain 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 appli-
cable Rating Agency indicates that the then current rating thereof will not be
adversely affected. In the event losses exceed the amount of coverage provided
by any credit enhancement or losses of a type not covered by any credit en-
hancement occur, such losses will be borne by the holders of the related Cer-
tificates (or certain Classes thereof). The rating of any Series of Certifi-
cates by any applicable Rating Agency may be lowered following the initial
issuance thereof as a result of the downgrading of the obligations of any ap-
plicable credit support provider, or as a result of losses on the related Mort-
gage Loans in excess of the levels contemplated by such Rating Agency at the
time of its initial rating analysis. Neither NASCOR, Norwest Mortgage, Norwest
Bank, nor any of their affiliates will have any obligation to replace or sup-
plement 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."
13
<PAGE>
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 underlying
any Series of Certificates have remained or will remain at their levels on the
dates of origination of the related Mortgage Loans. If the residential real es-
tate market should experience an overall decline in property values such that
the outstanding balances of the Mortgage Loans contained in a particular Trust
Estate, and any secondary financing on the Mortgaged Properties, become equal
to or greater than the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now generally
experienced in the mortgage lending industry and those experienced in Norwest
Mortgage's or other Servicers' servicing portfolios. In addition to risk fac-
tors related to the residential real estate market generally, certain geo-
graphic regions of the United States from time to time will experience weaker
regional economic conditions and housing markets or be directly or indirectly
affected by natural disasters or civil disturbances such as earthquakes, hurri-
canes, floods, eruptions or riots and, consequently, will experience higher
rates of loss and delinquency than on mortgage loans generally. Although Mort-
gaged Properties located in certain identified flood zones will be required to
be covered, to the maximum extent available, by flood insurance, as described
under "Servicing of the Mortgage Loans -- Insurance Policies," no Mortgaged
Properties will otherwise be required to be insured against earthquake damage
of any other loss not covered by Standard Hazard Insurance Policies, as de-
scribed under "Servicing of the Mortgage Loans -- Insurance Policies." Adverse
economic conditions generally, in particular geographic areas or industries, or
affecting particular segments of the borrowing community (such as mortgagors
relying on commission income and self-employed mortgagors) and other factors
which may or may not affect real property values (including the purposes for
which the Mortgage Loans were made and the uses of the Mortgaged Properties)
may affect the timely payment by mortgagors of scheduled payments of principal
and interest on the Mortgage Loans and, accordingly, the actual rates of delin-
quencies, foreclosures and losses with respect to any Trust Estate. The Mort-
gage Loans underlying certain Series of Certificates may be concentrated in
certain regions, and such concentration may present risk considerations in ad-
dition to those generally present for similar mortgage-backed securities with-
out such concentration. See "The Mortgage Loan Programs -- Mortgage Loan Under-
writing" and "Prepayment and Yield Considerations -- Weighted Average Life of
Certificates" herein. To the extent that such losses are not covered by the ap-
plicable credit enhancement, holders of Certificates of the Series evidencing
interests in the related Trust Estate will bear all risk of loss resulting from
default by mortgagors and will have to look primarily to the value of the Mort-
gaged Properties for recovery of the outstanding principal and unpaid interest
on the defaulted Mortgage Loans. See "The Trust Estates -- Mortgage Loans" and
"The Mortgage Loan Programs -- Mortgage Loan Underwriting."
YIELD AND PREPAYMENT CONSIDERATIONS
The yield of the Certificates of each Series will depend in part on the rate
of principal payment on the Mortgage Loans (including prepayments, liquidations
due to defaults and mortgage loan repurchases). Such yield may be adversely af-
fected, depending upon whether a particular Certificate is purchased at a pre-
mium or discount price, by a higher or lower than anticipated rate of prepay-
ments on the related Mortgage Loans. In particular, the yield on Classes of
Certificates entitling the holders thereof primarily or exclusively to payments
of interest or primarily or exclusively to payments of principal will be ex-
tremely 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 na-
tional economic conditions, homeowner mobility and the ability of the borrower
to obtain refinancing. In addition, the yield to investors may be adversely af-
fected 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
14
<PAGE>
Servicing Fees or other mechanisms specified in the applicable Prospectus Sup-
plement. The yield to investors in Classes of Certificates will be adversely
affected to the extent that losses on the Mortgage Loans in the related Trust
Estate are allocated to such Classes and may be adversely affected to the ex-
tent of unadvanced delinquencies on the Mortgage Loans in the related Trust Es-
tate. Classes of Certificates identified in the applicable Prospectus Supple-
ment 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-En-
try Certificates to persons or entities that do not participate in the DTC sys-
tem, 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 Certifi-
cates. In addition, under a book-entry format, Beneficial Owners may experience
delays in their receipt of payments, since distributions will be made by the
Master Servicer, or a Paying Agent on behalf of the Master Servicer, to Cede,
as nominee for DTC. Also, issuance of the Book-Entry Certificates in book-entry
form may reduce the liquidity thereof in any secondary trading market that may
develop therefor because investors may be unwilling to purchase securities for
which they cannot obtain delivery of physical certificates. See "Description of
the Certificates -- Book-Entry Form" herein.
THE TRUST ESTATES
GENERAL
The Trust Estate for each Series of Certificates will consist primarily of
Mortgage Loans evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages, deeds of trust or other instruments creating first liens (the "Mort-
gages") on some or all of the following six types of property (as so secured,
the "Mortgaged Properties"), to the extent set forth in the applicable Prospec-
tus Supplement: (i) one- to four-family detached residences, (ii) townhouses,
(iii) condominium units, (iv) units within planned unit developments, (v) long-
term leases with respect to any of the foregoing, and (vi) shares issued by
private non-profit housing corporations ("cooperatives") and the related pro-
prietary leases or occupancy agreements granting exclusive rights to occupy
specified units in such cooperatives' buildings. In addition, a Trust Estate
will also include (i) amounts held from time to time in the related Certificate
Account, (ii) the Seller's interest in any primary mortgage insurance, hazard
insurance, title insurance or other insurance policies relating to a Mortgage
Loan, (iii) any property which initially secured a Mortgage Loan and which has
been acquired by foreclosure or trustee's sale or deed in lieu of foreclosure
or trustee's sale, (iv) if applicable, and to the extent set forth in the ap-
plicable Prospectus Supplement, any reserve fund or funds, (v) if applicable,
and to the extent set forth in the applicable Prospectus Supplement, contrac-
tual 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 consti-
tutes 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 Mort-
gage or will have been acquired by Norwest Mortgage from other affiliated or
unaffiliated mortgage loan originators. Each Mortgage Loan will have been un-
derwritten 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
15
<PAGE>
Programs -- Mortgage Loan Production Sources" and "-- Mortgage Loan Underwrit-
ing." The Prospectus Supplement for each Series will set forth the respective
number and principal amounts of Mortgage Loans (i) originated by Norwest Mort-
gage 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 Prop-
erty located in any of the 50 states or the District of Columbia. Generally,
the land underlying a Mortgaged Property will consist of five acres or less but
may consist of greater acreage in Norwest Mortgage's discretion.
If specified in the applicable Prospectus Supplement, the Mortgage Loans may
be secured by leases on real property under circumstances that Norwest Mortgage
determines in its discretion are commonly acceptable to institutional mortgage
investors. A Mortgage Loan secured by a lease on real property is secured not
by a fee simple interest in the Mortgaged Property but rather by a lease under
which the mortgagor has the right, for a specified term, to use the related
real estate and the residential dwelling located thereon. Generally, a Mortgage
Loan will be secured by a lease only if the use of leasehold estates as secu-
rity 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 ex-
pressly permit (i) mortgaging of the leasehold estate, (ii) assignment of the
lease without the lessor's consent and (iii) acquisition by the holder of the
Mortgage, in its own or its nominee's name, of the rights of the lessee upon
foreclosure or assignment in lieu of foreclosure, unless alternative arrange-
ments provide the holder of the Mortgage with substantially similar
protections. No lease will contain provisions which (i) provide for termination
upon the lessee's default without the holder of the Mortgage being entitled to
receive written notice of, and opportunity to cure, such default, (ii) provide
for termination in the event of damage or destruction as long as the Mortgage
is in existence or (iii) prohibit the holder of the Mortgage from being insured
under the hazard insurance policy or policies related to the premises.
The Prospectus Supplement will set forth the geographic distribution of Mort-
gaged Properties and the number and aggregate unpaid principal balances of the
Mortgage Loans by category of Mortgaged Property. The Prospectus Supplement for
each Series will also set forth the range of original terms to maturity of the
Mortgage Loans in the Trust Estate, the weighted average remaining term to
stated maturity at the Cut-Off Date of such Mortgage Loans, the earliest and
latest months of origination of such Mortgage Loans, the range of Mortgage In-
terest 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 bal-
ances at origination of such Mortgage Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the Prospectus
Supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such
cases, information as to the final characteristics of the Mortgage Loans and
Mortgaged Properties will be available in a Current Report on Form 8-K which
will be filed with the Commission within 15 days of the initial issuance of the
related Series.
The Mortgage Loans in a Trust Estate will generally have monthly payments due
on the first of each month (each, a "Due Date") but may, if so specified in the
applicable Prospectus Supplement, have payments due on a different day of each
month and will be of one of the following types of mortgage loans:
a. Fixed Rate Loans. If so specified in the applicable Prospectus Supplement,
a Trust Estate may contain fixed-rate, fully-amortizing mortgage loans provid-
ing for level monthly payments of principal and interest and terms at origina-
tion or modification of not more than 30 years. If speci-
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fied in the applicable Prospectus Supplement, fixed rates on certain Mortgage
Loans may be converted to adjustable rates after origination of such Mortgage
Loans and upon the satisfaction of other conditions specified in the applicable
Prospectus Supplement. If so specified in the applicable Prospectus 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 initial pay-
ment date, and thereafter at either six-month, one-year or other intervals over
the term of the mortgage loan to equal the sum of a fixed margin set forth in
the related Mortgage Note and an index. The applicable Prospectus Supplement
will set forth the relevant index and the highest, lowest and weighted average
margin with respect to the adjustable rate mortgage loans in the related Trust
Estate. The applicable Prospectus Supplement will also indicate any periodic or
lifetime limitations on changes in any per annum Mortgage Rate at the time of
any adjustment.
If specified in the applicable Prospectus Supplement, adjustable rates on
certain Mortgage Loans may be converted to fixed rates after origination of
such Mortgage Loans and upon the satisfaction of the conditions specified in
the applicable Prospectus Supplement. If specified in the applicable Prospectus
Supplement, the Seller or another party will generally be required to repur-
chase each such converted Mortgage Loan at the price set forth in the applica-
ble 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 ad-
justed as and when described in the applicable Prospectus Supplement (at inter-
vals different from those at which the Mortgage Interest Rate is adjusted) to
an amount that would fully amortize the Mortgage Loan over its remaining term
on a level debt service basis; provided that increases in the scheduled monthly
payment may be subject to certain limitations as specified in the applicable
Prospectus Supplement, thereby resulting in negative amortization of principal.
If an adjustment to the Mortgage Interest Rate on such a Mortgage Loan causes
the amount of interest accrued thereon in any month to exceed the current
scheduled monthly payment on such mortgage loan, the resulting amount of inter-
est that has accrued but is not then payable ("Deferred Interest") will be
added to the principal balance of such Mortgage Loan.
c. Graduated Payment Loans. If so specified in the applicable Prospectus Sup-
plement, 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 sec-
ond year by a specified percentage of the monthly payment during the preceding
year and each year specified thereafter to the extent necessary to amortize the
mortgage loan over the remainder of its term or other shorter period. Mortgage
loans incorporating such graduated payment features may include (i) "Graduated
Pay Mortgage Loans," pursuant to which amounts constituting Deferred Interest
are added to the principal balances of such mortgage loans, (ii) "Tiered Pay-
ment Mortgage Loans," pursuant to which, if the amount of interest 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 Equity 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.
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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 agreement is used by Norwest Mortgage in determining certain expense-
to-income ratios utilized in underwriting a Subsidy Loan. See "The Mortgage
Loan Programs -- Mortgage Loan Underwriting."
e. Buy-Down Loans. If so specified in the applicable Prospectus Supplement,
a Trust Estate may contain Mortgage Loans subject to temporary buy-down plans
("Buy-Down Loans") pursuant to which the monthly payments made by the 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,
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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 liquida-
tion 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 Certif-
icate 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 ar-
rangement described in the applicable Prospectus Supplement.
f. Balloon Loans. If so specified in the applicable Prospectus Supplement, a
Trust Estate may include Mortgage Loans which are amortized over a fixed period
not exceeding 30 years but which have shorter terms to maturity (each such
Mortgage Loan, a "Balloon Loan") that causes the outstanding principal balance
of the related Mortgage Loan to be due and payable at the end of a certain
specified period (the "Balloon Period"). The borrower of such Balloon Loan will
be obligated to pay the entire outstanding principal balance of the Balloon
Loan at the end of the related Balloon Period. In the event Norwest Mortgage
refinances a mortgagor's Balloon Loan at maturity, the new loan will not be in-
cluded in the Trust Estate. See "Prepayment and Yield Considerations" herein.
g. Pledged Asset Mortgage Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed rate mortgage loans having origi-
nal terms to stated maturity of not more than 30 years which are either (i) se-
cured by a security interest in additional collateral (normally securities)
owned by the borrower or (ii) supported by a third party guarantee (usually a
parent of the borrower); which is in turn secured by a security interest in
collateral (usually securities) owned by such guarantor (any such loans,
"Pledged Asset Mortgage Loans," and any such collateral, "Additional Collater-
al"). Generally, the amount of such Additional Collateral will not exceed 30%
of the amount of such loan, and the requirement to maintain Additional Collat-
eral 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 se-
curities 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, Frederick,
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
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
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Corporation, a California corporation, completed a statutory merger. As a re-
sult of the merger, Norwest became a California corporation as of September 1,
1995. Norwest Mortgage is engaged principally in the business of (i) originat-
ing and purchasing residential mortgage loans in its own name and through its
affiliates, Norwest Funding, Inc. and Norwest Funding II, Inc. (collectively,
"Norwest Funding") and (ii) servicing residential mortgage loans for its own
account or for the account of others. Norwest Mortgage is a direct, wholly
owned subsidiary of Norwest Nova, Inc. and an indirect, wholly owned subsidiary
of Norwest Corporation. The executive offices of Norwest Mortgage are located
at 405 Southwest 5th Street, Des Moines, Iowa 50309-4603, and its telephone
number is (515) 221-7300.
On May 7, 1996 Norwest Mortgage and Norwest Funding acquired all of the mort-
gage origination, servicing and secondary marketing operations of The Pruden-
tial Home Mortgage Company, Inc. ("PHMC"), an indirect, wholly owned subsidiary
of The Prudential Insurance Company of America, and purchased certain mortgage
loans from PHMC and a substantial portion of PHMC's mortgage servicing portfo-
lio (such transaction, the "PHMC Acquisition"). The Mortgage Loans included in
any Trust Estate underlying a Series of Certificates may consist of (i) Mort-
gage 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 ac-
quired by Norwest Mortgage or Norwest Funding from PHMC as part of the PHMC Ac-
quisition ("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 Pruden-
tial Home Mortgage Securities Company, Inc. ("PHMSC") and certain of their af-
filiates and 100 unnamed "Doe defendants" (collectively, the "defendants"). The
complaint alleges, among other things, that the defendants made false and mis-
leading statements and/or omissions of material fact and fraudulently concealed
material facts in connection with the purchase in 1993 by the plaintiff of cer-
tain 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 employees 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 adverse 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 as-
sociation originally chartered in 1872 and is engaged in a wide range of activ-
ities 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.
THE MORTGAGE LOAN PROGRAMS
MORTGAGE LOAN PRODUCTION SOURCES
Norwest Mortgage conducts a significant portion of its mortgage loan origina-
tions through more than 700 loan production offices (the "Loan Stores") located
throughout all 50 states. Norwest Mortgage also conducts a significant portion
of its mortgage loan originations through
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centralized production offices 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 any-
where 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 prospec-
tive borrowers to the Loan Stores, (iii) referrals from selected corporate
clients, (iv) referrals from the private mortgage banking group, a division of
Norwest Funding, Inc., which specializes in mortgage loans with original prin-
cipal balances in excess of the limits of FNMA and FHLMC, (v) several joint
ventures into which Norwest Mortgage, through its wholly owned subsidiary,
Norwest Mortgage Ventures, Inc., has entered with realtors and banking institu-
tions (the "Joint Ventures") and (vi) referrals from mortgage brokers and simi-
lar entities. In addition to its own mortgage loan originations, Norwest Mort-
gage acquires qualifying mortgage loans from other unaffiliated originators
("Correspondents"). See "-- Acquisition of Mortgage Loans from Correspondents"
below. The relative contribution of each of these sources to Norwest Mortgage's
business, measured by the volume of loans generated, tends to fluctuate over
time.
Norwest Mortgage Ventures, Inc. owns at least a 50% interest in each of the
Joint Ventures, with the remaining ownership interest in each being owned by a
realtor or a banking institution having significant contact with potential bor-
rowers. Mortgage loans that are originated by Joint Ventures in which Norwest
Mortgage's partners are realtors are generally made to finance the acquisition
of properties marketed by such Joint Venture partners. Applications for mort-
gage loans originated through Joint Ventures are generally taken by Joint Ven-
ture 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 Mort-
gage or Norwest Funding.
Norwest Mortgage may directly contact prospective borrowers (including bor-
rowers with mortgage loans currently serviced by Norwest Mortgage) through gen-
eral 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 sponsor
relocation programs for their employees and in connection with which Norwest
Mortgage provides mortgage financing. Eligibility for a relocation loan is
based, in general, on an employer's providing financial assistance to the relo-
cating employee in connection with a job-required move. Although Subsidy Loans
are typically generated through such corporate-sponsored programs, the assis-
tance extended by the employer need not necessarily take the form of a loan
subsidy. (Not all relocation loans are generated by Norwest Mortgage through
referrals from its corporate clients; some relocation loans are generated as a
result of referrals from mortgage brokers and similar entities and others are
generated through Norwest Mortgage's acquisition of mortgage loans from other
originators.) Also among Norwest Mortgage's corporate clients are various pro-
fessional associations. These associations, as well as the other corporate cli-
ents, promote the availability of a broad range of Norwest Mortgage mortgage
products to their members or employees, including refinance loans, second-home
loans and investment-property loans.
ACQUISITION OF MORTGAGE LOANS FROM CORRESPONDENTS
In order to qualify for participation in Norwest Mortgage's mortgage loan
purchase programs, lending institutions must (i) meet and maintain certain net
worth and other financial standards, (ii) demonstrate experience in originating
residential mortgage loans, (iii) meet and maintain certain operational stan-
dards, (iv) evaluate each loan offered to Norwest Mortgage for consistency with
Norwest Mortgage's underwriting guidelines or the standards of a Pool Insurer
and repre-
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sent that each loan was underwritten in accordance with Norwest Mortgage stan-
dards or the standards of a Pool Insurer and (v) utilize the services of quali-
fied 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 Corre-
spondent. The contractual arrangements with Correspondents may also involve the
delegation of all underwriting functions to such Correspondents ("Delegated Un-
derwriting"), which will result in Norwest Mortgage not performing any under-
writing functions prior to acquisition of the loan but instead relying on such
originators' representations, and Norwest Mortgage's post-purchase reviews of
samplings of mortgage loans acquired from such originators regarding the origi-
nators' compliance with Norwest Mortgage's underwriting standards. In all in-
stances, however, acceptance by Norwest Mortgage is contingent upon the loans
being found to satisfy Norwest Mortgage's program standards or the standards of
a Pool Insurer. Norwest Mortgage may also acquire portfolios of seasoned loans
in negotiated transactions.
MORTGAGE LOAN UNDERWRITING
Norwest Mortgage Underwriting. Norwest Mortgage's underwriting standards are
applied by or on behalf of Norwest Mortgage to evaluate the applicant's credit
standing and ability to repay the loan, as well as the value and adequacy of
the mortgaged property as collateral. The underwriting standards that guide the
determination represent a balancing of several factors that may affect the ul-
timate 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 bor-
rower's means of support and the borrower's credit history. Norwest Mortgage's
guidelines for underwriting may vary according to the nature of the borrower or
the type of loan, since differing characteristics may be perceived as present-
ing different levels of risk. With respect to certain Mortgage Loans, the orig-
inators of such loans may have contracted with unaffiliated third parties to
perform the underwriting process. Except as described below, Mortgage Loans
were underwritten by or on behalf of Norwest Mortgage or, in the case of PHMC
Mortgage Loans, PHMC, generally in accordance with the standards and procedures
described herein.
Norwest Mortgage utilizes various systems of credit scoring as a tool to sup-
plement the mortgage loan underwriting process. Credit scoring assists Norwest
Mortgage in the mortgage loan approval process by providing consistent, objec-
tive measures of borrower credit and loan attributes. Such objective measures
are used to evaluate loan applications and assign each application a "Credit
Score." The Credit Score is used to determine the type of underwriting process
and which level of underwriter will review the loan file. For transactions
which are determined to be low-risk transactions, based upon the Credit Score
and other parameters (including the mortgage loan production source), the low-
est 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 con-
sistency of loans with Norwest Mortgage underwriting guidelines. The underwrit-
ing of mortgage loans acquired by Norwest Mortgage pursuant to a Delegated Un-
derwriting arrangement with a Correspondent is not reviewed prior to
acquisition of the mortgage loan by Norwest Mortgage although the mortgage loan
file is reviewed by Norwest Mortgage to confirm that
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<PAGE>
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 sup-
plement 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 in-
volves obtaining information regarding the borrower's payment history with re-
spect 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 can-
celled 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 insur-
ance departments. In addition, the loan applicant may be eligible for a loan
approval process permitting limited documentation. The above referenced re-
duced documentation options and waivers limit the amount of documentation re-
quired for an underwriting decision and have the effect of increasing the rel-
ative 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 alter-
native methods of verification, in those instances where verifications are
part of the underwriting decision; for example, salaried income may be sub-
stantiated 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, and the ratio of their total monthly debt to their
monthly gross income do not exceed certain maximum levels. Such maximum levels
vary and under the "retention program" may not be applied, depending on a num-
ber of factors including Loan-to-Value Ratio, a borrower's credit history, a
borrower's liquid net worth, the potential of a borrower for continued employ-
ment advancement or income growth, the ability of the borrower to accumulate
assets or to devote a greater portion of income to basic needs such as housing
expense, a borrower's Credit Score and the type of loan for which the borrower
is applying. These calculations are based on the amortization schedule and the
interest rate of the related loan, with each ratio being computed on the basis
of the proposed monthly mortgage payment. In the case of adjustable-rate
mortgage loans, the interest rate used to determine a mortgagor's monthly pay-
ment for purposes of such ratios may, in certain cases, be the initial mort-
gage interest rate or another interest rate,
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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 ap-
plications for Subsidy Loans and Buy-Down Loans, such ratios are determined by
including in the applicant's total monthly housing expense and total monthly
debt the proposed monthly mortgage payment reduced by the amount expected to
be applied on a monthly basis under the related subsidy agreement or buy-down
agreement or, in certain cases, the mortgage payment that would result from an
interest rate lower than the Mortgage Interest Rate but higher than the effec-
tive rate to the mortgagor as a result of the subsidy agreement or the buy-
down agreement. See "The Trust Estates -- Mortgage Loans." Secondary financing
is permitted on mortgage loans under certain circumstances. In those cases,
the payment obligations under both primary and secondary financing are in-
cluded in the computation of the housing debt-to-income ratios, and the com-
bined amount of primary and secondary loans will be used to calculate the com-
bined 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 dis-
tinct from a "second home," which Norwest Mortgage defines as an owner-occu-
pied, non-rental property that is not the owner's principal residence),
Norwest Mortgage will include projected rental income net of certain mortgagor
obligations and other assumed expenses or loss from such property to be in-
cluded in the applicant's monthly gross income or total monthly debt in calcu-
lating 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 bor-
rower 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 re-
mained 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 ap-
praiser'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 esti-
mated replacement cost. The appraisal relates both to the land and to the
structure; in fact, a significant portion of the appraised value of a Mort-
gaged 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 ap-
praised values of reasonably similar properties rather than on objectively
verifiable sales data. If residential real estate values generally or in par-
ticular 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 re-
lated Mortgaged Properties, the actual rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced in the mort-
gage
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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 borrow-
ing community (such as mortgagors relying on commission income and self-em-
ployed 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, ac-
cordingly, the actual rates of delinquencies, foreclosures and losses with re-
spect 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 evi-
dencing interests in such Trust Estate.
