<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus Dated May 19, 1999)
[LOGO OF NORWEST APPEARS HERE]
Norwest Asset Securities Corporation 1999-18 Trust
Issuer
Norwest Asset Securities Corporation
(NASCOR (R))
Seller
$842,790,200
(Approximate)
Mortgage Pass-Through Certificates, Series 1999-18
Principal and interest payable monthly, commencing in July 1999
You should carefully consider the risk factors beginning on page S-19 of this
prospectus supplement.
Neither the offered certificates nor the underlying mortgage loans are insured
or guaranteed by any governmental agency or instrumentality.
The offered certificates will represent interests in the trust only and will not
represent interests in or obligations of NASCOR(R) or any NASCOR(R) affiliate.
This prospectus supplement may be used to offer and sell the offered
certificates only if accompanied by the prospectus.
The Trust Will Issue--
. Twenty-five Classes of senior Class A Certificates.
. Six Classes of Class B Certificates, all of which are subordinated to, and
provide credit enhancement for, the Class A Certificates. Each Class of Class
B Certificates is also subordinated to each Class of Class B Certificates, if
any, with a lower number.
The Classes of offered certificates are listed under the heading "Offered
Certificates" in the table beginning on page S-5.
The yield to maturity of interest-only and principal-only certificates will be
particularly sensitive to the rate of principal payments on the mortgage loans
in the trust. If you are purchasing interest-only certificates you should
consider the risk that a faster than anticipated rate of principal payments on
the mortgage loans will have a negative effect on the yield to maturity of your
certificates and could result in the loss of all or part of your initial
investment. If you are purchasing principal-only certificates you should
consider the risk that a slower than anticipated rate of principal payments on
the mortgage loans will have a negative effect on the yield to maturity of your
certificates.
The Assets of the Trust Will Include--
. A pool of fully amortizing, one- to four-family, residential first mortgage
loans (excluding the Fixed Retained Yield described in this prospectus
supplement), substantially all of which loans have original terms to stated
maturity of approximately 30 years.
. Additional credit enhancement for the Class A-12 Certificates in the form of a
reserve fund which will cover certain interest shortfalls arising from the
timing of principal payments on the mortgage loans and an irrevocable
financial guaranty insurance policy issued by Financial Security Assurance
Inc., which will cover, under certain circumstances, interest shortfalls and
principal losses which would otherwise be allocated to the Class A-12
Certificates. No other Class of Certificates will be entitled to payments
under the policy.
Neither the SEC nor any state securities commission has approved the
certificates offered by this prospectus supplement or determined that this
prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Greenwich Capital Markets, Inc. will purchase and offer the Class A Certifi-
cates offered by this prospectus supplement to investors at varying prices to
be determined at the time of sale. Edward D. Jones & Co., L.P., as dealer, will
also offer the Class A-12 Certificates to investors at varying prices to be de-
termined at the time of sale. PaineWebber Incorporated will purchase and offer
the Class B Certificates offered by this prospectus supplement to investors at
varying prices to be determined at the time of sale. The offered certificates
will be available for delivery to investors on or about June 29, 1999.
[LOGO OF GREENWICH CAPITAL APPEARS HERE]
PaineWebber Incorporated
EDWARD D. JONES & CO., L.P.
June 24, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information is provided to you about the Offered Certificates in two separate
documents that progressively provide more detail: (a) the accompanying
Prospectus, which provides general information, some of which may not apply to
your Certificates and (b) this Prospectus Supplement, which describes the
specific terms of your Certificates.
If the description of the terms of your Certificates varies between this
Prospectus Supplement and the accompanying Prospectus, you should rely on the
information in this Prospectus Supplement.
Cross-references are included in this Prospectus Supplement and the
accompanying Prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents included in the accompanying Prospectus provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
Prospectus Supplement and the accompanying Prospectus are defined under the
caption "Index of Prospectus Supplement Definitions" beginning on page S-106 in
this document and under the caption "Index of Significant Definitions"
beginning on page 95 in the accompanying Prospectus. Any capitalized terms used
but not defined in this Prospectus Supplement have the meanings assigned in the
Prospectus.
---------------
This Prospectus Supplement and the accompanying Prospectus contain forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended. Such forward-looking statements, together with related
qualifying language and assumptions, are found in the material, including each
of the tables, set forth under "Risk Factors" and "Prepayment and Yield
Considerations." Forward-looking statements are also found elsewhere in this
Prospectus Supplement and the Prospectus, and may be identified by, among other
things, accompanying language including the words "expects," "intends,"
"anticipates," "estimates" or analogous expressions, or by qualifying language
or assumptions. Such statements involve known and unknown risks, uncertainties
and other important factors that could cause the actual results or performance
to differ materially from such forward-looking statements. Such risks,
uncertainties and other factors include, among others, general economic and
business conditions, competition, changes in political, social and economic
conditions, regulatory initiatives and compliance with government regulations,
customer preference and various other matters, many of which are beyond the
Seller's control. These forward-looking statements speak only as of the date of
this Prospectus Supplement. The Seller expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to such forward-looking
statements to reflect any change in the Seller's expectations with regard
thereto or any change in events, conditions or circumstances on which any
forward-looking statement is based.
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary Information.................. S-8
Risk Factors......................... S-19
Prepayments May Adversely Affect
Yield.............................. S-19
Increase in LIBOR May Adversely
Affect Yield....................... S-20
Geographic Concentration May
Increase Risk of Loss Because of
Adverse Economic Conditions or
Natural Disasters.................. S-20
Distributions of Principal to the
Class A-12 Certificates............ S-20
Subordination of Class A-9, Class A-
22 and Class B Certificates
Increases Risk of Loss............. S-20
Rights of Beneficial Owners May Be
Limited By Book-Entry System for
Certain Classes of Class A
Certificates....................... S-21
Certificates May Not Be Appropriate
for Individual Investors........... S-21
Year 2000 Readiness Disclosure...... S-21
Description of the Certificates...... S-24
Denominations; Form of
Certificates....................... S-24
Distributions....................... S-24
Interest............................ S-27
Determination of LIBOR.............. S-33
Principal (Including Prepayments)... S-34
Calculation of Amount to be
Distributed on the Certificates... S-34
Allocation of Amount to be
Distributed on the Class A
Certificates...................... S-39
Principal Payment Characteristics
of the PAC Certificates, the
Scheduled Certificates, the Class
A-8 Accrual Component and the
Companion Certificates........... S-54
Additional Principal Payment
Characteristics of the Scheduled
Certificates and the Class A-8
Accrual Component................ S-56
Additional Weighted Average Life
Considerations of the Class A-2,
Class A-3 and Class A-8
Certificates..................... S-56
Distributions in Reduction of the
Principal Balance of the Class A-12
Certificates....................... S-57
General............................ S-57
Priority of Requested
Distributions..................... S-58
Procedure for Requested
Distributions..................... S-58
Mandatory Distributions of
Principal on the Class A-12
Certificates...................... S-59
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Rights of the Class A-R
and Class A-LR Certificateholders.. S-59
Periodic Advances................... S-60
The Financial Guaranty Insurance
Policy............................. S-60
Financial Security Assurance Inc. .. S-61
Restrictions on Transfer of the
Class A-9, Class A-22, Class A-R,
Class A-LR and Class B
Certificates....................... S-64
Subordination of Class B
Certificates....................... S-65
Allocation of Losses............... S-66
Description of the Mortgage Loans.... S-69
General............................. S-69
Pledged Asset Mortgage Loans........ S-69
Mortgage Loan Underwriting.......... S-70
Selected Mortgage Loan Data......... S-71
Mortgage Loan Data.................. S-73
Mandatory Repurchase or Substitution
of Mortgage Loans.................. S-76
Optional Repurchase of Defaulted
Mortgage Loans..................... S-76
Delinquency and Foreclosure
Experience.......................... S-77
Prepayment and Yield Considerations.. S-77
Sensitivities of the Class A-7 and
Class A-15 Certificates............ S-88
Sensitivity of the Class A-8
Certificates...................... S-89
Sensitivities of the Class A-13,
Class A-20 and Class A-21
Certificates....................... S-90
Yield Considerations with Respect to
the Class B-2 and Class B-3
Certificates....................... S-91
Pooling and Servicing Agreement...... S-94
General............................. S-94
Distributions....................... S-94
Voting.............................. S-94
Trustee............................. S-94
Trust Administrator................. S-95
Master Servicer..................... S-95
Special Servicing Agreements........ S-95
Optional Termination................ S-95
Servicing of the Mortgage Loans...... S-96
The Servicers....................... S-96
Servicer Custodial Accounts......... S-96
Unscheduled Principal Receipts...... S-97
Anticipated Changes in Servicing.... S-97
Fixed Retained Yield; Servicing
Compensation and Payment of
Expenses........................... S-98
Servicer Defaults................... S-98
</TABLE>
S-3
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT--(Continued)
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Federal Income Tax Considerations... S-99
Regular Certificates............... S-99
Residual Certificates.............. S-100
ERISA Considerations................ S-102
Legal Investment.................... S-103
Secondary Market.................... S-103
Underwriting........................ S-103
</TABLE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Recent Developments................. S-104
Legal Matters....................... S-104
Experts............................. S-104
Use of Proceeds..................... S-104
Ratings............................. S-104
Index of Prospectus Supplement
Definitions........................ S-106
</TABLE>
S-4
<PAGE>
THE SERIES 1999-18 CERTIFICATES
<TABLE>
<CAPTION>
Initial Rating
of Offered
Certificates(3)
----------------
Initial Pass-Through
Class Principal Balance(1) Rate Principal Types(2) Interest Types(2) DCR S&P
- ----- -------------------- ------------ ------------------- --------------------- ------- --------
Offered Certificates
<S> <C> <C> <C> <C> <C> <C>
Class A-1............... $_71,229,000 6.000% Senior, Planned Fixed Rate AAA AAA
Amortization
Class A-2............... $_53,772,000 6.000% Senior, Planned Fixed Rate AAA AAA
Amortization
Class A-3............... $__2,831,000 6.000% Senior, Planned Fixed Rate AAA AAA
Amortization
Class A-4............... $103,499,000 6.000% Senior, Scheduled Fixed Rate AAA AAA
Amortization,
Accretion Directed
Class A-5............... $__4,550,000 6.500% Senior, Scheduled Accrual, Fixed Rate AAA AAA
Amortization,
Companion
Class A-6............... $_25,165,473 (4) Senior, Companion Floating Rate AAA AAA
Class A-7............... $__9,679,027 (5) Senior, Companion Inverse Floating Rate AAA AAAr
Class A-8............... $_40,064,000 (6) Senior(/7/), (6) AAA AAAr
Component(/6/)
Class A-9............... $____686,500 6.500% Senior(/7/), Fixed Rate AAA AAA
Lockout
Class A-10.............. $335,500,000 6.750% Senior, Scheduled Fixed Rate AAA AAA
Amortization,
Accretion Directed
Class A-11.............. $__7,286,000 6.750% Senior, Scheduled Accrual, Fixed Rate AAA AAA
Amortization
Class A-12.............. $_24,073,000 7.000% Senior, Scheduled Fixed Rate AAA AAA
Amortization
Class A-13.............. $__1,106,000 (8) Senior, Scheduled Principal Only AAA AAAr
Amortization
Class A-14.............. $_11,943,176 (9) Senior, Companion Floating Rate AAA AAA
Class A-15.............. $__3,096,379 (10) Senior, Companion Inverse Floating Rate AAA AAAr
Class A-16.............. $_15,243,000 6.625% Senior, Lockout, Fixed Rate AAA AAA
Planned
Amortization
Class A-17.............. $_37,144,000 6.750% Senior, Lockout, Fixed Rate AAA AAA
Planned
Amortization
Class A-18.............. $_19,196,370 6.750% Senior, Lockout, Fixed Rate AAA AAA
Companion,
Accretion Directed
Class A-19.............. $_29,547,000 6.750% Senior(/13/), Accrual, Fixed Rate AAA AAA
Lockout, Companion
Class A-20.............. $_18,620,575 (11) Senior, (11) AAA AAAr
Component(/11/)
Class A-21.............. (12) 6.500% Senior, Notional Fixed Rate, AAA AAAr
Amount Interest Only
Class A-22.............. $____506,500 6.500% Senior(/13/), Fixed Rate AAA AAA
Lockout
Class A-R............... $________100 6.500% Senior, Sequential Fixed Rate AAA AAA
Pay
Class A-LR.............. $________100 6.500% Senior, Sequential Fixed Rate AAA AAA
Pay
Class B-1............... __19,126,000$ 6.500% Subordinated Fixed Rate AA None
Class B-2............... ___5,951,000$ 6.500% Subordinated Fixed Rate A None
Class B-3............... ___2,975,000$ 6.500% Subordinated Fixed Rate BBB None
</TABLE>
S-5
<PAGE>
THE SERIES 1999-18 CERTIFICATES (Cont.)
<TABLE>
<CAPTION>
Initial Rating
of Offered
Certificates(3)
---------------
Initial Pass-Through
Class Principal Balance(1) Rate Principal Types(2) Interest Types(2) DCR S&P
- ----- -------------------- ------------ ------------------- ------------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Components
Class A-8A IO........... (14) 0.500% Notional Amount Fixed Rate, N/A N/A
Interest Only
Class A-8B IO........... (14) 0.500% Notional Amount Fixed Rate, N/A N/A
Interest Only
Class A-8C IO........... (14) 0.500% Notional Amount Fixed Rate, N/A N/A
Interest Only
Class A-8D IO........... (14) 0.500% Notional Amount Fixed Rate, N/A N/A
Interest Only
Class A-8 Accrual....... $40,064,000 6.500% Scheduled Accrual, Fixed Rate N/A N/A
Amortization,
Accretion Directed
Class A-20A............. $14,730,945 (15) Sequential Pay Principal Only N/A N/A
Class A-20B............. $_3,889,630 (15) Lockout Principal Only N/A N/A
Non-Offered Certificates
Class A-PO.............. $ 1,328,709 (8) Senior, Ratio Strip Principal Only N/A N/A
Class B-4............... $ 2,550,000 6.500% Subordinated Fixed Rate N/A N/A
Class B-5............... $ 1,445,000 6.500% Subordinated Fixed Rate N/A N/A
Class B-6............... $ 1,955,848 6.500% Subordinated Fixed Rate N/A N/A
</TABLE>
- ------------------
(1) Approximate. The initial Principal Balances are subject to adjustment as
described in this Prospectus Supplement.
(2) See "Description of the Certificates -- Categories of Classes of Certifi-
cates" in the Prospectus for a description of the principal and interest
categories listed.
(3) A description of the ratings of the Offered Certificates is set forth under
the heading "Rating of Certificates" on page S-8 of the Summary Information
and under "Ratings" in the main text of this Prospectus Supplement.
(4) During the initial Interest Accrual Period, interest will accrue on the
Class A-6 Certificates at the rate of 5.750% per annum. During each Inter-
est Accrual Period thereafter, interest will accrue on the Class A-6 Cer-
tificates at a per annum rate equal to (i) 0.850% plus (ii) the arithmetic
mean of the London interbank offered rate quotations for one-month Eurodol-
lar deposits ("LIBOR") determined monthly as set forth in this Prospectus
Supplement, subject to a minimum rate of 0.850% and a maximum rate of
9.000%. See "Description of the Certificates--Interest" in this Prospectus
Supplement.
(5) During the initial Interest Accrual Period, interest will accrue on the
Class A-7 Certificates at the rate of 8.450% per annum. During each Inter-
est Accrual Period thereafter, interest will accrue on the Class A-7 Cer-
tificates at a per annum rate equal to (i) 21.190% minus (ii) the product
of 2.600 and LIBOR, subject to a minimum rate of 0.000% and a maximum rate
of 21.190%. See "Description of the Certificates--Interest" in this Pro-
spectus Supplement.
(6) The Class A-8 Certificates will be deemed for purposes of the distribution
of interest and principal to consist of five components as described in the
table. The components are not severable.
(7) After the Cross-Over Date, the principal portion of Realized Losses, other
than Excess Losses, that otherwise would be allocated to the Class A-8 Cer-
tificates will be borne by the Class A-9 Certificates (in addition to other
Realized Losses allocated to the Class A-9 Certificates) and not by the
Class A-8 Certificates for so long as the Class A-9 Certificates are out-
standing.
(8) The Class A-13 and Class A-PO Certificates are principal-only certificates
and will not be entitled to distributions in respect of interest.
(9) During the initial Interest Accrual Period, interest will accrue on the
Class A-14 Certificates at the rate of 5.918% per annum. During each Inter-
est Accrual Period thereafter, interest will accrue on the Class A-14 Cer-
tificates at a per annum rate equal to (i) 1.000% plus (ii) LIBOR, subject
to a minimum rate of 1.000% and a maximum rate of 8.500%. See "Description
of the Certificates -- Interest" in this Prospectus Supplement.
(10) During the initial Interest Accrual Period, interest will accrue on the
Class A-15 Certificates at the rate of 9.9591430000% per annum. During
each Interest Accrual Period thereafter, interest will accrue on the Class
A-15 Certificates at a per annum rate equal to (i) 28.9285714286% minus
(ii) the product of 3.8571428571 and LIBOR, subject to a minimum rate of
0.000% and a maximum rate of 28.9285714286%. See "Description of the Cer-
tificates -- Interest" in this Prospectus Supplement.
(11) The Class A-20 Certificates will be deemed for purposes of the distribu-
tion of principal to consist of two components as described in the table.
The components are not severable.
(12) The Class A-21 Certificates are interest-only certificates, have no Prin-
cipal Balance and will bear interest on the Class A-21 Notional Amount
(initially approximately $293,134) as described in this Prospectus Supple-
ment under "Description of the Certificates -- Interest."
(13) After the Cross-Over Date, the principal portion of Realized Losses, other
than Excess Losses, that would otherwise be allocated to the Class A-19
Certificates will be borne by the Class A-22 Certificates (in addition to
other Realized Losses allocated to the Class A-22 Certificates) and not by
the Class A-19 Certificates for so long as the Class A-22 Certificates are
outstanding.
S-6
<PAGE>
THE SERIES 1999-18 CERTIFICATES (Cont.)
- -------
(14) The Class A-8A IO, the Class A-8B IO, the Class A-8C IO and the Class A-8D
IO Components are interest-only components, have no Principal Balance and
will bear interest on their respective notional amounts, (initially ap-
proximately $71,229,000, $53,772,000, $2,831,000 and $103,499,000, respec-
tively) as described in this Prospectus Supplement under "Description of
the Certificates -- Interest."
(15) The Class A-20A and Class A-20B Components are principal-only components
and will not be entitled to distributions in respect of interest.
S-7
<PAGE>
SUMMARY INFORMATION
. This summary highlights selected information from this document, but does not
contain all of the information that you should consider in making your in-
vestment decision. Please read this entire prospectus supplement (the "Pro-
spectus Supplement") and the accompanying prospectus (the "Prospectus") care-
fully for additional detailed information about the Offered Certificates.
RELEVANT PARTIES
Issuer
The Norwest Asset Securities Corporation 1999-18 Trust (the "Trust") will own
the Mortgage Loans and issue the Certificates.
Seller
Norwest Asset Securities Corporation (the "Seller") will acquire the Mortgage
Loans from Norwest Mortgage, Inc. ("Norwest Mortgage"), an affiliate of the
Seller and the Master Servicer, and will transfer the Mortgage Loans into the
Trust.
Master Servicer
Norwest Bank Minnesota, National Association ("Norwest Bank" and, in its capac-
ity as master servicer, the "Master Servicer"), will supervise the Servicers
and perform certain other duties with respect to the Certificates.
Servicers
Norwest Mortgage and one or more other Servicers approved by the Master
Servicer will provide customary servicing functions with respect to the Mort-
gage Loans under servicing agreements (each, an "Underlying Servicing Agree-
ment") assigned to the Trust.
Trustee
United States Trust Company of New York (the "Trustee") will be the trustee of
the Trust.
Trust Administrator
First Union National Bank (the "Trust Administrator") will be the trust admin-
istrator of the Trust.
RATING OF CERTIFICATES
The Trust will not issue the Offered Certificates unless they have received at
least the ratings set forth in the table beginning on page S-5 from Duff &
Phelps Credit Rating Co. ("DCR") and, if applicable, Standard & Poor's ("S&P"
and, together with DCR, the "Rating Agencies").
. S&P assigns the additional rating of "r" to highlight classes of securities
that S&P believes may experience high volatility or high variability in
expected returns due to non-credit risks.
. The ratings of the Rating Agencies are not recommendations to buy, sell or
hold the Certificates rated. A rating may be revised or withdrawn at any time
by the assigning Rating Agency.
. The ratings do not address the possibility that, as a result of principal
prepayments, the yield on your Certificate may be lower than anticipated.
. The ratings do not address the possibility that if you hold the Class A-21
Certificates, you may not recover your initial investment as a result of
principal prepayments on the Mortgage Loans.
See "-- Effects of Prepayments on Investment Expectations" below and "Ratings"
in this Prospectus Supplement.
S-8
<PAGE>
DESCRIPTION OF CERTIFICATES
The Mortgage Pass-Through Certificates, Series 1999-18 (the "Certificates")
will be issued on or about June 29, 1999 (the "Closing Date").
Classifications of Classes of Certificates and Components
- --------------------------------------------------------------------------------
Offered: Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-8,
A-9, A-10, A-11, A-12, A-13, A-14, A-15, A-16,
A-17, A-18, A-19, A-20, A-21, A-22, A-R, A-LR,
B-1, B-2 and B-3
Non-Offered: Classes A-PO, B-4, B-5 and B-6
Senior or Class A: Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-
8(/1/), A-9(/1/), A-10, A-11, A-12, A-13, A-14,
A-15, A-16, A-17, A-18, A-19(/1/), A-20, A-21,
A-22(/1/), A-PO, A-R and A-LR
Subordinated or
Class B: Classes B-1, B-2, B-3, B-4, B-5 and B-6
Accrual: Classes A-5, A-11 and A-19 and Class A-8
Accrual Component
Companion: Classes A-5, A-6, A-7, A-14, A-15, A-18 and A-
19
PAC: Classes A-1, A-2, A-3, A-16 and A-17
Scheduled: Classes A-4, A-5, A-10, A-11, A-12 and A-13 and
Class A-8 Accrual Component
Component: Classes A-8 and A-20
Floating Rate: Classes A-6 and A-14
Inverse Floating
Rate: Classes A-7 and A-15
Accretion
Directed: Classes A-4, A-10 and A-18 and Class A-8 Accrual Component
Fixed Rate: Classes A-1, A-2, A-3, A-4, A-5, A-9, A-10, A-
11, A-12, A-16, A-17, A-18, A-19, A-21, A-22,
A-R, A-LR, B-1, B-2, B-3, B-4, B-5 and B-6 and
Class A-8A IO, A-8B IO, A-8C IO, A-8D IO and A-
8 Accrual Components
Lockout: Classes A-9, A-16, A-17, A-18, A-19 and A-22
and Class A-20B Component
Principal Only: Classes A-13 and A-PO and Class A-20A and A-20B
Components
Interest Only: Class A-21 and Class A-8A IO, A-8B IO, A-8C IO
and A-8D IO Components
Residual: Classes A-R and A-LR
- --------------------------------------------------------------------------------
(1) The Class A-9 Certificates are subordinated to the Class A-8
Certificates, and the Class A-22 Certificates are subordinated
to the Class A-19 Certificates, with respect to certain
losses, after the Cross-Over Date as described in this
Prospectus Supplement.
The Seller may retain or sell the Non-Offered Certificates.
See the table beginning on page S-5 for more information with respect to each
Class of Certificates and Component.
S-9
<PAGE>
Reserve Fund and Policy for Class A-12 Certificates
The Class A-12 Certificates are entitled to the benefit of a reserve fund (the
"Reserve Fund") as protection against Non-Supported Interest Shortfalls up to
the amount of the initial deposit into such Reserve Fund. See "Description of
the Certificates -- Interest" in this Prospectus Supplement.
The Class A-12 Certificates will also be entitled to the benefit of an irrevo-
cable financial guaranty insurance policy (the "Policy") to be issued by Finan-
cial Security Assurance Inc. (the "Insurer").
Under the Policy, the Insurer will unconditionally and irrevocably guarantee:
. the current payment of interest allocated to the Class A-12 Certificates,
other than Non-Supported Interest Shortfalls that are covered by the Reserve
Fund; and
. the payment of any losses of principal allocated to the Class A-12 Certifi-
cates.
Once the Reserve Fund has been exhausted, the Policy will also cover any Non-
Supported Interest Shortfalls allocated to the Class A-12 Certificates.
See "Description of the Certificates -- The Financial Guaranty Insurance Poli-
cy" in this Prospectus Supplement.
Principal Balance and Interests Evidenced by the Certificates
The Certificates will have an approximate aggregate initial Principal Balance
of $850,069,757. Any difference between the aggregate Principal Balance of the
Certificates as of the date of issuance of the Certificates and the approximate
aggregate initial Principal Balance of the Certificates as of the date of this
Prospectus Supplement will not exceed 5% of the aggregate initial Principal
Balance of the Certificates. Any such difference will be allocated among the
various Classes of Certificates so as to materially retain the characteristics
of the Offered Certificates described in this Prospectus Supplement.
The following table sets forth the approximate undivided interest in the prin-
cipal balance of the Mortgage Loans that the Seller expects each Class or group
of Classes indicated to evidence as of the Closing Date.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Approximate Initial
Class Undivided Interest
- ------------------------------- ---------------------
<S> <C> <C>
Class A (other than Class A-PO) 95.84%
Class A-PO* 0.16%
---------
Class A (all Classes) 96.00%
Class B-1 2.25%
Class B-2 0.70%
Class B-3 0.35%
Classes B-4, B-5 and B-6 0.70%
----------
Total 100.00%
==========
</TABLE>
- -------
* The Class A-PO Certificates in the aggregate represent an approximate 1.76%
initial interest in the principal balance of the Discount Mortgage Loans.
- --------------------------------------------------------------------------------
The following table sets forth for the Class A and Class B Certificates the ap-
proximate undivided interest in the Pool Balance (Non-PO Portion) that the
Seller expects such Class or group of Classes indicated to evidence as of the
Closing Date.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Approximate Initial
Undivided Interest
-----------------------
Class Percentage In dollars
- ------------------------------- ---------- ------------
<S> <C> <C>
Class A (other than Class A-PO) 95.99% $814,738,200
Class B 4.01% 34,002,848
------ ------------
Totals 100.00% $848,741,048
====== ============
- --------------------------------------------------------
</TABLE>
The relative interests in the initial Pool Balance (Non-PO Portion) represented
by the Class A Certificates in the aggregate (other than the Class A-PO Certif-
icates) and the Class B Certificates in the aggregate are subject to change
over time because:
. certain unscheduled principal payments will be disproportionally allocated to
the Class A Certificates (other than the Class A-PO Certificates) for a spec-
ified period; and
. certain losses and certain shortfalls will be allocated first to the Classes
of Class B Certificates in reverse numerical order prior to the allocation of
such losses and shortfalls to the Class A Certifi-
S-10
<PAGE>
cates, as discussed in "Description of the Certificates -- Distributions" and
"-- Subordination of Class B Certificates" in this Prospectus Supplement.
Forms of Certificates; Denominations
Your Certificates will be issued either in book-entry form or in fully regis-
tered, certificated form. The table under "Description of the Certificates --
Denominations; Form of Certificates" in this Prospectus Supplement sets forth
the original certificate form, the minimum denomination and the incremental de-
nomination of the Offered Certificates. The Offered Certificates are not in-
tended to be directly or indirectly held or beneficially owned by anyone in
amounts lower than such minimum denominations.
MORTGAGE POOL
The Mortgage Loans, which are the source of distributions to holders of the
Certificates, will consist of conventional, fixed interest rate, monthly pay,
fully amortizing, one- to four-family, residential first mortgage loans, sub-
stantially all of which have original terms to stated maturity of approximately
30 years. Some of the Mortgage Loans may be loans secured by shares issued by
non-profit cooperative housing corporations.
The Seller expects the Mortgage Loans to have the further specifications set
forth in the table below and under the heading "Description of the Mortgage
Loans" in this Prospectus Supplement.
- --------------------------------------------------------------------------------
SELECTED MORTGAGE LOAN DATA(/1/)
(as of the Cut-Off Date)
<TABLE>
<S> <C> <C>
Cut-Off Date: June 1, 1999
Number of Mortgage Loans: 2,387
Aggregate Unpaid Principal Balance(/2/): $850,069,757
Range of Unpaid Principal Balances(/2/): $33,681 to $1,992,486
Average Unpaid Principal Balance(/2/): $356,125
Range of Mortgage Interest Rates: 6.000% to 8.750%
Weighted Average Mortgage Interest Rate(/2/): 7.173%
Range of Remaining Terms to Stated Maturity: 230 months to 360 months
Weighted Average Remaining Term to Stated
Maturity(/2/): 357 months
Range of Original Loan-to-Value Ratios(/2/)(/3/): 18.19% to 100.00%
Weighted Average Original Loan-to-Value
Ratio(/2/)(/3/): 71.25%
Geographic Concentration of Mortgaged Properties
Securing Mortgage Loans in Excess of 5% of the
Aggregate Unpaid Principal Balance(/2/): California 48.71%
Maximum Five-Digit Zip Code Concentration(/2/): 0.77%
</TABLE>
- -----------------
(1) Information concerning the Discount Mortgage Loans and Premium Mortgage
Loans is set forth under "Description of the Mortgage Loans -- General."
(2) Approximate.
(3) With respect to Pledged Asset Mortgage Loans, the Loan-to-Value Ratio is
calculated without regard to any Additional Collateral. See "Description of
the Mortgage Loans -- Mortgage Loan Data."
- --------------------------------------------------------------------------------
S-11
<PAGE>
Changes to Mortgage Pool
The Seller may remove Mortgage Loans from the pool, or may make substitutions
for certain Mortgage Loans, in advance of the Closing Date.
After the issuance of the Certificates, the Seller may remove certain Mortgage
Loans from the pool through repurchase or, under certain circumstances, may
make substitutions for certain Mortgage Loans.
See "Description of the Mortgage Loans" in this Prospectus Supplement.
Optional Termination of the Trust
The Seller may, subject to certain conditions including the then-remaining size
of the pool, purchase all outstanding Mortgage Loans in the pool and thereby
effect early retirement of the Certificates. See "Pooling and Servicing Agree-
ment -- Optional Termination" in this Prospectus Supplement.
Underwriting Standards
Approximately 83.02% (by aggregate unpaid principal balance as of the Cut-Off
Date) of the Mortgage Loans were generally originated in conformity with the
underwriting standards described in the Prospectus under the heading "The Mort-
gage Loan Programs -- Mortgage Loan Underwriting -- Norwest Mortgage Underwrit-
ing" (the "Underwriting Standards"). In certain instances, Norwest Mortgage may
have granted exceptions to the Underwriting Standards.
The remaining approximate 16.98% of the Mortgage Loans were purchased by
Norwest Mortgage in bulk purchase transactions and were underwritten using un-
derwriting standards which may vary from the Underwriting Standards (the "Bulk
Purchase Underwritten Loans"). However, Norwest Mortgage has in each case re-
viewed the underwriting standards applied to such Bulk Purchase Underwritten
Loans and except as described under "Description of the Mortgage Loans --
Pledged Asset Mortgage Loans," with respect to the Pledged Asset Mortgage
Loans acquired from Merrill Lynch Credit Corporation ("MLCC") or NOVUS Finan-
cial Corporation ("NOVUS"), determined that such standards were not materially
different than the Underwriting Standards. Approximately 0.43% (by aggregate
unpaid principal balance as of the Cut-Off Date) of the Mortgage Loans are
Pledged Asset Mortgage Loans.
See "Description of the Mortgage Loans" in this Prospectus Supplement and "The
Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospectus.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST TO CERTIFICATEHOLDERS
On each Distribution Date the Pool Distribution Amount, which consists of those
payments, recoveries, advances and other receipts in respect of the Mortgage
Loans which are available for distribution on such date, will be distributed
generally in the following order of priority:
. first, pro rata, to the holders of the Class A Certificates in respect of in-
terest which they are entitled to receive on such Distribution Date and to
the Insurer in respect of its Premium Payment for such Distribution Date;
. second, to the holders of the Class A Certificates in respect of principal
which they are entitled to receive on such Distribution Date; and
. third, to the holders of the Class B Certificates in numerical order (i.e.,
first to the Class B-1 Certificates, then the Class B-2 Certificates, etc.)
in respect of interest and principal which they are entitled to receive on
such Distribution Date.
However, if you are purchasing Accrual Certificates or Class A-8 Certificates,
which have an Accrual Component, you will not receive interest distributions
with respect to your Accrual Certificates or such Component until the applica-
ble Accretion Termination Date. Prior to the applicable Accretion Termination
Date, interest which would otherwise be distributed on a Class of Accrual Cer-
tificates or the Class A-8 Certificates, with respect to their Accrual Compo-
nent, will be added to the Principal Balance of such Class of Certificates or
Component and will be distributed instead as principal to the holders of the
Class or Classes of Class A Certificates or the Class A-8 Accrual Component
specified under "Description of the Certificates --Principal (Including Prepay-
ments)" in this Prospectus Supplement.
In addition, the portion, if any, of principal to which the Class A-PO Certifi-
cates are entitled on a Distribution Date which consists of the Class A-PO
Deferred Amount will only be paid out of amounts otherwise distributable as
principal to the Class B Certificates on such Distribution Date.
S-12
<PAGE>
Interest Distributions
The amount of interest which will accrue on your Certificates (unless you own
Class A-8, Class A-13 and Class A-20 Certificates) each month is equal to:
. 1/12th of the Pass-Through Rate for your Class of Certificates multiplied by
the outstanding Principal Balance (or notional amount) of such Class on the
related Distribution Date minus
. the amount of certain interest shortfalls arising from the timing of prepay-
ments on the Mortgage Loans and interest losses allocated to your Class of
Certificates, as described under "Description of the Certificates --
Interest" in this Prospectus Supplement.
The amount of interest that will accrue on your Class A-8 Certificates is equal
to the sum of the interest which will accrue on each Component of such Class as
described under "Description of the Certificates -- Interest" in this Prospec-
tus Supplement.
Because the Class A-13 and Class A-20 Certificates are principal-only certifi-
cates, if you own Class A-13 or Class A-20 Certificates, you will not be enti-
tled to distributions of interest.
The allocation of interest distributions among the Class A Certificates will be
made as described under "Description of the Certificates -- Distributions" and
"Interest" in this Prospectus Supplement.
Principal Distributions
The calculation of the amount of principal which each Class of Offered Certifi-
cates is entitled to receive on each Distribution Date and the priority of
principal distributions among the Class A Certificates are described under "De-
scription of the Certificates -- Distributions" and "-- Principal (Including
Prepayments)" in this Prospectus Supplement.
Special Procedures for Principal Distributions on the Class A-12 Certificates
If you are purchasing Class A-12 Certificates, you should consider that your
receipt of a distribution of principal is not only dependent upon the rate and
timing of principal payments (including prepayments) made on the Mortgage Loans
and the Class A-12 Certificates' entitlement to receive principal payments rel-
ative to that of other Classes, but also upon a special procedure for alloca-
tion of principal distributions to which the Class A-12 Certificates are
subject.
Subject to certain limitations described herein, representatives of Deceased
Holders of the Class A-12 Certificates and Living Holders of the Class A-12
Certificates have the right to request distributions of principal on their Cer-
tificates and, to the extent funds are available for the distribution of prin-
cipal on the Class A-12 Certificates, the Trust Administrator or other paying
agent will honor such requests.
In addition, to the extent principal is available to be distributed in excess
of the amount of requests described above, such amounts will be distributed to
holders of the Class A-12 Certificates by random lot. Upon the occurrence of
certain events, principal distributions will no longer be made by request or
random lot but will be made pro rata among the Class A-12 Certificates.
Because of these special procedures for distributing principal to the Class A-
12 Certificates, before purchasing Class A-12 Certificates, you should consider
that funds may not be available to make distributions of principal to you on
any particular Distribution Date, even if you have requested a distribution of
principal. In addition, because of the random lot procedure, you may receive a
distribution of principal on your Class A-12 Certificates even if you have not
requested a distribution of principal.
See "Risk Factors -- Distributions in Reduction of the Principal Balance of the
Class A-12 Certificates" and "Description of the Certificates -- Distributions
in Reduction of the Principal Balance of the Class A-12 Certificates" in this
Prospectus Supplement.
Credit Enhancement
The rights of the holders of each Class of Class B Certificates to receive dis-
tributions will be subordinated to the rights of the holders of the Class A
Certificates to receive distributions, to the right of the Insurer as to the
payment of the premium on the Policy and to the rights of the holders of the
Classes of Class B Certificates, if any, with lower numerical designations to
receive distributions.
In general, the protection afforded the holders of more senior Classes of Cer-
tificates by means of this subordination will be effected in two ways:
. by the preferential right of the holders of such Classes to receive, prior to
any distribution being
S-13
<PAGE>
made on any Distribution Date to the holders of the more junior Classes of
Certificates, the amounts of interest and principal due on the more senior
Classes of Certificates (other than the Class A-PO Deferred Amount) and, if
necessary, by the right of such more senior holders to receive future distri-
butions on the Mortgage Loans that would otherwise have been allocated to the
holders of the more junior Classes of Certificates; and
. by the allocation to the more junior Classes of Certificates (in inverse or-
der of seniority), until their respective Principal Balances have been re-
duced to zero, of losses resulting from the liquidation of defaulted Mortgage
Loans or the bankruptcy of mortgagors prior to the allocation of such losses
to the more senior Classes of Certificates (other than certain excess losses
arising from special hazards, mortgagor fraud or mortgagor bankruptcy).
See "Description of the Certificates -- Distributions" and "-- Subordination of
Class B Certificates" in this Prospectus Supplement.
In addition, in order to increase the period during which the Principal Bal-
ances of the 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 in the aggregate (other than the Class A-PO
Certificates). This allocation will accelerate the amortization of the Class A
Certificates (other than the Class A-PO Certificates) while, in the absence of
losses due to the liquidation of defaulted Mortgage Loans or losses resulting
from the bankruptcy of mortgagors, increasing the percentage interest in the
principal balance of the Mortgage Loans evidenced by the Class B Certificates.
See "Description of the Certificates" and "Prepayment and Yield Considerations"
in this Prospectus Supplement.
After the Principal Balances of the Class B Certificates have been reduced to
zero, the principal portion of all losses (other than the portion attributable
to the Discount Mortgage Loans) will be allocated to the Class A Certificates
(other than the Class A-PO Certificates). To the extent such losses arise with
respect to Discount Mortgage Loans, principal losses will be shared among the
Class A Certificates according to their respective interests in such Mortgage
Loans. The principal portion of any losses borne by the Class A Certificates
(other than losses borne by the Class A-PO Certificates) will be shared pro
rata by the Classes of Class A Certificates (other than the Class A-8 and Class
A-PO Certificates) and the Class A-8 Accrual Component based on their then-out-
standing Principal Balances (or, in the case of the Accrual Certificates or the
Class A-8 Accrual Component, their initial Principal Balances, if lower) and
the interest portion of such losses will be shared pro rata by the Classes of
Class A Certificates and the Insurer based on interest accrued and the amount
of the premium otherwise payable to the Insurer. The Policy will cover any such
losses allocated to the Class A-12 Certificates. However, the principal portion
of any realized losses (other than certain excess losses arising from special
hazards, mortgagor fraud or mortgagor bankruptcy) that otherwise would be allo-
cated to the Class A-8 and Class A-19 Certificates will instead reduce the
Principal Balance of the Class A-9 and Class A-22 Certificates, respectively,
(in addition to other realized losses allocated to the Class A-9 and Class A-22
Certificates) as long as such Class A-9 Certificates, in the case of the Class
A-8 Certificates, or the Class A-22 Certificates, in the case of the Class A-19
Certificates, are outstanding. Therefore, if you are purchasing Class A-9 or
Class A-22 Certificates, you should consider the risk that after the aggregate
Principal Balance of the Class B Certificates has been reduced to zero, the
principal portion of losses on the Mortgage Loans (other than certain excess
losses arising from special hazards, mortgagor fraud or mortgagor bankruptcy)
will be disproportionately borne by your Class A-9 or Class A-22 Certificates.
See "Description of the Certificates -- Interest" and "-- Subordination of
Class B Certificates -- Allocation of Losses" in this Prospectus Supplement.
If you are purchasing Class A-9 or Class A-22 Certificates, you should consider
the risk that the yield to maturity on your Certificates will be more sensitive
to losses due to liquidations of the Mortgage Loans (and the timing of such
losses) than that on any other Class of Class A Certificates, in the event that
the aggregate Principal Balance of the Class B Certificates has been reduced to
zero.
If you are purchasing Class B Certificates, you should consider that the yield
to maturity on each Class of Class B Certificates will be more sensitive to
losses due to liquidations of the Mortgage Loans (and the timing thereof) than
that on the more senior Classes of Certificates.
S-14
<PAGE>
The sensitivity of the yield to maturity of the Class B-2 and Class B-3 Certif-
icates to losses is illustrated in the tables under the heading "Prepayment and
Yield Considerations -- Yield Considerations with Respect to the Class B-2 and
Class B-3 Certificates" in this Prospectus Supplement. These illustrations are
based on default, loss and other assumptions which are unlikely to match actual
experience on the Mortgage Loans. Therefore, your results will vary.
See "Description of the Certificates -- Subordination of Class B Certificates"
in this Prospectus Supplement.
EFFECTS OF PREPAYMENTS ON YOUR INVESTMENT EXPECTATIONS
The Offered Certificates were structured assuming, among other things, that
prepayments on the Mortgage Loans occur at a constant rate of 275% SPA. Howev-
er, no one can predict the actual rate of prepayment of principal on the Mort-
gage Loans.
In deciding whether to purchase any Offered Certificates, you should make an
independent decision as to the appropriate prepayment assumptions to use. If
prepayments on the Mortgage Loans are higher or lower than you anticipate, the
investment performance of the Offered Certificates may vary materially and ad-
versely from your investment expectations.
In addition, if you are purchasing Class A Certificates you should consider
that 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
Class B Certificates because such prepayments will be disproportionately allo-
cated to the Class A Certificates then entitled to principal distributions dur-
ing the nine years beginning on the first Distribution Date. See "Description
of the Certificates -- Principal (Including Prepayments)" and "Prepayment and
Yield Considerations" in this Prospectus Supplement.
The actual yield on your Certificates may not be equal to the yield you antici-
pated at the time of purchase. In addition, even if the actual yield is equal
to the yield you anticipated at the time of purchase, the total return on in-
vestment you expected or the expected weighted average life of your Certifi-
cates may not be realized. These effects are summarized below.
Yield
The actual yield on your Certificates in relation to the related Pass-Through
Rate will vary depending upon the price you paid for your Certificates.
. If you purchase a Fixed Rate Offered Certificate (other than a Class A-21
Certificate) at an amount equal to its unpaid Principal Balance (that is, at
"par"), your effective yield (assuming that there are no interest shortfalls
and assuming the full return of your invested principal) will approximate the
Pass-Through Rate on that Certificate.
. If you pay less or more than the unpaid Principal Balance of a Fixed Rate Of-
fered Certificate (other than a Class A-21 Certificate) (that is, buy the
Certificate at a "discount" or "premium," respectively), then your effective
yield (assuming that there are no interest shortfalls and assuming the full
return of your invested principal) will be higher or lower, respectively,
than the Pass-Through Rate on the Certificate, because such discount or pre-
mium will be amortized over the life of the Certificate.
The yield on your Certificates will also be affected by the rate and timing of
prepayments on the Mortgage Loans. Any deviation in the actual rate of prepay-
ments on the Mortgage Loans from the rate you assumed will affect the period of
time over which, or the rate at which, the discount or premium will be amor-
tized and, consequently, will cause your actual yield to differ from that which
you anticipated.
If you purchase Class A-13 or Class A-20 Certificates, which do not bear inter-
est, your yield will primarily be a function of the price you paid for your
Class A-13 or Class A-20 Certificates, the rate and timing of principal pay-
ments on the Mortgage Loans and losses incurred after the aggregate Principal
Balance of the Class B Certificates has been reduced to zero.
The Class A-8 Certificates consist of four interest-only Components and one ac-
crual Component and the Class A-20 Certificates consist of two principal-only
Components. If you purchase Class A-8 or Class A-20 Certificates you will not
have a severable interest in the Components comprising that Class. You will not
be able to separately transfer a Component. Each Component may be affected dif-
ferently by the rate of principal payments on the Mortgage Loans and your ex-
pected yield may therefore be affected.
S-15
<PAGE>
If you purchase Class A-21 Certificates, which have no Principal Balance, your
yield will be highly sensitive to both the timing of receipt of prepayments and
the overall rate of prepayments on the Mortgage Loans.
The particular sensitivities of the Class A-8, Class A-13, Class A-20 and Class
A-21 Certificates are separately displayed in the tables appearing under the
heading "Prepayment and Yield Considerations" in this Prospectus Supplement.
If you are purchasing Offered Certificates at a discount, particularly the
Class A-13 or Class A-20 Certificates, you should consider the risk that a
slower than anticipated rate of principal payments on the Mortgage Loans will
have a negative effect on the yield to maturity of your Certificates.
If you are purchasing Offered Certificates at a premium, or if you are purchas-
ing Class A-21 Certificates, which do not have a Principal Balance, you should
consider the risk that a faster than anticipated rate of principal payments on
the Mortgage Loans will, or in the case of the Class A-8 Certificates, which
have Components with no Principal Balances, may, have a negative effect on the
yield to maturity of your Certificates and that a rapid rate of principal pay-
ments on the Mortgage Loans could result in the loss of all or part of your
initial investment.
If you are purchasing the Class A-7 or Class A-15 Certificates, which are
Inverse Floating Rate Certificates, you should consider that such Certificates
are highly sensitive to LIBOR and increases in LIBOR may have a negative effect
on the yield to maturity of your Certificates.
The particular sensitivities of the Class A-7 and Class A-15 Certificates to
prepayments and increases in LIBOR are separately displayed in the tables
appearing under the heading "Prepayment and Yield Considerations" in this
Prospectus Supplement.
Reinvestment Risk
As stated above, if you purchase a Fixed Rate Offered Certificate at par (other
than a Class A-21 Certificate), fluctuations in the rate of distributions of
principal will generally not affect your yield to maturity. However, the total
return on your investment, even if you purchase your Certificates at par, will
be reduced if principal distributions received on your Certificates cannot be
reinvested at a rate as high as the stated Pass-Through Rate. Similarly, in the
case of the Class A-13 and Class A-20 Certificates, which have no Pass-Through
Rate, the total yield on your investment will be reduced if principal distribu-
tions cannot be reinvested at a rate as high as the expected yield, which is
based on the price you paid, the rate of prepayments you anticipated and any
losses you expected to be incurred after the aggregate Principal Balance of the
Class B Certificates has been reduced to zero.
You should consider the risk that rapid rates of prepayments on the Mortgage
Loans may coincide with periods of low prevailing market interest rates. During
periods of low prevailing market interest rates, mortgagors may be expected to
prepay or refinance Mortgage Loans that carry interest rates significantly
higher than then-current interest rates for mortgage loans. Consequently, the
amount of principal distributions available to you for reinvestment at such low
prevailing interest rates may be relatively large.
Conversely, slow rates of prepayments on the Mortgage Loans may coincide with
periods of high prevailing market interest rates. During such periods, it is
less likely that mortgagors will elect to prepay or refinance Mortgage Loans
and, therefore, the amount of principal distributions available to you for re-
investment 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-
21 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 re-
duction of the principal balance of the Certificate is distributed to the in-
vestor.
. The weighted average life of a Class A-21 Certificate is equal to the average
amount of time that will elapse between the date of issuance of the Certifi-
cates and the date on which each dollar in reduction of the Principal Balance
of the Class A-16 Certificates (a portion of the Principal Balance of which
corresponds to the notional amount of the Class A-21 Certificates) is dis-
tributed to the investors in the Class A-16 Certificates.
S-16
<PAGE>
Low rates of prepayment may result in the extension of the weighted average
life of a Certificate. High rates of prepayment may result in the shortening of
the weighted average life of a Certificate.
In general, if you purchase your Certificates at par and the weighted average
life of your Certificates is extended beyond your anticipated time period, the
market value of your Certificates may be adversely affected even though the
yield to maturity on your Certificates is unaffected.
The weighted average lives of the Classes of Certificates will vary in sensi-
tivity to the rate of prepayments on the Mortgage Loans. In particular, the
weighted average lives of the Class A-5, Class A-6, Class A-7, Class A-11,
Class A-12, Class A-13, Class A-14 and Class A-15 Certificates will be highly
sensitive to the rate of prepayments on the Mortgage Loans. See "Prepayment and
Yield Consideration" in this Prospectus Supplement.
The sensitivity of the weighted average lives of the Offered Certificates to
prepayment is illustrated in the tables appearing under the heading "Prepayment
and Yield Considerations" in this Prospectus Supplement. These illustrations
are based on prepayment and other assumptions which are unlikely to match the
actual experience on the Mortgage Loans. Therefore, your results will vary.
See "Risk Factors -- Prepayments May Adversely Affect Yield" and "Prepayment
and Yield Considerations" and "Description of the Certificates-- Principal (In-
cluding Prepayments) -- Principal Payment Characteristics of the PAC Certifi-
cates, the Scheduled Certificates, the Class A-8 Accrual Component and the Com-
panion Certificates" in this Prospectus Supplement.
FEDERAL INCOME TAX STATUS
For federal income tax purposes, the Trust Estate will consist of two real es-
tate mortgage investment conduits (the "Upper-Tier REMIC" and the "Lower-Tier
REMIC," respectively, and each a "REMIC"). The Offered Certificates (other than
the Class A-8, Class A-R and Class A-LR Certificates) and each Component of the
Class A-8 Certificates (collectively, the "Regular Certificates") and the Class
A-PO, Class B-4, Class B-5 and Class B-6 Certificates will constitute "regular
interests" in the Upper-Tier REMIC. The Class A-R Certificate will be the "re-
sidual interest" in the Upper-Tier REMIC and the Class A-LR Certificate will be
the "residual interest" in the Lower-Tier REMIC.
The Regular Certificates will be treated as newly-originated debt instruments
for most federal income tax purposes. You must report income received on your
Regular Certificates as it accrues from Distribution Date to Distribution Date,
which will be before such income is distributed in cash to you. Additionally,
as described under "Federal Income Tax Consequences in this Prospectus Supple-
ment, certain Classes of Regular Certificates may be issued with "original is-
sue discount" ("OID"). If your class of Regular Certificates is issued with
OID, you must report OID income over the life of the Regular Certificate, often
well before such income is distributed in cash to you.
The Class A-R and Class A-LR Certificates will not be treated as debt instru-
ments for federal income tax purposes. Instead, if you are the holder of the
Class A-R or Class A-LR Certificate, you must include the taxable income or
loss of the Upper-Tier REMIC or Lower-Tier REMIC, respectively, in determining
your federal taxable income. All or most of the taxable income of the Upper-
Tier or Lower-Tier REMIC includible by the Class A-R and Class A-LR
Certificateholders will be treated as "excess inclusion" income which is sub-
ject to special limitations for federal tax purposes. As a result of this tax
treatment, your after-tax return on the Class A-R or Class A-LR Certificate 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 (i.e., you may
have to use funds other than distributions on your certificate to meet the tax
liabilities resulting from the ownership of the Class A-R or Class A-LR Certif-
icate).
Additionally, the Class A-R and Class A-LR Certificates will be considered
"non-economic residual interests" for tax purposes. As a result, certain trans-
fers of the Class A-R or Class A-LR Certificate may be disregarded for federal
tax purposes, with the transferor continuing to have tax liabilities for the
transferred Certificate. See "Description of the Certificates -- Restrictions
on Transfer of the Class A-9, Class A-22, Class A-R, Class A-LR and Class B
Certificates" and "Federal Income Tax Considerations" in this Prospectus Sup-
plement and "Certain Federal Income Tax Consequences -- Federal In-
S-17
<PAGE>
come Tax Consequences for REMIC Certificates" in the Prospectus.
ERISA CONSIDERATIONS
If you are a fiduciary of an employee benefit plan or other retirement 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 Sec-
tion 3(32) of ERISA, subject to any federal, state or local law ("Similar Law")
which is, to a material extent, similar to the foregoing provisions of ERISA or
the Code (collectively, a "Plan"), you should carefully review with your 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 A-9 and Class A-22 Certificates are subordinated to the Class
A-8 and Class A-19 Certificates, respectively, with respect to certain losses
and because the Class B-1, Class B-2 and Class B-3 Certificates are subordi-
nated to the Class A Certificates with respect to certain losses, the Class A-
9, Class A-22, Class B-1, Class B-2 and Class B-3 Certificates may not be
transferred unless the transferee has delivered to the Trust Administrator and
the Seller:
. a representation letter 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 such Certificates is an "insurance company
general account"; or
. an opinion of counsel and such other documentation as described under "De-
scription of the Certificates -- Restrictions on Transfer of the Class A-9,
Class A-22, Class A-R, Class A-LR and Class B Certificates" in this Prospec-
tus Supplement.
The Class A-R and Class A-LR Certificates may not be purchased by or trans-
ferred to a Plan or a person acting on behalf of or investing the assets of a
Plan. See "Description of the Certificates -- Restrictions on Transfer of the
Class A-9, Class A-22, Class A-R, Class A-LR and Class B Certificates" and
"ERISA Considerations" in this Prospectus Supplement.
LEGAL INVESTMENT
. The Class A and Class B-1 Certificates will 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 high-
est rating categories by at least one nationally recognized statistical rat-
ing organization.
. The Class B-2 and Class B-3 Certificates will not constitute "mortgage re-
lated securities" under SMMEA.
If your investment activities are subject to legal investment laws and regula-
tions, regulatory capital requirements or review by regulatory authorities you
may be subject to restrictions on investment in the Offered Certificates and
should consult your own legal, tax and accounting advisors in determining the
suitability of and consequences to you of the purchase, ownership and disposi-
tion of the Offered Certificates.
See "Legal Investment" in the Prospectus.
MONTHLY REPORTS AND ADDITIONAL INFORMATION
The Master Servicer will prepare, and the Trust Administrator will forward to
Certificateholders with each distribution, a copy of the Monthly Report de-
scribed under "Reports to Certificateholders" and "Pooling and Servicing Agree-
ment -- Reports to Certificateholders" in the Prospectus. In addition, the
Seller intends to make the information contained in the Monthly Report, to-
gether with certain additional information, available to any interested in-
vestor via the internet and other electronic means described under "Where You
Can Find More Information" in the Prospectus.
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RISK FACTORS
Prepayments May Adversely Affect Yield
The rate of distributions of principal and the yield to maturity on your Cer-
tificates will be directly related to the rate of payments of principal on the
Mortgage Loans and the amount and timing of mortgagor defaults resulting in Re-
alized Losses. Mortgagors are permitted to prepay the Mortgage Loans, in whole
or in part, at any time without penalty. The rate of principal payments on the
Mortgage Loans will be affected by, among other things:
. the amortization schedules of the Mortgage Loans;
. the rate of principal prepayments (including partial prepayments and
those resulting from refinancing) thereon by mortgagors;
. liquidations of defaulted Mortgage Loans;
. repurchases of Mortgage Loans by the Seller as a result of defective
documentation or breaches of representations and warranties, optional
purchase by the Seller of defaulted Mortgage Loans; and
. the optional purchase by the Seller of all of the Mortgage Loans in con-
nection with the termination of the Trust Estate.
See "Prepayment and Yield Considerations" and "Pooling and Servicing Agree-
ment -- Optional Termination" herein and "The Pooling and Servicing Agree-
ment -- Assignment of Mortgage Loans to the Trustee," "-- Optional Purchases"
and "-- Termination; Optional Purchase of Mortgage Loans" in the Prospectus.
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 gen-
erally 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 pro-
grams offered by mortgage originators (including Norwest Mortgage), on a gen-
eral or targeted basis, to encourage refinancing. See "Prepayment and Yield
Considerations -- Refinancings" in the Prospectus.
If you are purchasing Offered Certificates at a discount, particularly the
Class A-13 and Class A-20 Certificates, you should consider the risk that if
principal payments on the Mortgage Loans occur at a rate slower than you ex-
pected, there will be a negative effect on the yield to maturity on your Cer-
tificates.
If you are purchasing Offered Certificates at a premium, or if you are pur-
chasing the Class A-21 Certificates, which have no Principal Balance, you
should consider the risk that if principal payments on the Mortgage Loans occur
at a rate faster than you expected, there will, or in the case of the Class A-8
Certificates, which have Components with no Principal Balances, may, be a nega-
tive effect on the yield to maturity on your Certificates. If you are purchas-
ing Class A-21 Certificates, you should consider the risk that a rapid rate of
principal payments on the Mortgage Loans could result in your failure to re-
cover your initial investment.
The Class A-8 and Class A-20 Certificates are each comprised of Components.
Each Component may be affected differently by the rate and timing of principal
payments (including prepayments) on the Mortgage Loans, which rate may fluctu-
ate significantly from time to time. The yield to investors in the Class A-8 or
Class A-20 Certificates therefore may be affected differently than the manner
in which the yield on their individual Components would have been affected if
issued separately.
The particular sensitivities of the Class A-8, Class A-13, Class A-20 and
Class A-21 Certificates are separately displayed in the tables appearing under
the heading "Prepayment and Yield Considerations" in this Prospectus Supple-
ment.
See "Summary Information -- Effects of Prepayments on Investment Expecta-
tions" and "Prepayment and Yield Considerations" herein.
54
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<PAGE>
Increase in LIBOR May Adversely Affect Yield
If you are purchasing the Class A-7 or Class A-15 Certificates, you should
consider the risk that a high rate of LIBOR may have a negative effect on the
yield to maturity of your Certificates.
The particular sensitivities of the Class A-7 and Class A-15 Certificates are
separately displayed in the tables appearing under the heading "Prepayment and
Yield Considerations" in this Prospectus Supplement.
See "Prepayment and Yield Considerations" herein.
Geographic Concentration May Increase Risk of Loss Because of Adverse Economic
Conditions or Natural Disasters
The yield to maturity on your Certificates may be affected by the geographic
concentration of the Mortgaged Properties securing the Mortgage Loans. Certain
geographic regions of the United States from time to time will experience
weaker regional economic conditions and housing markets and, consequently, will
experience higher rates of loss and delinquency on mortgage loans generally.
Any concentration of the Mortgage Loans in such a region may present risk con-
siderations in addition to those generally present for similar mortgage-backed
securities without such concentration. In addition, California, Florida, Texas
and several other regions have experienced natural disasters, including earth-
quakes, fires, floods and hurricanes, which may adversely affect property val-
ues. Any deterioration in housing prices in the states in which there is a sig-
nificant concentration of Mortgaged Properties, as well as 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 payments on the Mortgage Loans may increase the likelihood of losses on
the Mortgage Loans. Such losses, if they occur, may have an adverse effect on
the yield to maturity of your Certificates, especially if they are subordinated
and particularly if they are Class B-3 Certificates. The states and geographic
areas where there are large concentrations of Mortgaged Properties are identi-
fied under "Description of the Mortgage Loans."
