<PAGE>
As filed with the Securities and Exchange Commission on October 26, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
WELLS FARGO ASSET SECURITIES CORPORATION
(Exact name of registrant as specified in its charter)
------------------
Delaware 52-1972128
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
7485 New Horizon Way
Frederick, Maryland 21703
(301) 846-8881
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
LAWRENCE D. RUBENSTEIN, Esq.
Vice President and General Counsel
Wells Fargo Asset Securities Corporation
c/o Wells Fargo Home Mortgage, Inc.
343 Thornall Street, 5th Floor
Edison, New Jersey 08837
(732) 906-3909
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------
Copies to:
JORDAN M. SCHWARTZ, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
(212) 504-6000
------------------
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
------------------
If the only securities being registered on this Form are being offered pur-
suant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
If this form is filed to register additional securities for an offering pur-
suant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier ef-
fective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) un-
der the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration state-
ment for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount Offering Price Aggregate Registration
being Registered being Registered Per Unit Offering Price Fee
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through
Certificates......... $1,000,000.00 100%(1) $1,000,000.00 $264
----------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
Pursuant to Rule 429 of the Securities and Exchange Commission's Rules and
Regulations under the Securities Act of 1933, as amended, the prospectus and
prospectus supplement contained in this Registration Statement also relate to
the Registrant's Registration Statement on Form S-3 (Registration No. 333-
65481).
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<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER 26, 2000
PROSPECTUS SUPPLEMENT
(To Prospectus Dated , 20 )
[LOGO OF WELLS FARGO]
Wells Fargo Mortgage Backed Securities 200 - Trust
Issuer
[Wells Fargo Asset Securities Corporation Logo]
Seller
$
(Approximate)
Mortgage Pass-Through Certificates, Series 200 -
Principal and interest payable monthly, commencing in 200
The Trust Will Issue--
You should
carefully . Seven classes of senior Class A Certificates.
consider the
risk factors . Six classes of Class B Certificates, all of which are
beginning on subordinated to, and provide credit enhancement for, the Class
page S-15 of A Certificates. Each class of Class B Certificates is also
this subordinated to each class of Class B Certificates, if any,
prospectus with a lower number.
supplement.
Neither the
offered
certificates
nor the
underlying
mortgage
loans are
insured or
guaranteed
by any
governmental
agency or
instrumentality.
The classes of offered certificates are listed under the
heading "Offered Certificates" in the table on page S-4.
The yield to maturity of the Class A-PO Certificates, which are
principal only certificates, will be particularly sensitive to
the rate of principal payments on the mortgage loans with net
mortgage interest rates less than % per annum. If you are
purchasing these certificates, you should consider the risk
that a slower than anticipated rate of principal payments on
the applicable mortgage loans will have a negative effect on
the yield to maturity of your certificates.
The Assets of the Trust Will Include--
The offered
certificates . A pool of fully amortizing, one- to four-family, residential
will first mortgage loans (excluding the fixed retained yield
represent described in this prospectus supplement), substantially all of
interests in which loans have original terms to stated maturity of
the trust approximately 30 years.
only and
will not
represent
interests in
or
obligations
of the
seller or
any
affiliate of
the seller.
This
prospectus
supplement
may be
used to
offer and
sell
the offered
certificates
only if
accompanied
by the
prospectus.
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.
The underwriter will purchase the offered certificates from the seller and
offer them 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 , 200 . Total proceeds to the seller for the offered certificates
will be approximately $ before deducting expenses estimated at $ , plus,
accrued interest from 1, 200 to , 200 .
[Underwriters]
The date of this prospectus supplement is , 200 .
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospec-
tus supplement is not an offer to sell these securities and it is not solicit-
ing an offer to buy these securities in any state where the offer or sale is
not permitted.
S-1
<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:
. the accompanying prospectus, which provides general information, some of
which may not apply to your certificates and
. this prospectus supplement, which describes the specific terms of your
certificates.
If the description of the terms of your certificates varies between this pro-
spectus supplement and the accompanying prospectus, you should rely on the in-
formation in this prospectus supplement.
Cross-references are included in this prospectus supplement and the accompa-
nying prospectus to captions in these materials where you can find further re-
lated discussions. The following Table of Contents and the Table of Contents
included in the accompanying prospectus provide the pages on which these cap-
tions are located.
You can find a listing of the pages where capitalized terms used in this pro-
spectus supplement and the accompanying prospectus are defined under the cap-
tion "Index of Significant prospectus supplement Definitions" beginning on page
S- in this document and under the caption "Index of Significant Definitions"
beginning on page in the accompanying prospectus. Any capitalized terms used
but not defined in this prospectus supplement have the meanings assigned in the
prospectus.
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary Information....................................................... S-6
Risk Factors.............................................................. S-16
Prepayments May Adversely Affect Yield................................... S-16
Geographic Concentration May Increase Risk of Loss Because of Adverse
Economic Conditions or Natural Disasters................................ S-17
Subordination of Class B Certificates Increases Risk of Loss............. S-17
Rights of Beneficial Owners May Be Limited By Book-Entry System for
Certain Classes of Class A Certificates................................. S-17
Certificates May Not Be Appropriate For Individual Investors............. S-18
Forward Looking Statements................................................ S-19
Description of the Certificates........................................... S-19
General.................................................................. S-19
Denominations; Forms of Certificates..................................... S-19
Distributions............................................................ S-20
Interest................................................................. S-23
Principal (Including Prepayments)........................................ S-28
Calculation of Amount to be Distributed on the Certificates............. S-29
Allocation of Amount to be Distributed on the Class A Certificates...... S-35
Additional Rights of the Class A-R Certificateholder..................... S-36
Periodic Advances........................................................ S-36
PMI Advances............................................................. S-37
Restrictions on Transfer of the Class A-R and Class B Certificates....... S-37
Subordination of Class B Certificates.................................... S-39
Allocation of Losses.................................................... S-40
Description of the Mortgage Loans......................................... S-43
General.................................................................. S-43
Mortgage Loan Underwriting............................................... S-43
Mortgage Loan Data....................................................... S-46
Mandatory Repurchase or Substitution of Mortgage Loans................... S-49
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Optional Repurchase of Defaulted Mortgage Loans.......................... S-49
Optional Substitution of Mortgage Loans.................................. S-50
Prepayment and Yield Considerations....................................... S-50
Sensitivity of the Class A-PO Certificates............................... S-58
Yield Considerations with Respect to the Class B-2 and Class B-3
Certificates............................................................ S-59
Pooling and Servicing Agreement........................................... S-62
General.................................................................. S-62
Distributions............................................................ S-62
Voting................................................................... S-62
Trustee.................................................................. S-63
Master Servicer.......................................................... S-63
Special Servicing Agreements............................................. S-63
Optional Termination..................................................... S-63
Servicing of the Mortgage Loans........................................... S-64
The Servicers............................................................ S-64
Servicer Custodial Accounts.............................................. S-64
Unscheduled Principal Receipts........................................... S-65
Anticipated Changes in Servicing......................................... S-65
Fixed Retained Yield; Servicing Compensation and Payment of Expenses..... S-66
Servicer Defaults........................................................ S-67
Delinquency and Foreclosure Experience.................................... S-67
Federal Income Tax Considerations......................................... S-67
Regular Certificates..................................................... S-68
Residual Certificate..................................................... S-68
ERISA Considerations...................................................... S-69
Legal Investment.......................................................... S-71
Secondary Market.......................................................... S-71
Underwriting.............................................................. S-71
Recent Developments....................................................... S-72
Legal Matters............................................................. S-72
Use of Proceeds........................................................... S-72
Ratings................................................................... S-73
Index of Significant Prospectus Supplement Definitions.................... S-74
</TABLE>
S-3
<PAGE>
THE SERIES 200 -- CERTIFICATES
<TABLE>
<CAPTION>
Initial
Initial Pass- Rating
Principal Through Interest of Offered
Class Balance(1) Rate Principal Types(2) Types(2) Certificates(3)
----- ---------- ------- --------------------------- -------------- ---------------
Offered Certificates
<S> <C> <C> <C> <C> <C> <C>
Class A-1............... $ % Senior, Accretion Directed, Fixed Rate
Sequential Pay
Class A-2............... $ % Senior, Sequential Pay Accrual,
Fixed Rate
Class A-3............... $ % Senior, Accretion Directed, Fixed Rate
Sequential Pay
Class A-4............... $ % Senior, Accretion Directed, Fixed Rate
Sequential Pay
Class A-5............... $ % Senior, Lockout Fixed Rate
Class A-PO.............. $ Senior, Ratio Strip Principal Only
Class A-R............... $ % Senior, Sequential Pay Fixed Rate
Class B-1............... $ % Subordinated Fixed Rate
Class B-2............... $ % Subordinated Fixed Rate
Class B-3............... $ % Subordinated Fixed Rate
<CAPTION>
Non-Offered Certificates
<S> <C> <C> <C> <C> <C> <C>
Class B-4............... $ % Subordinated Fixed Rate
Class B-5............... $ % Subordinated Fixed Rate
Class B-6............... $ % Subordinated Fixed Rate
</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-5 of the Summary Information
and under "Ratings" in the main text of this prospectus supplement.
