<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 19, 1998)
$297,705,200 (APPROXIMATE)
NORWEST ASSET SECURITIES CORPORATION
("NASCOR")
SELLER
[LOGO OF NORWEST APPEARS HERE]
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-5
PRINCIPAL AND INTEREST PAYABLE MONTHLY, COMMENCING IN MARCH 1998
---------------
The Series 1998-5 Mortgage Pass-Through Certificates (the "Series 1998-5
Certificates") will consist of one class of senior certificates (the "Class A
Certificates") and two classes of subordinated certificates (the "Class M
Certificates" and the "Class B Certificates," respectively, and together, the
"Subordinated Certificates"). The Class A Certificates are entitled to a
certain priority, relative to the Class M and Class B Certificates, in right of
distributions on the Mortgage Loans. The Class A Certificates will consist of
eighteen subclasses of Certificates designated as the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6, Class A-7,
(Continued on next page)
---------------
THESE SECURITIES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF NORWEST ASSET
SECURITIES CORPORATION OR ANY AFFILIATE THEREOF. NEITHER THESE SECURITIES NOR
THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Subclass or Class Initial Subclass or Class Pass-Through
Designation Principal Balance(1) Rate
- ---------------------------------------------------------
<S> <C> <C>
Class A-1...... $24,153,000 6.400%
Class A-2...... $19,127,000 6.400%
Class A-3...... $42,700,000 6.500%
Class A-4...... $13,590,000 6.750%
Class A-5...... (2) 6.750%
Class A-6...... $50,000,000 7.000%
Class A-7...... $ 4,108,000 7.000%
Class A-8...... $ 1,425,000 7.000%
Class A-9...... $ 75,000 7.000%
Class A-10..... $83,120,000 6.900%
</TABLE>
<TABLE>
<CAPTION>
Subclass or Class Initial Subclass or Class Pass-Through
Designation Principal Balance(1) Rate
<S> <C> <C>
Class A-11..... $ 9,200,000 6.900%
Class A-12..... $ 2,600,000 6.900%
Class A-13..... $ 80,000 6.900%
Class A-14..... $ 4,172,000 (3)
Class A-15..... $33,000,000 6.750%
Class A-R...... $ 100 6.750%
Class A-LR..... $ 100 6.750%
Class M........ $ 3,752,000 6.750%
Class B-1...... $ 5,252,000 6.750%
Class B-2...... $ 1,351,000 6.750%
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Approximate. The initial Subclass or Class Principal Balances are subject
to adjustment as described herein.
(2) The Class A-5 Certificates are interest-only certificates, have no
principal balance and will bear interest on the Class A-5 Notional Amount
(initially approximately $3,825,629) as described herein under "Description
of the Certificates -- Interest."
(3) The Class A-14 Certificates are principal-only certificates and will not be
entitled to distributions in respect of interest.
---------------
PROSPECTIVE INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT ON PAGE S-30 AND
IN THE PROSPECTUS BEGINNING ON PAGE 12.
---------------
The Offered Class A Certificates will be purchased from the Seller by Lehman
Brothers Inc. ("Lehman"). The Class M and Offered Class B Certificates will be
purchased from the Seller by Salomon Brothers Inc ("Salomon", and together with
Lehman, the "Underwriters"). The Offered Certificates purchased by each
Underwriter will be offered by such Underwriter from time to time to the public
in negotiated transactions or otherwise at varying prices to be determined at
the time of sale. Proceeds to the Seller are expected to be approximately
99.40% of the aggregate initial principal balance of the Offered Class A
Certificates, approximately 100.29% of the aggregate initial principal balance
of the Class M Certificates, approximately 99.55% of the aggregate initial
principal balance of the Class B-1 Certificates and approximately 97.76% of the
aggregate initial principal balance of the Class B-2 Certificates, plus, in
each case, accrued interest thereon at the rate of 6.750% per annum, from
February 1, 1998 to (but not including) February 26, 1998, before deducting
expenses payable by the Seller estimated to be $355,000. The price to be paid
to the Seller by Lehman for the Offered Class A Certificates has not been
allocated among such Subclasses. See "Underwriting" herein.
The Offered Certificates purchased by each Underwriter are offered by such
Underwriter, subject to prior sale, when, as and if delivered to and accepted
by such Underwriter and subject to certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer without notice and
to reject any order in whole or in part. It is expected that the Offered
Certificates will be available for delivery through the facilities of The
Depository Trust Company or, in the case of the Class A-5, Class A-9, Class A-
13, Class A-14, Class A-R and Class A-LR Certificates, at the offices of Lehman
Brothers Inc., New York, New York, and in the case of the Class M and Offered
Class B Certificates, at the offices of Salomon Brothers Inc, New York, New
York, in each case, on or about February 26, 1998.
---------------
LEHMAN BROTHERS SALOMON SMITH BARNEY
February 19, 1998
<PAGE>
(Continued from previous page)
Class A-8, Class A-9, Class A-10, Class A-11, Class A-12, Class A-13, Class A-
14, Class A-15, Class A-PO, Class A-R and Class A-LR Certificates. The Class M
Certificates will not be divided into subclasses. The Class B Certificates will
consist of five subclasses of Certificates designated as the Class B-1, Class
B-2, Class B-3, Class B-4 and Class B-5 Certificates. Each subclass of Class A
and Class B Certificates is referred to herein as a "Subclass." The Class A
Certificates (other than the Class A-PO Certificates), the Class M Certificates
and the Class B-1 and Class B-2 Certificates are the only Series 1998-5 Certif-
icates being offered hereby and are referred to herein collectively as the "Of-
fered Certificates." The Class A Certificates (other than the Class A-PO Cer-
tificates) are referred to herein as the "Offered Class A Certificates." The
Class B-1 and Class B-2 Certificates are referred to herein collectively as the
"Offered Class B Certificates."
The Class A-1, Class A-2, Class A-3 and Class A-4 Certificates are planned
amortization certificates and are referred to collectively herein as the "PAC
Certificates." The Class A-7, Class A-8, Class A-9, Class A-11, Class A-12,
Class A-13 and Class A-14 Certificates are companion certificates and are re-
ferred to collectively herein as the "Companion Certificates."
The credit enhancement for the Series 1998-5 Certificates is provided through
the use of a "shifting interest" type subordination, which has the effect of
allocating all or a disproportionate amount of principal prepayments and other
unscheduled receipts of principal to the Class A Certificates (other than the
Class A-PO Certificates) in the aggregate for at least nine years beginning on
the first Distribution Date. See "Summary Information -- Distributions of Prin-
cipal and Interest -- Principal Distributions," "-- Credit Enhancement" and "--
Effects of Prepayments on Investment Expectations," "Description of the Cer-
tificates" and "Prepayment and Yield Considerations" herein.
The Series 1998-5 Certificates will evidence in the aggregate the entire ben-
eficial ownership interest in a trust fund (the "Trust Estate") established by
Norwest Asset Securities Corporation (the "Seller" or "NASCOR") and consisting
of a pool of fixed interest rate, conventional, monthly pay, fully amortizing,
one- to four-family, residential first mortgage loans having original terms to
stated maturity ranging from approximately 20 years to approximately 30 years
(the "Mortgage Loans"), other than the Fixed Retained Yield described herein,
together with certain related property. Certain of the Mortgage Loans may be
secured primarily by shares issued by cooperative housing corporations. The
servicing of the Mortgage Loans will be performed by various servicers identi-
fied herein (each, a "Servicer"), including Norwest Mortgage, Inc. ("Norwest
Mortgage"), an affiliate of both the Seller and Norwest Bank Minnesota, Na-
tional 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 1998-5 Certificates from
Norwest Mortgage, and will have been originated by Norwest Mortgage or acquired
by Norwest Mortgage from various other entities (each such other entity, a
"Norwest Mortgage Correspondent"). The Mortgage Loans not originated by Norwest
Mortgage were originated by the Norwest Mortgage Correspondents or acquired by
the Norwest Mortgage Correspondents pursuant to mortgage loan purchase programs
operated by such Norwest Mortgage Correspondents. See "Description of the Mort-
gage Loans" herein. The Class A Certificates will initially evidence in the ag-
gregate an approximate 95.75% undivided interest in the principal balance of
the Mortgage Loans. The Class M Certificates will initially evidence in the ag-
gregate an approximate 1.25% undivided interest in the principal balance of the
Mortgage Loans. The Class B-1 Certificates will initially evidence in the ag-
gregate an approximate 1.75% undivided interest in the principal balance of the
Mortgage Loans. The Class B-2 Certificates will initially evidence in the ag-
gregate an approximate 0.45% undivided interest in the principal balance of the
Mortgage Loans. The remaining approximate 0.80% undivided interest in the prin-
cipal balance of the Mortgage Loans will be evidenced by the Class B-3, Class
B-4 and Class B-5 Certificates.
Distributions in respect of interest and principal will be made on the 25th
day of each month or, if such day is not a business day, on the succeeding
business day (each a "Distribution Date"), commencing in March 1998, to the
holders of Offered Certificates, as described herein. The Class A-7, Class A-8,
Class A-9, Class A-11, Class A-12 and Class A-13 Certificates (collectively,
the "Accrual Certificates") will accrue interest as described herein but will
not be entitled to current distributions of interest until the applicable Ac-
cretion Termination Date. Prior to such time, an amount equal to the accrued
but unpaid interest on each Subclass of Accrual Certificates will be added to
the principal balance thereof and distributed as described herein under "De-
scription of the Certificates--Principal (Including Prepayments)--Allocation of
Amount to be Distributed." The amount of interest accrued on any Subclass or
Class of
S-2
<PAGE>
(Continued from previous page)
Offered Certificates will be reduced by certain prepayment interest shortfalls
and certain other shortfalls in the collection of interest from mortgagors, as
well as certain losses, as described herein under "Description of the Certifi-
cates -- Interest." The Class A-14 and Class A-PO 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 distri-
butions of interest only if the holders of the Class A Certificates have re-
ceived all amounts due them (other than the Class A-PO 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 A Certificates have received all dis-
tributions to which they are entitled (including, in the case of the Class A-PO
Certificates, the Class A-PO Deferred Amount) and the holders of the Class M
Certificates have received the amount of interest due them with respect to such
Distribution Date. On any Distribution Date, the holders of a Subclass of Class
B Certificates will receive distributions of interest only if the holders of
the Class A Certificates and the Class M Certificates and each Subclass of
Class B Certificates with a lower numerical designation have received all
amounts of interest and of principal (other than the Class A-PO Deferred
Amount) to which they are entitled on such date. Distributions of principal to
holders of a Subclass of Class B Certificates will be made only after the hold-
ers of the Class A Certificates, the Class M Certificates and each Subclass of
Class B Certificates with a lower numerical designation have received all dis-
tributions to which they are entitled (including, in the case of the Class A-PO
Certificates, the Class A-PO Deferred Amount) and such Subclass of Class B Cer-
tificates has received the amount of interest due with respect to such Distri-
bution Date. Distributions in reduction of the principal balance of the Class A
Certificates on any Distribution Date will be allocated among the Subclasses of
the Class A Certificates in the manner described herein under "Description of
the Certificates--Principal (Including Prepayments)." Distributions to each
Subclass or undivided Class of Offered Certificates will be made pro rata among
Certificateholders of such Subclass or Class.
The Offered Certificates may not be an appropriate investment for individual
investors who do not have sufficient resources or expertise to evaluate the
particular characteristics of the applicable Subclass or Class of Offered Cer-
tificates. This may be the case because:
. The yield to maturity of Offered Certificates purchased at a price other
than par will be sensitive to the uncertain rate and timing of principal
prepayments on the Mortgage Loans;
. The rate of principal distributions on, and the weighted average life of,
the Offered Certificates will be sensitive to the uncertain rate and
timing of principal prepayments on the Mortgage Loans, and as such the
Offered Certificates may be inappropriate investments for an investor
requiring a distribution of a particular amount of principal on a
specific date or an otherwise predictable stream of distributions;
. There can be no assurance that an investor will be able to reinvest
amounts distributed in respect of principal on an Offered Certificate
(which, in general, are expected to be greater during periods of
relatively low interest rates) at a rate at least as high as the Pass-
Through Rate applicable thereto;
. As discussed below, there can be no assurance that a secondary market for
the Offered Certificates will develop or provide Certificateholders with
liquidity of investment; and
. The Offered Certificates are subject to the further risks and other
special considerations discussed herein and in the Prospectus under the
heading "Risk Factors."
THE YIELD TO MATURITY OF THE OFFERED CERTIFICATES WILL BE SENSITIVE IN VARY-
ING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAY-
MENTS, WHICH MAY BE MADE AT ANY TIME WITHOUT PENALTY) ON THE MORTGAGE LOANS.
INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE ASSOCIATED RISKS, IN-
CLUDING, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT, PARTICU-
LARLY THE CLASS A-14 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 AND, IN
THE CASE OF OFFERED CERTIFICATES PURCHASED AT A PREMIUM, OR IN THE CASE OF THE
CLASS A-5 CERTIFICATES, WHICH HAVE NO PRINCIPAL BALANCE, THAT A FASTER THAN AN-
TICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON
THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICI-
PATED. INVESTORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM, OR INVESTORS IN
THE CLASS A-5 CERTIFICATES, SHOULD ALSO CONSIDER THE RISK THAT A RAPID RATE OF
PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE
S-3
<PAGE>
(Continued from previous page)
MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY RECOVER
THEIR INITIAL INVESTMENTS.
THE YIELD TO MATURITY OF THE CLASS M CERTIFICATES WILL BE MORE SENSITIVE THAN
THAT OF THE CLASS A CERTIFICATES TO THE AMOUNT AND TIMING OF LOSSES DUE TO LIQ-
UIDATIONS OF THE MORTGAGE LOANS IN THE EVENT THAT THE CLASS B PRINCIPAL BALANCE
HAS BEEN REDUCED TO ZERO. THE YIELD TO MATURITY OF EACH SUBCLASS OF OFFERED
CLASS B CERTIFICATES WILL BE MORE SENSITIVE THAN THAT OF THE CLASS A CERTIFI-
CATES, THE CLASS M CERTIFICATES AND, IN THE CASE OF THE CLASS B-2 CERTIFICATES,
THE CLASS B-1 CERTIFICATES, TO THE AMOUNT AND TIMING OF LOSSES DUE TO LIQUIDA-
TIONS OF THE MORTGAGE LOANS IN THE EVENT THAT THE PRINCIPAL BALANCES OF THE
SUBCLASSES OF CLASS B CERTIFICATES WITH HIGHER NUMERICAL DESIGNATIONS HAVE BEEN
REDUCED TO ZERO. SEE "DESCRIPTION OF THE CERTIFICATES -- INTEREST," "--PRINCI-
PAL (INCLUDING PREPAYMENTS)" AND "-- SUBORDINATION OF CLASS M AND CLASS B CER-
TIFICATES" HEREIN AND "PREPAYMENT AND YIELD CONSIDERATIONS" HEREIN AND IN THE
PROSPECTUS.
THE WEIGHTED AVERAGE LIVES OF THE COMPANION CERTIFICATES WILL BE MORE SENSI-
TIVE THAN THE WEIGHTED AVERAGE LIVES OF THE OTHER SUBCLASSES AND CLASSES OF OF-
FERED CERTIFICATES TO THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS. THE
WEIGHTED AVERAGE LIVES OF THE CLASS A-6 AND CLASS A-10 CERTIFICATES WILL BE
LESS SENSITIVE THAN THE WEIGHTED AVERAGE LIVES OF THE COMPANION CERTIFICATES,
BUT MORE SENSITIVE THAN THE WEIGHTED AVERAGE LIVES OF THE OTHER SUBCLASSES AND
CLASSES OF OFFERED CERTIFICATES TO THE RATE OF PREPAYMENTS ON THE MORTGAGE
LOANS. AT RATES ABOVE CERTAIN PREPAYMENT LEVELS, PAYMENTS OF PRINCIPAL ALLO-
CATED TO THE CLASS A CERTIFICATES (OTHER THAN THE CLASS A-PO CERTIFICATES) IN
EXCESS OF THE AMOUNTS RESULTING FROM SUCH PREPAYMENT LEVELS WILL BE PAID TO THE
HOLDERS OF THE COMPANION CERTIFICATES AND THE CLASS A-6 AND CLASS A-10 CERTIFI-
CATES WHILE SUCH CERTIFICATES REMAIN OUTSTANDING PRIOR TO BEING PAID TO THE PAC
CERTIFICATES. FURTHER, AT OR BELOW CERTAIN PREPAYMENT LEVELS, THE COMPANION
CERTIFICATES AND THE CLASS A-6 AND CLASS A-10 CERTIFICATES MAY RECEIVE NO PRIN-
CIPAL PAYMENTS (OTHER THAN CERTAIN ACCRUAL DISTRIBUTION AMOUNTS) FOR EXTENDED
PERIODS OF TIME, RESULTING IN AN EXTENSION OF THE WEIGHTED AVERAGE LIVES OF THE
COMPANION CERTIFICATES AND THE CLASS A-6 AND CLASS A-10 CERTIFICATES. SEE "PRE-
PAYMENT AND YIELD CONSIDERATIONS" HEREIN.
The Offered Certificates, other than the Class A-5, Class A-9, Class A-13,
Class A-14, Class A-R, Class A-LR, Class M and Offered Class B Certificates,
will be issued only in book-entry form (the "Book-Entry Certificates"), and
purchasers thereof will not be entitled to receive definitive certificates ex-
cept 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 Cer-
tificates, as such terms are used herein. See "Description of the Certificates"
herein.
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 min-
imum denominations. THE CLASS A-9 AND CLASS A-13 CERTIFICATES ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AS DESCRIBED HEREIN UNDER "DESCRIPTION OF THE
CERTIFICATES -- RESTRICTIONS ON TRANSFER OF THE CLASS A-9, CLASS A-13, CLASS A-
R, CLASS A-LR, CLASS M AND OFFERED CLASS B CERTIFICATES."
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. Each
Underwriter intends to act as a market maker in the Offered Certificates pur-
chased by such Underwriter, subject to applicable provisions of federal and
state securities laws and other regulatory requirements, but is under no obli-
gation to do so and any such market making may be discontinued at any time.
There can be no assurance that any investor will be able to sell an Offered
Certificate at a price equal to or greater than the price at which such Certif-
icate was purchased. THE CLASS M AND OFFERED CLASS B CERTIFICATES MAY NOT BE
TRANSFERRED UNLESS THE TRANSFEREE HAS DELIVERED (I) A REPRESENTATION LETTER TO
THE TRUST ADMINISTRATOR AND THE SELLER STATING EITHER (A) THAT THE TRANSFEREE
IS NOT A PLAN AND IS NOT ACTING ON 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 OR
S-4
<PAGE>
(Continued from previous page)
OFFERED CLASS B CERTIFICATES IS AN "INSURANCE COMPANY GENERAL ACCOUNT" OR (II)
AN OPINION OF COUNSEL AND SUCH OTHER DOCUMENTATION AS PROVIDED IN THIS PROSPEC-
TUS SUPPLEMENT. IN ADDITION, NEITHER THE CLASS A-R NOR THE CLASS A-LR CERTIFI-
CATE MAY 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 A PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS
OF A PLAN OR (IV) ANY PERSON OR ENTITY WHO THE TRANSFEROR KNOWS OR HAS REASON
TO KNOW WILL BE UNWILLING OR UNABLE TO PAY WHEN DUE FEDERAL, STATE OR LOCAL
TAXES WITH RESPECT THERETO. See "ERISA Considerations" and "Description of the
Certificates --Restrictions on Transfer of the Class A-9, Class A-13, Class A-
R, Class A-LR, Class M and Offered Class B Certificates" herein and "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.
For federal income tax purposes, the Trust Estate will consist of two real
estate mortgage investment conduits (each, a "REMIC" or, in the alternative,
the "Upper-Tier REMIC" and the "Lower-Tier REMIC," respectively). As described
more fully herein and in the Prospectus, the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6, Class A-7, the Class A-8, the Class A-9, Class
A-10, Class A-11, Class A-12, Class A-13, Class A-14, Class A-15 and Class A-PO
Certificates, the Class M Certificates and the Class B-1, Class B-2, Class B-3,
Class B-4 and Class B-5 Certificates will constitute "regular interests" in the
Upper-Tier REMIC and the Class A-R and Class A-LR Certificates will constitute
the "residual interest" in the Upper-Tier REMIC and Lower-Tier REMIC, respec-
tively. PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE CLASS A-R AND CLASS A-LR
CERTIFICATEHOLDERS' REMIC TAXABLE INCOME AND THE LIABILITY THEREON MAY EXCEED,
AND MAY SUBSTANTIALLY EXCEED, CASH DISTRIBUTIONS TO SUCH HOLDERS DURING CERTAIN
PERIODS, IN WHICH EVENT SUCH HOLDERS MUST HAVE SUFFICIENT ALTERNATIVE SOURCES
OF FUNDS TO PAY SUCH TAX LIABILITY. See "Summary Information -- Federal Income
Tax Status" and "Federal Income Tax Considerations" herein and "Certain Federal
Income Tax Consequences -- Federal Income Tax Consequences for REMIC Certifi-
cates" in the Prospectus.
The Offered Class A Certificates represent seventeen Subclasses of a Class,
the Class M Certificates represent a Class and the Offered Class B Certificates
represent two Subclasses of a Class, all of which are part of a separate Series
of Certificates being offered by the Seller pursuant to the Prospectus dated
February 19, 1998 accompanying this Prospectus Supplement. Any prospective in-
vestor should not purchase any Offered Certificates described herein unless it
shall have received the Prospectus and this Prospectus Supplement. The Prospec-
tus 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 MAY 26, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIF-
ICATES, 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-5
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY INFORMATION.................. S-7
RISK FACTORS......................... S-30
General............................. S-30
Subordination....................... S-30
Book-Entry System for Certain
Subclasses of Class A Certificates.. S-30
DESCRIPTION OF THE CERTIFICATES...... S-31
Denominations....................... S-31
Definitive Form..................... S-31
Book-Entry Form..................... S-31
Distributions....................... S-31
Interest............................ S-34
Principal (Including Prepayments)... S-40
Calculation of Amount to be
Distributed to the Class A
Certificates (other than the Class
A-PO Certificates)................. S-41
Calculation of Amount to be
Distributed to the Class A-PO
Certificates....................... S-43
Calculation of Amount to be
Distributed to the Class M and
Class B Certificates............... S-45
Allocation of Amount to be
Distributed........................ S-48
Principal Payment Characteristics
of the PAC Certificates, the Class
A-6 and Class A-10 Certificates and
the Companion Certificates......... S-57
Additional Principal Payment
Characteristics of the Class A-6
and Class A-10 Certificates........ S-58
Additional Rights of the Class A-R
and Class A-LR Certificateholders... S-58
Periodic Advances................... S-59
Restrictions on Transfer of the
Class A-9, Class A-13, Class A-R,
Class A-LR, Class M and Offered
Class B Certificates................ S-59
Reports............................. S-60
Subordination of Class M and Class B
Certificates........................ S-61
Allocation of Losses............... S-62
DESCRIPTION OF THE MORTGAGE LOANS.... S-66
General............................. S-66
Mortgage Loan Underwriting.......... S-67
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Mortgage Loan Data.................. S-69
Mandatory Repurchase or Substitution
of Mortgage Loans................... S-72
Optional Repurchase of Defaulted
Mortgage Loans...................... S-72
DELINQUENCY AND FORECLOSURE
EXPERIENCE........................... S-73
PREPAYMENT AND YIELD CONSIDERATIONS.. S-73
Sensitivity of the Class A-5
Certificates........................ S-81
Sensitivity of the Class A-14
Certificates........................ S-82
Yield Considerations with respect to
the Class B-1 and Class B-2
Certificates........................ S-82
POOLING AND SERVICING AGREEMENT...... S-85
General............................. S-85
Distributions....................... S-85
Voting.............................. S-85
Trustee............................. S-86
Trust Administrator................. S-86
Master Servicer..................... S-86
Special Servicing Agreements........ S-86
Optional Termination................ S-87
SERVICING OF THE MORTGAGE LOANS...... S-87
The Servicers....................... S-87
Servicer Custodial Accounts......... S-88
Unscheduled Principal Receipts...... S-88
Anticipated Changes in Servicing.... S-89
Fixed Retained Yield; Servicing
Compensation and Payment of
Expenses............................ S-89
Servicer Defaults................... S-90
FEDERAL INCOME TAX CONSIDERATIONS.... S-90
Regular Certificates................ S-91
Residual Certificates............... S-92
ERISA CONSIDERATIONS................. S-93
LEGAL INVESTMENT..................... S-94
SECONDARY MARKET..................... S-94
UNDERWRITING......................... S-95
LEGAL MATTERS........................ S-95
USE OF PROCEEDS...................... S-95
RATINGS.............................. S-95
INDEX OF SIGNIFICANT PROSPECTUS
SUPPLEMENT DEFINITIONS............... S-97
</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 1998-5 (the
"Series 1998-5 Certificates" or the "Certificates").
Seller................ Norwest Asset Securities Corporation (the "Seller").
The Mortgage Loans will have been acquired by the
Seller from Norwest Mortgage, Inc. ("Norwest Mort-
gage"), an affiliate of the Seller and the Master
Servicer. The Mortgage Loans that the Seller acquires
from Norwest Mortgage will either have been originated
by Norwest Mortgage or acquired by Norwest Mortgage,
or an affiliate of Norwest Mortgage, from various
other entities (each such other entity, a "Norwest
Mortgage Correspondent"), which either originated the
Mortgage Loans or acquired the Mortgage Loans pursuant
to mortgage loan purchase programs operated by the
Norwest Mortgage Correspondents. None of the Norwest
Mortgage Correspondents is an affiliate of Norwest
Mortgage.
Servicing/Servicers... Norwest Mortgage and one or more other Servicers
(which will be Norwest Mortgage Correspondents) ap-
proved by the Master Servicer will provide customary
servicing functions with respect to the Mortgage Loans
pursuant to servicing agreements (each, an "Underlying
Servicing Agreement") assigned to the Trust Estate.
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 0.25% multiplied
by the scheduled principal balance of such Mortgage
Loan on the first day of the preceding month and (ii)
other additional servicing compensation described
herein. See "Servicing of the Mortgage Loans" herein
and in the Prospectus.
Master Servicer....... Norwest Bank Minnesota, National Association ("Norwest
Bank" and, in its capacity as master servicer, the
"Master Servicer"). Norwest Bank is a direct, wholly
owned subsidiary of Norwest Corporation and is an af-
filiate of the Seller and Norwest Mortgage. The Master
Servicer will (a) monitor certain aspects of the ser-
vicing of the Mortgage Loans, (b) cause the Mortgage
Loans to be serviced in the event that a Servicer is
terminated and a successor Servicer is not appointed,
(c) provide administrative services with respect to
the Certificates, including the computation of the
amount of distributions to be made on the Certificates
and any losses to be allocated to the Certificates,
(d) provide certain reports to the Trust Administrator
regarding the Mortgage Loans and the Certificates, (e)
make advances, to the extent described herein, with
respect to the Mortgage Loans if a Servicer (other
than Norwest Mortgage) fails to make a required ad-
vance and (f) make payments to cover certain prepay-
ment interest shortfalls. The Master Servicer will be
entitled to (i) a monthly Master Servicing Fee with
respect to each Mortgage Loan, payable on each Distri-
bution Date, in an amount equal to one-twelfth of
0.016% multiplied by
S-7
<PAGE>
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 "Description of the Certificates -- Interest" and
"The Pooling and Servicing Agreement -- Master
Servicer" herein and "Norwest Bank," "Servicing of the
Mortgage Loans -- The Master Servicer" and "Certain
Matters Regarding the Master Servicer" in the Prospec-
tus.
Trustee............... United States Trust Company of New York, a New York
state chartered bank and trust company (the "Trust-
ee"). See "Pooling and Servicing Agreement -- Trustee"
in this Prospectus Supplement.
Trust Administrator... First Union National Bank (the "Trust Administrator").
The Trust Administrator will perform certain adminis-
trative functions on behalf of the Trustee and will
act as the initial paying agent, certificate registrar
and custodian. The Trust Administrator will be re-
quired to 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. See "Pooling and Servicing Agreement -- Trust
Administrator" in this Prospectus Supplement.
Rating of
Certificates......... It is a condition to the issuance of the Offered Class
A Certificates that they shall have been rated "AAA"
by Duff & Phelps Credit Rating Co. ("DCR") and "Aaa"
by Moody's Investors Service, Inc. ("Moody's"). It is
a condition to the issuance of the Class M Certifi-
cates that they shall have been rated at least "AA" by
DCR and "Aa2" by Moody's. It is a condition to the is-
suance of the Class B-1 and Class B-2 Certificates
that they shall have been rated at least "A" and
"BBB," respectively, by DCR. The ratings of DCR and
Moody's on mortgage pass-through certificates address
the likelihood of the receipt by the
certificateholders of all distributions of principal
and interest to which such certificateholders are en-
titled. The ratings of DCR and Moody's are not recom-
mendations to buy, sell or hold such Certificates and
may be subject to revision or withdrawal at any time
by the assigning rating agency. The ratings do not ad-
dress the possibility that, as a result of principal
prepayments, holders of such Certificates may receive
a lower than anticipated yield. The ratings also do
not address the possibility that, as a result of prin-
cipal prepayments, the holders of the Class A-5 Cer-
tificates may not recover their initial investment.
See "-- Effects of Prepayments on Investment Expecta-
tions" below and "Ratings" in this Prospectus Supple-
ment.
Description of
Certificates......... The Series 1998-5 Certificates will consist of the
Class A Certificates, the Class M Certificates and the
Class B Certificates. The Class A Certificates repre-
sent 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 Class A 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 underlying the Series
1998-5 Certificates (the "Mortgage Loans"). As between
the Class M Certificates and the Class B Certificates,
the Class M Certificates are entitled to a certain
priority in right of distributions on the Mortgage
Loans and, as among the Subclasses of Class B Certifi-
cates, the Subclasses with lower numerical designa-
tions are entitled to a certain priority in right of
distributions on the Mortgage Loans relative to those
Subclasses with higher numerical designations. See "--
Distributions of Principal and Interest" below.
S-8
<PAGE>
The Class A Certificates will consist of eighteen
Subclasses, designated as the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6, Class A-7,
Class A-8, Class A-9, Class A-10, Class A-11, Class A-
12, Class A-13, Class A-14, Class A-15, Class A-PO,
Class A-R and Class A-LR Certificates. The Class M
Certificates will not be divided into subclasses. The
Class B Certificates will consist of five Subclasses,
designated as the Class B-1, Class B-2, Class B-3,
Class B-4 and Class B-5 Certificates. The Class A Cer-
tificates (other than the Class A-PO Certificates),
the Class M Certificates and the Class B-1 and Class
B-2 Certificates are referred to in this Prospectus
Supplement collectively as the "Offered Certificates."
The Class A Certificates (other than the Class A-PO
Certificates) are referred to in this Prospectus Sup-
plement collectively as the "Offered Class A Certifi-
cates." The Class B-1 and Class B-2 Certificates are
referred to in this Prospectus Supplement collectively
as the "Offered Class B Certificates." The Class A-PO,
Class B-3, Class B-4 and Class B-5 Certificates are
not offered hereby and may be retained or sold by the
Seller.
The Offered Certificates have the approximate aggre-
gate initial principal balances set forth on the cover
of this Prospectus Supplement, except that the Class
A-5 Certificates will have no principal balance. Any
difference between the aggregate principal balance of
the Class A, Class M and Offered Class B Certificates
as of the date of issuance of the Series 1998-5 Cer-
tificates and the approximate aggregate initial prin-
cipal balance of such Subclasses and Class as of the
date of this Prospectus Supplement will not, with re-
spect to the Class A Certificates, exceed 5% of the
aggregate initial principal balance of the Class A
Certificates stated on the cover of this Prospectus
Supplement plus the expected initial principal balance
of the Class A-PO Certificates and, with respect to
the Class M Certificates and Offered Class B Certifi-
cates, will depend on the final subordination levels
for the Series 1998-5 Certificates. Any difference al-
located to the Class A Certificates will be allocated
to one or more of the Subclasses of Class A Certifi-
cates, other than the Class A-5, Class A-R and Class
A-LR Certificates.
The following table sets forth for each Class and
Subclass indicated the approximate undivided interest
in the principal balance of the Mortgage Loans that is
expected to be evidenced in the aggregate by such
Class and Subclass as of the Closing Date (as defined
herein).
S-9
<PAGE>
----------------------------------------------------------
<TABLE>
<CAPTION>
APPROXIMATE INITIAL
CLASS OR SUBCLASS UNDIVIDED INTEREST
----------------------------------- ---------------------
<S> <C> <C>
Class A (other than the Class A-PO) 95.74%
Class A-PO* 0.01%
---------
Class A (all Subclasses) 95.75%
Class M 1.25%
Class B-1 1.75%
Class B-2 0.45%
Classes B-3, B-4 and B-5 0.80%
----------
Total 100.00%
==========
</TABLE>
-------
* The Class A-PO Certificates in the aggregate repre-
sents an approximate 0.79% initial interest in the
principal balances of the Mortgage Loans (such in-
terest in the aggregate, the "Pool Balance (PO Por-
tion)") that have Net Mortgage Interest Rates, as
defined on page S-37, of less than 6.750% (the "Dis-
count Mortgage Loans").
-------------------------------------------------------
By virtue of the subordination of the Class M and
Class B Certificates, it is possible that the Class A-
PO Certificates may receive support from certain pay-
ments made with respect to the Mortgage Loans in the
Trust Estate other than Discount Mortgage Loans. The
Class A Certificates (other than the Class A-PO Cer-
tificates) and the Class M and Class B Certificates
will evidence the entire interest in the principal
balance of the Mortgage Loans other than the Pool Bal-
ance (PO Portion) (such remaining interest, the "Pool
Balance (Non-PO Portion)").
The following table sets forth for each Class indi-
cated the approximate undivided interest in the Pool
Balance (Non-PO Portion) that is expected to be evi-
denced in the aggregate by such Class as of the Clos-
ing Date.
-------------------------------------------------------
<TABLE>
<CAPTION>
APPROXIMATE INITIAL
UNDIVIDED INTEREST
-----------------------
CLASS PERCENTAGE IN DOLLARS
----------------------------------- ---------- ------------
<S> <C> <C>
Class A (other than the Class A-PO) 95.75% $287,350,200
Class M 1.25 3,752,000
Class B 3.00 9,004,451
------ ------------
Totals 100.00% $300,106,651
====== ============
-------------------------------------------------------------
</TABLE>
The relative interests in the initial Pool Balance
(Non-PO Portion) represented by the Class A Certifi-
cates (other than the Class A-PO Certificates) and the
Class M and Class B Certificates are subject to change
over time because of the disproportionate allocation
of certain unscheduled principal payments to the Class
A Certificates (other than the Class A-PO Certifi-
cates) for a specified period and the allocation of
certain losses and certain shortfalls first to the
Subclasses of Class B Certificates in reverse numeri-
cal order, and then to the Class M Certificates, prior
to the allocation of such losses and shortfalls to the
Class A Certificates, as discussed in "-- Distribu-
tions of Principal and Interest" and "-- Credit En-
hancement" below.
The Class A-7, Class A-8, Class A-9, Class A-11, Class
A-12 and Class A-13 Certificates are accrual certifi-
cates and are referred to collec-
S-10
<PAGE>
tively herein as the "Accrual Certificates" because
prior to the applicable Accretion Termination Date (as
defined beginning on page S-38) for each Subclass, in-
terest due to the holders of such Subclass of Accrual
Certificates will not be paid currently as interest on
any Distribution Date, but, instead, such amounts will
be added to the principal balance of such Subclass. On
each Distribution Date prior to the applicable Accre-
tion Termination Date, an amount equal to the accrued
and unpaid interest on each Subclass of Accrual Cer-
tificates will be distributed as described herein un-
der "Description of the Certificates -- Principal (In-
cluding Prepayments) -- Allocation of Amount to be
Distributed."
The Class A-1, Class A-2, Class A-3 and Class A-4 Cer-
tificates are planned amortization class certificates
and are referred to collectively herein as the "PAC
Certificates." The Class A-7, Class A-8, Class A-9,
Class A-11, Class A-12, Class A-13 and Class A-14 Cer-
tificates are companion certificates and are referred
to collectively herein as the "Companion Certifi-
cates."
The PAC Certificates are planned amortization certifi-
cates because, based on certain assumptions described
in the second paragraph on page S-77, if prepayments
on the Mortgage Loans occur at any constant rate be-
tween approximately 100% SPA (as defined herein under
"Prepayment and Yield Considerations") and approxi-
mately 400% SPA, it is expected that their principal
balances would be reduced to the percentage of their
initial principal balances for each Distribution Date
indicated in the tables beginning on page S-51. Howev-
er, 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 Companion Certificates are companion certif-
icates because payments of principal allocated to the
Class A Certificates (other than the Class A-PO Cer-
tificates) in excess of amounts resulting from certain
prepayment levels will be paid to the holders of the
Companion Certificates (and the Class A-6 and Class A-
10 Certificates) for so long as the principal balance
of such Subclass remains outstanding, prior to being
paid to the holders of the PAC Certificates. See "De-
scription of the Certificates -- Principal (Including
Prepayments) -- Allocation of Amount to be Distribut-
ed" and "-- Principal Payment Characteristics of the
PAC Certificates, the Class A-6 and Class A-10 Certif-
icates and the Companion Certificates" in this Pro-
spectus Supplement.
S-11
<PAGE>
Forms of
Certificates;
Denominations........ The Offered Certificates will be issued either in
book-entry form or in fully registered, certificated
form ("Definitive Certificates"). The following table
sets forth the original certificate form, the minimum
denomination and the incremental denomination of the
Offered Certificates. The Offered Certificates are not
intended to be directly or indirectly held or benefi-
cially owned in amounts lower than such minimum denom-
inations. See "Descriptions of the Certificates -- De-
nominations" in this Prospectus Supplement.
- --------------------------------------------------------------------------------
FORM AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
ORIGINAL CERTIFICATE MINIMUM INCREMENTAL
CLASS OR SUBCLASS FORM DENOMINATION DENOMINATION
----------------- -------------------- ------------ ------------
<S> <C> <C> <C>
Classes A-1, A-2, A-3, A-4,
A-6, A-7, A-8, A-10, A-11,
A-12 and A-15.............. Book-Entry $ 100,000 $1,000
Class A-5................... Definitive $3,825,629(/1/) N/A
Class A-9................... Definitive $ 75,000 N/A
Class A-13.................. Definitive $ 80,000 N/A
Class A-14.................. Definitive $ 100,000 $1,000
Classes A-R and A-LR........ Definitive $ 100 N/A
Class M..................... Definitive $ 100,000 $1,000
Classes B-1 and B-2......... Definitive $ 100,000 $1,000
</TABLE>
- -------------------
(1) Initial Notional Amount.
- --------------------------------------------------------------------------------
Book-Entry Form. The Offered Certificates, other than
the Class A-5, Class A-9, Class A-13, Class A-14,
Class A-R, Class A-LR, Class M and Offered Class B
Certificates, 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-En-
try Certificates." An investor in a Subclass of Book-
Entry Certificates will not receive a physical certif-
icate representing its ownership interest in such
Book-Entry Certificates, except under extraordinary
circumstances which are discussed in "Description of
the Certificates --Book-Entry Form" in the Prospectus.
Instead, DTC will effect payments and transfers by
means of its electronic recordkeeping services, acting
through certain participating organizations. This may
result in certain delays in receipt of distributions
by an investor and may restrict an investor's ability
to pledge its securities. The rights of investors in
the Book-Entry Certificates may generally only be ex-
ercised through DTC and its participating organiza-
tions. See "Description of the Certificates -- Book-
Entry Form" in this Prospectus Supplement.
Definitive Form. The Class A-5, Class A-9, Class A-13,
Class A-14, Class A-R, Class A-LR, Class M and Offered
Class B Certificates will each be issued as Definitive
Certificates. See "Description of the Certificates --
Denominations" and "-- Definitive Form" in this Pro-
spectus Supplement.
Mortgage Loans........ General. The Mortgage Loans, which are the source of
distributions to holders of the Series 1998-5 Certifi-
cates, will consist of conventional, fixed interest
rate, monthly pay, fully amortizing, one- to four-fam-
ily, residential first mortgage loans, which have
original terms to stated maturity ranging from approx-
imately 20 years to approximately 30 years, and which
may include loans secured by cooperative housing cor-
porations.
S-12
<PAGE>
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
(AS OF THE CUT-OFF DATE)
<TABLE>
<S> <C>
Cut-Off Date: February 1, 1998
Number of Mortgage Loans: 923
Aggregate Unpaid Principal Balance/(2)/: $300,137,055
Range of Unpaid Principal Balance/(2)/: $34,954 to $1,395,290
Average Unpaid Principal Balance/(2)/: $325,176
Range of Mortgage Interest Rates: 6.875% to 8.500%
Weighted Average Mortgage Interest Rate: 7.635%
Range of Remaining Terms to Stated Maturity: 237 months to 360 months
Weighted Average Remaining Term to Stated Maturity: 357 months
Range of Original Loan-to-Value Ratios: 16.67% to 95.00%
Weighted Average Original Loan-to-Value Ratio: 74.22%
Geographic Concentration of Mortgaged Properties
Securing Mortgage Loans in Excess of 5% of the
Aggregate Unpaid Principal Balance: California 40.99%
New Jersey 6.85%
Colorado 5.20%
Maximum Five-Digit Zip Code Concentration/(2)/: 0.94%
</TABLE>
- -------------------
(1) Information concerning the Discount Mortgage Loans and Premium Mortgage
Loans is set forth under "Description of the Mortgage Loans -- General."
(2) Approximate.
- --------------------------------------------------------------------------------
Changes to Pool. Mortgage Loans may be removed from
the pool, or a substitution may be made for certain
Mortgage Loans, in advance of the issuance of the Se-
ries 1998-5 Certificates (which is expected to occur
on or about February 26, 1998 (the "Closing Date")).
Any of such Mortgage Loans may be excluded from the
Trust Estate (i) as a result of principal prepayment
thereof in full or (ii) if, as a result of delinquen-
cies or otherwise, the Seller otherwise deems such ex-
clusion necessary or desirable. In either event, other
Mortgage Loans may be included in the Trust Estate.
This may result in changes in certain of the pool
characteristics set forth in the table above and else-
where in this Prospectus Supplement. In the event that
any of the characteristics as of the Cut-Off Date of
the Mortgage Loans that constitute the Trust Estate on
the date of initial issuance of the Series 1998-5 Cer-
tificates vary materially from those described herein,
revised information regarding the Mortgage Loans will
be made available to purchasers of the Offered Certif-
icates on or before such issuance date, and a Current
Report on Form 8-K containing such information will be
filed with the Securities and Exchange Commission
within 15 days following such issuance date. See "De-
scription of the Mortgage Loans" in this Prospectus
Supplement.
Subsequent to the issuance of the Series 1998-5 Cer-
tificates, certain Mortgage Loans may be removed from
the pool through repurchase or, under certain circum-
stances, through substitution by the Seller, if the
Mortgage
S-13
<PAGE>
Loans are discovered to have defective documentation
or if they otherwise do not conform to the standards
established by the Seller's representations and war-
ranties concerning the Mortgage Loans. See "Descrip-
tion of the Mortgage Loans -- Mandatory Repurchase or
Substitution of Mortgage Loans" in this Prospectus
Supplement.
Optional
Termination.......... The Seller is entitled, subject to certain conditions
relating to the then-remaining size of the pool, to
purchase all outstanding Mortgage Loans in the pool
and thereby effect early retirement of the Series
1998-5 Certificates. See "Pooling and Servicing Agree-
ment -- Optional Termination" in this Prospectus Sup-
plement.
Underwriting
Standards............ Approximately 84.38% (by Cut-Off Date Aggregate Prin-
cipal Balance) of the Mortgage Loans were generally
originated in conformity with the underwriting stan-
dards described in the Prospectus under the heading
"The Mortgage Loan Programs -- Mortgage Loan Under-
writing -- Norwest Mortgage Underwriting" (the "Under-
writing Standards"). In certain instances, exceptions
to the Underwriting Standards may have been granted by
Norwest Mortgage. See "The Mortgage Loan Programs --
Mortgage Loan Underwriting" in the Prospectus. The
remaining approximate 15.62% (by Cut-Off Date Aggre-
gate Principal Balance) of the Mortgage Loans were
purchased by Norwest Mortgage in bulk purchase trans-
actions and were underwritten using underwriting stan-
dards which may vary from the Underwriting Standards
(the "Bulk Purchase Underwritten Loans"). However,
Norwest Mortgage has in each case reviewed the under-
writing standards applied for such Bulk Purchase Un-
derwritten Loans and determined that such variances
did not depart materially from the Underwriting Stan-
dards. See "Description of the Mortgage Loans" in this
Prospectus Supplement and "The Mortgage Loan Pro-
grams -- Mortgage Loan Underwriting" in the Prospec-
tus.
Distributions of
Principal and
Interest............. Distributions in General. Distributions on the Series
1998-5 Certificates will be made on the 25th day of
each month, or, if such day is not a business day, on
the succeeding business day (each such date is re-
ferred to in this Prospectus Supplement as a "Distri-
bution Date"), commencing in March 1998, to holders of
record at the close of business on the last business
day of the preceding month. In the case of the Book-
Entry Certificates, the holder of record will be Cede
& Co., as nominee of DTC.
The amount available for distribution on any Distribu-
tion Date is primarily a function of (i) the amount
remitted by mortgagors of the Mortgage Loans in pay-
ment of their scheduled installments of principal and
interest, (ii) the amount of any prepayments made by
the mortgagors, (iii) the amount of any proceeds from
liquidations of defaulted Mortgage Loans and (iv) the
amount of any Periodic Advances made with respect to
such Distribution Date.
On any Distribution Date, holders of the Class A Cer-
tificates will be entitled to receive all amounts due
them (other than the Class A-PO Deferred Amount, as
defined on page S-44) before any distributions are
made to holders of the Class M or Class B Certificates
on that Distribution Date. The Class A-PO Certificates
will be entitled to receive the Class A-PO Deferred
Amount as described below. The amount that is avail-
able to be
S-14
<PAGE>
distributed on any Distribution Date will be allocated
first to pay interest due to the holders of the Class
A Certificates (including the amounts added to the
principal balances of the Accrual Certificates) and
then, if the amount available for distribution exceeds
the amount of interest due to the holders of such Cer-
tificates, to pay the principal due to the holders of
the Class A Certificates. As described under "-- In-
terest Distributions" below prior to the applicable
Accretion Termination Date, the amount accrued in re-
spect of interest on each Subclass of Accrual Certifi-
cates will be distributed as described herein under
"Description of the Certificates -- Principal (Includ-
ing Prepayments) -- Allocation of Amount to be Dis-
tributed," rather than as interest to the holders of
such Accrual Certificates. The likelihood that a
holder of a particular Subclass of Class A Certifi-
cates (other than the Class A-PO 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 headings "Description of the Cer-
tificates -- Principal (Including Prepayments) -- Al-
location of Amount to be Distributed" and "-- Calcula-
tion of Amount to be Distributed to the Class A Cer-
tificates (other than the Class A-PO Certificates)" in
this Prospectus Supplement.
After all amounts due on the Class A Certificates
(other than the Class A-PO Deferred Amount) have been
paid, the amount remaining will be distributed, in the
following order, to pay (i) any Class A-PO Deferred
Amount first from amounts otherwise distributable as
principal on the Subclasses of Class B Certificates in
reverse numerical order (i.e., first from amounts oth-
erwise distributable as principal on the Class B-5
Certificates, then from amounts otherwise distributa-
ble as principal on the Class B-4 Certificates, and so
on), and then from amounts otherwise distributable as
principal on the Class M Certificates, (ii) interest
due to the holders of the Class M Certificates, (iii)
principal due to the holders of the Class M Certifi-
cates less any amounts used to pay the Class A-PO De-
ferred Amount and (iv) with respect to each Subclass
of Class B Certificates sequentially in numerical or-
der, interest due and then principal due to the hold-
ers of each such Subclass of Class B Certificates be-
fore any Subclasses of Class B Certificates with
higher numerical designations receive any payments in
respect of interest or principal, provided that the
principal due to the holders of any Subclass of Class
B Certificates will be reduced by any amount used to
pay the Class A-PO Deferred Amount. See "Description
of the Certificates -- Distributions" in this Prospec-
tus Supplement.
If any mortgagor is delinquent in the payment of prin-
cipal or interest on a Mortgage Loan in any month, the
respective Servicer is required to advance such pay-
ment unless such Servicer determines that the delin-
quent amount will not be recoverable by such Servicer
from insurance proceeds, liquidation proceeds or other
recoveries on the related Mortgage Loan. The Master
Servicer or Trust Administrator may, in certain cir-
cumstances, 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.
S-15
<PAGE>
Interest Distributions. The amount of interest to
which holders of each Subclass or Class of Offered
Certificates (other than the Class A-5 and Class A-14
Certificates) will be entitled during each month is
calculated based on the outstanding principal balance
of such Subclass or Class as of the related Distribu-
tion Date. Interest will accrue during each month on
each such Subclass or Class according to the following
formula: 1/12th of the Pass-Through Rate for such
Subclass or Class multiplied by the outstanding prin-
cipal balance of such Subclass or Class as of the re-
lated Distribution Date.
The amount of interest to which the holders of the
Class A-5 Certificates are entitled during each month
is calculated based on a "notional amount." A notional
amount is an amount other than the actual outstanding
principal balance of a Subclass and is solely used for
the purpose of computing the amount of interest ac-
crued on such Subclass. A notional amount does not en-
title holders to receive distributions of principal on
the basis of such notional amount. The notional amount
of the Class A-5 Certificates as of any date will
equal the sum of approximately 5.1851851852% of the
outstanding principal balance of the Class A-1 Certif-
icates, approximately 5.1851851852% of the outstanding
principal balance of the Class A-2 Certificates and
approximately 3.7037037037% of the outstanding princi-
pal balance of the Class A-3 Certificates. Interest
will accrue on the Class A-5 Certificates during each
month according to the following formula: 1/12th of
the Pass-Through Rate for such Subclass multiplied by
the notional amount of such Subclass as of the related
Distribution Date.
Holders of the Class A-14 Certificates will not be en-
titled to receive distributions of interest.
The "Pass-Through Rate" for each Subclass and Class of
Offered Certificates (other than the Class A-14 Cer-
tificates) is the percentage set forth on the cover of
this Prospectus Supplement.
Holders of each Subclass or Class of Certificates,
other than the Accrual Certificates and Class A-PO
Certificates, will be entitled to receive distribu-
tions of interest on each Distribution Date. Holders
of the Accrual Certificates will not be entitled to
receive distributions of interest until the applicable
Accretion Termination Date. Until the applicable Ac-
cretion Termination Date, the amount of interest to
which the holders of the Accrual Certificates are en-
titled will not be distributed as interest to such
holders but instead will be added to the principal
balances of the Accrual Certificates. An amount equal
to the amount of interest that has accrued but is not
currently distributable on each Subclass of Accrual
Certificates will instead be distributed under the
heading "Description of the Certificates -- Principal
(Including Prepayments) -- Allocation of Amount to be
Distributed" in this Prospectus Supplement.
When mortgagors prepay principal or when principal is
recovered through foreclosures or other liquidations
of defaulted Mortgage Loans, a full month's interest
for the month of payment or recovery may not be paid
or recovered, resulting in interest shortfalls. These
interest shortfalls are variously handled, depending
on the nature of the event resulting in the interest
shortfall.
S-16
<PAGE>
In the case of principal prepayments in full by mort-
gagors, the Master Servicer will be obligated to cover
resulting interest shortfalls with respect to a Dis-
tribution Date in an amount (such amount, "Compensat-
ing Interest") up to the lesser of (a) the product of
(i) 1/12th of 0.20% and (ii) the aggregate scheduled
principal balance of the Mortgage Loans with respect
to such Distribution Date and (b) the Available Master
Servicing Compensation for such Distribution Date.
Shortfalls in collection of interest resulting from
principal prepayments in full by mortgagors, to the
extent they exceed the amount of Compensating Interest
with respect to a Distribution Date ("Non-Supported
Interest Shortfalls"), will be allocated pro rata
among the Class A Certificates (other than the Class
A-PO Certificates), the Class M Certificates and the
Class B Certificates, based on their then-outstanding
principal balances. The amount allocated to the Class
A Certificates will be allocated pro rata among the
Subclasses of Class A Certificates, based on interest
accrued. The amount allocated to the Class B Certifi-
cates will be allocated pro rata among the Subclasses
of Class B Certificates based on interest accrued. See
"Description of the Certificates -- Interest" in this
Prospectus Supplement.
Interest shortfalls resulting from partial principal
prepayments and other unscheduled principal receipts
(other than principal prepayments in full by mortga-
gors) will not be covered by the Master Servicer, but
instead will be borne first by the Class B Certifi-
cates in reverse numerical order, second by the Class
M Certificates and, finally, pro rata by the Class A
Certificates based on interest accrued. See "Descrip-
tion of the Certificates --Subordination of Class M
and Class B Certificates" in this Prospectus Supple-
ment.
In addition, the amount of interest required to be
distributed to holders of the Series 1998-5 Certifi-
cates will be reduced by a portion of certain Special
Hazard Losses, Fraud Losses and Bankruptcy Losses at-
tributable to interest. See "-- Credit Enhancement --
Extent of Loss Coverage" below and "Description of
the Certificates -- Interest" in this Prospectus Sup-
plement.
To the extent that the amount available for distribu-
tion on any Distribution Date is insufficient to per-
mit the distribution of the applicable amount of ac-
crued interest on the Class A Certificates (net of any
Non-Supported Interest Shortfall, other shortfalls and
losses allocable to the Class A Certificates as de-
scribed above), the amount of interest to be distrib-
uted will be allocated among the outstanding
Subclasses of Class A Certificates pro rata in accor-
dance with their respective entitlements to interest.
The amount of any deficiency will be added to the
amount of interest that such Class A Certificates are
entitled to receive on subsequent Distribution Dates.
No interest will accrue on such deficiencies.
To the extent that the amount available for distribu-
tion on any Distribution Date, after the payment of
all amounts due the Class A Certificates (other than
any Class A-PO Deferred Amount) have been made, is in-
sufficient to permit distribution in full of accrued
interest on the Class M Certificates (net of any Non-
Supported Interest Shortfall, other shortfalls and
losses allocable to the Class M Certificates as de-
scribed above), the amount of
S-17
<PAGE>
any deficiency will be added to the amount of interest
that the Class M Certificates are entitled to receive
on subsequent Distribution Dates. No interest will ac-
crue on such deficiencies.
To the extent that the amount available for distribu-
tion on any Distribution Date, after the payment of
all amounts due the Class A Certificates (other than
the Class A-PO Deferred Amount), the Class M Certifi-
cates and each Subclass of Class B Certificates with a
lower numerical designation has been made, is insuffi-
cient to permit distribution in full of accrued inter-
est as a Subclass of Class B Certificates (net of any
Non-Supported Interest Shortfall, other shortfalls and
losses allocable to such Subclass of Class B Certifi-
cates as described above), the amount of any defi-
ciency will be added to the amount of interest that
such Subclass of Class B Certificates is entitled to
receive on subsequent Distribution Dates. No interest
will accrue on such deficiencies.
Interest on the Class A Certificates, the Class M Cer-
tificates and the Class B Certificates will be calcu-
lated 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 prin-
cipal to which the holders of the Class A Certificates
(other than the holders of the Class A-PO Certifi-
cates) are entitled each month will equal the sum for
each Mortgage Loan of the product of (a) the Non-PO
Fraction applicable to such Mortgage Loan and (b) the
sum of (i) a percentage (the "Class A Percentage") of
scheduled payments of principal on each Mortgage Loan
and (ii) a percentage (the "Class A Prepayment Per-
centage") of certain unscheduled payments of principal
on each Mortgage Loan. The "Non-PO Fraction" with re-
spect to any Mortgage Loan will equal the lesser of
(a) the Net Mortgage Interest Rate for such Mortgage
Loan divided by 6.750% and (b) 1.0. The Class A Per-
centage will be equal, on each Distribution Date, to
the percentage corresponding to the fraction that rep-
resents the ratio of the then-outstanding principal
balance of the Class A Certificates (other than the
Class A-PO Certificates) to the Pool Balance (Non-PO
Portion). The Class A Prepayment Percentage will be
equal to the percentage described in the preceding
sentence plus an additional amount equal to a percent-
age of the principal otherwise distributable to the
holders of the Subordinated Certificates. As a result,
the percentage of certain unscheduled principal pay-
ments otherwise distributable to the holders of the
Subordinated Certificates that is instead distributa-
ble to the holders of the Class A Certificates (other
than the Class A-PO Certificates) will be equal to
100% during the first five years beginning on the
first Distribution Date and, subject to meeting cer-
tain conditions, will likely decline during the subse-
quent four years, as described under the heading "De-
scription of the Certificates -- Principal (Including
Prepayments) -- Calculation of Amount to be Distrib-
uted to the Class A Certificates (other than the Class
A-PO Certificates)" in this Prospectus Supplement, un-
til the ninth anniversary of the first Distribution
Date and thereafter will likely be equal to zero. On
each Distribution Date, the Subordinated Certificates
will collectively be entitled to receive the percent-
ages of the scheduled and certain unscheduled payments
of principal on the portion of each Mortgage Loan
S-18
<PAGE>
representing the Non-PO Fraction of such Mortgage Loan
equal, in each case, to 100% less the applicable per-
centage for the Class A Certificates (other than the
Class A-PO Certificates) described above.
As a result of the method of calculating the Priority
Amount (as defined herein) and the priorities for the
allocation of the Class A Non-PO Principal Distribu-
tion Amount (as defined herein), unless as a result of
principal prepayments the principal balances of the
Subclasses of Class A Certificates (other than Class
A-PO Certificates) have been reduced to zero, no prin-
cipal payments will be made on the Class A-15 Certifi-
cates during the first five years following the issu-
ance of the Series 1998-5 Certificates. Thereafter,
the Class A-15 Certificates will receive a share of
scheduled principal payments allocated to the
Subclasses of Class A Certificates (other than the
Class A-PO Certificates). In addition, until the prin-
cipal balances of the other Subclasses of Class A Cer-
tificates (other than Class A-PO Certificates) have
been reduced to zero, the percentage of principal pre-
payments allocated to the Class A-15 Certificates dur-
ing the following four years will gradually increase.
See "Description of the Certificates -- Principal (In-
cluding Prepayments) -- Allocation of Amount to be
Distributed" and "Prepayment and Yield Considerations"
in this Prospectus Supplement.
The aggregate amount of principal to which holders of
the Class A-PO Certificates are entitled each month
will equal the sum for each Discount Mortgage Loan of
the product of (a) the PO Fraction for such Mortgage
Loan and (b) the sum of (i) scheduled principal pay-
ments on such Mortgage Loan and (ii) certain
unscheduled payments of principal on such Mortgage
Loan. See "Description of the Certificates -- Princi-
pal (Including Prepayments) -- Calculation of Amount
to be Distributed to the Class A-PO Certificates" in
this Prospectus Supplement. In addition, the Class A-
PO Certificates will be entitled to receive any previ-
ously unpaid amounts of principal to which such Cer-
tificates were entitled on prior Distribution Dates as
part of the Class A-PO Deferred Amount. The "PO Frac-
tion" with respect to any Discount Mortgage Loan will
equal the difference between 1.0 and the Non-PO Frac-
tion for such Discount Mortgage Loan. The PO Fraction
with respect to each Mortgage Loan that is not a Dis-
count Mortgage Loan will be equal to zero. See "De-
scription of the Certificates -- Principal (Including
Prepayments)" in this Prospectus Supplement.
The holders of the Class A-PO Certificates will also
be entitled each month to an amount equal to the Class
A-PO Deferred Amount. The Class A-PO Deferred Amount
will be paid to holders of the Class A-PO Certificates
only from amounts otherwise distributable as principal
to the Subclasses of Class B Certificates in reverse
numerical order and then from amounts otherwise dis-
tributable as principal to the Class M Certificates.
No interest will accrue on any Class A-PO Deferred
Amount.
Except as described below under "-- Effect of Subordi-
nation Level on Principal Distributions," on each Dis-
tribution Date, the Class M, Class B-1 and Class B-2
Certificates will be entitled to a portion of sched-
uled payments and certain unscheduled payments of
principal on the Mortgage Loans allocable to the Sub-
ordinated Certificates that represents the ratio of
the then-outstanding principal balance of the Class M,
Class B-1 or
S-19
<PAGE>
Class B-2 Certificates, as the case may be, to the
then-outstanding principal balance of the Subordinated
Certificates.
The amount that is available for distribution to the
holders of the Class A Certificates on any Distribu-
tion Date as a distribution of principal (other than
any Class A-PO Deferred Amount) is the sum of (i) the
amount remaining after deducting the amount of inter-
est distributable on the Class A Certificates (includ-
ing the amounts added to the principal balances of the
Accrual Certificates) from the total amount collected
that is available to be distributed to holders of the
Series 1998-5 Certificates on such Distribution Date
and (ii) the amount of interest, if any, added to the
principal balances of the Accrual Certificates with
respect to such Distribution Date. Accordingly, even
though the Class A Certificates may not receive all
accrued interest to which they are entitled on a given
Distribution Date, certain of the Class A Certificates
may receive distributions of principal as a result of
the application of clause (ii) above. Principal will
be distributed to the holders of the Class A Certifi-
cates in accordance with the payment priorities de-
scribed under the heading "Description of the Certifi-
cates -- Principal (Including Prepayments) -- Alloca-
tion 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 distribu-
tions due on the Class A Certificates (including any
Class A-PO Deferred Amount) and interest due on the
Class M Certificates have been deducted from the total
amount collected that is available to be distributed
to holders of the Series 1998-5 Certificates.
The amount that is available for distribution to the
holders of a Subclass of Class B Certificates on any
Distribution Date as a distribution of principal is
the amount remaining after all interest and principal
distributions due on the Class A Certificates (includ-
ing any Class A-PO Deferred Amount), all interest and
principal distributions on the Class M Certificates
and the Subclasses of Class B Certificates with lower
numerical designations and interest due on such
Subclass of Class B Certificates have been deducted
from the total amount collected that is available to
be distributed to holders of the Series 1998-5 Certif-
icates.
Effect of Subordination Level on Principal
Distributions. In order to preserve the availability
of the original subordination level as protection
against losses on the Class M Certificates, the Class
B-1 Certificates, the Class B-2 Certificates, the
Class B-3 Certificates and the Class B-4 Certificates,
some or all of the Subclasses of Class B Certificates,
as described below, may not be entitled to distribu-
tions of principal on certain Distribution Dates and
the principal balances of such Subclasses will not be
considered for purposes of allocation of principal
among the Subordinated Certificates.
In the case of the Class M Certificates, if on any
Distribution Date the percentage obtained by dividing
the outstanding principal balance of the Class B Cer-
tificates by the sum of the outstanding principal bal-
ances of the Class A Certificates (other than the
Class A-PO Certificates), the Class M Certificates and
the Class B Certificates is less than such percent-
S-20
<PAGE>
age was upon the initial issuance of the Series 1998-5
Certificates, then the Class B Certificates will not
be entitled to distributions of principal on such Dis-
tribution 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 sum of 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 Certificates (other than the
Class A-PO Certificates), the Class M Certificates and
the Class B Certificates is less than such percentage
at the time of the initial issuance of the Series
1998-5 Certificates, then such Subclasses of Class B
Certificates with higher numerical designations will
not be entitled to distributions of principal and the
principal balances of such Subclasses will not be
taken into account for purposes of calculating the
portions of scheduled and unscheduled principal pay-
ments allocable to the Class M Certificates and to the
Subclasses of Class B Certificates with lower numeri-
cal designations.
In either of the cases described above, the Class M
Certificates and those Subclasses of Class B Certifi-
cates with lower numerical designations will receive a
greater portion of scheduled and unscheduled payments
of principal on the Mortgage Loans allocable to the
Subordinated Certificates than the Class M Certifi-
cates and those Subclasses of Class B Certificates
with lower numerical designations would have received
had all Subclasses of Class B Certificates been enti-
tled to their portion of such principal payments. See
"Description of the Certificates -- Principal (Includ-
ing Prepayments) -- Calculation of Amount to be Dis-
tributed to the Class M and Class B Certificates" in
this Prospectus Supplement.
Credit Enhancement.... Description of "Shifting-Interest" Subordination. The
rights of the holders of the Class M Certificates to
receive distributions will be subordinated to the
rights of the holders of the Class A Certificates to
receive distributions, to the extent described herein.
The rights of the holders of a Subclass of Class B
Certificates to receive distributions will be subordi-
nated to the rights of the holders of the Class A Cer-
tificates, the Class M Certificates and the Subclasses
of Class B Certificates with lower numerical designa-
tions to receive distributions, to the extent de-
scribed herein. This subordination provides a certain
amount of protection to the holders of the Class A
Certificates (to the extent of the subordination of
the Class M and Class B Certificates), the Class M
Certificates (to the extent of the subordination of
the Class B Certificates) and the Subclasses of Class
B Certificates (other than the Class B-5 Certificates)
(to the extent of the subordination of the Subclasses
of Class B Certificates with higher numerical designa-
tions) against delays in the receipt of scheduled pay-
ments of interest and principal and against losses as-
sociated with the liquidation of defaulted Mortgage
Loans and certain losses resulting from the bankruptcy
of a mortgagor.
In general, the protection afforded the holders of the
Class A Certificates by means of this subordination
will be effected in two ways: (i) by the preferential
right of the holders of the Class A Certificates to
receive, prior
S-21
<PAGE>
to any distribution being made on any Distribution
Date in respect of the Class M and Class B Certifi-
cates, the amounts of interest and principal due the
holders of the Class A Certificates (other than the
Class A-PO Deferred Amount) and, if necessary, by the
right of such holders to receive future distributions
on the Mortgage Loans that would otherwise have been
allocated to the 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 prin-
cipal balances have been reduced to zero, of certain
losses resulting from the liquidation of defaulted
Mortgage Loans or the bankruptcy of mortgagors prior
to the allocation of such losses to the Class A Cer-
tificates. See "Description of the Certificates --
Distributions" in this Prospectus Supplement.
In general, the protection afforded the holders of the
Class M Certificates by means of this subordination
will also be effected in two ways: (i) by the prefer-
ential right of the holders of the Class M Certifi-
cates to receive, prior to any distribution being made
on any Distribution Date in respect of the Class B
Certificates, the amounts of interest and principal
due the holders of the Class M Certificates on such
date and, if necessary, by the right of such holders
to receive future distributions on the Mortgage Loans
that would otherwise have been allocated to the hold-
ers of the Class B Certificates and (ii) by the allo-
cation to the Class B Certificates, until their prin-
cipal balance has been reduced to zero, of certain
losses resulting from the liquidation of defaulted
Mortgage Loans or the bankruptcy of mortgagors prior
to the allocation of such losses to the Class M Cer-
tificates. See "Description of the Certificates --
Distributions" in this Prospectus Supplement.
In general, the protection afforded the holders of a
Subclass of Class B Certificates by means of this sub-
ordination will also be effected in two ways: (i) by
the preferential right of the holders of such Subclass
to receive, prior to any distribution being made on
any Distribution Date in respect of the Subclasses of
Class B Certificates with higher numerical designa-
tions, the amounts of interest and principal due the
holders of such Subclass on such date and, if neces-
sary, by the right of such holders to receive future
distributions on the Mortgage Loans that would other-
wise have been allocated to the holders of the
Subclasses of Class B Certificates with higher numeri-
cal designations and (ii) by the allocation to the
Subclasses of Class B Certificates with higher numeri-
cal designations, until their principal balances have
been reduced to zero, of certain losses resulting from
the liquidation of defaulted Mortgage Loans or the
bankruptcy of mortgagors prior to the allocation of
such losses to such Subclass. See "Description of the
Certificates -- Distributions" in this Prospectus
Supplement.
In addition, in order to increase the period during
which the principal balances of the Class M and Class
B Certificates remain available as credit enhancement
to the Class A Certificates, a disproportionate amount
of prepayments and certain unscheduled recoveries with
respect to the Mortgage Loans will be allocated to the
Class A Certificates (other than the Class A-PO Cer-
tificates). This allocation has the effect of acceler-
ating the amortization of the Class A Certificates
(other than the Class A-PO Certificates) while, in the
absence of losses in respect of the liquidation of
S-22
<PAGE>
defaulted Mortgage Loans or losses resulting from the
bankruptcy of mortgagors, increasing the respective
percentage interests in the principal balance of the
Mortgage Loans evidenced by the Class M and Class B
Certificates. See "-- Distributions of Principal and
Interest -- Principal Distributions" and "Prepayment
and Yield Considerations" in this Prospectus Supple-
ment.
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) attribut-
able to certain actions which may be taken by a bank-
ruptcy court in connection with a Mortgage Loan, in-
cluding a reduction by a bankruptcy court of the prin-
cipal balance of or the interest rate on a Mortgage
Loan or an extension of its maturity, will not be al-
located to the Class A Certificates until the date on
which the aggregate principal balance of the Class M
and Class B Certificates (which aggregate balance is
expected initially to be approximately $12,756,451)
has been reduced to zero; will not be allocated to the
Class M Certificates until the date on which the ag-
gregate principal balance of the Class B Certificates
(which aggregate balance is expected initially to be
approximately $9,004,451) has been reduced to zero;
and will not be allocated to the Class B-1 or Class B-
2 Certificates until the date on which the aggregate
principal balance of the Subclasses of Class B Certif-
icates with higher numerical designations has been re-
duced to zero (which aggregate balance is expected
initially to be approximately $3,752,451 with respect
to the Class B-1 Certificates and approximately
$2,401,451 with respect to the Class B-2 Certifi-
cates). Such losses will be allocated first among the
Subclasses of Class B Certificates, in reverse numeri-
cal order (that is, to the Class B-5, Class B-4, Class
B-3, Class B-2 and Class B-1 Certificates,
respectively).
With respect to any Distribution Date subsequent to
the first Distribution Date, the availability of the
credit enhancement provided by the Class M Certifi-
cates and the Subclasses of Class B Certificates will
be affected by the prior reduction of the principal
balance of the Class M Certificates and such
Subclasses of Class B Certificates. Reduction of the
principal balance of the Class M Certificates and any
Subclass of Class B Certificates will result from (i)
the prior allocation of losses due to the liquidation
of defaulted Mortgage Loans, including losses due to
special hazards and fraud losses up to the respective
limits referred to below, (ii) the prior allocation of
bankruptcy losses up to the limit referred to below
and (iii) the prior receipt of principal distributions
by the holders of such Certificates.
As of the date of issuance of the Series 1998-5 Cer-
tificates, the amount of losses attributable to spe-
cial hazards, fraud and bankruptcy that will be ab-
sorbed solely by the holders of the Subclasses of
Class B Certificates in reverse numerical order and
then solely by the holders of the Class M Certificates
will be approximately 1.00% (in the case of special
hazards), 2.00% (in the case of fraud) and 0.03% (in
the case of bankruptcy), respectively, of the Cut-Off
Date Aggregate Principal Balance of the Mortgage Loans
(approximately $3,001,371, $6,002,741 and $100,000,
S-23
<PAGE>
respectively). If losses due to special hazards, fraud
or bankruptcy exceed any of such amounts prior to the
principal balances of the Class M and Class B Certifi-
cates 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 Certificates (other than the Class A-PO Cer-
tificates), the Class M Certificates and the Class B
Certificates and (ii) to the extent such losses arise
with respect to Discount Mortgage Loans, the Class A-
PO Certificates, in each case according to their re-
spective interests in such Mortgage Loans and (b) the
interest portion of any such losses with respect to
the Mortgage Loans will generally be shared pro rata
by the Class A, Class M and Class B Certificates based
on their respective interest accrual amounts. Under
certain circumstances, the limits set forth above may
be reduced as described under "Description of the Cer-
tificates --Subordination of Class M and Class B Cer-
tificates --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 princi-
pal portion of all losses (other than the portion at-
tributable to the Class A-PO Certificates, if any)
will be allocated to the Class A Certificates (other
than the Class A-PO Certificates). To the extent such
losses arise with respect to Discount Mortgage Loans,
principal losses will be shared among the Class A Cer-
tificates, according to their respective interests in
such Mortgage Loans. The principal portion of any
losses borne by the Class A Certificates (other than
losses borne by the Class A-PO Certificates) will be
shared pro rata by the Subclasses of Class A Certifi-
cates (other than the Class A-PO Certificates), based
on their then-outstanding principal balances or, in
the case of the Accrual Certificates, their initial
principal balances, if lower. The interest portion of
such losses borne by the Subclasses of Class A Certif-
icates will be shared pro rata by such Subclasses
based on interest accrued. 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 THAT ON
THE CLASS A CERTIFICATES, IN THE EVENT THAT THE AGGRE-
GATE PRINCIPAL BALANCE OF THE CLASS B CERTIFICATES HAS
BEEN REDUCED TO ZERO.
THE YIELD TO MATURITY ON EACH SUBCLASS OF OFFERED
CLASS B CERTIFICATES WILL BE MORE SENSITIVE TO LOSSES
DUE TO LIQUIDATIONS OF THE MORTGAGE LOANS (AND THE
TIMING THEREOF) THAN THAT ON THE CLASS A CERTIFICATES
AND THE CLASS M CERTIFICATES AND, IN THE CASE OF THE
CLASS B-2 CERTIFICATES, THE CLASS B-1 CERTIFICATES, IN
THE EVENT THAT THE PRINCIPAL BALANCES OF THE
SUBCLASSES OF CLASS B CERTIFICATES WITH HIGHER NUMERI-
CAL DESIGNATIONS HAVE BEEN REDUCED TO ZERO.
See "Description of the Certificates -- Subordination
of Class M and Class B Certificates" in this Prospec-
tus Supplement.
S-24
<PAGE>
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 mate-
rially and adversely from the investment expectations
of investors due to prepayments on the Mortgage Loans
being higher or lower than anticipated by investors.
In addition, the Class A Certificates (other than the
Class A-PO Certificates) in the aggregate will be more
sensitive to prepayments on the Mortgage Loans than
the Subordinated Certificates due to the dispropor-
tionate allocation of such prepayments to investors in
such Class A Certificates then entitled to principal
distributions during the nine years beginning on the
first Distribution Date. See "-- Distributions of
Principal and Interest --Principal Distributions" and
"Prepayment and Yield Considerations" in this Prospec-
tus Supplement. The actual yield to the holder of an
Offered Certificate may not be equal to the yield an-
ticipated at the time of purchase of the Certificate
or, notwithstanding that the actual yield is equal to
the yield anticipated at that time, the total return
on investment expected by the investor or the expected
weighted average life of the Certificate may not be
realized. These effects are summarized below. IN DE-
CIDING WHETHER TO PURCHASE ANY OFFERED CERTIFICATES,
AN INVESTOR SHOULD MAKE AN INDEPENDENT DECISION AS TO
THE APPROPRIATE PREPAYMENT ASSUMPTIONS TO BE USED.
Yield. If an investor purchases an Offered Certificate
(other than a Class A-14 Certificate) at an amount
equal to its unpaid principal balance (that is, at
"par"), the effective yield to that investor (assuming
that there are no interest shortfalls and assuming the
full return of the investor's invested principal) will
approximate the Pass-Through Rate on that Certificate.
If an investor pays less or more than the unpaid prin-
cipal 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 in-
vestor 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 as-
sumed by the investor will affect the period of time
over which, or the rate at which, the discount or pre-
mium will be amortized and, consequently, will change
the investor's actual yield from that anticipated. The
timing of receipt of prepayments may also affect the
investor's actual yield. The yield experienced by an
investor in the Class A-14 Certificates, which do not
bear interest, is primarily a function of the price
paid by such investor, the rate and timing of princi-
pal payments on the Mortgage Loans and losses incurred
on and after the Cross-Over Date. The particular sen-
sitivity of the Class A-14 Certificates is separately
displayed in the table appearing under the heading
"Prepayment and Yield Considerations" in this Prospec-
tus Supplement. AN INVESTOR THAT PURCHASES ANY OFFERED
CERTIFICATES AT A DISCOUNT, PARTICULARLY THE CLASS
A-14 CERTIFICATES, SHOULD CONSIDER THE RISK THAT A
SLOWER 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. AN IN-
VESTOR THAT PURCHASES ANY OFFERED CERTIFICATES AT A
PREMIUM, OR THAT PURCHASES THE CLASS A-5 CERTIFICATES,
WHICH HAVE NO PRINCIPAL BALANCE, SHOULD CONSIDER THE
RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL
S-25
<PAGE>
PAYMENTS ON THE MORTGAGE LOANS WILL RESULT IN AN AC-
TUAL YIELD THAT IS LOWER THAN SUCH INVESTOR'S EXPECTED
YIELD AND SHOULD CONSIDER THE RISK THAT A RAPID RATE
OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RE-
SULT IN THE FAILURE OF SUCH INVESTOR TO FULLY RECOVER
ITS INITIAL INVESTMENT.
The yield to investors in the Class A-5 Certificates,
which have no principal balance, will be sensitive to
both the timing of receipt of prepayments and the
overall rate of prepayment on the Mortgage Loans. The
particular sensitivity of the Class A-5 Certificates
is separately displayed in the table appearing under
the heading "Prepayment and Yield Considerations" in
this Prospectus Supplement. INVESTORS IN THE CLASS A-5
CERTIFICATES SHOULD CONSIDER THE RISK THAT A RAPID
RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD
RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY RE-
COVER THEIR INITIAL INVESTMENTS.
Reinvestment Risk. As stated above, if an Offered Cer-
tificate is purchased at par, fluctuations in the rate
of distributions of principal will generally not af-
fect the yield to maturity of that Certificate. Howev-
er, the total return on any investor's investment, in-
cluding an investor who purchases at par, will be re-
duced to the extent that principal distributions re-
ceived on its Certificate cannot be reinvested at a
rate as high as the stated interest rate of the Cer-
tificate. Investors in the Offered Certificates should
consider the risk that rapid rates of prepayments on
the Mortgage Loans may coincide with periods of low
prevailing market interest rates. During periods of
low prevailing market interest rates, mortgagors may
be expected to prepay or refinance Mortgage Loans that
carry interest rates significantly higher than then-
current interest rates for mortgage loans. Consequent-
ly, 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 inter-
est rates. During such periods, it is less likely that
mortgagors will elect to prepay or refinance Mortgage
Loans and, therefore, the amount of principal distri-
butions available to an investor for reinvestment at
such high prevailing interest rates may be relatively
small.
Weighted Average Life Volatility. One indication of
the impact of varying prepayment speeds on a security
is the change in its weighted average life. The
"weighted average life" of an Offered Certificate
(other than a Class A-5 Certificate) is the average
amount of time that will elapse between the date of
issuance of the Certificate and the date on which each
dollar in reduction of the principal balance of the
Certificate is distributed to the investor. The
weighted average life of a Class A-5 Certificate is
the average amount of time that will elapse between
the date of issuance of the Series 1998-5 Certificates
and the date on which each dollar in reduction of the
aggregate principal balance of the Class A-1, Class A-
2 and Class A-3 Certificates (the sum of a portion of
each of the principal balances of which corresponds to
the notional amount of the Class A-5 Certificates) is
distributed to the investors in the Class A-1, Class
A-2 and Class A-3 Certificates. Low rates of prepay-
ment may result in the extension of the weighted aver-
age life of a Certificate; high rates, in the shorten-
ing of such weighted average life.
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<PAGE>
In general, if the weighted average life of a Certifi-
cate purchased at par is extended beyond that ini-
tially anticipated, such Certificate's market value
may be adversely affected even though the yield to ma-
turity on the Certificate is unaffected.
THE WEIGHTED AVERAGE LIVES OF THE COMPANION CERTIFI-
CATES WILL BE MORE SENSITIVE THAN THE WEIGHTED AVERAGE
LIVES OF THE OTHER SUBCLASSES AND CLASSES OF OFFERED
CERTIFICATES TO THE RATE OF PREPAYMENTS ON THE MORT-
GAGE LOANS. THE WEIGHTED AVERAGE LIVES OF THE CLASS A-
6 AND CLASS A-10 CERTIFICATES WILL BE LESS SENSITIVE
THAN THE WEIGHTED AVERAGE LIVES OF THE COMPANION CER-
TIFICATES, BUT MORE SENSITIVE THAN THE WEIGHTED AVER-
AGE LIVES OF THE OTHER SUBCLASSES AND CLASSES OF OF-
FERED CERTIFICATES TO THE RATE OF PREPAYMENTS ON THE
MORTGAGE LOANS. AT RATES ABOVE CERTAIN PREPAYMENT LEV-
ELS, PAYMENTS OF PRINCIPAL ALLOCATED TO THE CLASS A
CERTIFICATES (OTHER THAN THE CLASS A-PO CERTIFICATES)
IN EXCESS OF SUCH PREPAYMENT LEVELS WILL BE PAID TO
HOLDERS OF THE COMPANION CERTIFICATES AND THE CLASS A-
6 AND CLASS A-10 CERTIFICATES WHILE SUCH CERTIFICATES
REMAIN OUTSTANDING PRIOR TO BEING PAID TO THE PAC CER-
TIFICATES. FURTHER, AT OR BELOW CERTAIN PREPAYMENT
LEVELS, THE COMPANION CERTIFICATES AND THE CLASS A-6
AND CLASS A-10 CERTIFICATES MAY RECEIVE NO PRINCIPAL
PAYMENTS (OTHER THAN CERTAIN ACCRUAL DISTRIBUTION
AMOUNTS) FOR EXTENDED PERIODS OF TIME RESULTING IN AN
EXTENSION OF THE WEIGHTED AVERAGE LIVES OF THE COMPAN-
ION CERTIFICATES AND THE CLASS A-6 AND CLASS A-10 CER-
TIFICATES.
See "Prepayment and Yield Considerations" and "De-
scription of the Certificates -- Principal (Including
Prepayments) -- Principal Payment Characteristics of
the PAC Certificates, the Class A-6 and Class A-10
Certificates and the Companion Certificates" in this
Prospectus Supplement.
The weighted average lives of the Offered Certifi-
cates, under various prepayment scenarios, are dis-
played in the tables appearing under the heading "Pre-
payment and Yield Considerations" in this Prospectus
Supplement.
Federal Income Tax
Status............... For federal income tax purposes, the Trust Estate will
consist of two real estate mortgage investment con-
duits (the "Upper-Tier REMIC" and the "Lower-Tier
REMIC," respectively). The Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class
A-8, Class A-9, Class A-10, Class A-11, Class A-12,
Class A-13, Class A-14, Class A-15 and Class A-PO Cer-
tificates, the Class M Certificates and the Class B-1,
Class B-2, Class B-3, Class B-4 and Class B-5 Certifi-
cates will constitute "regular interests" in the Up-
per-Tier REMIC and the Class A-R and Class A-LR Cer-
tificates will constitute the "residual interest" in
the Upper-Tier REMIC and Lower-Tier REMIC, respective-
ly.
The Regular Certificates (as defined herein) generally
will be treated as newly originated debt instruments
for federal income tax purposes. Beneficial owners of
the Regular Certificates will be required to report
income thereon in accordance with the accrual method
of accounting. Although not free from doubt, it is an-
ticipated that the Class A-5 Certificates will be
treated as issued with original issue discount in an
amount equal to the excess of the sum of all expected
distributions of interest thereon over their issue
price (including accrued interest). The Class A-14
Certificates
S-27
<PAGE>
will be issued with original issue discount in an
amount equal to the excess of the initial principal
balance thereof over their issue price. The Class A-7,
Class A-8, Class A-9, Class A-11, Class A-12 and Class
A-13 Certificates will be issued with original issue
discount in an amount equal to the excess of the sum
of all distributions of principal and interest
(whether current or accrued) thereon over their re-
spective issue prices (including accrued interest).
Furthermore, it is anticipated that the Class A-1,
Class A-2, Class A-3, Class A-4, Class A-6, Class A-
10, Class A-15, and Class M Certificates will be is-
sued at a premium and that the Class B-1 and Class B-2
Certificates will be issued with de minimis original
issue discount for federal income tax purposes. Final-
ly, it is anticipated that the Class A-PO, Class B-3,
Class B-4 and Class B-5 Certificates, which are not
offered hereby, will be treated as issued with origi-
nal issue discount for federal income tax purposes.
Holders of the Class A-R and Class A-LR Certificates
will be required to include the taxable income or loss
of the Upper-Tier REMIC and Lower-Tier REMIC, respec-
tively, in determining their federal taxable income.
It is anticipated that all or a substantial portion of
the taxable income of the Upper-Tier REMIC and Lower-
Tier REMIC includible by the Class A-R and Class A-LR
Certificateholders will be treated as "excess inclu-
sion" income subject to special limitations for fed-
eral income tax purposes. AS A RESULT, THE EFFECTIVE
AFTER-TAX RETURN OF THE CLASS A-R AND CLASS A-LR CER-
TIFICATES MAY BE SIGNIFICANTLY LOWER THAN WOULD BE THE
CASE IF THE CLASS A-R AND CLASS A-LR CERTIFICATES WERE
TAXED AS DEBT INSTRUMENTS, OR MAY BE NEGATIVE. FUR-
THER, SIGNIFICANT RESTRICTIONS APPLY TO THE TRANSFER
OF THE CLASS A-R AND CLASS A-LR CERTIFICATES. THE
CLASS A-R AND CLASS A-LR CERTIFICATES WILL BE CONSID-
ERED "NONECONOMIC RESIDUAL INTERESTS," CERTAIN TRANS-
FERS OF WHICH MAY BE DISREGARDED FOR FEDERAL INCOME
TAX PURPOSES.