Distributions of Principal to the Class A-12 Certificates
Although, as described herein, there can be no assurance as to the rate at
which principal distributions will be made on any Class of Offered
Certificates, the Class A-12 Certificates, in particular, may be an
inappropriate investment for you if you require a distribution of a particular
amount of principal on a specific date or an otherwise predictable stream of
distributions. If you own Class A-12 Certificates, there is no assurance that
funds available for distributions of principal will be sufficient to permit the
distributions you request within any specific period of time after you make
such request. During periods in which prevailing interest rates are generally
higher than the Pass-Through Rate for the Class A-12 Certificates, greater
numbers of Beneficial Owners may be expected to request distributions of
principal in respect of their Class A-12 Certificates in order to take
advantage of such prevailing interest rates. During such periods there may,
however, be a concurrent reduction in the rate of prepayments of the Mortgage
Loans, thus limiting the funds available for such distributions.
In addition, because of the random lot procedure for distributing principal,
you may receive a principal distribution on your Class A-12 Certificates on a
Distribution Date on which the amount available for distribution in respect of
principal exceeds the aggregate amount requested for distribution of principal
on the Class A-12 Certificates, even if you have not requested that a
distribution be made. It is more likely that amounts will be distributed by
random lot during the periods of relatively low interest rates and,
correspondingly, higher prepayment rates. Under such circumstances you may have
difficulty reinvesting these principal distributions at rates as high as the
Pass-Through Rate of your Certificates or your expected yield.
Subordination of Class A-9, Class A-22 and Class B Certificates Increases Risk
of Loss
The rights of the holders of each Class of Class B Certificates to receive
distributions will be subordinated to such rights of the holders of the Class A
Certificates, the Insurer and the lower-numbered Classes of Class B
Certificates, if any. In addition, Realized Losses, other than Excess Losses,
will be allocated to the Class B Certificates in the reverse order in which
they are entitled to distributions of principal before being allocated to the
Class A Certificates. Accordingly, if you are purchasing Class B Certificates,
you will be more likely to experience losses as a result of the occurrence of
losses or interest shortfalls on the Mortgage Loans. See "Description of the
Certificates -- Subordination of Class B Certificates."
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<PAGE>
If you purchase Class A-9 or Class A-22 Certificates, you should consider the
risk that after the Cross-Over Date, the principal portion of Realized Losses,
other than Excess Losses, that otherwise would be allocated to the Class A-8
and Class A-19 Certificates will be borne by the Class A-9 and Class A-22
Certificates, respectively, (in addition to other Realized Losses allocated to
the Class A-9 and Class A-22 Certificates) and not by the Class A-8 or Class A-
19 Certificates so long as the Principal Balance of your Class A-9
Certificates, in the case of the Class A-8 Certificates, or your Class A-22
Certificates, in the case of the A-19 Certificates, is greater than zero.
Rights of Beneficial Owners May Be Limited By Book-Entry System for Certain
Classes of Class A Certificates
Transactions in the Book-Entry Certificates generally can only be carried out
through DTC, DTC Participants and Indirect DTC Participants. If you are a
Beneficial Owner of Book Entry Certificates, your ability to pledge your
Certificates, and the liquidity of your Certificates in general, may be limited
due to the fact that you will not have a physical certificate. In addition, you
may experience delays in receiving payments on your Certificates. See "Risk
Factors -- Book-Entry Certificates May Experience Decreased Liquidity and
Payment Delay" and "Description of the Certificates -- Book-Entry Form" in the
Prospectus.
Certificates May Not Be Appropriate For Individual Investors
If you are an individual investor who does not have sufficient resources or
expertise to evaluate the particular characteristics of the applicable Class of
Offered Certificates, the Offered Certificates may not be an appropriate
investment for you. This may be the case because, among other things:
. if you purchase your Certificates at a price other than par, your yield
to maturity will be sensitive to the uncertain rate and timing of prin-
cipal 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 the priority
of principal distributions among the Classes of Certificates, and as
such the Offered Certificates, and in particular the Class A-12 Certifi-
cates, may be inappropriate investments for you if you require a distri-
bution of a particular amount of principal on a specific date or an oth-
erwise predictable stream of distributions;
. you may not be able to reinvest amounts distributed in respect of prin-
cipal on your Certificates (which distributions, in general, are ex-
pected to be greater during periods of relatively low interest rates) at
a rate at least as high as the applicable Pass-Through Rate or your ex-
pected yield;
. a secondary market for the Offered Certificates may not develop or pro-
vide you with liquidity of investment; and
. you must report interest as well as original issue discount, if any, on
the accrual method of accounting, even if you are otherwise using the
cash method of accounting.
If you are an individual investor considering the purchase of an Offered Cer-
tificate, you should also carefully consider the further risks and other spe-
cial considerations discussed above and under the headings "Summary Informa-
tion -- Effects of Prepayments on Investment Expectations" and "Prepayment and
Yield Considerations" herein and "Risk Factors -- Rate of Prepayment on Mort-
gage Loans May Adversely Affect Average Lives and Yields on Certificates" in
the Prospectus.
Year 2000 Readiness Disclosure
The Seller is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000 problem" is pervasive and complex; virtually every computer operation will
be affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data, fail or cause another
system to fail. "Systems" include all hardware, networks, system and
application software, commercial "off-the-shelf" software, data and voice
communication devices, and embedded technology such as data-impacted
S-21
<PAGE>
processors in automated systems such as elevators, telephone systems, security
systems, vault systems, heating and cooling systems and others.
Norwest Mortgage and the Master Servicer have informed the Seller that their
respective year 2000 readiness projects are divided into four phases:
. Phase I: comprehensive assessment and inventory of Systems intended to
determine year 2000 vulnerability and risk;
. Phase II: date detection on Systems intended to determine which Systems
must be remediated and which Systems are compliant and require testing
only; determination of required resources and costs; and the development
of schedules and high-level testing plans for the repair, replacement
and/or retirement of Systems that are not determined to be year 2000
compliant;
. Phase III: repair, replacement and/or retirement of Systems that are not
determined to be year 2000 compliant; conduct testing of individual Sys-
tems; and plan the integration testing for those Systems that have in-
terfaces with other Systems both internal and external to the company,
such as those of customers and suppliers; and
. Phase IV: integration testing of applicable Systems to validate that in-
terfaces with other Systems are year 2000 compliant; and the development
of contingency plans, such as plans to recover operations and alterna-
tives to mitigate the effects of counterparties whose own failure to
properly address year 2000 issues may adversely impact their ability to
perform certain functions.
Each of Norwest Mortgage and the Master Servicer also has informed the Seller
with respect to its respective year 2000 project that: (i) it has substantially
completed Phases I, II and III; and (ii) it anticipates that Phase IV will be
substantially completed by June 30, 1999. The Trust Administrator has advised
the Seller that it has implemented a plan to either (i) make modifications to
its existing Systems in an effort to make them year 2000 compliant or (ii)
acquire computer Systems that are believed to be year 2000 compliant, in each
case prior to January 1, 2000. The Seller has been advised by the Trustee that
its Systems are either year 2000 compliant or are undergoing testing and
remediation.
Norwest Mortgage, the Master Servicer, the Trustee and the Trust
Administrator may be impacted by the year 2000 compliance issues of
governmental agencies, businesses and other entities who provide data to or
receive data from them, and by entities, such as borrowers, vendors, customers
and business partners (including Other Servicers), whose financial condition or
operational capability is significant to them. Each of Norwest Mortgage and the
Master Servicer has advised the Seller that its respective year 2000 project
includes assessments of the year 2000 readiness of such parties. The Master
Servicer has informed the Seller that each Other Servicer has indicated that it
intends to be year 2000 ready by January 1, 2000. However, neither the Seller
nor any affiliate of the Seller has made any independent investigation of the
Systems of the Trustee, the Trust Administrator or of any of the Other
Servicers.
DTC has informed its DTC Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to:
(i) impress upon them the importance of such services being year 2000
compliant; and (ii) determine the extent of their efforts for year 2000
remediation (and, as appropriate, testing) of their services. In addition, DTC
is in the process of developing such contingency plans as it deems appropriate.
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<PAGE>
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
In the event that computer problems arise out of a failure of the efforts
described above to be completed on time, or in the event that the Systems of
the Trustee, the Trust Administrator, the Master Servicer, Norwest Mortgage, an
Other Servicer or DTC are not fully year 2000 compliant, any resulting
disruptions in the collection and distribution of receipts on or in respect of
the Mortgage Loans could materially adversely affect your Certificates.
See "Risk Factors" in the Prospectus for a description of certain other risks
and special considerations applicable to the Offered Certificates.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
Denominations; Form of Certificates
Offered Certificates issued in fully registered, certificated form are
referred to herein as "Definitive Certificates." The Trust Administrator or
other paying agent will make distributions of principal of, and interest on,
the Definitive Certificates directly to holders of Definitive Certificates in
accordance with the procedures set forth in the Pooling and Servicing
Agreement. The Definitive Certificates will be transferable and exchangeable at
the offices of the Trust Administrator or other certificate registrar. No
service 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.
Offered Certificates, other than those initially issued as Definitive
Certificates, will be issued in book-entry form and are referred to herein as
"Book-Entry Certificates." Each Class of the Book-Entry Certificates initially
will be represented by one or more physical certificates registered in the name
of Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC"),
which will be the "holder" or "Certificateholder" of such Certificates, as such
terms are used herein. A person acquiring an interest in the Book-Entry
Certificates (a "Beneficial Owner") will not be entitled to receive a
Definitive Certificate representing such person's interest in the Book-Entry
Certificates, except as set forth under "Description of the Certificates --
Book-Entry Form" in the Prospectus. Unless and until Definitive Certificates
are issued under the limited circumstances described therein, all references to
actions taken by Certificateholders or holders shall, in the case of the Book-
Entry Certificates, refer to actions taken by DTC upon instructions from its
DTC Participants (as defined under "Description of the Certificates -- Book-
Entry Form" in the Prospectus), and all references herein to distributions,
notices, reports and statements to Certificateholders or holders shall, in the
case of the Book-Entry Certificates, refer to distributions, notices, reports
and statements to DTC or Cede, as the registered holder of the Book-Entry
Certificates, as the case may be, for distribution to Beneficial Owners in
accordance with DTC procedures. See "Description of the Certificates -- Book-
Entry Form" in the Prospectus.
The following table sets forth the original certificate form, the minimum
denomination and the incremental denomination of the Offered Certificates. The
Offered Certificates are not intended to be directly or indirectly held or
beneficially owned in amounts lower than such minimum denominations.
FORM AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
Original Certificate Minimum Incremental
Class Form Denomination Denomination(1)
----- -------------------- ------------ ---------------
<S> <C> <C> <C>
Classes A-1, A-2, A-3, A-
4, A-5, A-6, A-10, A-11,
A-14, A-16, A-17, A-18
and A-19................ Book-Entry $100,000 $1,000
Class A-12............... Book-Entry $ 1,000 $1,000
Classes A-7, A-8, A-9, A-
13, A-15, A-20 and A-22
........................ Definitive $100,000 $1,000
Class A-21............... Definitive $293,134(/2/)$ N/A
Classes A-R and A-LR..... Definitive $ 100 N/A
Classes B-1, B-2 and B-
3....................... Definitive $100,000 $1,000
</TABLE>
- -------
(1) If necessary, in order to aggregate the initial Principal Balance of a
Class, one Certificate of such Class will be issued in an incremental
denomination of less than that shown.
(2) Initial notional amount.
Distributions
The Trust Administrator or other paying agent will make distributions of
interest and in reduction of Principal Balance to holders of each Class of
Certificates monthly, to the extent of each 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 July 1999. 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-
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<PAGE>
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").
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:
(i) all previously undistributed payments or other receipts on account of
principal (including principal prepayments and Liquidation Proceeds in
respect of principal, if any), and interest on or in respect of the
Mortgage Loans received by the Master Servicer, including without
limitation any related insurance proceeds and the proceeds of any purchase
of a related Mortgage Loan for breach of a representation or warranty or
the sale of a Mortgaged Property by a Servicer in connection with the
liquidation of the related Mortgage Loan on or prior to the Remittance Date
in the month in which such Distribution Date occurs;
(ii) all Periodic Advances made; and
(iii) all other amounts (including any insurance proceeds and
Compensating Interest) placed in the Certificate Account by any Servicer on
or before the Remittance Date or by the Master Servicer on or before the
Distribution Date pursuant to the Pooling and Servicing Agreement, but
excluding the following:
(a) amounts received as late payments of principal or interest
respecting which one or more unreimbursed Periodic Advances has been
made;
(b) to the extent permitted by the Pooling and Servicing Agreement,
that portion of Liquidation Proceeds with respect to a Mortgage Loan
that represents any unreimbursed Periodic Advances of such Servicer;
(c) those portions of each payment of interest on a particular
Mortgage Loan which represent (i) the Servicing Fee, (ii) the Master
Servicing 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 "Description of the
Certificates" in the Prospectus), 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 Certificate Account in connection with the substitution of
a Mortgage Loan (collectively, "Unscheduled Principal Receipts") that
were received by each Servicer after the Unscheduled Principal Receipt
Period (as described under "Servicing of the Mortgage Loans --
Unscheduled Principal Receipts" below) relating to the Distribution Date
for the applicable type of Unscheduled Principal 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
Distribution 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 Servicing 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 Advances;
(h) all amounts representing certain expenses reimbursable to the
Master Servicer and other amounts permitted to be retained by the Master
Servicer or withdrawn by the Master Servicer from the Certificate
Account pursuant to the Pooling and Servicing Agreement;
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<PAGE>
(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 Classes of
Certificates.
The "Remittance Date" with respect to any Distribution Date and (i) 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 and (ii)
any Mortgage Loan serviced by Norwest Mortgage will, except as described below
under "Servicing of the Mortgage Loans -- Anticipated Changes in Servicing," be
the 24th day of each month or, if any such day is not a business day, the
preceding business day.
"Partial Liquidation Proceeds" are Liquidation Proceeds received by a
Servicer on a Mortgage Loan prior to such Mortgage Loan becoming a Liquidated
Loan and "Net Partial Liquidation Proceeds" are Partial Liquidation Proceeds
less expenses incurred with respect to such liquidation.
Each Servicer is required to deposit in the Certificate Account by the
Remittance Date certain amounts in respect of the Mortgage Loans as set forth
herein under "Servicing of the Mortgage Loans -- Custodial Accounts." The
Master Servicer is required to remit to the Trust Administrator on or before
the Distribution Date any payments constituting part of the Pool Distribution
Amount that are received by the Master Servicer or are required to be made with
the Master Servicer's own funds. Except as described below under "Description
of the Certificates -- Periodic Advances," neither the Master Servicer nor the
Trust Administrator is obligated to remit any amounts which a Servicer was
required but failed to deposit in the Certificate Account.
On each Distribution Date, the Pool Distribution Amount will be allocated
among the Classes of Certificates and distributed to the holders thereof of
record as of the related Record Date as follows (the "Pool Distribution Amount
Allocation"):
first, to the Classes of Class A Certificates and to the Insurer, pro rata,
based on their respective Interest Accrual Amounts and the Premium Payment, as
the case may be, in an aggregate amount up to the sum of their Interest Accrual
Amounts and the Premium Payment with respect to such Distribution Date;
provided that prior to the applicable Accretion Termination Date, an amount
equal to the amount that would otherwise be distributable in respect of
interest to the Accrual Certificates and the Class A-8 Accrual Component
pursuant to this provision will be distributed in reduction of the Principal
Balances of certain Classes of Class A Certificates and the Class A-8 Accrual
Component as set forth below under "-- Principal (Including Prepayments) --
Allocation of Amount to be Distributed on the Class A Certificates";
second, to the Classes of Class A Certificates and to the Insurer, pro rata,
based on their respective unpaid Interest Shortfall Amounts and unpaid Premium
Shortfall Amounts, as the case may be, in an aggregate amount up to the sum of
their unpaid Interest Shortfall Amounts and unpaid Premium Shortfall Amounts;
provided 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 the Accrual Certificates and the Class A-8 Accrual
Component pursuant to this provision will be distributed in reduction of the
Principal Balances of certain Classes of Class A Certificates and the Class A-8
Accrual Component as set forth below under "-- Principal (Including
Prepayments) -- Allocation of Amount to be Distributed on the Class A
Certificates";
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 Classes of Class A Certificates (other than the Class A-PO
Certificates) in an aggregate amount up to the Class A Non-PO Optimal Principal
Amount, such distribution to be allocated among such Classes in accordance with
the priorities set forth below under "-- Principal (Including Prepayments) --
Allocation of Amount to be Distributed on the Class A Certificates" and (B) to
the Class A-PO Certificates in an amount up to the Class A-PO Optimal Principal
Amount;
S-26
<PAGE>
fourth, to the Class A-PO Certificates in an amount up to the Class A-PO
Deferred Amount, but only from amounts otherwise distributable (without regard
to this priority) to the Class B Certificates, in inverse order of priority
pursuant to priority fifth clause (C) of this Pool Distribution Amount
Allocation; and
fifth, sequentially, to the Class B-1, Class B-2, Class B-3, Class B-4, Class
B-5 and Class B-6 Certificates so that each such Class shall receive (A) first,
an amount up to its Interest Accrual Amount with respect to such Distribution
Date, (B) then, an amount up to its previously unpaid Interest Shortfall
Amounts and (C) finally, an amount up to its Class B Optimal Principal Amount
before any Classes of Class B Certificates with higher numerical designations
receive any payments in respect of interest or principal; provided, however,
that the amount distributable pursuant to this priority fifth clause (C) to any
Classes 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 undivided percentage interest (the "Percentage Interest") represented by
any Offered Certificate of a Class (other than the Class A-12 Certificates)
will be equal to the percentage obtained by dividing the initial principal
balance of such Certificate (or initial notional amount in the case of the
Class A-21 Certificates) by the aggregate initial Principal Balance (or initial
notional amount) of such Class. The Percentage Interest represented by any
Class A-12 Certificate will be equal to the percentage obtained by dividing the
then-outstanding principal balance of such Certificate by the aggregate then-
outstanding Principal Balance of such Class.
Interest
The amount of interest that will accrue on each Class of Certificates, other
than the Class A-13, Class A-20 and Class A-PO Certificates, during each month
prior to the month of the related Distribution Date (each, an "Interest Accrual
Period"), 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 "Interest Accrual Amount" for such Class.
The Interest Accrual Amount for each Class of Certificates (other than the
Class A-8, Class A-13, Class A-20 and Class A-PO Certificates) will equal (a)
the product of (i) 1/12th of the Pass-Through Rate for such Class and (ii) the
outstanding Principal Balance of such Class or, in the case of the Class A-21
Certificates, the outstanding Class A-21 Notional Amount, minus (b) the sum of
(i) any Non-Supported Interest Shortfall allocable to such Class, (ii) the
interest portion of any Excess Losses allocable to such Class and (iii) the
interest portion of any Realized Losses, other than Excess Losses, allocable to
such Class on or after the Cross-Over Date. The pass-through rate for each
Class of Offered Certificates (the "Pass-Through Rate"), other than the Class
A-6, Class A-7, Class A-8, Class A-13, Class A-14, Class A-15 and Class A-20
Certificates is the percentage set forth in the table beginning on page S-5 of
this Prospectus Supplement.
The Interest Accrual Amount for the Class A-8 Certificates will equal the sum
of the Component Interest Accrual Amounts for the Class A-8 IO Components and
the Class A-8 Accrual Component. The amount of interest that will accrue on
each such Component during each Interest Accrual Period, after taking into
account any Non-Supported Interest Shortfalls and the interest portion of
certain losses allocated to such Component is referred to herein as the
"Component Interest Accrual Amount" for such Component. The component rate for
each of the Components (the "Component Rate") is the percentage set forth in
the table beginning on page S-5 of this Prospectus Supplement.
The Component Interest Accrual Amount for each Component of the Class A-8
Certificates will equal the difference between (a) the product of (i) 1/12th of
the Component Rate for such Component and (ii) the outstanding Principal
Balance of such Component or, in the case of the Class A-8 IO Components, the
applicable outstanding Class A-8 IO Notional Amount and (b) the sum of such
Component's pro rata share based on interest accrued of (i) any Non-Supported
Interest Shortfall allocable to the Class A-8 Certificates, (ii) the interest
portion of any Excess Losses allocable to the Class A-8 Certificates and (iii)
the interest portion of any Realized Losses, other than Excess Losses,
allocable to the Class A-8 Certificates on or after the Cross-Over Date.
S-27
<PAGE>
The Class A-8A IO Component is an interest-only component and has no
Principal Balance. The "Class A-8A IO Notional Amount" with respect to each
Distribution Date will be equal to the Principal Balance of the Class A-1
Certificates. Accordingly, any distributions in respect of principal made to,
or losses in respect of principal allocated in reduction of, the Principal
Balance of Class A-1 Certificates will result in a related reduction in the
Class A-8A IO Notional Amount. See "-- Principal (Including Prepayments)" and
"-- Subordination of Class B Certificates -- Allocation of Losses" herein. The
Class A-8A IO Notional Amount with respect to the first Distribution Date will
be approximately $71,229,000.
The Class A-8B IO Component is an interest-only component and has no
Principal Balance. The "Class A-8B IO Notional Amount" with respect to each
Distribution Date will be equal to the Principal Balance of the Class A-2
Certificates. Accordingly, any distributions in respect of principal made to,
or losses in respect of principal allocated in reduction of, the Principal
Balance of the Class A-2 Certificates will result in a related reduction in the
Class A-8B IO Notional Amount. See "-- Principal (Including Prepayments)" and
"-- Subordination of Class B Certificates -- Allocation of Losses" herein. The
Class A-8B IO Notional Amount with respect to the first Distribution Date will
be approximately $53,772,000.
The Class A-8C IO Component is an interest-only component and has no
Principal Balance. The "Class A-8C IO Notional Amount" with respect to each
Distribution Date will be equal to the Principal Balance of the Class A-3
Certificates. Accordingly, any distributions in respect of principal made to,
or losses in respect of principal allocated in reduction of, the Principal
Balance of the Class A-3 Certificates will result in a related reduction in the
Class A-8C IO Notional Amount. See "-- Principal (Including Prepayments)" and
"-- Subordination of Class B Certificates -- Allocation of Losses" herein. The
Class A-8C IO Notional Amount with respect to the first Distribution Date will
be approximately $2,831,000.
The Class A-8D IO Component is an interest-only component and has no
Principal Balance. The "Class A-8D IO Notional Amount" with respect to each
Distribution Date will be equal to the Principal Balance of the Class A-4
Certificates. Accordingly, any distributions in respect of principal made to,
or losses in respect of principal allocated in reduction of, the Principal
Balance of the Class A-4 Certificates will result in a related reduction in the
Class A-8D IO Notional Amount. See "-- Principal (Including Prepayments)" and
"-- Subordination of Class B Certificates -- Allocation of Losses" herein. The
Class A-8D IO Notional Amount with respect to the first Distribution Date will
be approximately $103,499,000. The Class A-8A IO, Class A-8B IO, Class A-8C IO,
and Class A-8D IO Components are each referred to as a "Class A-8 IO
Component". The Class A-8A IO, Class A-8B IO, Class A-8C IO and Class A-8D IO
Notional Amounts are each referred to as a "Class A-8 IO Notional Amount".
The Class A-21 Certificates are interest-only certificates and have no
Principal Balance. The "Class A-21 Notional Amount" with respect to each
Distribution Date will be equal to approximately 1.9230769231% of the Principal
Balance of the Class A-16 Certificates. Accordingly, any distributions in
respect of principal made to, or losses in respect of principal allocated in
reduction of, the Principal Balance of the Class A-16 Certificates will result
in a related reduction in the Class A-21 Notional Amount. See "-- Principal
(Including Prepayments)" and "-- Subordination of Class B Certificates --
Allocation of Losses" herein. The Class A-21 Notional Amount with respect to
the first Distribution Date will be approximately $293,134.
The Pass-Through Rates for the Class A-6, Class A-7, Class A-14 and Class A-
15 Certificates will be determined as described below.
<TABLE>
<CAPTION>
Floating Rate and Inverse Floating Rate Classes(/1/)
-----------------------------------------------------
Minimum
Initial Pass- Maximum
Pass-Through Through Pass-Through
Class Rate Pass-Through Rate Formula Rate Rate
----- ------------- --------------------------------------- ------- --------------
<S> <C> <C> <C> <C>
Class A-6............... 5.750% LIBOR + 0.850% 0.850% 9.000%
Class A-7............... 8.450% 21.190% - (2.600 x LIBOR) 0.000% 21.190%
Class A-14.............. 5.918% LIBOR + 1.000% 1.000% 8.500%
Class A-15.............. 9.9591430000% 28.9285714286% - (3.8571428571 X LIBOR) 0.000% 28.9285714286%
</TABLE>
- -------
(1) Investors, and, in particular, investors in the Class A-7 and Class A-15
Certificates, should consider the effect of different rates of LIBOR and
principal prepayments on their yield to maturity. See "Prepayment and Yield
Considerations".
S-28
<PAGE>
The Pass-Through Rate for each Interest Accrual Period after the initial
Interest Accrual Period will be determined on the second Eurodollar Business
Day preceding the commencement of each Interest Accrual Period
(each a "Rate Determination Date"). A "Eurodollar Business Day" is a day on
which banks are open for dealing in foreign currency and exchange in London,
New York City and Charlotte, North Carolina.
The yields to investors in the Class A-6, Class A-7, Class A-14 and Class A-
15 Certificates will be affected by changes in LIBOR and corresponding changes
in their respective Pass-Through Rates. However, an increase in LIBOR, which is
a short-term rate, may have little or no correlation to prevailing mortgage
loan interest rates, which are based on long-term rates. It is possible that
lower prevailing mortgage loan interest rates (which might be expected to
result in faster prepayments) could occur concurrently with an increase in
LIBOR. Conversely, it is possible that higher prevailing mortgage loan interest
rates (which might be expected to result in slower prepayments) could occur
concurrently with a decrease in LIBOR. See "Prepayments and Yield
Considerations" herein and in the Prospectus.
No interest will accrue on the Class A-13, Class A-20 and Class A-PO
Certificates.
On each Distribution Date an amount equal to any Non-Supported Interest
Shortfall allocable to the Class A-12 Certificates will be distributed from the
Reserve Fund, unless the Reserve Fund is depleted, to the holders of the Class
A-12 Certificates to the extent described below. The Policy will cover the
interest portion of any Excess Losses allocable to the Class A-12 Certificates,
any Non-Supported Interest Shortfall allocable to the Class A-12 Certificates
once the Reserve Fund has been reduced to zero and the interest portion of
other Realized Losses allocated to the Class A-12 Certificates after the Cross-
Over Date. See "-- The Financial Guaranty Insurance Policy" below.
On each Distribution Date, the Insurer will be entitled to receive an amount
(the "Premium Payment") equal to (A) the product of (i) 1/12th of 0.06% and
(ii) the outstanding Principal Balance of the Class A-12 Certificates, less (B)
the sum of the pro rata portions of (i) any Non-Supported Interest Shortfall,
(ii) the interest portion of Excess Losses for such Distribution Date and (iii)
on or after the Cross-Over Date, the interest portion of any Realized Losses,
other than the interest portion of any Excess Losses.
The "Principal Balance" of a Class of Class A Certificates (other than the
Class A-8, Class A-20, Class A-21 and Class A-PO Certificates), the Class A-8
Accrual Component, the Class A-20A Component or the Class A-20B Component as of
any Determination Date will be the principal balance of such Class or Component
on the date of initial issuance of the Class A Certificates plus, in the case
of the Class A-8 Accrual Component, the Class A-5 Certificates, the Class A-11
Certificates and the Class A-19 Certificates, the Class A-8 Accrual Component
Distribution Amounts, the Class A-5 Accrual Distribution Amounts, the Class A-
11 Accrual Distribution Amounts and the Class A-19 Accrual Distribution
Amounts, respectively, as described under "-- Principal (Including
Prepayments)" below, previously added to the principal balance of the Class A-8
Accrual Component, the Class A-5 Certificates, the Class A-11 Certificates and
the Class A-19 Certificates, respectively, less (i) all amounts previously
distributed to such Class or Component in reduction of the principal balance of
such Class or Component and (ii) such Class's or Component's pro rata share of
the principal portion of Excess 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 B
Certificates -- Allocation of Losses." After the Cross-Over Date, the Principal
Balance of a Class of Class A Certificates (other than the Class A-8, Class A-
20, Class A-21 and Class A-PO Certificates), the Class A-8 Accrual Component,
the Class A-20A Component or the Class A-20B Component may be subject to
further reduction in an amount equal to such Class's or Component's pro rata
share of the difference, if any between (a) the Class A Non-PO Principal
Balance as of such Determination Date without regard to this provision and (b)
the Adjusted Pool Amount (Non-PO Portion) for the preceding Distribution Date.
Any pro rata allocation among the Classes of Class A Certificates (other than
the Class A-8, Class A-20, Class A-21 and Class A-PO Certificates) and the
Components described in this paragraph will be made among such Classes and such
Components on the basis of their then-outstanding Principal Balances or, in the
case of the Class A-8 Accrual Component, the Class A-5 Certificates, the Class
A-11 Certificates and the Class A-19 Certificates, their initial Principal
Balances, if lower.
S-29
<PAGE>
The "Principal Balance" of the Class A-8 Certificates will be equal to the
Principal Balance of the Class A-8 Accrual Component. The "Principal Balance"
of the Class A-20 Certificates will be equal to the sum of the Principal
Balances of the Class A-20A Component and the Class A-20B Component.
After the Cross-Over Date, for as long as the Class A-9 or Class A-22
Certificates, as the case may be, are outstanding, the amount that would
otherwise have reduced the Principal Balance of the Class A-8 or Class A-19
Certificates as a result of the application of the second sentence of the
definition of Principal Balance set forth in the second preceding paragraph
will instead reduce the Principal Balance of the Class A-9 or Class A-22
Certificates, respectively, (in addition to other Realized Losses allocated to
the Class A-9 and Class A-22 Certificates). As a result, after the Cross-Over
Date, the Class A-9 and Class A-22 Certificates will bear the principal portion
of all Realized Losses allocable to the Class A-8 and Class A-19 Certificates,
respectively, other than Excess Losses, for so long as such Class A-9
Certificates, in the case of the Class A-8 Certificates, or Class A-22
Certificates, in the case of the Class A-19 Certificates, are outstanding. In
the event that the amount of Realized Losses allocable to the Class A-8 or
Class A-19 Certificates, other than Excess Losses, exceeds the Principal
Balance of the Class A-9 Certificates, in the case of the Class A-8
Certificates, or Class A-22 Certificates, in the case of the Class A-19
Certificates, available to bear such losses, such Class A-9 or Class A-22
Certificates, as the case may be, will bear such losses only up to their
outstanding Principal Balances, and the original allocation of losses to the
Class A-8 or Class A-19 Certificates, as the case may be, will be reduced by
the portion of such losses borne by the Class A-9 or Class A-22 Certificates,
as applicable.
The "Principal Balance" of the Class A-PO Certificates as of any
Determination Date will be the Principal Balance of such Class on the date of
initial issuance of the Class A Certificates less (i) all amounts previously
distributed to the holders of the Class A-PO Certificates pursuant to
priorities third clause (B) and fourth of the Pool Distribution Amount
Allocation and (ii) the principal portion of Excess Losses allocated through
such Determination Date to the Class A-PO Certificates in the manner described
herein under "-- Subordination of Class B Certificates -- Allocation of
Losses." After the Cross-Over Date, the Principal Balance of the Class A-PO
Certificates will be subject to further reduction in an amount equal to the
excess, if any, of (a) the 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 "Principal Balance" of a Class of Class B Certificates as of any
Determination Date will be the lesser of (a) the principal balance of such
Class on the date of initial issuance of the Class B Certificates less (i) all
amounts previously distributed to holders of such Class in reduction of the
principal balance thereof and (ii) the principal portion of Excess Losses
allocated through such Determination Date to the holders of such Class in the
manner described under "-- Subordination of Class B Certificates -- Allocation
of Losses" and (b) the Adjusted Pool Amount as of the preceding Distribution
Date less the sum of (i) the Class A Principal Balance and (ii) the Principal
Balances of the Classes of Class B Certificates with lower numerical
designations, each as of such Determination Date.
The "Class A Principal Balance" as of any Determination Date will be equal to
the sum of the Principal Balances of the Classes 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 Principal Balances of the Classes of Class A
Certificates (other than the Class A-PO Certificates) as of such date.
The "Class B Principal Balance" as of any date will be equal to the sum of
the Principal Balances of the Classes of Class B Certificates as of such date.
The "Aggregate Principal Balance" as of any date will be equal to the sum of
the Class A Principal Balance and the Class B Principal Balance as of such
date.
The "Aggregate Non-PO Principal Balance" as of any date will be equal to the
sum of the Class A Non-PO Principal Balance and the Class B Principal Balance
as of such date.
With respect to any Distribution Date, the "Adjusted Pool Amount" will equal
the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-Off-
Date minus the sum of (i) all amounts in respect of
S-30
<PAGE>
principal received in respect of the Mortgage Loans (including amounts received
as Periodic Advances, principal prepayments and Liquidation Proceeds in respect
of principal) and distributed to holders of the Certificates on such
Distribution Date and all prior Distribution Dates and (ii) the principal
portion of all Realized Losses (other than Debt Service Reductions) incurred on
the Mortgage Loans from the Cut-Off Date through the end of the month preceding
such Distribution Date.
With respect to any Distribution Date, the "Adjusted Pool Amount (PO
Portion)" will equal the sum as to each Mortgage Loan outstanding at the Cut-
Off Date of the product of (A) the PO Fraction for such Mortgage Loan and (B)
the principal balance of such Mortgage Loan as of the Cut-Off Date less the sum
of (i) all amounts in respect of principal received in respect of such Mortgage
Loan (including amounts received as Periodic Advances, principal prepayments
and Liquidation Proceeds in respect of principal) and distributed to holders of
the 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, (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
interest 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
received. Interest shortfalls resulting from principal prepayments in full made
by mortgagors ("Prepayments in Full") are referred to herein as "Prepayment
Interest 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
respect to such Distribution Date and (ii) the lesser of (X) the product of (A)
1/12th of 0.20% and (B) the aggregate Scheduled Principal Balance of the
Mortgage Loans for such Distribution Date and (Y) the Available Master
Servicing Compensation for such Distribution 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
Distribution Date on any Prepayments in Full remitted to the Master Servicer
and deposited in the Certificate Account (which amount of interest with respect
to Prepayments 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 described 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 Underlying Servicing Agreement) of the Mortgage Loans serviced
by Norwest Mortgage. With respect to the Mortgage Loans serviced by each Other
Servicer, "Month End Interest" for each Distribution Date depends in part on
whether such Other Servicer is required to remit to the Master Servicer
Prepayments in Full for deposit into the Certificate Account daily on a
specified business day following the receipt thereof. "Month End Interest" for
Other Servicers will generally equal the lesser of (a) (i) with respect to
Other Servicers required to remit Prepayments in Full on a daily basis, the
aggregate Curtailment Interest Shortfalls with respect to the Mortgage Loans
serviced by such Other Servicer or (ii) with respect to Other Servicers not
required to remit Prepayments in Full on a daily basis, the sum of the
aggregate Prepayment Interest Shortfalls and aggregate Curtailment
S-31
<PAGE>
Interest Shortfalls with respect to the Mortgage Loans serviced by such Other
Servicer and (b) the sum of (X) for each Mortgage Loan serviced by such Other
Servicer, the product of 1/12th of the applicable Servicing Fee Rate and the
scheduled principal balance (as determined in the applicable Underlying
Servicing Agreement) of such Mortgage Loan serviced by such Other Servicer and
(Y) reinvestment earnings on payments received in respect of the Mortgage Loans
or on other amounts on deposit in the related Servicer Custodial Account
pursuant to the related Underlying Servicing Agreement on such Distribution
Date (other than with respect to Mortgage Loans serviced by Countrywide Home
Loans, Inc., MLCC or NOVUS). As described below under "Servicing of the
Mortgage Loans -- Anticipated Changes in Servicing," a Servicer not currently
remitting Prepayments in Full on a daily basis may agree to begin to do so at
some time in the future and, in conjunction therewith, the amount of Month End
Interest such Servicer is required to remit may be decreased or such Servicer
may be relieved of its obligation to remit any Month End Interest. If an Other
Servicer that is not currently remitting Prepayments in Full on a daily basis
begins to do so, 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.
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 and
the Premium Payment according to the percentage obtained by dividing the then-
outstanding Class A Non-PO Principal Balance by the Aggregate Non-PO Principal
Balance and (ii) the Class B Certificates according to the percentage obtained
by dividing the then-outstanding Class B Principal Balance by the Aggregate
Non-PO Principal Balance. Such allocation of Non-Supported Interest Shortfalls
will reduce the amount of interest due to be distributed to holders of
Certificates then entitled to distributions in respect of interest. Any such
reduction in respect of interest allocated to the Class A Certificates and the
Premium Payment will be allocated among the Classes of Class A Certificates and
the Premium Payment, pro rata, on the basis of their respective Interest
Accrual Amounts and the amount of such Premium Payment, as the case may be,
without regard to any reduction pursuant to this paragraph, for such
Distribution Date. Any such reduction allocated to the Class A-8 Certificates
will be allocated to their Components based on their Component Interest Accrual
Amounts, without regard to any reduction pursuant to this paragraph, for such
Distribution Date. Any such reduction in respect of interest allocated to the
Class B Certificates will be allocated among such Classes of Class B
Certificates, pro rata, on the basis of their respective Interest Accrual
Amounts, without regard to any reduction pursuant to this paragraph, for such
Distribution Date.
Any interest shortfalls arising from Unscheduled Principal Receipts in full
that are not Prepayments in Full and any interest shortfalls resulting from the
timing of the receipt of partial principal prepayments by mortgagors
("Curtailment 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 Classes of Class B
Certificates in reverse numerical order and then pro rata by the Class A
Certificates and the Insurer based on interest accrued or the amount of the
Premium Payment, as the case may be. See "-- Subordination of Class B
Certificates" herein. After the Cross-Over Date all interest shortfalls arising
from Unscheduled Principal Receipts, other than Prepayment Interest Shortfalls
covered by Compensating Interest, will be treated as Non-Supported Interest
Shortfalls and allocated in reduction of interest accrued on the Class A
Certificates and the Premium Payment due to the Insurer. However, such
shortfalls allocated to the Class A-12 Certificates will be offset to the
extent funds are available therefor, from amounts on deposit in the Reserve
Fund. Once the Reserve Fund has been reduced to zero, such shortfalls will be
covered by the Policy.
A reserve fund will be established at the time of the issuance of the Class
A-12 Certificates (the "Reserve Fund") by an initial deposit into a separate
account maintained by the Trust Administrator of approximately $2,500. No
additional amounts will be deposited into the Reserve Fund after the initial
deposit. The Reserve Fund will be beneficially owned by Greenwich Capital
Markets, Inc. ("Greenwich Capital") and will not be an asset of the REMIC.
A withdrawal will be made on each Distribution Date from the amount on
deposit in the Reserve Fund, to the extent available, to cover any Non-
Supported Interest Shortfalls allocated to the Class A-12 Certificates. A
S-32
<PAGE>
withdrawal from the Reserve Fund may only be made to the extent funds are
available therein, to cover any Non-Supported Interest Shortfall allocated to
such Class and may not be made to cover any Non-Supported Interest Shortfall
allocated to any other Class. Once the Reserve Fund has been reduced to zero,
the Policy will cover any Non-Supported Interest Shortfalls allocated to the
Class A-12 Certificates.
The balance of any amount remaining in the Reserve Fund on the Distribution
Date on which the Principal Balance of the Class A-12 Certificates is reduced
to zero will be distributed to Greenwich Capital.
The interest portion of any Excess Losses will be allocated among the Classes
of Certificates and the Insurer pro rata based on their respective Interest
Accrual Amounts or the amount of the Premium Payment, as the case may be,
without regard to any reduction pursuant to this paragraph, for such
Distribution Date. Any such amount allocated to the Class A-8 Certificates will
be allocated to their Components based on their Component Interest Accrual
Amounts, without regard to any reduction pursuant to this paragraph for such
Distribution Date. The Policy will cover any such losses allocated to the Class
A-12 Certificates. See "-- Financial Guaranty Insurance Policy" below.
Allocations of the interest portion of Realized Losses (other than Excess
Losses) first to the Classes of Class B Certificates in reverse numerical order
will result from the priority of distribution first to the holders of the Class
A Certificates and the Insurer and then to the holders of the Classes of Class
B Certificates in numerical order of the Pool Distribution Amount as described
above under "-- Distributions." The Policy will cover any such losses which,
after the Cross-Over Date, are allocated to the Class A-12 Certificates.
On each Distribution Date on which the amount available to be distributed in
respect of interest on a Class of Certificates or as the Premium Payment to the
Insurer pursuant to the Pool Distribution Amount Allocation is less than such
Class's Interest Accrual Amount or the Premium Payment, as the case may be, the
amount of any such deficiency (as to each Class, an "Interest Shortfall Amount"
and as to the Insurer, the "Premium Shortfall Amount") will be added to the
amount of interest or Premium Payment distributable on such Class or to the
Insurer on subsequent Distribution Dates, but only for so long as such Class's
Principal Balance (or, in the case of the Class A-8 Certificates, such Class's
Principal Balance or any Class A-8 IO Notional Amount) is greater than zero or,
in the case of the Insurer, the Principal Balance of the Class A-12
Certificates is greater than zero. The Interest Shortfall Amount of the Class
A-8 Certificates with respect to any Distribution Date will be allocated to
their Components based on their Component Interest Accrual Amounts. No interest
will accrue on any Interest Shortfall Amounts or Premium Shortfall Amounts.
Prior to the applicable Accretion Termination Date, interest in an amount
equal to the Component Interest Accrual Amount for the Class A-8 Accrual
Component and the Interest Accrual Amount for the Class A-5, Class A-11 or
Class A-19 Certificates will accrue on such Component or Class, but such
amounts will not be distributed as interest to such Component or Class until
the applicable Accretion Termination Date. Prior to such time, an amount equal
to the accrued and unpaid interest on such Component or Class will be added to
the Principal Balance thereof and distributed as described under "-- Principal
(Including Prepayments) -- Allocation of Amount to be Distributed on the Class
A Certificates" below. The "Accretion Termination Date" for (a) the Class A-8
Accrual Component will be the earlier to occur of (i) the Distribution Date
following the Distribution Date on which the Principal Balance of the Class A-4
Certificates has been reduced to zero or (ii) the Cross-Over Date; (b) the
Class A-5 Certificates will be the earlier to occur of (i) the Distribution
Date following the Distribution Date on which the Principal Balances of the
Class A-4 and Class A-8 Certificates have been reduced to zero or (ii) the
Cross-Over Date; (c) the Class A-11 Certificates will be the earlier to occur
of (i) the Distribution Date following the Distribution Date on which the
Principal Balance of the Class A-10 Certificates has been reduced to zero or
(ii) the Cross-Over Date; and (d) the Class A-19 Certificates will be the
earlier to occur of (i) the Distribution Date following the Distribution Date
on which the Principal Balance of the Class A-18 Certificates has been reduced
to zero or (ii) the Cross-Over Date.
Determination of LIBOR
On each Rate Determination Date, the Trust Administrator will determine LIBOR
for the succeeding Interest Accrual Period on the basis of the British Bankers'
Association ("BBA") "Interest Settlement Rate"
S-33
<PAGE>
for one-month deposits in U.S. dollars as found on Telerate page 3750 as of
11:00 A.M. London time on such Rate Determination Date. Such Interest
Settlement Rates currently are based on rates quoted by 16 BBA designated banks
as being, in the view of such banks, the offered rate at which deposits are
being quoted to prime banks in the London interbank market. Such Interest
Settlement Rates are calculated by eliminating the four highest rates and the
four lowest rates, averaging the eight remaining rates, carrying the result
(expressed as a percentage) out to six decimal places, and rounding to five
decimal places. As used herein. "Telerate page 3750" means the display
designated as page 3750 on the Dow Jones Telerate Service.
If on any Rate Determination Date the Trust Administrator is unable to
determine LIBOR on the basis of the method set forth in the preceding
paragraph, LIBOR for the next Interest Accrual Period will be the higher of (x)
LIBOR as determined on the previous Rate Determination Date or (y) the Reserve
Interest Rate. The "Reserve Interest Rate" will be the rate per annum which the
Trust Administrator determines to be either (A) the arithmetic mean (rounding
such arithmetic mean upwards if necessary to the nearest whole multiple of
1/16%) of the one-month Eurodollar lending rate that the banks set forth in the
Pooling and Servicing Agreement are quoting on the relevant Rate Determination
Date, to the principal London offices of at least two leading banks in the
London interbank market or (B) in the event that the Trust Administrator can
determine no such arithmetic mean, the lowest one-month Eurodollar lending rate
that the banks set forth in the Pooling and Servicing Agreement are quoting on
such Rate Determination Date to leading European Banks.
If on any Rate Determination Date the Trust Administrator is required but is
unable to determine the Reserve Interest Rate in the manner provided in the
preceding paragraph, LIBOR for the next Interest Accrual Period will be LIBOR
as determined on the previous Rate Determination Date, or in the case of the
first Rate Determination Date, 4.900% for the Class A-6 and Class A-7
Certificates and 4.918% for the Class A-14 and Class A-15 Certificates.
The establishment of LIBOR by the Trust Administrator and the Trust
Administrator's subsequent calculation of the Pass-Through Rates applicable to
the Class A-6, Class A-7, Class A-14 and Class A-15 Certificates for the
relevant Interest Accrual Period in the absence of manifest error, will be
final and binding. Such Pass-Through Rates may be obtained by telephoning the
Trust Administrator at 704-383-5272 during normal working hours on any business
day.
Principal (Including Prepayments)
The principal balance of a Certificate (other than a Class A-21 Certificate)
at any time is equal to the product of the related Class's Principal Balance
and such Certificate's Percentage Interest, and represents the maximum
specified dollar amount (exclusive of (i) any interest that may accrue on such
Certificate (other than interest added to the Principal Balance of the Class A-
5 Certificates, the Class A-8 Certificates, with respect to the Class A-8
Accrual Component, the Class A-11 Certificates and the Class A-19 Certificates)
and (ii) in the case of the Class A-R and 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 decline to the extent of
distributions in reduction of the principal balance of, and allocations of
losses to, such Certificate. The approximate initial Principal Balance of each
Class of Certificates and each Component is set forth in the table beginning on
page S-5 of this Prospectus Supplement. The Class A-21 Certificates have no
Principal Balance.
Calculation of Amount to be Distributed on the Certificates
Distributions in reduction of the Principal Balances of the Class A
Certificates (other than the Class A-PO Certificates) will be made on each
Distribution Date pursuant to the Pool Distribution Amount Allocation, in an
aggregate amount equal to the Class A Non-PO Principal Distribution Amount. The
"Class A Non-PO Principal Distribution Amount" with respect to any Distribution
Date will be equal to the sum of (i) the Class A-5 Accrual Distribution Amount,
if any, with respect to such Distribution Date; (ii) the Class A-8 Accrual
Component Distribution Amount, if any, with respect to such Distribution Date;
(iii) the Class A-11 Accrual Distribution Amount, if any, with respect to such
Distribution Date; (iv) the Class A-19 Accrual Distribution
54
S-34
<PAGE>
Amount, if any, with respect to Distribution Date; and (v) the Class A Non-PO
Principal Amount with respect to such Distribution Date.
The "Class A-5 Accrual Distribution Amount" with respect to any Distribution
Date will be equal to the sum of (i) current interest allocated but not
distributed to the Class A-5 Certificates on such Distribution Date in
accordance with priority first of the Pool Distribution Amount Allocation and
(ii) the unpaid Interest Shortfall Amount allocated but not distributed to the
Class A-5 Certificates on such Distribution Date in accordance with priority
second of the Pool Distribution Amount Allocation.
The "Class A-8 Accrual Component Distribution Amount" with respect to any
Distribution Date will be equal to the sum of (i) current interest allocated
but not distributed to the Class A-8 Certificates, with respect to the Class A-
8 Accrual Component, on such Distribution Date in accordance with priority
first of the Pool Distribution Amount Allocation and (ii) the unpaid Interest
Shortfall Amount allocated but not distributed to the Class A-8 Certificates
with, respect to the Class A-8 Accrual Component, on such Distribution Date in
accordance with priority second of the Pool Distribution Amount Allocation.
The "Class A-11 Accrual Distribution Amount" with respect to any Distribution
Date will be equal to the sum of (i) current interest allocated but not
distributed to the Class A-11 Certificates on such Distribution Date in
accordance with priority first of the Pool Distribution Amount Allocation and
(ii) the unpaid Interest Shortfall Amount allocated but not distributed to the
Class A-11 Certificates on such Distribution Date in accordance with priority
second of the Pool Distribution Amount Allocation.
The "Class A-19 Accrual Distribution Amount" with respect to any Distribution
Date will be equal to the sum of (i) current interest allocated but not
distributed with respect to the Class A-19 Certificates on such Distribution
Date in accordance with priority first of the Pool Distribution Amount
Allocation and (ii) the unpaid Interest Shortfall Amount allocated but not
distributed with respect to the Class A-19 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.
Distributions in reduction of the 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 Distribution
Amount" with respect to any Distribution Date will be equal to the sum of (i)
the amount distributed pursuant to priority third clause (B) of the Pool
Distribution Amount Allocation, in an aggregate amount up to the Class A-PO
Optimal Principal Amount and (ii) the amount distributed pursuant to priority
fourth of the Pool Distribution Amount Allocation, in an aggregate amount up to
the Class A-PO Deferred Amount.
Distributions in reduction of the Principal Balances of the Class B-1, Class
B-2 and Class B-3 Certificates will be made on each Distribution Date first to
the Class B-1 Certificates, second to the Class B-2 Certificates and then to
the Class B-3 Certificates, pursuant to priority fifth clause (C) of the Pool
Distribution Amount Allocation, in an aggregate amount with respect to each
such Class (the "Class B-1 Principal Distribution Amount," "Class B-2 Principal
Distribution Amount" and "Class B-3 Principal Distribution Amount,"
respectively) up to the Class B Optimal Principal Amount for such Class.
The "Class A Non-PO Optimal Principal Amount", the "Class B Optimal Principal
Amount" for each Class of Class B Certificates and 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 (including each defaulted
Mortgage Loan, other than a Liquidated Loan, with respect to which the related
Mortgaged Property has been acquired by the Trust Estate) of the product of:
(A) (i) in the case of the Class A Non-PO Optimal Principal Amount and
the Class B Optimal Principal Amount, the Non-PO Fraction for such Mortgage
Loan and (ii) in the case of the Class A-PO Optimal Principal Amount, the
PO Fraction for such Mortgage Loan; and
S-35
<PAGE>
(B) the sum of:
(i) the applicable Class Percentage of (x) the scheduled payment of
principal due on such Mortgage Loan on the first day of the month in
which the Distribution Date occurs, less (y) if the Bankruptcy Loss
Amount is zero, the principal portion of Debt Service Reductions with
respect to such Mortgage Loan;
(ii) the applicable Class Prepayment Percentage of 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 applicable Class Prepayment Percentage of the Scheduled
Principal Balance of such Mortgage Loan which, during the month
preceding the month of such Distribution Date was repurchased by the
Seller, as described under the heading "Description of the Mortgage
Loans --Mandatory Repurchase or Substitution of Mortgage Loans" herein;
and
(iv) the applicable Class 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 Prospectus.
The "Class Percentage" will equal (i) the Class A Percentage, in the case of
the calculation of the Class A Non-PO Optimal Principal Amount; (ii) the
applicable Class B Percentage, in the case of the calculation of the Class B
Optimal Principal Amount for a Class of Class B Certificates; and (iii) 100% in
the case of the calculation of the Class A-PO Optimal Principal Amount.
The "Class Prepayment Percentage" will equal (i) the Class A Prepayment
Percentage, in the case of the calculation of the Class A Non-PO Optimal
Principal Amount; (ii) the applicable Class B Prepayment Percentage, in the
case of the calculation of the Class B Optimal Principal Amount for a Class of
Class B Certificates; and (iii) 100% in the case of the calculation of the
Class A-PO Optimal Principal Amount.
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
described in "-- Subordination of 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 Distribution
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 Losses and (B) amounts distributed on the Class A-PO
Certificates on prior Distribution Dates pursuant to priority fourth of the
Pool Distribution 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
Deferred Amount.
The principal distribution to the holders of a Class of Class B Certificates
will be reduced on any Distribution Date on which (i) the Principal Balance of
such Class 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 or any Class of
Class B Certificates with a lower numerical designation, would be subject to
reduction on such Determination Date as a result of allocation of Realized
Losses (other than Excess Losses). The amount of any such reduction in the
principal distributed to the holders of such Class of Class B Certificates will
instead be distributed pro rata to the holders of any Class (other than the
Class A-PO Certificates) senior in priority to receive distributions in accor-
dance with the Pool Distribution Amount Allocation.
S-36
<PAGE>
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 any Class
of Certificates, such Class will be entitled to its pro rata share of such
recovery in an amount up to the amount by which the Principal Balance of such
Class was reduced as a result of such Realized Loss.
The "Scheduled Principal Balance" of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy (other than Deficient Valuations),
moratorium or similar waiver or grace period) as of the Due Date occurring in
the month preceding the month in which such Distribution Date occurs, after
giving effect to any principal prepayments or other unscheduled recoveries of
principal previously received, to any partial principal prepayments and
Deficient Valuations occurring prior to such Due Date, 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
defaulted Mortgage Loan as to which the Servicer has determined that all
recoverable liquidation and insurance proceeds have been received. A
"Liquidated Loan Loss" on a Liquidated Loan is equal to the excess, if any, of
(i) the unpaid principal balance of such Liquidated Loan, plus accrued interest
thereon 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 Management Agency as having special
flood hazards, a flood insurance policy, of the types described in the
Prospectus under "Servicing of the 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 suspected
presence of hazardous wastes or substances on a Mortgaged Property. A "Fraud
Loss" is a Liquidated Loan Loss incurred on a Liquidated Loan as to which there
was fraud in the origination of such Mortgage Loan. A "Bankruptcy Loss" is a
Debt Service Reduction or a Deficient Valuation. A "Debt Service Reduction"
means a reduction in the amount of monthly payments due to certain bankruptcy
proceedings, but does not include any permanent forgiveness of principal. A
"Deficient Valuation" with respect to a Mortgage Loan means a valuation by a
court of the Mortgaged Property in an amount less than the outstanding
indebtedness under the Mortgage Loan or any reduction in the amount of monthly
payments that results in a permanent forgiveness of principal, which valuation
or reduction results from a bankruptcy proceeding.
The "Non-PO Fraction" with respect to any Mortgage Loan will equal the Net
Mortgage Interest Rate for such Mortgage Loan divided by 6.500%, but will not
be greater than 1.0.
The "Pool Balance (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 Scheduled Principal Balance of such Mortgage Loan as of such Distribution
Date.
The "PO Fraction" with respect to any Mortgage Loan with a Net Mortgage
Interest Rate less than 6.500% (a "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 (a "Premium Mortgage Loan") will be zero.
S-37
<PAGE>
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.
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
principal balance on such date) by the Pool Balance (Non-PO Portion). The Class
A Percentage for the first Distribution Date will be approximately 95.99%. The
Class A Percentage for each Distribution Date occurring after the Cross-Over
Date will be 100%.
The "Class A Prepayment Percentage" for any Distribution Date will be the
percentage indicated below:
<TABLE>
<CAPTION>
Distribution Date Occurring In Class A Prepayment Percentage
- ------------------------------ ---------------------------------
<S> <C>
July 1999 through June 2004.................... 100%;
July 2004 through June 2005.................... the Class A Percentage, plus 70%
of the Subordinated Percentage;
July 2005 through June 2006.................... the Class A Percentage, plus 60%
of the Subordinated Percentage;
July 2006 through June 2007.................... the Class A Percentage, plus 40%
of the Subordinated Percentage;
July 2007 through June 2008.................... the Class A Percentage, plus 20%
of the Subordinated Percentage;
and
July 2008 and thereafter....................... the Class A Percentage;
</TABLE>
provided, however, that if on any of the foregoing Distribution Dates the Class
A Percentage exceeds the initial Class A Percentage, the Class A Prepayment
Percentage for such Distribution Date will once again equal 100%. See
"Prepayment and Yield Considerations" herein and in the Prospectus.
Notwithstanding the foregoing, no reduction of the Class A Prepayment
Percentage will occur on any Distribution Date if (i) as of such Distribution
Date as to which any such reduction applies, the average outstanding principal
balance on such Distribution Date and for the preceding five Distribution Dates
on the Mortgage Loans that were delinquent 60 days or more (including for this
purpose any Mortgage Loans in foreclosure and Mortgage Loans with respect to
which the related Mortgaged Property has been acquired by the Trust Estate) is
greater than or equal to 50% of the then-outstanding Class B Principal Balance,
or (ii) for any Distribution Date, cumulative Realized Losses with respect to
the Mortgage Loans exceed the percentages 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>
July 2004 through June 2005............................... 30%
July 2005 through June 2006............................... 35%
July 2006 through June 2007............................... 40%
July 2007 through June 2008............................... 45%
July 2008 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 B Certificates. Increasing the respective
interest of the 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 B Certificates. See
"-- Subordination of Class B Certificates" below. The "Subordinated Percentage"
for any Distribution Date will be calculated as the difference between 100% and
the Class A Percentage for such date. The "Subordinated Prepayment Percentage"
for any Distribution Date will be calculated as the difference between 100% and
the Class A Prepayment Percentage for such date.
S-38
<PAGE>
The "Class B Percentage" and "Class B Prepayment Percentage" for a Class of
Class B Certificates will equal the portion of the Subordinated Percentage and
Subordinated Prepayment Percentage, as the case may be, represented by the
fraction, the numerator of which is the then-outstanding Principal Balance for
such Class of Class B Certificates and the denominator of which is the sum of
the Principal Balances of the Classes of Class B Certificates entitled to
principal distributions for such Distribution Date as described below. In the
event that a Class of Class B Certificates is not entitled to principal
distributions for such Distribution Date, the Class B Percentage and Class B
Prepayment Percentage for such Class will both be 0% with respect to such
Distribution Date.
In the event that on any Distribution Date the Current Fractional Interest of
any Class of Class B Certificates is less than the Original Fractional Interest
of such Class, then the Classes of Certificates that are subordinate to such
Class will not be entitled to distributions in respect of principal and the
Principal Balances of such subordinated Classes will not be used to determine
the Class B Percentage and Class B Prepayment Percentage of the Classes of
Class B Certificates that are senior to such subordinated Classes for such
Distribution Date. The Class B-6 Certificates will not have original or current
fractional interests which are required to be maintained as described above.
The "Original Fractional Interest" of a Class of Class B Certificates is the
percentage obtained by dividing the sum of the initial Principal Balances of
the Classes of Certificates that are subordinate to such Class by the initial
Aggregate Non-PO Principal Balance. The "Current Fractional Interest" of a
Class of Class B Certificates for any Distribution Date is the percentage
obtained by dividing the sum of the then-outstanding Principal Balances of the
Classes of Certificates that are subordinate to such Class by the then-
outstanding Aggregate Non-PO Principal Balance.
The following table sets forth the expected approximate Original Fractional
Interest for each Class of Class B Certificates on the date of issuance of the
Certificates.