(4) The Class A-PO Certificates are principal only certificates and will not be
entitled to distributions in respect of interest.
S-4
<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
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus carefully for additional detailed information about
the offered certificates.
RELEVANT PARTIES
Issuer
The Wells Fargo Mortgage Backed Securities 200 - Trust will own the mortgage
loans and issue the certificates.
Seller
Wells Fargo Asset Securities Corporation will acquire the mortgage loans from
Wells Fargo Home Mortgage, Inc., an affiliate of the seller and the master
servicer, and will transfer the mortgage loans into the trust.
Master Servicer
Wells Fargo Bank Minnesota, National Association, an affiliate of the seller
and Wells Fargo Home Mortgage, Inc., will supervise the servicers of the mort-
gage loans and perform certain other duties with respect to the certificates.
Servicers
Wells Fargo Home Mortgage, Inc. and one or more other servicers approved by the
master servicer will provide customary servicing functions with respect to the
mortgage loans under servicing agreements assigned to the trust.
Trustee
will be the trustee of the trust.
RATING OF CERTIFICATES
The trust will not issue the offered certificates unless they have received at
least the ratings set forth on page S-4 from and, if applicable, .
. 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.
See "-- Effects of Prepayments on Your Investment Expectations" below and
"Ratings" in this prospectus supplement.
DESCRIPTION OF CERTIFICATES
The Mortgage Pass-Through Certificates, Series 200 - will be issued on the
closing date which will be on or about , 200 .
The certificates consist of:
. the seven classes of senior Class A Certificates designated as "Senior" cer-
tificates in the table on page S-4; and
. the six classes of junior Class B Certificates designated as "Subordinated"
certificates in the table on page S-4
Only the Class A Certificates and the Class B-1, Class B-2 and Class B-3 Cer-
tificates are being offered by this prospectus supplement and the accompanying
prospectus. The Class B-4, Class B-5 and Class B-6 Certificates are not being
offered pursuant to this prospectus supplement and the accompanying prospectus,
and the seller may retain or sell such classes. Information provided with re-
spect to the Class B-4, Class B-5 and Class B-6 Certificates is included solely
to aid your understanding of the offered certificates.
See page S-4 for more information with respect to each class of certificates.
S-5
<PAGE>
Principal Balance and Interests Evidenced by the Certificates
The certificates will have an approximate total initial principal balance of
$ . Any difference between the total principal balance of the certif-
icates as of the date of issuance of the certificates and the approximate total
initial principal balance of the certificates as of the date of this prospectus
supplement will not exceed 5% of the total 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
Undivided
Interest in
the Mortgage
Class or Classes Loans
---------------- -------------
<S> <C> <C>
Class A (other than Class A-PO).................................. %
Class A-PO....................................................... %
-----
Class A (all Classes).......................................... %
Class B-1........................................................ %
Class B-2........................................................ %
Class B-3........................................................ %
Classes B-4, B-5 and B-6......................................... %
------
Total.......................................................... 100.00%
======
--------------------------------------------------------------------------------
</TABLE>
The Class A-PO Certificates represent a portion, initially approximately %,
of the principal balance of the discount mortgage loans. The mortgage loans
which have a mortgage interest rate of less than % after deducting the master
servicing fee rate, the servicing fee rate and any fixed retained yield are
discount mortgage loans. The portion of the total principal balance of the
mortgage loans not represented by the Class A-PO Certificates is the non-PO
portion and is represented by the other Class A Certificates and the Class B
Certificates.
The following table sets forth for the Class A and Class B Certificates the ap-
proximate undivided interest in the non-PO portion of the total principal bal-
ance of the mortgage loans that the seller expects such classes or group of
classes indicated to evidence as of the closing date.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Approximate Initial
Undivided Interest in
the Non-PO Portion
-----------------------
Class Percentage In dollars
----- ---------- ------------
<S> <C> <C>
Class A (other than Class A-PO)........................ 97.10% $228,102,100
Class B................................................ 2.90% $ 6,817,810
------ ------------
Totals............................................... 100.00% $234,919,910
====== ============
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</TABLE>
The relative interests in the initial non-PO portion of the principal balance
of the mortgage loans represented by the Class A Certificates, other than the
Class A-PO Certificates, and the Class B Certificates are subject to change
over time because:
. certain unscheduled principal payments on the mortgage loans will be dispro-
portionately allocated to the Class A Certificates, other than the Class A-PO
Certificates, for a specified period; and
. certain losses and certain shortfalls on the mortgage loans 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 Certificates,
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, certif-
S-6
<PAGE>
icated 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 denomination of
the offered certificates. The offered certificates are not intended 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
certifi-
cates, will consist of conventional, fixed interest rate, 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.
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 following table and under the heading "Description of the Mortgage
Loans" in this prospectus supplement.
--------------------------------------------------------------------------------
SELECTED MORTGAGE LOAN DATA(/1/)
(as of the Cut-Off Date)
(approximate)
<TABLE>
<S> <C> <C>
Cut-Off Date: , 200
Number of Mortgage Loans:
Aggregate Unpaid Principal Balance: $
Range of Unpaid Principal Balances: $ to $
Average Unpaid Principal Balance: $
Aggregate Unpaid Principal Balance of Subsidy Loans: $
Subsidy Loans as a Percentage of the Aggregate Unpaid
Principal Balance: %
Range of Mortgage Interest Rates: % to %
Weighted Average Mortgage Interest Rate: %
Range of Remaining Terms to Stated Maturity: months to months
Weighted Average Remaining Term to Stated Maturity: months
Range of Original Loan-to-Value Ratios: % to %
Weighted Average Original Loan-to-Value Ratio: %
Geographic Concentration of Mortgaged Properties
Securing Mortgage Loans in Excess of 5% of the
Aggregate Unpaid Principal Balance: California %
New Jersey %
Texas %
Illinois %
Connecticut %
Maximum Five-Digit Zip Code Concentration(/2/): %
</TABLE>
-----------------
Information concerning the discount mortgage loans and non-discount mortgage
loans is set forth under "Description of the Mortgage Loans."
--------------------------------------------------------------------------------
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.
S-7
<PAGE>
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 % (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 -- WFHM Underwriting." In cer-
tain instances, Wells Fargo Home Mortgage, Inc. may have granted exceptions to
the underwriting standards.
The remaining approximate % of the mortgage loans were purchased by Wells
Fargo Home Mortgage, Inc. in bulk purchase transactions and were underwritten
using underwriting standards which may vary from the underwriting standards.
However, Wells Fargo Home Mortgage, Inc. has in each case reviewed the under-
writing standards applied to the bulk purchase underwritten loans and deter-
mined that those standards were not materially different than the underwriting
standards.
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
Distributions of principal and interest will be made on the certificates on the
25th day of each month, or the following business day if the 25th day is not a
business day, commencing in , 200 . On each distribution date the amount
available for distribution on the certificates, 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
interest which they are entitled to receive on 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 begin-
ning with the Class B-1 Certificates in respect of interest and principal
which they are entitled to receive on such distribution date.
However, if you are purchasing Class A-2 Certificates you will not receive
interest distributions with respect to your Certificates until either the
principal balances of the Class A-1, Class A-3 and Class A-4 Certificates have
been reduced to zero or the principal balances of the Class B Certificates have
been reduced to zero. Until then, interest which would otherwise be distributed
on your Class A-2 Certificates will be added to the principal balance of the
Class A-2 Certificates and will be distributed instead as principal to the
holders of the Class A-1, Class A-3 and
S-8
<PAGE>
Class A-4 Certificates as specified under "Description of the Certificates --
Principal (including Prepayments)" in this prospectus supplement.