See "Description of the Certificates -- Restrictions
on Transfer of the Class A-9, Class A-13, Class A-R,
Class A-LR, Class M and Offered Class B Certificates"
and "Federal Income Tax Considerations" in this Pro-
spectus Supplement and "Certain Federal Income Tax
Consequences -- Federal Income Tax Consequences for
REMIC Certificates" in the Prospectus.
ERISA
Considerations....... A fiduciary of an employee benefit plan or other re-
tirement plan or arrangement subject to Title I of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code"), or a
governmental plan, as defined in Section 3(32) of
ERISA, subject to any federal, state or local law
("Similar Law") which is, to a material extent, simi-
lar to the foregoing provisions of ERISA or the Code
(collectively, a "Plan"), should carefully review with
its legal advisors whether the purchase or holding of
Offered Certificates could give rise to a transaction
prohibited or not otherwise permissible under ERISA,
the Code or Similar Law. BECAUSE THE CLASS M AND OF-
FERED CLASS B CERTIFICATES ARE SUBORDINATED TO THE
CLASS A CERTIFICATES WITH RESPECT TO CERTAIN LOSSES,
THE CLASS M AND OFFERED CLASS B CERTIFICATES MAY NOT
BE TRANSFERRED UNLESS THE TRANSFEREE HAS DELIVERED (I)
A REPRESENTATION LETTER TO THE TRUST ADMINISTRATOR AND
SELLER STATING EITHER (A) THAT THE TRANSFEREE IS NOT A
PLAN AND IS NOT ACTING ON BEHALF OF A PLAN
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<PAGE>
OR USING THE ASSETS OF A PLAN TO EFFECT SUCH PURCHASE
OR (B) SUBJECT TO CERTAIN CONDITIONS DESCRIBED HEREIN,
THAT THE SOURCE OF FUNDS USED TO PURCHASE THE CLASS M
OR OFFERED CLASS B CERTIFICATES IS AN "INSURANCE COM-
PANY GENERAL ACCOUNT" OR (II) AN OPINION OF COUNSEL
AND SUCH OTHER DOCUMENTATION AS DESCRIBED UNDER "ERISA
CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT RELATING
TO THE OFFERING OF SUCH CERTIFICATES. THE CLASS A-R
AND CLASS A-LR CERTIFICATES MAY NOT BE PURCHASED BY OR
TRANSFERRED TO A PLAN. See "ERISA Considerations" in
this Prospectus Supplement and in the Prospectus.
Legal Investment...... The Offered Class A Certificates and the Class M Cer-
tificates will constitute "mortgage related securi-
ties" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"), so long
as they are rated in one of the two highest rating
categories by at least one nationally recognized sta-
tistical rating organization. As such, the Offered
Class A Certificates and the Class M Certificates are
legal investments for certain entities to the extent
provided in SMMEA. However, there are regulatory re-
quirements and considerations applicable to regulated
financial institutions and restrictions on the ability
of such institutions to invest in certain types of
mortgage related securities. The Offered Class B Cer-
tificates will not constitute "mortgage related secu-
rities" under SMMEA. The appropriate characterization
of the Offered Class B Certificates under various le-
gal investment restrictions, and thus the ability of
investors subject to these restrictions to purchase
the Offered Class B Certificates, may be subject to
significant interpretive uncertainties. Prospective
purchasers of the Offered Certificates should consult
their own legal, tax and accounting advisors in deter-
mining the suitability of and consequences to them of
the purchase, ownership and disposition of the Offered
Certificates. See "Legal Investment" in this Prospec-
tus Supplement and in the Prospectus.
S-29
<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 and to the amount and timing of mortgagor
defaults resulting in Realized Losses. The rate of principal payments on the
Mortgage Loans will in turn be affected by, among other things, the amortiza-
tion schedules of the Mortgage Loans, the rate of principal prepayments (in-
cluding partial prepayments and those resulting from refinancing) thereon by
mortgagors, liquidations of defaulted Mortgage Loans, repurchases of Mortgage
Loans by the Seller as a result of defective documentation or breaches of rep-
resentations and warranties, optional purchase by the Seller of defaulted Mort-
gage Loans and optional purchase by the Seller of all of the Mortgage Loans in
connection with the termination of the Trust Estate. See "Prepayment and Yield
Considerations" and "Pooling and Servicing Agreement -- Optional Termination"
herein and "The Pooling and Servicing Agreement -- Assignment of Mortgage Loans
to the Trustee," "-- Optional Purchases" and "-- Termination; Optional Purchase
of Mortgage Loans" in the Prospectus. Mortgagors are permitted to prepay the
Mortgage Loans, in whole or in part, at any time without penalty.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage Interest
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to increase. Conversely, if interest rates on similar mortgage loans rise above
the Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment would
generally be expected to decrease.
An investor that purchases any Offered Certificates at a discount, particu-
larly the Class A-14 Certificates, should consider the risk that a slower than
anticipated rate of principal payments (including prepayments) on the Mortgage
Loans will result in an actual yield that is lower than such investor's ex-
pected yield. An investor that purchases any Offered Certificates at a premium,
or that purchases the Class A-5 Certificates, which have no principal balance,
should consider the risk that a faster than anticipated rate of principal pay-
ments (including prepayments) 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.
The particular sensitivities of the Class A-5 and Class A-14 Certificates are
separately displayed in the tables appearing under the heading "Prepayment and
Yield Considerations" in this Prospectus Supplement. INVESTORS IN THE CLASS A-5
CERTIFICATES SHOULD CONSIDER THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS
ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY
RECOVER THEIR INITIAL INVESTMENTS. 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 Class A Certificates and the rights
of the holders of a Subclass of Class B Certificates to receive distributions
with respect to the Mortgage Loans in the Trust Estate will be subordinated to
such rights of the holders of the Class A Certificates, the Class M Certifi-
cates and the Subclasses of Class B Certificates with lower numerical designa-
tions, all to the extent described herein under "Description of the Certifi-
cates -- Subordination of Class M and Class B Certificates."
BOOK-ENTRY SYSTEM FOR CERTAIN SUBCLASSES OF CLASS A CERTIFICATES
Transactions in the Book-Entry Certificates generally can be effected only
through DTC, DTC Participants and Indirect DTC Participants. The ability of a
Beneficial Owner to pledge Book-Entry Certificates and the liquidity of the
Book-Entry Certificates in general may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, Beneficial Owners
may experience delays in their receipt of payments. See "Risk Factors -- Book-
Entry System for Certain Classes and Subclasses of Certificates" and "Descrip-
tion of the Certificates -- Book-Entry Form" in the Prospectus.
See "Risk Factors" in the Prospectus for a description of certain other risks
and special considerations applicable to the Offered Certificates.
S-30
<PAGE>
DESCRIPTION OF THE CERTIFICATES
DENOMINATIONS
The Offered Certificates, other than the Class A-5, Class A-9, Class A-13,
Class A-R and Class A-LR 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-5 Certificates will be issued
as a single Certificate with a denomination equal to such Subclass' initial
notional amount. The Class A-9 and Class A-13 Certificates will each be issued
as a single Certificate with a denomination equal to such Subclass' initial
Class A Subclass Principal Balance. The Class A-R Certificate and the Class A-
LR Certificate will each be issued as a single Certificate with a denomination
of $100 initial principal balance.
DEFINITIVE FORM
Offered Certificates issued in fully registered, certificated form are re-
ferred to herein as "Definitive Certificates." The Class A-5, Class A-9, Class
A-13, Class A-14, Class A-R, Class A-LR, Class M and Offered Class B Certifi-
cates will be issued as Definitive Certificates. Distributions of principal of,
and interest on, the Definitive Certificates will be made by the Trust
Administrator 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 Trust Administrator or other certificate registrar. No serv-
ice charge will be imposed for any registration of transfer or exchange, but
the Trust Administrator may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith.
BOOK-ENTRY FORM
Offered Certificates, other than those initially issued as Definitive Certif-
icates, will be issued in book-entry form and are referred to herein as "Book-
Entry Certificates." Each Subclass of the Book-Entry Certificates initially
will be represented by one physical certificate registered in the name of Cede
& Co. ("Cede"), as nominee of DTC, which will be the "holder" or
"Certificateholder" of such Certificates, as such terms are used herein. No
person acquiring an interest in the Book-Entry Certificates (a "Beneficial Own-
er") 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 "De-
scription of the Certificates -- Book-Entry Form" in the Prospectus), and all
references herein to distributions, notices, reports and statements to
Certificateholders or holders shall, in the case of the Book-Entry Certifi-
cates, refer to distributions, notices, reports and statements to DTC or Cede,
as the registered holder of the Book-Entry Certificates, as the case may be,
for distribution to Beneficial Owners in accordance with DTC procedures. See
"Description of the Certificates -- Book-Entry Form" in the Prospectus.
DISTRIBUTIONS
Distributions of interest and in reduction of principal balance to holders of
each Subclass of Class A and Class B Certificates and the Class M Certificates
will be made monthly, to the extent of each Subclass's or Class's entitlement
thereto, on the 25th day of each month or, if such day is not a business day,
on the succeeding business day (each, a "Distribution Date"), beginning in
March 1998. The "Determination Date" with respect to each Distribution Date
will be the 17th day of each month or, if such day is not a business day, the
preceding business day. Distributions will be made on each Distribution Date to
holders of record (which, in the case of the Book-Entry Certificates, will be
Cede, as nominee for DTC) at the close of business on the last business day of
the preceding month (each, a "Record Date"), except that the final distribution
in respect of any Certificate will only be made upon presentation and surrender
of such Certificate at the office or agency appointed by the Trust Administra-
tor and specified in the notice of final distribution in respect of such Cer-
tificate.
The aggregate amount available for distribution to Certificateholders on each
Distribution Date will be the Pool Distribution Amount. The "Pool Distribution
Amount" for a Distribution Date will be the sum of all previously undistributed
payments or other receipts on account of principal (including principal prepay-
ments and Liquidation Proceeds in respect of principal, if any), and interest
on or in respect of the Mortgage Loans received
S-31
<PAGE>
by the Master Servicer, including without limitation any related insurance pro-
ceeds and the proceeds of any purchase of a related Mortgage Loan for breach of
a representation or warranty or the sale of a Mortgaged Property by a Servicer
in connection with the liquidation of the related Mortgage Loan on or prior to
the Remittance Date in the month in which such Distribution Date occurs, plus
(i) all Periodic Advances made and (ii) all other amounts (including any insur-
ance proceeds and Compensating Interest) placed in the Certificate Account by
any Servicer on or before the Remittance Date or by the Master Servicer on or
before the Distribution Date pursuant to the Pooling and Servicing Agreement,
but excluding the following:
(a) amounts received as late payments of principal or interest respecting
which one or more unreimbursed Periodic Advances has been made;
(b) to the extent permitted by the Pooling and Servicing Agreement, that
portion of Liquidation Proceeds with respect to a Mortgage Loan that repre-
sents any unreimbursed Periodic Advances of such Servicer;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent (i) the applicable Servicing Fee, (ii) the Master Ser-
vicing Fee and (iii) 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, all partial principal prepayments,
all proceeds of any Mortgage Loans or property acquired in respect thereof,
or liquidated pursuant to the Pooling and Servicing Agreement, including
net Partial Liquidation Proceeds but excluding any Net Foreclosure Profits
(as defined under "--Additional Rights of the Class A-R and Class A-LR
Certificateholders" below), and other unscheduled receipts in respect of
principal of the Mortgage Loans other than proceeds of a repurchase of a
Mortgage Loan by the Seller or amounts deposited by the Seller in the Cer-
tificate Account in connection with the substitution of a Mortgage Loan
(collectively, "Unscheduled Principal Receipts") that were received by each
Servicer after the Unscheduled Principal Receipt Period (as described under
"Servicing of the Mortgage Loans -- Unscheduled Principal Receipts" below)
relating to the Distribution Date for the applicable type of Unscheduled
Principal Receipt, and all related payments of interest on such amounts;
(f) all repurchase proceeds with respect to Mortgage Loans repurchased by
the Seller on or following the Due Date in the month in which such Distri-
bution Date occurs and the excess of the unpaid principal balance of any
defective Mortgage Loan for which a Mortgage Loan was substituted over the
unpaid principal balance of such substituted Mortgage Loan on or following
the Due Date in the month in which such Distribution Date occurs;
(g) to the extent permitted by the Pooling and Servicing Agreement, that
portion of Liquidation Proceeds or insurance proceeds with respect to a
Mortgage Loan or proceeds of any Mortgaged Property that becomes owned by
the Trust Estate which represents any unpaid Servicing Fee or Master Ser-
vicing Fee to which such Servicer or the Master Servicer, respectively, is
entitled, or which represents unpaid Fixed Retained Yield and the portion
of net Liquidation Proceeds used to reimburse any unreimbursed Periodic Ad-
vances;
(h) all amounts representing certain expenses reimbursable to the Master
Servicer and other amounts permitted to be retained by the Master Servicer
or withdrawn by the Master Servicer from the Certificate Account pursuant
to the Pooling and Servicing Agreement;
(i) reinvestment earnings on payments received in respect of the Mortgage
Loans or on other amounts on deposit in the Certificate Account;
(j) Net Foreclosure Profits;
(k) Month End Interest; and
(l) generally, the amount of any recoveries in respect of principal which
had previously been allocated as a loss to one or more Subclasses of the
Class A or Class B Certificates or the Class M Certificates.
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<PAGE>
The "Remittance Date" with respect to any Distribution Date and any Mortgage
Loan serviced by an Other Servicer will be the 18th day of each month or, if
any such day is not a business day, the preceding business day. The "Remittance
Date" with respect to any Distribution Date and any Mortgage Loan serviced by
Norwest Mortgage will, except as described below under "Servicing of the Mort-
gage Loans -- Anticipated Changes in Servicing," be the 24th day of each month
or, if any such day is not a business day, the preceding business day.
"Partial Liquidation Proceeds" are Liquidation Proceeds received by a
Servicer on a Mortgage Loan prior to such Mortgage Loan becoming a Liquidated
Loan and "net Partial Liquidation Proceeds" are Partial Liquidation Proceeds
less expenses incurred with respect to such liquidation.
Each Servicer is required to deposit in the Certificate Account by the Remit-
tance Date certain amounts in respect of the Mortgage Loans as set forth herein
under "Servicing of the Mortgage Loans -- Custodial Accounts." The Master
Servicer is required to remit to the Trust Administrator on or before the Dis-
tribution Date any payments constituting part of the Pool Distribution Amount
that are received by the Master Servicer or are required to be made with the
Master Servicer's own funds. Except as described below under "Description of
the Certificates -- Periodic Advances," neither the Master Servicer nor the
Trust Administrator is obligated to remit any amounts which a Servicer was re-
quired but failed to deposit in the Certificate Account.
On each Distribution Date, the Pool Distribution Amount will be allocated
among the Classes or Subclasses of Certificates and distributed to the holders
thereof of record as of the related Record Date as follows (the "Pool Distribu-
tion Amount Allocation"):
first, to the Subclasses of Class A Certificates, pro rata based on their re-
spective Class A Subclass Interest Accrual Amounts in an aggregate amount up to
the sum of the Class A Subclass Interest Accrual Amounts with respect to such
Distribution Date; provided that prior to the applicable Accretion Termination
Date, an amount equal to the amount that would otherwise be distributable in
respect of interest to each Subclass of Accrual Certificates pursuant to this
provision will instead be distributed in reduction of the Class A Subclass
Principal Balances of certain Subclasses of Class A Certificates as set forth
below under "-- Principal (Including Prepayments) -- Allocation of Amount to be
Distributed";
second, to the Subclasses of Class A Certificates, pro rata based on their
respective unpaid Class A Subclass Interest Shortfall Amounts in an aggregate
amount up to the sum of the Class A Subclass Interest Shortfall Amounts; pro-
vided that prior to the applicable Accretion Termination Date, an amount equal
to the amount that would otherwise be distributable in respect of interest
shortfalls to each Subclass of Accrual Certificates pursuant to this provision
will instead be distributed in reduction of the Class A Subclass Principal Bal-
ances of certain Subclasses of Class A Certificates as set forth below under
"-- Principal (Including Prepayments) -- Allocation of Amount to be
Distributed";
third, concurrently, pro rata to the Class A Certificates (other than the
Class A-PO Certificates), based on the Class A Non-PO Optimal Principal Amount,
and the Class A-PO Certificates, based on the Class A-PO Optimal Principal
Amount, (A) to the Subclasses of Class A Certificates (other than the Class A-
PO Certificates) in an aggregate amount up to the Class A Non-PO Optimal Prin-
cipal Amount, such distribution to be allocated among such Subclasses in accor-
dance with the priorities set forth below under "-- Principal (Including Pre-
payments) -- Allocation of Amount to be Distributed" and (B) to the Class A-PO
Certificates in an amount up to the Class A-PO Optimal Principal Amount;
fourth, to the Class A-PO Certificates in an amount up to the Class A-PO De-
ferred Amount, but only from amounts otherwise distributable (without regard to
this priority) to: first the Subclasses of Class B Certificates pursuant to
priorities fourteenth clause (C), thirteenth and tenth of this Pool Distribu-
tion Amount Allocation; and then the Class M Certificates pursuant to priority
seventh of this Pool Distribution Amount Allocation;
fifth, to the Class M Certificates in an amount up to the Class M Interest
Accrual Amount with respect to such Distribution Date;
sixth, to the Class M Certificates in an amount up to the sum of the previ-
ously unpaid Class M Interest Shortfall Amounts;
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
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reduced by the amount, if any, otherwise distributable as principal hereunder
used to pay the Class A-PO Deferred Amount in accordance with priority fourth;
eighth, to the Class B-1 Certificates in an amount up to the Class B Subclass
Interest Accrual Amount for such Subclass with respect to such Distribution
Date;
ninth, to the Class B-1 Certificates in an amount up to the sum of the previ-
ously unpaid Class B Subclass Interest Shortfall Amounts for such Subclass;
tenth, to the Class B-1 Certificates in an amount up to the Subclass B Opti-
mal Principal Amount for such Subclass; provided, however, that the amount dis-
tributable pursuant to this priority tenth will be reduced by the amount, if
any, otherwise distributable as principal hereunder used to pay the Class A-PO
Deferred Amount in accordance with priority fourth;
eleventh, to the Class B-2 Certificates in an amount up to the Class B
Subclass Interest Accrual Amount for such Subclass with respect to such Distri-
bution Date;
twelfth, to the Class B-2 Certificates in an amount up to the sum of the pre-
viously unpaid Class B Subclass Interest Shortfall Amounts for such Subclass;
thirteenth, to the Class B-2 Certificates in an amount up to the Subclass B
Optimal Principal Amount for such Subclass; provided, however, that the amount
distributable pursuant to this priority thirteenth will be reduced by the
amount, if any, otherwise distributable as principal hereunder used to pay the
Class A-PO Deferred Amount in accordance with priority fourth; and
fourteenth, sequentially, to the Class B-3, Class B-4 and Class B-5 Certifi-
cates so that each such Subclass shall receive (A) first, an amount up to its
Class B Subclass Interest Accrual Amount with respect to such Distribution
Date, (B) then, an amount up to its previously unpaid Class B Subclass Interest
Shortfall Amounts and (C) finally, an amount up to its Subclass B Optimal Prin-
cipal Amount before any Subclasses of Class B Certificates with higher numeri-
cal designations receive any payments in respect of interest or principal; pro-
vided, however, that the amount distributable pursuant to this priority four-
teenth clause (C) to any Subclasses of Class B Certificates will be reduced by
the amount, if any, otherwise distributable as principal hereunder used to pay
the Class A-PO Deferred Amount in accordance with priority fourth.
The "Class A Non-PO Distribution Amount" for any Distribution Date will be
equal to the sum of the amounts distributed in accordance with priorities
first, second and third clause (A) of the Pool Distribution Amount Allocation
set forth above.
The "Class M Distribution Amount" for any Distribution Date will be equal to
the sum of the amounts distributed in accordance with priorities fifth through
seventh of the Pool Distribution Amount Allocation set forth above.
The "Class B Subclass Distribution Amount" for any Distribution Date and the
Class B-1 or Class B-2 Certificates will be equal to the sum of the amounts
distributed in accordance with priorities eighth through tenth of the Pool Dis-
tribution Amount Allocation set forth above with respect to the Class B-1 Cer-
tificates and priorities eleventh through thirteenth of the Pool Distribution
Amount Allocation set forth above with respect to the Class B-2 Certificates.
The undivided percentage interest (the "Percentage Interest") represented by
any Offered Certificate in distributions to such Subclass or Class will be
equal to the percentage obtained by dividing the initial principal balance (or
notional amount in the case of the Class A-5 Certificates) of such Certificate
by the aggregate initial principal balance (or notional amount) of all Certifi-
cates of such Subclass or Class.
INTEREST
The amount of interest that will accrue on each Subclass of Class A Certifi-
cates (other than the Class A-14 and Class A-PO Certificates), during each
month, after taking into account any Non-Supported Interest Shortfalls and the
interest portion of certain losses allocated to such Subclass, is referred to
herein as the "Class A Subclass Interest Accrual Amount" for such Subclass. The
Class A Subclass Interest Accrual Amount for each Subclass of Class A Certifi-
cates, other than the Class A-14 and Class A-PO Certificates, will equal the
difference between
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(a) the product of (i) 1/12th of the Pass-Through Rate for such Subclass and
(ii) the outstanding Class A Subclass Principal Balance of such Subclass or, in
the case of the Class A-5 Certificates, the outstanding Class A-5 Notional
Amount and (b) the sum of (i) any Non-Supported Interest Shortfall allocable to
such Subclass, (ii) the interest portion of any Excess Special Hazard Losses,
Excess Fraud Losses and Excess Bankruptcy Losses allocable to such Subclass and
(iii) the interest portion of any Realized Losses, other than the interest por-
tion of any Excess Special Hazard Losses, Excess Fraud Losses and Excess Bank-
ruptcy Losses allocable to such Subclass on or after the Cross-Over Date.
The pass-through rate for each Subclass of Class A Certificates (other than
the Class A-14 and Class A-PO Certificates), the Class M Certificates and each
Subclass of Offered Class B Certificates (the "Pass-Through Rate"), is the per-
centage set forth on the cover of this Prospectus Supplement.
The Class A-5 Certificates are interest-only certificates and have no princi-
pal balance. The "Class A-5 Notional Amount" with respect to each Distribution
Date will be equal to the sum of approximately 5.1851851852% of the Class A
Subclass Principal Balance of the Class A-1 Certificates, approximately
5.1851851852% of the Class A Subclass Principal Balance of the Class A-2 Cer-
tificates and approximately 3.7037037037% of the Class A Subclass Principal
Balance of the Class A-3 Certificates. Accordingly, any distributions in re-
spect of principal made to, or losses in respect of principal allocated in re-
duction of, the Class A Subclass Principal Balances of the Class A-1, Class A-2
or Class A-3 Certificates will result in a proportional reduction in the Class
A-5 Notional Amount. See "-- Principal (Including Prepayments)" and "-- Subor-
dination of Class M and Class B Certificates -- Allocation of Losses" herein.
The Class A-5 Notional Amount with respect to the first Distribution Date will
be approximately $3,825,629.
No interest will accrue on the Class A-14 and Class A-PO Certificates.
The amount of interest that will accrue on the Class M Certificates during
each month, after taking into account any Non-Supported Interest Shortfalls and
the interest portion of certain losses allocated to such Class, is referred to
herein as the "Class M Interest Accrual Amount." The Class M Interest Accrual
Amount will equal the difference between (a) the product of (i) 1/12th of
6.750% and (ii) the outstanding Class M Principal Balance and (b) the sum of
(i) any Non-Supported Interest Shortfall allocable to such Class and (ii) the
interest portion of any Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses allocable to such Class.
The amount of interest that will accrue on each Subclass of Class B Certifi-
cates during each month, after taking into account any Non-Supported Interest
Shortfalls and the interest portion of certain losses allocated to such
Subclass, is referred to herein as the "Class B Subclass Interest Accrual
Amount." The Class B Subclass Interest Accrual Amount will equal the difference
between (a) the product of (i) 1/12th of 6.750% and (ii) the outstanding Class
B Subclass Principal Balance and (b) the sum of (i) any Non-Supported Interest
Shortfall allocable to such Subclass and (ii) the interest portion of any Ex-
cess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
allocable to such Subclass.
The "Class A Subclass Principal Balance" of a Subclass of Class A Certifi-
cates (other than the Class A-5 and Class A-PO Certificates) as of any Determi-
nation Date will be the principal balance of such Subclass on the date of ini-
tial issuance of the Class A Certificates plus, in the case of the Accrual Cer-
tificates, the applicable Accrual Distribution Amounts, as described under "--
Principal (Including Prepayments)" below, added to the Class A Subclass Prin-
cipal Balance of the corresponding Subclass of Accrual Certificates less
(i) all amounts previously distributed to holders of Certificates of such
Subclass in reduction of the principal balance of such Subclass and (ii) such
Subclass's pro rata share of the principal portion of Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocated through such
Determination Date to the holders of Class A Certificates (other than the Class
A-PO Certificates) in the manner described herein under "-- Subordination of
Class M and Class B Certificates -- Allocation of Losses." After the Cross-Over
Date, the Class A Subclass Principal Balance of a Subclass of Class A Certifi-
cates (other than the Class A-PO Certificates) may be subject to further reduc-
tion in an amount equal to such Subclass's pro rata share of the difference, if
any, between (a) the Class A Non-PO Principal Balance as of such Determination
Date without regard to this provision and (b) the difference between (i) the
Adjusted Pool Amount for the preceding Distribution Date and (ii) the Adjusted
Pool Amount (PO Portion) for the preceding Distribution Date. Any pro rata al-
location among the Subclasses of Class A
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<PAGE>
Certificates described in this paragraph will be made among the Subclasses of
Class A Certificates (other than the Class A-PO Certificates) on the basis of
their then-outstanding Class A Subclass Principal Balances or, in the case of a
Subclass of Accrual Certificates, the initial Class A Subclass Principal Bal-
ance, if lower, immediately prior to the preceding Distribution Date.
The Class A-5 Certificates are interest-only certificates and do not have a
principal balance.
The "Class A Subclass Principal Balance" of the Class A-PO Certificates as of
any Determination Date will be the principal balance of such Subclass on the
date of initial issuance of the Class A Certificates less (i) all amounts pre-
viously distributed to the holders of the Class A-PO Certificates pursuant to
priorities third clause (B) and fourth of the Pool Distribution Amount Alloca-
tion and (ii) the principal portion of Excess Special Hazard Losses, Excess
Fraud Losses and Excess Bankruptcy Losses allocated through such Determination
Date to the Class A-PO Certificates in the manner described herein under "--
Subordination of Class M and Class B Certificates--Allocation of Losses." After
the Cross-Over Date, the Class A Subclass Principal Balance of the Class A-PO
Certificates will be subject to further reduction in an amount equal to the ex-
cess, if any, of (a) the Class A Subclass Principal Balance of the Class A-PO
Certificates as of such Determination Date without regard to this provision
over (b) the Adjusted Pool Amount (PO Portion) for 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 A Non-PO Principal Balance" as of any Determination Date will be
equal to the sum of the Class A Subclass Principal Balances of the Subclasses
of Class A Certificates (other than the Class A-PO Certificates).
The "Class M Principal Balance" as of any Determination Date will be the
lesser of (a) the principal balance of the Class M Certificates on the date of
initial issuance of the Class M Certificates less (i) all amounts previously
distributed to holders of the Class M Certificates in reduction of the princi-
pal balance thereof and (ii) the principal portion of Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocated through such
Determination Date to the holders of the Class M Certificates in the manner de-
scribed herein under "-- Subordination of Class M and Class B Certificates --
Allocation of Losses" and (b) the Adjusted Pool Amount as of the preceding
Distribution Date less the Class A Principal Balance as of such Determination
Date.
The "Class B Subclass Principal Balance" of a Subclass of Class B Certifi-
cates as of any Determination Date will be the lesser of (a) the principal bal-
ance of such Subclass on the date of initial issuance of the Class B Certifi-
cates less (i) all amounts previously distributed to holders of such Subclass
in reduction of the principal balance thereof and (ii) the principal portion of
Excess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
allocated through such Determination Date to the holders of such Subclass in
the manner described under "-- Subordination of Class M and Class B Certifi-
cates -- Allocation of Losses" and (b) the Adjusted Pool Amount as of the pre-
ceding Distribution Date less the sum of (i) the Class A Principal Balance,
(ii) the Class M Principal Balance and (iii) the Class B Subclass Principal
Balances of the Subclasses of Class B Certificates with lower numerical desig-
nations, each as of such Determination Date.
The "Class B Principal Balance" as of any date will be equal to the sum of
the Class B Subclass Principal Balances of the Subclasses of Class B Certifi-
cates as of such date.
With respect to any Distribution Date, the "Adjusted Pool Amount" will equal
the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans minus the
sum of (i) all amounts in respect of principal received in respect of the Mort-
gage Loans (including amounts received as Periodic Advances, principal prepay-
ments and Liquidation Proceeds in respect of principal) and distributed to
holders of the Series 1998-5 Certificates on such Distribution Date and all
prior Distribution Dates and (ii) the principal portion of all Realized Losses
(other than Debt Service Reductions) incurred on the Mortgage Loans from the
Cut-Off Date through the end of the month preceding such Distribution Date.
With respect to any Distribution Date, the "Adjusted Pool Amount (PO Por-
tion)" will equal the sum as to each Mortgage Loan outstanding at the Cut-Off
Date of the product of (A) the PO Fraction for such Mortgage Loan and (B) the
principal balance of such Mortgage Loan as of the Cut-Off Date less the sum of
(i) all amounts
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<PAGE>
in respect of principal received in respect of such Mortgage Loan (including
amounts received as Periodic Advances, principal prepayments and Liquidation
Proceeds in respect of principal) and distributed to holders of the Series
1998-5 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 of 0.25% per annum, (ii) the
Master Servicing Fee Rate and (iii) the Fixed Retained Yield rate, if any, for
such Mortgage Loan. 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
foreclosure sales or other liquidations of defaulted Mortgage Loans, or when
other Unscheduled Principal Receipts occur, a full month's interest for the
month of payment or recovery may not be paid or recovered, resulting in inter-
est shortfalls to the extent that such payment or recovery is not included in
the distribution to Certificateholders made in the month in which it is re-
ceived. Interest shortfalls resulting from principal prepayments in full made
by mortgagors ("Prepayments in Full") are referred to herein as "Prepayment In-
terest Shortfalls." The Master Servicer will be obligated, on or before each
Distribution Date, to pay to the Trust Administrator for the benefit of
Certificateholders, from the Master Servicer's own funds (including amounts
otherwise payable to the Master Servicer in respect of such Distribution Date
as Master Servicing Fees) an amount (such amount, "Compensating Interest")
equal to the lesser of (i) the aggregate Prepayment Interest Shortfall with re-
spect to such Distribution Date and (ii) the lesser of (X) the product of (A)
1/12th of 0.20% and (B) the Pool Scheduled Principal Balance for such Distribu-
tion Date and (Y) the Available Master Servicing Compensation for such Distri-
bution Date.
The "Available Master Servicing Compensation" for any Distribution Date will
be equal to the sum of (a) the Master Servicing Fee for such Distribution Date,
(b) interest earned through the business day preceding the applicable Distribu-
tion Date on any Prepayments in Full remitted to the Master Servicer and depos-
ited in the Certificate Account (which amount of interest with respect to Pre-
payments in Full on the Mortgage Loans serviced by Norwest Mortgage is expected
to be zero unless the Remittance Date for such Mortgage Loans changes as de-
scribed below under "Servicing of the Mortgage Loans -- Anticipated Changes in
Servicing") and (c) the aggregate amount of Month End Interest remitted by the
Servicers to the Master Servicer pursuant to the related Underlying Servicing
Agreements. With respect to the Mortgage Loans serviced by Norwest Mortgage,
"Month End Interest" for each Distribution Date will be equal to the lesser of
(i) the aggregate Prepayment Interest Shortfalls with respect to the Mortgage
Loans serviced by Norwest Mortgage and (ii) the product of 1/12th of 0.20% and
the aggregate scheduled principal balance (as determined in the applicable Un-
derlying Servicing Agreement) of the Mortgage Loans serviced by Norwest Mort-
gage. With respect to the Mortgage Loans serviced by each Other Servicer,
"Month End Interest" for each Distribution Date will be equal to either (A) the
lesser of (i) the sum of the aggregate Prepayment Interest Shortfalls and ag-
gregate Curtailment Interest Shortfalls with respect to the Mortgage Loans
serviced by such Other Servicer and (ii) the sum of (X) the product of 1/12 of
0.25% and the aggregate scheduled principal balance (as determined in the ap-
plicable Underlying Servicing Agreement) of the Mortgage Loans serviced by such
Other Servicer and (Y) reinvestment earnings on payments received in respect of
the Mortgage Loans or on other amounts on deposit in the related Servicer Cus-
todial Account pursuant to the related Underlying Servicing Agreement on such
Distribution Date or (B) the aggregate Curtailment Interest Shortfalls with re-
spect to the Mortgage Loans serviced by such Other Servicer. As described below
under "Servicing of the Mortgage Loans -- Anticipated Changes in Servicing,"
any or all of the Servicers may be required to begin to remit to the Master
Servicer Unscheduled Principal Receipts in full for deposit into the Certifi-
cate Account daily on a specified business day following receipt thereof (to
the extent such Servicer is not currently remitting such amount on a daily ba-
sis) which will generally result in a deposit earlier than on the following Re-
mittance Date and, in conjunction therewith, may be relieved of its obligation
to remit Month End Interest. Any such change may have an impact on the amount
of Compensating Interest by increasing the amount described in clause (b) of
the definition of Available Master Servicing Compensation and decreasing the
amount described in clause (c) of the definition thereof. No assurance can be
given as to the timing of any such changes or that any such changes will occur.
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<PAGE>
As to any Distribution Date, Prepayment Interest Shortfalls to the extent
that they exceed Compensating Interest are referred to herein as "Non-Supported
Interest Shortfalls" and will be allocated to (i) the Class A Certificates ac-
cording to the percentage obtained by dividing the then-outstanding Class A
Non-PO Principal Balance by the sum of the then-outstanding Class A Non-PO
Principal Balance, Class M Principal Balance and Class B Principal Balance,
(ii) the Class M Certificates according to the percentage obtained by dividing
the then-outstanding Class M Principal Balance by the sum of the then-
outstanding Class A Non-PO Principal Balance, Class M Principal Balance and
Class B Principal Balance and (iii) the Class B Certificates according to the
percentage obtained by dividing the then-outstanding Class B Principal Balance
by the sum of the then-outstanding Class A Non-PO Principal Balance, Class M
Principal Balance and Class B Principal Balance. Such allocation of the Non-
Supported Interest Shortfall will reduce the amount of interest due to be dis-
tributed to holders of the Class A Certificates then entitled to distributions
in respect of interest or in the case of a Subclass of Accrual Certificates
prior to the applicable Accretion Termination Date, will reduce the amount of
interest accrued on and added to the Class A Subclass Principal Balance there-
of. 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 Cer-
tificates and the Class B Certificates. Any such reduction in respect of inter-
est allocated to the Class A Certificates or Class B Certificates will be allo-
cated among such Subclasses of Class A or Class B Certificates, as the case may
be, pro rata on the basis of their respective Class A Subclass Interest Accrual
Amount or Class B Subclass Interest Accrual Amount, without regard to any re-
duction pursuant to this paragraph, for such Distribution Date.
Any interest shortfalls arising from Unscheduled Principal Receipts in full
that are not Prepayments in Full and any interest shortfalls resulting from the
timing of the receipt of partial principal prepayments by mortgagors ("Curtail-
ment Interest Shortfalls") or of other partial Unscheduled Principal Receipts
with respect to the Mortgage Loans will not be offset by Compensating Interest,
but instead will be borne first by the Subclasses of Class B Certificates in
reverse numerical order, second by the Class M Certificates, and then pro rata
by the Class A Certificates based on interest accrued. See "Description of the
Certificates -- Subordination of Class M and Class B Certificates" herein. Af-
ter the Cross-Over Date all interest shortfalls arising from Unscheduled Prin-
cipal Receipts, other than Prepayment Interest Shortfalls covered by Compensat-
ing Interest, will be treated as Non-Supported Interest Shortfalls and allo-
cated in reduction of interest accrued on the Class A Certificates.
The interest portion of any Excess Special Hazard Losses, Excess Fraud Losses
or Excess Bankruptcy Losses will be allocated among the Class A, Class M and
Class B Certificates pro rata based on the interest accrued on each such Class
and among the Subclasses of Class A Certificates or Class B Certificates, as
the case may be, pro rata on the basis of their respective Class A Subclass In-
terest Accrual Amounts or Class B Subclass Interest Accrual Amounts, without
regard to any reduction pursuant to this paragraph, for such Distribution Date.
Allocations of the interest portion of Realized Losses (other than Excess
Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses) first
to the Subclasses of Class B Certificates in reverse numerical order and then
to the Class M Certificates will result from the priority of distributions
first to the holders of the Class A Certificates, second to the holders of the
Class M Certificates and finally to the holders of the Subclasses of Class B
Certificates in numerical order of the Pool Distribution Amount as described
above under "Description of the Certificates -- Distributions."
On each Distribution Date on which the Pool Distribution Amount equals or ex-
ceeds the sum of the Class A Subclass Interest Accrual Amounts, distributions
in respect of interest to each Subclass of Class A Certificates will equal such
Subclass's Class A Subclass Interest Accrual Amount. On each Distribution Date,
interest in an amount equal to the Class A Subclass Interest Accrual Amount for
each Subclass of Accrual Certificates will accrue on such Subclass, but such
amount will not be distributed as interest to such Subclass until the applica-
ble Accretion Termination Date. Prior to such time, an amount equal to the ac-
crued and unpaid interest on such Subclass will be added to the Class A
Subclass Principal Balance thereof and distributed as described under "--Prin-
cipal (Including Prepayments)--Allocation of Amount to be Distributed" below.
The "Accretion Termination Date" (A) for the Class A-7 Certificates will be the
earlier to occur of (i) the Distribution Date following the Distribution Date
on which the Class A Subclass Principal Balance of the Class A-6 Certificates
has been reduced to zero or (ii) the Cross-Over Date; (B) for the Class A-8
Certificates will be the earlier to occur of (i) the Distribution Date follow-
ing the Distribution Date on which the Class A Subclass Principal Balances
of the Class A-6 and Class A-7 Certificates have been reduced to zero or (ii)
the Cross-Over Date;
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<PAGE>
(C) for the Class A-9 Certificates will be the earlier to occur of (i) the Dis-
tribution Date following the Distribution Date on which Class A Subclass Prin-
cipal Balances of the Class A-6, Class A-7 and Class A-8 Certificates have been
reduced to zero or (ii) the Cross-Over Date; (D) for the Class A-11 Certifi-
cates will be the earlier to occur of (i) the Distribution Date following the
Distribution Date on which the Class A Subclass Principal Balance of the Class
A-10 Certificates has been reduced to zero or (ii) the Cross-Over Date; (E) for
the Class A-12 Certificates will be the earlier to occur of (i) the Distribu-
tion Date following the Distribution Date on which the Class A Subclass Princi-
pal Balances of the Class A-10 and Class A-11 Certificates have been reduced to
zero or (ii) the Cross-Over Date; and (F) for the Class A-13 Certificates will
be the earlier to occur of (i) the Distribution Date following the Distribution
Date on which the Class A Subclass Principal Balances of the Class A-10, Class
A-11 and Class A-12 Certificates have been reduced to zero or (ii) the Cross-
Over Date.
If, on any Distribution Date, the Pool Distribution Amount is less than the
sum of the Class A Subclass Interest Accrual Amounts, the amount of interest
currently distributed on the Class A Certificates will equal the Pool Distribu-
tion Amount and will be allocated among the Subclasses of Class A Certificates
pro rata in accordance with each such Subclass's Class A Subclass Interest Ac-
crual Amount and will be distributed to or added to the principal balance of
such Subclass, as applicable. Any difference between the portion of the Pool
Distribution Amount distributed in respect of current interest to each such
Subclass of Class A Certificates (or, in the case of a Subclass of Accrual Cer-
tificates prior to the applicable Accretion Termination Date, accrued on and
added to the Class A Subclass Principal Balance thereof), and the Class A
Subclass Interest Accrual Amount for such Subclass with respect to the related
Distribution Date (as to each Subclass, the "Class A Subclass Interest
Shortfall Amount") will be added to the amount to be distributed on subsequent
Distribution Dates to such Subclass, but only so long as it is outstanding, to
the extent that the Pool Distribution Amount is sufficient therefor. No inter-
est will accrue on the unpaid Class A Subclass Interest Shortfall Amounts. In
the event that on any Distribution Date prior to the applicable Accretion Ter-
mination Date, the Pool Distribution Amount is less than the sum of the Class A
Subclass Interest Accrual Amounts, resulting in Class A Subclass Interest
Shortfall Amounts, as described above, amounts equal to the sum of the Accrual
Distribution Amounts would be distributed to certain Subclasses of Class A Cer-
tificates in reduction of their Class A Subclass Principal Balances, notwith-
standing that the holders of the Class A Certificates of the Subclasses then
entitled to receive distributions of interest have received less than their re-
spective Class A Subclass Interest Accrual Amounts with respect to such Distri-
bution Date.
On each Distribution Date on which the Pool Distribution Amount exceeds the
sum of the Class A Subclass Interest Accrual Amounts, any excess will then be
allocated first to pay previously unpaid Class A Subclass Interest Shortfall
Amounts. Such amounts will be allocated among the Subclasses of Class A Certif-
icates pro rata in accordance with their respective unpaid Class A Subclass In-
terest Shortfall Amounts immediately prior to such Distribution Date. Prior to
the applicable Accretion Termination Date, the amount so allocated to each
Subclass of the Accrual Certificates will not be distributed as interest to
such Subclass but will be added to the Class A Subclass Principal Balance
thereof and distributed in reduction of the Class A Subclass Principal Balances
of certain Subclasses of Class A Certificates, as described under "Principal
(Including Prepayments)--Allocation of Amount to be Distributed" below.
As a result of the allocations described in the preceding paragraphs and the
priority of distributions of principal set forth under "--Principal (Including
Prepayments)--Allocation of Amount to be Distributed" below, distributions in
reduction of the Class A Subclass Principal Balance of certain Subclasses of
Accrual Certificates may be made prior to the applicable Accretion Termination
Date, and the Class A Subclass Principal Balance of such Subclasses may be re-
duced to zero prior to any distributions of interest to such Subclass being
made.
On each Distribution Date on which the Pool Distribution Amount equals or ex-
ceeds the sum for such Distribution Date of (A) the sum of (i) the sum of the
Class A Subclass Interest Accrual Amounts with respect to the Subclasses of
Class A Certificates, (ii) the sum of the unpaid Class A Subclass Interest
Shortfall Amounts with respect to the Subclasses of Class A Certificates and
(iii) the Class A Non-PO Optimal Principal Amount (collectively with the
amounts described in clauses (i) and (ii), the "Class A Non-PO Optimal
Amount"), (B) the Class A-PO Optimal Principal Amount (collectively with the
amount described in clause (A), the "Class A Optimal Amount") and (C) the Class
M Interest Accrual Amount, distributions in respect of current interest to the
Class M Certificates will equal the Class M Interest Accrual Amount.
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<PAGE>
If, on any Distribution Date, the Pool Distribution Amount is less than the
sum of (i) the Class A Optimal Amount and (ii) the Class M Interest Accrual
Amount, the amount of current interest distributed on the Class M Certificates
will equal the Pool Distribution Amount minus the amounts distributed to the
Class A Certificates with respect to such Distribution Date. Any difference be-
tween the portion of the Pool Distribution Amount distributed in respect of
current interest to the Class M Certificates and the Class M Interest Accrual
Amount with respect to such Distribution Date (the "Class M Interest Shortfall
Amount") will be added to the amount to be distributed on subsequent Distribu-
tion Dates to the Class M Certificates, but only so long as they are outstand-
ing, to the extent that the Pool Distribution Amount is sufficient therefor. No
interest will accrue on the unpaid Class M Interest Shortfall Amount.
Subject to the payment of any Class A-PO Deferred Amount, on each Distribu-
tion Date on which the Pool Distribution Amount exceeds the sum of the Class A
Optimal Amount and the Class M Interest Accrual Amount, any excess will be al-
located first to pay previously unpaid Class M Interest Shortfall Amounts and
then to make distributions in respect of principal on the Class M Certificates.
With respect to each Distribution Date, the "Class M Optimal Amount" will equal
the sum of (i) the Class M Interest Accrual Amount, (ii) the unpaid Class M In-
terest Shortfall Amount and (iii) the Class M Optimal Principal Amount.
On each Distribution Date on which the Pool Distribution Amount equals or ex-
ceeds the sum of (i) the Class B Subclass Interest Accrual Amount for a partic-
ular Subclass of Class B Certificates and (ii) all amounts senior in priority
to such Class B Subclass Interest Accrual Amount as set forth in the Pool Dis-
tribution Amount Allocation, the distribution in respect of current interest to
such Subclass of Class B Certificates will equal such Subclass's Class B
Subclass Interest Accrual Amount.
If on any Distribution Date, the Pool Distribution Amount is less than the
sum of (i) the Class B Subclass Interest Accrual Amount for a particular
Subclass of Class B Certificates and (ii) all amounts senior in priority to
such Class B Subclass Interest Accrual Amount based on the priorities in the
Pool Distribution Amount Allocation, the amount of current interest distributed
on such Subclass of Class B Certificates will equal the Pool Distribution
Amount less all amounts senior in priority to such Class B Subclass Interest
Accrual Amount as set forth in the Pool Distribution Amount Allocation. Any
difference between the amount distributed in respect of current interest to
such Subclass of Class B Certificates and the Class B Subclass Interest Accrual
Amount for such Subclass with respect to the related Distribution Date (as to
such Subclass, the "Class B Subclass Interest Shortfall Amount") will be added
to the amount to be distributed on subsequent Distribution Dates to such
Subclass, but only so long as it is outstanding, to the extent the Pool Distri-
bution Amount is sufficient therefor. No interest will accrue on such Class B
Subclass Interest Shortfall Amount.
For a particular Subclass of Class B Certificates, subject to the payment of
any Class A-PO Deferred Amount, on each Distribution Date on which the Pool
Distribution Amount exceeds the sum of the Class A Optimal Amount, the Class M
Optimal Amount, the Subclass B Optimal Amount for each Subclass of Class B Cer-
tificates with a lower numerical designation and the Class B Subclass Interest
Accrual Amount for such Subclass, any excess will be allocated first to pay
previously unpaid Class B Subclass Interest Shortfall Amounts of such Subclass
and then to make distributions in respect of principal on such Subclass. With
respect to each Distribution Date, the "Subclass B Optimal Amount" for any
Subclass of Class B Certificates will equal the sum of (i) the Class B Subclass
Interest Accrual Amount, (ii) the unpaid Class B Subclass Interest Shortfall
Amounts and (iii) the Subclass B Optimal Principal Amount.
On any Distribution Date on which the Pool Distribution Amount is less than
the Class A Optimal Amount, the Class M Certificates and the Subclasses of
Class B Certificates will not be entitled to any distributions of interest or
principal.
PRINCIPAL (INCLUDING PREPAYMENTS)
The principal balance of a Class A or Class B Certificate of any Subclass or
of any Class M Certificate at any time is equal to the product of the Class A
Subclass Principal Balance or Class B Subclass Principal Balance of such
Subclass or the Class M Principal Balance, as the case may be, and such Certif-
icate's Percentage Interest, and represents the maximum specified dollar amount
(exclusive of (i) any interest that may accrue on such Class A Certificate
(other than interest added to the Class A Subclass Principal Balance of a
Subclass of Accrual Certificates), such Class M Certificate or such Class B
Certificate and (ii) in the case of the Class A-R and
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<PAGE>
Class A-LR Certificates, any additional amounts to which the holders of such
Certificates may be entitled as described below under "-- Additional Rights of
the Class A-R and Class A-LR Certificateholders") to which the holder thereof
is entitled from the cash flow on the Mortgage Loans at such time, and will de-
cline to the extent of distributions in reduction of the principal balance of,
and allocations of losses to, such Certificate. The approximate initial Class A
Subclass Principal Balance or Class B Subclass Principal Balance of each
Subclass of Offered Class A Certificates (other than the Class A-5 Certifi-
cates) and Offered Class B Certificates and the approximate initial Class M
Principal Balance are set forth on the cover of this Prospectus Supplement. The
Class A-5 Certificates will have no Class A Subclass Principal Balance. The
Class A-PO Certificates, which are not offered hereby, will have an initial
Class A Subclass Principal Balance of approximately $30,404.
Calculation of Amount to be Distributed to the Class A Certificates (other
than the Class A-PO Certificates)
Distributions in reduction of the principal balance of the Class A Certifi-
cates (other than the Class A-PO Certificates) will be made on each Distribu-
tion Date pursuant to the Pool Distribution Amount Allocation, in an aggregate
amount equal to the Class A Non-PO Principal Distribution Amount. The "Class A
Non-PO Principal Distribution Amount" with respect to any Distribution Date
will be equal to the sum of (i) the sum of the Accrual Distribution Amounts, if
any, with respect to such Distribution Date and (ii) the Class A Non-PO Princi-
pal Amount with respect to such Distribution Date.
The "Accrual Distribution Amount" with respect to any Distribution Date and
any Subclass of Accrual Certificates will be equal to the sum of (i) the por-
tion, if any, of current interest allocated but not distributed with respect to
such Subclass of Accrual Certificates on such Distribution Date in accordance
with priority first of the Pool Distribution Amount Allocation and (ii) the
portion, if any, of the unpaid Class A Interest Shortfall Amount allocated but
not distributed with respect to such Subclass of Accrual Certificates on such
Distribution Date in accordance with priority second of the Pool Distribution
Amount Allocation.
The "Class A Non-PO Principal Amount" with respect to any Distribution Date
will be equal to the amount distributed pursuant to priority third clause (A)
of the Pool Distribution Amount Allocation, in an aggregate amount up to the
Class A Non-PO Optimal Principal Amount.
The "Class A Non-PO Optimal Principal Amount" with respect to each Distribu-
tion Date will be an amount equal to the sum for each outstanding Mortgage Loan
(including each defaulted Mortgage Loan, other than a Liquidated Loan, with re-
spect to which the related Mortgaged Property has been acquired by the Trust
Estate) of the product of (A) the Non-PO Fraction for such Mortgage Loan and
(B) the sum of:
(i) the Class A Percentage of (A) the scheduled payment of principal due
on such Mortgage Loan on the first day of the month in which the Distribu-
tion Date occurs, less (B) if the Bankruptcy Loss Amount is zero, the prin-
cipal portion of Debt Service Reductions with respect to such Mortgage
Loan,
(ii) the Class A Prepayment Percentage of all Unscheduled Principal Re-
ceipts that were received by a Servicer with respect to such Mortgage Loan
during the Unscheduled Principal Receipt Period relating to such Distribu-
tion Date for each applicable type of Unscheduled Principal Receipt,
(iii) the Class A Prepayment Percentage of the Scheduled Principal Bal-
ance of such Mortgage Loan which, during the month preceding the month of
such Distribution Date was repurchased by the Seller, as described under
the heading "Description of the Mortgage Loans -- Mandatory Repurchase or
Substitution of Mortgage Loans" herein, and
(iv) the Class A Percentage of the excess of the unpaid principal balance
of any defective Mortgage Loan for which a Mortgage Loan was substituted
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such substituted Mortgage Loan, less
the amount allocable to the principal portion of any unreimbursed advances
in respect of such defective Mortgage Loan. See "The Pooling and Servicing
Agreement -- Assignment of the Mortgage Loans to the Trustee" in the Pro-
spectus.
Generally, in the event that there is any recovery of an amount in respect of
principal which had previously been allocated as a Realized Loss to the Class A
Certificates (other than the Class A-PO Certificates) each Subclass of Class A
Certificates, provided that its principal balance has not previously been re-
duced to zero, will
S-41
<PAGE>
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 "Non-PO Fraction" with respect to any Mortgage Loan will equal the Net
Mortgage Interest Rate for such Mortgage Loan divided by 6.750%, but shall not
be greater than 1.0.
The "Scheduled Principal Balance" of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy (other than Deficient Valuations), mora-
torium or similar waiver or grace period) as of the Due Date occurring in the
month preceding the month in which such Distribution Date occurs, after giving
effect to any principal prepayments or other unscheduled recoveries of princi-
pal previously received, to any partial principal prepayments and Deficient
Valuations occurring prior to such Due Date, to the payment of principal due on
such Due Date irrespective of any delinquency in payment by the mortgagor and
to any Unscheduled Principal Receipts received or applied during the applicable
Unscheduled Principal Receipt Period for the Distribution Date in the month
preceding the month in which such Distribution Date occurs.
A "Realized Loss" is any Liquidated Loan Loss (including any Special Hazard
Loss and any Fraud Loss) or any Bankruptcy Loss. A "Liquidated Loan" is a de-
faulted Mortgage Loan as to which the Servicer has determined that all recover-
able liquidation and insurance proceeds have been received. A "Liquidated Loan
Loss" on a Liquidated Loan is equal to the excess, if any, of (i) the unpaid
principal balance of such Liquidated Loan, plus accrued interest thereon in ac-
cordance with the amortization schedule at the Net Mortgage Interest Rate
through the last day of the month in which such Mortgage Loan was liquidated,
over (ii) net Liquidation Proceeds. For purposes of calculating the amount of
any Liquidated Loan Loss, all net Liquidation Proceeds (after reimbursement of
any previously unreimbursed Periodic Advance) will be applied first to accrued
interest and then to the unpaid principal balance of the Liquidated Loan. A
"Special Hazard Loss" is (A) a Liquidated Loan Loss suffered by a Mortgaged
Property on account of direct physical loss exclusive of (i) any loss covered
by a standard hazard insurance policy or, if the Mortgaged Property is located
in an area identified in the Federal Register by the Federal Emergency Manage-
ment Agency as having special flood hazards, a flood insurance policy, of the
types described in the Prospectus under "The Trust Estates -- Mortgage Loans --
Insurance Policies" and (ii) any loss caused by or resulting from (a) normal
wear and tear, (b) dishonest acts of the Trustee, the Trust Administrator, the
Master Servicer or the Servicer or (c) errors in design, faulty workmanship or
faulty materials, unless the collapse of the property or a part thereof ensues
or (B) a Liquidated Loan Loss arising from or relating to the presence or 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 Debt Service Reduction or a Deficient Valuation. A "Debt Service Re-
duction" means a reduction in the amount of monthly payments due to certain
bankruptcy proceedings, but does not include any permanent forgiveness of prin-
cipal. A "Deficient Valuation" with respect to a Mortgage Loan means a valua-
tion by a court of the Mortgaged Property in an amount less than the outstand-
ing indebtedness under the Mortgage Loan or any reduction in the amount of
monthly payments that results in a permanent forgiveness of principal, which
valuation or reduction results from a bankruptcy proceeding.
The "Class A Percentage" for any Distribution Date occurring on or prior to
the Cross-Over Date is the percentage (subject to rounding), which in no event
will exceed 100%, obtained by dividing the Class A Non-PO Principal Balance as
of such date (before taking into account distributions in reduction of princi-
pal balance on such date) by the Pool Balance (Non-PO Portion). The "Pool Bal-
ance (Non-PO Portion)" is the sum for each outstanding Mortgage Loan of the
product of (i) the Non-PO Fraction for such Mortgage Loan and (ii) the Sched-
uled Principal Balance of such Mortgage Loan as of such Distribution Date. The
Class A Percentage for the first Distribution Date will be approximately
95.75%. The Class A Percentage will decrease as a result of the allocation of
certain unscheduled payments in respect of principal according to the Class A
Prepayment Percentage for a specified period to the Class A Certificates (other
than the Class A-PO Certificates) and will increase as a result of the alloca-
tion of Realized Losses to the Class M and Class B Certificates. The Class A
Percentage for each Distribution Date occurring after the Cross-Over Date will
be 100%.
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<PAGE>
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>
March 1998 through February 2003............... 100%;
March 2003 through February 2004............... the Class A Percentage, plus 70%
of the Subordinated Percentage;
March 2004 through February 2005............... the Class A Percentage, plus 60%
of the Subordinated Percentage;
March 2005 through February 2006............... the Class A Percentage, plus 40%
of the Subordinated Percentage;
March 2006 through February 2007............... the Class A Percentage, plus 20%
of the Subordinated Percentage;
and
March 2007 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 preceding five Distribution Dates on the Mortgage Loans
that were delinquent 60 days or more (including for this purpose any Mortgage
Loans in foreclosure and Mortgage Loans with respect to which the related Mort-
gaged Property has been acquired by the Trust Estate) is greater than or equal
to 50% of the sum of the then-outstanding Class M Principal Balance and the
then-outstanding Class B Principal Balance, or (ii) for any Distribution Date,
cumulative Realized Losses with respect to the Mortgage Loans exceed the per-
centages of the principal balance of the Subordinated Certificates as of the
Cut-Off Date (the "Original Subordinated Principal Balance") indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
ORIGINAL SUBORDINATED
DISTRIBUTION DATE OCCURRING IN PRINCIPAL BALANCE
- ------------------------------ ---------------------
<S> <C>
March 2003 through February 2004.......................... 30%
March 2004 through February 2005.......................... 35%
March 2005 through February 2006.......................... 40%
March 2006 through February 2007.......................... 45%
March 2007 and thereafter................................. 50%
</TABLE>
This disproportionate allocation of certain unscheduled payments in respect
of principal will have the effect of accelerating the amortization of the Class
A Certificates (other than the Class A-PO Certificates) while, in the absence
of Realized Losses, increasing the interest in the principal balance of the
Mortgage Loans evidenced by the Class M and Class B Certificates. Increasing
the respective interest of the Class M and Class B Certificates relative to
that of the Class A Certificates (other than the Class A-PO Certificates) is
intended to preserve the availability of the subordination provided by the
Class M and Class B Certificates. See "-- Subordination of Class M and Class B
Certificates" below. The "Subordinated Percentage" for any Distribution Date
will be calculated as the difference between 100% and the Class A Percentage
for such date. The "Subordinated Prepayment Percentage" for any Distribution
Date will be calculated as the difference between 100% and the Class A Prepay-
ment Percentage for such date. If on any Distribution Date the allocation to
the Class A Certificates (other than the Class A-PO Certificates) of full and
partial principal prepayments and other amounts in the percentage required
above would reduce the outstanding Class A Non-PO Principal Balance below zero,
the Class A Prepayment Percentage for such Distribution Date will be limited to
the percentage necessary to reduce the Class A Non-PO Principal Balance to ze-
ro.
Calculation of Amount to be Distributed to the Class A-PO Certificates
Distributions in reduction of the Class A Subclass Principal Balance of the
Class A-PO Certificates will be made on each Distribution Date in an aggregate
amount equal to the Class A-PO Distribution Amount. The "Class A-PO Distribu-
tion Amount" with respect to any Distribution Date will be equal to the sum of
(i) the amount distributed pursuant to priority third clause (B) of the Pool
Distribution Amount Allocation, in an aggregate amount up to the Class A-PO Op-
timal Principal Amount and (ii) the amount distributed pursuant to
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<PAGE>
priority fourth of the Pool Distribution Amount Allocation, in an aggregate
amount up to the Class A-PO Deferred Amount.
The "Class A-PO Optimal Principal Amount" with respect to each Distribution
Date will be an amount equal to the sum for each outstanding Mortgage Loan (in-
cluding each defaulted Mortgage Loan, other than a Liquidated Loan, with re-
spect to which the related Mortgaged Property has been acquired by the Trust
Estate) of the product of (A) the PO Fraction for such Mortgage Loan and (B)
the sum of:
(i) the scheduled payment of principal due on such Mortgage Loan on the
first day of the month in which the Distribution Date occurs, less, if the
Bankruptcy Loss Amount is zero, the principal portion of Debt Service Re-
ductions with respect to such Mortgage Loan,
(ii) all Unscheduled Principal Receipts that were received by a Servicer
with respect to such Mortgage Loan during the Unscheduled Principal Receipt
Period relating to such Distribution Date for each applicable type of
Unscheduled Principal Receipt,
(iii) the Scheduled Principal Balance of such Mortgage Loan which, during
the month preceding the month of such Distribution Date was repurchased by
the Seller, as described under the heading "Description of the Mortgage
Loans -- Mandatory Repurchase or Substitution of Mortgage Loans" herein,
and
(iv) the excess of the unpaid principal balance of any defective Mortgage
Loan for which a Mortgage Loan was substituted during the month preceding
the month in which such Distribution Date occurs over the unpaid principal
balance of such substituted Mortgage Loan, less the amount allocable to the
principal portion of any unreimbursed advances in respect of such defective
Mortgage Loan. See "The Pooling and Servicing Agreement -- Assignment of
Mortgage Loans to the Trustee" in the Prospectus.
The "Class A-PO Deferred Amount" for any Distribution Date prior to the
Cross-Over Date will equal the difference between (A) the sum of (i) the amount
by which the Class A-PO Optimal Principal Amount for all prior Distribution
Dates exceeds the amounts distributed to the Class A-PO Certificates on such
prior Distribution Dates pursuant to priority third, clause (B) of the Pool
Distribution Amount Allocation, but only to the extent such shortfall is not
attributable to Realized Losses allocated to the Class A-PO Certificates as de-
scribed in "-- Subordination of Class M and Class B Certificates -- Allocation
of Losses" below and (ii) the sum of the product for each Discount Mortgage
Loan which became a Liquidated Loan at any time on or prior to the last day of
the applicable Unscheduled Principal Receipt Period for the current Distribu-
tion Date of (a) the PO Fraction for such Discount Mortgage Loan and (b) an
amount equal to the principal portion of Realized Losses (other than Bankruptcy
Losses due to Debt Service Reductions) incurred with respect to such Discount
Mortgage Loan other than Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses and (B) amounts distributed on the Class A-PO Certifi-
cates on prior Distribution Dates pursuant to priority fourth of the Pool Dis-
tribution Amount Allocation. On or after the Cross-Over Date, the Class A-PO
Deferred Amount will be zero. No interest will accrue on any Class A-PO De-
ferred Amount.
Generally, in the event that there is any recovery of an amount in respect of
principal which had previously been allocated as a Realized Loss to the Class
A-PO Certificates, such Subclass, provided that its Class A Subclass Principal
Balance has not previously been reduced to zero, will be entitled to its share
of such recovery in an amount up to the amount by which the Class A Subclass
Principal Balance of the Class A-PO Certificates was reduced as a result of
such Realized Loss.
The "PO Fraction" with respect to any Discount Mortgage Loan will equal the
difference between 1.0 and the Non-PO Fraction for such Mortgage Loan. The PO
Fraction with respect to each Mortgage Loan that is not a Discount Mortgage
Loan will be zero.
The "Pool Balance (PO Portion)" is the sum for each Discount Mortgage Loan of
the product of the Scheduled Principal Balance of such Discount Mortgage Loan
and the PO Fraction for such Discount Mortgage Loan.
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<PAGE>
Calculation of Amount to be Distributed to the Class M and Class B
Certificates
Distributions in reduction of the principal balance of the Class M Certifi-
cates will be made on each Distribution Date, pursuant to priority seventh of
the Pool Distribution Amount Allocation, in an aggregate amount (the "Class M
Principal Distribution Amount") up to the Class M Optimal Principal Amount.
The "Class M Optimal Principal Amount" with respect to each Distribution Date
will be an amount equal to the sum for each outstanding Mortgage Loan (includ-
ing each defaulted Mortgage Loan, other than a Liquidated Loan, with respect to
which the related Mortgaged Property has been acquired by the Trust Estate) of
the product of (A) the Non-PO Fraction for such Mortgage Loan and (B) the sum
of:
(i) the Class M Percentage of (A) the scheduled payment of principal due
on such Mortgage Loan on the first day of the month in which the Distribu-
tion Date occurs, less (B) if the Bankruptcy Loss Amount is zero, the prin-
cipal portion of Debt Service Reductions with respect to such Mortgage
Loan,
(ii) the Class M Prepayment Percentage of all Unscheduled Principal Re-
ceipts that were received by a Servicer with respect to such Mortgage Loan
during the Unscheduled Principal Receipt Period relating to such Distribu-
tion Date for each applicable type of Unscheduled Principal Receipt,
(iii) the Class M Prepayment Percentage of the Scheduled Principal Bal-
ance of such Mortgage Loan which, during the month preceding the month of
such Distribution Date was repurchased by the Seller, as described under
the heading "Description of the Mortgage Loans -- Mandatory Repurchase or
Substitution of Mortgage Loans" herein, and
(iv) the Class M Percentage of the excess of the unpaid principal balance
of any defective Mortgage Loan for which a Mortgage Loan was substituted
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such substituted Mortgage Loan, less
the amount allocable to the principal portion of any unreimbursed advances
in respect of such defective Mortgage Loan. See "The Pooling and Servicing
Agreement -- Assignment of the Mortgage Loans to the Trustee" in the Pro-
spectus.
Distributions in reduction of the principal balances of the Class B-1 and
Class B-2 Certificates will be made on each Distribution Date, pursuant to pri-
orities tenth and thirteenth, respectively, of the Pool Distribution Amount Al-
location, in an aggregate amount with respect to each such Subclass (the "Class
B-1 Principal Distribution Amount" and "Class B-2 Principal Distribution
Amount," respectively) up to the Subclass B Optimal Principal Amount for such
Subclass.
The "Subclass B Optimal Principal Amount" for a particular Subclass of Class
B Certificates with respect to each Distribution Date will be an amount equal
to the sum for each outstanding Mortgage Loan (including each defaulted Mort-
gage Loan, other than a Liquidated Loan, with respect to which the related
Mortgaged Property has been acquired by the Trust Estate) of the product of (A)
the Non-PO Fraction for such Mortgage Loan and (B) the sum of:
(i) the Subclass B Percentage for such Subclass of (A) the scheduled pay-
ment of principal due on such Mortgage Loan on the first day of the month
in which the Distribution Date occurs, less (B) if the Bankruptcy Loss
Amount is zero, the principal portion of Debt Service Reductions with re-
spect to such Mortgage Loan,
(ii) the Subclass B Prepayment Percentage for such Subclass of all
Unscheduled Principal Receipts that were received by a Servicer with re-
spect to such Mortgage Loan during the Unscheduled Principal Receipt Period
relating to such Distribution Date for each applicable type of Unscheduled
Principal Receipt,
(iii) the Subclass B Prepayment Percentage for such Subclass of the
Scheduled Principal Balance of such Mortgage Loan which, during the month
preceding the month of such Distribution Date was repurchased by the Sell-
er, as described under the heading "Description of the Mortgage Loans --
Mandatory Repurchase or Substitution of Mortgage Loans" herein, and
(iv) the Subclass B Percentage for such Subclass of the excess of the un-
paid principal balance of any defective Mortgage Loan for which a Mortgage
Loan was substituted during the month preceding the month in which such
Distribution Date occurs over the unpaid principal balance of such substi-
tuted Mortgage
S-45
<PAGE>
Loan, less the amount allocable to the principal portion of any
unreimbursed advances in respect of such defective Mortgage Loan. See "The
Pooling and Servicing Agreement -- Assignment of the Mortgage Loans to the
Trustee" in the Prospectus.
The principal distribution to the holders of Class M Certificates or a
Subclass of Class B Certificates will be reduced on any Distribution Date on
which (i) the principal balance of the Class M Certificates or such Subclass of
Class B Certificates on the following Determination Date would be reduced to
zero as a result of principal distributions or allocation of losses and (ii)
the principal balance of any Class A Certificates, and in the case of a
Subclass of Class B Certificates, the principal balances of the Class M Certif-
icates or any Subclass of Class B Certificates with a lower numerical designa-
tion, would be subject to reduction on such Determination Date as a result of
allocation of Realized Losses (other than Excess Bankruptcy Losses, Excess
Fraud Losses and Excess Special Hazard Losses). The amount of any such reduc-
tion in the principal distributed to the holders of Class M Certificates or
such Subclass of Class B Certificates will instead be distributed pro rata to
the holders of any Subclass (other than the Class A-PO Certificates) and Class
senior in priority to receive distributions in accordance with the Pool Distri-
bution Amount Allocation.
Generally, in the event that there is any recovery of an amount in respect of
principal which had previously been allocated as a Realized Loss to the Class M
Certificates or any Subclass of Class B Certificates, the Class M Certificates
or such Subclass, provided that the principal balance of such Class or Subclass
has not previously been reduced to zero, will be entitled to their pro rata
share of such recovery up to the amount by which the Class M Principal Balance
or Class B Subclass Principal Balance was reduced as a result of such Realized
Loss.
The "Class M Percentage" and "Class M Prepayment Percentage" for any Distri-
bution Date will equal that portion of the Subordinated Percentage and Subordi-
nated Prepayment Percentage, as the case may be, represented by the fraction
the numerator of which is the then-outstanding Class M Principal Balance and
the denominator of which is the sum of the Class M Principal Balance and, if
any of the Subclasses of the Class B Certificates are entitled to principal
distributions for such Distribution Date as described below, the Class B
Subclass Principal Balances of the Subclasses entitled to principal distribu-
tions.
The "Subclass B Percentage" and "Subclass B Prepayment Percentage" for a
Subclass of Class B Certificates will equal the portion of the Subordinated
Percentage and Subordinated Prepayment Percentage, as the case may be, repre-
sented by the fraction, the numerator of which is the then-outstanding Class B
Subclass Principal Balance for such Subclass of Class B Certificates and the
denominator of which is the sum of the Class M Principal Balance and the Class
B Subclass Principal Balances of the Subclasses entitled to principal distribu-
tions for such Distribution Date as described below. In the event that a
Subclass of Class B Certificates is not entitled to principal distributions for
such Distribution Date, the Subclass B Percentage and Subclass B Prepayment
Percentage for such Subclass will both be 0% with respect to such Distribution
Date.
In the event that on any Distribution Date, the Current Class M Fractional
Interest is less than the Original Class M Fractional Interest, then the Class
B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates will not be en-
titled to distributions in respect of principal and the Class B Subclass Prin-
cipal Balances thereof will not be used to determine the Class M Percentage and
Class M Prepayment Percentage for such Distribution Date. For such Distribution
Date, the Class M Percentage and Class M Prepayment Percentage will equal the
Subordinated Percentage and the Subordinated Prepayment Percentage, respective-
ly. In the event that the Current Class M Fractional Interest equals or exceeds
the Original Class M Fractional Interest but the Current Class B-1 Fractional
Interest is less than the Original Class B-1 Fractional Interest, the Class B-
2, Class B-3, Class B-4 and Class B-5 Certificates will not be entitled to dis-
tributions in respect of principal and the Class B Subclass Principal Balances
of such Subclasses will not be used to determine the Class M Percentage, the
Class M Prepayment Percentage, the Subclass B Percentage for the Class B-1 Cer-
tificates and the Subclass B Prepayment Percentage for the Class B-1 Certifi-
cates for such Distribution Date. In the event that each of the Current Class M
Fractional Interest and the Current Class B-1 Fractional Interest equals or ex-
ceeds the Original Class M Fractional Interest and the Original Class B-1 Frac-
tional Interest, respectively, but the Current Class B-2 Fractional Interest is
less than the Original Class B-2 Fractional Interest, the Class B-3, Class B-4
and Class B-5 Certificates will not be entitled to distributions in respect of
principal and the Class B Subclass Principal Balances of such Subclasses will
not be used to determine the Class M Percentage, the Class M Prepayment Per-
centage, the Subclass B Percentages for the Subclasses of Class B Certificates
with lower numerical designations and the
S-46
<PAGE>
Subclass B Prepayment Percentages for the Subclasses of Class B Certificates
with lower numerical designations for such Distribution Date. In the event that
each of the Current Class M Fractional Interest, the Current Class B-1 Frac-
tional Interest and the Current Class B-2 Fractional Interest equals or exceeds
the Original Class M Fractional Interest, the Original Class B-1 Fractional In-
terest and the Original Class B-2 Fractional Interest, respectively, but the
Current Class B-3 Fractional Interest is less than the Original Class B-3 Frac-
tional 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 Percent-
age, the Class M Prepayment Percentage, the Subclass B Percentages for the
Subclasses of Class B Certificates with lower numerical designations and the
Subclass B Prepayment Percentages for the Subclasses of Class B Certificates
with lower numerical designations for such Distribution Date. In the event that
each of the Current Class M Fractional Interest, the Current Class B-1 Frac-
tional Interest, the Current Class B-2 Fractional Interest and the Current
Class B-3 Fractional Interest equals or exceeds the Original Class M Fractional
Interest, the Original Class B-1 Fractional Interest, the Original Class B-2
Fractional Interest and the Original Class B-3 Fractional Interest, respective-
ly, but the Current Class B-4 Fractional Interest is less than the Original
Class B-4 Fractional Interest, the Class B-5 Certificates will not be entitled
to distributions in respect of principal and the Class B Subclass Principal
Balance of such Subclass will not be used to determine the Class M Percentage,
the Class M Prepayment Percentage, the Subclass B Percentages for the
Subclasses of Class B Certificates with lower numerical designations and the
Subclass B Prepayment Percentages for the Subclasses of Class B Certificates
with lower numerical designations for such Distribution Date. The Class B-5
Certificates will not have original or current fractional interests which are
required to be maintained as described above.
The "Original Class M Fractional Interest" is the percentage obtained by di-
viding the sum of the initial Class B Subclass Principal Balances of the Class
B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates by the sum of
the initial Class A Non-PO Principal Balance, initial Class M Principal Balance
and initial Class B Principal Balance. The Original Class M Fractional Interest
is expected to be approximately 3.00%. The "Current Class M Fractional Inter-
est" for any Distribution Date is the percentage obtained by dividing the sum
of the then-outstanding Class B Subclass Principal Balances of the Class B-1,
Class B-2, Class B-3, Class B-4 and Class B-5 Certificates by the sum of the
then-outstanding Class A Non-PO Principal Balance, the Class M Principal Bal-
ance and the Class B Principal Balance.
The "Original Class B-1 Fractional Interest" is the percentage obtained by
dividing the sum of the initial Class B Subclass Principal Balances of the
Class B-2, Class B-3, Class B-4 and Class B-5 Certificates by the sum of the
initial Class A Non-PO Principal Balance, initial Class M Principal Balance and
initial Class B Principal Balance. The Original Class B-1 Fractional Interest
is expected to be approximately 1.25%. The "Current Class B-1 Fractional Inter-
est" for any Distribution Date is the percentage obtained by dividing the sum
of the then-outstanding Class B Subclass Principal Balances of the Class B-2,
Class B-3, Class B-4 and Class B-5 Certificates by the sum of the then-out-
standing Class A Non-PO Principal Balance, the Class M Principal Balance and
the Class B Principal Balance.
The "Original Class B-2 Fractional Interest" is the percentage obtained by
dividing the sum of the initial Class B Subclass Principal Balances of the
Class B-3, Class B-4 and Class B-5 Certificates by the sum of the initial Class
A Non-PO Principal Balance, initial Class M Principal Balance and initial Class
B Principal Balance. The Original Class B-2 Fractional Interest is expected to
be approximately 0.80%. The "Current Class B-2 Fractional Interest" for any
Distribution Date is the percentage obtained by dividing the sum of the then-
outstanding Class B Subclass Principal Balances of the Class B-3, Class B-4 and
Class B-5 Certificates by the sum of the then-outstanding Class A Non-PO Prin-
cipal Balance, the Class M Principal Balance and the Class B Principal Balance.
The "Original Class B-3 Fractional Interest" is the percentage obtained by
dividing the sum of the initial Class B Subclass Principal Balances of the
Class B-4 and Class B-5 Certificates by the sum of the initial Class A Non-PO
Principal Balance, initial Class M Principal Balance and initial Class B Prin-
cipal Balance. The Original Class B-3 Fractional Interest is expected to be ap-
proximately 0.45%. The "Current Class B-3 Fractional Interest" for any Distri-
bution Date is the percentage obtained by dividing the sum of the then-out-
standing Class B Subclass Principal Balances of the Class B-4 and Class B-5
Certificates by the sum of the then-outstanding Class A Non-PO Principal Bal-
ance, the Class M Principal Balance and the Class B Principal Balance.
S-47
<PAGE>
The "Original Class B-4 Fractional Interest" is the percentage obtained by
dividing the initial Class B Subclass Principal Balance of the Class B-5 Cer-
tificates by the sum of the initial Class A Non-PO Principal Balance, initial
Class M Principal Balance and initial Class B Principal Balance. The Original
Class B-4 Fractional Interest is expected to be approximately 0.25%. The "Cur-
rent Class B-4 Fractional Interest" for any Distribution Date is the percentage
obtained by dividing the then-outstanding Class B Subclass Principal Balance of
the Class B-5 Certificates by the sum of the then-outstanding Class A Non-PO
Principal Balance, the Class M Principal Balance and the Class B Principal Bal-
ance.
Allocation of Amount to be Distributed
The Class A-5 Certificates are interest-only Certificates and are not enti-
tled to distributions in respect of principal.
On each Distribution Date occurring prior to the Cross-Over Date, the Class A
Non-PO Principal Distribution Amount will be allocated among and distributed in
reduction of the Class A Subclass Principal Balances of the Subclasses of Class
A Certificates (other than the Class A-PO Certificates) in accordance with the
following priorities.
I. On each Distribution Date occurring prior to the Accretion Termination
Dates for the Class A-7, Class A-8 and Class A-9 Certificates, the sum of the
Accrual Distribution Amounts for the Class A-7, Class A-8 and Class A-9 Certif-
icates will be allocated as follows:
first, to the Class A-6 Certificates up to their Schedule I Reduction
Amount for such Distribution Date;
second, to the Class A-7 Certificates until the Class A Subclass Princi-
pal Balance thereof has been reduced to zero;
third, to the Class A-6 Certificates up to their Schedule II Reduction
Amount for such Distribution Date;
fourth, to the Class A-8 Certificates until the Class A Subclass Princi-
pal Balance thereof has been reduced to zero;
fifth, to the Class A-6 Certificates, without regard to their Schedule I
or Schedule II Reduction Amounts for such Distribution Date, until Class A
Subclass Principal Balance thereof has been reduced to zero; and
sixth, to the Class A-9 Certificates until the Class A Subclass Principal
Balance thereof has been reduced to zero.
II. On each Distribution Date occurring prior to the Accretion Termination
Dates for the Class A-11, Class A-12 and Class A-13 Certificates, the sum of
the Accrual Distribution Amounts for the Class A-11, Class A-12 and Class A-13
Certificates will be allocated as follows:
first, to the Class A-10 Certificates up to their Schedule I Reduction
Amount for such Distribution Date;
second, to the Class A-11 Certificates until the Class A Subclass Princi-
pal Balance thereof has been reduced to zero;
third, to the Class A-10 Certificates up to their Schedule II Reduction
Amount for such Distribution Date;
fourth, to the Class A-12 Certificates until the Class A Subclass Princi-
pal Balance thereof has been reduced to zero;
fifth, to the Class A-10 Certificates, without regard to their Schedule I
or Schedule II Reduction Amounts for such Distribution Date, until the
Class A Subclass Principal Balance thereof has been reduced to zero; and
sixth, to the Class A-13 Certificates until the Class A Subclass Princi-
pal Balance thereof has been reduced to zero.
III. The Class A Non-PO Principal Amount will be allocated as follows:
first, to the Class A-15 Certificates up to their Priority Amount for
such Distribution Date;
S-48
<PAGE>
second, concurrently, approximately 68.4997163925% to the Class A-1 Cer-
tificates and approximately 31.5002836075% to the Class A-2 Certificates,
until the Class A-1 Certificates have received their PAC Principal Amount
for such Distribution Date;
third, concurrently, approximately 15.8123028391% to the Class A-2 Cer-
tificates and approximately 84.1876971609% to the Class A-3 Certificates,
up to their respective PAC Principal Amounts for such Distribution Date;
fourth, to the Class A-4 Certificates up to their PAC Principal Amount
for such Distribution Date;
fifth, concurrently,
(i) approximately 35.9271223672% to the Subclasses set forth in priority
I above in accordance with the priorities set forth therein;
(ii) approximately 61.3774389456% to the Subclasses set forth in prior-
ity II above in accordance with the priorities set forth therein; and
(iii) approximately 2.6954386872% to the Class A-14 Certificates until
the Class A Subclass Principal Balance thereof has been reduced to zero;
sixth, concurrently, approximately 68.4997163925% to the Class A-1 Cer-
tificates and approximately 31.5002836075% to the Class A-2 Certificates,
without regard to the PAC Principal Amounts for such Distribution Date, un-
til the Class A Subclass Principal Balance of the Class A-1 Certificates
has been reduced to zero;
seventh, concurrently, approximately 15.8123028391% to the Class A-2 Cer-
tificates and approximately 84.1876971609% to the Class A-3 Certificates,
without regard to their PAC Principal Amounts for such Distribution Date
until the Class A Subclass Principal Balance of each such Subclass has been
reduced to zero;
eighth, to the Class A-4 Certificates, without regard to their PAC Prin-
cipal Amount for such Distribution Date, until the Class A Subclass Princi-
pal Balance thereof has been reduced to zero;
ninth, sequentially, to the Class A-R and Class A-LR Certificates, in
that order, until the Class A Subclass Principal Balance of each such
Subclass has been reduced to zero; and
tenth, to the Class A-15 Certificates, without regard to their Priority
Amount, until the Class A Subclass Principal Balance thereof has been re-
duced to zero.
The "Priority Amount" for any Distribution Date means the lesser of (i) the
Class A Subclass Principal Balance of the Class A-15 Certificates and (ii) the
sum of (A) the product of (1) the Priority Percentage, (2) the Shift Percentage
and (3) the Scheduled Amount and (B) the product of (1) the Priority Percent-
age, (2) the Prepayment Shift Percentage and (3) the Unscheduled Principal
Amount.
The "Priority Percentage" means (i) the sum of the Class A Subclass Principal
Balance of the Class A-15 Certificates and $25,000,000 divided by (ii) the Pool
Balance (Non-PO Portion).
The "Scheduled Amount" means 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 Non-PO Fraction for such Mortgage Loan and
(B) the sum of the amounts described in clauses B(i) and B(iv) of the defini-
tion of "Class A Non-PO Optimal Principal Amount" on page S-41, but without
that amount being multiplied by the Class A Percentage.
The "Unscheduled Principal Amount" means the sum for each outstanding Mort-
gage Loan (including each defaulted Mortgage Loan, other than a Liquidated
Loan, with respect to which the related Mortgage Property has been acquired by
the Trust Estate) of the product of (A) the Non-PO Fraction for such Mortgage
Loan and (B) the sum of the amounts described in clauses B(ii) and B(iii) of
the definition of "Class A Non-PO Optimal Principal Amount" on page S-41, but
without that amount being multiplied by the Class A Prepayment Percentage.
S-49
<PAGE>
The "Shift Percentage" for any Distribution Date will be the percentage indi-
cated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN SHIFT PERCENTAGE
- ------------------------------ ----------------
<S> <C>
March 1998 through February 2003............................... 0%
March 2003 and thereafter...................................... 100%
</TABLE>
The "Prepayment Shift Percentage" for any Distribution Date will be the per-
centage indicated below:
<TABLE>
<CAPTION>
PREPAYMENT
DISTRIBUTION DATE OCCURRING IN SHIFT PERCENTAGE
- ------------------------------ ----------------
<S> <C>
March 1998 through February 2003............................... 0%
March 2003 through February 2004............................... 30%
March 2004 through February 2005............................... 40%
March 2005 through February 2006............................... 60%
March 2006 through February 2007............................... 80%
March 2007 and thereafter...................................... 100%
</TABLE>
As used above, the "PAC Principal Amount" for any Distribution Date and for
any Subclass of 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 tables set forth
below with respect to such Distribution Date.
As used above, the "Schedule I Reduction Amount" for any Distribution Date
and for the Class A-6 and Class A-10 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
Schedule I table with respect to such Subclass and Distribution Date. The per-
centages set forth in the Schedule I tables were derived using the Structuring
Assumptions and also assuming (i) the Mortgage Loans prepay at a constant rate
of approximately 128% SPA in the case of the Class A-6 Certificates and approx-
imately 120% SPA in the case of the Class A-10 Certificates and (ii) the per-
centages of the initial Class A Subclass Principal Balance used to determine
the PAC Principal Amounts for the Class A-4 Certificates differ from the per-
centages shown in the table below for the Class A-4 Certificates.
As used above, the "Schedule II Reduction Amount" for any Distribution Date
and for the Class A-6 and Class A-10 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
Schedule II table with respect to such Subclass and Distribution Date. The per-
centages set forth in the Schedule II tables were derived using the Structuring
Assumptions and also assuming (i) the Mortgage Loans prepay at a constant rate
of approximately 275% SPA and (ii) the percentages of the initial Class A
Subclass Principal Balance used to determine the PAC Principal Amounts for the
Class A-4 Certificates differ from the percentages shown in the table below for
the Class A-4 Certificates.