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 in-
surance 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 Ratio 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 ap-
propriate standard form American Land Title Association ("ALTA") title insur-
ance policy, or a substantially similar policy or form of insurance acceptable
to the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC"). Certain Mortgage Loans ("T.O.P. Loans") origi-
nated by Norwest Mortgage or Norwest Funding in connection with the "Title Op-
tion 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 Mort-
gaged 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 re-
course of the Trustee will be against the Seller for breach of its representa-
tion and warranty. The Trustee will not have recourse against any title insur-
ance 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 Residential
Insurance Company ("UGRIC") or a similar entity (collectively, the "Pool Insur-
ers") to determine conformity, in the aggregate, with such company's respective
credit, appraisal and underwriting guidelines. Norwest Mortgage will not have
underwritten such Mortgage Loans. Neither GEMICO nor UGRIC have underwritten
any of the Mortgage Loans for compliance with any investor guidelines.
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<PAGE>
Based on information provided by the relevant company, as a condition to eli-
gibility 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 merchants
and lenders and any record of bankruptcy, or other pertinent legal history. In
addition, a verification of employment for the last two years is made from ei-
ther the applicant's employer or a Form W-2 for the most recent two years and
the applicant's most recent pay stub. If an applicant is self-employed, such
applicant submits copies of signed tax returns with all schedules for the prior
two years together with a current year-to-date profit and loss statement and
any other documentation deemed necessary. Rental income used to qualify the ap-
plicant is verified either by lease agreements or by the borrower's tax re-
turns. In the case of refinancings, the loan originator must require, among
other things, that there has not been more than one delinquency in the prior 12
months nor, in the case of mortgage loans reviewed by GEMICO, any delinquency
in the past 90 days on the prior mortgage loan.
In determining the adequacy of the Mortgaged Property as collateral, an inde-
pendent appraisal must be made of each property considered for financing. Each
appraiser must be selected in accordance with predetermined guidelines estab-
lished for appraisers. The appraiser is required to inspect the property and
verify that it is in good condition and that construction, if new, has been
completed. The appraisal is based on the market value of comparable homes. No
appraisal more than six months old will be accepted by GEMICO and no appraisal
more than 120 days old will be accepted by UGRIC.
Once all applicable employment, credit and property information is received,
a determination must be made by the loan originator (and confirmed on review by
GEMICO or UGRIC) as to whether the prospective borrower has sufficient monthly
income to meet (i) the monthly payment obligations on the proposed mortgage
loan (including principal and interest payments, real estate taxes, insurance
on the subject property, and homeowners' association dues and secondary financ-
ing, if any), and (ii) the aggregate of the foregoing and all other financial
obligations not expected to be fully repaid within the next 10 months. As a
general rule, GEMICO and UGRIC require the ratio of a prospective borrower's
debt, as described in clauses (i) and (ii) above, to such borrower's income to
be 33% and 38%, respectively for fixed rate, fixed payment loans. The ratios
required for adjustable rate loans are slightly lower. The general rule may be
varied, and higher debt-to-income ratios may be permitted, in appropriate cases
characterized by lower Loan-to-Value Ratios or other favorable factors.
In some special cases, GEMICO and UGRIC may underwrite loans under a "limited
documentation" program. With respect to such loans, limited investigation into
the borrower's credit history and income profile is undertaken by the origina-
tor and such loans may be underwritten primarily on the basis of an appraisal
of the mortgaged property and Loan-to-Value Ratio on origination. Thus, if the
Loan-to-Value Ratio is less than the percentage required under standard guide-
lines, the originator may forego certain aspects of the review relating to
monthly income, and, in the case of mortgage loans reviewed by GEMICO, tradi-
tional ratios of monthly or total expenses to gross income may not be applied.
At a minimum, a limited documentation program must require a loan application,
a credit report, an appraisal acceptable to FNMA/FHLMC performed by an indepen-
dent appraiser, and a verification of downpayment or three months of bank
statements. The maximum Loan-to-Value Ratio allowed under any limited documen-
tation program underwritten by GEMICO and UGRIC is 70%. UGRIC's "limited docu-
mentation" program is limited exclusively to self-employed borrowers.
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.
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<PAGE>
The foregoing should not be taken as a full and complete discussion of all of
the procedures undertaken in connection with a particular underwriting. Both
GEMICO and UGRIC consider various other factors including, but not limited to,
reviewing sales contracts, verifying deposits and other assets and examining
additional supporting documentation in certain instances such as divorce de-
crees and separation agreements. Investors should consult the particular Pool
Insurer's underwriting guidelines for more specific and complete requirements
regarding underwriting standards. Furthermore, the underwriting process often
results in certain compensating factors being considered to offset the exist-
ence 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 guaranteed
under a mortgage pool insurance policy unless the applicable Prospectus Supple-
ment 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 Series
from a Correspondent, if so indicated in the applicable Prospectus Supplement,
the Seller may, rather than itself making representations and warranties, cause
the representations and warranties made by the Correspondent in connection with
its sale of Mortgage Loans to Norwest Mortgage or Norwest Funding to be as-
signed 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 appli-
cable Prospectus Supplement, such representations and warranties (whether made
by the Seller or another party) will generally include the following with re-
spect 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;
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(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;
(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;
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(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 of insurance which was avail-
able under the Flood Disaster Protection Act of 1973; and each Mortgage ob-
ligates 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
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<PAGE>
any default, breach, violation or event of acceleration; no foreclosure ac-
tion 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; and
(xxiv) each Mortgage Loan is a "Qualified Mortgage" within the meaning of
Section 860G of the Code.
No representations or warranties are made by the Seller or any other party as
to the environmental condition of such Mortgaged Property; the absence, pres-
ence 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 Prop-
erty; the impact on Certificateholders of any environmental condition or pres-
ence 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 Mort-
gaged Property. See "Certain Legal Aspects of the Mortgage Loans -- Environmen-
tal 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 Certificates
may consist of two or more non-severable components, each of which may exhibit
any of the principal or interest payment characteristics described herein with
respect to a Class of Certificates. A Series may include one or more Classes of
Certificates entitled, to the extent of funds available, to (i) principal and
interest distributions in respect of the related Mortgage Loans, (ii) principal
distributions, with no interest distributions, (iii) interest distributions,
with no principal distributions or (iv) such other distributions as are de-
scribed 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 Prospec-
tus Supplement. An illustrative form of Pooling and Servicing Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The following summaries describe certain provisions common to the
Certificates and to each Pooling and Servicing Agreement. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Pooling and Servicing Agreement
for each Series of Certificates and the applicable Prospectus Supplement. Wher-
ever particular sections or defined terms of the Pooling and Servicing Agree-
ment are referred to, such sections or defined terms are thereby incorporated
herein by reference from the form of Pooling and Servicing Agreement filed as
an exhibit to the Registration Statement.
Unless otherwise specified in the applicable Prospectus Supplement, distribu-
tions to Certificateholders of all Series (other than the final distribution in
retirement of the Certificates) will be made by check mailed to the address of
the person entitled thereto (which in the case of Book-Entry Certificates will
be DTC) as it appears on the certificate register, except that, with respect to
any holder of a Certificate evidencing not less than a certain minimum denomi-
nation set forth in the applicable Prospectus Supplement, distributions will be
made by wire transfer in immediately available funds, provided that the Master
Servicer or the Paying Agent acting on behalf of the Master Servicer shall have
been furnished with appropriate wiring instructions not less than seven busi-
ness days prior to the related Distribution Date. The final distribution in re-
tirement of Certificates will be made only upon presentation and surrender of
the Certificates at the office or agency maintained by the Trustee or other en-
tity for such purpose, as specified in the final distribution notice to
Certificateholders.
Each Series of Certificates will represent ownership interests in the related
Trust Estate. An election may be made to treat the Trust Estate (or one or more
segregated pools of assets therein) with respect to a Series of Certificates as
a REMIC. If such an election is made, such Series will consist of one or more
Classes of Certificates that will represent "regular interests" within the
meaning of Code Section 860G(a)(1) (such Class or Classes collectively referred
to as the "Regular Certificates") and one Class or Subclass of Certificates
with respect to each REMIC that will be designated as the "residual interest"
within the meaning of Code Section 860G(a)(2) (the "Residual Certificates")
representing the right to receive distributions as specified in the Prospectus
Supplement for such Series. See "Certain Federal Income Tax Consequences" here-
in.
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 Sub-
ordinated Certificates of a Series by means of this Prospectus and such Pro-
spectus Supplement.
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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.
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 Fed-
eral Income Tax Consequences -- Federal Income Tax Consequences for REMIC Cer-
tificates -- Taxation of Residual Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates."
BOOK-ENTRY FORM
Each Class or Subclass of the Book-Entry Certificates of a Series initially
will be represented by one or more physical certificates registered in the name
of Cede & Co. ("Cede"), as nominee of DTC, which will be the "holder" or
"Certificateholder" of such Certificates, as such terms are used herein. No
person acquiring an interest in a Book- Entry Certificate (a "Beneficial 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 Certificates, refer to actions
taken by DTC upon instructions from its DTC Participants, and all references
herein to distributions, notices, reports and statements to Certificateholders
or holders shall, in the case of the Book-Entry Certificates, refer to distri-
butions, notices, reports and statements to DTC or Cede, as the registered
holder of the Book-Entry Certificates, as the case may be, for distribution to
Beneficial Owners in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its participating or-
ganizations ("DTC Participants") and to facilitate the clearance and settlement
of securities transactions among DTC Participants through electronic book- en-
tries, thereby eliminating the need for physical movement of certificates. DTC
Participants include securities brokers and dealers (which may include any un-
derwriter identified in the Prospectus Supplement applicable to any Series),
banks, trust companies and clearing corporations. Indirect access to the DTC
system also is available to banks, brokers, dealers, trust companies and other
institutions that clear
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through or maintain a custodial relationship with a DTC Participant, either di-
rectly 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 re-
spect to the Book-Entry Certificates and to receive and transmit distributions
of principal of and interest on the Book-Entry Certificates. DTC Participants
and Indirect DTC Participants with which Beneficial Owners have accounts with
respect to the Book- Entry Certificates similarly are required to make book-en-
try transfers and receive and transmit such payments on behalf of their respec-
tive 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 dis-
tributions of principal and interest from the Master Servicer, or a Paying
Agent on behalf of the Master Servicer, through DTC Participants. DTC will for-
ward such distributions to its DTC Participants, which thereafter will forward
them to Indirect DTC Participants or Beneficial Owners. Beneficial Owners will
not be recognized by the Trustee or the Master Servicer or any paying agent as
Certificateholders, as such term is used in the Pooling and Servicing Agree-
ment, and Beneficial Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a Benefi-
cial Owner to pledge Book-Entry Certificates to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such Book-
Entry Certificates, may be limited due to the lack of a physical certificate
for such Book-Entry Certificates. In addition, under a book-entry format, Bene-
ficial Owners may experience delays in their receipt of payments, since distri-
butions will be made by the Master Servicer, or a paying agent on behalf of the
Master Servicer, to Cede, as nominee for DTC.
DTC has advised the Seller that it will take any action permitted to be taken
by a Certificateholder under the Pooling and Servicing Agreement only at the
direction of one or more DTC Participants to whose accounts with DTC the Book-
Entry Certificates are credited. Additionally, DTC has advised the Seller that
it will take such actions with respect to specified Voting Interests only at
the direction of and on behalf of DTC Participants whose holdings of Book-Entry
Certificates evidence such specified Voting Interests. DTC may take conflicting
actions with respect to Voting Interests to the extent that DTC Participants
whose holdings of Book-Entry Certificates evidence such Voting Interests autho-
rize divergent action.
Neither the Seller, the Master Servicer nor the Trustee will have any respon-
sibility for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the Book-Entry Certificates held by Cede,
as nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. In the event of the insolvency
of DTC, a DTC Participant or an Indirect DTC Participant in whose name Book-En-
try Certificates are registered, the ability of the Beneficial Owners of such
Book-Entry Certificates to obtain timely payment and, if the limits of applica-
ble insurance coverage by the Securities Investor Protection Corporation are
exceeded or if such coverage is otherwise unavailable, ultimate payment, of
amounts distributable with respect to such Book-Entry Certificates may be im-
paired.
The Book-Entry Certificates will be converted to Definitive Certificates and
reissued to Beneficial Owners or their nominees, rather than to DTC or its nom-
inee, only if (i) the Trustee is advised in writing that DTC is no longer will-
ing or able to discharge properly its responsibilities as depository with re-
spect 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,
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in writing, that the continuation of a book-entry system through DTC (or a suc-
cessor thereto) is no longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately preceding para-
graph, the Trustee will be required to notify all Beneficial Owners through DTC
Participants of the availability of Definitive Certificates. Upon surrender by
DTC of the physical certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the Book-
Entry Certificates as Definitive Certificates to Beneficial Owners. The proce-
dures relating to payment on and transfer of Certificates initially issued as
Definitive Certificates will thereafter apply to those Book-Entry Certificates
that have been reissued as Definitive Certificates.
DISTRIBUTIONS TO CERTIFICATEHOLDERS
General. On each Distribution Date, each holder of a Certificate of a Class
will be entitled to receive its Certificate's Percentage Interest of the 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 ini-
tial principal balance (or notional amount) of such Certificate by the aggre-
gate 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 De-
termination Date in the month in which such Distribution Date occurs, plus all
Periodic Advances with respect to payments due to be received on the Mortgage
Loans on the Due Date preceding such Distribution Date, but excluding the 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;
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(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 variation
in the calculation of the Pool Distribution Amount for such Series.
"Net Foreclosure Profits." with respect to a Distribution Date will be the
excess of (i) the portion of aggregate net Liquidation Proceeds which 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) aggregate re-
alized losses on Liquidated Loans 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.
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 Interest
Rate" for each Mortgage Loan in a given period will equal the mortgage interest
rate for such Mortgage Loan in such period, as specified in the related mort-
gage note (the "Mortgage Interest Rate"), less the portion thereof, if any, not
contained in the Trust Estate (the "Fixed Retained Yield"), and less amounts
payable to the Servicers for servicing the Mortgage Loan (the "Servicing Fee"),
the fee payable to the Master Servicer (the "Master Servicing Fee"), the fee
payable to the Trustee (the "Trustee Fee") and any related expenses specified
in the applicable Prospectus.
Interest will accrue on the principal balance (or notional amount, as 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 pe-
riods specified in such Prospectus Supplement. To the extent the Pool Distribu-
tion Amount is available therefor, interest accrued during each such specified
period on each Class of Certificates entitled to interest (other than a Class
that provides for interest that accrues, but is not currently payable, referred
to hereafter as "Accrual Certificates") will be distributable on the Distribu-
tion Dates specified in the applicable Prospectus Supplement until the princi-
pal balance (or notional amount) of such Class has been reduced to zero. Dis-
tributions allocable to interest on each Certificate that is not entitled to
distributions allocable to principal will generally be calculated based on the
notional amount of such Certificate. The notional amount of a Certificate will
not evidence an interest in or entitlement to distributions allocable to prin-
cipal but will be solely for convenience in expressing the calculation of in-
terest and for certain other purposes.
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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 princi-
pal balance of such Class of Certificates on that Distribution Date. Distribu-
tions 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 Cer-
tificates and (ii) in the case of a Series of Certificates representing inter-
ests in a Trust Estate containing adjustable rate Mortgage Loans, increased by
any Deferred Interest allocable to such Class. The principal balance of a Class
or Subclass of Certificates generally represents the maximum specified dollar
amount (exclusive of (i) any interest that may accrue on such Class or Subclass
to which the holder thereof is entitled from the cash flow on the related Mort-
gage Loans at such time) and will decline to the extent of distributions in re-
duction of the principal balance of, and allocations of losses to such Class or
Subclass. Certificates with no principal balance will not receive distributions
in respect of principal. The applicable Prospectus Supplement will specify the
method by which the amount of principal to be distributed on the Certificates
on each Distribution Date will be calculated and the manner in which such
amount will be allocated among the Classes of Certificates entitled to distri-
butions 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 ad-
vance 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 Cer-
tificates while increasing the interests evidenced by the Subordinated
Certificates in the Trust Estate. Increasing the interests of the Subordinated
Certificates relative to that of the Senior Certificates is intended to pre-
serve the availability of the subordination provided by the Subordinated Cer-
tificates.
If specified in the applicable Prospectus Supplement, the rights of the hold-
ers 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 subordi-
nated to such rights of the holders of the Senior Certificates of the same Se-
ries to the extent described below, except as otherwise set forth in such Pro-
spectus Supplement. This subordination is intended to enhance the likelihood of
regular receipt by holders of Senior Certificates of the full amount of sched-
uled monthly payments of principal and interest due them and to provide limited
protection to the holders of the Senior Certificates against losses due to
mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series of
Certificates for which credit enhancement is provided through subordination by
the subordination feature described above will be effected by (i) the preferen-
tial 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
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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 re-
ceive future distributions on the Mortgage Loans that would otherwise have been
payable to the holders of Subordinated Certificates and/or (iii) by the prior
allocation to the Subordinated Certificates of all or a portion of losses real-
ized 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 respect
of the Senior Certificate.
A "Special Hazard Loss" is a loss on a liquidated Mortgage Loan occurring as
a result of a hazard not insured against under a standard hazard insurance pol-
icy 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 Prospec-
tus Supplement (the "Special Hazard Loss Amount") are "Excess Special Hazard
Losses." Fraud Losses in excess of the amount specified in the applicable Pro-
spectus Supplement (the "Fraud Loss Amount") are "Excess Fraud Losses." Bank-
ruptcy losses in excess of the amount specified in the applicable Prospectus
Supplement (the "Bankruptcy Loss Amount") are "Excess Bankruptcy Losses." Any
Excess Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses
with respect to a Series will be allocated on a pro rata basis among the re-
lated 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 allo-
cation on a pro rata basis to each such Class of Certificates on the basis of
their then-outstanding principal balances in the case of the principal portion
of a loss or based on the accrued interest thereon in the case of an interest
portion of a loss.
Since the amounts of the Special Hazard Loss Amount, Fraud Loss Amount and
Bankruptcy Loss Amount for a Series of Certificates are each expected to be
less than the amount of principal payments on the Mortgage Loans to which the
holders of the Subordinated Certificates of such Series are initially entitled
(such amount being subject to reduction, as described above, as a result of al-
location of losses on liquidated Mortgage Loans that are not Special Hazard
Losses, Fraud Losses or Bankruptcy Losses), the holders of Subordinated Certif-
icates of such Series will bear the risk of Special Hazard Losses, Fraud Losses
and Bankruptcy Losses to a lesser extent than they will bear other losses on
liquidated Mortgage Loans.
Although the subordination feature described above is intended to enhance the
likelihood of timely payment of principal and interest to the holders of Senior
Certificates, shortfalls could result in certain circumstances. For example, a
shortfall in the payment of principal otherwise due the holders of Senior Cer-
tificates could occur if losses realized on the Mortgage Loans in a Trust Es-
tate 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 distribu-
tion 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 Supple-
ment, including, but not limited to, credit enhancement through an alternative
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 Cer-
tificates, credit enhancement may be provided in the form of a limited guaran-
tee 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 Cer-
tificates credit enhancement may be provided in the form of a financial guar-
anty 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 Prospec-
tus Supplement relating to such Series.
Pool Insurance Policies
If so specified in the Prospectus Supplement relating to a Series of Certifi-
cates, 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 (sub-
ject 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 Prop-
erties caused by certain hazards not insured against under the standard form of
hazard insurance policy for the respective states in which the Mortgaged Prop-
erties are located. The amount and principal terms of any such coverage will be
set forth in the Prospectus Supplement.
Mortgagor Bankruptcy Bond
If so specified in the applicable Prospectus Supplement, losses resulting
from a bankruptcy proceeding relating to a mortgagor affecting the Mortgage
Loans in a Trust Estate with respect to a Series of Certificates will be 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 Certif-
icates of the related Series, which amount will be set forth in the applicable
Prospectus Supplement. The amount and principal terms of any such coverage will
be set forth in the Prospectus Supplement.
Reserve Fund
If so specified in the applicable Prospectus Supplement, credit enhancement
with respect to a Series of Certificates may be provided by the establishment
of one or more reserve funds (each, a "Reserve Fund") for such Series.
The Reserve Fund for a Series may be funded (i) by the deposit therein of
cash, U.S. Treasury securities or instruments evidencing ownership of principal
or interest payments thereon, letters of credit, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the ap-
plicable 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 Clas-
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ses of Certificates would otherwise be entitled or (iii) in such other manner
as may be specified in the applicable Prospectus Supplement.
Cross Support
If specified in the applicable Prospectus Supplement, the beneficial owner-
ship of separate groups of Mortgage Loans included in a Trust Estate may be ev-
idenced 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 read-
justments of such Mortgage Loans and to different rates of payment of principal
of fixed or adjustable-rate Mortgage Loans bearing different Mortgage Interest
Rates.
SCHEDULED DELAYS IN DISTRIBUTIONS
At the date of initial issuance of the Certificates of each Series offered
hereby, the initial purchasers of a Class of Certificates may be required to
pay accrued interest at the applicable Pass-Through Rate for such Class from
the Cut-Off Date for such Series to, but not including, the date of issuance.
The effective yield to Certificateholders will be below the yield otherwise
produced by the applicable Pass-Through Rate because the distribution of 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 re-
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duction in yield, the Underlying Servicing Agreements relating to a Series may
provide, to the extent specified in the applicable Prospectus Supplement, that
with respect to certain principal prepayments received, 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 Dis-
tribution Date resulting 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 pay-
ments. Any interest shortfall arising from prepayments not so covered or from
liquidations will be covered by means of the subordination of the rights of
Subordinated Certificateholders or any other credit support arrangements.
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 of-
fered 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 dispro-
portionately to distributions of principal or interest may be particularly sen-
sitive 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 tables
setting forth the weighted average life of each Class and the percentage of the
original aggregate principal balance of each Class that would be outstanding on
specified Distribution Dates for such Series and the projected yields to matu-
rity on certain Classes thereof, in each case based on the assumptions stated
in such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans are made at rates corresponding to various percentages of the
prepayment standard or model specified in such Prospectus Supplement.
There is no assurance that prepayment of the Mortgage Loans underlying a 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 affect pre-
payment experience. In general, however, if prevailing interest rates fall be-
low 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 Mort-
gage Interest Rates borne by the Mortgage Loans, the
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Mortgage Loans are likely to experience a lower prepayment rate than if pre-
vailing rates remain at or below such Mortgage Interest Rates. However, there
can be no assurance that prepayments will rise or fall according to such
changes in interest rates. It should be noted that Certificates of a Series may
evidence an interest in a Trust Estate with different Mortgage Interest Rates.