In addition, certain payments of principal to which the Class A-PO Certificates
are entitled on a distribution date, will only be paid out of amounts otherwise
distributable as principal to the Class B Certificates on such distribution
date. See "Description of the Certificates--Principal (Including Prepayments)"
in this prospectus supplement.
Interest Distributions
The amount of interest which will accrue on your certificates, unless you own a
Class A-PO Certificate, each month is equal to:
. 1/12th of the pass-through rate for your class of Certificates multiplied by
the outstanding principal balance 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 -- Inter-
est" in this prospectus supplement.
Because the Class A-PO Certificates are principal only certificates, if you own
a Class A-PO Certificate, you will not be entitled 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.
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 and 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 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 amounts payable to
the Class A-PO Certificates as a reimbursement for realized losses, and, if
necessary, by the right of such moresenior 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 order
of seniority, until their respective principal balances have been reduced 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
S-9
<PAGE>
certificates (other than certain losses arising from special hazards, mortga-
gor 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
balances 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-PO Certificates,
based on their then-outstanding principal balances (or, in the case
of the Class A-2 Certificates, their initial principal balance, if lower) and
the interest portion of such losses will be shared pro rata by such classes
based on interest accrued. See "Description of the Certificates -- Interest"
and "-- Subordination of Class B Certificates -- Allocation of Losses" in this
prospectus supplement.
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.
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% of the stan-
dard prepayment assumption described in this prospectus supplement under "Pre-
payment
S-10
<PAGE>
and Yield Consideration." However, no one can predict the actual rate of pre-
payment of principal on the mortgage 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, other than the Class A-PO Certificates, then
entitled to principal distributions during the nine years beginning on the
first Distribution Date. See "Description of the Certificates -- Principal (In-
cluding Prepayments)" and "Prepayment and Yield Considerations" in this pro-
spectus 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 an offered certificate, other than a Class A-PO 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 an offered cer-
tificate, other than a Class A-PO Certificate, -- that is, buy the certifi-
cate 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 premium 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 the Class A-PO Certificates, which do not bear interest, your
yield will primarily be a function of the price you paid for your Class A-PO
Certificates, the rate and timing of principal payments on the discount mort-
gage loans, and losses incurred on the discount mortgage loans after the aggre-
gate principal balance of the Class B Certificates has been reduced to zero.
The particular sensitivity of the Class A-PO Certificates is separately dis-
played in the table appearing under the heading "Prepayment and Yield Consider-
ations" in this prospectus supplement.
S-11
<PAGE>
If you are purchasing offered certificates at a discount, particularly the
Class A-PO Certificates, you should consider the risk that a slower than antic-
ipated rate of principal payments on the mortgage loans, or, in the case of the
Class A-PO Certificates, on the discount mortgage loans, will have a negative
effect on the yield to maturity of your certificates.
If you are purchasing offered certificates at a premium, 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 that a rapid rate of principal payments on the mortgage loans
could result in the loss of all or part of your initial investment.
Reinvestment Risk
As stated above, if you purchase an offered certificate at par (other than a
Class A-PO 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 or, in the case of the Class
A-PO Certificates, the expected yield, which is based on the price you paid and
the rate of prepayments you anticipated on the discount mortgage loans.
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 is the average amount
of time that will elapse between the date of issuance of the certificate and
the date on which each dollar in reduction of the principal balance of the
certificate is distributed to the investor.
Low rates of prepayment may result in the extension of the weighted average
life of a certificate. High rates 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 sensitivity of the weighted average lives of the offered certificates to
prepayments is illustrated in the tables appearing under the heading
"Prepayment and Yield Considerations" in this
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<PAGE>
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" in this prospectus supplement.
FEDERAL INCOME TAX STATUS
For federal income tax purposes, the trust estate will be treated as a REMIC.
The offered certificates, other than the Class A-R Certificate, and the Class
B-4, Class B-5 and Class B-6 Certificates will constitute "regular interests"
in the REMIC. The Class A-R Certificate will be the "residual interest" in the
REMIC.
The offered certificates, other than the Class A-R Certificate, will be treated
as newly-originated debt instruments for most federal income tax purposes. You
must report income received on these 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 Considerations" in this prospectus supplement, certain classes of these
certificates may be issued with "original issue discount". If your class of
certificates is issued with original issue discount, you must report original
issue discount income over the life of your certificate, often well before such
income is distributed in cash to you.
The Class A-R Certificate will not be treated as a debt instrument for federal
income tax purposes. Instead, if you are the holder of the Class A-R
Certificate, you must include the taxable income or loss of the REMIC in
determining your federal taxable income. All or most of the taxable income of
the REMIC includible by the Class A-R Certificateholder will be treated as
"excess inclusion" income which is subject to special limitations for federal
tax purposes. As a result of this tax treatment, your after-tax return on the
Class A-R Certificate may be significantly lower than would be the case if the
Class A-R Certificate were taxed as a debt instrument, or may be negative
(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
Certificate).
Additionally, the Class A-R Certificate will be considered a "non-economic re-
sidual interest" for tax purposes. As a result, certain transfers of the Class
A-R Certificate may be disregarded for federal tax purposes, with the trans-
feror continuing to have tax liabilities for the transferred certificate. See
"Description of the Certificates -- Restrictions on Transfer of the Class A-R
and Class B Certificates" and "Federal Income Tax Considerations" in this
propectus supplement and "Certain Federal Income Tax Consequences -- Federal
Income 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 ERISA, or Section 4975 of the Internal Reve-
nue Code of 1986, as amended, or a governmental plan, as defined in Sec-
tion 3(32) of ERISA, subject to any federal, state or local law which is, to a
material extent, similar to the foregoing provisions of ERISA or the Internal
Revenue Code, you should carefully review with your legal advisors whether the
purchase or holding of offered certificates
S-13
<PAGE>
could give rise to a transaction prohibited or not otherwise permissible under
the rules or regulations described in this paragraph.
Because the Class B-1, Class B-2 and Class B-3 Certificates are subordinated to
the Class A Certificates with respect to certain losses, the Class B-1, Class
B-2 and Class B-3 Certificates may not be transferred unless the transferee has
delivered to the trustee 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
"Description of the Certificates -- Restrictions on Transfer of the Class A-R
and Class B Certificates" in this prospectus supplement.
The Class A-R Certificate may not be purchased by or transferred to a plan or a
person acting on behalf of or investing the assets of a plan. See "Description
of the Certificates -- Restrictions on Transfer of the Class A-R 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, so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating organiza-
tion.
. The Class B-2 and Class B-3 Certificates will not constitute "mortgage
related securities" under this act.
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 trustee will forward to
certificateholders with each distribution, a copy of the monthly report
described under "Reports to Certificateholders" and "The Pooling and Servicing
Agreement -- Reports to Certificateholders" in the prospectus. In addition, the
seller intends to make the information contained in the monthly report,
together with certain additional information, available to any interested
investor via the internet and other electronic means described under "Where You
Can Find More Information" in the prospectus.
S-14
<PAGE>
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 purchases 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 Wells Fargo Home Mortgage,
Inc.), on a general or targeted basis, to encourage refinancing. See "Prepay-
ment and Yield Considerations -- Refinancings" in the prospectus.
If you are purchasing offered certificates at a discount, particularly the
Class A-PO Certificates, you should consider the risk that if principal pay-
ments on the mortgage loans, or, in the case of the Class A-PO Certificates, on
the discount mortgage loans, occur at a rate slower than you expected, there
will be a negative effect on the yield to maturity of your certificates.
If you are purchasing offered certificates at a premium, you should consider
the risk that if principal payments on the mortgage loans occur at a rate
faster than you expected, there will be a negative effect on the yield to matu-
rity of your certificates.
The particular sensitivity of the Class A-PO Certificates is separately dis-
played in the table appearing under the heading "Prepayment and Yield Consider-
ations" herein.
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<PAGE>
See "Summary Information -- Effects of Prepayments on Investment Expecta-
tions" and "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".
Subordination of 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 and the holders of the lower-numbered classes of Class B Certifi-
cates, 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 Certifi-
cates -- Subordination of Class B Certificates."
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 bene-
ficial owner of book entry certificates, your ability to pledge your certifi-
cates, 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 Fac-
tors -- Book-Entry Certificates May Experience Decreased Liquidity and Payment
Delay" and "Description of the Certificates -- Book-Entry Form" in the prospec-
tus.