Notwithstanding the foregoing, on each Distribution Date occurring on or af-
ter the Cross-Over Date, the Class A Non-PO Principal Distribution Amount will
be distributed among the Subclasses of Class A Certificates (other than the
Class A-PO Certificates) pro rata in accordance with their respective outstand-
ing Class A Subclass Principal Balances without regard to the proportions and
priorities set forth above.
Any amounts distributed on a Distribution Date to the holders of Class A Cer-
tificates of any Subclass in reduction of principal balance will be allocated
among the holders of Class A Certificates of such Subclass pro rata in accor-
dance with their respective Percentage Interests.
Amounts distributed on any Distribution Date to the holders of the Class M
and Offered Class B Certificates in reduction of principal balance will be al-
located among the holders of each such Class or Subclass pro rata in accordance
with their respective Percentage Interests.
The following tables set forth for each Distribution Date the planned Class A
Subclass Principal Balances for the PAC Certificates and the scheduled Class A
Subclass Principal Balances for the Class A-6 and Class A-10 Certificates, ex-
pressed as a percentage of the initial Class A Subclass Principal Balance of
such Subclass.
S-50
<PAGE>
PLANNED CLASS A SUBCLASS PRINCIPAL BALANCES
AS PERCENTAGES OF INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE
CLASS A-1 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
INITIAL CLASS A INITIAL CLASS A INITIAL CLASS A
SUBCLASS SUBCLASS SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <S> <C>
Up to and in- September 2000.. 64.40106790% June 2001....... 24.25041154%
cluding October 2000.... 59.84910036 July 2001....... 19.90098799
January 2000.... 100.00000000% November 2000... 55.32009887 August 2001..... 15.57350193
February 2000... 95.86409055 December 2000... 50.81394680 September 2001.. 11.26784197
March 2000...... 91.60787616 January 2001.... 46.33052797 October 2001.... 6.98389745
April 2000...... 87.23550648 February 2001... 41.86972687 November 2001... 2.72155819
May 2000........ 82.75064203 March 2001...... 37.43142868 December 2001
June 2000....... 78.18295077 April 2001...... 33.01551911 and thereafter.. 0.00000000
July 2000....... 73.57437134 May 2001........ 28.62188440
August 2000..... 68.97611891
</TABLE>
CLASS A-2 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
INITIAL CLASS A INITIAL CLASS A INITIAL CLASS A
SUBCLASS SUBCLASS SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <S> <C>
Up to and in- March 2002...... 37.81612119% June 2004....... 9.71835385%
cluding April 2002...... 36.60468563 July 2004....... 8.92205359
January 2000.... 100.00000000% May 2002........ 35.39935881 August 2004..... 8.15179453
February 2000... 97.59828797 June 2002....... 34.20010979 September 2004.. 7.40690323
March 2000...... 95.12671517 July 2002....... 33.00690777 October 2004.... 6.68672238
April 2000...... 92.58769127 August 2002..... 31.81972223 November 2004... 5.99061055
May 2000........ 89.98334193 September 2002.. 30.63852261 December 2004... 5.31794155
June 2000....... 87.33089528 October 2002.... 29.46327872 January 2005.... 4.66810436
July 2000....... 84.65470497 November 2002... 28.29396037 February 2005... 4.04050259
August 2000..... 81.98451158 December 2002... 27.13053767 March 2005...... 3.64432807
September 2000.. 79.32779113 January 2003.... 25.97298076 April 2005...... 3.26392173
October 2000.... 76.68447524 February 2003... 24.82125995 May 2005........ 2.89882475
November 2000... 74.05449563 March 2003...... 23.81951744 June 2005....... 2.54859021
December 2000... 71.43778465 April 2003...... 22.82355764 July 2005....... 2.21278277
January 2001.... 68.83427479 May 2003........ 21.83335222 August 2005..... 1.89097836
February 2001... 66.24389899 June 2003....... 20.84887322 September 2005.. 1.58276395
March 2001...... 63.66659058 July 2003....... 19.87009264 October 2005.... 1.28773718
April 2001...... 61.10228321 August 2003..... 18.89698280 November 2005... 1.00550620
May 2001........ 58.55091075 September 2003.. 17.92951602 December 2005... 0.73568939
June 2001....... 56.01240764 October 2003.... 16.96766487 January 2006.... 0.47791515
July 2001....... 53.48670853 November 2003... 16.01140210 February 2006... 0.23182156
August 2001..... 50.97374842 December 2003... 15.06070048 March 2006...... 0.17205338
September 2001.. 48.47346270 January 2004.... 14.11553312 April 2006...... 0.11720740
October 2001.... 45.98578705 February 2004... 13.17587306 May 2006........ 0.06710174
November 2001... 43.51065755 March 2004...... 12.27048591 June 2006....... 0.02156010
December 2001... 41.48739212 April 2004...... 11.39185450 July 2006
January 2002.... 40.25744309 May 2004........ 10.54138516 and thereafter.. 0.00000000
February 2002... 39.03369661
</TABLE>
S-51
<PAGE>
PLANNED CLASS A SUBCLASS PRINCIPAL BALANCES
AS PERCENTAGES OF INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE
CLASS A-3 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
INITIAL CLASS A INITIAL CLASS A INITIAL CLASS A
SUBCLASS SUBCLASS SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Up to and in- June 2003....... 49.72274293% February 2005... 9.63624600%
cluding July 2003....... 47.38843672 March 2005...... 8.69140436
November 2001... 100.00000000% August 2003..... 45.06765464 April 2005...... 7.78416841
December 2001... 98.94380913 September 2003.. 42.76033082 May 2005........ 6.91344398
January 2002.... 96.01048806 October 2003.... 40.46639981 June 2005....... 6.07816522
February 2002... 93.09195946 November 2003... 38.18579649 July 2005....... 5.27729379
March 2002...... 90.18814841 December 2003... 35.91845616 August 2005..... 4.50981838
April 2002...... 87.29898033 January 2004.... 33.66431443 September 2005.. 3.77475384
May 2002........ 84.42438105 February 2004... 31.42330724 October 2005.... 3.07114073
June 2002....... 81.56427679 March 2004...... 29.26403787 November 2005... 2.39804447
July 2002....... 78.71859417 April 2004...... 27.16857864 December 2005... 1.75455501
August 2002..... 75.88726021 May 2004........ 25.14028361 January 2006.... 1.13978597
September 2002.. 73.07020227 June 2004....... 23.17742569 February 2006... 0.55287422
October 2002.... 70.26734815 July 2004....... 21.27831913 March 2006...... 0.41033234
November 2002... 67.47862600 August 2004..... 19.44131848 April 2006...... 0.27952939
December 2002... 64.70396433 September 2004.. 17.66481773 May 2006........ 0.16003180
January 2003.... 61.94329208 October 2004.... 15.94724930 June 2006....... 0.05141892
February 2003... 59.19653857 November 2004... 14.28708330 July 2006
March 2003...... 56.80747012 December 2004... 12.68282649 and thereafter. 0.00000000
April 2003...... 54.43219286 January 2005.... 11.13302148
May 2003........ 52.07063944
</TABLE>
CLASS A-4 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
INITIAL CLASS A INITIAL CLASS A INITIAL CLASS A
SUBCLASS SUBCLASS SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Up to and in- October 2009.... 70.46525938% March 2013...... 18.04783407%
cluding November 2009... 68.46536711 April 2013...... 17.31707881
June 2006....... 100.00000000% December 2009... 66.51348970 May 2013........ 16.60426608
July 2006....... 99.82564437 January 2010.... 64.60849558 June 2013....... 15.90896674
August 2006..... 99.49700949 February 2010... 62.74927962 July 2013....... 15.23076203
September 2006.. 99.20456703 March 2010...... 60.93476240 August 2013..... 14.56924283
October 2006.... 98.94692833 April 2010...... 59.16388955 September 2013.. 13.92400979
November 2006... 98.72274717 May 2010........ 57.43563149 October 2013.... 13.29467285
December 2006... 98.53071832 June 2010....... 55.74898234 November 2013... 12.68085121
January 2007.... 98.36957653 July 2010....... 54.10295982 December 2013... 12.08217299
February 2007... 98.23809544 August 2010..... 52.49660456 January 2014.... 11.49827498
March 2007...... 98.23809544 September 2010.. 50.92897940 February 2014... 10.92880265
April 2007...... 98.23809544 October 2010.... 49.39916917 March 2014...... 10.37340971
May 2007........ 98.23809544 November 2010... 47.90627999 April 2014...... 9.83175813
June 2007....... 98.23809544 December 2010... 46.44943885 May 2014........ 9.30351773
July 2007....... 98.23809544 January 2011.... 45.02779301 June 2014....... 8.78836630
August 2007..... 98.23809544 February 2011... 43.64050979 July 2014....... 8.28598911
September 2007.. 98.23809544 March 2011...... 42.28677586 August 2014..... 7.79607888
October 2007.... 98.23809544 April 2011...... 40.96579676 September 2014.. 7.31833547
November 2007... 98.23809544 May 2011........ 39.67679684 October 2014.... 6.85979455
December 2007... 98.23809544 June 2011....... 38.41901832 November 2014... 6.40551280
January 2008.... 98.23809544 July 2011....... 37.19172134 December 2014... 5.96253966
February 2008... 98.23809544 August 2011..... 35.99418308 January 2015.... 5.53060235
March 2008...... 98.08696100 September 2011.. 34.82569779 February 2015... 5.10943466
April 2008...... 97.76675224 October 2011.... 33.68557616 March 2015...... 4.69877660
May 2008........ 97.25898050 November 2011... 32.57314496 April 2015...... 4.29837439
June 2008....... 96.58839161 December 2011... 31.48774687 May 2015........ 3.90798028
July 2008....... 95.75771251 January 2012.... 30.42873974 June 2015....... 3.52735217
August 2008..... 94.79122288 February 2012... 29.39549654 July 2015....... 3.15625401
September 2008.. 93.69119235 March 2012...... 28.38740493 August 2015..... 2.79445511
October 2008.... 92.45971141 April 2012...... 27.40386681 September 2015.. 2.44173032
November 2008... 91.12036453 May 2012........ 26.44429823 October 2015.... 2.09785982
December 2008... 89.65325489 June 2012....... 25.50812884 November 2015... 1.76262899
January 2009.... 88.08160508 July 2012....... 24.59480162 December 2015... 1.43582833
February 2009... 86.40686880 August 2012..... 23.70377263 January 2016.... 1.11725327
March 2009...... 84.65181707 September 2012.. 22.83451067 February 2016... 0.80670412
April 2009...... 82.79622958 October 2012.... 21.98649706 March 2016...... 0.50398587
May 2009........ 80.86256041 November 2012... 21.15922517 April 2016...... 0.20890831
June 2009....... 78.85176924 December 2012... 20.35220037 May 2016
July 2009....... 76.76474812 January 2013.... 19.56493959 and thereafter. 0.00000000
August 2009..... 74.61374974 February 2013... 18.79697108
September 2009.. 72.51432494
</TABLE>
S-52
<PAGE>
SCHEDULED CLASS A SUBCLASS PRINCIPAL BALANCES
AS PERCENTAGES OF INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE
CLASS A-6 CERTIFICATES
SCHEDULE I
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
INITIAL CLASS A INITIAL CLASS A INITIAL CLASS A
SUBCLASS SUBCLASS SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
March 1998...... 99.65552164% December 2003... 67.47724494% October 2009.... 33.30989162%
April 1998...... 99.26370440 January 2004.... 67.27257330 November 2009... 32.94588084
May 1998........ 98.82463726 February 2004... 67.06974626 December 2009... 32.57908380
June 1998....... 98.33843994 March 2004...... 66.87583274 January 2010.... 32.20958762
July 1998....... 97.80526310 April 2004...... 66.66496494 February 2010... 31.83747692
August 1998..... 97.22528818 May 2004........ 66.43587112 March 2010...... 31.46283390
September 1998.. 96.59872734 June 2004....... 66.18913166 April 2010...... 31.08573842
October 1998.... 95.92582344 July 2004....... 65.92531212 May 2010........ 30.70626800
November 1998... 95.20684986 August 2004..... 65.64496368 June 2010....... 30.32449792
December 1998... 94.44211034 September 2004.. 65.34862348 July 2010....... 29.94050126
January 1999.... 93.63193880 October 2004.... 65.03681486 August 2010..... 29.55434894
February 1999... 92.77669910 November 2004... 64.71004778 September 2010.. 29.16610980
March 1999...... 91.87678476 December 2004... 64.36881908 October 2010.... 28.77585064
April 1999...... 90.93261868 January 2005.... 64.01361284 November 2010... 28.38363622
May 1999........ 89.94465284 February 2005... 63.64490060 December 2010... 27.98952938
June 1999....... 88.91336790 March 2005...... 63.14206176 January 2011.... 27.59359104
July 1999....... 87.83927278 April 2005...... 62.63066978 February 2011... 27.19588028
August 1999..... 86.72290428 May 2005........ 62.11107960 March 2011...... 26.79645432
September 1999.. 85.56484920 June 2005....... 61.58363604 April 2011...... 26.39536864
October 1999.... 84.36569818 July 2005....... 61.04867422 May 2011........ 25.99267698
November 1999... 83.12606830 August 2005..... 60.50651960 June 2011....... 25.58843140
December 1999... 81.84660244 September 2005.. 59.95748838 July 2011....... 25.18268226
January 2000.... 80.52796872 October 2005.... 59.40188768 August 2011..... 24.77547836
February 2000... 80.21874876 November 2005... 58.84001572 September 2011.. 24.36686688
March 2000...... 79.90233532 December 2005... 58.27216208 October 2011.... 23.95689354
April 2000...... 79.57914712 January 2006.... 57.69860798 November 2011... 23.54560246
May 2000........ 79.24956976 February 2006... 57.11962634 December 2011... 23.13303636
June 2000....... 78.91578742 March 2006...... 56.44076088 January 2012.... 22.71923652
July 2000....... 78.58079800 April 2006...... 55.76155286 February 2012... 22.30424280
August 2000..... 78.24818892 May 2006........ 55.08212394 March 2012...... 21.88809372
September 2000.. 77.91883724 June 2006....... 54.40259122 April 2012...... 21.47082644
October 2000.... 77.59270720 July 2006....... 53.72306738 May 2012........ 21.05247686
November 2000... 77.26976334 August 2006..... 53.04366084 June 2012....... 20.63307960
December 2000... 76.94997040 September 2006.. 52.36447586 July 2012....... 20.21266800
January 2001.... 76.63329340 October 2006.... 51.68561266 August 2012..... 19.79127424
February 2001... 76.31969762 November 2006... 51.00716750 September 2012.. 19.36892928
March 2001...... 76.00914852 December 2006... 50.32923284 October 2012.... 18.94566298
April 2001...... 75.70161186 January 2007.... 49.65189744 November 2012... 18.41334522
May 2001........ 75.39705360 February 2007... 48.97524644 December 2012... 17.81667142
June 2001....... 75.09543996 March 2007...... 48.34211568 January 2013.... 17.22031536
July 2001....... 74.79673738 April 2007...... 47.71169058 February 2013... 16.62429478
August 2001..... 74.50091252 May 2007........ 47.08394428 March 2013...... 16.02862658
September 2001.. 74.20793232 June 2007....... 46.45885002 April 2013...... 15.43332658
October 2001.... 73.91776386 July 2007....... 45.83638112 May 2013........ 14.83840976
November 2001... 73.63037454 August 2007..... 45.21651110 June 2013....... 14.24389020
December 2001... 73.34573192 September 2007.. 44.59921356 July 2013....... 13.64978106
January 2002.... 73.06380380 October 2007.... 43.98446220 August 2013..... 13.05609464
February 2002... 72.78455820 November 2007... 43.37223092 September 2013.. 12.46284246
March 2002...... 72.50796338 December 2007... 42.76249366 October 2013.... 11.87003516
April 2002...... 72.23398780 January 2008.... 42.21806666 November 2013... 11.27768264
May 2002........ 71.96260010 February 2008... 41.67487060 December 2013... 10.68579398
June 2002....... 71.69376918 March 2008...... 41.13290264 January 2014.... 10.09437750
July 2002....... 71.42746414 April 2008...... 40.59215968 February 2014... 9.50344084
August 2002..... 71.16365428 May 2008........ 40.05263828 March 2014...... 8.91299088
September 2002.. 70.90230912 June 2008....... 39.57954336 April 2014...... 8.32303376
October 2002.... 70.64339834 July 2008....... 39.10663376 May 2014........ 7.73357504
November 2002... 70.38689190 August 2008..... 38.63392054 June 2014....... 7.14461950
December 2002... 70.13275988 September 2008.. 38.16141432 July 2014....... 6.55617132
January 2003.... 69.88097264 October 2008.... 37.76483586 August 2014..... 5.96823408
February 2003... 69.63150068 November 2008... 37.36757642 September 2014.. 5.38081068
March 2003...... 69.40685400 December 2008... 36.96965428 October 2014.... 4.79318780
April 2003...... 69.18433266 January 2009.... 36.57108716 November 2014... 4.16243790
May 2003........ 68.96390776 February 2009... 36.17189232 December 2014... 3.53331134
June 2003....... 68.74555058 March 2009...... 35.77208646 January 2015.... 2.90578210
July 2003....... 68.52923258 April 2009...... 35.43023952 February 2015... 2.27982422
August 2003..... 68.31492544 May 2009........ 35.08492196 March 2015...... 1.65541186
September 2003.. 68.10260100 June 2009....... 34.73624002 April 2015...... 1.03251924
October 2003.... 67.89223126 July 2009....... 34.38429698 May 2015........ 0.41112064
November 2003... 67.68378844 August 2009..... 34.02919326 June 2015
September 2009.. 33.67102652 and thereafter. 0.00000000
</TABLE>
S-53
<PAGE>
SCHEDULED CLASS A SUBCLASS PRINCIPAL BALANCES
AS PERCENTAGES OF INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE
CLASS A-6 CERTIFICATES
SCHEDULE II
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
INITIAL CLASS A INITIAL CLASS A INITIAL CLASS A
SUBCLASS SUBCLASS SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
March 1998...... 99.65552164% July 2003....... 30.89453862% November 2008... 12.76432338%
April 1998...... 99.26370440 August 2003..... 30.49108472 December 2008... 12.72726426
May 1998........ 98.82463726 September 2003.. 30.10477200 January 2009.... 12.68998896
June 1998....... 98.33843994 October 2003.... 29.73527262 February 2009... 12.64253368
July 1998....... 97.80526310 November 2003... 29.38226394 March 2009...... 12.32401598
August 1998..... 97.22528818 December 2003... 29.04542850 April 2009...... 12.06841504
September 1998.. 96.59872734 January 2004.... 28.72445388 May 2009........ 11.81421176
October 1998.... 95.92582344 February 2004... 28.41903264 June 2009....... 11.56142438
November 1998... 95.20684986 March 2004...... 28.17389380 July 2009....... 11.31006980
December 1998... 94.44211034 April 2004...... 27.92428598 August 2009..... 11.06016358
January 1999.... 93.63193880 May 2004........ 27.66867780 September 2009.. 10.81172008
February 1999... 92.77669910 June 2004....... 27.40739444 October 2009.... 10.56475238
March 1999...... 91.87678476 July 2004....... 27.14075066 November 2009... 10.31927240
April 1999...... 90.93261868 August 2004..... 26.86905122 December 2009... 10.07529092
May 1999........ 89.94465284 September 2004.. 26.59259100 January 2010.... 9.83281762
June 1999....... 88.91336790 October 2004.... 26.31165538 February 2010... 9.59186114
July 1999....... 87.48354754 November 2004... 26.02652044 March 2010...... 9.35242904
August 1999..... 85.45197406 December 2004... 25.73745318 April 2010...... 9.11452796
September 1999.. 83.34168790 January 2005.... 25.44471188 May 2010........ 8.87816350
October 1999.... 81.15510356 February 2005... 25.14854622 June 2010....... 8.64334040
November 1999... 78.89474114 March 2005...... 24.79522760 July 2010....... 8.41006246
December 1999... 76.56322156 April 2005...... 24.44131368 August 2010..... 8.17833270
January 2000.... 74.16326150 May 2005........ 24.08697308 September 2010.. 7.94815320
February 2000... 72.74558194 June 2005....... 23.73236778 October 2010.... 7.71952534
March 2000...... 71.29581746 July 2005....... 23.37765338 November 2010... 7.49244966
April 2000...... 69.81741088 August 2005..... 23.02297920 December 2010... 7.26692600
May 2000........ 68.31359122 September 2005.. 22.66848856 January 2011.... 7.04295348
June 2000....... 66.79849824 October 2005.... 22.31431888 February 2011... 6.82053050
July 2000....... 65.29093592 November 2005... 21.96060190 March 2011...... 6.59965482
August 2000..... 63.81288800 December 2005... 21.60746386 April 2011...... 6.38032358
September 2000.. 62.36941862 January 2006.... 21.25502560 May 2011........ 6.16253328
October 2000.... 60.95994170 February 2006... 20.90340280 June 2011....... 5.94627982
November 2000... 59.58388022 March 2006...... 20.51385520 July 2011....... 5.73155860
December 2000... 58.24066618 April 2006...... 20.12790370 August 2011..... 5.51836438
January 2001.... 56.92974042 May 2006........ 19.74556160 September 2011.. 5.30669146
February 2001... 55.65055246 June 2006....... 19.36683990 October 2011.... 5.09653364
March 2001...... 54.40256044 July 2006....... 18.99174738 November 2011... 4.88788420
April 2001...... 53.18523094 August 2006..... 18.62029066 December 2011... 4.68073598
May 2001........ 51.99803880 September 2006.. 18.25247428 January 2012.... 4.47508138
June 2001....... 50.84046714 October 2006.... 17.88830080 February 2012... 4.27091238
July 2001....... 49.71200710 November 2006... 17.52777092 March 2012...... 4.06822054
August 2001..... 48.61215778 December 2006... 17.17088346 April 2012...... 3.86699704
September 2001.. 47.54042610 January 2007.... 16.81763554 May 2012........ 3.66723270
October 2001.... 46.49632668 February 2007... 16.46802254 June 2012....... 3.46891794
November 2001... 45.47938174 March 2007...... 16.20818622 July 2012....... 3.27204288
December 2001... 44.48912096 April 2007...... 15.95173866 August 2012..... 3.07659730
January 2002.... 43.52508138 May 2007........ 15.69862368 September 2012.. 2.88257072
February 2002... 42.58680732 June 2007....... 15.44878592 October 2012.... 2.68995226
March 2002...... 41.67385020 July 2007....... 15.20217084 November 2012... 2.49873088
April 2002...... 40.78576850 August 2007..... 14.95872466 December 2012... 2.30889518
May 2002........ 39.92212756 September 2007.. 14.71839448 January 2013.... 2.12043354
June 2002....... 39.08249962 October 2007.... 14.48112812 February 2013... 1.93333414
July 2002....... 38.26646358 November 2007... 14.24687416 March 2013...... 1.74758484
August 2002..... 37.47360496 December 2007... 14.01558198 April 2013...... 1.56317338
September 2002.. 36.70351578 January 2008.... 13.85004384 May 2013........ 1.38008722
October 2002.... 35.95579448 February 2008... 13.68615702 June 2013....... 1.19831368
November 2002... 35.23004584 March 2008...... 13.52389592 July 2013....... 1.01783988
December 2002... 34.52588080 April 2008...... 13.36323530 August 2013..... 0.83865272
January 2003.... 33.84291646 May 2008........ 13.20415010 September 2013.. 0.66073902
February 2003... 33.18077594 June 2008....... 13.11182428 October 2013.... 0.48408540
March 2003...... 32.68651008 July 2008....... 13.01999618 November 2013... 0.30867834
April 2003...... 32.21110580 August 2008..... 12.92865704 December 2013... 0.13450418
May 2003........ 31.75420790 September 2008.. 12.83779810 January 2014
June 2003....... 31.31546684 October 2008.... 12.80116758 and thereafter. 0.00000000
</TABLE>
S-54
<PAGE>
SCHEDULED CLASS A SUBCLASS PRINCIPAL BALANCES
AS PERCENTAGES OF INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE
CLASS A-10 CERTIFICATES
SCHEDULE I
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
INITIAL CLASS A INITIAL CLASS A INITIAL CLASS A
SUBCLASS SUBCLASS SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
March 1998...... 99.63917401% November 2003... 68.97242760% June 2009....... 33.67544241%
April 1998...... 99.23258737 December 2003... 68.76767303 July 2009....... 33.27335087
May 1998........ 98.78032528 January 2004.... 68.56398947 August 2009..... 32.86767241
June 1998....... 98.28250091 February 2004... 68.36135635 September 2009.. 32.45850885
July 1998....... 97.73925534 March 2004...... 68.16495777 October 2009.... 32.04595917
August 1998..... 97.15075751 April 2004...... 67.95032960 November 2009... 31.63011953
September 1998.. 96.51720421 May 2004........ 67.71617200 December 2009... 31.21108343
October 1998.... 95.83881995 June 2004....... 67.46308844 January 2010.... 30.78894177
November 1998... 95.11585691 July 2004....... 67.19166708 February 2010... 30.36378281
December 1998... 94.34859469 August 2004..... 66.90248126 March 2010...... 29.93569232
January 1999.... 93.53734028 September 2004.. 66.59608973 April 2010...... 29.50475365
February 1999... 92.68242774 October 2004.... 66.27303709 May 2010........ 29.07104768
March 1999...... 91.78421801 November 2004... 65.93385407 June 2010....... 28.63465302
April 1999...... 90.84309869 December 2004... 65.57905786 July 2010....... 28.19564595
May 1999........ 89.85948367 January 2005.... 65.20915245 August 2010..... 27.75410052
June 1999....... 88.83381295 February 2005... 64.82462892 September 2010.. 27.31008861
July 1999....... 87.76655214 March 2005...... 64.29767743 October 2010.... 26.86367997
August 1999..... 86.65819222 April 2005...... 63.76127202 November 2010... 26.41494225
September 1999.. 85.50927080 May 2005........ 63.21578319 December 2010... 25.96394111
October 1999.... 84.32032790 June 2005....... 62.66157109 January 2011.... 25.51074016
November 1999... 83.09192754 July 2005....... 62.09898570 February 2011... 25.05540114
December 1999... 81.82465730 August 2005..... 61.52836711 March 2011...... 24.59798385
January 2000.... 80.51912790 September 2005.. 60.95004579 April 2011...... 24.13854626
February 2000... 80.25284787 October 2005.... 60.36434282 May 2011........ 23.67714454
March 2000...... 79.98100215 November 2005... 59.77157009 June 2011....... 23.21383308
April 2000...... 79.70389136 December 2005... 59.17203055 July 2011....... 22.74866457
May 2000........ 79.42179182 January 2006.... 58.56601846 August 2011..... 22.28168999
June 2000....... 79.13630217 February 2006... 57.95381954 September 2011.. 21.81295870
July 2000....... 78.84962101 March 2006...... 57.23492659 October 2011.... 21.34251846
August 2000..... 78.56438284 April 2006...... 56.51515847 November 2011... 20.87041544
September 2000.. 78.28123234 May 2006........ 55.79464438 December 2011... 20.39669429
October 2000.... 78.00014372 June 2006....... 55.07350879 January 2012.... 19.92139820
November 2000... 77.72109139 July 2006....... 54.35187160 February 2012... 19.44456884
December 2000... 77.44404988 August 2006..... 53.62984823 March 2012...... 18.96624651
January 2001.... 77.16899392 September 2006.. 52.90754982 April 2012...... 18.48647009
February 2001... 76.89589835 October 2006.... 52.18508327 May 2012........ 18.00527711
March 2001...... 76.62473819 November 2006... 51.46255138 June 2012....... 17.52270375
April 2001...... 76.35548856 December 2006... 50.74005303 July 2012....... 17.03878495
May 2001........ 76.08812478 January 2007.... 50.01768319 August 2012..... 16.55355433
June 2001....... 75.82262231 February 2007... 49.29553311 September 2012.. 16.06704429
July 2001....... 75.55895670 March 2007...... 48.61467040 October 2012.... 15.57928603
August 2001..... 75.29710371 April 2007...... 47.93619672 November 2012... 15.09030958
September 2001.. 75.03703920 May 2007........ 47.26008672 December 2012... 14.60014378
October 2001.... 74.77873920 June 2007....... 46.58631517 January 2013.... 14.10881640
November 2001... 74.52217984 July 2007....... 45.91485693 February 2013... 13.61635405
December 2001... 74.26733743 August 2007..... 45.24568697 March 2013...... 13.07777843
January 2002.... 74.01418839 September 2007.. 44.57878033 April 2013...... 12.41187399
February 2002... 73.76270928 October 2007.... 43.91411215 May 2013........ 11.74596482
March 2002...... 73.51287680 November 2007... 43.25165768 June 2013....... 11.08006688
April 2002...... 73.26466778 December 2007... 42.59139223 July 2013....... 10.41419516
May 2002........ 73.01805919 January 2008.... 41.99787180 August 2013..... 9.74836378
June 2002....... 72.77302812 February 2008... 41.40524641 September 2013.. 9.08258589
July 2002....... 72.52955178 March 2008...... 40.81351518 October 2013.... 8.41687387
August 2002..... 72.28760753 April 2008...... 40.22267683 November 2013... 7.75123917
September 2002.. 72.04717285 May 2008........ 39.63272976 December 2013... 7.08569247
October 2002.... 71.80822532 June 2008....... 39.11068458 January 2014.... 6.42024361
November 2002... 71.57074271 July 2008....... 38.58846950 February 2014... 5.75490165
December 2002... 71.33470283 August 2008..... 38.06609777 March 2014...... 5.08967488
January 2003.... 71.10008367 September 2008.. 37.54358206 April 2014...... 4.42457084
February 2003... 70.86686332 October 2008.... 37.09873962 May 2014........ 3.75959633
March 2003...... 70.65152569 November 2008... 36.65284419 June 2014....... 3.09475745
April 2003...... 70.43744919 December 2008... 36.20591627 July 2014....... 2.43005959
May 2003........ 70.22461226 January 2009.... 35.75797576 August 2014..... 1.76550746
June 2003....... 70.01299342 February 2009... 35.30904204 September 2014.. 1.10110510
July 2003....... 69.80257134 March 2009...... 34.85913390 October 2014.... 0.43612049
August 2003..... 69.59332478 April 2009...... 34.46844311 November 2014
September 2003.. 69.38523263 May 2009........ 34.07384238 and thereafter. 0.00000000
October 2003.... 69.17827387
</TABLE>
S-55
<PAGE>
SCHEDULED CLASS A SUBCLASS PRINCIPAL BALANCES
AS PERCENTAGES OF INITIAL CLASS A SUBCLASS PRINCIPAL BALANCE
CLASS A-10 CERTIFICATES
SCHEDULE II
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
INITIAL CLASS A INITIAL CLASS A INITIAL CLASS A
SUBCLASS SUBCLASS SUBCLASS
DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE DISTRIBUTION DATE PRINCIPAL BALANCE
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
March 1998...... 99.63917401% July 2003....... 31.56828452% November 2008... 12.89086293%
April 1998...... 99.23258737 August 2003..... 31.15300461 December 2008... 12.85201997
May 1998........ 98.78032528 September 2003.. 30.75533841 January 2009.... 12.81295365
June 1998....... 98.28250091 October 2003.... 30.37494903 February 2009... 12.76342458
July 1998....... 97.73925534 November 2003... 30.01150492 March 2009...... 12.43533346
August 1998..... 97.15075751 December 2003... 29.66467981 April 2009...... 12.17189841
September 1998.. 96.51720421 January 2004.... 29.33415267 May 2009........ 11.90989856
October 1998.... 95.83881995 February 2004... 29.01960754 June 2009....... 11.64935266
November 1998... 95.11585691 March 2004...... 28.76701079 July 2009....... 11.39027807
December 1998... 94.34859469 April 2004...... 28.50981984 August 2009..... 11.13269081
January 1999.... 93.53734028 May 2004........ 28.24646092 September 2009.. 10.87660563
February 1999... 92.68242774 June 2004....... 27.97726821 October 2009.... 10.62203600
March 1999...... 91.78421801 July 2004....... 27.70256522 November 2009... 10.36899419
April 1999...... 90.84309869 August 2004..... 27.42266510 December 2009... 10.11749128
May 1999........ 89.85948367 September 2004.. 27.13787092 January 2010.... 9.86753724
June 1999....... 88.83381295 October 2004.... 26.84847595 February 2010... 9.61914094
July 1999....... 87.76655214 November 2004... 26.55476390 March 2010...... 9.37231020
August 1999..... 86.65819222 December 2004... 26.25700919 April 2010...... 9.12705182
September 1999.. 85.49507777 January 2005.... 25.95547723 May 2010........ 8.88337160
October 1999.... 83.24741785 February 2005... 25.65042460 June 2010....... 8.64127440
November 1999... 80.92393724 March 2005...... 25.28663643 July 2010....... 8.40076418
December 1999... 78.52732929 April 2005...... 24.92223493 August 2010..... 8.16184401
January 2000.... 76.06038589 May 2005........ 24.55739338 September 2010.. 7.92451609
February 2000... 74.60289430 June 2005....... 24.19227827 October 2010.... 7.68878180
March 2000...... 73.11242851 July 2005....... 23.82704949 November 2010... 7.45464176
April 2000...... 71.59252659 August 2005..... 23.46186053 December 2010... 7.22209579
May 2000........ 70.04650686 September 2005.. 23.09685864 January 2011.... 6.99114301
June 2000....... 68.48890026 October 2005.... 22.73218508 February 2011... 6.76178180
July 2000....... 66.93903094 November 2005... 22.36797523 March 2011...... 6.53400987
August 2000..... 65.41949077 December 2005... 22.00435881 April 2011...... 6.30782429
September 2000.. 63.93548400 January 2006.... 21.64146003 May 2011........ 6.08322150
October 2000.... 62.48640833 February 2006... 21.27939776 June 2011....... 5.86019729
November 2000... 61.07167077 March 2006...... 20.87836008 July 2011....... 5.63874693
December 2000... 59.69068762 April 2006...... 20.48101649 August 2011..... 5.41886510
January 2001.... 58.34288423 May 2006........ 20.08738068 September 2011.. 5.20054593
February 2001... 57.02769492 June 2006....... 19.69746396 October 2011.... 4.98378306
March 2001...... 55.74456284 July 2006....... 19.31127532 November 2011... 4.76856962
April 2001...... 54.49293977 August 2006..... 18.92882162 December 2011... 4.55489827
May 2001........ 53.27228609 September 2006.. 18.55010750 January 2012.... 4.34276121
June 2001....... 52.08207058 October 2006.... 18.17513562 February 2012... 4.13215023
July 2001....... 50.92177033 November 2006... 17.80390669 March 2012...... 3.92305665
August 2001..... 49.79087056 December 2006... 17.43641953 April 2012...... 3.71547145
September 2001.. 48.68886456 January 2007.... 17.07267114 May 2012........ 3.50938519
October 2001.... 47.61525351 February 2007... 16.71265682 June 2012....... 3.30478808
November 2001... 46.56954645 March 2007...... 16.44490130 July 2012....... 3.10166996
December 2001... 45.55126002 April 2007...... 16.18062690 August 2012..... 2.90002038
January 2002.... 44.55991849 May 2007........ 15.91977587 September 2012.. 2.69982854
February 2002... 43.59505354 June 2007....... 15.66229133 October 2012.... 2.50108333
March 2002...... 42.65620419 July 2007....... 15.40811723 November 2012... 2.30377339
April 2002...... 41.74291670 August 2007..... 15.15719836 December 2012... 2.10788704
May 2002........ 40.85474442 September 2007.. 14.90948033 January 2013.... 1.91341238
June 2002....... 39.99124773 October 2007.... 14.66490952 February 2013... 1.72033724
July 2002....... 39.15199389 November 2007... 14.42343312 March 2013...... 1.52864922
August 2002..... 38.33655694 December 2007... 14.18499911 April 2013...... 1.33833570
September 2002.. 37.54451766 January 2008.... 14.01413678 May 2013........ 1.14938384
October 2002.... 36.77546337 February 2008... 13.84497014 June 2013....... 0.96178062
November 2002... 36.02898787 March 2008...... 13.67747292 July 2013....... 0.77551282
December 2002... 35.30469141 April 2008...... 13.51161913 August 2013..... 0.59056705
January 2003.... 34.60218046 May 2008........ 13.34738310 September 2013.. 0.40692973
February 2003... 33.92106772 June 2008....... 13.25175194 October 2013.... 0.22458715
March 2003...... 33.41247194 July 2008....... 13.15663103 November 2013... 0.04352546
April 2003...... 32.92325786 August 2008..... 13.06201136 December 2013
May 2003........ 32.45306044 September 2008.. 12.96788394 and thereafter. 0.00000000
June 2003....... 32.00152050 October 2008.... 12.92948383
</TABLE>
S-56
<PAGE>
Principal Payment Characteristics of the PAC Certificates, the Class A-6
and Class A-10 Certificates and the Companion Certificates
The percentages of the initial Class A Subclass Principal Balances of the PAC
Certificates set forth in the preceding tables were calculated using the Struc-
turing Assumptions. Based on such assumptions, the Class A Subclass Principal
Balance of each Subclass of PAC Certificates would be reduced to the percentage
of its initial Class A Subclass Principal Balance indicated in the preceding
table for each Distribution Date if prepayments on the Mortgage Loans occur at
any constant rate between approximately 100% SPA (as defined herein under "Pre-
payment and Yield Considerations") and approximately 400% 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 a constant rate, there
may be differences between the characteristics of the mortgage loans ultimately
included in the Trust Estate and the Mortgage Loans which are expected to be
included as described herein. Therefore, there can be no assurance that the
Class A Subclass Principal Balances of the PAC Certificates, after the applica-
tion of the distributions to be made on any Distribution Date, will be equal to
the applicable percentage of the initial Class A Subclass Principal Balances
for such Distribution Date specified in the tables above.
The weighted average lives of the Subclasses of PAC Certificates will vary
under different prepayment scenarios. To the extent that principal prepayments
occur at a constant rate that is slower than approximately 100% SPA, the Class
A Non-PO Principal Amount on each Distribution Date may be insufficient to make
distributions in reduction of the principal balances of the PAC Certificates in
amounts that would reduce their principal balances to their planned principal
balances for such Distribution Date. The weighted average lives of the
Subclasses of PAC Certificates may therefore be extended, as illustrated for
the PAC Certificates by the tables on page S-78. To the extent that such prin-
cipal prepayments occur at a constant rate that is faster than approximately
400% SPA, the weighted average lives of the PAC Certificates may be shortened
as illustrated for the PAC Certificates by the tables on page S-78.
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 Amounts 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 month-
ly. There is no assurance that, with respect to the Class A Non-PO Principal
Amount distributions in reduction of the Class A Subclass Principal Balance of
a Subclass of PAC Certificates (i) will not commence significantly earlier than
the first Distribution Date shown in the preceding table relating to such
Subclass, (ii) will not commence significantly later than the first Distribu-
tion Date shown in the preceding table relating to such Subclass (other than
the Class A-1 and Class A-2 Certificates) or (iii) will not be reduced to zero
significantly earlier or significantly later than the last Distribution Date
shown in the preceding tables.
The extent to which the planned principal balances of the PAC Certificates
will be achieved and the sensitivity of the PAC Certificates to principal pre-
payments on the Mortgage Loans will depend, in part, upon the period of time
during which the Class A-6 and Class A-10 Certificates and the Companion Cer-
tificates remain outstanding. On each Distribution Date, the excess of the por-
tion of the Class A Non-PO Principal Amount available to make distributions of
principal to the PAC Certificates over the PAC Principal Amounts (the "Excess
Principal Payments") for such Distribution Date will be distributed to the Com-
panion Certificates and the Class A-6 and Class A-10 Certificates before being
distributed to the PAC Certificates in accordance with the priorities set forth
above under "-- Allocation of Amount to be Distributed." This is intended to
decrease the likelihood that the PAC Certificates will be reduced below their
planned principal balances on a given Distribution Date. As such, and in accor-
dance with the priorities described above, the Companion Certificates and the
Class A-6 and Class A-10 Certificates support the PAC Certificates. However,
under certain relatively fast prepayment scenarios, one or more Subclasses of
the PAC Certificates may continue to be outstanding when the Companion Certifi-
cates and the Class A-6 and Class A-10 Certificates are no longer outstanding.
Under such circumstances, all Excess Principal Payments will be applied to the
PAC Certificates then outstanding in accordance with the priorities described
herein. Thus, when the Class A Subclass Principal Balances of the Companion
Certificates and Class A Subclass Principal Balances of the Class A-6 and Class
A-10 Certificates have been reduced to zero, the PAC Certificates if outstand-
ing will, in accordance with the priorities set forth above, become more sensi-
tive
S-57
<PAGE>
to the rate of prepayment on the Mortgage Loans as such Subclasses will receive
all Excess Principal Payments until the principal balances of the PAC Certifi-
cates have been reduced to zero. Conversely, under certain relatively slow pre-
payment scenarios, the portion of the Class A Non-PO Principal Amount available
to make distributions of principal to the PAC Certificates may not be suffi-
cient to pay the PAC Principal Amounts for the PAC Certificates on a given Dis-
tribution Date. In such cases, the portion of the Class A Non-PO Principal
Amount available to make distributions of principal to the PAC Certificates for
each subsequent Distribution Date will be applied in accordance with the prior-
ities described herein such that the Class A-6 and Class A-10 Certificates and
the Companion Certificates will not receive any distributions in reduction of
their principal balances from the Class A Non-PO Principal Amount until the
outstanding principal balances of the PAC Certificates have reached their
planned principal balances for such Distribution Date. As a result, the
weighted average lives of the Subclasses of PAC Certificates if they did not
receive their PAC Principal Amounts on a Distribution Date may be extended.
THE WEIGHTED AVERAGE LIVES OF THE COMPANION CERTIFICATES WILL BE MORE SENSI-
TIVE THAN THE WEIGHTED AVERAGE LIVES OF THE OTHER SUBCLASSES AND CLASSES OF OF-
FERED CERTIFICATES TO THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS. THE
WEIGHTED AVERAGE LIVES OF THE CLASS A-6 AND CLASS A-10 CERTIFICATES WILL BE
LESS SENSITIVE THAN THE WEIGHTED AVERAGE LIVES OF THE COMPANION CERTIFICATES,
BUT MORE SENSITIVE THAN THE WEIGHTED AVERAGE LIVES OF THE OTHER SUBCLASSES AND
CLASSES OF OFFERED CERTIFICATES, TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS. See "Prepayment and Yield Considerations"
herein.
Additional Principal Payment Characteristics of the Class A-6 and Class A-10
Certificates
There can be no assurance that the Class A Subclass Principal Balances of the
Class A-6 and Class A-10 Certificates, after the application of the distribu-
tions to be made on any Distribution Date, will be equal to the balance ex-
pressed as a percentage of the initial Class A Subclass Principal Balance for
such Distribution Date specified in any of the tables beginning on page S-53.
On each Distribution Date, the excess portion of the Class A Non-PO Principal
Amount available to make distributions of principal over the Schedule I Reduc-
tion Amount for the Class A-6 Certificates will be distributed to the Class A-7
Certificates until their Class A Subclass Principal Balance has been reduced to
zero; the excess portion of the Class A Non-PO Principal Amount available to
make distributions of principal over the Schedule II Reduction Amount for the
Class A-6 Certificates will be distributed to the Class A-8 Certificates until
their Class A Subclass Principal Balance has been reduced to zero; the excess
portion of the Class A Non-PO Principal Amount available to make distributions
of principal over the Schedule I Reduction Amount for the Class A-10 Certifi-
cates will be distributed to the Class A-11 Certificates until their Class A
Subclass Principal Balance has been reduced to zero; and the excess portion of
the Class A Non-PO Principal Amount available to make distribution of principal
over the Schedule II Reduction Amount for the Class A-10 Certificates will be
distributed to the Class A-12 Certificates, until their Class A Subclass Prin-
cipal Balance has been reduced to zero. Therefore, the extent to which the
scheduled principal balances indicated in the tables beginning on page S-53
will be achieved and the sensitivity of the Class A-6 and Class A-10 Certifi-
cates to prepayments on the Mortgage Loans will depend, in large part, on how
long the Class A-7 and Class A-8 Certificates remain outstanding in the case of
the Class A-6 Certificates and on how long the Class A-11 and Class A-12 Cer-
tificates remain outstanding in the case of the Class A-10 Certificates. The
period of time during which such Subclass remains outstanding depends, in large
part, on the size of the principal balance of such Subclass. At rates above
certain prepayment levels, the Class A-6 and Class A-10 Certificates may remain
outstanding until and after the principal balances of the Subclasses supporting
such Subclass have been reduced to zero. In such an event, the excess portion
referred to above will be distributed in reduction of the Class A Subclass
Principal Balances of the Class A-6 and Class A-10 Certificates in accordance
with the priorities set forth herein until such Class A Subclass Principal Bal-
ances have been reduced to zero without regard to the Schedule I Reduction
Amounts and Schedule II Reduction Amounts for the Class A-6 and Class A-10 Cer-
tificates. See "Prepayment and Yield Considerations" herein.
ADDITIONAL RIGHTS OF THE CLASS A-R AND CLASS A-LR CERTIFICATEHOLDERS
The Class A-R and Class A-LR Certificates will remain outstanding for as long
as the Trust Estate shall exist, whether or not either such Subclass is receiv-
ing current distributions of principal or interest. The holders of the Class A-
R and Class A-LR Certificates 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 1998-5 Certificates, after distributions in
S-58
<PAGE>
respect of any accrued but unpaid interest on the Series 1998-5 Certificates
and after distributions in reduction of principal balance have reduced the
principal balances of the Series 1998-5 Certificates to zero. It is not antici-
pated that there will be any assets remaining in the Trust Estate on the final
Distribution Date following the distributions of interest and in reduction of
principal balance made on the Series 1998-5 Certificates on such date.
In addition, the Class A-LR Certificateholder will be entitled on each Dis-
tribution Date to receive any Pool Distribution Amount remaining after all dis-
tributions pursuant to the Pool Distribution Amount Allocation have been made
and any Net Foreclosure Profits. "Net Foreclosure Profits" means, with respect
to any Distribution Date, the excess, if any, of (i) the aggregate profits on
Liquidated Loans in the related period with respect to which net Liquidation
Proceeds exceed the unpaid principal balance thereof plus accrued interest
thereon at the Mortgage Interest Rate over (ii) the aggregate Realized Losses
on Liquidated Loans in the related period with respect to which net Liquidation
Proceeds are less than the unpaid principal balance thereof plus accrued inter-
est thereon at the Mortgage Interest Rate. It is not anticipated that there
will be any such Net Foreclosure Profits or undistributed portion of the Pool
Distribution Amounts.
PERIODIC ADVANCES
If, on any Determination Date, payments of principal and interest due on any
Mortgage Loan in the Trust Estate on the related Due Date have not been 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 1998-5 Certificates an amount in cash equal to all de-
linquent payments of principal and interest due on each Mortgage Loan in the
Trust Estate (with interest adjusted to the applicable Net Mortgage Interest
Rate) not previously advanced, but only to the extent that such Servicer be-
lieves that such amounts will be recoverable by it from liquidation proceeds or
other recoveries in respect of the related Mortgage Loan (each, a "Periodic Ad-
vance"). Upon a Servicer's failure to make a required Periodic Advance, the
Trust Administrator, if such Servicer is Norwest Mortgage, or the Master
Servicer, if such Servicer is not Norwest Mortgage, will be required to make
such Periodic Advance.
The Underlying Servicing Agreements and the Pooling and Servicing Agreement
provide that any advance of the kind described in the preceding paragraph may
be reimbursed to the related Servicer or the Master Servicer or the Trust Ad-
ministrator, as applicable, at any time from funds available in the Servicer
Custodial Account or the Certificate Account, as the case may be, to the extent
that (i) such funds represent receipts on, or liquidation, insurance, purchase
or repurchase proceeds in respect of, the Mortgage Loans to which the advance
relates or (ii) the Servicer, the Master Servicer or Trust Administrator, as
applicable, has determined in good faith that the advancing party will be un-
able to recover such advance from funds of the type referred to in clause (i)
above.
RESTRICTIONS ON TRANSFER OF THE CLASS A-9, CLASS A-13, CLASS A-R, CLASS A-LR,
CLASS M AND OFFERED CLASS B CERTIFICATES
The Class A-R and Class A-LR Certificates will be subject to the following
restrictions on transfer, and each of the Class A-R and Class A-LR Certificates
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
or Class A-LR Certificate to the extent it has received an affidavit from the
owner thereof that such owner is not a Disqualified Organization or a nominee
for a Disqualified Organization. The Pooling and Servicing Agreement will pro-
vide that no legal or beneficial interest in the Class A-R or Class A-LR Cer-
tificate may be transferred to or registered in the name of any person unless
(i) the proposed purchaser provides to the Trust Administrator an affidavit
(or, to the extent acceptable to the Trust Administrator, a representation let-
ter signed under penalty of perjury) to the effect that, among other items,
such transferee is not a Disqualified Organization (as defined in the Prospec-
tus) and is not purchasing the Class A-R or Class A-LR Certificate as an agent
for a Disqualified Organization (i.e., as a broker, nominee, or other middleman
thereof) and (ii) the transferor states in writing to the Trust Administrator
that it has no actual knowledge that such affidavit or letter is false. Fur-
ther, such affidavit or letter requires the transferee to affirm that it (i)
historically has paid its debts as they have come due and intends to do so in
the future, (ii) understands that it may incur tax liabilities with respect to
the Class A-R or Class A-LR Certificate in excess of cash flows generated
thereby, (iii)
S-59
<PAGE>
intends to pay taxes associated with holding the Class A-R or Class A-LR Cer-
tificate as such taxes become due and (iv) will not transfer the Class A-R or
Class A-LR Certificate to any person or entity that does not provide a similar
affidavit or letter. The transferor must certify in writing to the Trust Admin-
istrator that, as of the date of the transfer, it had no knowledge or reason to
know that the affirmations made by the transferee pursuant to the preceding
sentence were false.
In addition, the Class A-R and Class A-LR Certificates 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 or Class A-LR Certificate in connection with the
conduct of a trade or business within the United States and furnishes the
transferor and the Trust Administrator with an effective Internal Revenue Serv-
ice Form 4224 or (ii) the transferee delivers to both the transferor and the
Trust Administrator 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 or Class A-LR 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 (except to the extent provided in applicable
Treasury Regulations) or other entity created or organized in or under the laws
of the United States or any political subdivision thereof, an estate that is
subject to United States federal income tax regardless of the source of its in-
come, or a trust if a court within the United States is able to exercise pri-
mary supervision over the administration of such trust, and one or more such
U.S. Persons have the authority to control all substantial decisions of such
trust (or, to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996 which are eligible to elect to be treated as U.S.
Persons).
The Pooling and Servicing Agreement will provide that any attempted or pur-
ported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee. Any transferor or
agent to whom the Trust Administrator provides information as to any applicable
tax imposed on such transferor or agent may be required to bear the cost of
computing or providing such information. See "Certain Federal Income Tax Conse-
quences -- Federal Income Tax Consequences for REMIC Certificates -- Taxation
of Residual Certificates -- Tax-Related Restrictions on Transfer of Residual
Certificates" in the Prospectus.
NEITHER THE CLASS A-R NOR CLASS A-LR CERTIFICATE MAY BE PURCHASED BY OR
TRANSFERRED TO A PLAN OR A PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS
OF A PLAN. See "ERISA Considerations" herein and in the Prospectus.
The Class A-9 and Class A-13 Certificates may only be transferred to persons
who deliver to the Trust Administrator an affidavit stating that such person:
(a)(i) is a substantial, sophisticated, institutional investor having knowledge
and experience in financial and business matters, and in particular in such
matters related to securities similar to the Class A-9 or Class A-13 Certifi-
cates, such that such investor is capable of evaluating the merits and risks of
an investment in the Class A-9 or Class A-13 Certificates, and (ii) has a net
worth of at least $10,000,000; or (b) will hold the Class A-9 or Class A-13
Certificates solely as nominee for a person meeting the criteria set forth in
clause (a).
Because the Class M and Offered Class B Certificates are subordinated to the
Class A Certificates, the Class M and Offered Class B Certificates may not be
transferred unless the transferee has delivered (i) a representation letter to
the Trust Administrator and the Seller stating either (a) that the transferee
is not a Plan and is not acting on behalf of a Plan or using the assets of a
Plan to effect such purchase or (b) subject to the conditions described herein,
that the source of funds used to purchase the Class M or Offered Class B Cer-
tificates is an "insurance company general account" or (ii) an opinion of coun-
sel and such other documentation as described herein under "ERISA Considera-
tions." See "ERISA Considerations" herein and in the Prospectus.
REPORTS
In addition to the applicable information specified in the Prospectus, the
Master Servicer will include in the statement delivered to holders of Class A,
Class M and Class B Certificates with respect to each Distribution Date the
following information: (i) the amount of such distribution allocable to inter-
est, the amount of interest currently distributable to each Subclass of Class A
and Class B Certificates and to the Class M Certificates, any Class A Subclass
Interest Shortfall Amount or Class B Subclass Interest Shortfall Amount arising
with respect to each Subclass or any Class M Interest Shortfall Amount on such
Distribution Date, any remaining unpaid Class A Subclass Interest Shortfall
Amount or Class B Subclass Interest Shortfall Amount with respect to each
Subclass, or any remaining unpaid Class M Interest Shortfall Amount, after giv-
ing effect to such distribution
S-60
<PAGE>
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 Non-PO Principal Balance, the Component Principal Balance of each Com-
ponent, the Class M Principal Balance, the Class B Principal Balance, the Class
A Subclass Principal Balance of each Subclass of Class A Certificates and the
Class B Subclass Principal Balance of each Subclass of Class B Certificates in
each case after giving effect to the distribution of principal and the alloca-
tion of the principal portion of Realized Losses to such Subclass or Class with
respect to such Distribution Date, (iv) the Adjusted Pool Amount, the Adjusted
Pool Amount (PO Portion) and the Pool Scheduled Principal Balance of the Mort-
gage Loans and the aggregate Scheduled Principal Balance of the Discount Mort-
gage Loans for such Distribution Date, (v) the Class A Percentage, Class M Per-
centage and Subclass B Percentage of each Subclass of Class B Certificates for
the following Distribution Date (without giving effect to Unscheduled Principal
Receipts received after the applicable Unscheduled Principal Receipt Period for
the current Distribution Date that are applied during such Unscheduled Princi-
pal Receipt Period), and (vi) the amount of the remaining Special Hazard Loss
Amount, the Fraud Loss Amount and the Bankruptcy Loss Amount as of the close of
business on such Distribution Date. The statement delivered to holders of the
Class A-5 Certificates will also include the Class A-5 Notional Amount. See
"Servicing of the Mortgage Loans -- Reports to Certificateholders" in the Pro-
spectus.
Copies of the foregoing reports are available upon written request to the
Trust Administrator at its corporate trust office. See "Pooling and Servicing
Agreement -- Trust Administrator" herein.
SUBORDINATION OF CLASS M AND CLASS B CERTIFICATES
The rights of the holders of the Class M Certificates to receive distribu-
tions with respect to the Mortgage Loans in the Trust Estate will be subordi-
nated to such rights of the holders of the Class A Certificates, the rights of
the holders of the Class B Certificates to receive distributions with respect
to the Mortgage Loans in the Trust Estate will be subordinated to such rights
of the holders of the Class A Certificates and the holders of the Class M Cer-
tificates and the rights of the holders of the Subclasses of Class B Certifi-
cates with higher numerical designations to receive distributions with respect
to the Mortgage Loans in the Trust Estate will be subordinated to such rights
of the holders of Subclasses of Class B Certificates with lower numerical des-
ignations, all to the extent described below. This subordination is intended to
enhance the likelihood of timely receipt by the holders of the Class A Certifi-
cates (to the extent of the subordination of the Class M and Class B Certifi-
cates), the holders of the Class M Certificates (to the extent of the subordi-
nation of the Class B Certificates) and the holders of a Subclass of Class B
Certificates (to the extent of the subordination of Subclasses of Class B Cer-
tificates with higher numerical designations) of the full amount of their
scheduled monthly payments of interest and principal and to afford the holders
of the Class A Certificates (to the extent of the subordination of the Class M
and Class B Certificates), the holders of the Class M Certificates (to the ex-
tent of the subordination of the Class B Certificates) and the holders of the
Subclasses of Class B Certificates (to the extent of the subordination of
Subclasses of Class B Certificates with higher numerical designations) protec-
tion against Realized Losses, as more fully described below. If Realized Losses
exceed the credit support provided through subordination to the Class A Certif-
icates, the Class M Certificates or a Subclass of Class B Certificates or if
Excess Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses
occur, all or a portion of such losses will be borne by the Class A Certifi-
cates, the Class M Certificates or such Subclass of Class B Certificates.
The protection afforded to the holders of Class A Certificates by means of
the subordination feature will be accomplished by the preferential right of
such holders to receive, prior to any distribution being made on a Distribution
Date in respect of the Class M and Class B Certificates, the amounts of princi-
pal and interest due the Class A Certificateholders on each Distribution Date
out of the Pool Distribution Amount with respect to such date and, if neces-
sary, by the right of such holders to receive future distributions on the Mort-
gage Loans that would otherwise have been payable to the holders of Class M and
Class B Certificates. The application of this subordination to cover Realized
Losses experienced in periods prior to the periods in which a Subclass of Class
A Certificates is entitled to distributions in reduction of principal balance
will decrease the protection provided by the subordination to any such
Subclass.
The protection afforded to the holders of Class M Certificates by means of
the subordination feature will be accomplished by the preferential right of
such holders to receive, prior to any distribution being made on a Distribution
Date in respect of the Class B Certificates, the amounts of principal (other
than any amount used to
S-61
<PAGE>
pay the Class A-PO 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 Class A Certifi-
cates have been made) and, if necessary, 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 the Class B Certificates.
A Subclass of Class B Certificates will be entitled, on each Distribution
Date, to the remaining portion, if any, of the applicable Pool Distribution
Amount, after payment of the Class A Optimal Amount, the Class A-PO Deferred
Amount, the Class M Optimal Amount and the Subclass B Optimal Amount of each
Subclass of Class B Certificates with a lower numerical designation for such
date. Amounts so distributed to Class B Certificateholders will not be avail-
able to cover delinquencies or Realized Losses in respect of subsequent Distri-
bution Dates.
Allocation of Losses
Realized Losses (other than Excess Special Hazard Losses, Excess Fraud Losses
and Excess Bankruptcy Losses) will not be allocated to the holders of the Class
A Certificates until the date on which the amount of principal payments on the
Mortgage Loans to which the holders of the Subordinated Certificates are enti-
tled has been reduced to zero as a result of the allocation of losses to the
Subordinated Certificates, i.e., the Distribution Date preceding the Distribu-
tion Date for which the Subordinated Percentage is equal to zero (the "Cross-
Over Date"). Prior to such time, such Realized Losses will be allocated first
to the Subclasses of Class B Certificates sequentially in reverse numerical or-
der, until the Class B Subclass Principal Balance of each such Subclass has
been reduced to zero, and then to the Class M Certificates until the Class M
Principal Balance has been reduced to zero.
The allocation of the principal portion of a Realized Loss (other than a Debt
Service Reduction, Excess Special Hazard Loss, Excess Fraud Loss or Excess
Bankruptcy Loss) will be effected through the adjustment of the principal bal-
ance of the most subordinate Class (or in the case of the Subclasses of Class B
Certificates, the most subordinate Subclass) then outstanding in such amount as
is necessary to cause the sum of the Class A Subclass Principal Balances, the
Class M Principal Balance and the Class B Subclass Principal Balances to equal
the Adjusted Pool Amount.
Allocations to the Class M Certificates or the Subclasses of Class B Certifi-
cates of (i) the principal portion of Debt Service Reductions, (ii) the inter-
est portion of Realized Losses (other than Excess Special Hazard Losses, Excess
Fraud Losses and Excess Bankruptcy Losses), (iii) any interest shortfalls re-
sulting from delinquencies for which the Servicer, the Master Servicer or the
Trust Administrator does not advance, (iv) any interest shortfalls or losses
resulting from the application of the Soldiers' and Sailors' Civil Relief Act
of 1940, as more fully described under "Certain Legal Aspects of the Mortgage
Loans -- Soldiers' and Sailors' Civil Relief Act" in the Prospectus and (v) any
interest shortfalls resulting from the timing of the receipt of Unscheduled
Principal Receipts (other than Prepayments in Full) with respect to Mortgage
Loans will result from the priority of distributions of the Pool Distribution
Amount first to the holders of the Class A Certificates, second to the Class M
Certificates and finally to the Subclasses of Class B Certificates in numerical
order as described above under "-- Distributions."
The allocation of the principal portion of Realized Losses (other than Excess
Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses) in re-
spect of the Mortgage Loans allocated on or after the Cross-Over Date will be
effected through the adjustment on any Determination Date of the Class A Non-PO
Principal Balance and the Class A Subclass Principal Balance of the Class A-PO
Certificates such that (i) the Class A Non-PO Principal Balance equals the Ad-
justed Pool Amount less the Adjusted Pool Amount (PO Portion) as of the preced-
ing Distribution Date and (ii) the Class A Subclass Principal Balance of the
Class A-PO Certificates equals the Adjusted Pool Amount (PO Portion) as of the
preceding Distribution Date. The principal portion of such Realized Losses al-
located to the Class A Certificates (other than Class A-PO Certificates) will
be allocated to such outstanding Subclasses of Class A Certificates pro rata in
accordance with their Class A Subclass Principal Balances or, in the case of a
Subclass of Accrual Certificates, their initial Class A Subclass Principal Bal-
ance, if lower. 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
S-62
<PAGE>
losses will be allocated among the outstanding Class A Certificates within each
Subclass pro rata in accordance with their respective Percentage Interests.
Any Excess Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy
Losses will be allocated (i) with respect to the principal portion of such
losses (a) to the outstanding Subclasses of the Class A Certificates (other
than the Class A-PO Certificates), Class M Certificates and Class B Certifi-
cates pro rata based on their outstanding principal balances in proportion to
the Non-PO Fraction of such losses and (b) in respect of Discount Mortgage
Loans, to the Class A-PO Certificates in proportion to the PO Fraction of such
losses and (ii) with respect to the interest portion of such losses, to the
Class A, Class M and Class B Certificates pro rata based on the interest ac-
crued. The principal portion of any such losses so allocated to the Class A
Certificates (other than the Class A-PO Certificates) will be allocated among
such outstanding Subclasses of Class A Certificates pro rata in accordance with
their then-outstanding Class A Subclass Principal Balances or, in the case of a
Subclass of Accrual Certificates, their initial Class A Subclass Principal Bal-
ance, if lower. The interest portion of any such losses will be allocated among
the outstanding Subclasses of Class A Certificates in accordance with their
Class A Subclass Interest Accrual Amounts, without regard to any reduction pur-
suant to this sentence. Any losses allocated to a Subclass of Class A Certifi-
cates will be allocated among the outstanding Class A Certificates within such
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.
As described above, the Pool Distribution Amount for any Distribution Date
will include current receipts (other than certain unscheduled payments in re-
spect of principal) from the Mortgage Loans otherwise payable to holders of the
Class M and Class B Certificates. If the Pool Distribution Amount is not suffi-
cient to cover the amount of principal payable to the holders of the Class A
Certificates on a particular Distribution Date, then the percentage of princi-
pal payments on the Mortgage Loans to which the holders of the Class A Certifi-
cates (other than the Class A-PO Certificates) will be entitled (i.e., the
Class A Percentage) on and after the next Distribution Date will be proportion-
ately increased, thereby reducing, as a relative matter, the respective inter-
est of the Class M and Class B Certificates in future payments of principal on
the Mortgage Loans in the Trust Estate. Such a shortfall could occur, for exam-
ple, if a considerable number of Mortgage Loans were to become Liquidated Loans
in a particular month.
Special Hazard Losses, other than Excess Special Hazard Losses, will be allo-
cated solely to the Subclasses of Class B Certificates in reverse numerical or-
der or, following the reduction of the Class B Principal Balance to zero,
solely to the Class M Certificates. Special Hazard Losses in excess of the Spe-
cial Hazard Loss Amount are "Excess Special Hazard Losses." Excess Special Haz-
ard Losses will be allocated among (i) the Class A Certificates (other than the
Class A-PO Certificates), the Class M Certificates and the Class B Certificates
and (ii) to the extent such Excess Special Hazard Losses arise with respect to
Discount Mortgage Loans, the Class A-PO Certificates. If the aggregate of all
Special Hazard Losses incurred in the month preceding the month of the related
Distribution Date (the "Aggregate Current Special Hazard Losses") is less than
or equal to the then-applicable Special Hazard Loss Amount, no Special Hazard
Losses will be regarded as Excess Special Hazard Losses. If Aggregate Current
Special Hazard Losses exceed the then-applicable Special Hazard Loss Amount, a
portion of each Special Hazard Loss will be regarded as an "Excess Special Haz-
ard Loss" in proportion to the ratio of (a) the excess of (i) Aggregate Current
Special Hazard Losses over (ii) the then-applicable Special Hazard Loss Amount,
to (b) the Aggregate Current Special Hazard Losses. Thereafter, when the Spe-
cial Hazard Loss Amount is zero, all Special Hazard Losses will be regarded as
Excess Special Hazard Losses. Upon initial issuance of the Series 1998-5 Cer-
tificates, the "Special Hazard Loss Amount" with respect thereto will be equal
to approximately 1.00% (approximately $3,001,371) of the Cut-Off Date Aggregate
Principal Balance of the Mortgage Loans. As of any Distribution Date, the Spe-
cial Hazard Loss Amount will equal the initial Special Hazard Loss Amount less
the sum of (A) any Special Hazard Losses allocated solely to the Class B or
Class M Certificates and (B) the Adjustment Amount. The "Adjustment Amount" on
each anniversary of the Cut-Off Date will be equal to the amount, if any, by
which the Special Hazard Amount, without giving effect to the deduction of the
Adjustment Amount for such anniversary, exceeds the greater of (i) 1.00% (or,
if greater than 1.00%, the highest percentage of Mortgage Loans by principal
balance in any California zip code) times the aggregate principal balance of
all the Mortgage Loans on such anniversary, (ii) twice the principal balance of
the
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<PAGE>
single Mortgage Loan having the largest principal balance, and (iii) that which
is necessary to maintain the original ratings assigned to the Class A and Class
M Certificates by DCR and Moody's and the original ratings assigned to the
Class B Certificates by DCR, as evidenced by letters to that effect delivered
by DCR and Moody's to the Master Servicer and the Trust Administrator. On and
after the Cross-Over Date, the Special Hazard Loss Amount will be zero.
Fraud Losses, other than Excess Fraud Losses, will be allocated solely to the
Subclasses of Class B Certificates in reverse numerical order or, following the
reduction of the Class B Principal Balance to zero, solely to the Class M Cer-
tificates. Fraud Losses in excess of the Fraud Loss Amount are "Excess Fraud
Losses." Excess Fraud Losses will be allocated among (i) the Class A Certifi-
cates (other than the Class A-PO Certificates), the Class M Certificates and
the Class B Certificates and (ii) to the extent such Excess Fraud Losses arise
with respect to Discount Mortgage Loans, the Class A-PO Certificates. If the
aggregate of all Fraud Losses incurred in the month preceding the month of the
related Distribution Date (the "Aggregate Current Fraud Losses") is less than
or equal to the then-applicable Fraud Loss Amount, no Fraud Losses will be re-
garded as Excess Fraud Losses. If Aggregate Current Fraud Losses exceed the
then-applicable Fraud Loss Amount, a portion of each Fraud Loss will be re-
garded as an "Excess Fraud Loss" in proportion to the ratio of (a) the excess
of (i) Aggregate Current Fraud Losses over (ii) the then-applicable Fraud Loss
Amount, to (b) the Aggregate Current Fraud Losses. Thereafter, when the Fraud
Loss Amount is zero, all Fraud Losses will be regarded as Excess Fraud Losses.
Upon initial issuance of the Series 1998-5 Certificates, the "Fraud Loss
Amount" with respect thereto will be equal to approximately 2.00% (approxi-
mately $6,002,741) of the Cut-Off Date Aggregate Principal Balance of the Mort-
gage Loans. As of any Distribution Date prior to the first anniversary of the
Cut-Off Date, the Fraud Loss Amount will equal the initial Fraud Loss Amount
minus the aggregate amount of Fraud Losses allocated solely to the Class B or
Class M Certificates through the related Determination Date. As of any Distri-
bution Date from the first through fifth anniversary of the Cut-Off Date, the
Fraud Loss Amount will be an amount equal to (1) the lesser of (a) the Fraud
Loss Amount as of the most recent anniversary of the Cut-Off Date and (b) 1.00%
of the aggregate principal balance of all of the Mortgage Loans as of the most
recent anniversary of the Cut-Off Date minus (2) the aggregate amounts allo-
cated solely to the Class B or Class M Certificates with respect to Fraud
Losses since the most recent anniversary of the Cut-Off Date through the re-
lated Determination Date. On and after the Cross-Over Date or after the fifth
anniversary of the Cut-Off Date, the Fraud Loss Amount will be zero.
Bankruptcy Losses, other than Excess Bankruptcy Losses, will be allocated
solely to the Subclasses of Class B Certificates in reverse numerical order or,
following the reduction of the Class B Principal Balance to zero, solely to the
Class M Certificates. Bankruptcy Losses in excess of the Bankruptcy Loss Amount
are "Excess Bankruptcy Losses." Excess Bankruptcy Losses will be allocated
among (i) the Class A Certificates (other than the Class A-PO Certificates),
the Class M Certificates and the Class B Certificates and (ii) to the extent
such Excess Bankruptcy Losses arise with respect to Discount Mortgage Loans,
the Class A-PO Certificates. If the aggregate of all Bankruptcy Losses incurred
in the month preceding the month of the related Distribution Date (the "Aggre-
gate Current Bankruptcy Losses") is less than or equal to the then applicable
Bankruptcy Loss Amount, no Bankruptcy Losses will be regarded as Excess Bank-
ruptcy Losses. If Aggregate Current Bankruptcy Losses exceed the then-applica-
ble Bankruptcy Loss Amount, a portion of each Bankruptcy Loss will be regarded
as an "Excess Bankruptcy Loss" in proportion to the ratio of (a) the excess of
(i) Aggregate Current Bankruptcy Losses over (ii) the then-applicable Bank-
ruptcy Loss Amount, to (b) the Aggregate Current Bankruptcy Losses. Thereafter,
when the Bankruptcy Loss Amount is zero, all Bankruptcy Losses will be regarded
as Excess Bankruptcy Losses. Upon initial issuance of the Series 1998-5 Certif-
icates, the "Bankruptcy Loss Amount" with respect thereto will be equal to ap-
proximately 0.03% (approximately $100,000) of the Cut-Off Date Aggregate Prin-
cipal Balance of the Mortgage Loans. As of any Distribution Date prior to the
first anniversary of the Cut-Off Date, the Bankruptcy Loss Amount will equal
the initial Bankruptcy Loss Amount minus the aggregate amount of Bankruptcy
Losses allocated solely to the Class B or Class M Certificates through the re-
lated Determination Date. As of any Distribution Date on or after the first an-
niversary of the Cut-Off Date, the Bankruptcy Loss Amount will equal the ex-
cess, if any, of (1) the lesser of (a) the Bankruptcy Loss Amount as of the
business day next preceding the most recent anniversary of the Cut-Off Date and
(b) an amount, if any, calculated pursuant to the terms of the Pooling and Ser-
vicing Agreement, which amount as calculated will provide for a reduction in
the Bankruptcy Loss Amount, over (2) the aggregate amount of Bankruptcy Losses
allocated solely to the Class B or Class M Certificates since such anniversary.
The Bankruptcy Loss
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<PAGE>
Amount and the related coverage levels described above may be reduced or modi-
fied upon written confirmation from DCR and Moody's that such reduction or mod-
ification will not adversely affect the then-current ratings assigned to the
Class A and Class M Certificates by DCR and Moody's and the then-current rat-
ings assigned to the Class B Certificates by DCR. Such a reduction or modifica-
tion may adversely affect the coverage provided by subordination with respect
to Bankruptcy Losses. On and after the Cross-Over Date, the Bankruptcy Loss
Amount will be zero.
Notwithstanding the foregoing, the provisions relating to subordination will
not be applicable in connection with a Bankruptcy Loss so long as the applica-
ble Servicer has notified the Trust Administrator and the Master Servicer in
writing that such Servicer is diligently pursuing any remedies that may exist
in connection with the representations and warranties made regarding the re-
lated Mortgage Loan and when (A) the related Mortgage Loan is not in default
with regard to the payments due thereunder or (B) delinquent payments of prin-
cipal and interest under the related Mortgage Loan and any premiums on any ap-
plicable Standard Hazard Insurance Policy and any related escrow payments in
respect of such Mortgage Loan are being advanced on a current basis by such
Servicer, in either case without giving effect to any Debt Service Reduction.
Since the aggregate initial principal balance of the Class M and Class B Cer-
tificates will be approximately $12,756,451, the risk of Special Hazard Losses,
Fraud Losses and Bankruptcy Losses will be separately borne by the Class B Cer-
tificates and, after the principal balance of the Class B Certificates has been
reduced to zero, by the Class M Certificates to a lesser extent. (i.e., only up
to the Special Hazard Loss Amount, Fraud Loss Amount and Bankruptcy Loss
Amount, respectively) than the risk of other Realized Losses, which will be al-
located first to the Class B Certificates and then the Class M Certificates to
the full extent of their initial principal balances. See "The Trust Estates --
Mortgage Loans -- Representations and Warranties" and "-- Insurance Policies,"
"Certain Legal Aspects of the Mortgage Loans -- Environmental Considerations"
and "Servicing of the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Re-
alization Upon Defaulted Mortgage 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 20 years to approximately 30 years, which may include loans secured
by shares ("Co-op Shares") issued by private non-profit housing corporations
("Cooperatives"), and the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specified units in such Cooperatives'
buildings. The Mortgage Loans are expected to include 923 promissory notes, to
have an aggregate unpaid principal balance as of the Cut-Off Date (the "Cut-Off
Date Aggregate Principal Balance") of approximately $300,137,055, to be secured
by first liens (the "Mortgages") on one- to four-family residential properties
(the "Mortgaged Properties") and to have the additional characteristics de-
scribed below and in the Prospectus.
As of the Cut-Off Date, it is expected that none of the Mortgage Loans will
be Buy-Down Loans. As of the Cut-Off Date, it is expected that none of the
Mortgage Loans will be secured by Co-op Shares. See "The Trust Estates -- Mort-
gage 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.
It is expected that none of the Mortgage Loans will be Subsidy Loans. See
"The Trust Estates -- Mortgage Loans" and "The Mortgage Loan Programs -- Mort-
gage Loan Underwriting" 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 $34,954 or more than approxi-
mately $1,395,290, and the average unpaid balance of the Mortgage Loans is ex-
pected to be approximately $325,176. The latest stated maturity date of any of
the Mortgage Loans is expected to be February 1, 2028; however, the actual date
on which any Mortgage Loan is paid in full may be earlier than the stated matu-
rity date due to unscheduled payments of principal. Based on information sup-
plied by the mortgagors in connection with their loan applications at origina-
tion, 888 of the Mortgaged Properties, which secure approximately 96.26% of the
Cut-Off Date Aggregate Principal Balance of the Mortgage Loans, are expected to
be owner occupied primary residences, 34 of the Mortgaged Properties, which se-
cure approximately 3.68% of the Cut-Off Date Aggregate Principal Balance of the
Mortgage Loans, are expected to be second homes and one of the Mortgaged Prop-
erties, which secures approximately 0.06% of the Cut-Off Date Aggregate Princi-
pal Balance of the Mortgage Loans, is expected to be an investment property.
See "The Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospec-
tus.
As of the Cut-Off Date, there were 11 Discount Mortgage Loans having an ag-
gregate unpaid principal balance of approximately $3,870,003, a range of unpaid
principal balances of approximately $110,000 to ap-
- -------
(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 1998-5 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
1998-5 Certificates vary materially from those described herein, revised
information regarding the Mortgage Loans will be made available to purchas-
ers of the Offered Certificates, on or before such issuance date, and a
Current Report on Form 8-K containing such information will be filed with
the Securities and Exchange Commission within 15 days following such date.
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<PAGE>
proximately $626,923, an average unpaid principal balance of approximately
$351,819, a range of Mortgage Interest Rates from 6.875% to 7.000% per annum, a
weighted average Mortgage Interest Rate of approximately 6.963% per annum, a
range of remaining terms to stated maturity of 358 months to 360 months, a
weighted average remaining term to stated maturity of approximately 359 months,
a range of original Loan-to-Value Ratios of 48.46% to 90.00%, a weighted aver-
age original Loan-to-Value Ratio of approximately 79.23% and the following geo-
graphic concentration of Mortgaged Properties securing Discount Mortgage Loans
in excess of 5.00% of the aggregate unpaid principal balance of the Discount
Mortgage Loans: approximately 42.39% in California, 21.11% in Pennsylvania,
11.35% in North Carolina, 8.48% in Florida, 7.35% in New Hampshire and 6.48% in
Maryland.
As of the Cut-Off Date, there were 912 Mortgage Loans that were not Discount
Mortgage Loans ("Premium Mortgage Loans") having an aggregate unpaid principal
balance of approximately $296,267,052, a range of unpaid principal balances of
approximately $34,954 to approximately $1,395,290, an average unpaid principal
balance of approximately $324,854, a range of Mortgage Interest Rates from
7.125% to 8.500% per annum, a weighted average Mortgage Interest Rate of ap-
proximately 7.643% per annum, a range of remaining terms to stated maturity of
237 months to 360 months, a weighted average remaining term to stated maturity
of approximately 357 months, a range of original Loan-to-Value Ratios of 16.67%
to 95.00%, a weighted average original Loan-to-Value Ratio of approximately
74.15% and the following geographic concentration of Mortgaged Properties se-
curing Premium Mortgage Loans in excess of 5.00% of the aggregate unpaid prin-
cipal balance of the Premium Mortgage Loans: approximately 40.97% in Califor-
nia, 6.94% in New Jersey and 5.26% in Colorado.
Certain geographic regions, including California, have in recent years expe-
rienced, and such regions or others in the future may experience, natural di-
sasters, including, without limitation, earthquakes, fires, floods and hurri-
canes. Any deterioration in housing prices in the states in which the Mortgaged
Properties are located and any deterioration in the economic conditions in such
states which adversely affects the ability of borrowers to make payments on the
Mortgage Loans may increase the likelihood of losses on the Mortgage Loans. A
concentration of the Mortgage Loans in such states may therefore result in a
greater risk of loss than had such concentration not been present. Such losses,
if they occur, may have an adverse effect on the yield to maturity of the Of-
fered Certificates.
As to Mortgaged Properties in regions that have recently experienced natural
disasters, neither the Seller nor Norwest Mortgage has undertaken the physical
inspection of such Mortgaged Properties. As a result, there can be no assurance
that material damage to any Mortgaged Property in an affected region has not
occurred. In the Pooling and Servicing Agreement, the Seller will represent and
warrant that, as of the date of issuance of the Certificates, each Mortgaged
Property is undamaged by flood, water, fire, earthquake or earth movement,
windstorm, tornado or similar casualty (excluding casualty from the presence of
hazardous wastes or hazardous substances, as to which the Seller makes no rep-
resentation) so as to adversely affect the value of such Mortgaged Property as
security for such Mortgage Loan or the use for which such premises were intend-
ed. In the event of a breach of such representation with respect to a Mortgaged
Property which materially and adversely affects the interests of
Certificateholders in the related Mortgage Loan, the Seller will be obligated
to repurchase or substitute for such Mortgage Loan, as described under "The
Mortgage Loan Programs -- Representations and Warranties" and "The Pooling and
Servicing Agreement -- Assignment of Mortgage Loans to the Trustee" in the Pro-
spectus. Repurchase of any such Mortgage Loan will affect in varying degrees
the yields and weighted average lives of the Subclasses and Classes of Offered
Certificates and could adversely affect the yield of any Offered Certificates
purchased at a premium or the Class A-5 Certificates, which have no principal
balance.
MORTGAGE LOAN UNDERWRITING
Approximately 84.38% (by Cut-Off Date Aggregate Principal Balance) of the
Mortgage Loans were originated in conformity with the underwriting standards
described in the Prospectus under the heading "The Mortgage Loan Programs --
Mortgage Loan Underwriting -- Norwest Mortgage Underwriting" (the "Underwrit-
ing Standards") as applied by Norwest Mortgage or by eligible originators to
whom Norwest Mortgage had delegated all underwriting functions. In certain in-
stances, exceptions to the Underwriting Standards may have been granted by
Norwest Mortgage. See "The Mortgage Loan Programs --Mortgage Loan Underwriting"
in the Prospectus. The remaining approximate 15.62% (by Cut-Off Date Aggregate
Principal Balance) of the Mortgage Loans (the "Bulk Purchase Underwritten
Loans") will have been underwritten in connection with bulk purchase
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<PAGE>
transactions under varying standards which have been reviewed by Norwest Mort-
gage, who determined that such varying standards did not depart materially from
the Underwriting Standards. Neither the Seller nor Norwest Mortgage has under-
written any of the Bulk Purchase Underwritten Loans. See "The Mortgage Loan
Programs -- Mortgage Loan Underwriting" in the Prospectus.
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<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 PRINCIPAL PRINCIPAL
MORTGAGE INTEREST RATE LOANS BALANCE BALANCE
- ---------------------- --------- --------------- -------------
<S> <C> <C> <C>
6.875%.................................. 2 $ 1,146,486.01 0.38%
7.000%.................................. 9 2,723,517.46 0.91
7.125%.................................. 10 3,180,633.68 1.06
7.150%.................................. 1 373,156.71 0.12
7.250%.................................. 51 17,884,587.83 5.96
7.300%.................................. 5 1,525,532.30 0.51
7.350%.................................. 2 704,470.09 0.23
7.375%.................................. 89 29,605,001.96 9.86
7.450%.................................. 8 3,148,705.34 1.05
7.500%.................................. 161 52,199,759.25 17.39
7.550%.................................. 16 4,717,044.03 1.57
7.600%.................................. 5 1,615,211.28 0.54
7.620%.................................. 1 233,580.65 0.08
7.625%.................................. 137 48,622,893.53 16.20
7.650%.................................. 9 2,774,118.83 0.92
7.700%.................................. 15 4,670,840.47 1.56
7.750%.................................. 169 55,863,456.23 18.63
7.800%.................................. 3 850,996.20 0.28
7.850%.................................. 8 2,810,899.22 0.94
7.875%.................................. 122 38,420,790.80 12.80
7.900%.................................. 8 1,812,400.17 0.60
7.950%.................................. 4 1,260,372.04 0.42
8.000%.................................. 48 14,356,907.28 4.78
8.050%.................................. 1 250,687.98 0.08
8.100%.................................. 1 261,479.73 0.09
8.125%.................................. 21 5,564,270.09 1.85
8.250%.................................. 12 2,507,889.53 0.84
8.375%.................................. 3 659,127.21 0.22
8.500%.................................. 2 392,239.18 0.13
--- --------------- ------
Total............................... 923 $300,137,055.08 100.00%
=== =============== ======
</TABLE>
As of the Cut-Off Date, the weighted average Mortgage Interest Rate of the
Mortgage Loans is expected to be approximately 7.635% 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 and (iii) 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 6.749% per annum.
MORTGAGE LOAN DOCUMENTATION
LEVELS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
DOCUMENTATION LEVEL LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
Full Documenta-
tion........... 810 $273,467,525.68 91.11%
Income Verifica-
tion........... 0 0.00 0.00
Asset Verifica-
tion........... 96 21,032,478.70 7.01
Preferred
Processing..... 17 5,637,050.70 1.88
--- --------------- ------
Total....... 923 $300,137,055.08 100.00%
=== =============== ======
</TABLE>
Documentation levels vary depending upon several factors, including loan amount,
Loan-to-Value Ratio and the type and purpose of the Mortgage Loan. Asset, income
and mortgage verifications were obtained for Mortgage Loans processed with "full
documentation." In the case of "preferred processing," neither asset nor income
verifications were obtained. In most instances, a verification of the borrower's
employment was obtained. However, for all of the Mortgage Loans, a credit report
on the borrower and a property appraisal were obtained. See "The Mortgage Loan
Programs -- Mortgage Loan Underwriting" in the Prospectus.
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>
237............. 1 $ 497,315.45 0.17%
238............. 3 936,830.00 0.31
239............. 2 677,611.55 0.23
298............. 1 272,886.92 0.09
299............. 1 490,839.85 0.16
344............. 1 327,232.65 0.11
345............. 1 297,674.43 0.10
348............. 2 433,569.84 0.14
351............. 1 249,415.93 0.08
353............. 2 392,592.03 0.13
354............. 2 684,290.65 0.23
355............. 19 4,710,323.70 1.57
356............. 13 3,875,251.82 1.29
357............. 187 59,711,176.34 19.89
358............. 267 87,920,109.32 29.29
359............. 328 110,321,144.60 36.77
360............. 92 28,338,790.00 9.44
--- --------------- ------
Total....... 923 $300,137,055.08 100.00%
=== =============== ======
</TABLE>
As of the Cut-Off Date, the weighted average remaining term to stated maturity
of the Mortage Loans is expected to be approximately 357 months.