<TABLE>
<CAPTION>
Approximate
Original
Fractional
Class Interest
----- -----------
<S> <C>
B-1.............................................................. 1.75%
B-2.............................................................. 1.05%
B-3.............................................................. 0.70%
B-4.............................................................. 0.40%
B-5.............................................................. 0.23%
B-6.............................................................. N/A
</TABLE>
Allocation of Amount to be Distributed on the Class A Certificates
The Class A-21 Certificates are interest-only Certificates and are not
entitled 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 Principal Balances of the 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
Date for the Class A-8 Accrual Component, the Class A-8 Accrual Component
Distribution Amount will be allocated sequentially as follows:
first, to the Class A-4 Certificates, up to the Schedule III Reduction
Amount for such Distribution Date;
second, concurrently, approximately 35% to the Class A-8 Accrual
Component and approximately 65% to the Class A-4 Certificates, without
regard to the Schedule III Reduction Amount for such Distribution Date,
until the Principal Balance of either such Component or Class has been
reduced to zero; and
S-39
<PAGE>
third, to the Class A-8 Accrual Component, until the Principal Balance
thereof has been reduced to zero;
II. On each Distribution Date occurring prior to the Accretion
Termination Date for the Class A-5 Certificates, the Class A-5 Accrual
Distribution Amount will be allocated, after the allocation of the Class A-
8 Accrual Component Distribution Amount, sequentially as follows:
first, sequentially, up to the Schedule II Reduction Amount for such
Distribution Date, as follows:
(i) to the Class A-4 Certificates, up to the Schedule III Reduction
Amount for such Distribution Date;
(ii) concurrently, approximately 35% to the Class A-8 Accrual
Component and approximately 65% to the Class A-4 Certificates, without
regard to the Schedule III Reduction Amount for such Distribution Date,
until the Principal Balance of either such Component or Class has been
reduced to zero;
(iii) to the Class A-8 Accrual Component, until the Principal Balance
thereof has been reduced to zero; and
(iv) to the Class A-4 Certificates, without regard to the Schedule III
Reduction Amount for such Distribution Date, until the Principal Balance
thereof has been reduced to zero; and
second, to the Class A-5 Certificates, until the Principal Balance
thereof has been reduced to zero;
III. On each Distribution Date occurring prior to the Accretion
Termination Date for the Class A-11 Certificates, the Class A-11 Accrual
Distribution Amount will be allocated sequentially to the Class A-10 and
Class A-11 Certificates, in that order, until the Principal Balance of each
such Class has been reduced to zero;
IV. On each Distribution Date occurring prior to the Accretion
Termination Date for the Class A-19 Certificates, the Class A-19 Accrual
Distribution Amount will be allocated sequentially to the Class A-18 and
Class A-19 Certificates, in that order, until the Principal Balance of each
such Class has been reduced to zero;
V. The Class A Non-PO Principal Amount will be allocated concurrently as
follows:
A. (i) the Group I-1 Percentage of the Group I Amount and (ii) the Group
II Amount, sequentially, as follows:
first, to the Class A-9 Certificates, up to the Class A-9 Priority Amount
for such Distribution Date;
second, concurrently, to the Class A-R and Class A-LR Certificates, pro
rata, until the Principal Balance of each such Class has been reduced to
zero;
third, sequentially, to the Class A-1, Class A-2 and Class A-3
Certificates, in that order, up to the Schedule I PAC Principal Amount for
such Distribution Date, until the Principal Balance of each such Class has
been reduced to zero;
fourth, sequentially, up to the Schedule I Reduction Amount for such
Distribution Date, as follows:
(i) sequentially, up to the Schedule II Reduction Amount for such
Distribution Date, as follows:
(a) to the Class A-4 Certificates, up to the Schedule III Reduction
Amount for such Distribution Date;
(b) concurrently, approximately 35% to the Class A-8 Accrual
Component and approximately 65% to the Class A-4 Certificates,
without regard to the Schedule III Reduction Amount for such
Distribution Date, until the Principal Balance of either such
Component or Class has been reduced to zero;
S-40
<PAGE>
(c) to the Class A-8 Accrual Component, until the Principal Balance
thereof has been reduced to zero; and
(d) to the Class A-4 Certificates, without regard to the Schedule
III Reduction Amount for such Distribution Date, until the Principal
Balance thereof has been reduced to zero;
(ii) to the Class A-5 Certificates, until the Principal Balance
thereof has been reduced to zero; and
(iii) sequentially, without regard to the Schedule II Reduction
Amount for such Distribution Date, as follows:
(a) to the Class A-4 Certificates, up to the Schedule III Reduction
Amount for such Distribution Date;
(b) concurrently, approximately 35% to the Class A-8 Accrual
Component and approximately 65% to the Class A-4 Certificates,
without regard to the Schedule III Reduction Amount for such
Distribution Date, until the Principal Balance of either such
Component or Class has been reduced to zero;
(c) to the Class A-8 Accrual Component, until the Principal Balance
thereof has been reduced to zero; and
(d) to the Class A-4 Certificates, without regard to the Schedule
III Reduction Amount for such Distribution Date, until the Principal
Balance thereof has been reduced to zero;
fifth, concurrently, to the Class A-6 and Class A-7 Certificates, pro
rata, until the Principal Balance of each such Class has been reduced to
zero;
sixth, sequentially, without regard to the Schedule I Reduction Amount
for such Distribution Date, as follows:
(i) sequentially, up to the Schedule II Reduction Amount for such
Distribution Date, as follows:
(a) to the Class A-4 Certificates, up to the Schedule III Reduction
Amount for such Distribution Date;
(b) concurrently, approximately 35% to the Class A-8 Accrual
Component and approximately 65% to the Class A-4 Certificates,
without regard to the Schedule III Reduction Amount for such
Distribution Date, until the Principal Balance of either such
Component or Class has been reduced to zero;
(c) to the Class A-8 Accrual Component, until the Principal Balance
thereof has been reduced to zero; and
(d) to the Class A-4 Certificates, without regard to the Schedule
III Reduction Amount for such Distribution Date, until the Principal
Balance thereof has been reduced to zero;
(ii) to the Class A-5 Certificates, until the Principal Balance
thereof has been reduced to zero; and
(iii) sequentially, without regard to the Schedule II Reduction Amount
for such Distribution Date, as follows:
(a) to the Class A-4 Certificates, up to the Schedule III Reduction
Amount for such Distribution Date;
(b) concurrently, approximately 35% to the Class A-8 Accrual
Component and approximately 65% to the Class A-4 Certificates,
without regard to the Schedule III Reduction Amount for such
Distribution Date, until the Principal Balance of either such
Component or Class has been reduced to zero;
(c) to the Class A-8 Accrual Component, until the Principal Balance
thereof has been reduced to zero; and
(d) to the Class A-4 Certificates, without regard to the Schedule
III Reduction Amount for such Distribution Date, until the Principal
Balance thereof has been reduced to zero;
S-41
<PAGE>
seventh, sequentially, to the Class A-1, Class A-2 and Class A-3
Certificates, in that order, without regard to the Schedule I PAC Principal
Amount for such Distribution Date, until the Principal Balance of each such
Class has been reduced to zero;
eighth, to the Class A-9 Certificates, without regard to the Class A-9
Priority Amount for such Distribution Date, until the Principal Balance
thereof has been reduced to zero; and
ninth, to the Group 2 Certificates in accordance with the priorities set
forth in clause B below; and
B. (i) the Group I-2 Percentage of the Group I Amount and (ii) the Group
III Amount, sequentially, as follows:
first, concurrently, to the Group A Certificates and the Class A-20B
Component, pro rata, up to the Group A/A-20B Priority Amount for such
Distribution Date, as follows:
(i) to the Group A Certificates, sequentially, as follows:
(a) sequentially, to the Class A-16 and Class A-17 Certificates, in
that order, up to the Schedule II PAC Principal Amount for such
Distribution Date, until the Principal Balance of each such Class has
been reduced to zero;
(b) sequentially, to the Class A-18 and Class A-19 Certificates, in
that order, until the Principal Balance of each such Class has been
reduced to zero; and
(c) sequentially, to the Class A-16 and Class A-17 Certificates, in
that order, without regard to the Schedule II PAC Principal Amount
for such Distribution Date, until the Principal Balance of each such
Class has been reduced to zero; and
(ii) to the Class A-20B Component, until the Principal Balance thereof
has been reduced to zero;
second, to the Class A-22 Certificates, up to the Class A-22 Priority
Amount for such Distribution Date;
third, concurrently, to the Group B Certificates and the Class A-20A
Component, pro rata, as follows:
(i) to the Group B Certificates, sequentially, as follows:
(a) sequentially, up to the Schedule IV Reduction Amount for such
Distribution Date, as follows:
(1) on each Distribution Date on and after the Distribution Date
in July 2002, concurrently, to the Class A-12 and Class A-13
Certificates, pro rata, based on their respective initial
Principal Balances, up to $25,179 for such Distribution Date,
until the Principal Balance of each such Class has been reduced to
zero;
(2) sequentially, to the Class A-10 and Class A-11 Certificates,
in that order, until the Principal Balance of each such Class has
been reduced to zero;
(3) concurrently, to the Class A-12 and Class A-13 Certificates,
pro rata, based on their respective initial Principal Balances,
until the Principal Balance of each such Class has been reduced to
zero;
(b) concurrently, to the Class A-14 and Class A-15 Certificates,
pro rata, until the Principal Balance of each such Class has been
reduced to zero;
(c) sequentially, without regard to the Schedule IV Reduction
Amount for such Distribution Date, as follows:
(1) on each Distribution Date on and after the Distribution Date
in July 2002, concurrently, to the Class A-12 and Class A-13
Certificates, pro rata, based on their respective initial
Principal Balances, up to $25,179 for such Distribution Date
(including any distributions made pursuant to this priority and
all prior priorities to such Classes on such Distribution Date),
until the Principal Balance of each such Class has been reduced to
zero;
S-42
<PAGE>
(2) sequentially, to the Class A-10 and Class A-11 Certificates,
in that order, until the Principal Balance of each such Class has
been reduced to zero; and
(3) concurrently, to the Class A-12 and Class A-13 Certificates,
pro rata, based on their respective initial Principal Balances,
until the Principal Balance of each such Class has been reduced to
zero; and
(ii) to the Class A-20A Component, until the Principal Balance thereof
has been reduced to zero;
fourth, concurrently, to the Group A Certificates and the Class A-20B
Component, pro rata, without regard to the Group A/A-20B Priority Amount
for such Distribution Date, as follows:
(i) to the Group A Certificates, sequentially, as follows:
(a) sequentially, to the Class A-16 and Class A-17 Certificates, in
that order, up to the Scheduled II PAC Principal Amount for such
Distribution Date, until the Principal Balance of each such Class has
been reduced to zero;
(b) sequentially, to the Class A-18 and Class A-19 Certificates, in
that order, until the Principal Balance of each such Class has been
reduced to zero; and
(c) sequentially, to the Class A-16 and Class A-17 Certificates, in
that order, without regard to the Schedule II PAC Principal Amount
for such Distribution Date, until the Principal Balance of each such
Class has been reduced to zero; and
(ii) to the Class A-20B Component, until the Principal Balance thereof
has been reduced to zero;
fifth, to the Class A-22 Certificates, without regard to the Class A-22
Priority Amount for such Distribution Date, until the Principal Balance
thereof has been reduced to zero; and
sixth, to the Group 1 Certificates in accordance with the priorities set
forth in clause A above.
The "Group I-1 Percentage" is equal to (i) (A) the product of (x) the sum of
the Principal Balances of the Group 1 Certificates divided by the Class A Non-
PO Principal Balance and (y) the Class A Non-PO Principal Amount less (B) the
Group II Amount divided by (ii) the Group I Amount, but will be neither greater
than 100% nor less than 0%.
The "Group I-2 Percentage" is equal to the difference between 100% and the
Group I-1 Percentage.
The "Group I Amount" with respect to any Distribution Date will be equal to
the Class A Non-PO Principal Amount less the sum of the Group II Amount and the
Group III Amount.
The "Group I Mortgage Loans" will consist of all Mortgage Loans other than
the Group II and Group III Mortgage Loans.
The "Group I Scheduled Principal Amount" means the sum for each outstanding
Group I Mortgage Loan (including each defaulted Group I Mortgage Loan, other
than a Liquidated Loan, with respect to which the related Mortgaged Property
has been acquired by the Trust Estate) of the product of (A) the Non-PO
Fraction for such Mortgage Loan and (B) the sum of the amounts described in
clauses B(i) and B(iv) of the definition of "Class A Non-PO Optimal Principal
Amount" beginning on page S-35, but without such amounts being multiplied by
the Class A Percentage.
The "Group I Unscheduled Principal Amount" means the sum for each outstanding
Group I Mortgage Loan (including each defaulted Group I Mortgage Loan, other
than a Liquidated Loan, with respect to which the related Mortgaged Property
has been acquired by the Trust Estate) of the product of (A) the Non-PO
Fraction for such Mortgage Loan and (B) the sum of the amounts described in
clauses B(ii) and B(iii) of the definition of "Class A Non-PO Optimal Principal
Amount" beginning on page S-35, but without such amounts being multiplied by
the Class A Prepayment Percentage.
S-43
<PAGE>
The "Group II Amount" with respect to any Distribution Date will be equal to
the Class A Non-PO Principal Amount multiplied by a fraction, the numerator of
which is the Group II Optimal Amount and the denominator of which is the Class
A Non-PO Optimal Principal Amount.
The "Group II Mortgage Loans" will consist of two Mortgage Loans (Nos.
4906133 and 4944998) with approximate principal balances of $1,386,998 and
$1,660,827, respectively, as of the Cut-Off Date.
The "Group II Optimal Amount" with respect to any Distribution Date will be
an amount equal to the sum for each outstanding Group II Mortgage Loan
(including each defaulted Group II 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 Group II
Mortgage Loan and (B) the sum of the amounts described in clauses B(i) through
B(iv) of the definition of "Class A Non-PO Optimal Principal Amount" beginning
on page S-35.
The "Group II Scheduled Principal Amount" means the sum for each outstanding
Group II Mortgage Loan (including each defaulted Group II Mortgage Loan, other
than a Liquidated Loan, with respect to which the related Mortgaged Property
has been acquired by the Trust Estate) of the product of (A) the Non-PO
Fraction for such Mortgage Loan and (B) the sum of the amounts described in
clauses B(i) and B(iv) of the definition of "Class A Non-PO Optimal Principal
Amount" beginning on page S-35, but without such amounts being multiplied by
the Class A Percentage.
The "Group II Unscheduled Principal Amount" means the sum for each
outstanding Group II Mortgage Loan (including each defaulted Group II Mortgage
Loan, other than a Liquidated Loan, with respect to which the related Mortgaged
Property has been acquired by the Trust Estate) of the product of (A) the Non-
PO Fraction for such Mortgage Loan and (B) the sum of the amounts described in
clauses B(ii) and B(iii) of the definition of "Class A Non-PO Optimal Principal
Amount" beginning on page S-35, but without such amounts being multiplied by
the Class A Prepayment Percentage.
The "Group III Amount" with respect to any Distribution Date will be equal to
the Class A Non-PO Principal Amount multiplied by a fraction, the numerator of
which is the Group III Optimal Amount and the denominator of which is the Class
A Non-PO Optimal Principal Amount.
The "Group III Mortgage Loans" will consist of two Mortgage Loans (Nos.
4981400 and 4981357) with approximate principal balances of $1,767,058 and
$1,992,485, respectively, as of the Cut-Off Date.
The "Group III Optimal Amount" with respect to any Distribution Date will be
an amount equal to the sum for each outstanding Group III Mortgage Loan
(including each defaulted Group III 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 Group III
Mortgage Loan and (B) the sum of the amounts described in clauses B(i) through
B(iv) of the definition of "Class A Non-PO Optimal Principal Amount" beginning
on page S-35.
The "Group III Scheduled Principal Amount" means the sum for each outstanding
Group III Mortgage Loan (including each defaulted Group III Mortgage Loan,
other than a Liquidated Loan, with respect to which the related Mortgaged
Property has been acquired by the Trust Estate) of the product of (A) the Non-
PO Fraction for such Mortgage Loan and (B) the sum of the amounts described in
clauses B(i) and B(iv) of the definition of "Class A Non-PO Optimal Principal
Amount" beginning on page S-35, but without such amounts being multiplied by
the Class A Percentage.
The "Group III Unscheduled Principal Amount" means the sum for each
outstanding Group III Mortgage Loan (including each defaulted Group III
Mortgage Loan, other than a Liquidated Loan, with respect to which the related
Mortgaged Property has been acquired by the Trust Estate) of the product of (A)
the Non-PO Fraction for such Mortgage Loan and (B) the sum of the amounts
described in clauses B(ii) and B(iii) of the definition of "Class A Non-PO
Optimal Principal Amount" beginning on page S-35, but without such amounts
being multiplied by the Class A Prepayment Percentage.
S-44
<PAGE>
"Group A Certificates" will consist of the Class A-16, Class A-17, Class A-18
and Class A-19 Certificates.
"Group B Certificates" will consist of the Class A-10, Class A-11, Class A-
12, Class A-13, Class A-14 and Class A-15 Certificates.
"Group 1 Certificates" will consist of 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-R and
Class A-LR Certificates.
"Group 2 Certificates" will consist of the Class A-10, Class A-11, Class A-
12, Class A-13, Class A-14, Class A-15, Class A-16, Class A-17, Class A-18,
Class A-19, Class A-20 and Class A-22 Certificates.
The "Class A-9 Priority Amount" for any Distribution Date means the lesser of
(i) the Principal Balance of the Class A-9 Certificates and (ii) the product of
(A) the Class A Percentage and (B) the sum of (1) the product of (x) the Class
A-9 Priority Percentage and (y) the sum of (a) the product of the Group I
Scheduled Principal Amount and the Group I-1 Percentage and (b) the Group II
Scheduled Principal Amount and (2) the product of (x) the Class A-9 Priority
Percentage, (y) the Prepayment Shift Percentage and (z) the sum of (a) the
product of the Group I Unscheduled Principal Amount and the Group I-1
Percentage and (b) the Group II Unscheduled Principal Amount.
The "Class A-9 Priority Percentage" means the Principal Balance of the Class
A-9 Certificates divided by the sum of the Principal Balances of the Group 1
Certificates.
The "Group A/A-20B Priority Amount" for any Distribution Date means the
lesser of (i) the sum of the Principal Balances of the Group A Certificates and
the Class A-20B Component and (ii) the product of (A) the Class A Percentage
and (B) the sum of (1) the product of (x) the Group A/A-20B Priority Percentage
and (y) the sum of (a) the product of the Group I Scheduled Principal Amount
and the Group I-2 Percentage and (b) the Group III Scheduled Principal Amount
and (2) the product of (x) the Group A/A-20B Priority Percentage, (y) the
Prepayment Shift Percentage and (z) the sum of (a) the product of the Group I
Unscheduled Principal Amount and the Group I-2 Percentage and (b) the Group III
Unscheduled Principal Amount.
The "Group A/A-20B Priority Percentage" means (i) the sum of the Principal
Balances of the Group A Certificates and the Class A-20B Component divided by
(ii) the sum of the Principal Balances of the Group 2 Certificates.
The "Class A-22 Priority Amount" for any Distribution Date means the lesser
of (i) the Principal Balance of the Class A-22 Certificates and (ii) the
product of (A) the Class A Percentage and (B) the sum of (1) the product of (x)
the Class A-22 Priority Percentage and (y) the sum of (a) the product of the
Group I Scheduled Principal Amount and the Group I-2 Percentage and (b) the
Group III Scheduled Principal Amount and (2) the product of (x) the Class A-22
Priority Percentage, (y) the Prepayment Shift Percentage and (z) the sum of (a)
the product of the Group I Unscheduled Principal Amount and the Group I-2
Percentage and (b) the Group III Unscheduled Principal Amount.
The "Class A-22 Priority Percentage" means the Principal Balance of the Class
A-22 Certificates divided by the sum of the Principal Balances of the Group 2
Certificates.
The "Prepayment Shift Percentage" for any Distribution Date will be the
percentage indicated below:
<TABLE>
<CAPTION>
Prepayment
Shift
Distribution Date Occurring In Percentage
- ------------------------------ ----------
<S> <C>
July 1999 through June 2004.......................................... 0%
July 2004 through June 2005.......................................... 30%
July 2005 through June 2006.......................................... 40%
July 2006 through June 2007.......................................... 60%
July 2007 through June 2008.......................................... 80%
July 2008 and thereafter............................................. 100%
</TABLE>
S-45
<PAGE>
As used above, the "Schedule I PAC Principal Amount" for any Distribution
Date and the Class A-1, Class A-2 and Class A-3 Certificates (the "Schedule I
PAC Certificates") means the amount, if any, that would reduce the sum of the
Principal Balances of such Classes to the percentage of their aggregate initial
Principal Balance shown in the Schedule I PAC table with respect to such
Distribution Date.
As used above, the "Schedule II PAC Principal Amount" for any Distribution
Date and the Class A-16 and Class A-17 Certificates (the "Schedule II PAC
Certificates") means the amount, if any, that would reduce the sum of the
Principal Balances of such Classes to the percentage of their aggregate initial
Principal Balance shown in the Schedule II PAC table with respect to such
Distribution Date.
As used above, the "Schedule I Reduction Amount" for any Distribution Date
and the Class A-4 and Class A-5 Certificates and the Class A-8 Accrual
Component means the amount, if any, that would reduce the sum of the Principal
Balances of such Classes and Component to the percentage of their aggregate
initial Principal Balance shown in the Schedule I Reduction table with respect
to such Distribution Date.
As used above, the "Schedule II Reduction Amount" for any Distribution Date
and the Class A-4 Certificates and the Class A-8 Accrual Component means the
amount, if any, that would reduce the sum of Principal Balances of such Class
and Component to the percentage of their aggregate initial Principal Balance
shown in the Schedule II Reduction table with respect to such Distribution
Date.
As used above, the "Schedule III Reduction Amount" for any Distribution Date
and for the Class A-4 Certificates means the amount, if any, that would reduce
the Principal Balance of such Class to the percentage of its initial Principal
Balance shown in the Schedule III Reduction table with respect to such
Distribution Date.
As used above, the "Schedule IV Reduction Amount" for any Distribution Date
and for the Class A-10, Class A-11, Class A-12 and Class A-13 Certificates
means the amount, if any, that would reduce the sum of the Principal Balances
of such Classes to the percentage of their aggregate initial Principal Balance
shown in the Schedule IV Reduction table with respect to such Distribution
Date.
Notwithstanding the foregoing, on each Distribution Date occurring on or
after the Cross-Over Date, the Class A Non-PO Principal Distribution Amount
will be distributed among the Classes of Class A Certificates (other than the
Class A-PO Certificates) pro rata in accordance with their respective
outstanding Principal Balances without regard to the priorities set forth
above.
Any amounts distributed on a Distribution Date to the holders of any Class
(other than the Class A-12 Certificates) in reduction of Principal Balance will
be allocated among the holders of such Class pro rata in accordance with their
respective Percentage Interests. Any amounts distributed on a Distribution Date
to the holders of the Class A-12 Certificates will be allocated among the
holders of such Class as described herein under "-- Distributions in Reduction
of the Principal Balance of the Class A-12 Certificates."
S-46
<PAGE>
The following tables set forth for each Distribution Date the planned
Principal Balances and the scheduled Principal Balances, expressed as a
percentage of the initial Principal Balance or aggregate initial Principal
Balance of the applicable Class, Classes or Component.
Planned Principal Balances
Schedule I PAC
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
July 1999....... 99.67376527%
August 1999..... 99.30398462
September 1999.. 98.89091460
October 1999.... 98.43467774
November 1999... 97.93541896
December 1999... 97.39330558
January 2000.... 96.80852718
February 2000... 96.18129558
March 2000...... 95.51184473
April 2000...... 94.80043056
May 2000........ 94.04733087
June 2000....... 93.25284517
July 2000....... 92.41729449
August 2000..... 91.54102119
September 2000.. 90.62438876
October 2000.... 89.66778155
November 2000... 88.67160457
December 2000... 87.63628316
January 2001.... 86.56226276
February 2001... 85.45000856
March 2001...... 84.30000522
April 2001...... 83.11275647
May 2001........ 81.88911073
June 2001....... 80.62960321
July 2001....... 79.33478698
August 2001..... 78.00523258
September 2001.. 76.64152758
October 2001.... 75.24427618
November 2001... 73.85414527
December 2001... 72.47109875
January 2002.... 71.09510072
February 2002... 69.72611548
March 2002...... 68.36410748
April 2002...... 67.00904141
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
May 2002........ 65.66088210%
June 2002....... 64.31959458
July 2002....... 62.98514408
August 2002..... 61.65749599
September 2002.. 60.33661589
October 2002.... 59.02246954
November 2002... 57.71502289
December 2002... 56.41424206
January 2003.... 55.12009334
February 2003... 53.83254323
March 2003...... 52.55155836
April 2003...... 51.27710558
May 2003........ 50.00915188
June 2003....... 48.74766444
July 2003....... 47.49261063
August 2003..... 46.24395796
September 2003.. 45.00167413
October 2003.... 43.76572700
November 2003... 42.53608462
December 2003... 41.31271519
January 2004.... 40.09558708
February 2004... 38.88466883
March 2004...... 37.67992915
April 2004...... 36.48133691
May 2004........ 35.28886116
June 2004....... 34.10247108
July 2004....... 32.93767226
August 2004..... 31.77883554
September 2004.. 30.62593039
October 2004.... 29.47892644
November 2004... 28.33779349
December 2004... 27.20250146
January 2005.... 26.07302047
February 2005... 24.94932077
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
March 2005...... 23.83137277%
April 2005...... 22.71914703
May 2005........ 21.61261426
June 2005....... 20.51174535
July 2005....... 19.42151680
August 2005..... 18.33686275
September 2005.. 17.26293963
October 2005.... 16.22360021
November 2005... 15.21777920
December 2005... 14.24444347
January 2006.... 13.30259108
February 2006... 12.39125034
March 2006...... 11.50947895
April 2006...... 10.65636307
May 2006........ 9.83101647
June 2006....... 9.03257975
July 2006....... 8.30480786
August 2006..... 7.60086865
September 2006.. 6.92001202
October 2006.... 6.26151091
November 2006... 5.62466059
December 2006... 5.00877803
January 2007.... 4.41320119
February 2007... 3.83728841
March 2007...... 3.28041779
April 2007...... 2.74198660
May 2007........ 2.22141067
June 2007....... 1.71812387
July 2007....... 1.26696121
August 2007..... 0.83044451
September 2007.. 0.40810927
October 2007
and thereaf-
ter............ 0.00000000
</TABLE>
S-47
<PAGE>
Planned Principal Balances
Schedule II PAC
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
July 1999....... 99.84325982%
August 1999..... 99.68558250
September 1999.. 99.52696269
October 1999.... 99.36739493
November 1999... 99.20687368
December 1999... 99.04539334
January 2000.... 98.88294826
February 2000... 98.71953274
March 2000...... 98.55514102
April 2000...... 98.38976733
May 2000........ 98.22340583
June 2000....... 98.05605063
July 2000....... 97.88769585
August 2000..... 97.71833551
September 2000.. 97.54796364
October 2000.... 97.37657420
November 2000... 97.20416114
December 2000... 97.03071835
January 2001.... 96.85623969
February 2001... 96.68071898
March 2001...... 96.50415200
April 2001...... 96.32653382
May 2001........ 96.14786438
June 2001....... 95.96813643
July 2001....... 95.78734273
August 2001..... 95.60547603
September 2001.. 95.42252911
October 2001.... 95.23849473
November 2001... 95.05336081
December 2001... 94.86712078
January 2002.... 94.67976801
February 2002... 94.49129588
March 2002...... 94.30169767
April 2002...... 94.11096665
May 2002........ 93.91909607
June 2002....... 93.72607910
July 2002....... 93.53190888
August 2002..... 93.33657854
September 2002.. 93.14008112
October 2002.... 92.94240966
November 2002... 92.74355713
December 2002... 92.54351647
January 2003.... 92.34228058
February 2003... 92.13984232
March 2003...... 91.93619450
April 2003...... 91.73132988
May 2003........ 91.52524119
June 2003....... 91.31792112
July 2003....... 91.10936229
August 2003..... 90.89955731
September 2003.. 90.68849872
October 2003.... 90.47617904
November 2003... 90.26259071
December 2003... 90.04772616
January 2004.... 89.83157775
February 2004... 89.61413781
March 2004...... 89.39539862
April 2004...... 89.17535240
May 2004........ 88.95399135
June 2004....... 88.73130760
July 2004....... 88.22722709
August 2004..... 87.72293536
September 2004.. 87.21842838
October 2004.... 86.71370208
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
November 2004... 86.20875238%
December 2004... 85.70357519
January 2005.... 85.19816641
February 2005... 84.69252192
March 2005...... 84.18663759
April 2005...... 83.68050928
May 2005........ 83.17413283
June 2005....... 82.66750407
July 2005....... 82.07039732
August 2005..... 81.47359871
September 2005.. 80.87710400
October 2005.... 80.28090897
November 2005... 79.68500937
December 2005... 79.08940095
January 2006.... 78.49407946
February 2006... 77.89904064
March 2006...... 77.30428024
April 2006...... 76.70979397
May 2006........ 76.11557757
June 2006....... 75.52162675
July 2006....... 74.75485864
August 2006..... 73.98974861
September 2006.. 73.22628951
October 2006.... 72.46447421
November 2006... 71.70429558
December 2006... 70.94574652
January 2007.... 70.18881994
February 2007... 69.43350877
March 2007...... 68.67980596
April 2007...... 67.92770446
May 2007........ 67.17719724
June 2007....... 66.42827731
July 2007....... 65.51722320
August 2007..... 64.60944932
September 2007.. 63.70494132
October 2007.... 62.80368487
November 2007... 61.90566575
December 2007... 61.01086977
January 2008.... 60.11928278
February 2008... 59.23089072
March 2008...... 58.34567956
April 2008...... 57.46363535
May 2008........ 56.58474417
June 2008....... 55.70899218
July 2008....... 54.68368393
August 2008..... 53.66343998
September 2008.. 52.64823411
October 2008.... 51.63804024
November 2008... 50.63283242
December 2008... 49.63258483
January 2009.... 48.63727179
February 2009... 47.64686775
March 2009...... 46.66134728
April 2009...... 45.68068510
May 2009........ 44.70485604
June 2009....... 43.73383508
July 2009....... 42.76759731
August 2009..... 41.80611796
September 2009.. 40.84937239
October 2009.... 39.89733606
November 2009... 38.94998459
December 2009... 38.00729370
January 2010.... 37.06923926
February 2010... 36.13579725
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
March 2010...... 35.20694375%
April 2010...... 34.28265501
May 2010........ 33.36290737
June 2010....... 32.44767729
July 2010....... 31.53694137
August 2010..... 30.63067633
September 2010.. 29.72885898
October 2010.... 28.83146627
November 2010... 27.93847529
December 2010... 27.04986320
January 2011.... 26.16560732
February 2011... 25.28568506
March 2011...... 24.41997703
April 2011...... 23.57513895
May 2011........ 22.75067721
June 2011....... 21.94610973
July 2011....... 21.16096567
August 2011..... 20.39478521
September 2011.. 19.64711927
October 2011.... 18.91752926
November 2011... 18.20558683
December 2011... 17.51087367
January 2012.... 16.83298123
February 2012... 16.17151052
March 2012...... 15.52607190
April 2012...... 14.89628482
May 2012........ 14.28177766
June 2012....... 13.68218750
July 2012....... 13.09715990
August 2012..... 12.52634874
September 2012.. 11.96941599
October 2012.... 11.42603156
November 2012... 10.89587309
December 2012... 10.37862578
January 2013.... 9.87398219
February 2013... 9.38164213
March 2013...... 8.90131243
April 2013...... 8.43270679
May 2013........ 7.97554565
June 2013....... 7.52955600
July 2013....... 7.09447126
August 2013..... 6.67003110
September 2013.. 6.25598130
October 2013.... 5.85207362
November 2013... 5.45806566
December 2013... 5.07372073
January 2014.... 4.69880768
February 2014... 4.33310082
March 2014...... 3.97637977
April 2014...... 3.62842933
May 2014........ 3.28903938
June 2014....... 2.95800473
July 2014....... 2.63512503
August 2014..... 2.32020467
September 2014.. 2.01305263
October 2014.... 1.71348240
November 2014... 1.42131188
December 2014... 1.13636325
January 2015.... 0.85846290
February 2015... 0.58744130
March 2015...... 0.32313296
April 2015...... 0.06537625
May 2015
and thereaf-
ter............ 0.00000000
</TABLE>
S-48
<PAGE>
Scheduled Principal Balances
Schedule I Reduction
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
July 1999....... 99.80326434%
August 1999..... 99.54198350
September 1999.. 99.21631908
October 1999.... 98.82655613
November 1999... 98.37310361
December 1999... 97.85649452
January 2000.... 97.27738574
February 2000... 96.63655748
March 2000...... 95.93491255
April 2000...... 95.17347513
May 2000........ 94.35338938
June 2000....... 93.47591766
July 2000....... 92.54243840
August 2000..... 91.55444370
September 2000.. 90.51353663
October 2000.... 89.42142817
November 2000... 88.27993389
December 2000... 87.09097034
January 2001.... 85.85655110
February 2001... 84.57878264
March 2001...... 83.25985981
April 2001...... 81.90206121
May 2001........ 80.50821676
June 2001....... 79.08072961
July 2001....... 77.62207089
August 2001..... 76.13477422
September 2001.. 74.62142996
October 2001.... 73.08467933
November 2001... 71.58437676
December 2001... 70.11990567
January 2002.... 68.69065906
February 2002... 67.29603945
March 2002...... 65.93545869
April 2002...... 64.60833781
May 2002........ 63.31410689
June 2002....... 62.05220496
July 2002....... 60.82207980
August 2002..... 59.62318785
September 2002.. 58.45499407
October 2002.... 57.31697178
November 2002... 56.20860261
December 2002... 55.12937627
January 2003.... 54.07879052
February 2003... 53.05635097
March 2003...... 52.06157104
April 2003...... 51.09397177
May 2003........ 50.15308173
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
June 2003....... 49.23843694%
July 2003....... 48.34958068
August 2003..... 47.48606346
September 2003.. 46.64744286
October 2003.... 45.83328343
November 2003... 45.04315660
December 2003... 44.27664056
January 2004.... 43.53332017
February 2004... 42.81278683
March 2004...... 42.11463843
April 2004...... 41.43847918
May 2004........ 40.78391959
June 2004....... 40.15057633
July 2004....... 39.56354884
August 2004..... 38.99677286
September 2004.. 38.44988374
October 2004.... 37.92252267
November 2004... 37.41433649
December 2004... 36.92497769
January 2005.... 36.45410429
February 2005... 36.00137976
March 2005...... 35.56647294
April 2005...... 35.14905792
May 2005........ 34.74881404
June 2005....... 34.36542574
July 2005....... 34.00635630
August 2005..... 33.66339478
September 2005.. 33.33176662
October 2005.... 32.99056595
November 2005... 32.64039777
December 2005... 32.28184414
January 2006.... 31.91546492
February 2006... 31.54179847
March 2006...... 31.16136242
April 2006...... 30.77465430
May 2006........ 30.38215224
June 2006....... 29.98431560
July 2006....... 29.56523700
August 2006..... 29.14253274
September 2006.. 28.71658520
October 2006.... 28.28776091
November 2006... 27.85641114
December 2006... 27.42287238
January 2007.... 26.98746689
February 2007... 26.55050315
March 2007...... 26.11227637
April 2007...... 25.67306890
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
May 2007........ 25.23315074%
June 2007....... 24.79277992
July 2007....... 24.34117114
August 2007..... 23.89047062
September 2007.. 23.44086695
October 2007.... 22.99211270
November 2007... 22.20405290
December 2007... 21.42871210
January 2008.... 20.66589078
February 2008... 19.91539251
March 2008...... 19.17702390
April 2008...... 18.45059450
May 2008........ 17.73591684
June 2008....... 17.03280633
July 2008....... 16.35763259
August 2008..... 15.69316309
September 2008.. 15.03923246
October 2008.... 14.39567784
November 2008... 13.76233885
December 2008... 13.13905755
January 2009.... 12.52567841
February 2009... 11.92204828
March 2009...... 11.32801632
April 2009...... 10.74343401
May 2009........ 10.16815508
June 2009....... 9.60203550
July 2009....... 9.04493342
August 2009..... 8.49670919
September 2009.. 7.95722524
October 2009.... 7.42634613
November 2009... 6.90393847
December 2009... 6.38987093
January 2010.... 5.88401415
February 2010... 5.38624077
March 2010...... 4.89642536
April 2010...... 4.41444442
May 2010........ 3.94017631
June 2010....... 3.47350127
July 2010....... 3.01430135
August 2010..... 2.56246044
September 2010.. 2.11786415
October 2010.... 1.68039987
November 2010... 1.24995671
December 2010... 0.82642547
January 2011.... 0.40969862
February 2011
and thereaf-
ter............ 0.00000000
</TABLE>
S-49
<PAGE>
Scheduled Principal Balances
Schedule II Reduction
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
July 1999....... 99.93064336%
August 1999..... 99.83857377
September 1999.. 99.72384885
October 1999.... 99.58655650
November 1999... 99.42681499
December 1999... 99.24477290
January 2000.... 99.04060904
February 2000... 98.81453238
March 2000...... 98.56678181
April 2000...... 98.29762598
May 2000........ 98.00736294
June 2000....... 97.69631991
July 2000....... 97.36485282
August 2000..... 97.01334590
September 2000.. 96.64221123
October 2000.... 96.25188816
November 2000... 95.84284278
December 2000... 95.41556726
January 2001.... 94.97057917
February 2001... 94.50842078
March 2001...... 94.02965828
April 2001...... 93.53488099
May 2001........ 93.02487042
June 2001....... 92.50025259
July 2001....... 91.96167387
August 2001..... 91.40979998
September 2001.. 90.84531503
October 2001.... 90.26892048
November 2001... 89.70202766
December 2001... 89.14453565
January 2002.... 88.59634451
February 2002... 88.05735523
March 2002...... 87.52746973
April 2002...... 87.00659086
May 2002........ 86.49462240
June 2002....... 85.99146904
July 2002....... 85.49703636
August 2002..... 85.01123084
September 2002.. 84.53395986
October 2002.... 84.06513166
November 2002... 83.60465536
December 2002... 83.15244094
January 2003.... 82.70839925
February 2003... 82.27244195
March 2003...... 81.84448159
April 2003...... 81.42443151
May 2003........ 81.01220591
June 2003....... 80.60771978
July 2003....... 80.21088893
August 2003..... 79.82162998
September 2003.. 79.43986033
October 2003.... 79.06549818
November 2003... 78.69846253
December 2003... 78.33867311
January 2004.... 77.98605045
February 2004... 77.64051583
March 2004...... 77.30199130
April 2004...... 76.97039963
May 2004........ 76.64566434
June 2004....... 76.32770971
July 2004....... 76.02515483
August 2004..... 75.72917451
September 2004.. 75.43969521
October 2004.... 75.15664412
November 2004... 74.87994910
December 2004... 74.60953873
January 2005.... 74.34534225
February 2005... 74.08728960
March 2005...... 73.83531139
April 2005...... 73.58933891
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
May 2005........ 73.34930410%
June 2005....... 73.11513956
July 2005....... 72.88949550
August 2005..... 72.66955553
September 2005.. 72.45063744
October 2005.... 72.21141208
November 2005... 71.95273872
December 2005... 71.67544876
January 2006.... 71.38034655
February 2006... 71.06821025
March 2006...... 70.73979260
April 2006...... 70.39582172
May 2006........ 70.03700184
June 2006....... 69.66401407
July 2006....... 69.25136491
August 2006..... 68.82696831
September 2006.. 68.39141101
October 2006.... 67.94525992
November 2006... 67.48906271
December 2006... 67.02334847
January 2007.... 66.54862821
February 2007... 66.06539550
March 2007...... 65.57412694
April 2007...... 65.07528274
May 2007........ 64.56930721
June 2007....... 64.05662925
July 2007....... 63.51867814
August 2007..... 62.97604258
September 2007.. 62.42906451
October 2007.... 61.87763325
November 2007... 60.97095505
December 2007... 60.07235050
January 2008.... 59.18175037
February 2008... 58.29908597
March 2008...... 57.42428921
April 2008...... 56.55729259
May 2008........ 55.69802916
June 2008....... 54.84643255
July 2008....... 54.01375663
August 2008..... 53.18840601
September 2008.. 52.37031847
October 2008.... 51.55943232
November 2008... 50.75568639
December 2008... 49.95902001
January 2009.... 49.16937305
February 2009... 48.38668587
March 2009...... 47.61089931
April 2009...... 46.84195473
May 2009........ 46.07979400
June 2009....... 45.32435944
July 2009....... 44.57559388
August 2009..... 43.83344062
September 2009.. 43.09784346
October 2009.... 42.36874664
November 2009... 41.64609488
December 2009... 40.92983338
January 2010.... 40.21990779
February 2010... 39.51626421
March 2010...... 38.81884921
April 2010...... 38.12760979
May 2010........ 37.44249341
June 2010....... 36.76344798
July 2010....... 36.09042182
August 2010..... 35.42336370
September 2010.. 34.76222284
October 2010.... 34.10694885
November 2010... 33.45749180
December 2010... 32.81380216
January 2011.... 32.17583082
February 2011... 31.54352908
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
March 2011...... 30.91684865%
April 2011...... 30.29574166
May 2011........ 29.68016064
June 2011....... 29.07005849
July 2011....... 28.46538855
August 2011..... 27.86610453
September 2011.. 27.27216052
October 2011.... 26.68351101
November 2011... 26.10011088
December 2011... 25.52191538
January 2012.... 24.94888013
February 2012... 24.38096114
March 2012...... 23.81811477
April 2012...... 23.26029777
May 2012........ 22.70746724
June 2012....... 22.15958065
July 2012....... 21.61659581
August 2012..... 21.07847091
September 2012.. 20.54516447
October 2012.... 20.01663538
November 2012... 19.49284285
December 2012... 18.97374647
January 2013.... 18.45930613
February 2013... 17.94948209
March 2013...... 17.44423492
April 2013...... 16.94352555
May 2013........ 16.44731520
June 2013....... 15.95556546
July 2013....... 15.46823822
August 2013..... 14.98529568
September 2013.. 14.50670039
October 2013.... 14.03241519
November 2013... 13.56240324
December 2013... 13.09662801
January 2014.... 12.63505328
February 2014... 12.17764315
March 2014...... 11.72436198
April 2014...... 11.27517448
May 2014........ 10.83004562
June 2014....... 10.38894068
July 2014....... 9.95182525
August 2014..... 9.51866517
September 2014.. 9.08942660
October 2014.... 8.66407598
November 2014... 8.24258002
December 2014... 7.82490572
January 2015.... 7.41102036
February 2015... 7.00089150
March 2015...... 6.59448695
April 2015...... 6.19177482
May 2015........ 5.79272347
June 2015....... 5.39730153
July 2015....... 5.00547791
August 2015..... 4.61722176
September 2015.. 4.23250250
October 2015.... 3.85128981
November 2015... 3.47355363
December 2015... 3.09926413
January 2016.... 2.72839177
February 2016... 2.36090722
March 2016...... 1.99678142
April 2016...... 1.63598555
May 2016........ 1.27849103
June 2016....... 0.92426954
July 2016....... 0.57329296
August 2016..... 0.22553345
September 2016
and thereaf-
ter............ 0.00000000
</TABLE>
S-50
<PAGE>
Scheduled Principal Balances
Schedule III Reduction
<TABLE>
<CAPTION>
Percentage of
Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
July 1999....... 99.69411897%
August 1999..... 99.35559717
September 1999.. 98.98450834
October 1999.... 98.58096826
November 1999... 98.14513474
December 1999... 97.67720762
January 2000.... 97.17742866
February 2000... 96.64608138
March 2000...... 96.08349081
April 2000...... 95.49002318
May 2000........ 94.86608551
June 2000....... 93.80424993
July 2000....... 92.43454844
August 2000..... 90.99619302
September 2000.. 89.49102630
October 2000.... 87.92101520
November 2000... 86.28824743
December 2000... 84.59492755
January 2001.... 82.84337283
February 2001... 81.03600875
March 2001...... 79.17536426
April 2001...... 77.26406675
May 2001........ 75.30541849
June 2001....... 73.30219578
July 2001....... 71.25725648
August 2001..... 69.17353410
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
September 2001.. 67.05403166%
October 2001.... 64.90181537
November 2001... 62.79047852
December 2001... 60.71936024
January 2002.... 58.68780886
February 2002... 56.69518184
March 2002...... 54.74084563
April 2002...... 52.82417553
May 2002........ 50.94455556
June 2002....... 49.10137837
July 2002....... 47.29404510
August 2002..... 45.52196527
September 2002.. 43.78455665
October 2002.... 42.08124519
November 2002... 40.41146482
December 2002... 38.77465745
January 2003.... 37.17027275
February 2003... 35.59776813
March 2003...... 34.05660858
April 2003...... 32.54626659
May 2003........ 31.06622203
June 2003....... 29.61596207
July 2003....... 28.19498105
August 2003..... 26.80278038
September 2003.. 25.43886849
October 2003.... 24.10276068
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
November 2003... 22.79397903%
December 2003... 21.51205233
January 2004.... 20.25651599
February 2004... 19.02691189
March 2004...... 17.82278839
April 2004...... 16.64370012
May 2004........ 15.48920799
June 2004....... 14.35887907
July 2004....... 13.28328774
August 2004..... 12.23076225
September 2004.. 11.20088837
October 2004.... 10.19325765
November 2004... 9.20746739
December 2004... 8.24312052
January 2005.... 7.29982558
February 2005... 6.37719657
March 2005...... 5.47485294
April 2005...... 4.59241945
May 2005........ 3.72952616
June 2005....... 2.88580830
July 2005....... 2.07041645
August 2005..... 1.27333473
September 2005.. 0.48905545
October 2005
and thereaf-
ter............ 0.00000000
</TABLE>
S-51
<PAGE>
Scheduled Principal Balances
Schedule IV Reduction
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
July 1999....... 99.72257305%
August 1999..... 99.38139991
September 1999.. 98.97663746
October 1999.... 98.50853173
November 1999... 97.97741828
December 1999... 97.38372237
January 2000.... 96.72795882
February 2000... 96.01073169
March 2000...... 95.23273373
April 2000...... 94.39474560
May 2000........ 93.49763489
June 2000....... 92.54235495
July 2000....... 91.52994346
August 2000..... 90.46152081
September 2000.. 89.33828830
October 2000.... 88.16152611
November 2000... 86.93259107
December 2000... 85.65291426
January 2001.... 84.32399838
February 2001... 82.94741500
March 2001...... 81.52480154
April 2001...... 80.05785821
May 2001........ 78.54881593
June 2001....... 76.99947003
July 2001....... 75.41166806
August 2001..... 73.78730615
September 2001.. 72.12832517
October 2001.... 70.43670684
November 2001... 68.77191947
December 2001... 67.13355833
January 2002.... 65.52122481
February 2002... 63.93452635
March 2002...... 62.37307636
April 2002...... 60.83649409
May 2002........ 59.32440458
June 2002....... 57.83643856
July 2002....... 56.37223236
August 2002..... 54.93142784
September 2002.. 53.51367229
October 2002.... 52.11861835
November 2002... 50.74592395
December 2002... 49.39525222
January 2003.... 48.06627138
February 2003... 46.75865473
March 2003...... 45.47208050
April 2003...... 44.20623183
May 2003........ 42.96079669
June 2003....... 41.73546777
July 2003....... 40.52994245
August 2003..... 39.34392272
September 2003.. 38.17711509
October 2003.... 37.02923054
November 2003... 35.89998446
December 2003... 34.78909658
January 2004.... 33.69629087
February 2004... 32.62129554
March 2004...... 31.56384291
April 2004...... 30.52366941
May 2004........ 29.50051546
June 2004....... 28.49412547
July 2004....... 27.64357625
August 2004..... 26.80832286
September 2004.. 25.98812326
October 2004.... 25.18273906
November 2004... 24.39193556
December 2004... 23.61548162
January 2005.... 22.85314966
February 2005... 22.10471558
March 2005...... 21.36995870
April 2005...... 20.64866173
May 2005........ 19.94061071
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
June 2005....... 19.24559495%
July 2005....... 18.60673904
August 2005..... 17.97993755
September 2005.. 17.36499368
October 2005.... 16.76171370
November 2005... 16.16990687
December 2005... 15.58938543
January 2006.... 15.01996452
February 2006... 14.46146218
March 2006...... 13.91369924
April 2006...... 13.37649934
May 2006........ 12.84968887
June 2006....... 12.33309690
July 2006....... 11.90585989
August 2006..... 11.48709188
September 2006.. 11.07664635
October 2006.... 10.67437916
November 2006... 10.28014850
December 2006... 9.89381486
January 2007.... 9.51524098
February 2007... 9.14429183
March 2007...... 8.78083458
April 2007...... 8.42473856
May 2007........ 8.07587520
June 2007....... 7.73411804
July 2007....... 7.46923211
August 2007..... 7.20952249
September 2007.. 6.95489682
October 2007.... 6.70526431
November 2007... 6.46053569
December 2007... 6.29988977
January 2008.... 6.16890937
February 2008... 6.04045471
March 2008...... 5.91448044
April 2008...... 5.79094198
May 2008........ 5.66979551
June 2008....... 5.55099796
July 2008....... 5.46675109
August 2008..... 5.38379073
September 2008.. 5.30209700
October 2008.... 5.22165033
November 2008... 5.14243145
December 2008... 5.06442136
January 2009.... 4.98760139
February 2009... 4.91195312
March 2009...... 4.83745842
April 2009...... 4.76409945
May 2009........ 4.69185862
June 2009....... 4.62071862
July 2009....... 4.55066241
August 2009..... 4.48167320
September 2009.. 4.41373446
October 2009.... 4.34682990
November 2009... 4.28094350
December 2009... 4.21605948
January 2010.... 4.15216228
February 2010... 4.08923659
March 2010...... 4.02726735
April 2010...... 3.96623971
May 2010........ 3.90613906
June 2010....... 3.84695098
July 2010....... 3.78866132
August 2010..... 3.73125612
September 2010.. 3.67472162
October 2010.... 3.61904430
November 2010... 3.56421082
December 2010... 3.51020807
January 2011.... 3.45702311
February 2011... 3.40464323
March 2011...... 3.35305588
April 2011...... 3.30224874
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
May 2011........ 3.25220964%
June 2011....... 3.20292663
July 2011....... 3.15438791
August 2011..... 3.10658190
September 2011.. 3.05949716
October 2011.... 3.01312244
November 2011... 2.96744668
December 2011... 2.92245895
January 2012.... 2.87814852
February 2012... 2.83450481
March 2012...... 2.79151741
April 2012...... 2.74917607
May 2012........ 2.70747068
June 2012....... 2.66639131
July 2012....... 2.62592816
August 2012..... 2.58607159
September 2012.. 2.54681211
October 2012.... 2.50814038
November 2012... 2.47004719
December 2012... 2.43252348
January 2013.... 2.39556033
February 2013... 2.35914894
March 2013...... 2.32328067
April 2013...... 2.28794701
May 2013........ 2.25313955
June 2013....... 2.21885006
July 2013....... 2.18507038
August 2013..... 2.15179252
September 2013.. 2.11900859
October 2013.... 2.08671083
November 2013... 2.05489160
December 2013... 2.02354336
January 2014.... 1.99265872
February 2014... 1.96223037
March 2014...... 1.93225113
April 2014...... 1.90271393
May 2014........ 1.87361180
June 2014....... 1.84493789
July 2014....... 1.81668545
August 2014..... 1.78884782
September 2014.. 1.76141846
October 2014.... 1.73439093
November 2014... 1.70775889
December 2014... 1.68151608
January 2015.... 1.65565635
February 2015... 1.63017366
March 2015...... 1.60506203
April 2015...... 1.58031560
May 2015........ 1.55592858
June 2015....... 1.53189530
July 2015....... 1.50821013
August 2015..... 1.48486757
September 2015.. 1.46186219
October 2015.... 1.43918864
November 2015... 1.41684165
December 2015... 1.39481604
January 2016.... 1.37310670
February 2016... 1.35170863
March 2016...... 1.33061685
April 2016...... 1.30982652
May 2016........ 1.28933283
June 2016....... 1.26913106
July 2016....... 1.24921656
August 2016..... 1.22958477
September 2016.. 1.21023117
October 2016.... 1.19115133
November 2016... 1.17234088
December 2016... 1.15379553
January 2017.... 1.13551104
February 2017... 1.11748326
March 2017...... 1.09970807
</TABLE>
S-52
<PAGE>
Scheduled Principal Balances
Schedule IV Reduction--Continued
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
April 2017...... 1.08218143%
May 2017........ 1.06489939
June 2017....... 1.04785801
July 2017....... 1.03105345
August 2017..... 1.01448192
September 2017.. 0.99813967
October 2017.... 0.98202305
November 2017... 0.96612842
December 2017... 0.95045222
January 2018.... 0.93499095
February 2018... 0.91974115
March 2018...... 0.90469944
April 2018...... 0.88986245
May 2018........ 0.87522689
June 2018....... 0.86078953
July 2018....... 0.84654718
August 2018..... 0.83249668
September 2018.. 0.81863495
October 2018.... 0.80495893
November 2018... 0.79146565
December 2018... 0.77815213
January 2019.... 0.76501548
February 2019... 0.75205285
March 2019...... 0.73926140
April 2019...... 0.72663838
May 2019........ 0.71418106
June 2019....... 0.70188674
July 2019....... 0.68975279
August 2019..... 0.67777661
September 2019.. 0.66595564
October 2019.... 0.65428735
November 2019... 0.64276926
December 2019... 0.63139893
January 2020.... 0.62017396
February 2020... 0.60909198
March 2020...... 0.59815066
April 2020...... 0.58734770
May 2020........ 0.57668086
June 2020....... 0.56614791
July 2020....... 0.55574666
August 2020..... 0.54547495
September 2020.. 0.53533068
October 2020.... 0.52531176
November 2020... 0.51541612
December 2020... 0.50564177
January 2021.... 0.49598669
February 2021... 0.48644894
March 2021...... 0.47702660
April 2021...... 0.46771775
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
May 2021........ 0.45852055%
June 2021....... 0.44943315
July 2021....... 0.44045374
August 2021..... 0.43158054
September 2021.. 0.42281181
October 2021.... 0.41414582
November 2021... 0.40558087
December 2021... 0.39711529
January 2022.... 0.38874744
February 2022... 0.38047571
March 2022...... 0.37229849
April 2022...... 0.36421423
May 2022........ 0.35622138
June 2022....... 0.34831843
July 2022....... 0.34050387
August 2022..... 0.33277625
September 2022.. 0.32513411
October 2022.... 0.31757603
November 2022... 0.31010062
December 2022... 0.30270648
January 2023.... 0.29539227
February 2023... 0.28815665
March 2023...... 0.28099830
April 2023...... 0.27391593
May 2023........ 0.26690828
June 2023....... 0.25997408
July 2023....... 0.25311210
August 2023..... 0.24632379
September 2023.. 0.23966387
October 2023.... 0.23313020
November 2023... 0.22672064
December 2023... 0.22043310
January 2024.... 0.21426553
February 2024... 0.20821589
March 2024...... 0.20229965
April 2024...... 0.19649699
May 2024........ 0.19080598
June 2024....... 0.18522473
July 2024....... 0.17975139
August 2024..... 0.17438412
September 2024.. 0.16912111
October 2024.... 0.16396060
November 2024... 0.15890084
December 2024... 0.15394011
January 2025.... 0.14907673
February 2025... 0.14430902
March 2025...... 0.13963536
April 2025...... 0.13505414
May 2025........ 0.13056376
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Initial
Distribution Date Principal Balance
- ----------------- -----------------
<S> <C>
June 2025....... 0.12616269%
July 2025....... 0.12184937
August 2025..... 0.11762230
September 2025.. 0.11348001
October 2025.... 0.10942102
November 2025... 0.10544390
December 2025... 0.10154725
January 2026.... 0.09772966
February 2026... 0.09398978
March 2026...... 0.09032624
April 2026...... 0.08673774
May 2026........ 0.08322297
June 2026....... 0.07978065
July 2026....... 0.07640951
August 2026..... 0.07310832
September 2026.. 0.06987585
October 2026.... 0.06671091
November 2026... 0.06361232
December 2026... 0.06057890
January 2027.... 0.05760954
February 2027... 0.05470308
March 2027...... 0.05185845
April 2027...... 0.04907453
May 2027........ 0.04635027
June 2027....... 0.04368462
July 2027....... 0.04107653
August 2027..... 0.03852500
September 2027.. 0.03602901
October 2027.... 0.03358760
November 2027... 0.03119978
December 2027... 0.02886461
January 2028.... 0.02658114
February 2028... 0.02434847
March 2028...... 0.02216569
April 2028...... 0.02003191
May 2028........ 0.01794625
June 2028....... 0.01590785
July 2028....... 0.01391588
August 2028..... 0.01196951
September 2028.. 0.01006793
October 2028.... 0.00821035
November 2028... 0.00640277
December 2028... 0.00463732
January 2029.... 0.00291323
February 2029... 0.00122976
March 2029
and thereaf-
ter............ 0.00000000
</TABLE>
S-53
<PAGE>
Principal Payment Characteristics of the PAC Certificates, the Scheduled
Certificates, the Class A-8 Accrual Component and the Companion Certificates
The percentages of the initial aggregate Principal Balances of the Schedule I
PAC Certificates and the Schedule II PAC Certificates set forth in the
preceding tables were calculated using, among other things, the Structuring
Assumptions. Based on such assumptions, the aggregate Principal Balances of the
Schedule I PAC Certificates and the Schedule II PAC Certificates would be
reduced to the percentages of their initial aggregate Principal Balances
indicated in the preceding tables for each Distribution Date if prepayments on
the Mortgage Loans occur at any constant rate between approximately 100% SPA
(as defined herein under "Prepayment and Yield Considerations") and
approximately 500% SPA with respect to the Schedule I PAC Certificates and
between approximately 100% SPA and 400% SPA with respect to the Schedule II PAC
Certificates. 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
characteristics which are assumed for the Structuring Assumptions. Therefore,
there can be no assurance that the aggregate Principal Balances of the Schedule
I PAC Certificates and the Schedule II PAC Certificates, after the application
of the distributions to be made on any Distribution Date, will be equal to the
applicable percentage of the aggregate initial Principal Balances for such
Distribution Date specified in the tables above.
The weighted average lives of the Classes 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 portion of
the Class A Non-PO Principal Amount available to make distributions of
principal to the Schedule I PAC Certificates or the Schedule II PAC
Certificates, as the case may be, on each Distribution Date may be insufficient
to make distributions in reduction of the aggregate Principal Balance of the
Schedule I PAC Certificates or the Schedule II PAC Certificates in amounts that
would reduce their aggregate Principal Balance to their respective planned
Principal Balance for such Distribution Date. The weighted average lives of the
Classes of PAC Certificates may therefore be extended, as illustrated for the
PAC Certificates by the tables beginning on page S-83. To the extent that such
principal prepayments occur at a constant rate that is faster than
approximately 500% SPA with respect to the Schedule I PAC Certificates and 400%
SPA with respect to the Schedule II PAC Certificates, the weighted average
lives of the PAC Certificates may be shortened (or extended, in the case of the
Class A-2 and Class A-3 Certificates) as illustrated by the tables for the PAC
Certificates beginning on page S-83.