S-16
<PAGE>
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 in-
vestment 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 may be inappropriate investments for you
if you require a distribution of a particular amount of principal on a
specific date or an otherwise 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 expected
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 expected
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 Your Investment Expectations" and "Prepayment
and Yield Considerations" herein and "Risk Factors -- Rate of Prepayment on
Mortgage Loans May Adversely Affect Average Lives and Yields on Certificates"
in the prospectus.
See "Risk Factors" in the prospectus for a description of certain other risks
and special considerations applicable to the offered certificates.
S-17
<PAGE>
FORWARD LOOKING STATEMENTS
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.
DESCRIPTION OF THE CERTIFICATES
General
The Wells Fargo Mortgage Backed Securities 200 - Trust (the "Trust") will
issue Mortgage Pass-Through Certificates, Series 200 - (the "Certificates")
on or about , 200 (the "Closing Date").
The Certificates will consist of seven classes of senior certificates (the
"Class A Certificates") and six classes of junior certificates (the "Class B
Certificates" or "Subordinated Certificates"). Only the Class A Certificates
and the Class B-1, Class B-2 and Class B-3 Certificates are being offered by
this prospectus supplement and the accompanying prospectus (the "Offered Cer-
tificates").
Denominations; Form of Certificates
Offered Certificates issued in fully registered, certificated form are re-
ferred to herein as "Definitive Certificates." The Trustee 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
Trustee or other certificate registrar. No service charge will be imposed for
any registration of transfer or exchange, but the Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
Offered Certificates, other than those initially issued as Definitive Certif-
icates, will be issued in book-entry form and are referred to herein as "Book-
Entry Certificates." Each 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
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<PAGE>
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 de-
nomination and the incremental denomination of the Offered Certificates. The
Offered Certificates are not intended to be directly or indirectly held or ben-
eficially 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
and A-5.................... Book-Entry $ $
Class A-R................... Definitive $ N/A
Classes A-PO, B-1, B-2 and
B-3........................ Definitive $ $
</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 de-
nomination of less than that shown.
Distributions
The Trustee or other paying agent will make monthly distributions of interest
and in reduction of Principal Balance to holders of each Class of Certificates,
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 200 . 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. Dis-
tributions will be made on each Distribution Date to holders of record (which,
in the case of the Book-Entry Certificates, will be Cede, as nominee for DTC)
at the close of business on the last business day of the preceding month (each,
a "Record Date").
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 re-
spect of principal, if any), and interest on or in respect of the Mortgage
Loans received by the Master Servicer, including without limitation any re-
lated insurance proceeds, any proceeds received as a result of a substitu-
tion of a Mortgage Loan and the proceeds of any purchase
S-19
<PAGE>
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 Compensat-
ing Interest) placed in the Certificate Account by any Servicer on or be-
fore the Remittance Date or by the Master Servicer on or before the Distri-
bution Date pursuant to the Pooling and Servicing Agreement, but excluding
the following:
(a) amounts received as late payments of principal or interest re-
specting 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 Mort-
gage Loan which represent (i) the Servicing Fee, (ii) the Master Ser-
vicing Fee and (iii) the Fixed Retained Yield, if any;
(d) all amounts representing scheduled payments of principal and in-
terest due after the Due Date occurring in the month in which such Dis-
tribution 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 and Recoveries,
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 the Servicers
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 the Mortgage Loans re-
purchased by the Seller on or following the Determination Date in the
month in which such Distribution Date occurs and the excess of the un-
paid principal balance of any Mortgage Loan for which a Mortgage Loan
was substituted over the unpaid principal balance of such substituted
Mortgage Loan on or following the Determination 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, re-
spectively, is entitled, or which represents unpaid
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<PAGE>
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 Mas-
ter Servicer and other amounts permitted to be retained by the Master
Servicer or withdrawn by the Master Servicer from the Certificate Ac-
count pursuant to the Pooling and Servicing Agreement;
(i) reinvestment earnings on payments received in respect of the Mort-
gage Loans or on other amounts on deposit in the Certificate Account;
(j) Liquidation Profits;
(k) Month End Interest; and
(l) amounts reimbursable to a Servicer for PMI Advances.
The "Remittance Date" with respect to any Distribution Date and (i) any Mort-
gage 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 WFHM 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 Remit-
tance Date certain amounts in respect of the Mortgage Loans as set forth herein
under "Servicing of the Mortgage Loans -- Custodial Accounts." The Master
Servicer is required to remit to the Trustee on or before the Distribution Date
any payments constituting part of the Pool Distribution Amount that are re-
ceived by the Master Servicer or are required to be made with the Master
Servicer's own funds. Except as described below under "-- Periodic Advances,"
neither the Master Servicer nor the Trustee is obligated to remit any amounts
which a Servicer was required but failed to deposit in the Certificate Account.
On each Distribution Date, the Pool Distribution Amount will be allocated
among the Classes 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, pro rata, based on their
respective Interest Accrual Amounts, in an aggregate amount up to the sum
of their Interest Accrual Amounts with respect to such Distribution Date;
provided that prior to the Accretion Termination Date, an amount equal to
the amount that would otherwise be distributable in respect of interest to
the Class A-2 Certificates pursuant to this provision will be distributed
in reduction of the Principal Balances of the Class A-1, Class A-3 and
Class A-4 Certificates as set forth below under "-- Principal (Including
Prepayments) -- Allocation of Amount to be Distributed on the Class A Cer-
tificates";
second, to the Classes of Class A Certificates, pro rata, based on their
respective unpaid Interest Shortfall Amounts, in an aggregate amount up to
the sum of their unpaid Interest Shortfall Amounts; provided that prior to
the Accretion Termination Date, an
S-21
<PAGE>
amount equal to the amount that would otherwise be distributable in respect
of interest shortfalls to the Class A-2 Certificates pursuant to this pro-
vision will be distributed in reduction of the Principal Balances of the
Class A-1, Class A-3 and Class A-4 Certificates as set forth below under
"-- Principal (Including Prepayments) -- Allocation of Amount to be Dis-
tributed 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 "-- Princi-
pal (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;
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 re-
gard to this priority) to the Classes of Class B Certificates in reverse
order of priority pursuant to priority fifth clause (C) of this Pool Dis-
tribution 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 nu-
merical designations receive any payments in respect of interest or princi-
pal; provided, however, that the amount distributable pursuant to this pri-
ority fifth clause (C) to any Classes of Class B Certificates will be re-
duced 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 will be equal to the percentage obtained by
dividing the initial principal balance of such Certificate by the initial
Principal Balance of such Class.
Interest
The amount of interest that will accrue on each Class of Certificates (other
than the Class A-PO Certificates) during each month, after taking into account
any Non-Supported Interest Shortfalls and the interest portion of certain
losses allocated to such 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-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 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-
S-22
<PAGE>
through rate (the "Pass-Through Rate") for each Class of Offered Certificates
is the percentage set forth or described on page S-4 of this prospectus
supplement. Interest on each Class of Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
No interest will accrue on the Class A-PO Certificates.
The "Principal Balance" of a Class of Class A Certificates (other than 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, plus in the case of the Class A-2 Certificates, the Class A-2
Accrual Distribution Amounts, as described under "-- Principal (Including
Prepayments)" below, previously added to the Principal Balance of the Class A-2
Certificates, less (i) all amounts previously distributed on such Class in
reduction of the principal balance of such Class and (ii) such Class'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-PO
Certificates) may be subject to a further reduction (if clause (a) is greater
than clause (b)) or an increase (if clause (b) is greater than clause (a)) in
an amount equal to such Class's pro rata share of the difference, if any,
between (a) the Class A Non-PO Principal Balance as of such Determination Date
without regard to this provision and (b) the difference between (i) the
Adjusted Pool Amount for the preceding Distribution Date and (ii) the Adjusted
Pool Amount (PO Portion) for the preceding Distribution Date. Any pro rata
allocation among the Classes of Class A Certificates (other than the Class A-PO
Certificates) described in this paragraph will be made among such Classes on
the basis of their then-outstanding Principal Balances or, in the case of the
Class A-2 Certificates, their initial Principal Balance, if lower.
The "Principal Balance" of the Class A-PO Certificates as of any Determina-
tion 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 distrib-
uted to the holders of such 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 such 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
equal the Adjusted Pool Amount (PO Portion) for the preceding Distribution
Date.