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<PAGE>
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>
1997............ 831 $271,946,498.16 90.61%
1998............ 92 28,190,556.92 9.39
--- --------------- ------
Total....... 923 $300,137,055.08 100.00%
=== =============== ======
</TABLE>
It is expected that the earliest month and year of origination of any Mortgage
Loan will be January 1997 and the latest month and year of origination will be
January 1998.
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY LOANS BALANCE BALANCE
- -------- --------- --------------- -------------
<S> <C> <C> <C>
Single-family
detached........ 842 $276,621,963.49 92.16%
Two- to four-
family units.... 3 921,762.94 0.31
Condominiums
High-rise
(greater than
four stories).. 3 849,875.85 0.28
Low-rise (four
stories or
less).......... 32 7,991,354.47 2.66
Planned unit
developments.... 41 13,434,519.16 4.48
Townhouses....... 2 317,579.17 0.11
Cooperative
Units........... 0 0.00 0.00
--- --------------- ------
Total........ 923 $300,137,055.08 100.00%
=== =============== ======
</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>
Alabama......... 2 $ 465,254.30 0.16%
Alaska.......... 1 499,619.54 0.17
Arizona......... 30 10,352,462.16 3.45
Arkansas........ 5 1,422,408.37 0.47
California...... 366 123,024,280.36 40.99
Colorado........ 43 15,595,617.07 5.20
Connecticut..... 10 2,933,300.99 0.98
Delaware........ 1 255,980.22 0.09
District of Co-
lumbia......... 7 2,414,264.37 0.80
Florida......... 29 9,025,346.08 3.01
Georgia......... 26 7,712,286.31 2.57
Idaho........... 5 1,404,608.94 0.47
Illinois........ 18 5,775,580.33 1.92
Indiana......... 5 1,478,869.90 0.49
Iowa............ 4 1,462,841.22 0.49
Louisiana....... 1 287,786.26 0.10
Maine........... 2 493,160.30 0.16
Maryland........ 28 8,470,831.93 2.82
Massachusetts... 19 5,761,457.84 1.92
Michigan........ 4 1,214,726.49 0.40
Minnesota....... 29 9,592,364.42 3.20
Mississippi..... 4 1,180,882.13 0.39
Missouri........ 2 819,349.98 0.27
Nebraska........ 6 2,129,219.71 0.71
Nevada.......... 11 4,102,087.54 1.37
New Hampshire... 4 1,079,902.06 0.36
New Jersey...... 65 20,560,888.32 6.85
New Mexico...... 2 766,271.75 0.26
New York........ 45 11,926,278.86 3.97
North Carolina.. 16 5,619,103.96 1.87
North Dakota.... 1 236,664.36 0.08
Ohio............ 8 2,795,542.03 0.93
Oklahoma........ 1 154,674.52 0.05
Oregon.......... 15 4,260,602.89 1.42
Pennsylvania.... 11 3,200,581.95 1.07
Rhode Island.... 1 249,645.96 0.08
South Carolina.. 4 991,094.97 0.33
Tennessee....... 10 3,509,606.78 1.17
Texas........... 17 6,436,037.14 2.14
Utah............ 12 3,453,834.16 1.15
Vermont......... 1 251,822.14 0.08
Virginia........ 13 3,837,819.33 1.28
Washington...... 36 11,855,541.35 3.95
Wisconsin....... 3 1,076,555.79 0.36
--- --------------- ------
Total....... 923 $300,137,055.08 100.00%
=== =============== ======
</TABLE>
No more than approximately 0.94% 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-70
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
ORIGINAL LOAN-TO- MORTGAGE PRINCIPAL PRINCIPAL
VALUE RATIO LOANS BALANCE BALANCE
- ----------- --------- --------------- -------------
<S> <C> <C> <C>
50% or less............................. 39 $ 14,855,180.47 4.95%
50.01- 55.00%........................... 20 6,504,519.82 2.17
55.01- 60.00%........................... 45 13,730,920.97 4.57
60.01- 65.00%........................... 46 16,861,189.35 5.62
65.01- 70.00%........................... 104 36,657,760.69 12.21
70.01- 75.00%........................... 131 43,680,116.27 14.55
75.01- 80.00%........................... 384 123,622,144.59 41.20
80.01- 85.00%........................... 13 4,152,175.82 1.38
85.01- 90.00%........................... 118 33,951,847.98 11.31
90.01- 95.00%........................... 23 6,121,199.12 2.04
--- --------------- ------
Total............................... 923 $300,137,055.08 100.00%
=== =============== ======
</TABLE>
As of the Cut-Off Date, the minimum and maximum Loan-to-Value Ratios at
origination of the Mortgage Loans are expected to be 16.67% and 95.00%,
respectively, and the weighted average Loan-to-Value Ratio at origination of the
Mortgage Loans is expected to be approximately 74.22%. The Loan-to-Value Ratio
of a Mortgage Loan is calculated using the lesser of (i) the appraised value of
the related Mortgaged Property, as established by an appraisal obtained by the
originator from an appraiser at the time of origination and (ii) the sale price
for such property. For the purpose of calculating the Loan-to-Value Ratio of any
Mortgage Loan that is the result of the refinancing (including a refinancing for
"equity take out" purposes) of an existing mortgage loan, the appraised value of
the related Mortgaged Property is generally determined by reference to an
appraisal obtained in connection with the origination of the replacement loan.
There can be no assurance that such appraisal, which was based on the
independent judgment of an appraiser and not an arms-length sales transaction,
was an accurate representation of the market value of a Mortgaged Property. See
"The Trust Estates -- Mortgage Loans" in the Prospectus. No assurance can be
given that the values of the Mortgaged Properties securing the Mortgage Loans
have remained or will remain at the levels used in calculating the Loan-to-Value
Ratios shown above. The Seller has taken no action to establish the current
value of any Mortgaged Property. See "Risk Factors --Risks of the Mortgage
Loans" in the Prospectus. It is expected that 19 of the Mortgage Loans having
Loan-to-Value Ratios at origination in excess of 80%, representing approximately
1.97% (by Cut-Off Date Aggregate Principal Balance) of the Mortgage Loans, were
originated without primary mortgage insurance.
FICO SCORES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF WEIGHTED
NUMBER AGGREGATE DATE AVERAGE
RANGE OF OF UNPAID AGGREGATE LOAN-TO-
FICO MORTGAGE PRINCIPAL PRINCIPAL VALUE
SCORES LOANS BALANCE BALANCE RATIO
-------- -------- --------------- ------------- --------
<S> <C> <C> <C> <C>
250-300......................... 0 $ 0.00 0.00% 0.00%
301-350......................... 0 0.00 0.00 0.00
351-400......................... 0 0.00 0.00 0.00
401-450......................... 0 0.00 0.00 0.00
451-500......................... 1 267,328.25 0.09 85.08
501-550......................... 1 564,580.69 0.19 73.86
551-600......................... 17 5,042,334.65 1.68 80.63
601-650......................... 51 15,268,116.82 5.09 76.66
651-700......................... 212 69,169,132.54 23.05 74.35
701-750......................... 302 99,065,923.82 33.01 73.84
751-800......................... 309 101,385,469.49 33.76 73.57
801-850......................... 14 3,650,547.10 1.22 71.78
851-900......................... 0 0.00 0.00 0.00
Not Available................... 16 5,723,621.72 1.91 79.58
--- --------------- ------ -----
Total....................... 923 $300,137,055.08 100.00% 74.22%
=== =============== ====== =====
</TABLE>
The weighted average FICO Score is expected to be 723. "FICO Scores" are
statistical credit scores obtained by many mortgage lenders in connection with
the loan application to help assess a borrower's credit-worthiness. FICO Scores
are generated by models developed by a third party and are made available to
lenders through three national credit bureaus. The models were derived by
analyzing data on consumers in order to establish patterns which are believed to
be indicative of the borrower's probability of default. The FICO Score is based
on a borrower's historical credit data, including, among other things, payment
history, delinquencies on accounts, levels of outstanding indebtedness, length
of credit history, types of credit, and bankruptcy experience. FICO Scores range
from approximately 250 to approximately 900, with higher scores indicating an
individual with a more favorable credit history compared to an individual with a
lower score. However, a FICO Score purports only to be a measurement of the
relative degree of risk a borrower represents to a lender, i.e., that a borrower
with a higher score is statistically expected to be less likely to default in
payment than a borrower with a lower score. In addition, it should be noted that
FICO Scores were developed to indicate a level of default probability over a
two-year period which does not correspond to the life of a mortgage loan.
Furthermore, FICO Scores were not developed specifically for use in connection
with mortgage loans, but for consumer loans in general. Therefore, a FICO Score
does not take into consideration the effect of mortgage loan characteristics on
the probability of repayment by the borrower. The FICO Scores set forth in the
table above were obtained at either the time of origination of the Mortgage Loan
or more recently. Neither the Seller nor Norwest Mortgage makes any
representations or warranties as to the actual performance of any Mortgage Loan
or that a particular FICO Score should be re-lied upon as a basis for an
expectation that the borrower will repay the Mortgage Loan according to its
terms. See "The Mortgage Loan Programs -- Mortgage Loan Underwriting" in the
Prospectus."
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>
Less than or
equal to
$200,000....... 55 $ 6,755,365.98 2.25%
$200,001-
$250,000....... 142 33,631,858.39 11.21
$250,001-
$300,000....... 298 81,628,844.17 27.21
$300,001-
$350,000....... 168 54,482,040.25 18.15
$350,001-
$400,000....... 103 38,875,332.05 12.95
$400,001-
$450,000....... 57 24,477,646.05 8.16
$450,001-
$500,000....... 37 17,722,247.63 5.90
$500,001-
$550,000....... 16 8,383,624.27 2.79
$550,001-
$600,000....... 14 8,180,784.16 2.73
$600,001-
$650,000....... 13 8,237,258.48 2.74
$650,001-
$700,000....... 1 694,989.32 0.23
$700,001-
$750,000....... 5 3,665,016.12 1.22
$750,001-
$800,000....... 1 789,442.43 0.26
$800,001-
$850,000....... 2 1,676,151.09 0.56
$900,001-
$950,000....... 5 4,627,400.17 1.54
$950,001-
$1,000,000..... 5 4,913,765.12 1.64
Over $ 1 Mil-
lion........... 1 1,395,289.40 0.46
--- --------------- ------
Total....... 923 $300,137,055.08 100.00%
=== =============== ======
</TABLE>
As of the Cut-Off Date, the average unpaid principal balance of the Mortgage
Loans is expected to be approximately $325,176 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 63.46% and
80.00%, respectively. See "The Trust Estates -- Mortgage Loans" in the
Prospectus.
S-71
<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>
NMI or
Affiliate...... 546 $186,145,534.98 62.02%
Other
Originators.... 377 113,991,520.10 37.98
--- --------------- ------
Total....... 923 $300,137,055.08 100.00%
=== =============== ======
</TABLE>
It is expected that as of the Cut-Off Date, one of the "Other Originators"
will have accounted for approximately 10.98% of the Cut-Off Date Aggregate
Principal Balance. No other single "Other Originator" is expected to have
accounted for more than 5.00% of the Cut-Off Date Aggregate Principal Balance.
PURPOSES OF MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
LOAN PURPOSE LOANS BALANCE BALANCE
- ------------ --------- --------------- -------------
<S> <C> <C> <C>
Purchase........ 531 $168,467,288.48 56.13%
Equity Take Out
Refinance...... 102 31,932,935.91 10.64
Rate/Term
Refinance...... 290 99,736,830.69 33.23
--- --------------- ------
Total....... 923 $300,137,055.08 100.00%
=== =============== ======
</TABLE>
In general, in the case of a Mortgage Loan made for "rate/term" refinance
purposes, substantially all of the proceeds are used to pay in full the
principal balance of a previous mortgage loan of the mortgagor with respect to a
Mortgaged Property and to pay origination and closing costs associated with such
refinancing. However, in the case of a Mortgage Loan made for "equity take out"
refinance purposes, all or a portion of the proceeds are generally retained by
the mortgagor for uses unrelated to the Mortgaged Property. The amount of such
proceeds retained by the mortgagor may be substantial. See "The Mortgage Loan
Programs --Mortgage Loan Underwriting."
MANDATORY REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
The Seller is required, with respect to Mortgage Loans that are found by the
Trust Administrator 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 1998-5 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 Considera-
tions" herein and "The Pooling and Servicing Agreement --Assignment of Mortgage
Loans to the Trustee" in the Prospectus.
OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS
Subject to certain limitations, the Seller may, in its sole discretion, re-
purchase any defaulted Mortgage Loan, or any Mortgage Loan as to which default
is reasonably foreseeable, from the Trust Estate at a price equal to the unpaid
principal balance of such Mortgage Loan, together with accrued interest at a
rate equal to the Mortgage Interest Rate through the last day of the month in
which such repurchase occurs. See "The Pooling and Servicing Agreement -- Op-
tional Purchases" in the Prospectus. A Servicer may, in its sole discretion,
allow the assumption of a defaulted Mortgage Loan serviced by such Servicer,
subject to certain conditions specified in the applicable Underlying Servicing
Agreement, or encourage the refinancing of a defaulted Mortgage Loan. See "Pre-
payment and Yield Considerations" herein and "Servicing of the Mortgage
Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mort-
gage Loans" in the Prospectus.
S-72
<PAGE>
DELINQUENCY AND FORECLOSURE EXPERIENCE
Certain information concerning recent delinquency and foreclosure experience
as reported to the Master Servicer by the applicable servicers on mortgage
loans included in various mortgage pools underlying all series of NASCOR's
mortgage pass-through certificates is set forth in the tables under "Delin-
quency and Foreclosure Experience" in the Prospectus. There can be no assurance
that the delinquency and foreclosure experience set forth in any table with re-
spect to any category of mortgage loans, including categories of mortgage loans
similar to the Mortgage Loans included in the Trust Estate, will be representa-
tive of the results that may be experienced with respect to the Mortgage Loans
included in the Trust Estate.
See "Delinquency and Foreclosure Experience" in the Prospectus for a discus-
sion of various factors affecting delinquencies and foreclosures generally.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of distributions in reduction of the principal balance of any
Subclass or Class of the Offered Certificates, the aggregate amount of distri-
butions on any Subclass or Class of the Offered Certificates and the yield to
maturity of any Subclass or Class of the Offered Certificates purchased at a
discount or premium will be directly related to the rate of payments of princi-
pal on the Mortgage Loans in the Trust Estate and the amount and timing of
mortgagor defaults resulting in Realized Losses. The rate of principal payments
on the Mortgage Loans will in turn be affected by the amortization schedules of
the Mortgage Loans, the rate of principal prepayments (including partial pre-
payments and those resulting from refinancing) thereon by mortgagors, liquida-
tions of defaulted Mortgage Loans, repurchases by the Seller of Mortgage Loans
as a result of defective documentation or breaches of representations and war-
ranties and optional purchases by the Seller of all of the Mortgage Loans in
connection with the termination of the Trust Estate. See "Description of the
Mortgage Loans-- Mandatory Repurchase or Substitution of Mortgage Loans" and
"Pooling and Servicing Agreement -- Optional Termination" herein and "The Pool-
ing and Servicing Agreement -- Assignment of Mortgage Loans to the Trustee,"
"-- Optional Purchases" and "-- Termination; Optional Purchase of Mortgage
Loans" in the Prospectus. Mortgagors are permitted to prepay the Mortgage
Loans, in whole or in part, at any time without penalty. As described under
"Description of the Certificates -- Principal (Including Prepayments)" herein,
all or a disproportionate percentage of principal prepayments on the Mortgage
Loans (including liquidations and repurchases of Mortgage Loans) will be dis-
tributed, to the extent of the Non-PO Fraction, to the holders of the Class A
Certificates (other than the Class A-PO Certificates) then entitled to distri-
butions in respect of principal during the nine years beginning on the first
Distribution Date, and, to the extent that such principal prepayments are made
in respect of a Discount Mortgage Loan, to the Class A-PO Certificates in pro-
portion to the interest of the Class A-PO Certificates in such Discount Mort-
gage Loan represented by the PO Fraction. As a result of the method of calcu-
lating the Priority Amount and the priorities for the allocation of the Class A
Non-PO Principal Distribution Amount, unless as a result of principal prepay-
ments the principal balances of the other Subclasses of Class A Certificates,
other than Class A-PO Certificates, have been reduced to zero, no principal
payments will be made on the Class A-15 Certificates during the first five
years following the issuance of the Series 1998-5 Certificates. Thereafter, the
Class A-15 Certificates will receive a share of scheduled principal payments
allocated to the Subclasses of Class A Certificates (other than the Class A-PO
Certificates). In addition, until the principal balances of the other
Subclasses of Class A Certificates (other than Class A-PO Certificates) have
been reduced to zero, the percentage of principal prepayments allocated to the
Class A-15 Certificates during the following four years will gradually in-
crease. See "Description of the Certificates -- Principal (Including Prepay-
ments) --Allocation of Amount to be Distributed." Prepayments (which, as used
herein, include all unscheduled payments of principal, including payments as
the result of liquidations, purchases and repurchases) of the Mortgage Loans in
the Trust Estate will result in distributions to Certificateholders then enti-
tled to distributions in respect of principal of amounts which would otherwise
be distributed over the remaining terms of such Mortgage Loans. Since the rate
of prepayment on the Mortgage Loans will depend on future events and a variety
of factors (as described more fully below and in the Prospectus under "Prepay-
ment and Yield Considerations"), no assurance can be given as to such rate or
the rate of principal payments on any Subclass or Class of the Offered Certifi-
cates or the aggregate amount of distributions on any Subclass or Class of the
Offered Certificates.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the
LOGO
S-73
<PAGE>
Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment would
generally be expected to increase. Conversely, if interest rates on similar
mortgage loans rise above the Mortgage Interest Rates on the Mortgage Loans,
the rate of prepayment would generally be expected to decrease. The rate of
prepayment on the Mortgage Loans may also be influenced by programs offered by
mortgage loan originators (including Norwest Mortgage), servicers (including
Norwest Mortgage) and mortgage loan brokers to encourage refinancing through
such originators, servicers and brokers, including, but not limited to, general
or targeted solicitations (which may be based on characteristics including, but
not limited to, the mortgage loan interest rate or payment history and the geo-
graphic location of the Mortgaged Property), reduced origination fees or clos-
ing costs, pre-approved applications, waiver of pre-closing interest accrued
with respect to a refinanced loan prior to the pay-off of such loan, or other
financial incentives. See "Prepayment and Yield Considerations -- Weighted Av-
erage Life of Certificates" in the Prospectus. In addition, Norwest Mortgage or
third parties may enter into agreements with borrowers providing for the bi-
weekly payment of principal and interest on the related mortgage loan, thereby
accelerating payment of the mortgage loan resulting in partial prepayments.
Other factors affecting prepayment of mortgage loans include changes in mort-
gagors' housing needs, job transfers, unemployment or, in the case of self-em-
ployed mortgagors or mortgagors relying on commission income, substantial fluc-
tuations in income, significant declines in real estate values and adverse eco-
nomic conditions either generally or in particular geographic areas, mortga-
gors' equity in the Mortgaged Properties, including the use of second or "home
equity" mortgage loans by mortgagors or the use of the properties as second or
vacation homes, and servicing decisions, such as, without limitation, the deci-
sion as to whether to foreclose on a Mortgage Loan or to modify the terms of
the related Mortgage Note and decisions as to the timing of any foreclosure. In
addition, all of the Mortgage Loans contain due-on-sale clauses which will gen-
erally be exercised upon the sale of the related Mortgaged Properties. Conse-
quently, acceleration of mortgage payments as a result of any such sale will
affect the level of prepayments on the Mortgage Loans. The extent to which de-
faulted Mortgage Loans are assumed by transferees of the related Mortgaged
Properties will also affect the rate of principal payments. The rate of prepay-
ment and, therefore, the yield to maturity of the Offered Certificates will be
affected by the extent to which (i) the Seller elects to repurchase, rather
than substitute for, Mortgage Loans which are found by the Trustee to have de-
fective documentation or with respect to which the Seller has breached a repre-
sentation or warranty, (ii) a Servicer elects to encourage the refinancing of
any defaulted Mortgage Loan rather than to permit an assumption thereof by a
mortgagor or (iii) a Servicer agrees to modify the payment terms of a Mortgage
Note rather than foreclose on the related Mortgage Loan. See "Servicing of the
Mortgage Loan --Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted
Mortgage Loans" in the Prospectus. There can be no certainty as to the rate of
prepayments on the Mortgage Loans during any period or over the life of the Se-
ries 1998-5 Certificates. See "Prepayment and Yield Considerations" in the Pro-
spectus.
THE YIELD TO MATURITY OF THE OFFERED CERTIFICATES WILL BE SENSITIVE IN VARY-
ING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAY-
MENTS, WHICH MAY BE MADE AT ANY TIME WITHOUT PENALTY) ON THE MORTGAGE LOANS.
INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE ASSOCIATED RISKS, IN-
CLUDING, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT, PARTICU-
LARLY THE CLASS A-14 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 AND, IN
THE CASE OF OFFERED CERTIFICATES PURCHASED AT A PREMIUM, PARTICULARLY THE CLASS
A-5 CERTIFICATES, WHICH HAVE NO PRINCIPAL BALANCE, THAT A FASTER THAN ANTICI-
PATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE
MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED.
INVESTORS PURCHASING OFFERED CERTIFICATES AT A PREMIUM, AND INVESTORS PURCHAS-
ING CLASS A-5 CERTIFICATES, WHICH HAVE NO PRINCIPAL BALANCE, SHOULD ALSO CON-
SIDER 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 INVEST-
ORS TO FULLY RECOVER THEIR INITIAL INVESTMENTS.
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
S-74
<PAGE>
issuance of the Offered Certificates would not be fully offset by a subsequent
like reduction (or increase) in the rate of principal payments.
The yield to maturity on the Class M Certificates will be more sensitive than
the yield to maturity on the Class A Certificates to losses due to defaults on
the Mortgage Loans (and the timing thereof), to the extent not covered by the
Class B Certificates, because the entire amount of such losses will be alloca-
ble to the Class M Certificates prior to the Class A Certificates, except as
otherwise provided herein. To the extent not covered by Periodic Advances, de-
linquencies on Mortgage Loans may also have a relatively greater effect on the
yield to investors in the Class M Certificates. Amounts otherwise distributable
to holders of the Class M Certificates will be made available to protect the
holders of the Class A Certificates against interruptions in distributions due
to certain mortgagor delinquencies. Such delinquencies, to the extent not cov-
ered by the Class B Certificates, even if subsequently cured, may affect the
timing of the receipt of distributions by the holders of Class M Certificates,
because the entire amount of those delinquencies would be borne by the Class M
Certificates prior to the Class A Certificates.
The yield to maturity on the Subclasses of Class B Certificates with higher
numerical designations will generally be more sensitive to losses than the
Subclasses with lower numerical designations, and the yield to maturity on the
Class B Certificates in the aggregate will generally be more sensitive to
losses than the other Classes of the Series 1998-5 Certificates, because the
entire amount of such losses (except for the portion of Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocated to the Class
A Certificates, Class M Certificates and Subclasses of Class B Certificates
with lower numerical designations) will be allocable to the Subclasses of Class
B Certificates in reverse numerical order, except as provided herein. To the
extent not covered by Periodic Advances, delinquencies on Mortgage Loans will
also have a relatively greater effect (i) on the yield to maturity on the
Subclasses of Class B Certificates with higher numerical designations and (ii)
on the yield to maturity on the Class B Certificates in the aggregate than on
the Class A Certificates and Class M Certificates. Amounts otherwise distribut-
able to holders of the Class B Certificates will be made available to protect
the holders of the Class A and Class M Certificates against interruptions in
distributions due to certain mortgagor delinquencies. Such delinquencies, even
if subsequently cured, may affect the timing of the receipt of distributions by
the holders of the Class B Certificates.
The actual yield to maturity experienced by an investor may also be affected
by the occurrence of interest shortfalls resulting from Unscheduled Principal
Receipts to the extent, if any, to which such interest shortfalls are not cov-
ered by Compensating Interest or the subordination of, (i) in the case of the
Class A Certificates (other than the Class A-PO Certificates), the Class M and
Class B Certificates, (ii) in the case of the Class M Certificates, the Class B
Certificates and, (iii) in the case of a Subclass of Class B Certificates, the
Subclass or Subclasses of Class B Certificates having higher numerical designa-
tions. See "Description of the Certificates -- Interest" and "Servicing of the
Mortgage Loans -- Anticipated Changes in Servicing."
The yield to maturity on the Offered Certificates and more particularly on
the Class M Certificates and the Offered Class B Certificates, especially the
Class B-2 Certificates, may be affected by the geographic concentration of the
Mortgaged Properties securing the Mortgage Loans, and the yield to maturity on
the Class A-PO Certificates may be particularly affected by the geographic con-
centration of the Mortgaged Properties securing the Discount Mortgage Loans. In
recent periods, California, the New York metropolitan area, the Washington D.C.
metropolitan area and several other regions in the United States have experi-
enced significant declines in housing prices. In addition, California and sev-
eral other regions have experienced natural disasters, including earthquakes,
floods and hurricanes, which may adversely affect property values. See "De-
scription of the Mortgage Loans." Any deterioration in housing prices in Cali-
fornia, as well as New Jersey and Colorado and the other states in which the
Mortgaged Properties are located, and any deterioration of economic conditions
in such states which adversely affects the ability of borrowers to make pay-
ments on the Mortgage Loans, may increase the likelihood of losses on the Mort-
gage Loans. Such losses, if they occur, may have an adverse effect on the yield
to maturity of the Offered Certificates and more particularly on the Class M
Certificates and the Offered Class B Certificates, especially the Class B-2
Certificates.
No representation is made as to the rate of principal payments on the Mort-
gage Loans or as to the yield to maturity of any Subclass 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
S-75
<PAGE>
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 is 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 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. Conversely, slower rates of
prepayments on the Mortgage Loans, and therefore of amounts distributable in
reduction of principal balance of the Offered Certificates, may coincide with
periods of high prevailing interest rates. During such periods, the amount of
principal distributions available to an investor for reinvestment at such high
prevailing interest rates may be relatively small.
As indicated under "Federal Income Tax Considerations" herein, the Class A-R
and Class A-LR Certificateholders' REMIC taxable income and the tax liability
thereon may exceed, and may substantially exceed, cash distributions to such
holder during certain periods. There can be no assurance as to the amount by
which such taxable income or such tax liability will exceed cash distributions
in respect of the Class A-R and Class A-LR Certificates during any such period
and no representation is made with respect thereto under any principal prepay-
ment scenario or otherwise. DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTER-
ESTS, THE AFTER-TAX RETURN OF THE CLASS A-R AND CLASS A-LR CERTIFICATES MAY BE
SIGNIFICANTLY LOWER THAN WOULD BE THE CASE IF THE CLASS A-R AND CLASS A-LR CER-
TIFICATES WERE TAXED AS DEBT INSTRUMENTS, OR MAY BE NEGATIVE.
As referred to herein, the weighted average life of a Subclass or Class of
Offered Certificates (other than the Class A-5 Certificates) refers to the av-
erage amount of time that will elapse from the date of issuance of such
Subclass or Class until each dollar in reduction of the principal balance of
such Subclass or Class is distributed to the investor. The weighted average
life of each Subclass or Class of the Offered Certificates will be influenced
by, among other things, the rate and timing of principal payments on the Mort-
gage Loans, which may be in the form of scheduled amortization, prepayments or
other recoveries of principal. The weighted average life of a Class A-5 Certif-
icate is the average amount of time that will elapse between the date of issu-
ance of the Series 1998-5 Certificates and the date on which each dollar in re-
duction of the aggregate principal balance of the Class A-1, Class A-2 and
Class A-3 Certificates (the sum of a portion of each of the principal balances
of which corresponds to the notional amount of the Class A-5 Certificates) is
distributed to the investors in the Class A-1, Class A-2 and Class A-3 Certifi-
cates.
THE WEIGHTED AVERAGE LIVES OF THE COMPANION CERTIFICATES WILL BE MORE SENSI-
TIVE THAN THE WEIGHTED AVERAGE LIVES OF THE OTHER SUBCLASSES AND CLASSES OF OF-
FERED CERTIFICATES TO THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS. THE
WEIGHTED AVERAGE LIVES OF THE CLASS A-6 AND CLASS A-10 CERTIFICATES WILL BE
LESS SENSITIVE THAN THE WEIGHTED AVERAGE LIVES OF THE COMPANION CERTIFICATES,
BUT MORE SENSITIVE THAN THE WEIGHTED AVERAGE LIVES OF THE OTHER SUBCLASSES AND
CLASSES OF OFFERED CERTIFICATES, TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS. Specifically, on each Distribution Date up
to and including the Distribution Date on which the Class A Subclass Principal
Balances of the Companion Certificates and Class A-6 and Class A-10 Certifi-
cates are reduced to zero, after the PAC Principal Amounts have been distrib-
uted for such Distribution Date any Excess Principal Payments for such Distri-
bution Date will be applied to the Companion Certificates and the Class A-6 and
Class A-10 Certificates, without regard to their Schedule I or Schedule II Re-
duction Amounts, before being distributed to the PAC Certificates in the prior-
ities set forth above under "Description of the Certificates --Principal (In-
cluding Prepayments) -- Principal Payment Characteristics of the PAC Certifi-
cates, the Class A-6 and Class A-10 Certificates and the Companion Certifi-
cates." Further, the Companion Certificates and the Class A-6 and Class A-10
Certificates will receive no distributions in reduction of principal on such
Distribution Date from the Class A Non-PO Principal Amount if the portion of
the Class A Non-PO Principal Amount available to make distributions of princi-
pal to the PAC Certificates in accordance with the priorities set forth under
"Description of the Certificates-- Principal (Including Prepayments) -- Alloca-
tion of Amount to be Distributed" is equal to or less than the PAC Principal
Amounts on such Distribution Date.
S-76
<PAGE>
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, "275% SPA" assumes prepay-
ment rates equal to 275% of SPA. SPA does not purport to be a historical de-
scription of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans.
The tables set forth below have been prepared on the basis of the character-
istics of the Mortgage Loans that are expected to be included in the Trust Es-
tate, as described under "Description of the Mortgage Loans." The tables have
been prepared assuming, among other things, the following (the "Structuring As-
sumptions"): (i) the scheduled payment in each month for each Mortgage Loan has
been based on its outstanding balance as of the first day of the month preced-
ing the month of such payment, its Mortgage Interest Rate and its remaining
term to stated maturity, so that such scheduled payments would amortize the re-
maining balance by its remaining term to maturity, (ii) scheduled monthly pay-
ments of the principal and interest on the Mortgage Loans will be timely re-
ceived on the first day of each month (with no defaults), commencing in March
1998, (iii) the Seller does not repurchase any Mortgage Loan, as described un-
der "Description of the Mortgage Loans -- Mandatory Repurchase or Substitution
of Mortgage Loans" herein, and the Seller does not exercise its option to pur-
chase the Mortgage Loans and thereby cause a termination of the Trust Estate,
(iv) principal prepayments in full on the Mortgage Loans will be received on
the last day of each month commencing in February 1998 at the respective con-
stant percentages of SPA set forth in the tables and there are no partial prin-
cipal prepayments or Prepayment Interest Shortfalls, (v) the Series 1998-5 Cer-
tificates will be issued on February 26, 1998, (vi) distributions to
Certificateholders will be made on the 25th day of each month, commencing in
March 1998 and (vii) the initial principal balance of each Subclass and Class
of Offered Certificates (other than the Class A-5 Certificates) will be as set
forth on the cover hereof.
It is highly unlikely that the Mortgage Loans will prepay at any constant
rate, that all of the Mortgage Loans will prepay at the same rate or that the
Mortgage Loans will not experience any losses. In addition, there may be dif-
ferences between the characteristics of the mortgage loans ultimately included
in the Trust Estate and the Mortgage Loans which are assumed to be included, as
described above. Any difference may have an effect upon the actual percentages
of initial Class A Subclass Principal Balance of the Subclasses of Offered
Class A Certificates (or, in the case of the Class A-5 Certificates, the ini-
tial Class A-5 Notional Amount), initial principal balance of the Class M Cer-
tificates and initial Class B Subclass Principal Balance of the Subclasses of
Offered Class B Certificates outstanding, the actual weighted average lives of
the Subclasses of Offered Class A Certificates, the Class M Certificates and
the Subclasses of Offered Class B Certificates and the date on which the Class
A Subclass Principal Balance of any Subclass of Offered Class A Certificates
(or, in the case of the Class A-5 Certificates, the Class A-5 Notional Amount),
the principal balance of the Class M Certificates and the Class B Subclass
Principal Balance of any Subclass of Offered Class B Certificates are reduced
to zero.
Based upon the foregoing assumptions, the following tables indicate the
weighted average life of each Subclass and Class of Offered Certificates, and
set forth the percentages of the initial Class A Subclass Principal Balance of
each Subclass of Offered Class A Certificates (or initial notional amount in
the case of the Class A-5 Certificates), the initial principal balance of the
Class M Certificates and the initial Class B Subclass Principal Balance of each
Subclass of Offered Class B Certificates that would be outstanding after each
of the dates shown at the constant percentages of SPA presented.
S-77
<PAGE>
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE(/1/) OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3
CERTIFICATES AT THE CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
----------------------------- ------------------------------ ------------------------------
DISTRIBUTION DATE 0% 100% 275% 350% 400% 500% 0% 100% 275% 350% 400% 500% 0% 100% 275% 350% 400% 500%
- ----------------- ---- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February
1999........ 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February
2000........ 99 96 96 96 96 96 100 98 98 98 98 98 100 100 100 100 100 100
February
2001........ 91 42 42 42 42 42 95 66 66 66 66 66 100 100 100 100 100 100
February
2002........ 81 0 0 0 0 0 89 39 39 39 39 37 100 93 93 93 93 89
February
2003........ 71 0 0 0 0 0 83 25 25 25 25 11 100 59 59 59 59 26
February
2004........ 62 0 0 0 0 0 78 13 13 13 13 0 100 31 31 31 31 0
February
2005........ 53 0 0 0 0 0 73 4 4 4 4 0 100 10 10 10 10 0
February
2006........ 43 0 0 0 0 0 67 * * * * 0 100 1 1 1 1 0
February
2007........ 32 0 0 0 0 0 61 0 0 0 0 0 100 0 0 0 0 0
February
2008........ 20 0 0 0 0 0 54 0 0 0 0 0 100 0 0 0 0 0
February
2009........ 8 0 0 0 0 0 46 0 0 0 0 0 100 0 0 0 0 0
February
2010........ 0 0 0 0 0 0 40 0 0 0 0 0 96 0 0 0 0 0
February
2011........ 0 0 0 0 0 0 36 0 0 0 0 0 86 0 0 0 0 0
February
2012........ 0 0 0 0 0 0 31 0 0 0 0 0 75 0 0 0 0 0
February
2013........ 0 0 0 0 0 0 26 0 0 0 0 0 63 0 0 0 0 0
February
2014........ 0 0 0 0 0 0 21 0 0 0 0 0 50 0 0 0 0 0
February
2015........ 0 0 0 0 0 0 15 0 0 0 0 0 36 0 0 0 0 0
February
2016........ 0 0 0 0 0 0 9 0 0 0 0 0 21 0 0 0 0 0
February
2017........ 0 0 0 0 0 0 2 0 0 0 0 0 5 0 0 0 0 0
February
2018........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2019........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2020........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2021........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2022........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2023........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2024........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2025........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2026........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2027........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2028........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage Life
(years)/(2)/.. 7.14 2.89 2.89 2.89 2.89 2.89 10.79 3.98 3.98 3.98 3.98 3.65 15.86 5.49 5.49 5.49 5.49 4.69
</TABLE>
<TABLE>
<CAPTION>
CLASS A-4 CLASS A-5 CLASS A-6
CERTIFICATES AT THE CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
---------------------------------- ------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 100% 275% 350% 400% 500% 0% 100% 275% 350% 400% 500% 0% 100% 128% 275% 350% 400% 500%
- ----------------- ----- ----- ----- ----- ----- ---- ----- ---- ---- ---- ---- ---- ----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February
1999........ 100 100 100 100 100 100 100 100 100 100 100 100 97 94 93 93 93 93 91
February
2000........ 100 100 100 100 100 100 100 98 98 98 98 98 95 84 80 73 68 62 51
February
2001........ 100 100 100 100 100 100 95 72 72 72 72 72 94 83 76 56 45 36 18
February
2002........ 100 100 100 100 100 100 91 49 49 49 49 46 93 82 73 43 28 18 0
February
2003........ 100 100 100 100 100 100 86 31 31 31 31 14 92 81 70 33 18 7 0
February
2004........ 100 100 100 100 100 91 82 16 16 16 16 0 90 79 67 28 14 4 0
February
2005........ 100 100 100 100 100 45 78 5 5 5 5 0 89 77 64 25 12 4 0
February
2006........ 100 100 100 100 100 44 73 * * * * 0 88 71 57 21 11 4 0
February
2007........ 100 98 98 98 98 44 68 0 0 0 0 0 86 63 49 16 9 4 0
February
2008........ 100 98 98 98 98 44 62 0 0 0 0 0 85 55 42 14 9 3 0
February
2009........ 100 86 86 86 86 37 56 0 0 0 0 0 83 49 36 13 6 1 0
February
2010........ 100 63 63 63 63 25 50 0 0 0 0 0 82 45 32 10 5 1 0
February
2011........ 100 44 44 44 44 17 45 0 0 0 0 0 80 39 27 7 4 1 0
February
2012........ 100 29 29 29 29 12 39 0 0 0 0 0 78 34 22 4 3 1 0
February
2013........ 100 19 19 19 19 8 33 0 0 0 0 0 75 28 17 2 3 1 0
February
2014........ 100 11 11 11 11 5 26 0 0 0 0 0 73 23 10 * 2 1 0
February
2015........ 100 5 5 5 5 4 19 0 0 0 0 0 71 15 3 0 2 1 0
February
2016........ 100 1 1 1 1 2 11 0 0 0 0 0 68 7 0 0 2 * 0
February
2017........ 100 0 0 0 0 2 3 0 0 0 0 0 65 0 0 0 1 * 0
February
2018........ 54 0 0 0 0 1 0 0 0 0 0 0 62 0 0 0 1 0 0
February
2019........ 0 0 0 0 0 1 0 0 0 0 0 0 57 0 0 0 * 0 0
February
2020........ 0 0 0 0 0 * 0 0 0 0 0 0 47 0 0 0 0 0 0
February
2021........ 0 0 0 0 0 * 0 0 0 0 0 0 35 0 0 0 0 0 0
February
2022........ 0 0 0 0 0 * 0 0 0 0 0 0 22 0 0 0 0 0 0
February
2023........ 0 0 0 0 0 * 0 0 0 0 0 0 6 0 0 0 0 0 0
February
2024........ 0 0 0 0 0 * 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2025........ 0 0 0 0 0 * 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2026........ 0 0 0 0 0 * 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2027........ 0 0 0 0 0 * 0 0 0 0 0 0 0 0 0 0 0 0 0
February
2028........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage Life
(years)/(2)/.. 20.10 13.08 13.08 13.08 13.08 9.38 11.69 4.25 4.25 4.25 4.25 3.83 18.66 10.63 8.71 4.92 3.91 2.91 2.14
</TABLE>
- -------
(1) With respect to the Class A-5 Certificates, percentages are expressed as a
percentage of the initial Class A-5 Notional Amount.
(2) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net reduction of principal balance or notional
amount, as the case may be, by the number of years from the date of the is-
suance of such Certificate to the related Distribution Date, (ii) adding
the results and (iii) dividing the sum by the aggregate net reduction of
principal balance or notional amount, as the case may be, referred to in
clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
principal balance or notional amount.
S-78
<PAGE>
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-7 CLASS A-8 CLASS A-9
CERTIFICATES AT THE CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
----------------------------------- ------------------------------------- ---------------------------------------
DISTRIBUTION DATE 0% 100% 155% 275% 350% 400% 500% 0% 100% 275% 288% 350% 400% 500% 0% 100% 275% 350% 400% 420% 500%
- ----------------- ---- ----- ---- ---- ---- ---- ---- ----- ----- ----- ---- ---- ---- ---- ----- ----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial..... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February
1999....... 107 107 96 44 11 0 0 107 107 107 107 107 78 0 107 107 107 107 107 107 107
February
2000....... 115 115 77 0 0 0 0 115 115 115 63 0 0 0 115 115 115 115 115 115 115
February
2001....... 123 123 51 0 0 0 0 123 123 123 33 0 0 0 123 123 123 123 123 123 123
February
2002....... 132 132 33 0 0 0 0 132 132 132 18 0 0 0 132 132 132 132 132 132 0
February
2003....... 142 142 21 0 0 0 0 142 142 142 16 0 0 0 142 142 142 142 142 142 0
February
2004....... 152 152 18 0 0 0 0 152 152 152 17 0 0 0 152 152 152 152 152 107 0
February
2005....... 163 163 19 0 0 0 0 163 163 163 18 0 0 0 163 163 163 163 163 107 0
February
2006....... 175 175 21 0 0 0 0 175 175 175 19 0 0 0 175 175 175 175 175 107 0
February
2007....... 187 187 22 0 0 0 0 187 187 187 21 0 0 0 187 187 187 187 187 107 0
February
2008....... 201 201 24 0 0 0 0 201 201 197 22 0 0 0 201 201 201 201 201 107 0
February
2009....... 215 215 25 0 0 0 0 215 215 196 24 0 0 0 215 215 215 215 215 0 0
February
2010....... 231 231 27 0 0 0 0 231 231 207 26 0 0 0 231 231 231 231 231 0 0
February
2011....... 248 248 29 0 0 0 0 248 248 222 27 0 0 0 248 248 248 248 248 0 0
February
2012....... 266 266 31 0 0 0 0 266 266 238 29 0 0 0 266 266 266 266 266 0 0
February
2013....... 285 285 34 0 0 0 0 285 285 255 32 0 0 0 285 285 285 285 285 0 0
February
2014....... 305 305 36 0 0 0 0 305 305 273 34 0 0 0 305 305 305 305 305 0 0
February
2015....... 328 328 39 0 0 0 0 328 328 227 36 0 0 0 328 328 328 328 328 0 0
February
2016....... 351 351 42 0 0 0 0 351 351 187 39 0 0 0 351 351 351 351 351 0 0
February
2017....... 377 369 45 0 0 0 0 377 377 145 42 0 0 0 377 377 377 377 377 0 0
February
2018....... 404 299 48 0 0 0 0 404 404 107 45 0 0 0 404 404 404 404 374 0 0
February
2019....... 433 231 30 0 0 0 0 433 433 77 48 0 0 0 433 433 433 433 264 0 0
February
2020....... 464 166 0 0 0 0 0 464 464 52 38 0 0 0 464 464 464 434 184 0 0
February
2021....... 498 103 0 0 0 0 0 498 498 31 20 0 0 0 498 498 498 310 126 0 0
February
2022....... 534 42 0 0 0 0 0 534 534 14 6 0 0 0 534 534 534 216 85 0 0
February
2023....... 573 0 0 0 0 0 0 573 521 * 0 0 0 0 573 573 573 147 55 0 0
February
2024....... 481 0 0 0 0 0 0 614 394 0 0 0 0 0 614 614 399 95 35 0 0
February
2025....... 301 0 0 0 0 0 0 658 273 0 0 0 0 0 658 658 255 58 20 0 0
February
2026....... 107 0 0 0 0 0 0 706 158 0 0 0 0 0 706 706 144 31 10 0 0
February
2027....... 0 0 0 0 0 0 0 462 48 0 0 0 0 0 757 757 57 12 4 0 0
February
2028....... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage Life
(years).... 27.05 21.76 9.69 0.92 0.71 0.63 0.52 29.20 27.03 19.39 9.36 1.23 1.08 0.90 29.90 29.70 27.01 24.38 22.45 9.26 3.91
<CAPTION>
CLASS A-10 CLASS A-11 CLASS A-12
CERTIFICATES AT THE CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
----------------------------------- ------------------------------------ --------------------------------------
DISTRIBUTION DATE 0% 100% 120% 275% 350% 400% 500% 0% 100% 155% 275% 350% 400% 500% 0% 100% 275% 288% 350% 400% 500%
- ----------------- ----- ---- ---- ---- ---- ---- ---- ----- ----- ---- ---- ---- ---- ---- ----- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial..... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February
1999....... 97 93 93 93 93 93 93 107 107 96 56 31 15 0 107 107 107 107 107 107 43
February
2000....... 94 83 80 75 70 64 53 115 115 77 0 0 0 0 115 115 115 66 0 0 0
February
2001....... 93 81 77 57 46 37 19 123 123 52 0 0 0 0 123 123 123 39 0 0 0
February
2002....... 92 80 74 44 29 18 0 132 132 33 0 0 0 0 132 132 132 25 0 0 0
February
2003....... 90 79 71 34 18 7 0 141 141 21 0 0 0 0 141 141 141 23 0 0 0
February
2004....... 89 77 68 29 14 4 0 151 151 17 0 0 0 0 151 151 151 25 0 0 0
February
2005....... 87 75 65 26 13 4 0 162 162 18 0 0 0 0 162 162 162 26 0 0 0
February
2006....... 86 68 58 21 11 4 0 173 173 20 0 0 0 0 173 173 173 28 0 0 0
February
2007....... 84 60 49 17 9 4 0 186 186 21 0 0 0 0 186 186 186 30 0 0 0
February
2008....... 82 52 41 14 9 3 0 199 199 22 0 0 0 0 199 199 195 33 0 0 0
February
2009....... 80 45 35 13 6 1 0 213 213 24 0 0 0 0 213 213 195 35 0 0 0
February
2010....... 78 40 30 10 5 1 0 228 228 26 0 0 0 0 228 228 205 37 0 0 0
February
2011....... 75 34 25 7 4 1 0 245 245 28 0 0 0 0 245 245 220 40 0 0 0
February
2012....... 73 28 20 4 4 1 0 262 262 30 0 0 0 0 262 262 236 43 0 0 0
February
2013....... 70 22 14 2 3 1 0 281 281 32 0 0 0 0 281 281 253 46 0 0 0
February
2014....... 67 16 6 0 3 1 0 301 301 34 0 0 0 0 301 301 263 49 0 0 0
February
2015....... 64 7 0 0 2 1 0 322 322 36 0 0 0 0 322 322 219 53 0 0 0
February
2016....... 61 0 0 0 2 1 0 345 334 39 0 0 0 0 345 345 182 56 0 0 0
February
2017....... 58 0 0 0 1 * 0 370 279 42 0 0 0 0 370 370 143 60 0 0 0
February
2018....... 54 0 0 0 1 * 0 396 225 45 0 0 0 0 396 396 108 65 0 0 0
February
2019....... 48 0 0 0 1 0 0 424 174 20 0 0 0 0 424 424 80 64 0 0 0
February
2020....... 37 0 0 0 * 0 0 454 124 0 0 0 0 0 454 454 58 44 0 0 0
February
2021....... 24 0 0 0 * 0 0 487 76 0 0 0 0 0 487 487 39 29 0 0 0
February
2022....... 10 0 0 0 0 0 0 521 29 0 0 0 0 0 521 521 24 16 0 0 0
February
2023....... 0 0 0 0 0 0 0 491 0 0 0 0 0 0 558 499 11 5 0 0 0
February
2024....... 0 0 0 0 0 0 0 364 0 0 0 0 0 0 598 381 1 0 0 0 0
February
2025....... 0 0 0 0 0 0 0 226 0 0 0 0 0 0 641 269 0 0 0 0 0
February
2026....... 0 0 0 0 0 0 0 78 0 0 0 0 0 0 687 161 0 0 0 0 0
February
2027....... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 448 59 0 0 0 0 0
February
2028....... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage Life
(years).... 17.46 9.95 8.60 4.98 4.01 2.99 2.18 26.68 21.16 9.24 1.05 0.82 0.73 0.60 29.21 27.06 19.55 11.24 1.39 1.23 1.03
</TABLE>
- -------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net reduction of principal balance by the number
of years from the date of the issuance of such Certificate to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the aggregate net reduction of principal balance referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
principal balance.
S-79
<PAGE>
PERCENTAGE OF INITIAL SUBCLASS OR CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-13 CLASS A-14 CLASS A-15
CERTIFICATES AT THE CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
---------------------------------------- ------------------------------- -------------------------------
DISTRIBUTION DATE 0% 100% 275% 350% 400% 420% 500% 0% 100% 275% 350% 400% 500% 0% 100% 275% 350% 400% 500%
- ----------------- ----- ----- ----- ----- ----- ----- ---- ----- ----- ---- ---- ---- ---- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February
1999........ 107 107 107 107 107 107 107 98 95 90 87 86 82 100 100 100 100 100 100
February
2000........ 115 115 115 115 115 115 115 97 87 69 61 56 46 100 100 100 100 100 100
February
2001........ 123 123 123 123 123 123 123 97 87 53 40 32 17 100 100 100 100 100 100
February
2002........ 132 132 132 132 132 132 0 97 87 42 26 16 0 100 100 100 100 100 100
February
2003........ 141 141 141 141 141 141 0 97 87 34 16 6 0 100 100 100 100 100 100
February
2004........ 151 151 151 151 151 151 0 97 87 30 13 3 0 97 94 88 86 84 80
February
2005........ 162 162 162 162 162 162 0 97 86 27 11 3 0 95 88 75 69 65 57
February
2006........ 173 173 173 173 173 171 0 97 81 24 10 3 0 92 79 57 48 42 31
February
2007........ 186 186 186 186 186 171 0 97 76 20 8 3 0 89 69 37 25 17 15
February
2008........ 199 199 199 199 199 171 0 97 70 18 8 3 0 85 57 16 2 0 4
February
2009........ 213 213 213 213 213 0 0 97 66 17 6 1 0 82 46 0 0 0 0
February
2010........ 228 228 228 228 228 0 0 97 63 14 5 1 0 78 36 0 0 0 0
February
2011........ 245 245 245 245 245 0 0 97 60 12 4 1 0 73 27 0 0 0 0
February
2012........ 262 262 262 262 262 0 0 97 57 10 3 1 0 69 17 0 0 0 0
February
2013........ 281 281 281 281 281 0 0 97 54 9 3 1 0 64 9 0 0 0 0
February
2014........ 301 301 301 301 301 0 0 97 51 7 3 1 0 59 1 0 0 0 0
February
2015........ 322 322 322 322 322 0 0 97 47 6 2 1 0 53 0 0 0 0 0
February
2016........ 345 345 345 345 345 0 0 97 42 5 2 1 0 47 0 0 0 0 0
February
2017........ 370 370 370 370 370 0 0 97 37 4 1 1 0 40 0 0 0 0 0
February
2018........ 396 396 396 396 396 0 0 97 33 3 1 1 0 33 0 0 0 0 0
February
2019........ 424 424 424 424 423 0 0 95 29 3 1 * 0 25 0 0 0 0 0
February
2020........ 454 454 454 454 295 0 0 89 25 2 1 * 0 17 0 0 0 0 0
February
2021........ 487 487 487 487 203 0 0 82 21 1 * * 0 8 0 0 0 0 0
February
2022........ 521 521 521 347 136 0 0 74 18 1 * * 0 0 0 0 0 0 0
February
2023........ 558 558 558 235 89 0 0 63 14 1 * * 0 0 0 0 0 0 0
February
2024........ 598 598 598 153 55 0 0 52 11 1 * * 0 0 0 0 0 0 0
February
2025........ 641 641 409 93 32 0 0 40 8 * * * 0 0 0 0 0 0 0
February
2026........ 687 687 230 49 16 0 0 27 5 * * * 0 0 0 0 0 0 0
February
2027........ 735 735 92 19 6 0 0 13 2 * * * 0 0 0 0 0 0 0
February
2028........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage Life
(years)/(1)/ 29.93 29.78 27.75 25.36 23.48 10.59 3.91 25.23 15.40 5.56 3.68 2.77 2.00 16.58 10.76 8.26 7.81 7.59 7.38
</TABLE>
<TABLE>
<CAPTION>
CLASS A-R CLASS A-LR CLASS M, CLASS B-1 AND CLASS B-2
CERTIFICATE AT THE CERTIFICATE AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF FOLLOWING PERCENTAGES OF
SPA SPA SPA
----------------------------------- ----------------------------------- --------------------------------
DISTRIBUTION DATE 0% 100% 275% 350% 400% 500% 0% 100% 275% 350% 400% 500% 0% 100% 275% 350% 400% 500%
- ----------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February
1999........ 100 100 100 100 100 100 100 100 100 100 100 100 99 99 99 99 99 99
February
2000........ 100 100 100 100 100 100 100 100 100 100 100 100 98 98 98 98 98 98
February
2001........ 100 100 100 100 100 100 100 100 100 100 100 100 97 97 97 97 97 97
February
2002........ 100 100 100 100 100 100 100 100 100 100 100 100 96 96 96 96 96 96
February
2003........ 100 100 100 100 100 100 100 100 100 100 100 100 95 95 95 95 95 95
February
2004........ 100 100 100 100 100 100 100 100 100 100 100 100 93 92 88 87 86 84
February
2005........ 100 100 100 100 100 100 100 100 100 100 100 100 92 88 81 78 76 72
February
2006........ 100 100 100 100 100 100 100 100 100 100 100 100 90 83 71 67 63 57
February
2007........ 100 100 100 100 100 100 100 100 100 100 100 100 89 78 61 54 50 42
February
2008........ 100 100 100 100 100 100 100 100 100 100 100 100 87 72 50 42 37 29
February
2009........ 100 100 100 100 100 100 100 100 100 100 100 100 85 66 41 32 28 20
February
2010........ 100 100 100 100 100 100 100 100 100 100 100 100 83 60 33 25 20 13
February
2011........ 100 100 100 100 100 100 100 100 100 100 100 100 80 55 27 19 15 9
February
2012........ 100 100 100 100 100 100 100 100 100 100 100 100 78 50 22 15 11 6
February
2013........ 100 100 100 100 100 100 100 100 100 100 100 100 75 46 17 11 8 4
February
2014........ 100 100 100 100 100 100 100 100 100 100 100 100 72 41 14 8 6 3
February
2015........ 100 100 100 100 100 100 100 100 100 100 100 100 69 37 11 6 4 2
February
2016........ 100 100 100 100 100 100 100 100 100 100 100 100 66 33 9 5 3 1
February
2017........ 100 100 100 100 100 100 100 100 100 100 100 100 62 29 7 4 2 1
February
2018........ 100 100 100 100 100 100 100 100 100 100 100 100 58 26 6 3 2 1
February
2019........ 100 100 100 100 100 100 100 100 100 100 100 100 54 23 4 2 1 *
February
2020........ 100 100 100 100 100 100 100 100 100 100 100 100 50 20 3 1 1 *
February
2021........ 100 100 100 100 100 100 100 100 100 100 100 100 45 17 2 1 1 *
February
2022........ 100 100 100 100 100 100 100 100 100 100 100 100 40 14 2 1 * *
February
2023........ 100 100 100 100 100 100 100 100 100 100 100 100 34 11 1 * * *
February
2024........ 100 100 100 100 100 100 100 100 100 100 100 100 28 9 1 * * *
February
2025........ 100 100 100 100 100 100 100 100 100 100 100 100 22 6 1 * * *
February
2026........ 100 100 100 100 100 100 100 100 100 100 100 100 15 4 * * * *
February
2027........ 100 100 100 100 100 100 100 100 100 100 100 100 7 2 * * * *
February
2028........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage Life
(years)(/1/) 30.00 30.00 30.00 29.99 29.91 29.67 30.00 30.00 30.00 30.00 29.96 29.83 20.12 14.98 10.90 9.99 9.52 8.81
</TABLE>
- -------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net reduction of principal balance by the number
of years from the date of the issuance of such Certificate to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the aggregate net reduction of principal balance referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
principal balance.
S-80
<PAGE>
Interest accrued on the Offered Certificates will be reduced by the amount of
any interest portions of Realized Losses allocated to such Certificates as de-
scribed under "Description of the Certificates -- Interest" herein. The yield
on the Offered Certificates will be less than the yield otherwise produced by
their respective Pass-Through Rates and the prices at which such Certificates
are purchased because the interest which accrues on the Mortgage Loans during
each month will not be passed through to Certificateholders until the 25th day
of the month following the end of such month (or if such 25th day is not a
business day, the following business day).
The Seller intends to file certain additional yield tables and other computa-
tional materials with respect to one or more Subclasses of Offered Certificates
with the Securities and Exchange Commission in a Report on Form 8-K. See "In-
corporation Of Certain Document By Reference" in the Prospectus. Such tables
and materials will have been prepared by the Underwriters at the request of
certain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such investors. Such tables and assumptions may be
based on assumptions that differ from the Structuring Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for in-
vestors other than those specifically requesting them.
SENSITIVITY OF THE CLASS A-5 CERTIFICATES
THE YIELD TO AN INVESTOR IN THE CLASS A-5 CERTIFICATES WILL BE HIGHLY SENSI-
TIVE TO BOTH THE TIMING OF RECEIPT OF PREPAYMENTS AND THE OVERALL RATE OF PRIN-
CIPAL PREPAYMENT ON THE MORTGAGE LOANS, WHICH RATE MAY FLUCTUATE SIGNIFICANTLY
FROM TIME TO TIME. AN INVESTOR SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, IN-
CLUDING THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAY-
MENTS) COULD RESULT IN THE FAILURE OF AN INVESTOR IN THE CLASS A-5 CERTIFICATES
TO FULLY RECOVER ITS INITIAL INVESTMENT.
The following table indicates the sensitivity to various rates of prepayment
on the Mortgage Loans of the pre-tax yields to maturity on a corporate bond
equivalent ("CBE") basis of the Class A-5 Certificates. Such calculations are
based on distributions made in accordance with "Description of the Certifi-
cates" above, on the Structuring Assumptions and on the further assumption that
the Class A-5 Certificates will be purchased on February 26, 1998 at a purchase
price equal to approximately 19.50% of the initial Class A-5 Notional Amount
plus accrued interest thereon from February 1, 1998 to (but not including) Feb-
ruary 26, 1998.
SENSITIVITY OF THE PRE-TAX YIELD TO MATURITY OF THE CLASS A-5 CERTIFICATES TO
PREPAYMENTS
<TABLE>
<CAPTION>
PERCENTAGES OF SPA
------------------------------------------------
0% 100% 275% 350% 400% 500% 753%
----- ----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield to Maturity
(CBE)...................... 33.14% 16.87% 16.87% 16.87% 16.87% 13.50% (0.02)%
</TABLE>
The pre-tax yields to maturity set forth in the preceding table were calcu-
lated by (i) determining the monthly discount rates which, when applied to the
assumed stream of cash flows to be paid on the Class A-5 Certificates would
cause the discounted present value of such assumed stream of cash flows to
equal an assumed purchase price for the Class A-5 Certificates equal to approx-
imately 19.50% of the initial Class A-5 Notional Amount plus accrued interest
from February 1, 1998 to (but not including) February 26, 1998 and (ii) con-
verting such monthly rates to corporate bond equivalent rates. Such calculation
does not take into account the interest rates at which an investor may be able
to reinvest funds received by such investor as distributions on the Class A-5
Certificates and consequently does not purport to reflect the return on any in-
vestment in the Class A-5 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 Mortgage Loans will prepay at a constant
rate until maturity, that all of the Mortgage Loans will prepay at the same
rate or that the Mortgage Loans will not experience any losses. The Mortgage
Loans initially included in the Trust Estate may differ from those currently
expected to be included in the Trust Estate, and thereafter may be changed as a
result of permitted substitutions. As a result of these factors, the pre-tax
yields to maturity on the Class A-5 Certificates are likely to differ from
those shown in such table, even if all of the Mortgage Loans prepay at the in-
dicated percentages of SPA.
S-81
<PAGE>
SENSITIVITY OF THE CLASS A-14 CERTIFICATES
THE YIELD TO AN INVESTOR IN THE CLASS A-14 CERTIFICATES WILL BE HIGHLY SENSI-
TIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON
THE 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
MORTGAGE LOANS WILL HAVE A NEGATIVE EFFECT ON THE YIELD TO AN INVESTOR IN THE
CLASS A-14 CERTIFICATES.
The following table indicate the sensitivity to various rates of prepayments
on the Mortgage Loans of the pre-tax yields to maturity on a CBE basis of the
Class A-14 Certificates. Such calculations are based on distributions made in
accordance with "Description of the Certificates" above, on the Structuring As-
sumptions and on the further assumption that the Class A-14 Certificates will
be purchased on February 26, 1998 at an aggregate purchase price of 70.00% of
the initial Class A Subclass Principal Balance of the Class A-14 Certificates.
SENSITIVITY OF THE PRE-TAX YIELD TO MATURITY OF THE CLASS A-14 CERTIFICATES TO
PREPAYMENTS
<TABLE>
<CAPTION>
PERCENTAGES OF SPA
-------------------------------------
0% 100% 275% 350% 400% 500%
---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield to Maturity (CBE).......... 1.43% 2.47% 7.92% 11.93% 15.06% 19.55%
</TABLE>
The pre-tax yields to maturity sat forth in the preceding table were calcu-
lated by (i) determining the monthly discount rates which, when applied to the
assumed stream of cash flows to be paid on the Class A-14 Certificates, would
cause the discounted present value of such assumed stream of cash flows to
equal an assumed aggregate purchase price of 70.00% of their initial Class A
Subclass Principal Balance and (ii) converting such monthly rates to corporate
bond equivalent rates. Such calculation does not take into account the interest
rates at which investors may be able to reinvest funds received by them as dis-
tributions on the Class A-14 Certificates and consequently does not purport to
reflect the return on any investment in the Class A-14 Certificates when such
reinvestment rates are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding ta-
ble, it is highly unlikely that the Mortgage Loans will prepay at a constant
rate until maturity, that all of the Mortgage Loans will prepay at the same
rate or that the Mortgage Loans will not experience any losses. The Mortgage
Loans ultimately included in the Trust Estate may differ from those currently
expected to be included in the Trust Estate, and thereafter may be changed as a
result of permitted substitutions. As a result of these factors, the pre-tax
yields to maturity on the Class A-14 Certificates is likely to differ from
those shown in such table, even if all of the Mortgage Loans prepay at the in-
dicated percentages of SPA.
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS B-1 AND CLASS B-2 CERTIFICATES
Defaults on mortgage loans may be measured relative to a default standard or
model. The model used in this Prospectus Supplement, the standard default as-
sumption ("SDA"), represents an assumed rate of default each month relative to
the then-outstanding performing principal balance of a pool of new mortgage
loans. A default assumption of 100% SDA assumes constant default rates of 0.02%
per annum of the then-outstanding principal balance of such mortgage loans in
the first month of the life of the mortgage loans and an additional 0.02% per
annum in each month thereafter until the 30th month. Beginning in the 30th
month and in each month thereafter through the 60th month of the life of the
mortgage loans, 100% SDA assumes a constant default rate of 0.60% per annum
each month. Beginning in the 61st month and in each month thereafter through
the 120th month of the life of the mortgage loans, 100% SDA assumes that the
constant default rate declines each month by 0.0095% per annum, and that the
constant default rate remains at 0.03% per annum in each month after the 120th
month. For the purposes of the following tables, it is assumed that there is no
delay between the default and liquidation of the mortgage loans. As used in the
following tables, "0% SDA" assumes default rates equal to 0% of SDA (no de-
faults). Correspondingly, "50% SDA" assumes default rates equal to 50% of SDA,
and so forth. SDA does not purport to be a historical description of default
experience or a prediction of the anticipated rate of default of any pool of
mortgage loans, including the Mortgage Loans.
S-82
<PAGE>
The following tables indicate the sensitivity of the pre-tax yield to matu-
rity on the Class B-1 and Class B-2 Certificates to various rates of prepayment
and varying levels of aggregate Realized Losses. The tables set forth below are
based upon, among other things, the Structuring Assumptions (other than the as-
sumption that no defaults shall have occurred with respect to the Mortgage
Loans) and the additional assumptions that liquidations (other than those sce-
narios indicated as 0% of SDA (no defaults)) occur monthly on the last day of
the preceding month (other than on a Due Date) at the percentages of SDA set
forth in the table.
In addition, it was assumed that (i) Realized Losses on liquidations of 25%
or 50% of the outstanding principal balance of such liquidated Mortgage Loans,
as indicated in the tables below (referred to as a "Loss Severity Percentage")
will occur at the time of liquidation, (ii) there are no Special Hazard Losses,
Fraud Losses or Bankruptcy Losses and (iii) the Class B-1 and Class B-2 Certif-
icates are purchased on February 26, 1998 at assumed purchase prices equal to
approximately 99.625% and approximately 97.875%, respectively, of the Class B
Subclass Principal Balances thereof plus accrued interest from February 1, 1998
to (but not including) February 26, 1998.
It is unlikely that the Mortgage Loans will have the precise characteristics
referred to herein or that they will prepay or liquidate at any of the rates
specified. The assumed percentages of SDA and SPA shown in the table below are
for illustrative purposes only and the Seller makes no representations with re-
spect to the reasonableness of such assumptions or that the actual rates of
prepayment and liquidation and loss severity experience of the Mortgage Loans
will in any way correspond to any of the assumptions made herein. Consequently,
there can be no assurance that the pre-tax yield to maturity of the Class B-1
and Class B-2 Certificates will correspond to any of the pre-tax yields to ma-
turity shown below.
The pre-tax yields to maturity set forth in the following tables were calcu-
lated by determining the monthly discount rates which, when applied to the as-
sumed streams of cash flows to be paid on the Class B-1 and Class B-2 Certifi-
cates, would cause the discounted present value of such assumed streams of cash
flows to equal the aggregate assumed purchase prices of the Class B-1 and Class
B-2 Certificates set forth above. In all cases, monthly rates were then con-
verted to the semi-annual corporate bond equivalent yields shown below. Im-
plicit in the use of any discounted present value or internal rate of return
calculations such as these is the assumption that intermediate cash flows are
reinvested at the discount rate or internal rate of return. Thus, these calcu-
lations do not take into account the different interest rates at which invest-
ors may be able to reinvest funds received by them as distributions on the
Class B-1 and Class B-2 Certificates. Consequently, these yields do not purport
to reflect the total return on any investment in the Class B-1 and Class B-2
Certificates when such reinvestment rates are considered.
S-83
<PAGE>
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS B-1 CERTIFICATES TO
PREPAYMENTS AND REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGES OF SPA
PERCENTAGE SEVERITY ----------------------------------------------------
OF SDA PERCENTAGE 0% 100% 275% 350% 400% 500%
- --------------- ---------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
0%........... 0% 6.84% 6.84% 6.84% 6.83% 6.83% 6.83%
50%........... 25% 6.84% 6.84% 6.84% 6.83% 6.83% 6.83%
50%........... 50% 6.84% 6.84% 6.84% 6.83% 6.83% 6.83%
75%........... 25% 6.84% 6.84% 6.84% 6.83% 6.83% 6.83%
75%........... 50% 6.36% 6.84% 6.84% 6.83% 6.83% 6.83%
100%........... 25% 6.84% 6.84% 6.84% 6.83% 6.83% 6.83%
100%........... 50% 4.58% 5.84% 6.83% 6.83% 6.83% 6.83%
150%........... 25% 6.42% 6.84% 6.84% 6.83% 6.83% 6.83%
150%........... 50% (3.75)% 2.25% 4.77% 5.93% 6.59% 6.83%
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS B-2
CERTIFICATES TO PREPAYMENTS AND REALIZED LOSSES
<CAPTION>
LOSS PERCENTAGES OF SPA
PERCENTAGE SEVERITY ----------------------------------------------------
OF SDA PERCENTAGE 0% 100% 275% 350% 400% 500%
- --------------- ---------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
0%........... 0% 7.01% 7.04% 7.08% 7.10% 7.10% 7.12%
50%........... 25% 6.99% 7.05% 7.08% 7.10% 7.10% 7.12%
50%........... 50% 5.12% 7.01% 7.09% 7.10% 7.10% 7.12%
75%........... 25% 6.99% 7.03% 7.09% 7.10% 7.10% 7.12%
75%........... 50% (23.00)% 0.20% 6.83% 7.10% 7.11% 7.12%
100%........... 25% 5.25% 7.01% 7.08% 7.10% 7.10% 7.12%
100%........... 50% (37.05)% (31.02)% 0.50% 3.51% 5.54% 7.12%
150%........... 25% (22.49)% 0.69% 6.97% 7.10% 7.11% 7.12%
150%........... 50% (57.49)% (53.36)% (43.84)% (37.97)% (32.28)% (3.91)%
The following table sets forth the amount of Realized Losses that would be
incurred with respect to the Mortgage Loans, expressed as a percentage of the
aggregate outstanding principal balance of the Mortgage Loans as of the Cut-Off
Date.
AGGREGATE REALIZED LOSSES
<CAPTION>
LOSS PERCENTAGES OF SPA
PERCENTAGE SEVERITY ----------------------------------------------------
OF SDA PERCENTAGE 0% 100% 275% 350% 400% 500%
- --------------- ---------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
50%........... 25% 0.49% 0.39% 0.27% 0.24% 0.22% 0.19%
50%........... 50% 0.98% 0.77% 0.55% 0.48% 0.44% 0.37%
75%........... 25% 0.73% 0.58% 0.41% 0.36% 0.33% 0.28%
75%........... 50% 1.47% 1.16% 0.82% 0.71% 0.65% 0.55%
100%........... 25% 0.97% 0.77% 0.54% 0.47% 0.44% 0.37%
100%........... 50% 1.95% 1.54% 1.09% 0.95% 0.87% 0.74%
150%........... 25% 1.45% 1.14% 0.81% 0.71% 0.65% 0.55%
150%........... 50% 2.89% 2.29% 1.62% 1.41% 1.30% 1.10%
</TABLE>
Notwithstanding the assumed percentages of SDA, Loss Severity Percentages and
prepayment rates reflected in the preceding tables, it is highly unlikely that
the Mortgage Loans will be prepaid or that the Realized Losses will be incurred
according to one particular pattern. For this reason, and because the timing of
cash flows is critical to determining yields, the pre-tax yields to maturity on
the Class B-1 and Class B-2 Certificates are likely to differ from those shown
in the tables. There can be no assurance that the Mortgage Loans will prepay at
any particular rate or that Realized Losses will be incurred at any particular
level or that the yields on the Class B-1 and Class B-2 Certificates will con-
form to any of the yields described herein.
Investors are urged to make their investment decisions based on their deter-
minations as to anticipated rates of prepayment and Realized Losses under a va-
riety of scenarios. Investors in Class B-1 and Class B-2 Certificates should
fully consider the risk that Realized Losses on the Mortgage Loans could result
in the failure of such investors to fully recover their investments.
S-84
<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Series 1998-5 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
1998-5 Certificates (the "Pooling and Servicing Agreement") among the Seller,
the Master Servicer, the Trust Administrator and the Trustee. Reference is made
to the Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Series 1998-5 Certif-
icates. See "Description of the Certificates," "Servicing of the Mortgage
Loans" and "The Pooling and Servicing Agreement" in the Prospectus.
The Trust Estate created pursuant to the Pooling and Servicing Agreement will
consist of (i) the Mortgage Loans as described under "Description of the Mort-
gage Loans," (ii) such assets as from time to time are identified as deposited
in any account held for the benefit of the Certificateholders, (iii) any Mort-
gaged Properties acquired on behalf of the Certificateholders by foreclosure or
by deed in lieu of foreclosure after the date of original issuance of the Cer-
tificates and (iv) the rights of the Trust Administrator, on behalf of the
Trustee to receive the proceeds of all insurance policies and performance
bonds, if any, required to be maintained pursuant to the Pooling and Servicing
Agreement.
DISTRIBUTIONS
Distributions (other than the final distribution in retirement of the Offered
Certificates of each Class or Subclass) will be made by check mailed to the ad-
dress of the person entitled thereto as it appears on the Certificate Register.
However, with respect to any holder of an Offered Certificate evidencing at
least a $500,000 initial principal balance or any holder of a Class A-5, Class
A-9 or Class A-13 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 Class or Subclass of
Offered Certificates will be made only upon presentation and surrender of the
related Certificate at the office or agency appointed by the Trust Administra-
tor specified in the notice of final distribution with respect to the related
Subclass or Class.
Unless Definitive Certificates are issued as described above, the Master
Servicer and the Trust Administrator will treat DTC as the Holder of the Book-
Entry Certificates for all purposes, including making distributions thereon and
taking actions with respect thereto. DTC will make book-entry transfers among
its participants with respect to the Book-Entry Certificates; it will also re-
ceive distributions on the Book-Entry Certificates from the Trust Administrator
and transmit them to participants for distribution to Beneficial Owners or
their nominees.
VOTING
With respect to any provisions of the Pooling and Servicing Agreement provid-
ing for the action, consent or approval of the holders of all Series 1998-5
Certificates evidencing specified Voting Interests in the Trust Estate, the
holders of the Class A Certificates will collectively be entitled to a percent-
age (the "Class A Voting Interest") of the aggregate Voting Interest repre-
sented by all Series 1998-5 Certificates equal to the sum of (A) the product of
(i) the then applicable Class A Percentage and (ii) the ratio obtained by di-
viding the Pool Balance (Non-PO Portion) by the sum of the Pool Balance (Non-PO
Portion) and the Pool Balance (PO Portion) (the "Non-PO Voting Interest") and
(B) the Pool Balance (PO Portion) divided by the sum of the Pool Balance (Non-
PO Portion) and the Pool Balance (PO Portion); the holders of the Class M Cer-
tificates will collectively be entitled to the then applicable percentage of
the aggregate Voting Interest represented by all Series 1998-5 Certificates
equal to the product of (i) the ratio obtained by dividing the Class M Princi-
pal Balance by the sum of the Class A Non-PO Principal Balance, the Class M
Principal Balance and the Class B Principal Balance and (ii) the Non-PO Voting
Interest; and the holders of the Class B Certificates will collectively be en-
titled to the balance of the aggregate Voting Interest represented by all Se-
ries 1998-5 Certificates (the "Class B Voting Interest"). The aggregate Voting
Interest of each Subclass of Class A Certificates (other than the Class A-5 and
Class A-PO Certificates) on any date will be equal to the product of (a) 99% of
the portion the Class A Voting Interest on such date represented by clause (A)
above and (b) the fraction obtained by dividing the Class A Subclass Principal
Balance of such Subclass by the Class A Non-PO Principal Balance on such date.
With respect to the Class A-5 Certificates, the aggregate Voting Interest of
each such Subclass on any date will be equal to 1% of the Class A Voting Inter-
est represented by clause (A) above. The aggregate Voting Interest of
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the Class A-PO Certificates on any date will be equal to the portion of the
Class A Voting Interest on such date represented by clause (B) above. The ag-
gregate Voting Interest of each Subclass of Class B Certificates on any date
will be equal to the product of (a) the Class B Voting Interest on such date
and (b) the fraction obtained by dividing the Class B Subclass Principal Bal-
ance of such Subclass on such date by the Class B Principal Balance on such
date. Each Certificateholder of a Class or Subclass will have a Voting Interest
equal to the product of the Voting Interest to which such Class or Subclass is
collectively entitled and the Percentage Interest in such Class or Subclass
represented by such holder's Certificates. With respect to any provisions of
the Pooling and Servicing Agreement providing for action, consent or approval
of each Class or Subclass of Certificates or specified Classes or Subclasses of
Certificates, each Certificateholder of a Class or Subclass will have a Voting
Interest in such Class or Subclass equal to such holder's Percentage Interest
in such Class or Subclass. Unless Definitive Certificates are issued as de-
scribed above, Beneficial Owners of Book-Entry Certificates may exercise their
voting rights only through Participants.
TRUSTEE
The Trustee for the Series 1998-5 Certificates will be United States Trust
Company of New York, a New York state chartered bank and trust company. The
corporate trust office of the Trustee is located at 114 West 47th Street, New
York, New York 10036. See "The Pooling and Servicing Agreement -- The Trustee"
in the Prospectus.
TRUST ADMINISTRATOR
First Union National Bank will act as Trust Administrator for the Series
1998-5 Certificates. The corporate trust office of the Trust Administrator is
located at 230 South Tryon Street, Charlotte, North Carolina 28288. The Trust
Administrator will perform certain administrative functions on behalf of the
Trustee and will act as the initial paying agent, certificate registrar and
custodian. In addition, the Trust Administrator will be required to make Peri-
odic Advances to the limited extent described herein with respect to the Mort-
gage Loans serviced by Norwest Mortgage if Norwest Mortgage, as Servicer, fails
to make a Periodic Advance required by the related Underlying Servicing Agree-
ment. See "Description of the Certificates -- Periodic Advances" herein.
MASTER SERVICER
Norwest Bank will act as "Master Servicer" of the Mortgage Loans and, in that
capacity, will supervise the servicing of the Mortgage Loans, cause the Mort-
gage Loans to be serviced in the event a Servicer is terminated and a successor
servicer is not appointed, provide certain reports to the Trust Administrator
regarding the Mortgage Loans and the Certificates, compute the amount of dis-
tributions to be made on the Certificates and any losses to be allocated to the
Certificates and make Periodic Advances to the limited extent described herein
with respect to the Mortgage Loans if a Servicer other than Norwest Mortgage
fails to make a Periodic Advance required by the related Underlying Servicing
Agreement. Under the Pooling and Servicing Agreement, any good faith interpre-
tation of the Master Servicer of any provisions of the Pooling and Servicing
Agreement relating to the distributions to be made on or the allocation of any
losses to the Certificates which the Master Servicer concludes are ambiguous or
unclear will be binding on Certificateholders. The Master Servicer will be en-
titled to a "Master Servicing Fee" payable monthly equal to the product of (i)
1/12th of 0.016% (the "Master Servicing Fee Rate") and (ii) the aggregate
Scheduled Principal Balances of the Mortgage Loans as of the first day of each
month. The Master Servicer will pay all administrative expenses to the Trust
Estate subject to reimbursement as described under "Master Servicer" in the
Prospectus.
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement may permit the Master Servicer to enter
into a special servicing agreement with an unaffiliated holder of a Subclass of
Class B Certificates or of a class of securities representing interests in the
Class B Certificates and/or other subordinated mortgage pass-through certifi-
cates. Pursuant to such an agreement, such holder may instruct the Master
Servicer to instruct the Servicers, to the extent provided in the applicable
Underlying Servicing Agreement to commence or delay foreclosure proceedings
with respect to delinquent Mortgage Loans. Such commencement or delay at such
holder's direction will be taken by the Master Servicer only after such holder
deposits a specified amount of cash with the Master Servicer. Such cash will be
available for distribution to Certificateholders if Liquidation Proceeds are
less than they otherwise may have been had the Servicers acted pursuant to
their normal servicing procedures.
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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 1998-5 Certifi-
cates, on any Distribution Date when the Pool Scheduled Principal Balance is
less than 10% of the Cut-Off Date Aggregate Principal Balance. Any such pur-
chase will be made only in connection with a "qualified liquidation" of the
REMIC within the meaning of Section 860F(a)(4)(A) of the Code. The purchase
price will generally be equal to the unpaid principal balance of each Mortgage
Loan plus the fair market value of other property (including any Mortgaged
Property title to which has been acquired by the Trust Estate ("REO Property"))
in the Trust Estate plus accrued interest. In the event the Trust Estate is
liquidated as described above, holders of the Certificates, to the extent funds
are available, will receive the unpaid principal balance of their Certificates
and any accrued and unpaid interest thereon. The amount, if any, remaining in
the Certificate Account after the payment of all principal and interest on the
Certificates and expenses of the REMIC will be distributed to the holder of the
Class A-LR Certificate. See "Description of the Certificates --Additional
Rights of the Class A-R and Class A-LR Certificateholders" herein and "The
Pooling and Servicing Agreement -- Termination; Optional Purchase of Mortgage
Loans" in the Prospectus. The exercise of the foregoing option will be in the
Seller's sole discretion. Without limitation, the Seller may enter into agree-
ments with third parties to (i) exercise such option at the direction of such
third party or (ii) forbear from the exercise of such option.
SERVICING OF THE MORTGAGE LOANS
Norwest Mortgage will service approximately 94.00% (by Cut-Off Date Aggregate
Principal Balance) of the Mortgage Loans and the other servicers listed below
(the "Other Servicers", and collectively with Norwest Mortgage, the
"Servicers") will service the balance of the Mortgage Loans, as indicated, each
pursuant to a separate Underlying Servicing Agreement. The rights to enforce
the related Servicer's obligations under each Underlying Servicing Agreement
with respect to the related Mortgage Loans will be assigned to the Trust Admin-
istrator, on behalf of the Trustee, for the benefit of Certificateholders.
Among other things, the Servicers are obligated under certain circumstances to
advance delinquent payments of principal and interest with respect to the Mort-
gage Loans. See "Servicing of the Mortgage Loans" in the Prospectus.
THE SERVICERS
The Mortgage Loans initially will be serviced by the following entities:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF CUT-OFF
DATE AGGREGATE PRINCIPAL BALANCE
NAME OF SERVICER SERVICED
---------------- ---------------------------------
<S> <C>
Norwest Mortgage, Inc. .................... 94.00%
First Union Mortgage Corp. ................ 1.73%
Suntrust Mortgage Inc. .................... 1.61%
National City Mortgage Inc. ............... 1.21%
FT Mortgage Companies...................... 0.84%
The Huntington Mortgage Co. ............... 0.61%
-------
Total.................................... 100.00%
=======
</TABLE>
Certain information with respect to the loan servicing experience of Norwest
Mortgage is set forth under "Delinquency and Foreclosure Experience."
The Mortgage Loans serviced by Norwest Mortgage are serviced either from
Norwest Mortgage's servicing center located in Frederick, Maryland (the
"Norwest Frederick-Serviced Loans") or from one of several other regional ser-
vicing centers (the "Norwest Non-Frederick-Serviced Loans"). As of the Cut-Off
Date, it is expected that 811 of the Mortgage Loans in the Trust Estate, repre-
senting approximately 87.81% of the Cut-Off Date Aggregate Principal Balance of
the Mortgage Loans will be Norwest Frederick-Serviced Loans and 53 of the Mort-
gage Loans in the Trust Estate, representing approximately 6.19% of the Cut-Off
Date Aggregate Principal Balance of the Mortgage Loans will be Norwest Non-
Frederick-Serviced Loans.
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SERVICER CUSTODIAL ACCOUNTS
Each Servicer is required to establish and maintain a custodial account for
principal and interest (each such account, a "Servicer Custodial Account"),
into which it will deposit all collections of principal (including principal
prepayments and Liquidation Proceeds in respect of principal, if any) on any
Mortgage Loan that such Servicer services, interest (net of Servicing Fees) on
any Mortgage Loan that such Servicer services, related insurance proceeds, ad-
vances made from the Servicer's own funds and the proceeds of any purchase of a
related Mortgage Loan for breach of a representation or warranty or the sale of
a Mortgaged Property in connection with liquidation of the related Mortgage
Loan. All Servicer Custodial Accounts are required to be held in a depository
institution and invested in the manner specified in the related Underlying Ser-
vicing Agreement. Funds in such accounts generally must be held separate and
apart from the assets of the Servicer and generally may not be commingled with
funds held by a Servicer with respect to mortgage loans other than the Mortgage
Loans.
Not later than the Remittance Date, the Servicers are obligated to remit to
the Certificate Account all amounts on deposit in the Servicer Custodial Ac-
counts as of the close of business on the business day preceding the Remittance
Date other than the following:
(a) amounts received as late payments of principal or interest respecting
which such Servicer previously has made one or more unreimbursed Periodic
Advances;
(b) any unreimbursed Periodic Advances of such Servicer with respect to
Liquidated Loans;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent the applicable Servicing Fee, as adjusted where appli-
cable in respect of Month End Interest as described under "Description of
the Certificates -- Interest";
(d) all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such Distribution
Date occurs;
(e) unless the applicable Underlying Servicing Agreement provides for
daily remittances of Unscheduled Principal Receipts, as described below un-
der "-- Anticipated Changes in Servicing," all Unscheduled Principal Re-
ceipts received by such Servicer after the applicable Unscheduled Principal
Receipt Period with respect thereto specified in the applicable Underlying
Servicing Agreement, and all related payments of interest on such amounts;
(f) all amounts representing certain expenses reimbursable to such
Servicer and any other amounts permitted to be retained by such Servicer or
withdrawn by such Servicer from the Servicer Custodial Account pursuant to
the applicable Underlying Servicing Agreement;
(g) all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees which such Servicer is entitled to retain as addi-
tional servicing compensation; and
(h) reinvestment earnings on payments received in respect of the Mortgage
Loans or on other amounts on deposit in the related Servicer Custodial Ac-
count.
UNSCHEDULED PRINCIPAL RECEIPTS
The Pooling and Servicing Agreement specifies, as to each type of Unscheduled
Principal Receipt, a period (as to each type of Unscheduled Principal Receipt,
the "Unscheduled Principal Receipt Period") during which all Unscheduled Prin-
cipal Receipts of such type received by the Servicer will be distributed to
Certificateholders on the related Distribution Date. Each Unscheduled Principal
Receipt Period will either be (i) the one month period ending on the last day
of the calendar month preceding the month in which the applicable Remittance
Date occurs (such period a "Prior Month Receipt Period") or (ii) the one month
period ending on the day preceding the Determination Date preceding the appli-
cable Remittance Date (such period a "Mid-Month Receipt Period").