Accordingly, the prepayment experience of such Certificates will to some extent
be a function of the mix of interest rates of the Mortgage Loans. In addition,
the terms of the Underlying Servicing Agreements will require the related
Servicer to enforce any due-on-sale clause to the extent it has knowledge of
the conveyance or the proposed conveyance of the underlying Mortgaged Property;
provided, however, that any enforcement action that the Servicer determines
would jeopardize any recovery under any related primary mortgage insurance pol-
icy 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 Mort-
gage 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 experi-
ence on the Mortgage Loans.
At the request of the mortgagor, a Servicer, including Norwest Mortgage, may
allow the refinancing of a Mortgage Loan in any Trust Estate serviced by such
Servicer by accepting prepayments thereon and permitting a new loan secured by
a Mortgage on the same property. Upon such refinancing, the new loan will not
be included in the Trust Estate. A mortgagor may be legally entitled to require
the Servicer to allow such a refinancing. Any such refinancing will have the
same effect as a prepayment in full of the related Mortgage Loan. In this re-
gard a Servicer may, from time to time, implement programs designed to encour-
age 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 in-
debtedness.
The Seller will be obligated, under certain circumstances, to repurchase cer-
tain of the Mortgage Loans. In addition, if specified in the applicable Pro-
spectus 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 Mortgage
Loan which is in default or as to which default is reasonably foreseeable. The
proceeds of any such purchase or repurchase will be deposited in the related
Certificate Account and such purchase or repurchase will have the same effect
as a prepayment in full of the related Mortgage Loan. See "The Pooling and Ser-
vicing Agreement -- Assignment of Mortgage Loans to the Trustee" and "-- Op-
tional 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 Supplement.
For any Series of Certificates for which an election has been made to treat the
Trust Estate (or one or more segregated pools of assets therein) as a REMIC,
any such purchase or repurchase may be effected only pursuant to a "qualified
liquidation," as defined in Code Section 860F(a)(4)(A). See "The Pooling and
Servicing Agreement -- Termination; Optional Purchase of Mortgage Loans."
SERVICING OF THE MORTGAGE LOANS
The following is a summary of certain provisions of the forms of the 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.
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THE MASTER SERVICER
The Master Servicer with respect to each Series of Certificates will be
Norwest Bank. See "Norwest Bank" above. The Master Servicer generally will (a)
be responsible under each Pooling and Servicing Agreement for providing general
administrative services for the Trust Estate for any such Series, including,
among other things, (i) for administering and supervising the performance by
the Servicers of their duties and responsibilities under the Underlying Servic-
ing Agreements, (ii) oversight of payments received on Mortgage Loans, (iii)
monitoring the amounts on deposit in various trust accounts, (iv) calculation
of the amounts payable to Certificateholders on each Distribution Date, (v)
preparation of periodic reports to the Trustee or the Certificateholders with
respect to the foregoing matters, (vi) preparation of federal and applicable
state and local tax and information returns; (vii) preparation of reports, if
any, required under the Securities and Exchange Act of 1934, as amended and
(viii) performing certain of the servicing obligations of a terminated Servicer
as described below under " -- The Servicers"; (b) maintain any mortgage pool
insurance policy, mortgagor bankruptcy bond, special hazard insurance policy or
other form of credit support that may be required with respect to any Series
and (c) make advances of delinquent payments of principal and interest on the
Mortgage Loans to the limited extent described herein under the heading "Ser-
vicing of Mortgage Loans -- Periodic Advances and Limitations Thereon," if such
amounts are not advanced by a Servicer (other than Norwest Mortgage). The Mas-
ter Servicer will also perform additional duties as described in the applicable
Pooling and Servicing Agreement. The Master Servicer will be entitled to re-
ceive 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 obliga-
tions of the Master Servicer under any Pooling and Servicing Agreement. The
Master Servicer will remain primarily liable for any such contractor's perfor-
mance in accordance with the applicable Pooling and Servicing Agreement. The
Master Servicer may be released from its obligations in certain circumstances.
See "Certain Matters Regarding the Master Servicer."
The Master Servicer will generally be required to pay all expenses incurred
in connection with the administration of the Trust Estate, including, without
limitation, fees or other amounts payable pursuant to any applicable agreement
for the provision of credit enhancement for such Series, the fees and disburse-
ments 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 Agree-
ment.
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 port-
folio which were originated or acquired by Norwest Mortgage for its own account
or for the account of its affiliates ("Program Loans"), and, if available, on
those Program Loans having payment terms generally similar to those of the
Mortgage Loans in the related Trust Estate. If the related Trust Estate con-
tains PHMC Mortgage Loans, the related Prospectus Supplement may contain infor-
mation concerning PHMC's delinquency, foreclosure and loan loss experience
prior to the PHMC Acquisition. Norwest Mortgage's total servicing portfolio of
Program Loans as of any date may include (and PHMC's servicing portfolio in-
cluded) loans having a variety of payment characteristics, including adjustable
rate mortgage loans and loans subject to subsidy agreements, and the overall
delinquency, foreclosure and loan loss experience of the Program Loans (or
PHMC-serviced mortgage loans) taken as a whole may differ from that of the
Mortgage Loans contained in any given Trust Estate and from that of mortgage
servicers generally.
THE SERVICERS
For each Series, Norwest Mortgage and, if specified in the applicable Pro-
spectus Supplement, one or more other Servicers will provide certain customary
servicing functions with respect to Mortgage Loans pursuant to separate servic-
ing agreements ("Underlying Servicing Agreements") with the Seller or an affil-
iate thereof. The rights of the Seller or such affiliate under the applicable
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Underlying Servicing Agreements in respect of the Mortgage Loans included in
the Trust Estate for any such Series will be assigned (directly or indirectly)
to the Trustee for such Series. The Servicers may be entitled to withhold their
Servicing Fees and certain other fees and charges from remittances of payments
received on Mortgage Loans serviced by them.
Each Servicer generally will be approved by FNMA or FHLMC as a servicer of
mortgage loans and must be approved by the Master Servicer. In determining
whether to approve a Servicer, the Master Servicer will review the credit of
the Servicer, including capitalization ratios, liquidity, profitability and
other similar items that indicate financial ability to perform its obligations.
In addition, the Master Servicer's mortgage servicing personnel will review the
Servicer's servicing record and evaluate the ability of the Servicer to conform
with required servicing procedures. Once a Servicer is approved, the Master
Servicer will continue to monitor on an annual basis the financial position and
servicing performance of the Servicer.
The duties to be performed by each Servicer include collection and remittance
of principal and interest payments on the Mortgage Loans, administration of
mortgage escrow accounts, collection of insurance claims, foreclosure proce-
dures, and, if necessary, the advance of funds to the extent certain payments
are not made by the mortgagor and have not been determined by the Servicer to
be not recoverable under the applicable insurance policies with respect to such
Series, from proceeds of liquidation of such Mortgage Loans or otherwise. Each
Servicer also will provide such accounting and reporting services as are neces-
sary to enable the Master Servicer to provide required information to the
Trustee with respect to the Mortgage Loans included in the Trust Estate for
such Series. Each Servicer is entitled to a periodic Servicing Fee equal to a
specified percentage of the outstanding principal balance of each Mortgage Loan
serviced by such Servicer. With the consent of the Master Servicer, any of the
servicing obligations of a Servicer may be delegated to another person approved
by the Master Servicer. In addition, certain limited duties of a Servicer may
be delegated without consent.
The Trustee, or if so provided in the applicable Servicing Agreement, the
Master Servicer, may terminate a Servicer who has failed to comply with its
covenants or breached one of its representations contained in the Underlying
Servicing Agreement or in certain other circumstances. Upon termination of a
Servicer by the Master Servicer, the Master Servicer will assume certain 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.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, as to each Series of Certificates, establish and
maintain a separate trust account in the name of the Trustee (the "Certificate
Account"). Such account may be established at Norwest Bank or an affiliate
thereof. Each such account must be maintained with a depository institution
("Depository") either (i) whose long-term debt obligations (or, in the case of
a depository institution which is part of a holding company structure, the
long-term debt obligations of such parent holding company) are, at the time of
any deposit therein rated in at least one of the two highest rating categories
by each nationally recognized statistical rating organization that rated the
related Series of Certificates, or (ii) that is otherwise acceptable to the
Rating Agency or Rating Agencies rating the Certificates of such Series and, if
a REMIC election has been made, that would not cause the related Trust Estate
(or one or more segregated pools of assets therein) to fail to qualify as a
REMIC. To the extent that the portion of funds deposited in the Certificate Ac-
count at any time exceeds the limit of insurance coverage established by the
Federal Deposit Insurance Corporation (the "FDIC"), such excess will be subject
to loss in the event of the
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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 re-
spect to Mortgage Loans serviced by such Servicer included in the Trust Estate
for such Series, as more fully described below. Each Servicer Custodial Account
must be a separate custodial account insured to the available limits by the
FDIC and limited to funds held with respect to a particular Series, unless the
Underlying Servicing Agreement specifies that a Servicer may establish an ac-
count 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 Certif-
icates for which Norwest Bank is the Master Servicer and having the same finan-
cial institution acting as Trustee and to be maintained in the name of such fi-
nancial 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 rep-
resenting scheduled payments of principal and interest on the Mortgage Loans
serviced by such Servicer due after the applicable Cut-Off Date but received on
or prior thereto, and except as specified in the applicable Pooling and Servic-
ing 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 Master Servicer
for deposit in the Certificate Account, the following payments and collections
received or made by such Servicer with respect to the Mortgage Loans serviced
by such Servicer subsequent to the applicable Cut-Off Date (other than (x) pay-
ments due on or before the Cut-Off Date and (y) amounts held for future distri-
bution):
(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
(vii) all other amounts required to be deposited therein pursuant to the
applicable Pooling and Servicing Agreement or the Underlying Servicing
Agreement.
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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 Certifi-
cate Account not later than the business day next following the day of receipt
and posting by the Master Servicer. On or before each Distribution Date, the
Master Servicer will withdraw from the Certificate Account and remit to the
Trustee for distribution to Certificateholders all amounts allocable to the
Pool Distribution Amount for such Distribution Date.
If a Servicer, the Master Servicer or the Trustee deposits in the Certificate
Account for a Series any amount not required to be deposited therein, the Mas-
ter Servicer may at any time withdraw such amount from such account for itself
or for remittance to such Servicer or the Trustee, as applicable. Funds on de-
posit in the Certificate Account may be invested in certain investments accept-
able 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 segre-
gated pools of assets therein) with respect to a Series as a REMIC, no such El-
igible Investments will be sold or disposed of at a gain prior to maturity un-
less 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 Es-
tate (or segregated pool of assets) to be subject to the tax on "prohibited
transactions" imposed by Code Section 860F(a)(1), otherwise subject the Trust
Estate (or segregated pool of assets) to tax, or cause the Trust Estate (or any
segregated pool of assets) to fail to qualify as a REMIC while any Certificates
of the Series are outstanding. Except as otherwise specified in the applicable
Prospectus Supplement, all income and gain realized from any such investment
will be for the account of the Master Servicer as additional compensation and
all losses from any such investment will be deposited by the Master Servicer
out of its own funds to the Certificate Account immediately as realized.
The Master Servicer is permitted, from time to time, to make withdrawals from
the Certificate Account for the following purposes, to the extent permitted in
the applicable Pooling and Servicing Agreement (and, in the case of Servicer
reimbursements by the Master Servicer, only to the extent funds in the respec-
tive 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;
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(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);
(vii) to pay to itself, the Servicer and the Trustee from net Liquidation
Proceeds allocable to interest, the amount of any unpaid Master Servicing
Fee, Servicing Fees or Trustee Fees and any unpaid assumption fees, late
payment charges or other mortgagor charges on the related Mortgage Loan;
(viii) to withdraw from the Certificate Account any amount deposited in
such account that was not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account.
The Master Servicer will be authorized to appoint a paying agent (the "Paying
Agent") to make distributions, as agent for the Master Servicer, to
Certificateholders of a Series. If the Paying Agent for a Series is the Trustee
of such Series, such Paying Agent will be authorized to make withdrawals from
the Certificate Account in order to make distributions to Certificateholders.
If the Paying Agent for a Series is not the Trustee for such Series, the Master
Servicer will, on each Distribution Date, deposit in immediately available
funds in an account designated by any such Paying Agent the amount required to
be distributed to the Certificateholders on such Distribution Date.
The Master Servicer will cause any Paying Agent that is not the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
agrees with the Trustee that such Paying Agent will:
(1) hold all amounts deposited with it by the Master Servicer for 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 pre-
miums, and other escrowed items and (y) rehabilitation expenses and foreclosure
costs, including reasonable attorneys' fees, in either case unless such
Servicer has determined that any subsequent payments on that Mortgage Loan or
from the borrower will ultimately not be available to reimburse such Servicer
for such amounts. The failure of the Servicer to make any required Periodic Ad-
vances or Other Advances under an Underlying Servicing Agreement constitutes a
default under such agreement for which the Servicer will be terminated. Upon
default by a Servicer, other than Norwest Mortgage, the Master Servicer may,
and upon default by Norwest Mortgage the Trustee may, in each case if so pro-
vided in the Pooling and Servicing Agreement, be required to make Periodic Ad-
vances to the extent necessary to make required distributions on certain Cer-
tificates or certain Other Advances, provided that the Master Servicer or
Trustee, as applicable, determines that funds will ultimately be available to
reimburse it. In
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the case of Certificates of any Series for which credit enhancement is provided
in the form of a mortgage pool insurance policy, the Seller may obtain an en-
dorsement to the mortgage pool insurance policy which obligates the Pool In-
surer to advance delinquent payments of principal and interest. The Pool In-
surer 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 lim-
ited 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 Ac-
count or the Certificate Account and will be due no later than the business day
before the Distribution Date to which such delinquent payment relates. Advances
by the Servicers or the Master Servicer or Trustee, as the case may be, will be
reimbursable out of insurance proceeds or Liquidation Proceeds of, or, except
for Other Advances, future payments on, the Mortgage Loans for which such
amounts were advanced. If an Advance made by a Servicer, the Master Servicer or
the Trustee later proves, or is deemed by the Master Servicer or the Trustee,
to be unrecoverable, such Servicer, the Master Servicer or the Trustee, as the
case may be, will be entitled to reimbursement from funds in the Certificate
Account prior to the distribution of payments to the Certificateholders to the
extent provided in the Pooling and Servicing Agreement.
Any Periodic Advances made by a Servicer, the Master Servicer or the Trustee
with respect to Mortgage Loans included in the Trust Estate for any Series are
intended to enable the Trustee to make timely payment of the scheduled 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, assess-
ments, primary mortgage (if applicable) and hazard insurance premiums and other
similar items. Withdrawals from the Servicing Account may be made to effect
timely payment of taxes, assessments, mortgage and hazard insurance, to refund
to mortgagors amounts determined to be overages, to pay interest to mortgagors
on balances in the Servicing Account, if required, and to clear and terminate
such account. Each Servicer will be responsible for the administration of its
Servicing Account. A Servicer will be obligated to advance certain amounts
which are not timely paid by the mortgagors, to the extent that it determines,
in good faith, that they will be recoverable out of insurance proceeds, liqui-
dation proceeds, or otherwise. Alternatively, in lieu of establishing a Servic-
ing Account, a Servicer may procure a performance bond or other form of insur-
ance 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.
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ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE LOANS
With respect to each Mortgage Loan having a fixed interest rate, the applica-
ble Underlying Servicing Agreement will generally provide that, when any Mort-
gaged 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 au-
thorized to take or enter into an assumption and modification agreement from or
with the person to whom such Mortgaged Property has been or is about to be con-
veyed, pursuant to which such person becomes liable under the Mortgage Note
and, unless prohibited by applicable state law, the mortgagor remains liable
thereon, provided that the Mortgage Loan will continue to be covered by any
pool insurance policy and any related primary mortgage insurance policy and the
Mortgage Interest Rate with respect to such Mortgage Loan and the payment terms
shall remain unchanged. The Servicer will also be authorized, with the prior
approval of the pool insurer and the primary mortgage insurer, if any, to enter
into a substitution of liability agreement with such person, pursuant to which
the original mortgagor is released from liability and such person is substi-
tuted 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 appli-
cable 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 in-
surance 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 lending institutions which service mortgage loans of the same
type in the same jurisdictions. Notwithstanding the foregoing, the Servicer is
authorized under the applicable Underlying Servicing Agreement to permit the
assumption of a defaulted Mortgage Loan rather than to foreclose or accept a
deed-in-lieu of foreclosure if, in the Servicer's judgment, the default is un-
likely to be cured and the assuming borrower meets Norwest Mortgage's applica-
ble underwriting guidelines. In connection with any such assumption, the Mort-
gage Interest Rate and the payment terms of the related Mortgage Note will not
be changed. Each Servicer may also, with the consent of the Master Servicer,
modify the payment terms of Mortgage Loans that are in default, or as to which
default is reasonably foreseeable, that remain in the Trust Estate rather than
foreclose on such Mortgage Loans; provided that no such modification shall for-
give principal owing under such Mortgage Loan or permanently reduce the inter-
est rate on such Mortgage Loan. Any such modification will be made only upon
the determination by the Servicer and the Master Servicer that such modifica-
tion is likely to increase the proceeds of such Mortgage Loan over the amount
expected to be collected pursuant to foreclosure. See also "The Pooling and
Servicing Agreement -- Optional Purchases," above, with respect to the Seller's
right to repurchase Mortgage Loans that are in default, or as to which default
is reasonably foreseeable. Further, a Servicer may encourage the refinancing of
such defaulted Mortgage Loans, including Mortgage Loans that would permit
creditworthy borrowers to assume the outstanding indebtedness.
In the case of foreclosure or of damage to a Mortgaged Property from an unin-
sured cause, the Servicer will not be required to expend its own funds to fore-
close 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 re-
imbursement to the related Servicer for its expenses and (ii) that such ex-
penses will be recoverable to it through Liquidation Proceeds or any applicable
insurance policy in respect of such Mortgage Loan. In the
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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 Ac-
count for such Series an amount equal to all costs and expenses incurred by it.
Norwest Mortgage will not be obligated to, and any other Servicer will not
(except with the express written approval of the Master Servicer), foreclose on
any Mortgaged Property which it believes may be contaminated with or affected
by hazardous wastes or hazardous substances. See "Certain Legal Aspects of the
Mortgage Loans -- Environmental Considerations." If a Servicer does not fore-
close on a Mortgaged Property, the Certificateholders of the related Series may
experience a loss on the related Mortgage Loan. A Servicer will not be liable
to the Certificateholders if it fails to foreclose on a Mortgaged Property
which it believes may be so contaminated or affected, even if such Mortgaged
Property is, in fact, not so contaminated or affected. Conversely, a Servicer
will not be liable to the Certificateholders if, based on its belief that no
such contamination or effect exists, the Servicer forecloses on a Mortgaged
Property and takes title to such Mortgaged Property, and thereafter such Mort-
gaged 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 re-
quired under the applicable Underlying Servicing Agreement to seek deficiency
judgments. In lieu of foreclosure, each Servicer may arrange for the sale by
the borrower of the Mortgaged Property related to a defaulted Mortgage Loan to
a third party, rather than foreclosing upon and selling such Mortgaged Proper-
ty.
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 required to
administer the Mortgaged Property in a manner which does not cause the Mort-
gaged Property to fail to qualify as "foreclosure property" within the meaning
of Code Section 860G(a)(8) or result in the receipt by the Trust Estate of any
"net income from foreclosure property" within the meaning of Code Section
860G(c)(2), respectively. In general, this would preclude the holding of the
Mortgaged Property by a party acting as a dealer in such property or the re-
ceipt 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 ex-
tended coverage (a "Standard Hazard Insurance Policy"). The Underlying Servic-
ing 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 im-
provements on the Mortgaged Property or the principal balance of such Mortgage
Loan; provided, however, that such insurance may not be less than the minimum
amount required to fully compensate for any damage or loss on a replacement
cost basis. Each Servicer will also maintain on property acquired
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upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, a Stan-
dard Hazard Insurance Policy in an amount that is at least equal to the lesser
of 100% of the insurable value of the improvements which are a part of such
property or the principal balance of such Mortgage Loan plus accrued interest
and liquidation expenses; provided, however, that such insurance may not be
less than the minimum amount required to fully compensate for any damage or
loss on a replacement cost basis. Any amounts collected under any such policies
(other than amounts to be applied to the restoration or repair of the Mortgaged
Property or released to the borrower in accordance with normal servicing proce-
dures) will be deposited in the Servicer Custodial Account for remittance to
the Certificate Account by a Servicer.
The Standard Hazard Insurance Policies covering the Mortgage Loans generally
will cover physical damage to, or destruction of, the improvements on the Mort-
gaged Property caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions par-
ticularized in each policy. Because the Standard Hazard Insurance Policies re-
lating to such Mortgage Loans will be underwritten by different insurers and
will cover Mortgaged Properties located in various states, such policies will
not contain identical terms and conditions. The most significant terms thereof,
however, generally will be determined by state law and generally will be simi-
lar. Most such policies typically will not cover any physical damage resulting
from the following: war, revolution, governmental actions, floods and other wa-
ter-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or domes-
tic 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 In-
surance Program or if available insurance coverage is, in its judgment, unreal-
istically low.
Each Servicer may maintain a blanket policy insuring against hazard losses on
all of the Mortgaged Properties in lieu of maintaining the required Standard
Hazard Insurance Policies and may maintain a blanket policy insuring against
special hazards in lieu of maintaining any required flood insurance. Each
Servicer will be liable for the amount of any deductible under a blanket policy
if such amount would have been covered by a required Standard Hazard Insurance
Policy or flood insurance, had it been maintained.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows, floods and hazardous wastes or hazardous sub-
stances) or insufficient hazard insurance proceeds will adversely affect dis-
tributions to the Certificateholders.
FIXED RETAINED YIELD, SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Fixed Retained Yield with respect to any Mortgage Loan is that portion, if
any, of interest at the Mortgage Interest Rate that is not included in the 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 Mortgage as
Servicer may deduct the Fixed Retained Yield from mortgagor payments as re-
ceived or deposit such payments in the Servicer
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Custodial Account or Certificate Account for such Series and then either with-
draw the Fixed Retained Yield from the Servicer Custodial Account or Certifi-
cate 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 Account for the purpose of remittances to Norwest Mortgage
as owner of the Fixed Retained Yield. Notwithstanding the foregoing, with re-
spect to any payment of interest received by Norwest Mortgage as Servicer re-
lating to a Mortgage Loan (whether paid by the mortgagor or received as Liqui-
dation Proceeds, insurance proceeds or otherwise) which is less than the full
amount of interest then due with respect to such Mortgage Loan, the owner of
the Fixed Retained Yield with respect to such Mortgage Loan will bear a ratable
share of such interest shortfall.
For each Series of Certificates, each Servicer will be entitled to be paid
the Servicing Fee on the related Mortgage Loans serviced by such Servicer until
termination of the applicable Underlying Servicing Agreement. 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 pay-
ment of interest prior to deposit of such payment in the Servicer Custodial Ac-
count 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 recov-
eries are insufficient, from Net Foreclosure Profits with respect to the re-
lated Distribution Date the Servicing Fee in respect of such Mortgage Loan to
the extent provided in the applicable Pooling and Servicing Agreement. The Ser-
vicing Fee or the range of Servicing Fees with respect to the Mortgage Loans
underlying the Certificates of a Series will be specified in the applicable
Prospectus Supplement. Additional servicing compensation in the form of prepay-
ment charges, assumption fees, late payment charges or otherwise will be re-
tained by the Servicers.