The "Principal Balance" of a Class of Class B Certificates as of any Determi-
nation Date will be the principal balance of such Class on the date of initial
issuance of the Class B Certificates less (i) all amounts previously distrib-
uted to holders of such Class in reduction of the principal balance thereof and
(ii) the principal portion of Excess Losses allocated through such Determina-
tion Date to the holders of such Class in the manner described under "-- Subor-
dination of Class B Certificates -- Allocation of Losses." The Principal Bal-
ance of the most subordinate Class of Class B Certificates then outstanding may
be subject to a further reduction or an increase so that its Principal Balance
will equal the difference, if any, between the Adjusted Pool Amount as of the
preceding Distribution Date and the sum of (i) the sum of the Class A Principal
Balances and (ii) the Principal Balances of the Classes of Class B Certificates
with lower numerical designations, each as of such Determination Date.
S-23
<PAGE>
Notwithstanding the definitions of Principal Balance, no Principal Balance of
a Class on any Determination Date may exceed the initial Principal Balance of
such Class (plus any Class A-2 Accrual Distribution Amounts previously added to
the Principal Balance in the case of the Class A-2 Certificates) less all
amounts previously distributed on such Class in reduction of the Principal Bal-
ance thereof.
A Recovery with respect to a loss on a Mortgage Loan will be treated as a
principal prepayment and will result in a payment of principal to one or more
corresponding Classes of Certificates. It is possible that such payment will
not be made to the Class that originally bore the loss. Further, even though a
Class may have previously had its Principal Balance reduced as a result of a
loss for which there is later a Recovery, that Class will not be entitled to
any interest on the amount of such reduction. Because a Recovery results in a
payment of principal to certain Certificates without a corresponding decrease
in the Adjusted Pool Amount, the Principal Balance of the most subordinate cor-
responding Class then outstanding (which may not be the Class that originally
bore the loss if such Class is no longer outstanding) may be increased through
the application of the definitions of "Principal Balance" set forth above or
such Principal Balance may be decreased by a lesser amount than would otherwise
be the case based on any Realized Losses allocable to such Class.
A "Recovery" is an amount received in respect of principal which has previ-
ously been allocated as a Realized Loss to a Class of Certificates.
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 Certifi-
cates (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 principal received in re-
spect 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, (ii) the principal portion of all Liquidated Loan
Losses incurred on the Mortgage Loans for which the Liquidation Proceeds were
received from the Cut-Off Date through the end of the applicable Unscheduled
Principal Receipt Period for such Distribution Date and (iii) the principal
portion of all Bankruptcy Losses (other than Debt Service Reductions) incurred
on the Mortgage Loans from the Cut-Off Date through the end of the period which
corresponds to the applicable Unscheduled Principal Receipt Period for princi-
pal prepayments in full for such Distribution Date.
S-24
<PAGE>
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,
(ii) the principal portion of any Liquidated Loan Losses incurred on such
Mortgage Loan for which the Liquidation Proceeds were received from the Cut-Off
Date through the end of the applicable Unscheduled Principal Receipt Period for
such Distribution Date and (iii) the principal portion of all Bankruptcy Losses
(other than Debt Service Reductions) incurred on the Mortgage Loans from the
Cut-Off Date through the end of the period which corresponds to the applicable
Unscheduled Principal Receipt Period for principal prepayments in full for such
Distribution Date.
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 Compen-
sation and Payment of Expenses" herein.
When mortgagors prepay principal, or when principal is recovered through
foreclosure sales or other liquidations of defaulted Mortgage Loans, or when
other Unscheduled Principal Receipts occur, a full month's interest for the
month of payment or recovery may not be paid or recovered, resulting in inter-
est shortfalls to the extent that such payment or recovery is not included in
the distribution to Certificateholders made in the month in which it is re-
ceived. Interest shortfalls resulting from principal prepayments in full made
by mortgagors ("Prepayments in Full") are referred to herein as "Prepayment In-
terest Shortfalls." The Master Servicer will be obligated, on or before each
Distribution Date, to pay to the Trustee 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 Distribu-
tion 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 Dis-
tribution 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 WFHM 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 WFHM, "Month End
Interest" for each Distribution Date will be equal to the lesser of (i) the
aggregate Prepayment Interest
S-25
<PAGE>
Shortfalls with respect to the Mortgage Loans serviced by WFHM 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 WFHM. 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 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 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. 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, any
such change may have an impact on the amount of Compensating Interest by
increasing the amount described in clause (b) of the definition of Available
Master Servicing Compensation and decreasing the amount described in clause (c)
of the definition thereof. No assurance can be given as to the timing of any
such changes or that any such changes will occur.
As to any Distribution Date, Prepayment Interest Shortfalls to the extent
that they exceed Compensating Interest are referred to herein as "Non-Supported
Interest Shortfalls" and will be allocated to (i) the Class A Certificates ac-
cording to the percentage obtained by dividing the then-outstanding Class A
Non-PO Principal Balance by the 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 Bal-
ance. Such allocation of Non-Supported Interest Shortfalls will reduce the
amount of interest due to be distributed to holders of Certificates then enti-
tled to distributions in respect of interest. Any such reduction in respect of
interest allocated to the Class A Certificates will be allocated among the
Classes of Class A Certificates, pro rata, on the basis of their respective In-
terest Accrual Amounts without regard to any reduction pursuant to this para-
graph, 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 Ac-
crual 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
S-26
<PAGE>
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 based on interest accrued. 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.
The interest portion of any Excess Losses will be allocated among the Classes
of Certificates, pro rata, based on their respective Interest Accrual Amounts
without regard to any reduction pursuant to this paragraph, for such Distribu-
tion Date.
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 distributions first to the holders of the
Class A Certificates and then to the holders of the Classes of Class B Certifi-
cates in numerical order of the Pool Distribution Amount as described above un-
der "-- Distributions."
On each Distribution Date on which the amount available to be distributed in
respect of interest on a Class of Certificates pursuant to the Pool Distribu-
tion Amount Allocation is less than such Class's Interest Accrual Amount, the
amount of any such deficiency (as to each Class, an "Interest Shortfall
Amount") will be added to the amount of interest distributable to such Class on
subsequent Distribution Dates, but only for so long as such Class's Principal
Balance is greater than zero. No interest will accrue on any Interest Shortfall
Amounts.
Prior to the Accretion Termination Date, interest in an amount equal to the
Interest Accrual Amount for the Class A-2 Certificates will accrue on such
Class, but such amount will not be distributed as interest to such Class until
such Accretion Termination Date. Prior to such time, an amount equal to the ac-
crued and unpaid interest on such Class will be added to the Principal Balance
thereof and distributed as described under "-- Principal (Including Prepay-
ments) -- Allocation of Amount to be Distributed on the Class A Certificates"
below. The "Accretion Termination Date" for the Class A-2 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-1, Class A-3 and Class A-4
Certificates have been reduced to zero or (ii) the Cross-Over Date.
Principal (Including Prepayments)
The principal balance of a Certificate at any time is equal to the product of
the related Class's Principal Balance and such Certificate's Percentage Inter-
est, 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-2 Certificates) and (ii) in the case of the
Class A-R Certificate any additional amounts to which the holder of such Cer-
tificate may be entitled as described below under "-- Additional Rights of the
Class A-R Certificateholder") to which the holder thereof is entitled from the
cash flow on the Mortgage Loans at such time, and, absent any Recoveries, will
decline to the extent of distributions in reduction of the principal balance
of, and allocations of losses to, such Certificate.
S-27
<PAGE>
The approximate initial Principal Balance of each Class of Certificates is set
forth on page S-4 of this prospectus supplement.
Calculation of Amount to be Distributed on the Certificates
Distributions in reduction of the Principal Balance of the Class A Certifi-
cates (other than the Class A-PO Certificates) will be made on each Distribu-
tion Date pursuant to the Pool Distribution Amount Allocation, in an aggregate
amount equal to the Class A Non-PO Principal Distribution Amount. The "Class A
Non-PO Principal Distribution Amount" with respect to any Distribution Date
will be equal to the sum of (i) the Class A-2 Accrual Distribution Amount, if
any, with respect to such Distribution Date and (ii) the Class A Non-PO Princi-
pal Amount with respect to such Distribution Date.