With respect to the Norwest Frederick-Serviced Loans, the Unscheduled Princi-
pal Receipt Period with respect to all types of Unscheduled Principal Receipts
is a Mid-Month Receipt Period. With respect to the Norwest Non-Frederick-Serv-
iced Loans and Mortgage Loans serviced by certain Other Servicers, the
Unscheduled Principal Receipt Period with respect to all types of Unscheduled
Principal Receipts is a Prior Month Receipt Period. For certain Other
Servicers, the Unscheduled Principal Receipt Period with respect to
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partial Unscheduled Principal Receipts is a Prior Month Receipt Period and with
respect to Unscheduled Principal Receipts in full is a Mid-Month Receipt Peri-
od.
ANTICIPATED CHANGES IN SERVICING
Changes in Timing of Remittances of Unscheduled Principal Receipts in Full
and Elimination of Month End Interest. The Pooling and Servicing Agreement will
provide that the Master Servicer may (but is not required), from time to time
and without the consent of any Certificateholder, the Trust Administrator or
the Trustee, require Norwest Mortgage as Servicer under the related Underlying
Servicing Agreement to, or enter into an amendment to any applicable Underlying
Servicing Agreement to require any Other Servicer to, remit Unscheduled Princi-
pal Receipts in full to the Master Servicer for deposit into the Certificate
Account daily on a specified business day following receipt thereof (to the ex-
tent such Other Servicer is not currently remitting such amount on a daily ba-
sis) which will generally result in a deposit earlier than on the following Re-
mittance Date. In conjunction with any such change, the applicable Servicer
would be relieved of its obligation to remit Month End Interest and certain
other conforming changes may be made. Such changes would have an effect on the
amount of Compensating Interest as described herein under the heading "Descrip-
tion of the Certificates -- Interest." Further, the Pooling and Servicing
Agreement will provide that the Master Servicer may (but is not required to),
without the consent of any Certificateholder, the Trust Administrator or the
Trustee, require Norwest Mortgage or any successor thereto under the applicable
Underlying Servicing Agreement to make remittances to the Certificate Account
(other than any remittances which are required to be made daily) on the 18th
day of each month, or if such 18th day is not a business day, on the preceding
business day. No assurance can be given as to the timing of any such changes or
that any such changes will occur.
Changes in Unscheduled Principal Receipt Period. The Pooling and Servicing
Agreement will provide that the Master Servicer may (but is not required to),
from time to time and without the consent of any Certificateholder, the Trust
Administrator or the Trustee, (a) direct Norwest Mortgage as Servicer under the
related Underlying Servicing Agreement to change the Unscheduled Principal Re-
ceipt Period applicable to any type of Unscheduled Principal Receipt within the
parameters described in (i), (ii) and (iii) below or (b) with respect to any
Other Servicer, enter into an amendment to any applicable Underlying Servicing
Agreement for the purpose of changing the Unscheduled Principal Receipt Period
applicable to any type of Unscheduled Principal Receipt within the parameters
described in (iv) below and making any necessary conforming changes incident
thereto. In connection therewith, (i) the Unscheduled Principal Receipt Period
for the Norwest Non-Frederick-Serviced Loans may be changed (to achieve consis-
tency with the Norwest Frederick-Serviced Loans) to a Mid-Month Receipt Period
with respect to all types of Unscheduled Principal Receipts; (ii) the
Unscheduled Principal Receipt Period for the Norwest Non-Frederick-Serviced
Loans may be changed to achieve an Unscheduled Principal Receipt Period regime
(the "Target Regime") under which the Unscheduled Principal Receipt Period with
respect to partial Unscheduled Principal Receipts would be a Prior Month Re-
ceipt Period and the Unscheduled Principal Receipt Period with respect to
Unscheduled Principal Receipts in full would be a Mid-Month Receipt Period;
(iii) the Unscheduled Principal Receipt Period for the Norwest Frederick-Serv-
iced Loans may be changed to the Target Regime; and (iv) the Unscheduled Prin-
cipal Receipt Periods for the Mortgage Loans serviced by Other Servicers which
do not currently conform to the Target Regime may be changed to the Target Re-
gime.
Because Unscheduled Principal Receipts will result in interest shortfalls to
the extent that they are not distributed to Certificateholders in the month in
which they are received by the applicable Servicer, changing the applicable
Unscheduled Principal Receipt Period from a Mid-Month Receipt Period to a Prior
Month Receipt Period may have the effect of increasing the amount of interest
shortfalls with respect to the applicable type of Unscheduled Principal Re-
ceipt. Conversely, changing the applicable Unscheduled Principal Receipt Period
from a Prior Month Receipt Period to a Mid-Month Receipt Period may decrease
the amount of interest shortfalls with respect to the applicable type of
Unscheduled Principal Receipt. See "Description of the Certificates --
Interest." No assurance can be given as to the timing of any change to any
Unscheduled Principal Receipt Period or that any such changes will occur.
FIXED RETAINED YIELD; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
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)
6.750%, (b) the Servicing Fee Rate and (c) the Master Servicing Fee Rate, which
will be determined on a loan by loan basis and will equal the Mortgage Interest
Rate
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on each Mortgage Loan minus the rate described in clause (i), will not be in-
cluded in the Trust Estate. There will be no Fixed Retained Yield on any Mort-
gage Loan with a Mortgage Interest Rate equal to or less than the rate de-
scribed in clause (i). See "Servicing of the Mortgage Loans -- Fixed Retained
Yield, Servicing Compensation and Payment of Expenses" in the Prospectus for
further information regarding Fixed Retained Yield.
The primary compensation payable to each of the Servicers is the aggregate of
the Servicing Fees applicable to the related Mortgage Loans. The Servicing Fee
applicable to each Mortgage Loan is expressed as a fixed percentage (the "Ser-
vicing Fee Rate") of the scheduled principal balance (as defined in the Under-
lying Servicing Agreements) 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 for each Mortgage Loan is 0.25% per an-
num. In addition to the Servicing Fees, late payment fees, loan assumption fees
and prepayment fees with respect to the Mortgage Loans, and any interest or
other income earned on collections with respect to the Mortgage Loans pending
remittance to the Certificate Account, will be paid to, or retained by, the
Servicers as additional servicing compensation.
The Master Servicer will pay all routine expenses, including fees of the
Trustee and the Trust Administrator incurred in connection with its responsi-
bilities under the Pooling and Servicing Agreement, subject to certain rights
of reimbursement as described in the Prospectus. The servicing fees and other
expenses of the Upper-Tier REMIC and Lower-Tier REMIC will be allocated to the
holder of the Class A-R and Class A-LR Certificates, respectively, who are in-
dividuals, estates or trusts (whether such Certificate is held directly or
through certain pass-through entities) as additional gross income without a
corresponding distribution of cash, and any such investor (or its owners, in
the case of a pass-through entity) may be limited in its ability to deduct such
expenses for regular tax purposes and may not be able to deduct such expenses
to any extent for alternative minimum tax purposes. Unless and until applicable
authority provides otherwise, the Seller intends to treat all such expenses as
incurred by the Lower-Tier REMIC and, therefore as allocable to the holder of
the Class A-LR Certificate. See "Certain Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC Certificates-- Limitations on Deduc-
tion 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.
The Trust Estate will consist of two segregated asset groupings, each of
which will qualify as a REMIC for federal income tax purposes. One REMIC (the
"Lower-Tier REMIC") will issue certain uncertificated interests (each, a "Low-
er-Tier REMIC Regular Interest"), each of which will be designated as a regular
interest in the Lower-Tier REMIC, and the Class A-LR Certificate, which will be
designated as the residual interest in the Lower-Tier REMIC. The assets of the
Lower-Tier REMIC will include the Mortgage Loans (exclusive of Fixed Retained
Yield), together with the amounts held by the Master Servicer in a separate ac-
count in which collections on the Mortgage Loans will be deposited (the "Cer-
tificate Account"), the hazard insurance policies and primary mortgage insur-
ance policies, if any, relating to the Mortgage Loans and any property that se-
cured a Mortgage Loan that is acquired by foreclosure or deed in lieu of fore-
closure.
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The second REMIC (the "Upper-Tier REMIC") will issue all Subclasses of the
Class A Certificates (other than the Class A-LR Certificate), the Class M Cer-
tificates and all Subclasses of the Class B Certificates. The Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8, Class A-
9, Class A-10, Class A-11, Class A-12 , Class A-13, Class A-14 and Class A-15
Certificates, the Class M Certificates and the Class B-1 and Class B-2 Certifi-
cates (collectively, the "Regular Certificates"), together with the Class A-PO
Certificates and the Class B-3, Class B-4, and Class B-5 Certificates, will be
designated as regular interests in the Upper-Tier REMIC, and the Class A-R Cer-
tificate will be designated as the residual interest in the Upper-Tier REMIC.
The regular interests and the residual interest in the Upper-Tier REMIC are re-
ferred to herein collectively as the "Upper-Tier Certificates." The Class A-R
and Class A-LR Certificates are "Residual Certificates" for purposes of the
Prospectus. The assets of the Upper-Tier REMIC will include the uncertificated
Lower-Tier REMIC Regular Interests and a separate account in which distribu-
tions on the uncertificated Lower-Tier REMIC Regular Interests will be deposit-
ed. The aggregate amount distributed to the holders of the Upper-Tier Certifi-
cates, payable from such separate account, will be equal to the aggregate dis-
tributions in respect of the Mortgage Loans on the uncertificated Lower-Tier
REMIC Regular Interests.
The Offered Certificates will be treated as "loans . . . secured by an inter-
est in real property which is . . . residential real property" for a domestic
building and loan association, "real estate assets" for a real estate invest-
ment trust, "qualified mortgages" for a REMIC and "permitted assets" for a fi-
nancial asset securitization investment trust, to the extent described in the
Prospectus.
REGULAR CERTIFICATES
The Regular Certificates generally will be treated as newly originated debt
instruments for federal income tax purposes. Beneficial Owners (or, in the case
of Definitive Certificates, holders) of the Regular Certificates will be re-
quired to report income on such Certificates in accordance with the accrual
method of accounting.
The Class A-14 Certificates will be issued with original issue discount in an
amount equal to the excess of the initial principal balance thereof over their
issue price. The Class A-7, Class A-8, Class A-9, Class A-11, Class A-12 and
Class A-13 Certificates will be issued with original issue discount in an
amount equal to the excess of the sum of all distributions of principal and in-
terest (whether current or accrued) thereon over their respective issue prices
(including accrued interest). Furthermore, it is anticipated that the Class A-
1, Class A-2, Class A-3, Class A-4, Class A-6, Class A-10, Class A-15 and Class
M Certificates will be issued at a premium and that the Class B-1 and Class B-2
Certificates will be issued with de minimis original issue discount for federal
income tax purposes. Finally, it is anticipated that the Class A-PO, Class B-3,
Class B-4 and Class B-5 Certificates, which are not offered hereby, will be
treated as issued with original issue discount for federal income tax purposes.
Although unclear for federal income tax purposes, it is anticipated that the
Class A-5 Certificates will be considered to be issued with original issue dis-
count in an amount equal to the excess of all distributions of interest ex-
pected to be received thereon over their issue price (including accrued inter-
est). Any "negative" amounts of original issue discount on the Class A-5 Cer-
tificates attributable to rapid prepayments with respect to the Mortgage Loans
will not be deductible currently, but may be offset against future positive
accruals of original issue discount, if any. Finally, a holder of a Class A-5
Certificate may be entitled to a loss deduction to the extent it becomes cer-
tain that such holder will not recover a portion of its basis in such Certifi-
cate, assuming no further prepayments. In the alternative, it is possible that
rules similar to the "noncontingent bond method" of the contingent interest
rules in the OID Regulations, as amended on June 12, 1996, may be promulgated
with respect to the Class A-5 Certificates. See "Certain Federal Income Tax-
es -- Federal Income Tax -- Federal Income Tax Consequence For REMIC Certifi-
cates -- Taxation of Regular Certificates -- Original Issue Discount" in the
Prospectus. Under the noncontingent bond method, if the interest payable for
any period is greater or less than the amount projected, the amount of income
included for that period would be either increased or decreased accordingly.
Any net reduction in the income accrual for the taxable year below zero (a
"Negative Adjustment") would be treated by a Certificateholder as ordinary loss
to the extent of prior income accruals and would be carried forward to offset
future interest accruals. At maturity, any remaining Negative Adjustment would
be treated as a loss on retirement of the Certificate. The legislative history
of relevant Code provisions indicates, however, that negative amounts of origi-
nal issue discount on an instrument such as a REMIC regular interest may not
give rise to taxable losses in any accrual period prior to the instrument's
disposition or retirement. Thus,
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it is not clear whether any losses resulting from a Negative Adjustment would
be recognized currently or be carried forward until disposition of retirement
of the debt obligation.
The Prepayment Assumption (as defined in the Prospectus) that the Master
Servicer intends to use in determining the rate of accrual of original issue
discount and whether the original issue discount is considered de minimis will
be calculated using 275% of SPA. No representation is made as to the actual
rate at which the Mortgage Loans will prepay.
RESIDUAL CERTIFICATES
The holders of the Class A-R and Class A-LR Certificates must include the
taxable income or loss of the Upper-Tier REMIC and Lower-Tier REMIC, respec-
tively, in determining their federal taxable income. The Class A-R and Class A-
LR Certificates 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 AND CLASS A-LR CERTIFICATEHOLDERS' REMIC TAX-
ABLE INCOME AND THE TAX LIABILITY THEREON MAY EXCEED, AND MAY SUBSTANTIALLY EX-
CEED, CASH DISTRIBUTIONS TO SUCH HOLDER DURING CERTAIN PERIODS, IN WHICH EVENT,
THE HOLDER THEREOF MUST HAVE SUFFICIENT ALTERNATIVE SOURCES OF FUNDS TO PAY
SUCH TAX LIABILITY. Furthermore, it is anticipated that all or a substantial
portion of the taxable income of the Upper-Tier REMIC and Lower-Tier REMIC in-
cludible by the holders of the Class A-R and Class A-LR Certificates, respec-
tively, will be treated as "excess inclusion" income, resulting in (i) the in-
ability of such holders 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.
Each of the Class A-R and Class A-LR Certificates 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 and Class A-LR Cer-
tificates 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 or
Class A-LR Certificate in excess of cash flows generated thereby, (iii) intends
to pay taxes associated with holding the Class A-R or Class A-LR Certificate as
such taxes become due and (iv) will not transfer the Class A-R or Class A-LR
Certificate to any person or entity that does not provide a similar affidavit.
The transferor must certify in writing to the Trust Administrator that, as of
the date of the transfer, it had no knowledge or reason to know that the affir-
mations made by the transferee pursuant to the preceding sentence were false.
Additionally, the Class A-R and Class A-LR Certificates generally may not be
transferred to certain persons who are not U.S. Persons (as defined herein).
See "Description of the Certificate -- Restrictions on Transfer of the Class A-
9, Class A-13, Class A-R, Class A-LR, Class M and Offered Class B Certificates"
herein and "Certain Federal Income Tax Consequences -- Federal Income Tax Con-
sequences for REMIC Certificates -- Taxation of Residual Certificates -- Limi-
tations on Offset or Exemption of REMIC Income" and "-- Tax-Related Restric-
tions on Transfer of Residual Certificates -- Noneconomic Residual Interests"
in the Prospectus.
An individual, trust or estate that holds the Class A-R or Class A-LR Certif-
icate (whether such Certificate is held directly or indirectly through certain
pass-through entities) also may have additional gross income with respect to,
but may be subject to limitations on the deductibility of, Servicing Fees on
the Mortgage Loans and other administrative expenses of the REMIC in computing
such holder's regular tax liability, and may not be able to deduct such fees or
expenses to any extent in computing such holder's alternative minimum tax lia-
bility. In addition, some portion of a purchaser's basis, if any, in the Class
A-R or Class A-LR Certificate may not be recovered until termination of the re-
spective REMIC. Furthermore, the federal income tax consequences of any consid-
eration paid to a transferee on a transfer of the Class A-R or Class A-LR Cer-
tificate 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 consider-
ation with respect to the Class A-R or Class A-LR 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 AND CLASS A-LR CERTIFICATES MAY BE SIGNIFICANTLY
LOWER THAN WOULD BE THE CASE IF THE CLASS A-R AND CLASS A-LR CERTIFICATES WERE
TAXED AS DEBT INSTRUMENTS, OR MAY BE NEGATIVE.
See "Certain Federal Income Tax Consequences" in the Prospectus.
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<PAGE>
ERISA CONSIDERATIONS
Neither the Class A-R nor Class A-LR Certificate may be purchased by or
transferred to any person which is an employee benefit plan or other retirement
plan or arrangement which is subject to Title I of ERISA or Code Section 4975
(an "ERISA Plan") or which is a governmental plan, as defined in Section 3(32)
of ERISA, subject to any federal, state or local law ("Similar Law") which is,
to a material extent, similar to the foregoing provisions of ERISA or the Code
(collectively, with an ERISA Plan, a "Plan"), or any person acting on behalf of
or investing the assets of a 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 and Class A-LR Certificates and for purposes of the following discussion all
references to the Offered Certificates are deemed to exclude the Class A-R and
Class A-LR Certificates.
In addition, under current law the purchase and holding of the Class M or Of-
fered Class B Certificates by or on behalf of a Plan may result in "prohibited
transactions" within the meaning of ERISA and Code Section 4975 or Similar Law.
Transfer of the Class M or Offered Class B Certificates will not be made unless
the transferee (i) executes a representation letter in form and substance sat-
isfactory to the Trust Administrator and the Seller 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 or Offered Class B 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 exceeds 10% of the total of all reserves and liabilities
of such general account (as such amounts are determined under Section I(a) of
PTE 95-60) at the date of acquisition or (ii) provides (A) an opinion of coun-
sel in form and substance satisfactory to the Trust Administrator and the
Seller that the purchase or holding of the Class M or Offered Class B Certifi-
cates 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 transac-
tion provisions of ERISA, the Code or Similar Law and will not subject the
Seller, the Master Servicer, the Trust Administrator or the Trustee to any ob-
ligation in addition to those undertaken in the Pooling and Servicing Agreement
and (B) such other opinions of counsel, officers' certificates and agreements
as the Seller or the Master Servicer may require in connection with such trans-
fer. Accordingly, the following discussion does not purport to discuss the con-
siderations under ERISA, Code Section 4975 or Similar Law with respect to the
purchase, acquisition or resale of the Class M or Offered Class B Certificates
and for purposes of the following discussion all references to the Offered Cer-
tificates are deemed to exclude the Class M or Offered Class B Certificates.
As described in the Prospectus under "ERISA Considerations," ERISA and the
Code impose certain duties and restrictions on ERISA Plans and certain persons
who perform services for ERISA Plans. Comparable duties and restrictions may
exist under Similar Law on governmental plans and certain persons who perform
services for governmental plans. For example, unless exempted, investment by a
Plan in the Offered Certificates may constitute a prohibited transaction under
ERISA, the Code or Similar Law. There are certain exemptions issued by the
United States Department of Labor (the "DOL") that may be applicable to an in-
vestment by an ERISA Plan in the Offered Certificates, including the individual
administrative exemption described below and Prohibited Transaction Class Ex-
emption 83-1 ("PTE 83-1"). For a further discussion of the individual adminis-
trative exemption and PTE 83-1, including the necessary conditions to their ap-
plicability, and other important factors to be considered by an ERISA Plan con-
templating investing in the Offered Certificates, see "ERISA Considerations" in
the Prospectus.
On February 22, 1991, the DOL issued to Lehman an individual administrative
exemption, Prohibited Transaction Exemption 91-14, 56 Fed. Reg. 7413 (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 by an ERISA Plan, provided that
specified conditions are met.
S-93
<PAGE>
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 applicable Exemption or the availability of any other prohibited
transaction exemptions (including PTE 83-1), and whether the conditions of any
such exemption will be applicable to the Offered Certificates, and a fiduciary
of a governmental plan should make its own determination as to the need for and
availability of any exemptive relief under Similar Law. Any fiduciary of an
ERISA Plan considering whether to purchase an Offered Certificate should also
carefully review with its own legal advisors the applicability of the fiduciary
duty provisions of ERISA and the prohibited transaction provisions of ERISA and
the Code to such investment. See "ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT
The Offered Class A and Class M Certificates constitute "mortgage related se-
curities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"), so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating or-
ganization. As such, the Offered Class A and Class M Certificates will be legal
investments for certain entities to the extent provided in SMMEA. However, in-
stitutions subject to the jurisdiction of the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Federal De-
posit Insurance Corporation, the Office of Thrift Supervision, the National
Credit Union Administration or state banking, insurance or other regulatory au-
thorities should review applicable rules, supervisory policies and guidelines
of these agencies before purchasing any of the Offered Class A and Class M Cer-
tificates, as certain Subclasses of the Offered Class A Certificates or the
Class M Certificates may be deemed to be unsuitable investments under one or
more of these rules, policies and guidelines and certain restrictions may apply
to investments in other Subclasses of the Offered Class A Certificates or the
Class M Certificates. It should also be noted that certain states have enacted
legislation limiting to varying extents the ability of certain entities (in
particular, insurance companies) to invest in mortgage related securities. In-
vestors should consult with their own legal advisors in determining whether and
to what extent the Offered Class A and Class M Certificates constitute legal
investments for such investors. See "Legal Investment" in the Prospectus.
The Offered Class B Certificates will not constitute "mortgage related secu-
rities" under SMMEA. The appropriate characterization of the Offered Class B
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Offered Class B Cer-
tificates, may be subject to significant interpretative 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 Of-
fered Class B Certificates will constitute legal investments for them. See "Le-
gal Investment" in the Prospectus.
SECONDARY MARKET
There will not be any market for the Offered Certificates prior to the issu-
ance thereof. Each Underwriter intends to act as a market maker in the Offered
Certificates purchased by such Underwriter subject to applicable provisions of
federal and state securities laws and other regulatory requirements, but is un-
der no obligation to do so. There can be no assurance that a secondary market
in the Offered Certificates will develop or, if such a market does develop,
that it will provide holders of Offered Certificates with liquidity of invest-
ment at any particular time or for the life of the Offered Certificates. As a
source of information concerning the Certificates and the Mortgage Loans, pro-
spective investors in Certificates may obtain copies of the reports included in
monthly statements to Certificateholders described under "Description of Cer-
tificates -- Reports" upon written request to the Trust Administrator at the
Corporate Trust Office.
S-94
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated July
12, 1996 and the terms agreement dated January 15, 1998 (together, the "Lehman
Underwriting Agreement") among Norwest Mortgage, the Seller and Lehman Brothers
Inc. ("Lehman"), as underwriter, and the underwriting agreement dated July 12,
1996 and the terms agreement dated January 15, 1998 (together, the "Salomon Un-
derwriting Agreement") among Norwest Mortgage, the Seller and Salomon Brothers
Inc ("Salomon"), as underwriter, the Offered Class A Certificates are being
purchased from the Seller by Lehman and the Class M Certificates and Offered
Class B Certificates are being purchased from the Seller by Salomon, in each
case upon issuance thereof. Each of Lehman and Salomon is referred to herein as
an "Underwriter," and together, as the "Underwriters," and each of the Lehman
Underwriting Agreement and the Salomon Underwriting Agreement is referred to
herein as an "Underwriting Agreement." Lehman is committed to purchase all of
the Offered Class A Certificates if any such Certificates are purchased, and
Salomon is committed to purchase all of the Class M and Offered Class B Certif-
icates if any such Certificates are purchased. Each Underwriter has advised the
Seller that it proposes to offer the Offered Certificates purchased by such Un-
derwriter from time to time, for sale in negotiated transactions or otherwise
at prices determined at the time of sale. Proceeds to the Seller from the sale
of the Offered Certificates are expected to be approximately 99.40% of the ini-
tial aggregate principal balance of the Offered Class A Certificates, approxi-
mately 100.29% of the aggregate initial principal balance of the Class M Cer-
tificates, approximately 99.55% of the aggregate initial principal balance of
the Class B-1 Certificates and approximately 97.76% of the aggregate initial
principal balance of the Class B-2 Certificates plus, in each case, accrued in-
terest thereon at the rate of 6.750% per annum, from February 1, 1998 to (but
not including) February 26, 1998, before deducting expenses payable by the
Seller. Neither Underwriter is an affiliate of the Seller. Lehman has advised
the Seller that it has not allocated the purchase price paid to the Seller for
the Subclasses of Offered Class A Certificates among such Subclasses. The Un-
derwriters and any dealers that participate with an Underwriter in the distri-
bution 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 Of-
fered Certificates by them may be deemed to be underwriting discounts or com-
missions, under the Securities Act.
Each Underwriting Agreement provides that the Seller or Norwest Mortgage will
indemnify the applicable Underwriter against certain civil liabilities under
the Securities Act or contribute to payments which such Underwriter may be re-
quired 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-
writers by Brown & Wood LLP, New York, New York.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from Norwest Mortgage of the
Mortgage Loans underlying the Series 1998-5 Certificates.
RATINGS
It is a condition to the issuance of the Offered Class A Certificates that
each Subclass will have been rated "AAA" by DCR and "Aaa" by Moody's. It is a
condition to the issuance of the Class M Certificates that they will have been
rated at least "AA" by DCR and "Aa2" by Moody's. It is a condition to the issu-
ance of the Class B-1 and Class B-2 Certificates that they will have been rated
"A" and "BBB," respectively, by DCR. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time by the assigning rating agency. Each security rating should be evalu-
ated independently of any other security rating.
The ratings assigned by DCR to mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
they are entitled under the transaction structure. DCR's ratings reflect its
analysis of the riskiness of the mortgage loans and its analysis of the struc-
ture of the transaction as set forth in the operative documents. DCR's ratings
do not address the effect on the certificates' yield attributable to
S-95
<PAGE>
prepayments or recoveries on the underlying mortgage loans. In addition, the
ratings of the Class A-R and Class A-LR Certificates does not assess the like-
lihood of return to an investor in the Class A-R and Class A-LR Certificate,
except to the extent of the Class A Subclass Principal Balance thereof and in-
terest thereon.
The ratings of Moody's on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions of princi-
pal and interest to which such certificateholders are entitled. Moody's rating
opinions address the structural, legal and issuer aspects associated with the
certificates, including the nature of the underlying mortgage loans and the
credit quality of the credit support provider, if any. Moody's ratings on pass-
through certificates do not represent any assessment of the likelihood that
principal prepayments may differ from those originally anticipated and conse-
quently any adverse effect the timing of such prepayments could have on an in-
vestor's anticipated yield.
The ratings of DCR and Moody's also do not address the possibility that, as a
result of principal prepayments, a holder of a Class A-5 Certificate may not
fully recover its initial investment.
The Seller has not requested a rating on the Offered Certificates of any
Subclass or Class by any rating agency other than DCR and Moody's, although
data with respect to the Mortgage Loans may have been provided to other rating
agencies solely for their informational purposes. There can be no assurance
that any rating assigned by any other rating agency to the Offered Certificates
will be as high as those assigned by DCR and Moody's.
S-96
<PAGE>
INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Accretion Termination Date......... S-38
Accrual Distribution Amount........ S-41
Accrual Certificates............... S-2
Adjusted Pool Amount............... S-36
Adjusted Pool Amount (PO Portion).. S-36
Adjustment Amount.................. S-63
Aggregate Current Bankruptcy
Losses............................ S-64
Aggregate Current Fraud Losses..... S-64
Aggregate Current Special Hazard
Losses............................ S-63
Available Master Servicing
Compensation...................... S-37
Bankruptcy Loss.................... S-42
Bankruptcy Loss Amount............. S-64
Bulk Purchase Underwritten Loan.... S-67
Beneficial Owner................... S-32
Book-Entry Certificates............ S-4
CBE................................ S-81
Cede............................... S-32
Certificate Account................ S-90
Certificateholder.................. S-4
Certificates....................... S-7
Class A Certificates............... Cover
Class A Non-PO Distribution
Amount............................ S-34
Class A Non-PO Optimal Amount...... S-39
Class A Non-PO Optimal Principal
Amount............................ S-41
Class A Non-PO Principal Amount.... S-41
Class A Non-PO Principal Balance... S-36
Class A Non-PO Principal
Distribution Amount............... S-41
Class A Optimal Amount............. S-39
Class A Percentage................. S-42
Class A Prepayment Percentage...... S-43
Class A Principal Balance.......... S-36
Class A Subclass Interest Accrual
Amount............................ S-34
Class A Subclass Interest Shortfall
Amount............................ S-39
Class A Subclass Principal
Balance........................... S-35
Class A Voting Interest............ S-85
Class A-5 Notional Amount.......... S-35
Class A-PO Distribution Amount..... S-43
Class A-PO Optimal Principal
Amount............................ S-44
Class A-PO Deferred Amount......... S-44
Class B Certificates............... Cover
Class B Principal Balance.......... S-36
Class B Subclass Distribution
Amount............................ S-34
Class B Subclass Interest Accrual
Amount............................ S-35
Class B Subclass Interest Shortfall
Amount............................ S-40
Class B Subclass Principal
Balance........................... S-36
Class B Voting Interest............ S-85
Class B-1 Principal Distribution
Amount............................ S-45
Class B-2 Principal Distribution
Amount............................ S-45
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Class M Certificates............... Cover
Class M Distribution Amount........ S-34
Class M Interest Accrual Amount.... S-35
Class M Interest Shortfall Amount.. S-40
Class M Optimal Amount............. S-40
Class M Optimal Principal Amount... S-45
Class M Percentage................. S-46
Class M Prepayment Percentage...... S-46
Class M Principal Balance.......... S-36
Class M Principal Distribution
Amount............................ S-45
Closing Date....................... S-13
Code............................... S-28
Compensating Interest.............. S-37
Companion Certificates............. S-2
Co-op Shares....................... S-66
Cooperatives....................... S-66
Cross-Over Date.................... S-62
Current Class B-1 Fractional
Interest.......................... S-47
Current Class B-2 Fractional
Interest.......................... S-47
Current Class B-3 Fractional
Interest.......................... S-47
Current Class B-4 Fractional
Interest.......................... S-48
Current Class M Fractional
Interest.......................... S-47
Curtailment Interest Shortfalls.... S-38
Cut-Off Date Aggregate
Principal Balance................. S-66
DCR................................ S-8
Debt Service Reduction............. S-42
Deficient Valuation................ S-42
Definitive Certificates............ S-31
Determination Date................. S-31
Discount Mortgage Loans............ S-10
Disqualified Organization.......... S-5
Distribution Date.................. S-2
DOL................................ S-93
DTC................................ S-12
ERISA.............................. S-28
ERISA Plan......................... S-93
Excess Bankruptcy Loss............. S-64
Excess Bankruptcy Losses........... S-64
Excess Fraud Loss.................. S-64
Excess Fraud Losses................ S-64
Excess Principal Payments.......... S-57
Excess Special Hazard Loss......... S-63
Excess Special Hazard Losses....... S-63
Exemption.......................... S-93
FICO Scores........................ S-71
Fixed Retained Yield............... S-89
Fraud Loss......................... S-42
Fraud Loss Amount.................. S-64
Lehman............................. Cover
Lehman Underwriting Agreement...... S-95
</TABLE>
S-97
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Liquidated Loan.................... S-42
Liquidated Loan Loss............... S-42
Loss Severity Percentage........... S-83
Lower-Tier REMIC................... S-5
Lower-Tier REMIC Regular Interest.. S-90
Master Servicer.................... S-2
Master Servicing Fee............... S-86
Master Servicing Fee Rate.......... S-86
Mid-Month Receipt Period........... S-88
Month End Interest................. S-37
Moody's............................ S-8
Mortgage Loans..................... S-2
Mortgaged Properties............... S-66
Mortgages.......................... S-66
NASCOR............................. Cover
Negative Adjustment................ S-91
Net Foreclosure Profits............ S-59
Net Mortgage Interest Rate......... S-37
net Partial Liquidation Proceeds... S-33
Non-PO Fraction.................... S-42
Non-PO Voting Interest............. S-85
Non-Supported Interest Shortfalls.. S-38
Norwest Bank....................... S-2
Norwest Frederick-Serviced Loans... S-87
Norwest Mortgage................... S-2
Norwest Mortgage Correspondent..... S-2
Norwest Non-Frederick-Serviced
Loans............................. S-87
Offered Certificates............... S-2
Offered Class A Certificates....... S-2
Offered Class B Certificates....... S-2
Original Class B-1 Fractional
Interest.......................... S-47
Original Class B-2 Fractional
Interest.......................... S-47
Original Class B-3 Fractional
Interest.......................... S-47
Original Class B-4 Fractional
Interest.......................... S-48
Original Class M Fractional
Interest.......................... S-47
Original Subordinated Principal
Balance........................... S-43
Other Originator................... S-72
Other Servicers.................... S-87
PAC Certificates................... S-2
PAC Principal Amount............... S-50
Partial Liquidation Proceeds....... S-33
Pass-Through Rate.................. S-35
Percentage Interest................ S-34
Periodic Advance................... S-59
Plan............................... S-93
PO Fraction........................ S-44
Pool Balance (Non-PO Portion)...... S-42
Pool Balance (PO Portion).......... S-44
Pool Distribution Amount........... S-31
Pool Distribution Amount
Allocation........................ S-33
Pooling and Servicing Agreement.... S-85
Premium Mortgage Loans............. S-67
Prepayments in Full................ S-37
Prepayment Shift Percentage........ S-50
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----
<S> <C>
Prepayment Interest Shortfalls.... S-37
Prior Month Receipt Period........ S-88
Priority Amount................... S-49
Priority Percentage............... S-49
Prospectus........................ S-7
PTE 83-1.......................... S-93
PTE 95-60......................... S-93
Realized Loss..................... S-42
Record Date....................... S-31
Regular Certificates.............. S-91
Regular Interest Accrual Period... S-16
REMIC............................. S-5
Remittance Date................... S-33
REO Property...................... S-87
Residual Certificates ............ S-91
Salomon........................... Cover
Salomon Underwriting Agreement.... S-95
Schedule I Reduction Amount....... S-50
Schedule II Reduction Amount...... S-50
Scheduled Amount.................. S-49
Scheduled Principal Balance....... S-42
SDA............................... S-82
Securities Act.................... S-94
Seller............................ S-2
Senior Certificates............... S-8
Series 1998-5 Certificates........ Cover
Servicer.......................... S-2
Servicers......................... S-87
Servicer Custodial Account........ S-88
Servicing Fee Rate................ S-90
Shift Percentage.................. S-50
Similar Law....................... S-93
SMMEA............................. S-94
SPA............................... S-77
Special Hazard Loss............... S-42
Special Hazard Loss Amount........ S-63
Structuring Assumptions........... S-77
Subclass.......................... S-2
Subclass B Optimal Amount......... S-40
Subclass B Optimal Principal
Amount........................... S-45
Subclass B Percentage............. S-46
Subclass B Prepayment Percentage.. S-46
Subordinated Certificates......... Cover
Subordinated Percentage........... S-43
Subordinated Prepayment
Percentage....................... S-43
Target Regime..................... S-89
Trust Administrator............... S-8
Trust Estate...................... S-2
Trustee........................... S-8
U.S. Person....................... S-60
Underlying Servicing Agreement.... S-7
Underwriter....................... Cover
Underwriting Agreements........... S-95
Underwriting Standards............ S-67
</TABLE>
S-98
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Unscheduled Principal Amount.......... S-49
Unscheduled Principal Receipt Period.. S-88
Unscheduled Principal Receipts........ S-32
Upper-Tier Certificates............... S-91
Upper-Tier REMIC...................... S-5
</TABLE>
S-99
<PAGE>
NORWEST ASSET SECURITIES CORPORATION
("NASCOR")
SELLER
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
--------------
Norwest Asset Securities Corporation (the "SELLER" or "NASCOR") may sell
from time to time, under this Prospectus and applicable Prospectus
Supplements, Mortgage Pass-Through Certificates (the "CERTIFICATES"), issuable
in series (each, a "SERIES") consisting of one or more classes (each, a
"CLASS") of Certificates. Any Class of Certificates may be divided into two or
more subclasses (each, a "SUBCLASS").
The Certificates of a Series will represent beneficial ownership interests
in a separate trust formed by the Seller. The property of each such trust (for
each Series, the "TRUST ESTATE") will be comprised primarily of fixed or
adjustable interest rate, conventional, first mortgage loans (the "MORTGAGE
LOANS"), secured by first liens on one- to four-family residential properties.
The Mortgage Loans will have been acquired by the Seller from its affiliate,
Norwest Mortgage, Inc. ("NORWEST MORTGAGE"), and will have been underwritten
either to Norwest Mortgage's underwriting standards, to the underwriting
standards of a Pool Insurer (as defined herein) or to such other standards as
are described in the applicable Prospectus Supplement. All of the Mortgage
Loans will be serviced by Norwest Mortgage individually or together with one
or more other servicers (each, a "SERVICER"). Norwest Bank Minnesota, National
Association ("NORWEST BANK"), an affiliate of Norwest Mortgage, will act as
master servicer with respect to each Trust Estate (in such capacity, the
"MASTER SERVICER").
Each Series of Certificates may include one or more Classes of Certificates
(the "SUBORDINATED CERTIFICATES") that are subordinate in right of
distributions or otherwise to one or more of the other Classes of such Series
(the "SENIOR CERTIFICATES"). If specified in the applicable Prospectus
Supplement, the relative interests of the Senior Certificates and the
Subordinated Certificates of a Series in the Trust Estate may be subject to
adjustment from time to time on the basis of distributions received in respect
thereof and losses allocated to the Subordinated Certificates. If and to the
extent specified in the Prospectus Supplement, credit support may be provided
for any Series of Certificates, or any Classes or Subclasses thereof, in the
form of a limited guarantee, financial guaranty insurance policy, surety bond,
letter of credit, mortgage pool insurance policy, reserve fund, cross-support
or other form of credit enhancement as described herein or therein.
Except for the Seller's limited obligations in connection with certain
breaches of its representations and warranties, certain undertakings and
obligations of the Master Servicer and Norwest Mortgage's obligations as
Servicer, 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
investment conduit" (a "REMIC") for federal income tax purposes. See "Certain
Federal Income Tax Consequences."
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market
will develop, or that if such a market does develop, it will provide
Certificateholders with liquidity of investment or will continue for the life
of the Certificates.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------
The Certificates may be sold from time to time through one or more different
methods, including through underwriting syndicates led by one or more managing
underwriters or through one or more underwriters acting alone. See "Plan of
Distribution." Affiliates of the Seller may from time to time act as agents or
underwriters in connection with the sale of the Certificates.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by the Prospectus Supplement relating to the offering of such
Certificates.
--------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 19, 1998
<PAGE>
REPORTS
The Master Servicer will prepare, and the Trustee or other Paying Agent
appointed for each Series by the Master Servicer will forward to the
Certificateholders of each Series statements containing information with
respect to principal and interest payments and the related Trust Estate, as
described herein and in the applicable Prospectus Supplement for such Series.
No information contained in such reports will have been examined or reported
upon by an independent public accountant. See "The Pooling and Servicing
Agreement--Reports to Certificateholders." In addition, each Servicer for each
Series will furnish to the Master Servicer (who will be required to furnish
promptly to the Trustee for such Series), a statement from a firm of
independent public accountants with respect to the examination of certain
documents and records relating to a random sample of mortgage loans serviced
by such Servicer pursuant to the related Underlying Servicing Agreement and/or
other similar agreements. See "Servicing of the Mortgage Loans--Evidence as to
Compliance." Copies of the statements provided by the Master Servicer to the
Trustee will be furnished to Certificateholders of each Series upon request
addressed to the Trustee for the applicable Series or to the Master Servicer
c/o Norwest Bank Minnesota, National Association, 11000 Broken Land Parkway,
Columbia, Maryland 21044-3562, Attention: Securities Administration Services
Manager.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of
the information set forth in the Registration Statement of which this
Prospectus is a part. For further information, reference is made to such
Registration Statement and the exhibits thereto which the Seller has filed
with the Securities and Exchange Commission (the "COMMISSION"), Washington,
D.C., under the Securities Act of 1933, as amended (the "SECURITIES ACT").
Statements contained in this Prospectus and any Prospectus Supplement as to
the contents of any contract or other document referred to are summaries and,
in each instance, reference is made to the copy of the contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement may be obtained from the Public Reference Section of
the Commission, Washington, D.C. 20549 upon payment of the prescribed charges,
or may be examined free of charge at the Commission's offices, 450 Fifth
Street N.W., Washington, D.C. 20549 or at the regional offices of the
Commission located at Suite 1300, 7 World Trade Center, New York, New York
10048 and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. The Commission also maintains a site on the World Wide
Web at "http://www.sec.gov" at which users can view and download copies of
reports, proxy and information statements and other information filed
electronically through the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system. The Seller has filed the Registration Statement, including
all exhibits thereto, through the EDGAR system and therefore such materials
should be available by logging onto the Commission's Web site. The Commission
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 delivered
upon written or oral request directed to Norwest Asset Securities Corporation,
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
information in machine readable format updated on a monthly basis (the
"DETAILED INFORMATION") with respect to each outstanding Series of
Certificates. The Detailed Information will reflect payments made on the
individual mortgage loans, including prepayments in full and in part made on
such mortgage loans, as well as the liquidation of any such mortgage loans,
and will identify various characteristics of the mortgage loans. Subscribers
of the Detailed Information are expected to include a number of major
investment brokerage firms as well as financial information service firms.
Some of such firms, including certain investment brokerage firms as well as
Bloomberg L.P. through the "The Bloomberg(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 portions of, or summaries of portions of, the Detailed Information
available to their customers and subscribers. The Seller, the Master Servicer
and their respective affiliates have no control over and take no
responsibility for the actions of such firms in processing, analyzing or
disseminating such information. For further information regarding the Detailed
Information and subscriptions thereto, please contact Norwest Asset Securities
Corporation, 7485 New Horizon Way, Frederick, Maryland 21703, telephone number
(301) 846-8881.
2
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by NASCOR with respect to a Trust Estate pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (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>
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<S> <C>
REPORTS.................................................................... 2
ADDITIONAL INFORMATION..................................................... 2
ADDITIONAL DETAILED INFORMATION............................................ 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 3
SUMMARY OF PROSPECTUS...................................................... 6
RISK FACTORS............................................................... 10
Limited Liquidity........................................................ 10
Limited Obligations...................................................... 10
Limitations, Reduction and Substitution of Credit Enhancement............ 10
Risks of the Mortgage Loans.............................................. 10
Yield and Prepayment Considerations...................................... 11
Book-Entry System for Certain Classes and Subclasses of Certificates..... 11
THE TRUST ESTATES.......................................................... 12
General.................................................................. 12
Mortgage Loans........................................................... 12
THE SELLER................................................................. 15
NORWEST MORTGAGE........................................................... 16
NORWEST BANK............................................................... 16
THE MORTGAGE LOAN PROGRAMS................................................. 16
Mortgage Loan Production Sources......................................... 16
Acquisition of Mortgage Loans from Correspondents........................ 17
Mortgage Loan Underwriting............................................... 18
Norwest Mortgage Underwriting.......................................... 18
Pool Certification Underwriting........................................ 21
Representations and Warranties........................................... 22
DESCRIPTION OF THE CERTIFICATES............................................ 23
General.................................................................. 23
Definitive Form.......................................................... 24
Book-Entry Form.......................................................... 24
Distributions to Certificateholders...................................... 26
General................................................................ 26
Distributions of Interest.............................................. 27
Distributions of Principal............................................. 28
Categories of Classes of Certificates.................................... 30
Other Credit Enhancement................................................. 31
Limited Guarantee...................................................... 31
Financial Guaranty Insurance Policy or Surety Bond..................... 32
Letter of Credit....................................................... 32
Pool Insurance Policies................................................ 32
Special Hazard Insurance Policies...................................... 32
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Mortgagor Bankruptcy Bond............................................. 32
Reserve Fund.......................................................... 32
Cross Support......................................................... 32
PREPAYMENT AND YIELD CONSIDERATIONS....................................... 33
Pass-Through Rates...................................................... 33
Scheduled Delays in Distributions....................................... 33
Effect of Principal Prepayments......................................... 33
Weighted Average Life of Certificates................................... 34
DELINQUENCY AND FORECLOSURE EXPERIENCE.................................... 35
SERVICING OF THE MORTGAGE LOANS........................................... 39
The Master Servicer..................................................... 39
The Servicers........................................................... 39
Payments on Mortgage Loans.............................................. 40
Periodic Advances and Limitations Thereon............................... 42
Collection and Other Servicing Procedures............................... 43
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans.................................................................. 44
Insurance Policies...................................................... 45
Fixed Retained Yield, Servicing Compensation and Payment of Expenses.... 46
Evidence as to Compliance............................................... 47
CERTAIN MATTERS REGARDING THE MASTER SERVICER............................. 47
THE POOLING AND SERVICING AGREEMENT....................................... 48
Assignment of Mortgage Loans to the Trustee............................. 48
Optional Purchases...................................................... 50
Reports to Certificateholders........................................... 50
List of Certificateholders.............................................. 51
Events of Default....................................................... 51
Rights Upon Event of Default............................................ 51
Amendment............................................................... 52
Termination; Optional Purchase of Mortgage Loans........................ 53
The Trustee............................................................. 53
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS............................... 54
General................................................................. 54
Foreclosure............................................................. 54
Foreclosure on Shares of Cooperatives................................... 55
Rights of Redemption.................................................... 55
Anti-Deficiency Legislation and Other Limitations on Lenders............ 56
Soldiers' and Sailors' Civil Relief Act and Similar Laws................ 57
Environmental Considerations............................................ 57
"Due-on-Sale" Clauses................................................... 59
Applicability of Usury Laws............................................. 60
Enforceability of Certain Provisions.................................... 60
</TABLE>
4
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 61
Federal Income Tax Consequences for REMIC Certificates.................... 61
General.................................................................. 61
Status of REMIC Certificates............................................. 61
Qualification as a REMIC................................................. 62
Taxation of Regular Certificates......................................... 63
General................................................................ 63
Original Issue Discount................................................ 63
Acquisition Premium.................................................... 65
Variable Rate Regular Certificates..................................... 66
Market Discount........................................................ 67
Premium................................................................ 67
Election to Treat All Interest Under the Constant Yield Method......... 68
Treatment of Losses.................................................... 68
Sale or Exchange of Regular Certificates............................... 69
Taxation of Residual Certificates........................................ 69
Taxation of REMIC Income............................................... 69
Basis and Losses....................................................... 70
Treatment of Certain Items of REMIC Income and Expense................. 71
Limitations on Offset or Exemption of REMIC Income..................... 71
Tax-Related Restrictions on Transfer of Residual Certificates.......... 72
Sale or Exchange of a Residual Certificate............................. 74
Mark to Market Regulations............................................. 75
Taxes That May Be Imposed on the REMIC Pool.............................. 75
Prohibited Transactions................................................ 75
Contributions to the REMIC Pool After the Startup Day.................. 75
Net Income from Foreclosure Property................................... 75
Liquidation of the REMIC Pool............................................ 75
Administrative Matters................................................... 76
Limitations on Deduction of Certain Expenses............................. 76
Taxation of Certain Foreign Investors.................................... 76
Regular Certificates................................................... 76
Residual Certificates.................................................. 77
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Backup Withholding...................................................... 77
Reporting Requirements.................................................. 77
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election Is Made........................................................ 78
General................................................................. 78
Tax Status.............................................................. 79
Premium and Discount.................................................... 79
Premium............................................................... 79
Original Issue Discount............................................... 79
Market Discount....................................................... 80
Recharacterization of Servicing Fees.................................... 80
Sale or Exchange of Certificates........................................ 80
Stripped Certificates................................................... 81
General............................................................... 81
Status of Stripped Certificates....................................... 82
Taxation of Stripped Certificates..................................... 82
Reporting Requirements and Backup Withholding........................... 83
Taxation of Certain Foreign Investors................................... 84
ERISA CONSIDERATIONS...................................................... 84
General................................................................. 84
Certain Requirements Under ERISA........................................ 84
General............................................................... 84
Parties in Interest/Disqualified Persons.............................. 84
Delegation of Fiduciary Duty.......................................... 85
Administrative Exemptions............................................... 85
Individual Administrative Exemptions.................................. 85
PTE 83-1.............................................................. 86
Exempt Plans............................................................ 87
Unrelated Business Taxable Income--Residual Certificates................ 87
LEGAL INVESTMENT.......................................................... 87
PLAN OF DISTRIBUTION...................................................... 89
USE OF PROCEEDS........................................................... 90
LEGAL MATTERS............................................................. 90
RATING.................................................................... 90
INDEX OF SIGNIFICANT DEFINITIONS.......................................... 91
</TABLE>
5
<PAGE>
SUMMARY OF PROSPECTUS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the
applicable Prospectus Supplement. Certain capitalized terms used and not
otherwise defined herein shall have the meanings given elsewhere in this
Prospectus. See the "Index of Significant Definitions" beginning on page 91.
Title of Securities...... Mortgage Pass-Through Certificates (Issuable in
Series).
Seller................... Norwest Asset Securities Corporation (the "SELLER"),
a direct, wholly-owned subsidiary of Norwest
Mortgage, Inc. ("NORWEST MORTGAGE"), which is an
indirect, wholly-owned subsidiary of Norwest
Corporation ("NORWEST CORPORATION"). See "The
Seller."
Servicers................ Norwest Mortgage and, to the extent specified in the
applicable Prospectus Supplement, one or more other
entities identified therein (each, a "SERVICER")
will service the Mortgage Loans contained in each
Trust Estate. Each Servicer will perform certain
servicing functions with respect to the Mortgage
Loans serviced by it pursuant to a related Servicing
Agreement (each, an "UNDERLYING SERVICING
AGREEMENT"). See "Servicing of the Mortgage Loans."
Master Servicer.......... Norwest Bank Minnesota, National Association
("NORWEST BANK" and, in such capacity, the "MASTER
SERVICER"). Norwest Bank is a direct, wholly-owned
subsidiary of Norwest Corporation and an affiliate
of the Seller. The Master Servicer will perform
certain administration, calculation and reporting
functions with respect to each Trust Estate and will
supervise the Servicers, in each case, pursuant to a
Pooling and Servicing Agreement. In addition, the
Master Servicer will generally be required to make
Periodic Advances (to the extent described herein)
with respect to the Mortgage Loans in each Trust
Estate to the extent that the related Servicer
(other than Norwest Mortgage) fails to make a
required Periodic Advance. See "Servicing of the
Mortgage Loans--The Master Servicer" and "--Periodic
Advances and Limitations Thereon."
The Trust Estates........ Each Trust Estate will be formed and each Series of
Certificates will be issued pursuant to a pooling
and servicing agreement (each, a "POOLING AND
SERVICING AGREEMENT") among the Seller, the Master
Servicer and the Trustee specified in the applicable
Prospectus Supplement. Each Trust Estate will
consist of the related Mortgage Loans (other than
the Fixed Retained Yield (as defined herein), if
any) and certain other related property, as
specified in the applicable Prospectus Supplement.
The Mortgage Loans will be conventional, fixed or
adjustable interest rate, mortgage loans secured by
first liens on one- to four-family residential
properties.
The Mortgage Loans will have been acquired by the
Seller from its affiliate Norwest Mortgage. The
Mortgage Loans will have been originated by Norwest
Mortgage or an affiliate or will have been acquired
by Norwest Mortgage directly or indirectly from
other mortgage loan originators. All of the Mortgage
Loans will have been underwritten either to Norwest
Mortgage's standards, to the extent specified in the
applicable Prospectus Supplement, to the standards
of a Pool Insurer or to standards otherwise
specified in the applicable Prospectus Supplement.
See "The Trust Estates" and "The Mortgage Loan
Programs--Mortgage Loan Underwriting."
6
<PAGE>
The particular characteristics or expected
characteristics of the Mortgage Loans and a
description of the other property, if any, included
in a Trust Estate will be set forth in the
applicable Prospectus Supplement.
Description of the
Certificates............. Each Series of Certificates will include one or more
Classes, any of which may consist of multiple
Subclasses. A Class or Subclass of Certificates will
be entitled, to the extent of funds available, to
either (i) principal and interest payments in
respect of the related Mortgage Loans, (ii)
principal distributions, with no interest
distributions, (iii) interest distributions, with no
principal distributions or (iv) such other
distributions as are described in the applicable
Prospectus Supplement.
Distributions on the
Certificates............. Interest. With respect to each Series of
Certificates, interest on the related Mortgage Loans
at the weighted average of the applicable Mortgage
Interest Rates thereof (net of servicing fees and
certain other amounts as described herein or in the
applicable Prospectus Supplement), will be passed
through to holders of the related Classes of
Certificates in the aggregate, in accordance with
the particular terms of each such Class of
Certificates. See "Description of the Certificates--
Distributions to Certificateholders--Distributions
of Interest" herein. Except as otherwise specified
in the applicable Prospectus Supplement, interest on
each Class and Subclass of Certificates of each
Series will accrue at the pass-through rate for each
Class and Subclass indicated in the applicable
Prospectus Supplement (each, a "PASS-THROUGH RATE")
on the outstanding principal balance or notional
amount thereof.
Principal. With respect to a Series of Certificates,
principal payments (including prepayments) will be
passed through to holders of the related
Certificates or otherwise applied in accordance with
the related Pooling and Servicing Agreement on each
Distribution Date. Distributions in reduction of
principal balance will be allocated among the
Classes and Subclasses of Certificates of a Series
in the manner specified in the applicable Prospectus
Supplement. See "Description of the Certificates--
Distributions to Certificateholders--Distributions
of Principal."
Cut-Off Date............. The date specified in the applicable Prospectus
Supplement.
Distribution Dates....... Distributions on the Certificates will generally be
made on the 25th day (or, if such day is not a
business day, the business day following the 25th
day) of each month, commencing with the month
following the month in which the applicable Cut-Off
Date occurs (each, a "DISTRIBUTION DATE"). If so
specified in the applicable Prospectus Supplement,
distributions on Certificates may be made on a
different day of each month or may be made
quarterly, or semi-annually, on the dates specified
in such Prospectus Supplement.
Record Dates............. Distributions will be made on each Distribution Date
to Certificateholders of record at the close of
business on (unless a different date is specified in
the applicable Prospectus Supplement) the last
business day of the month preceding the month in
which such Distribution Date occurs (each, a "RECORD
DATE").
Credit Enhancement....... A Series of Certificates may include one or more
Classes of Senior Certificates and one or more
Classes of Subordinated Certificates. The rights of
the holders of Subordinated Certificates of a Series
to receive distributions with respect to the related
Mortgage Loans will be subordinated to such rights
of the holders of the
7
<PAGE>
Senior Certificates of the same Series to the extent
and in the manner specified in the applicable
Prospectus Supplement. This subordination is
intended to enhance the likelihood of the timely
receipt by the Senior Certificateholders of their
proportionate share of scheduled monthly principal
and interest payments on the related Mortgage Loans
and to protect them against losses. This protection
will be effected by (i) the preferential right of
the Senior Certificateholders to receive, prior to
any distribution being made in respect of the
related Subordinated Certificates on each
Distribution Date, current distributions on the
related Mortgage Loans of principal and interest due
them on each Distribution Date out of the funds
available for distributions on such date, (ii) by
the right of such holders to receive future
distributions on the Mortgage Loans that would
otherwise have been payable to the holders of
Subordinated Certificates and/or (iii) by the prior
allocation to the Subordinated Certificate of all or
a portion of losses realized on the underlying
Mortgage Loans.
If so specified in the applicable Prospectus
Supplement, the Certificates of any Series, or any
one or more Classes thereof, may be entitled to the
benefits of a limited guarantee, financial guaranty
insurance policy, surety bond, letter of credit,
mortgage pool insurance policy, reserve fund, cross-
support or other form of credit enhancement as
specified in the applicable Prospectus Supplement.
See "Description of the Certificates--Other Credit
Enhancement."
Periodic Advances........ In the event of delinquencies in payments on any
Mortgage Loan, the Servicer servicing such Mortgage
Loan will be obligated to make advances of cash
("PERIODIC ADVANCES") to the Servicer Custodial
Account (as defined herein) to the extent that such
Servicer determines such Periodic Advances would be
recoverable from future payments and collections on
such Mortgage Loan. Any such Periodic Advances will
be reimbursable to such Servicer as described herein
and in the applicable Prospectus Supplement. The
Master Servicer or Trustee will, in certain
circumstances, be required to make Periodic Advances
upon a Servicer default. See "Servicing of the
Mortgage Loans--Periodic Advances and Limitations
Thereon."
Forms of Certificates.... The Certificates will be issued either (i) in book-
entry form ("BOOK-ENTRY CERTIFICATES") through the
facilities of The Depository Trust Company ("DTC")
or (ii) in fully registered, certificated form
("DEFINITIVE CERTIFICATES").
An investor in a Class or Subclass of Book-Entry
Certificates will not receive a physical certificate
representing its ownership interest in such Book-
Entry Certificates, except under extraordinary
circumstances which are discussed in "Description of
the Certificates--Definitive Form" in this
Prospectus. Instead, DTC will effect payments and
transfers by means of its electronic recordkeeping
services, acting through certain participating
organizations. This may result in certain delays in
receipt of distributions by an investor and may
restrict an investor's ability to pledge its
securities. The rights of investors in the Book-
Entry Certificates may generally only be exercised
through DTC and its participating organizations. See
"Description of the Certificates--Book-Entry Form."
Optional Purchase of
Defaulted Mortgage
Loans.................... The Seller may, subject to the terms of the
applicable Pooling and Servicing Agreement, purchase
any defaulted Mortgage Loan or any Mortgage Loan as
to which default is reasonably foreseeable from the
related Trust Estate. See "Pooling and Servicing
Agreement--Optional Purchases."
8
<PAGE>
Optional Purchase of All
Mortgage Loans.......... If so specified in the Prospectus Supplement with
respect to a Series, all, but not less than all, of
the Mortgage Loans in the related Trust Estate and
any property acquired in respect thereof at the
time, may be purchased by the Seller, Norwest
Mortgage or such other party as is specified in the
applicable Prospectus Supplement, in the manner and
at the price specified in such Prospectus
Supplement. In the event that an election is made to
treat the related Trust Estate (or one or more
segregated pools of assets therein) as a REMIC, any
such purchase will be effected only pursuant to a
"qualified liquidation," as defined under Section
860F(a)(4)(A) of the Internal Revenue Code of 1986,
as amended (the "CODE"). Exercise of the right of
purchase will effect the early retirement of the
Certificates of that Series. See "Prepayment and
Yield Considerations."
ERISA Limitations........ A fiduciary of any employee benefit plan subject to
the fiduciary responsibility provisions of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including the "prohibited
transaction" rules thereunder, and to the
corresponding provisions of the Code, should
carefully review with its own legal advisors whether
the purchase or holding of Certificates could give
rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. See "ERISA
Considerations."
Tax Status............... The treatment of the Certificates for federal income
tax purposes will be determined by whether a REMIC
election is made with respect to a Series of
Certificates and, if a REMIC election is made, by
whether the Certificates are Regular Interests or
Residual Interests. See "Certain Federal Income Tax
Consequences."
Legal Investment......... The applicable Prospectus Supplement will specify
whether the Class or Classes of Certificates offered
will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended. Investors whose
investment authority is subject to legal
restrictions should consult their own legal advisors
to determine whether and to what extent such
Certificates constitute legal investments for them.
See "Legal Investment" herein and in the applicable
Prospectus Supplement.
Rating................... It is a condition to the issuance of the
Certificates of any Series offered pursuant to this
Prospectus and a Prospectus Supplement that each
Class or Subclass be rated in one of the four
highest rating categories by at least one nationally
recognized statistical rating organization (a
"RATING AGENCY"). A security rating is not a
recommendation to buy, sell or hold the Certificates
of any Series and is subject to revision or
withdrawal at any time by the assigning rating
agency. Further, such ratings do not address the
effect of prepayments on the yield anticipated by an
investor.
9
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of Certificates.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for
the life of the Certificates of any Series. The Prospectus Supplement for any
Series of Certificates may indicate that an underwriter specified therein
intends to establish a secondary market in such Certificates, however no
underwriter will be obligated to do so. Unless specified in the applicable
Prospectus Supplement, the Certificates will not be listed on any securities
exchange.
LIMITED OBLIGATIONS
Except for any related insurance policies and any reserve fund or credit
enhancement described in the applicable Prospectus Supplement, Mortgage Loans
included in the related Trust Estate will be the sole source of payments on
the Certificates of a Series. The Certificates of any Series will not
represent an interest in or obligation of NASCOR, Norwest Mortgage, Norwest
Bank, the Trustee or any of their affiliates, except for NASCOR's limited
obligations with respect to certain breaches of its representations and
warranties, Norwest Mortgage's obligations as Servicer and Norwest Bank's
obligations as Master Servicer. Neither the Certificates of any Series nor the
related Mortgage Loans will be guaranteed or insured by any governmental
agency or instrumentality, NASCOR, Norwest Mortgage, Norwest Bank, the
Trustee, any of their affiliates or any other person. Consequently, in the
event that payments on the Mortgage Loans are insufficient or otherwise
unavailable to make all payments required on the Certificates, there will be
no recourse to NASCOR, Norwest Mortgage, Norwest Bank, the Trustee or, except
as specified in the applicable Prospectus Supplement, any other entity.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT
With respect to each Series of Certificates, credit enhancement may be
provided in limited amounts to cover certain types of losses on the underlying
Mortgage Loans. Credit enhancement will be provided in one or more of the
forms referred to herein, including, but not limited to: subordination of
other Classes of Certificates of the same Series; a limited guarantee; a
financial guaranty insurance policy; a surety bond; a letter of credit; a pool
insurance policy; a special hazard insurance policy; a mortgagor bankruptcy
bond; a reserve fund; cross-support; and any combination thereof. See
"Description of the Certificates--Other Credit Enhancement" herein. Regardless
of the form of credit enhancement provided, the amount of coverage will be
limited in amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula. Furthermore, such credit enhancements
may provide only very limited coverage as to certain types of losses, and may
provide no coverage as to certain other types of losses. All or a portion of
the credit enhancement for any Series of Certificates will generally be
permitted to be reduced, terminated or substituted for, in the sole discretion
of the Master Servicer, if each applicable Rating Agency indicates that the
then current rating thereof will not be adversely affected. In the event
losses exceed the amount of coverage provided by any credit enhancement or
losses of a type not covered by any credit enhancement occur, such losses will
be borne by the holders of the related Certificates (or certain Classes
thereof). The rating of any Series of Certificates by any applicable Rating
Agency may be lowered following the initial issuance thereof as a result of
the downgrading of the obligations of any applicable credit support provider,
or as a result of losses on the related Mortgage Loans in excess of the levels
contemplated by such Rating Agency at the time of its initial rating analysis.
Neither NASCOR, Norwest Mortgage, Norwest Bank, nor any of their affiliates
will have any obligation to replace or supplement any credit enhancement, or
to take any other action to maintain any rating of any Class of Certificates.
See "Description of the Certificates--Other Credit Enhancement."
RISKS OF THE MORTGAGE LOANS
An investment in securities such as the Certificates, which generally
represent interests in pools of residential mortgage loans, may be affected
by, among other things, a decline in real estate values and changes in the
mortgagor's financial condition. No assurance can be given that the values of
the Mortgaged Properties securing the Mortgage Loans underlying any Series of
Certificates have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans
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contained in a particular Trust Estate, and any secondary financing on the
Mortgaged Properties, become equal to or greater than the value of the
Mortgaged Properties, the actual rates of delinquencies, foreclosures and
losses could be higher than those now generally experienced in the mortgage
lending industry and those experienced in Norwest Mortgage's or other
Servicers' servicing portfolios. In addition to risk factors related to the
residential real estate market generally, certain geographic regions of the
United States from time to time will experience weaker regional economic
conditions and housing markets or be directly or indirectly affected by
natural disasters or civil disturbances such as earthquakes, hurricanes,
floods, eruptions or riots and, consequently, will experience higher rates of
loss and delinquency than on mortgage loans generally. Although Mortgaged
Properties located in certain identified flood zones will be required to be
covered, to the maximum extent available, by flood insurance, as described
under "Servicing of the Mortgage Loans--Insurance Policies," no Mortgaged
Properties will otherwise be required to be insured against earthquake damage
or any other loss not covered by Standard Hazard Insurance Policies, as
described under "Servicing of the Mortgage Loans--Insurance Policies." Adverse
economic conditions generally, in particular geographic areas or industries,
or affecting particular segments of the borrowing community (such as
mortgagors relying on commission income and self-employed mortgagors) and
other factors which may or may not affect real property values (including the
purposes for which the Mortgage Loans were made and the uses of the Mortgaged
Properties) may affect the timely payment by mortgagors of scheduled payments
of principal and interest on the Mortgage Loans and, accordingly, the actual
rates of delinquencies, foreclosures and losses with respect to any Trust
Estate. The Mortgage Loans underlying certain Series of Certificates may be
concentrated in certain regions, and such concentration may present risk
considerations in addition to those generally present for similar mortgage-
backed securities without such concentration. See "The Mortgage Loan
Programs--Mortgage Loan Underwriting" and "Prepayment and Yield
Considerations--Weighted Average Life of Certificates" herein. To the extent
that such losses are not covered by the applicable credit enhancement, holders
of Certificates of the Series evidencing interests in the related Trust Estate
will bear all risk of loss resulting from default by mortgagors and will have
to look primarily to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans. See
"The Trust Estates--Mortgage Loans" and "The Mortgage Loan Programs--Mortgage
Loan Underwriting."
YIELD AND PREPAYMENT CONSIDERATIONS
The yield of the Certificates of each Series will depend in part on the rate
of principal payment on the Mortgage Loans (including prepayments,
liquidations due to defaults and mortgage loan repurchases). Such yield may be
adversely affected, depending upon whether a particular Certificate is
purchased at a premium or discount price, by a higher or lower than
anticipated rate of prepayments on the related Mortgage Loans. In particular,
the yield on Classes of Certificates entitling the holders thereof primarily
or exclusively to payments of interest or primarily or exclusively to payments
of principal will be extremely sensitive to the rate of prepayments on the
related Mortgage Loans. In addition, the yield on certain Classes of
Certificates may be relatively more sensitive to the rate of prepayment of
specified Mortgage Loans than other Classes of Certificates. In particular,
prepayments are influenced by a number of factors, including prevailing
mortgage market interest rates, local and national economic conditions,
homeowner mobility and the ability of the borrower to obtain refinancing. In
addition, the yield to investors may be adversely affected by interest
shortfalls which may result from the timing of the receipt of prepayments or
liquidations to the extent that such interest shortfalls are not covered by
aggregate Servicing Fees or other mechanisms specified in the applicable
Prospectus Supplement. The yield to investors in Classes of Certificates will
be adversely affected to the extent that losses on the Mortgage Loans in the
related Trust Estate are allocated to such Classes and may be adversely
affected to the extent of unadvanced delinquencies on the Mortgage Loans in
the related Trust Estate. Classes of Certificates identified in the applicable
Prospectus Supplement as Subordinated Certificates are more likely to be
affected by delinquencies and losses than other Classes of Certificates. See
"Prepayment and Yield Considerations."
BOOK-ENTRY SYSTEM FOR CERTAIN CLASSES AND SUBCLASSES OF CERTIFICATES
Since transactions in the Classes and Subclasses of Book-Entry Certificates
of any Series generally can be effected only through DTC, DTC Participants and
Indirect DTC Participants, the ability of a Beneficial Owner to pledge Book-
Entry Certificates to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Book-Entry Certificates, may
be limited due to the lack of a physical certificate for such Book-Entry
Certificates. In addition, under a book-entry format, Beneficial Owners may
experience delays in their receipt of payments, since distributions will be
made by the Master Servicer, or a Paying Agent on behalf of the Master
Servicer, to Cede, as nominee for DTC. Also, issuance of the Book-Entry
Certificates in book-entry form may reduce the liquidity thereof in any
secondary trading market that may develop therefor because investors
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may be unwilling to purchase securities for which they cannot obtain delivery
of physical certificates. See "Description of the Certificates--Book-Entry
Form."
THE TRUST ESTATES
GENERAL
The Trust Estate for each Series of Certificates will consist primarily of
Mortgage Loans evidenced by promissory notes (the "MORTGAGE NOTES") secured by
mortgages, deeds of trust or other instruments creating first liens (the
"MORTGAGES") on some or all of the following six types of property (as so
secured, the "MORTGAGED PROPERTIES"), to the extent set forth in the
applicable Prospectus Supplement: (i) one- to four-family detached residences,
(ii) townhouses, (iii) condominium units, (iv) units within planned unit
developments, (v) long-term leases with respect to any of the foregoing, and
(vi) shares issued by private non-profit housing corporations ("COOPERATIVES")
and the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specified units in such cooperatives' buildings. In addition,
a Trust Estate will also include (i) amounts held from time to time in the
related Certificate Account, (ii) the Seller's interest in any primary
mortgage insurance, hazard insurance, title insurance or other insurance
policies relating to a Mortgage Loan, (iii) any property which initially
secured a Mortgage Loan and which has been acquired by foreclosure or
trustee's sale or deed in lieu of foreclosure or trustee's sale, (iv) if
applicable, and to the extent set forth in the applicable Prospectus
Supplement, any reserve fund or funds, (v) if applicable, and to the extent
set forth in the applicable Prospectus Supplement, contractual obligations of
any person to make payments in respect of any form of credit enhancement or
any interest subsidy agreement and (vi) such other assets as may be specified
in the applicable Prospectus Supplement. The Trust Estate will not include the
portion of interest on the Mortgage Loans which constitutes the Fixed Retained
Yield, if any. See "Servicing of the Mortgage Loans--Fixed Retained Yield,
Servicing Compensation and Payment of Expenses."
MORTGAGE LOANS
The Mortgage Loans will have been acquired by the Seller from its affiliate,
Norwest Mortgage. The Mortgage Loans will have been originated by Norwest
Mortgage or will have been acquired by Norwest Mortgage from other affiliated
or unaffiliated mortgage loan originators. Each Mortgage Loan will have been
underwritten either to Norwest Mortgage's standards, to the extent specified
in the applicable Prospectus Supplement, to the standards of a Pool Insurer or
to such other standards set forth in the applicable Prospectus Supplement. See
"The Mortgage Loan Programs--Mortgage Loan Production Sources" and "--Mortgage
Loan Underwriting." The Prospectus Supplement for each Series will set forth
the respective number and principal amounts of Mortgage Loans (i) originated
by Norwest Mortgage or its affiliate and (ii) purchased by Norwest Mortgage or
its affiliates from unaffiliated mortgage loan originators through Norwest
Mortgage's mortgage loan purchase programs.
Each of the Mortgage Loans will be secured by a Mortgage on a Mortgaged
Property located in any of the 50 states or the District of Columbia.
Generally, the land underlying a Mortgaged Property will consist of five acres
or less but may consist of greater acreage in Norwest Mortgage's discretion.
The borrowers for each of the Mortgage Loans will be natural persons or, under
certain conditions, borrowers may be inter vivos revocable trusts established
by natural persons.
If specified in the applicable Prospectus Supplement, the Mortgage Loans may
be secured by leases on real property under circumstances that Norwest
Mortgage determines in its discretion are commonly acceptable to institutional
mortgage investors. A Mortgage Loan secured by a lease on real property is
secured not by a fee simple interest in the Mortgaged Property but rather by a
lease under which the mortgagor has the right, for a specified term, to use
the related real estate and the residential dwelling located thereon.
Generally, a Mortgage Loan will be secured by a lease only if the use of
leasehold estates as security for mortgage loans is customary in the area, the
lease is not subject to any prior lien that could result in termination of the
lease and the term of the lease ends at least five years beyond the maturity
date of the related Mortgage Loan. The provisions of each lease securing a
Mortgage Loan will expressly permit (i) mortgaging of the leasehold estate,
(ii) assignment of the lease without the lessor's consent and (iii)
acquisition by the holder of the Mortgage, in its own or its nominee's name,
of the rights of the lessee upon foreclosure or assignment in lieu of
foreclosure, unless alternative arrangements provide the holder of the
Mortgage with substantially similar protections. No lease will contain
provisions which (i) provide for termination upon the lessee's default without
the holder of the Mortgage being entitled to receive written notice of, and
opportunity to cure, such default, (ii) provide for termination in the event
of damage or destruction as long as the Mortgage is in existence or (iii)
prohibit the holder of the Mortgage from being insured under the hazard
insurance policy or policies related to the premises.
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The Prospectus Supplement will set forth the geographic distribution of
Mortgaged Properties and the number and aggregate unpaid principal balances of
the Mortgage Loans by category of Mortgaged Property. The Prospectus
Supplement for each Series will also set forth the range of original terms to
maturity of the Mortgage Loans in the Trust Estate, the weighted average
remaining term to stated maturity at the Cut-Off Date of such Mortgage Loans,
the earliest and latest months of origination of such Mortgage Loans, the
range of Mortgage Interest Rates borne by such Mortgage Loans, if such
Mortgage Loans have varying Net Mortgage Interest Rates, the weighted average
Net Mortgage Interest Rate at the Cut-Off Date of such Mortgage Loans, the
range of Loan-to-Value Ratios at the time of origination of such Mortgage
Loans and the range of principal balances at origination of such Mortgage
Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the Prospectus
Supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such
cases, information as to the final characteristics of the Mortgage Loans and
Mortgaged Properties will be available in a Current Report on Form 8-K which
will be filed with the Commission within 15 days of the initial issuance of
the related Series.
The Mortgage Loans in a Trust Estate will generally have monthly payments
due on the first of each month (each, a "DUE DATE") but may, if so specified
in the applicable Prospectus Supplement, have payments due on a different day
of each month and will be of one of the following types of mortgage loans:
a. Fixed Rate Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate, fully- amortizing Mortgage
Loans providing for level monthly payments of principal and interest and terms
at origination or modification of not more than 30 years. If specified in the
applicable Prospectus Supplement, fixed rates on certain Mortgage Loans may be
converted to adjustable rates after origination of such Mortgage Loans and
upon the satisfaction of other conditions specified in the applicable
Prospectus Supplement. If so specified in the applicable Prospectus
Supplement, the Pooling and Servicing Agreement will require the Seller or
another party to repurchase each such converted Mortgage Loan at the price set
forth in the applicable Prospectus Supplement. A Trust Estate containing fixed
rate Mortgage Loans may contain convertible Mortgage Loans which have
converted from an adjustable interest rate prior to the formation of the Trust
Estate and which are subject to no further conversions.
b. Adjustable Rate Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain adjustable-rate, fully-amortizing
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 Due Date, and thereafter at either six-month, one-year or other
intervals over the term of the Mortgage Loan to equal the sum of a fixed
margin set forth in the related Mortgage Note and an index. The applicable
Prospectus Supplement will set forth the relevant index and the highest,
lowest and weighted average margin with respect to the adjustable rate
mortgage loans in the related Trust Estate. The applicable Prospectus
Supplement will also indicate any periodic or lifetime limitations on changes
in any per annum Mortgage Rate at the time of any adjustment.
If specified in the applicable Prospectus Supplement, adjustable rates on
certain Mortgage Loans may be converted to fixed rates after origination of
such Mortgage Loans and upon the satisfaction of the conditions specified in
the applicable Prospectus Supplement. If specified in the applicable
Prospectus Supplement, the Seller or another party will generally be required
to repurchase each such converted Mortgage Loan at the price set forth in the
applicable Prospectus Supplement. A Trust Estate containing adjustable-rate
Mortgage Loans may contain convertible Mortgage Loans which have converted
from a fixed interest rate prior to the formation of the Trust Estate.
If so specified in the applicable Prospectus Supplement, the Trust Estate
may contain adjustable-rate Mortgage Loans which have Mortgage Interest Rates
that generally adjust monthly or may adjust at other intervals as specified in
the applicable Prospectus Supplement. The scheduled monthly payment will be
adjusted as and when described in the applicable Prospectus Supplement (at
intervals which may be 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
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accrued thereon in any month to exceed the current scheduled monthly payment
on such mortgage loan, the resulting amount of interest that has accrued but
is not then payable ("DEFERRED INTEREST") will be added to the principal
balance of such Mortgage Loan.
c. Graduated Payment Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate, graduated payment Mortgage
Loans having original or modified terms to maturity of not more than 30 years
with monthly payments during the first year calculated on the basis of an
assumed interest rate which is a specified percentage below the Mortgage Rate
on such Mortgage Loan. Such monthly payments increase at the beginning of the
second year by a specified percentage of the monthly payment during the
preceding year and each year specified thereafter to the extent necessary to
amortize the Mortgage Loan over the remainder of its term 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 PAYMENT 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.
d. Subsidy Loans. If so specified in the applicable Prospectus Supplement, a
Trust Estate may contain Mortgage Loans subject to temporary interest subsidy
agreements ("SUBSIDY LOANS") pursuant to which the monthly payments made by
the related mortgagors will be less than the scheduled monthly payments on
such Mortgage Loans with the present value of the resulting difference in
payment ("SUBSIDY PAYMENTS") being provided by the employer of the mortgagor,
generally on an annual basis. Subsidy Payments will generally be placed in a
custodial account ("SUBSIDY ACCOUNT") by the related Servicer. Despite the
existence of a subsidy program, a mortgagor remains primarily liable for
making all scheduled payments on a Subsidy Loan and for all other obligations
provided for in the related Mortgage Note and Mortgage Loan.
Subsidy Loans are offered by employers generally through either a graduated
or fixed subsidy loan program, or a combination thereof. The terms of the
subsidy agreements relating to Subsidy Loans generally range from one to ten
years. The subsidy agreements relating to Subsidy Loans made under a graduated
program generally will provide for subsidy payments that result in effective
subsidized interest rates between three percentage points and five percentage
points below the Mortgage Interest Rates specified in the related Mortgage
Notes. Generally, under a graduated program, the subsidized rate for a
Mortgage Loan will increase approximately one percentage point per year until
it equals the full Mortgage Interest Rate. For example, if the initial
subsidized interest rate is five percentage points below the Mortgage Interest
Rate in year one, the subsidized rate will increase to four percentage points
below the Mortgage Interest Rate in year two, and likewise until year six,
when the subsidized rate will equal the Mortgage Interest Rate. Where the
subsidy agreements relating to Subsidy Loans are in effect for longer than
five years, the subsidized interest rates generally increase at smaller
percentage increments for each year. The subsidy agreements relating to
Subsidy Loans made under a fixed program generally will provide for subsidized
interest rates at fixed percentages (generally one percentage point to two
percentage points) below the Mortgage Interest Rates for specified periods,
generally not in excess of ten years. Subsidy Loans are also offered pursuant
to combination fixed/graduated programs. The subsidy agreements relating to
such Subsidy Loans generally will provide for an initial fixed subsidy of up
to five percentage points below the related Mortgage Interest Rate for up to
five years, and then a periodic reduction in the subsidy for up to five years,
at an equal fixed percentage per year until the subsidized rate equals the
Mortgage Interest Rate.
Generally, employers may terminate subsidy programs in the event of (i) the
mortgagor's death, retirement, resignation or termination of employment, (ii)
the full prepayment of the Subsidy Loan by the mortgagor, (iii) the sale or
transfer by the mortgagor of the related Mortgaged Property as a result of
which the mortgagee is entitled to accelerate the Subsidy Loan pursuant to the
"due-on-sale" clause contained in the Mortgage, or (iv) the commencement of
foreclosure proceedings or the acceptance of a deed in lieu of foreclosure. In
addition, some subsidy programs provide that if prevailing market rates of
interest on mortgage loans similar to a Subsidy Loan are less than the
Mortgage Interest Rate of such Subsidy Loan, the employer may request that the
mortgagor refinance such Subsidy Loan and may terminate the related subsidy
agreement if the mortgagor fails to refinance such Subsidy Loan. In the event
the mortgagor refinances such Subsidy Loan, the new loan will not be included
in the Trust Estate. See "Prepayment and Yield Considerations." 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
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payments, if any. The mortgagor's reduced monthly housing expense as a
consequence of payments under a subsidy agreement is used by Norwest Mortgage
in determining certain expense-to-income ratios utilized in underwriting a
Subsidy Loan. See "The Mortgage Loan Programs--Mortgage Loan Underwriting."
e. Buy-Down Loans. If so specified in the applicable Prospectus Supplement,
a Trust Estate may contain Mortgage Loans subject to temporary buy-down plans
("BUY-DOWN LOANS") pursuant to which the monthly payments made by the
mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments on the Mortgage Loan. The resulting difference in
payment will be compensated for from an amount contributed by the seller of
the related Mortgaged Property or another source, including the originator of
the Mortgage Loan (generally on a present value basis) and, if so specified in
the applicable Prospectus Supplement, placed in a custodial account (the "BUY-
DOWN FUND") by the related Servicer. If the mortgagor on a Buy-Down Loan
prepays such Mortgage Loan in its entirety, or defaults on such Mortgage Loan
and the Mortgaged Property is sold in liquidation thereof, during the period
when the mortgagor is not obligated, on account of the buy-down plan, to pay
the full monthly payment otherwise due on such loan, the unpaid principal
balance of such Buy-Down Loan will be reduced by the amounts remaining in the
Buy-Down Fund with respect to such Buy-Down Loan, and such amounts will be
deposited in the Servicer Custodial Account or the Certificate Account, net of
any amounts paid with respect to such Buy-Down Loan by any insurer, guarantor
or other person pursuant to a credit enhancement arrangement described in the
applicable Prospectus Supplement.
f. Balloon Loans. If so specified in the applicable Prospectus Supplement, a
Trust Estate may contain Mortgage Loans which are amortized over a fixed
period not exceeding 30 years but which have shorter terms to maturity
("BALLOON LOANS") 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 the related mortgagor refinances a
Balloon Loan at maturity, the new loan will not be included in the Trust
Estate. See "Prepayment and Yield Considerations."
g. Pledged Asset Mortgage Loans. If so specified in the applicable
Prospectus Supplement, a Trust Estate may contain fixed-rate mortgage loans
having original terms to stated maturity of not more than 30 years which are
either (i) secured by a security interest in additional collateral (normally
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
COLLATERAL"). Generally, the amount of such Additional Collateral will not
exceed 30% of the amount of such loan, and the requirement to maintain
Additional Collateral will terminate when the principal amount of the loan is
paid down to a predetermined amount.
A Trust Estate may also include other types of first lien, residential
Mortgage Loans to the extent set forth in the applicable Prospectus
Supplement.
THE SELLER
Norwest Asset Securities Corporation (the "SELLER" or "NASCOR") is a direct,
wholly owned subsidiary of Norwest Mortgage, Inc. and an indirect, wholly
owned subsidiary of Norwest Corporation, a corporation organized under the
laws of Delaware ("NORWEST CORPORATION"). The Seller was incorporated in the
State of Delaware on March 28, 1996.
The limited purposes of the Seller are, in general, to acquire, own and sell
mortgage loans; to issue, acquire, own, hold and sell mortgage pass-through
securities which represent ownership interests in mortgage loans, collections
thereon and related properties; and to engage in any acts which are incidental
to, or necessary, suitable or convenient to accomplish, the foregoing.
The Seller maintains its principal office at 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
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to repurchase or substitute for Mortgage Loans in a Trust Estate in the event
of defective documentation or upon the breach of certain representations and
warranties made by the Seller. See "The Pooling and Servicing Agreement--
Assignment of Mortgage Loans to the Trustee."
NORWEST MORTGAGE
Norwest Mortgage, Inc. ("NORWEST MORTGAGE") was originally incorporated as a
Minnesota corporation on July 1, 1983. On August 30, 1995, Norwest Mortgage
and Directors Mortgage Loan Corporation, a California corporation, completed a
statutory merger. As a result of the merger, Norwest became a California
corporation as of September 1, 1995. Norwest Mortgage is engaged principally
in the business of (i) originating, purchasing and selling residential
mortgage loans in its own name and through its affiliates, Norwest Funding,
Inc. and Norwest Funding II, Inc. (collectively, "NORWEST FUNDING") and (ii)
servicing residential mortgage loans for its own account or for the account of
others. Norwest Mortgage is a direct, wholly owned subsidiary of Norwest Nova,
Inc. and an indirect, wholly owned subsidiary of Norwest Corporation. The
executive offices of Norwest Mortgage are located at 405 Southwest 5th Street,
Des Moines, Iowa 50309-4603, and its telephone number is (515) 221-7300.
On May 7, 1996 Norwest Mortgage and Norwest Funding acquired all of the
mortgage origination, servicing and secondary marketing operations of The
Prudential Home Mortgage Company, Inc. ("PHMC"), an indirect, wholly owned
subsidiary of The Prudential Insurance Company of America, and purchased
certain mortgage loans from PHMC and a substantial portion of PHMC's mortgage
servicing portfolio (such transaction, the "PHMC ACQUISITION").