Each Servicer will pay all expenses incurred in connection with the servicing
of the Mortgage Loans serviced by such Servicer underlying a Series, including,
without limitation, payment of the hazard insurance policy premiums. The
Servicer will be entitled, in certain circumstances, to reimbursement from the
Certificate Account of Periodic Advances, of Other Advances made by it to pay
taxes, insurance premiums and similar items with respect to any Mortgaged Prop-
erty or for expenditures incurred by it in connection with the restoration,
foreclosure or liquidation of any Mortgaged Property (to the extent of Liquida-
tion Proceeds or insurance policy proceeds in respect of such Mortgaged Proper-
ty) 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 ap-
plicable, on or before the date specified in the applicable Underlying Servic-
ing Agreement, an Officer's Certificate stating that (i) a review of the activ-
ities of such Servicer during the preceding calendar year and of performance
under the applicable Underlying Servicing Agreement has been made under the su-
pervision of such officer, and (ii) to the best of such officer's knowledge,
based on such review,
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such Servicer has fulfilled all its obligations under the applicable Underlying
Servicing Agreement throughout such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof. Such Officer's Certificate
shall be accompanied by a statement of a firm of independent public accountants
to the effect that, on the basis of an examination of certain documents and
records relating to a random sample of the mortgage loans being serviced by
such Servicer pursuant to such Underlying Servicing Agreement and/or other sim-
ilar agreements, conducted substantially in compliance with the Uniform Single
Audit Program for Mortgage Bankers, the servicing of such mortgage loans was
conducted in compliance with the provisions of the applicable Underlying 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 applica-
ble Underlying Servicing Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such de-
fault 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 ap-
plicable law with any other activities of a type and nature carried on by it.
No such resignation will become effective until the Trustee for such Series or
a successor master servicer has assumed the Master Servicer's obligations and
duties under the Pooling and Servicing Agreement. If the Master Servicer re-
signs for any of the foregoing reasons and the Trustee is unable or unwilling
to assume responsibility for its duties under the Pooling and Servicing Agree-
ment, it may appoint another institution to so act as described under "The
Pooling and Servicing Agreement -- Rights Upon Event of Default" below.
The Pooling and Servicing Agreement will also provide that neither the Master
Servicer nor any subcontractor, nor any partner, director, officer, employee or
agent of any of them, will be under any liability to the Trust Estate or the
Certificateholders, for the taking of any action or for refraining from the
taking of any action in good faith pursuant to the Pooling and Servicing Agree-
ment, 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 ei-
ther 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 obliga-
tions and duties thereunder. In addition, the Pooling and Servicing Agreement
will provide that the Master Servicer will not be under any obligation to ap-
pear in, prosecute or defend any legal action that is not incidental to its du-
ties under the Pooling and Servicing Agreement and that in its opinion may in-
volve 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
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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 allo-
cated 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.
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 ob-
ligations 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 purchaser
or transferee of the due and punctual performance and observance of each cove-
nant and condition to be performed or observed by the Master Servicer under the
Pooling and Servicing Agreement from and after the date of such agreement; and
(iii) each applicable Rating Agency's rating of any Certificates for such Se-
ries 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 obliga-
tions under the Pooling and Servicing Agreement upon any such assignment and
delegation, except that the Master Servicer will remain liable for all liabili-
ties and obligations incurred by it prior to the time that the conditions con-
tained 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 material respect, or which
Mortgage Loan is discovered at any time not to be in conformance with the rep-
resentations and warranties Norwest Mortgage has made to the Seller and the
breach of such representations and warranties materially and adversely affects
the interests of the Certificateholders in the related Mortgage Loan, if
Norwest Mortgage cannot deliver such document or cure such defect or breach
within 60 days after notice thereof. Such agreement will inure to the benefit
of the Trustee and is intended to help ensure the Seller's performance of its
limited obligation to repurchase or substitute for Mortgage Loans. See "The
Mortgage Loan Programs -- Representations and Warranties" above.
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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, 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 re-
corded documents cannot be delivered due to delays in connection with record-
ing, copies thereof, certified by the Seller to be true and complete copies of
such documents sent for recording, may be delivered and the original recorded
documents will be delivered promptly upon receipt. The assignment of each Mort-
gage will be recorded promptly after the initial issuance of Certificates for
the related Trust Estate, except in states where, in the opinion of counsel ac-
ceptable to the Trustee, such recording is not required to protect the Trust-
ee's interest in the Mortgage Loan against the claim of any subsequent trans-
feree or any successor to or creditor of the Seller, Norwest Mortgage or the
originator of such Mortgage Loan.
The Trustee or custodian will hold such documents in trust for the benefit of
Certificateholders of the related Series and will review such documents within
180 days of the date of the applicable Pooling and Servicing Agreement. If any
document is not delivered or is found to be defective in any material respect,
or if the Seller is in breach of any of its representations and warranties, and
such breach materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, and the Seller cannot deliver such docu-
ment or cure such defect or breach within 60 days after written notice thereof,
the Seller will, within 60 days of such notice, either repurchase the related
Mortgage Loan from the Trustee at a price equal to the then unpaid principal
balance thereof, plus accrued and unpaid interest at the applicable Mortgage
Interest Rate (minus any Fixed Retained Yield) through the last day of the
month in which such repurchase takes place, or (in the case of a Series for
which one or more REMIC elections have been or will be made, unless the maximum
period as may be provided by the Code or applicable regulations of the Depart-
ment of the Treasury ("Treasury Regulations") shall have elapsed since the exe-
cution of the applicable Pooling and Servicing Agreement) substitute for such
Mortgage Loan a new mortgage loan having characteristics such that the repre-
sentations and warranties of the Seller made pursuant to the applicable Pooling
and Servicing Agreement (except for representations and warranties as to the
correctness of the applicable schedule of mortgage loans) would not have been
incorrect had such substitute Mortgage Loan originally been a Mortgage Loan. In
the case of a repurchased Mortgage Loan, the purchase price will be deposited
by the Seller in the related Certificate Account. In the case of a substitute
Mortgage Loan, the mortgage file relating thereto will be delivered to the
Trustee or the custodian and the Seller will deposit in the Certificate Ac-
count, 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
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"Scheduled Principal Balance") of the Mortgage Loan for which it is substituted
(after giving effect to the scheduled principal payment due in the month of
substitution on the Mortgage Loan substituted for), or a term greater than, a
Mortgage Interest Rate less than, a Mortgage Interest Rate more than one per-
cent per annum greater than or a Loan-to-Value Ratio greater than, the Mortgage
Loan for which it is substituted. If substitution is to be made for an adjust-
able rate Mortgage Loan, the substitute Mortgage Loan will have an unpaid prin-
cipal balance no greater than the Scheduled Principal Balance of the Mortgage
Loan for which it is substituted (after giving effect to the scheduled princi-
pal 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 doc-
uments 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 foresee-
able if, in the Seller's or the Master Servicer's judgment, the related default
is not likely to be cured by the borrower or default is not likely to be avert-
ed, at a price equal to the unpaid principal balance thereof plus accrued in-
terest thereon and under the conditions set forth in the applicable Prospectus
Supplement.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Pooling and Servicing
Agreement for each Series, the Master Servicer will prepare and the Trustee
will include with each distribution to Certificateholders of record of such Se-
ries 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 related Mortgage Loans and the aggregate unpaid princi-
pal balance of the Mortgage Loans evidenced by each Class after giving ef-
fect 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;
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(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 commu-
nicate 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 Se-
ries having voting rights allocated to such Certificates ("Voting Interests")
aggregating not less than 25% of the Voting Interests allocated to all Certifi-
cates for such Series; (ii) any failure by the Master Servicer duly to observe
or perform in any material respect any other of its covenants or agreements in
the Pooling and Servicing Agreement which continues unremedied for 60 days (or
30 days in the case of a failure to maintain any pool insurance policy required
to be maintained pursuant to the Pooling and Servicing Agreement) after the
giving of written notice of such failure to the Master Servicer by the Trustee,
or to the Master Servicer and the Trustee by the holders of Certificates aggre-
gating not less than 25% of the Voting Interests; (iii) certain events of in-
solvency, readjustment of debt, marshaling of assets and liabilities or similar
proceedings and certain action by the Master Servicer indicating its insolven-
cy, reorganization or inability to pay its obligations and (iv) it and any
subservicer appointed by it becoming ineligible to service for both FNMA and
FHLMC (unless remedied within 90 days). (Section 7.01).
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Pooling and 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 re-
covery of the aggregate Master Servicing Fees due prior to the date of termina-
tion, 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
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all the responsibilities, duties and liabilities of the Master Servicer under
the Pooling and Servicing Agreement and will be entitled to monthly compensa-
tion not to exceed the aggregate Master Servicing Fees together with the other
compensation to which the Master Servicer is entitled under the Pooling and
Servicing Agreement. In the event that the Trustee is unwilling or unable so to
act, it may select, pursuant to the public bid procedure described in the ap-
plicable Pooling and Servicing Agreement, or petition a court of competent ju-
risdiction 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 Servicing
Agreement; provided however, that until such a successor Master Servicer is ap-
pointed and has assumed the responsibilities, duties and liabilities of the
Master Servicer under the Pooling and Servicing Agreement, the Trustee shall
continue as the successor to the Master Servicer as described above. In the
event such public bid procedure is utilized, the successor would be entitled to
compensation in an amount equal to the aggregate Master Servicing Fees, to-
gether with the other compensation to which the Master Servicer is entitled un-
der the Pooling and Servicing Agreement, and the Master Servicer would be enti-
tled to receive the net profits, if any, realized from the sale of its rights
and obligations under the Pooling and Servicing Agreement. (Sections 7.01 and
7.05).
During the continuance of any Event of Default under the Pooling and 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 lawfully
be taken or would involve it in personal liability or be unjustly prejudicial
to the non-assenting Certificateholders. (Sections 7.02 and 7.03).
No Certificateholder of a Series, solely by virtue of such holder's status as
a Certificateholder, will have any right under the Pooling and Servicing Agree-
ment 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 Certifi-
cates evidencing not less than 25% of the Voting Interests for such Series have
made written request upon the Trustee to institute such proceeding in its own
name as Trustee thereunder and have offered to the Trustee reasonable indemnity
and the Trustee for 60 days has neglected or refused to institute any such pro-
ceeding. (Section 10.03).
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Seller, the Master
Servicer and the Trustee without the consent of the Certificateholders, (i) to
cure any ambiguity or mistake, (ii) to correct or supplement any provision
therein that may be inconsistent with any other provision therein, (iii) to
modify, eliminate or add to any of its provisions to such extent as shall be
necessary to maintain the qualification of the Trust Estate (or one or more
segregated pools of assets therein) as a REMIC at all times that any 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 qualifi-
cation or to avoid or minimize the risk of the imposition of any such tax and
such action will not, as evidenced by such opinion of counsel, adversely affect
in any material respect the interests of any Certificateholder, (iv) to change
the timing and/or nature of deposits into the Certificate Account, provided
that such change will not, as evidenced by an opinion of counsel, adversely af-
fect in any material respect the interests of any Certificateholder and that
such change will not adversely
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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 elimi-
nate any provisions therein restricting transfers of residual Certificates to
certain disqualified organizations described below under "Certain Federal In-
come Tax Consequences -- Federal Income Tax Consequences for REMIC Certifi-
cates -- Taxation of Residual Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates," (vi) to make certain provisions with re-
spect to the denominations of, and the manner of payments on, certain Classes
or Subclasses of Certificates initially retained by the Seller or an affiliate,
or (vii) to make any other provisions with respect to matters or questions
arising under such Pooling and Servicing Agreement that are not inconsistent
with the provisions thereof, provided that such action will not, as evidenced
by an opinion of counsel, adversely affect in any material respect the inter-
ests of the Certificateholders of the related Series. The Pooling and Servicing
Agreement may also be amended by the Seller, the Master Servicer and the
Trustee with the consent of the holders of Certificates evidencing interests
aggregating not less than 66 2/3% of the Voting Interests evidenced by the Cer-
tificates 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 provi-
sions 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 distrib-
uted on any Certificates, without the consent of the holder of such Certifi-
cate, (ii) adversely affect in any material respect the interests of the hold-
ers of a Class or Subclass of Certificates of a Series in a manner other than
that set forth in (i) above without the consent of the holders of Certificates
aggregating not less than 66 2/3% of the Voting Interests evidenced by such
Class or Subclass, or (iii) reduce the aforesaid percentage of Certificates of
any Class or Subclass, the holders of which are required to consent to such
amendment, without the consent of the holders of all Certificates of such Class
or Subclass affected then outstanding. Notwithstanding the foregoing, the
Trustee will not consent to any such amendment if such amendment would subject
the Trust Estate (or any segregated pool of assets therein) to tax or cause the
Trust Estate (or any segregated pool of assets therein) to fail to qualify as a
REMIC.
TERMINATION; OPTIONAL PURCHASE OF MORTGAGE LOANS
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate on the Distribution Date following the final
payment or other liquidation of the last Mortgage Loan subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan. In no event, however, will the trust created by the Pooling and Servicing
Agreement continue beyond the expiration of 21 years from the death of the last
survivor of certain persons named in such Pooling and Servicing Agreement. For
each Series of Certificates, the Trustee will give written notice of termina-
tion of the Pooling and Servicing Agreement to each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Seller and specified in
the notice of termination.
If so provided in the applicable Prospectus Supplement, the Pooling and 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 as-
sets therein) to be treated as a REMIC, any such purchase will be effected only
pursuant to a "qualified liquidation" as defined in Code Section 860F(a)(4)(A)
and the receipt by the Trustee of an opinion of counsel or other evidence that
such purchase will not (i) result in the imposition of a tax on "prohibited
transactions" under Code Section 860F(a)(1), (ii) otherwise subject the Trust
Estate to tax, or (iii) cause the Trust Estate (or any segregated pool of as-
sets) 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 pur-
chase may be exercised only after the aggregate principal balance of the Mort-
gage Loans for such
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Series at the time of purchase is less than a specified percentage of the ag-
gregate principal balance at the Cut-Off Date for the Series, or after the date
set forth in the applicable Prospectus Supplement.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement (the "Trustee") will
be named in the applicable Prospectus Supplement. The commercial bank or trust
company serving as Trustee may have normal banking relationships with the
Seller or any of its affiliates.
The Trustee may resign at any time, in which event the Master Servicer will
be obligated to appoint a successor trustee. The Master Servicer may also 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 or-
der to change the situs of the Trust Estate for state tax reasons. Upon becom-
ing aware of such circumstances, the Master Servicer will become obligated to
appoint a successor trustee. The Trustee may also be removed at any time by the
holders of Certificates evidencing not less than 51% of the Voting Interests in
the Trust Estate, except that, any Certificate registered in the name of the
Seller, the Master Servicer or any affiliate thereof will not be taken into ac-
count in determining whether the requisite Voting Interest in the Trust Estate
necessary to effect any such removal has been obtained. Any resignation and re-
moval of the Trustee, and the appointment of a successor trustee, will not be-
come effective until acceptance of such appointment by the successor trustee.
The Trustee, and any successor trustee, will have a combined capital and sur-
plus 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, pro-
vided that the Trustee's and any such successor trustee's separate capital and
surplus shall at all times be at least the amount specified in Section
310(a)(2) of the Trust Indenture Act of 1939, and will be subject to supervi-
sion or examination by federal or state authorities.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of mort-
gage loans which are general in nature. Because such legal aspects are governed
by applicable state law (which laws may differ substantially), the summaries do
not purport to be complete or to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans.
GENERAL
The Mortgage Loans will, in general, be secured by either first mortgages or
first deeds of trust, depending upon the prevailing practice in the state in
which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower (or, in the case of a Mortgage Loan secured
by a property that has been conveyed to an inter vivos revocable trust, the
settlor of such trust); and the mortgagee, who is the lender. In a mortgage in-
strument state, the mortgagor delivers to the mortgagee a note or bond evidenc-
ing the loan and the mortgage. Although a deed of trust is similar to a mort-
gage, a deed of trust has three parties: a borrower called the trustor (similar
to a mortgagor), a lender called the beneficiary (similar to a mortgagee), and
a third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the loan. The trust-
ee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by the express provisions of the deed of trust or mort-
gage, 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 par-
ties having an interest of record in the real property. Delays in completion of
the foreclosure occasionally may result from difficulties in
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locating necessary parties defendant. When the mortgagee's right of foreclosure
is contested, the legal proceedings necessary to resolve the issue can be time-
consuming. After the completion of a judicial foreclosure proceeding, the court
may issue a judgment of foreclosure and appoint a receiver or other officer to
conduct the sale of the property. In some states, mortgages may also be 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 ad-
dition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In addi-
tion, 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 prop-
erty.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real es-
tate, may, during a reinstatement period, cure the default by paying the entire
amount in arrears plus the costs and expenses incurred in enforcing the obliga-
tion. 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 expense
as are necessary to render the property suitable for sale. The lender commonly
will obtain the services of a real estate broker and pay the broker a commis-
sion in connection with the sale of the property. Depending upon market condi-
tions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss may be reduced by the receipt of
mortgage insurance proceeds, if any, or by judicial action against the borrower
for the deficiency, if such action is permitted by law. See "-- Anti-Deficiency
Legislation and Other Limitations on Lenders" below.
FORECLOSURE ON SHARES OF COOPERATIVES
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and By-laws, as well as
in the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other obliga-
tions 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 pay-
ments or defaults in the performance of covenants required thereunder. Typical-
ly, the lender and the cooperative enter into a recognition agreement which es-
tablishes the rights and obligations of both parties in the event of a default
by the tenant-stockholder
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on its obligations under the proprietary lease or occupancy agreement. A de-
fault by the tenant-stockholder under the proprietary lease or occupancy agree-
ment will usually constitute a default under the security agreement between the
lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the ten-
ant-stockholder has defaulted under the proprietary lease or occupancy agree-
ment, the cooperative will take no action to terminate such lease or agreement
until the lender has been provided an opportunity to cure the default. The rec-
ognition agreement typically provides that if the proprietary lease or occu-
pancy agreement is terminated, the cooperative will recognize the lender's lien
against proceeds from a sale of the cooperative apartment, subject, however, to
the cooperative's right to sums due under such proprietary lease or occupancy
agreement. The total amount owed to the cooperative by the tenant-stockholder,
which the lender generally cannot restrict and does not monitor, could reduce
the value of the collateral below the outstanding principal balance of the co-
operative 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 cooper-
ative 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-stockhold-
ers.
Foreclosure on the cooperative shares is accomplished by a sale in accordance
with the provisions of Article 9 of the Uniform Commercial Code (the "UCC") and
the security agreement relating to those shares. Article 9 of the UCC requires
that a sale be conducted in a "commercially reasonable" manner. Whether a fore-
closure sale has been conducted in a "commercially reasonable" manner will de-
pend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according to
the usual practice of banks selling similar collateral will be considered rea-
sonably 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 indebt-
edness secured by the lender's security interest. The recognition agreement,
however, generally provides that the lender's right to reimbursement is subject
to the right of the cooperative corporation to receive sums due under the pro-
prietary 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 fore-
closed property. The exercise of a right of redemption would defeat the title
of any purchaser at a foreclosure sale, or of any purchaser from the lender
subsequent to judicial foreclosure or sale under a deed of trust. Consequently,
the practical effect of the redemption right is to force the lender to maintain
the property and pay the expenses of ownership until the redemption period has
run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies of
a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the
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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 per-
sonal action against the borrower on the debt without first exhausting such se-
curity; 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 for-
mer 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 pur-
pose 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 impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares and
the related proprietary lease or occupancy agreement and foreclosure on the
beneficial interest in a land trust. Some courts have interpreted Section 9-504
of the UCC to prohibit a deficiency award unless the creditor establishes that
the sale of the collateral (which, in the case of a Mortgage Loan secured by
shares of a cooperative, would be such shares and the related proprietary lease
or occupancy agreement) was conducted in a commercially reasonable manner.
A Servicer generally will not be required under the applicable Underlying
Servicing Agreement to pursue deficiency judgments on the Mortgage Loans even
if permitted by law.
In addition to anti-deficiency and related legislation, numerous other 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, nu-
merous statutory provisions under the United States Bankruptcy Code, 11 U.S.C.
Sections 101 et seq., (the "Bankruptcy Code") may interfere with or affect the
ability of the Seller to obtain payment of a Mortgage Loan, to realize upon
collateral and/or enforce a deficiency judgment. For example, under federal
bankruptcy law, virtually all actions (including foreclosure actions and defi-
ciency judgment proceedings) are automatically stayed upon the filing of a
bankruptcy petition, and often no interest or principal payments are made dur-
ing 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 pay-
ment schedule even though the lender accelerated the mortgage loan and final
judgment of foreclosure had been entered in state court (provided no foreclo-
sure 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 de-
fault 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,
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thus leaving the lender in the position of a general unsecured creditor for the
difference between the value of the property and the outstanding balance of the
Mortgage Loan. Some courts have permitted such modifications when the Mortgage
Loan is secured both by the debtor's principal residence and by personal prop-
erty.
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 af-
ter 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 borrow-
er's active duty status, unless a court orders otherwise upon application of
the lender. It is possible that such action could have an effect, for an inde-
terminate 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 Mort-
gage Loan goes into default, there may be delays and losses occasioned by the
inability to realize upon the Mortgaged Property in a timely fashion. Certain
states have enacted comparable legislation which may interfere with or affect
the ability of the Servicer to timely collect payments of principal and inter-
est on, or to foreclose on, Mortgage Loans of borrowers in such states who are
active or reserve members of the armed services.
ENVIRONMENTAL CONSIDERATIONS
A lender may be subject to unforeseen environmental risks when taking a secu-
rity interest in real or personal property. Property subject to such a security
interest may be subject to federal, state, and local laws and regulations re-
lating to environmental protection. Such laws may regulate, among other things:
emissions of air pollutants; discharges of wastewater or storm water; genera-
tion, transport, storage or disposal of hazardous waste or hazardous sub-
stances; operation, closure and removal of underground storage tanks; removal
and disposal of asbestos-containing materials; management of electrical or
other equipment containing polychlorinated biphenyls ("PCBs"). Failure to com-
ply with such laws and regulations may result in significant penalties, includ-
ing civil and criminal fines. Under the laws of certain states, environmental
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 subse-
quent 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.
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Under the federal Comprehensive Environmental Response Compensation and Lia-
bility Act, as amended ("CERCLA"), and under state law in certain states, a se-
cured 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 substantial.
CERCLA imposes strict, as well as joint and several liability for environmental
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 ex-
ceed the value of the property itself as well as the aggregate assets 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 se-
cured 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 address-
ing releases or threatened releases of hazardous substances on a mortgaged
property if such lender or its agents or employees have "participated in the
management" of the operations of the borrower, even though the environmental
damage or threat was caused by a prior owner or current owner or operator or
other third party. Excluded from CERCLA's definition of "owner or operator," is
a person "who without participating in the management of . . .[the] facility,
holds indicia of ownership primarily to protect his security interest" (the
"secured-creditor exemption"). This exemption for holders of a security inter-
est 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 management of such fa-
cility or property, the lender faces potential liability as an "owner or opera-
tor" under CERCLA. Similarly, when a lender forecloses and takes title to a
contaminated facility or property, the lender may incur potential CERCLA lia-
bility in various circumstances, including among others, when it holds the fa-
cility or property as an investment (including leasing the facility or property
to a third party), fails to market the property in a timely fashion or fails to
properly address environmental conditions at the property or facility.