Because any Schedule I Excess Principal Payments and Schedule II Excess Prin-
cipal Payments (as defined below) for any Distribution Date will be distributed
to Certificateholders on such Distribution Date, the ability to distribute the
Schedule I PAC Principal Amount or the Schedule II PAC Principal Amount on any
Distribution Date will not be enhanced by the averaging of high and low princi-
pal prepayment rates on the Mortgage Loans over several Distribution Dates, as
might be the case if any such Schedule I Excess Principal Payments and Schedule
II Excess Principal Payments were held for future applications and not distrib-
uted monthly.
The extent to which the planned Principal Balances of the Schedule I PAC
Certificates and Schedule II PAC Certificates will be achieved and the
sensitivity of the Schedule I PAC Certificates and Schedule II PAC Certificates
to principal prepayments on the Mortgage Loans will depend, in part, upon the
period of time during which the Classes and Component that support the Schedule
I PAC Certificates or Schedule II PAC Certificates, as the case may be, remain
outstanding. The Class A-4, Class A-5, Class A-6 and Class A-7 Certificates and
the Class A-8 Accrual Component (the "Schedule I PAC Support Certificates")
support the Schedule I PAC Certificates and the Class A-18 and Class A-19
Certificates (the "Schedule II PAC Support Certificates") support the Schedule
II PAC Certificates. On each Distribution Date, the excess of the portion of
the Class A Non-PO Principal Amount available to make distributions of
principal to the Schedule I PAC Certificates over their Schedule I PAC
Principal Amount (the "Schedule I Excess Principal Payments") for such
Distribution Date will be distributed to the Schedule I PAC Support
Certificates before being distributed to the Schedule I PAC Certificates in
accordance with the priorities set forth above under "-- Allocation of Amount
to be Distributed on the Class A Certificates" and the excess portion of the
Class A Non-PO Principal Amount available to make distributions of principal to
the Schedule II PAC Certificates over their Schedule II PAC
S-54
<PAGE>
Principal Amount (the "Schedule II Excess Principal Payments") for such
Distribution Date will be distributed to the Schedule II PAC Support
Certificates before being distributed to the Schedule II PAC Certificates in
accordance with the priorities set forth above under "-- Allocation of Amount
to be Distributed on the Class A Certificates." This is intended to decrease
the likelihood that the Schedule I PAC Certificates or the Schedule II PAC
Certificates will be reduced below their planned Principal Balances on a given
Distribution Date. However, under certain relatively fast prepayment scenarios,
one or more Classes of the Schedule I PAC Certificates or the Schedule II PAC
Certificates may continue to be outstanding when the Schedule I PAC Support
Certificates or the Schedule II PAC Support Certificates are no longer
outstanding. Under such circumstances, principal payments will be applied to
the Schedule I PAC Certificates or the Schedule II PAC Certificates then
outstanding in accordance with the priorities described herein. Thus, when the
Principal Balances of the Schedule I PAC Support Certificates or the Schedule
II PAC Support Certificates have been reduced to zero, the Schedule I PAC
Certificates or the Schedule II PAC Certificates if outstanding will, in
accordance with the priorities set forth above, become more sensitive to the
rate of prepayments on the Mortgage Loans as such Classes will receive
principal payments that otherwise would have been distributable to the Schedule
I PAC Support Certificates or the Schedule II PAC Support Certificates, as
applicable. As a result, the weighted average lives of the Schedule I PAC
Certificates or Schedule II PAC Certificates, if they receive more than their
Schedule I PAC Principal Amount or Schedule II PAC Principal Amount on a
Distribution Date, may be shortened. Conversely, under certain relatively slow
prepayment scenarios, the portion of the Class A Non-PO Principal Amount
available to make distributions of principal to the Schedule I PAC Certificates
or Schedule II PAC Certificates, as applicable, may not be sufficient to pay
the Schedule I PAC Principal Amount or Schedule II PAC Principal Amount, as the
case may be, for such PAC Certificates on a given Distribution Date. In such
cases, the portion of the Class A Non-PO Principal Amount available to make
distributions of principal to Schedule I PAC Certificates or Schedule II PAC
Certificates, as applicable, for each subsequent Distribution Date will be
applied in accordance with the priorities described herein such that the
Schedule I PAC Support Certificates or Schedule II PAC Support Certificates
will not receive any distributions in reduction of their Principal Balances
from the Class A Non-PO Principal Amount until the aggregate outstanding
Principal Balance of the Schedule I PAC Certificates or Schedule II PAC
Certificates, as applicable, have reached their planned Principal Balance for
such Distribution Date. As a result, the weighted average lives of the Schedule
I PAC Certificates or Schedule II PAC Certificates, if they do not receive
their Schedule I PAC Principal Amount or Schedule II PAC Principal Amount on a
Distribution Date, may be extended.
In addition to the support provided by the Schedule II PAC Support
Certificates, the Schedule II PAC Certificates also receive support from the
Group B Certificates and the Class A-20A Component. Because the Schedule II PAC
Certificates are also Lockout Certificates, they will not receive a
distribution with respect to principal prepayments on the Mortgage Loans for
five years and during the following five years the percentage of principal
prepayments allocated to the Schedule II PAC Certificates, together with the
other Group A Certificates, will gradually increase for so long as the
Principal Balances of the Group B Certificates and the Class A-20A Component
are greater than zero. Therefore, when the Principal Balances of the Group B
Certificates and the Class A-20A Component have been reduced to zero, the
Schedule II PAC Certificates, if outstanding, will become more sensitive to the
rate of prepayments on the Mortgage Loans and as a result, their weighted
average lives, if they receive more than their Schedule II PAC Principal Amount
on a Distribution Date, may be shortened.
The weighted average life of each Class of Certificates will vary in
sensitivity to the rate of prepayments on the Mortgage Loans. In particular,
the weighted average lives of the Class A-5, Class A-6, Class A-7, Class A-11,
Class A-12, Class A-13, Class A-14 and Class A-15 Certificates will be highly
sensitive to the rate of prepayments on the Mortgage Loans.
S-55
<PAGE>
Additional Principal Payment Characteristics of the Scheduled Certificates
and Class A-8 Accrual Component
There can be no assurance that on any Distribution Date the Classes of
Scheduled Certificates and the Class A-8 Accrual Component then entitled to
receive all or a portion of the Schedule I Reduction Amount, the Schedule II
Reduction Amount, the Schedule III Reduction Amount or the Schedule IV
Reduction Amount (each a "Reduction Amount") will not receive more or less than
the amount to which they are so entitled. On each Distribution Date, the excess
portion of the Class A Non-PO Principal Amount available to make distributions
of principal over the applicable Reduction Amount will be distributed to
certain Classes and the Class A-8 Accrual Component in accordance with the
priorities set forth under "-- Allocation of Amount to be Distributed on the
Class A Certificates" before such excess is used to give the Classes of
Scheduled Certificates and the Class A-8 Accrual Component then entitled to
receive all or a portion of any Reduction Amount, a distribution of principal
exceeding such amount. Any Class or Component that receives such excess
distributions, before a Class of Scheduled Certificates or the Class A-8
Accrual Component receives more than its entitlement to all or a portion of any
Reduction Amount, supports such Class of Scheduled Certificates or the Class A-
8 Accrual Component. Therefore, the extent to which the scheduled Principal
Balances indicated in such tables will be achieved and the sensitivity of each
Class of Scheduled Certificates or the Class A-8 Accrual Component then
entitled to receive all or a portion of any Reduction Amount to prepayments on
the Mortgage Loans will depend, in large part, on how long the related support
Classes or Component remain outstanding. The period of time during which the
related support Classes or Component remain outstanding depends, in part, on
the size of the Principal Balances of such related support Classes or
Component. At prepayment rates above certain levels, the Classes of Scheduled
Certificates or the Class A-8 Accrual Component entitled to receive all or a
portion of any Reduction Amount may remain outstanding until and after the
Principal Balances of the related support Classes or Component have been
reduced to zero. In such an event, the excess portion referred to above will be
distributed in reduction of the Principal Balances of the Classes of Scheduled
Certificates or the Class A-8 Accrual Component entitled to receive all or a
portion of such Reduction Amount in accordance with the priorities set forth
herein until such Principal Balances have been reduced to zero without regard
to such Reduction Amount. See "Prepayment and Yield Considerations" herein.
Certain Classes of Scheduled Certificates entitled to all or a portion of one
or more Reduction Amounts are also Accretion Directed Certificates and the
Class A-8 Accrual Component is also an Accretion Directed Component. Therefore,
such Classes and Component will receive distributions of principal from the
Class A-8 Accrual Component Distribution Amount, the Class A-5 Accrual
Distribution Amount and the Class A-11 Accrual Distribution Amount as set forth
above under "-- Allocation of Amount to be Distributed on the Class A
Certificates." These amounts will also affect the extent to which the scheduled
Principal Balances of the Schedule I Reduction table, the Schedule II Reduction
table, the Schedule III Reduction table and the Schedule IV Reduction table
will be achieved.
Additional Weighted Average Life Considerations of the Class A-2, Class A-3
and Class A-8 Certificates
While higher rates of prepayment normally result in a shortening of the
weighted average life of a Class of Certificates, to the extent that
prepayments occur at a constant rate that is between approximately 501% SPA and
approximately 579% SPA for the Class A-2 Certificates, between approximately
501% SPA and approximately 580% SPA for the Class A-3 Certificates and between
approximately 276% SPA and approximately 366% SPA for the Class A-8
Certificates, the weighted average lives of the Class A-2, Class A-3 and Class
A-8 Certificates, respectively, may be extended as illustrated by the tables
beginning on page S-83.
S-56
<PAGE>
Distributions in Reduction of the Principal Balance of the Class A-12
Certificates
General. As to distributions of principal among holders of Class A-12
Certificates, Deceased Holders(/1/) of such Class will be entitled to first
priority and Beneficial Owners other than Deceased Holders (the "Living
Holders") of such Class will be entitled to a second priority. Beneficial
Owners of the Class A-12 Certificates have the right to request that
distributions in reduction of their Principal Balance be made on each
Distribution Date on which distributions in reduction of Principal Balance are
made with respect to the Class A-12 Certificates. All such requested
distributions are subject to the priorities described below under "-- Priority
of Requested Distributions" and are further subject to the limitations that
they be made (i) only in lots equal to integral multiples of $1,000 of initial
principal balance (each $1,000 initial principal balance, an "Individual Class
A-12 Certificate") and (ii) only to the extent that the portion of the Class A
Non-PO Principal Amount allocated to the Class A-12 Certificates on the
applicable Distribution Date (plus any amounts available from the Rounding
Account) provides sufficient funds for such requested distributions. To the
extent that amounts available for distributions in respect of principal of the
Class A-12 Certificates on any Distribution Date exceed the aggregate requests
by Beneficial Owners for principal distributions applicable to such
Distribution Date, such excess amounts will be distributed to the Beneficial
Owners of Class A-12 Certificates by random lot, as described below under "--
Mandatory Distributions of Principal on Class A-12 Certificates."
On each Distribution Date on which amounts are available for distributions in
reduction of the Principal Balance of the Class A-12 Certificates, the
aggregate amount allocable to such distributions will be rounded, as necessary
to an amount equal to an integral multiple of $1,000, except as provided below
in accordance with the priorities and limitations set forth herein. For
purposes of this discussion, payments under the Policy attributable to losses
of principal allocated to the Class A-12 Certificates will be included in
amounts available for distributions in reduction of the Principal Balance of
the Class A-12 Certificates. Such rounding will be accomplished on the first
Distribution Date on which distributions in reduction of the Principal Balance
of the Class A-12 Certificates are made by withdrawing, from a non-interest
bearing account (the "Rounding Account"), to be established on the Closing Date
with a $999.99 deposit by Greenwich Capital, the amount of funds, if any,
needed to round the amount otherwise available for such distribution upward to
the next higher integral multiple of $1,000. On each succeeding Distribution
Date on which distributions in reduction of the principal balance of the Class
A-12 Certificates are to be made, the aggregate amount allocable to the Class
A-12 Certificates will be applied first to repay any funds withdrawn from the
Rounding Account for the Class A-12 Certificates on the prior Distribution Date
for which funds were withdrawn from such account, and then the remainder of
such allocable amount, if any, will be similarly rounded upward through another
withdrawal from the Rounding Account and distributed in reduction of the
Principal Balance of the Class A-12 Certificates. This process will continue on
succeeding Distribution Dates until the outstanding Principal Balance of the
Class A-12 Certificates has been reduced to zero. Thus, the aggregate
distribution made in reduction of the Principal Balance of the Class A-12
Certificates on each Distribution Date may be slightly more or less than would
be the case in the absence of such rounding procedures, but such difference
will be no more than $999.99 on such Distribution Date. Under no circumstances
will the sum of all distributions made in reduction of the Principal Balance of
the
- -------
(/1/A)"Deceased Holder" is a Beneficial Owner of a Class A-12 Certificate who
was living at the time such interest was acquired and whose executor or
other authorized representative causes to be furnished to DTC evidence of
death satisfactory to the Trust Administrator and any tax waivers requested
by the Trust Administrator. Class A-12 Certificates beneficially owned by
tenants by the entirety, joint tenants or tenants in common will be
considered to be beneficially owned by a single owner. The death of a
tenant by the entirety, joint tenant or tenant in common will be deemed to
be the death of the Beneficial Owner, and the Class A-12 Certificates so
beneficially owned will be eligible for priority with respect to
distributions in reduction of principal balance, subject to the limitations
stated herein. The Class A-12 Certificates beneficially owned by a trust
will be considered to be beneficially owned by each beneficiary of the
trust to the extent of such beneficiary's beneficial interest therein, but
in no event will a trust's beneficiaries collectively be deemed to be
Beneficial Owners of a number of Individual Class A-12 Certificates greater
than the number of Individual Class A-12 Certificates, as applicable, of
which such trust is the owner. The death of a beneficiary of a trust will
be deemed to be the death of a Beneficial Owner of the Class A-12
Certificates beneficially owned by the trust to the extent of such
beneficiary's beneficial interest in such trust. The death of an individual
who was a tenant by the entirety, joint tenant or tenant in common in a
tenancy which is the beneficiary of a trust will be deemed to be the death
of the beneficiary of the Trust. The death of a person who, during his or
her lifetime, was entitled to substantially all of the beneficial ownership
interests in Class A-12 Certificates will be deemed to be the death of the
Beneficial Owner of such Certificates regardless of the registration of
ownership, if such beneficial interest can be established to the
satisfaction of the Trust Administrator. Such beneficial interest will be
deemed to exist in typical cases of street name or nominee ownership,
ownership by a trustee, ownership under the Uniform Gifts to Minors Act and
community property or other joint arrangements between a husband and wife.
Beneficial interest shall include the power to sell, transfer or otherwise
dispose of a Class A-12 Certificate and the right to receive the proceeds
therefrom, as well as interest and distributions in reduction of principal
balance payable with respect thereto. As used in this Prospectus
Supplement, a request for a distribution in reduction of the principal
balance of a Class A-12 Certificate by a Deceased Holder shall mean a
request by the personal representative, surviving tenant by the entirety,
surviving joint tenant or a surviving tenant in common of the Deceased
Holder.
S-57
<PAGE>
Class A-12 Certificates, through any Distribution Date, be less than the sum
that would have resulted in the absence of such rounding procedures. The Class
A-LR Certificateholder will be entitled to any amount remaining in the Rounding
Account after the Principal Balance of the Class A-12 Certificates has been
reduced to zero.
There is no assurance that a Beneficial Owner of a Class A-12 Certificate who
has submitted a request for such distribution will receive such distribution at
any particular time after such distribution is requested, since there can be no
assurance that funds will be available for making such distributions on any
particular Distribution Date, or, even if funds are available for making such
distributions in reduction of the Principal Balance of the Class A-12
Certificates, that such distributions with respect to the Class A-12
Certificates owned by any particular Beneficial Owner will be made. Also, due
to the procedure for mandatory distributions described below, there can be no
assurance that on any Distribution Date on which the funds available for
distribution in respect of principal of the Class A-12 Certificates exceed the
aggregate amount of distributions requested by Beneficial Owners of the Class
A-12 Certificates, any particular Beneficial Owner will receive a principal
distribution from such excess funds. Thus, the timing of distributions in
reduction of the principal balance with respect to any particular Class A-12
Certificate is highly uncertain and may be made earlier or later than the date
that may be desired by a Beneficial Owner of a Class A-12 Certificate.
Notwithstanding any provisions to the contrary, if the Insurer fails to make
a Guaranteed Distribution, distributions in reduction of the Principal Balance
of the Class A-12 Certificates will be made pro rata among the holders of the
Class A-12 Certificates and shall no longer be required to be made in integral
multiples of $1,000 or pursuant to requested distributions or mandatory
distributions by random lot. In the event that such pro rata distributions
cannot be made through the facilities of DTC, the Class A-12 Certificates will
be withdrawn from the facilities of DTC and Definitive Certificates will be
issued to replace such withdrawn Book-Entry Certificates.
Priority of Requested Distributions. Subject to the limitations described
herein, including the order of the receipt of the request for distributions as
described below under "-- Procedure for Requested Distributions". Beneficial
Owners of the Class A-12 Certificates have the right to request that
distributions be made in reduction of the Principal Balances of their Class A-
12 Certificates. On each Distribution Date on which distributions in reduction
of the Principal Balance of the Class A-12 Certificates are made, such
distributions will be made, with respect to such Class in the following order
of priority: (i) any request by a Deceased Holder, in an amount up to but not
exceeding an aggregate principal balance of $100,000 per request; and (ii) any
request by a Living Holder, in an amount up to but not exceeding an aggregate
principal balance of $10,000 per request. Thereafter, distributions will be
made as provided in clauses (i) and (ii) above up to a second $100,000 and
$10,000, respectively. This sequence of priorities will be repeated for each
request for principal distributions made by the Beneficial Owners of the Class
A-12 Certificates until all such requests have been honored.
Procedure for Requested Distributions. A Beneficial Owner may request that
distributions in reduction of the principal balance of its Class A-12
Certificates be made on a Distribution Date by delivering a written request
therefor to the DTC Participant or Indirect DTC Participant that maintains its
account in the Class A-12 Certificates such that the request for such
distributions is received by the Trust Administrator on or before the Record
Date for such Distribution Date. In the case of a request on behalf of a
Deceased Holder, appropriate evidence of death and any tax waivers are required
to be forwarded to the Trust Administrator under separate cover. Furthermore,
such requests of Deceased Holders which are incomplete may not be honored by
the Trust Administrator. The DTC Participant should in turn make the request of
DTC (or, in the case of an Indirect DTC Participant, such firm must notify the
related DTC Participant of such request, which DTC Participant should make the
request of DTC) in the manner required under the rules and regulations of DTC's
APUT System and provided to the DTC Participant. Upon receipt of such request,
DTC will date and time stamp such request and forward such request to the Trust
Administrator. DTC may establish such procedures as it deems fair and equitable
to establish the order of receipt of requests for such distributions received
by it on the same day. Neither the Master Servicer nor the Trust Administrator
shall be liable for any delay by DTC, any DTC Participant or any Indirect DTC
Participant in the delivery of requests for distributions to the Trust
Administrator. The Master Servicer will instruct the Trust Administrator that
requests for distributions are to be honored in the order of their receipt
(subject to the priorities described above). The exact procedures to be
followed by the Trust Administrator for purposes of determining the order of
receipt of such requests will be those established from
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<PAGE>
time to time by the Trust Administrator, acting in conjunction with DTC.
Requests for distributions in reduction of principal balance received by DTC
and forwarded to the Trust Administrator after the Record Date for such
Distribution Date and requests for distributions received in a timely manner
but not accepted with respect to a given Distribution Date will be treated as
requests for distributions on the next succeeding Distribution Date and each
succeeding Distribution Date thereafter until each request is accepted or is
withdrawn as described below. Each request for distributions in reduction of
the Principal Balance of a Class A-12 Certificate submitted by a Beneficial
Owner of a Class A-12 Certificate will be held by the Trust Administrator until
such request has been accepted or has been withdrawn in writing. Each
Individual Class A-12 Certificate covered by such request will continue to bear
interest at its Pass-Through Rate through the Record Date for such Distribution
Date.
With respect to Class A-12 Certificates as to which Beneficial Owners have
requested distributions on a particular Distribution Date on which
distributions in reduction of the Principal Balance of the Class A-12
Certificates are being made, DTC and its DTC Participants will be notified
prior to such Distribution Date whether, and the extent to which, such Class A-
12 Certificates have been accepted for distributions. DTC Participants and
Indirect DTC Participants holding Class A-12 Certificates are required to
forward such notices to the Beneficial Owners of such Certificates. Individual
Class A-12 Certificates which have been accepted for a distribution will be due
and payable on the applicable Distribution Date and will cease to bear interest
after the Record Date for such Distribution Date.
Any Beneficial Owner of a Class A-12 Certificate which has requested a dis-
tribution may withdraw its request by so notifying in writing the DTC Partici-
pant or Indirect DTC Participant that maintains such Beneficial Owner's ac-
count. In the event that such account is maintained by an Indirect DTC Partici-
pant, such Indirect DTC Participant must notify the related DTC Participant
which in turn must forward the withdrawal of such request, in the manner re-
quired under the rules and regulations of DTC's APUT System, to the Trust Ad-
ministrator. If such notice of withdrawal of a request for distribution has not
been received by the Trust Administrator on or before the Record Date for such
Distribution Date, the previously made request for distribution will be irrevo-
cable with respect to the making of distributions in reduction of the Principal
Balance of Class A-12 Certificates on the applicable Distribution Date.
Mandatory Distributions of Principal on Class A-12 Certificates. To the
extent, if any, that distributions in reduction of the Principal Balance of the
Class A-12 Certificates on a Distribution Date exceed the outstanding Principal
Balance of the Class A-12 Certificates with respect to which distribution
requests have been received by the applicable date, additional Class A-12
Certificates in lots equal to Individual Class A-12 Certificates will be
selected to receive principal distributions in accordance with the then-
applicable established random lot procedures of DTC, and the then-applicable
established procedures of the DTC Participants and Indirect DTC Participants,
which may or may not be by random lot. Investors may ask such DTC Participants
or Indirect DTC Participants what allocation procedures they use. DTC
Participants and Indirect DTC Participants holding Class A-12 Certificates
selected for mandatory distributions in reduction of the principal balance are
required to provide notice of such mandatory distributions to the affected
Beneficial Owners.
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 such Class is receiving 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
Certificates, after distributions in respect of any accrued but unpaid interest
on the Certificates and after distributions in reduction of Principal Balance
have reduced the Principal Balances of the Certificates to zero. It is not
anticipated that there will be any material 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 Certificates on such date.
In addition, the Class A-LR Certificateholder will be entitled on each
Distribution Date to receive any Pool Distribution Amount remaining after all
distributions pursuant to the Pool Distribution Amount Allocation have been
made and any Net Foreclosure Profits, as described under "Description of the
Certificates" in the Prospectus. It is not anticipated that there will be any
such Net Foreclosure Profits or material undistributed portion of the Pool
Distribution Amount.
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Periodic Advances
If, on any Determination Date, payments of principal and interest due on any
Mortgage Loan in the Trust Estate on the related Due Date have not been
received, the related Servicer will, in certain circumstances, be required to
advance on or before the related Distribution Date for the benefit of holders
of the Certificates an amount in cash equal to all delinquent payments of
principal and interest due on each Mortgage Loan in the Trust Estate (with
interest adjusted to the applicable Net Mortgage Interest Rate) not previously
advanced, but only to the extent that such Servicer believes that such amounts
will be recoverable by it from liquidation proceeds or other recoveries in
respect of the related Mortgage Loan (each, a "Periodic Advance"). Upon a
Servicer's failure to make a Periodic Advance required by the Underlying
Servicing Agreement, 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. In addition, if under the terms
of the applicable Underlying Servicing Agreement, an Other Servicer is not
obligated to make Periodic Advances while a Mortgage Loan is in liquidation,
the Master Servicer will, under certain circumstances be required to make such
Periodic Advances.
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, the Master Servicer or the Trust
Administrator, 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
unable to recover such advance from funds of the type referred to in clause (i)
above.
The Financial Guaranty Insurance Policy
The following summary of the provisions of the financial guaranty insurance
policy to be issued by the Insurer (the "Policy") does not purport to be com-
plete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Certificates, the Insurer will
deliver the Policy to the Trust Administrator for the benefit of each holder of
the Class A-12 Certificates. Under the Policy, the Insurer unconditionally and
irrevocably guarantees to the Trust Administrator for the benefit of each
holder of Class A-12 Certificates the full and complete payment of (i) the
Interest Accrual Amount determined without regard to clause (b) of the
definition thereof for such Class, net of any Non-Supported Interest Shortfalls
allocated to such Class that are covered by the Reserve Fund and (ii) any
losses of principal allocated to such Class (clauses (i) and (ii) collectively,
the "Guaranteed Distributions") and (iii) the amount of any distribution of
principal or interest to any holder of a Certificate of such Class which
distribution subsequently is avoided in whole or in part as a preference
payment under applicable law.
Payment of claims under the Policy will be made by the Insurer following
Receipt by the Insurer of the appropriate notice for payment on the later to
occur of (a) 12:00 noon, New York City time, on the second Business Day
following Receipt of such notice for payment and (b) 12:00 noon, New York City
time, on the date on which such Guaranteed Distribution is due to be
distributed on the Class A-12 Certificates.
If payment of any amount avoided as a preference under applicable bankruptcy,
insolvency, receivership or similar law is required to be made under the
Policy, the Insurer shall cause such payment to be made on the latter of (a)
the date when due to be paid pursuant to the Order referred to below or (b) the
first to occur of (i) the fourth Business Day following Receipt by the Insurer
from the Trust Administrator of (A) a certified copy of the order (the "Order")
of the court or other governmental body which exercised jurisdiction to the
effect that the relevant Class A-12 Certificateholders are required to return
principal or interest distributed with respect to such Class during the Term of
the Policy because such distributions were avoidable preferences under
applicable bankruptcy law, (B) a certificate of each relevant Class A-12
Certificateholder that the Order has been entered and is not subject to any
stay and (C) an assignment duly executed and delivered by each relevant
Certificateholders, in such form as is reasonably required by the Insurer and
provided to the relevant Class A-12 Certificateholders by the Insurer,
irrevocably assigning to the Insurer all rights and claims of the
Certificateholder
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<PAGE>
relating to or arising under the Certificates of such Class held by such
Certificateholder against the debtor which made such preference payment or
otherwise with respect to such preference payment or (ii) the date of Receipt
by the Insurer from the Trust Administrator of the items referred to in clauses
(A), (B) and (C) above if, at least four Business Days prior to such date of
Receipt, the Insurer shall have received written notice, from the Trust
Administrator that such items were to be delivered on such date and such date
was specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trust Administrator or any Class A-12 Certificateholder directly
(unless such Certificateholder has previously paid such amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order,
in which case such payment shall be disbursed to the Trust Administrator for
distribution to such Certificate holder upon proof of such payment reasonably
satisfactory to the Insurer). In connection with the foregoing, the Insurer
shall have certain rights of subrogation as described in the Pooling and
Servicing Agreement.
The terms "Receipt" and "Received" with respect to the Policy, mean actual
delivery to the Insurer and to the Insurer's fiscal agent, if any, prior to
12:00 noon, New York City time, on a Business Day. Delivery either on a day
that is not a Business Day or after 12:00 noon, New York City time, will be
deemed to be Received on the next succeeding Business Day. If any notice or
certificate given under the Policy by the Trust Administrator is not in proper
form or is not properly completed, executed or delivered, it will be deemed not
to have been Received, and Financial Security or its fiscal agent will promptly
so advise the Trust Administrator and the Trust Administrator may submit an
amended notice.
Under the Policy, "Business Day" means any day other than (i) a Saturday or
Sunday or (ii) a day on which banking institutions in the City of New York, New
York or Charlotte, North Carolina are authorized or obligated by law or
executive order to be closed.
"Term of the Policy" means the period from and including the date of issuance
of the Policy to and including the date on which (i) the Principal Balance of
the Class A-12 Certificates is reduced to zero, (ii) any period during which
any payment on the Class A-12 Certificates could have been avoided in whole or
in part as a preference payment under applicable bankruptcy, insolvency,
receivership or similar law has expired, and (iii) if any proceedings requisite
to avoidance as a preference payment have been commenced prior to the
occurrence of (i) and (ii), a final and nonappealable order in resolution of
each such proceeding has been entered.
The Insurer's obligations under the Policy in respect of Guaranteed
Distributions will be discharged to the extent funds are transferred to the
Trust Administrator as provided in the Policy whether or not such funds are
properly applied by the Trust Administrator.
The Insurer will be subrogated to the rights of each holder of a Class A-12
Certificate to receive distributions on Class A-12 Certificates, as applicable,
to the extent of any payment by the Insurer under the Policy.
Claims under the Policy will rank equally with any other unsecured and
unsubordinated obligations of the Insurer except for certain obligations in
respect of tax and other payments to which preference is or may become afforded
by statute. The terms of the Policy cannot be modified or altered by any other
agreement or instrument, or by the merger, consolidation or dissolution of the
Seller. The Policy may not be cancelled or revoked prior to payment in full of
the Class A-12 Certificates, as applicable. The Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law. The Policy is governed by the laws of the State of New
York.
Financial Security Assurance Inc.
General. The Insurer is a monoline insurance company incorporated in 1984
under the laws of the State of New York. The Insurer is licensed to engage in
financial guaranty insurance business in all 50 states, the District of
Columbia and Puerto Rico.
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<PAGE>
The Insurer and its subsidiaries are engaged in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. In general, financial guaranty insurance consists
of the issuance of a guaranty of scheduled payments of an issuer's
securities -- thereby enhancing the credit rating of those securities -- in
consideration for the payment of a premium to the insurer. The Insurer and its
subsidiaries principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by residential
mortgage loans, consumer or trade receivables, securities or other assets
having an ascertainable cash flow or market value. Collateralized securities
include public utility first mortgage bonds and sale/leaseback obligation
bonds. Municipal securities consist largely of general obligation bonds,
special revenue bonds and other special obligations of state and local
governments. The Insurer insures both newly issued securities sold in the
primary market and outstanding securities sold in the secondary market that
satisfy the Insurer's underwriting criteria.
The Insurer is a wholly owned subsidiary of Financial Security Assurance
Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company. Major
shareholders of Holdings include White Mountains Insurance Group, Inc.,
MediaOne Capital Corporation, The Tokio Marine and Fire Insurance Co., Ltd. and
XL Capital Ltd. No shareholder of Holdings is obligated to pay any debt of the
Insurer or any claim under any insurance policy issued by the Insurer or to
make any additional contribution to the capital of the Insurer.
The principal executive offices of the Insurer are located at 350 Park
Avenue, New York, New York 10022, and its telephone number at that location is
(212) 826-0100.
Reinsurance. Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by the Insurer or
its domestic or Bermuda operating insurance company subsidiaries are generally
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitation. In addition, the Insurer reinsures a
portion of its liabilities under certain of its financial guaranty insurance
policies with other reinsurers under various treaties and on transaction-by-
transaction basis. Such reinsurance is utilized by the Insurer as a risk
management device and to comply with statutory and rating agency requirements;
it does not alter or limit the Insurer's obligations under any financial
guaranty insurance policy.
Ratings. The Insurer's insurance financial strength is rated "Aaa" by Moody's
Investor Service, Inc. The Insurer's financial strength is rated "AAA" by
Standard & Poor's and Standard & Poor's (Australia) Pty. Ltd. The Insurer's
claims-paying ability is rated "AAA" by Fitch IBCA, Inc. and Japan Rating and
Investment Information, Inc. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. See "Ratings."
Capitalization. The following table sets forth the capitalization of the
Insurer and its wholly owned subsidiaries on the basis of generally accepted
accounting principles as of March 31, 1999:
<TABLE>
<CAPTION>
March 31,
1999
-----------
(Unaudited)
<S> <C>
Deferred Premium Revenue (net of prepaid reinsurance premiums).... $ 512,383
----------
Surplus Notes..................................................... 120,000
----------
Minority Interest................................................. 20,973
----------
Shareholder's Equity:
Common Stock.................................................... 15,000
Additional Paid-In Capital...................................... 706,117
Accumulated Other Comprehensive Income (net of deferred income
taxes)......................................................... 25,879
Accumulated Earnings............................................ 391,745
----------
Total Shareholder's Equity........................................ 1,138,741
----------
Total Deferred Premium Revenue, Surplus Notes, Minority Interest
and Shareholder's Equity......................................... $1,792,097
==========
</TABLE>
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For further information concerning the Insurer, see the Consolidated
Financial Statement of the Insurer and Subsidiaries, and the notes thereto,
incorporated by reference herein. The Insurer's financial statements are
included as exhibits to the Annual Reports on Form 10-K and Quarterly Reports
on Form 10-Q filed with the Securities and Exchange Commission by Holdings and
may be reviewed at the EDGAR web site maintained by the Securities and Exchange
Commission and at the Holdings web site, http://www.FSA.com. Copies of the
statutory quarterly and annual statements filed with the State of New York
Insurance Department by the Insurer are available upon request to the State of
New York Insurance Department.
Incorporation of Certain Documents by Reference. In addition to the documents
described under "Incorporation of Certain Information by Reference" in the
Prospectus, the consolidated financial statements of the Insurer included in,
or as exhibits to, the following documents, which have been filed with the
Securities and Exchange Commission by Holdings are hereby incorporated by
reference in this Prospectus Supplement:
(a) Annual Report on Form 10-K of Holdings for the year ended December
31, 1998, which Report included as an exhibit the Insurer's audited
consolidated financial statements for the year ended December 31, 1998.
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1999,
which report includes as an exhibit the Insurer's unaudited financial
statements for the three month period ended March 31, 1999.
All financial statements of the Insurer included in documents filed by
Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), subsequent to the date
of this Prospectus Supplement and prior to the termination of the offering of
the Certificates shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
In addition to being available through the Holdings web site, the Trust
Administrator will provide without charge to any person to whom this Prospectus
Supplement is delivered, upon the oral or written request of such person, a
copy of any or all of the foregoing financial statements incorporated herein by
reference. Requests for such copies should be directed to the Trust
Administrator at 230 South Tryon Street, Charlotte, North Carolina 28288,
telephone number (704) 383-5272.
The Seller hereby undertakes that for purposes of determining any liability
under the Securities Act, each filing of the financial statements of the
Insurer included in or as an exhibit to the annual report of Holdings filed
pursuant to section 13(a) or section 15(d) of the Exchange Act that is
incorporated by reference in the registration statement of the Seller relating
to the Offered Certificates shall be deemed to be a new registration statement
relating to the Offered Certificates, and the offering of such Certificates at
that time shall be deemed to be the initial bona fide offering thereof.
Insurance Regulation. The Insurer is licensed and subject to regulation as a
financial guaranty insurance corporation under the laws of the State of New
York, its state of domicile. In addition, the Insurer and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial
guaranty insurance corporation licensed to do business in the State of New
York, the Insurer is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain
a minimum surplus to policy holders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as the Insurer, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of information regarding the Policy and the Insurer set forth under the
headings "-- The Financial Guaranty Insurance Policy" and "-- Financial
Security Assurance Inc."
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Restrictions on Transfer of the Class A-9, Class A-22, Class A-R, Class A-LR
and Class B Certificates
The Class A-R and Class A-LR Certificates will be subject to the following
restrictions on transfer, and 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 (other than an "electing large
partnership," as defined in the Prospectus) 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
provide that no legal or beneficial interest in the Class A-R or Class A-LR
Certificate 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 letter signed under penalty of perjury) to the effect that,
among other items, such transferee is not a Disqualified Organization (as
defined in the Prospectus) and is not purchasing the Class A-R or Class A-LR
Certificate as an agent for a Disqualified Organization (i.e., as a broker,
nominee, or other middleman thereof) and (iii) the transferor states in writing
to the Trust Administrator that it has no actual knowledge that such affidavit
or letter is false. Further, such affidavit or letter requires the transferee
to affirm that it (i) historically has paid its debts as they have come due and
intends to do so in the future, (ii) understands that it may incur tax
liabilities with respect to the Class A-R 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 or letter. The transferor must
certify in writing to the Trust Administrator that, as of the date of the
transfer, it had no knowledge or reason to know that the affirmations made by
the transferee pursuant to the preceding sentence were false.
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
Service 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 accord with the requirements of the Code
and the regulations promulgated 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 or partnership (unless, in the case of a partnership, Treasury
regulations are adopted that provide otherwise) created or organized in or
under the laws of the United States, any state thereof or the District of
Columbia, including an entity treated as a corporation or partnership for
federal income tax purposes, an estate whose income is subject to United States
federal income tax regardless of its source, 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).
The Pooling and Servicing Agreement will provide that any attempted or
purported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee. Any transferor or
agent to whom the 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
Consequences -- Federal Income Tax Consequences for REMIC Certificates --
Taxation of Residual Certificates -- Tax-Related Restrictions on Transfer of
Residual Certificates" in the Prospectus.
The Class A-R and Class A-LR Certificates may not be purchased by or
transferred to any person which is an employee benefit plan or other retirement
plan or arrangement 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
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<PAGE>
of ERISA or the Code (collectively, with an ERISA Plan, a "Plan"), or any
person acting on behalf of or investing the assets of such Plan. See "ERISA
Considerations" herein and in the Prospectus.
Under current law the purchase and holding of the Class A-9, Class A-22 or
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 A-9, Class A-22 or Class B Certificates will not be made
unless the transferee (i) executes a representation letter in form and
substance satisfactory 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 A-9, Class A-22 or
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)), 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 and the
purchase and holding of such Certificates by the transferee are covered by
Sections I and III of PTE 95-60, or (ii) provides (A) an opinion of counsel in
form and substance satisfactory to the Trust Administrator and the Seller that
the purchase or holding of the Class A-9, Class A-22 or Class B Certificates by
or on behalf of such Plan will not result in the assets of the Trust Estate
being deemed to be "plan assets" and subject to the prohibited transaction
provisions of ERISA, the Code or Similar Law and will not subject the Seller,
the Master Servicer, the Trust Administrator or the Trustee to any obligation
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 transfer. The
Class A-9, Class A-22 and Class B Certificates will contain a legend describing
such restrictions on transfer and the Pooling and Servicing Agreement will
provide that any attempted or purported transfer in violation of these transfer
restrictions will be null and void and will vest no rights in any purported
transferee. See "ERISA Considerations" herein and in the Prospectus.
Subordination of Class B 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
Insurer, and the rights of the holders of the Classes of Class B Certificates
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 Classes of Class B Certificates with lower numerical designations,
all to the extent described below. This subordination is intended to enhance
the likelihood of timely receipt by the holders of the more senior Certificates
of the full amount of their scheduled monthly payments of interest and
principal and to afford the holders of the more senior Certificates protection
against Realized Losses, as more fully described below. If Realized Losses
exceed the credit support provided through subordination to a given Class of
Certificates, or if Excess Losses occur, all or a portion of such losses will
be borne by such Class of Certificates.
The protection afforded to the holders of more senior Classes of 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 more junior Classes of Certificates, the
amounts of principal and interest due such holders on each Distribution Date
out of the Pool Distribution Amount with respect to such date and, if
necessary, by the right of such holders to receive future distributions on the
Mortgage Loans that would otherwise have been payable to the holders of the
more junior Classes of Certificates. Because of the priority in which the Class
A Non-PO Principal Distribution Amount is allocated among the Classes of Class
A Certificates (other than the Class A-PO Certificates), the application of
this subordination to cover Realized Losses experienced in periods prior to the
periods in which a Class of Class A Certificates is entitled to distributions
in reduction of Principal Balance will decrease the protection provided by the
subordination to any such Class.
Amounts distributed to holders of Subordinated Certificates will not be
available to cover delinquencies or Realized Losses in respect of subsequent
Distribution Dates.
S-65
<PAGE>
Allocation of Losses
Realized Losses (other than Excess 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 entitled has been reduced to zero as a result of
the allocation of losses to the Subordinated Certificates, i.e., the
Distribution Date preceding the Distribution Date for which the Subordinated
Percentage is equal to zero (the "Cross-Over Date"). Prior to such time, such
Realized Losses will be allocated to the Classes of Class B Certificates
sequentially in reverse numerical order, until the Principal Balance of each
such Class has been reduced to zero.
The allocation of the principal portion of a Realized Loss (other than a Debt
Service Reduction or Excess Loss) will be effected through the adjustment of
the Principal Balance of the most subordinate Class then outstanding in such
amount as is necessary to cause the Aggregate Principal Balance to equal the
Adjusted Pool Amount.
Allocations to the Classes of Class B Certificates of (i) the principal por-
tion of Debt Service Reductions, (ii) the interest portion of Realized Losses
(other than Excess Losses), (iii) any interest shortfalls resulting from delin-
quencies for which the Servicer, the Master Servicer or the Trust Administrator
does not advance, (iv) any interest shortfalls or losses resulting from the ap-
plication 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
Class A Certificates and the Insurer and then to the Classes of Class B Certif-
icates in numerical order as described above under "-- Distributions."
Solely for the purpose of allocating the interest portion of any Realized
Loss, including any Excess Losses, to the Class A Certificates as described
herein, the Premium Payment will be treated as though it represented the
interest accrued on an additional Class of Class A Certificates. Accordingly,
the Premium Payment will be reduced by its pro rata portion of any such loss
allocated to the Class A Certificates.
The allocation of the principal portion of Realized Losses (other than Excess
Losses) in respect of the Mortgage Loans allocated on or after the Cross-Over
Date will be effected through the adjustment on any Determination Date of the
Class A Non-PO Principal Balance and the Principal Balance of the Class A-PO
Certificates such that (i) the Class A Non-PO Principal Balance equals the
Adjusted Pool Amount less the Adjusted Pool Amount (PO Portion) as of the
preceding Distribution Date and (ii) the 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 allocated to
the Class A Certificates (other than the Class A-PO Certificates) will be
allocated to such outstanding Classes of Class A Certificates (other than the
Class A-8 and Class A-20 Certificates), the Class A-8 Accrual Component, the
Class A-20A Component and the Class A-20B Component pro rata in accordance with
their then-outstanding Principal Balances or, in the case of the Class A-8
Accrual Component, the Class A-5 Certificates, the Class A-11 Certificates and
the Class A-19 Certificates, their initial Principal Balances, if lower. The
interest portion of any Realized Loss allocated on or after the Cross-Over Date
will be allocated among the outstanding Classes of Class A Certificates pro
rata in accordance with their respective Interest Accrual Amounts, without
regard to any reduction pursuant to this sentence. Any interest portion of such
Realized Losses allocated to the Class A-8 Certificates will be allocated among
their respective Components, pro rata, based on their Component Interest
Accrual Amounts, without regard to any reduction pursuant to this paragraph.
Any such losses will be allocated among the outstanding Class A Certificates
within each Class pro rata in accordance with their respective Percentage
Interests.
After the Cross-Over Date, the principal portion of Realized Losses, other
than Excess Losses, that would otherwise be allocated to the Class A-8 and
Class A-19 Certificates will instead be borne by the Class A-9 and Class A-22
Certificates, respectively, (in addition to other Realized Losses allocated to
the Class A-9 and Class A-22 Certificates) and not by such Class A-8 and Class
A-19 Certificates for so long as the Principal Balance of the Class A-9
Certificates, in the case of the Class A-8 Certificates, or Class A-22
Certificates, in the case of the Class A-19 Certificates, is greater than zero.
S-66
<PAGE>
If due to losses on the Mortgage Loans the Pool Distribution Amount is not
sufficient to cover the Class A Non-PO Optimal Principal Amount on a particular
Distribution Date, then the percentage of principal payments on the Mortgage
Loans to which the holders of the Class A Certificates (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 proportionately increased, thereby reducing,
as a relative matter, the respective interest of the Class B Certificates in
future payments of principal on the Mortgage Loans in the Trust Estate.
Special Hazard Losses, Fraud Losses and Bankruptcy Losses, other than Excess
Losses, will be allocated solely to the Classes of Class B Certificates in
reverse numerical order. Special Hazard Losses, Fraud Losses and Bankruptcy
Losses in excess of the Special Hazard Loss Amount, the Fraud Loss Amount and
the Bankruptcy Loss Amount, respectively, are "Excess Special Hazard Losses,"
"Excess Fraud Losses" and "Excess Bankruptcy Losses," respectively, and are
referred to herein collectively as "Excess Losses".
Any Excess Losses will be allocated (i) with respect to the principal portion
of such losses (a) to the outstanding Classes of the Class A Certificates
(other than the Class A-PO Certificates) and Class B Certificates 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 and
Class B Certificates pro rata based on interest accrued by reducing their
respective Interest Accrual Amounts. The interest portion of any such losses
allocated to the Class A-8 Certificates will be allocated among their
respective Components, pro rata, based on their Component Interest Accrual
Amounts without regard to any reduction pursuant to this paragraph. The
principal portion of any such losses so allocated to the Class A Certificates
(other than the Class A-PO Certificates) will be allocated to such outstanding
Classes of Class A Certificates (other than the Class A-8 and Class A-20
Certificates), the Class A-8 Accrual Component, the Class A-20A Component and
the Class A-20B Component pro rata in accordance with their then-outstanding
Principal Balances or, in the case of the Class A-8 Accrual Component, the
Class A-5 Certificates, the Class A-11 Certificates and Class A-19
Certificates, their initial Principal Balances, if lower. Any losses allocated
to a Class of Certificates will be allocated among the outstanding Certificates
within such Class pro rata in accordance with their respective Percentage
Interests.
Upon initial issuance of the Certificates, the "Special Hazard Loss Amount"
with respect thereto will be equal to approximately 1.00% (approximately
$8,500,698) of the aggregate unpaid principal balance of the Mortgage Loans as
of the Cut-Off Date. As of any Distribution Date, the Special Hazard Loss
Amount will equal the initial Special Hazard Loss Amount less the sum of (A)
any Special Hazard Losses allocated solely to the Class B Certificates and (B)
the Adjustment Amount. The "Adjustment Amount" on each anniversary of the Cut-
Off Date will be equal to the amount, if any, by which the Special Hazard
Amount, without giving effect to the deduction of the Adjustment Amount for
such anniversary, exceeds the greater of (i) 1.00% (or, if greater than 1.00%,
the highest percentage of Mortgage Loans by principal balance in any California
zip code) times the aggregate principal balance of all the Mortgage Loans on
such anniversary (ii) twice the principal balance of the single Mortgage Loan
having the largest principal balance, and (iii) that which is necessary to
maintain the original ratings assigned to the Class A, Class B-1, Class B-2 and
Class B-3 Certificates by the applicable Rating Agencies, as evidenced by
letters to that effect delivered by such Rating Agencies to the Master Servicer
and the Trust Administrator. On and after the Cross-Over Date, the Special
Hazard Loss Amount will be zero.
Upon initial issuance of the Certificates, the "Fraud Loss Amount" with
respect thereto will be equal to approximately 2.00% (approximately
$17,001,395) of the aggregate unpaid principal balance of the Mortgage Loans as
of the Cut-Off Date. 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 Certificates through the related Determination Date. As of any Distribution
Date from the first through fifth anniversary of the Cut-Off Date, the Fraud
Loss Amount will be an amount equal to (1) the lesser of (a) the Fraud Loss
Amount as of the most recent anniversary of the Cut-Off Date and (b) 1.00% of
the aggregate principal balance of all of the Mortgage Loans as of the most
recent anniversary of the Cut-Off Date minus (2) the aggregate amounts
allocated solely to the Class B Certificates with respect to Fraud Losses since
the most recent anniversary of the Cut-Off Date through the related
Determination Date. On and after the Cross-Over Date or after the fifth
anniversary of the Cut-Off Date, the Fraud Loss Amount will be zero.
S-67
<PAGE>
Upon initial issuance of the Certificates, the "Bankruptcy Loss Amount" with
respect thereto will be equal to approximately 0.03% (approximately $231,877)
of the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-
Off Date. 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 Certificates through the related Determination Date. As of any
Distribution Date on or after the first anniversary of the Cut-Off Date, the
Bankruptcy Loss Amount will equal the excess, if any, of (1) the lesser of (a)
the Bankruptcy Loss Amount as of the business day next preceding the most
recent anniversary of the Cut-Off Date and (b) an amount, if any, calculated
pursuant to the terms of the Pooling and Servicing Agreement, which amount as
calculated will provide for a reduction in the Bankruptcy Loss Amount, over (2)
the aggregate amount of Bankruptcy Losses allocated solely to the Class B
Certificates since such anniversary. The Bankruptcy Loss Amount and the related
coverage levels described above may be reduced or modified upon written
confirmation from each Rating Agency that such reduction or modification will
not adversely affect the then-current ratings assigned to the Certificates by
it. Such a reduction or modification may adversely affect the coverage provided
by subordination with respect to Bankruptcy Losses. On and after the Cross-Over
Date, the Bankruptcy Loss Amount will be zero.
Notwithstanding the foregoing, the provisions relating to subordination will
not be applicable in connection with a Bankruptcy Loss so long as the
applicable Servicer has notified the 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 related Mortgage Loan and when (A) the related Mortgage Loan is not in
default with regard to the payments due thereunder or (B) delinquent payments
of principal and interest under the related Mortgage Loan and any premiums on
any applicable Standard Hazard Insurance Policy and any related escrow payments
in respect of such Mortgage Loan are being advanced on a current basis by such
Servicer, in either case without giving effect to any Debt Service Reduction.
As a result of the mechanism described above, the risk of Special Hazard
Losses, Fraud Losses and Bankruptcy Losses will be borne solely by the Class B
Certificates to a lesser extent (i.e., only up to the Special Hazard Loss
Amount, Fraud Loss Amount and Bankruptcy Loss Amount, respectively) than the
risk of other Realized Losses, which will be allocated first to the Class B
Certificates in reverse numerical order to the full extent of their initial
Principal Balances.
S-68
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS(/1/)
General
The Mortgage Loans to be included in the Trust Estate will be fixed interest
rate, conventional, monthly pay, fully amortizing, one- to four-family,
residential first mortgage loans substantially all of which have original terms
to stated maturity of approximately 30 years (the "Mortgage Loans"), 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 be secured by
first liens (the "Mortgages") on one- to four-family residential properties
(the "Mortgaged Properties") and to have the additional characteristics
described below and in the Prospectus.
Each of the Mortgage Loans is subject to a due-on-sale clause. See "Certain
Legal Aspects of the Mortgage Loans -- Due-on-Sale' Clauses" and "Servicing of
the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Mortgage Loans" in the Prospectus.
Pledged Asset Mortgage Loans
Certain of the Mortgage Loans serviced by MLCC or NOVUS are either (i)
secured by a security interest in additional collateral (generally securities)
owned by the borrower or (ii) supported by a third party guarantee (usually of
a parent of the borrower), which is in turn secured by a security interest in
collateral (generally securities) owned by such guarantor (any such loans,
"Pledged Asset Mortgage Loans," and any such collateral "Additional
Collateral"). The amount of such Additional Collateral generally does not
exceed 30% of the original principal balance of the Mortgage Loan (or 40% in
the case of a Mortgage Loan serviced by NOVUS secured by non-owner occupied
property). The requirement to maintain Additional Collateral terminates when
the principal balance of the Mortgage Loan is paid down to a predetermined
amount. The pledge agreement and the security interest in such Additional
Collateral will be assigned to the Trustee. It is anticipated that, in the
event of a loss upon the liquidation of a Pledged Asset Mortgage Loan, MLCC or
NOVUS, as applicable, will attempt to realize on the related security interest.
No assurance can be given as to the amount of proceeds, if any, that might be
realized from such Additional Collateral. In no event will the Trust Estate be
permitted to acquire ownership of the Additional Collateral. Pursuant to the
terms of the Underlying Servicing Agreement, MLCC or NOVUS, as applicable, will
continue to administer the Additional Collateral even if MLCC or NOVUS is no
longer the Servicer of the Pledged Asset Mortgage Loans. Ambac Assurance
Corporation (the "Surety Bond Provider") has previously issued two limited
purpose surety bonds (each, a "Limited Purpose Surety Bond"), one to cover the
Pledged Asset Mortgage Loans serviced by MLCC and one to cover the Pledged
Asset Mortgage Loan serviced by NOVUS, which are intended to guarantee payment
to the Trust Estate
- -------
(1) The descriptions in this Prospectus Supplement of the Trust Estate and the
properties securing the Mortgage Loans to be included in the Trust Estate
are based upon the expected characteristics of the Mortgage Loans at the
close of business on the Cut-Off Date, as adjusted for the scheduled
principal payments due on or before such date. Notwithstanding the
foregoing, any of such Mortgage Loans may be excluded from the Trust Estate
(i) as a result of principal prepayment thereof in full or (ii) if, as a
result of delinquencies or otherwise, the Seller otherwise deems such
exclusion necessary or desirable. In either event, other Mortgage Loans may
be included in the Trust Estate. The Seller believes that the information
set forth herein with respect to the expected characteristics of the
Mortgage Loans on the Cut-Off Date is representative of the characteristics
as of the Cut-Off Date of the Mortgage Loans to be included in the Trust
Estate as it will be constituted at the time the Certificates are issued,
although the aggregate unpaid principal balance of the Mortgage Loans as of
the Cut-Off Date, the range of Mortgage Interest Rates and maturities, and
certain other characteristics of the Mortgage Loans in the Trust Estate may
vary. In the event that any of the characteristics as of the Cut-Off Date
of the Mortgage Loans that constitute the Trust Estate on the date of
initial issuance of the Certificates vary materially from those described
herein, revised information regarding the Mortgage Loans will be made
available to purchasers of the Offered Certificates, on or before such
issuance date, and a Current Report on Form 8-K containing such information
will be filed with the Securities and Exchange Commission within 15 days
following such date.
S-69
<PAGE>
of certain shortfalls in the net proceeds realized from the liquidation of any
required Additional Collateral (such amount not to exceed 30% of the original
principal amount of the related Pledged Asset Mortgage Loan (or 40% in the case
of a Pledged Asset Mortgage Loan serviced by NOVUS secured by non-owner
occupied property)) to the extent any such shortfall results in a loss of
principal on the related Pledged Asset Mortgage Loan upon liquidation. The
Limited Purpose Surety Bond will not cover any payments on the Certificates
that are recoverable or sought to be recovered as voidable preference under
applicable law. Although each Limited Purpose Surety Bond is limited in amount
(the "Maximum Amount"), the Seller has been advised by the Surety Bond Provider
that the Maximum Amount is, and will be, sufficient to cover all potential
claims on behalf of the Trust Estate with respect to the Additional Collateral
securing the Pledged Asset Mortgage Loans and on behalf of other assignees of
additional collateral securing similar mortgage loans from MLCC or NOVUS, as
applicable, covered by such Limited Purpose Surety Bond.
Mortgage Loan Underwriting
Approximately 83.02% (by the aggregate unpaid principal balance as of the
Cut-Off Date) of the Mortgage Loans were generally 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 "Underwriting 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 16.98% (by the aggregate unpaid principal balance as
of the Cut-Off Date) of the Mortgage Loans were purchased by Norwest Mortgage
in bulk purchase transactions and were underwritten using underwriting
standards which may vary from the Underwriting Standards (the "Bulk Purchase
Underwritten Loans"). However, Norwest Mortgage has in each case reviewed the
underwriting standards applied for such Bulk Purchase Underwritten Loans and,
except as described above under "--Pledged Asset Mortgage Loans," with respect
to the Pledged Asset Mortgage Loans acquired from MLCC or NOVUS, determined
that such standards were not materially different than the Underwriting
Standards. Approximately 0.43% (by aggregate unpaid principal balance as of the
Cut-Off Date) of the Mortgage Loans are Pledged Asset Mortgage Loans. See "The
Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospectus.
S-70
<PAGE>
The following table sets forth certain characteristics of all the Mortgage
Loans, the Premium Mortgage Loans and the Discount Mortgage Loans.
SELECTED MORTGAGE LOAN DATA
(as of June 1, 1999 (the "Cut-Off Date"))
<TABLE>
<CAPTION>
All Premium Discount
Mortgage Mortgage Mortgage
Loans Loans Loans
--------------------- --------------------- --------------------
<S> <C> <C> <C>
Number of Mortgage Loans 2,387 2,185 202
Aggregate Unpaid
Principal Balance(/1/) $850,069,757 $774,620,805 $ 75,448,952
Range of Unpaid
Principal Balances(/1/) $33,681 to $1,992,486 $33,681 to $1,992,486 $105,613 to $800,000
Average Unpaid Principal
Balance(/1/) $356,125 $354,518 $373,510
Range of Mortgage
Interest Rates 6.000% to 8.750% 6.875% to 8.750% 6.000% to 6.750%
Weighted Average
Mortgage Interest
Rate(/1/) 7.173% 7.224% 6.653%
Weighted Average Net
Mortgage Interest
Rate(/1/) 6.490% 6.500% 6.386%
Range of Remaining Terms
to Stated Maturity 230 to 360 Months 230 to 360 Months 237 to 360 Months
Weighted Average
Remaining Term to
Stated Maturity(/1/) 357 Months 357 Months 356 Months
Range of Original Loan-
to-Value
Ratios(/1/)(/2/) 18.19% to 100.00% 18.19% to 100.00% 28.40% to 100.00%
Weighted Average
Original Loan-to-Value
Ratios(/1/)(/2/) 71.25% 71.44% 69.32%
Number of Mortgage Loans
with Original Loan-to-
Value Ratios greater
than 80% not covered by
Primary Mortgage
Insurance(/2/) 24 22 2
Mortgage Loans with
Original Loan-to-Value
Ratios greater than 80%
not covered by Primary
Mortgage Insurance as a
Percentage of Aggregate
Unpaid Principal
Balance(/1/)(/2/) 0.80% 0.82% 0.56%
Weighted Average
Original Loan-to-Value
Ratio of Mortgage Loans
with Original Principal
Balance greater than
$600,000(/1/)(/2/) 62.67% 62.80% 61.22%
Maximum Original Loan-
to-Value Ratio of
Mortgage Loans with
Original Principal
Balance greater than
$600,000(/1/)(/2/) 80.00% 80.00% 80.00%
</TABLE>
- -------
(1) Approximate.
(2) With respect to the Pledged Asset Mortgage Loans, the Loan-to-Value Ratio
is calculated without regard to any Additional Collateral.
S-71
<PAGE>
SELECTED MORTGAGE LOAN DATA (Cont.)