On January 7, 1997, a complaint was served on PHMC with respect to an
individual and purported class action filed by The Capitol Life Insurance
Company ("CAPITOL LIFE") in the Superior Court of New Jersey against PHMC, The
Prudential Home Mortgage Securities Company, Inc. ("PHMSC") and certain of
their affiliates and 100 unnamed "Doe defendants". On March 26, 1997, PHMC and
others filed a motion to dismiss the complaint for failure to state a claim on
which relief can be granted. On June 2, 1997, an amended complaint was filed
and American Investors Life Insurance Company joined Capitol Life as a named
plaintiff in the actions. As amended, the complaint asserts claims against
PHMC, PHMSC, certain of their present and former affiliates and certain former
employees as well as Merrill Lynch & Co., Kidder, Peabody & Co. Incorporated,
Lehman Brothers Inc. and Salomon Brothers Inc. As amended, the complaint
alleges, among other things, that the defendants made false and misleading
statements and/or omissions of material fact and fraudulently concealed
material facts in connection with the purchase by the plaintiffs of certain of
PHMSC's Subordinated Mortgage Securities, Series 1992-A. One of the named
defendants, who is a former employee of PHMC and certain of its affiliates, is
an officer and employee of the Seller and Norwest Mortgage. The Seller has
been advised that PHMC, PHMSC, their affiliated defendants and such common
employee will 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, 1996, Norwest Mortgage had a
net worth of approximately $430.9 million.
NORWEST BANK
Norwest Bank Minnesota, National Association ("NORWEST BANK") will act as
Master Servicer with respect to each Series. Norwest Bank is a direct, wholly
owned subsidiary of Norwest Corporation. Norwest Bank is a national banking
association originally chartered in 1872 and is engaged in a wide range of
activities typical of a national bank.
Norwest Bank's principal office is located at Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479. Norwest Bank conducts its master
servicing and securities administration services at its offices in Columbia,
Maryland. Its address there is 11000 Broken Land Parkway, Columbia, Maryland
21044-3662 and its telephone number is (410) 884-2000.
THE MORTGAGE LOAN PROGRAMS
MORTGAGE LOAN PRODUCTION SOURCES
Norwest Mortgage conducts a significant portion of its mortgage loan
originations through more than 700 loan production offices (the "LOAN STORES")
located throughout all 50 states. Norwest Mortgage also conducts a significant
portion of its mortgage
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loan originations through 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 anywhere in the United States.
The following are Norwest Mortgage's primary sources of mortgage loan
originations: (i) direct contact with prospective borrowers (including
borrowers with mortgage loans currently serviced by Norwest Mortgage or
borrowers referred by borrowers with mortgage loans currently serviced by
Norwest Mortgage), (ii) referrals by realtors, other real estate professionals
and prospective borrowers to the Loan Stores, (iii) referrals from selected
corporate clients, (iv) originations by Norwest Mortgage's Private Mortgage
Banking division (including referrals from the private banking group of
Norwest Bank and other affiliated banks), which division specializes in
providing services to individuals meeting certain earnings, liquidity or net
worth parameters, (v) several joint ventures into which Norwest Mortgage,
through its wholly owned subsidiary, Norwest Mortgage Ventures, Inc., has
entered with realtors and banking institutions (the "JOINT VENTURES") and (vi)
referrals from mortgage brokers and similar entities. In addition to its own
mortgage loan originations, Norwest Mortgage acquires qualifying mortgage
loans from other unaffiliated originators ("CORRESPONDENTS"). See "--
Acquisition of Mortgage Loans from Correspondents" below. The relative
contribution of each of these sources to Norwest Mortgage's business, measured
by the volume of loans generated, tends to fluctuate over time.
Norwest Mortgage Ventures, Inc. owns at least a 50% interest in each of the
Joint Ventures, with the remaining ownership interest in each being owned by a
realtor or a banking institution having significant contact with potential
borrowers. Mortgage loans that are originated by Joint Ventures in which
Norwest Mortgage's partners are realtors are generally made to finance the
acquisition of properties marketed by such Joint Venture partners.
Applications for mortgage loans originated through Joint Ventures are
generally taken by Joint Venture employees and underwritten by Norwest
Mortgage in accordance with its standard underwriting criteria. Such mortgage
loans are then closed by the Joint Ventures in their own names and
subsequently purchased by Norwest Mortgage or Norwest Funding.
Norwest Mortgage may directly contact prospective borrowers (including
borrowers with mortgage loans currently serviced by Norwest Mortgage) through
general and targeted solicitations. Such solicitations are made through direct
mailings, mortgage loan statement inserts and television, radio and print
advertisements and by telephone. Norwest Mortgage's targeted solicitations may
be based on characteristics such as the borrower's mortgage loan interest rate
or payment history and the geographic location of the mortgaged property. See
"Prepayment and Yield Considerations."
A majority of Norwest Mortgage's corporate clients are companies that
sponsor relocation programs for their employees and in connection with which
Norwest Mortgage provides mortgage financing. Eligibility for a relocation
loan is based, in general, on an employer's providing financial assistance to
the relocating employee in connection with a job-required move. Although
Subsidy Loans are typically generated through such corporate-sponsored
programs, the assistance extended by the employer need not necessarily take
the form of a loan subsidy. (Not all relocation loans are generated by Norwest
Mortgage through referrals from its corporate clients; some relocation loans
are generated as a result of referrals from mortgage brokers and similar
entities and others are generated through Norwest Mortgage's acquisition of
mortgage loans from other originators.) Also among Norwest Mortgage's
corporate clients are various professional associations. These associations,
as well as the other corporate clients, promote the availability of a broad
range of Norwest Mortgage mortgage products to their members or employees,
including refinance loans, second-home loans and investment-property loans.
ACQUISITION OF MORTGAGE LOANS FROM CORRESPONDENTS
In order to qualify for participation in Norwest Mortgage's mortgage loan
purchase programs, lending institutions must (i) meet and maintain certain net
worth and other financial standards, (ii) demonstrate experience in
originating residential mortgage loans, (iii) meet and maintain certain
operational standards, (iv) evaluate each loan offered to Norwest Mortgage for
consistency with Norwest Mortgage's underwriting guidelines or the standards
of a Pool Insurer and represent that each loan was underwritten in accordance
with Norwest Mortgage standards or the standards of a Pool Insurer and (v)
utilize the services of qualified appraisers.
The contractual arrangements with Correspondents may involve the commitment
by Norwest Mortgage to accept delivery of a certain dollar amount of mortgage
loans over a period of time; this commitment may be satisfied either by
delivery of mortgage
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loans one at a time or in multiples as aggregated by the Correspondent. The
contractual arrangements with Correspondents may also involve the delegation
of all underwriting functions to such Correspondents ("DELEGATED
UNDERWRITING"), which will result in Norwest Mortgage not performing any
underwriting functions prior to acquisition of the loan but instead relying on
such originators' representations, and Norwest Mortgage's post-purchase
reviews of samplings of mortgage loans acquired from such originators
regarding the originators' compliance with Norwest Mortgage's underwriting
standards. In all instances, however, acceptance by Norwest Mortgage is
contingent upon the loans being found to satisfy Norwest Mortgage's program
standards or the standards of a Pool Insurer. Norwest Mortgage may also
acquire portfolios of loans in negotiated transactions.
MORTGAGE LOAN UNDERWRITING
Norwest Mortgage Underwriting
Norwest Mortgage's underwriting standards are applied by or on behalf of
Norwest Mortgage to evaluate the applicant's credit standing and ability to
repay the loan, as well as the value and adequacy of the mortgaged property as
collateral. The underwriting standards that guide the determination represent
a balancing of several factors that may affect the ultimate recovery of the
loan amount, including, among others, the amount of the loan, the ratio of the
loan amount to the property value (i.e., the lower of the appraised value of
the mortgaged property and the purchase price), the borrower's means of
support and the borrower's credit history. Norwest Mortgage's guidelines for
underwriting may vary according to the nature of the borrower or the type of
loan, since differing characteristics may be perceived as presenting different
levels of risk. With respect to certain Mortgage Loans, the originators of
such loans may have contracted with unaffiliated third parties to perform the
underwriting process. Except as described below, Mortgage Loans were
underwritten by or on behalf of Norwest Mortgage generally in accordance with
the standards and procedures described herein.
Norwest Mortgage utilizes various systems of credit scoring as a tool to
supplement the mortgage loan underwriting process. Credit scoring assists
Norwest Mortgage in the mortgage loan approval process by providing
consistent, objective measures of borrower credit and loan attributes. Such
objective measures are used to evaluate loan applications and assign each
application a "CREDIT SCORE."
The portion of the Credit Score related to borrower credit history is
generally based on computer models developed by a third party. These models
evaluate information available from three major credit reporting bureaus
regarding historical patterns of consumer credit behavior in relation to
default experience for similar types of borrower profiles. A particular
borrower's credit patterns are then considered in order to derive a "FICO
SCORE" which indicates a level of default probability over a two-year period.
The Credit Score is used to determine the type of underwriting process and
which level of underwriter will review the loan file. For transactions which
are determined to be low-risk transactions, based upon the Credit Score and
other parameters (including the mortgage loan production source), the lowest
underwriting authority is generally required. For moderate and higher risk
transactions, higher level underwriters and a full review of the mortgage file
are generally required. Borrowers who have a satisfactory Credit Score (based
upon the mortgage loan production source) are generally subject to streamlined
credit review (which relies on the credit scoring process for various elements
of the underwriting assessments). Such borrowers may also be eligible for a
limited documentation program and are generally permitted a greater latitude
in the application of borrower debt-to-income ratios.
With respect to all mortgage loans underwritten by Norwest Mortgage, Norwest
Mortgage's underwriting of a mortgage loan may be based on data obtained by
parties other than Norwest Mortgage that are involved at various stages in the
mortgage origination or acquisition process. This typically occurs under
circumstances in which loans are subject to more than one approval process, as
when correspondents, certain mortgage brokers or similar entities that have
been approved by Norwest Mortgage to process loans on its behalf, or
independent contractors hired by Norwest Mortgage to perform underwriting
services on its behalf ("CONTRACT UNDERWRITERS") make initial determinations
as to the consistency of loans with Norwest Mortgage underwriting guidelines.
The underwriting of mortgage loans acquired by Norwest Mortgage pursuant to a
Delegated Underwriting arrangement with a Correspondent is not reviewed prior
to acquisition of the mortgage loan by Norwest Mortgage although the mortgage
loan file is reviewed by Norwest Mortgage to confirm that certain documents
are included in the file. Instead, Norwest Mortgage relies on (i) the
Correspondent's representations that such mortgage loan was underwritten in
accordance with Norwest Mortgage's
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underwriting standards and (ii) a post-purchase review of a sampling of all
mortgage loans acquired from such originator. In addition, in order to be
eligible to sell mortgage loans to Norwest Mortgage pursuant to a Delegated
Underwriting arrangement, the originator must meet certain requirements
including, among other things, certain quality, operational and financial
guidelines.
A prospective borrower applying for a mortgage loan is required to complete
a detailed application. The loan application elicits pertinent information
about the applicant, with particular emphasis on the applicant's financial
health (assets, liabilities, income and expenses), the property being financed
and the type of loan desired. A self-employed applicant may be required to
submit his or her most recent signed federal income tax returns. With respect
to every applicant, credit reports are obtained from commercial reporting
services, summarizing the applicant's credit history with merchants and
lenders. Significant unfavorable credit information reported by the applicant
or a credit reporting agency must be explained by the applicant. The credit
review process generally is streamlined for borrowers with a qualifying Credit
Score.
Verifications of employment, income, assets or mortgages may be used to
supplement the loan application and the credit report in reaching a
determination as to the applicant's ability to meet his or her monthly
obligations on the proposed mortgage loan, as well as his or her other
mortgage payments (if any), living expenses and financial obligations. A
mortgage verification involves obtaining information regarding the borrower's
payment history with respect to any existing mortgage the applicant may have.
This verification is accomplished by either having the present lender complete
a verification of mortgage form, evaluating the information on the credit
report concerning the applicant's payment history for the existing mortgage,
communicating, either verbally or in writing, with the applicant's present
lender or analyzing cancelled checks provided by the applicant. Verifications
of income, assets or mortgages may be waived under certain programs offered by
Norwest Mortgage, but Norwest Mortgage's underwriting guidelines require, in
most instances, a verbal or written verification of employment to be obtained.
In some cases, employment histories may be obtained through V.I.E., Inc., an
affiliate of Norwest Mortgage, that obtains employment data from state
unemployment insurance departments or other state agencies. In addition, the
loan applicant may be eligible for a loan approval process permitting limited
documentation. The above referenced reduced documentation options and waivers
limit the amount of documentation required for an underwriting decision and
have the effect of increasing the relative importance of the credit report and
the appraisal. Documentation requirements vary based upon a number of factors,
including the purpose of the loan, the amount of the loan, the ratio of the
loan amount to the property value and the mortgage loan production source.
Norwest Mortgage accepts alternative methods of verification, in those
instances where verifications are part of the underwriting decision; for
example, salaried income may be substantiated either by means of a form
independently prepared and signed by the applicant's employer or by means of
the applicant's most recent paystub and W-2. In cases where two or more
persons have jointly applied for a mortgage loan, the gross incomes and
expenses of all of the applicants, including nonoccupant co-mortgagors, are
combined and considered as a unit.
In general, except for borrowers meeting certain standards who apply for
loans with certain qualifying characteristics under Norwest Mortgage's
"retention program" applicable to then-current borrowers, borrowers applying
for loans must demonstrate that the ratio of their total monthly housing debt
to their monthly gross income (except for borrowers who apply through Norwest
Mortgage's Private Mortgage Banking division), and the ratio of their total
monthly debt to their monthly gross income do not exceed certain maximum
levels. Such maximum levels vary and under the "retention program" may not be
applied, depending on a number of factors including Loan-to-Value Ratio, a
borrower's credit history, a borrower's liquid net worth, the potential of a
borrower for continued employment advancement or income growth, the ability of
the borrower to accumulate assets or to devote a greater portion of income to
basic needs such as housing expense, a borrower's Credit Score and the type of
loan for which the borrower is applying. These calculations are based on the
amortization schedule and the interest rate of the related loan, with each
ratio being computed on the basis of the proposed monthly mortgage payment. In
the case of adjustable-rate mortgage loans, the interest rate used to
determine a mortgagor's monthly payment for purposes of such ratios may, in
certain cases, be the initial mortgage interest rate or another interest rate,
which, in either case, is lower than the sum of the index rate that would have
been applicable at origination plus the applicable margin. In evaluating
applications for Subsidy Loans and Buy-Down Loans, such ratios are determined
by including in the applicant's total monthly housing expense and total
monthly debt the proposed monthly mortgage payment reduced by the amount
expected to be applied on a monthly basis under the related subsidy agreement
or buy-down agreement or, in certain cases, the mortgage payment that would
result from an interest rate lower than the Mortgage Interest Rate but higher
than the effective rate to the mortgagor as a result of the subsidy agreement
or the buy-down agreement. See "The Trust Estates--Mortgage Loans." In the
case of a mortgage loan referred by Norwest Mortgage's Private Mortgage
Banking division, only one qualifying ratio is calculated (the applicant's
ratio of total monthly debt to monthly gross income). In addition, for certain
applicants referred by this division, qualifying income may be based on an
"asset dissipation" approach under which
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future income is projected from the assumed liquidation of a portion of the
applicant's specified assets. Secondary financing is permitted on mortgage
loans under certain circumstances. In those cases, the payment obligations
under both primary and secondary financing are included in the computation of
the housing debt-to-income ratios, and the combined amount of primary and
secondary loans will be used to calculate the combined loan-to-value ratio.
Any secondary financing permitted will generally mature prior to the maturity
date of the related mortgage loan. In evaluating an application with respect
to a "non-owner-occupied" property, which Norwest Mortgage defines as a
property leased to a third party by its owner (as distinct from a "second
home," which Norwest Mortgage defines as an owner-occupied, non-rental
property that is not the owner's principal residence), Norwest Mortgage will
include projected rental income net of certain mortgagor obligations and other
assumed expenses or loss from such property to be included in the applicant's
monthly gross income or total monthly debt in calculating the foregoing
ratios. A mortgage loan secured by a two- to four-family Mortgaged Property is
considered to be an owner-occupied property if the borrower occupies one of
the units; rental income on the other units is generally taken into account in
evaluating the borrower's ability to repay the mortgage loan.
Mortgage Loans will not generally have had at origination a Loan-to-Value
Ratio in excess of 95%. However, if so specified in the applicable Prospectus
Supplement, Mortgage Loans that had Loan-to-Value Ratios at origination in
excess of 95% may be included in the related Trust Estate. The "LOAN-TO-VALUE
RATIO" is the ratio, expressed as a percentage, of the principal amount of the
Mortgage Loan at origination to the lesser of (i) the appraised value of the
related Mortgaged Property, as established by an appraisal obtained by the
originator generally no more than four months prior to origination (or, with
respect to newly constructed properties, no more than twelve months prior to
origination), or (ii) the sale price for such property. In some instances, the
Loan-to-Value Ratio may be based on an appraisal that was obtained by the
originator more than four months prior to origination, provided that (i) a
recertification of the original appraisal is obtained and (ii) the original
appraisal was obtained no more than twelve months prior to origination. For
the purpose of calculating the Loan-to-Value Ratio of any Mortgage Loan that
is the result of the refinancing (including a refinancing for "equity take
out" purposes) of an existing mortgage loan, the appraised value of the
related Mortgaged Property is generally determined by reference to an
appraisal obtained in connection with the origination of the replacement loan.
In connection with certain of its mortgage originations, Norwest Mortgage
currently obtains appraisals through its affiliate, Value Information
Technology, Inc.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at the levels which existed on the dates of appraisal
(or, where applicable, recertification of value) of the related Mortgage
Loans. The appraisal of any Mortgaged Property reflects the individual
appraiser's judgment as to value, based on the market values of comparable
homes sold within the recent past in comparable nearby locations and on the
estimated replacement cost. The appraisal relates both to the land and to the
structure; in fact, a significant portion of the appraised value of a
Mortgaged Property may be attributable to the value of the land rather than to
the residence. Because of the unique locations and special features of certain
Mortgaged Properties, identifying comparable properties in nearby locations
may be difficult. The appraised values of such Mortgaged Properties will be
based to a greater extent on adjustments made by the appraisers to the
appraised values of reasonably similar properties rather than on objectively
verifiable sales data. If residential real estate values generally or in
particular geographic areas decline such that the outstanding balances of the
Mortgage Loans and any secondary financing on the Mortgaged Properties in a
particular Trust Estate become equal to or greater than the values of the
related Mortgaged Properties, the actual rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced in the
mortgage lending industry and those now experienced in Norwest Mortgage's
servicing portfolios. In addition, adverse economic conditions generally, in
particular geographic areas or industries, or affecting particular segments of
the borrowing community (such as mortgagors relying on commission income and
self-employed mortgagors) and other factors which may or may not affect real
property values, including the purposes for which the Mortgage Loans were made
and the uses of the Mortgaged Properties, may affect the timely payment by
mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to any Trust Estate. See "Prepayment and Yield
Considerations--Weighted Average Life of Certificates." To the extent that
such losses are not covered by the methods of credit support or the insurance
policies described herein, they will be borne by holders of the Certificates
of the Series evidencing interests in such Trust Estate.
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
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in a Loan-to-Value Ratio less than or equal to 80%. However, Norwest Mortgage
does not require primary mortgage insurance on loans that have Loan-to-Value
Ratios exceeding 80% if such loans are secured by primary residences or second
homes (excluding cooperatives). Each loan originated without primary mortgage
insurance will have been made at an interest rate that was higher than the
rate would have been if the Loan-to-Value Ratios was 80% or less or if primary
mortgage insurance was obtained. The Prospectus Supplement will specify the
number and percentage of Mortgage Loans contained in the Trust Estate for a
particular Series of Certificates with Loan-to-Value Ratios at origination in
excess of 80% which were originated without primary mortgage insurance.
Except as described below, Mortgage Loans will generally be covered by an
appropriate standard form American Land Title Association ("ALTA") title
insurance policy, or a substantially similar policy or form of insurance
acceptable to Fannie Mae ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). Certain Mortgage Loans ("T.O.P. LOANS") originated by
Norwest Mortgage or Norwest Funding in connection with the "TITLE OPTION PLUS"
program are not covered by title insurance policies, although title searches
are performed in connection with the origination of T.O.P. Loans by American
Land Title Company, Inc., an affiliate of Norwest Mortgage. The Seller will
represent and warrant to the Trustee of any Trust Estate that the Mortgaged
Property related to each Mortgage Loan (including each T.O.P. Loan) is free
and clear of all encumbrances and liens having priority over the first lien of
the related Mortgage, subject to certain limited exceptions as set forth below
under "--Representations and Warranties." However in the event that a lien
senior to the lien of the Mortgage related to a T.O.P. Loan that is contained
in the Trust Estate for any Series is found to exist, the sole recourse of the
Trustee will be against the Seller for breach of its representation and
warranty. The Trustee will not have recourse against any title insurance
company or other party.
Where permitted by law, Norwest Mortgage generally requires that a borrower
include in each monthly payment a portion of the real estate taxes,
assessments, primary mortgage insurance (if applicable), and hazard insurance
premiums and other similar items with respect to the related mortgage loan.
Norwest Mortgage may, however, on a case-by-case basis, in its discretion not
require such advance payments for certain Mortgage Loans, based on an
evaluation of the borrowers' ability to pay such taxes and charges as they
become due.
Pool Certification Underwriting
If specified in the applicable Prospectus Supplement, certain of the
Mortgage Loans will have been reviewed by General Electric Mortgage Insurance
Corporation ("GEMICO"), United Guaranty Residential Insurance Company
("UGRIC") or a similar entity (collectively, the "POOL INSURERS" ) to
determine conformity, in the aggregate, with such company's respective credit,
appraisal and underwriting guidelines. Norwest Mortgage will not have
underwritten such Mortgage Loans. Neither GEMICO nor UGRIC have underwritten
any of the Mortgage Loans for compliance with any investor guidelines.
Based on information provided by the relevant company, as a condition to
eligibility of a Mortgage Loan for inclusion in a mortgage pool to be insured
by GEMICO or UGRIC, the loan originator generally will be required to comply
with the following procedures, although exceptions may be made if permitted by
such company.
Initially, a prospective borrower must fill out a detailed application
providing pertinent credit information. The loan originator obtains a credit
report, which summarizes the prospective borrower's credit history with
merchants and lenders and any record of bankruptcy, or other pertinent legal
history. In addition, a verification of employment for the last two years is
made from either the applicant's employer or a Form W-2 for the most recent
two years and the applicant's most recent pay stub. If an applicant is self-
employed, such applicant submits copies of signed tax returns with all
schedules for the prior two years together with a current year-to-date profit
and loss statement and any other documentation deemed necessary. Rental income
used to qualify the applicant is verified either by lease agreements or by the
borrower's tax returns. In the case of refinancings, the loan originator must
require, among other things, that there has not been more than one delinquency
in the prior 12 months nor, in the case of mortgage loans reviewed by GEMICO,
any delinquency in the past 90 days on the prior mortgage loan.
In determining the adequacy of the Mortgaged Property as collateral, an
independent appraisal must be made of each property considered for financing.
Each appraiser must be selected in accordance with predetermined guidelines
established for appraisers. The appraiser is required to inspect the property
and verify that it is in good condition and that construction, if new, has
been completed. The appraisal is based on the market value of comparable
homes. No appraisal more than six months old will be accepted by GEMICO and no
appraisal more than 120 days old will be accepted by UGRIC.
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Once all applicable employment, credit and property information is received,
a determination must be made by the loan originator (and confirmed on review
by GEMICO or UGRIC) as to whether the prospective borrower has sufficient
monthly income to meet (i) the monthly payment obligations on the proposed
mortgage loan (including principal and interest payments, real estate taxes,
insurance on the subject property, and homeowners' association dues and
secondary financing, if any), and (ii) the aggregate of the foregoing and all
other financial obligations not expected to be fully repaid within the next 10
months. As a general rule, UGRIC permits a maximum 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 and for adjustable rate loans with Loan-to-Value Ratios of 75%
or less. Maximum ratios of 28% and 33%, respectively, are permitted for
adjustable rate loans with Loan-to-Value Ratios above 75%. The general rule
may be varied, and higher debt-to-income ratios may be permitted, in
appropriate cases characterized by lower Loan-to-Value Ratios or other
favorable factors. GEMICO's underwriting process relies on a combination of
its own proprietory credit score model (which includes factors related to a
borrower's credit history as well as specific loan attributes) and the
consideration of borrower debt-to-income ratios. Depending upon the credit
score, GEMICO will permit maximum ratios, as described in clauses (i) and (ii)
above, of 40% and 50%, respectively.
In some special cases, GEMICO and UGRIC may underwrite loans under a
"limited documentation" program. With respect to such loans, limited
investigation into the borrower's credit history and income profile is
undertaken by the originator and such loans may be underwritten primarily on
the basis of an appraisal of the mortgaged property and Loan-to-Value Ratio on
origination. Thus, if the Loan-to-Value Ratio is less than the percentage
required under standard guidelines, the originator may forego certain aspects
of the review relating to monthly income, and, in the case of mortgage loans
reviewed by GEMICO, traditional ratios of monthly or total expenses to gross
income may not be applied. At a minimum, a limited documentation program must
require a loan application, a credit report, an appraisal acceptable to
FNMA/FHLMC performed by an independent appraiser, and a verification of
downpayment or three months of bank statements. The maximum Loan-to-Value
Ratio allowed under any limited documentation program underwritten by GEMICO
and UGRIC is 70%. UGRIC's "limited documentation" program is limited
exclusively to self-employed borrowers.
For any rate or term refinance of a mortgage loan, or conversion of an
adjustable rate mortgage loan, where GEMICO or UGRIC has already insured the
prior loan, GEMICO or UGRIC may have determined a loan's insurability without
reviewing updated credit or collateral information. In the case of seasoned
loans, GEMICO or UGRIC may have determined a loan's insurability by performing
a more limited credit and collateral review.
The foregoing should not be taken as a full and complete discussion of all
of the procedures undertaken in connection with a particular underwriting.
Both GEMICO and UGRIC consider various other factors including, but not
limited to, reviewing sales contracts, verifying deposits and other assets and
examining additional supporting documentation in certain instances such as
divorce decrees and separation agreements. Investors should consult the
particular Pool Insurer's underwriting guidelines for more specific and
complete requirements regarding underwriting standards. Furthermore, the
underwriting process often results in certain compensating factors being
considered to offset the existence of other negative factors in a loan file.
The use of pool certification underwriting by a Pool Insurer in no way
indicates that the related Certificates or Mortgage Loans are insured or
guaranteed under a mortgage pool insurance policy unless the applicable
Prospectus Supplement so specifies.
REPRESENTATIONS AND WARRANTIES
In connection with the transfer of the Mortgage Loans related to any Series
by the Seller to the Trust Estate, the Seller will generally make certain
representations and warranties regarding the Mortgage Loans. In certain cases
where Norwest Mortgage acquired some or all of the Mortgage Loans related to a
Series from a Correspondent, if so indicated in the applicable Prospectus
Supplement, the Seller may, rather than itself making representations and
warranties, cause the representations and warranties made by the Correspondent
in connection with its sale of Mortgage Loans to Norwest Mortgage or Norwest
Funding to be assigned to the Trust Estate. In such cases, the Correspondent's
representations and warranties may have been made as of a date prior to the
date of execution of the Pooling and Servicing Agreement. Unless otherwise
provided in the applicable Prospectus Supplement, such representations and
warranties (whether made by the Seller or another party) will generally
include the following with respect to the Mortgage Loans, or each Mortgage
Loan, as the case may be: (i) the schedule of Mortgage Loans appearing as an
exhibit to such Pooling and Servicing Agreement is correct in all material
respects at the date or dates respecting which such information is furnished
as specified therein; (ii) immediately prior to the transfer and assignment
contemplated by the Pooling and Servicing
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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) no
Mortgage Note or Mortgage is subject to any right of rescission, set-off,
counterclaim or defense; (iv) the Mortgage Loan (other than a T.O.P. Loan as
described above under "--Mortgage Loan Underwriting") is covered by a title
insurance policy (or in the case of any Mortgage Loan secured by a Mortgaged
Property located in a jurisdiction where such policies are generally not
available, an opinion of counsel of the type customarily rendered in such
jurisdiction in lieu of title insurance is instead received); (v) 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 a priority over the first lien of the Mortgage except for those
liens set forth in the Pooling and Servicing Agreement; (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 no representation is
made), 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; (vii) all payments required to be made up to the Due Date
immediately preceding the Cut-Off Date for such Mortgage Loan under the terms
of the related Mortgage Note have been made and no Mortgage loan had more than
one delinquency in the 12 months preceding the Cut-Off Date; and (viii) any
and all requirements of any federal, state or local law with respect to the
origination of the Mortgage Loans including, without limitation, usury, 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.
No representations or warranties are made by the Seller or any other party
as to the environmental condition of any Mortgaged Property including the
absence, presence or effect of hazardous wastes or hazardous substances on
such Mortgaged Property or any effect from the presence or effect of hazardous
wastes or hazardous substances on, near or emanating from such Mortgaged
Property. See "Certain Legal Aspects of the Mortgage Loans--Environmental
Considerations" below.
In addition, no representations or warranties are made by the Seller or any
other party with respect to the absence or effect of fraud in the origination
of any Mortgage Loan, and any loss or liability resulting from the presence or
effect of fraud will be borne solely by Certificateholders.
See "The Pooling and Servicing Agreement--Assignment of Mortgage Loans to
the Trustee" for a description of the limited remedies available in connection
with breaches of the foregoing representations and warranties.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Series of Certificates will include one or more Classes, each of which
may be divided into two or more Subclasses. Any references herein to the
characteristics of a Class of Certificates may also describe the
characteristics of a Subclass of Certificates. In addition, any Class or
Subclass of Certificates may consist of two or more non-severable components,
each of which may exhibit any of the principal or interest payment
characteristics described herein with respect to a Class of Certificates. A
Series may include one or more Classes of Certificates entitled, to the extent
of funds available, to (i) principal and interest distributions in respect of
the related Mortgage Loans, (ii) principal distributions, with no interest
distributions, (iii) interest distributions, with no principal distributions
or (iv) such other distributions as are described in the applicable Prospectus
Supplement.
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "POOLING AND SERVICING AGREEMENT") among the Seller,
Norwest Bank, as the Master Servicer, and the Trustee named in the applicable
Prospectus Supplement. An illustrative form of Pooling and Servicing Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries describe certain provisions
common to the Certificates and to each Pooling and Servicing Agreement. The
summaries do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions of the Pooling and
Servicing Agreement for each Series of Certificates and the applicable
Prospectus Supplement. Wherever particular sections or defined terms of the
Pooling and Servicing Agreement are referred to, such sections or defined
terms are thereby incorporated herein by reference from the form of Pooling
and Servicing Agreement filed as an exhibit to the Registration Statement.
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Unless otherwise specified in the applicable Prospectus Supplement,
distributions to Certificateholders of all Series (other than the final
distribution in retirement of the Certificates) will be made by check mailed
to the address of the person entitled thereto (which in the case of Book-Entry
Certificates will be Cede as nominee for DTC) as it appears on the certificate
register, except that, with respect to any holder of a Certificate evidencing
not less than a certain minimum denomination set forth in the applicable
Prospectus Supplement, distributions will be made by wire transfer in
immediately available funds, provided that the Master Servicer or the Paying
Agent acting on behalf of the Master Servicer shall have been furnished with
appropriate wiring instructions not less than seven business days prior to the
related Distribution Date. The final distribution in retirement of
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency maintained by the Trustee or other entity
for such purpose, as specified in the final distribution notice to
Certificateholders.
Each Series of Certificates will represent ownership interests in the
related Trust Estate. An election may be made to treat the Trust Estate (or
one or more segregated pools of assets therein) with respect to a Series of
Certificates as a REMIC. If such an election is made, such Series will consist
of one or more Classes of Certificates that will represent "regular interests"
within the meaning of Code Section 860G(a)(1) (such Class or Classes
collectively referred to as the "REGULAR CERTIFICATES") and one Class or
Subclass of Certificates with respect to each REMIC that will be designated as
the "residual interest" within the meaning of Code Section 860G(a)(2) (the
"RESIDUAL CERTIFICATES") representing the right to receive distributions as
specified in the Prospectus Supplement for such Series. See "Certain Federal
Income Tax Consequences."
The Seller may sell certain Classes or Subclasses of the Certificates of a
Series, including one or more Classes of Subordinated Certificates, in
privately negotiated transactions exempt from registration under the
Securities Act. Alternatively, if so specified in a Prospectus Supplement
relating to such Subordinated Certificates, the Seller may offer one or more
Classes of the Subordinated Certificates of a Series by means of this
Prospectus and such Prospectus Supplement.
DEFINITIVE FORM
Certificates of a Series that are issued in fully registered, certificated
form are referred to herein as "DEFINITIVE CERTIFICATES." Distributions of
principal of, and interest on, the Definitive Certificates will be made
directly to holders of Definitive Certificates in accordance with the
procedures set forth in the Pooling and Servicing Agreement. The Definitive
Certificates of a Series offered hereby and by means of the applicable
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee or such other entity for such purpose set
forth in the applicable Prospectus Supplement. No service charge will be made
for any transfer or exchange of Definitive Certificates, but the Trustee or
such other entity may require payment of a sum sufficient to cover any tax or
other governmental charge in connection with such transfer or exchange.
In the event that an election is made to treat the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC, the "residual interest"
thereof will be issued as a Definitive Certificate. No legal or beneficial
interest in all or any portion of any "residual interest" may be transferred
without the receipt by the transferor and the Trustee of an affidavit signed
by the transferee stating, among other things, that the transferee (i) is not
a disqualified organization within the meaning of Code Section 860E(e) or an
agent (including a broker, nominee, or middleman) thereof and (ii) understands
that it may incur tax liabilities in excess of any cash flows generated by the
residual interest. Further, the transferee must state in the affidavit that it
(x) historically has paid its debts as they have come due, (y) intends to pay
its debts as they come due in the future and (z) intends to pay taxes
associated with holding the residual interest as they become due. The
transferor must certify to the Trustee that, as of the time of the transfer,
it has no actual knowledge that any of the statements made in the transferee
affidavit are false and no reason to know that the statements made by the
transferee pursuant to clauses (x), (y) and (z) of the preceding sentence are
false. See "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Residual Certificates--Tax-
Related Restrictions on Transfer of Residual Certificates."
BOOK-ENTRY FORM
Each Class or Subclass of the Book-Entry Certificates of a Series initially
will be represented by one or more physical certificates registered in the
name of Cede & Co. ("CEDE"), as nominee of DTC, which will be the "holder" or
"CERTIFICATEHOLDER" of such Certificates, as such terms are used herein. No
person acquiring an interest in a Book-Entry Certificate (a "BENEFICIAL
OWNER") will be entitled to receive a Definitive Certificate representing such
person's interest in the Book-Entry Certificate, except as set forth below.
Unless and until Definitive Certificates are issued under the limited
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circumstances described herein, all references to actions taken by
Certificateholders or holders shall, in the case of the Book-Entry
Certificates, refer to actions taken by DTC upon instructions from its DTC
Participants, and all references herein to distributions, notices, reports and
statements to Certificateholders or holders shall, in the case of the Book-
Entry Certificates, refer to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the Book-Entry Certificates, as the
case may be, for distribution to Beneficial Owners in accordance with DTC
procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its participating
organizations ("DTC PARTICIPANTS") and to facilitate the clearance and
settlement of securities transactions among DTC Participants through
electronic book-entries, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers (which
may include any underwriter identified in the Prospectus Supplement applicable
to any Series), banks, trust companies and clearing corporations. Indirect
access to the DTC system also is available to banks, brokers, dealers, trust
companies and other institutions that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly ("INDIRECT
DTC PARTICIPANTS").
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "RULES"), DTC is required to make book-entry transfers of
Book-Entry Certificates among DTC Participants on whose behalf it acts with
respect to the Book-Entry Certificates and to receive and transmit
distributions of principal of and interest on the Book-Entry Certificates. DTC
Participants and Indirect DTC Participants with which Beneficial Owners have
accounts with respect to the Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Certificates may do so only through DTC Participants
and Indirect DTC Participants. In addition, Beneficial Owners will receive all
distributions of principal and interest from the Master Servicer, or a Paying
Agent on behalf of the Master Servicer, through DTC Participants. DTC will
forward such distributions to its DTC Participants, which thereafter will
forward them to Indirect DTC Participants or Beneficial Owners. Beneficial
Owners will not be recognized by the Trustee or the Master Servicer or any
paying agent as Certificateholders, as such term is used in the Pooling and
Servicing Agreement, and Beneficial Owners will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its DTC
Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, under a book-entry
format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Master Servicer, or a Paying Agent on
behalf of the Master Servicer, to Cede, as nominee for DTC.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Pooling and Servicing Agreement only at
the direction of one or more DTC Participants to whose accounts with DTC the
Book-Entry Certificates are credited. Additionally, DTC has advised the Seller
that it will take such actions with respect to specified Voting Interests only
at the direction of and on behalf of DTC Participants whose holdings of Book-
Entry Certificates evidence such specified Voting Interests. DTC may take
conflicting actions with respect to Voting Interests to the extent that DTC
Participants whose holdings of Book-Entry Certificates evidence such Voting
Interests authorize divergent action.
Neither the Seller, the Master Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held
by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. In the event of the
insolvency of DTC, a DTC Participant or an Indirect DTC Participant in whose
name Book-Entry Certificates are registered, the ability of the Beneficial
Owners of such Book-Entry Certificates to obtain timely payment and, if the
limits of applicable insurance coverage by the Securities Investor Protection
Corporation are exceeded or if such coverage is otherwise unavailable,
ultimate payment, of amounts distributable with respect to such Book-Entry
Certificates may be impaired.
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The Book-Entry Certificates will be converted to Definitive Certificates and
reissued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Trustee is advised in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Certificates and the Trustee is unable to locate a
qualified successor, (ii) the Master Servicer, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of a
dismissal or resignation of the Master Servicer under the Pooling and
Servicing Agreement, Beneficial Owners representing not less than 51% of the
Voting Interests of the outstanding Book-Entry Certificates advise the Trustee
through DTC, in writing, that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the Beneficial Owners' best
interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Beneficial Owners
through DTC Participants of the availability of Definitive Certificates. Upon
surrender by DTC of the physical certificates representing the Book-Entry
Certificates and receipt of instructions for re-registration, the Trustee will
reissue the Book- Entry Certificates as Definitive Certificates to Beneficial
Owners. The procedures relating to payment on and transfer of Certificates
initially issued as Definitive Certificates will thereafter apply to those
Book-Entry Certificates that have been reissued as Definitive Certificates.
DISTRIBUTIONS TO CERTIFICATEHOLDERS
General
On each Distribution Date, each holder of a Certificate of a Class will be
entitled to receive its Certificate's Percentage Interest of the portion of
the Pool Distribution Amount (as defined below) allocated to such Class. The
undivided percentage interest (the "PERCENTAGE INTEREST") represented by any
Certificate of a Subclass or any Class in distributions to such Subclass or
Class will be equal to the percentage obtained by dividing the initial
principal balance (or notional amount) of such Certificate by the aggregate
initial principal balance (or notional amount) of all Certificates of such
Subclass or Class, as the case may be.
In general, the funds available for distribution to Certificateholders of a
Series of Certificates with respect to each Distribution Date for such Series
(the "POOL DISTRIBUTION AMOUNT") will be the sum of all previously
undistributed payments or other receipts on account of principal (including
principal prepayments and Liquidation Proceeds, if any) and interest on or in
respect of the related Mortgage Loans received by the related Servicer after
the Cut-Off Date (except for amounts due on or prior to the Cut-Off Date), or
received by the related Servicer on or prior to the Cut-Off Date but due after
the Cut-Off Date, in either case received on or prior to the business day
preceding the Determination Date in the month in which such Distribution Date
occurs, plus all Periodic Advances with respect to payments due to be received
on the Mortgage Loans on the Due Date preceding such Distribution Date, but
excluding the following:
(a) amounts received as late payments of principal or interest respecting
which one or more unreimbursed Periodic Advances has been made;
(b) that portion of Liquidation Proceeds with respect to a Mortgage Loan
which represents any unreimbursed Periodic Advances;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent (i) the Fixed Retained Yield, if any, (ii) the
applicable Servicing Fee, (iii) the applicable Master Servicing Fee, (iv)
the Trustee Fee, if any, and (v) any other amounts described in the
applicable Prospectus Supplement;
(d) all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such Distribution
Date occurs;
(e) all proceeds (including Liquidation Proceeds other than, in certain
cases as specified in the applicable Prospectus Supplement, Liquidation
Proceeds which were received prior to the related Servicer's determination
that no further recoveries on a defaulted Mortgage Loan will be forthcoming
("PARTIAL LIQUIDATION PROCEEDS")) of any Mortgage Loans, or property
acquired in respect thereof, that were liquidated, foreclosed, purchased or
repurchased pursuant to the applicable Pooling and Servicing Agreement,
which proceeds were received on or after the Due Date occurring in the
month in which such Distribution Date occurs and all principal prepayments
in full, partial principal prepayments and Partial Liquidation Proceeds
received by the related Servicer on or after the Determination Date (or, in
certain cases as specified in the applicable Prospectus Supplement, the Due
Date) occurring in the month in which such Distribution Date occurs, and
all related payments of interest on such amounts;
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(f) that portion of Liquidation Proceeds which represents any unpaid
Servicing Fees, Master Servicing Fee or any Trustee Fee to which the
related Servicer, the Trustee or the Master Servicer, respectively, is
entitled and any unpaid Fixed Retained Yield;
(g) if an election has been made to treat the applicable Trust Estate as
a REMIC, any Net Foreclosure Profits with respect to such Distribution
Date;
(h) all amounts representing certain expenses reimbursable to the Master
Servicer or any Servicer and other amounts permitted to be withdrawn by the
Master Servicer from the Certificate Account, in each case pursuant to the
applicable Pooling and Servicing Agreement;
(i) all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees and payments of interest related to principal
prepayments received on or after the first day of the month in which a
Distribution Date occurs and prior to the Determination Date in the month
of such Distribution Date which the related Servicer is entitled to retain
pursuant to the applicable Underlying Servicing Agreement;
(j) reinvestment earnings on payments received in respect of the Mortgage
Loans; and
(k) any recovery of an amount in respect of principal which had
previously been allocated as a realized loss to such Series of
Certificates.
The applicable Prospectus Supplement for a Series will describe any
variation in the calculation of the Pool Distribution Amount for such Series.
"NET FORECLOSURE PROFITS" with respect to a Distribution Date will be the
excess of (i) the portion of aggregate net Liquidation Proceeds which
represents the amount by which aggregate profits on liquidated Mortgage Loans
with respect to which net Liquidation Proceeds exceed the unpaid principal
balance thereof plus accrued interest thereon at the Mortgage Interest Rate
over (ii) aggregate realized losses on liquidated Mortgage Loans with respect
to which net Liquidation Proceeds are less than the unpaid principal balance
thereof plus accrued interest thereon at the Mortgage Interest Rate.
Distributions of Interest
With respect to each Series of Certificates, interest on the related
Mortgage Loans at the weighted average of the applicable Net Mortgage Interest
Rates thereof, will be passed through monthly to holders of the related
Classes of Certificates in the aggregate, in accordance with the particular
terms of each such Class of Certificates. The "NET MORTGAGE INTEREST RATE" for
each Mortgage Loan in a given period will equal the mortgage interest rate for
such Mortgage Loan in such period, as specified in the related mortgage note
(the "MORTGAGE INTEREST RATE"), less the portion thereof, if any, not
contained in the Trust Estate (the "FIXED RETAINED YIELD"), and less amounts
payable to the Servicers for servicing the Mortgage Loan (the "SERVICING
FEE"), the fee payable to the Master Servicer (the "MASTER SERVICING FEE"),
the fee payable to the Trustee (the "TRUSTEE FEE"), if any, and any related
expenses specified in the applicable Prospectus Supplement.
Interest will accrue on the principal balance (or notional amount, as
described below) of each Class of Certificates entitled to interest at the
Pass-Through Rate for such Class indicated in the applicable Prospectus
Supplement (which may be a fixed rate or an adjustable rate) from the date and
for the periods specified in such Prospectus Supplement. To the extent the
Pool Distribution Amount is available therefor, interest accrued during each
such specified period on each Class of Certificates entitled to interest
(other than a Class that provides for interest that accrues, but is not
currently payable, referred to hereafter as "ACCRUAL CERTIFICATES") will be
distributable on the Distribution Dates specified in the applicable Prospectus
Supplement until the principal balance (or notional amount) of such Class has
been reduced to zero. Distributions allocable to interest on each Certificate
that is not entitled to distributions allocable to principal will generally be
calculated based on the notional amount of such Certificate. The notional
amount of a Certificate will not evidence an interest in or entitlement to
distributions allocable to principal but will be solely for convenience in
expressing the calculation of interest and for certain other purposes.
With respect to any Class of Accrual Certificates, any interest that has
accrued but is not paid on a given Distribution Date will be added to the
principal balance of such Class of Certificates on that Distribution Date.
Distributions of interest on each Class of Accrual Certificates will commence
only after the occurrence of the events or the existence of the circumstance
specified in such Prospectus Supplement and, prior to such time, or in the
absence of such circumstances, the principal balance of such
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Class will increase on each Distribution Date by the amount of interest that
accrued on such Class during the preceding interest accrual period but that
was not required to be distributed to such Class on such Distribution Date.
Any such Class of Accrual Certificates will thereafter accrue interest on its
outstanding principal balance as so adjusted.
Distributions of Principal
The principal balance of any Class of Certificates entitled to distributions
of principal will generally be the original principal balance of such Class
specified in such Prospectus Supplement, reduced by all distributions reported
to the holders of such Certificates as allocable to principal and any losses
on the related Mortgage Loans allocated to such Class of Certificates and (i)
in the case of Accrual Certificates, increased by all interest accrued but not
then distributable on such Accrual Certificates and (ii) in the case of a
Series of Certificates representing interests in a Trust Estate containing
adjustable-rate Mortgage Loans, increased by any Deferred Interest allocable
to such Class. The principal balance of a Class or Subclass of Certificates
generally represents the maximum specified dollar amount (exclusive of any
interest that may accrue on such Class or Subclass to which the holder thereof
is entitled from the cash flow on the related Mortgage Loans at such time) and
will decline to the extent of distributions in reduction of the principal
balance of, and allocations of losses to such Class or Subclass. Certificates
with no principal balance will not receive distributions in respect of
principal. The applicable Prospectus Supplement will specify the method by
which the amount of principal to be distributed on the Certificates on each
Distribution Date will be calculated and the manner in which such amount will
be allocated among the Classes of Certificates entitled to distributions of
principal.
If so provided in the applicable Prospectus Supplement, one or more Classes
of Senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments of principal that are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the months of such payments or of
other unscheduled principal receipts or recoveries in the percentages and
under the circumstances or for the periods specified in such Prospectus
Supplement. Any such allocation of principal prepayments or other unscheduled
receipts or recoveries in respect of principal to such Class or Classes of
Senior Certificates will have the effect of accelerating the amortization of
such Senior Certificates while increasing the interests evidenced by the
Subordinated Certificates in the Trust Estate. Increasing the interests of the
Subordinated Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the subordination provided by the
Subordinated Certificates.
If specified in the applicable Prospectus Supplement, the rights of the
holders of the Subordinated Certificates of a Series of Certificates for which
credit enhancement is provided through subordination to receive distributions
with respect to the Mortgage Loans in the related Trust Estate will be
subordinated to such rights of the holders of the Senior Certificates of the
same Series to the extent described below, except as otherwise set forth in
such Prospectus Supplement. This subordination is intended to enhance the
likelihood of regular receipt by holders of Senior Certificates of the full
amount of scheduled monthly payments of principal and interest due them and to
provide limited protection to the holders of the Senior Certificates against
losses due to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series of
Certificates for which credit enhancement is provided through subordination by
the subordination feature described above will be effected by (i) the
preferential right of such holders to receive, prior to any distribution being
made in respect of the related Subordinated Certificates on each Distribution
Date, current distributions on the related Mortgage Loans of principal and
interest due them on each Distribution Date out of the funds available for
distribution on such date in the related Certificate Account, (ii) by the
right of such holders to receive future distributions on the Mortgage Loans
that would otherwise have been payable to the holders of Subordinated
Certificates and/or (iii) by the prior allocation to the Subordinated
Certificates of all or a portion of losses realized on the related Mortgage
Loans.
Losses realized on liquidated Mortgage Loans (other than Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses as described
below) will be allocated to the holders of Subordinated Certificates through a
reduction of the amount of principal payments on the Mortgage Loans to which
such holders are entitled before any corresponding reduction is made in
respect of the Senior Certificate.
A "SPECIAL HAZARD LOSS" is a loss on a liquidated Mortgage Loan occurring as
a result of a hazard not insured against under a standard hazard insurance
policy of the type described herein under "Servicing of the 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
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Mortgage Loan. A "BANKRUPTCY LOSS" is a loss on a liquidated Mortgage Loan
attributable to certain actions which may be taken by a bankruptcy court in
connection with a Mortgage Loan, including a reduction by a bankruptcy court
of the principal balance of or the interest rate on a Mortgage Loan or an
extension of its maturity. Special Hazard Losses in excess of the amount
specified in the applicable Prospectus Supplement (the "SPECIAL HAZARD LOSS
AMOUNT") are "EXCESS SPECIAL HAZARD LOSSES." Fraud Losses in excess of the
amount specified in the applicable Prospectus Supplement (the "FRAUD LOSS
AMOUNT") are "EXCESS FRAUD LOSSES." Bankruptcy losses in excess of the amount
specified in the applicable Prospectus Supplement (the "BANKRUPTCY LOSS
AMOUNT") are "EXCESS BANKRUPTCY LOSSES." Any Excess Special Hazard Losses,
Excess Fraud Losses or Excess Bankruptcy Losses with respect to a Series will
be allocated on a pro rata basis among the related Classes of Senior and
Subordinated Certificates. An allocation of a loss on a "pro rata basis" among
two or more Classes of Certificates means an allocation on a pro rata basis to
each such Class of Certificates on the basis of their then-outstanding
principal balances in the case of the principal portion of a loss or based on
the accrued interest thereon in the case of an interest portion of a loss.
Since the amounts of the Special Hazard Loss Amount, Fraud Loss Amount and
Bankruptcy Loss Amount for a Series of Certificates are each expected to be
less than the amount of principal payments on the Mortgage Loans to which the
holders of the Subordinated Certificates of such Series are initially entitled
(such amount being subject to reduction, as described above, as a result of
allocation of losses on liquidated Mortgage Loans that are not Special Hazard
Losses, Fraud Losses or Bankruptcy Losses), the holders of Subordinated
Certificates of such Series will bear the risk of Special Hazard Losses, Fraud
Losses and Bankruptcy Losses to a lesser extent than they will bear other
losses on liquidated Mortgage Loans.
Although the subordination feature described above is intended to enhance
the likelihood of timely payment of principal and interest to the holders of
Senior Certificates, shortfalls could result in certain circumstances. For
example, a shortfall in the payment of principal otherwise due the holders of
Senior Certificates could occur if losses realized on the Mortgage Loans in a
Trust Estate were exceptionally high and were concentrated in a particular
month.
The holders of Subordinated Certificates will not be required to refund any
amounts previously properly distributed to them, regardless of whether there
are sufficient funds on a subsequent Distribution Date to make a full
distribution to holders of each Class of Senior Certificates of the same
Series.
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CATEGORIES OF CLASSES OF CERTIFICATES
The Certificates of any Series may be comprised of one or more Classes. Such
Classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a Series of Certificates may identify the Classes
which comprise such Series by reference to the following categories or another
category specified in the applicable Prospectus Supplement.
CATEGORIES OF DEFINITION
CLASSES PRINCIPAL TYPES
Accretion Directed... A Class that receives principal payments from the
accreted interest from specified Accrual Classes. An
Accretion Directed Class also may receive principal
payments from principal paid on the Mortgage Loans for
the related Series.
Component
Certificates......... A Class consisting of "Components." The Components of a
Class of Component Certificates may have different
principal and/or interest payment characteristics but
together constitute a single class and do not represent
severable interests. Each Component of a Class of
Component Certificates may be identified as falling
into one or more of the categories in this chart.
Notional Amount
Class................ A Class having no principal balance and bearing
interest on the related notional amount. The notional
amount is used for purposes of the determination of
interest distributions.
Planned Amortization
Class
(also sometimes
referred to as
a "PAC")............ A Class that is designed to receive principal payments
using a predetermined principal balance schedule
derived by assuming two constant prepayment rates for
the underlying Mortgage Loans. These two rates are the
endpoints for the "structuring range" for the Planned
Amortization Class. The Planned Amortization Classes in
any Series of Certificates may be subdivided into
different categories (e.g., Planned Amortization Class
I ("PAC I") Planned Amortization Class II ("PAC II")
and so forth) derived using different structuring
ranges.
Scheduled
Amortization Class... A Class that is designed to receive principal payments
using a predetermined principal balance schedule but is
not designated as a Planned Amortization Class or
Targeted Amortization Class. The schedule is derived by
assuming either two constant prepayment rates or a
single constant prepayment rate for the underlying
Mortgage Loans. In the former case, the two rates are
the endpoints for the "structuring range" for the
Scheduled Amortization Class and such range generally
is narrower than that for a Planned Amortization Class.
Typically, the Support Class for the applicable Series
of Certificates generally will represent a smaller
percentage of the Scheduled Amortization Class than a
Support Class generally would represent in relation to
a Planned Amortization Class or a Targeted Amortization
Class.
Sequential Pay
Class................ Classes that are entitled to receive principal payments
in a prescribed sequence, that do not have
predetermined principal balance schedules and that, in
most cases, are entitled to receive payments of
principal continuously from the first Distribution Date
on which they receive principal until they are retired.
A single Class is entitled to receive principal
payments before or after other Classes in the same
Series of Certificates may be identified as a
Sequential pay Class.
Strip Class.......... A Class that is entitled to receive a constant
proportion, or "strip," of the principal payments on
the underlying Mortgage Loans.
30
<PAGE>
Support Class (also
sometimes referred
to as a "COMPANION
CLASS")............. A Class that is entitled to receive principal payments
on any Distribution Date only if scheduled payments
have been made on specified Planned Amortization
Classes, Targeted Amortization Classes and/or Scheduled
Amortization Classes.
Targeted
Amortization Class
(also sometimes
referred to as a
"TAC").............. A Class that is designed to receive principal payments
using a predetermined principal balance schedule
derived by assuming a single constant prepayment rate
for the underlying Mortgage Loans.
INTEREST TYPES
Fixed Rate Class..... A Class with an interest rate that is fixed throughout
the life of the Class.
Floating Rate
Class................ A Class with an interest rate that resets periodically
based upon a designated index and that varies directly
with changes in such index.
Inverse Floating
Rate Class........... A Class with an interest rate that resets periodically
based upon a designated index and that varies inversely
with changes in such index and with changes in the
interest rate payable on the related Floating Rate
Class.
Variable Rate
Class................ A Class with an interest rate that resets periodically
and is calculated by reference to the rate or rates of
interest applicable to the Mortgage Loans.
Interest Only
Class................ A Class that is entitled to receive some or all of the
interest payments made on the Mortgage Loans and little
or no principal. Interest Only Classes have either a
nominal principal balance or a notional amount. A
nominal principal balance represents actual principal
that will be paid on the Class. It is referred to as
nominal since it is extremely small compared to other
Classes. A notional amount is the amount used as a
reference to calculate the amount of interest due on an
Interest Only Class that is not entitled to any
distributions in respect of principal.
Principal Only
Class................ A Class that does not bear interest and is entitled to
receive only distributions in respect of principal.
Accrual Class........ A Class that accretes the amount of accrued interest
otherwise distributable on such Class, which amount
will be added as principal to the principal balance of
such Class on each applicable Distribution Date. Such
accretion may continue until some specified event has
occurred or until such Accrual Class is retired.
OTHER CREDIT ENHANCEMENT
In addition to, or in substitution for, the subordination discussed above,
credit enhancement may be provided with respect to any Series of Certificates
in any other manner which may be described in the applicable Prospectus
Supplement, including, but not limited to, credit enhancement through an
alternative form of subordination and/or one or more of the methods described
below.
Limited Guarantee
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, credit enhancement may be provided in the form of a limited
guarantee issued by a guarantor named therein.
31
<PAGE>
Financial Guaranty Insurance Policy or Surety Bond
If so specified in the Prospectus Supplement with respect to a Series of
Certificates credit enhancement may be provided in the form of a financial
guaranty insurance policy or a surety bond issued by an insurer named therein.
Letter of Credit
Alternative credit support with respect to a Series of Certificates may be
provided by the issuance of a letter of credit by the bank or financial
institution specified in the applicable Prospectus Supplement. The coverage,
amount and frequency of any reduction in coverage provided by a letter of
credit issued with respect to a Series of Certificates will be set forth in
the Prospectus Supplement relating to such Series.
Pool Insurance Policies
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller will obtain a pool insurance policy for the Mortgage
Loans in the related Trust Estate. The pool insurance policy will cover any
loss (subject to the limitations described in the applicable Prospectus
Supplement) by reason of default to the extent a related Mortgage Loan is not
covered by any primary mortgage insurance policy. The amount and principal
terms of any such coverage will be set forth in the Prospectus Supplement.
Special Hazard Insurance Policies
If so specified in the applicable Prospectus Supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Seller will
also obtain a special hazard insurance policy for the related Trust Estate in
the amount set forth in such Prospectus Supplement. The special hazard
insurance policy will, subject to the limitations described in the applicable
Prospectus Supplement, protect against loss by reason of damage to Mortgaged
Properties caused by certain hazards not insured against under the standard
form of hazard insurance policy for the respective states in which the
Mortgaged Properties are located. The amount and principal terms of any such
coverage will be set forth in the Prospectus Supplement.
Mortgagor Bankruptcy Bond
If so specified in the applicable Prospectus Supplement, losses resulting
from a bankruptcy proceeding relating to a mortgagor affecting the Mortgage
Loans in a Trust Estate with respect to a Series of Certificates will be
covered under a mortgagor bankruptcy bond (or any other instrument that will
not result in a downgrading of the rating of the Certificates of a Series by
the Rating Agency or Rating Agencies that rated such Series). Any mortgagor
bankruptcy bond or such other instrument will provide for coverage in an
amount meeting the criteria of the Rating Agency or Rating Agencies rating the
Certificates of the related Series, which amount will be set forth in the
applicable Prospectus Supplement. The amount and principal terms of any such
coverage will be set forth in the Prospectus Supplement.
Reserve Fund
If so specified in the applicable Prospectus Supplement, credit enhancement
with respect to a Series of Certificates may be provided by the establishment
of one or more reserve funds (each, a "RESERVE FUND") for such Series.
The Reserve Fund for a Series may be funded (i) by the deposit therein of
cash, U.S. Treasury securities or instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in the applicable Prospectus Supplement, (ii) by the deposit therein
from time to time of certain amounts, as specified in the applicable
Prospectus Supplement, to which the certain Classes of Certificates would
otherwise be entitled or (iii) in such other manner as may be specified in the
applicable Prospectus Supplement.
Cross Support
If specified in the applicable Prospectus Supplement, the beneficial
ownership of separate groups of Mortgage Loans included in a Trust Estate may
be evidenced by separate Classes of Certificates. In such case, credit support
may be provided by a cross
32
<PAGE>
support feature which requires that distributions be made with respect to
certain Classes from mortgage loan payments that would otherwise be
distributed to Subordinated Certificates evidencing a beneficial ownership
interest in other loan groups within the same Trust Estate. The applicable
Prospectus Supplement for a Series that includes a cross support feature will
describe the specific operation of any such cross support feature.
PREPAYMENT AND YIELD CONSIDERATIONS
PASS-THROUGH RATES
Any Class of Certificates of a Series may have a fixed Pass-Through Rate, or
a Pass-Through Rate which varies based on changes in an index or based on
changes with respect to the underlying Mortgage Loans (such as, for example,
varying on the basis of changes in the weighted average Net Mortgage Interest
Rate of the underlying Mortgage Loans).
The Prospectus Supplement for each Series will specify the range and the
weighted average of the Mortgage Interest Rates and, if applicable, Net
Mortgage Interest Rates for the Mortgage Loans underlying such Series as of
the Cut-Off Date. If the Trust Estate includes adjustable-rate Mortgage Loans
or includes Mortgage Loans with different Net Mortgage Interest Rates, the
weighted average Net Mortgage Interest Rate may vary from time to time as set
forth below. See "The Trust Estates." The Prospectus Supplement for a Series
will also specify the initial weighted average Pass-Through Rate for each
Class of Certificates of such Series and will specify whether each such Pass-
Through Rate is fixed or is variable.
The Net Mortgage Interest Rate for any adjustable-rate Mortgage Loan will
change with any changes in the index specified in the applicable Prospectus
Supplement on which such Mortgage Interest Rate adjustments are based, subject
to any applicable periodic or aggregate caps or floors on the related Mortgage
Interest Rate. The weighted average Net Mortgage Interest Rate with respect to
any Series may vary due to changes in the Net Mortgage Interest Rates of
adjustable-rate Mortgage Loans, to the timing of the Mortgage Interest Rate
readjustments of such Mortgage Loans and to different rates of payment of
principal of fixed- or adjustable-rate Mortgage Loans bearing different
Mortgage Interest Rates.
SCHEDULED DELAYS IN DISTRIBUTIONS
At the date of initial issuance of the Certificates of each Series offered
hereby, the initial purchasers of a Class of Certificates may be required to
pay accrued interest at the applicable Pass-Through Rate for such Class from
the Cut-Off Date for such Series to, but not including, the date of issuance.
The effective yield to Certificateholders will be below the yield otherwise
produced by the applicable Pass-Through Rate because the distribution of
principal and interest which is due on each Due Date will not be made until
the 25th day (or, if such day is not a business day, the first business day
following the 25th day) of the month in which such Due Date occurs (or until
such other Distribution Date specified in the applicable Prospectus
Supplement).
EFFECT OF PRINCIPAL PREPAYMENTS
When a Mortgage Loan is prepaid in full, the mortgagor pays interest on the
amount prepaid only to the date of prepayment and not thereafter. Liquidation
Proceeds (as defined herein) and amounts received in settlement of insurance
claims are also likely to include interest only to the time of payment or
settlement. When a Mortgage Loan is prepaid in full or in part, an interest
shortfall may result depending on the timing of the receipt of the prepayment
and the timing of when those prepayments are passed through to
Certificateholders. To partially mitigate this reduction in yield, the
Underlying Servicing Agreements relating to a Series may provide, to the
extent specified in the applicable Prospectus Supplement, that with respect to
certain principal prepayments received, the Master Servicer will be obligated,
on or before each Distribution Date, to pay an amount equal to the lesser of
(i) the aggregate interest shortfall with respect to such Distribution Date
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
payments. 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
affect the total return to investors in any Certificates of a Series that are
offered at a discount to their principal amount and a higher rate of principal
prepayments than anticipated
33
<PAGE>
would negatively affect the total return to investors in the Certificates of a
Series that are offered at a premium to their principal amount. The yield on
Certificates that are entitled solely or disproportionately to distributions
of principal or interest may be particularly sensitive to prepayment rates,
and further information with respect to yield on such Certificates will be
included in the applicable Prospectus Supplement.
WEIGHTED AVERAGE LIFE OF CERTIFICATES
The Mortgage Loans may be prepaid in full or in part at any time. Mortgage
Loan generally will not provide for a prepayment penalty but may so provide if
indicated in the related Prospectus Supplement. Fixed rate Mortgage Loans
generally will contain due-on-sale clauses permitting the mortgagee to
accelerate the maturities of the Mortgage Loans upon conveyance of the related
Mortgaged Properties, and adjustable-rate Mortgage Loans generally will permit
creditworthy borrowers to assume the then-outstanding indebtedness on the
Mortgage Loans.
Prepayments on Mortgage Loans are commonly measured relative to a prepayment
standard or model. The Prospectus Supplement for each Series of Certificates
may describe one or more such prepayment standards or models and contain
tables setting forth the weighted average life of each Class and the
percentage of the original aggregate principal balance of each Class that
would be outstanding on specified Distribution Dates for such Series and the
projected yields to maturity on certain Classes thereof, in each case based on
the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Mortgage Loans are made at rates corresponding to
various percentages of the prepayment standard or model specified in such
Prospectus Supplement.
There is no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to any level of the prepayment standard or
model specified in the applicable Prospectus Supplement. A number of factors,
including but not limited to homeowner mobility, economic conditions, natural
disasters, changes in mortgagors' housing needs, job transfers, unemployment
or, in the case of borrowers relying on commission income and self-employed
borrowers, significant fluctuations in income or adverse economic conditions,
mortgagors' net equity in the properties securing the mortgage loans,
including the use of second or "home equity" mortgage loans by mortgagors or
the use of the properties as second or vacation homes, servicing decisions,
enforceability of due-on-sale clauses, mortgage market interest rates,
mortgage recording taxes, competition among mortgage loan originators
resulting in reduced refinancing costs, reduction in documentation
requirements and willingness to accept higher loan-to-value ratios, and the
availability of mortgage funds, may affect prepayment experience. In general,
however, if prevailing mortgage interest rates fall below the Mortgage
Interest Rates borne by the Mortgage Loans underlying a Series of
Certificates, the prepayment rates of such Mortgage Loans are likely to be
higher than if prevailing rates remain at or above the rates borne by such
Mortgage Loans. Conversely, if prevailing mortgage interest rates rise above
the Mortgage Interest Rates borne by the Mortgage Loans, the Mortgage Loans
are likely to experience a lower prepayment rate than if prevailing rates
remain at or below such Mortgage Interest Rates. However, there can be no
assurance that prepayments will rise or fall according to such changes in
mortgage interest rates. It should be noted that Certificates of a Series may
evidence an interest in a Trust Estate with different Mortgage Interest Rates.
Accordingly, the prepayment experience of such Certificates will to some
extent be a function of the mix of interest rates of the Mortgage Loans. In
addition, the terms of the Underlying Servicing Agreements will require the
related Servicer to enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or the proposed conveyance of the underlying
Mortgaged Property; provided, however, that any enforcement action that the
Servicer determines would jeopardize any recovery under any related primary
mortgage insurance policy will not be required and provided, further, that the
Servicer may permit the assumption of defaulted Mortgage Loans. See "Servicing
of the Mortgage Loans--Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Mortgage Loans" and "Certain Legal Aspects of the Mortgage Loans--
Due-On-Sale Clauses" for a description of certain provisions of each Pooling
and Servicing Agreement and certain legal developments that may affect the
prepayment experience on the Mortgage Loans.
At the request of the mortgagor, a Servicer, including Norwest Mortgage, may
allow the refinancing of a Mortgage Loan in any Trust Estate serviced by such
Servicer by accepting prepayments thereon and permitting a new loan secured by
a Mortgage on the same property. Upon such refinancing, the new loan will not
be included in the Trust Estate. A mortgagor may be legally entitled to
require the Servicer to allow such a refinancing. Any such refinancing will
have the same effect as a prepayment in full of the related Mortgage Loan. In
this regard a Servicer may, from time to time, implement programs designed to
encourage refinancing through such Servicer, including but not limited to
general or targeted solicitations, or the offering of pre-approved
applications, reduced
34
<PAGE>
or nominal origination fees or closing costs, or other financial incentives. A
Servicer may also encourage refinancing of defaulted Mortgage Loans, including
Mortgage Loans that would permit creditworthy borrowers to assume the
outstanding indebtedness.
The Seller will be obligated, under certain circumstances, to repurchase
certain of the Mortgage Loans. In addition, if specified in the applicable
Prospectus Supplement, the Pooling and Servicing Agreement will permit, but
not require, the Seller, and the terms of certain insurance policies relating
to the Mortgage Loans may permit the applicable insurer, to purchase any
Mortgage Loan which is in default or as to which default is reasonably
foreseeable. The proceeds of any such purchase or repurchase will be deposited
in the related Certificate Account and such purchase or repurchase will have
the same effect as a prepayment in full of the related Mortgage Loan. See "The
Pooling and Servicing Agreement Assignment of Mortgage Loans to the Trustee"
and "--Optional Purchases." In addition, if so specified in the applicable
Prospectus Supplement, the Seller or another person identified therein will
have the option to purchase all, but not less than all, of the Mortgage Loans
in any Trust Estate under the limited conditions specified in such Prospectus
Supplement. For any Series of Certificates for which an election has been made
to treat the Trust Estate (or one or more segregated pools of assets therein)
as a REMIC, any such purchase or repurchase may be effected only pursuant to a
"qualified liquidation," as defined in Code Section 860F(a)(4)(A). See "The
Pooling and Servicing Agreement--Termination; Optional Purchase of Mortgage
Loans."
DELINQUENCY AND FORECLOSURE EXPERIENCE
The following tables set forth certain information concerning recent
delinquency and foreclosure experience as reported to the Master Servicer by
the applicable Servicers of such mortgage loans on (i) the conventional fixed-
rate mortgage loans included in various mortgage pools underlying all Series
of NASCOR's Mortgage Pass-Through Certificates (the "TOTAL NASCOR LOANS"),
(ii) the Total NASCOR Loans having original terms to maturity of approximately
20 years to approximately 30 years (the "NASCOR 30-YEAR LOANS"), including, in
clauses (i) and (ii) mortgage loans originated in connection with the
purchases of residences of relocated employees of various corporate employers
that participated in the relocation program of Norwest Mortgage and of various
non-participant employers ("RELOCATION MORTGAGE LOANS"), (iii) the Total
NASCOR Loans which are not Relocation Mortgage Loans ("TOTAL NASCOR NON-
RELOCATION LOANS"), (iv) the Total NASCOR Non-Relocation Loans having original
terms to maturity of approximately 20 years to approximately 30 years (the
"NASCOR 30-YEAR NON-RELOCATION LOANS") and (v) the Total NASCOR Non-Relocation
Loans having original terms to maturity of approximately 10 years to
approximately 15 years (the "NASCOR 15-YEAR NON-RELOCATION LOANS"). There can
be no assurance that the delinquency and foreclosure experience set forth in
any of the following tables which include mortgage loans with various terms to
stated maturity, may or may not include Relocation Mortgage Loans, and include
loans having a variety of payment characteristics such as Subsidy Loans and
Buy-Down Loans, will be representative of the results that may be experienced
with respect to the Mortgage Loans included in the Trust Estate with respect
to any Series.
Delinquencies and foreclosures generally are expected to occur more
frequently after the first full year of the life of mortgage loans.
Accordingly, because a large number of mortgage loans included in the mortgage
pools underlying NASCOR's Mortgage Pass-Through Certificates have been
recently originated, the current level of delinquencies and foreclosures may
not be representative of the levels which may be experienced over the lives of
such mortgage loans. In addition, if the volume of Norwest Mortgage's new loan
originations and acquisitions does not continue to grow at the rate
experienced in recent years, resulting in a decrease in growth in the number
of mortgage loans included in the mortgage pools underlying NASCOR's Mortgage
Pass-Through Certificates, the levels of delinquencies and foreclosures as
percentages of the various portfolios mortgage loans covered by the following
tables could rise significantly above the rates indicated in such tables.
35
<PAGE>
TOTAL NASCOR LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS
-------- ---------- -------- ----------
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total NASCOR Loans.................... 8,012 $2,285,959 26,137 $7,497,698
===== ========== ====== ==========
Period of Delinquency(1)..............
30 to 59 days........................ 24 $ 6,704 57 $ 17,187
60 to 89 days........................ 2 735 4 1,000
90 days or more...................... 1 232 18 5,461
----- ---------- ------ ----------
Total Delinquent Loans................ 27 $ 7,671 79 $ 23,648
===== ========== ====== ==========
Percent of Total NASCOR Loans......... 0.34% 0.34% 0.30% 0.32%
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -------------------
<S> <C> <C>
Foreclosures(2)....................... $843 $798
Foreclosure Ratio(3).................. 0.04% 0.01%
</TABLE>
NASCOR 30-YEAR LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS
-------- ---------- -------- ----------
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total NASCOR 30-Year Loans........... 6,511 $1,838,405 22,500 $6,457,669
===== ========== ====== ==========
Period of Delinquency(1).............
30 to 59 days....................... 19 $ 5,240 54 $ 16,365
60 to 89 days....................... 2 735 3 870
90 days or more..................... 1 232 18 5,461
----- ---------- ------ ----------
Total Delinquent Loans............... 22 $ 6,207 75 $ 22,696
===== ========== ====== ==========
Percent of NASCOR 30-Year Loans...... 0.34% 0.34% 0.33% 0.35%
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -------------------
<S> <C> <C>
Foreclosures(2)...................... $843 $798
Foreclosure Ratio(3)................. 0.05% 0%
</TABLE>
- -------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent
for these purposes until one month has passed since its contractual due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure
proceedings had been instituted or with respect to which the related
property had been acquired as of the dates indicated.
(3) Foreclosure as a percentage of total loans in the applicable portfolio at
the end of each period.
36
<PAGE>
TOTAL NASCOR NON-RELOCATION LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS
-------- ---------- -------- ----------
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total NASCOR Non-Relocation Loans... 6,451 $1,831,229 21,270 $6,070,912
===== ========== ====== ==========
Period of Delinquency(1)............
30 to 59 days...................... 24 $ 6,704 55 $ 16,601
60 to 89 days...................... 1 491 4 1,000
90 days or more.................... 1 232 17 5,238
----- ---------- ------ ----------
Total Delinquent Loans.............. 26 $ 7,427 76 $ 22,839
===== ========== ====== ==========
Percent of Total NASCOR Non-
Relocation Loans................... 0.40% 0.41% 0.36% 0.38%
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -------------------
<S> <C> <C>
Foreclosures(2)..................... $843 $798
Foreclosure Ratio(3)................ 0.05% 0.01%
</TABLE>
NASCOR 30-YEAR NON-RELOCATION LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS
-------- ---------- -------- ----------
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total NASCOR 30-Year Non-Relocation
Loans.............................. 4,950 $1,383,675 17,633 $5,030,883
===== ========== ====== ==========
Period of Delinquency(1)............
30 to 59 days...................... 19 $ 5,240 52 $ 15,779
60 to 89 days...................... 1 491 3 870
90 days or more.................... 1 232 17 5,238
----- ---------- ------ ----------
Total Delinquent Loans.............. 21 $ 5,963 72 $ 21,887
===== ========== ====== ==========
Percent of Total NASCOR 30-Year Non-
Relocation Loans................... 0.42% 0.43% 0.41% 0.44%
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -------------------
<S> <C> <C>
Foreclosures(2)..................... $843 $798
Foreclosure Ratio(3)................ 0.06% 0.02%
</TABLE>
- -------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent
for these purposes until one month has passed since its contractual due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure
proceedings had been instituted or with respect to which the related
property had been acquired as of the dates indicated.
(3) Foreclosure as a percentage of total loans in the applicable portfolio at
the end of each period.
37
<PAGE>
NASCOR 15-YEAR NON-RELOCATION LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- ---------
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total NASCOR 15-Year Non-Relocation
Loans................................ 1,501 $447,554 3,637 1,040,029
===== ======== ===== =========
Period of Delinquency(1)..............
30 to 59 days........................ 5 $ 1,464 3 $ 822
60 to 89 days........................ 0 0 1 130
90 days or more...................... 0 0 0 0
----- -------- ----- ---------
Total Delinquent Loans................ 5 $ 1,464 4 $ 952
===== ======== ===== =========
Percent of Total NASCOR 15-Year Non-
Relocation Loans..................... 0.33% 0.33% 0.11% 0.09%
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------ ------------------
<S> <C> <C>
Foreclosures(2)....................... $0 $0
Foreclosure Ratio(3).................. 0% 0%
</TABLE>
- -------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent
for these purposes until one month has passed since its contractual due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure
proceedings had been instituted or with respect to which the related
property had been acquired as of the dates indicated.
(3) Foreclosure 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 may be affected
by a number of factors related to a borrower's personal circumstances,
including, but not limited to, unemployment or change in employment (or in the
case of self-employed mortgagors or mortgagors relying on commission income,
fluctuations in income), marital separation and the mortgagor's equity in the
related mortgaged property. In addition, delinquency and foreclosure
experience may be sensitive to adverse economic conditions, either nationally
or regionally, may exhibit seasonal variations and may be influenced by the
level of interest rates and servicing decisions on the applicable mortgage
loans. Regional economic conditions (including declining real estate values)
may particularly affect delinquency and foreclosure experience on mortgage
loans to the extent that mortgaged properties are concentrated in certain
geographic areas. Furthermore, the level of foreclosures reported is affected
by the length of time legally required to complete the foreclosure process and
take title to the related property, which varies from jurisdiction to
jurisdiction. The changes in the delinquency and foreclosure and experience on
the mortgage loans underlying NASCOR's Mortgage Pass-Through Certificates
during the periods set forth in the preceding tables 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 and foreclosure experience on the
mortgage loans underlying NASCOR's Mortgage Pass-Through Certificates may be
particularly affected to the extent that the related Mortgage Properties are
concentrated in areas which experience adverse economic conditions or
declining real estate values. See "Description of the Mortgage Loans" and
"Prepayment and Yield Considerations" in the applicable Prospectus Supplement.
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SERVICING OF THE MORTGAGE LOANS
The following is a summary of certain provisions of the forms of the
Underlying Servicing Agreement and the Pooling and Servicing Agreement that
have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Pooling and Servicing Agreement and Underlying Servicing
Agreements for each Series of Certificates and the applicable Prospectus
Supplement.
THE MASTER SERVICER
The Master Servicer with respect to each Series of Certificates will be
Norwest Bank. See "Norwest Bank." The Master Servicer generally will (a) be
responsible under each Pooling and Servicing Agreement for providing general
administrative services for the Trust Estate for any such Series, including,
among other things, (i) for administering and supervising the performance by
the Servicers of their duties and responsibilities under the Underlying
Servicing Agreements, (ii) oversight of payments received on Mortgage Loans,
(iii) monitoring the amounts on deposit in various trust accounts, (iv)
calculation of the amounts payable to Certificateholders on each Distribution
Date, (v) preparation of periodic reports to the Trustee or the
Certificateholders with respect to the foregoing matters, (vi) preparation of
federal and applicable state and local tax and information returns; (vii)
preparation of reports, if any, required under the Securities and Exchange Act
of 1934, as amended and (viii) performing certain of the servicing obligations
of a terminated Servicer as described below under "--The Servicers"; (b)
maintain any mortgage pool insurance policy, mortgagor bankruptcy bond,
special hazard insurance policy or other form of credit support that may be
required with respect to any Series and (c) make advances of delinquent
payments of principal and interest on the Mortgage Loans to the limited extent
described herein under the heading "Servicing of Mortgage Loans--Periodic
Advances and Limitations Thereon," if such amounts are not advanced by a
Servicer (other than Norwest Mortgage). The Master Servicer will also perform
additional duties as described in the applicable Pooling and Servicing
Agreement. The Master Servicer will be entitled to receive a portion of the
interest payments on the Mortgage Loans included in the Trust Estate for such
a Series to cover its fees as Master Servicer. The Master Servicer may
subcontract with Norwest Mortgage or any other entity the obligations of the
Master Servicer under any Pooling and Servicing Agreement. The Master Servicer
will remain primarily liable for any such contractor's performance in
accordance with the applicable Pooling and Servicing Agreement. The Master
Servicer may be released from its obligations in certain circumstances. See
"Certain Matters Regarding the Master Servicer."
The Master Servicer will generally be required to pay all expenses incurred
in connection with the administration of the Trust Estate, including, without
limitation, fees or other amounts payable pursuant to any applicable agreement
for the provision of credit enhancement for such Series, the fees and
disbursements of the Trustee and any custodian, fees due to the independent
accountants and expenses incurred in connection with distributions and reports
to Certificateholders. Certain of these expenses may be reimbursable to the
Master Servicer pursuant to the terms of the applicable Pooling and Servicing
Agreement.
THE SERVICERS
For each Series, Norwest Mortgage and, if specified in the applicable
Prospectus Supplement, one or more other Servicers will provide certain
customary servicing functions with respect to Mortgage Loans pursuant to
separate Underlying Servicing Agreements with the Seller or an affiliate
thereof. The rights of the Seller or such affiliate under the applicable
Underlying Servicing Agreements in respect of the Mortgage Loans included in
the Trust Estate for any such Series will be assigned (directly or indirectly)
to the Trustee for such Series. The Servicers may be entitled to withhold
their Servicing Fees and certain other fees and charges from remittances of
payments received on Mortgage Loans serviced by them.
Each Servicer generally will be approved by FNMA or FHLMC as a servicer of
mortgage loans and must be approved by the Master Servicer. In determining
whether to approve a Servicer, the Master Servicer will perform a review of
the Servicer that includes minimum net worth requirements, servicing
experience, errors and omissions and fidelity bond coverage and other
standards to be set forth in the applicable Underlying Servicing Agreement. 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 the compliance of the Servicer
according to the Underlying Servicing Agreement on an annual basis.
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The duties to be performed by each Servicer include collection and
remittance of principal and interest payments on the Mortgage Loans,
administration of mortgage escrow accounts, collection of insurance claims,
foreclosure procedures, and, if necessary, the advance of funds to the extent
certain payments are not made by the mortgagor and have not been determined by
the Servicer to be not recoverable under the applicable insurance policies
with respect to such Series, from proceeds of liquidation of such Mortgage
Loans or otherwise. Each Servicer also will provide such accounting and
reporting services as are necessary to enable the Master Servicer to provide
required information to the Trustee with respect to the Mortgage Loans
included in the Trust Estate for such Series. Each Servicer is entitled to a
periodic Servicing Fee equal to a specified percentage of the outstanding
principal balance of each Mortgage Loan serviced by such Servicer. With the
consent of the Master Servicer, any of the servicing obligations of a Servicer
may be delegated to another person approved by the Master Servicer. In
addition, certain limited duties of a Servicer may be delegated without
consent.
The Trustee, or if so provided in the applicable Pooling and Servicing
Agreement, the Master Servicer, may terminate a Servicer who has failed to
comply with its covenants or breached one of its representations contained in
the Underlying Servicing Agreement or in certain other circumstances. Upon
termination of a Servicer by the Master Servicer, the Master Servicer will
assume certain servicing obligations of the terminated Servicer, or, at its
option, may appoint a substitute Servicer acceptable to the Trustee (which
substitute Servicer may be Norwest Mortgage) to assume the servicing
obligations of the terminated Servicer. The Master Servicer's obligations to
act as a servicer following the termination of an Underlying Servicing
Agreement will not, however, require the Master Servicer to (i) purchase a
Mortgage Loan from the Trust Estate due to a breach by such Servicer of a
representation or warranty in respect of such Mortgage Loan or (ii) with
respect to a default by Norwest Mortgage as Servicer, advance payments of
principal and interest on a delinquent Mortgage Loan.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, as to each Series of Certificates, establish and
maintain a separate trust account in the name of the Trustee (the "CERTIFICATE
ACCOUNT"). Such account may be established at Norwest Bank or an affiliate
thereof. Each such account must be maintained with a depository institution
("DEPOSITORY") either (i) whose long-term debt obligations (or, in the case of
a depository institution which is part of a holding company structure, the
long-term debt obligations of such parent holding company) are, at the time of
any deposit therein rated in at least one of the two highest rating categories
by each nationally recognized statistical rating organization that rated the
related Series of Certificates, or (ii) that is otherwise acceptable to the
Rating Agency or Rating Agencies rating the Certificates of such Series and,
if a REMIC election has been made, that would not cause the related Trust
Estate (or one or more segregated pools of assets therein) to fail to qualify
as a REMIC. To the extent that the portion of funds deposited in the
Certificate Account at any time exceeds the limit of insurance coverage
established by the Federal Deposit Insurance Corporation (the "FDIC"), such
excess will be subject to loss in the event of the failure of the Depository.
Such insurance coverage will be based on the number of holders of
Certificates, rather than the number of underlying mortgagors. Holders of the
Subordinated Certificates of a Series will bear any such loss up to the amount
of principal payments on the related Mortgage Loans to which such holders are
entitled.
Pursuant to the applicable Underlying Servicing Agreements with respect to a
Series, each Servicer will be required to establish and maintain one or more
accounts (collectively, the "SERVICER CUSTODIAL ACCOUNT") into which the
Servicer will be required to deposit on a daily basis amounts received with
respect to Mortgage Loans serviced by such Servicer included in the Trust
Estate for such Series, as more fully described below. Each Servicer Custodial
Account must be a separate custodial account insured to the available limits
by the FDIC or otherwise acceptable to the applicable Rating Agencies (such
acceptable account, an "ELIGIBLE CUSTODIAL ACCOUNT") and limited to funds held
with respect to a particular Series, unless the Underlying Servicing Agreement
specifies that a Servicer may establish an account which is an eligible
account to serve as a unitary Servicer Custodial Account both for such Series
and for other Series of Certificates for which Norwest Bank is the Master
Servicer and having the same financial institution acting as Trustee and to be
maintained in the name of such financial institution, in its respective
capacities as Trustee for each such Series.