The "Class A-2 Accrual Distribution Amount" with respect to any Distribution
Date will be equal to the sum of (i) the current interest allocated but not
distributed to the Class A-2 Certificates on such Distribution Date in accor-
dance with priority first of the Pool Distribution Amount Allocation and (ii)
the unpaid Interest Shortfall Amount allocated but not distributed to the Class
A-2 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, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates will be made on
each Distribution Date first to the Class B-1 Certificates, second to the Class
B-2 Certificates, third to the Class B-3 Certificates, fourth to the Class B-4
Certificates, fifth to the Class B-5 Certificates and then to the Class B-6
Certificates, pursuant to priority fifth clause (C) of the Pool Distribution
Amount Allocation, in an aggregate amount with respect to each such Class
(each, a "Class B Principal Distribution Amount") 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 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
each Class B Optimal Principal Amount, the Non-PO Fraction for such Mort-
gage Loan and
S-28
<PAGE>
(ii) in the case of the Class A-PO Optimal Principal Amount, the PO Frac-
tion for such Mortgage Loan; and
(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 (other than Recoveries) that were received by a
Servicer with respect to such Mortgage Loan during the Unscheduled Prin-
cipal Receipt Period relating to such Distribution Date for each appli-
cable type of Unscheduled Principal Receipt;
(iii) the applicable Class Prepayment Percentage of the Scheduled
Principal Balance of such Mortgage Loan which, during the one month pe-
riod ending on the day preceding the Determination Date for such Distri-
bution Date, was repurchased by the Seller, as described under the head-
ing "Description of the Mortgage Loans -- Mandatory Repurchase or Sub-
stitution of Mortgage Loans" herein; and
(iv) the applicable Class Percentage of the excess of the unpaid prin-
cipal balance of any Mortgage Loan for which a Mortgage Loan was substi-
tuted during the one month period ending on the day preceding the Deter-
mination Date for such Distribution Date over the unpaid principal bal-
ance of such substituted Mortgage Loan, less the amount allocable to the
principal portion of any unreimbursed advances in respect of such Mort-
gage Loan. See "The Pooling and Servicing Agreement -- Assignment of the
Mortgage Loans to the Trustee" and "--Optional Substitutions" in the
prospectus.
In addition, the Class A-PO Certificates will be entitled to receive as part
of their optimal principal amount the PO Fraction of each Recovery in an aggre-
gate amount not exceeding the Class A-PO Deferred Amount. The Class A Certifi-
cates (other than the Class A-PO Certificates) and each Class of Class B Cer-
tificates will be entitled to receive as part of their optimal principal amount
their Class Prepayment Percentage of the Recoveries not allocated to the Class
A-PO Certificates.
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 appli-
cable 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 Per-
centage, 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 Cer-
tificates; and (iii) 100% in the case of the calculation of the Class A-PO Op-
timal 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
S-29
<PAGE>
distributed to the Class A-PO Certificates on such prior Distribution Dates
pursuant to priority third clause (B) of the Pool Distribution Amount Alloca-
tion, but only to the extent such shortfall is not attributable to Realized
Losses allocated to the Class A-PO Certificates as described in "-- Subordina-
tion 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) the sum of (x) the sum of the Class A-PO Certificates' portion of Re-
coveries for such Distribution Date and prior Distribution Dates and (y)
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 in-
terest 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.
The "Scheduled Principal Balance" of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy (other than Deficient Valuations), mora-
torium or similar waiver or grace period) as of the Due Date occurring in the
month preceding the month in which such Distribution Date occurs, after giving
effect to any principal prepayments or other unscheduled recoveries of princi-
pal previously received, to any partial principal prepayments and Deficient
Valuations occurring prior to such Due Date, to the payment of principal due on
such Due Date irrespective of any delinquency in payment by the mortgagor and
to any Unscheduled Principal Receipts received or applied during the applicable
Unscheduled Principal Receipt Period for the Distribution Date in the month
preceding the month in which such Distribution Date occurs or any Deficient
Valuations occurring during the period corresponding to the applicable
Unscheduled Principal Receipt Period for principal prepayments in full for such
preceding Distribution Date.
A "Realized Loss" is any Liquidated Loan Loss (including any Special Hazard
Loss and any Fraud Loss) or any Bankruptcy Loss. A "Liquidated Loan" is a de-
faulted Mortgage Loan as to which the Servicer has determined that all recover-
able liquidation and insurance proceeds have been received. However, a loan
will be considered a Liquidated Loan if a PMI Advance has been made. See "--PMI
Advances" herein. A "Liquidated Loan Loss" on a Liquidated Loan for any Distri-
bution Date is equal to the excess, if any, of
S-30
<PAGE>
(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
preceding the month in which such Distribution Date occurs, over (ii) net Liq-
uidation 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) dishon-
est acts of the Trustee, the Master Servicer or the Servicer or (c) errors in
design, faulty workmanship or faulty materials, unless the collapse of the
property or a part thereof ensues or (B) a Liquidated Loan Loss arising from or
relating to the presence or suspected presence of hazardous wastes or sub-
stances on a Mortgaged Property. A "Fraud Loss" is a Liquidated Loan Loss in-
curred on a Liquidated Loan as to which there was fraud in the origination of
such Mortgage Loan. A "Bankruptcy Loss" is a loss attributable to certain ac-
tions which may be taken by a bankruptcy court in connection with a Mortgage
Loan, including a reduction by a bankruptcy court of the principal balance of
or the interest rate on a Mortgage Loan or an extension of its maturity. A
"Debt Service Reduction" means a reduction in the amount of monthly payments
due to certain bankruptcy proceedings, but does not include any permanent for-
giveness 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 princi-
pal, 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 %, but will not
be greater than 1.0.
The "Pool Balance (Non-PO Portion)" for any Distribution Date 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 In-
terest Rate less than % (a "Discount Mortgage Loan"), will equal the differ-
ence between 1.0 and the Non-PO Fraction for such Mortgage Loan. The PO Frac-
tion with respect to each Mortgage Loan that is not a Discount Mortgage Loan (a
"Premium Mortgage Loan") will be zero.
The "Pool Balance (PO Portion)" for any Distribution Date is the sum for each
outstanding Mortgage Loan of the product of (i) the PO Fraction for such Mort-
gage Loan and (ii) the Scheduled Principal Balance of such Mortgage Loan as of
such Distribution Date.
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
S-31
<PAGE>
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 %. The Class A Percentage
for any Distribution Date occurring after the Cross-Over Date will be 100%.
The "Class A Prepayment Percentage" for any Distribution Date will be the
percentage indicated below:
<TABLE>
<CAPTION>
Distribution Date Occurring In Class A Prepayment Percentage
------------------------------ -------------------------------------------
<C> <S>
through .. 100%;
through .. the applicable Class A Percentage, plus 70%
of the applicable Subordinated Percentage;
through .. the applicable Class A Percentage, plus 60%
of the applicable Subordinated Percentage;
through .. the applicable Class A Percentage, plus 40%
of the applicable Subordinated Percentage;
through .. the applicable Class A Percentage, plus 20%
of the applicable Subordinated Percentage;
and
and thereafter..... the applicable Class A Percentage;
</TABLE>
provided, however, that if on any of the foregoing Distribution Dates the Class
A Percentage exceeds the initial Class A Percentage, the Class A Prepayment
Percentage for such Distribution Date will once again equal 100%. See "Prepay-
ment and Yield Considerations" herein and in the prospectus. Notwithstanding
the foregoing, no reduction of the level 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 of 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 Mort-
gage Loans exceed the percentages of the principal balance of the Subordinated
Certificates as of the Cut-Off Date (the "Original Subordinated Principal Bal-
ance") indicated below:
<TABLE>
<CAPTION>
Percentage of
Original Subordinated
Distribution Date Occurring In Principal Balance
------------------------------ ----------------------
<S> <C>
through ........................... 30%
through ........................... 35%
through ........................... 40%
through ........................... 45%
and thereafter.............................. 50%
</TABLE>
If on any Distribution Date the allocation to the Class A Certificates (other
than the Class A-PO Certificates) of full and partial principal prepayments and
other amounts in the percentage required in the preceding paragraph would
reduce the outstanding Class A Non-PO Principal Balance below zero, the Class A
Prepayment Percentage for such Distribution Date will be limited to the
percentage necessary to reduce the Class A Non-PO Principal Balance to zero. In
addition, once the Principal Balances of the Class A Certificates (other than
the Class A-PO Certificates) have been reduced to zero, the Class A Prepayment
Percentage will be 0%.
S-32
<PAGE>
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 Certifi-
cates (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.