<TABLE>
<CAPTION>
All Premium Discount
Mortgage Mortgage Mortgage
Loans Loans Loans
---------------- ---------------- --------------
<S> <C> <C> <C>
Geographic Concentration of
Mortgaged Properties
securing Mortgage Loans in
Excess of 5% of the
Aggregate Unpaid Principal
Balance(/1/)
California 48.71% 49.98% 35.98%
Virginia * * 7.99%
Connecticut * * 5.50%
Pennsylvania * * 5.43%
Texas * * 5.04%
Maximum Five-Digit Zip Code
Concentration(/1/) 0.77% 0.84% 1.96%
Earliest Origination Month February 1994 February 1994 October 1998
Latest Origination Month June 1999 June 1999 May 1999
Latest Stated Maturity Date June 1, 2029 June 1, 2029 June 1, 2029
Number of Buy-Down Loans 5 3 2
Buy-Down Loans as a
Percentage of Aggregate
Unpaid Principal
Balance(/1/) 0.26% 0.17% 1.25%
Number of Pledged Asset
Mortgage Loans 13 11 2
Pledged Asset Mortgage Loans
as a Percentage of Aggregate
Unpaid Principal
Balance(/1/) 0.43% 0.41% 0.56%
Number of Subsidy Loans 1 1 0
Subsidy Loans as a Percentage
of Aggregate Unpaid
Principal Balance(/1/) 0.04% 0.05% 0.00%
Weighted Average FICO
Score(/1/)(/2/) 725 724 742
</TABLE>
- -------
(1) Approximate.
(2) Does not include the Mortgage Loans for which FICO Scores are not
available.
*Less than 5% of the aggregate unpaid principal balance as of the Cut-Off
Date.
S-72
<PAGE>
Mortgage Loan Data
Set forth below is a description of certain additional expected
characteristics of the Mortgage Loans as of the Cut-Off Date (except as
otherwise indicated).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Mortgage Principal Principal
Interest Rate Loans Balance Balance
- ------------- --------- --------------- -------------
<S> <C> <C> <C>
6.000%.......... 1 $ 343,657.55 0.04%
6.250%.......... 3 1,174,285.58 0.14
6.375%.......... 4 1,594,715.97 0.19
6.500%.......... 41 15,091,675.37 1.78
6.625%.......... 46 17,105,225.91 2.01
6.750%.......... 107 40,139,391.44 4.72
6.875%.......... 227 81,616,877.12 9.60
7.000%.......... 413 150,810,693.50 17.74
7.125%.......... 370 134,118,613.02 15.78
7.250%.......... 478 169,256,882.32 19.91
7.350%.......... 1 276,435.47 0.03
7.375%.......... 298 104,707,156.36 12.32
7.500%.......... 208 71,096,728.04 8.36
7.625%.......... 76 24,733,333.00 2.91
7.750%.......... 49 14,037,822.65 1.65
7.875%.......... 30 11,652,771.58 1.37
8.000%.......... 17 6,937,846.81 0.82
8.125%.......... 15 4,665,284.93 0.55
8.375%.......... 1 100,000.00 0.01
8.625%.......... 1 355,689.56 0.04
8.750%.......... 1 254,670.92 0.03
----- --------------- ------
Total....... 2,387 $850,069,757.10 100.00%
===== =============== ======
</TABLE>
MORTGAGE LOAN DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Documentation Level Loans Balance Balance
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
Full Documenta-
tion........... 2,074 $750,411,767.34 88.28%
Income Verifica-
tion........... 105 38,198,086.71 4.49
Asset Verifica-
tion........... 137 37,450,521.80 4.41
Preferred
Processing..... 71 24,009,381.25 2.82
----- --------------- ------
Total....... 2,387 $850,069,757.10 100.00%
===== =============== ======
</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
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Remaining Stated Mortgage Principal Principal
Term (Months) Loans Balance Balance
- ---------------- --------- --------------- -------------
<S> <C> <C> <C>
230............. 1 $ 1,767,058.10 0.21%
237............. 3 1,179,981.77 0.14
238............. 2 527,407.69 0.06
239............. 9 2,958,706.96 0.35
240............. 5 1,659,704.22 0.20
254............. 1 219,117.29 0.03
258............. 1 118,906.51 0.01
266............. 1 359,598.45 0.04
280............. 1 72,108.17 0.01
281............. 1 265,443.41 0.03
282............. 1 241,541.14 0.03
287............. 1 302,408.06 0.04
295............. 1 350,034.44 0.04
299............. 2 809,000.08 0.10
300............. 1 266,640.44 0.03
305............. 1 231,327.92 0.03
307............. 2 760,448.76 0.09
310............. 1 525,587.91 0.06
311............. 1 337,624.25 0.04
317............. 1 343,831.31 0.04
321............. 1 139,519.51 0.02
324............. 1 481,228.14 0.06
325............. 1 289,206.65 0.03
333............. 1 304,539.35 0.04
337............. 1 453,130.71 0.05
340............. 1 310,532.75 0.04
341............. 1 355,689.56 0.04
342............. 2 597,433.74 0.07
343............. 2 829,480.55 0.10
344............. 2 565,039.10 0.07
345............. 4 1,159,379.98 0.14
346............. 4 1,547,264.22 0.18
347............. 2 566,271.94 0.07
348............. 4 1,221,458.46 0.14
349............. 5 2,043,062.53 0.24
350............. 4 1,492,342.77 0.18
351............. 4 2,138,466.73 0.25
352............. 14 4,891,299.80 0.58
353............. 25 9,028,533.71 1.06
354............. 22 6,011,435.56 0.71
355............. 29 10,626,586.68 1.25
356............. 79 24,850,395.26 2.92
357............. 203 66,250,178.72 7.79
358............. 282 89,755,393.72 10.56
359............. 1,014 368,229,425.08 43.29
360............. 642 242,635,985.00 28.54
----- --------------- ------
Total....... 2,387 $850,069,757.10 100.00%
===== =============== ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Year of Origination Loans Balance Balance
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
1994............ 1 $ 350,034.44 0.04%
1996............ 1 139,519.51 0.02
1997............ 5 1,336,945.40 0.16
1998............ 126 44,671,377.69 5.26
1999............ 2,254 803,571,880.06 94.52
----- --------------- ------
Total....... 2,387 $850,069,757.10 100.00%
===== =============== ======
</TABLE>
S-73
<PAGE>
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Property Loans Balance Balance
- -------- --------- --------------- -------------
<S> <C> <C> <C>
Single-family
detached........ 2,179 $782,901,727.89 92.10%
Two- to four-
family units.... 8 3,645,155.61 0.43
Condominiums
High-rise
(greater than
four stories).. 26 9,196,401.05 1.08
Low-rise (four
stories or
less).......... 92 26,618,414.28 3.13
Planned unit
developments.... 78 27,017,732.13 3.18
Townhouses....... 0 0.00 0.00
Cooperative
Units........... 4 690,326.14 0.08
----- --------------- ------
Total........ 2,387 $850,069,757.10 100.00%
===== =============== ======
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Aggregate Percentage of
Number of Unpaid Total Aggregate
Mortgage Principal Unpaid Principal
Geographic Area Loans Balance Balance
- --------------- --------- --------------- ----------------
<S> <C> <C> <C>
Alabama......... 6 $ 2,124,336.04 0.25%
Arizona......... 44 14,820,398.39 1.74
Arkansas........ 8 3,019,087.67 0.36
California...... 1,120 414,287,689.19 48.71
Colorado........ 108 37,533,937.85 4.42
Connecticut..... 56 23,620,141.37 2.78
Delaware........ 4 1,445,470.10 0.17
District of Co-
lumbia......... 6 2,114,938.13 0.25
Florida......... 85 27,773,203.41 3.27
Georgia......... 64 21,779,982.55 2.56
Hawaii.......... 6 2,384,138.47 0.28
Idaho........... 6 1,802,789.68 0.21
Illinois........ 56 20,028,424.40 2.36
Indiana......... 9 3,667,068.24 0.43
Iowa............ 4 1,417,347.16 0.17
Kansas.......... 3 1,315,559.09 0.15
Kentucky........ 5 1,794,294.04 0.21
Louisiana....... 6 1,979,194.57 0.23
Maine........... 1 377,205.51 0.04
Maryland........ 46 16,718,015.85 1.97
Massachusetts... 60 21,563,039.63 2.54
Michigan........ 26 10,087,895.06 1.19
Minnesota....... 30 9,664,692.82 1.14
Mississippi..... 1 399,374.03 0.05
Missouri........ 17 5,980,980.93 0.70
Montana......... 2 412,169.87 0.05
Nevada.......... 14 4,063,537.11 0.48
New Hampshire... 2 622,532.20 0.07
New Jersey...... 81 27,066,206.33 3.18
New Mexico...... 8 2,595,394.86 0.31
New York........ 114 38,610,586.19 4.54
North Carolina.. 23 7,605,665.82 0.89
Ohio............ 17 5,467,578.21 0.64
Oklahoma........ 8 2,771,046.08 0.33
Oregon.......... 35 10,608,708.43 1.25
Pennsylvania.... 30 9,618,496.44 1.13
Rhode Island.... 5 1,245,274.06 0.15
South Carolina.. 2 764,390.74 0.09
Tennessee....... 16 5,515,920.33 0.65
Texas........... 100 34,067,475.97 4.01
Utah............ 27 8,121,668.56 0.96
Vermont......... 3 995,533.22 0.12
Virginia........ 62 19,874,156.99 2.34
Washington...... 54 19,274,839.13 2.27
West Virginia... 2 532,777.37 0.06
Wisconsin....... 4 1,149,597.31 0.14
Wyoming......... 1 1,386,997.70 0.16
----- --------------- ------
Total....... 2,387 $850,069,757.10 100.00%
===== =============== ======
</TABLE>
Using Customer file(s): MORTPRO.001
Using Customer file(s): SUBSIDY.001
S-74
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Range of Number of Unpaid Unpaid
Original Loan-to- Mortgage Principal Principal
Value Ratios Loans Balance Balance
- ---------------------------------------- --------- --------------- -------------
<S> <C> <C> <C>
50% or less............................. 156 $ 58,544,493.01 6.89%
50.01- 55.00%........................... 104 38,538,833.24 4.53
55.01- 60.00%........................... 140 56,792,908.19 6.68
60.01- 65.00%........................... 184 73,471,439.54 8.64
65.01- 70.00%........................... 328 123,335,176.26 14.51
70.01- 75.00%........................... 337 112,924,605.40 13.28
75.01- 80.00%........................... 877 309,100,123.18 36.37
80.01- 85.00%........................... 39 12,926,770.67 1.52
85.01- 90.00%........................... 160 47,282,934.69 5.56
90.01- 95.00%........................... 51 14,117,064.84 1.66
95.01-100.00%........................... 11 3,035,408.08 0.36
----- --------------- ------
Total............................... 2,387 $850,069,757.10 100.00%
===== =============== ======
</TABLE>
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. Although for purposes of
applying the Underwriting Standards, the Loan-to-Value Ratio of a Pledged Asset
Mortgage Loan is calculated taking into account the value of any Additional
Collateral, for purposes of this Prospectus Supplement, such Loan-to-Value Ratio
is calculated without regard to the value of any Additional Collateral. 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 is based on the independent judgment of an
appraiser and not an arms length sales transaction, is 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 -- Real Estate Market Conditions Affect
Mortgage Loan Performance" and "-- Geographic Concentration May Increase Rates
of Loss and Delinquency" in the Prospectus.
FICO SCORES
<TABLE>
<CAPTION>
Percentage of
Total Weighted
Number Aggregate Aggregate Average
Range of of Unpaid Unpaid 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........................ 0 0.00 0.00 0.00
501-550........................ 10 3,209,023.38 0.38 74.80
551-600........................ 28 8,614,907.55 1.01 77.41
601-650........................ 163 56,518,169.90 6.65 75.28
651-700........................ 502 178,140,469.33 20.96 71.91
701-750........................ 794 286,176,272.06 33.67 71.48
751-800........................ 833 298,449,224.61 35.10 69.98
801-850........................ 41 13,916,367.38 1.64 64.36
851-900........................ 0 0.00 0.00 0.00
Not Available.................. 16 5,045,322.89 0.59 71.54
----- --------------- ------ -----
Total/ Weighted
Average...................... 2,387 $850,069,757.10 100.00% 71.25%
===== =============== ====== =====
</TABLE>
"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 histori cal 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 relied 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
Total
Range of Aggregate Aggregate
Original Mortgage Number of Unpaid Unpaid
Loan Principal Mortgage Principal Principal
Balances Loans Balance Balance
- ---------------- --------- --------------- -------------
<S> <C> <C> <C>
Less than or
equal to
$200,000....... 115 $ 14,630,235.41 1.72%
$200,001-
$250,000....... 95 22,574,149.56 2.66
$250,001-
$300,000....... 746 207,287,458.90 24.39
$300,001-
$350,000....... 508 165,219,169.07 19.44
$350,001-
$400,000....... 345 129,604,916.95 15.25
$400,001-
$450,000....... 173 74,253,246.18 8.73
$450,001-
$500,000....... 169 81,083,455.68 9.54
$500,001-
$550,000....... 76 40,049,172.15 4.71
$550,001-
$600,000....... 42 24,247,495.44 2.85
$600,001-
$650,000....... 56 35,602,385.03 4.19
$650,001-
$700,000....... 7 4,754,790.56 0.56
$700,001-
$750,000....... 8 5,788,557.64 0.68
$750,001-
$800,000....... 11 8,546,088.31 1.01
$800,001-
$850,000....... 6 4,964,959.75 0.58
$850,001-
$900,000....... 7 6,162,514.88 0.72
$900,001-
$950,000....... 6 5,636,939.12 0.66
$950,001-
$1,000,000..... 13 12,856,854.63 1.51
Over $ 1
Million........ 4 6,807,367.84 0.80
----- --------------- ------
Total....... 2,387 $850,069,757.10 100.00%
===== =============== ======
</TABLE>
ORIGINATORS OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Originator Loans Balance Balance
- ---------- --------- --------------- -------------
<S> <C> <C> <C>
NMI or Affili-
ate............ 1,326 $493,486,796.25 58.05%
Other Origina-
tors........... 1,061 356,582,960.85 41.95
----- --------------- ------
Total....... 2,387 $850,069,757.10 100.00%
===== =============== ======
</TABLE>
It is expected that as of the Cut-Off Date, two of the "Other Originators" will
have accounted for approximately 7.27% and 5.60% respectively, of the aggregate
unpaid principal balance of the Mortgage Loans as of the Cut-Off Date. No other
single "Other Originator" is expected to have accounted for more than 5.00% of
the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-Off
Date.
S-75
<PAGE>
PURPOSES OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Loan Purpose Loans Balance Balance
- ------------ --------- --------------- -------------
<S> <C> <C> <C>
Purchase........ 1,152 $406,327,956.18 47.80%
Equity Take Out
Refinance...... 323 113,710,801.16 13.38
Rate/Term Refi-
nance.......... 912 330,030,999.76 38.82
----- --------------- ------
Total....... 2,387 $850,069,757.10 100.00%
===== =============== ======
</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
required 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" in the Prospectus.
OCCUPANCY OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Occupancy Type Loans Balance Balance
- -------------- --------- --------------- -------------
<S> <C> <C> <C>
Primary Resi-
dence.......... 2,319 $825,563,845.89 97.12%
Second Home..... 68 24,505,911.21 2.88
----- --------------- ------
Total....... 2,387 $850,069,757.10 100.00%
===== =============== ======
</TABLE>
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
Certificates, to substitute new Mortgage Loans therefor. Any Mortgage Loan
substituted for a Group II or Group III Mortgage Loan will be considered a
Group II or Group III Mortgage Loan, as applicable. Any Mortgage Loan so
substituted must, among other things, have an unpaid principal balance equal to
or less than the Scheduled Principal Balance of the Mortgage Loan for which it
is being substituted (after giving effect to the scheduled principal payment
due in the month of substitution on the Mortgage Loan for which a new Mortgage
Loan is being substituted), a Loan-to-Value Ratio less than or equal to, and a
Mortgage Interest Rate equal to that of the Mortgage Loan for which it is being
substituted. See "Prepayment and Yield Considerations" herein and "The Pooling
and Servicing Agreement -- Assignment of Mortgage Loans to the Trustee" in the
Prospectus.
Optional Repurchase of Defaulted Mortgage Loans
The Seller may, in its sole discretion, repurchase from the Trust Estate
(i) any defaulted Mortgage Loan, or any Mortgage Loan as to which default is
reasonably foreseeable and (ii) any Mortgage Loan as to which the originator or
seller of such Mortgage Loan has breached a representation or warranty to
Norwest Mortgage regarding the characteristics of such Mortgage Loan, at a
price equal to the unpaid principal balance of such Mortgage Loan, together
with accrued interest at a rate equal to the Mortgage Interest Rate through the
last day of the month in which such repurchase occurs. See "The Pooling and
Servicing Agreement -- Optional Purchases" in the Prospectus. A Servicer may,
in its sole discretion, allow the assumption of a defaulted Mortgage Loan
serviced by such Servicer, subject to certain conditions specified in the
applicable Underlying Servicing Agreement, or encourage the refinancing of a
defaulted Mortgage Loan. See "Prepayment and Yield Considerations" herein and
"Servicing of the Mortgage Loans -- Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Mortgage Loans" in the Prospectus.
S-76
<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 the Seller's
mortgage pass-through certificates is set forth in the tables under
"Delinquency and Foreclosure Experience" in the Prospectus. There can be no
assurance that the delinquency and foreclosure experience set forth in any
table with respect to any category of mortgage loans, including categories of
mortgage loans similar to the Mortgage Loans included in the Trust Estate, will
be representative 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
discussion of various factors affecting delinquencies and foreclosures
generally.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of distributions in reduction of the Principal Balance of any Class
of the Offered Certificates, the aggregate amount of distributions on any Class
of the Offered Certificates and the yield to maturity and weighted average life
of any Class of the Offered Certificates purchased at a discount or premium
will be directly related to the rate of payments of principal on the Mortgage
Loans in the Trust Estate and the amount and timing of mortgagor defaults re-
sulting in Realized Losses. Prepayments (which, as used herein, include all
unscheduled payments of principal, including payments as the result of liquida-
tions, purchases and repurchases) of the Mortgage Loans in the Trust Estate
will result in distributions to Certificateholders then entitled to distribu-
tions in respect of principal of amounts which would otherwise be distributed
over the remaining terms of such Mortgage Loans. Since the rate of prepayment
on the Mortgage Loans will depend on future events and a variety of factors (as
described more fully below and in the Prospectus under "Prepayment and Yield
Considerations"), no assurance can be given as to such rate or the rate of
principal payments or yield on, or weighted average life of, any Class of the
Offered Certificates or the aggregate amount of distributions on any Class of
the Offered Certificates.
The rate of principal payments on the Mortgage Loans will be affected by the
amortization schedules of the Mortgage Loans, the rate of principal prepayments
(including partial prepayments and those resulting from refinancing) thereon by
mortgagors, liquidations of defaulted Mortgage Loans, repurchases by the Seller
of Mortgage Loans as a result of defective documentation or breaches of repre-
sentations and warranties and optional purchases by the Seller of all of the
Mortgage Loans in connection with the termination of the Trust Estate. See "De-
scription of the Mortgage Loans -- Mandatory Repurchase or Substitution of
Mortgage Loans" and "Pooling and Servicing Agreement -- Optional Termination"
herein and "The Pooling and Servicing Agreement --Assignment of Mortgage Loans
to the Trustee," "-- Optional Purchases" and "-- Termination; 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. If prevailing
rates for similar mortgage loans fall below the Mortgage Interest Rate 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, includ-
ing, but not limited to, general or targeted solicitations (which may be based
on characteristics including, but not limited to, the mortgage loan interest
rate or payment history and the geographic location of the Mortgaged Property),
reduced origination fees or closing costs, pre-approved applications, waiver of
pre-closing interest accrued with respect to a refinanced loan prior to the
pay-off of such loan, or other financial incentives. In particular, the appli-
cation of Norwest Mortgage's "retention program," which enables qualifying
mortgagors to refinance at greatly reduced cost, to its servicing portfolio may
substantially affect the rate of prepayment on the Mortgage Loans. See "Prepay-
ment and Yield Considerations --Refinancings" in the Prospectus. In addition,
Norwest Mortgage or third parties may enter into agreements with borrowers pro-
viding for the bi-weekly payment of principal and interest on the related mort-
gage loan, thereby accelerating payment of the mortgage loan resulting in par-
tial prepayments.
S-77
<PAGE>
Other factors affecting prepayment of mortgage loans include changes in mort-
gagors' housing needs, job transfers, unemployment or substantial fluctuations
in income, significant declines in real estate values and adverse economic con-
ditions either generally or in particular geographic areas, mortgagors' equity
in the Mortgaged Properties, including 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 Trust Administrator
to have defective documentation or with respect to which the Seller has
breached a representation or warranty, (ii) a Servicer elects to encourage the
refinancing of any defaulted Mortgage Loan rather than to permit an assumption
thereof by a mortgagor or (iii) a Servicer agrees to modify the payment terms
of a Mortgage Note rather than foreclose on the related Mortgage Loan. See
"Servicing of the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Reali-
zation Upon Defaulted Mortgage Loans" in the Prospectus.
As described under "Description of the Certificates -- Principal (Including
Prepayments)" herein, all or a disproportionate percentage of principal
prepayments on the Mortgage Loans (including liquidations and repurchases of
Mortgage Loans) will be distributed, to the extent of the Non-PO Fraction, to
the holders of the Class A Certificates (other than the Class A-PO
Certificates) then entitled to distributions in respect of principal during the
nine years beginning on the first Distribution Date, and, to the extent that
such principal prepayments are made in respect of a Discount Mortgage Loan, to
the Class A-PO Certificates in proportion to the interest of the Class A-PO
Certificates in such Discount Mortgage Loan represented by the PO Fraction.
As described herein under "Description of the Certificates -- Principal (In-
cluding Prepayments) -- Allocation of Amount to be Distributed on the Class A
Certificates" unless the Principal Balances of the other Group 1 Certificates
have been reduced to zero, the Class A-9 Certificates will not be entitled to
any distributions of principal prepayments for five years and during the fol-
lowing five years the percentage of principal prepayments allocated to the
Class A-9 Certificates will gradually increase.
As described herein under "Description of the Certificates -- Principal
(Including Prepayments) --Allocation of Amount to be Distributed on the Class A
Certificates," unless the Principal Balances of the Group B Certificates and
the Class A-20A Component have been reduced to zero, the Group A Certificates
and the Class A-20B Component will not be entitled to any distributions of
principal prepayments for five years and during the following five years the
percentage of principal prepayments allocated to the Group A Certificates and
the Class A-20B Component will gradually increase.
As described herein under "Description of the Certificates--Principal
(Including Prepayments)--Allocation of Amount to be Distributed on the Class A
Certificates," unless the Principal Balances of the other Group 2 Certificates
have been reduced to zero, the Class A-22 Certificates will not be entitled to
any distributions of principal prepayments for five years and during the
following five years the percentage of principal prepayments allocated to the
Class A-22 Certificates will gradually increase.
The yield to maturity of the Offered Certificates will be sensitive in
varying degrees to the rate and timing of principal payments (including
prepayments, which may be made at any time without penalty) on the Mortgage
Loans. Investors in the Offered Certificates should consider the associated
risks, including, in the case of Offered Certificates purchased at a discount,
particularly the Class A-13 and Class A-20 Certificates, the risk that a slower
than anticipated rate of payments in respect of principal (including
prepayments) on the Mortgage Loans will have a negative effect on the yield to
maturity of such Certificates and, in the case of Offered Certificates
purchased at a premium, or in the case of the Class A-21 Certificates, which
have no Principal Balance, that a faster than anticipated rate of payments in
respect of principal (including prepayments) on the Mortgage Loans will, or in
the case of the Class A-8 Certificates, which have Components with no Principal
Balance, may, have a negative effect on the yield to maturity of such
Certificates. Investors purchasing Offered Certificates at a premium and
investors purchasing Class A-21 Certificates, which have no Principal Balance,
should also consider the risk that a rapid rate of
S-78
<PAGE>
payments in respect of principal (including prepayments) on the Mortgage Loans
could result in the failure of such investors to fully recover their initial
investments. An investor is urged to make an investment decision with respect
to any Class of Offered Certificates based on the anticipated yield to maturity
of such Class resulting from its purchase price and such investor's own
determination as to anticipated Mortgage Loan prepayment rates under a variety
of scenarios.
The Class A-8 and Class A-20 Certificates are each comprised of Components.
Each Component may be affected differently by the rate and timing of principal
payments (including prepayments) on the Mortgage Loans, which rate may
fluctuate significantly from time to time. The yield to investors in the Class
A-8 and Class A-20 Certificates therefore may be affected.
The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
who purchases an Offered Certificate at a price other than par, even if the
average rate of principal payments experienced over time is consistent with
such investor's expectation. In general, the earlier a prepayment of principal
on the underlying Mortgage Loans, the greater the effect on such investor's
yield to maturity. As a result, the effect on such investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Offered Certificates would not be fully offset by a subsequent
like reduction (or increase) in the rate of principal payments.
The yield to maturity on the Classes of Class B Certificates with higher
numerical designations will generally be more sensitive to losses than the
Classes with lower numerical designations because the entire amount of such
losses (except for the portion of Excess Losses allocated to the Class A
Certificates and Classes of Class B Certificates with lower numerical
designations) will be allocable to the Classes 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 on the yield to maturity on the Classes of Class B
Certificates with higher numerical designations because amounts otherwise
distributable to holders of the Class B Certificates will be made available to
protect the holders of the Class A Certificates against interruptions in
distributions due to such unadvanced mortgagor delinquencies. Such unadvanced
delinquencies, even if subsequently cured, may affect the timing of the receipt
of distributions by the holders of the Class B Certificates.
After the Cross-Over Date, the yield to maturity on the Class A-9 and Class
A-22 Certificates will be more sensitive to losses due to liquidations of the
Mortgage Loans (and the timing thereof) than that on any other Class of Class A
Certificates because the principal portion of Realized Losses, other than
Excess Losses, that otherwise would be allocated to the Class A-8 and Class A-
19 Certificates will be borne by the Class A-9 and Class A-22 Certificates,
respectively, (in addition to other Realized Losses allocated to the Class A-9
and Class A-22 Certificates) and not by such Class A-8 and Class A-19
Certificates for so long as the Principal Balance of the Class A-9
Certificates, in the case of the Class A-8 Certificates, or the Class A-22
Certificates, in the case of the Class A-19 Certificates, is greater than zero.
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
covered by Compensating Interest or subordination. 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 B-1, Class B-2 and especially the Class B-3 Certificates, may be af-
fected by the geographic concentration of the Mortgaged Properties securing the
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 experienced significant fluctuations in housing prices. In addi-
tion, California and several other regions have experienced natural disasters,
including earthquakes, fires, floods and hurricanes, which may adversely affect
property values. See "Description of the Mortgage Loans." Any deterioration in
housing prices in the states in which there is a significant concentration of
Mortgaged Properties, as well as the other states in which the Mortgaged Prop-
erties are located, and any deterioration of economic conditions in such states
which adversely affects the ability of borrowers to make payments on the Mort-
gage Loans, may increase the likelihood of losses on the Mortgage Loans. Such
losses, if they occur, may have an adverse effect on the yield to maturity of
the Offered Certificates and more particularly on the Class B-1, Class B-2 and
especially the Class B-3 Certificates.
S-79
<PAGE>
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
representation) 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
intended. 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
Prospectus. Repurchase of any such Mortgage Loan will affect in varying degrees
the yields and weighted average lives of the Classes of Offered Certificates
and could adversely affect the yield of any Offered Certificates purchased at a
premium.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Class of Offered
Certificates.
An investor should consider the risk that rapid rates of prepayments on the
Mortgage Loans, and therefore of amounts distributable in reduction of
principal balance of the Offered Certificates, may coincide with periods of low
prevailing interest rates. During such periods, the effective interest rates on
securities in which an investor may choose to reinvest amounts distributed in
reduction of the principal balance of such investor's Offered Certificate may
be lower than the applicable Pass-Through Rate or expected yield. 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.
Investors in the Class A-6 and Class A-14 Certificates should understand that
if LIBOR is greater than or equal to 8.150% and 7.500% per annum, respectively,
the Pass-Through Rate of such Class A-6 and Class A-14 Certificates will remain
at its maximum rate of 9.000% and 8.500% per annum, respectively. Investors in
the Class A-6 and Class A-14 Certificates should also consider the risk that if
LIBOR is lower than anticipated, the actual yields to such investors could be
lower than the anticipated yields. Conversely, investors in the Class A-7 and
Class A-15 Certificates should consider the risk that if LIBOR is higher than
anticipated, the actual yields to such investors could be significantly lower
than the anticipated yields. Investors in the Class A-7 and Class A-15
Certificates should also understand that if LIBOR is greater than or equal to
8.150% and 7.500% per annum, respectively, the Class A-7 and Class A-15
Certificates will accrue interest at the minimum rate of 0.000% per annum. See
"-- Sensitivity of the Class A-7 and Class A-15 Certificates" below.
Investors in the Class A-6, Class A-7, Class A-14 and Class A-15 Certificates
should understand that the timing of changes in LIBOR may affect the actual
yields to such investors even if the average rate of LIBOR is consistent with
such investors' expectations. Each investor must make an independent decision
as to the appropriate LIBOR assumptions to be used in deciding whether to
purchase a Class A-6, Class A-7, Class A-14 or Class A-15 Certificate.
In addition to prepayment risks, investors in the Class A-12 Certificates
should also realize that special procedures for principal distributions may
cause funds to be unavailable for a requested principal distribution even if
the Class A-12 Certificates as a whole are receiving distributions of principal
or may lead to an unrequested principal distribution, which may adversely
affect their expected yield. See "Description of the Certificates --
Distributions in Reduction of the Principal Balance of the Class A-12
Certificates."
In addition, the Class A-12 Certificates are Scheduled Certificates and will
receive as a Class distributions of principal based on the Schedule IV
Reduction table and the priorities of distribution set forth under "Description
of the Certificates -- Principal (Including Prepayments) -- Allocation of
Amount to be Distributed on the Class A Certificates." This will affect the
amount distributed to the Class A-12 Certificates on any Distribution Date.
However, the Class A-12 Certificates may receive more or less than the amount
determined
S-80
<PAGE>
by the table based on the rate of principal prepayments on the Mortgage Loans.
As a result, the yield on the Class A-12 Certificates may be different than
that anticipated by an investor and may be negatively affected. See
"Description of the Certificates -- Principal (Including Prepayments) --
Additional Principal Payment Characteristics of the Scheduled Certificates and
the Class A-8 Accrual Component."
Due to the special tax treatment of residual interests, 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 Certificates were taxed as
debt instruments, or may be negative. See "Federal Income Tax Considerations"
herein.
As referred to herein, the "weighted average life" of a Class of Offered
Certificates (other than the Class A-21 Certificates) refers to the average
amount of time that will elapse from the date of issuance of such Class until
each dollar in reduction of the Principal Balance of such Class is distributed
to the investor. The weighted average life of a Class A-21 Certificate is equal
to the average amount of time that will elapse between the date of issuance of
the Certificates and the date on which each dollar in reduction of the
Principal Balance of the Class A-16 Certificates (a portion of the Principal
Balance of which corresponds to the notional amount of the Class A-21
Certificates) is distributed to the investors in the Class A-16 Certificates.
In addition, the Class A-8 Certificates will remain outstanding even if their
Principal Balance has been reduced to zero for so long as any Class A-8 IO Com-
ponent continues to accrue interest.
The weighted average life of any Class of Certificates will vary in sensitiv-
ity to the rate of prepayments on the Mortgage Loans. In particular, the
weighted average lives of the Class A-5, Class A-6, Class A-7, Class A-11,
Class A-12, Class A-13, Class A-14 and Class A-15 Certificates will be highly
sensitive to the rate of prepayments on the Mortgage Loans. Specifically, on
each Distribution Date up to and including the Distribution Date on which the
Principal Balances of the Schedule I PAC Support Certificates or the Sched-
ule II PAC Support Certificates are reduced to zero, after the Schedule I PAC
Principal Amount or Schedule II PAC Principal Amount of the Schedule I PAC Cer-
tificates or the Schedule II PAC Certificates, as the case may be, has been
distributed for such Distribution Date, principal payments for such Distribu-
tion Date will be applied to the Schedule I PAC Support Certificates or the
Schedule II PAC Support Certificates, as applicable, even if such principal
payments would cause a distribution in excess of any Schedule I Reduction
Amount, Schedule II Reduction Amount, Schedule III Reduction Amount or Schedule
IV Reduction Amount of such Schedule I PAC Support Certificates or the Schedule
II PAC Support Certificates, before being distributed to the Schedule I PAC
Certificates or Schedule II PAC Certificates in the priorities set forth above
under "Description of the Certificates -- Principal (Including Prepayments) --
Allocation of Amount to be Distributed on the Class A Certificates." Further,
the Schedule I PAC Support Certificates or the Schedule II PAC Support Certifi-
cates will receive no distributions in reduction of principal on such Distribu-
tion Date from their respective portion of the Class A Non-PO Principal Amount
if such portion of the Class A Non-PO Principal Amount available to make dis-
tributions of principal to such Schedule I PAC Certificate or Schedule II PAC
Certificates in accordance with the priorities set forth under "Description of
the Certificates-- Principal (Including Prepayments) -- Allocation of Amount to
be Distributed on the Class A Certificates" is equal to or less than the Sched-
ule I PAC Principal Amount or Schedule II PAC Principal Amounts, as the case
may be, for such Classes on such Distribution Date.
Generally, low rates of prepayment may result in the extension of the
weighted average life of a Class of Certificates and higher rates may result in
the shortening of such weighted average life. However, in the case of the Class
A-2, Class A-3 and Class A-8 Certificates, in the event that such principal
prepayments occur at a constant rate between approximately 501% SPA and approx-
imately 579% SPA for the Class A-2 Certificates, between approximately 501% SPA
and approximately 580% SPA for the Class A-3 Certificates and between approxi-
mately 276% SPA and approximately 366% SPA for the Class A-8 Certificates, the
weighted average lives of the Class A-2, Class A-3 and Class A-8 Certificates,
respectively, may be extended as illustrated by their respective tables begin-
ning on page S-83. See "Description of the Certificates -- Principal (Including
Prepayments) -- Principal Payment Characteristics of the PAC Certificates, the
Scheduled Certificates, the Class A-8 Accrual Component and the Companion Cer-
tificates" and "-- Additional Weighted Average Life Considerations of the Class
A-2, Class A-3, and Class A-8 Certificates."
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an
54
S-81
<PAGE>
assumed rate of prepayment each month relative to the then outstanding
principal balance of a pool of new mortgage loans. A prepayment assumption of
100% SPA assumes constant prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, 100% SPA assumes a
constant prepayment rate of 6% per annum each month. As used in the table
below, "0% SPA" assumes prepayment rates equal to 0% of SPA, i.e., no
prepayments. SPA does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans.
The tables set forth below have been prepared assuming, among other things,
the following (the "Structuring Assumptions"): (i) the Trust Estate consists of
one "Assumed Group I Discount Mortgage Loan", one "Assumed Group I Premium
Mortgage Loan", one "Assumed Group II Mortgage Loan" and one "Assumed Group III
Mortgage Loan" (collectively, the "Assumed Mortgage Loans") with the
characteristics set forth below, (ii) the scheduled payment in each month for
each of the Assumed Mortgage Loans has been based on its outstanding balance as
of the first day of the month preceding the month of such payment, its Mortgage
Interest Rate and its remaining term to stated maturity, so that such scheduled
payments would amortize the remaining balance over its remaining term to
maturity, (iii) scheduled monthly payments of principal and interest on the
Assumed Mortgage Loans will be timely received on the first day of each month
(with no defaults), commencing in July 1999, (iv) the Seller does not
repurchase any of the Assumed Mortgage Loans and the Seller does not exercise
its option to purchase the Assumed Mortgage Loans and thereby cause a
termination of the Trust Estate, (v) principal payments on the Assumed Mortgage
Loans representing principal prepayments in full of individual mortgage loans
will be received on the last day of each month commencing in June 1999 at the
respective constant percentages of SPA set forth in the tables and there are no
partial principal prepayments or Prepayment Interest Shortfalls, (vi) the
Certificates will be issued on June 29, 1999, (vii) distributions to
Certificateholders will be made on the 25th day of each month, commencing in
July 1999, (viii) the Servicing Fee Rate will be 0.25% per annum and the Master
Servicing Fee Rate will be 0.017% per annum for each Assumed Mortgage Loan,
(ix) the initial Principal Balance (or initial notional amount) of each Class
of Certificates and Component will be as set forth in the table beginning on
page S-5 of this Prospectus Supplement and (x) distributions of principal on
the Class A-12 Certificates are not restricted to increments of $1,000 and no
withdrawals are made from the Rounding Account.
Assumed Mortgage Loan Characteristics
<TABLE>
<CAPTION>
Principal Balance Remaining Term Original Term
as of the Cut- Mortgage to Maturity to Maturity
Off Date Interest Rate (in Months) (in Months)
----------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Assumed Group I Discount
Mortgage Loan.......... $ 75,448,951.82 6.6525304349% 356 358
Assumed Group I Premium
Mortgage Loan.......... $767,813,437.44 7.2213230876% 357 359
Assumed Group II
Mortgage Loan.......... ___3,047,824.59$ 7.4206542231% 352 360
Assumed Group III
Mortgage Loan.......... ___3,759,543.25$ 7.5587524196% 296 304
</TABLE>
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 will be
differences between the characteristics of the mortgage loans ultimately
included in the Trust Estate and the characteristics which are assumed in
preparing the tables, as described above. Any difference may have an effect
upon the actual percentages of initial Principal Balances (or initial Class A-
21 Notional Amount, in the case of the Class A-21 Certificates) of the Classes
of Certificates outstanding, the actual weighted average lives of the Classes
of Certificates and the date on which the Principal Balance (or Class A-21
Notional Amount, in the case of the Class A-21 Certificates) of any Class of
Certificates is reduced to zero.
Based upon the foregoing assumptions, the following tables indicate the
weighted average life of each Class of Offered Certificates, and set forth the
percentages of the initial Principal Balance (or initial Class A-21 Notional
Amount, in the case of the Class A-21 Certificates) of each Class of Offered
Certificates that would be outstanding after each of the dates shown at the
constant percentages of SPA presented.
S-82
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class A-1 Class A-2
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
---------------------------------- ---------------------------------------------
Distribution
Date 0% 100% 275% 350% 400% 500% 600% 0% 100% 275% 350% 400% 500% 579% 600% 700%
- ------------ ---- ---- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ---- ---- ---- ----
<S> <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
June 2000.... 96 88 88 88 88 88 88 100 100 100 100 100 100 100 100 100
June 2001.... 91 65 65 65 65 65 65 100 100 100 100 100 100 100 100 100
June 2002.... 86 36 36 36 36 36 36 100 100 100 100 100 100 100 100 100
June 2003.... 80 8 8 8 8 8 8 100 100 100 100 100 100 100 100 93
June 2004.... 75 0 0 0 0 0 0 100 76 76 76 76 76 76 72 41
June 2005.... 68 0 0 0 0 0 0 100 43 43 43 43 43 44 38 15
June 2006.... 62 0 0 0 0 0 0 100 16 16 16 16 16 22 18 2
June 2007.... 54 0 0 0 0 0 0 100 0 0 0 0 0 10 7 0
June 2008.... 47 0 0 0 0 0 0 100 0 0 0 0 0 4 2 0
June 2009.... 38 0 0 0 0 0 0 100 0 0 0 0 0 1 0 0
June 2010.... 29 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0
June 2011.... 20 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0
June 2012.... 9 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0
June 2013.... 0 0 0 0 0 0 0 97 0 0 0 0 0 0 0 0
June 2014.... 0 0 0 0 0 0 0 82 0 0 0 0 0 0 0 0
June 2015.... 0 0 0 0 0 0 0 65 0 0 0 0 0 0 0 0
June 2016.... 0 0 0 0 0 0 0 46 0 0 0 0 0 0 0 0
June 2017.... 0 0 0 0 0 0 0 27 0 0 0 0 0 0 0 0
June 2018.... 0 0 0 0 0 0 0 6 0 0 0 0 0 0 0 0
June 2019.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2020.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2021.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2022.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2023.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2024.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2025.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2026.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2027.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2028.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/1/).. 8.07 2.49 2.49 2.49 2.49 2.49 2.49 16.75 5.90 5.90 5.90 5.90 5.90 6.11 5.92 5.01
</TABLE>
<TABLE>
<CAPTION>
Class A-3 Class A-4
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
----------------------------------------------- ----------------------------------------
Distribution
Date 0% 100% 275% 350% 400% 500% 580% 600% 700% 0% 100% 250% 275% 350% 400% 500% 600%
- ------------ ----- ---- ---- ---- ---- ---- ----- ----- ---- ----- ---- ---- ---- ---- ---- ---- ----
<S> <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
June 2000.... 100 100 100 100 100 100 100 100 100 97 97 94 93 93 93 93 93
June 2001.... 100 100 100 100 100 100 100 100 100 94 94 73 73 73 73 71 63
June 2002.... 100 100 100 100 100 100 100 100 100 91 91 49 49 49 48 39 27
June 2003.... 100 100 100 100 100 100 100 100 100 87 87 30 29 29 29 20 8
June 2004.... 100 100 100 100 100 100 100 100 100 83 83 14 14 14 14 9 0
June 2005.... 100 100 100 100 100 100 100 100 100 80 80 3 3 3 5 5 0
June 2006.... 100 100 100 100 100 100 100 100 100 75 74 0 0 0 0 5 0
June 2007.... 100 78 78 78 78 78 100 100 32 71 64 0 0 0 0 4 0
June 2008.... 100 0 0 0 0 0 100 100 4 66 47 0 0 0 0 0 0
June 2009.... 100 0 0 0 0 0 100 84 2 61 29 0 0 0 0 0 0
June 2010.... 100 0 0 0 0 0 71 52 1 55 12 0 0 0 0 0 0
June 2011.... 100 0 0 0 0 0 45 33 1 49 0 0 0 0 0 0 0
June 2012.... 100 0 0 0 0 0 28 20 * 43 0 0 0 0 0 0 0
June 2013.... 100 0 0 0 0 0 18 13 * 36 0 0 0 0 0 0 0
June 2014.... 100 0 0 0 0 0 11 8 * 29 0 0 0 0 0 0 0
June 2015.... 100 0 0 0 0 0 7 5 * 21 0 0 0 0 0 0 0
June 2016.... 100 0 0 0 0 0 4 3 * 13 0 0 0 0 0 0 0
June 2017.... 100 0 0 0 0 0 3 2 * 5 0 0 0 0 0 0 0
June 2018.... 100 0 0 0 0 0 2 1 * 0 0 0 0 0 0 0 0
June 2019.... 0 0 0 0 0 0 1 1 * 0 0 0 0 0 0 0 0
June 2020.... 0 0 0 0 0 0 1 * * 0 0 0 0 0 0 0 0
June 2021.... 0 0 0 0 0 0 * * * 0 0 0 0 0 0 0 0
June 2022.... 0 0 0 0 0 0 * * * 0 0 0 0 0 0 0 0
June 2023.... 0 0 0 0 0 0 * * * 0 0 0 0 0 0 0 0
June 2024.... 0 0 0 0 0 0 * * * 0 0 0 0 0 0 0 0
June 2025.... 0 0 0 0 0 0 * * * 0 0 0 0 0 0 0 0
June 2026.... 0 0 0 0 0 0 * * * 0 0 0 0 0 0 0 0
June 2027.... 0 0 0 0 0 0 * * * 0 0 0 0 0 0 0 0
June 2028.... 0 0 0 0 0 0 * * * 0 0 0 0 0 0 0 0
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/1/).. 19.41 8.15 8.15 8.15 8.15 8.15 12.44 11.76 7.97 11.09 8.10 3.15 3.14 3.14 3.14 2.99 2.44
</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 of such Class.
Using customer file(s): DECA2.409 and DECA5.409
S-83
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class A-5 Class A-6 and Class A-7
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
----------------------------------------------- ------------------------------------------
Distribution
Date 0% 100% 160% 165% 275% 350% 400% 500% 600% 0% 100% 275% 320% 350% 400% 500% 600%
- ------------ ----- ----- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ---- ---- ---- ---- ----
<S> <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
June 2000.... 107 107 100 94 0 0 0 0 0 100 100 100 93 88 80 64 48
June 2001.... 114 114 100 80 0 0 0 0 0 100 100 100 78 63 39 0 0
June 2002.... 121 121 100 64 0 0 0 0 0 100 100 100 62 37 0 0 0
June 2003.... 130 130 100 51 0 0 0 0 0 100 100 100 53 23 0 0 0
June 2004.... 138 138 100 42 0 0 0 0 0 100 100 100 48 17 0 0 0
June 2005.... 148 148 100 35 0 0 0 0 0 100 100 100 48 16 0 0 0
June 2006.... 157 157 100 31 0 0 0 0 0 100 100 100 48 16 0 0 0
June 2007.... 168 168 100 29 0 0 0 0 0 100 100 100 48 16 0 0 0
June 2008.... 179 179 100 29 0 0 0 0 0 100 100 100 48 16 0 0 0
June 2009.... 191 191 100 29 0 0 0 0 0 100 100 100 48 16 0 0 0
June 2010.... 204 204 100 31 0 0 0 0 0 100 100 100 48 16 0 0 0
June 2011.... 218 218 100 33 0 0 0 0 0 100 100 93 48 16 0 0 0
June 2012.... 232 232 100 35 0 0 0 0 0 100 100 76 48 16 0 0 0
June 2013.... 248 248 100 38 0 0 0 0 0 100 100 61 39 16 0 0 0
June 2014.... 264 264 100 40 0 0 0 0 0 100 100 49 30 16 0 0 0
June 2015.... 282 282 100 43 0 0 0 0 0 100 100 39 24 16 0 0 0
June 2016.... 301 301 100 46 0 0 0 0 0 100 100 31 18 12 0 0 0
June 2017.... 321 321 3 0 0 0 0 0 0 100 100 25 14 9 0 0 0
June 2018.... 343 343 0 0 0 0 0 0 0 100 100 20 11 7 0 0 0
June 2019.... 366 366 0 0 0 0 0 0 0 100 100 15 8 5 0 0 0
June 2020.... 390 262 0 0 0 0 0 0 0 100 100 12 6 4 0 0 0
June 2021.... 416 117 0 0 0 0 0 0 0 100 100 9 4 3 0 0 0
June 2022.... 444 0 0 0 0 0 0 0 0 100 97 7 3 2 0 0 0
June 2023.... 474 0 0 0 0 0 0 0 0 100 81 5 2 1 0 0 0
June 2024.... 506 0 0 0 0 0 0 0 0 100 65 4 2 1 0 0 0
June 2025.... 539 0 0 0 0 0 0 0 0 100 50 2 1 1 0 0 0
June 2026.... 576 0 0 0 0 0 0 0 0 100 35 2 1 * 0 0 0
June 2027.... 138 0 0 0 0 0 0 0 0 100 22 1 * * 0 0 0
June 2028.... 0 0 0 0 0 0 0 0 0 52 9 * * * 0 0 0
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/1/).. 27.72 21.56 17.65 8.91 0.53 0.53 0.53 0.53 0.53 29.05 26.11 16.05 9.30 5.01 1.73 1.19 0.95
</TABLE>
<TABLE>
<CAPTION>
Class A-8 Class A-9
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
------------------------------------------- -------------------------------------------
Distribution
Date 0% 100% 275% 350% 366% 400% 500% 600% 0% 100% 275% 350% 400% 500% 600% 1000%
- ------------ ----- ----- ---- ----- ----- ---- ---- ---- ----- ----- ----- ---- ---- ---- ---- -----
<S> <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
June 2000.... 107 107 105 105 105 105 105 105 99 99 99 99 99 99 99 99
June 2001.... 114 114 104 104 104 104 101 80 98 98 98 98 98 98 98 98
June 2002.... 121 121 104 104 104 103 62 33 97 97 97 97 97 97 97 97
June 2003.... 130 130 106 106 106 87 38 8 96 96 96 96 96 96 96 96
June 2004.... 138 138 111 111 111 84 26 0 94 94 94 94 94 94 94 0
June 2005.... 148 148 119 119 119 90 24 0 93 91 88 86 85 83 81 0
June 2006.... 157 157 111 114 116 92 25 0 91 87 80 77 75 71 67 0
June 2007.... 168 168 92 101 103 82 27 0 90 83 71 66 63 57 50 0
June 2008.... 179 179 63 78 82 64 29 0 88 77 60 54 49 42 35 0
June 2009.... 191 191 35 57 63 48 20 0 86 71 49 41 37 29 22 0
June 2010.... 204 204 13 41 48 36 13 0 84 65 40 32 27 20 14 0
June 2011.... 218 204 0 28 36 26 9 0 82 60 33 25 20 13 8 0
June 2012.... 232 174 0 18 28 19 6 0 79 54 26 19 15 9 5 0
June 2013.... 248 147 0 11 21 14 4 0 77 49 21 14 11 6 3 0
June 2014.... 264 120 0 5 16 10 3 0 74 45 17 11 8 4 2 0
June 2015.... 282 95 0 * 12 8 2 0 71 40 14 8 6 3 1 0
June 2016.... 301 71 0 0 9 6 1 0 68 36 11 6 4 2 1 0
June 2017.... 321 48 0 0 6 4 1 0 64 32 9 5 3 1 * 0
June 2018.... 331 26 0 0 5 3 1 0 61 29 7 4 2 1 * 0
June 2019.... 313 6 0 0 3 2 * 0 57 25 5 3 2 1 * 0
June 2020.... 277 0 0 0 3 1 * 0 53 22 4 2 1 * * 0
June 2021.... 239 0 0 0 2 1 * 0 48 19 3 1 1 * * 0
June 2022.... 198 0 0 0 1 1 * 0 43 16 2 1 1 * * 0
June 2023.... 155 0 0 0 1 * * 0 38 13 2 1 * * * 0
June 2024.... 108 0 0 0 1 * * 0 33 11 1 * * * * 0
June 2025.... 58 0 0 0 * * * 0 27 8 1 * * * * 0
June 2026.... 4 0 0 0 * * * 0 20 6 1 * * * * 0
June 2027.... 0 0 0 0 * * * 0 13 4 * * * * * 0
June 2028.... 0 0 0 0 * * * 0 6 1 * * * * * 0
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/1/).. 23.61 15.72 9.00 10.12 10.94 9.57 5.32 2.69 19.80 14.81 10.81 9.92 9.46 8.76 8.24 4.62
</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 of such Class.
S-84
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class A-10 Class A-11
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
----------------------------------- ------------------------------------------
Distribution
Date 0% 100% 275% 350% 400% 500% 600% 0% 100% 165% 275% 350% 400% 500% 600%
- ------------ ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ---- ---- ---- ---- ----
<S> <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
June 2000.... 99 96 92 92 92 90 88 107 107 107 107 107 107 107 107
June 2001.... 97 89 74 73 69 61 54 114 114 114 114 114 114 114 114
June 2002.... 96 79 53 48 41 29 18 122 122 122 122 122 122 122 122
June 2003.... 94 70 36 28 20 7 0 131 131 131 131 131 131 131 0
June 2004.... 93 62 21 12 4 0 0 140 140 140 140 140 140 0 0
June 2005.... 91 55 11 2 0 0 0 150 150 150 150 150 0 0 0
June 2006.... 89 48 3 0 0 0 0 160 160 160 160 0 0 0 0
June 2007.... 87 42 0 0 0 0 0 171 171 171 66 0 0 0 0
June 2008.... 85 37 0 0 0 0 0 183 183 183 0 0 0 0 0
June 2009.... 82 33 0 0 0 0 0 196 196 196 0 0 0 0 0
June 2010.... 80 29 0 0 0 0 0 210 210 210 0 0 0 0 0
June 2011.... 77 25 0 0 0 0 0 224 224 224 0 0 0 0 0
June 2012.... 74 21 0 0 0 0 0 240 240 240 0 0 0 0 0
June 2013.... 71 17 0 0 0 0 0 257 257 257 0 0 0 0 0
June 2014.... 68 14 0 0 0 0 0 274 274 165 0 0 0 0 0
June 2015.... 64 10 0 0 0 0 0 294 294 79 0 0 0 0 0
June 2016.... 60 7 0 0 0 0 0 314 314 3 0 0 0 0 0
June 2017.... 56 4 0 0 0 0 0 336 336 0 0 0 0 0 0
June 2018.... 51 1 0 0 0 0 0 359 359 0 0 0 0 0 0
June 2019.... 46 0 0 0 0 0 0 384 316 0 0 0 0 0 0
June 2020.... 41 0 0 0 0 0 0 411 217 0 0 0 0 0 0
June 2021.... 35 0 0 0 0 0 0 440 124 0 0 0 0 0 0
June 2022.... 29 0 0 0 0 0 0 470 35 0 0 0 0 0 0
June 2023.... 22 0 0 0 0 0 0 503 0 0 0 0 0 0 0
June 2024.... 15 0 0 0 0 0 0 538 0 0 0 0 0 0 0
June 2025.... 8 0 0 0 0 0 0 576 0 0 0 0 0 0 0
June 2026.... 0 0 0 0 0 0 0 605 0 0 0 0 0 0 0
June 2027.... 0 0 0 0 0 0 0 247 0 0 0 0 0 0 0
June 2028.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/1/).. 17.63 7.94 3.42 3.07 2.79 2.39 2.12 27.86 21.41 15.49 7.97 6.56 5.61 4.50 3.85
</TABLE>
<TABLE>
<CAPTION>
Class A-12(/2/) and Class A-13 Class A-14 and Class A-15
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
------------------------------------------- ------------------------------------------------
Distribution
Date 0% 100% 275% 350% 400% 500% 600% 1000% 0% 100% 220% 275% 290% 350% 400% 500% 600%
- ------------ ----- ----- ----- ---- ---- ---- ---- ----- ----- ----- ----- ----- ---- ---- ---- ---- ----
<S> <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
June 2000.... 100 100 100 100 100 100 100 100 100 100 100 100 91 57 28 0 0
June 2001.... 100 100 100 100 100 100 100 100 100 100 100 100 73 0 0 0 0
June 2002.... 100 100 100 100 100 100 100 0 100 100 100 100 54 0 0 0 0
June 2003.... 99 99 99 99 99 99 72 0 100 100 100 100 42 0 0 0 0
June 2004.... 98 98 98 98 98 17 0 0 100 100 100 100 36 0 0 0 0
June 2005.... 96 96 96 96 71 0 0 0 100 100 100 100 36 0 0 0 0
June 2006.... 95 95 95 80 0 0 0 0 100 100 100 100 36 0 0 0 0
June 2007.... 94 94 94 33 0 0 0 0 100 100 100 100 36 0 0 0 0
June 2008.... 93 93 81 14 0 0 0 0 100 100 100 84 36 0 0 0 0
June 2009.... 92 92 68 11 0 0 0 0 100 100 100 66 26 0 0 0 0
June 2010.... 90 90 56 8 0 0 0 0 100 100 100 52 18 0 0 0 0
June 2011.... 89 89 47 6 0 0 0 0 100 100 100 40 12 0 0 0 0
June 2012.... 88 88 39 5 0 0 0 0 100 100 100 31 7 0 0 0 0
June 2013.... 87 87 32 4 0 0 0 0 100 100 100 23 4 0 0 0 0
June 2014.... 86 86 27 3 0 0 0 0 100 100 100 17 1 0 0 0 0
June 2015.... 84 84 22 2 0 0 0 0 100 100 92 13 0 0 0 0 0
June 2016.... 83 83 19 2 0 0 0 0 100 100 76 9 0 0 0 0 0
June 2017.... 82 82 15 1 0 0 0 0 100 100 63 6 0 0 0 0 0
June 2018.... 81 81 13 1 0 0 0 0 100 100 51 4 0 0 0 0 0
June 2019.... 80 80 10 1 0 0 0 0 100 100 42 2 0 0 0 0 0
June 2020.... 78 78 8 * 0 0 0 0 100 100 33 1 0 0 0 0 0
June 2021.... 77 77 7 * 0 0 0 0 100 100 27 1 0 0 0 0 0
June 2022.... 76 76 5 * 0 0 0 0 100 100 21 * 0 0 0 0 0
June 2023.... 75 61 4 * 0 0 0 0 100 100 16 * 0 0 0 0 0
June 2024.... 74 37 3 * 0 0 0 0 100 100 12 * 0 0 0 0 0
June 2025.... 72 15 2 * 0 0 0 0 100 100 9 * 0 0 0 0 0
June 2026.... 71 1 1 * 0 0 0 0 100 87 6 * 0 0 0 0 0
June 2027.... 70 1 1 * 0 0 0 0 100 54 3 * 0 0 0 0 0
June 2028.... 29 * * * 0 0 0 0 100 22 1 * 0 0 0 0 0
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/1/).. 24.94 22.16 12.96 8.20 6.27 4.84 4.12 2.71 29.53 28.17 20.06 12.05 5.59 1.06 0.79 0.55 0.44
</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).
(2) The weighted average life shown for the Class A-12 Certificates applies to
such Class taken as a whole. As a result of the distribution priorities and
allocations described herein, the weighted average life of any Class A-12
Certificate beneficially owned by an individual investor may vary signifi-
cantly from the weighted average life of the Class taken as a whole.
* Indicates a percentage greater than zero but less than 0.5% of the initial
Principal Balance of such Class.