Each Servicer will be required to deposit in the Certificate Account for
each Series of Certificates on the date the Certificates are issued any
amounts representing scheduled payments of principal and interest on the
Mortgage Loans serviced by such Servicer due after the applicable Cut-Off Date
but received on or prior thereto, and except as specified in the applicable
Pooling and Servicing Agreement or Underlying Servicing Agreement, will
deposit in the Servicer Custodial Account on receipt and, thereafter, not
later than the 24th calendar day of each month or such earlier day as may be
specified in the Underlying Servicing Agreement
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(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 (a) payments due on or
before the Cut-Off Date, (b) amounts held for future distribution, (c) amounts
representing certain expenses reimbursable to the Servicer, (d) amounts
representing reimbursements for Periodic Advances made by the Servicer, (e)
amounts representing additional servicing compensation and (f) any other
amounts permitted to be retained by the Servicer pursuant to the applicable
Underlying Servicing Agreement):
(i) all payments on account of principal, including prepayments, and
interest;
(ii) all amounts received by the Servicer in connection with the
liquidation of defaulted Mortgage Loans or property acquired in respect
thereof, whether through foreclosure sale or otherwise, including payments
in connection with defaulted Mortgage Loans received from the mortgagor
other than amounts required to be paid to the mortgagor pursuant to the
terms of the applicable Mortgage Loan or otherwise pursuant to law
("LIQUIDATION PROCEEDS") less, to the extent permitted under the applicable
Underlying Servicing Agreement, the amount of any expenses incurred in
connection with the liquidation of such Mortgage Loans;
(iii) all proceeds received by the Servicer under any title, hazard or
other insurance policy covering any such Mortgage Loan, other than proceeds
to be applied to the restoration or repair of the property subject to the
related Mortgage or released to the mortgagor in accordance with the
Underlying Servicing Agreement;
(iv) all Periodic Advances made by the Servicer;
(v) all amounts withdrawn from Buy-Down Funds or Subsidy Funds, if any,
with respect to such Mortgage Loans, in accordance with the terms of the
respective agreements applicable thereto;
(vi) all proceeds of any such Mortgage Loans or property acquired in
respect thereof purchased or repurchased pursuant to the Pooling and
Servicing Agreement or the Underlying Servicing Agreement; and
(vii) all other amounts required to be deposited therein pursuant to the
applicable Pooling and Servicing Agreement or the Underlying Servicing
Agreement.
Notwithstanding the foregoing, if at any time the sums in (x) any Servicer
Custodial Account, other than any Eligible Custodial Account, exceed $100,000
or (y) any such Servicer Custodial Account, in certain circumstances, exceed
such amount less than $100,000 as shall have been specified by the Master
Servicer, the Servicer will be required within one business day to withdraw
such excess funds from such account and remit such amounts to the Certificate
Account.
Notwithstanding the foregoing, each Servicer will be entitled, at its
election, either (a) to withhold and pay itself the applicable Servicing Fee
from any payment or other recovery on account of interest as received and
prior to deposit in the Servicer Custodial Account or (b) to withdraw from the
Servicer Custodial Account the applicable Servicing Fee after the entire
payment or recovery has been deposited in such account.
The Master Servicer or Trustee will deposit in the Certificate Account any
Periodic Advances made by the Master Servicer or Trustee in the event of a
Servicer default not later than the Distribution Date on which such amounts
are required to be distributed. All other amounts will be deposited in the
Certificate Account not later than the business day next following the day of
receipt and posting by the Master Servicer. On or before each Distribution
Date, the Master Servicer will withdraw from the Certificate Account and remit
to the Trustee for distribution to Certificateholders all amounts allocable to
the Pool Distribution Amount for such Distribution Date.
If a Servicer, the Master Servicer or the Trustee deposits in the
Certificate Account for a Series any amount not required to be deposited
therein, the Master Servicer may at any time withdraw such amount from such
account for itself or for remittance to such Servicer or the Trustee, as
applicable. Funds on deposit in the Certificate Account may be invested in
certain investments acceptable to the Rating Agencies ("ELIGIBLE INVESTMENTS")
maturing in general not later than the business day preceding the next
Distribution Date. In the event that an election has been made to treat the
Trust Estate (or one or more segregated pools of assets therein) with respect
to a Series as a REMIC, no such Eligible Investments will be sold or disposed
of at a gain prior to maturity unless the Master Servicer has received an
opinion of counsel or other evidence satisfactory to it that such sale or
disposition will not cause the Trust Estate (or segregated pool of assets) to
be subject to the tax on "prohibited transactions" imposed by Code Section
860F(a)(1), otherwise subject the Trust Estate (or segregated pool of assets)
to tax, or cause the Trust
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Estate (or any segregated pool of assets) to fail to qualify as a REMIC while
any Certificates of the Series are outstanding. Except as otherwise specified
in the applicable Prospectus Supplement, all income and gain realized from any
such investment will be for the account of the Master Servicer as additional
compensation and all losses from any such investment will be deposited by the
Master Servicer out of its own funds to the Certificate Account immediately as
realized.
The Master Servicer is permitted, from time to time, to make withdrawals
from the Certificate Account for the following purposes, to the extent
permitted in the applicable Pooling and Servicing Agreement (and, in the case
of Servicer reimbursements by the Master Servicer, only to the extent funds in
the respective Servicer Custodial Account are not sufficient therefor):
(i) to reimburse the Master Servicer, the Trustee or any Servicer for
Advances;
(ii) to reimburse any Servicer for liquidation expenses and for amounts
expended by itself or any Servicer, as applicable, in connection with the
restoration of damaged property;
(iii) to pay to itself the applicable Master Servicing Fee and any other
amounts constituting additional master servicing compensation, to pay the
Trustee the applicable Trustee Fee, to pay any other fees described in the
applicable Prospectus Supplement; and to pay to the owner thereof any Fixed
Retained Yield;
(iv) to reimburse itself or any Servicer for certain expenses (including
taxes paid on behalf of the Trust Estate) incurred by and recoverable by or
reimbursable to itself or the Servicer, as applicable;
(v) to pay to the Seller, a Servicer or itself with respect to each
Mortgage Loan or property acquired in respect thereof that has been
repurchased by the Seller or purchased by a Servicer or the Master Servicer
all amounts received thereon and not distributed as of the date as of which
the purchase price of such Mortgage Loan was determined;
(vi) to pay to itself any interest earned on or investment income earned
with respect to funds in the Certificate Account (all such interest or
income to be withdrawn not later than the next Distribution Date);
(vii) to pay to itself, the Servicer and the Trustee from net Liquidation
Proceeds allocable to interest, the amount of any unpaid Master Servicing
Fee, Servicing Fees or Trustee Fees and any unpaid assumption fees, late
payment charges or other mortgagor charges on the related Mortgage Loan;
(viii) to withdraw from the Certificate Account any amount deposited in
such account that was not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account.
The Master Servicer will be authorized to appoint a paying agent (the
"PAYING AGENT") to make distributions, as agent for the Master Servicer, to
Certificateholders of a Series. If the Paying Agent for a Series is the
Trustee of such Series, such Paying Agent will be authorized to make
withdrawals from the Certificate Account in order to make distributions to
Certificateholders. If the Paying Agent for a Series is not the Trustee for
such Series, the Master Servicer will, on each Distribution Date, deposit in
immediately available funds in an account designated by any such Paying Agent
the amount required to be distributed to the Certificateholders on such
Distribution Date.
The Master Servicer will cause any Paying Agent that is not the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
agrees with the Trustee that such Paying Agent will:
(1) hold all amounts deposited with it by the Master Servicer for
distribution to Certificateholders in trust for the benefit of
Certificateholders until such amounts are distributed to Certificateholders
or otherwise disposed of as provided in the applicable Pooling and
Servicing Agreement;
(2) give the Trustee notice of any default by the Master Servicer in the
making of such deposit; and
(3) at any time during the continuance of any such default, upon written
request to the Trustee, forthwith pay to the Trustee all amounts held in
trust by such Paying Agent.
PERIODIC ADVANCES AND LIMITATIONS THEREON
Generally each Servicer will be required to make (i) Periodic Advances to
cover delinquent payments of principal and interest on such Mortgage Loan and
(ii) other advances of cash ("OTHER ADVANCES" and, collectively with Periodic
Advances, "ADVANCES") to cover (x) delinquent payments of taxes, insurance
premiums, and other escrowed items and (y) rehabilitation
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expenses and foreclosure costs, including reasonable attorneys' fees, in
either case unless such Servicer has determined that any subsequent payments
on that Mortgage Loan or from the borrower will ultimately not be available to
reimburse such Servicer for such amounts. The failure of the Servicer to make
any required Periodic Advances or Other Advances under an Underlying Servicing
Agreement constitutes a default under such agreement for which the Servicer
will be terminated. Upon default by a Servicer, other than Norwest Mortgage,
the Master Servicer may, and upon default by Norwest Mortgage the Trustee may,
in each case if so provided in the Pooling and Servicing Agreement, be
required to make Periodic Advances to the extent necessary to make required
distributions on certain Certificates or certain Other Advances, provided that
the Master Servicer or Trustee, as applicable, determines that funds will
ultimately be available to reimburse it. In the case of Certificates of any
Series for which credit enhancement is provided in the form of a mortgage pool
insurance policy, the Seller may obtain an endorsement to the mortgage pool
insurance policy which obligates the Pool Insurer to advance delinquent
payments of principal and interest. The Pool Insurer would only be obligated
under such endorsement to the extent the mortgagor fails to make such payment
and the Master Servicer or Trustee fails to make a required advance.
The advance obligation of the Master Servicer and Trustee may be further
limited to an amount specified by the Rating Agency rating the Certificates.
Any such Periodic Advances by the Servicers or the Master Servicer or Trustee,
as the case may be, must be deposited into the applicable Servicer Custodial
Account or the Certificate Account and will be due no later than the business
day before the Distribution Date to which such delinquent payment relates.
Advances by the Servicers or the Master Servicer or Trustee, as the case may
be, will be reimbursable out of insurance proceeds or Liquidation Proceeds of,
or, except for Other Advances, future payments on, the Mortgage Loans for
which such amounts were advanced. If an Advance made by a Servicer, the Master
Servicer or the Trustee later proves, or is deemed by the Master Servicer or
the Trustee, to be unrecoverable, such Servicer, the Master Servicer or the
Trustee, as the case may be, will be entitled to reimbursement from funds in
the Certificate Account prior to the distribution of payments to the
Certificateholders to the extent provided in the Pooling and Servicing
Agreement.
Any Periodic Advances made by a Servicer, the Master Servicer or the Trustee
with respect to Mortgage Loans included in the Trust Estate for any Series are
intended to enable the Trustee to make timely payment of the scheduled
distributions of principal and interest on the Certificates of such Series.
However, neither the Master Servicer, the Trustee, any Servicer nor any other
person will, except as otherwise specified in the applicable Prospectus
Supplement, insure or guarantee the Certificates of any Series or the Mortgage
Loans included in the Trust Estate for any Certificates.
COLLECTION AND OTHER SERVICING PROCEDURES
Each Servicer will be required by the related Underlying Servicing Agreement
to make reasonable efforts to collect all payments called for under the
Mortgage Loans and, consistent with the applicable Underlying Servicing
Agreement and any applicable agreement governing any form of credit
enhancement, to follow such collection procedures as it follows with respect
to mortgage loans serviced by it that are comparable to the Mortgage Loans.
Consistent with the above, the Servicer may, in its discretion, (i) waive any
prepayment charge, assumption fee, late payment charge or any other charge in
connection with the prepayment of a Mortgage Loan and (ii) arrange with a
mortgagor a schedule for the liquidation of deficiencies running for not more
than 180 days (or such longer period to which the Master Servicer and any
applicable Pool Insurer or primary mortgage insurer have consented) after the
applicable Due Date.
Under each Underlying Servicing Agreement, each Servicer, to the extent
permitted by law, will establish and maintain one or more escrow accounts
(each such account, a "SERVICING ACCOUNT") in which each such Servicer will be
required to deposit any payments made by mortgagors in advance for taxes,
assessments, primary mortgage (if applicable) and hazard insurance premiums
and other similar items. Withdrawals from the Servicing Account may be made to
effect timely payment of taxes, assessments, mortgage and hazard insurance, to
refund to mortgagors amounts determined to be overages, to pay interest to
mortgagors on balances in the Servicing Account, if required, and to clear and
terminate such account. Each Servicer will be responsible for the
administration of its Servicing Account. A Servicer will be obligated to
advance certain amounts which are not timely paid by the mortgagors, to the
extent that it determines, in good faith, that they will be recoverable out of
insurance proceeds, liquidation proceeds, or otherwise. Alternatively, in lieu
of establishing a Servicing Account, a Servicer may procure a performance bond
or other form of insurance coverage, in an amount acceptable to the Master
Servicer and each Rating Agency rating the related Series of Certificates,
covering loss occasioned by the failure to escrow such amounts.
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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
applicable Underlying Servicing Agreement will generally provide that, when
any Mortgaged Property is about to be conveyed by the mortgagor, the Servicer
will, to the extent it has knowledge of such prospective conveyance, exercise
its rights to accelerate the maturity of such Mortgage Loan under the "due-on-
sale" clause applicable thereto, if any, unless it is not exercisable under
applicable law or if such exercise would result in loss of insurance coverage
with respect to such Mortgage Loan or would, in the Servicer's judgment, be
reasonably likely to result in litigation by the mortgagor and such Servicer
has not obtained the Master Servicer's consent to such exercise. In either
case, the Servicer is authorized to take or enter into an assumption and
modification agreement from or with the person to whom such Mortgaged Property
has been or is about to be conveyed, pursuant to which such person becomes
liable under the Mortgage Note and, unless prohibited by applicable state law,
the mortgagor remains liable thereon, provided that the Mortgage Loan will
continue to be covered by any pool insurance policy and any related primary
mortgage insurance policy and the Mortgage Interest Rate with respect to such
Mortgage Loan and the payment terms shall remain unchanged. The Servicer will
also be authorized, with the prior approval of the pool insurer and the
primary mortgage insurer, if any, to enter into a substitution of liability
agreement with such person, pursuant to which the original mortgagor is
released from liability and such person is substituted as mortgagor and
becomes liable under the Mortgage Note.
Each Underlying Servicing Agreement and Pooling and Servicing Agreement with
respect to a Series will require the Servicer or the Master Servicer, as the
case may be, to present claims to the insurer under any insurance policy
applicable to the Mortgage Loans included in the Trust Estate for such Series
and to take such reasonable steps as are necessary to permit recovery under
such insurance policies with respect to defaulted Mortgage Loans, or losses on
the Mortgaged Property securing the Mortgage Loans.
Each Servicer is obligated under the applicable Underlying Servicing
Agreement for each Series to realize upon defaulted Mortgage Loans in
accordance with its normal servicing practices, which will conform generally
to those of prudent mortgage lending institutions which service mortgage loans
of the same type in the same jurisdictions. In addition, the Servicer is
authorized under the applicable Underlying Servicing Agreement to permit the
assumption of a defaulted Mortgage Loan rather than to foreclose or accept a
deed-in-lieu of foreclosure if, in the Servicer's judgment, the default is
unlikely to be cured and the assuming borrower meets Norwest Mortgage's
applicable underwriting guidelines. In connection with any such assumption,
the Mortgage Interest Rate and the payment terms of the related Mortgage Note
will not be changed. Each Servicer may also, with the consent of the Master
Servicer, modify the payment terms of Mortgage Loans that are in default, or
as to which default is reasonably foreseeable, that remain in the Trust Estate
rather than foreclose on such Mortgage Loans; provided that no such
modification shall forgive principal owing under such Mortgage Loan or
permanently reduce the interest rate on such Mortgage Loan. Any such
modification will be made only upon the determination by the Servicer and the
Master Servicer that such modification is likely to increase the proceeds of
such Mortgage Loan over the amount expected to be collected pursuant to
foreclosure. See also "The Pooling and Servicing Agreement--Optional
Purchases," above, with respect to the Seller's right to repurchase Mortgage
Loans that are in default, or as to which default is reasonably foreseeable.
Further, a Servicer may encourage the refinancing of such defaulted Mortgage
Loans, including Mortgage Loans that would permit creditworthy borrowers to
assume the outstanding indebtedness. In connection with the decision of the
Servicer regarding the foreclosure or assumption of a Mortgage Loan, the
modification of the related Mortgage Note or any other action to be taken with
respect to a defaulted Mortgage Loan, the Servicer is expressly permitted by
the Underlying Servicing Agreement to take into account the interests of the
borrower.
In the case of foreclosure or of damage to a Mortgaged Property from an
uninsured cause, the Servicer will not be required to expend its own funds to
foreclose or restore any damaged property, unless it reasonably determines (i)
that such foreclosure or restoration will increase the proceeds to
Certificateholders of such Series of liquidation of the Mortgage Loan after
reimbursement to the related Servicer for its expenses and (ii) that such
expenses will be recoverable to it through Liquidation Proceeds or any
applicable insurance policy in respect of such Mortgage Loan. In the event
that Servicer has expended its own funds for foreclosure or to restore damaged
property, it will be entitled to be reimbursed from the Certificate Account
for such Series an amount equal to all costs and expenses incurred by it.
Norwest Mortgage will not be obligated to, and any other Servicer will not
(except with the express written approval of the Master Servicer), foreclose
on any Mortgaged Property which it believes may be contaminated with or
affected by hazardous wastes or hazardous substances. See "Certain Legal
Aspects of the Mortgage Loans--Environmental Considerations." If a Servicer
does not foreclose on a Mortgaged Property, the Certificateholders of the
related Series may experience a loss on the
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related Mortgage Loan. A Servicer will not be liable to the Certificateholders
if it fails to foreclose on a Mortgaged Property which it believes may be so
contaminated or affected, even if such Mortgaged Property is, in fact, not so
contaminated or affected. Conversely, a Servicer will not be liable to the
Certificateholders if, based on its belief that no such contamination or
effect exists, the Servicer forecloses on a Mortgaged Property and takes title
to such Mortgaged Property, and thereafter such Mortgaged Property is
determined to be so contaminated or affected.
The Servicer may foreclose against property securing a defaulted Mortgage
Loan either by foreclosure, by sale or by strict foreclosure and in the event
a deficiency judgment is available against the mortgagor or other person (see
"Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency Legislation and
Other Limitations on Lenders" for a discussion of the availability of
deficiency judgments), may proceed for the deficiency. It is anticipated that
in most cases the Servicer will not seek deficiency judgments, and will not be
required under the applicable Underlying Servicing Agreement to seek
deficiency judgments. In lieu of foreclosure, each Servicer may arrange for
the sale by the borrower of the Mortgaged Property related to a defaulted
Mortgage Loan to a third party, rather than foreclosing upon and selling such
Mortgaged Property.
With respect to a Trust Estate (or any segregated pool of assets therein) as
to which a REMIC election has been made, if the Trustee acquires ownership of
any Mortgaged Property as a result of a default or reasonably foreseeable
default of any Mortgage Loan secured by such Mortgaged Property, the Trustee
or Master Servicer will be required to dispose of such property prior to the
close of the third calendar year following the year the Trust Estate acquired
such property (or such shorter period as is provided in the applicable
Underlying Servicing Agreement) 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 applicable period in the manner
contemplated by Code Section 856(e)(3). The Servicer also will be required to
administer the Mortgaged Property in a manner which does not cause the
Mortgaged Property to fail to qualify as "foreclosure property" within the
meaning of Code Section 860G(a)(8) or result in the receipt by the Trust
Estate of any "net income from foreclosure property" within the meaning of
Code Section 860G(c)(2), respectively. In general, this would preclude the
holding of the Mortgaged Property by a party acting as a dealer in such
property or the receipt of rental income based on the profits of the lessee of
such property. See "Certain Federal Income Tax Consequences."
INSURANCE POLICIES
Each Underlying Servicing Agreement will require the related Servicer to
cause to be maintained for each Mortgage Loan a standard hazard insurance
policy issued by a generally acceptable insurer insuring the improvements on
the Mortgaged Property underlying such Mortgage Loan against loss by fire,
with extended coverage (a "STANDARD HAZARD INSURANCE POLICY"). The Underlying
Servicing Agreements will require that such Standard Hazard Insurance Policy
be in an amount at least equal to the lesser of 100% of the insurable value of
the improvements on the Mortgaged Property or the principal balance of such
Mortgage Loan; provided, however, that such insurance may not be less than the
minimum amount required to fully compensate for any damage or loss on a
replacement cost basis. Each Servicer will also maintain on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, a
Standard Hazard Insurance Policy in an amount that is at least equal to the
lesser of 100% of the insurable value of the improvements which are a part of
such property or the principal balance of such Mortgage Loan plus accrued
interest and liquidation expenses; provided, however, that such insurance may
not be less than the minimum amount required to fully compensate for any
damage or loss on a replacement cost basis. Any amounts collected under any
such policies (other than amounts to be applied to the restoration or repair
of the Mortgaged Property or released to the borrower in accordance with
normal servicing procedures) will be deposited in the Servicer Custodial
Account for remittance to the Certificate Account by a Servicer.
The Standard Hazard Insurance Policies covering the Mortgage Loans generally
will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Because the Standard Hazard
Insurance Policies relating to such Mortgage Loans will be underwritten by
different insurers and will cover Mortgaged Properties located in various
states, such policies will not contain identical terms and conditions. The
most significant terms thereof, however, generally will be determined by state
law and generally will be similar. Most such policies typically will not cover
any physical damage resulting from the following: war, revolution,
governmental actions, floods and other water-related causes, earth movement
(including
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earthquakes, landslides and mudflows), nuclear reaction, wet or dry rot,
vermin, rodents, insects or domestic animals, hazardous wastes or hazardous
substances, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not all-
inclusive.
In general, if the improvements on a Mortgaged Property are located in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available) each Underlying Servicing Agreement will require the related
Servicer to cause to be maintained a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable insurance carrier. Generally, the Underlying
Servicing Agreement will require that such flood insurance be in an amount not
less than the least of (i) the outstanding principal balance of the Mortgage
Loan, (ii) the full insurable value of the improvements, or (iii) the maximum
amount of insurance which is available under the National Flood Insurance Act
of 1968, as amended. Norwest Mortgage does not provide financing for flood
zone properties located in communities not participating in the National Flood
Insurance Program or if available insurance coverage is, in its judgment,
unrealistically low.
Each Servicer may maintain a blanket policy insuring against hazard losses
on all of the Mortgaged Properties in lieu of maintaining the required
Standard Hazard Insurance Policies and may maintain a blanket policy insuring
against special hazards in lieu of maintaining any required flood insurance.
Each Servicer will be liable for the amount of any deductible under a blanket
policy if such amount would have been covered by a required Standard Hazard
Insurance Policy or flood insurance, had it been maintained.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows, floods and hazardous wastes or hazardous
substances) or insufficient hazard insurance proceeds will adversely affect
distributions to the Certificateholders.
FIXED RETAINED YIELD, SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Fixed Retained Yield with respect to any Mortgage Loan is that portion, if
any, of interest at the Mortgage Interest Rate that is not included in the
related Trust Estate. The Prospectus Supplement for a Series will specify
whether there is any Fixed Retained Yield with respect to the Mortgage Loans
of such Series. If so, the Fixed Retained Yield will be established on a loan-
by-loan basis and will be specified in the schedule of Mortgage Loans attached
as an exhibit to the applicable Pooling and Servicing Agreement. Norwest
Mortgage as Servicer may deduct the Fixed Retained Yield from mortgagor
payments as received or deposit such payments in the Servicer Custodial
Account or Certificate Account for such Series and then either withdraw the
Fixed Retained Yield from the Servicer Custodial Account or Certificate
Account or request the Master Servicer to withdraw the Fixed Retained Yield
from the Certificate Account for remittance to Norwest Mortgage. In the case
of any Fixed Retained Yield with respect to Mortgage Loans serviced by a
Servicer other than Norwest Mortgage, the Master Servicer will make
withdrawals from the Certificate Account for the purpose of remittances to
Norwest Mortgage as owner of the Fixed Retained Yield. Notwithstanding the
foregoing, with respect to any payment of interest received by Norwest
Mortgage as Servicer relating to a Mortgage Loan (whether paid by the
mortgagor or received as Liquidation Proceeds, insurance proceeds or
otherwise) which is less than the full amount of interest then due with
respect to such Mortgage Loan, the owner of the Fixed Retained Yield with
respect to such Mortgage Loan will bear a ratable share of such interest
shortfall.
For each Series of Certificates, each Servicer will be entitled to be paid
the Servicing Fee on the related Mortgage Loans serviced by such Servicer
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 payment of interest prior to deposit of such payment in the Servicer
Custodial Account for such Series or (b) withdrawing the Servicing Fee from
the Servicer Custodial Account after the entire interest payment has been
deposited in such account. A Servicer may also pay itself out of the
Liquidation Proceeds of a Mortgage Loan or other recoveries with respect
thereto, or withdraw from the Servicer Custodial Account or request the Master
Servicer to withdraw from the Certificate Account for remittance to the
Servicer such amounts after the deposit thereof in such accounts, or if such
Liquidation Proceeds or other recoveries are insufficient, from Net
Foreclosure Profits with respect to the related Distribution Date the
Servicing Fee in respect of such Mortgage Loan to the extent provided in the
applicable Pooling and Servicing Agreement. The Servicing Fee or the range of
Servicing Fees with respect to the Mortgage Loans underlying the Certificates
of a Series will be specified in the applicable
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Prospectus Supplement. Additional servicing compensation in the form of
prepayment charges, assumption fees, late payment charges or otherwise will be
retained by the Servicers.
Each Servicer will pay all expenses incurred in connection with the
servicing of the Mortgage Loans serviced by such Servicer underlying a Series,
including, without limitation, payment of the hazard insurance policy
premiums. The Servicer will be entitled, in certain circumstances, to
reimbursement from the Certificate Account of Periodic Advances, of Other
Advances made by it to pay taxes, insurance premiums and similar items with
respect to any Mortgaged Property or for expenditures incurred by it in
connection with the restoration, foreclosure or liquidation of any Mortgaged
Property (to the extent of Liquidation Proceeds or insurance policy proceeds
in respect of such Mortgaged Property) and of certain losses against which it
is indemnified by the Trust Estate.
As set forth in the preceding paragraph, a Servicer may be entitled to
reimbursement for certain expenses incurred by it, and payment of additional
fees for certain extraordinary services rendered by it (provided that such
fees do not exceed those which would be charged by third parties for similar
services) in connection with the liquidation of defaulted Mortgage Loans 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
reimbursement of the Servicing Fee and the expenses of the Servicer, are less
than the principal balance of the related Mortgage Loan.
EVIDENCE AS TO COMPLIANCE
Each Servicer will deliver annually to the Trustee or Master Servicer, as
applicable, on or before the date specified in the applicable Underlying
Servicing Agreement, an Officer's Certificate stating that (i) a review of the
activities of such Servicer during the preceding calendar year and of
performance under the applicable Underlying Servicing Agreement has been made
under the supervision of such officer, and (ii) to the best of such officer's
knowledge, based on such review, such Servicer has fulfilled all its
obligations under the applicable Underlying Servicing Agreement throughout
such year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof. Such Officer's Certificate shall be accompanied by a
statement of a firm of independent public accountants to the effect that, on
the basis of an examination of certain documents and records relating to a
random sample of the mortgage loans being serviced by such Servicer pursuant
to such Underlying Servicing Agreement and/or other similar agreements,
conducted substantially in compliance with the Uniform Single Audit Program
for Mortgage Bankers, the servicing of such mortgage loans was conducted in
compliance with the provisions of the applicable Underlying Servicing
Agreement and other similar agreements, except for (i) such exceptions as such
firm believes to be immaterial and (ii) such other exceptions as are set forth
in such statement.
The Master Servicer will deliver annually to the Trustee, on or before the
date specified in the applicable Pooling and Servicing Agreement, an Officer's
Certificate stating that such officer has received, with respect to each
Servicer, the Officer's Certificate and accountant's statement described in
the preceding paragraph, and, that on the basis of such officer's review of
such information, each Servicer has fulfilled all its obligations under the
applicable Underlying Servicing Agreement throughout such year, or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default known to such officer and the nature and status thereof.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement for each Series without the consent of the
Trustee, except upon its determination that its duties thereunder are no
longer permissible under applicable law or are in material conflict by reason
of applicable law with any other activities of a type and nature carried on by
it. No such resignation will become effective until the Trustee for such
Series or a successor master servicer has assumed the Master Servicer's
obligations and duties under the Pooling and Servicing Agreement. If the
Master Servicer resigns for any of the foregoing reasons and the Trustee is
unable or unwilling to assume responsibility for its duties under the Pooling
and Servicing Agreement, it may appoint another institution to so act as
described under "The Pooling and Servicing Agreement--Rights Upon Event of
Default."
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
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of any action or for refraining from the taking of any action in good faith
pursuant to the Pooling and Servicing Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer, any subcontractor, nor
any such person will be protected against any liability that would otherwise
be imposed by reason of willful misfeasance, bad faith or gross negligence in
the performance of his or its duties or by reason of reckless disregard of his
or its obligations and duties thereunder. The Pooling and Servicing Agreement
will further provide that the Master Servicer, any subcontractor, and any
partner, director, officer, employee or agent of either of them shall be
entitled to indemnification by the Trust Estate and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Pooling and Servicing Agreement or the Certificates,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of his or its
duties thereunder or by reason of reckless disregard of his or its obligations
and duties thereunder. In addition, the Pooling and Servicing Agreement will
provide that the Master Servicer will not be under any obligation to appear
in, prosecute or defend any legal action that is not incidental to its duties
under the Pooling and Servicing Agreement and that in its opinion may involve
it in any expense or liability. The Master Servicer may, however, in its
discretion, undertake any such action deemed by it necessary or desirable with
respect to the Pooling and Servicing Agreement and the rights and duties of
the parties thereto and the interests of the Certificateholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust
Estate and the Master Servicer will be entitled to be reimbursed therefor out
of the Certificate Account, and any loss to the Trust Estate arising from such
right of reimbursement will be allocated first to the Subordinated Certificate
of a Series before being allocated to the related Senior Certificates, or if
such Series does not contain Subordinated Certificates, pro rata among the
various Classes of Certificates unless otherwise specified in the applicable
Pooling and Servicing Agreement.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger, conversion or consolidation to which the
Master Servicer is a party, or any person succeeding to the business through
the transfer of substantially all of its assets or all assets relating to such
business, or otherwise, of the Master Servicer will be the successor of the
Master Servicer under the Pooling and Servicing Agreement for each Series
provided that such successor or resulting entity has a net worth of not less
than $15,000,000 and is qualified to service mortgage loans for FNMA or FHLMC.
The Master Servicer also has the right to assign its rights and delegate its
duties and obligations under the Pooling and Servicing Agreement for each
Series; provided that, if the Master Servicer desires to be released from its
obligations under the Pooling and Servicing Agreement, (i) the purchaser or
transferee accepting such assignment or delegation is qualified to service
mortgage loans for FNMA or FHLMC, (ii) the purchaser is satisfactory to the
Trustee for such Series, in the reasonable exercise of its judgment, and
executes and delivers to the Trustee an agreement, in form and substance
reasonably satisfactory to the Trustee, which contains an assumption by such
purchaser or transferee of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Master Servicer
under the Pooling and Servicing Agreement from and after the date of such
agreement; and (iii) each applicable Rating Agency's rating of any
Certificates for such Series in effect immediately prior to such assignment,
sale or transfer would not be qualified, downgraded or withdrawn as a result
of such assignment, sale or transfer and the Certificates would not be placed
on credit review status by any such Rating Agency. The Master Servicer will be
released from its obligations under the Pooling and Servicing Agreement upon
any such assignment and delegation, except that the Master Servicer will
remain liable for all liabilities and obligations incurred by it prior to the
time that the conditions contained in clauses (i), (ii) and (iii) above are
met.
THE POOLING AND SERVICING AGREEMENT
ASSIGNMENT OF MORTGAGE LOANS TO THE TRUSTEE
The Seller will have acquired the Mortgage Loans included in each Trust
Estate from Norwest Mortgage pursuant to an agreement (the "NORWEST MORTGAGE
SALE AGREEMENT"). In connection with the conveyance of the Mortgage Loans to
the Seller, Norwest Mortgage will (i) agree to deliver to the Seller all of
the documents which the Seller is required to deliver to the Trustee; (ii)
make certain representations and warranties to the Seller which will be the
basis of certain of the Seller's representations and warranties to the Trustee
or assign the representations and warranties made by a Correspondent to
Norwest Mortgage; and (iii) agree to repurchase or substitute (or assign
rights to a comparable agreement of a Correspondent) for any Mortgage Loan for
which any document is not delivered or is found to be defective in any
material respect, or which Mortgage Loan is discovered at any time not to be
in conformance with any representation and warranty Norwest Mortgage has made
to the Seller and the breach of such representation and warranty materially
and adversely affects the interests of the Certificateholders in the related
Mortgage
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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."
At the time of issuance of each Series of Certificates, the Mortgage Loans
in the related Trust Estate will, pursuant to the applicable Pooling and
Servicing Agreement, be assigned to the Trustee, together with all principal
and interest received on or with respect to such Mortgage Loans after the
applicable Cut-Off Date other than principal and interest due and payable on
or before such Cut-Off Date and interest attributable to the Fixed Retained
Yield on such Mortgage Loans, if any. See "Servicing of the Mortgage Loans--
Fixed Retained Yield, Servicing Compensation and Payment of Expenses." The
Trustee or its agent will, concurrently with such assignment, authenticate and
deliver the Certificates evidencing such Series to the Seller in exchange for
the Mortgage Loans. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the applicable Pooling and Servicing Agreement.
Each such schedule will include, among other things, the unpaid principal
balance as of the close of business on the applicable Cut-Off Date, the
maturity date and the Mortgage Interest Rate for each Mortgage Loan in the
related Trust Estate.
In addition, with respect to each Mortgage Loan in a Trust Estate, the
mortgage or other promissory note or a lost note affidavit executed by the
applicable Servicer, any assumption, modification or conversion to fixed
interest rate agreement, a mortgage assignment in recordable form and the
recorded Mortgage (or other documents as are required under applicable law to
create perfected security interest in the Mortgaged Property in favor of the
Trustee) will be delivered to the Trustee or, if indicated in the applicable
Prospectus Supplement, to a custodian; provided that, in instances where
recorded documents cannot be delivered due to delays in connection with
recording, copies thereof, certified by the Seller to be true and complete
copies of such documents sent for recording, may be delivered and the original
recorded documents will be delivered promptly upon receipt. The assignment of
each Mortgage will be recorded promptly after the initial issuance of
Certificates for the related Trust Estate, except in states where, in the
opinion of counsel acceptable to the Trustee, such recording is not required
to protect the Trustee's interest in the Mortgage Loan against the claim of
any subsequent transferee or any successor to or creditor of the Seller,
Norwest Mortgage or the originator of such Mortgage Loan.
Notwithstanding the preceding paragraph, with respect to any Mortgage which
has been recorded in the name of Mortgage Electronic Registration Systems,
Inc. ("MERS") or its designee, no mortgage assignment in favor of the Trustee
will be required to be prepared or delivered. Instead, the Trustee and the
applicable Servicer will be required to take all actions as are necessary to
cause the applicable Trust Estate to be shown as the owner of the related
Mortgage Loan on the records of MERS for purposes of the system of recording
transfers of beneficial ownership of mortgages maintained by MERS.
The Trustee or custodian will hold all Mortgage Loan documents delivered to
it in trust for the benefit of Certificateholders of the related Series and
will review such documents within 180 days of the date of the applicable
Pooling and Servicing Agreement. If any document is not delivered or is found
to be defective in any material respect, or if the Seller is in breach of any
of its representations and warranties, and such breach materially and
adversely affects the interests of the Certificateholders in a Mortgage Loan,
and the Seller cannot deliver such document or cure such defect or breach
within 60 days after written notice thereof, the Seller will, within 60 days
of such notice, either repurchase the related Mortgage Loan from the Trustee
at a price equal to the then unpaid principal balance thereof, plus accrued
and unpaid interest at the applicable Mortgage Interest Rate (minus any Fixed
Retained Yield) through the last day of the month in which such repurchase
takes place, or (in the case of a Series for which one or more REMIC elections
have been or will be made, unless the maximum period as may be provided by the
Code or applicable regulations of the Department of the Treasury ("TREASURY
REGULATIONS") shall have elapsed since the execution of the applicable Pooling
and Servicing Agreement) substitute for such Mortgage Loan a new mortgage loan
having characteristics such that the representations and warranties of the
Seller made pursuant to the applicable Pooling and Servicing Agreement (except
for representations and warranties as to the correctness of the applicable
schedule of mortgage loans) would not have been incorrect had such substitute
Mortgage Loan originally been a Mortgage Loan. In the case of a repurchased
Mortgage Loan, the purchase price will be deposited by the Seller in the
related Certificate Account. In the case of a substitute Mortgage Loan, the
mortgage file relating thereto will be delivered to the Trustee or the
custodian and the Seller will deposit in the Certificate Account, an amount
equal to the excess of (i) the unpaid principal balance of the Mortgage Loan
which is substituted for, over (ii) the unpaid principal balance of the
substitute Mortgage Loan, together with interest on such excess at the
Mortgage Interest Rate (minus any Fixed Retained Yield) to the next scheduled
Due Date of the Mortgage Loan which is being substituted for. In no event will
any substitute Mortgage Loan have an unpaid principal balance greater than the
scheduled principal balance calculated in accordance
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with the amortization schedule (the "SCHEDULED PRINCIPAL BALANCE") of the
Mortgage Loan for which it is substituted (after giving effect to the
scheduled principal payment due in the month of substitution on the Mortgage
Loan substituted for), or a term greater than, a Mortgage Interest Rate less
than, a Mortgage Interest Rate more than one percent per annum greater than or
a Loan-to-Value Ratio greater than, the Mortgage Loan for which it is
substituted. If substitution is to be made for an adjustable rate Mortgage
Loan, the substitute Mortgage Loan will have an unpaid principal balance no
greater than the Scheduled Principal Balance of the Mortgage Loan for which it
is substituted (after giving effect to the scheduled principal payment due in
the month of substitution on the Mortgage Loan substituted for), a Loan-to-
Value Ratio less than or equal to, and a Mortgage Interest Rate at least equal
to, that of the Mortgage Loan for which it is substituted, and will bear
interest based on the same index, margin and frequency of adjustment as the
substituted Mortgage Loan. The repurchase obligation and the mortgage
substitution referred to above will constitute the sole remedies available to
the Certificateholders or the Trustee with respect to missing or defective
documents or breach of the Seller's representations and warranties.
If no custodian is named in the Pooling and Servicing Agreement, the Trustee
will be authorized to appoint a custodian to maintain possession of the
documents relating to the Mortgage Loans and to conduct the review of such
documents described above. Any custodian so appointed will keep and review
such documents as the Trustee's agent under a custodial agreement.
OPTIONAL PURCHASES
Subject to the provisions of the applicable Pooling and Servicing Agreement,
the Seller or the Master Servicer may, at such party's option, repurchase any
Mortgage Loan which is in default or as to which default is reasonably
foreseeable if, in the Seller's or the Master Servicer's judgment, the related
default is not likely to be cured by the borrower or default is not likely to
be averted, at a price equal to the unpaid principal balance thereof plus
accrued interest thereon and under the conditions set forth in the applicable
Prospectus Supplement.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Pooling and Servicing
Agreement for each Series, the Master Servicer will prepare and the Trustee
will include with each distribution to Certificateholders of record of such
Series a statement setting forth the following information, if applicable:
(i) the amount of such distribution allocable to principal of the related
Mortgage Loans, separately identifying the aggregate amount of any
principal prepayments included therein, the amount of such distribution
allocable to interest on the related Mortgage Loans and the aggregate
unpaid principal balance of the Mortgage Loans evidenced by each Class
after giving effect to the principal distributions on such Distribution
Date;
(ii) the amount of servicing compensation with respect to the related
Trust Estate and such other customary information as is required to enable
Certificateholders to prepare their tax returns;
(iii) the amount by which the Servicing Fee for the related Distribution
Date has been reduced by interest shortfalls due to prepayments;
(iv) the aggregate amount of any Periodic Advances by the Servicer, the
Master Servicer or the Trustee included in the amounts actually distributed
to the Certificateholders;
(v) to each holder of a Certificate entitled to the benefits of payments
under any form of credit enhancement or from any Reserve Fund:
(a) the amounts so distributed under any such form of credit
enhancement or from any such Reserve Fund on the applicable Distribution
Date; and
(b) the amount of coverage remaining under any such form of credit
enhancement and the balance in any such Reserve Fund, after giving
effect to any payments thereunder and other amounts charged thereto on
the Distribution Date;
(vi) in the case of a Series of Certificates with a variable Pass-Through
Rate, such Pass-Through Rate;
(vii) the amount of the remaining Special Hazard Loss Amount, Fraud Loss
Amount and Bankruptcy Loss Amount as of the close of business on such
Distribution Date;
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(viii) the book value of any collateral acquired by the Trust Estate
through foreclosure or otherwise;
(ix) 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
(x) the number and aggregate principal amount of Mortgage Loans one
month, two months and three or more months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will furnish either directly, or through
the Trustee, a report to each Certificateholder of record at any time during
such calendar year such information as required by the Code and applicable
regulations thereunder to enable Certificateholders to prepare their tax
returns. In the event that an election has been made to treat the Trust Estate
(or one or more segregated pools of assets therein) as a REMIC, the Trustee
will be required to sign the federal and applicable state and local income tax
returns of the REMIC (which will be prepared by the Master Servicer). See
"Certain Federal Income Tax Consequences--Federal Income Tax Consequences for
REMIC Certificates--Administrative Matters."
LIST OF CERTIFICATEHOLDERS
The Pooling and Servicing Agreement for each Series will require the Trustee
to provide access to the most current list of names and addresses of
Certificateholders of such Series to any group of five or more
Certificateholders who advise the Trustee in writing that they desire to
communicate with other Certificateholders with respect to their rights under
the Pooling and Servicing Agreement or under the Certificates.
EVENTS OF DEFAULT
Events of Default under the Pooling and Servicing Agreement for each Series
include (i) any failure by the Master Servicer to make a required deposit
which continues unremedied for three business days after the giving of written
notice of such failure to the Master Servicer by the Trustee for such Series,
or to the Master Servicer and the Trustee by the holders of Certificates of
such Series having voting rights allocated to such Certificates ("VOTING
INTERESTS") aggregating not less than 25% of the Voting Interests allocated to
all Certificates for such Series; (ii) any failure by the Master Servicer duly
to observe or perform in any material respect any other of its covenants or
agreements in the Pooling and Servicing Agreement which continues unremedied
for 60 days (or 30 days in the case of a failure to maintain any pool
insurance policy required to be maintained pursuant to the Pooling and
Servicing Agreement) after the giving of written notice of such failure to the
Master Servicer by the Trustee, or to the Master Servicer and the Trustee by
the holders of Certificates aggregating not less than 25% of the Voting
Interests; (iii) certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings and certain action
by the Master Servicer indicating its insolvency, reorganization or inability
to pay its obligations and (iv) it and any subservicer appointed by it
becoming ineligible to service for both FNMA and FHLMC (unless remedied within
90 days).
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series or holders of
Certificates of such Series evidencing not less than 66 2/3% of the Voting
Interests in the Trust Estate for such Series may terminate all of the rights
and obligations of the Master Servicer under the Pooling and Servicing
Agreement and in and to the Mortgage Loans (other than the Master Servicer's
right to recovery of the aggregate Master Servicing Fees due prior to the date
of termination, and other expenses and amounts advanced pursuant to the terms
of the Pooling and Servicing Agreement, which rights the Master Servicer will
retain under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under the
Pooling and Servicing Agreement and will be entitled to monthly compensation
not to exceed the aggregate Master Servicing Fees together with the other
compensation to which the Master Servicer is entitled under the Pooling and
Servicing Agreement. In the event that the Trustee is unwilling or unable so
to act, it may select, pursuant to the public bid procedure described in the
applicable Pooling and Servicing Agreement, or petition a court of competent
jurisdiction to appoint, a housing and home finance institution, bank or
mortgage servicing institution with a net worth of at least $10,000,000 to act
as successor to the Master Servicer under the provisions of the Pooling and
Servicing Agreement; provided however, that until such a successor Master
Servicer is appointed and has assumed the responsibilities, duties
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and liabilities of the Master Servicer under the Pooling and Servicing
Agreement, the Trustee shall continue as the successor to the Master Servicer
as described above. In the event such public bid procedure is utilized, the
successor would be entitled to compensation in an amount equal to the
aggregate Master Servicing Fees, together with the other compensation to which
the Master Servicer is entitled under the Pooling and Servicing Agreement, and
the Master Servicer would be entitled to receive the net profits, if any,
realized from the sale of its rights and obligations under the Pooling and
Servicing Agreement.
During the continuance of any Event of Default under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Certificateholders of such Series, and
holders of Certificates evidencing not less than 25% of the Voting Interests
for such Series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred upon the Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or
powers unless such Certificateholders have offered the Trustee reasonable
security or indemnity against the cost, expenses and liabilities which may be
incurred by the Trustee thereby. Also, the Trustee may decline to follow any
such direction if the Trustee determines that the action or proceeding so
directed may not lawfully be taken or would involve it in personal liability
or be unjustly prejudicial to the non-assenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's status
as a Certificateholder, will have any right under the Pooling and Servicing
Agreement for such Series to institute any proceeding with respect to the
Pooling and Servicing Agreement, unless such holder previously has given to
the Trustee for such Series written notice of default and unless the holders
of Certificates evidencing not less than 25% of the Voting Interests for such
Series have made written request upon the Trustee to institute such proceeding
in its own name as Trustee thereunder and have offered to the Trustee
reasonable indemnity and the Trustee for 60 days has neglected or refused to
institute any such proceeding.
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Seller, the
Master Servicer and the Trustee without the consent of the Certificateholders,
(i) to cure any ambiguity or mistake, (ii) to correct or supplement any
provision therein that may be inconsistent with any other provision therein,
(iii) to modify, eliminate or add to any of its provisions to such extent as
shall be necessary to maintain the qualification of the Trust Estate (or one
or more segregated pools of assets therein) as a REMIC at all times that any
Certificates are outstanding or to avoid or minimize the risk of the
imposition of any tax on the Trust Estate pursuant to the Code that would be a
claim against the Trust Estate, provided that the Trustee has received an
opinion of counsel to the effect that such action is necessary or desirable to
maintain such qualification or to avoid or minimize the risk of the imposition
of any such tax and such action will not, as evidenced by such opinion of
counsel, adversely affect in any material respect the interests of any
Certificateholder, (iv) to change the timing and/or nature of deposits into
the Certificate Account, provided that such change will not, as evidenced by
an opinion of counsel, adversely affect in any material respect the interests
of any Certificateholder and that such change will not adversely affect the
then current rating assigned to any Certificates, as evidenced by a letter
from each Rating Agency to such effect, (v) to add to, modify or eliminate any
provisions therein restricting transfers of Residual Certificates to certain
disqualified organizations described below under "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Residual Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates," (vi) to make certain provisions with respect to the
denominations of, and the manner of payments on, certain Classes or Subclasses
of Certificates initially retained by the Seller or an affiliate, or (vii) to
make any other provisions with respect to matters or questions arising under
such Pooling and Servicing Agreement that are not inconsistent with the
provisions thereof, provided that such action will not, as evidenced by an
opinion of counsel, adversely affect in any material respect the interests of
the Certificateholders of the related Series. The Pooling and Servicing
Agreement may also be amended by the Seller, the Master Servicer and the
Trustee with the consent of the holders of Certificates evidencing interests
aggregating not less than 66 2/3% of the Voting Interests evidenced by the
Certificates of each Class or Subclass affected thereby, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Pooling and Servicing Agreement or of modifying in any
manner the rights of the Certificateholders; provided, however, that no such
amendment may (i) reduce in any manner the amount of, or delay the timing of,
any payments received on or with respect to Mortgage Loans that are required
to be distributed on any Certificates, without the consent of the holder of
such Certificate, (ii) adversely affect in any material respect the interests
of the holders of a Class or Subclass of Certificates of a Series in a manner
other than that set forth in (i) above without the consent of the holders of
Certificates aggregating not less than 66 2/3% of the Voting Interests
evidenced by such Class or Subclass,
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or (iii) reduce the aforesaid percentage of Certificates of any Class or
Subclass, the holders of which are required to consent to such amendment,
without the consent of the holders of all Certificates of such Class or
Subclass affected then outstanding. Notwithstanding the foregoing, the Trustee
will not consent to any such amendment if such amendment would subject the
Trust Estate (or any segregated pool of assets therein) to tax or cause the
Trust Estate (or any segregated pool of assets therein) to fail to qualify as
a REMIC.
TERMINATION; OPTIONAL PURCHASE OF MORTGAGE LOANS
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate on the Distribution Date following the final
payment or other liquidation of the last Mortgage Loan subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan. In no event, however, will the trust created by the Pooling and
Servicing Agreement continue beyond the expiration of 21 years from the death
of the last survivor of certain persons named in such Pooling and Servicing
Agreement. For each Series of Certificates, the Trustee will give written
notice of termination of the Pooling and Servicing Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency appointed by the
Seller and specified in the notice of termination.
If so provided in the applicable Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Seller, Norwest Mortgage or such other party as is specified in
the applicable Prospectus Supplement, to purchase from the Trust Estate for
such Series all remaining Mortgage Loans at the time subject to the Pooling
and Servicing Agreement at a price specified in such Prospectus Supplement. In
the event that such party has caused the related Trust Estate (or any
segregated pool of assets therein) to be treated as a REMIC, any such purchase
will be effected only pursuant to a "qualified liquidation" as defined in Code
Section 860F(a)(4)(A) and the receipt by the Trustee of an opinion of counsel
or other evidence that such purchase will not (i) result in the imposition of
a tax on "prohibited transactions" under Code Section 860F(a)(1), (ii)
otherwise subject the Trust Estate to tax, or (iii) cause the Trust Estate (or
any segregated pool of assets) to fail to qualify as a REMIC. The exercise of
such right will effect early retirement of the Certificates of that Series,
but the right so to purchase may be exercised only after the aggregate
principal balance of the Mortgage Loans for such Series at the time of
purchase is less than a specified percentage of the aggregate principal
balance at the Cut-Off Date for the Series, or after the date set forth in the
applicable Prospectus Supplement.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement (the "TRUSTEE") will
be named in the applicable Prospectus Supplement. The commercial bank or trust
company serving as Trustee may have normal banking relationships with the
Seller or any of its affiliates.
The Trustee may resign at any time, in which event the Master Servicer will
be obligated to appoint a successor trustee. The Master Servicer may also
remove the Trustee if the Trustee ceases to be eligible to act as Trustee
under the Pooling and Servicing Agreement, if the Trustee becomes insolvent or
in order to change the situs of the Trust Estate for state tax reasons. Upon
becoming aware of such circumstances, the Master Servicer will become
obligated to appoint a successor trustee. The Trustee may also be removed at
any time by the holders of Certificates evidencing not less than 51% of the
Voting Interests in the Trust Estate, except that, any Certificate registered
in the name of the Seller, the Master Servicer or any affiliate thereof will
not be taken into account in determining whether the requisite Voting Interest
in the Trust Estate necessary to effect any such removal has been obtained.
Any resignation and removal of the Trustee, and the appointment of a successor
trustee, will not become effective until acceptance of such appointment by the
successor trustee. The Trustee, and any successor trustee, will have a
combined capital and surplus of at least $50,000,000, or will be a member of a
bank holding system, the aggregate combined capital and surplus of which is at
least $50,000,000, provided that the Trustee's and any such successor
trustee's separate capital and surplus shall at all times be at least the
amount specified in Section 310(a)(2) of the Trust Indenture Act of 1939, and
will be subject to supervision or examination by federal or state authorities.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete or to reflect the laws of any
particular state, nor to encompass the laws of all states in which the
security for the Mortgage Loans is situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans.
GENERAL
The Mortgage Loans will, in general, be secured by either first mortgages or
first deeds of trust, depending upon the prevailing practice in the state in
which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower (or, in the case of a Mortgage Loan secured
by a property that has been conveyed to an inter vivos revocable trust, the
settlor of such trust); and the mortgagee, who is the lender. In a mortgage
instrument state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: a borrower called the trustor
(similar to a mortgagor), a lender called the beneficiary (similar to a
mortgagee), and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid,
in trust, generally with a power of sale, to the trustee to secure payment of
the loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed
of trust or mortgage, applicable law, and, in some cases, with respect to the
deed of trust, the directions of the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right of
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place and,
in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws control the amount of foreclosure expenses
and costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at the
foreclosure sale. Rather, it is common for the lender to purchase the
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property from the trustee or receiver for an amount equal to the unpaid
principal amount of the note, accrued and unpaid interest and the expenses of
foreclosure. Thereafter, subject to the right of the borrower in some states
to remain in possession during the redemption period, the lender will assume
the burdens of ownership, including obtaining hazard insurance and making such
repairs at its own expense as are necessary to render the property suitable
for sale. The lender commonly will obtain the services of a real estate broker
and pay the broker a commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss may
be reduced by the receipt of mortgage insurance proceeds, if any, or by
judicial action against the borrower for the deficiency, if such action is
permitted by law. See "--Anti-Deficiency Legislation and Other Limitations on
Lenders" below.
FORECLOSURE ON SHARES OF COOPERATIVES
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and By-laws, as well
as in the proprietary lease or occupancy agreement, and may be cancelled by
the cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such tenant-
stockholder. The proprietary lease or occupancy agreement generally permits
the cooperative to terminate such lease or agreement in the event an obligor
fails to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the cooperative enter into a recognition
agreement which establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder on its obligations under the
proprietary lease or occupancy agreement. A default by the tenant-stockholder
under the proprietary lease or occupancy agreement will usually constitute a
default under the security agreement between the lender and the tenant-
stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement. The total amount owed to the
cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the cooperative loan and accrued and
unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender
is not limited by the agreement in any rights it may have to dispossess the
tenant-stockholders.
Foreclosure on the cooperative shares is accomplished by a sale in
accordance with the provisions of Article 9 of the Uniform Commercial Code
(the "UCC") and the security agreement relating to those shares. Article 9 of
the UCC requires that a sale be conducted in a "commercially reasonable"
manner. Whether a foreclosure sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor
and the method, manner, time, place and terms of the foreclosure. Generally, a
sale conducted according to the usual practice of banks selling similar
collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the cooperative corporation to
receive sums due under the proprietary lease or occupancy agreement. If there
are proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See "--Anti-
Deficiency Legislation and Other Limitations on Lenders" below.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust and/or foreclosure of
a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
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taxes. In some states, the right to redeem is an equitable right. The effect
of a right of redemption is to delay the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or
sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal in most cases to the difference between the
amount due to the lender and the net amount realized upon the foreclosure
sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement and foreclosure on
the beneficial interest in a land trust. Some courts have interpreted Section
9-504 of the UCC to prohibit a deficiency award unless the creditor
establishes that the sale of the collateral (which, in the case of a Mortgage
Loan secured by shares of a cooperative, would be such shares and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
A Servicer generally will not be required under the applicable Underlying
Servicing Agreement to pursue deficiency judgments on the Mortgage Loans even
if permitted by law.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of a secured mortgage lender to realize upon its security. For
example, numerous statutory provisions under the United States Bankruptcy
Code, 11 U.S.C. Sections 101 et seq., (the "BANKRUPTCY CODE") may interfere
with or affect the ability of the Seller to obtain payment of a Mortgage Loan,
to realize upon collateral and/or enforce a deficiency judgment. For example,
under federal bankruptcy law, virtually all actions (including foreclosure
actions and deficiency judgment proceedings) are automatically stayed upon the
filing of a bankruptcy petition, and often no interest or principal payments
are made during the course of the bankruptcy proceeding. In a case under the
Bankruptcy Code, the secured party is precluded from foreclosing without
authorization from the bankruptcy court. In addition, a court with federal
bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or
Chapter 13 plan to cure a monetary default in respect of a Mortgage Loan by
paying arrearages within a reasonable time period and reinstating the original
mortgage loan payment schedule even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered in state court
(provided no foreclosure sale had yet occurred) prior to the filing of the
debtor's petition. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the case, that effected the
curing of a mortgage loan default by paying arrearages over a number of years.
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If a Mortgage Loan is secured by property not consisting solely of the
debtor's principal residence, the Bankruptcy Code also permits such Mortgage
Loan to be modified. Such modifications may include reducing the amount of
each monthly payment, changing the rate of interest, altering the repayment
schedule, and reducing the lender's security interest to the value of the
property, thus leaving the lender in the position of a general unsecured
creditor for the difference between the value of the property and the
outstanding balance of the Mortgage Loan. Some courts have permitted such
modifications when the Mortgage Loan is secured both by the debtor's principal
residence and by personal property.
If a court relieves a borrower's obligation to repay amounts otherwise due
on a Mortgage Loan, the Servicer will not be required to advance such amounts,
and any loss in respect thereof will be borne by the Certificateholders.
The Internal Revenue Code of 1986, as amended, provides priority to certain
tax liens over the lien of the mortgage or deed of trust. The laws of some
states provide priority to certain tax liens over the lien of the mortgage or
deed of trust. Numerous federal and some state consumer protection laws impose
substantive requirements upon mortgage lenders in connection with the
origination, servicing and enforcement of mortgage loans. These laws include
the federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act,
and related statutes and regulations. These federal laws and state laws impose
specific statutory liabilities upon lenders who originate or service mortgage
loans and who fail to comply with the provisions of the law. In some cases,
this liability may affect assignees of the mortgage loans.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT AND SIMILAR LAWS
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "RELIEF ACT"), a borrower who enters military service
after the origination of such borrower's Mortgage Loan (including a borrower
who is a member of the National Guard or is in reserve status at the time of
the origination of the Mortgage Loan and is later called to active duty) may
not be charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Mortgage Loans in a Trust
Estate. Any shortfall in interest collections resulting from the application
of the Relief Act could result in losses to the holders of the Certificates of
the related Series. Further, the Relief Act imposes limitations which would
impair the ability of the Servicer to foreclose on an affected Mortgage Loan
during the borrower's period of active duty status. Thus, in the event that
such a Mortgage Loan goes into default, there may be delays and losses
occasioned by the inability to realize upon the Mortgaged Property in a timely
fashion. Certain states have enacted comparable legislation which may
interfere with or affect the ability of the Servicer to timely collect
payments of principal and interest on, or to foreclose on, Mortgage Loans of
borrowers in such states who are active or reserve members of the armed
services.
ENVIRONMENTAL CONSIDERATIONS
A lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property. Property subject to such a
security interest may be subject to federal, state, and local laws and
regulations relating to environmental protection. Such laws may regulate,
among other things: emissions of air pollutants; discharges of wastewater or
storm water; generation, transport, storage or disposal of hazardous waste or
hazardous substances; operation, closure and removal of underground storage
tanks; removal and disposal of asbestos-containing materials; management of
electrical or other equipment containing polychlorinated biphenyls ("PCBS").
Failure to comply with such laws and regulations may result in significant
penalties, including 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 subsequent liens on such property are subordinated to such a
lien and, in some states, even prior recorded liens are subordinated to such
liens ("SUPERLIENS"). In the latter states, the security interest of the
Trustee in a property that is subject to such a Superlien could be adversely
affected.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, 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
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wastes or hazardous substances have been released or disposed of on the
property. Such Cleanup Costs may be substantial and could exceed the value of
the property and the aggregate assets of the owner or operator. 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
exceed 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 secured lender such as the Trust Estate. Under the laws of some states and
under CERCLA, a lender may be liable as an "owner or operator" for costs of
addressing releases or threatened releases of hazardous substances on a
mortgaged property if such lender or its agents or employees have
"participated in the management" of the operations of the borrower, even
though the environmental damage or threat was caused by a prior owner or
current owner or operator or other third party. Excluded from CERCLA's
definition of "owner or operator," is a person "who without participating in
the management of . . . [the] facility, holds indicia of ownership primarily
to protect his security interest" (the "secured-creditor exemption"). This
exemption for holders of a security interest such as a secured lender applies
only 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 facility or property, the lender
faces potential liability as an "owner or operator" under CERCLA. Similarly,
when a lender forecloses and takes title to a contaminated facility or
property, the lender may incur potential CERCLA liability in various
circumstances, including among others, when it holds the facility or property
as an investment (including leasing the facility or property to a third
party), fails to market the property in a timely fashion or fails to properly
address environmental conditions at the property or facility.
The Resource Conservation and Recovery Act, as amended ("RCRA"), contains a
similar secured-creditor exemption for those lenders who hold a security
interest in a petroleum underground storage tank ("UST") or in real estate
containing a UST, or that acquire title to a petroleum UST or facility or
property on which such a UST is located. As under CERCLA, a lender may lose
its secured-creditor exemption and be held liable under RCRA as a UST owner or
operator if such lender or its employees or agents participate in the
management of the UST. And, if the lender takes title to or possession of the
UST or the real estate containing the UST, under certain circumstances the
secured-creditor exemption may be deemed to be unavailable.
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 facility or participated in decisions relating to hazardous waste to be
liable under CERCLA; rather, liability could attach to a lender if its
involvement with the management of the facility 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 financial management. A subsequent decision by the United
States Court of Appeals for the Ninth Circuit in In re Bergsoe Metal Corp.,
apparently disagreeing with, but not expressly contradicting, the Fleet
Factors court, held that a secured lender had no liability absent "some actual
management of the facility" on the part of the lender.
Court decisions have taken varying views of the scope of the secured-
creditor exemption, leading to administrative and legislative efforts to
provide guidance to lenders on the scope of activities that would trigger
CERCLA and/or RCRA liability. Until recently, these efforts have failed to
provide substantial guidance.
On October 30, 1996, however, the President signed into law legislation
intended to clarify the scope of the secured-creditor exemption under both
CERCLA and RCRA. This legislation more explicitly defined the kinds of
"participation in management" that would trigger liability under CERCLA and
specified certain activities that would not constitute "participation in
management" or otherwise result in a forfeiture of the secured-creditor
exemption prior to foreclosure or during a workout period. The legislation
also clarifies the extent of protection against liability under CERCLA in the
event of foreclosure. The legislation also authorizes certain regulatory
clarifications of the scope of the secured-creditor exemption for purposes of
RCRA, similar to the statutory protections under CERCLA. However, since the
courts have not yet had the opportunity to interpret the new statutory
provisions,
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the scope of the additional protections offered by the Asset Conservation Act
is not fully defined. It also is important to note that the Asset Conservation
Act does not offer complete protection to lenders and that the risk of
liability remains.
If a secured lender does become liable, it may be entitled to bring an
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 liability on "owners or operators" but do not
incorporate the secured-creditor exemption.
Traditionally, residential mortgage lenders have not taken steps to evaluate
whether hazardous wastes or hazardous substances are present with respect to
any mortgaged property prior to the origination of the mortgage loan or prior
to foreclosure or accepting a deed-in-lieu of foreclosure. Accordingly,
neither the Seller, Norwest Mortgage nor Norwest Funding has made such
evaluations prior to the origination of the Mortgage Loans, nor does Norwest
Mortgage or Norwest Funding require that such evaluations be made by
originators who have sold the Mortgage Loans to Norwest Mortgage. Neither the
Seller nor Norwest Mortgage is required to undertake any such evaluations
prior to foreclosure or accepting a deed-in-lieu of foreclosure. Neither the
Seller nor the Master Servicer makes any representations or warranties or
assumes any liability with respect to: the environmental condition of such
Mortgaged Property; the absence, presence or effect of hazardous wastes or
hazardous substances on any Mortgaged Property; any casualty resulting from
the presence or effect of hazardous wastes or hazardous substances on, near or
emanating from such Mortgaged Property; the impact on Certificateholders of
any environmental condition or presence of any substance on or near such
Mortgaged Property; or the compliance of any Mortgaged Property with any
environmental laws, nor is any agent, person or entity otherwise affiliated
with the Seller authorized or able to make any such representation, warranty
or assumption of liability relative to any such Mortgaged Property. See
"Mortgage Loan Programs--Representations and Warranties" and "Servicing of the
Mortgage Loans--Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted
Mortgage Loans" above.
"DUE-ON-SALE" CLAUSES
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of
the maturity of a loan if the borrower transfers its interest in the property.
In recent years, court decisions and legislative actions placed substantial
restrictions on the right of lenders to enforce such clauses in many states.
However, effective October 15, 1982, Congress enacted the Garn-St Germain
Depository Institutions Act of 1982 (the "GARN ACT") which purports to preempt
state laws which prohibit the enforcement of "due-on-sale" clauses by
providing among other matters, that "due-on-sale" clauses in certain loans
(which loans may include the Mortgage Loans) made after the effective date of
the Garn Act are enforceable, within certain limitations as set forth in the
Garn Act and the regulations promulgated thereunder. "Due-on-sale" clauses
contained in mortgage loans originated by federal savings and loan
associations or federal savings banks are fully enforceable pursuant to
regulations of the Office of Thrift Supervision ("OTS"), as successor to the
Federal Home Loan Bank Board ("FHLBB"), which preempt state law restrictions
on the enforcement of such clauses. Similarly, "due-on-sale" clauses in
mortgage loans made by national banks and federal credit unions are now fully
enforceable pursuant to preemptive regulations of the Comptroller of the
Currency and the National Credit Union Administration, respectively.
The Garn Act created a limited exemption from its general rule of
enforceability for "due-on-sale" clauses in certain mortgage loans ("WINDOW
PERIOD LOANS") which were originated by non-federal lenders and made or
assumed in certain states ("WINDOW PERIOD STATES") during the period, prior to
October 15, 1982, in which that state prohibited the enforcement of "due-on-
sale" clauses by constitutional provision, statute or statewide court decision
(the "WINDOW PERIOD"). Though neither the Garn Act nor the OTS regulations
actually names the Window Period States, FHLMC has taken the position, in
prescribing mortgage loan servicing standards with respect to mortgage loans
which it has purchased, that the Window Period States were: Arizona, Arkansas,
California, Colorado, Georgia, Iowa, Michigan, Minnesota, New Mexico, Utah and
Washington. Under the Garn Act, unless a Window Period State took action by
October 15, 1985, the end of the Window Period, to further regulate
enforcement of "due-on-sale" clauses in Window Period Loans, "due-on-sale"
clauses would become enforceable even in Window Period Loans. Five of the
Window Period States (Arizona, Minnesota, Michigan, New Mexico and Utah) have
taken actions which restrict the enforceability of "due-on-sale" clauses in
Window Period Loans beyond October 15, 1985. The actions taken vary among such
states.
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By virtue of the Garn Act, a Servicer may generally be permitted to
accelerate any conventional Mortgage Loan which contains a "due-on-sale"
clause upon transfer of an interest in the property subject to the mortgage or
deed of trust. With respect to any Mortgage Loan secured by a residence
occupied or to be occupied by the borrower, this ability to accelerate will
not apply to certain types of transfers, including (i) the granting of a
leasehold interest which has a term of three years or less and which does not
contain an option to purchase, (ii) a transfer to a relative resulting from
the death of a borrower, or a transfer where the spouse or children become an
owner of the property in each case where the transferee(s) will occupy the
property, (iii) a transfer resulting from a decree of dissolution of marriage,
legal separation agreement or from an incidental property settlement agreement
by which the spouse becomes an owner of the property, (iv) the creation of a
lien or other encumbrance subordinate to the lender's security instrument
which does not relate to a transfer of rights of occupancy in the property
(provided that such lien or encumbrance is not created pursuant to a contract
for deed), (v) a transfer by devise, descent or operation of law on the death
of a joint tenant or tenant by the entirety, (vi) a transfer into an inter
vivos trust in which the borrower is the beneficiary and which does not relate
to a transfer of rights of occupancy; and (vii) other transfers as set forth
in the Garn Act and the regulations thereunder. The extent of the effect of
the Garn Act on the average lives and delinquency rates of the Mortgage Loans
cannot be predicted. See "Prepayment and Yield Considerations."
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, enacted in March 1980 ("TITLE V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. The OTS as successor
to the FHLBB is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. The statute authorized
any state to reimpose interest rate limits by adopting before April 1, 1983, a
law or constitutional provision which expressly rejects application of the
federal law. Fifteen states have adopted laws reimposing or reserving the
right to reimpose interest rate limits. In addition, even where Title V is not
so rejected, any state is authorized to adopt a provision limiting certain
other loan charges.
The Seller will represent and warrant in the Pooling and Servicing Agreement
to the Trustee for the benefit of Certificateholders that all Mortgage Loans
are originated in full compliance with applicable state laws, including usury
laws. See "The Pooling and Servicing Agreement--Assignment of Mortgage Loans
to the Trustee."
ENFORCEABILITY OF CERTAIN PROVISIONS
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if
the loan is prepaid. Under the Pooling and Servicing Agreement, late charges
and prepayment fees (to the extent permitted by law and not waived by the
Servicer) will be retained by the Servicer as additional servicing
compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary,
such as the borrower failing to adequately maintain the property or the
borrower executing a second mortgage or deed of trust affecting the property.
In other cases, some courts have been faced with the issue of whether federal
or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under the deeds of trust receive
notices in addition to the statutorily-prescribed minimum requirements. For
the most part, these cases have upheld the notice provisions as being
reasonable or have found that the sale by a trustee under a deed of trust or
under a mortgage having a power of sale does not involve sufficient state
action to afford constitutional protections to the borrower.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion represents the opinion of Cadwalader,
Wickersham & Taft as to the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Certificates. The
discussion below does not purport to address all federal income tax
consequences that may be applicable to particular categories of investors,
some of which may be subject to special rules. The authorities on which this
discussion is based are subject to change or differing interpretations, and
any such change or interpretation could apply retroactively. This discussion
reflects the applicable provisions of the Code, as well as regulations (the
"REMIC REGULATIONS") promulgated by the U.S. Department of the Treasury.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Certificates.
For purposes of this discussion, where the applicable Prospectus Supplement
provides for a Fixed Retained Yield with respect to the Mortgage Loans of a
Series of Certificates, references to the Mortgage Loans will be deemed to
refer to that portion of the Mortgage Loans held by the Trust Estate that does
not include the Fixed Retained Yield. References to a "HOLDER" or
"CERTIFICATEHOLDER" in this discussion generally mean the beneficial owner of
a Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular Series of Certificates, an election may be made
to treat the Trust Estate or one or more segregated pools of assets therein as
one or more REMICs within the meaning of Code Section 860D. A Trust Estate or
a portion or portions thereof as to which one or more REMIC elections will be
made will be referred to as a "REMIC POOL." For purposes of this discussion,
Certificates of a Series as to which one or more REMIC elections are made are
referred to as "REMIC CERTIFICATES" and will consist of one or more Classes of
"REGULAR CERTIFICATES" and one Class of "RESIDUAL CERTIFICATES" in the case of
each REMIC Pool. Qualification as a REMIC requires ongoing compliance with
certain conditions. With respect to each Series of REMIC Certificates,
Cadwalader, Wickersham & Taft, counsel to the Seller, has advised the Seller
that in the firm's opinion, assuming (i) the making of an appropriate
election, (ii) compliance with the Pooling and Servicing Agreement, and (iii)
compliance with any changes in the law, including any amendments to the Code
or applicable Treasury regulations thereunder, each REMIC Pool will qualify as
a REMIC. In such case, the Regular Certificates will be considered to be
"regular interests" in the REMIC Pool and generally will be treated for
federal income tax purposes as if they were newly originated debt instruments,
and the Residual Certificates will be considered to be "residual interests" in
the REMIC Pool. The Prospectus Supplement for each Series of Certificates will
indicate whether one or more REMIC elections with respect to the related Trust
Estate will be made, in which event references to "REMIC" or "REMIC POOL"
herein shall be deemed to refer to each such REMIC Pool.
STATUS OF REMIC CERTIFICATES
REMIC Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the
REMIC Pool would be treated as "loans . . . secured by an interest in real
property 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)(4)(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)(4)(A), payments of
principal and interest on the Mortgage Loans that are reinvested pending
distribution to holders of REMIC Certificates qualify for such treatment.
Where two REMIC Pools are a part of a tiered structure they will be treated as
one REMIC for purposes of the tests described above respecting asset ownership
of more or less than 95%. In addition, if the assets of the REMIC include Buy-
Down Loans, it is possible that the percentage of such assets constituting
"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. Regular
Certificates will represent
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"qualified mortgages," within the meaning of Code Section 860G(a)(3), for
other REMICs and "permitted assets," within the meaning of Code Section
860L(c), for financial asset securitization investment trusts. 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 associations and
mutual savings banks, and thus has eliminated the asset category of
"qualifying real property loans" in former Code Section 593(d) for taxable
years beginning after December 31, 1995. The requirement in the SBJPA of 1996
that such institutions must "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
compliance on the part of the REMIC Pool with the requirements set forth in
the Code. The REMIC Pool must fulfill an asset test, which requires that no
more than a de minimis portion of the assets of the REMIC Pool, as of the
close of the third calendar month beginning after the "STARTUP DAY" (which for
purposes of this discussion is the date of issuance of the REMIC Certificates)
and at all times thereafter, may consist of assets other than "qualified
mortgages" and "permitted investments." The REMIC Regulations provide a safe
harbor pursuant to which the de minimis requirement will be met if at all
times the aggregate adjusted basis of the nonqualified assets is less than 1%
of the aggregate adjusted basis of all the REMIC Pool's assets. An entity that
fails to meet the safe harbor may nevertheless demonstrate that it holds no
more than a de minimis amount of nonqualified assets. A REMIC Pool also must
provide "reasonable arrangements" to prevent its residual interests from being
held by "disqualified organizations" or agents thereof and must furnish
applicable tax information to transferors or agents that violate this
requirement. See "--Taxation of Residual Certificates--Tax-Related
Restrictions on Transfer of Residual Certificates--Disqualified
Organizations."
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and, generally, certificates of beneficial interest in a grantor trust that
holds mortgage loans and regular interests in another REMIC, such as lower-
tier regular interests in a tiered REMIC. The REMIC Regulations specify that
loans secured by timeshare interests and shares held by a tenant stockholder
in a cooperative housing corporation can be qualified mortgages. A qualified
mortgage includes a qualified replacement mortgage, which is any property that
would have been treated as a qualified mortgage if it were transferred to the
REMIC Pool on the Startup Day and that is received either (i) in exchange for
any qualified mortgage within a three-month period thereafter or (ii) in
exchange for a "defective obligation" within a two-year period thereafter. A
"defective obligation" includes (i) a mortgage in default or as to which
default is reasonably foreseeable, (ii) a mortgage as to which a customary
representation or warranty made at the time of transfer to the REMIC Pool has
been breached, (iii) a mortgage that was fraudulently procured by the
mortgagor, and (iv) a mortgage that was not in fact principally secured by
real property (but only if such mortgage is disposed of within 90 days of
discovery). A Mortgage Loan that is "defective" as described in clause (iv)
that is not sold or, if within two years of the Startup Day, exchanged, within
90 days of discovery, ceases to be a qualified mortgage after such 90-day
period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13
months, until the next scheduled distribution to holders of interests in the
REMIC Pool. A qualified reserve asset is any intangible property held for
investment that is part of any reasonably required reserve maintained by the
REMIC Pool to provide for payments of expenses of the REMIC Pool or amounts
due on the regular or residual interests in the event of defaults (including
delinquencies) on the qualified mortgages, lower than expected reinvestment
returns, prepayment interest shortfalls and certain other contingencies. The
reserve fund will be disqualified if more than 30% of the gross income from
the assets in such fund for the year is derived from the sale or other
disposition of property held for less than three months, unless required to
prevent a default on the regular interests caused by a default on one or more
qualified mortgages. A reserve
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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 not held beyond the close of the third calendar year
following the year in which such property is acquired with an extension that
may be granted by the Internal Revenue Service.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests
or (ii) a single class of residual interests on which distributions, if any,
are made pro rata. A regular interest is an interest in a REMIC Pool that is
issued on the Startup Day with fixed terms, is designated as a regular
interest, and unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and provides that interest
payments (or other similar amounts), if any, at or before maturity either are
payable based on a fixed rate or a qualified variable rate, or consist of a
specified, nonvarying portion of the interest payments on qualified mortgages.
Such a specified portion may consist of a fixed number of basis points, a
fixed percentage of the total interest, or a qualified variable rate, inverse
variable rate or difference between two fixed or qualified variable rates on
some or all of the qualified mortgages. The specified principal amount of a
regular interest that provides for interest payments consisting of a
specified, nonvarying portion of interest payments on qualified mortgages may
be zero. A residual interest is an interest in a REMIC Pool other than a
regular interest that is issued on the Startup Day and that is designated as a
residual interest. An interest in a REMIC Pool may be treated as a regular
interest even if payments of principal with respect to such interest are
subordinated to payments on other regular interests or the residual interest
in the REMIC Pool, and are dependent on the absence of defaults or
delinquencies on qualified mortgages or permitted investments, lower than
reasonably expected returns on permitted investments, unanticipated expenses
incurred by the REMIC Pool or prepayment interest shortfalls. Accordingly, the
Regular Certificates of a Series will constitute one or more classes of
regular interests, and the Residual Certificates with respect to that Series
will constitute a single class of residual interests on which distributions
are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests therein. The Code, however, authorizes the Treasury
Department to issue regulations that address situations where failure to meet
one or more of the requirements for REMIC status occurs inadvertently and in
good faith, and disqualification of the REMIC Pool would occur absent
regulatory relief. Investors should be aware, however, that the Conference
Committee Report to the Tax Reform Act of 1986 (the "1986 ACT") indicates that
the relief may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC Pool's income for the period of
time in which the requirements for REMIC status are not satisfied.
TAXATION OF REGULAR CERTIFICATES
General
In general, interest, original issue discount, and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "REGULAR CERTIFICATEHOLDER"), and principal payments
on a Regular Certificate will be treated as a return of capital to the extent
of the Regular Certificateholder's basis in the Regular Certificate allocable
thereto. Regular Certificateholders must use the accrual method of accounting
with regard to Regular Certificates, regardless of the method of accounting
otherwise used by such Regular Certificateholders.
Original Issue Discount
Compound Interest Certificates will be, and other classes of Regular
Certificates may be, issued with "original issue discount" within the meaning
of Code Section 1273(a). Holders of any Class or Subclass of Regular
Certificates having original issue discount generally must include original
issue discount in ordinary income for federal income tax purposes as it
accrues, in accordance with a constant interest method that takes into account
the compounding of interest, in advance of receipt of the cash attributable to
such income. The following discussion is based in part on temporary and final
Treasury regulations issued on February 2, 1994, as amended on June 14, 1996,
(the "OID REGULATIONS") under Code Sections 1271 through 1273 and 1275 and in
part on the provisions of the 1986 Act. Regular Certificateholders should be
aware, however, that the OID Regulations do not adequately
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address certain issues relevant to prepayable securities, such as the Regular
Certificates. To the extent such issues are not addressed in such regulations,
the Seller intends to apply the methodology described in the Conference
Committee Report to the 1986 Act. No assurance can be provided that the
Internal Revenue Service will not take a different position as to those
matters not currently addressed by the OID Regulations. Moreover, the OID
Regulations include an anti-abuse rule allowing the Internal Revenue Service
to apply or depart from the OID Regulations where necessary or appropriate to
ensure a reasonable tax result in light of the applicable statutory
provisions. A tax result will not be considered unreasonable under the anti-
abuse rule in the absence of a substantial effect on the present value of a
taxpayer's tax liability. Investors are advised to consult their own tax
advisors as to the discussion herein and the appropriate method for reporting
interest and original issue discount with respect to the Regular Certificates.
Each Regular Certificate (except to the extent described below with respect
to a Regular Certificate on which principal is distributed in a single
installment or by lots of specified principal amounts upon the request of a
Certificateholder or by random lot (a "NON-PRO RATA CERTIFICATE")) will be
treated as a single installment obligation for purposes of determining the
original issue discount includible in a Regular Certificateholder's income.
The total amount of original issue discount on a Regular Certificate is the
excess of the "stated redemption price at maturity" of the Regular Certificate
over its "issue price." The issue price of a Class of Regular Certificates
offered pursuant to this Prospectus generally is the first price at which a
substantial amount of such Class is sold to the public (excluding bond houses,
brokers and underwriters). Although unclear under the OID Regulations, the
Seller intends to treat the issue price of a Class as to which there is no
substantial sale as of the issue date or that is retained by the Seller as the
fair market value of that Class as of the issue date. The issue price of a
Regular Certificate also includes any amount paid by an initial Regular
Certificateholder for accrued interest that relates to a period prior to the
issue date of the Regular Certificate, unless the Regular Certificateholder
elects on its federal income tax return to exclude such amount from the issue
price and to recover it on the first Distribution Date. The stated redemption
price at maturity of a Regular Certificate always includes the original
principal amount of the Regular Certificate, but generally will not include
distributions of interest if such distributions constitute "qualified stated
interest." Under the OID Regulations, qualified stated interest generally
means interest payable at a single fixed rate or a qualified variable rate (as
described below) provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Regular
Certificate. Because there is no penalty or default remedy in the case of
nonpayment of interest with respect to a Regular Certificate, it is possible
that no interest on any Class of Regular Certificates will be treated as
qualified stated interest. However, except as provided in the following three
sentences or in the applicable Prospectus Supplement, because the underlying
Mortgage Loans provide for remedies in the event of default, the Seller
intends to treat interest with respect to the Regular Certificates as
qualified stated interest. Distributions of interest on a Compound Interest
Certificate, or on other Regular Certificates with respect to which deferred
interest will accrue, will not constitute qualified stated interest, in which
case the stated redemption price at maturity of such Regular Certificates
includes all distributions of interest as well as principal thereon. Likewise,
the Seller intends to treat an interest-only Class or a Class on which
interest is substantially disproportionate to its principal amount (a so-
called "super-premium" Class) as having no qualified stated interest. Where
the interval between the issue date and the first Distribution Date on a
Regular Certificate is shorter than the interval between subsequent
Distribution Dates, the interest attributable to the additional days will be
included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is
computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled
to be made by a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at maturity of the
Regular Certificate and the denominator of which is the stated redemption
price at maturity of the Regular Certificate. The Conference Committee Report
to the 1986 Act provides that the schedule of such distributions should be
determined in accordance with the assumed rate of prepayment of the Mortgage
Loans (the "PREPAYMENT ASSUMPTION") and the anticipated reinvestment rate, if
any, relating to the Regular Certificates. The Prepayment Assumption with
respect to a Series of Regular Certificates will be set forth in the
applicable Prospectus Supplement. Holders generally must report de minimis
original issue discount pro rata as principal payments are received, and such
income will be capital gain if the Regular Certificate is held as a capital
asset. Under the OID Regulations, however, Regular Certificateholders may
elect to accrue all de minimis original issue discount as well as market
discount and market premium, under the constant yield method. See "--Election
to Treat All Interest Under the Constant Yield Method."
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A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the
original issue discount on the Regular Certificate accrued during an accrual
period for each day on which it holds the Regular Certificate, including the
date of purchase but excluding the date of disposition. The Seller will treat
the monthly period ending on the day before each Distribution Date as the
accrual period. With respect to each Regular Certificate, a calculation will
be made of the original issue discount that accrues during each successive
full accrual period (or shorter period from the date of original issue) that
ends on the day before the related Distribution Date on the Regular
Certificate. The Conference Committee Report to the 1986 Act states that the
rate of accrual of original issue discount is intended to be based on the
Prepayment Assumption. Other than as discussed below with respect to a Non-Pro
Rata Certificate, the original issue discount accruing in a full accrual
period would be the excess, if any, of (i) the sum of (a) the present value of
all of the remaining distributions to be made on the Regular Certificate as of
the end of that accrual period, and (b) the distributions made on the Regular
Certificate during the accrual period that are included in the Regular
Certificate's stated redemption price at maturity, over (ii) the adjusted
issue price of the Regular Certificate at the beginning of the accrual period.
The present value of the remaining distributions referred to in the preceding
sentence is calculated based on (i) the yield to maturity of the Regular
Certificate at the issue date, (ii) events (including actual prepayments) that
have occurred prior to the end of the accrual period, and (iii) the Prepayment
Assumption. For these purposes, the adjusted issue price of a Regular
Certificate at the beginning of any accrual period equals the issue price of
the Regular Certificate, increased by the aggregate amount of original issue
discount with respect to the Regular Certificate that accrued in all prior
accrual periods and reduced by the amount of distributions included in the
Regular Certificate's stated redemption price at maturity that were made on
the Regular Certificate in such prior periods. The original issue discount
accruing during any accrual period (as determined in this paragraph) will then
be divided by the number of days in the period to determine the daily portion
of original issue discount for each day in the period. With respect to an
initial accrual period shorter than a full accrual period, the daily portions
of original issue discount must be determined according to an appropriate
allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Non-Pro Rata Certificate, the Seller intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Non-Pro Rata Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with
the preceding paragraph. However, in the case of a distribution in retirement
of the entire unpaid principal balance of any Non-Pro Rata Certificate (or
portion of such unpaid principal balance), (a) the remaining unaccrued
original issue discount allocable to such Certificate (or to such portion)
will accrue at the time of such distribution, and (b) the accrual of original
issue discount allocable to each remaining Certificate of such Class (or the
remaining unpaid principal balance of a partially redeemed Non-Pro Rata
Certificate after a distribution of principal has been received) will be
adjusted by reducing the present value of the remaining payments on such Class
and the adjusted issue price of such Class to the extent attributable to the
portion of the unpaid principal balance thereof that was distributed. The
Seller believes that the foregoing treatment is consistent with the "pro rata
prepayment" rules of the OID Regulations, but with the rate of accrual of
original issue discount determined based on the Prepayment Assumption for the
Class as a whole. Investors are advised to consult their tax advisors as to
this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively,
such a subsequent purchaser may elect to treat all such acquisition premium
under the constant yield method, as described below under the heading "--
Election to Treat All Interest Under the Constant Yield Method."