The "Class B Percentage" and "Class B Prepayment Percentage" for a Class of
Class B Certificates and any Distribution Date 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 Certifi-
cates entitled to principal distributions for such Distribution Date as de-
scribed below. In the event that a Class of Class B Certificates is not enti-
tled to principal distributions for such Distribution Date, the Class B Per-
centage 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 Percentages and Class B Prepayment Percentages of the Classes of
Class B Certificates that are senior to such subordinated Classes for such Dis-
tribution 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.............................................................. %
B-2.............................................................. %
B-3.............................................................. %
B-4.............................................................. %
B-5.............................................................. %
B-6.............................................................. N/A
</TABLE>
S-33
<PAGE>
Allocation of Amount to be Distributed on the Class A Certificates
I.On each Distribution Date occurring prior to the Accretion Termination
Date, the Class A-2 Accrual Distribution Amount will be allocated, sequential-
ly, as follows:
[INSERT PAYMENT PRIORITIES]
The "Priority Amount" for any Distribution Date means the lesser of (i) the
Principal Balance of the Class A-5 Certificates and (ii) the sum of (A) the
product of (1) the Priority Percentage, (2) the Shift Percentage and (3) the
Scheduled Principal Amount and (B) the product of (1) the Priority Percentage,
(2) the Prepayment Shift Percentage and (3) the Unscheduled Principal Amount.
The "Priority Percentage" means the Principal Balance of the Class A-5 Cer-
tificates divided by the Class A Non-PO Principal Balance.
The "Scheduled Principal Amount" means the sum for each outstanding Mortgage
Loan (including each defaulted Mortgage 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 for
such Mortgage Loan described in clauses B(i) and B(iv) of the definition of
"Class A Non-PO Optimal Principal Amount" on page S- .
The "Unscheduled Principal Amount" means the sum for each outstanding Mort-
gage Loan (including each defaulted Mortgage Loan with respect to which the re-
lated Mortgage Property has been acquired by the Trust Estate) of the product
of (A) the Non-PO Fraction for such Mortgage Loan and (B) the sum of the
amounts for such Mortgage Loan described in clauses B(ii) and B(iii) of the
definition of "Class A Non-PO Optimal Principal Amount" on page S- .
The "Shift Percentage" for any Distribution Date will be the percentage indi-
cated below:
<TABLE>
<CAPTION>
Shift
Distribution Date Occurring In Percentage
------------------------------ ----------
<S> <C>
through ....................................... 0%
and thereafter.......................................... 100%
</TABLE>
The "Prepayment Shift Percentage" for any Distribution Date will be the per-
centage indicated below:
<TABLE>
<CAPTION>
Prepayment
Shift
Distribution Date Occurring In Percentage
------------------------------ ----------
<S> <C>
through ....................................... 0%
through ....................................... 30%
through ....................................... 40%
through ....................................... 60%
through ....................................... 80%
and thereafter.......................................... 100%
</TABLE>
S-34
<PAGE>
Notwithstanding the foregoing, on each Distribution Date occurring on or af-
ter the Cross-Over Date, the Class A Non-PO Principal Distribution Amount will
be distributed among the 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 either the proportions or the priorities
set forth above.
Any amounts distributed on a Distribution Date to the holders of any Class in
reduction of Principal Balance will be allocated among the holders of such
Class pro rata in accordance with their respective Percentage Interests.
Additional Rights of the Class A-R Certificateholder
The Class A-R Certificate will remain outstanding for as long as the Trust
Estate shall exist, whether or not such Class is receiving current distribu-
tions of principal or interest. The holder of the Class A-R Certificate will be
entitled to receive the proceeds of the remaining assets of the Trust Estate,
if any, on the final Distribution Date for the Certificates, after distribu-
tions in respect of any accrued but unpaid interest on the Certificates and af-
ter 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 Bal-
ance made on the Certificates on such date.
In addition, the Class A-R Certificateholder will be entitled on each Distri-
bution Date to receive any Pool Distribution Amounts remaining after all dis-
tributions pursuant to the Pool Distribution Amount Allocation have been made.
It is not anticipated that there will be any material undistributed portion of
the Pool Distribution Amounts.
Periodic Advances
If, on any Determination Date, payments of principal and interest due on any
Mortgage Loan in the Trust Estate on the related Due Date have not been re-
ceived, the related Servicer will, in certain circumstances, be required to ad-
vance 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 princi-
pal 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 fail-
ure to make a Periodic Advance required by the Underlying Servicing Agreement,
the Trustee if such Servicer is WFHM, or the Master Servicer, if such Servicer
is not WFHM, will be required to make such Periodic Advance.
The Underlying Servicing Agreements and the Pooling and Servicing Agreement
provide that any advance of the kind described in the preceding paragraph may
be reimbursed to the related Servicer, the Master Servicer or the Trustee, as
applicable, at any time from funds available in the Servicer Custodial Account
or the Certificate Account, as the case may be, to the extent that (i) such
funds represent receipts on, or liquidation, insurance, purchase or repurchase
proceeds in respect of, the Mortgage Loans to which the advance relates or (ii)
the Servicer, the Master Servicer or Trustee, as applicable, has determined in
good faith that the advancing party will be unable to recover such advance from
funds of the type referred to in clause (i) above.
S-35
<PAGE>
PMI Advances
If a Servicer has recovered all Liquidation Proceeds with respect to a Mort-
gage Loan other than amounts it expects to receive from a primary mortgage in-
surer, the Servicer may, if the applicable Underlying Servicing Agreement so
provides, advance the amount expected to be received from the primary mortgage
insurer (a "PMI Advance"). If a PMI Advance is made, the Mortgage Loan will be
considered a Liquidated Loan and the PMI Advance will be considered a part of
the Liquidation Proceeds. The Servicer will be entitled to reimbursement for
the PMI Advance from the amounts received from the primary mortgage insurer. In
the event that the amount received from the primary mortgage insurer is less
than the related PMI Advance, the Servicer will be entitled to recover the
amount of the unreimbursed PMI Advance from any other funds on deposit in the
Servicer Custodial Account.
Restrictions on Transfer of the Class A-R and Class B Certificates
The Class A-R Certificate will be subject to the following restrictions on
transfer, and the Class A-R Certificate will contain a legend describing such
restrictions.
The REMIC provisions of the Internal Revenue Code of 1986, as amended (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 Certificate to the extent it has
received an affidavit from the owner thereof that such owner is not a Disquali-
fied Organization or a nominee for a Disqualified Organization. The Pooling and
Servicing Agreement will provide that no legal or beneficial interest in the
Class A-R Certificate may be transferred to or registered in the name of any
person unless (i) the proposed purchaser provides to the Trustee an affidavit
(or, to the extent acceptable to the Trustee, a representation letter signed
under penalty of perjury) to the effect that, among other items, such trans-
feree is not a Disqualified Organization (as defined in the prospectus) and is
not purchasing the Class A-R Certificate as an agent for a Disqualified Organi-
zation (i.e., as a broker, nominee, or other middleman thereof) and (ii) the
transferor states in writing to the Trustee that it has no actual knowledge
that such affidavit or letter is false. Further, such affidavit or letter re-
quires the transferee to affirm that it (i) historically has paid its debts as
they have come due and intends to do so in the future, (ii) understands that it
may incur tax liabilities with respect to the Class A-R Certificate in excess
of cash flows generated thereby, (iii) intends to pay taxes associated with
holding the Class A-R Certificate as such taxes become due and (iv) will not
transfer the Class A-R Certificate to any person or entity that does not pro-
vide a similar affidavit or letter. The transferor must certify in writing to
the Trustee that, as of the date of the transfer, it had no knowledge or reason
to know that the affirmations made by the transferee pursuant to the preceding
sentence were false.
In addition, the Class A-R Certificate may not be purchased by or transferred
to any person that is not a "U.S. Person," unless (i) such person holds such
Class A-R Certificate in connection with the conduct of a trade or business
within the United States and furnishes the transferor and the Trustee with an
effective Internal Revenue Service Form W-8ECI (or successor form) or (ii) the
transferee delivers to both the transferor and the Trustee an opinion of a na-
tionally recognized tax counsel to the effect that such transfer is in accor-
dance with the requirements of the Code and the regulations promulgated there-
under and that such
S-36
<PAGE>
transfer of the Class A-R Certificate will not be disregarded for federal
income tax purposes. The term "U.S. Person" means a citizen or resident of the
United States, a corporation 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 pur-
ported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee. Any transferor or
agent to whom the Trustee provides information as to any applicable tax imposed
on such transferor or agent may be required to bear the cost of computing or
providing such information. In addition to the foregoing, Treasury regulations
have been proposed, effective February 4, 2000 if adopted, that would require
the transferor of the Class A-R Certificate to pay the transferee thereof an
amount designed to compensate the transferee for assuming the related tax lia-
bility in order to meet the safe harbor against the possible disregard of such
transfer. Because the foregoing regulations are in proposed form, as well as
the fact that the proposed payment is not mandatory but would provide safe har-
bor protection, the Pooling and Servicing Agreement will not require that such
payment be made as a condition to transfer of the Class A-R Certificate. The
holder of the Class A-R Certificate is advised to consult its tax advisor as to
whether and in what form the proposed regulations become finalized and whether
or in what amount any such payments should be made upon transfer thereof either
prior to or following finalization of such regulation. See "Certain Federal In-
come Tax Consequences -- Federal Income Tax Consequences for REMIC Certifi-
cates -- Taxation of Residual Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates" in the prospectus.