S-85
<PAGE>
Percentage of Initial Principal Balance(/1/) Outstanding For:
<TABLE>
<CAPTION>
Class A-16 and Class A-21 Class A-17
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
---------------------------------- ---------------------------------------
Distribution
Date 0% 100% 275% 350% 400% 500% 600% 0% 100% 275% 350% 400% 500% 600%
- ------------ ---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2000.... 93 93 93 93 93 93 93 100 100 100 100 100 100 100
June 2001.... 86 86 86 86 86 86 86 100 100 100 100 100 100 100
June 2002.... 78 78 78 78 78 78 78 100 100 100 100 100 100 100
June 2003.... 70 70 70 70 70 70 70 100 100 100 100 100 100 100
June 2004.... 61 61 61 61 61 61 61 100 100 100 100 100 100 100
June 2005.... 52 40 40 40 40 40 0 100 100 100 100 100 100 99
June 2006.... 42 16 16 16 16 16 0 100 100 100 100 100 100 53
June 2007.... 31 0 0 0 0 0 0 100 94 94 94 94 73 29
June 2008.... 19 0 0 0 0 0 0 100 79 79 79 79 49 16
June 2009.... 6 0 0 0 0 0 0 100 62 62 62 62 33 10
June 2010.... 0 0 0 0 0 0 0 97 46 46 46 46 23 6
June 2011.... 0 0 0 0 0 0 0 91 31 31 31 31 15 4
June 2012.... 0 0 0 0 0 0 0 84 19 19 19 19 11 2
June 2013.... 0 0 0 0 0 0 0 77 11 11 11 11 7 2
June 2014.... 0 0 0 0 0 0 0 70 4 4 4 4 5 1
June 2015.... 0 0 0 0 0 0 0 62 0 0 0 0 3 1
June 2016.... 0 0 0 0 0 0 0 53 0 0 0 0 2 *
June 2017.... 0 0 0 0 0 0 0 44 0 0 0 0 1 *
June 2018.... 0 0 0 0 0 0 0 34 0 0 0 0 1 *
June 2019.... 0 0 0 0 0 0 0 24 0 0 0 0 1 *
June 2020.... 0 0 0 0 0 0 0 12 0 0 0 0 * *
June 2021.... 0 0 0 0 0 0 0 0 0 0 0 0 * *
June 2022.... 0 0 0 0 0 0 0 0 0 0 0 0 * *
June 2023.... 0 0 0 0 0 0 0 0 0 0 0 0 * *
June 2024.... 0 0 0 0 0 0 0 0 0 0 0 0 * *
June 2025.... 0 0 0 0 0 0 0 0 0 0 0 0 * *
June 2026.... 0 0 0 0 0 0 0 0 0 0 0 0 * *
June 2027.... 0 0 0 0 0 0 0 0 0 0 0 0 * *
June 2028.... 0 0 0 0 0 0 0 0 0 0 0 0 * *
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/2/).. 5.90 4.95 4.95 4.95 4.95 4.94 4.56 17.03 10.98 10.98 10.98 10.98 9.79 7.74
<CAPTION>
Class A-18 Class A-19
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
---------------------------------- ---------------------------------------
Distribution
Date 0% 100% 275% 350% 400% 500% 600% 0% 100% 275% 350% 400% 500% 600%
- ------------ ---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2000.... 89 89 89 89 89 89 89 107 107 107 107 107 107 107
June 2001.... 78 78 78 78 78 78 78 114 114 114 114 114 114 114
June 2002.... 66 66 66 66 66 66 66 122 122 122 122 122 122 122
June 2003.... 52 52 52 52 52 52 52 131 131 131 131 131 131 131
June 2004.... 38 38 38 38 38 38 0 140 140 140 140 140 140 64
June 2005.... 23 23 7 0 0 0 0 150 150 150 149 146 73 0
June 2006.... 7 7 0 0 0 0 0 160 160 141 131 122 7 0
June 2007.... 0 0 0 0 0 0 0 165 165 125 108 69 0 0
June 2008.... 0 0 0 0 0 0 0 165 165 107 85 38 0 0
June 2009.... 0 0 0 0 0 0 0 165 165 91 64 24 0 0
June 2010.... 0 0 0 0 0 0 0 165 165 80 52 18 0 0
June 2011.... 0 0 0 0 0 0 0 165 165 73 45 17 0 0
June 2012.... 0 0 0 0 0 0 0 165 162 66 40 17 0 0
June 2013.... 0 0 0 0 0 0 0 165 156 60 36 17 0 0
June 2014.... 0 0 0 0 0 0 0 165 148 54 32 17 0 0
June 2015.... 0 0 0 0 0 0 0 165 138 47 28 16 0 0
June 2016.... 0 0 0 0 0 0 0 165 124 38 22 12 0 0
June 2017.... 0 0 0 0 0 0 0 165 111 30 16 9 0 0
June 2018.... 0 0 0 0 0 0 0 165 98 23 12 6 0 0
June 2019.... 0 0 0 0 0 0 0 165 87 18 9 4 0 0
June 2020.... 0 0 0 0 0 0 0 165 75 14 7 3 0 0
June 2021.... 0 0 0 0 0 0 0 165 65 11 5 2 0 0
June 2022.... 0 0 0 0 0 0 0 148 55 8 3 1 0 0
June 2023.... 0 0 0 0 0 0 0 130 45 6 2 1 0 0
June 2024.... 0 0 0 0 0 0 0 111 36 4 2 1 0 0
June 2025.... 0 0 0 0 0 0 0 91 28 3 1 * 0 0
June 2026.... 0 0 0 0 0 0 0 69 20 2 1 * 0 0
June 2027.... 0 0 0 0 0 0 0 45 12 1 * * 0 0
June 2028.... 0 0 0 0 0 0 0 20 5 * * * 0 0
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/2/).. 4.06 4.06 3.81 3.76 3.74 3.65 3.33 26.25 20.80 13.13 11.20 9.16 6.12 5.04
</TABLE>
- ------------------
(1) With respect to the Class A-21 Certificates, percentages are expressed as
percentages of the initial Class A-21 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 of such Class.
S-86
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class A-20 Class A-22
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
------------------------------------ -------------------------------------------
Distribution
Date 0% 100% 275% 350% 400% 500% 600% 0% 100% 275% 350% 400% 500% 600% 1000%
- ------------ ----- ----- ---- ---- ---- ---- ---- ----- ----- ----- ---- ---- ---- ---- -----
<S> <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
June 2000.... 99 97 94 93 92 90 88 99 99 99 99 99 99 99 99
June 2001.... 98 92 82 78 75 70 65 98 98 98 98 98 98 98 98
June 2002.... 97 85 67 60 56 47 40 97 97 97 97 97 97 97 97
June 2003.... 96 79 55 46 41 32 24 96 96 96 96 96 96 96 96
June 2004.... 94 73 44 35 30 21 13 94 94 94 94 94 94 94 0
June 2005.... 93 67 36 27 22 13 8 93 91 88 86 85 83 81 0
June 2006.... 91 62 29 20 16 9 4 91 87 80 77 75 71 67 0
June 2007.... 90 57 24 16 11 6 2 90 83 71 66 63 57 50 0
June 2008.... 88 53 19 12 8 4 1 88 77 60 54 49 42 35 0
June 2009.... 86 48 16 9 6 3 1 86 71 49 41 37 29 22 0
June 2010.... 84 44 13 7 5 2 * 84 65 40 32 27 19 14 0
June 2011.... 82 41 10 5 3 1 * 82 59 33 25 20 13 8 0
June 2012.... 79 37 9 4 3 1 * 79 54 26 19 15 9 5 0
June 2013.... 77 34 7 3 2 1 * 77 49 21 14 11 6 3 0
June 2014.... 74 31 6 2 1 * * 74 45 17 11 8 4 2 0
June 2015.... 71 28 4 2 1 * * 71 40 14 8 6 3 1 0
June 2016.... 68 25 4 1 1 * * 68 36 11 6 4 2 1 0
June 2017.... 64 22 3 1 1 * * 64 32 9 5 3 1 * 0
June 2018.... 61 20 2 1 * * * 61 29 7 4 2 1 * 0
June 2019.... 57 17 2 1 * * * 57 25 5 3 2 1 * 0
June 2020.... 53 15 1 * * * * 53 22 4 2 1 * * 0
June 2021.... 48 13 1 * * * * 48 19 3 1 1 * * 0
June 2022.... 43 11 1 * * * * 43 16 2 1 1 * * 0
June 2023.... 38 9 1 * * * * 38 13 2 1 * * * 0
June 2024.... 33 7 * * * * * 33 11 1 * * * * 0
June 2025.... 27 6 * * * * * 27 8 1 * * * * 0
June 2026.... 20 4 * * * * * 20 6 1 * * * * 0
June 2027.... 13 2 * * * * * 13 4 * * * * * 0
June 2028.... 6 1 * * * * * 6 1 * * * * * 0
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/1/).. 19.80 11.34 5.84 4.78 4.27 3.52 3.00 19.80 14.81 10.81 9.92 9.46 8.76 8.24 4.62
</TABLE>
<TABLE>
<CAPTION>
Class A-R and Class A-LR Class B-1, Class B-2 and Class B-3
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
---------------------------------- -------------------------------------
Distribution
Date 0% 100% 275% 350% 400% 500% 600% 0% 100% 275% 350% 400% 500% 600%
- ------------ ---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2000.... 0 0 0 0 0 0 0 99 99 99 99 99 99 99
June 2001.... 0 0 0 0 0 0 0 98 98 98 98 98 98 98
June 2002.... 0 0 0 0 0 0 0 97 97 97 97 97 97 97
June 2003.... 0 0 0 0 0 0 0 96 96 96 96 96 96 96
June 2004.... 0 0 0 0 0 0 0 94 94 94 94 94 94 94
June 2005.... 0 0 0 0 0 0 0 93 91 88 86 85 83 81
June 2006.... 0 0 0 0 0 0 0 91 87 80 77 75 71 67
June 2007.... 0 0 0 0 0 0 0 90 83 71 66 63 57 50
June 2008.... 0 0 0 0 0 0 0 88 77 60 54 49 42 35
June 2009.... 0 0 0 0 0 0 0 86 71 49 41 37 29 22
June 2010.... 0 0 0 0 0 0 0 84 65 40 32 27 19 14
June 2011.... 0 0 0 0 0 0 0 82 60 33 25 20 13 8
June 2012.... 0 0 0 0 0 0 0 79 54 26 19 15 9 5
June 2013.... 0 0 0 0 0 0 0 77 49 21 14 11 6 3
June 2014.... 0 0 0 0 0 0 0 74 45 17 11 8 4 2
June 2015.... 0 0 0 0 0 0 0 71 40 14 8 6 3 1
June 2016.... 0 0 0 0 0 0 0 68 36 11 6 4 2 1
June 2017.... 0 0 0 0 0 0 0 64 32 9 5 3 1 *
June 2018.... 0 0 0 0 0 0 0 61 29 7 4 2 1 *
June 2019.... 0 0 0 0 0 0 0 57 25 5 3 2 1 *
June 2020.... 0 0 0 0 0 0 0 53 22 4 2 1 * *
June 2021.... 0 0 0 0 0 0 0 48 19 3 1 1 * *
June 2022.... 0 0 0 0 0 0 0 43 16 2 1 1 * *
June 2023.... 0 0 0 0 0 0 0 38 13 2 1 * * *
June 2024.... 0 0 0 0 0 0 0 33 11 1 * * * *
June 2025.... 0 0 0 0 0 0 0 27 8 1 * * * *
June 2026.... 0 0 0 0 0 0 0 20 6 1 * * * *
June 2027.... 0 0 0 0 0 0 0 13 4 * * * * *
June 2028.... 0 0 0 0 0 0 0 6 1 * * * * *
June 2029.... 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Av-
erage
Life
(years)(/1/).. 0.07 0.07 0.07 0.07 0.07 0.07 0.07 19.80 14.81 10.81 9.92 9.46 8.76 8.24
</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 of such Class.
, DECB1.018, DECB2.018 and DECB3.018
S-87
<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
described under "Description of the Certificates -- Interest" herein. The yield
to maturity 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
computational materials with respect to one or more Classes of Offered
Certificates with the Securities and Exchange Commission in a Report on Form 8-
K. See "Incorporation of Certain Information 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 investors other than those specifically requesting them.
Sensitivities of the Class A-7 and Class A-15 Certificates
The yield to maturity to investors in the Class A-7 and Class A-15
Certificates will be highly sensitive to LIBOR. Increases in LIBOR may have a
negative effect on the yield to maturity to investors in the Class A-7 and
Class A-15 Certificates.
Since there can be no assurance that LIBOR will correlate with the levels of
prevailing mortgage interest rates, it is possible that lower prevailing
mortgage rates, which might be expected to result in faster prepayments, could
occur concurrently with an increase in LIBOR. However, if, as generally
expected, higher mortgage rates and, accordingly, lower prepayment rates, were
to occur concurrently with an increase in LIBOR, the Pass-Through Rates of the
Class A-7 and Class A-15 Certificates would be reduced at the same time that
the rate of distributions in reduction of the Principal Balances to such
Classes may be reduced. In such circumstances, investors in the Class A-7 and
Class A-15 Certificates could have significantly lower yielding instruments
with longer weighted average lives than anticipated.
To illustrate the significance of changes in LIBOR and prepayments on the
Class A-7 and Class A-15 Certificates, the following table indicates the pre-
tax yields to maturity on a semi-annual corporate bond equivalent ("CBE") basis
under the assumptions specified in the following paragraph at the different
constant percentages of SPA and the constant levels of LIBOR indicated. It is
not likely that the Mortgage Loans will prepay at any constant rate until
maturity, that all of the Mortgage Loans will prepay at the same rate or that
LIBOR will remain constant. As discussed above, the timing of changes in the
rate of prepayments may significantly affect the total distribution received,
the date of receipt of such distributions and the actual yield to maturity to
an investor in a Class A-7 or Class A-15 Certificate, even if the average rate
of principal prepayments is consistent with such investor's expectations.
Moreover, the timing of changes in LIBOR may affect the actual yield to
maturity to an investor in a Class A-7 or Class A-15 Certificate even if the
average level is consistent with such investor's expectation.
The following table has been prepared on the basis of the Structuring
Assumptions, and the additional assumptions that (i) the aggregate purchase
price for the Class A-7 Certificates is 76.390625% of the initial Principal
Balance of the Class A-7 Certificates and for the Class A-15 Certificates is
82.218750% of the initial Principal Balance of the Class A-15 Certificates, in
each case plus accrued interest thereon from June 1, 1999 to (but not
including) June 29, 1999, (ii) such purchase price is paid on June 29, 1999 and
(iii) beginning with the Distribution Date in August 1999 and for each
Distribution Date thereafter, LIBOR is at the level specified. The actual
Mortgage Loans initially included in the Trust Estate will have characteristics
differing from those assumed in preparing the following table. In addition,
there can be no assurance that the Mortgage Loans will prepay at any of the
constant rates shown in the table or at any other particular rate, that the
pre-tax yield to maturity on the Class A-7 and Class A-15 Certificates will
correspond to any of the yields shown herein, that the level of LIBOR will
correspond to the levels shown herein or that the aggregate purchase price of
the Class A-7 or Class A-15 Certificates will be as assumed. The table does not
constitute a representation as to the correlation
S-88
<PAGE>
of any level of LIBOR with any rate of prepayments on the Mortgage Loans. Each
investor must make an independent decision as to the appropriate combinations
of prepayment and LIBOR assumptions to be used in deciding whether or not to
purchase a Class A-7 or Class A-15 Certificate.
The pre-tax yields to maturity set forth in the following table were
calculated by (i) determining the monthly discount rates which, when applied to
the assumed streams of cash flows to be paid on the Class A-7 and Class A-15
Certificates, would cause the discounted present value of such assumed streams
of cash flows to equal the assumed aggregate purchase prices for the Class A-7
and Class A-15 Certificates set forth above and (ii) converting such monthly
rates to CBE rates. Such calculations do not take into account the interest
rates at which investors may be able to reinvest funds received by them as
distributions on the Class A-7 and Class A-15 Certificates and consequently do
not purport to reflect the return on any investment in the Class A-7 and Class
A-15 Certificates when such reinvestment rates are considered.
Sensitivity of the Pre-Tax Yield to Maturity of the Class A-7 Certificates to
Prepayments and LIBOR
<TABLE>
<CAPTION>
Percentages of SPA
------------------------------------------------
Level of LIBOR 0% 100% 275% 350% 400% 500% 600%
- -------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
2.90000%....................... 18.35% 18.38% 18.73% 26.24% 33.66% 41.64% 48.35%
3.90000%....................... 14.83% 14.87% 15.31% 22.63% 30.35% 38.32% 45.01%
4.90000%....................... 11.38% 11.44% 11.97% 19.01% 27.07% 35.03% 41.71%
5.90000%....................... 8.02% 8.11% 8.72% 15.36% 23.84% 31.78% 38.43%
6.90000%....................... 4.78% 4.88% 5.54% 11.67% 20.64% 28.56% 35.19%
8.15000% and above............. 0.93% 1.04% 1.70% 6.99% 16.69% 24.58% 31.19%
</TABLE>
Sensitivity of the Pre-Tax Yield to Maturity of the Class A-15 Certificates to
Prepayments and LIBOR
<TABLE>
<CAPTION>
Percentages of SPA
--------------------------------------------------------------
Level of LIBOR 0% 100% 220% 275% 290% 350% 400% 500% 600%
- -------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.90000%................ 22.24% 22.24% 22.31% 22.69% 25.82% 40.42% 47.85% 60.47% 71.82%
3.90000%................ 17.32% 17.32% 17.44% 17.91% 20.90% 35.79% 43.23% 55.87% 67.24%
4.90000%................ 12.48% 12.50% 12.68% 13.24% 16.05% 31.23% 38.67% 51.33% 62.71%
5.90000%................ 7.78% 7.81% 8.05% 8.68% 11.27% 26.73% 34.18% 46.84% 58.23%
6.90000%................ 3.27% 3.30% 3.58% 4.25% 6.57% 22.30% 29.74% 42.40% 53.80%
7.50000% and above...... 0.67% 0.70% 0.98% 1.65% 3.80% 19.67% 27.11% 39.77% 51.17%
</TABLE>
Sensitivity of the Class A-8 Certificates
The Class A-8 Certificates are comprised of five Components, each of which
may be affected differently by the rate and timing of principal payments
(including prepayments) on the Mortgage Loans, which rate may fluctuate
significantly from time to time, which in turn may affect the yield to maturity
to investors in the Class A-8 Certificates.
The following table indicates the sensitivity to various rates of prepayment
on the Mortgage Loans of the pre-tax yields to maturity on a CBE basis of the
Class A-8 Certificates. Such calculations are based on distributions made in
accordance with "Description of the Certificates" above, on the Structuring
Assumptions and on the further assumptions that the Class A-8 Certificates will
be purchased on June 29, 1999 at a purchase price equal to 99.515625% of their
initial Principal Balance plus interest thereon from June 1, 1999 to (but not
including) June 29, 1999.
S-89
<PAGE>
Sensitivity of the Pre-Tax Yield to Maturity of the Class A-8 Certificates to
Prepayments
<TABLE>
<CAPTION>
Percentages of SPA
-------------------------------------------------------------
0% 100% 275% 350% 366% 400% 500% 600% 2000% 3000%
----- ----- ----- ----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield to
Maturity (CBE)......... 7.65% 7.53% 7.84% 7.74% 7.69% 7.88% 8.76% 9.87% 10.43% 10.35%
</TABLE>
The pre-tax yields to maturity set forth in the preceding table were
calculated by (i) determining the monthly discount rates which, when applied to
the assumed streams of cash flows to be paid on the Class A-8 Certificates
would cause the discounted present value of such assumed streams of cash flows
to equal the assumed purchase price for the Class A-8 Certificates set forth
above and (ii) converting such monthly rates to CBE rates. Such calculation
does not take into account the interest rates at which purchasers may be able
to reinvest funds received by them as distributions on the Class A-8
Certificates and consequently does not purport to reflect the return on any
investment in the Class A-8 Certificates when such reinvestment rates are
considered.
Sensitivities of the Class A-13, Class A-20 and Class A-21 Certificates
The yields to maturity to investors in the Class A-13, Class A-20 or Class A-
21 Certificates will be highly sensitive 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 rapid rate of principal
payments (including prepayments), in the case of the Class A-21 Certificates,
could result in the failure of an investor in the Class A-21 Certificates to
fully recover its initial investment or, in the case of the Class A-13 and
Class A-20 Certificates, the risk that a relatively low rate of principal
payments (including prepayments), will have a negative effect on the yield to
maturity to an investor.
The Class A-20 Certificates are comprised of two principal-only Components,
each of which may be affected differently by the rate and timing of principal
payments (including prepayments) on the Mortgage Loans, which rate may
fluctuate significantly from time to time.
The following tables indicate the sensitivities to various rates of
prepayment on the Mortgage Loans of the pre-tax yields to maturity on a CBE
basis of the Class A-13, Class A-20 and Class A-21 Certificates. Such
calculations are based on distributions made in accordance with "Description of
the Certificates" above, on the Structuring Assumptions and on the further
assumptions that the Class A-13, Class A-20 and Class A-21 Certificates will be
purchased on June 29, 1999 at an aggregate purchase prices equal to, in the
case of the Class A-13 Certificates, 38.4375% of the initial Principal Balance
of the Class A-13 Certificates, in the case of the Class A-20 Certificates,
67.0000% of the initial Principal Balance of the Class A-20 Certificates and in
the case of the Class A-21 Certificates 24.0000% of the initial Class A-21
Notional Amount plus accrued interest on such notional amount from June 1, 1999
to (but not including) June 29, 1999.
Sensitivity of the Pre-Tax Yield to Maturity of the Class A-13 Certificates to
Prepayments
<TABLE>
<CAPTION>
Percentages of SPA
---------------------------------------------
0% 100% 275% 350% 400% 500% 600%
----- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield to
Maturity (CBE)......... 4.08% 4.55% 8.04% 12.41% 15.91% 20.79% 24.61%
</TABLE>
Sensitivity of the Pre-Tax Yield to Maturity of the Class A-20 Certificates to
Prepayments
<TABLE>
<CAPTION>
Percentages of SPA
--------------------------------------------
0% 100% 275% 350% 400% 500% 600%
----- ----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield to Maturity (CBE)... 2.10% 3.96% 7.97% 9.70% 10.83% 13.01% 15.10%
</TABLE>
S-90
<PAGE>
Sensitivity of the Pre-Tax Yield to Maturity of the Class A-21 Certificates to
Prepayments
<TABLE>
<CAPTION>
Percentages of SPA
-----------------------------------------------------
0% 100% 275% 350% 400% 500% 600% 777%
------ ------ ------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield to
Maturity (CBE)......... 13.97% 10.12% 10.12% 10.12% 10.12% 10.06% 7.68% 0.01%
</TABLE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by (i) determining the monthly discount rates which when applied to
the assumed streams of cash flows to be paid on the Class A-13, Class A-20 and
Class A-21 Certificates, would cause the discounted present value of such
assumed streams of cash flows to equal assumed purchase prices for the Class A-
13, Class A-20 and Class A-21 Certificates set forth above and (ii) converting
such monthly rates to CBE rates. Such calculations do not take into account the
interest rates at which investors may be able to reinvest funds received by
them as distributions on the Class A-13, Class A-20 and Class A-21 Certificates
and consequently does not purport to reflect the return on any investment in
the Class A-13, Class A-20 and Class A-21 Certificates when such reinvestment
rates are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, 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 will differ from those currently
assumed in preparing the tables. As a result of these factors, the pre-tax
yields to maturity on the Class A-13, Class A-20 and Class A-21 Certificates
are likely to differ from those shown in such tables, even if all of the
Mortgage Loans prepay at the indicated percentages of SPA.
Yield Considerations with Respect to the Class B-2 and Class B-3 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
assumption ("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
defaults). SDA does not purport to be a historical description of default
experience or a prediction of the anticipated rate of default of any pool of
mortgage loans, including the Mortgage Loans.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Class B-2 and Class B-3 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 assumption that no defaults shall have occurred with respect to
the Mortgage Loans) and the additional assumption that liquidations (other than
those scenarios indicated as 0% of SDA (no defaults)) occur monthly on the last
day of the preceding month 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-2 and Class B-3
Certificates are purchased on June 29, 1999 at assumed purchase prices equal to
91.00% and 85.00%, respectively, of the Principal Balances thereof plus accrued
interest from June 1, 1999 to (but not including) June 29, 1999.
S-91
<PAGE>
The actual Mortgage Loans ultimately included in the Trust Estate will have
characteristics differing from those assumed in preparing the following tables
and it is unlikely that they will prepay or liquidate at any of the rates
specified. In addition, it is unlikely that Realized Losses will be incurred
according to any one particular pattern. The assumed percentages of SDA and SPA
and the loss severities shown in the tables below are for illustrative purposes
only and the Seller makes no representations with respect 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. For these reasons, and because the timing
of cash flows is critical to determining yield, the pre-tax yields to maturity
of the Class B-2 and Class B-3 Certificates are likely to differ from the pre-
tax yields to maturity shown below in the tables.
The pre-tax yields to maturity set forth in the following tables were
calculated by determining the monthly discount rates which, when applied to the
assumed streams of cash flows to be paid on the Class B-2 and Class B-3
Certificates, would cause the discounted present value of such assumed streams
of cash flows to equal the aggregate assumed purchase prices of the Class B-2
and Class B-3 Certificates set forth above. In all cases, monthly rates were
then converted to the semi-annual CBE yields shown below. Implicit 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 calculations do not take
into account the different interest rates at which investors may be able to
reinvest funds received by them as distributions on the Class B-2 and Class B-3
Certificates. Consequently, these yields do not purport to reflect the total
return on any investment in the Class B-2 and Class B-3 Certificates when such
reinvestment rates are considered.
S-92
<PAGE>
Sensitivity of Pre-Tax Yields to Maturity of the Class B-2 Certificates to
Prepayments and Realized Losses
<TABLE>
<CAPTION>
Loss Percentage of SPA
Percentage Severity -------------------------------------------------------------
of SDA Percentage 0% 100% 275% 350% 400% 500% 600%
- ------------------------ ---------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0%.................... N/A 7.49% 7.65% 7.86% 7.93% 7.97% 8.03% 8.09%
50%.................... 25% 7.39% 7.68% 7.86% 7.93% 7.97% 8.03% 8.09%
50%.................... 50% 7.34% 7.59% 7.88% 7.93% 7.97% 8.04% 8.09%
75%.................... 25% 7.36% 7.70% 7.87% 7.94% 7.97% 8.04% 8.10%
75%.................... 50% 3.88% 6.73% 7.89% 7.94% 7.98% 8.04% 8.10%
100%.................... 25% 7.34% 7.61% 7.88% 7.93% 7.97% 8.04% 8.09%
100%.................... 50% (20.26)% 1.98% 7.54% 7.96% 7.98% 8.04% 8.10%
150%.................... 25% 4.13% 6.85% 7.89% 7.94% 7.98% 8.04% 8.10%
150%.................... 50% (40.67)% (35.08)% (2.30)% 1.60% 3.66% 7.34% 8.10%
Sensitivity of Pre-Tax Yields to Maturity of the Class B-3
Certificates to Prepayments and Realized Losses
<CAPTION>
Loss Percentage of SPA
Percentage Severity -------------------------------------------------------------
of SDA Percentage 0% 100% 275% 350% 400% 500% 600%
- ------------------------ ---------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0%.................... N/A 8.21% 8.50% 8.86% 8.98% 9.04% 9.16% 9.27%
50%.................... 25% 7.96% 8.54% 8.87% 8.98% 9.05% 9.17% 9.27%
50%.................... 50% 2.26% 7.07% 8.89% 8.98% 9.05% 9.18% 9.27%
75%.................... 25% 7.75% 8.23% 8.87% 9.00% 9.06% 9.17% 9.27%
75%.................... 50% (28.74)% (21.53)% 5.72% 8.75% 9.07% 9.17% 9.27%
100%.................... 25% 2.62% 7.18% 8.89% 8.99% 9.05% 9.18% 9.27%
100%.................... 50% (42.47)% (37.50)% (23.59)% (0.19)% 2.98% 8.13% 9.27%
150%.................... 25% (28.39)% (20.96)% 5.95% 8.90% 9.07% 9.17% 9.27%
150%.................... 50% (63.86)% (60.33)% (52.45)% (48.02)% (44.52)% (34.62)% (4.05)%
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 Percentage of SPA
Percentage Severity -------------------------------------------------------------
of SDA Percentage 0% 100% 275% 350% 400% 500% 600%
- ------------------------ ---------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50%.................... 25% 0.49% 0.39% 0.27% 0.24% 0.22% 0.18% 0.16%
50%.................... 50% 0.98% 0.77% 0.54% 0.48% 0.44% 0.37% 0.32%
75%.................... 25% 0.73% 0.58% 0.41% 0.36% 0.33% 0.28% 0.24%
75%.................... 50% 1.46% 1.15% 0.81% 0.71% 0.65% 0.55% 0.47%
100%.................... 25% 0.97% 0.77% 0.54% 0.47% 0.43% 0.37% 0.32%
100%.................... 50% 1.93% 1.53% 1.08% 0.95% 0.87% 0.74% 0.63%
150%.................... 25% 1.44% 1.14% 0.81% 0.71% 0.65% 0.55% 0.47%
150%.................... 50% 2.88% 2.28% 1.61% 1.41% 1.29% 1.10% 0.94%
</TABLE>
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of prepayment and Realized Losses under
a variety of scenarios. Investors in Class B-2 and Class B-3 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.
Using Customer file(s): SENSB2.209
Using Customer file(s): SENSB3.209
Using Customer file(s): AGGLOSS.209
S-93
<PAGE>
POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to a Pooling and Servicing Agreement
to be dated as of the date of initial issuance of the 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 Certificates. See "Description of the
Certificates," "Servicing of the Mortgage Loans" and "The Pooling and Servicing
Agreement" in the Prospectus.
The Trust Estate created pursuant to the Pooling and Servicing Agreement will
consist of (i) the Mortgage Loans as described under "Description of the
Mortgage Loans," (ii) such assets as from time to time are identified as
deposited in any account held for the benefit of the Certificateholders, (iii)
any Mortgaged Properties acquired on behalf of the Certificateholders by
foreclosure or by deed in lieu of foreclosure after the date of original
issuance of the Certificates 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) will be made by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register. However,
with respect to any holder of an Offered Certificate evidencing at least a
$500,000 initial Principal Balance, or in the case of the Class A-21 Certifi-
cates, 100% Percentage Interest, distributions will be made on each Distribu-
tion Date by wire transfer in immediately available funds. The final distribu-
tion in respect of each Class of Offered Certificates will be made only upon
presentation and surrender of the related Certificate at the office or agency
appointed by the Trust Administrator specified in the notice of final distribu-
tion with respect to the related Class. See "Description of the Certificates --
General" in the Prospectus.
DTC will receive distributions on the Book-Entry Certificates from the Trust
Administrator and transmit them to DTC Participants for distribution to
Beneficial Owners or their nominees.
Voting
With respect to any provisions of the Pooling and Servicing Agreement
providing for the action, consent or approval of the holders of all
Certificates evidencing specified Voting Interests in the Trust Estate, the
Class A-21 Certificates will be entitled to 1% of the aggregate Voting Interest
represented by all Certificates and each remaining Class of Certificates will
be entitled to a pro rata portion of the remaining Voting Interest based on the
outstanding Principal Balance of such Class; provided that, if the Principal
Balance of the Class A-8 Certificates has been reduce to zero and any Class A-8
IO Notional Amount is greater than zero, the Class A-8 Certificates will be
entitled to 1% of the remaining Voting Interest and each of the other Classes
of Certificates will be entitled to a pro rata portion of the remaining Voting
Interest after taking into account the Voting Interest allocated to the Class
A-8 Certificates based on the outstanding Principal Balance of such Class. Each
Certificateholder of a Class will have a Voting Interest equal to the product
of the Voting Interest to which such Class is collectively entitled and the
Percentage Interest in such Class 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 of Certificates or specified
Classes of Certificates, each Certificateholder of a Class will have a Voting
Interest in such Class equal to such holder's interest in such Class. Unless
Definitive Certificates are issued as described above, Beneficial Owners of
Book-Entry Certificates may exercise their voting rights only through DTC
Participants.
Trustee
The Trustee for the 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.
S-94
<PAGE>
Trust Administrator
First Union National Bank, a national banking association, will act as Trust
Administrator for the Certificates. The corporate trust office of the Trust Ad-
ministrator 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 Periodic Advances to the limited extent described herein with respect
to the Mortgage Loans serviced by Norwest Mortgage if Norwest Mortgage, as
Servicer, fails to make a Periodic Advance required by the related Underlying
Servicing Agreement. 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
Mortgage 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 and make
Periodic Advances to the limited extent described herein. See "Description of
the Certificates -- Periodic Advances" herein. Under the Pooling and Servicing
Agreement, any good faith interpretation 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 entitled to a "Master Servicing
Fee" payable monthly equal to the product of (i) 1/12th of 0.017% (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 Class of
Class B Certificates or of a class of securities representing interests in one
or more Classes of Class B Certificates and/or other subordinated mortgage
pass-through certificates. 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.
Optional Termination
The Seller may purchase from the Trust Estate all of the Mortgage Loans, and
thereby effect early retirement of the Certificates, on any Distribution Date
when the aggregate Scheduled Principal Balance of the Mortgage Loans is less
than 10% of the aggregate unpaid principal balance of the Mortgage Loans as of
the Cut-Off Date. Any such purchase is required to be made only in connection
with a "qualified liquidation" of the REMIC within the meaning of Section
860F(a)(4)(A) of the Code. The purchase price will generally be equal to the
unpaid principal balance of each Mortgage Loan plus the fair market value of
other property (including any Mortgaged Property title to which has been
acquired by the Trust Estate ("REO Property")) in the Trust Estate plus accrued
interest. In the event the Trust Estate is liquidated as described above,
holders of the Certificates, to the extent funds are available, will receive
the unpaid principal balance of their Certificates and any accrued and unpaid
interest thereon. The amount, if any, remaining in the Certificate Account
after the payment of all principal and interest on the Certificates and
expenses of the REMIC will be distributed to the holder of the Class A-R
Certificate. See "Description of the Certificates -- Additional Rights of the
Class A-R Certificateholder" herein and "The Pooling and Servicing Agreement --
Termination; 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 agreements with third parties to
(i) exercise such option at the direction of such third party or (ii) forbear
from the exercise of such option.
S-95
<PAGE>
SERVICING OF THE MORTGAGE LOANS
Norwest Mortgage and the other servicers listed below (the "Other Servicers,"
and collectively with Norwest Mortgage, the "Servicers") will service the
Mortgage Loans, 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 Administrator, on behalf of Trustee, for the benefit of
Certificateholders. Among other things, the Servicers are obligated under
certain circumstances to advance delinquent payments of principal and interest
with respect to the Mortgage Loans. See "Servicing of the Mortgage Loans" in
the Prospectus.
The Servicers
The Mortgage Loans initially will be serviced by the following entities:
<TABLE>
<CAPTION>
Approximate Percentage of
Aggregate Unpaid Principal Balance
Name of Servicer as of the Cut-Off Date Serviced
---------------- ----------------------------------
<S> <C>
Norwest Mortgage, Inc. ................... 84.10%
Bank United............................... 5.60%
HomeSide Lending.......................... 3.35%
FT Mortgage Companies..................... 3.25%
SunTrust Mortgage, Inc. .................. 2.52%
NOVUS Financial Corporation............... 0.55%
Merrill Lynch Credit Corporation.......... 0.22%
Hibernia National Bank.................... 0.14%
First Union Mortgage Corporation.......... 0.10%
National City Mortgage Company............ 0.04%
Countrywide Home Loans, Inc. ............. 0.04%
The Huntington Mortgage Company........... 0.03%
Plymouth Savings Bank..................... 0.03%
Chase Manhattan Mortgage Corp. ........... 0.03%
-------
Total................................... 100.00%
=======
</TABLE>
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) and
interest (net of Servicing Fees) on any Mortgage Loan that such Servicer
services, related insurance proceeds, advances made from the Servicer's own
funds and the proceeds of any purchase of a related Mortgage Loan for breach of
a representation or warranty or the sale of a Mortgaged Property in connection
with liquidation of the related Mortgage Loan. All Servicer Custodial Accounts
are required to be held in a depository institution and invested in the manner
specified in the related Underlying Servicing Agreement. Funds in such accounts
generally must be held separate and apart from the assets of the Servicer and
generally may not be commingled with funds held by a Servicer with respect to
mortgage loans other than the Mortgage Loans. The Underlying Servicing
Agreement relating to Norwest Mortgage, however, provides that Norwest Mortgage
may commingle funds in its Servicer Custodial Account with its general assets
until such time as such funds are required to be remitted to the Certificate
Account for so long as (i) a master guarantee of such remittance obligation has
been issued by its parent, Wells Fargo & Company ("Wells Fargo"), for the
benefit of the Certificateholders and is currently in force and (ii) the short-
term debt or long-term debt of Wells Fargo is rated by the Rating Agencies in
their highest short-term or highest long-term category or in such lower rating
category that would not result in a downgrading or withdrawal of the rating
then assigned to any Class of Certificates by the Rating Agencies or result in
any rated Certificate being placed on credit review status by the Rating
Agencies.
S-96
<PAGE>
Not later than the Remittance Date, the Servicers are obligated to remit to
the Certificate Account amounts on deposit in the Servicer Custodial Account as
of the close of business on the business day preceding the Remittance Date as
described in the Prospectus under "Servicing of the Mortgage Loans -- Payments
on Mortgage Loans".
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
Principal Receipts of such type received by the Servicers 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 applicable Remittance Date (such period a "Mid-Month Receipt Period").
With respect to the certain Mortgage Loans serviced by Norwest Mortgage
("Norwest Type 1 Loans"), the Unscheduled Principal Receipt Period with respect
to all types of Unscheduled Principal Receipts is a Mid-Month Receipt Period.
With respect to the certain other Mortgage Loans serviced by Norwest Mortgage
("Norwest Type 2 Loans") and the 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
partial Unscheduled Principal Receipts is a Prior Month Receipt Period and with
respect to Unscheduled Principal Receipts in full is a Mid-Month Receipt
Period. Approximately 83.85% and 0.25% of the aggregate unpaid principal
balance of the Mortgage Loans as of the Cut Off Date were Norwest Type 1 Loans
and Norwest Type 2 Loans, respectively.
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
Principal Receipts in full to the Master Servicer for deposit into the
Certificate Account daily on a specified business day following receipt thereof
(to the extent such Other Servicer is not currently remitting such amount on a
daily basis) which will generally result in a deposit earlier than on the
following Remittance Date. In conjunction with any such change, the applicable
Servicer may be relieved of its obligation to remit Month End Interest and
certain other conforming changes may be made. Such changes would have an effect
on the amount of Compensating Interest as described herein under the heading
"Description of the 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
Receipt 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
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incident thereto. In connection therewith, (i) the Unscheduled Principal
Receipt Period for the Norwest Type 2 Loans may be changed (to achieve
consistency with the Norwest Type 1 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 Type 2 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 Receipt 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 Type 1 Loans may be changed to the
Target Regime and (iv) the Unscheduled Principal 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 Regime.
Because Unscheduled Principal Receipts will result in interest shortfalls to
the extent that they are not distributed to Certificateholders in the month in
which they are received by the applicable Servicer, changing the applicable
Unscheduled Principal Receipt Period from a Mid-Month Receipt Period to a Prior
Month Receipt Period may have the effect of increasing the amount of interest
shortfalls with respect to the applicable type of Unscheduled Principal
Receipt. 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)
6.500%, (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 on each Mortgage Loan minus the rate described in clause (i), will not be
included in the Trust Estate. There will be no Fixed Retained Yield on any
Mortgage Loan with a Mortgage Interest Rate equal to or less than the rate
described in clause (i). See "Servicing of the Mortgage Loans -- Fixed Retained
Yield, Servicing Compensation and Payment of Expenses" in the Prospectus for
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
"Servicing Fee Rate") of the scheduled principal balance (as defined in the
Underlying Servicing Agreement) of such Mortgage Loan as of the first day of
each month. The Servicing Fee Rate for each Mortgage Loan is 0.25% per annum.
The Servicers also are entitled to additional servicing compensation as
described in the Prospectus under "Servicing of the Mortgage Loans -- Fixed
Retained Yield, Servicing Compensation and Payment of Expenses."
The Master Servicer will pay all routine expenses, including fees of the
Trustee and the Trust Administrator incurred in connection with its
responsibilities 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 holders of the Class A-R and Class A-LR Certificates, respectively.
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 "Federal Income Tax
Considerations" herein and "Certain Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates-- Limitations on Deduction of
Certain Expenses" in the Prospectus.
Servicer Defaults
The Trustee will have the right pursuant to the Underlying Servicing Agree-
ments to terminate a Servicer in certain events, including the breach by such
Servicer of any of its material obligations under its Underlying Servicing
Agreement. In the event of such termination, (i) the Trustee may enter into a
substitute Underlying
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Servicing Agreement with the Master Servicer or, at the Master Servicer's nomi-
nation, another servicing institution acceptable to the Trustee and each Rating
Agency; and (ii) the Master Servicer shall assume certain of the Servicer's
servicing obligations under such Underlying Servicing Agreement, including the
obligation to make Periodic Advances (limited as provided herein under the
heading "Description of the Certificates -- Periodic Advances"), until such
time as a successor servicer is appointed. See "Servicing of the Mortgage
Loans -- Fixed Retained Yield, Servicing Compensation and Payment of Expenses"
in the Prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the anticipated material federal income tax consequences of the
purchase, ownership and disposition of the Offered Certificates.
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
"Lower-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 account in which collections on the Mortgage Loans will be deposited
(the "Certificate Account"), the hazard insurance policies and primary mortgage
insurance policies, if any, relating to the Mortgage Loans and any property
that secured a Mortgage Loan that is acquired by foreclosure or deed in lieu of
foreclosure.
The second REMIC (the "Upper-Tier REMIC") will issue all Classes of the Class
A Certificates (other than the Class A-LR Certificate) and all Class B
Certificates. Each Class of Offered Certificates (other than the Class A-8,
Class A-R and Class A-LR Certificates) and each of the Class A-8 IO Components
and the Class A-8 Accrual Component of the Class A-8 Certificates
(collectively, the "Regular Certificates"), together with each Class of
Certificates not offered hereby, will be designated as regular interests in the
Upper-Tier REMIC, and the Class A-R Certificate 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 referred 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 distributions on the uncertificated
Lower-Tier REMIC Regular Interests will be deposited. The aggregate amount
distributed to the holders of the Upper-Tier Certificates, payable from such
separate account, will be equal to the aggregate distributions 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 and, other than the Class A-R and Class A-LR Certificates, "quali-
fied mortgages" for a REMIC and "permitted assets" for a financial 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
required to report income on such Certificates in accordance with the accrual
method of accounting.
The Class A-13 and Class A-20 Certificates will be issued with original issue
discount in an amount equal to the excess of the initial Principal Balances
thereof over their respective issue prices. The Class A-5, Class A-8, Class A-
11 and Class A-19 Certificates will be issued with original issue discount in
an amount equal to the excess of all distributions of principal and interest
(whether current or accrued) expected to be received thereon over their respec-
tive issue prices (including accrued interest). It is anticipated that the
Class A-2, Class A-3, Class A-4, Class A-7, Class A-9, Class A-10, Class A-15,
Class A-22, Class B-1, Class B-2 and Class B-3 Certificates will be issued with
original issue discount in an amount equal to the excess of their initial Prin-
cipal
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Balances (plus four days of interest at the Pass-Through Rates thereon) over
their respective issue prices (including accrued interest). It is also antici-
pated that the Class A-1, Class A-6, Class A-12, Class A-14, Class A-16 and
Class A-18 Certificates will be issued at a premium and that the Class A-17
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-4,
Class B-5 and Class B-6 Certificates, which are not offered hereby, will be is-
sued with original issue discount for federal income tax purposes.
Although unclear for federal income tax purposes, it is anticipated that the
Class A-21 Certificates will be considered to be issued with original issue
discount in an amount equal to the excess of all distributions of interest
expected to be received thereon over their issue price (including accrued
interest). Any "negative" amounts of original issue discount on the Class A-21
Certificates 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-21 Certificate may be entitled to a loss deduction to the extent it
becomes certain that such holder will not recover a portion of its basis in
such Certificate, 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-21 Certificates. See "Certain
Federal Income Tax Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- 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 original issue discount on an instrument such as a REMIC
regular interest may not give rise to taxable losses in any accrual period to
the instrument's disposition or retirement. Thus, it is not clear whether any
losses resulting from 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, and
that may be used by Beneficial Owners (or holders) to amortize premium, will be
calculated using 275% of SPA. No representation is made as to the actual rate
at which the Mortgage Loans will prepay.
Residual Certificate
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,
respectively, 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 taxable income and the tax liability thereon may exceed, and may
substantially exceed, cash distributions to such holders during certain
periods, in which event, the holders 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 includible by the holders of the Class A-R and Class A-LR
Certificates, respectively, will be treated as "excess inclusion" income,
resulting in (i) the inability 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.
The Class A-R and Class A-LR Certificates will be considered "noneconomic
residual interests," 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
Class A-R and Class A- LR Certificates are subject to certain restrictions on
transfer and any prospective transferee thereof will be
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required to furnish to the Trust Administrator an affidavit as described herein
under "Description of the Certificates --Restrictions on Transfer of the Class
A-9, Class A-22, Class A-R, Class A-LR and Class B Certificates". See "Certain
Federal Income Tax Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Limitations on Offset or
Exemption of REMIC Income" and "-- Tax-Related Restrictions on Transfer of
Residual Certificates -- Noneconomic Residual Interests" in the Prospectus.
An individual, trust or estate that holds the Class A-R or Class A-LR
Certificate (whether such Certificate is held directly or indirectly through
certain pass-through entities) also may have additional gross income with
respect to, but may be subject to limitations on the deductibility of,
Servicing Fees on the Mortgage Loans and other administrative expenses of the
related REMIC in computing such holder's regular tax liability, and may not be
able to deduct such fees or expenses to any extent in computing such holder's
alternative minimum tax liability. In addition, some portion of a purchaser's
basis, if any, in the Class A-R or Class A-LR Certificate may not be recovered
until termination of the related REMIC. Furthermore, the federal income tax
consequences of any consideration paid to a transferee on a transfer of the
Class A-R or Class A-LR Certificate are unclear. The preamble to the REMIC
Regulations indicates that the Internal Revenue Service anticipates providing
guidance with respect to the federal tax treatment of such consideration. Any
transferee receiving consideration with respect to the Class A-R 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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ERISA CONSIDERATIONS
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 "Description of the Certificates -- Restrictions on Transfer of
the Class A-9, Class A-22, Class A-R, Class A-LR and Class B Certificates."
In addition, because the Class A-9 and Class A-22 Certificates are
subordinated to the Class A-8 and Class A-19 Certificates, respectively, with
respect to certain losses and because the Class B Certificates are subordinated
to the Class A Certificates with respect to certain losses, the Class A-9,
Class A-22 and 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 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 A-9, Class A-22 or Class B Certificates is an
"insurance company general account" as defined in Section V(e) of PTE 95-60 and
the purchase and holding of such Certificates are covered by Sections I and III
of PTE 95-60, or (ii) an opinion of counsel and such other documentation as
described herein under "Description of the Certificates -- Restrictions on
Transfer of the Class A-9, Class A-22, Class A-R, Class A-LR and Class B
Certificates."
Accordingly, the following discussion applies to the Class A Certificates
(other than the Class A-9, Class A-22, Class A-R and Class A-LR Certificates)
offered hereby and 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-9, Class A-22, Class A-R, Class A-LR or 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 Class A Certificates may constitute a prohibited transaction under
ERISA, the Code or Similar Law. There are certain exemptions issued by the
United States Department of Labor (the "DOL") that may be applicable to an
investment by an ERISA Plan in the Class A Certificates, including the
individual administrative exemption described below. For a further discussion
of the individual administrative exemption and PTE 83-1, including the
necessary conditions to their applicability, and other important factors to be
considered by an ERISA Plan contemplating investing in the Class A
Certificates, see "ERISA Considerations" in the Prospectus.
On September 6, 1990, the DOL issued to Greenwich Capital an individual
administrative exemption, Prohibited Transaction Exemption 90-59, 55 Fed. Reg.
36724 (the "Exemption"), from certain of the prohibited transaction rules of
ERISA with respect to the initial purchase, the holding and the subsequent
resale by an ERISA Plan of certificates in pass-through trusts that meet the
conditions and requirements of the Exemption. The Exemption might apply to the
acquisition, holding and resale of the Class A Certificates by an ERISA Plan,
provided that specified conditions are met.
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by an ERISA Plan of the Class A Certificates is the
condition that the ERISA Plan investing in the Class A Certificates be an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act").
Before purchasing a Class A Certificate, a fiduciary of an ERISA Plan should
make its own determination as to the availability of the exemptive relief
provided in the Exemption or the availability of any other prohibited
transaction exemptions, and whether the conditions of any such exemption will
be applicable to the Class A 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 a Class A 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.
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LEGAL INVESTMENT
The Class A and Class B-1 Certificates 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 nationally recognized statistical rating
organization. The Class B-2 and Class B-3 Certificates will not constitute
"mortgage related securities" under SMMEA.
Prospective purchasers whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities may be subject to restrictions on investment in the
Offered Certificates and should consult their own legal, tax and accounting
advisors in determining the suitability of and consequences to them of the
purchase, ownership and disposition of the Offered Certificates. See "Legal
Investment" in the Prospectus.
SECONDARY MARKET
There will not be any market for the Offered Certificates prior to the
issuance 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 under no obligation to do so. There can be no assurance
that a secondary market in the Offered Certificates will develop or, if such a
market does develop, that it will provide holders of Offered Certificates with
liquidity of investment at any particular time or for the life of the Offered
Certificates. As a source of information concerning the Certificates and the
Mortgage Loans, prospective investors in Certificates may obtain copies of the
Monthly Reports to Certificateholders described under "The Pooling and
Servicing Agreement -- Reports to Certificateholders" in the Prospectus upon
written request to the Trust Administrator at the Corporate Trust Office.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated July
17, 1996 and the terms agreement dated May 4, 1999 (together, the "Greenwich
Capital Underwriting Agreement") among Norwest Mortgage, the Seller and
Greenwich Capital, as underwriter, and the underwriting agreement dated July
12, 1996 and the terms agreement dated June 8, 1999 (together, the "PaineWebber
Underwriting Agreement"), among Norwest Mortgage, the Seller and PaineWebber
Incorporated ("PaineWebber"), as underwriter, the Class A Certificates being
offered hereby are being purchased from the Seller by Greenwich Capital and the
Class B Certificates being offered hereby are being purchased from the Seller
by PaineWebber, in each case upon issuance thereof. Each of Greenwich Capital
and PaineWebber is referred to herein as an "Underwriter," and together, as the
"Underwriters," and each of the Greenwich Capital Underwriting Agreement and
the PaineWebber Underwriting Agreement is referred to herein as an
"Underwriting Agreement." Greenwich Capital is committed to purchase all of the
Class A Certificates offered hereby if any such Certificates are purchased, and
PaineWebber is committed to purchase all of the Class B Certificates offered
hereby if any such Certificates are purchased. Each Underwriter has advised the
Seller that it proposes to offer the Offered Certificates purchased by such
Underwriter, from time to time, for sale in negotiated transactions or
otherwise at prices determined at the time of sale, and Greenwich Capital has
advised the Seller that Edward D. Jones & Co., L.P. (the "Dealer") proposes
also to offer the Class A-12 Certificates, from time to time, for sale in
negotiated transactions or otherwise at prices determined at the time of sale.
Proceeds to the Seller from the sale of the Offered Certificates are expected
to be approximately 98.26% of the aggregate initial Principal Balance of the
Class A Certificates offered hereby, approximately 92.82% of the aggregate
initial Principal Balance of the Class B-1 Certificates, approximately 91.51%
of the aggregate initial Principal Balance of the Class B-2 Certificates and
approximately 86.41% of the aggregate initial Principal Balance of the Class B-
3 Certificates plus, in each case, accrued interest thereon at the rate of
6.500% per annum, from June 1, 1999 to (but not including) June 29, 1999,
before deducting expenses payable by the Seller estimated to be $530,000. The
Underwriters are not an affiliate of the Seller. Greenwich Capital has advised
the Seller that it has not allocated the purchase price paid to the Seller for
the Classes of Class A Certificates being offered among such Classes. The
Underwriters, the Dealer and any other dealers that participate with any
Underwriter in the distribution of
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the Offered Certificates may be deemed to be underwriters, and any discounts or
commissions received by them and any profit on the resale of Offered
Certificates by them may be deemed to be underwriting discounts or commissions,
under the Securities Act.
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
required to make in respect thereof.
This Prospectus Supplement and the Prospectus may be used by Norwest
Investment Services, Inc., an affiliate of the Seller, the Master Servicer and
Norwest Mortgage, to the extent required, in connection with market making
transactions in the Offered Certificates. Norwest Investment Services, Inc. may
act as principal or agent in such transactions.
RECENT DEVELOPMENTS
The Seller, the Master Servicer, and Norwest Mortgage are subsidiaries of
Wells Fargo & Company (the former Norwest Corporation), a diversified financial
services company registered under the Bank Holding Company Act of 1956, whose
headquarters are located in San Francisco, California. On November 2, 1998,
Norwest Corporation changed its name to "Wells Fargo & Company" following the
merger of the former Wells Fargo & Company into one of Norwest Corporation's
wholly-owned subsidiaries. It is anticipated that the names of the Seller, the
Master Servicer and Norwest Mortgage will be changed during 2000 in connection
with the merger.
The Seller believes that the merger will not have a material effect on the
ability of the Seller, the Master Servicer or Norwest Mortgage to perform their
respective obligations under the Pooling and Servicing Agreement or Norwest
Mortgage's Underlying Servicing Agreement.
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
Underwriters by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated balance sheets of the Insurer and its subsidiaries as of
December 31, 1998 and 1997 and the related consolidated statements of income,
changes in shareholder's equity and cash flows for each of the three years in
the period ended December 31, 1998, incorporated by reference in this
Prospectus Supplement have been incorporated herein in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from Norwest Mortgage of the
Mortgage Loans underlying the Certificates.
RATINGS
It is a condition to the issuance of the Class A Certificates (other than the
Class A-7, Class A-8, Class A-13, Class A-15, Class A-20 and Class A-21
Certificates) offered hereby that each such Class will have been rated "AAA" by
DCR and S&P. It is a condition to the issuance of the Class A-7, Class A-8,
Class A-13, Class A-15 Class A-20 and Class A-21 Certificates that such Class
will have been rated "AAA" by DCR and "AAAr" by
S-104
<PAGE>
S&P. S&P assigns the additional rating of "r" to highlight classes of
securities that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. It is a condition to the issuance
of the Class B-1, Class B-2 and Class B-3 Certificates that they will have been
rated at least "AA," "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 evaluated 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
structure of the transactions as set forth in the operative documents. DCR's
ratings do not address the effect on the certificates' yield attributable to
prepayments or recoveries on the underlying mortgage loans. In addition, the
rating of the Class A-R and Class A-LR Certificates do not address the
likelihood of return to an investor in the Class A-R and Class A-LR
Certificates, except to the extent of the Principal Balance thereof and
interest thereon.
The ratings of S&P on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of timely payments of interest
and the ultimate return of principal. S&P ratings take into consideration the
credit quality of the mortgage pool, including any credit support providers,
structural and legal aspects associated with the certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make payments
required under the certificates. S&P's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
mortgage loans. S&P's rating does not address the possibility that investors
may suffer a lower than anticipated yield as a result of prepayments of the
underlying mortgages. In addition, it should be noted that in some structures a
default on a mortgage is treated as a prepayment and may have the same effect
on yield as a prepayment.
The ratings of DCR and S&P also do not address the possibility that, as a
result of principal prepayments, a holder of a Class A-21 Certificate may not
fully recover its initial investment.
The Seller has not requested a rating on the Offered Certificates of any
Class by any rating agency other than DCR and S&P, 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 agency to the Offered Certificates will be as high as
those assigned by DCR and S&P.