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Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate
if, generally, (i) the issue price does not exceed the original principal
balance by more than a specified amount and (ii) the interest compounds or is
payable at least annually at current values of (a) one or more "qualified
floating rates," (b) a single fixed rate and one or more qualified floating
rates, (c) a single "objective rate," or (d) a single fixed rate and a single
objective rate that is a "qualified inverse floating rate." A floating rate is
a qualified floating rate if variations in the rate can reasonably be expected
to measure contemporaneous variations in the cost of newly borrowed funds,
where such rate is subject to a 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 single fixed formula and that is based on
objective financial or economic information, provided that such information is
not (i) within the control of the issuer or a related party or (ii) unique to
the circumstances of the issuer or a related party. A qualified inverse
floating rate is a rate equal to a fixed rate minus a qualified floating rate
that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified inverse
floating rate may nevertheless be an objective rate. A Class of Regular
Certificates may be issued under this Prospectus that does not have a variable
rate under the foregoing rules, for example, a Class that bears different
rates at different times during the period it is outstanding such that it is
considered significantly "front-loaded" or "back-loaded" within the meaning of
the OID Regulations. It is possible that such a Class may be considered to
bear "contingent interest" within the meaning of the OID Regulations. The OID
Regulations, as they relate to the treatment of contingent interest, are by
their terms not applicable to Regular Certificates. However, if final
regulations dealing with contingent interest with respect to Regular
Certificates apply the same principles as the OID Regulations, such
regulations may lead to different timing of income inclusion than would be the
case under the OID Regulations for non-contingent debt instruments.
Furthermore, application of such principles could lead to the characterization
of gain on the sale of contingent interest Regular Certificates as ordinary
income. Investors should consult their tax advisors regarding the appropriate
treatment of any Regular Certificate that does not pay interest at a fixed
rate or variable rate as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates, including a rate based on the average cost of funds of one or
more financial institutions), or a positive or negative multiple of such a
rate (plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans, including such
a rate that is subject to one or more caps or floors, or (ii) bearing one or
more such variable rates for one or more periods, or one or more fixed rates
for one or more periods, and a different variable rate or fixed rate for other
periods, qualifies as a regular interest in a REMIC. Accordingly, unless
otherwise indicated in the applicable Prospectus Supplement, the Seller
intends to treat Regular Certificates that qualify as regular interests under
this rule in the same manner as obligations bearing a variable rate for
original issue discount reporting purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "--Original Issue Discount," with the yield to maturity and future
payments on such Regular Certificate generally to be determined by assuming
that interest will be payable for the life of the Regular Certificate based on
the initial rate (or, if different, the value of the applicable variable rate
as of the pricing date) for the relevant Class. Unless required otherwise by
applicable final regulations, the Seller intends to treat such variable
interest as qualified stated interest, other than variable interest on an
interest-only or super-premium Class, which will be treated as non-qualified
stated interest includible in the stated redemption price at maturity.
Ordinary income reportable for any period will be adjusted based on subsequent
changes in the applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, the Seller intends to treat Regular Certificates
bearing an interest rate that is a weighted average of the net interest rates
on Mortgage Loans as having qualified stated interest, except to the extent
that initial "teaser" rates cause sufficiently "back-loaded" interest to
create more than de minimis original issue discount. The yield on such Regular
Certificates for purposes of accruing original issue discount will be a
hypothetical fixed rate based on the fixed rates, in the case of fixed-rate
Mortgage Loans, and initial "teaser rates" followed by fully indexed rates, in
the case of adjustable-rate Mortgage Loans. In the case of adjustable-rate
Mortgage Loans, the applicable index used to compute interest on the Mortgage
Loans in effect on the pricing date (or possibly the issue date) will be
deemed to be in effect beginning with the period in which the first weighted
average adjustment date occurring after the issue date
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occurs. Adjustments will be made in each accrual period either increasing or
decreasing the amount of ordinary income reportable to reflect the actual
Pass-Through Rate on the Regular Certificates.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Sections 1276 through 1278. Under these sections and
the principles applied by the OID Regulations in the context of original issue
discount, "market discount" is the amount by which the purchaser's original
basis in the Regular Certificate (i) is exceeded by the then-current principal
amount of the Regular Certificate, or (ii) in the case of a Regular
Certificate having original issue discount, is exceeded by the adjusted issue
price of such Regular Certificate at the time of purchase. Such purchaser
generally will be required to recognize ordinary income to the extent of
accrued market discount on such Regular Certificate as distributions
includible in the stated redemption price at maturity thereof are received, in
an amount not exceeding any such distribution. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take into
account the Prepayment Assumption. The Conference Committee Report to the 1986
Act provides that until such regulations are issued, such market discount
would accrue either (i) on the basis of a constant interest rate, or (ii) in
the ratio of stated interest allocable to the relevant period to the sum of
the interest for such period plus the remaining interest as of the end of such
period, or in the case of a Regular Certificate issued with original issue
discount, in the ratio of original issue discount accrued for the relevant
period to the sum of the original issue discount accrued for such period plus
the remaining original issue discount as of the end of such period. Such
purchaser also generally will be required to treat a portion of any gain on a
sale or exchange of the Regular Certificate as ordinary income to the extent
of the market discount accrued to the date of disposition under one of the
foregoing methods, less any accrued market discount previously reported as
ordinary income as partial distributions in reduction of the stated redemption
price at maturity were received. Such purchaser will be required to defer
deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Certificate over the
interest distributable thereon. The deferred portion of such interest expense
in any taxable year generally will not exceed the accrued market discount on
the Regular Certificate for such year. Any such deferred interest expense is,
in general, allowed as a deduction not later than the year in which the
related market discount income is recognized or the Regular Certificate is
disposed of. As an alternative to the inclusion of market discount in income
on the foregoing basis, the Regular Certificateholder may elect to include
market discount in income currently as it accrues on all market discount
instruments acquired by such Regular Certificateholder in that taxable year or
thereafter, in which case the interest deferral rule will not apply. See "--
Election to Treat All Interest Under the Constant Yield Method" below
regarding an alternative manner in which such election may be deemed to be
made.
By analogy to the OID Regulations, market discount with respect to a Regular
Certificate will be considered to be zero if such market discount is less than
0.25% of the remaining stated redemption price at maturity of such Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate (determined as described above in the third paragraph under "--
Original Issue Discount") remaining after the date of purchase. It appears
that de minimis market discount would be reported in a manner similar to de
minimis original issue discount. See "--Original Issue Discount" above.
Treasury regulations implementing the market discount rules have not yet been
issued, and therefore investors should consult their own tax advisors
regarding the application of these rules. Investors should also consult
Revenue Procedure 92-67 concerning the elections to include market discount in
income currently and to accrue market discount on the basis of the constant
yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining stated
redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Certificateholder holds such Regular Certificate as a
"capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. Such election will apply to all debt
obligations acquired by the Regular Certificateholder at a premium held in
that taxable year or thereafter, unless revoked with the permission of the
Internal Revenue Service. Final Treasury Regulations issued under Code Section
171 do not by their terms apply to prepayable debt instruments such as the
Regular Certificates. However, the Conference Committee Report to the 1986 Act
indicates a Congressional intent that the same rules that apply to the accrual
of market discount on installment obligations will also apply to amortizing
bond premium under Code Section 171 on installment obligations such as the
Regular Certificates, although it is unclear whether the alternatives to the
constant interest method described above under "--Market Discount" are
available. Amortizable bond premium will be treated as an offset to interest
income on a Regular Certificate, rather than as a separate deduction item. See
"--Election to Treat All Interest Under
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the Constant Yield Method" below regarding an alternative manner in which the
Code Section 171 election may be deemed to be made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument
subject to such an election, (i) "interest" includes stated interest, original
issue discount, de minimis original issue discount, market discount and de
minimis market discount, as adjusted by any amortizable bond premium or
acquisition premium and (ii) the debt instrument is treated as if the
instrument were issued on the holder's acquisition date in the amount of the
holder's adjusted basis immediately after acquisition. It is unclear whether,
for this purpose, the initial Prepayment Assumption would continue to apply or
if a new prepayment assumption as of the date of the holder's acquisition
would apply. A holder generally may make such an election on an instrument by
instrument basis or for a class or group of debt instruments. However, if the
holder makes such an election with respect to a debt instrument with
amortizable bond premium or with market discount, the holder is deemed to have
made elections to amortize bond premium or to report market discount income
currently as it accrues under the constant yield method, respectively, for all
premium bonds held or market discount bonds acquired by the holder in the same
taxable year or thereafter. The election is made on the holder's federal
income tax return for the year in which the debt instrument is acquired and is
irrevocable except with the approval of the Internal Revenue Service.
Investors should consult their own tax advisors regarding the advisability of
making such an election.
Treatment of Losses
Regular Certificateholders will be required to report income with respect to
Regular Certificates on the accrual method of accounting, without giving
effect to delays or reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans, except to the extent it can be
established that such losses are uncollectible. Accordingly, the holder of a
Regular Certificate, particularly a Subordinated Certificate, may have income,
or may incur a diminution in cash flow as a result of a default or
delinquency, but may not be able to take a deduction (subject to the
discussion below) for the corresponding loss until a subsequent taxable year.
In this regard, investors are cautioned that while they may generally cease to
accrue interest income if it reasonably appears that the interest will be
uncollectible, the Internal Revenue Service may take the position that
original issue discount must continue to be accrued in spite of its
uncollectibility until the debt instrument is disposed of in a taxable
transaction or becomes worthless in accordance with the rules of Code Section
166. To the extent the rules of Code Section 166 regarding bad debts are
applicable, it appears that Regular Certificateholders that are corporations
or that otherwise hold the Regular Certificates in connection with a trade or
business should in general be allowed to deduct as an ordinary loss such loss
with respect to principal sustained during the taxable year on account of any
such Regular Certificates becoming wholly or partially worthless, and that, in
general, Regular Certificateholders that are not corporations and do not hold
the Regular Certificates in connection with a trade or business should be
allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of a portion of any such Regular Certificates becoming
wholly worthless. Although the matter is not free from doubt, such non-
corporate Regular Certificateholders should be allowed a bad debt deduction at
such time as the principal balance of such Regular Certificates is reduced to
reflect losses resulting from any liquidated Mortgage Loans. The Internal
Revenue Service, however, could take the position that non-corporate holders
will be allowed a bad debt deduction to reflect such losses only after all the
Mortgage Loans remaining in the Trust Estate have been liquidated or the
applicable Class of Regular Certificates has been otherwise retired. The
Internal Revenue Service could also assert that losses on the Regular
Certificates are deductible based on some other method that may defer such
deductions for all holders, such as reducing future cash flow for purposes of
computing original issue discount. This may have the effect of creating
"negative" original issue discount which would be deductible only against
future positive original issue discount or otherwise upon termination of the
Class. Regular Certificateholders are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such Regular Certificates. While losses attributable to
interest previously reported as income should be deductible as ordinary losses
by both corporate and non-corporate holders, the Internal Revenue Service may
take the position that losses attributable to accrued original issue discount
may only be deducted as capital losses in the case of non-corporate holders
who do not hold the Regular Certificates in connection with a trade or
business. Special loss rules are applicable to banks and thrift institutions,
including rules regarding reserves for bad debts. Such taxpayers are advised
to consult their tax advisors regarding the treatment of losses on Regular
Certificates.
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Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate, the
Regular Certificateholder will recognize gain or loss equal to the difference,
if any, between the amount received and its adjusted basis in the Regular
Certificate. The adjusted basis of a Regular Certificate generally will equal
the cost of the Regular Certificate to the seller, increased by any original
issue discount or market discount previously included in the seller's gross
income with respect to the Regular Certificate and reduced by amounts included
in the stated redemption price at maturity of the Regular Certificate that
were previously received by the seller, by any amortized premium and by any
recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term, mid-
term or short-term depending on whether the Regular Certificate has been held
for the related capital gain holding period. Such gain will be treated as
ordinary income (i) if a Regular Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Regular Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable federal rate
under Code Section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with
respect to any prior disposition of property that was held as part of such
transaction, (ii) in the case of a non-corporate taxpayer, to the extent such
taxpayer has made an election under Code Section 163(d)(4) to have net capital
gains taxed as investment income at ordinary income rates, or (iii) to the
extent that such gain does not exceed the excess, if any, of (a) the amount
that would have been includible in the gross income of the holder if its yield
on such Regular Certificate were 110% of the applicable federal rate as of the
date of purchase, over (b) the amount of income actually includible in the
gross income of such holder with respect to such Regular Certificate. In
addition, gain or loss recognized from the sale of a Regular Certificate by
certain banks or thrift institutions will be treated as ordinary income or
loss pursuant to Code Section 582(c). Generally, short-term capital gains of
certain non-corporate taxpayers are subject to the same tax rate as the
ordinary income of such taxpayers (39.6%) for property held for not more than
one year; mid-term capital gains of such taxpayers are subject to a maximum
tax rate of 28% for property held for more than one year but not more than 18
months; and long-term capital gains of such taxpayers are subject to a maximum
tax rate of 20% for property held for more than 18 months. The maximum tax
rate for corporations is the same with respect to both ordinary income and
capital gains.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Certificates ("RESIDUAL HOLDERS"), and will not
be taxed separately to the REMIC Pool. The daily portions of REMIC taxable
income or net loss of a Residual Holder are determined by allocating the REMIC
Pool's taxable income or net loss for each calendar quarter ratably to each
day in such quarter and by allocating such daily portion among the Residual
Holders in proportion to their respective holdings of Residual Certificates in
the REMIC Pool on such day. REMIC taxable income is generally determined in
the same manner as the taxable income of an individual using the accrual
method of accounting, except that (i) the limitations on deductibility of
investment interest expense and expenses for the production of income do not
apply, (ii) all bad loans will be deductible as business bad debts and (iii)
the limitation on the deductibility of interest and expenses related to tax-
exempt income will apply. The REMIC Pool's gross income includes interest,
original issue discount income and market discount income, if any, on the
Mortgage Loans, reduced by amortization of any premium on the Mortgage Loans,
plus income from amortization of issue premium, if any, on the Regular
Certificates, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized
losses to the Regular Certificates. The REMIC Pool's deductions include
interest and original issue discount expense on the Regular Certificates,
servicing fees on the Mortgage Loans, other administrative expenses of the
REMIC Pool and realized losses on the Mortgage Loans. The requirement that
Residual Holders report their pro rata share of taxable income or net loss of
the REMIC Pool will continue until there are no Certificates of any class of
the related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market discount income
or amortization of premium with respect to the Mortgage Loans, on the one
hand, and the timing of deductions for interest (including original issue
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discount) or income from amortization of issue premium on the Regular
Certificates, on the other hand. In the event that an interest in the Mortgage
Loans is acquired by the REMIC Pool at a discount, and one or more of such
Mortgage Loans is prepaid, the Residual Holder may recognize taxable income
without being entitled to receive a corresponding amount of cash because (i)
the prepayment may be used in whole or in part to make distributions in
reduction of principal or Stated Amount on the Regular Certificates and (ii)
the discount on the Mortgage Loans which is includible in income may exceed
the deduction allowed upon such distributions on those Regular Certificates on
account of any unaccrued original issue discount relating to those Regular
Certificates. When there is more than one Class of Regular Certificates that
distribute principal or payments in reduction of Stated Amount sequentially,
this mismatching of income and deductions is particularly likely to occur in
the early years following issuance of the Regular Certificates when
distributions in reduction of principal or Stated Amount are being made in
respect of earlier Classes of Regular Certificates to the extent that such
Classes are not issued with substantial discount or are issued at a premium.
If taxable income attributable to such a mismatching is realized, in general,
losses would be allowed in later years as distributions on the later maturing
Classes of Regular Certificates are made. Taxable income may also be greater
in earlier years than in later years as a result of the fact that interest
expense deductions, expressed as a percentage of the outstanding principal
amount of such a Series of Regular Certificates, may increase over time as
distributions in reduction of principal or Stated Amount are made on the lower
yielding Classes of Regular Certificates, whereas, to the extent the REMIC
Pool consists of fixed-rate Mortgage Loans, interest income with respect to
any given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan. Consequently, Residual Holders must
have sufficient other sources of cash to pay any federal, state, or local
income taxes due as a result of such mismatching or unrelated deductions
against which to offset such income, subject to the discussion of "excess
inclusions" below under "--Limitations on Offset or Exemption of REMIC
Income." The timing of such mismatching of income and deductions described in
this paragraph, if present with respect to a Series of Certificates, may have
a significant adverse effect upon a Residual Holder's after-tax rate of
return. In addition, a Residual Holder's taxable income during certain periods
may exceed the income reflected by such Residual Holder for such periods in
accordance with generally accepted accounting principles. Investors should
consult their own accountants concerning the accounting treatment of their
investment in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate if earlier), determined without taking into account the
net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Certificate is the amount paid for such Residual Certificate. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
Pool reportable by the Residual Holder and will be decreased (but not below
zero), first, by a cash distribution from the REMIC Pool and, second, by the
amount of loss of the REMIC Pool reportable by the Residual Holder. Any loss
that is disallowed on account of this limitation may be carried over
indefinitely with respect to the Residual Holder as to whom such loss was
disallowed and may be used by such Residual Holder only to offset any income
generated by the same REMIC Pool.
A Residual Holder will not be permitted to amortize directly the cost of its
Residual Certificate as an offset to its share of the taxable income of the
related REMIC Pool. However, that taxable income will not include cash
received by the REMIC Pool that represents a recovery of the REMIC Pool's
basis in its assets. Such recovery of basis by the REMIC Pool will have the
effect of amortization of the issue price of the Residual Certificates over
their life. However, in view of the possible acceleration of the income of
Residual Holders described above under "Taxation of REMIC Income," the period
of time over which such issue price is effectively amortized may be longer
than the economic life of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value of
anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a
residual interest as zero rather than such negative amount for purposes of
determining the REMIC Pool's basis in its assets. The preamble to the REMIC
Regulations states that the Internal Revenue Service may provide future
guidance on the proper tax treatment of payments made by a transferor of such
a residual interest to induce the transferee to acquire the interest, and
Residual Holders should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than
the corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the
Residual Holder will
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not recover a portion of such basis until termination of the REMIC Pool unless
future Treasury regulations provide for periodic adjustments to the REMIC
income otherwise reportable by such holder. The REMIC Regulations currently in
effect do not so provide. See "--Treatment of Certain Items of REMIC Income
and Expense--Market Discount" below regarding the basis of Mortgage Loans to
the REMIC Pool and "Sale or Exchange of a Residual Certificate" below
regarding possible treatment of a loss upon termination of the REMIC Pool as a
capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Seller intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Seller makes no representation as to the
specific method that it will use for reporting income with respect to the
Mortgage Loans and expenses with respect to the Regular Certificates and
different methods could result in different timing of reporting of taxable
income or net loss to Residual Holders or differences in capital gain versus
ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's deductions
for original issue discount and income from amortization of issue premium will
be determined in the same manner as original issue discount income on Regular
Certificates as described above under "Taxation of Regular Certificates--
Original Issue Discount" and "--Variable Rate Regular Certificates," without
regard to the de minimis rule described therein, and "--Premium."
Market Discount. The REMIC Pool will have market discount income in respect
of Mortgage Loans if, in general, the basis of the REMIC Pool in such Mortgage
Loans is exceeded by their unpaid principal balances. The REMIC Pool's basis
in such Mortgage Loans is generally the fair market value of the Mortgage
Loans immediately after the transfer thereof to the REMIC Pool. The REMIC
Regulations provide that such basis is equal in the aggregate to the issue
prices of all regular and residual interests in the REMIC Pool. The accrued
portion of such market discount would be recognized currently as an item of
ordinary income in a manner similar to original issue discount. Market
discount income generally should accrue in the manner described above under
"Taxation of Regular Certificates--Market Discount."
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate
of the issue prices of the regular and residual interests in the REMIC Pool
immediately after the transfer thereof to the REMIC Pool. In a manner
analogous to the discussion above under "Taxation of Regular Certificates--
Premium," a person that holds a Mortgage Loan as a capital asset under Code
Section 1221 may elect under Code Section 171 to amortize premium on Mortgage
Loans originated after September 27, 1985 under the constant yield method.
Amortizable bond premium will be treated as an offset to interest income on
the Mortgage Loans, rather than as a separate deduction item. Because
substantially all of the mortgagors on the Mortgage Loans are expected to be
individuals, Code Section 171 will not be available for premium on Mortgage
Loans originated on or prior to September 27, 1985. Premium with respect to
such Mortgage Loans may be deductible in accordance with a reasonable method
regularly employed by the holder thereof. The allocation of such premium pro
rata among principal payments should be considered a reasonable method;
however, the Internal Revenue Service may argue that such premium should be
allocated in a different manner, such as allocating such premium entirely to
the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion (or all) of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Holder will be subject to special
treatment. That portion, referred to as the "excess inclusion," is equal to
the excess of REMIC taxable income for the calendar quarter allocable to a
Residual Certificate over the daily accruals for such quarterly period of (i)
120% of the long-term applicable federal rate that would have applied to the
Residual Certificate (if it were a debt instrument) on the Startup Day under
Code Section 1274(d), multiplied by (ii) the adjusted issue price of such
Residual Certificate at the beginning of such quarterly period. For this
purpose, the adjusted issue price of a Residual Certificate at the beginning
of a quarter is the issue price of the Residual Certificate, plus the amount
of such daily accruals of REMIC income described in this paragraph for all
prior quarters, decreased by any distributions made with respect to such
Residual Certificate prior to the beginning of such quarterly period.
Accordingly, the portion of the REMIC Pool's taxable income that will be
treated as excess inclusions will be a larger portion of such income as the
adjusted issue price of the Residual Certificates diminishes.
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The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions, including
net operating loss carryforwards, on such Residual Holder's return. However,
net operating loss carryovers are determined without regard to excess
inclusion income. Further, if the Residual Holder is an organization subject
to the tax on unrelated business income imposed by Code Section 511, the
Residual Holder's excess inclusions will be treated as unrelated business
taxable income of such Residual Holder for purposes of Code Section 511. In
addition, REMIC taxable income is subject to 30% withholding tax with respect
to certain persons who are not U.S. Persons (as defined below under "--Tax-
Related Restrictions on Transfer of Residual Certificates--Foreign
Investors"), and the portion thereof attributable to excess inclusions is not
eligible for any reduction in the rate of withholding tax (by treaty or
otherwise). See "--Taxation of Certain Foreign Investors --Residual
Certificates" below. Finally, if a real estate investment trust or a regulated
investment company owns a Residual Certificate, a portion (allocated under
Treasury regulations yet to be issued) of dividends paid by the real estate
investment trust or regulated investment company could not be offset by net
operating losses of its shareholders, would constitute unrelated business
taxable income for tax-exempt shareholders, and would be ineligible for
reduction of withholding to certain persons who are not U.S. Persons. The
SBJPA of 1996 has eliminated the special rule permitting Section 593
institutions ("thrift institutions") to use net operating losses and other
allowable deductions to offset their excess inclusion income from Residual
Certificates that have "significant value" within the meaning of the REMIC
Regulations, effective for taxable years beginning after December 31, 1995,
except with respect to Residual Certificates continuously held by a thrift
institution since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual 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 alternative minimum taxable income for a taxable year cannot be less
than the excess inclusions for the year. Third, the amount of any alternative
minimum tax net operating loss deduction must be computed without regard to
any excess inclusions. These rules are effective for taxable years beginning
after December 31, 1986, unless a Residual Holder elects to have such rules
apply only to taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such rate is applied to the anticipated excess inclusions
from the end of the remaining calendar quarters in which they arise to the
date of the transfer. Such a tax generally would be imposed on the transferor
of the Residual Certificate, except that where such transfer is through an
agent (including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit stating that the transferee is not a Disqualified Organization and,
as of the time of the transfer, the transferor does not have actual knowledge
that such affidavit is false. The tax also may be waived by the Internal
Revenue Service if the Disqualified Organization promptly disposes of the
Residual Certificate and the transferor pays income tax at the highest
corporate rate on the excess inclusion for the period the Residual Certificate
is actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such
Disqualified Organization, and (ii) the highest marginal federal corporate
income tax rate. Such tax would be deductible from the ordinary gross income
of the Pass-Through Entity for the taxable year. The Pass-Through Entity would
not be liable for such tax if it has received an affidavit from such record
holder that it is not a Disqualified Organization or stating such holder's
taxpayer identification number and, during the period such person is the
record holder of the Residual Certificate, the Pass-Through Entity does not
have actual knowledge that such affidavit is false.
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For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a Residual Certificate, all interests in the electing
large partnership are treated as held by Disqualified Organizations for
purposes of the tax imposed upon a Pass-Through Entity by Section 860E(c) of
the Code. An exception to this tax, otherwise available to a Pass-Through
Entity that is furnished certain affidavits by record holders of interests in
the entity and that does not know such affidavits are false, is not available
to an electing large partnership.
For these purposes, (i) "DISQUALIFIED ORGANIZATION" means the United States,
any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors
is not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, (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, and (iii) an "ELECTING LARGE PARTNERSHIP" means any
partnership having more than 100 members during the preceding tax year (other
than certain service partnerships and commodity pools), which elect to apply
simplified reporting provisions under the Code.
The Pooling and Servicing Agreement with respect to a Series will provide
that no legal or beneficial interest in a Residual Certificate may be
transferred or registered unless (i) the proposed transferee furnishes to the
Seller and the Trustee an affidavit providing its taxpayer identification
number and stating that such transferee is the beneficial owner of the
Residual Certificate and is not a Disqualified Organization and is not
purchasing such Residual Certificate on behalf of a Disqualified Organization
(i.e., as a broker, nominee or middleman thereof) and (ii) the transferor
provides a statement in writing to the Seller and the Trustee that it has no
actual knowledge that such affidavit is false. Moreover, the Pooling and
Servicing Agreement will provide that any attempted or purported transfer in
violation of these transfer restrictions will be null and void and will vest
no rights in any purported transferee. Each Residual Certificate with respect
to a Series will bear a legend referring to such restrictions on transfer, and
each Residual Holder will be deemed to have agreed, as a condition of
ownership thereof, to any amendments to the related Pooling and Servicing
Agreement required under the Code or applicable Treasury regulations to
effectuate the foregoing restrictions. Information necessary to compute an
applicable excise tax must be furnished to the Internal Revenue Service and to
the requesting party within 60 days of the request, and the Seller or the
Trustee may charge a fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus
would continue to be subject to tax on its allocable portion of the net income
of the REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic
residual interest" (as defined below) to a Residual Holder (other than a
Residual Holder who is not a U.S. Person, as defined below under "--Foreign
Investors") is disregarded for all federal income tax purposes if a
significant purpose of the transferor is to impede the assessment or
collection of tax. A residual interest in a REMIC (including a residual
interest with a positive value at issuance) is a "noneconomic residual
interest" unless, at the time of the transfer, (i) the present value of the
expected future distributions on the residual interest at least equals the
product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which the transfer
occurs, and (ii) the transferor reasonably expects that the transferee will
receive distributions from the REMIC at or after the time at which taxes
accrue on the anticipated excess inclusions in an amount sufficient to satisfy
the accrued taxes on each excess inclusion. The anticipated excess inclusions
and the present value rate are determined in the same manner as set forth
above under "--Disqualified Organizations." The REMIC Regulations explain that
a significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation
of the financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts
as they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the non-economic
residual interest, the transferee may incur tax liabilities in excess of any
cash flows generated by the interest and that the transferee
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intends to pay taxes associated with holding the residual interest as they
become due. The Pooling and Servicing Agreement with respect to each Series of
Certificates will require the transferee of a Residual Certificate to certify
to the matters in the preceding sentence as part of the affidavit described
above under the heading "--Disqualified Organizations."
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended
to apply to a transferee who is not a "U.S. Person" (as defined below), unless
such transferee's income is effectively connected with the conduct of a trade
or business within the United States. A Residual Certificate is deemed to have
tax avoidance potential unless, at the time of the transfer, (i) the future
value of expected distributions equals at least 30% of the anticipated excess
inclusions after the transfer, and (ii) the transferor reasonably expects that
the transferee will receive sufficient distributions from the REMIC Pool at or
after the time at which the excess inclusions accrue and prior to the end of
the next succeeding taxable year for the accumulated withholding tax liability
to be paid. If the non-U.S. Person transfers the Residual Certificate back to
a U.S. Person, the transfer will be disregarded and the foreign transferor
will continue to be treated as the owner unless arrangements are made so that
the transfer does not have the effect of allowing the transferor to avoid tax
on accrued excess inclusions.
The Prospectus Supplement relating to the Certificates of a Series may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
PERSON" means a citizen or resident of the United States, a corporation,
partnership (except to the extent provided in applicable Treasury regulations)
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, an estate that is subject to U.S.
federal income tax regardless of the source of its income, or a trust if a
court within the United States is able to exercise primary supervision over
the administration of such trust, and one or more such U.S. Persons have the
authority to control all substantial decisions of such trust (or, to the
extent provided in applicable Treasury regulations, certain trusts in
existence on August 20, 1996 which are eligible to elect to be treated as U.S.
Persons.
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual Holder
will recognize gain or loss equal to the excess, if any, of the amount
realized over the adjusted basis (as described above under "Taxation of
Residual Certificates--Basis and Losses") of such Residual Holder in such
Residual Certificate at the time of the sale or exchange. In addition to
reporting the taxable income of the REMIC Pool, a Residual Holder will have
taxable income to the extent that any cash distribution to it from the REMIC
Pool exceeds such adjusted basis on that Distribution Date. Such income will
be treated as gain from the sale or exchange of the Residual Certificate. It
is possible that the termination of the REMIC Pool may be treated as a sale or
exchange of a Residual Holder's Residual Certificate, in which case, if the
Residual Holder has an adjusted basis in its Residual Certificate remaining
when its interest in the REMIC Pool terminates, and if it holds such Residual
Certificate as a capital asset under Code Section 1221, then it will recognize
a capital loss at that time in the amount of such remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of property that was held as a part of such transaction or (ii) in
the case of a non-corporate taxpayer, to the extent such taxpayer has made an
election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
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Mark to Market Regulations
The Internal Revenue Service has issued final regulations (the "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 Mark to Market Regulations provide that, for purposes of this
mark to market requirement, a Residual Certificate is not treated as a
security and thus may not be marked to market. The Mark to Market Regulations
apply to all Residual Certificates acquired on or after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Holders, but rather will be
taxed directly to the REMIC Pool at a 100% rate. Prohibited transactions
generally include (i) the disposition of a qualified mortgage other than for
(a) substitution within two years of the Startup Day for a defective
(including a defaulted) obligation (or repurchase in lieu of substitution of a
defective (including a defaulted) obligation at any time) or for any qualified
mortgage within three months of the Startup Day, (b) foreclosure, default, or
imminent default of a qualified mortgage, (c) bankruptcy or insolvency of the
REMIC Pool, or (d) a qualified (complete) liquidation, (ii) the receipt of
income from assets that are not the type of mortgages or investments that the
REMIC Pool is permitted to hold, (iii) the receipt of compensation for
services, or (iv) the receipt of gain from disposition of cash flow
investments other than pursuant to a qualified liquidation. Notwithstanding
(i) and (iv), it is not a prohibited transaction to sell REMIC Pool property
to prevent a default on Regular Certificates as a result of a default on
qualified mortgages or to facilitate a clean-up call (generally, an optional
termination to save administrative costs when no more than a small percentage
of the Certificates is outstanding). The REMIC Regulations indicate that the
modification of a Mortgage Loan generally will not be treated as a disposition
if it is occasioned by a default or reasonably foreseeable default, an
assumption of the Mortgage Loan, the waiver of a due-on-sale or due-on-
encumbrance clause, or the conversion of an interest rate by a mortgagor
pursuant to the terms of a convertible adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during
the three months following the Startup Day, (ii) made to a qualified reserve
fund by a Residual Holder, (iii) in the nature of a guarantee, (iv) made to
facilitate a qualified liquidation or clean-up call, and (v) as otherwise
permitted in Treasury regulations yet to be issued. It is not anticipated that
there will be any contributions to the REMIC Pool after the Startup Day.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period not exceeding the close of the third
calendar year after the year in which the REMIC Pool acquired such property,
with a possible extension. Net income from foreclosure property generally
means gain from the sale of a foreclosure property that is inventory property
and gross income from foreclosure property other than qualifying rents and
other qualifying income for a real estate investment trust. It is not
anticipated that the REMIC Pool will have any taxable net income from
foreclosure property.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on such date, the REMIC Pool will not be subject to the prohibited
transaction rules on the sale of its assets, provided that the REMIC Pool
credits or distributes in liquidation all of the sale proceeds plus its cash
(other than amounts retained to meet claims) to holders of Regular
Certificates and Residual Holders within the 90-day period.
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ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes
in a manner similar to a partnership. The form for such income tax return is
Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual Holder for
an entire taxable year, the REMIC Pool will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination by the Internal Revenue Service of any adjustments to, among
other things, items of REMIC income, gain, loss, deduction, or credit in a
unified administrative proceeding. The Master Servicer will be obligated to
act as "tax matters person," as defined in applicable Treasury regulations,
with respect to the REMIC Pool, in its capacity as either Residual Holder or
agent of the Residual Holders. If the Code or applicable Treasury regulations
do not permit the Master Servicer to act as tax matters person in its capacity
as agent of the Residual Holders, the Residual Holder chosen by the Residual
Holders or such other person specified pursuant to Treasury regulations will
be required to act as tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate, or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a taxable
year of an individual taxpayer will be reduced by the lesser of (i) 3% of the
excess, if any, of adjusted gross income over $100,000 ($50,000 in the case of
a married individual filing a separate return) (subject to adjustment for
inflation), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. In the case of a REMIC Pool, such deductions may
include deductions under Code Section 212 for the Servicing Fee and all
administrative and other expenses relating to the REMIC Pool, or any similar
expenses allocated to the REMIC Pool with respect to a regular interest it
holds in another REMIC. Such investors who hold REMIC Certificates either
directly or indirectly through certain pass-through entities may have their
pro rata share of such expenses allocated to them as additional gross income,
but may be subject to such limitation on deductions. In addition, such
expenses are not deductible at all for purposes of computing the alternative
minimum tax, and may cause such investors to be subject to significant
additional tax liability. Temporary Treasury regulations provide that the
additional gross income and corresponding amount of expenses generally are to
be allocated entirely to the holders of Residual Certificates in the case of a
REMIC Pool that would not qualify as a fixed investment trust in the absence
of a REMIC election. However, such additional gross income and limitation on
deductions will apply to the allocable portion of such expenses to holders of
Regular Certificates, as well as holders of Residual Certificates, where such
Regular Certificates are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. Unless indicated otherwise in the
applicable Prospectus Supplement, all such expenses will be allocable to the
Residual Certificates. In general, such allocable portion will be determined
based on the ratio that a REMIC Certificateholder's income, determined on a
daily basis, bears to the income of all holders of Regular Certificates and
Residual Certificates with respect to a REMIC Pool. As a result, individuals,
estates or trusts holding REMIC Certificates (either directly or indirectly
through a grantor trust, partnership, S corporation, REMIC or certain other
pass-through entities described in the foregoing temporary Treasury
regulations) may have taxable income in excess of the interest income at the
pass-through rate on Regular Certificates that are issued in a single class or
otherwise consistently with fixed investment trust status or in excess of cash
distributions for the related period on Residual Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) and (ii) provides the
Trustee, or the person who would otherwise be required to withhold tax from
such distributions under Code Section 1441 or 1442, with an appropriate
statement, signed under penalties of perjury, identifying the beneficial owner
and stating, among other things, that the beneficial owner of the Regular
Certificate is a Non-U.S. Person. If such statement, or any other required
statement, is not provided, 30% withholding will apply unless reduced or
eliminated pursuant to an applicable tax treaty
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or unless the interest on the Regular Certificate is effectively connected
with the conduct of a trade or business within the United States by such Non-
U.S. Person. In the latter case, such Non-U.S. Person will be subject to
United States federal income tax at regular rates. Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a Regular Certificate. The term "NON-U.S.
PERSON" means any person who is not a U.S. Person.
The IRS recently issued final regulations (the "NEW REGULATIONS") which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations are effective
January 1, 1999, although valid withholding certificates that are held on
December 31, 1998, remain valid until the earlier of December 31, 1999 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations would require, in the case of Regular Certificates
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. Non-U.S. Persons should consult their own tax advisors
concerning the application of the certification requirements in the New
Regulations.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Holders who are Non-U.S. Persons generally should be treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Holders may qualify as "portfolio interest," subject to the
conditions described in "REGULAR CERTIFICATES" above, but only to the extent
that (i) the Mortgage Loans were issued after July 18, 1984 and (ii) the Trust
Estate or segregated pool of assets therein (as to which a separate REMIC
election will be made), to which the Residual Certificate relates, consists of
obligations issued in "registered form" within the meaning of Code Section
163(f)(1). Generally, Mortgage Loans will not be, but regular interests in
another REMIC Pool will be, considered obligations issued in registered form.
Furthermore, a Residual Holder will not be entitled to any exemption from the
30% withholding tax (or lower treaty rate) to the extent of that portion of
REMIC taxable income that constitutes an "excess inclusion." See "--Taxation
of Residual Certificates--Limitations on Offset or Exemption of REMIC Income."
If the amounts paid to Residual Holders who are Non-U.S. Persons are
effectively connected with the conduct of a trade or business within the
United States by such Non-U.S. Persons, 30% (or lower treaty rate) withholding
will not apply. Instead, the amounts paid to such Non-U.S. Persons will be
subject to United States federal income tax at regular rates. If 30% (or lower
treaty rate) withholding is applicable, such amounts generally will be taken
into account for purposes of withholding only when paid or otherwise
distributed (or when the Residual Certificate is disposed of) under rules
similar to withholding upon disposition of debt instruments that have original
issue discount. See "--Taxation of Residual Certificates--Tax-Related
Restrictions on Transfer of Residual Certificates--Foreign Investors" above
concerning the disregard of certain transfers having "tax avoidance
potential." Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning Residual
Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and,
under certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from
distribution on the Regular Certificates would be refunded by the Internal
Revenue Service or allowed as a credit against the Regular Certificateholder's
federal income tax liability. The New Regulations change certain of the rules
relating to certain presumptions currently available relating to information
reporting and backup withholding. Non-U.S. Persons are urged to contact their
own tax advisors regarding the application to them of backup withholding and
information reporting.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of market discount will be made annually to
the Internal Revenue Service and to individuals, estates, non-exempt and non-
charitable trusts, and
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partnerships who are either holders of record of Regular Certificates or
beneficial owners who own Regular Certificates through a broker or middleman
as nominee. All brokers, nominees and all other non-exempt holders of record
of Regular Certificates (including corporations, non-calendar year taxpayers,
securities or commodities dealers, real estate investment trusts, investment
companies, common trust funds, thrift institutions and charitable trusts) may
request such information for any calendar quarter by telephone or in writing
by contacting the person designated in Internal Revenue Service Publication
938 with respect to a particular Series of Regular Certificates. Holders
through nominees must request such information from the nominee.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Holder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual Holders,
furnished annually, if applicable, to holders of Regular Certificates, and
filed annually with the Internal Revenue Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Holders, furnished annually to holders of
Regular Certificates, and filed annually with the Internal Revenue Service
concerning the percentage of the REMIC Pool's assets meeting the qualified
asset tests described above under "Status of REMIC Certificates."
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO WHICH NO REMIC ELECTION
IS MADE
GENERAL
In the event that no election is made to treat a Trust Estate (or a
segregated pool of assets therein) with respect to a Series of Certificates as
a REMIC, the Trust Estate will be classified as a grantor trust under subpart
E, Part 1 of subchapter J of the Code and not as an association taxable as a
corporation or a "taxable mortgage pool" within the meaning of Code Section
7701(i). Where there is no Fixed Retained Yield with respect to the Mortgage
Loans underlying the Certificates of a Series, and where such Certificates are
not designated as "STRIPPED CERTIFICATES," the holder of each such Certificate
in such Series will be treated as the owner of a pro rata undivided interest
in the ordinary income and corpus portions of the Trust Estate represented by
its Certificate and will be considered the beneficial owner of a pro rata
undivided interest in each of the Mortgage Loans, subject to the discussion
below under "--Recharacterization of Servicing Fees." Accordingly, the holder
of a Certificate of a particular Series will be required to report on its
federal income tax return its pro rata share of the entire income from the
Mortgage Loans represented by its Certificate, including interest at the
coupon rate on such Mortgage Loans, original issue discount (if any),
prepayment fees, assumption fees, and late payment charges received by the
Servicer, in accordance with such Certificateholder's method of accounting. A
Certificateholder generally will be able to deduct its share of the Servicing
Fee and all administrative and other expenses of the Trust Estate in
accordance with its method of accounting, provided that such amounts are
reasonable compensation for services rendered to that Trust Estate. However,
investors who are individuals, estates or trusts who own Certificates, either
directly or indirectly through certain pass-through entities, will be subject
to limitation with respect to certain itemized deductions described in Code
Section 67, including deductions under Code Section 212 for the Servicing Fee
and all such administrative and other expenses of the Trust Estate, to the
extent that such deductions, in the aggregate, do not exceed two percent of an
investor's adjusted gross income. In addition, Code Section 68 provides that
itemized deductions otherwise allowable for a taxable year of an individual
taxpayer will be reduced by the lesser of (i) 3% of the excess, if any, of
adjusted gross income over $100,000 ($50,000 in the case of a married
individual filing a separate return) (in each case, as adjusted for
inflation), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. As a result, such investors holding Certificates,
directly or indirectly through a pass-through entity, may have aggregate
taxable income in excess of the aggregate amount of cash received on such
Certificates with respect to interest at the pass-through rate or as discount
income on such Certificates. In addition, such expenses are not deductible at
all for purposes of computing the alternative minimum tax, and may cause such
investors to be subject to significant additional tax liability. Moreover,
where there is Fixed Retained Yield with respect to the Mortgage Loans
underlying a Series of Certificates or where the servicing fees are in excess
of reasonable servicing compensation, the transaction will be subject to the
application of the "stripped bond" and "stripped coupon" rules of the Code, as
described below under "--Stripped Certificates" and "--Recharacterization of
Servicing Fees," respectively.
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TAX STATUS
Cadwalader, Wickersham & Taft has advised the Seller that, except as
described below with respect to Stripped Certificates:
1. A Certificate owned by a "domestic building and loan association"
within the meaning of Code Section 7701(a)(19) will be considered to
represent "loans. . .secured by an interest in real property which
is. . .residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing the Mortgage
Loans represented by that Certificate is of the type described in such
section of the Code.
2. A Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code
Section 856(c)(4)(A) to the extent that the assets of the related Trust
Estate consist of qualified assets, and interest income on such assets will
be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Certificate owned by a REMIC will be considered to represent an
"obligation (including any participation or certificate of beneficial
ownership therein) which is principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3)(A) to the extent
that the assets of the related Trust Estate consist of "qualified
mortgages" within the meaning of Code Section 860G(a)(3).
4. A Certificate owned by a "financial asset securitization investment
trust" within the meaning of Code Section 860L(c) will be considered to
represent "permitted assets" within the meaning of Code Section 860L(c) to
the extent that the assets of the Trust Estate consist of "debt
instruments" or other permitted assets within the meaning of Code Section
860L(c).
An issue arises as to whether Buy-Down Loans may be characterized in their
entirety under the Code provisions cited in clauses 1 and 2 of the immediately
preceding paragraph. There is indirect authority supporting treatment of an
investment in a Buy-Down Loan as entirely secured by real property if the fair
market value of the real property securing the loan exceeds the principal
amount of the loan at the time of issuance or acquisition, as the case may be.
There is no assurance that the treatment described above is proper.
Accordingly, Certificateholders are urged to consult their own tax advisors
concerning the effects of such arrangements on the characterization of such
Certificateholder's investment for federal income tax purposes.
PREMIUM AND DISCOUNT
Certificateholders are advised to consult with their tax advisors as to the
federal income tax treatment of premium and discount arising either upon
initial acquisition of Certificates or thereafter.
Premium
The treatment of premium incurred upon the purchase of a Certificate will be
determined generally as described above under "--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Residual Certificates--
Treatment of Certain Items of REMIC Income and Expense--Premium."
Original Issue Discount
The original issue discount rules of Code Sections 1271 through 1275 will be
applicable to a Certificateholder's interest in those Mortgage Loans as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1,
1982, and mortgages of individuals originated after March 2, 1984. Under the
OID Regulations, such original issue discount could arise by the charging of
points by the originator of the mortgages in an amount greater than the
statutory de minimis exception, including a payment of points that is
currently deductible by the borrower under applicable Code provisions or,
under certain circumstances, by the presence of "teaser" rates on the Mortgage
Loans. See "--Stripped Certificates" below regarding original issue discount
on Stripped Certificates.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation
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that acquires the obligation after its initial issuance at a price greater
than the sum of the original issue price and the previously accrued original
issue discount, less prior payments of principal. Accordingly, if such
Mortgage Loans acquired by a Certificateholder are purchased at a price equal
to the then unpaid principal amount of such Mortgage Loans, no original issue
discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Loans (i.e., points) will be
includible by such holder.
Market Discount
Certificateholders also will be subject to the market discount rules to the
extent that the conditions for application of those sections are met. Market
discount on the Mortgage Loans will be determined and will be reported as
ordinary income generally in the manner described above under "Federal Income
Tax Consequences for REMIC Certificates--Taxation of Regular Certificates--
Market Discount," except that the ratable accrual methods described therein
will not apply. Rather, the holder will accrue market discount pro rata over
the life of the Mortgage Loans, unless the constant yield method is elected.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual.
RECHARACTERIZATION OF SERVICING FEES
If the servicing fees paid to a Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would represent neither
income nor a deduction to Certificateholders. In this regard, there are no
authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether, in the case of the
Certificate, the reasonableness of servicing compensation should be determined
on a weighted average or loan-by-loan basis. If a loan-by-loan basis is
appropriate, the likelihood that such amount would exceed reasonable servicing
compensation as to some of the Mortgage Loans would be increased. Recently
issued Internal Revenue Service guidance indicates that a servicing fee in
excess of reasonable compensation ("excess servicing") will cause the Mortgage
Loans to be treated under the "stripped bond" rules. Such guidance provides
safe harbors for servicing deemed to be reasonable and requires taxpayers to
demonstrate that the value of servicing fees in excess of such amounts is not
greater than the value of the services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a
Servicer who receives a servicing fee in excess of such amounts would be
viewed as retaining an ownership interest in a portion of the interest
payments on the Mortgage Loans. Under the rules of Code Section 1286, the
separation of ownership of the right to receive some or all of the interest
payments on an obligation from the right to receive some or all of the
principal payments on the obligation would result in treatment of such
Mortgage Loans as "stripped coupons" and "stripped bonds." Subject to the de
minimis rule discussed below under "--Stripped Certificates," each stripped
bond or stripped coupon could be considered for this purpose as a non-interest
bearing obligation issued on the date of issue of the Certificates, and the
original issue discount rules of the Code would apply to the holder thereof.
While Certificateholders would still be treated as owners of beneficial
interests in a grantor trust for federal income tax purposes, the corpus of
such trust could be viewed as excluding the portion of the Mortgage Loans the
ownership of which is attributed to the Servicer, or as including such portion
as a second class of equitable interest. Applicable Treasury regulations treat
such an arrangement as a fixed investment trust, since the multiple classes of
trust interests should be treated as merely facilitating direct investments in
the trust assets and the existence of multiple classes of ownership interests
is incidental to that purpose. In general, such a recharacterization should
not have any significant effect upon the timing or amount of income reported
by a Certificateholder, except that the income reported by a cash method
holder may be slightly accelerated. See "Stripped Certificates" below for a
further description of the federal income tax treatment of stripped bonds and
stripped coupons.
SALE OR EXCHANGE OF CERTIFICATES
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale
and its aggregate adjusted basis in the Mortgage Loans and other assets
represented by the Certificate. In general, the aggregate adjusted basis will
equal the Certificateholder's cost for the Certificate, increased by the
amount of any income previously reported with respect to the Certificate and
decreased by the amount of any losses previously reported with respect to the
Certificate and the amount of any distributions received thereon. Except as
provided above with respect to market discount on any Mortgage Loans, and
except for certain financial institutions subject to the provisions of Code
Section 582(c), any such gain or loss generally would be capital gain or loss
if the Certificate was held as a capital asset. However, gain on the sale of
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a Certificate will be treated as ordinary income (i) if a Certificate is held
as part of a "conversion transaction" as defined in Code Section 1258(c), up
to the amount of interest that would have accrued on the Certificateholder's
net investment in the conversion transaction at 120% of the appropriate
applicable Federal rate in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with
respect to any prior disposition of property that was held as a part of such
transaction or (ii) in the case of a non-corporate taxpayer, to the extent
such taxpayer has made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary income rates. Capital
gains of certain noncorporate taxpayers generally are subject to a lower
maximum tax rate (28%) than ordinary income of such taxpayers (39.6%) for
property held for more than one year but not more than 18 months, and a still
lower maximum tax rate (20%) for property held for more than 18 months. The
maximum tax rate for corporations is the same with respect to both ordinary
income and capital gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "STRIPPED
CERTIFICATES." The Certificates will be subject to those rules if (i) the
Seller or any of its affiliates retains (for its own account or for purposes
of resale), in the form of Fixed Retained Yield or otherwise, an ownership
interest in a portion of the payments on the Mortgage Loans, (ii) the Seller
or any of its affiliates is treated as having an ownership interest in the
Mortgage Loans to the extent it is paid (or retains) servicing compensation in
an amount greater than reasonable consideration for servicing the Mortgage
Loans (see "--Recharacterization of Servicing Fees" above), and (iii) a Class
of Certificates are issued in two or more Classes or Subclasses representing
the right to non-pro-rata percentages of the interest and principal payments
on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with
respect to its pro rata share of all or a portion of the interest payments on
each Mortgage Loan, including the Stripped Certificate's allocable share of
the servicing fees paid to a Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See the discussion above under
"--Recharacterization of Servicing Fees." Although not free from doubt, for
purposes of reporting to Stripped Certificateholders, the servicing fees will
be allocated to the Stripped Certificates in proportion to the respective
entitlements to distributions of each Class (or Subclass) of Stripped
Certificates for the related period or periods. The holder of a Stripped
Certificate generally will be entitled to a deduction each year in respect of
the servicing fees, as described above under "--General," subject to the
limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally as
an obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects
at this time, particularly where such Stripped Certificates are issued with
respect to a Mortgage Pool containing variable-rate Mortgage Loans, the Seller
has been advised by counsel that (i) the Trust Estate will be treated as a
grantor trust under subpart E, Part I of subchapter J of the Code and not as
an association taxable as a corporation or a "taxable mortgage pool" within
the meaning of Code Section 7701(i), and (ii) each Stripped Certificate should
be treated as a single installment obligation for purposes of calculating
original issue discount and gain or loss on disposition. This treatment is
based on the interrelationship of Code Section 1286, Code Sections 1272
through 1275, and the OID Regulations. Although it is possible that
computations with respect to Stripped Certificates could be made in one of the
ways described below under "Taxation of Stripped Certificates Possible
Alternative Characterizations," the OID Regulations state, in general, that
two or more debt instruments issued by a single issuer to a single investor in
a single transaction should be treated as a single debt instrument.
Accordingly, for OID purposes, all payments on any Stripped Certificates
should be aggregated and treated as though they were made on a single debt
instrument. The Pooling and Servicing Agreement will require that the Trustee
make and report all computations described below using this aggregate
approach, unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount.
In addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as
issued
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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
final regulations provide that the purchaser of such a Stripped Certificate
will be required to account for any discount as market discount rather than
original issue discount if either (i) the initial discount with respect to the
Stripped Certificate was treated as zero under the de minimis rule, or (ii) no
more than 100 basis points in excess of reasonable servicing is stripped off
the related Mortgage Loans. Any such market discount would be reportable as
described above under "Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Market Discount," without
regard to the de minimis rule therein, assuming that a prepayment assumption
is employed in such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as
that of the Mortgage Loans. Although the issue is not free from doubt, counsel
has advised the Seller that Stripped Certificates owned by applicable holders
should be considered to represent "real estate assets" within the meaning of
Code Section 856(c)(4)(A), "obligation[s] . . . principally secured by an
interest in real property" within the meaning of Code Section 860G(a)(3)(A),
"loans . . . secured by an interest in real property" within the meaning of
Code Section 7701(a)(19)(C)(v) and "permitted assets" within the meaning of
Code Section 860L(c), and interest (including original issue discount) income
attributable to Stripped Certificates should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), provided that in each case the Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment. The
application of such Code provisions to Buy-Down Loans is uncertain. See "--Tax
Status" above.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "--General," each
Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into account
the compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the
1986 Act, the amount of original issue discount required to be included in the
income of a holder of a Stripped Certificate (referred to in this discussion
as a "STRIPPED CERTIFICATEHOLDER") in any taxable year likely will be computed
generally as described above under "--Federal Income Tax Consequences for
REMIC Certificates--Taxation of Regular Certificates--Original Issue Discount"
and "--Variable Rate Regular Certificates." However, with the apparent
exception of a Stripped Certificate qualifying as a market discount obligation
as described above under "--General," the issue price of a Stripped
Certificate will be the purchase price paid by each holder thereof, and the
stated redemption price at maturity will include the aggregate amount of the
payments to be made on the Stripped Certificate to such Stripped
Certificateholder, presumably under the Prepayment Assumption, other than
qualified stated interest.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each Mortgage
Loan represented by such Stripped Certificateholder's Stripped Certificate.
While the matter is not free from doubt, the holder of a Stripped Certificate
should be entitled in the year that it becomes certain (assuming no further
prepayments) that the holder will not recover a portion of its adjusted basis
in such Stripped Certificate to recognize a loss (which may be a capital loss)
equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of
contingent interest, are by their terms not applicable to prepayable
securities such as the Stripped Certificates. However, if final regulations
dealing with contingent interest with respect to the Stripped Certificates
apply the same principles as the OID Regulations, such regulations may lead to
different timing of income inclusion than would be the case under the OID
Regulations for non-contingent
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debt instruments. Furthermore, application of such principles could lead to
the characterization of gain on the sale of contingent interest Stripped
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "--Federal Income Tax Consequences for REMIC Certificates--
Taxation of Regular Certificates--Sale or Exchange of Regular Certificates."
To the extent that a subsequent purchaser's purchase price is exceeded by the
remaining payments on the Stripped Certificates, such subsequent purchaser
will be required for federal income tax purposes to accrue and report such
excess as if it were original issue discount in the manner described above. It
is not clear for this purpose whether the assumed prepayment rate that is to
be used in the case of a Stripped Certificateholder other than an original
Stripped Certificateholder should be the Prepayment Assumption or a new rate
based on the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. When an investor
purchases more than one Class of Stripped Certificates, it is currently
unclear whether for federal income tax purposes such Classes of Stripped
Certificates should be treated separately or aggregated for purposes of the
rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible
interpretations of the applicable Code provisions. For example, the Stripped
Certificateholder may be treated as the owner of (i) one installment
obligation consisting of such Stripped Certificate's pro rata share of the
payments attributable to principal on each Mortgage Loan and a second
installment obligation consisting of such Stripped Certificate's pro rata
share of the payments attributable to interest on each Mortgage Loan, (ii) as
many stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Mortgage Loan, or (iii) a separate
installment obligation for each Mortgage Loan, representing the Stripped
Certificate's pro rata share of payments of principal and/or interest to be
made with respect thereto. Alternatively, the holder of one or more Classes of
Stripped Certificates may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Certificate, or Classes of Stripped Certificates in the aggregate, represent
the same pro rata portion of principal and interest on each such Mortgage
Loan, and a stripped bond or stripped coupon (as the case may be), treated as
an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they
are premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for
aggregating stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped Certificates
and the resultant differing treatment of income recognition, Stripped
Certificateholders are urged to consult their own tax advisors regarding the
proper treatment of Stripped Certificates for federal income tax purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Master Servicer will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as is necessary to enable such Certificateholders to prepare their
federal income tax returns. Such information will include the amount of
original issue discount accrued on Certificates held by persons other than
Certificateholders exempted from the reporting requirements. The amount
required to be reported by the Master Servicer may not be equal to the proper
amount of original issue discount required to be reported as taxable income by
a Certificateholder, other than an original Certificateholder that purchased
at the issue price. In particular, in the case of Stripped Certificates,
unless provided otherwise in the applicable Prospectus Supplement, such
reporting will be based upon a representative initial offering price of each
Class of Stripped Certificates. The Master Servicer will also file such
original issue discount information with the Internal Revenue Service. If a
Certificateholder fails to supply an accurate taxpayer identification number
or if the Secretary of the Treasury determines that a Certificateholder has
not reported all interest and dividend income required to be shown on his
federal income tax return, 31% backup withholding may be required in respect
of any reportable payments, as described above under "Federal Income Tax
Consequences for REMIC Certificates--Backup Withholding."
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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-U.S. Persons generally will be subject to 30% United States withholding
tax, or such lower rate as may be provided for interest by an applicable tax
treaty. Accrued original issue discount recognized by the Certificateholder on
the sale or exchange of such a Certificate also will be subject to federal
income tax at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements, described above under "--
Federal Income Tax Consequences for REMIC Certificates--Taxation of Certain
Foreign Investors--Regular Certificates."
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on those employee benefit plans to which it
applies ("PLANS") and on those persons who are fiduciaries with respect to
such Plans. The following is a general discussion of such requirements, and
certain applicable exceptions to and administrative exemptions from such
requirements. For purposes of this discussion, a person investing on behalf of
an individual retirement account established under Code Section 408 (an "IRA")
is regarded as a fiduciary and the IRA as a Plan.
Before purchasing any Certificates, a Plan fiduciary should consult with its
counsel and determine whether there exists any prohibition to such purchase
under the requirements of ERISA, whether prohibited transaction exemptions
such as PTE 83-1 or any individual administrative exemption (as described
below) applies, including whether the appropriate conditions set forth therein
would be met, or whether any statutory prohibited transaction exemption is
applicable, and further should consult the applicable Prospectus Supplement
relating to such Series of Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
General
In accordance with ERISA's general fiduciary standards, before investing in
a Certificate a Plan fiduciary should determine whether to do so is permitted
under the governing Plan instruments and is appropriate for the Plan in view
of its overall investment policy and the composition and diversification of
its portfolio. A Plan fiduciary should especially consider the ERISA
requirement of investment prudence and the sensitivity of the return on the
Certificates to the rate of principal repayments (including prepayments) on
the Mortgage Loans, as discussed in "Prepayment and Yield Considerations"
herein.
Parties in Interest/Disqualified Persons
Other provisions of ERISA (and corresponding provisions of the Code)
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan (so-called "parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code). The Seller, the Master Servicer or Master Servicer or
the Trustee or certain affiliates thereof might be considered or might become
"parties in interest" or "disqualified persons" with respect to a Plan. If so,
the acquisition or holding of Certificates by or on behalf of such Plan could
be considered to give rise to a "prohibited transaction" within the meaning of
ERISA and the Code unless an administrative exemption described below or some
other exemption is available.
Special caution should be exercised before the assets of a Plan (including
assets that may be held in an insurance company's separate or general accounts
where assets in such accounts may be deemed Plan assets for purposes of ERISA)
are used to purchase a Certificate if, with respect to such assets, the
Seller, the Master Servicer or Master Servicer or the Trustee or an affiliate
thereof either: (a) has investment discretion with respect to the investment
of such assets of such Plan; or (b) has authority or responsibility to give,
or regularly gives, investment advice with respect to such assets for a fee
and pursuant to an agreement or understanding
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that such advice will serve as a primary basis for investment decisions with
respect to such assets and that such advice will be based on the particular
investment needs of the Plan.
Delegation of Fiduciary Duty
Further, if the assets included in a Trust Estate were deemed to constitute
Plan assets, it is possible that a Plan's investment in the Certificates might
be deemed to constitute a delegation, under ERISA, of the duty to manage Plan
assets by the fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Estate might be deemed to
constitute prohibited transactions under ERISA and the Code. Neither ERISA nor
the Code define the term "plan assets."
The U.S. Department of Labor (the "DEPARTMENT") has issued regulations (the
"REGULATIONS") concerning whether or not a Plan's assets would be deemed to
include an interest in the underlying assets of an entity (such as a Trust
Estate) for purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA, as well as for the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an "equity interest"
(such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the
Certificates instead of being deemed to include an interest in the assets of a
Trust Estate. However, it cannot be predicted in advance nor can there be any
continuing assurance whether such exceptions may be met, because of the
factual nature of certain of the rules set forth in the Regulations. For
example, one of the exceptions in the Regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of
the value of all classes of equity interests are held by "benefit plan
investors," which are defined as Plans, IRAs, and employee benefit plans not
subject to ERISA (for example, governmental plans), and any entity whose
assets include "plan assets" by reason of benefit plan investment in such
entity, but this exception is tested immediately after each acquisition of an
equity interest in the entity whether upon initial issuance or in the
secondary market.
ADMINISTRATIVE EXEMPTIONS
Individual Administrative Exemptions
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transaction exemptions (each, an "UNDERWRITER'S
EXEMPTION") which are in some respects broader than Prohibited Transaction
Class Exemption 83-1 (described below). Such exemptions can only apply to
mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. If such an
Underwriter's Exemption might be applicable to a Series of Certificates, the
applicable Prospectus Supplement will refer to such possibility.
Among the conditions that must be satisfied for an Underwriter's Exemption
to apply are the following:
(1) The acquisition of Certificates by a Plan is on terms (including the
price for the Certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
Certificates of the Trust Estate;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's ("S&P"), Moody's Investors
Service, Inc. ("MOODY'S"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch
IBCA, Inc. ("FITCH");
(4) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to and retained by the underwriter in
connection with the distribution of Certificates represents not more than
reasonable compensation for underwriting the Certificates. The sum of all
payments made to and retained by the Seller pursuant to the assignment of
the Mortgage Loans to the Trust Estate represents not more than the fair
market value of such Mortgage Loans. The sum of all payments made to and
retained by the Servicer (and any other servicer) represents not more than
reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses
in connection therewith; and
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(6) The Plan investing in the Certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Commission under the
Securities Act.
The Trust Estate must also meet the following requirements:
(i) the assets of the Trust Estate must consist solely of assets of
the type that have been included in other investment pools in the
marketplace;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's, Fitch or
DCR for at least one year prior to the Plan's acquisition of the
Certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of the Certificates.
If the conditions to an Underwriter's Exemption are met, whether or not a
Plan's assets would be deemed to include an ownership interest in the Mortgage
Loans in a mortgage pool, the acquisition, holding and resale of the
Certificates by Plans would be exempt from the prohibited transaction
provisions of ERISA and the Code.
Moreover, an Underwriter's Exemption can provide relief from certain self-
dealing/conflict of interest prohibited transactions that may occur if a Plan
fiduciary causes a Plan to acquire Certificates in a Trust Estate in which the
fiduciary (or its affiliate) is an obligor on the Mortgage Loans held in the
Trust Estate provided that, among other requirements: (i) in the case of an
acquisition in connection with the initial issuance of Certificates, at least
fifty percent of each class of Certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the Trust Estate is acquired by persons
independent of the Restricted Group (as defined below); (ii) such fiduciary
(or its affiliate) is an obligor with respect to five percent or less of the
fair market value of the Mortgage Loans contained in the Trust Estate; (iii)
the Plan's investment in Certificates of any Class does not exceed twenty-five
percent of all of the Certificates of that Class outstanding at the time of
the acquisition and (iv) immediately after the acquisition no more than
twenty-five percent of the assets of the Plan with respect to which such
person is a fiduciary are invested in Certificates representing an interest in
one or more trusts containing assets sold or served by the same entity.
An Underwriter's Exemption does not apply to Plans sponsored by the Seller,
the underwriter specified in the applicable Prospectus Supplement, the Master
Servicer, the Trustee, the Servicer, any obligor with respect to Mortgage
Loans included in the Trust Estate constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust Estate, or
any affiliate of such parties (the "RESTRICTED GROUP").
PTE 83-1
Prohibited Transaction Class Exemption 83-1 for Certain Transactions
Involving Mortgage Pool Investment Trusts ("PTE 83-1") permits certain
transactions involving the creation, maintenance and termination of certain
residential mortgage pools and the acquisition and holding of certain
residential mortgage pool pass-through certificates by Plans, whether or not
the Plan's assets would be deemed to include an ownership interest in the
mortgages in such mortgage pools, and whether or not such transactions would
otherwise be prohibited under ERISA.
The term "mortgage pool pass-through certificate" is defined in PTE 83-1 as
"a certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such a certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any
fees retained by the pool sponsor." It appears that, for purposes of PTE 83-1,
the term "mortgage pool pass-through certificate" would include Certificates
issued in a single Class or in multiple Classes that evidence the beneficial
ownership of both a specified percentage of future interest payments (after
permitted deductions) and a specified percentage of future principal payments
on a Trust Estate.
However, it appears that PTE 83-1 does or might not apply to the purchase
and holding of (a) Certificates that evidence the beneficial ownership only of
a specified percentage of future interest payments (after permitted
deductions) on a Trust Estate or only of a specified percentage of future
principal payments on a Trust Estate, (b) Residual Certificates, (c)
Certificates evidencing ownership interests in a Trust Estate which includes
Mortgage Loans secured by multifamily residential properties or shares issued
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by cooperative housing corporations, or (d) Certificates which are
subordinated to other Classes of Certificates of such Series. Accordingly,
unless exemptive relief other than PTE 83-1 applies, Plans should not purchase
any such Certificates.
PTE 83-1 sets forth "general conditions" and "specific conditions" to its
applicability. Section II of PTE 83-1 sets forth the following general
conditions to the application of the exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans or the
property securing such loans, and for indemnifying certificateholders against
reductions in pass-through payments due to property damage or defaults in loan
payments; (ii) the existence of a pool trustee who is not an affiliate of the
pool sponsor; and (iii) a requirement that the sum of all payments made to and
retained by the pool sponsor, and all funds inuring to the benefit of the pool
sponsor as a result of the administration of the mortgage pool, must represent
not more than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to the pool.
The system of insurance or protection referred to in clause (i) above must
provide such protection and indemnification up to an amount not less than the
greater of one percent of the aggregate unpaid principal balance of the pooled
mortgages or the unpaid principal balance of the largest mortgage in the pool.
It should be noted that in promulgating PTE 83-1 (and a predecessor
exemption), the Department did not have under its consideration interests in
pools of the exact nature as some of the Certificates described herein.
EXEMPT PLANS
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA), and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements and assets of such plans may be
invested in Certificates without regard to the ERISA considerations described
above but such plans may be subject to the provisions of other applicable
federal and state law.
UNRELATED BUSINESS TAXABLE INCOME--RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code
Section 501(a), including most varieties of ERISA Plans, may give rise to
"unrelated business taxable income" as described in Code Sections 511-515 and
860E. Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a "DISQUALIFIED
ORGANIZATION," which term as defined above includes certain tax-exempt
entities not subject to Code Section 511 such as certain governmental plans,
as discussed above under the caption "Certain Federal Income Tax
Consequences-- Federal Income Tax Consequences for REMIC Certificates--
Taxation of Residual Certificates--Tax-Related Restrictions on Transfer of
Residual Certificates--Disqualified Organizations."
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES IMPOSED UPON PERSONS
INVOLVED IN PROHIBITED TRANSACTIONS, IT IS PARTICULARLY IMPORTANT THAT
POTENTIAL INVESTORS WHO ARE PLAN FIDUCIARIES CONSULT WITH THEIR COUNSEL
REGARDING THE CONSEQUENCES UNDER ERISA OF THEIR ACQUISITION AND OWNERSHIP OF
CERTIFICATES.
THE SALE OF CERTIFICATES TO A PLAN IS IN NO RESPECT A REPRESENTATION BY THE
SELLER OR THE APPLICABLE UNDERWRITER THAT THIS INVESTMENT MEETS ALL RELEVANT
LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY
PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR
ANY PARTICULAR PLAN.
LEGAL INVESTMENT
As will be specified in the applicable Prospectus Supplement, certain
Classes of Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"), so long as they are rated in one of the two highest rating
categories by at least one Rating Agency. As "mortgage related securities,"
such Classes will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities (including but not limited to state-chartered savings banks,
commercial banks, savings and loan associations and insurance companies, as
well as trustees and state government employee retirement systems) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent that, under
applicable law, obligations issued by or guaranteed as to principal and
interest by
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the United States or any agency or instrumentality thereof constitute legal
investments for such entities. Pursuant to SMMEA, a number of states enacted
legislation, on or before the October 3, 1991 cut-off for such enactments,
limiting to varying extents the ability of certain entities (in particular,
insurance companies) to invest in mortgage related securities, in most cases
by requiring the affected investors to rely solely upon existing state law,
and not SMMEA. Accordingly, the investors affected by such legislation will be
authorized to invest in the Certificates only to the extent provided in such
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in mortgage related
securities, and national banks may purchase mortgage related securities for
their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. (S) 24 (Seventh), subject in each
case to such regulations as the applicable federal regulatory authority may
prescribe. In this connection, the Office of the Comptroller of the Currency
(the "OCC") has amended 12 C.F.R. Part 1 to authorize national banks to
purchase and sell for their own account, without limitation as to a percentage
of the bank's capital and surplus (but subject to compliance with certain
general standards concerning "safety and soundness" and retention of credit
information in 12 C.F.R. (S) 1.5), certain "Type IV securities," defined in 12
C.F.R. (S) 1.2(1) to include certain "residential mortgage-related
securities." As so defined, "residential mortgage-related security" means, in
relevant part, "mortgage related security" within the meaning of SMMEA.
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 federal
credit unions from investing in certain mortgage related securities (such as
the Residual Certificates and the Stripped Certificates), except under limited
circumstances. However, effective January 1, 1998, the NCUA has amended its
rules governing investments by federal credit unions at 12 C.F.R. Part 703;
the revised rules will permit investments in "mortgage related securities"
under certain limited circumstances, but will prohibit investments in stripped
mortgage related securities and residual interests in mortgage related
securities, unless the credit union has obtained written approval from the
NCUA to participate in the "investment pilot program" described in 12 C.F.R.
(S) 703.140.
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 ("FFIEC"). The Policy
Statement, which has been adopted by the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the OCC and the
Office of Thrift Supervision and by the NCUA (with certain modifications),
prohibits depository institutions from investing in certain "high-risk
mortgage securities" (including securities such as certain Series and Classes
of the Certificates), except under limited circumstances, and sets forth
certain investment practices deemed to be unsuitable for regulated
institutions. On September 29, 1997, the FFIEC released for public comment a
proposed "Supervisory Policy Statement on Investment Securities and End-User
Derivatives Activities" (the "1997 STATEMENT"), which would replace the Policy
Statement. As proposed, the 1997 Statement would delete the specific "high-
risk mortgage securities" tests, and substitute general guidelines which
depository institutions should follow in managing risks (including market,
credit, liquidity, operational (transactional), and legal risks) applicable to
all securities (including mortgage pass-through securities and mortgage-
derivative products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any of the
Certificates, as certain Series or Classes (in particular, Certificates which
are entitled solely or disproportionately to distributions of principal or
interest) may be deemed unsuitable investments, or may otherwise be
restricted, under such rules, policies or guidelines (in certain instances
irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest-bearing" or "income-paying," and, with regard to any
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes,
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or as to the ability of particular investors to purchase Certificates under
applicable legal investment restrictions. The uncertainties described above
(and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Certificates) may
adversely affect the liquidity of the Certificates.
All investors should consult with their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
PLAN OF DISTRIBUTION
The Certificates are being offered hereby in Series through one or more of
the methods described below. The applicable Prospectus Supplement for each
Series will describe the method of offering being utilized for that Series and
will state the public offering or purchase price of each Class of Certificates
of such Series, or the method by which such price is to be determined, and the
net proceeds to the Seller from such sale.
The Certificates will be offered through the following methods from time to
time and offerings may be made concurrently through more than one of these
methods or an offering of a particular Series of Certificates may be made
through a combination of two or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters specified in the applicable Prospectus Supplement;
2. By placements by the Seller with investors through dealers; and
3. By direct placements by the Seller with investors.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Firm
commitment underwriting and public reoffering by underwriters may be done
through underwriting syndicates or through one or more firms acting alone. The
specific managing underwriter or underwriters, if any, with respect to the
offer and sale of a particular Series of Certificates will be set forth on the
cover of the Prospectus Supplement applicable to such Series and the members
of the underwriting syndicate, if any, will be named in such Prospectus
Supplement. The Prospectus Supplement will describe any discounts and
commissions to be allowed or paid by the Seller to the underwriters, any other
items constituting underwriting compensation and any discounts and commissions
to be allowed or paid to the dealers. The obligations of the underwriters will
be subject to certain conditions precedent. The underwriters with respect to a
sale of any Class of Certificates will be obligated to purchase all such
Certificates if any are purchased. The Seller, and, if specified in the
applicable Prospectus Supplement, Norwest Mortgage, will indemnify the
applicable underwriters against certain civil liabilities, including
liabilities under the Securities Act.
The Prospectus Supplement with respect to any Series of Certificates offered
other than through underwriters will contain information regarding the nature
of such offering and any agreements to be entered into between the Seller and
dealers and/or the Seller and purchasers of Certificates of such Series.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller or any affiliate thereof may purchase some or all of
one or more Classes of Certificates of such Series from the underwriter or
underwriters at a price specified or described in such Prospectus Supplement.
Such purchaser may thereafter from time to time offer and sell, pursuant to
this Prospectus, some or all of such Certificates so purchased directly,
through one or more underwriters to be designated at the time of the offering
of such Certificates or through dealers acting as agent and/or principal. Such
offering may be restricted in the matter specified in such Prospectus
Supplement. Such transactions may be effected at market prices prevailing at
the time of sale, at negotiated prices or at fixed prices. The underwriters
and dealers participating in such purchaser's offering of such Certificates
may receive compensation in the form of underwriting discounts or commissions
from such purchaser and such dealers may
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receive commissions from the investors purchasing such Certificates for whom
they may act as agent (which discounts or commissions will not exceed those
customary in those types of transactions involved). Any dealer that
participates in the distribution of such Certificates may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any commissions
and discounts received by such dealer and any profit on the resale of such
Certificates by such dealer might be deemed to be underwriting discounts and
commissions under the Securities Act.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates will be used
by the Seller for the purchase of the Mortgage Loans represented by the
Certificates of such Series from Norwest Mortgage. It is expected that Norwest
Mortgage will use the proceeds from the sale of the Mortgage Loans to the
Seller for its general business purposes, including, without limitation, the
origination or acquisition of new mortgage loans and the repayment of
borrowings incurred to finance the origination or acquisition of mortgage
loans, including the Mortgage Loans underlying the Certificates of such
Series.
LEGAL MATTERS
Certain legal matters, including the federal income tax consequences to
Certificateholders of an investment in the Certificates of a Series, will be
passed upon for the Seller by Cadwalader, Wickersham & Taft, New York.
RATING
It is a condition to the issuance of the Certificates of any Series offered
pursuant to this Prospectus and a Prospectus Supplement that they be rated in
one of the four highest categories by at least one Rating Agency.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency. Each securities rating should be evaluated independently of any
other rating.
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INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
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<S> <C>
1986 Act.................................................................. 63
1997 Statement............................................................ 88
Accrual Certificates...................................................... 27
Additional Collateral..................................................... 15
Advances.................................................................. 42
ALTA...................................................................... 21
Balloon Loan.............................................................. 15
Balloon Period............................................................ 15
Bankruptcy Code........................................................... 56
Bankruptcy Loss........................................................... 29
Bankruptcy Loss Amount.................................................... 29
Beneficial Owner.......................................................... 24
Book-Entry Certificates................................................... 8
Buy-Down Fund............................................................. 15
Buy-Down Loans............................................................ 15
Capitol Life.............................................................. 16
Cede...................................................................... 24
CERCLA.................................................................... 57
Certificate Account....................................................... 40
Certificateholder......................................................... 24
Certificates.............................................................. Cover
Class..................................................................... Cover
Cleanup Costs............................................................. 57
Code...................................................................... 9
Commission................................................................ 2
Companion Class........................................................... 31
Contract Underwriters..................................................... 18
Cooperatives.............................................................. 12
Correspondents............................................................ 17
Credit Score.............................................................. 18
DCR....................................................................... 85
Deferred Interest......................................................... 14
Definitive Certificates................................................... 24
Delegated Underwriting.................................................... 18
Department................................................................ 85
Depository................................................................ 40
Detailed Information...................................................... 2
Disqualified Organization................................................. 73
Distribution Date......................................................... 7
DTC....................................................................... 8
DTC Participants.......................................................... 25
Due Date.................................................................. 13
Due on Sale............................................................... 59
EDGAR..................................................................... 2
Electing Large Partnership................................................ 73
Eligible Custodial Account................................................ 40
Eligible Investments...................................................... 41
ERISA..................................................................... 84
Excess Bankruptcy Losses.................................................. 29
Excess Fraud Losses....................................................... 29
</TABLE>
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<CAPTION>
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<S> <C>
Excess Special Hazard Losses.............................................. 29
Exchange Act.............................................................. 3
FDIC...................................................................... 40
FFIEC..................................................................... 88
FHLBB..................................................................... 59
FHLMC..................................................................... 21
FICO Score................................................................ 18
Fitch..................................................................... 85
Fixed Retained Yield...................................................... 27
FNMA...................................................................... 21
Fraud Loss................................................................ 28
Fraud Loss Amount......................................................... 29
Garn Act.................................................................. 59
GEMICO.................................................................... 21
Government Securities..................................................... 62
Graduated Pay Mortgage Loans.............................................. 14
Growing Equity Mortgage Loans............................................. 14
Holder.................................................................... 61
Indirect DTC Participants................................................. 25
IRA....................................................................... 84
Joint Ventures............................................................ 17
Liquidation Proceeds...................................................... 41
Loan Stores............................................................... 16
Loan-to-Value Ratio....................................................... 20
Mark to Market Regulations................................................ 75
Master Servicer........................................................... Cover
Master Servicing Fee...................................................... 27
MERS...................................................................... 49
Moody's................................................................... 85
Mortgage Interest Rate.................................................... 27
Mortgage Loans............................................................ Cover
Mortgage Notes............................................................ 12
Mortgaged Properties...................................................... 12
Mortgages................................................................. 12
NASCOR.................................................................... Cover
NASCOR 30-Year Loans...................................................... 35
NASCOR 15-Year Non-Relocation Loans....................................... 35
NASCOR 30-Year Non-Relocation Loans....................................... 35
NCUA...................................................................... 88
Net Foreclosure Profits................................................... 27
Net Mortgage Interest Rate................................................ 27
New Regulations........................................................... 77
Non-Pro Rata Certificate.................................................. 64
Non-U.S. Person........................................................... 77
Norwest Bank.............................................................. Cover
Norwest Corporation....................................................... 15
Norwest Funding........................................................... 16
Norwest Mortgage.......................................................... Cover
Norwest Mortgage Sale Agreement........................................... 48
OCC....................................................................... 88
</TABLE>
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<S> <C>
OID Regulations........................................................... 63
Other Advances............................................................ 42
OTS....................................................................... 59
PAC....................................................................... 30
PAC I..................................................................... 30
PAC II.................................................................... 30
Partial Liquidation Proceeds.............................................. 26
Pass-Through Rate......................................................... 7
Pass-Through Entity....................................................... 73
Paying Agent.............................................................. 42
PCBS...................................................................... 57
Percentage Interest....................................................... 26
Periodic Advances......................................................... 8
PHMC...................................................................... 16
PHMC Acquisition.......................................................... 16
PHMSC..................................................................... 16
Plans..................................................................... 84
Pledged Asset Mortgage Loans.............................................. 15
Policy Statement.......................................................... 88
Pool Distribution Amount.................................................. 26
Pool Insurers............................................................. 21
Pooling and Servicing Agreement........................................... 23
Prepayment Assumption..................................................... 64
PTE 83-1.................................................................. 86
Rating Agency............................................................. 9
RCRA...................................................................... 58
Record Date............................................................... 7
Regular Certificateholder................................................. 63
Regular Certificates...................................................... 24
Regulations............................................................... 85
Relief Act................................................................ 57
Relocation Mortgage Loans................................................. 35
REMIC..................................................................... Cover
REMIC Certificates........................................................ 61
REMIC Pool................................................................ 61
REMIC Regulations......................................................... 61
Remittance Date........................................................... 41
Reserve Fund.............................................................. 32
Residual Certificates..................................................... 24
Residual Holders.......................................................... 69
Restricted Group.......................................................... 86
Rules..................................................................... 25
S&P....................................................................... 85
SBJPA of 1996............................................................. 62
</TABLE>
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<S> <C>
Scheduled Principal Balance............................................... 49
Securities Act............................................................ 2
Seller.................................................................... Cover
Senior Certificates....................................................... Cover
Series.................................................................... Cover
Servicer.................................................................. Cover
Servicer Custodial Account................................................ 40
Servicing Account......................................................... 43
Servicing Fee............................................................. 27
SMMEA..................................................................... 87
Special Hazard Loss....................................................... 28
Special Hazard Loss Amount................................................ 29
Standard Hazard Insurance Policy.......................................... 45
Startup Day............................................................... 62
Stripped Certificateholder................................................ 82
Stripped Certificates..................................................... 78
Subclass.................................................................. Cover
Subordinated Certificates................................................. Cover
Subsidy Account........................................................... 14
Subsidy Loans............................................................. 14
Subsidy Payments.......................................................... 14
Superliens................................................................ 57
TAC....................................................................... 31
Tiered Payment Mortgage Loans............................................. 14
Title V................................................................... 59
Title Option Plus......................................................... 21
T.O.P. Loans.............................................................. 21
Total NASCOR Loans........................................................ 35
Total NASCOR Non-Relocation Loans......................................... 35
Treasury Regulations...................................................... 49
Trust Estate.............................................................. Cover
Trustee................................................................... 53
Trustee Fee............................................................... 27
U.S. Person............................................................... 74
UCC....................................................................... 55
UGRIC..................................................................... 21
Underlying Servicing Agreement............................................ 6
Underwriter's Exemption................................................... 85
UST....................................................................... 58
Voting Interests.......................................................... 51
Window Period............................................................. 59
Window Period Loans....................................................... 59
Window Period States...................................................... 59
</TABLE>
92
<PAGE>
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No dealer, salesman or any other person has been authorized to give any in-
formation or to make any representations not contained in this Prospectus Sup-
plement or the Prospectus, and, if given or made, such information or represen-
tations must not be relied upon as having been authorized by the Seller or the
Underwriters. This Prospectus Supplement and the Prospectus do not constitute
an offer to sell or a solicitation of an offer to buy any of the securities of-
fered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. The delivery of this Prospec-
tus Supplement and the Prospectus at any time does not imply that information
contained herein is correct as of any time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Table of Contents.......................................................... S-6
Summary Information........................................................ S-7
Risk Factors............................................................... S-30
Description of the Certificates............................................ S-31
Description of the Mortgage Loans.......................................... S-66
Delinquency and Foreclosure Experience..................................... S-73
Prepayment and Yield Considerations........................................ S-73
Pooling and Servicing Agreement............................................ S-85
Servicing of the Mortgage Loans............................................ S-87
Federal Income Tax Considerations.......................................... S-90
ERISA Considerations....................................................... S-93
Legal Investment........................................................... S-94
Secondary Market........................................................... S-94
Underwriting............................................................... S-95
Legal Matters.............................................................. S-95
Use of Proceeds............................................................ S-95
Ratings.................................................................... S-95
Index of Significant Prospectus Supplement Definitions..................... S-97
Prospectus
Reports.................................................................... 2
Additional Information..................................................... 2
Additional Detailed Information............................................ 2
Incorporation of Certain Information by Reference.......................... 3
Table of Contents.......................................................... 4
Summary of Prospectus...................................................... 6
Risk Factors............................................................... 10
The Trust Estates.......................................................... 12
The Seller................................................................. 15
Norwest Mortgage........................................................... 16
Norwest Bank............................................................... 16
The Mortgage Loan Programs................................................. 16
Description of the Certificates............................................ 23
Prepayment and Yield Considerations........................................ 33
Delinquency and Foreclosure Experience..................................... 35
Servicing of the Mortgage Loans............................................ 39
Certain Matters Regarding the Master Servicer.............................. 47
The Pooling and Servicing Agreement........................................ 48
Certain Legal Aspects of the Mortgage Loans................................ 54
Certain Federal Income Tax Consequences.................................... 61
ERISA Considerations....................................................... 84
Legal Investment........................................................... 87
Plan of Distribution....................................................... 89
Use of Proceeds............................................................ 90
Legal Matters.............................................................. 90
Rating..................................................................... 90
Index of Significant Definitions........................................... 91
</TABLE>
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[LOGO OF NORWEST APPEARS HERE]
$297,705,200
(Approximate)
NORWEST ASSET
SECURITIES CORPORATION
("NASCOR")
Seller
Mortgage Pass-Through
Certificates, Series 1998-5
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PROSPECTUS SUPPLEMENT
-----------------
Lehman Brothers
Salomon Smith Barney
February 19, 1998
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