A decision in May 1990 of the United States Court of Appeals for the Eleventh
Circuit in United States v. Fleet Factors Corp. very narrowly construed
CERCLA's secured-creditor exemption. The court's opinion suggested that a
lender need not have involved itself in the day-to-day operations of the facil-
ity 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 hazardous
waste. The court added that a lender's capacity to influence such decisions
could be inferred from the extent of its involvement in the facility's finan-
cial management. A subsequent decision by the United States Court of Appeals
for the Ninth Circuit in In re Bergsoe Metal Corp., apparently disagreeing
with, but not expressly contradicting, the Fleet Factors court, held that a se-
cured lender had no liability absent "some actual management of the facility"
on the part of the lender.
On April 29, 1992, the United States Environmental Protection Agency (the
"EPA") issued a final rule interpreting and delineating CERCLA's secured-credi-
tor exemption and the range of permissible actions that may be undertaken by a
holder of a contaminated facility without exceeding the bounds of the secured-
creditor exemption. However, on February 4, 1994, the United States Court of
Appeals for the District of Columbia Circuit in Kelley v. EPA invalidated the
EPA rule. As a result of the Kelley case, the state of the law with respect to
the secured creditor exemption was, until recently, very unclear.
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On September 28, 1996, Congress enacted, and on September 30, 1996 the Presi-
dent 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
exemption. This legislation more clearly defines the kinds of activities that
would constitute "participation in management" and that therefore would trigger
liability for secured parties under CERCLA. It also identified certain activi-
ties that ordinarily would not trigger liability, provided, however, that such
activities did not otherwise rise to the level of "participation in manage-
ment." The Asset Conservation Act specifically reverses the Fleet Factors "ca-
pacity to influence" standard. The Asset Conservation Act also provides addi-
tional protection against liability in the event of foreclosure. However, since
the courts have not yet had the opportunity to interpret the new statutory pro-
visions, 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 Con-
servation 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 action
for contribution against the owner or operator who created the environmental
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 amendments to CERCLA, also,
would not necessarily affect the potential for liability in actions by either a
state or a private party under other federal or state laws which may impose li-
ability on "owners or operators" but do not incorporate the secured-creditor
exemption.
Traditionally, residential mortgage lenders have not taken steps to evaluate
whether hazardous wastes or hazardous substances are present with respect to
any mortgaged property prior to the origination of the mortgage loan or prior
to foreclosure or accepting a deed-in-lieu of foreclosure. Accordingly, neither
the Seller, Norwest Mortgage nor Norwest Funding has made such evaluations
prior to the origination of the Mortgage Loans, nor does Norwest Mortgage or
Norwest Funding require that such evaluations be made by originators who have
sold the Mortgage Loans to Norwest Mortgage. Neither the Seller nor Norwest
Mortgage is required to undertake any such evaluations prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Neither the Seller nor the Master
Servicer makes any representations or warranties or assumes any liability with
respect to: the environmental condition of such Mortgaged Property; the ab-
sence, presence or effect of hazardous wastes or hazardous substances on any
Mortgaged Property; any casualty resulting from the presence or effect of haz-
ardous 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 "The Trust Estates--Mortgage Loans--Representations and
Warranties" and "Servicing of the Mortgage Loans--Enforcement of Due-on-Sale
Clauses; Realization Upon Defaulted Mortgage Loans" above.
"DUE-ON-SALE" CLAUSES
The forms of note, mortgage and deed of trust relating to conventional 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. How-
ever, effective October 15, 1982, Congress enacted the Garn-St Germain Deposi-
tory Institutions Act of 1982 (the "Garn Act") which purports to preempt state
laws which prohibit the enforcement of "due-on-sale" clauses by providing among
other matters, that "due-on-sale" clauses in certain loans (which loans may in-
clude the Mortgage Loans) made after the effective date of the Garn Act are en-
forceable, within certain limitations as set forth in the Garn Act and the reg-
ulations promulgated thereunder. "Due-on-sale" clauses contained in mortgage
loans originated by federal sav-
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ings and loan associations or federal savings banks are fully enforceable pur-
suant to regulations of the Office of Thrift Supervision ("OTS"), as successor
to the Federal Home Loan Bank Board ("FHLBB"), which preempt state law restric-
tions on the enforcement of such clauses. Similarly, "due-on-sale" clauses in
mortgage loans made by national banks and federal credit unions are now fully
enforceable pursuant to preemptive regulations of the Comptroller of the 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 respect to
mortgage loans which it has purchased, that the Window Period States were: Ari-
zona, Arkansas, California, Colorado, Georgia, Iowa, Michigan, Minnesota, New
Mexico, Utah and Washington. Under the Garn Act, unless a Window Period State
took action by October 15, 1985, the end of the Window Period, to further regu-
late 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 Win-
dow 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 borrower,
or a transfer where the spouse or children become an owner of the property in
each case where the transferee(s) will occupy the property, (iii) a transfer
resulting from a decree of dissolution of marriage, legal separation agreement
or from an incidental property settlement agreement by which the spouse becomes
an owner of the property, (iv) the creation of a lien or other encumbrance sub-
ordinate to the lender's security instrument which does not relate to a trans-
fer of rights of occupancy in the property (provided that such lien or encum-
brance 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 occu-
pancy; and (vii) other transfers as set forth in the Garn Act and the regula-
tions thereunder. The extent of the effect of the Garn Act on the average lives
and delinquency rates of the Mortgage Loans cannot be predicted. See "Prepay-
ment 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 interpreta-
tions governing implementation of Title V. The statute authorized any state to
reimpose interest rate limits by adopting before April 1, 1983, a law or con-
stitutional provision which expressly rejects application of the federal law.
Fifteen states have adopted laws reimposing or reserving the right to reimpose
interest rate limits. In addition, even where Title V is not so rejected, any
state is authorized to adopt a provision limiting certain other loan charges.
The Seller will represent and warrant in the Pooling and Servicing Agreement
to the Trustee for the benefit of Certificateholders that all Mortgage Loans
are originated in full compliance with
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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.
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 discus-
sion 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 inter-
pretation could apply retroactively. This discussion reflects the applicable
provisions of the Code, as well as regulations (the "REMIC Regulations") prom-
ulgated by the U.S. Department of the Treasury on December 23, 1992. Investors
should consult their own tax advisors in determining the federal, state, local
and any other tax consequences to them of the purchase, ownership and disposi-
tion 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 Se-
ries of Certificates, references to the Mortgage Loans will be deemed to refer
to that portion of the Mortgage Loans held by the Trust Estate that does not
include the Fixed Retained Yield. References to a "Holder" or
"Certificateholder" in this discussion generally mean the beneficial owner of a
Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular Series of Certificates, an election may be made
to treat the Trust Estate or one or more segregated pools of assets therein as
one or more REMICs within the meaning of Code Section 860D. A Trust Estate or a
portion or portions thereof as to which one or
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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 con-
sist of one or more Classes of "Regular Certificates" and one Class of "Resid-
ual Certificates" in the case of each REMIC Pool. Qualification as a REMIC re-
quires ongoing compliance with certain conditions. With respect to each Series
of REMIC Certificates, Cadwalader, Wickersham & Taft, counsel to the Seller,
has advised the Seller that in the firm's opinion, assuming (i) the making of
an appropriate election, (ii) compliance with the Pooling and Servicing Agree-
ment, and (iii) compliance with any changes in the law, including any amend-
ments to the Code or applicable Treasury regulations thereunder, each REMIC
Pool will qualify as a REMIC. In such case, the Regular Certificates will be
considered to be "regular interests" in the REMIC Pool and generally will be
treated for federal income tax purposes as if they were newly originated debt
instruments, and the Residual Certificates will be considered to be "residual
interests" in the REMIC Pool. The Prospectus Supplement for each Series of Cer-
tificates 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 con-
stitute "a regular or residual interest in a REMIC" within the meaning of Code
Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the REMIC
Pool would be treated as "loans . . . secured by an interest in real property
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 Certificates will
be considered "interest on obligations secured by mortgages on real property or
on interests in real property" within the meaning of Code Section 856(c)(3)(B)
in the same proportion that, for both purposes, the assets of the REMIC Pool
would be so treated. If at all times 95% or more of the assets of the REMIC
Pool qualify for each of the foregoing treatments, the REMIC Certificates will
qualify for the corresponding status in their entirety. For purposes of Code
Section 856(c)(5)(A), payments of principal and interest on the Mortgage Loans
that are reinvested pending distribution to holders of REMIC Certificates qual-
ify for such treatment. Where two REMIC Pools are a part of a tiered structure
they will be treated as one REMIC for purposes of the tests described above re-
specting 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 . . . secured by an interest in real property which
is . . . residential real property" for purposes of Code Section
7701(a)(19)(C)(v), may be required to be reduced by the amount of the related
Buy-Down Funds. REMIC Certificates held by a regulated investment company will
not constitute "Government securities" within the meaning of Code Section
851(b)(4)(A)(i). REMIC Certificates held by certain financial institutions will
constitute an "evidence of indebtedness" within the meaning of Code Section
582(c)(1). The Small Business Job Protection Act of 1996 (the "SBJPA of 1996")
repealed the reserve method for bad debts of domestic building and loan associ-
ations 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 "recapture" a portion of their existing bad debt
reserves is suspended if a certain portion of their assets are maintained in
"residential loans" under Code Section 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 com-
pliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must
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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 be-
ginning after the "Startup Day" (which for purposes of this discussion is the
date of issuance of the REMIC Certificates) and at all times thereafter, may
consist of assets other than "qualified mortgages" and "permitted investments."
The REMIC Regulations provide a safe harbor pursuant to which the de minimis
requirement will be met if at all times the aggregate adjusted basis of the
nonqualified assets is less than 1% of the aggregate adjusted basis of all the
REMIC Pool's assets. An entity that fails to meet the safe harbor may neverthe-
less demonstrate that it holds no more than a de minimis amount of nonqualified
assets. A REMIC Pool also must provide "reasonable arrangements" to prevent its
residual interests from being held by "disqualified organizations" or agents
thereof and must furnish applicable tax information to transferors or agents
that violate this requirement. See "Taxation of Residual Certificates -- Tax-
Related Restrictions on Transfer of Residual Certificates -- Disqualified Orga-
nizations."
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 co-
operative housing corporation can be qualified mortgages. A qualified mortgage
includes a qualified replacement mortgage, which is any property that would
have been treated as a qualified mortgage if it were transferred to the REMIC
Pool on the Startup Day and that is received either (i) in exchange for any
qualified mortgage within a three-month period thereafter or (ii) in exchange
for a "defective obligation" within a two-year period thereafter. A "defective
obligation" includes (i) a mortgage in default or as to which default is rea-
sonably foreseeable, (ii) a mortgage as to which a customary representation or
warranty made at the time of transfer to the REMIC Pool has been breached,
(iii) a mortgage that was fraudulently procured by the mortgagor, and (iv) a
mortgage that was not in fact principally secured by real property (but only if
such mortgage is disposed of within 90 days of discovery). A Mortgage Loan that
is "defective" as described in clause (iv) that is not sold or, if within two
years of the Startup Day, exchanged, within 90 days of discovery, ceases to be
a qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified reserve 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 provide
for payments of expenses of the REMIC Pool or amounts due on the regular or re-
sidual interests in the event of defaults (including delinquencies) on the
qualified mortgages, lower than expected reinvestment returns, prepayment in-
terest shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross income from the assets in such fund
for the year is derived from the sale or other disposition of property held for
less than three months, unless required to prevent a default on the regular in-
terests caused by a default on one or more qualified mortgages. A reserve fund
must be reduced "promptly and appropriately" as payments on the Mortgage Loans
are received. Foreclosure property is real property acquired by the REMIC Pool
in connection with the default or imminent default of a qualified mortgage and
generally held for not more than two years, with extensions granted by the In-
ternal 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
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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 por-
tion may consist of a fixed number of basis points, a fixed percentage of the
total interest, or a qualified variable rate, inverse variable rate or differ-
ence between two fixed or qualified variable rates on some or all of the quali-
fied mortgages. The specified principal amount of a regular interest that pro-
vides for interest payments consisting of a specified, nonvarying portion of
interest payments on qualified mortgages may be zero. A residual interest is an
interest in a REMIC Pool other than a regular interest that is issued on the
Startup Day and that is designated as a residual interest. An interest in a
REMIC Pool may be treated as a regular interest even if payments of principal
with respect to such interest are subordinated to payments on other regular in-
terests or the residual interest in the REMIC Pool, and are dependent on the
absence of defaults or delinquencies on qualified mortgages or permitted in-
vestments, lower than reasonably expected returns on permitted investments, un-
anticipated expenses incurred by the REMIC Pool or prepayment interest
shortfalls. Accordingly, the Regular Certificates of a Series will constitute
one or more classes of regular interests, and the Residual Certificates with
respect to that Series will constitute a single class of residual interests on
which distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of the
ongoing requirements of the Code for REMIC status during any taxable year, the
Code provides that the entity will not be treated as a REMIC for such year and
thereafter. In this event, an entity with multiple classes of ownership inter-
ests may be treated as a separate association taxable as a corporation under
Treasury regulations, and the Regular Certificates may be treated as equity in-
terests 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 dis-
qualification of the REMIC Pool would occur absent regulatory relief. Investors
should be aware, however, that the Conference Committee Report to the Tax Re-
form Act of 1986 (the "1986 Act") indicates that the relief may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion of
the REMIC Pool's income for the period of time in which the requirements for
REMIC status are not satisfied.
TAXATION OF REGULAR CERTIFICATES
General
In general, interest, original issue discount, and market discount on a Regu-
lar Certificate will be treated as ordinary income to a holder of the Regular
Certificate (the "Regular Certificateholder"), and principal payments on a Reg-
ular 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 re-
gard to Regular Certificates, regardless of the method of accounting otherwise
used by such Regular Certificateholders.
Original Issue Discount
Compound Interest Certificates will be, and other classes of Regular Certifi-
cates may be, issued with "original issue discount" within the meaning of Code
Section 1273(a). Holders of any Class or Subclass of Regular Certificates hav-
ing 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 in-
terest, in advance of receipt of the cash attributable to such income. The fol-
lowing discussion is based in part on temporary and final Treasury regulations
issued on February 2, 1994, as amended on June 14, 1996, (the "OID Regula-
tions") under Code Sections 1271 through 1273 and 1275 and in part on the pro-
visions of the 1986 Act. Regular Certificateholders should be aware, however,
that the OID Regulations do not adequately address certain issues relevant to
prepayable securities,
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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 en-
sure 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 lia-
bility. Investors are advised to consult their own tax advisors as to the dis-
cussion 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 install-
ment or by lots of specified principal amounts upon the request of a
Certificateholder or by random lot (a "Non-Pro Rata Certificate")) will be
treated as a single installment obligation for purposes of determining the
original issue discount includible in a Regular Certificateholder's income. The
total amount of original issue discount on a Regular Certificate is the excess
of the "stated redemption price at maturity" of the Regular Certificate over
its "issue price." The issue price of a Class of Regular Certificates offered
pursuant to this Prospectus generally is the first price at which a substantial
amount of such Class is sold to the public (excluding bond houses, brokers and
underwriters). Although unclear under the OID Regulations, the Seller intends
to treat the issue price of a Class as to which there is no substantial sale as
of the issue date or that is retained by the Seller as the fair market value of
that Class as of the issue date. The issue price of a Regular Certificate also
includes any amount paid by an initial Regular Certificateholder for accrued
interest that relates to a period prior to the issue date of the Regular Cer-
tificate, unless the Regular Certificateholder elects on its federal income tax
return to exclude such amount from the issue price and to recover it on the
first Distribution Date. The stated redemption price at maturity of a Regular
Certificate always includes the original principal amount of the Regular Cer-
tificate, but generally will not include distributions of interest if such dis-
tributions constitute "qualified stated interest." Under the OID Regulations,
qualified stated interest generally means interest payable at a single fixed
rate or a qualified variable rate (as described below) provided that such in-
terest payments are unconditionally payable at intervals of one year or less
during the entire term of the Regular Certificate. Because there is no penalty
or default remedy in the case of nonpayment of interest with respect to a Regu-
lar Certificate, it is possible that no interest on any Class of Regular Cer-
tificates will be treated as qualified stated interest. However, except as pro-
vided 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 Reg-
ular Certificates as qualified stated interest. Distributions of interest on a
Compound Interest Certificate, or on other Regular Certificates with respect to
which deferred interest will accrue, will not constitute qualified stated in-
terest, in which case the stated redemption price at maturity of such Regular
Certificates includes all distributions of interest as well as principal there-
on. Likewise, the Seller intends to treat an interest-only Class or a Class on
which interest is substantially disproportionate to its principal amount (a so-
called "super-premium" Class) as having no qualified stated interest. Where the
interval between the issue date and the first Distribution Date on a Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
the interest attributable to the additional days will be included in the stated
redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is 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 redemp-
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tion price at maturity is scheduled to be made by a fraction, the numerator of
which is the amount of each distribution included in the stated redemption
price at maturity of the Regular Certificate and the denominator of which is
the stated redemption price at maturity of the Regular Certificate. The Confer-
ence Committee Report to the 1986 Act provides that the schedule of such dis-
tributions should be determined in accordance with the assumed rate of prepay-
ment of the Mortgage Loans (the "Prepayment Assumption") and the anticipated
reinvestment rate, if any, relating to the Regular Certificates. The Prepayment
Assumption with respect to a Series of Regular Certificates will be set forth
in the applicable Prospectus Supplement. Holders generally must report de
minimis original issue discount pro rata as principal payments are received,
and such income will be capital gain if the Regular Certificate is held as a
capital asset. Under the OID Regulations, however, Regular Certificateholders
may elect to accrue all de minimis original issue discount as well as market
discount and market premium, under the constant yield method. See "Election to
Treat All Interest Under the Constant Yield Method."
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Certificate accrued during an accrual period for
each day on which it holds the Regular Certificate, including the date of pur-
chase but excluding the date of disposition. The Seller will treat the monthly
period ending on the day before each Distribution Date as the accrual period.
With respect to each Regular Certificate, a calculation will be made of the
original issue discount that accrues during each successive full accrual period
(or shorter period from the date of original issue) that ends on the day before
the related Distribution Date on the Regular Certificate. The Conference Com-
mittee Report to the 1986 Act states that the rate of accrual of original issue
discount is intended to be based on the Prepayment Assumption. Other than as
discussed below with respect to a Non-Pro Rata Certificate, the original issue
discount accruing in a full accrual period would be the excess, if any, of (i)
the sum of (a) the present value of all of the remaining distributions to be
made on the Regular Certificate as of the end of that accrual period, and (b)
the distributions made on the Regular Certificate during the accrual period
that are included in the Regular Certificate's stated redemption price at matu-
rity, over (ii) the adjusted issue price of the Regular Certificate at the be-
ginning of the accrual period. The present value of the remaining distributions
referred to in the preceding sentence is calculated based on (i) the yield to
maturity of the Regular Certificate at the issue date, (ii) events (including
actual prepayments) that have occurred prior to the end of the accrual period,
and (iii) the Prepayment Assumption. For these purposes, the adjusted issue
price of a Regular Certificate at the beginning of any accrual period equals
the issue price of the Regular Certificate, increased by the aggregate amount
of original issue discount with respect to the Regular Certificate that accrued
in all prior accrual periods and reduced by the amount of distributions in-
cluded in the Regular Certificate's stated redemption price at maturity that
were made on the Regular Certificate in such prior periods. The original issue
discount accruing during any accrual period (as determined in this paragraph)
will then be divided by the number of days in the period to determine the daily
portion of original issue discount for each day in the period. With respect to
an initial accrual period shorter than a full accrual period, the daily por-
tions 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 Certificates
as a result of prepayments on the Mortgage Loans that exceed the Prepayment As-
sumption, and generally will decrease (but not below zero for any period) if
the prepayments are slower than the Prepayment Assumption. An increase in pre-
payments on the Mortgage Loans with respect to a Series of Regular Certificates
can result in both a change in the priority of principal payments with respect
to certain Classes of Regular Certificates and either an increase or decrease
in the daily portions of original issue discount with respect to such Regular
Certificates.
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In the case of a Non-Pro Rata Certificate, the Seller intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Non-Pro Rata Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of
the entire unpaid principal balance of any Non-Pro Rata Certificate (or portion
of such unpaid principal balance), (a) the remaining unaccrued original issue
discount allocable to such Certificate (or to such portion) will accrue at the
time of such distribution, and (b) the accrual of original issue discount allo-
cable to each remaining Certificate of such Class (or the remaining unpaid
principal balance of a partially redeemed Non-Pro Rata Certificate after a dis-
tribution of principal has been received) will be adjusted by reducing the
present value of the remaining payments on such Class and the adjusted issue
price of such Class to the extent attributable to the portion of the unpaid
principal balance thereof that was distributed. The Seller believes that the
foregoing treatment is consistent with the "pro rata prepayment" rules of the
OID Regulations, but with the rate of accrual of original issue discount deter-
mined based on the Prepayment Assumption for the Class as a whole. Investors
are advised to consult their tax advisors as to this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted is-
sue 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 dis-
count on the Regular Certificate reduced pro rata by a fraction, the numerator
of which is the excess of its purchase price over such adjusted issue price and
the denominator of which is the excess of the remaining stated redemption price
at maturity over the adjusted issue price. Alternatively, such a subsequent
purchaser may elect to treat all such acquisition premium under the constant
yield method, as described below under the heading "Election to Treat All In-
terest Under the Constant Yield Method."
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate. Under
the OID Regulations, interest is treated as payable at a variable rate if, gen-
erally, (i) the issue price does not exceed the original principal balance by
more than a specified amount and (ii) the interest compounds or is payable at
least annually at current values of (a) one or more "qualified floating rates,"
(b) a single fixed rate and one or more qualified floating rates, (c) a single
"objective rate," or (d) a single fixed rate and a single objective rate that
is a "qualified inverse floating rate." A floating rate is a qualified floating
rate if variations in the rate can reasonably be expected to measure contempo-
raneous variations in the cost of newly borrowed funds, where such rate is sub-
ject 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 significantly. An objective rate is
any rate (other than a qualified floating rate) that is determined using a sin-
gle fixed formula and that is based on objective financial or economic informa-
tion, provided that such information is not (i) within the control of the is-
suer or a related party or (ii) unique to the circumstances of the issuer or a
related party. A qualified inverse floating rate is a rate equal to a fixed
rate minus a qualified floating rate that inversely reflects contemporaneous
variations in the cost of newly borrowed funds; an inverse floating rate that
is not a qualified inverse floating rate may nevertheless be an objective rate.
A Class of Regular Certificates may be issued under this Prospectus that does
not have a variable rate under the foregoing rules, for example, a Class that
bears different rates at different times during the period it is outstanding
such that it is considered significantly "front-loaded" or "back-loaded" within
the meaning of the OID Regulations. It is possible that such a Class may be
considered to bear "contingent interest" within the meaning of the OID Regula-
tions. The OID Regulations, as they relate to the treatment of contingent in-
terest, are by their terms not applicable to Regular Certificates. However, if
final regulations dealing with contingent interest with respect to Regular Cer-
tificates apply the same principles as the OID
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Regulations, such regulations may lead to different timing of income inclusion
than would be the case under the OID Regulations. Furthermore, application of
such principles could lead to the characterization of gain on the sale of con-
tingent interest Regular Certificates as ordinary income. Investors should con-
sult their tax advisors regarding the appropriate treatment of any Regular Cer-
tificate 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 other-
wise 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 dis-
count reporting purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "Original Issue Discount," with the yield to maturity and future payments
on such Regular Certificate generally to be determined by assuming that inter-
est will be payable for the life of the Regular Certificate based on the ini-
tial rate (or, if different, the value of the applicable variable rate as of
the pricing date) for the relevant Class. Unless required otherwise by applica-
ble 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 in-
cludible in the stated redemption price at maturity. Ordinary income reportable
for any period will be adjusted based on subsequent changes in the applicable
interest rate index.