S-105
<PAGE>
INDEX OF
PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Accretion Termination Date............. S-33
Additional Collateral.................. S-69
Adjusted Pool Amount................... S-30
Adjusted Pool Amount (PO Portion)...... S-31
Adjustment Amount...................... S-67
Aggregate Non-PO Principal Balance..... S-30
Aggregate Principal Balance............ S-30
Assumed Mortgage Loans................. S-82
Assumed Group I Discount Mortgage
Loan.................................. S-82
Assumed Group I Premium Mortgage Loan.. S-82
Assumed Group II Mortgage Loan......... S-82
Assumed Group III Mortgage Loan........ S-82
Available Master Servicing
Compensation.......................... S-31
Bankruptcy Loss........................ S-37
Bankruptcy Loss Amount................. S-68
BBA.................................... S-33
Beneficial Owner....................... S-24
Book-Entry Certificates................ S-24
Bulk Purchase Underwritten Loans....... S-12
Business Day........................... S-61
CBE.................................... S-88
Cede................................... S-24
Certificate Account.................... S-99
Certificateholder...................... S-24
Certificates........................... S-9
Class A-5 Accrual Distribution Amount.. S-35
Class A-8 Accrual Component
Distribution Amount................... S-35
Class A-11 Accrual Distribution
Amount................................ S-35
Class A-19 Accrual Distribution
Amount................................ S-35
Class A-8A IO Notional Amount.......... S-28
Class A-8B IO Notional Amount.......... S-28
Class A-8C IO Notional Amount.......... S-28
Class A-8D IO Notional Amount.......... S-28
Class A-8 IO Component................. S-28
Class A-8 IO Notional Amount........... S-28
Class A-9 Priority Amount.............. S-45
Class A-9 Priority Percentage.......... S-45
Class A-21 Notional Amount............. S-28
Class A-22 Priority Amount............. S-45
Class A-22 Priority Percentage......... S-45
Class A Non-PO Optimal Principal
Amount................................ S-35
Class A Non-PO Principal Amount........ S-35
Class A Non-PO Principal Balance....... S-30
Class A Non-PO Principal Distribution
Amount................................ S-34
Class A Percentage..................... S-38
Class A Prepayment Percentage.......... S-38
Class A Principal Balance.............. S-30
Class A-PO Deferred Amount............. S-36
Class A-PO Distribution Amount......... S-35
</TABLE>
<TABLE>
<S> <C>
Term Page
- ---- -----
Class A-PO Optimal Principal Amount.. S-35
Class B Optimal Principal Amount..... S-35
Class B Percentage................... S-39
Class B Prepayment Percentage........ S-39
Class B Principal Balance............ S-30
Class B-1 Principal Distribution
Amount.............................. S-35
Class B-2 Principal Distribution
Amount.............................. S-35
Class B-3 Principal Distribution
Amount.............................. S-35
Class Percentage..................... S-36
Class Prepayment Percentage.......... S-36
Closing Date......................... S-9
Code................................. S-18
Compensating Interest................ S-31
Component Interest Accrual Amount.... S-27
Component Rate....................... S-27
Co-op Shares......................... S-69
Cooperatives......................... S-69
Cross-Over Date...................... S-66
Current Fractional Interest.......... S-39
Curtailment Interest Shortfalls...... S-32
Cut-Off Date......................... S-71
DCR.................................. S-8
Dealer............................... S-103
Debt Service Reduction............... S-37
Deceased Holder...................... S-57
Deficient Valuation.................. S-37
Definitive Certificates.............. S-24
Determination Date................... S-24
Discount Mortgage Loan............... S-37
Distribution Date.................... S-24
DOL.................................. S-102
DTC.................................. S-24
ERISA................................ S-18
ERISA Plan........................... S-64
Eurodollar Business Day.............. S-29
Excess Bankruptcy Losses............. S-67
Excess Fraud Losses.................. S-67
Excess Losses........................ S-67
Excess Special Hazard Losses......... S-67
Exemption............................ S-102
Exchange Act......................... S-63
Scores............................... S-75
Fixed Retained Yield................. S-98
Fraud Loss........................... S-37
Fraud Loss Amount.................... S-67
Capital.............................. S-32
Greenwich Capital Underwriting
Agreement............................ S-103
Group A Certificates................. S-45
Group A/A-20B Priority Amount........ S-45
Group A/A-20B Priority Percentage.... S-45
</TABLE>
S-106
<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- -----
<S> <C>
Group B Certificates................ S-45
Group 1 Certificates................ S-45
Group 2 Certificates................ S-45
Group I-1 Percentage................ S-43
Group I-2 Percentage................ S-43
Group I Amount...................... S-43
Group I Mortgage Loans.............. S-43
Group I Scheduled Principal Amount.. S-43
Group I Unscheduled Principal
Amount............................. S-43
Group II Amount..................... S-44
Group II Mortgage Loans............. S-44
Group II Optimal Amount............. S-44
Group II Scheduled Principal
Amount............................. S-44
Group II Unscheduled Principal
Amount............................. S-44
Group III Amount.................... S-44
Group III Mortgage Loans............ S-44
Group III Optimal Amount............ S-44
Group III Scheduled Principal
Amount............................. S-44
Group III Unscheduled Principal
Amount............................. S-44
Guaranteed Distributions............ S-60
Holder.............................. S-24
Holdings............................ S-62
Individual Class A-12 Certificate... S-57
Industry............................ S-22
Insurer............................. S-10
Interest Accrual Amount............. S-27
Interest Accrual Period............. S-27
Interest Settlement Rate............ S-33
Interest Shortfall Amount........... S-33
LIBOR............................... S-6
Limited Purpose Surety Bond ........ S-69
Liquidated Loan..................... S-37
Liquidated Loan Loss................ S-37
Living Holders...................... S-57
Loss Severity Percentage............ S-91
Lower-Tier REMIC.................... S-17
Lower-Tier REMIC Regular Interest... S-99
Master Servicer..................... S-8
Master Servicing Fee................ S-95
Master Servicing Fee Rate........... S-95
Maximum Amount...................... S-70
Mid-Month Receipt Period............ S-97
MLCC................................ S-12
Month End Interest.................. S-31
Mortgage Loans...................... S-69
Mortgaged Properties................ S-69
Mortgages........................... S-69
Negative Adjustment................. S-100
Net Mortgage Interest Rate.......... S-31
Net Partial Liquidation Proceeds.... S-26
Non-PO Fraction..................... S-37
Non-Supported Interest Shortfalls... S-32
Norwest Bank........................ S-8
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- -----
<S> <C>
Norwest Mortgage..................... S-8
Norwest Type 1 Loans................. S-97
Norwest Type 2 Loans................. S-97
NOVUS................................ S-12
OID.................................. S-17
Order................................ S-60
Original Subordinated Principal
Balance............................. S-38
Original Fractional Interest......... S-39
Other Servicers...................... S-96
PaineWebber.......................... S-103
PaineWebber Underwriting Agreement... S-103
Partial Liquidation Proceeds......... S-26
Pass-Through Rate.................... S-27
Percentage Interest.................. S-27
Periodic Advance..................... S-60
Plan................................. S-18
Pledged Asset Mortgage Loans......... S-69
PO Fraction.......................... S-37
Policy............................... S-10
Pool Balance (Non-PO Portion)........ S-37
Pool Balance (PO Portion)............ S-38
Pool Distribution Amount............. S-25
Pool Distribution Amount Allocation.. S-26
Pooling and Servicing Agreement...... S-94
Premium Mortgage Loan................ S-37
Premium Payment...................... S-29
Premium Shortfall Amount............. S-33
Prepayment Shift Percentage.......... S-45
Prepayment and Yield Consideration... S-17
Prepayments in Full.................. S-31
Prepayment Interest Shortfalls....... S-31
Principal Balance.................... S-29
Prior Month Receipt Period........... S-97
Prospectus........................... S-8
Prospectus Supplement................ S-8
PTE 95-60............................ S-65
Rate Determination Date.............. S-29
Rating Agencies...................... S-8
Realized Loss........................ S-37
Receipt.............................. S-61
Received............................. S-61
Record Date.......................... S-25
Reduction Amount..................... S-56
Regular Certificates................. S-17
REMIC................................ S-17
Remittance Date...................... S-26
REO Property......................... S-95
Reserve Fund......................... S-10
Reserve Interest Rate................ S-34
Residual Certificates................ S-99
Rounding Account..................... S-57
S&P.................................. S-8
Schedule I PAC Certificates.......... S-46
</TABLE>
S-107
<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- -----
<S> <C>
Schedule I PAC Excess Principal
Payments......................... S-54
Schedule I PAC Principal Amount... S-46
Schedule I PAC Support
Certificates..................... S-54
Schedule I Reduction Amount....... S-46
Schedule II PAC Certificates...... S-46
Schedule II PAC Excess Principal
Payments......................... S-55
Schedule II PAC Principal Amount.. S-46
Schedule II PAC Support
Certificates..................... S-54
Schedule II Reduction Amount...... S-46
Schedule III Reduction Amount..... S-46
Schedule IV Reduction Amount...... S-46
Scheduled Principal Balance....... S-37
SDA............................... S-91
Securities Act.................... S-102
Seller............................ S-8
Servicers......................... S-96
Servicer Custodial Account........ S-96
Servicing Fee Rate................ S-98
Similar Law....................... S-18
SMMEA............................. S-18
SPA............................... S-81
Special Hazard Loss............... S-37
Special Hazard Loss Amount........ S-67
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- -----
<S> <C>
Structuring Assumptions.............. S-82
Subordinated Percentage.............. S-38
Subordinated Prepayment Percentage... S-38
Surety Bond Provider................. S-69
Systems.............................. S-21
Target Regime........................ S-98
Telerate page 3750................... S-34
Term of the Policy................... S-61
Trust................................ S-8
Trust Administrator.................. S-8
Trustee.............................. S-8
U.S. Person.......................... S-64
Underlying Servicing Agreement....... S-8
Underwriter.......................... S-103
Underwriters......................... S-103
Underwriting Agreement............... S-103
Underwriting Standards............... S-12
Unscheduled Principal Receipt
Period.............................. S-97
Unscheduled Principal Receipts....... S-25
Upper-Tier Certificates.............. S-99
Upper-Tier REMIC..................... S-17
Weighted Average Life................ S-81
Wells Fargo.......................... S-96
</TABLE>
S-108
<PAGE>
PROSPECTUS
Norwest Asset Securities Corporation
(NASCOR(R))
Seller
Mortgage Pass-Through Certificates
(Issuable in Series by separate Trusts)
---------------
You should Each Trust--
carefully
consider the . will issue a series of mortgage pass-through
risk factors certificates, which will consist of one or more
beginning on classes of certificates; and
page 9 of this
prospectus. . will own--
Neither the . a pool or pools of fixed or adjustable interest
certificates of rate, conventional mortgage loans which are
any series nor secured by a first lien on a one- to four-family
the related residential property; and
underlying
mortgage loans . other assets described in this prospectus and
will be insured the accompanying prospectus supplement.
or guaranteed by
any governmental Each Pool of Mortgage Loans--
agency or
instrumentality. . will be sold to the related Trust by NASCOR(R), who
will have in turn purchased them from Norwest
The certificates Mortgage, Inc., one of its affiliates;
of each series
will represent . will be underwritten to Norwest Mortgage, Inc.'s
interests in the standards or such other standards as described in
related trust this prospectus and the accompanying prospectus
only and will supplement; and
not represent
interests in or . will be serviced by Norwest Mortgage, Inc.
obligations of individually or together with other servicers.
NASCOR(R) or any
NASCOR(R) Each Series of Certificates--
affiliate.
. will represent interests in the related Trust;
This prospectus
may be used to . may provide credit support for certain classes by
offer and sell "subordinating" certain classes to other classes of
any series of certificates; any subordinated classes will be
certificates entitled to payment subject to the payment of more
only if senior classes and may bear losses before more
accompanied by senior classes;
the prospectus
supplement for . may be entitled to one or more of the other types of
that series. credit support described in this prospectus; and
. will be paid only from the assets of the related
Trust.
Neither the SEC nor any state securities commission has approved the
certificates or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
---------------
The date of this Prospectus is May 19, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
Information is provided to you about the Certificates in two separate
documents that progressively provide more detail: (a) this Prospectus, which
provides general information, some of which may not apply to a particular
Series of Certificates, including your Series, and (b) the accompanying
Prospectus Supplement, which will describe the specific terms of your Series
of Certificates, including:
.the principal balances and/or interest rates of each Class and/or
Subclass;
.the timing and priority of interest and principal payments;
.statistical and other information about the Mortgage Loans;
.information about credit enhancement, if any, for each Class or Subclass;
.the ratings for each Class or Subclass; and
.the method for selling the Certificates.
If the terms of a particular Series of Certificates vary between this
Prospectus and the Prospectus Supplement, you should rely on the information
in the Prospectus Supplement.
You should rely only on the information provided in this Prospectus and the
accompanying Prospectus Supplement including the information incorporated by
reference. No one has been authorized to provide you with different
information. The Certificates are not being offered in any state where the
offer is not permitted. The Seller does not claim the accuracy of the
information in this Prospectus or the accompanying Prospectus Supplement as of
any date other than the dates stated on their respective covers.
Cross-references are included in this Prospectus and in the accompanying
Prospectus Supplement to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents included in the accompanying Prospectus Supplement provide the pages
on which these captions are located.
You can find a listing of the pages where capitalized terms used in this
Prospectus are defined under the caption "Index of Significant Definitions"
beginning on page 95 in this Prospectus.
The Seller's principal executive office is located at 7485 New Horizon Way,
Frederick, Maryland 21703, and the Seller's telephone number is (301) 846-
8881.
--------------
2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Important Notice About Information Presented in This Prospectus and the
Accompanying Prospectus Supplement...................................... 2
Summary of Prospectus.................................................... 5
Risk Factors............................................................. 9
Limited Liquidity for Certificates..................................... 9
Limited Assets for Payment of Certificates............................. 9
Credit Enhancement is Limited in Amount and Coverage................... 9
Real Estate Market Conditions Affect Mortgage Loan Performance......... 10
Geographic Concentration May Increase Rates of Loss and Delinquency.... 10
Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives
and Yields on Certificates............................................ 10
Book-Entry Certificates May Experience Decreased Liquidity and Payment
Delay................................................................. 11
Cash Flow Agreements are Subject to Counterparty Risk ................. 11
The Trust Estates........................................................ 11
General................................................................ 11
Mortgage Loans......................................................... 12
Cash Flow Agreements................................................... 15
The Seller............................................................... 15
Norwest Mortgage......................................................... 15
Norwest Bank............................................................. 16
The Mortgage Loan Programs............................................... 16
Mortgage Loan Production Sources....................................... 16
Acquisition of Mortgage Loans from Correspondents...................... 17
Mortgage Loan Underwriting............................................. 17
Norwest Mortgage Underwriting........................................ 17
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.................................. 29
Other Credit Enhancement............................................... 32
Limited Guarantee.................................................... 32
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Guaranty Insurance Policy or Surety Bond.................... 32
Letter of Credit...................................................... 32
Pool Insurance Policies............................................... 32
Special Hazard Insurance Policies..................................... 32
Mortgagor Bankruptcy Bond............................................. 32
Reserve Fund.......................................................... 32
Cross Support......................................................... 33
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
Refinancings............................................................ 35
Delinquency and Foreclosure Experience.................................... 35
Servicing of the Mortgage Loans........................................... 40
The Master Servicer..................................................... 40
The Servicers........................................................... 40
Payments on Mortgage Loans.............................................. 41
Periodic Advances and Limitations Thereon............................... 44
Collection and Other Servicing Procedures............................... 44
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans.................................................................. 45
Insurance Policies...................................................... 46
Fixed Retained Yield, Servicing Compensation and Payment of Expenses.... 47
Evidence as to Compliance............................................... 48
Certain Matters Regarding the Master Servicer............................. 49
The Pooling and Servicing Agreement....................................... 50
Assignment of Mortgage Loans to the Trustee............................. 50
Optional Purchases...................................................... 51
Reports to Certificateholders........................................... 51
List of Certificateholders.............................................. 52
Events of Default....................................................... 52
Rights Upon Event of Default............................................ 53
Amendment............................................................... 53
Termination; Optional Purchase of Mortgage Loans........................ 54
The Trustee............................................................. 54
Certain Legal Aspects of the Mortgage Loans............................... 55
General................................................................. 55
Foreclosure............................................................. 55
Foreclosure on Shares of Cooperatives................................... 56
Rights of Redemption.................................................... 57
Anti-Deficiency Legislation, the Bankruptcy Code and Other Limitations
on Lenders............................................................. 57
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Texas Home Equity Loans.................................................. 59
Soldiers' and Sailors' Civil Relief Act and Similar Laws................. 59
Environmental Considerations............................................. 60
"Due-on-Sale" Clauses.................................................... 61
Applicability of Usury Laws.............................................. 62
Enforceability of Certain Provisions..................................... 63
Certain Federal Income Tax Consequences.................................... 63
Federal Income Tax Consequences for REMIC Certificates.................... 63
General.................................................................. 63
Status of REMIC Certificates............................................. 64
Qualification as a REMIC................................................. 64
Taxation of Regular Certificates......................................... 66
General................................................................ 66
Original Issue Discount................................................ 66
Acquisition Premium.................................................... 68
Variable Rate Regular Certificates..................................... 68
Market Discount........................................................ 69
Premium................................................................ 70
Election to Treat All Interest Under the Constant Yield Method......... 70
Treatment of Losses.................................................... 70
Sale or Exchange of Regular Certificates............................... 71
Taxation of Residual Certificates........................................ 72
Taxation of REMIC Income............................................... 72
Basis and Losses....................................................... 72
Treatment of Certain Items of REMIC Income and Expense................. 73
Limitations on Offset or Exemption of REMIC Income..................... 74
Tax-Related Restrictions on Transfer of Residual Certificates.......... 74
Sale or Exchange of a Residual Certificate............................. 76
Mark to Market Regulations............................................. 77
Taxes That May Be Imposed on the REMIC Pool.............................. 77
Prohibited Transactions................................................ 77
Contributions to the REMIC Pool After the Startup Day.................. 78
Net Income from Foreclosure Property................................... 78
Liquidation of the REMIC Pool............................................ 78
Administrative Matters................................................... 78
Limitations on Deduction of Certain Expenses............................. 78
Taxation of Certain Foreign Investors.................................... 79
Regular Certificates................................................... 79
Residual Certificates.................................................. 79
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Backup Withholding...................................................... 80
Reporting Requirements.................................................. 80
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election Is Made........................................................ 80
General................................................................. 80
Tax Status.............................................................. 81
Premium and Discount.................................................... 82
Premium............................................................... 82
Original Issue Discount............................................... 82
Market Discount....................................................... 82
Recharacterization of Servicing Fees.................................... 82
Sale or Exchange of Certificates........................................ 83
Stripped Certificates................................................... 83
General............................................................... 83
Status of Stripped Certificates....................................... 84
Taxation of Stripped Certificates..................................... 84
Reporting Requirements and Backup Withholding........................... 86
Taxation of Certain Foreign Investors................................... 86
ERISA Considerations...................................................... 86
General................................................................. 86
Certain Requirements Under ERISA........................................ 87
General............................................................... 87
Parties in Interest/Disqualified Persons.............................. 87
Delegation of Fiduciary Duty.......................................... 87
Administrative Exemptions............................................... 88
Individual Administrative Exemptions.................................. 88
PTE 83-1.............................................................. 89
Exempt Plans............................................................ 89
Unrelated Business Taxable Income--Residual Certificates................ 89
Legal Investment.......................................................... 90
Plan of Distribution...................................................... 91
Use of Proceeds........................................................... 92
Legal Matters............................................................. 92
Rating.................................................................... 92
Reports to Certificateholders............................................. 93
Where You Can Find More Information....................................... 93
Registration Statement and Other Materials Filed With the SEC........... 93
Detailed Information Relating to the Mortgage Loans of a Series......... 93
Incorporation of Certain Information by Reference......................... 94
Index of Significant Definitions.......................................... 95
</TABLE>
4
<PAGE>
SUMMARY OF PROSPECTUS
. This summary highlights selected information from this document, but does not
contain all of the information that you should consider in making your
investment decision. To understand all of the terms of a Series of
Certificates, please read this entire document and the accompanying
Prospectus Supplement carefully.
. This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding of the terms of the Certificates
and is qualified by the full description of these calculations, cash flows
and other information in this Prospectus and the accompanying Prospectus
Supplement.
RELEVANT PARTIES FOR EACH SERIES OF CERTIFICATES
Issuer
Each series (each, a "Series") of certificates (the "Certificates") will be is-
sued by a separate trust (a "Trust" or, together with all assets owned by such
Trust, a "Trust Estate"). Each Trust Estate will be formed pursuant to a pool-
ing and servicing agreement (each, a "Pooling and Servicing Agreement") among
the Seller, the Master Servicer and the Trustee specified in the applicable
Prospectus Supplement.
Seller
With respect to each Trust Estate, Norwest Asset Securities Corporation (the
"Seller") will acquire the Mortgage Loans from Norwest Mortgage, Inc. ("Norwest
Mortgage") and will transfer the Mortgage Loans to the Trust. The Seller is a
direct, wholly-owned subsidiary of Norwest Mortgage. Norwest Mortgage is an in-
direct, wholly-owned subsidiary of Wells Fargo & Company. See "Recent Develop-
ments" in the applicable Prospectus Supplement.
Master Servicer
Norwest Bank Minnesota, National Association ("Norwest Bank" and, in such ca-
pacity, the "Master Servicer") will supervise the Servicers and perform certain
other administrative and reporting duties with respect to each Series of Cer-
tificates. In addition, the Master Servicer will generally be required to make
Periodic Advances 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.
Norwest Bank is a direct, wholly-owned subsidiary of Wells Fargo & Company and
an affiliate of the Seller.
Servicers
Norwest Mortgage and, if specified in the applicable Prospectus Supplement, one
or more other entities (each, a "Servicer") will service the Mortgage Loans in
each Trust. 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").
THE MORTGAGE LOANS
Each Trust will own the related Mortgage Loans (other than the Fixed Retained
Yield described in this Prospectus, if any) and certain other related property,
as specified in the applicable Prospectus Supplement.
The Mortgage Loans in each Trust Estate:
. will be conventional, fixed or adjustable interest rate, mortgage loans
secured by first liens on one- to four-family residential properties;
. will have been acquired by the Seller from Norwest Mortgage;
. 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; and
. will have been underwritten either to Norwest Mortgage's standards or, to the
extent specified in the applicable Prospectus Supplement, to the standards of
a Pool Insurer or to other standards.
See "The Trust Estates" and "The Mortgage Loan Programs--Mortgage Loan Under-
writing."
You should refer to the applicable Prospectus Supplement for the precise char-
acteristics or expected characteristics of the Mortgage Loans and a description
of the other property, if any, included in a particular Trust Estate.
DISTRIBUTIONS ON THE CERTIFICATES
Each Series of Certificates will include one or more classes (each, a "Class"),
any of which may be divided into one or
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more subclasses (each, a "Subclass"). A Class or Subclass of Certificates will
be entitled, to the extent of funds available, to one of the following:
. principal and interest payments in respect of the related Mortgage Loans;
. principal distributions, with no interest distributions;
. interest distributions, with no principal distributions; or
. such other distributions as are described in the applicable Prospectus
Supplement.
Interest Distributions
With respect to each Series of Certificates, interest on the related Mortgage
Loans at the weighted average of their Mortgage Interest Rates (net of servic-
ing fees and certain other amounts as described in this Prospectus or in the
applicable Prospectus Supplement), will be passed through to holders of the
related Classes of Certificates in accordance with the particular terms of
each such Class of Certificates. The terms of each Class of Certificates will
be described in the related Prospectus Supplement. See "Description of the
Certificates--Distributions to Certificateholders--Distributions of Interest".
Except as otherwise specified in the applicable Prospectus Supplement, inter-
est 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 their outstanding prin-
cipal balance or notional amount.
Principal Distributions
With respect to a Series of Certificates, principal payments (including pre-
payments) on the related Mortgage Loans 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 applica-
ble Prospectus Supplement. See "Description of the Certificates--Distributions
to Certificateholders--Distributions of Principal."
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 appli-
cable Cut-Off Date occurs (each, a "Distribution Date"). The "Cut-Off Date"
for each Series will be the date specified in the applicable Prospectus Sup-
plement.
If so specified in the applicable Prospectus Supplement, distributions on Cer-
tificates may be made on a different day of each month or may be made quarter-
ly, 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 pre-
ceding the month in which such Distribution Date occurs (each, a "Record
Date").
CREDIT ENHANCEMENT
Subordination
A Series of Certificates may include one or more Classes of senior certifi-
cates (the "Senior Certificates") and one or more Classes of subordinated cer-
tificates (the "Subordinated Certificates"). The rights of the holders of Sub-
ordinated Certificates of a Series to receive distributions will be subordi-
nated to such rights of the holders of the Senior Certificates of the same Se-
ries to the extent and in the manner specified in the applicable Prospectus
Supplement.
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 from losses. This protection will be effected by:
. 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;
. 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
. the prior allocation to the Subordinated Certificates of all or a portion of
losses realized on the underlying Mortgage Loans.
Other Types of Credit Enhancement
If so specified in the applicable Prospectus Supplement, the Certificates of
any Series, or any one or more Classes of a
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Series, may be entitled to the benefits of other types of credit enhancement,
including but not limited to:
. limited guarantee . mortgage pool insurance
. financial guaranty policy
insurance policy . reserve fund
. surety bond . cross-support
. letter of credit
Any credit support will be described in the applicable Prospectus Supplement.
See "Description of the Certificates--Other Credit Enhancement."
PERIODIC ADVANCES ON DELINQUENT PAYMENTS
In the event that a payment on a Mortgage Loan is delinquent, the Servicer of
the Mortgage Loan will be obligated, to the extent specified in the Underlying
Servicing Agreement, to make cash advances ("Periodic Advances") to the
Servicer Custodial Account if the Servicer determines that it will be able to
recover such amounts from future payments and collections on such Mortgage
Loan. A Servicer who makes Periodic Advances will be reimbursed for such Peri-
odic Advances as described in this Prospectus and in the applicable Prospectus
Supplement. In certain circumstances, the Master Servicer or Trustee will be
required to make Periodic Advances upon a Servicer default.
In addition, the Master Servicer may be required to make Periodic Advances if
the Underlying Servicing Agreement does not require the Servicer to make Peri-
odic Advances while a Mortgage Loan is in the process of being liquidated.
See "Servicing of the Mortgage Loans--Periodic Advances and Limitations There-
on."
FORMS OF CERTIFICATES
The Certificates will be issued either:
. in book-entry form ("Book-Entry Certificates") through the facilities of The
Depository Trust Company ("DTC"); or
. in fully registered, certificated form ("Definitive Certificates").
If you own Book-Entry Certificates, you will not receive a physical certifi-
cate representing your ownership interest in such Book-Entry Certificates, ex-
cept under extraordinary circumstances which are discussed in "Description of
the Certificates--Definitive Form" in this Prospectus. Instead, DTC will ef-
fect payments and transfers by means of its electronic recordkeeping services,
acting through certain participating organizations. This may result in certain
delays in your receipt of distributions and may restrict your ability to
pledge your securities. Your rights with respect to Book-Entry Certificates
may generally only be exercised through DTC and its participating organiza-
tions.
See "Description of the Certificates--Book-Entry Form."
OPTIONAL PURCHASE OF CERTAIN MORTGAGE LOANS
The Seller may, to the extent specified in the related Prospectus Supplement
and subject to the terms of the applicable Pooling and Servicing Agreement,
purchase from the related Trust:
. any defaulted Mortgage Loan or any Mortgage Loan as to which default is
reasonably foreseeable; and
. any Mortgage Loan as to which the originator of such Mortgage Loan breached
a representation or warranty to Norwest Mortgage regarding the
characteristics of such Mortgage Loan.
See "Pooling and Servicing Agreement--Optional Purchases."
OPTIONAL PURCHASE OF ALL MORTGAGE LOANS
If so specified in the Prospectus Supplement with respect to a Series, all,
but not less than all, of the Mortgage Loans in the related Trust and any
property acquired with respect to such Mortgage Loans may be purchased by the
Seller, Norwest Mortgage or such other party as is specified in the applicable
Prospectus Supplement. Any such purchase must be made 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 in the Trust Estate) as a "real estate
mortgage investment conduit" (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 Cer-
tificates of that Series.
See "Prepayment and Yield Considerations."
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ERISA LIMITATIONS
If you are a fiduciary of any employee benefit plan subject to the fiduciary
responsibility or prohibited transaction provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), you should carefully review
with your 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 depend
on:
. whether a REMIC election is made with respect to a Series of Certificates;
and
. if a REMIC election is made, 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 pur-
poses of the Secondary Mortgage Market Enhancement Act of 1984, as amended. If
your investment authority is subject to legal restrictions you should consult
your own legal advisors to determine whether and to what extent such Certifi-
cates constitute legal investments for you.
See "Legal Investment" in this Prospectus and in the applicable Prospectus
Supplement.
RATING
Certificates of any Series will not be offered pursuant to this Prospectus and
a Prospectus Supplement unless each Offered Class or Subclass is 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.
. Ratings do not address the effect of prepayments on the yield you may antic-
ipate when you purchase your Certificates.
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RISK FACTORS
You should consider, among other things, the following factors in connection
with the purchase of Certificates.
Limited Liquidity for Certificates
The liquidity of your Certificates may be limited. You should consider that:
. a secondary market for the Certificates of any Series may not develop, or
if it does, it may not provide you with liquidity of investment, or it
may not continue for the life of the Certificates of any Series;
. the Prospectus Supplement for any Series of Certificates may indicate
that an underwriter intends to establish a secondary market in such
Certificates, but no underwriter will be obligated to do so; and
. unless specified in the applicable Prospectus Supplement, the
Certificates will not be listed on any securities exchange.
In addition to these considerations, the secondary market for mortgage-
backed securities has experienced periods of illiquidity and may do so in the
future. Illiquidity means that there may not be any purchasers for your Class
of Certificates. Although any Class of Certificates may experience
illiquidity, it is more likely that Classes of Certificates that are more
sensitive to prepayment, credit or interest rate risk will experience
illiquidity.
Limited Assets for Payment of Certificates
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 the Seller, Norwest Mortgage, Norwest Bank, the Trustee or
any of their affiliates, except for the Seller'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; and
. neither the Certificates of any Series nor the related Mortgage Loans
will be guaranteed or insured by any governmental agency or
instrumentality, the Seller, Norwest Mortgage, Norwest Bank, the Trustee,
any of their affiliates or any other person.
Consequently, in the event that payments on the Mortgage Loans underlying
your Series of Certificates are insufficient or otherwise unavailable to make
all payments required on your Certificates, there will be no recourse to the
Seller, Norwest Mortgage, Norwest Bank, the Trustee or, except as specified in
the applicable Prospectus Supplement, any other entity.
Credit Enhancement is Limited in Amount and Coverage
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 in this Prospectus, 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
of the preceding types of credit enhancement. See "Description of the
Certificates--Other Credit Enhancement".
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;
. may provide only very limited coverage as to certain types of losses, and
may provide no coverage as to certain other types of losses; and
. 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 ratings 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).
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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 the Seller, 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."
Real Estate Market Conditions Affect Mortgage Loan Performance
An investment in securities such as the Certificates, which generally
represent interests in pools of residential mortgage loans, may be affected by
a decline in real estate values and changes in the mortgagor's financial
condition. There is no assurance 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
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, 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.
To the extent that losses on Mortgage Loans underlying a Series are not
covered by credit enhancement, Certificateholders of the Series 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 Trusts Estates--Mortgage Loans" and "The Mortgage Loan Programs--Mortgage
Loan Underwriting."
Geographic Concentration May Increase Rates of Loss and Delinquency
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. Mortgage loans in
such areas 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."
The ability of mortgagors to make payments on the Mortgage Loans may also be
affected by factors which do not necessarily affect property values, such as
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). Such
occurrences may accordingly affect 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. 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."
Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives and
Yields on Certificates
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 a discount, by a higher or lower than anticipated
rate of prepayments on the related Mortgage Loans. In particular:
. the yield on Classes of Certificates entitling their holders 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; and
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. 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.
The rate of prepayments on Mortgage loans is 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, your yield 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. Your yield will be also adversely affected to the extent that
losses on the Mortgage Loans in the related Trust Estate are allocated to your
Certificates and may be adversely affected to the extent of unadvanced
delinquencies on the Mortgage Loans in the related Trust. 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 Certificates May Experience Decreased Liquidity and Payment Delay
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:
. your ability to pledge Book-Entry Certificates to someone who does 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;
. you may experience delays in your receipt of payments on Book-Entry
Certificates because distributions will be made by the Master Servicer,
or a Paying Agent on behalf of the Master Servicer, to Cede, as nominee
for DTC; and
. the liquidity of Book-Entry Certificates in any secondary trading market
that may develop may be limited because investors may be unwilling to
purchase securities for which they cannot obtain delivery of physical
certificates.
See "Description of the Certificates--Book-Entry Form."
Cash Flow Agreements are Subject to Counterparty Risk
The assets of a Trust Estate may, if specified in the related Prospectus
Supplement, include agreements, such as interest rate swap, cap, floor or
similar agreements (each a "Cash Flow Agreement"), which will require the
provider of such instrument (the "Counterparty") to make payments to the Trust
Estate under the circumstances described in the Prospectus Supplement. To the
extent that payments on the Certificates of the related Series depend in part
on payments to be received under a Cash Flow Agreement, the ability of the
Trust Estate to make payments on the Certificates will be subject to the
credit risk of the Counterparty. The Prospectus Supplement for a Series of
Certificates will describe any mechanism, such as the payment of "breakage
fees," which may exist to facilitate replacement of a Cash Flow Agreement upon
the default or credit impairment of the related Counterparty. However, there
can be no assurance that any such mechanism will result in the ability of the
Master Servicer to obtain a replacement Cash Flow Agreement.
THE TRUST ESTATES
General
The Trust Estate for each Series of Certificates will consist primarily of
fixed or adjustable interest rate, conventional first mortgage loans
("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'
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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 on the property.
Generally, a Mortgage Loan will be secured by a lease only if (i) the use of
leasehold estates as security for mortgage loans is customary in the area,
(ii) the lease is not subject to any prior lien that could result in
termination of the lease and (iii) the term of the lease ends at least five
years beyond the maturity date of the related Mortgage Loan. The provisions of
each lease securing a Mortgage Loan will expressly permit (i) mortgaging of
the leasehold estate, (ii) assignment of the lease without the lessor's
consent and (iii) acquisition by the holder of the Mortgage, in its own or its
nominee's name, of the rights of the lessee upon foreclosure or assignment in
lieu of foreclosure, unless alternative arrangements provide the holder of the
Mortgage with substantially similar protections. No lease will contain
provisions which (i) provide for termination upon the lessee's default without
the holder of the Mortgage being entitled to receive written notice of, and
opportunity to cure, such default, (ii) provide for termination in the event
of damage or destruction as long as the Mortgage is in existence or (iii)
prohibit the holder of the Mortgage from being insured under the hazard
insurance policy or policies related to the premises.
The Prospectus Supplement will set forth the geographic distribution of
Mortgaged Properties and the number and aggregate unpaid principal balances of
the Mortgage Loans by category of Mortgaged Property. The Prospectus
Supplement for each Series will also set forth the range of original terms to
maturity of the Mortgage Loans in the Trust Estate, the weighted average
remaining term to stated maturity at the Cut-Off Date of such Mortgage Loans,
the earliest and latest months of origination of such Mortgage Loans, the
range of Mortgage Interest Rates borne by such Mortgage Loans, if such
Mortgage Loans have varying Net Mortgage Interest Rates, the weighted average
Net Mortgage Interest Rate at the Cut-Off Date of such Mortgage Loans, the
range of Loan-to-Value Ratios at the time of origination of such Mortgage
Loans and the range of principal balances at origination of such Mortgage
Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the Prospectus
Supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such
cases, information as to the final characteristics of the Mortgage Loans and
Mortgaged Properties will be available in a Current Report on Form 8-K which
the Seller will file with the Commission within 15 days of the initial
issuance of the related Series.
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The Mortgage Loans in a Trust 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. Each Mortgage Loan 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 include 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 include 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. 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.
The scheduled monthly payment for an adjustable rate Mortgage Loan will be
adjusted as and when described in the applicable Prospectus Supplement 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. If the adjustments made to monthly payments for an
adjustable rate Mortgage Loan are made at intervals different from the
intervals at which the Mortgage Interest Rate is adjusted, "negative
amortization" of principal may result with respect to such Mortgage Loan.
Negative amortization will occur if an adjustment to the Mortgage Interest
Rate on such a Mortgage Loan causes the amount of interest accrued thereon in
any month to exceed the current scheduled monthly payment on such mortgage
loan. The resulting amount of interest that has accrued but is not then
payable ("Deferred Interest") will be added to the principal balance of such
Mortgage Loan.
c. Graduated Payment Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate, graduated payment Mortgage
Loans having original or modified terms to maturity of not more than 30 years
with monthly payments during the first year calculated on the basis of an
assumed interest rate which is a specified percentage below the Mortgage Rate
on such Mortgage Loan. Such monthly payments increase at the beginning of the
second year by a specified percentage of the monthly payment during the
preceding year and each year specified thereafter to the extent necessary to
amortize the Mortgage Loan over the remainder of its term 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
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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.
The terms of the subsidy agreements relating to Subsidy Loans generally
range from one to ten years. Subsidy Loans are offered by employers generally
through either a "graduated" or "fixed" subsidy loan program, or programs that
combine features of graduated and fixed subsidy loan programs. 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 (3%) and five percentage points (5%)
below the Mortgage Interest Rates specified in the related Mortgage Notes
during the term of the subsidy agreement. 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 the term of the subsidy agreement. The subsidy agreements relating to
Subsidy Loans pursuant to combination fixed/graduated programs 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 do so. In the event the mortgagor
refinances a 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 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
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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 Mortgage
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.
Cash Flow Agreements
If specified in the Prospectus Supplement, the Trust Estate may include
guaranteed investment contracts pursuant to which moneys held in the funds and
accounts established for the related Series of Certificates will be invested
at a specified rate. The Trust Estate may also include certain other
agreements, such as interest rate exchange or swap agreements, interest rate
cap or floor agreements or similar agreements provided to reduce the effects
of interest rate fluctuations on the assets or on one or more Classes of
Certificates. The principal terms of any such guaranteed investment contract
or other agreement (any such agreement, a "Cash Flow Agreement"), including,
without limitation, provisions relating to the timing, manner and amount of
payments thereunder and provisions relating to the termination thereof, will
be described in the Prospectus Supplement for the related Series of
Certificates. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
THE SELLER
Norwest Asset Securities Corporation (the "Seller") is a direct, wholly
owned subsidiary of Norwest Mortgage, Inc. and an indirect, wholly owned
subsidiary of Wells Fargo & Company. See "Recent Developments" in the
applicable Prospectus Supplement. 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 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 Wells Fargo & Company. See
"Recent Developments" in the applicable Prospectus Supplement. 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.
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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, 1998, Norwest Mortgage had a
net worth of approximately $419.5 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 Wells Fargo & Company. See "Recent Developments" in the
Prospectus Supplement. Norwest Bank is a national banking association
originally chartered in 1872 and is engaged in a wide range of activities
typical of a national bank.
Norwest Bank's principal office is located at Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479. Norwest Bank conducts its master
servicing and securities administration services at its offices in Columbia,
Maryland. Its address there is 11000 Broken Land Parkway, Columbia, Maryland
21044-3662 and its telephone number is (410) 884-2000.
THE MORTGAGE LOAN PROGRAMS
Mortgage Loan Production Sources
Norwest Mortgage conducts a significant portion of its mortgage loan
originations through more than 700 loan production offices (the "Loan Stores")
located throughout all 50 states. Norwest Mortgage also conducts a significant
portion of its mortgage loan originations through centralized production
offices located in 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
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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 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
The following is a summary of Norwest Mortgage's "general" underwriting
standards and the substantially less restrictive underwriting criteria
applicable to Norwest Mortgage's "retention program".
General Standards. 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
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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,
the Mortgage Loans will be 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 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
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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 entity jointly
owned by Norwest Mortgage and an unaffiliated third party, 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, 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
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 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-
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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 Value Information Technology, Inc., an
entity jointly owned by Norwest Mortgage and an unaffiliated third party.
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 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 are not covered by 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"). The Seller will represent and warrant to the Trustee of
any Trust Estate that the Mortgaged Property related to each Mortgage 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."
Retention Program Standards. A borrower whose mortgage loan is serviced by
Norwest Mortgage may be eligible for Norwest Mortgage's "retention program."
Provided such a borrower is current in his or her mortgage payment
obligations, Norwest Mortgage may permit a refinancing of the mortgage loan to
a current market interest rate without applying any significant
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borrower credit or property underwriting standards. As a result, borrowers who
qualify under the retention program may not need to demonstrate that their
current monthly housing debt or total monthly debt obligations in relation to
their monthly income levels do not exceed certain ratios; Norwest Mortgage may
not obtain a current credit report for the borrower or apply a new Credit
Score to the refinanced loan; and the borrower may not be required to provide
any verifications of current employment, income level or extent of assets. In
addition, no current appraisal or indication of market value may be required
with respect to the properties securing the mortgage loans which are
refinanced under the retention program. Mortgage Loans initially included in
the Trust Estate for a particular Series of Certificates may have been the
subject of a refinancing under the retention program and, to the extent that
borrowers become eligible for the retention program after their Mortgage Loans
have been included in a particular Trust Estate, such Mortgage Loans may be
refinanced under such program. See "Prepayment and Yield Considerations" in
this Prospectus and in the Prospectus Supplement for a description of the
potential effects on Certificateholders resulting from such refinancings.
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.
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
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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 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 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
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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.
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.
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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
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
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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.
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.
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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;
(f) that portion of Liquidation Proceeds which represents any unpaid
Servicing Fees, Master Servicing Fee or any Trustee Fee to which the
related Servicer, the Trustee or the Master Servicer, respectively, is
entitled and any unpaid Fixed Retained Yield;
(g) if an election has been made to treat the applicable Trust Estate as
a REMIC, any Net Foreclosure Profits with respect to such Distribution
Date;
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(h) all amounts representing certain expenses reimbursable to the Master
Servicer or any Servicer and other amounts permitted to be withdrawn by the
Master Servicer from the Certificate Account, in each case pursuant to the
applicable Pooling and Servicing Agreement;
(i) all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees and payments of interest related to principal
prepayments received on or after the first day of the month in which a
Distribution Date occurs and prior to the Determination Date in the month
of such Distribution Date which the related Servicer is entitled to retain
pursuant to the applicable Underlying Servicing Agreement;
(j) reinvestment earnings on payments received in respect of the Mortgage
Loans; and
(k) any recovery of an amount in respect of principal which had
previously been allocated as a realized loss to such Series of
Certificates.
The applicable Prospectus Supplement for a Series will describe any
variation in the calculation of the Pool Distribution Amount for such Series.
"Net Foreclosure Profits" with respect to a Distribution Date will be the
excess of (i) the portion of aggregate net Liquidation Proceeds which
represents the amount by which aggregate profits on liquidated 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 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.
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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 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."
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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.
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
Class................ A Class that receives principal payments from amounts
that would otherwise be distributed as interest on
specified Accrual Classes. Such principal payments may
be in lieu of or in addition to principal payments from
principal receipts on the Mortgage Loans for the
related Series.
Companion Class
(also sometimes
referred to as a
"Support 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.
Component Class...... A Class consisting of two or more specified components
(each, a "Component") as described in the applicable
Prospectus Supplement. 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.
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Lockout Class........ A senior Class that is designed not to participate in
or to participate to a limited extent in (i.e., to be
"locked out" of), for a specified period, the receipt
of (1) principal prepayments on the Mortgage Loans that
are allocated disproportionately to the senior Classes
of such Series as a group pursuant to a "shifting
interest" structure and/or (2) scheduled principal
payments on the Mortgage Loans that are allocated to
the senior Classes as a group. A Lockout Class will
typically not be entitled to receive, or will be
entitled to receive only a restricted portion of,
distributions of principal prepayments and/or scheduled
principal payments, as applicable, for a period of
several years, during which time all or a portion of
such principal payments that it would otherwise be
entitled to receive in the absence of a "lockout"
structure will be distributed in reduction of the
Principal Balances of other Senior Classes. Lockout
Classes are designed to minimize weighted average life
volatility during the lockout period.
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.
Pass-Through......... A Class of Senior Certificates that is entitled to
receive a specified percentage of the principal
payments that are distributable to the Senior
Certificates or applicable group of Senior Certificates
(other than any Ratio Strip Class) in the aggregate on
a Distribution Date and that is not designated as a
Sequential Pay Class.
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. A PAC is designed to provide protection against
volatility of weighted average life if prepayments
occur at a constant rate within the structuring range.
Ratio Strip Class.... A Class that is entitled to receive a constant
proportion, or "ratio strip," of the principal payments
on the underlying Mortgage Loans.
Scheduled
Amortization Class
(also sometimes
referred to as
a "Scheduled
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(es) 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. A Scheduled Amortization Class is
generally less sensitive to weighted average life
volatility as a result of prepayments than a Support
Class but more sensitive than a Planned Amortization
Class or a Targeted Amortization Class.
Senior Class......... A Class that is entitled to receive payments of
principal and interest on each Distribution Date prior
to the Classes of Subordinated Certificates.
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Sequential Pay
Class................ A Class that is entitled to receive principal payments
in a prescribed sequence, that does not have a
predetermined principal balance schedule and that, in
most cases, is entitled to receive payments of
principal continuously from the first Distribution Date
on which it receives principal until it is retired.
Sequential Pay Classes may receive principal payments
concurrently with one or more other Sequential Pay
Classes. A single Class that 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.
Subordinated Class... A Class that is entitled to receive payments of
principal and interest on each Distribution Date only
after the Senior Certificates and certain Classes of
Subordinated Certificates with higher priority of
distributions have received their full principal and
interest entitlements.
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. A TAC is designed to
provide some protection against shortening of weighted
average life if prepayments occur at a rate exceeding
the assumed constant prepayment rate used to derive the
principal balances schedule of such Class.
INTEREST TYPES
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.
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.
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.
Principal Only
Class................ A Class that does not bear interest and is entitled to
receive only distributions in respect of principal.
Step Coupon Class.... A class with a fixed interest rate that is reduced to a
lower fixed rate after a specified period of time. The
difference between the initial interest rate and the
lower interest rate will be supported by a reserve fund
established on the Closing Date.
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.
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Other Credit Enhancement
In addition to, or in substitution for, the subordination discussed above,
credit enhancement may be provided with respect to any Series of Certificates
in any other manner which may be described in the applicable Prospectus
Supplement, including, but not limited to, credit enhancement through an
alternative form of subordination and/or one or more of the methods described
below.
Limited Guarantee
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, credit enhancement may be provided in the form of a limited
guarantee issued by a guarantor named therein.
Financial Guaranty Insurance Policy or Surety Bond
If so specified in the Prospectus Supplement with respect to a Series of
Certificates credit enhancement may be provided in the form of a financial
guaranty insurance policy or a surety bond issued by 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.
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The Reserve Fund for a Series may be funded (i) by the deposit therein of
cash, U.S. Treasury securities or instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in the applicable Prospectus Supplement, (ii) by the deposit therein
from time to time of certain amounts, as specified in the applicable
Prospectus Supplement, to which the certain Classes of Certificates would
otherwise be entitled or (iii) in such other manner as may be specified in the
applicable Prospectus Supplement.
Cross Support
If specified in the applicable Prospectus Supplement, the beneficial
ownership of separate groups of Mortgage Loans included in a Trust Estate may
be evidenced by separate Classes of Certificates. In such case, credit support
may be provided by a cross support feature which requires that distributions
be made with respect to certain Classes from mortgage loan payments that would
otherwise be distributed to Subordinated Certificates evidencing a beneficial
ownership interest in other loan groups within the same Trust Estate. The
applicable Prospectus Supplement for a Series that includes a cross support
feature will describe the specific operation of any such cross support
feature.
PREPAYMENT AND YIELD CONSIDERATIONS
Pass-Through Rates
Any Class of Certificates of a Series may have a fixed Pass-Through Rate, or
a Pass-Through Rate which varies based on changes in an index or based on
changes with respect to the underlying Mortgage Loans (such as, for example,
varying on the basis of changes in the weighted average Net Mortgage Interest
Rate of the underlying Mortgage Loans).
The Prospectus Supplement for each Series will specify the range and the
weighted average of the Mortgage Interest Rates and, if applicable, Net
Mortgage Interest Rates for the Mortgage Loans underlying such Series as of
the Cut-Off Date. If the Trust Estate includes adjustable-rate Mortgage Loans
or includes Mortgage Loans with different Net Mortgage Interest Rates, the
weighted average 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
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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 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
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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.
Prepayments on the Mortgage Loans are also affected by the obligation or
right of the Seller, Servicer or other party specified in the applicable
Prospectus Supplement to repurchase or purchase certain or all of the Mortgage
Loans under certain circumstances. 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."
Refinancings
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 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.
Norwest Mortgage is in the process of instituting a new "retention program"
applicable to its servicing portfolio. Provided the borrower is current in his
or her mortgage payment obligations, Norwest Mortgage may agree to refinance
the mortgage loan in order to reduce the borrower's mortgage interest rate,
without the application of any significant new borrower credit or property
underwriting standards. See "The Mortgage Loan Programs--Mortgage Loan
Underwriting; Retention Program Standards" in this Prospectus. The streamlined
procedures, minimal borrower cost and the absence of significant underwriting
standards associated with this retention program may result in an increase in
the number of Mortgage Loans eligible for refinancing and a narrowing of the
interest rate differential that may otherwise need to exist before a
refinancing is practical and economic for the borrower. These factors,
together with increased borrower sophistication in general regarding the
benefits of refinancing may also result in a significant increase in the rate
of prepayments on the Mortgage Loans. In addition, the success of Norwest
Mortgage over time in attracting borrowers to its retention program who are
current in their mortgage payment obligations may result in a higher
proportion of Mortgage Loans not eligible for such program remaining in the
Trust Estate, thereby increasing the relative percentage of delinquent
Mortgage Loans in such Trust Estate.
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 the Seller's Mortgage Pass-Through Certificates (the "Total Loans"), (ii)
the Total Loans having original terms to maturity of approximately 20 years to
approximately 30 years (the "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
35
<PAGE>
employers ("Relocation Mortgage Loans"), (iii) the Total Loans which are not
Relocation Mortgage Loans ("Total Non-Relocation Loans"), (iv) the Total Non-
Relocation Loans having original terms to maturity of approximately 20 years
to approximately 30 years (the "30-Year Non-Relocation Loans") and (v) the
Total Loans having original terms to maturity of approximately 10 years to
approximately 15 years (the "15-Year 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 the Seller'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 the Seller'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.
36
<PAGE>
TOTAL LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ----------- -------- -----------
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Loans............. 26,137 $7,497,698 63,401 $19,608,657 73,331 $23,172,703
====== ========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 57 $ 17,187 243 $ 67,456 229 $ 65,361
60 to 89 days.......... 4 1,000 35 11,467 32 9,411
90 days or more........ 18 5,461 31 8,375 40 10,339
------ ---------- ------ ----------- ------ -----------
Total Delinquent Loans.. 79 $ 23,648 309 $ 87,298 301 $ 85,112
====== ========== ====== =========== ====== ===========
Percent of Total Loans.. 0.30% 0.32% 0.49% 0.45% 0.41% 0.37%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $798 $11,620 $10,599
Foreclosure Ratio(3).... 0.01% 0.06% 0.05%
</TABLE>
30-YEAR LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ----------- -------- -----------
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total 30-Year Loans..... 21,960 $6,289,006 53,991 $16,719,824 62,423 $19,751,570
====== ========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 51 $ 15,343 219 $ 62,351 205 $ 59,274
60 to 89 days.......... 3 870 33 10,793 31 8,900
90 days or more........ 18 5,461 29 7,668 38 9,832
------ ---------- ------ ----------- ------ -----------
Total Delinquent Loans.. 72 $ 21,674 281 $ 80,812 274 $ 78,006
====== ========== ====== =========== ====== ===========
Percent of 30-Year
Loans.................. 0.33% 0.34% 0.52% 0.48% 0.44% 0.39%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $798 $11,532 $9,504
Foreclosure Ratio(3).... 0.01% 0.07% 0.05%
</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>
TOTAL NON-RELOCATION LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ----------- -------- -----------
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Non-Relocation
Loans.................. 21,270 $6,070,912 51,466 $15,896,090 60,672 $19,193,004
====== ========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 55 $ 16,601 219 $ 60,350 212 $ 60,475
60 to 89 days.......... 4 1,000 35 11,467 29 8,649
90 days or more........ 17 5,238 31 8,375 40 10,339
------ ---------- ------ ----------- ------ -----------
Total Delinquent Loans.. 76 $ 22,839 285 $ 80,192 281 $ 79,463
====== ========== ====== =========== ====== ===========
Percent of Total Non-
Relocation Loans....... 0.36% 0.38% 0.55% 0.50% 0.46% 0.41%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $798 $11,620 $10,599
Foreclosure Ratio(3).... 0.01% 0.07% 0.06%
</TABLE>
30-YEAR NON-RELOCATION LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ----------- -------- -----------
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total 30-Year Non-
Relocation Loans....... 17,093 $4,862,220 42,577 $13,161,188 50,311 $15,934,228
====== ========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 49 $ 14,757 195 $ 55,245 188 $ 54,388
60 to 89 days.......... 3 870 33 10,793 28 8,137
90 days or more........ 17 5,238 29 7,668 38 9,832
------ ---------- ------ ----------- ------ -----------
Total Delinquent Loans.. 69 $ 20,865 257 $ 73,706 254 $ 72,357
====== ========== ====== =========== ====== ===========
Percent of Total 30-Year
Non-Relocation Loans... 0.40% 0.43% 0.60% 0.56% 0.50% 0.45%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $798 $11,532 $9,504
Foreclosure Ratio(3).... 0.02% 0.09% 0.06%
</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.
38
<PAGE>
15-YEAR LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ---------- -------- ----------
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- ------------------- -------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total 15-Year Loans..... 4,177 $1,208,692 9,410 $2,888,833 10,908 $3,421,133
===== ========== ===== ========== ====== ==========
Period of Delinquency(1)
30 to 59 days.......... 6 $ 1,844 24 $ 5,105 24 $ 6,088
60 to 89 days.......... 1 130 2 674 1 511
90 days or more........ 0 0 2 708 2 507
----- ---------- ----- ---------- ------ ----------
Total Delinquent Loans.. 7 $ 1,974 28 $ 6,487 27 $ 7,106
===== ========== ===== ========== ====== ==========
Percent of Total 15-Year
Loans.................. 0.17% 0.16% 0.30% 0.22% 0.25% 0.21%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $0 $88 $1,094
Foreclosure Ratio(3).... 0.00% 0.00% 0.03%
</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 or 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 the Seller'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 the Seller'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.
39
<PAGE>
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.
40
<PAGE>
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 may 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 required Servicer
Custodial Account must generally be a separate custodial account insured to
the available limits by the FDIC or otherwise acceptable to the applicable
Rating Agencies (such eligible 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.
Notwithstanding the foregoing, Norwest Mortgage will be permitted to commingle
funds in its Servicer Custodial Account with its general assets until such
time as such funds are required to be remitted to the Certificate Account for
so long as (i) a master guarantee of Norwest Mortgage's remittance obligation
has been issued by its parent, Wells Fargo & Company ("Wells Fargo") for the
benefit of the Certificateholders and is currently in force and (ii) the
short-term debt or long-term debt of Wells Fargo is rated by the Rating
Agencies in their highest short-term or highest long-term category or in such
lower rating category that would not result in a downgrading or withdrawal of
the rating then assigned to any Class of Certificates by the Rating Agencies
or result in any rated Class of Certificates being placed on credit review
status by the Rating Agencies.
41
<PAGE>
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 (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 or as otherwise required by the Pooling and Servicing
Agreement 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
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next Distribution Date. In the event that an election has been made to treat
the Trust Estate (or one or more segregated pools of assets therein) with
respect to a Series as a REMIC, no such Eligible Investments will be sold or
disposed of at a gain prior to maturity unless the Master Servicer has
received an opinion of counsel or other evidence satisfactory to it that such
sale or disposition will not cause the Trust Estate (or segregated pool of
assets) to be subject to the tax on "prohibited transactions" imposed by Code
Section 860F(a)(1), otherwise subject the Trust Estate (or segregated pool of
assets) to tax, or cause the Trust Estate (or any segregated pool of assets)
to fail to qualify as a REMIC while any Certificates of the Series are
outstanding. Except as otherwise specified in the applicable Prospectus
Supplement, all income and gain realized from any such investment will be for
the account of the Master Servicer as additional compensation and all losses
from any such investment will be deposited by the Master Servicer out of its
own funds to the Certificate Account immediately as realized.
The Master Servicer is permitted, from time to time, to make withdrawals
from the Certificate Account for the following purposes, to the extent
permitted in the applicable Pooling and Servicing Agreement (and, in the case
of Servicer reimbursements by the Master Servicer, only to the extent funds in
the respective Servicer Custodial Account are not sufficient therefor):
(i) to reimburse the Master Servicer, the Trustee or any Servicer for
Advances;
(ii) to reimburse any Servicer for liquidation expenses and for amounts
expended by itself or any Servicer, as applicable, in connection with the
restoration of damaged property;
(iii) to pay to itself the applicable Master Servicing Fee and any other
amounts constituting additional master servicing compensation, to pay the
Trustee the applicable Trustee Fee, to pay any other fees described in the
applicable Prospectus Supplement; and to pay to the owner thereof any Fixed
Retained Yield;
(iv) to reimburse itself or any Servicer for certain expenses (including
taxes paid on behalf of the Trust Estate) incurred by and recoverable by or
reimbursable to itself or the Servicer, as applicable;
(v) to pay to the Seller, a Servicer or itself with respect to each
Mortgage Loan or property acquired in respect thereof that has been
repurchased by the Seller or purchased by a Servicer or the Master Servicer
all amounts received thereon and not distributed as of the date as of which
the purchase price of such Mortgage Loan was determined;
(vi) to pay to itself any interest earned on or investment income earned
with respect to funds in the Certificate Account (all such interest or
income to be withdrawn not later than the next Distribution Date);
(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.
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Periodic Advances and Limitations Thereon
Generally each Servicer will be required to make (i) Periodic Advances to
cover delinquent payments of principal and interest on such Mortgage Loan and
(ii) other advances of cash ("Other Advances" and, collectively with Periodic
Advances, "Advances") to cover (x) delinquent payments of taxes, insurance
premiums, and other escrowed items and (y) rehabilitation expenses and
foreclosure costs, including reasonable attorneys' fees, in either case unless
such Servicer has determined that any subsequent payments on that Mortgage
Loan or from the borrower will ultimately not be available to reimburse such
Servicer for such amounts. The failure of the Servicer to make any required
Periodic Advances or Other Advances under an Underlying Servicing Agreement
constitutes a default under such agreement for which the Servicer will be
terminated. Upon default by a Servicer, other than Norwest Mortgage, the
Master Servicer may, and upon default by Norwest Mortgage the Trustee may, in
each case if so provided in the Pooling and Servicing Agreement, be required
to make Periodic Advances to the extent necessary to make required
distributions on certain Certificates or certain Other Advances, provided that
the Master Servicer or Trustee, as applicable, determines that funds will
ultimately be available to reimburse it. In addition, if under the terms of an
Underlying Servicing Agreement, the applicable Servicer is not obligated to
make Periodic Advances while a Mortgage Loan is in liquidation, the Master
Servicer, to the extent provided in the Pooling and Servicing Agreement, may
be required to make the Periodic Advances during the period the Servicer is
not required to do so. 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,
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assessments, mortgage and hazard insurance, to refund to mortgagors amounts
determined to be overages, to pay interest to mortgagors on balances in the
Servicing Account, if required, and to clear and terminate such account. Each
Servicer will be responsible for the administration of its Servicing Account.
A Servicer will be obligated to advance certain amounts which are not timely
paid by the mortgagors, to the extent that it determines, in good faith, that
they will be recoverable out of insurance proceeds, liquidation proceeds, or
otherwise. Alternatively, in lieu of establishing a Servicing Account, a
Servicer may procure a performance bond or other form of insurance coverage,
in an amount acceptable to the Master Servicer and each Rating Agency rating
the related Series of Certificates, covering loss occasioned by the failure to
escrow such amounts.
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans
With respect to each Mortgage Loan having a fixed interest rate, the
applicable Underlying Servicing Agreement will generally provide that, when
any Mortgaged Property is about to be conveyed by the mortgagor, the Servicer
will, to the extent it has knowledge of such prospective conveyance, exercise
its rights to accelerate the maturity of such Mortgage Loan under the "due-on-
sale" clause applicable thereto, if any, unless it is not exercisable under
applicable law or if such exercise would result in loss of insurance coverage
with respect to such Mortgage Loan or would, in the Servicer's judgment, be
reasonably likely to result in litigation by the mortgagor and such Servicer
has not obtained the Master Servicer's consent to such exercise. In either
case, the Servicer is authorized to take or enter into an assumption and
modification agreement from or with the person to whom such Mortgaged Property
has been or is about to be conveyed, pursuant to which such person becomes
liable under the Mortgage Note and, unless prohibited by applicable state law,
the mortgagor remains liable thereon, provided that the Mortgage Loan will
continue to be covered by any pool insurance policy and any related primary
mortgage insurance policy and the Mortgage Interest Rate with respect to such
Mortgage Loan and the payment terms shall remain unchanged. The Servicer will
also be authorized, with the prior approval of the pool insurer and the
primary mortgage insurer, if any, to enter into a substitution of liability
agreement with such person, pursuant to which the original mortgagor is
released from liability and such person is substituted as mortgagor and
becomes liable under the Mortgage Note.
Each Underlying Servicing Agreement and Pooling and Servicing Agreement with
respect to a Series will require the Servicer or the Master Servicer, as the
case may be, to present claims to the insurer under any insurance policy
applicable to the Mortgage Loans included in the Trust Estate for such Series
and to take such reasonable steps as are necessary to permit recovery under
such insurance policies with respect to defaulted Mortgage Loans, or losses on
the Mortgaged Property securing the Mortgage Loans.
Each Servicer is obligated under the applicable Underlying Servicing
Agreement for each Series to realize upon defaulted Mortgage Loans in
accordance with its normal servicing practices, which will conform generally
to those of prudent mortgage lending institutions which service mortgage loans
of the same type in the same jurisdictions. 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
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to the related Servicer for its expenses and (ii) that such expenses will be
recoverable to it through Liquidation Proceeds or any applicable insurance
policy in respect of such Mortgage Loan. In the event that Servicer has
expended its own funds for foreclosure or to restore damaged property, it will
be entitled to be reimbursed from the Certificate Account for such Series an
amount equal to all costs and expenses incurred by it.
Norwest Mortgage will not be obligated to, and any other Servicer will not
(except with the express written approval of the Master Servicer), foreclose
on any Mortgaged Property which it believes may be contaminated with or
affected by hazardous wastes or hazardous substances. See "Certain Legal
Aspects of the Mortgage Loans--Environmental Considerations." If a Servicer
does not foreclose on a Mortgaged Property, the Certificateholders of the
related Series may experience a loss on the related Mortgage Loan. A Servicer
will not be liable to the Certificateholders if it fails to foreclose on a
Mortgaged Property which it believes may be so contaminated or affected, even
if such Mortgaged Property is, in fact, not so contaminated or affected.
Conversely, a Servicer will not be liable to the Certificateholders if, based
on its belief that no such contamination or effect exists, the Servicer
forecloses on a Mortgaged Property and takes title to such Mortgaged Property,
and thereafter such Mortgaged Property is determined to be so contaminated or
affected.
The Servicer may foreclose against property securing a defaulted Mortgage
Loan either by foreclosure, by sale or by strict foreclosure and in the event
a deficiency judgment is available against the mortgagor or other person (see
"Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency Legislation and
Other Limitations on Lenders" for a discussion of the availability of
deficiency judgments), may proceed for the deficiency. It is anticipated that
in most cases the Servicer will not seek deficiency judgments, and will not be
required under the applicable Underlying Servicing Agreement to seek
deficiency judgments. In lieu of foreclosure, each Servicer may arrange for
the sale by the borrower of the Mortgaged Property related to a defaulted
Mortgage Loan to a third party, rather than foreclosing upon and selling such
Mortgaged Property.
With respect to a Trust Estate (or any segregated pool of assets therein) as
to which a REMIC election has been made, if the Trustee acquires ownership of
any Mortgaged Property as a result of a default or reasonably foreseeable
default of any Mortgage Loan secured by such Mortgaged Property, the Trustee
or Master Servicer will be required to dispose of such property 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.
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The Standard Hazard Insurance Policies covering the Mortgage Loans generally
will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Because the Standard Hazard
Insurance Policies relating to such Mortgage Loans will be underwritten by
different insurers and will cover Mortgaged Properties located in various
states, such policies will not contain identical terms and conditions. The
most significant terms thereof, however, generally will be determined by state
law and generally will be similar. Most such policies typically will not cover
any physical damage resulting from the following: war, revolution,
governmental actions, floods and other water-related causes, earth movement
(including earthquakes, landslides and mudflows), nuclear reaction, wet or dry
rot, vermin, rodents, insects or domestic animals, hazardous wastes or
hazardous substances, theft and, in certain cases, vandalism. The foregoing
list is merely indicative of certain kinds of uninsured risks and is not all-
inclusive.
In general, if the improvements on a Mortgaged Property are located in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available) each Underlying Servicing Agreement will require the related
Servicer to cause to be maintained a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable insurance carrier. Generally, the Underlying
Servicing Agreement will require that such flood insurance be in an amount not
less than the least of (i) the outstanding principal balance of the Mortgage
Loan, (ii) the full insurable value of the improvements, or (iii) the maximum
amount of insurance which is available under the 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
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may also pay itself out of the Liquidation Proceeds of a Mortgage Loan or
other recoveries with respect thereto, or withdraw from the Servicer Custodial
Account or request the Master Servicer to withdraw from the Certificate
Account for remittance to the Servicer such amounts after the deposit thereof
in such accounts, or if such Liquidation Proceeds or other recoveries are
insufficient, from Net Foreclosure Profits with respect to the related
Distribution Date the Servicing Fee in respect of such Mortgage Loan to the
extent provided in the applicable Pooling and Servicing Agreement. The
Servicing Fee or the range of Servicing Fees with respect to the Mortgage
Loans underlying the Certificates of a Series will be specified in the
applicable Prospectus Supplement. Additional servicing compensation in the
form of prepayment charges, assumption fees, late payment charges or otherwise
will be retained by the Servicers.
Each Servicer will pay all expenses incurred in connection with the
servicing of the Mortgage Loans serviced by such Servicer underlying a Series,
including, without limitation, payment of the hazard insurance policy
premiums. The Servicer will be entitled, in certain circumstances, to
reimbursement from the Certificate Account of Periodic Advances, of Other
Advances made by it to pay taxes, insurance premiums and similar items with
respect to any Mortgaged Property or for expenditures incurred by it in
connection with the restoration, 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.
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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 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.
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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 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
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any Fixed Retained Yield) through the last day of the month in which such
repurchase takes place, or (in the case of a Series for which one or more
REMIC elections have been or will be made, unless the maximum period as may be
provided by the Code or applicable regulations of the Department of the
Treasury ("Treasury Regulations") shall have elapsed since the execution of
the applicable Pooling and Servicing Agreement) substitute for such Mortgage
Loan a new mortgage loan having characteristics such that the representations
and warranties of the Seller made pursuant to the applicable Pooling and
Servicing Agreement (except for representations and warranties as to the
correctness of the applicable schedule of mortgage loans) would not have been
incorrect had such substitute Mortgage Loan originally been a Mortgage Loan.
In the case of a repurchased Mortgage Loan, the purchase price will be
deposited by the Seller in the related Certificate Account. In the case of a
substitute Mortgage Loan, the mortgage file relating thereto will be delivered
to the Trustee or the custodian and the Seller will deposit in the Certificate
Account, an amount equal to the excess of (i) the unpaid principal balance of
the Mortgage Loan which is substituted for, over (ii) the unpaid principal
balance of the substitute Mortgage Loan, together with interest on such excess
at the Mortgage Interest Rate (minus any Fixed Retained Yield) to the next
scheduled Due Date of the Mortgage Loan which is being substituted for. In no
event will any substitute Mortgage Loan have an unpaid principal balance
greater than the scheduled principal balance calculated in accordance with the
amortization schedule (the "Scheduled Principal Balance") of the Mortgage Loan
for which it is substituted (after giving effect to the scheduled principal
payment due in the month of substitution on the Mortgage Loan substituted
for), or a term greater than, a Mortgage Interest Rate less than, a Mortgage
Interest Rate more than one percent per annum greater than or a Loan-to-Value
Ratio greater than, the Mortgage Loan for which it is substituted. If
substitution is to be made for an adjustable rate Mortgage Loan, the
substitute Mortgage Loan will have an unpaid principal balance no greater than
the Scheduled Principal Balance of the Mortgage Loan for 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
To the extent specified in the related Prospectus Supplement and subject to
the provisions of the applicable Pooling and Servicing Agreement, the Seller
or the Master Servicer may, at such party's option, repurchase (i) 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, up to the limit specified in such Pooling and Servicing Agreement
and (ii) any Mortgage Loan as to which the originator of such Mortgage Loan
breached a representation or warranty to Norwest Mortgage regarding the
characteristics of such Mortgage Loan, 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 Monthly Report 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;
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(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;
(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).
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Rights Upon Event of Default
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series or holders of
Certificates of such Series evidencing not less than 66 2/3% of the Voting
Interests in the Trust Estate for such Series may terminate all of the rights
and obligations of the Master Servicer under the Pooling and Servicing
Agreement and in and to the Mortgage Loans (other than the Master Servicer's
right to recovery of the aggregate Master Servicing Fees due prior to the date
of termination, and other expenses and amounts advanced pursuant to the terms
of the Pooling and Servicing Agreement, which rights the Master Servicer will
retain under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under the
Pooling and Servicing Agreement and will be entitled to monthly compensation
not to exceed the aggregate Master Servicing Fees together with the other
compensation to which the Master Servicer is entitled under the Pooling and
Servicing Agreement. In the event that the Trustee is unwilling or unable so
to act, it may select, pursuant to the public bid procedure described in the
applicable Pooling and Servicing Agreement, or petition a court of competent
jurisdiction to appoint, a housing and home finance institution, bank or
mortgage servicing institution with a net worth of at least $10,000,000 to act
as successor to the Master Servicer under the provisions of the Pooling and
Servicing Agreement; provided however, that until such a successor Master
Servicer is appointed and has assumed the responsibilities, duties and
liabilities of the Master Servicer under the Pooling and Servicing Agreement,
the Trustee shall continue as the successor to the Master Servicer as
described above. In the event such public bid procedure is utilized, the
successor would be entitled to compensation in an amount equal to the
aggregate Master Servicing Fees, together with the other compensation to which
the Master Servicer is entitled under the Pooling and Servicing Agreement, and
the Master Servicer would be entitled to receive the net profits, if any,
realized from the sale of its rights and obligations under the Pooling and
Servicing Agreement.
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
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Consequences for REMIC Certificates--Taxation of Residual Certificates--Tax-
Related Restrictions on Transfer of Residual Certificates," (vi) to make
certain provisions with respect to the denominations of, and the manner of
payments on, certain Classes or Subclasses of Certificates initially retained
by the Seller or an affiliate, or (vii) to make any other provisions with
respect to matters or questions arising under such Pooling and Servicing
Agreement that are not inconsistent with the provisions thereof, provided that
such action will not, as evidenced by an opinion of counsel, adversely affect
in any material respect the interests of the Certificateholders of the related
Series. The Pooling and Servicing Agreement may also be amended by the Seller,
the Master Servicer and the Trustee with the consent of the holders of
Certificates evidencing interests aggregating not less than 66 2/3% of the
Voting Interests evidenced by the Certificates of each Class or Subclass
affected thereby, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of such Pooling and Servicing
Agreement or of modifying in any manner the rights of the Certificateholders;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, any payments received on or with respect to
Mortgage Loans that are required to be distributed on any Certificates,
without the consent of the holder of such Certificate, (ii) adversely affect
in any material respect the interests of the holders of a Class or Subclass of
Certificates of a Series in a manner other than that set forth in (i) above
without the consent of the holders of Certificates aggregating not less than
66 2/3% of the Voting Interests evidenced by such Class or Subclass, or (iii)
reduce the aforesaid percentage of Certificates of any Class or Subclass, the
holders of which are required to consent to such amendment, without the
consent of the holders of all Certificates of such Class or Subclass affected
then outstanding. Notwithstanding the foregoing, the Trustee will not consent
to any such amendment if such amendment would subject the Trust Estate (or any
segregated pool of assets therein) to tax or cause the Trust Estate (or any
segregated pool of assets therein) to fail to qualify as a REMIC.
Termination; Optional Purchase of Mortgage Loans
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate on the Distribution Date following the final
payment or other liquidation of the last Mortgage Loan subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan. In no event, however, will the trust created by the Pooling and
Servicing Agreement continue beyond the expiration of 21 years from the death
of the last survivor of certain persons named in such Pooling and Servicing
Agreement. For each Series of Certificates, the Trustee will give written
notice of termination of the Pooling and Servicing Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency appointed by the
Seller and specified in the notice of termination.
If so provided in the applicable Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Seller, Norwest Mortgage or such other party as is specified in
the applicable Prospectus Supplement, to purchase from the Trust Estate for
such Series all remaining Mortgage Loans at the time subject to the Pooling
and Servicing Agreement at a price specified in such Prospectus Supplement. In
the event that such party has caused the related Trust Estate (or any
segregated pool of assets therein) to be treated as a REMIC, any such purchase
will be effected only pursuant to a "qualified liquidation" as defined in Code
Section 860F(a)(4)(A) and, if the Trust Estate is liquidated other than in the
manner specified in the Pooling and Servicing Agreement, the receipt by the
Trustee of an opinion of counsel or other evidence that such other liquidation
method 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. With respect to certain Series of
Certificates, a trust administrator will perform certain duties and functions
normally performed by the Trustee. Any trust administrator will be a party to
the Pooling and Servicing Agreement and will be named in the applicable
Prospectus Supplement. Any trust administrator will have obligations and
rights similar to the Trustee as described herein.
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
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Agreement, if the Trustee becomes insolvent or in order to change the situs of
the Trust Estate for state tax reasons. Upon becoming aware of such
circumstances, the Master Servicer will become obligated to appoint a
successor trustee. The Trustee may also be removed at any time by the holders
of Certificates evidencing not less than 51% of the Voting Interests in the
Trust Estate, except that, any Certificate registered in the name of the
Seller, the Master Servicer or any affiliate thereof will not be taken into
account in determining whether the requisite Voting Interest in the Trust
Estate necessary to effect any such removal has been obtained. Any resignation
and removal of the Trustee, and the appointment of a successor trustee, will
not become effective until acceptance of such appointment by the successor
trustee. The Trustee, and any successor trustee, will have a combined capital
and surplus of at least $50,000,000, or will be a member of a bank holding
system, the aggregate combined capital and surplus of which is at least
$50,000,000, provided that the Trustee's and any such successor trustee's
separate capital and surplus shall at all times be at least the amount
specified in Section 310(a)(2) of the Trust Indenture Act of 1939, and will be
subject to supervision or examination by federal or state authorities.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete or to reflect the laws of any
particular state, nor to encompass the laws of all states in which the
security for the Mortgage Loans is situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans.
General
The Mortgage Loans will, in general, be secured by either first mortgages or
first deeds of trust, depending upon the prevailing practice in the state in
which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower (or, in the case of a Mortgage Loan secured
by a property that has been conveyed to an inter vivos revocable trust, the
settlor of such trust); and the mortgagee, who is the lender. In a mortgage
instrument state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: a borrower called the trustor
(similar to a mortgagor), a lender called the beneficiary (similar to a
mortgagee), and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid,
in trust, generally with a power of sale, to the trustee to secure payment of
the loan. The trustee's authority 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
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states, published for a specified period of time in one or more newspapers. In
addition, some state laws require that a copy of the notice of sale be posted
on the property and sent to all parties having an interest of record in the
property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws control the amount of foreclosure expenses
and costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at the
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or receiver for an amount equal to the unpaid principal
amount of the note, accrued and unpaid interest and the expenses of
foreclosure. Thereafter, subject to the right of the borrower in some states
to remain in possession during the redemption period, the lender will assume
the burdens of ownership, including obtaining hazard insurance and making such
repairs at its own expense as are necessary to render the property suitable
for sale. The lender commonly will obtain the services of a real estate broker
and pay the broker a commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss may
be reduced by the receipt of mortgage insurance proceeds, if any, or by
judicial action against the borrower for the deficiency, if such action is
permitted by law. See "--Anti-Deficiency Legislation and Other Limitations on
Lenders" below.
Foreclosure on Shares of Cooperatives
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and By-laws, as well
as in the proprietary lease or occupancy agreement, and may be cancelled by
the cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such tenant-
stockholder. The proprietary lease or occupancy agreement generally permits
the cooperative to terminate such lease or agreement in the event an obligor
fails to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the cooperative enter into a recognition
agreement which establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder on its obligations under the
proprietary lease or occupancy agreement. A default by the tenant-stockholder
under the proprietary lease or occupancy agreement will usually constitute a
default under the security agreement between the lender and the tenant-
stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement. The total amount owed to the
cooperative by the tenant-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.
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Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the cooperative corporation to
receive sums due under the proprietary lease or occupancy agreement. If there
are proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See "--Anti-
Deficiency Legislation and Other Limitations on Lenders" below.
Rights of Redemption
In some states, after sale pursuant to a deed of trust and/or foreclosure of
a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect
of a right of redemption is to delay the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run.
Anti-Deficiency Legislation, the Bankruptcy Code and Other Limitations on
Lenders
Certain states have imposed statutory prohibitions which 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 would be a personal judgment
against the former borrower equal in most cases to the difference between the
net amount realized upon the public sale of the real property and the amount
due to the lender. Other statutes 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. Finally, other statutory provisions limit any deficiency
judgment against the former borrower following a judicial sale to the excess
of the outstanding debt over the fair market value of the property at the time
of public sale. The purpose of these statutes is generally 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 judicial sale.
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 United States Bankruptcy
Code, 11 U.S.C. Sections 101 et seq. (the "Bankruptcy Code"), and state laws
affording relief to debtors may interfere with or affect the ability of a
secured mortgage lender to obtain payment of a mortgage loan, to realize upon
collateral and/or enforce a deficiency judgment. For example, under the
Bankruptcy Code, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of a
bankruptcy petition, and, usually, no interest or principal payments are made
during the course of the bankruptcy case. Foreclosure of an interest in real
property of a debtor in a case under the Bankruptcy Code can typically occur
only if the bankruptcy court vacates the stay, an action, the court may be
reluctant to take, particularly if the debtor has the prospect of
restructuring his or her debts and the mortgage collateral is not
deteriorating in value. The delay and the consequences thereof caused by such
automatic stay can be significant. Also, under the Bankruptcy Code, the filing
of a petition in bankruptcy by or on behalf of a junior lienor (a subordinate
lender secured by a mortgage on the property) may stay a senior lender from
taking action to foreclose.
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A homeowner may file for relief under the Bankruptcy Code under any of three
different chapters of the Bankruptcy Code. Under Chapter 7, the assets of the
debtor are liquidated and a lender secured by a lien may "bid in" (i.e., bid
up to the amount of the debt) at the sale of the asset. See "--Foreclosure." A
homeowner may also file for relief under Chapter 11 of the Bankruptcy Code and
reorganize his or her debts through his or her reorganization plan.
Alternatively, a homeowner may file for relief under Chapter 13 of the
Bankruptcy Code and address his or her debts in a rehabilitation plan.
(Chapter 13 is often referred to as the "wage earner chapter" or "consumer
chapter" because most individuals seeking to restructure their debts file for
relief under Chapter 13 rather than Chapter 11).
The Bankruptcy Code permits a mortgage loan that is secured by property that
does not consist solely of the debtor's principal residence to be modified
without the consent of the lender provided certain substantive and procedural
safeguards are met. Under the Bankruptcy Code, the lender's security interest
may be reduced to the then-current value of the property as determined by the
court if the value is less than the amount due on the loan, thereby leaving
the lender as a general unsecured creditor for the difference between the
value of the collateral and the outstanding balance of the mortgage loan. A
borrower's unsecured indebtedness will typically be discharged in full upon
payment of a substantially reduced amount. Other modifications to a mortgage
loan may include a reduction in the amount of each scheduled payment, which
reduction may result from a reduction in the rate of interest, an alteration
of the repayment schedule, an extension of the final maturity date, and/or a
reduction in the outstanding balance of the secured portion of the loan. In
certain circumstances, subject to the court's approval, a debtor in a case
under Chapter 11 of the Bankruptcy Code may have the power to grant liens
senior to the lien of a mortgage.
A reorganization plan under Chapter 11 and a rehabilitation plan under
Chapter 13 of the Bankruptcy Code may each allow a debtor to cure a default
with respect to a mortgage loan on such debtor's residence by paying
arrearages over a period of time and to deaccelerate and reinstate the
original mortgage loan payment schedule, even though the lender accelerated
the loan and a final judgment of foreclosure had been entered in state court
(provided no sale of the property had yet occurred) prior to the filing of the
debtor's petition under the Bankruptcy Code. Under a Chapter 13 plan, curing
of defaults must be accomplished within the five year maximum term permitted
for repayment plans, such term commencing when repayment plan becomes
effective, while defaults may be cured over a longer period of time under a
Chapter 11 plan of reorganization.
Generally, a repayment plan in a case under Chapter 13 and a plan of
reorganization under Chapter 11 may not modify the claim of a mortgage lender
if the borrower elects to retain the property, the property is the borrower's
principal residence and the property is the lender's only collateral. Certain
courts have allowed modifications when the mortgage loan is secured both by
the debtor's principal residence and by collateral that is not "inextricably
bound" to the real property, such as appliances, machinery, or furniture.
The general protection for mortgages secured only by the debtor's principal
residence is not applicable in a case under Chapter 13 if the last payment on
the original payment schedule is due before the final date for payment under
the debtor's Chapter 13 plan (which date could be up to five years after the
debtor emerges from bankruptcy). Under several recently decided cases, the
terms of such a loan can be modified in the manner described above. While
these decisions are contrary to the holding in a prior case by a senior
appellate court, it is possible that the later decisions will become the
accepted interpretation in view of the language of the applicable statutory
provision. If this interpretation is adopted by a court considering the
treatment in a Chapter 13 repayment plan of a Mortgage Loan, it is possible
that the Mortgage Loan could be modified.
State statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
In a bankruptcy or similar proceeding of a mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the mortgagor under the related mortgage loan prior to the
bankruptcy or similar proceeding. Payments on long-term debt may be protected
from recovery as preferences if they are payments in the ordinary course of
business made on debts incurred in the ordinary course of business or if the
value of the collateral exceeds the debt at the time of payment. Whether any
particular payment would be protected depends upon the facts specific to a
particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its costs
and expenses in preserving or selling the mortgaged property ahead of a
payment to the lender. Moreover, the laws of certain states also give priority
to certain tax and mechanics
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liens over the lien of a mortgage. Under the Bankruptcy Code, if the court
finds that actions of the mortgagee have been unreasonable and inequitable,
the lien of the related mortgage may be subordinated to the claims of
unsecured creditors.
Bankruptcy reform legislation that was passed by the Senate on September 23,
1998 would have amended the Bankruptcy Code (such amendment, the "TILA
Amendment") to authorize bankruptcy court judges to disallow claims based on
secured debt if the creditor failed to comply with certain provisions of the
federal Truth in Lending Act. As proposed, such provision would apply
retroactively to secured debt incurred by a debtor prior to the date of
effectiveness of such legislation, including the Mortgage Loans. The House
bill and the conference report did not have a similar provision, and Congress
adjourned from its last session without acting on the proposed legislation.
However, such legislation may be reintroduced in the current session. If the
TILA Amendment were to become law, a violation of the Truth in Lending Act
with respect to a Mortgage Loan could result in a total loss with respect to
such loan in a bankruptcy proceeding. Any such violation would be a breach of
representation and warranty of the depositor, and the depositor would be
obligated to repurchase such Mortgage Loan as described herein.
Various proposals to amend the Bankruptcy Code in ways that could adversely
affect the value of the Mortgage Loans in a trust have been considered by
Congress, and more such proposed legislation may be considered in the future.
No assurance can be given that any particular proposal will or will not be
enacted into law, or that any provision so enacted will not differ materially
from the proposals described above.
The Code provides priority to certain tax liens over the lien of the
mortgage.
In addition, substantive requirements are imposed upon mortgage lenders in
connection with the origination and the servicing of mortgage loans by
numerous federal and some state consumer protection laws. These laws include
the federal Trust-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act,
and related statutes. These federal laws impose specific statutory liabilities
upon lenders who originate mortgage loans and who fail to comply with the
provisions of the applicable laws. In some cases, this liability may affect
assignees of the Mortgage Loans.
Texas Home Equity Loans
Generally, any "cash-out" refinance or other non-purchase money transaction
(except for rate/term refinance loans and certain other narrow exceptions)
secured by a Texas resident's principal residence is subject to the provisions
set forth in Section 50(a)(6) of Article XVI of the Constitution of Texas (the
"Texas Home Equity Laws"). The Texas Home Equity Laws provide for certain
disclosure requirements, caps on allowable fees, required loan closing
procedures and other restrictions. Failure, inadvertent or otherwise, to
comply with any requirement may render the Mortgage Loan unenforceable and/or
the lien on the Mortgaged Property invalid. Because mortgage loans which are
subject to the Texas Home Equity Laws can be foreclosed only pursuant to court
order, rather than non-judicial foreclosure as is available for other types of
mortgage loans in Texas, delays and increased losses may result in connection
with foreclosures of such loans. If a court were to find that any requirement
of the Texas Home Equity Laws was not complied with, the court could refuse to
allow foreclosure to proceed, declare the lien on the Mortgaged Property to be
invalid, and/or require the originating lender or the holder of the note to
forfeit some or all principal and interest of the related Mortgage Loan. Title
insurance generally available on such Mortgage Loans may exclude coverage for
some of the risks described in this paragraph.
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
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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 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. In addition, 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.
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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 September 30, 1996, however, the President signed into law the Asset
Conservation Lender Liability and Deposit Insurance Protection Act of 1996
(the "Asset Conservation Act"). The Asset Conservation Act was intended to
clarify the scope of the secured-creditor exemption under both CERCLA and
RCRA. The Asset Conservation Act 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 Asset
Conservation Act also clarified the extent of protection against liability
under CERCLA in the event of foreclosure and authorized 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, 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
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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.
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. Regulations promulgated under
the Garn Act also prohibit the imposition of a prepayment penalty upon the
acceleration of a loan pursuant to a due-on-sale clause. 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."
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Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if
the loan is prepaid. Under the Pooling and Servicing Agreement, late charges
and prepayment fees (to the extent permitted by law and not waived by the
Servicer) will be retained by the Servicer as additional servicing
compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary,
such as the borrower failing to adequately maintain the property or the
borrower executing a second mortgage or deed of trust affecting the property.
In other cases, some courts have been faced with the issue of whether federal
or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under the deeds of trust receive
notices in addition to the statutorily-prescribed minimum requirements. For
the most part, these cases have upheld the notice provisions as being
reasonable or have found that the sale by a trustee under a deed of trust or
under a mortgage having a power of sale does not involve sufficient state
action to afford constitutional protections to the borrower.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion represents the opinion of Cadwalader,
Wickersham & Taft as to the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Certificates. The
discussion below does not purport to address all federal income tax
consequences that may be applicable to particular categories of investors,
some of which may be subject to special rules. The authorities on which this
discussion is based are subject to change or differing interpretations, and
any such change or interpretation could apply retroactively. This discussion
reflects the applicable provisions of the Code, as well as regulations (the
"REMIC Regulations") promulgated by the U.S. Department of the Treasury.
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
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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 "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)(3)(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,
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such as lower-tier regular interests in a tiered REMIC. The REMIC Regulations
specify that loans secured by timeshare interests and shares held by a tenant
stockholder in a cooperative housing corporation can be qualified mortgages. A
qualified mortgage includes a qualified replacement mortgage, which is any
property that would have been treated as a qualified mortgage if it were
transferred to the REMIC Pool on the Startup Day and that is received either
(i) in exchange for any qualified mortgage within a three-month period
thereafter or (ii) in exchange for a "defective obligation" within a two-year
period thereafter. A "defective obligation" includes (i) a mortgage in default
or as to which default is reasonably foreseeable, (ii) a mortgage as to which
a customary representation or warranty made at the time of transfer to the
REMIC Pool has been breached, (iii) a mortgage that was fraudulently procured
by the mortgagor, and (iv) a mortgage that was not in fact principally secured
by real property (but only if such mortgage is disposed of within 90 days of
discovery). A Mortgage Loan that is "defective" as described in clause (iv)
that is not sold or, if within two years of the Startup Day, exchanged, within
90 days of discovery, ceases to be a qualified mortgage after such 90-day
period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13
months, until the next scheduled distribution to holders of interests in the
REMIC Pool. A qualified reserve asset is any intangible property held for
investment that is part of any reasonably required reserve maintained by the
REMIC Pool to provide for payments of expenses of the REMIC Pool or amounts
due on the regular or residual interests in the event of defaults (including
delinquencies) on the qualified mortgages, lower than expected reinvestment
returns, prepayment interest shortfalls and certain other contingencies. The
reserve fund will be disqualified if more than 30% of the gross income from
the assets in such fund for the year is derived from the sale or other
disposition of property held for less than three months, unless required to
prevent a default on the regular interests caused by a default on one or more
qualified mortgages. A reserve fund must be reduced "promptly and
appropriately" as payments on the Mortgage Loans are received. Foreclosure
property is real property acquired by the REMIC Pool in connection with the
default or imminent default of a qualified mortgage and generally 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, in
the opinion of Cadwalader, Wickersham & Taft, 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")
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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 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
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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."
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.
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In the case of a Non-Pro Rata Certificate, the Seller intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Non-Pro Rata Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with
the preceding paragraph. However, in the case of a distribution in retirement
of the entire unpaid principal balance of any Non-Pro Rata Certificate (or
portion of such unpaid principal balance), (a) the remaining unaccrued
original issue discount allocable to such Certificate (or to such portion)
will accrue at the time of such distribution, and (b) the accrual of original
issue discount allocable to each remaining Certificate of such Class (or the
remaining unpaid principal balance of a partially redeemed Non-Pro Rata
Certificate after a distribution of principal has been received) will be
adjusted by reducing the present value of the remaining payments on such Class
and the adjusted issue price of such Class to the extent attributable to the
portion of the unpaid principal balance thereof that was distributed. The
Seller believes that the foregoing treatment is consistent with the "pro rata
prepayment" rules of the OID Regulations, but with the rate of accrual of
original issue discount determined based on the Prepayment Assumption for the
Class as a whole. Investors are advised to consult their tax advisors as to
this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively,
such a subsequent purchaser may elect to treat all such acquisition premium
under the constant yield method, as described below under the heading "--
Election to Treat All Interest Under the Constant Yield Method."
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate
if, generally, (i) the issue price does not exceed the original principal
balance by more than a specified amount and (ii) the interest compounds or is
payable at least annually at current values of (a) one or more "qualified
floating rates," (b) a single fixed rate and one or more qualified floating
rates, (c) a single "objective rate," or (d) a single fixed rate and a single
objective rate that is a "qualified inverse floating rate." A floating rate is
a qualified floating rate if variations in the rate can reasonably be expected
to measure contemporaneous variations in the cost of newly borrowed funds,
where such rate is subject to a 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
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Loans, including such a rate that is subject to one or more caps or floors, or
(ii) bearing one or more such variable rates for one or more periods, or one
or more fixed rates for one or more periods, and a different variable rate or
fixed rate for other periods, qualifies as a regular interest in a REMIC.
Accordingly, unless otherwise indicated in the applicable Prospectus
Supplement, the Seller intends to treat Regular Certificates that qualify as
regular interests under this rule in the same manner as obligations bearing a
variable rate for original issue discount reporting purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "--Original Issue Discount," with the yield to maturity and future
payments on such Regular Certificate generally to be determined by assuming
that interest will be payable for the life of the Regular Certificate based on
the initial rate (or, if different, the value of the applicable variable rate
as of the pricing date) for the relevant Class. Unless required otherwise by
applicable final regulations, the Seller intends to treat such variable
interest as qualified stated interest, other than variable interest on an
interest-only or super-premium Class, which will be treated as non-qualified
stated interest includible in the stated redemption price at maturity.
Ordinary income reportable for any period will be adjusted based on subsequent
changes in the applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, the Seller intends to treat Regular Certificates
bearing an interest rate that is a weighted average of the net interest rates
on Mortgage Loans as having qualified stated interest, except to the extent
that initial "teaser" rates cause sufficiently "back-loaded" interest to
create more than de minimis original issue discount. The yield on such Regular
Certificates for purposes of accruing original issue discount will be a
hypothetical fixed rate based on the fixed rates, in the case of fixed-rate
Mortgage Loans, and initial "teaser rates" followed by fully indexed rates, in
the case of adjustable-rate Mortgage Loans. In the case of adjustable-rate
Mortgage Loans, the applicable index used to compute interest on the Mortgage
Loans in effect on the pricing date (or possibly the issue date) will be
deemed to be in effect beginning with the period in which the first weighted
average adjustment date occurring after the issue date occurs. Adjustments
will be made in each accrual period either increasing or decreasing the amount
of ordinary income reportable to reflect the actual Pass-Through Rate on the
Regular Certificates.
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.
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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 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
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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.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate, the
Regular Certificateholder will recognize gain or loss equal to the difference,
if any, between the amount received and its adjusted basis in the Regular
Certificate. The adjusted basis of a Regular Certificate generally will equal
the cost of the Regular Certificate to the seller, increased by any original
issue discount or market discount previously included in the seller's gross
income with respect to the Regular Certificate and reduced by amounts included
in the stated redemption price at maturity of the Regular Certificate that
were previously received by the seller, by any amortized premium and by any
recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term or
short-term depending on whether the Regular Certificate has been held for the
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, and long-term capital gains of such taxpayers are subject to a
maximum tax rate of 20% for property held for more than one year. The maximum
tax rate for corporations is the same with respect to both ordinary income and
capital gains.
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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
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 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 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 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 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
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is the amount paid for such Residual Certificate. Such adjusted basis will be
increased by the amount of taxable income of the REMIC Pool reportable by the
Residual Holder and will be decreased (but not below zero), first, by a cash
distribution from the REMIC Pool and, second, by the amount of loss of the
REMIC Pool reportable by the Residual Holder. Any loss that is disallowed on
account of this limitation may be carried over indefinitely with respect to
the Residual Holder as to whom such loss was disallowed and may be used by
such Residual Holder only to offset any income generated by the same REMIC
Pool.
A Residual Holder will not be permitted to amortize directly the cost of its
Residual Certificate as an offset to its share of the taxable income of the
related REMIC Pool. However, that taxable income will not include cash
received by the REMIC Pool that represents a recovery of the REMIC Pool's
basis in its assets. Such recovery of basis by the REMIC Pool will have the
effect of amortization of the issue price of the Residual Certificates over
their life. However, in view of the possible acceleration of the income of
Residual Holders described above under "Taxation of REMIC Income," the period
of time over which such issue price is effectively amortized may be longer
than the economic life of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value of
anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a
residual interest as zero rather than such negative amount for purposes of
determining the REMIC Pool's basis in its assets. The preamble to the REMIC
Regulations states that the Internal Revenue Service may provide future
guidance on the proper tax treatment of payments made by a transferor of such
a residual interest to induce the transferee to acquire the interest, and
Residual Holders should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than
the corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC Pool unless future Treasury regulations provide for periodic
adjustments to the REMIC income otherwise reportable by such holder. The REMIC
Regulations currently in effect do not so provide. See "--Treatment of Certain
Items of REMIC Income and Expense--Market Discount" below regarding the basis
of Mortgage Loans to the REMIC Pool and "--Sale or Exchange of a Residual
Certificate" below regarding possible treatment of a loss upon termination of
the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Seller intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Seller makes no representation as to the
specific method that it will use for reporting income with respect to the
Mortgage Loans and expenses with respect to the Regular Certificates and
different methods could result in different timing of reporting of taxable
income or net loss to Residual Holders or differences in capital gain versus
ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's deductions
for original issue discount and income from amortization of issue premium will
be determined in the same manner as original issue discount income on Regular
Certificates as described above under "--Taxation of Regular Certificates--
Original Issue Discount" and "--Variable Rate Regular Certificates," without
regard to the de minimis rule described therein, and "--Premium."
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
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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.
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
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anticipated excess inclusions with respect to such Residual Certificate for
periods after the transfer and (ii) the highest marginal federal income tax
rate applicable to corporations. The REMIC Regulations provide that the
anticipated excess inclusions are based on actual prepayment experience to the
date of the transfer and projected payments based on the Prepayment
Assumption. The present value rate equals the applicable federal rate under
Code Section 1274(d) as of the date of the transfer for a term ending with the
last calendar quarter in which excess inclusions are expected to accrue. Such
rate is applied to the anticipated excess inclusions from the end of the
remaining calendar quarters in which they arise to the date of the transfer.
Such a tax generally would be imposed on the transferor of the Residual
Certificate, except that where such transfer is through an agent (including a
broker, nominee or other middleman) for a Disqualified Organization, the tax
would instead be imposed on such agent. However, a transferor of a Residual
Certificate would in no event be liable for such tax with respect to a
transfer if the transferee furnishes to the transferor an affidavit stating
that the transferee is not a Disqualified Organization and, as of the time of
the transfer, the transferor does not have actual knowledge that such
affidavit is false. The tax also may be waived by the Internal Revenue Service
if the Disqualified Organization promptly disposes of the Residual Certificate
and the transferor pays income tax at the highest corporate rate on the excess
inclusion for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such
Disqualified Organization, and (ii) the highest marginal federal corporate
income tax rate. Such tax would be deductible from the ordinary gross income
of the Pass-Through Entity for the taxable year. The Pass-Through Entity would
not be liable for such tax if it has received an affidavit from such record
holder that it is not a Disqualified Organization or stating such holder's
taxpayer identification number and, during the period such person is the
record holder of the Residual Certificate, the Pass-Through Entity does not
have actual knowledge that such affidavit is false.
For 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
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the requesting party within 60 days of the request, and the Seller or the
Trustee may charge a fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus
would continue to be subject to tax on its allocable portion of the net income
of the REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic
residual interest" (as defined below) to a Residual Holder (other than a
Residual Holder who is not a U.S. Person, as defined below under "--Foreign
Investors") is disregarded for all federal income tax purposes if a
significant purpose of the transferor is to impede the assessment or
collection of tax. A residual interest in a REMIC (including a residual
interest with a positive value at issuance) is a "noneconomic residual
interest" unless, at the time of the transfer, (i) the present value of the
expected future distributions on the residual interest at least equals the
product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which the transfer
occurs, and (ii) the transferor reasonably expects that the transferee will
receive distributions from the REMIC at or after the time at which taxes
accrue on the anticipated excess inclusions in an amount sufficient to satisfy
the accrued taxes on each excess inclusion. The anticipated excess inclusions
and the present value rate are determined in the same manner as set forth
above under "--Disqualified Organizations." The REMIC Regulations explain that
a significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation
of the financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts
as they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the non-economic
residual interest, the transferee may incur tax liabilities in excess of any
cash flows generated by the interest and that the transferee intends to pay
taxes associated with holding the residual interest as they become due. The
Pooling and Servicing Agreement with respect to each Series of Certificates
will require the transferee of a Residual Certificate to certify to the
matters in the preceding sentence as part of the affidavit described above
under the heading "--Disqualified Organizations."
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 (unless, in the case of a partnership, Treasury regulations are
adopted that provide otherwise) created or organized in or under the laws of
the United States, any state thereof or the District of Columbia, including an
entity treated as a corporation or partnership for federal income tax
purposes, an estate that is subject to United States federal income tax
regardless of its source, 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 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 "--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
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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.
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.
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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.
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 $126,600 for 1999 ($63,300 in
the case of a married individual filing a separate return) (subject to
adjustment for inflation for each year thereafter), 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
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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 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 will be
effective January 1, 2001. Current withholding certificates will remain valid
until the earlier of December 31, 2000 or the 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.
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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 will 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 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, in the opinion of Cadwalader, Wickersham & Taft, 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
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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 $126,600 for 1999 ($63,300 in the case of a married
individual filing a separate return) (in each case, as adjusted for inflation
for each year thereafter), or (ii) 80% of the amount of itemized deductions
otherwise allowable for such year. As a result, such investors holding
Certificates, directly or indirectly through a pass-through entity, may have
aggregate taxable income in excess of the aggregate amount of cash received on
such Certificates with respect to interest at the pass-through rate or as
discount income on such Certificates. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and
may cause such investors to be subject to significant additional tax
liability. Moreover, where there is Fixed Retained Yield with respect to the
Mortgage Loans underlying a Series of Certificates or where the servicing fees
are in excess of reasonable servicing compensation, the transaction will be
subject to the application of the "stripped bond" and "stripped coupon" rules
of the Code, as described below under "--Stripped Certificates" and "--
Recharacterization of Servicing Fees," respectively.
Tax Status
In the opinion of Cadwalader, Wickersham & Taft, 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.
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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 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.
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Accordingly, if the Internal Revenue Service's approach is upheld, a
Servicer who receives a servicing fee in excess of such amounts would be
viewed as retaining an ownership interest in a portion of the interest
payments on the Mortgage Loans. Under the rules of Code Section 1286, the
separation of ownership of the right to receive some or all of the interest
payments on an obligation from the right to receive some or all of the
principal payments on the obligation would result in treatment of such
Mortgage Loans as "stripped coupons" and "stripped bonds." Subject to the de
minimis rule discussed below under "--Stripped Certificates," each stripped
bond or stripped coupon could be considered for this purpose as a non-interest
bearing obligation issued on the date of issue of the Certificates, and the
original issue discount rules of the Code would apply to the holder thereof.
While Certificateholders would still be treated as owners of beneficial
interests in a grantor trust for federal income tax purposes, the corpus of
such trust could be viewed as excluding the portion of the Mortgage Loans the
ownership of which is attributed to the Servicer, or as including such portion
as a second class of equitable interest. Applicable Treasury regulations treat
such an arrangement as a fixed investment trust, since the multiple classes of
trust interests should be treated as merely facilitating direct investments in
the trust assets and the existence of multiple classes of ownership interests
is incidental to that purpose. In general, such a recharacterization should
not have any significant effect upon the timing or amount of income reported
by a Certificateholder, except that the income reported by a cash method
holder may be slightly accelerated. See "Stripped Certificates" below for a
further description of the federal income tax treatment of stripped bonds and
stripped coupons.
Sale or Exchange of Certificates
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale
and its aggregate adjusted basis in the Mortgage Loans and other assets
represented by the Certificate. In general, the aggregate adjusted basis will
equal the Certificateholder's cost for the Certificate, increased by the
amount of any income previously reported with respect to the Certificate and
decreased by the amount of any losses previously reported with respect to the
Certificate and the amount of any distributions received thereon. Except as
provided above with respect to market discount on any Mortgage Loans, and
except for certain financial institutions subject to the provisions of Code
Section 582(c), any such gain or loss generally would be capital gain or loss
if the Certificate was held as a capital asset. However, gain on the sale of a
Certificate will be treated as ordinary income (i) if a Certificate is held as
part of a "conversion transaction" as defined in Code Section 1258(c), up to
the amount of interest that would have accrued on the Certificateholder's net
investment in the conversion transaction at 120% of the appropriate applicable
Federal rate in effect at the time the taxpayer entered into the transaction
minus any amount previously treated as ordinary income with respect to any
prior disposition of property that was held as a part of such transaction or
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed
as investment income at ordinary income rates. Capital gains of certain
noncorporate taxpayers generally are subject to a lower maximum tax rate (20%)
than ordinary income of such taxpayers (39.6%) for property held for more than
one year. 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
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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, in the
opinion of Cadwalader, Wickersham & Taft, (i) the Trust Estate will be treated
as a grantor trust under subpart E, Part I of subchapter J of the Code and not
as an association taxable as a corporation or a "taxable mortgage pool" within
the meaning of Code Section 7701(i), and (ii) each Stripped Certificate should
be treated as a single installment obligation for purposes of calculating
original issue discount and gain or loss on disposition. This treatment is
based on the interrelationship of Code Section 1286, Code Sections 1272
through 1275, and the OID Regulations. Although it is possible that
computations with respect to Stripped Certificates could be made in one of the
ways described below under "--Taxation of Stripped Certificates--Possible
Alternative Characterizations," the OID Regulations state, in general, that
two or more debt instruments issued by a single issuer to a single investor in
a single transaction should be treated as a single debt instrument.
Accordingly, for OID purposes, all payments on any Stripped Certificates
should be aggregated and treated as though they were made on a single debt
instrument. The Pooling and Servicing Agreement will require that the Trustee
make and report all computations described below using this aggregate
approach, unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount.
In addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as
issued with original issue discount or market discount (as described below),
at a de minimis original issue discount, or, presumably, at a premium. This
treatment indicates that the interest component of such a Stripped Certificate
would be treated as qualified stated interest under the OID Regulations,
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, in the
opinion of Cadwalader, Wickersham & Taft, 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
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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 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
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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."
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 any prohibited transaction exemption
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.
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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, any 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, any Servicer or the Trustee or an affiliate
thereof either: (a) has investment discretion with respect to the investment
of such assets of such Plan; or (b) has authority or responsibility to give,
or regularly gives, investment advice with respect to such assets for a fee
and pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of the Plan.
Delegation of Fiduciary Duty
Further, if the assets included in a Trust Estate were deemed to constitute
Plan assets, it is possible that a Plan's investment in the Certificates might
be deemed to constitute a delegation, under ERISA, of the duty to manage Plan
assets by the fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Estate might be deemed to
constitute prohibited transactions under ERISA and the Code. Neither ERISA nor
the Code defines 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 any class of equity interests is 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; this exception is tested immediately after each acquisition of an
equity interest in the entity, whether upon initial issuance or in the
secondary market.
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Administrative Exemptions
Individual Administrative Exemptions
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transaction exemptions (each, an "Underwriter's
Exemption") which are in some respects broader than Prohibited Transaction
Class Exemption 83-1 (described below). Such exemptions can only apply to
mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which such 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
(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 of 1933, as amended (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 containing
Mortgage Loans on which the fiduciary (or its affiliate) is an obligor
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 any Plan with respect to which such
person is a fiduciary are invested in Certificates representing an interest in
one or more trusts containing assets sold or served by the same entity.
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An Underwriter's Exemption does not apply to Plans sponsored by the Seller,
the underwriter specified in the applicable Prospectus Supplement, the Master
Servicer, the Trustee, the Servicer, any insurer, any obligor with respect to
Mortgage Loans included in the Trust Estate constituting more than five
percent of the aggregate unamortized principal balance of the assets in the
Trust Estate, or any affiliate of such parties (the "Restricted Group").
PTE 83-1
Prohibited Transaction Class Exemption 83-1 for Certain Transactions
Involving Mortgage Pool Investment Trusts ("PTE 83-1") permits certain
transactions involving the creation, maintenance and termination of certain
residential mortgage pools and the acquisition and holding of certain
residential mortgage pool pass-through certificates by Plans, whether or not
the Plan's assets would be deemed to include an ownership interest in the
mortgages in such mortgage pools, and whether or not such transactions would
otherwise be prohibited under ERISA.
The term "mortgage pool pass-through certificate" is defined in PTE 83-1 as
"a certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such a certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any
fees retained by the pool sponsor." It appears that, for purposes of PTE 83-1,
the term "mortgage pool pass-through certificate" would include Certificates
issued in a single Class or in multiple Classes that evidence the beneficial
ownership of both a specified percentage of future interest payments (after
permitted deductions) and a specified percentage of future principal payments
on a Trust Estate.
However, it appears that PTE 83-1 does or might not apply to the purchase
and holding of (a) Certificates that evidence the beneficial ownership only of
a specified percentage of future interest payments (after permitted
deductions) on a Trust Estate or only of a specified percentage of future
principal payments on a Trust Estate, (b) Residual Certificates, (c)
Certificates evidencing ownership interests in a Trust Estate which includes
Mortgage Loans secured by multifamily residential properties or shares issued
by cooperative housing corporations, or (d) Certificates which are
subordinated to other Classes of Certificates of such Series. Accordingly,
unless exemptive relief other than PTE 83-1 applies, Plans should not purchase
any such Certificates.
PTE 83-1 sets forth "general conditions" and "specific conditions" to its
applicability. Section II of PTE 83-1 sets forth the following general
conditions to the application of the exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans or the
property securing such loans, and for indemnifying certificateholders against
reductions in pass-through payments due to property damage or defaults in loan
payments; (ii) the existence of a pool trustee who is not an affiliate of the
pool sponsor; and (iii) a requirement that the sum of all payments made to and
retained by the pool sponsor, and all funds inuring to the benefit of the pool
sponsor as a result of the administration of the mortgage pool, must represent
not more than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to the pool.
The system of insurance or protection referred to in clause (i) above must
provide such protection and indemnification up to an amount not less than the
greater of one percent of the aggregate unpaid principal balance of the pooled
mortgages or the unpaid principal balance of the largest mortgage in the pool.
It should be noted that in promulgating PTE 83-1 (and a predecessor
exemption), the Department did not have under its consideration interests in
pools of the exact nature of 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
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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 (i) they are rated in one of the two highest rating
categories by at least one Rating Agency, and (ii) are part of a Series
representing interests in a Trust Estate consisting of Mortgage Loans
originated by certain types of originators specified in SMMEA and secured by
first liens on real estate. 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 depository institutions, insurance companies and pension
funds) created pursuant to or existing under the laws of the United States or
of any state (including the District of Columbia and Puerto Rico) whose
authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Pursuant to SMMEA, a
number of states enacted legislation, on or before the October 3, 1991 cut-off
for such enactments, limiting to varying extents the ability of certain
entities (in particular, 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 in 12 C.F.R. (S) 1.5 concerning "safety and soundness" and
retention of credit information), 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. The
National Credit Union Administration (the "NCUA") has adopted rules, codified
at 12 C.F.R. Part 703, which permit federal credit unions to invest in
"mortgage related securities" under certain limited circumstances, other than
stripped mortgage related securities, residual interests in mortgage related
securities, and commercial 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. The OTS has
issued Thrift Bulletin 13a (December 1, 1998), "Management of Interest Rate
Risk, Investment Securities, and Derivative Activities," which thrift
institutions subject to the jurisdiction of the OTS should consider before
investing in any of the Certificates.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the Federal
Financial Institutions Examination Council ("FFIEC"), 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, effective
May 26, 1998, and by the NCUA, effective
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October 1, 1998. The 1998 Policy Statement sets forth general guidelines which
depository institutions must follow in managing risks (including market,
credit, liquidity, operational (transaction), 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, 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.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent the Certificates of any Class constitute legal
investments or are subject to investment, capital or other restrictions and,
if applicable, whether SMMEA has been overridden in any jurisdiction relevant
to such investor.
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
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subject to certain conditions precedent. The underwriters with respect to a
sale of any Class of Certificates will be obligated to purchase all such
Certificates if any are purchased. The Seller, and, if specified in the
applicable Prospectus Supplement, Norwest Mortgage, will indemnify the
applicable underwriters against certain civil liabilities, including
liabilities under the Securities Act.
The Prospectus Supplement with respect to any Series of Certificates offered
other than through underwriters will contain information regarding the nature
of such offering and any agreements to be entered into between the Seller and
dealers and/or the Seller and purchasers of Certificates of such Series.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller or any affiliate thereof may purchase some or all of
one or more Classes of Certificates of such Series from the underwriter or
underwriters at a price specified or described in such Prospectus Supplement.
Such purchaser may thereafter from time to time offer and sell, pursuant to
this Prospectus, some or all of such Certificates so purchased directly,
through one or more underwriters to be designated at the time of the offering
of such Certificates or through dealers acting as agent and/or principal. Such
offering may be restricted in the matter specified in such Prospectus
Supplement. Such transactions may be effected at market prices prevailing at
the time of sale, at negotiated prices or at fixed prices. The underwriters
and dealers participating in such purchaser's offering of such Certificates
may receive compensation in the form of underwriting discounts or commissions
from such purchaser and such dealers may receive commissions from the
investors purchasing such Certificates for whom they may 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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REPORTS TO CERTIFICATEHOLDERS
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
(the "Monthly Reports"). No information contained in the Monthly Reports will
have been examined or reported upon by an independent public accountant. See
"The Pooling and Servicing Agreement--Reports to Certificateholders."
The Seller intends to make the information contained in the Monthly Reports
available via the internet (at "http://www.securitieslink.net"), facsimile,
computer modem and CD-ROM through SecuritiesLink(R) Investor Information
Services ("SecuritiesLink(R)"). On occasion, information may be available to
any interested investor through SecuritiesLink(R) up to two business days
prior to the related Distribution Date, and in that event prior to the
delivery of the Monthly Reports by the Trustee or other Paying Agent to
Certificateholders. The Seller also intends to make available to any
interested investor through SecuritiesLink(R) certain additional information
not contained in the Monthly Reports, including loss severity data and updated
stratification reports with respect to the Mortgage Loans underlying the
Certificates. For further information regarding SecuritiesLink(R), please
contact Norwest Asset Securities Corporation, 7485 New Horizon Way, Frederick,
Maryland 21703, telephone number (301) 846-8881.
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 the Master Servicer c/o Norwest Bank Minnesota,
National Association, 11000 Broken Land Parkway, Columbia, Maryland 21044-
3562, Attention: Securities Administration Services Manager.
WHERE YOU CAN FIND MORE INFORMATION
Registration Statement and Other Materials Filed With the Securities and
Exchange Commission
The Seller filed a registration statement relating to the Certificates with
the ("SEC" or the "Commission"). This Prospectus is part of the registration
statement, but the Registration Statement includes additional information.
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 you 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, through the EDGAR system and therefore such materials
should be available by logging onto the Commission's Web site. In this regard,
you should be aware that it is anticipated that the name of the Seller will be
changed in 1999 in connection with the merger described in the applicable
Prospectus Supplement under "Recent Developments." The Commission maintains
computer terminals providing access to the EDGAR system at each of the offices
referred to above. Copies of any documents incorporated to this Prospectus 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.
Detailed Information Relating to the Mortgage Loans of a Series
The Seller intends to offer by subscription through SecuritiesLink(R)
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
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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 the Seller at 7485 New
Horizon Way, Frederick, Maryland 21703, telephone number (301) 846-8881.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows the Seller to "incorporate by reference" information it files
with the SEC, which means that the Seller can disclose important information
to you by referring you to those documents. The information incorporated by
reference is considered to be part of this Prospectus. Information that the
Seller files later with the SEC will automatically update the information in
this Prospectus. In all cases, you should rely on the later information rather
than on any different information included in this Prospectus or the
accompanying Prospectus Supplement. The Seller incorporates by reference any
future annual, monthly and special SEC reports filed by or on behalf of the
Trust until the termination of the offering of the Certificates.
As a recipient of this Prospectus, you may request a copy of any document
the Seller incorporates by reference, except exhibits to the documents (unless
the exhibits are specifically incorporated by reference), at no cost, by
writing or calling the Master Servicer at 7485 New Horizon Way, Frederick,
Maryland 21703, telephone number (301) 846-8881.
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INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
15-Year Loans.............................................................. 36
1986 Act................................................................... 65
1998 Policy Statement...................................................... 90
Accrual Certificates....................................................... 27
Additional Collateral...................................................... 15
Advances................................................................... 44
ALTA....................................................................... 20
Asset Conservation Act..................................................... 61
Balloon Loans.............................................................. 14
Balloon Period............................................................. 15
Bankruptcy Code............................................................ 57
Bankruptcy Loss............................................................ 28
Bankruptcy Loss Amount..................................................... 29
Beneficial Owner........................................................... 24
Book-Entry Certificates.................................................... 7
Buy-Down Fund.............................................................. 14
Buy-Down Loans............................................................. 14
Capitol Life............................................................... 16
Cash Flow Agreement........................................................ 11
Cede....................................................................... 24
CERCLA..................................................................... 60
Certificate Account........................................................ 41
Certificateholder.......................................................... 24
Certificates............................................................... 5
Class...................................................................... 5
Cleanup Costs.............................................................. 60
Code....................................................................... 7
Commission................................................................. 93
Component.................................................................. 29
Contract Underwriters...................................................... 18
Cooperatives............................................................... 11
Counterparty............................................................... 11
Correspondents............................................................. 16
Credit Score............................................................... 18
Cut-off Date............................................................... 6
DCR........................................................................ 88
Deferred Interest.......................................................... 13
Definitive Certificates.................................................... 24
Delegated Underwriting..................................................... 17
Department................................................................. 87
Depository................................................................. 41
Detailed Information....................................................... 93
Disqualified Organization.................................................. 75
Distribution Date.......................................................... 6
DTC........................................................................ 7
DTC Participants........................................................... 25
Due Date................................................................... 13
EDGAR...................................................................... 93
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Electing Large Partnership................................................. 75
Eligible Custodial Account................................................. 41
Eligible Investments....................................................... 42
ERISA...................................................................... 86
Excess Bankruptcy Losses................................................... 29
Excess Fraud Losses........................................................ 29
Excess Special Hazard Losses............................................... 28
FDIC....................................................................... 41
FFIEC...................................................................... 90
FHLBB...................................................................... 62
FHLMC...................................................................... 20
FICO Score................................................................. 18
Fitch...................................................................... 88
Fixed Retained Yield....................................................... 27
FNMA....................................................................... 20
Fraud Loss................................................................. 28
Fraud Loss Amount.......................................................... 29
Garn Act................................................................... 62
GEMICO..................................................................... 21
Government Securities...................................................... 64
Graduated Pay Mortgage Loans............................................... 13
Growing Equity Mortgage Loans.............................................. 13
Holder..................................................................... 63
Indirect DTC Participants.................................................. 25
IRA........................................................................ 86
Joint Ventures............................................................. 16
Liquidation Proceeds....................................................... 42
Loan Stores................................................................ 16
Loan-to-Value Ratio........................................................ 19
Mark to Market Regulations................................................. 77
Master Servicer............................................................ 5
Master Servicing Fee....................................................... 27
MERS....................................................................... 50
Monthly Reports............................................................ 93
Moody's.................................................................... 88
Mortgage Interest Rate..................................................... 27
Mortgage Loans............................................................. 11
Mortgage Notes............................................................. 11
Mortgaged Properties....................................................... 11
Mortgages.................................................................. 11
NCUA....................................................................... 90
Net Foreclosure Profits.................................................... 27
Net Mortgage Interest Rate................................................. 27
New Regulations............................................................ 79
Non-Pro Rata Certificate................................................... 66
Non-U.S. Person............................................................ 79
Norwest Bank............................................................... 16
Norwest Funding............................................................ 15
</TABLE>
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<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Norwest Mortgage........................................................... 15
Norwest Mortgage Sale Agreement............................................ 50
OCC........................................................................ 90
OID Regulations............................................................ 66
Other Advances............................................................. 44
OTS........................................................................ 62
PAC........................................................................ 30
PAC I...................................................................... 30
PAC II..................................................................... 30
Partial Liquidation Proceeds............................................... 26
Pass-Through Rate.......................................................... 6
Pass-Through Entity........................................................ 75
Paying Agent............................................................... 43
PCBs....................................................................... 60
Percentage Interest........................................................ 26
Periodic Advances.......................................................... 7
PHMC....................................................................... 16
PHMC Acquisition........................................................... 16
PHMSC...................................................................... 16
Plans...................................................................... 86
Pledged Asset Mortgage Loans............................................... 15
Pool Distribution Amount................................................... 26
Pool Insurers.............................................................. 21
Pooling and Servicing Agreement............................................ 23
Prepayment Assumption...................................................... 67
PTE 83-1................................................................... 89
Rating Agency.............................................................. 8
RCRA....................................................................... 60
Record Date................................................................ 6
Regular Certificateholder.................................................. 66
Regular Certificates....................................................... 24
Regulations................................................................ 87
Relief Act................................................................. 59
Relocation Mortgage Loans.................................................. 36
REMIC...................................................................... 64
REMIC Certificates......................................................... 63
REMIC Pool................................................................. 63
REMIC Regulations.......................................................... 63
Remittance Date............................................................ 42
Reserve Fund............................................................... 32
Residual Certificates...................................................... 24
Residual Holders........................................................... 72
Restricted Group........................................................... 89
Rules...................................................................... 25
S&P........................................................................ 88
SBJPA of 1996.............................................................. 64
Scheduled Class............................................................ 30
Scheduled Principal Balance................................................ 51
SEC........................................................................ 93
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Securities Act............................................................. 88
Securities Link(R)......................................................... 93
Seller..................................................................... 15
Senior Certificates........................................................ 6
Series..................................................................... 5
Servicer................................................................... 5
Servicer Custodial Account................................................. 41
Servicing Account.......................................................... 44
Servicing Fee.............................................................. 27
SMMEA...................................................................... 90
Special Hazard Loss........................................................ 28
Special Hazard Loss Amount................................................. 28
Standard Hazard Insurance Policy........................................... 46
Startup Day................................................................ 64
Stripped Certificateholder................................................. 85
Stripped Certificates...................................................... 83
Subclass................................................................... 6
Subordinated Certificates.................................................. 6
Subsidy Account............................................................ 14
Subsidy Loans.............................................................. 13
Subsidy Payments........................................................... 14
Superliens................................................................. 60
Support Class.............................................................. 29
TAC........................................................................ 31
Texas Home Equity Laws..................................................... 59
Tiered Payment Mortgage Loans.............................................. 13
TILA Amendment............................................................. 59
Title V.................................................................... 62
Total Loans................................................................ 35
Total Non-Relocation Loans................................................. 36
Treasury Regulations....................................................... 51
Trust...................................................................... 5
Trust Estate............................................................... 5
Trustee.................................................................... 54
Trustee Fee................................................................ 27
U.S. Person................................................................ 76
UCC........................................................................ 56
UGRIC...................................................................... 21
Underlying Servicing Agreement............................................. 5
Underwriter's Exemption.................................................... 88
UST........................................................................ 60
Voting Interests........................................................... 52
Wells Fargo................................................................ 41
Window Period.............................................................. 62
Window Period Loans........................................................ 62
Window Period States....................................................... 62
30-Year Loans.............................................................. 35
30-Year Non-Relocation Loans............................................... 36
</TABLE>
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[LOGO OF NORWEST APPEARS HERE]
Norwest Asset Securities Corporation 1999-18 Trust
Issuer
Norwest Asset Securities Corporation
(NASCOR (R))
Seller
$842,790,200
(Approximate)
Mortgage Pass-Through Certificates, Series 1999-18
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PROSPECTUS SUPPLEMENT
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[LOGO OF GREENWICH CAPITAL APPEARS HERE]
PaineWebber Incorporated
EDWARD D. JONES & CO., L.P.
You should rely only on the information contained or
incorporated by reference in this Prospectus Supplement
and the accompanying Prospectus. No one has been
authorized to provide you with different information.
The Offered Certificates are not being offered in any
state where the offer is not permitted.
The Seller does not claim the accuracy of the
information in this Prospectus Supplement and the
accompanying Prospectus as of any date other than the
dates stated on their respective covers.
Dealers will deliver a Prospectus Supplement and
Prospectus when acting as underwriters of the Offered
Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers
selling the Offered Certificates will deliver a
Prospectus Supplement and Prospectus until ninety days
following the date of this Prospectus Supplement.
June 24, 1999