Although unclear under the OID Regulations, unless required otherwise by 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 create
more than de minimis original issue discount. The yield on such Regular Certif-
icates for purposes of accruing original issue discount will be a hypothetical
fixed rate based on the fixed rates, in the case of fixed rate Mortgage Loans,
and initial "teaser rates" followed by fully indexed rates, in the case of ad-
justable rate Mortgage Loans. In the case of adjustable rate Mortgage Loans,
the applicable index used to compute interest on the Mortgage Loans in effect
on the pricing date (or possibly the issue date) will be deemed to be in effect
beginning with the period in which the first weighted average adjustment date
occurring after the issue date occurs. Adjustments will be made in each accrual
period either increasing or decreasing the amount of ordinary income reportable
to reflect the actual Pass-Through Rate on the Regular Certificates.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market 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 dis-
count, "market discount" is the amount by which the purchaser's original basis
in the Regular Certificate (i) is exceeded by the then-current principal amount
of the Regular Certificate, or (ii) in the case of a Regular Certificate having
original issue discount, is exceeded by the adjusted issue price of such Regu-
lar Certificate at the time of purchase. Such purchaser generally will be re-
quired 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
distribu-
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tion. Such market discount would accrue in a manner to be provided in Treasury
regulations and should take into account the Prepayment Assumption. The Confer-
ence Committee Report to the 1986 Act provides that until such regulations are
issued, such market discount would accrue either (i) on the basis of a constant
interest rate, or (ii) in the ratio of stated interest allocable to the rele-
vant period to the sum of the interest for such period plus the remaining in-
terest as of the end of such period, or in the case of a Regular Certificate
issued with original issue discount, in the ratio of original issue discount
accrued for the relevant period to the sum of the original issue discount ac-
crued for such period plus the remaining original issue discount as of the end
of such period. Such purchaser also generally will be required to treat a por-
tion of any gain on a sale or exchange of the Regular Certificate as ordinary
income to the extent of the market discount accrued to the date of disposition
under one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial distributions in reduction of the stated
redemption price at maturity were received. Such purchaser will be required to
defer deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Certificate over the in-
terest distributable thereon. The deferred portion of such interest expense in
any taxable year generally will not exceed the accrued market discount on the
Regular Certificate for such year. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which the related
market discount income is recognized or the Regular Certificate is disposed of.
As an alternative to the inclusion of market discount in income on the forego-
ing basis, the Regular Certificateholder may elect to include market discount
in income currently as it accrues on all market discount instruments acquired
by such Regular Certificateholder in that taxable year or thereafter, in which
case the interest deferral rule will not apply. See "Election to Treat All In-
terest 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 Cer-
tificate multiplied by the weighted average maturity of the Regular Certificate
(determined as described above in the third paragraph under "Original Issue
Discount") remaining after the date of purchase. It appears that de minimis
market discount would be reported in a manner similar to de minimis original
issue discount. See "Original Issue Discount" above. Treasury regulations im-
plementing the market discount rules have not yet been issued, and therefore
investors should consult their own tax advisors regarding the application of
these rules. Investors should also consult Revenue Procedure 92-67 concerning
the elections to include market discount in income currently and to accrue mar-
ket 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 un-
der 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 Certificate,
rather than as a separate deduction item. See "Election to Treat All Interest
Under the Constant Yield Method" below regarding an alternative manner in which
the Code Section 171 election may be deemed to be made.
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Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to such an election, (i) "interest" includes stated interest, original issue
discount, de minimis original issue discount, market discount and de minimis
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (ii) the debt instrument is treated as if the instrument were is-
sued on the holder's acquisition date in the amount of the holder's adjusted
basis immediately after acquisition. It is unclear whether, for this purpose,
the initial Prepayment Assumption would continue to apply or if a new prepay-
ment assumption as of the date of the holder's acquisition would apply. A
holder generally may make such an election on an instrument by instrument basis
or for a class or group of debt instruments. However, if the holder makes such
an election with respect to a debt instrument with amortizable bond premium or
with market discount, the holder is deemed to have made elections to amortize
bond premium or to report market discount income currently as it accrues under
the constant yield method, respectively, for all premium bonds held or market
discount bonds acquired by the holder in the same taxable year or thereafter.
The election is made on the holder's federal income tax return for the year in
which the debt instrument is acquired and is irrevocable except with the ap-
proval of the Internal Revenue Service. Investors should consult their own tax
advisors regarding the advisability of making such an election.
Treatment of Losses
Regular Certificateholders will be required to report income with respect to
Regular Certificates on the accrual method of accounting, without giving effect
to delays or reductions in distributions attributable to defaults or delinquen-
cies on the Mortgage Loans, except to the extent it can be established that
such losses are uncollectible. Accordingly, the holder of a Regular Certifi-
cate, particularly a Subordinated Certificate, may have income, or may incur a
diminution in cash flow as a result of a default or delinquency, but may not be
able to take a deduction (subject to the discussion below) for the correspond-
ing loss until a subsequent taxable year. In this regard, investors are cau-
tioned that while they may generally cease to accrue interest income if it rea-
sonably appears that the interest will be uncollectible, the Internal Revenue
Service may take the position that original issue discount must continue to be
accrued in spite of its uncollectibility until the debt instrument is disposed
of in a taxable transaction or becomes worthless in accordance with the rules
of Code Section 166. To the extent the rules of Code Section 166 regarding bad
debts are applicable, it appears that Regular Certificateholders that are cor-
porations or that otherwise hold the Regular Certificates in connection with a
trade or business should in general be allowed to deduct as an ordinary loss
such loss with respect to principal sustained during the taxable year on ac-
count of any such Regular Certificates becoming wholly or partially worthless,
and that, in general, Regular Certificateholders that are not corporations and
do not hold the Regular Certificates in connection with a trade or business
should be allowed to deduct as a short-term capital loss any loss sustained
during the taxable year on account of a portion of any such Regular Certifi-
cates becoming wholly worthless. Although the matter is not free from doubt,
such non-corporate Regular Certificateholders should be allowed a bad debt de-
duction at such time as the principal balance of such Regular Certificates is
reduced to reflect losses resulting from any liquidated Mortgage Loans. The In-
ternal Revenue Service, however, could take the position that non-corporate
holders will be allowed a bad debt deduction to reflect such losses only after
all the Mortgage Loans remaining in the Trust Estate have been liquidated or
the applicable Class of Regular Certificates has been otherwise retired. The
Internal Revenue Service could also assert that losses on the Regular Certifi-
cates 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" origi-
nal issue discount which would be deductible only against future positive orig-
inal 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 Reg-
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ular Certificates. While losses attributable to interest previously reported as
income should be deductible as ordinary losses by both corporate and non-corpo-
rate holders, the Internal Revenue Service may take the position that losses
attributable to accrued original issue discount may only be deducted as capital
losses in the case of non-corporate holders who do not hold the Regular Certif-
icates in connection with a trade or business. Special loss rules are applica-
ble to banks and thrift institutions, including rules regarding reserves for
bad debts. Such taxpayers are advised to consult their tax advisors regarding
the treatment of losses on Regular Certificates.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate, the
Regular Certificateholder will recognize gain or loss equal to the difference,
if any, between the amount received and its adjusted basis in the Regular 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 previ-
ously 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 pro-
vided in this paragraph, any gain or loss on the sale or exchange of a Regular
Certificate realized by an investor who holds the Regular Certificate as a cap-
ital asset will be capital gain or loss and will be long-term or short-term de-
pending on whether the Regular Certificate has been held for the long-term cap-
ital 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 in-
vestment in the conversion transaction at 120% of the appropriate applicable
Federal rate under Code Section 1274(d) in effect at the time the taxpayer en-
tered into the transaction minus any amount previously treated as ordinary in-
come 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 addi-
tion, 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 pursu-
ant 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 corporations is the same with respect to both ordinary
income and capital gains.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable income
of holders of Residual Certificates ("Residual Holders"), and will not be taxed
separately to the REMIC Pool. The daily portions of REMIC taxable income or net
loss of a Residual Holder are determined by allocating the REMIC Pool's taxable
income or net loss for each calendar quarter ratably to each day in such quar-
ter and by allocating such daily portion among the Residual Holders in propor-
tion 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, ex-
cept that (i) the limitations on deductibility of investment interest expense
and expenses for the production of income do not apply, (ii) all bad loans will
be deductible as business bad debts, and (iii) the limitation on the deduct-
ibility of interest and expenses related to tax-exempt income will apply. The
REMIC Pool's gross income includes interest,
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original issue discount income, and market discount income, if any, on the
Mortgage Loans, reduced by amortization of any premium on the Mortgage Loans,
plus income from amortization of issue premium, if any, on the Regular Certifi-
cates, plus income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
Regular Certificates. The REMIC Pool's deductions include interest and original
issue discount expense on the Regular Certificates, servicing fees on the Mort-
gage Loans, other administrative expenses of the REMIC Pool and realized losses
on the Mortgage Loans. The requirement that Residual Holders report their pro
rata share of taxable income or net loss of the REMIC Pool will continue until
there are no Certificates of any class of the related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market discount income
or amortization of premium with respect to the Mortgage Loans, on the one hand,
and the timing of deductions for interest (including original issue discount)
or income from amortization of issue premium on the Regular Certificates, on
the other hand. In the event that an interest in the Mortgage Loans is acquired
by the REMIC Pool at a discount, and one or more of such Mortgage Loans is pre-
paid, the Residual Holder may recognize taxable income without being entitled
to receive a corresponding amount of cash because (i) the prepayment may be
used in whole or in part to make distributions in reduction of principal or
Stated Amount on the Regular Certificates, and (ii) the discount on the Mort-
gage 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 pay-
ments in reduction of Stated Amount sequentially, this mismatching of income
and deductions is particularly likely to occur in the early years following is-
suance of the Regular Certificates when distributions in reduction of principal
or Stated Amount are being made in respect of earlier Classes of Regular Cer-
tificates to the extent that such Classes are not issued with substantial dis-
count or are issued at a premium. If taxable income attributable to such a mis-
matching is realized, in general, losses would be allowed in later years as
distributions on the later maturing Classes of Regular Certificates are made.
Taxable income may also be greater in earlier years than in later years as a
result of the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of such a Series of Regular Certificates,
may increase over time as distributions in reduction of principal or Stated
Amount are made on the lower yielding Classes of Regular Certificates, whereas,
to the extent the REMIC Pool consists of fixed rate Mortgage Loans, interest
income with respect to any given Mortgage Loan will remain constant over time
as a percentage of the outstanding principal amount of that loan. Consequently,
Residual Holders must have sufficient other sources of cash to pay any federal,
state, or local income taxes due as a result of such mismatching or unrelated
deductions against which to offset such income, subject to the discussion of
"excess inclusions" below under "-- Limitations on Offset or Exemption of REMIC
Income." The timing of such mismatching of income and deductions described in
this paragraph, if present with respect to a Series of Certificates, may have a
significant adverse effect upon a Residual Holder's after-tax rate of return.
In addition, a Residual Holder's taxable income during certain periods may ex-
ceed the income reflected by such Residual Holder for such periods in accor-
dance with generally accepted accounting principles. Investors should consult
their own accountants concerning the accounting treatment of their investment
in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual Certif-
icate as of the close of the quarter (or time of disposition of the Residual
Certificate if earlier), determined without taking into account the net loss
for the quarter. The initial adjusted basis of a purchaser of a Residual Cer-
tificate is the amount paid for such Residual Certificate. Such adjusted basis
will be increased by the amount of taxable income of the REMIC Pool reportable
by the Residual Holder and will be decreased (but not below zero), first, by a
cash distribution from the REMIC Pool and, second, by
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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 in-
definitely with respect to the Residual Holder as to whom such loss was disal-
lowed and may be used by such Residual Holder only to offset any income gener-
ated 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 re-
lated REMIC Pool. However, that taxable income will not include cash received
by the REMIC Pool that represents a recovery of the REMIC Pool's basis in its
assets. Such recovery of basis by the REMIC Pool will have the effect of amor-
tization of the issue price of the Residual Certificates over their life. How-
ever, in view of the possible acceleration of the income of Residual Holders
described above under "Taxation of REMIC Income," the period of time over which
such issue price is effectively amortized may be longer than the economic life
of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value of
anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC Pool's basis in its assets. The preamble to the REMIC Regulations
states that the Internal Revenue Service may provide future guidance on the
proper tax treatment of payments made by a transferor of such a residual inter-
est to induce the transferee to acquire the interest, and Residual Holders
should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the Re-
sidual Holder will not recover a portion of such basis until termination of the
REMIC Pool unless future Treasury regulations provide for periodic adjustments
to the REMIC income otherwise reportable by such holder. The REMIC Regulations
currently in effect do not so provide. See "-- Treatment of Certain Items of
REMIC Income and Expense -- Market Discount" below regarding the basis of Mort-
gage Loans to the REMIC Pool and "Sale or Exchange of a Residual Certificate"
below regarding possible treatment of a loss upon termination of the REMIC Pool
as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Seller intends to compute REMIC income and expense in accordance
with the Code and applicable regulations, the authorities regarding the deter-
mination of specific items of income and expense are subject to differing in-
terpretations. 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 Resid-
ual Holders or differences in capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's deductions
for original issue discount and income from amortization of issue premium will
be determined in the same manner as original issue discount income on Regular
Certificates as described above under "Taxation of Regular Certificates --
Original Issue Discount" and "-- Variable Rate Regular Certificates," without
regard to the de minimis rule described therein, and "-- Premium."
Market Discount. The REMIC Pool will have market discount income in respect
of Mortgage Loans if, in general, the basis of the REMIC Pool in such Mortgage
Loans is exceeded by their unpaid principal balances. The REMIC Pool's basis in
such Mortgage Loans is generally the fair market value of the Mortgage Loans
immediately after the transfer thereof to the REMIC Pool. The REMIC Regulations
provide that such basis is equal in the aggregate to the issue prices of all
regular and residual interests in the REMIC Pool. The accrued portion of such
market discount would be recognized currently as an item of ordinary income in
a manner similar to original issue discount. Market discount income generally
should accrue in the manner described above under "Taxation of Regular Certifi-
cates -- Market Discount."
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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 accor-
dance with a reasonable method regularly employed by the holder thereof. The
allocation of such premium pro rata among principal payments should be consid-
ered a reasonable method; however, the Internal Revenue Service may argue that
such premium should be allocated in a different manner, such as allocating such
premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion (or all) of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Holder will be subject to special
treatment. That portion, referred to as the "excess inclusion," is equal to the
excess of REMIC taxable income for the calendar quarter allocable to a Residual
Certificate over the daily accruals for such quarterly period of (i) 120% of
the long-term applicable Federal rate that would have applied to the Residual
Certificate (if it were a debt instrument) on the Startup Day under Code Sec-
tion 1274(d), multiplied by (ii) the adjusted issue price of such Residual Cer-
tificate at the beginning of such quarterly period. For this purpose, the ad-
justed issue price of a Residual Certificate at the beginning of a quarter is
the issue price of the Residual Certificate, plus the amount of such daily
accruals of REMIC income described in this paragraph for all prior quarters,
decreased by any distributions made with respect to such Residual Certificate
prior to the beginning of such quarterly period. Accordingly, the portion of
the REMIC Pool's taxable income that will be treated as excess inclusions will
be a larger portion of such income as the adjusted issue price of the Residual
Certificates diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of the ex-
cess 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 inclusion in-
come. Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the Residual Holder's
excess inclusions will be treated as unrelated business taxable income of such
Residual Holder for purposes of Code Section 511. In addition, REMIC taxable
income is subject to 30% withholding tax with respect to certain persons who
are not U.S. Persons (as defined below under "Tax-Related Restrictions on
Transfer of Residual Certificates -- Foreign Investors"), and the portion
thereof attributable to excess inclusions is not eligible for any reduction in
the rate of withholding tax (by treaty or otherwise). See "Taxation of Certain
Foreign Investors -- Residual Certificates" below. Finally, if a real estate
investment trust or a regulated investment company owns a Residual Certificate,
a portion (allocated under Treasury regulations yet to be issued) of dividends
paid by the real estate investment trust or regulated investment company could
not be offset by net operating losses of its shareholders, would constitute un-
related business taxable income for tax-exempt shareholders, and would be inel-
igible for reduction of withholding to certain persons who are not U.S. Per-
sons. The SBJPA of 1996 has eliminated the special rule permitting Section 593
institutions ("thrift institutions") to use net operating losses and other al-
lowable deductions to offset their excess inclusion income from Residual Cer-
tificates that have "significant value" within the meaning of the REMIC Regula-
tions, effective for taxable years beginning after Decem
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ber 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 Resid-
ual Holder. First, alternative minimum taxable income for a Residual Holder is
determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Holder's al-
ternative minimum taxable income for a taxable year cannot be less than the ex-
cess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess in-
clusions. These rules are effective for taxable years beginning after December
31, 1986, unless a Residual Holder elects to have such rules apply only to tax-
able years beginning after August 20, 1996.
An exception to the inability of a Residual Holder to offset excess inclu-
sions with unrelated deductions and net operating losses applies to Code Sec-
tion 593 institutions ("thrift institutions"). For purposes of applying this
rule, all members of an affiliated group filing a consolidated return are
treated as one taxpayer, except that thrift institutions to which Code Section
593 applies, together with their subsidiaries formed to issue REMICs, are
treated as separate corporations. Furthermore, the Code provides that regula-
tions may disallow the ability of a thrift institution to use deductions to
offset excess inclusions if necessary or appropriate to prevent the avoidance
of tax. A thrift institution may not so offset its excess inclusions unless the
Residual Certificates have "significant value," which requires that (i) the Re-
sidual Certificates have an issue price that is at least equal to 2% of the ag-
gregate of the issue prices of all Residual Certificates and Regular Certifi-
cates with respect to the REMIC Pool, and (ii) the anticipated weighted average
life of the Residual Certificates is at least 20% of the anticipated weighted
average life of the REMIC Pool. The anticipated weighted average life of the
Residual Certificates is based on all distributions anticipated to be received
with respect thereto (using the Prepayment Assumption). The anticipated
weighted average life of the REMIC Pool is the aggregate weighted average life
of all classes of interests therein (computed using all anticipated distribu-
tions on a regular interest with nominal or no principal). Finally, an ordering
rule under the REMIC Regulations provides that a thrift institution may only
offset its excess inclusion income with deductions after it has first applied
its deductions against income that is not excess inclusion income. If applica-
ble, the Prospectus Supplement with respect to a Series will set forth whether
the Residual Certificates are expected to have "significant value" within the
meaning of the REMIC Regulations.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a Residual
Certificate is transferred to a Disqualified Organization (as defined below), a
tax would be imposed in an amount equal to the product of (i) the present value
of the total anticipated excess inclusions with respect to such Residual Cer-
tificate for periods after the transfer and (ii) the highest marginal federal
income tax rate applicable to corporations. The REMIC Regulations provide that
the anticipated excess inclusions are based on actual prepayment experience to
the date of the transfer and projected payments based on the Prepayment Assump-
tion. The present value rate equals the applicable Federal rate under Code Sec-
tion 1274(d) as of the date of the transfer for a term ending with the last
calendar quarter in which excess inclusions are expected to accrue. Such rate
is applied to the anticipated excess inclusions from the end of the remaining
calendar quarters in which they arise to the date of the transfer. Such a tax
generally would be imposed on the transferor of the Residual Certificate, ex-
cept that where such transfer is through an agent (including a broker, nominee,
or other middleman) for a Disqualified Organization, the tax would instead be
imposed on such agent. However, a transferor of a Residual Certificate would in
no event be liable for such tax with respect to a transfer if the transferee
furnishes to the transferor an affidavit stating that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may
be waived by the Internal Revenue Service if the Disqualified Organization
promptly disposes of the
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Residual Certificate and the transferor pays income tax at the highest corpo-
rate rate on the excess inclusion for the period the Residual Certificate is
actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess 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 Or-
ganization, and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the Pass-Through
Entity for the taxable year. The Pass-Through Entity would not be liable for
such tax if it has received an affidavit from such record holder that it is not
a Disqualified Organization or stating such holder's taxpayer identification
number and, during the period such person is the record holder of the Residual
Certificate, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United States,
any state or political subdivision thereof, any foreign government, any 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 ac-
tivities are subject to tax and a majority of its board of directors is not se-
lected by any such governmental entity), any cooperative organization furnish-
ing 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 taxa-
tion under the Code unless such organization is subject to the tax on unrelated
business income imposed by Code Section 511, and (ii) "Pass-Through Entity"
means any regulated investment company, real estate investment trust, common
trust fund, partnership, trust or estate and certain corporations operating on
a cooperative basis. Except as may be provided in Treasury regulations, any
person holding an interest in a Pass-Through Entity as a nominee for another
will, with respect to such interest, be treated as a Pass-Through Entity.
The Pooling and Servicing Agreement with respect to a Series will provide
that no legal or beneficial interest in a Residual Certificate may be trans-
ferred or registered unless (i) the proposed transferee furnishes to the Seller
and the Trustee an affidavit providing its taxpayer identification number and
stating that such transferee is the beneficial owner of the Residual Certifi-
cate and is not a Disqualified Organization and is not purchasing such Residual
Certificate on behalf of a Disqualified Organization (i.e., as a broker, nomi-
nee or middleman thereof) and (ii) the transferor provides a statement in writ-
ing to the Seller and the Trustee that it has no actual knowledge that such af-
fidavit is false. Moreover, the Pooling and Servicing Agreement will provide
that any attempted or purported transfer in violation of these transfer re-
strictions 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 leg-
end referring to such restrictions on transfer, and each Residual Holder will
be deemed to have agreed, as a condition of ownership thereof, to any amend-
ments to the related Pooling and Servicing Agreement required under the Code or
applicable Treasury regulations to effectuate the foregoing restrictions. In-
formation 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 pro-
viding such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard certain
transfers of Residual Certificates, in which case the transferor would continue
to be treated as the owner of the Residual Certificates and thus would continue
to be subject to tax on its allocable portion of the net income of the REMIC
Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual inter-
est" (as defined below) to a Residual Holder (other than a Residual Holder who
is not a U.S. Person, as defined below under "Foreign Investors") is disre-
garded for all federal income tax purposes if a significant purpose of the
transferor is to impede the assessment or collection of tax. A residual inter-
est in a REMIC (including a residual interest with a positive value at issu-
ance) is a "noneconomic residual interest" unless, at the time of the transfer,
(i) the present
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value of the expected future distributions on the residual interest at least
equals the product of the present value of the anticipated excess inclusions
and the highest corporate income tax rate in effect for the year in which the
transfer occurs, and (ii) the transferor reasonably expects that the transferee
will receive distributions from the REMIC at or after the time at which taxes
accrue on the anticipated excess inclusions in an amount sufficient to satisfy
the accrued taxes on each excess inclusion. The anticipated excess inclusions
and the present value rate are determined in the same manner as set forth above
under "Disqualified Organizations." The REMIC Regulations explain that a sig-
nificant purpose to impede the assessment or collection of tax exists if the
transferor, at the time of the transfer, either knew or should have known that
the transferee would be unwilling or unable to pay taxes due on its share of
the taxable income of the REMIC. A safe harbor is provided if (i) the trans-
feror conducted, at the time of the transfer, a reasonable investigation of the
financial condition of the transferee and found that the transferee histori-
cally had paid its debts as they came due and found no significant evidence to
indicate that the transferee would not continue to pay its debts as they came
due in the future, and (ii) the transferee represents to the transferor that it
understands that, as the holder of the non-economic residual interest, the
transferee may incur tax liabilities in excess of any cash flows generated by
the interest and that the transferee intends to pay taxes associated with hold-
ing the residual interest as they become due. The Pooling and Servicing Agree-
ment 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 Organiza-
tions."
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 restric-
tions pursuant to which such a transfer may be made. The term "U.S. Person"
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, or an estate or trust that is subject to
U.S. federal income tax regardless of the source of its income, 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 U.S. federal income tax
regardless of the source of its income.
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual Holder will
recognize gain or loss equal to the excess, if any, of the amount realized over
the adjusted basis (as described above under "Taxation of Residual Certifi-
cates -- Basis and Losses") of such Residual Holder in such Residual Certifi-
cate 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 ex-
tent that any cash
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distribution to it from the REMIC Pool exceeds such adjusted basis on that Dis-
tribution 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 Cer-
tificate, in which case, if the Residual Holder has an adjusted basis in its
Residual Certificate remaining when its interest in the REMIC Pool terminates,
and if it holds such Residual Certificate as a capital asset under Code Section
1221, then it will recognize a capital loss at that time in the amount of such
remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion 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 pro-
vided 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
Prospective purchasers of the Residual Certificates should be aware that on
January 3, 1995, the Internal Revenue Service released proposed regulations
(the "Proposed Mark to Market Regulations") under Code Section 475 relating to
the requirement that a securities dealer mark to market securities held for
sale to customers. This mark-to-market requirement applies to all securities of
a dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Proposed Mark to Market Regulations pro-
vide that, for purposes of this mark-to-market requirement, a Residual Certifi-
cate is not treated as a security and thus may not be marked to market. The
Proposed Mark to Market Regulations apply to all Residual Certificates acquired
on or after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited 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 Reg-
ular Certificates as a result of a default
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on qualified mortgages or to facilitate a clean-up call (generally, an optional
termination to save administrative costs when no more than a small percentage
of the Certificates is outstanding). The REMIC Regulations indicate that the
modification of a Mortgage Loan generally will not be treated as a disposition
if it is occasioned by a default or reasonably foreseeable default, an assump-
tion of the Mortgage Loan, the waiver of a due-on-sale or due-on-encumbrance
clause, or the conversion of an interest rate by a mortgagor pursuant to the
terms of a convertible adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day. 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 corporate
rate on "net income from foreclosure property," determined by reference to the
rules applicable to real estate investment trusts. Generally, property acquired
by deed in lieu of foreclosure would be treated as "foreclosure property" for a
period of two years, with possible extensions. Net income from foreclosure
property generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than quali-
fying rents and other qualifying income for a real estate investment trust. It
is not anticipated that the REMIC Pool will have any taxable net income from
foreclosure property.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC Pool's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC Pool will not be subject to the prohibited transaction
rules on the sale of its assets, provided that the REMIC Pool credits or dis-
tributes in liquidation all of the sale proceeds plus its cash (other than
amounts retained to meet claims) to holders of Regular Certificates and Resid-
ual Holders within the 90-day period.
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 regulations
provide that, except where there is a single Residual Holder for an entire tax-
able year, the REMIC Pool will be subject to the procedural and administrative
rules of the Code applicable to partnerships, including the determination by
the Internal Revenue Service of any adjustments to, among other things, items
of REMIC income, gain, loss, deduction, or credit in a unified administrative
proceeding. The Master Servicer will be obligated to act as "tax matters per-
son," as defined in applicable Treasury regulations, with respect to the REMIC
Pool, in its capacity as either Residual Holder or agent of the Residual Hold-
ers. 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 per-
son 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 limita-
tion with respect to certain itemized deductions described in Code Section 67,
to the extent that such itemized deduc-
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tions, in the aggregate, do not exceed 2% of the investor's adjusted gross in-
come. In addition, Code Section 68 provides that itemized deductions otherwise
allowable for a taxable year of an individual taxpayer will be reduced by the
lesser of (i) 3% of the excess, if any, of adjusted gross income over $100,000
($50,000 in the case of a married individual filing a separate return) (subject
to adjustment for inflation), or (ii) 80% of the amount of itemized deductions
otherwise allowable for such year. In the case of a REMIC Pool, such deductions
may include deductions under Code Section 212 for the Servicing Fee and all ad-
ministrative and other expenses relating to the REMIC Pool, or any similar ex-
penses 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 sub-
ject to such limitation on deductions. In addition, such expenses are not de-
ductible at all for purposes of computing the alternative minimum tax, and may
cause such investors to be subject to significant additional tax liability.
Temporary Treasury regulations provide that the additional gross income and
corresponding amount of expenses generally are to be allocated entirely to the
holders of Residual Certificates in the case of a REMIC Pool that would not
qualify as a fixed investment trust in the absence of a REMIC election. Howev-
er, such additional gross income and limitation on deductions will apply to the
allocable portion of such expenses to holders of Regular Certificates, as well
as holders of Residual Certificates, where such Regular Certificates are issued
in a manner that is similar to pass-through certificates in a fixed investment
trust. Unless indicated otherwise in the applicable Prospectus Supplement, all
such expenses will be allocable to the Residual Certificates. In general, such
allocable portion will be determined based on the ratio that a REMIC
Certificateholder's income, determined on a daily basis, bears to the income of
all holders of Regular Certificates and Residual Certificates with respect to a
REMIC Pool. As a result, individuals, estates or trusts holding REMIC Certifi-
cates (either directly or indirectly through a grantor trust, partnership, S
corporation, REMIC, or certain other pass-through entities described in the
foregoing temporary Treasury regulations) may have taxable income in excess of
the interest income at the pass-through rate on Regular Certificates that are
issued in a single class or otherwise consistently with fixed investment trust
status or in excess of cash distributions for the related period on Residual
Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign 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 distribu-
tions under Code Section 1441 or 1442, with an appropriate statement, signed
under penalties of perjury, identifying the beneficial owner and stating, among
other things, that the beneficial owner of the Regular Certificate is a Non-
U.S. Person. If such statement, or any other required statement, is not provid-
ed, 30% withholding will apply unless reduced or eliminated pursuant to an ap-
plicable tax treaty or unless the interest on the Regular Certificate is
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Person. In the latter case, such Non-U.S. Person will
be subject to United States federal income tax at regular rates. Investors who
are Non-U.S. Persons should consult their own tax advisors regarding the spe-
cific tax consequences to them of owning a Regular Certificate. The term "Non-
U.S. Person" means any person who is not a U.S. Person.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Holders who are Non-U.S. Persons generally should be treated as in-
terest for purposes of the 30% (or lower treaty rate) United States withholding
tax. Treasury regulations provide that amounts
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distributed to Residual Holders may qualify as "portfolio interest," subject to
the conditions described in "Regular Certificates" above, but only to the ex-
tent that (i) the Mortgage Loans were issued after July 18, 1984 and (ii) the
Trust Estate or segregated pool of assets therein (as to which a separate REMIC
election will be made), to which the Residual Certificate relates, consists of
obligations issued in "registered form" within the meaning of Code Section
163(f)(1). Generally, Mortgage Loans will not be, but regular interests in an-
other REMIC Pool will be, considered obligations issued in registered form.
Furthermore, a Residual Holder will not be entitled to any exemption from the
30% withholding tax (or lower treaty rate) to the extent of that portion of
REMIC taxable income that constitutes an "excess inclusion." See "Taxation of
Residual Certificates -- Limitations on Offset or Exemption of REMIC Income."
If the amounts paid to Residual Holders who are Non-U.S. Persons are effec-
tively 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 ac-
count for purposes of withholding only when paid or otherwise distributed (or
when the Residual Certificate is disposed of) under rules similar to withhold-
ing upon disposition of debt instruments that have original issue discount. See
"Tax-Related Restrictions on Transfer of Residual Certificates -- Foreign In-
vestors" above concerning the disregard of certain transfers having "tax avoid-
ance potential." Investors who are Non-U.S. Persons should consult their own
tax advisors regarding the specific tax consequences to them of owning Residual
Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale of
the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable 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 applica-
ble provisions of the Code. Any amounts to be withheld from distribution on the
Regular Certificates would be refunded by the Internal Revenue Service or al-
lowed 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 In-
ternal Revenue Service and to individuals, estates, non-exempt and non-charita-
ble trusts, and partnerships who are either holders of record of Regular
Certificates or beneficial owners who own Regular Certificates through a broker
or middleman as nominee. All brokers, nominees and all other non-exempt holders
of record of Regular Certificates (including corporations, non-calendar year
taxpayers, securities or commodities dealers, real estate investment trusts,
investment companies, common trust funds, thrift institutions and charitable
trusts) may request such information for any calendar quarter by telephone or
in writing by contacting the person designated in Internal Revenue Service Pub-
lication 938 with respect to a particular Series of Regular Certificates. Hold-
ers 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.
Treasury regulations require that, in addition to the foregoing requirements,
information must be furnished quarterly to Residual Holders, furnished annual-
ly, if applicable, to holders of
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Regular Certificates, and filed annually with the Internal Revenue Service con-
cerning Code Section 67 expenses (see "Limitations on Deduction of Certain Ex-
penses" above) allocable to such holders. Furthermore, under such regulations,
information must be furnished quarterly to Residual Holders, furnished annually
to holders of Regular Certificates, and filed annually with the Internal Reve-
nue Service concerning the percentage of the REMIC Pool's assets meeting the
qualified asset tests described above under "Status of REMIC Certificates."
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO WHICH NO REMIC ELECTION
IS MADE
General
In the event that no election is made to treat a Trust Estate (or a 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 undivided
interest in each of the Mortgage Loans, subject to the discussion below under
"Recharacterization of Servicing Fees." Accordingly, the holder of a Certifi-
cate 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 rep-
resented by its Certificate, including interest at the coupon rate on such
Mortgage Loans, original issue discount (if any), prepayment fees, assumption
fees, and late payment charges received by the Servicer, in accordance with
such Certificateholder's method of accounting. A Certificateholder generally
will be able to deduct its share of the Servicing Fee and all administrative
and other expenses of the Trust Estate in accordance with its method of ac-
counting, provided that such amounts are reasonable compensation for services
rendered to that Trust Estate. However, investors who are individuals, estates
or trusts who own Certificates, either directly or indirectly through certain
pass-through entities, will be subject to limitation with respect to certain
itemized deductions described in Code Section 67, including deductions under
Code Section 212 for the Servicing Fee and all such administrative and other
expenses of the Trust Estate, to the extent that such deductions, in the aggre-
gate, do not exceed two percent of an investor's adjusted gross income. In ad-
dition, Code Section 68 provides that itemized deductions otherwise allowable
for a taxable year of an individual taxpayer will be reduced by the lesser of
(i) 3% of the excess, if any, of adjusted gross income over $100,000 ($50,000
in the case of a married individual filing a separate return) (in each case, as
adjusted for inflation), or (ii) 80% of the amount of itemized deductions oth-
erwise allowable for such year. As a result, such investors holding Certifi-
cates, directly or indirectly through a pass-through entity, may have aggregate
taxable income in excess of the aggregate amount of cash received on such Cer-
tificates with respect to interest at the pass-through rate or as discount in-
come on such Certificates. In addition, such expenses are not deductible at all
for purposes of computing the alternative minimum tax, and may cause such in-
vestors to be subject to significant additional tax liability. Moreover, where
there is Fixed Retained Yield with respect to the Mortgage Loans underlying a
Series of Certificates or where the servicing fees are in excess of reasonable
servicing compensation, the transaction will be subject to the application of
the "stripped bond" and "stripped coupon" rules of the Code, as described below
under "Stripped Certificates" and "Recharacterization of Servicing Fees," re-
spectively.
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
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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).
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 in-
vestment 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 Certificate
will be determined generally as described above under "Federal Income Tax Con-
sequences 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 discount income
are applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984. Un-
der the OID Regulations, such original issue discount could arise by the charg-
ing 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 com-
pounding of interest, in advance of the cash attributable to such income. Un-
less indicated otherwise in the applicable Prospectus Supplement, no prepayment
assumption will be assumed for purposes of such accrual. However, Code Section
1272 provides for a reduction in the amount of original issue discount includ-
ible in the income of a holder of an obligation that acquires the obligation
after its initial issuance at a price greater than the sum of the original is-
sue price and the previously accrued original issue discount, less prior pay-
ments 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.
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Market Discount. Certificateholders also will be subject to the market dis-
count rules to the extent that the conditions for application of those sections
are met. Market discount on the Mortgage Loans will be determined and will be
reported as ordinary income generally in the manner described above under "Fed-
eral Income Tax Consequences for REMIC Certificates -- Taxation of Regular Cer-
tificates -- Market Discount," except that the ratable accrual methods de-
scribed therein will not apply. Rather, the holder will accrue market discount
pro rata over the life of the Mortgage Loans, unless the constant yield method
is elected. Unless indicated otherwise in the applicable Prospectus Supplement,
no prepayment assumption will be assumed for purposes of such accrual.
Recharacterization of Servicing Fees
If the servicing fees paid to a Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would represent neither 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 maximum
amount of servicing compensation that may be considered reasonable in the con-
text of this or similar transactions or whether, in the case of the Certifi-
cate, the reasonableness of servicing compensation should be determined on a
weighted average or loan-by-loan basis. If a loan-by-loan basis is appropriate,
the likelihood that such amount would exceed reasonable servicing compensation
as to some of the Mortgage Loans would be increased. Recently issued Internal
Revenue Service guidance indicates that a servicing fee in excess of reasonable
compensation ("excess servicing") will cause the Mortgage Loans to be treated
under the "stripped bond" rules. Such guidance provides safe harbors for ser-
vicing deemed to be reasonable and requires taxpayers to demonstrate that the
value of servicing fees in excess of such amounts is not greater than the value
of the services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a Servicer
who receives a servicing fee in excess of such amounts would be viewed as re-
taining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of owner-
ship of the right to receive some or all of the interest payments on an obliga-
tion from the right to receive some or all of the principal payments on the ob-
ligation would result in treatment of such Mortgage Loans as "stripped coupons"
and "stripped bonds." Subject to the de minimis rule discussed below under "--
Stripped Certificates," each stripped bond or stripped coupon could be consid-
ered for this purpose as a non-interest bearing obligation issued on the date
of issue of the Certificates, and the original issue discount rules of the Code
would apply to the holder thereof. While Certificateholders would still be
treated as owners of beneficial interests in a grantor trust for federal income
tax purposes, the corpus of such trust could be viewed as excluding the portion
of the Mortgage Loans the ownership of which is attributed to the Servicer, or
as including such portion as a second class of equitable interest. Applicable
Treasury regulations treat such an arrangement as a fixed investment trust,
since the multiple classes of trust interests should be treated as merely fa-
cilitating 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 re-
ported by a cash method holder may be slightly accelerated. See "Stripped Cer-
tificates" below for a further description of the federal income tax treatment
of stripped bonds and stripped coupons.
Sale or Exchange of Certificates
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale
and its aggregate adjusted basis in the Mortgage Loans and other assets 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 Certificate
and the amount of any distributions received thereon. Except as provided above
with respect to market discount on any Mortgage Loans, and except for certain
financial institutions subject to the provisions of Code Section 582(c),
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any such gain or loss generally would be capital gain or loss if the Certifi-
cate was held as a capital asset. However, gain on the sale of a Certificate
will be treated as ordinary income (i) if a Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the Certificateholder's net investment
in the conversion transaction at 120% of the appropriate applicable Federal
rate in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior disposi-
tion 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 elec-
tion under Code Section 163(d)(4) to have net capital gains taxed as investment
income at ordinary income rates. Pursuant to the Revenue Reconciliation Act of
1993 capital gains of certain noncorporate taxpayers are subject to a lower
maximum tax rate than ordinary income of such taxpayers. The maximum tax rate
for corporations is the same with respect to both ordinary income and capital
gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates." The Certificates will be subject to those rules if (i) the
Seller or any of its affiliates retains (for its own account or for purposes of
resale), in the form of Fixed Retained Yield or otherwise, an ownership inter-
est in a portion of the payments on the Mortgage Loans, (ii) the Seller or any
of its affiliates is treated as having an ownership interest in the Mortgage
Loans to the extent it is paid (or retains) servicing compensation in an amount
greater than reasonable consideration for servicing the Mortgage Loans (see
"Certificates -- Recharacterization of Servicing Fees" above), and (iii) a
Class of Certificates are issued in two or more Classes or Subclasses 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 respect
to its pro rata share of all or a portion of the interest payments on each
Mortgage Loan, including the Stripped Certificate's allocable share of the ser-
vicing fees paid to a Servicer, to the extent that such fees represent reason-
able compensation for services rendered. See the discussion above under "Cer-
tificates -- 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 Certificates for fed-
eral income tax purposes is not clear in certain respects at this time, partic-
ularly where such Stripped Certificates are issued with respect to a Mortgage
Pool containing variable-rate Mortgage Loans, the Seller has been advised by
counsel that (i) the Trust Estate will be treated as a grantor trust under
subpart E, Part I of subchapter J of the Code and not as an association taxable
as a corporation or a "taxable mortgage pool" within the meaning of Code Sec-
tion 7701(i), and (ii) each Stripped Certificate should be treated as a single
installment obligation for purposes of calculating original issue discount and
gain or loss on disposition. This treatment is based on the interrelationship
of Code Section 1286, Code Sections 1272 through 1275, and the OID Regulations.
Although it is possible that computations with respect to Stripped Certificates
could be made in one of the ways described below under "Taxation
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of Stripped Certificates -- Possible Alternative Characterizations," the OID
Regulations state, in general, that two or more debt instruments issued by a
single issuer to a single investor in a single transaction should be treated as
a single debt instrument. Accordingly, for OID purposes, all payments on any
Stripped Certificates should be aggregated and treated as though they were made
on a single debt instrument. The Pooling and Servicing Agreement will require
that the Trustee make and report all computations described below using this
aggregate approach, unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for treat-
ment 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 ad-
dition, under these regulations, a Stripped Certificate that represents a right
to payments of both interest and principal may be viewed either as issued with
original issue discount or market discount (as described below), at a de
minimis original issue discount, or, presumably, at a premium. This treatment
indicates that the interest component of such a Stripped Certificate would be
treated as qualified stated interest under the OID Regulations, assuming it is
not an interest-only or super-premium Stripped Certificate. Further, these fi-
nal regulations provide that the purchaser of such a Stripped Certificate will
be required to account for any discount as market discount rather than original
issue discount if either (i) the initial discount with respect to the Stripped
Certificate was treated as zero under the de minimis rule, or (ii) no more than
100 basis points in excess of reasonable servicing is stripped off the related
Mortgage Loans. Any such market discount would be reportable as described above
under "Federal Income Tax Consequences for REMIC Certificates -- Taxation of
Regular Certificates -- Market Discount," without regard to the de minimis rule
therein, assuming that a prepayment assumption is employed in such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as
that of the Mortgage Loans. Although the issue is not free from doubt, counsel
has advised the Seller that Stripped Certificates owned by applicable holders
should be considered to represent "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 treatment.
The application of such Code provisions to Buy-Down Loans is uncertain. See
"Certificates -- Tax Status" above.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "General," each
Stripped Certificate will be considered to have been issued at an original 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 income of
a holder of a Stripped Certificate (referred to in this discussion as a
"Stripped Certificateholder") in any taxable year likely will be computed gen-
erally as described above under "Federal Income Tax Consequences for REMIC Cer-
tificates -- Taxation of Regular Certificates -- Original Issue Discount" and
"-- Variable Rate Regular Certificates." However, with the apparent exception
of a Stripped Certificate qualifying 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
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Certificateholder, presumably under the Prepayment Assumption, other than qual-
ified 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 income
inclusion than would be the case under the OID Regulations. Furthermore, appli-
cation 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 dif-
ference, 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 remain-
ing payments on the Stripped Certificates, such subsequent purchaser will be
required for federal income tax purposes to accrue and report such excess as if
it were original issue discount in the manner described above. It is not clear
for this purpose whether the assumed prepayment rate that is to be used in the
case of a Stripped Certificateholder other than an original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on
the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. When an investor
purchases more than one Class of Stripped Certificates, it is currently unclear
whether for federal income tax purposes such Classes of Stripped Certificates
should be treated separately or aggregated for purposes of the rules described
above.
Possible Alternative Characterizations. The characterizations of the Stripped
Certificates discussed above are not the only possible interpretations of the
applicable Code provisions. For example, the Stripped Certificateholder may be
treated as the owner of (i) one installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to principal
on each Mortgage Loan and a second installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to interest
on each Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there
are scheduled payments of principal and/or interest on each Mortgage Loan, or
(iii) a separate installment obligation for each Mortgage Loan, representing
the Stripped Certificate's pro rata share of payments of principal and/or in-
terest to be made with respect thereto. Alternatively, the holder of one or
more Classes of Stripped Certificates may be treated as the owner of a pro rata
fractional undivided interest in each Mortgage Loan to the extent that such
Stripped Certificate, or Classes of Stripped Certificates in the aggregate,
represent the same pro rata portion of principal and interest on each such
Mortgage Loan, and a stripped bond or stripped coupon (as the case may be),
treated as an installment
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obligation or contingent payment obligation, as to the remainder. Final regula-
tions issued on December 28, 1992 regarding original issue discount on stripped
obligations make the foregoing interpretations less likely to be applicable.
The preamble to those regulations states that they are premised on the assump-
tion that an aggregation approach is appropriate for determining whether origi-
nal issue discount on a stripped bond or stripped coupon is de minimis, and so-
licits 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, unless
provided otherwise in the applicable Prospectus Supplement, such reporting will
be based upon a representative initial offering price of each Class of Stripped
Certificates. The Master Servicer will also file such original issue discount
information with the Internal Revenue Service. If a Certificateholder fails to
supply an accurate taxpayer identification number or if the Secretary of the
Treasury determines that a Certificateholder has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "Federal Income Tax Consequences for REMIC Certifi-
cates -- 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 non-
resident aliens, foreign corporations, or other non-U.S. persons ("foreign per-
sons") 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 ex-
change of such a Certificate also will be subject to federal income tax at the
same rate.
Treasury regulations provide that interest or original issue discount paid by
the Trustee or other withholding agent to a foreign person evidencing ownership
interest in Mortgage Loans issued after July 18, 1984 will be "portfolio inter-
est" and will be treated in the manner, and such persons will be subject to the
same certification requirements, described above under "Federal Income Tax Con-
sequences 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
re-
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tirement account established under Code Section 408 (an "IRA") is regarded as a
fiduciary and the IRA as a Plan.
Before purchasing any Certificates, a Plan fiduciary should consult with its
counsel and determine whether there exists any prohibition to such purchase un-
der the requirements of ERISA, whether prohibited transaction exemptions such
as PTE 83-1 or any individual administrative exemption (as described below) ap-
plies, including whether the appropriate conditions set forth therein would be
met, or whether any statutory prohibited transaction exemption is applicable,
and further should consult the applicable Prospectus Supplement relating to
such Series of Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
General. In accordance with ERISA's general fiduciary standards, before 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 cor-
responding 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 "disquali-
fied persons" within the meaning of the Code). The Seller, the Master Servicer
or Master Servicer or the Trustee or certain affiliates thereof might be con-
sidered 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 transac-
tion" within the meaning of ERISA and the Code unless an administrative exemp-
tion described below or some other exemption is available.
Special caution should be exercised before the assets of a Plan (including
assets that may be held in an insurance company's separate or general accounts
where assets in such accounts may be deemed Plan assets for purposes of ERISA)
are used to purchase a Certificate if, with respect to such assets, the Seller,
the Master Servicer or Master Servicer or the Trustee or an affiliate thereof
either: (a) has investment discretion with respect to the investment of such
assets of such Plan; or (b) has authority or responsibility to give, or regu-
larly gives, investment advice with respect to such assets for a fee and pursu-
ant 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 in-
clude 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
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be any continuing assurance whether such exceptions may be met, because of the
factual nature of certain of the rules set forth in the Regulations. For exam-
ple, 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 as-
sets" by reason of benefit plan investments in such entity, but this exception
is tested immediately after each acquisition of an equity interest in the en-
tity whether upon initial issuance or in the secondary market.
ADMINISTRATIVE EXEMPTIONS
Individual Administrative Exemptions. Several underwriters of mortgage-backed
securities have applied for and obtained ERISA prohibited transaction exemp-
tions (each, an "Underwriter's Exemption") which are in some respects broader
than Prohibited Transaction Class Exemption 83-1 (described below). Such exemp-
tions can only apply to mortgage-backed securities which, among other condi-
tions, are sold in an offering with respect to which such underwriter serves as
the sole or a managing underwriter, or as a selling or placement agent. If such
an Underwriter's Exemption might be applicable to a Series of Certificates, the
applicable Prospectus Supplement will refer to such possibility.
Among the conditions that must be satisfied for an Underwriter's Exemption to
apply are the following:
(1) The acquisition of Certificates by a Plan is on terms (including the
price for the Certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
Certificates of the Trust Estate;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's ("S&P"), Moody's Investors 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
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(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 ac-
quisition in connection with the initial issuance of Certificates, at least
fifty percent of each class of Certificates in which Plans have invested is ac-
quired by persons independent of the Restricted Group and at least fifty per-
cent of the aggregate interest in the Trust Estate is acquired by persons inde-
pendent 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 mar-
ket 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 acquisi-
tion and (iv) immediately after the acquisition no more than twenty-five per-
cent of the assets of the Plan with respect to which such person is a fiduciary
are invested in Certificates representing an interest in one or more trusts
containing assets sold or served by the same entity.
An Underwriter's Exemption does not apply to Plans sponsored by the Seller,
the underwriter specified in the applicable Prospectus Supplement, the Master
Servicer, the Trustee, the Servicer, any obligor with respect to Mortgage Loans
included in the Trust Estate constituting more than five percent of the aggre-
gate 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 mortgages
in such mortgage pools, and whether or not such transactions would otherwise be
prohibited under ERISA.
The term "mortgage pool pass-through certificate" is defined in PTE 83-1 as
"a certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such a certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any fees
retained by the pool sponsor." It appears that, for purposes of PTE 83-1, the
term "mortgage pool pass-through certificate" would include Certificates issued
in a single Class or in multiple Classes that evidence the beneficial ownership
of both a specified percentage of future interest payments (after permitted de-
ductions) and a specified percentage of future principal payments on a Trust
Estate.
However, it appears that PTE 83-1 does or might not apply to the purchase and
holding of (a) Certificates that evidence the beneficial ownership only of a
specified percentage of future interest payments (after permitted deductions)
on a Trust Estate or only of a specified percentage of future principal pay-
ments on a Trust Estate, (b) Residual Certificates, (c) Certificates evidencing
ownership interests in a Trust Estate which includes Mortgage Loans secured by
multifamily residential properties or shares issued by cooperative housing cor-
porations, or (d) Certificates which are subordinated to other Classes of Cer-
tificates 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 ap-
plicability. Section II of PTE 83-1 sets forth the following general conditions
to the application of the exemption:
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(i) the maintenance of a system of insurance or other protection for the pooled
mortgage loans or the property securing such loans, and for indemnifying
certificateholders against reductions in pass-through payments due to property
damage or defaults in loan payments; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor; and (iii) a requirement that the sum
of all payments made to and retained by the pool sponsor, and all funds inuring
to the benefit of the pool sponsor as a result of the administration of the
mortgage pool, must represent not more than adequate consideration for selling
the mortgage loans plus reasonable compensation for services provided by the
pool sponsor to the pool. The system of insurance or protection referred to in
clause (i) above must provide such protection and indemnification up to an
amount not less than the greater of one percent of the aggregate unpaid princi-
pal balance of the pooled mortgages or the unpaid principal balance of the
largest mortgage in the pool. It should be noted that in promulgating PTE 83-1
(and a predecessor exemption), the Department did not have under its considera-
tion interests in pools of the exact nature as some of the Certificates de-
scribed 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, state and local law.
UNRELATED BUSINESS TAXABLE INCOME -- RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan qualified
under Code Section 401(a) and exempt from taxation under Code Section 501(a),
including most varieties of ERISA Plans, may give rise to "unrelated business
taxable income" as described in Code Sections 511-515 and 860E. Further, prior
to the purchase of Residual Certificates, a prospective transferee may be re-
quired to provide an affidavit to a transferor that it is not, nor is it pur-
chasing a Residual Certificate on behalf of, a "Disqualified Organization,"
which term as defined above includes certain tax-exempt entities not subject to
Code Section 511 such as certain governmental plans, as discussed above under
the caption "Certain Federal Income Tax Consequences -- Federal Income Tax Con-
sequences for REMIC Certificates -- Taxation of Residual Certificates -- Tax-
Related Restrictions on Transfer of Residual Certificates -- Disqualified Orga-
nizations."
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 Classes
of Certificates will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so long as they
are rated in one of the two highest rating categories by at least one Rating
Agency. As "mortgage related securities" such Classes will constitute legal in-
vestments for persons, trusts, corporations, partnerships, associations, busi-
ness trusts and business entities (including but not limited to state-chartered
savings banks, commercial banks, savings and loan associations and insurance
companies, as well as trustees and state government employee retirement sys-
tems) created pursuant to or existing under the laws of the United States or of
any state (including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent that, under ap-
plicable 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
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SMMEA, a number of states enacted legislation, on or before the October 3, 1991
cut-off for such enactments, limiting to varying extents the ability of certain
entities (in particular, SMMEA insurance companies) to invest in mortgage re-
lated securities, in most cases by requiring the affected investors to rely
solely upon existing state law, and not SMMEA. Accordingly, the investors af-
fected 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 repre-
sented 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 investment
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 prescribe.
In this connection, federal credit unions should review National Credit Union
Administration ("NCUA") Letter to Credit Unions No. 96, as modified by Letter
to Credit Unions No. 108, which includes guidelines to assist federal credit
unions in making investment decisions for mortgage related securities. The NCUA
has adopted rules, codified as 12 C.F.R. (S) 703.5(f)-(k), which prohibit fed-
eral credit unions from investing in certain mortgage related securities (such
as the Residual Certificates and the Stripped Certificates), except under lim-
ited circumstances.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of the
Federal Financial Institutions Examination Council. The Policy Statement, which
has been adopted by the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Comptroller of the Currency and the
Office of Thrift Supervision and by the NCUA (with certain modifications), pro-
hibits 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 in-
vestment practices deemed to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by federal
or state authorities should review rules, policies and guidelines adopted from
time to time by such authorities before purchasing any of the Certificates, as
certain Series or Classes (in particular, Certificates which are entitled
solely or disproportionately to distributions of principal or interest) may be
deemed unsuitable investments, or may otherwise be restricted, under such
rules, policies or guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of statutes,
rules, regulations, orders, guidelines or agreements generally governing in-
vestments made by a particular investor, including, but not limited to, "pru-
dent investor" provisions, percentage-of-assets limits, provisions which may
restrict or prohibit investment in securities which are not "interest-bearing"
or "income-paying," and, with regard to any Certificates issued in book-entry
form, provisions which may restrict or prohibit investments in securities which
are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage 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 characteristics
of the Certificates) may adversely affect the liquidity of the Certificates.
All investors should consult with their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
99
<PAGE>
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 underwrit-
ing 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 Pro-
spectus Supplement applicable to such Series and the members of the underwrit-
ing syndicate, if any, will be named in such Prospectus Supplement. The Pro-
spectus Supplement will describe any discounts and commissions to be allowed or
paid by the Seller to the underwriters, any other items constituting underwrit-
ing compensation and any discounts and commissions to be allowed or paid to the
dealers. The obligations of the underwriters will be subject to certain condi-
tions precedent. The underwriters with respect to a sale of any Class of Cer-
tificates will be obligated to purchase all such Certificates if any are pur-
chased. The Seller, and, if specified in the applicable Prospectus Supplement,
Norwest Mortgage, will indemnify the applicable underwriters against certain
civil liabilities, including liabilities under the Securities Act.
The Prospectus Supplement with respect to any Series of Certificates offered
other than through underwriters will contain information regarding the nature
of such offering and any agreements to be entered into between the Seller and
dealers and/or the Seller and purchasers of Certificates of such Series.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
If specified in the Prospectus Supplement relating to a Series of 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 Certifi-
cates or through dealers acting as agent and/or principal. Such offering may be
restricted in the matter specified in such Prospectus Supplement. Such transac-
tions may be effected at market prices prevailing at the time of sale, at nego-
tiated prices or at fixed prices. The underwriters and dealers participating in
such purchaser's offering of such Certificates may receive compensation in the
form of underwriting discounts or commissions from such purchaser and such
dealers may receive commissions from the investors purchasing such Certificates
for whom they may act as agent (which discounts or commissions will not
100
<PAGE>
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 Cer-
tificates by such dealer might be deemed to be underwriting discounts and com-
missions 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 Certifi-
cates of such Series from Norwest Mortgage. It is expected that Norwest Mort-
gage will use the proceeds from the sale of the Mortgage Loans to the Seller
for its general business purposes, including, without limitation, the origina-
tion or acquisition of new mortgage loans and the repayment of borrowings in-
curred to finance the origination or acquisition of mortgage loans, including
the Mortgage Loans underlying the Certificates of such Series.
LEGAL MATTERS
Certain legal matters, including the federal income tax consequences to
Certificateholders of an investment in the Certificates of a Series, will be
passed upon for the Seller by Cadwalader, Wickersham & Taft, New York.
RATING
It is a condition to the issuance of the Certificates of any Series offered
pursuant to this Prospectus and a Prospectus Supplement that they be rated in
one of the four highest categories by at least one Rating Agency.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rat-
ing Agency. Each securities rating should be evaluated independently of any
other rating.
101
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
1986 Act Accrual Certificates............................................. 35
Act....................................................................... 2
Additional Collateral..................................................... 19
Advances.................................................................. 46
ALTA...................................................................... 25
Balloon Loan.............................................................. 19
Balloon Period............................................................ 19
Bankruptcy Code........................................................... 62
Bankruptcy Loss........................................................... 36
Bankruptcy Loss Amount.................................................... 37
Beneficial Owner.......................................................... 32
Book-Entry Certificates................................................... 11
Buy-Down Fund............................................................. 19
Buy-Down Loans............................................................ 18
Cede...................................................................... 32
CERCLA.................................................................... 63
Certificate Account....................................................... 43
Certificateholder......................................................... 32
Certificates.............................................................. Cover
Class..................................................................... Cover
Cleanup Costs............................................................. 63
Code...................................................................... 11
Commission................................................................ 2
Correspondents............................................................ 21
Credit Score.............................................................. 22
DCR....................................................................... 95
Deferred Interest......................................................... 17
Definitive Certificates................................................... 11
Delegated Underwriting.................................................... 21
Department................................................................ 94
Depository................................................................ 43
Detailed Information...................................................... 2
Disqualified Organization................................................. 80
Distribution Date......................................................... 10
DTC....................................................................... 12
DTC Participants.......................................................... 32
Due Date.................................................................. 16
Due on Sale............................................................... 64
EDGAR..................................................................... 2
Eligible Custodial Account................................................ 44
EPA....................................................................... 64
ERISA..................................................................... 11
Excess Bankruptcy Losses.................................................. 36
Excess Fraud Losses....................................................... 36
Excess Special Hazard Losses.............................................. 36
FDIC...................................................................... 43
FHLBB..................................................................... 64
FHLMC..................................................................... 25
Fitch..................................................................... 95
Fixed Retained Yield...................................................... 35
FNMA...................................................................... 25
Fraud Loss................................................................ 37
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Fraud Loss Amount......................................................... 37
Garn Act.................................................................. 64
GEMICO.................................................................... 25
Graduated Pay Mortgage Loans.............................................. 17
Growing Equity Mortgage Loans............................................. 17
Indirect DTC Participants................................................. 32
IRA....................................................................... 93
Joint Ventures............................................................ 21
Liquidation Proceeds...................................................... 44
Loan Stores............................................................... 20
Master Servicer........................................................... Cover
Master Servicing Fee...................................................... 35
Moody's................................................................... 95
Mortgage Interest Rate.................................................... 35
Mortgage Loans............................................................ Cover
Mortgage Notes............................................................ 15
Mortgaged Properties...................................................... 15
Mortgages................................................................. 15
NASCOR.................................................................... Cover
NCUA...................................................................... 99
Net Foreclosure Profits................................................... 34
Net Mortgage Interest Rate................................................ 35
1986 Act.................................................................. 69
Non-Pro Rata Certificate.................................................. 70
Non-U.S. Person........................................................... 85
Norwest Bank.............................................................. Cover
Norwest Corporation....................................................... 19
Norwest Funding........................................................... 20
Norwest Mortgage.......................................................... Cover
Norwest Mortgage Loan..................................................... 19
Norwest Mortgage Loans.................................................... 20
Norwest Mortgage Sale Agreement........................................... 53
OID Regulations........................................................... 69
Other Advances............................................................ 46
OTS....................................................................... 64
Partial Liquidation Proceeds.............................................. 34
Pass-Through Rate......................................................... 9
Pass-Through Entity....................................................... 81
Paying Agent.............................................................. 46
PCBS...................................................................... 63
Percentage Interest....................................................... 33
Periodic Advances......................................................... 10
PHMC...................................................................... 20
PHMC Acquisition.......................................................... 20
PHMC Mortgage Loans....................................................... 20
PHMSC..................................................................... 20
Plans..................................................................... 93
Pledged Asset Mortgage Loans.............................................. 19
Policy Statement.......................................................... 98
Pool Distribution Amount.................................................. 33
Pool Insurers............................................................. 25
Pooling and Servicing Agreement........................................... 8
Prepayment Assumption..................................................... 71
Program Loans............................................................. 42
Proposed Mark to Market Regulations....................................... 83
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
PTE 83-1.................................................................. 96
Qualified Mortgage........................................................ 30
Rating Agency............................................................. 12
Record Date............................................................... 10
Regular Certificateholder................................................. 69
Regular Certificates...................................................... 31
Regulations............................................................... 94
Relief Act................................................................ 63
REMIC..................................................................... Cover
REMIC Certificates........................................................ 67
REMIC Pool................................................................ 67
REMIC Regulations......................................................... 66
Remittance Date........................................................... 44
Reserve Fund.............................................................. 38
Residual Certificates..................................................... 31
Residual Holders.......................................................... 76
Restricted Group.......................................................... 96
Rules..................................................................... 32
S&P....................................................................... 95
SBJPA of 1996............................................................. 68
Securities Act............................................................ 2
Seller.................................................................... Cover
Senior Certificates....................................................... Cover
Series.................................................................... Cover
Servicer.................................................................. Cover
Servicer Custodial Account................................................ 43
Servicing Account......................................................... 47
Servicing Fee............................................................. 35
SMMEA..................................................................... 98
Special Hazard Loss....................................................... 37
Special Hazard Loss Amount................................................ 37
Standard Hazard Insurance Policy.......................................... 49
Startup Day............................................................... 67
Stripped Certificateholder................................................ 91
Stripped Certificates..................................................... 90
Subclass.................................................................. Cover
Subordinated Certificates................................................. Cover
Subsidy Account........................................................... 18
Subsidy Loans............................................................. 18
Subsidy Payments.......................................................... 18
Superliens................................................................ 63
Tiered Payment Mortgage Loans............................................. 17
Title V................................................................... 65
T.O.P. Loans.............................................................. 25
Treasury Regulations...................................................... 54
Trust Estate.............................................................. Cover
Trustee................................................................... 58
Trustee Fee............................................................... 35
U.S. Person............................................................... 82
UCC....................................................................... 61
UGRIC..................................................................... 25
Underlying Servicing Agreement............................................ 8
Underwriter's Exemption................................................... 94
Voting Interests.......................................................... 56
Window Period............................................................. 65
Window Period Loans....................................................... 65
Window Period States...................................................... 65
</TABLE>
104
<PAGE>
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLE-
MENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR BY THE
UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING EACH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
-----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Table of Contents......................................................... S-5
Summary Information....................................................... S-7
Risk Factors.............................................................. S-28
Description of the Certificates........................................... S-29
Description of Mortgage Loans............................................. S-59
Delinquency and Foreclosure Experience.................................... S-66
Prepayment and Yield Considerations....................................... S-69
Pooling and Servicing Agreement........................................... S-77
Servicing of the Mortgage Loans........................................... S-79
Federal Income Tax Considerations......................................... S-81
ERISA Considerations...................................................... S-83
Legal Investment.......................................................... S-84
Secondary Market.......................................................... S-84
Underwriting.............................................................. S-85
Legal Matters............................................................. S-85
[Experts.................................................................. S-85]
Use of Proceeds........................................................... S-85
Ratings................................................................... S-86
Index of Significant Prospectus Supplement Definitions.................... S-87
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Reports..................................................................... 2
Additional Information...................................................... 2
Additional Detailed Information............................................. 2
Incorporation of Certain Information by Reference........................... 3
Table of Contents........................................................... 4
Summary of Prospectus....................................................... 8
Risk Factors................................................................ 13
The Trust Estates........................................................... 15
The Seller.................................................................. 19
Norwest Mortgage............................................................ 19
Norwest Bank................................................................ 20
The Mortgage Loan Programs.................................................. 20
Description of the Certificates............................................. 31
Prepayment and Yield Considerations......................................... 39
Servicing of the Mortgage Loans............................................. 41
Certain Matters Regarding the Master Servicer............................... 52
The Pooling and Servicing Agreement......................................... 53
Certain Legal Aspects of the Mortgage Loans................................. 59
Certain Federal Income Tax Consequences..................................... 67
ERISA Considerations........................................................ 94
Legal Investment............................................................ 98
Plan of Distribution........................................................ 100
Use of Proceeds............................................................. 101
Legal Matters............................................................... 101
Rating...................................................................... 101
Index of Significant Definitions............................................ 102
</TABLE>
================================================================================
================================================================================
[LOGO OF NORWEST APPEARS HERE]
$
(APPROXIMATE)
NORWEST ASSET SECURITIES CORPORATION
("NASCOR")
SELLER
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 199 -
-----------
PROSPECTUS SUPPLEMENT
-----------
[UNDERWRITER]
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and dis-
tribution of the securities being registered, other than underwriting compensa-
tion, are as set forth below. All such expenses except for the registration
fees are estimated.
<TABLE>
<S> <C>
SEC Registration Fee......................................... $ 3,030,303
Legal Fees and Expenses...................................... 2,145,000
Accounting Fees and Expenses................................. 676,500
Trustee's Fees and Expenses (including counsel fees)......... 99,000
Printing and Engraving Fees.................................. 66,000
Rating Agency Fees........................................... 990,000
Miscellaneous................................................ 4,950,000
-----------
Total...................................................... $11,956,803
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers and directors, who
are made, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal, adminis-
trative or investigative (other than an action by or in the right of such cor-
poration), by reason of the fact that such person is or was an officer or di-
rector of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably in-
curred by such person in connection with such action, suit or proceeding, pro-
vided such officer or director acted in good faith and in a manner he reasona-
bly believed to be in or not opposed to the corporation's best interests and,
for criminal proceedings, had no reasonable cause to believe that his conduct
was illegal. A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director actually and reasonably incurred.
The By-laws of Norwest Asset Securities Corporation provide for indemnifica-
tion of officers and directors to the full extent permitted by the Delaware
General Corporation Law.
The Pooling and Servicing Agreements for each Series of Certificates provide
either that the Registrant and the partners, directors, officers, employees and
agents of the Registrant, or that the Master Servicer and the partners, direc-
tors, officers, employees and agents of the Master Servicer, will be entitled
to indemnification by the Trust Estate and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relat-
ing 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.
The directors and officers of the Registrant are covered by a directors' and
officers' liability insurance policy maintained by Norwest Corporation for the
benefit of all of its subsidiaries.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement incorporated by reference from
Exhibit 1.1 to the Registration Statement on Form S-3 (File No. 333-
02209).
3.1 Certificate of Incorporation of Norwest Asset Securities Corporation
incorporated by reference from Exhibit 3.1 to the Registration
Statement on Form S-3 (File No.
333-02209).
3.2 By-laws of Norwest Asset Securities Corporation incorporated by
reference from Exhibit 3.2 to the Registration Statement on Form S-3
(File No. 333-02209).
4.1 Form of Pooling and Servicing Agreement incorporated by reference
from Exhibit 4.1 to the Registration Statement on Form S-3 (File No.
333-02209).
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain
matters involving the Certificates.*
8.1 Opinion of Cadwalader, Wickersham & Taft as to tax matters.*
10.1 Form of Servicing Agreement incorporated by reference from Exhibit
10.1 to the Registration Statement on Form S-3 (File No. 333-02209).
23.1 Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibits 5.1 and 8.1).*
23.2 Consent of Coopers & Lybrand regarding Financial Security Assurance
Inc.*
24.1 Power of Attorney.*
</TABLE>
- -------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the Se-
curities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggre-
gate, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) that, for the purpose of determining any liability under the Securi-
ties Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termina-
tion of the offering.
(b) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for in-
demnification against such liabilities (other than the payment by the Regis-
trant of expenses incurred or paid by a director, officer or controlling person
of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such officer or controlling person in connection with the secu-
rities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 1 to Form S-3 Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Frederick, State
of Maryland on March 12, 1997.
By: /s/ James B. Svinth
--------------------------------------
Name: James B. Svinth
Title:Senior Vice President
II-3
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-EFFEC-
TIVE AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT HAS BEEN SIGNED BELOW
BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Secretary and March 12, 1997
- ---------------------------------- Director
STEPHEN D. MORRISON
* Executive Vice President, March 12, 1997
- ---------------------------------- and Chief Financial
ROBERT K. CHAPMAN Officer
/s/ James B. Svinth Senior Vice President
- ---------------------------------- and Director March 12, 1997
JAMES B. SVINTH
* Director March 12, 1997
- ----------------------------------
ROBERT GORSCHE
*By: /s/ James B. Svinth
------------------------
JAMES B. SVINTH
ATTORNEY-IN-FACT/(1)/
- -------
</TABLE>
/(1)/James B. Svinth, by signing his name hereto, does sign the document on be-
half of the person indicated above pursuant to a power of attorney duly ex-
ecuted by such person and filed with the Securities and Exchange Commis-
sion.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
1.1............ Form of Underwriting Agreement incorporated by reference from
Exhibit 1.1 to the Registration Statement on Form S-3 (File
No. 333-02209).
3.1............ Certificate of Incorporation of Norwest Asset Securities
Corporation incorporated by reference from Exhibit 3.1 to the
Registration Statement on Form S-3 (File No. 333-02209).
3.2............ By-laws of Norwest Asset Securities Corporation incorporated
by reference from Exhibit 3.2 to the Registration Statement on
Form S-3 (File No. 333-02209).
4.1............ Form of Pooling and Servicing Agreement incorporated by
reference from Exhibit 4.1 to the Registration Statement on
Form S-3 (File No. 333-02209).
5.1............ Opinion of Cadwalader, Wickersham & Taft with respect to
certain matters involving the Certificates.*
8.1............ Opinion of Cadwalader, Wickersham & Taft as to tax matters.*
10.1............ Form of Servicing Agreement incorporated by reference from
Exhibit 10.1 to the Registration Statement on Form S-3 (File
No. 333-02209).
23.1............ Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibits 5.1 and 8.1).*
23.2............ Consent of Coopers & Lybrand regarding Financial Security
Assurance, Inc.*
24.1............ Power of Attorney.*
</TABLE>
- -------------------
* Previously filed