The Class A-R Certificate may not be purchased by or transferred to any per-
son which is 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 Code Section 4975 (an "ERISA Plan") or which is a govern-
mental plan, as defined in Section 3(32) of ERISA, subject to any federal,
state or local law ("Similar Law") which is, to a material extent, similar to
the foregoing provisions of ERISA or the Code (collectively, with an ERISA
Plan, a "Plan"), or any person acting on behalf of or investing the assets of
such Plan. See "ERISA Considerations" herein and in the prospectus.
Under current law the purchase and holding of the 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 B
Certificates will not be made unless the transferee (i) executes a
representation letter in form and substance satisfactory to the Trustee 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 B
Certificates is an "insurance company general account" (as such term is defined
in Section V(e) of Prohibited
S-37
<PAGE>
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 Trustee and the Seller that the purchase or holding of the 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 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 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. The DOL has proposed
amendments to the Exemption described herein under "ERISA Considerations" that
may affect these restrictions. 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 distribu-
tions with respect to the Mortgage Loans in the Trust Estate will be subordi-
nated to such rights of the holders of the Class A Certificates and the rights
of the holders of 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 de-
scribed 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 af-
ford 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 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
S-38
<PAGE>
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.
Allocation of Losses
Realized Losses (other than Excess Losses) will not be allocated to the hold-
ers of the Class A Certificates until the date on which the aggregate Principal
Balance of the Subordinated Certificates has been reduced 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 Trustee does not
advance, (iv) any interest shortfalls or losses resulting from the application
of the Soldiers' and Sailors' Civil Relief Act of 1940, as more fully described
under "Certain Legal Aspects of the Mortgage Loans -- Soldiers' and Sailors'
Civil Relief Act and Similar Laws" 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 then to the Classes of Class B Certificates in
numerical order as described above under "-- Distributions."
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) such Class A Non-PO Principal Balance equals the Ad-
justed Pool Amount less the Adjusted Pool Amount (PO Portion) as of the preced-
ing Distribution Date and (ii) the Principal Balance of the Class A-PO Certifi-
cates equals the Adjusted Pool Amount (PO Portion) as of the preceding Distri-
bution 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, pro rata in accordance
with their Principal Balances or, in the case of the Class A-2 Certificates,
their initial Principal Balance, if lower. The interest portion of any Realized
Loss allocated on or after the Cross-Over Date will be allocated among the out-
standing Classes of Class A Certificates pro rata in accordance with their re-
spective Interest Accrual Amounts, without regard to any reduction pursuant to
this sentence. Any such losses will be allocated among the outstanding Class A
Certificates within each such Class pro rata in accordance with their respec-
tive Percentage Interests.
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
S-39
<PAGE>
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 applicable Class A Percentage) on and after the next Dis-
tribution Date will be proportionately increased, thereby reducing, as a rela-
tive matter, the respective interest of the Class B Certificates in future pay-
ments 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 re-
verse 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 re-
ferred 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 Class A Certificates (other
than the Class A-PO Certificates) and the 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 re-
spect to the interest portion of such losses, to the Class A and Class B Cer-
tificates pro rata based on interest accrued by reducing their respective In-
terest Accrual Amounts. 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, pro rata in ac-
cordance with their Principal Balances or, in the case of the Class A-2 Certif-
icates, their initial Principal Balance, 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 In-
terests.
Upon initial issuance of the Certificates, the "Special Hazard Loss Amount"
with respect thereto will be equal to approximately % (approximately
$ ) 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 and Class B Certificates
by the applicable Rating Agencies, as evidenced by letters to that effect de-
livered by such Rating Agencies to the Master Servicer and the Trustee. 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 re-
spect thereto will be equal to approximately % (approximately $ ) 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
S-40
<PAGE>
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 amount of Fraud Losses allocated solely to the Class B Certifi-
cates 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 anni-
versary of the Cut-Off Date, the Fraud Loss Amount will be zero.
Upon initial issuance of the Certificates, the "Bankruptcy Loss Amount" with
respect thereto will be equal to approximately % (approximately $ ) 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 applica-
ble Servicer has notified the Trustee and the Master Servicer in writing that
such Servicer is diligently pursuing any remedies that may exist in connection
with the representations and warranties made regarding the related Mortgage
Loan and when (A) the related Mortgage Loan is not in default with regard to
the payments due thereunder or (B) delinquent payments of principal and inter-
est 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-41
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS(/1/)
General
The mortgage loans to be included in the Trust Estate will be fixed interest
rate, conventional, monthly pay, fully amortizing, one- to four-family, resi-
dential first mortgage loans substantially all of which have original terms to
stated maturity of approximately 30 years (the "Mortgage Loans"), which may in-
clude 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 de-
scribed below and in the prospectus. Wells Forgo Asset Securities Corporation
(the "Seller") will transfer the Mortgage Loans to the Trust.
Each of the Mortgage Loans is subject to a due-on-sale clause. See "Certain
Legal Aspects of the Mortgage Loans -- "Due-on-Sale' Clauses" and "Servicing of
the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon De-
faulted Mortgage Loans" in the prospectus.
Mortgage Loan Underwriting
Approximately % (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 -- WFHM Underwriting" (the
"Underwriting Standards"). In certain instances, exceptions to the Underwriting
Standards may have been granted by WFHM. See "The Mortgage Loan Programs --
Mortgage Loan Underwriting" in the prospectus. The remaining approximate %
(by the aggregate unpaid principal balance as of the Cut-Off-Date) of the
Mortgage Loans were purchased by WFHM in bulk purchase transactions and were
underwritten using underwriting standards which may vary from the Underwriting
Standards (the "Bulk Purchase Underwritten Loans"). However, WFHM has in each
case reviewed the underwriting standards applied for such Bulk Purchase
Underwritten Loans and determined that such standards were not materially
different than the Underwriting Standards. See "The Mortgage Loan Programs --
Mortgage Loan Underwriting" in the prospectus.
------------------
(1) The descriptions in this prospectus supplement of the Trust Estate and the
properties securing the Mortgage Loans to be included in the Trust Estate
are based upon the expected characteristics of the Mortgage Loans at the
close of business on the Cut-Off Date, as adjusted for the scheduled prin-
cipal payments due on or before such date. Notwithstanding the foregoing,
any of such Mortgage Loans may be excluded from the Trust Estate (i) as a
result of principal prepayment thereof in full or (ii) if, as a result of
delinquencies or otherwise, the Seller otherwise deems such exclusion nec-
essary or desirable. In either event, other Mortgage Loans may be included
in the Trust Estate. The Seller believes that the information set forth
herein with respect to the expected characteristics of the Mortgage Loans
on the Cut-Off Date is representative of the characteristics as of the
Cut-Off Date of the Mortgage Loans to be included in the Trust Estate as
it will be constituted at the time the Certificates are issued, although
the aggregate principal balance of the Mortgage Loans included in the
Trust Estate 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 such 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-42
<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 , 200 (the "Cut-Off Date"))
<TABLE>
<CAPTION>
All Premium Discount
Mortgage Loans Mortgage Loans Mortgage Loans
-------------- -------------- --------------
<S> <C> <C> <C>
Number of Mortgage Loans
Aggregate Unpaid Principal
Balance(/1/)
Range of Unpaid Principal
Balances(/1/)
Average Unpaid Principal
Balance(/1/)
Range of Mortgage Interest Rates
Weighted Average Mortgage
Interest Rate(/1/)
Weighted Average Net Mortgage
Interest Rate(/1/)
Range of Remaining Terms to
Stated Maturity
Weighted Average Remaining Term
to Stated Maturity(/1/)
Range of Original Loan-to-Value
Ratios(/1/)
Weighted Average Original Loan-
to-Value Ratios(/1/)
Number of Mortgage Loans with
Original Loan-to-Value Ratios
greater than 80% not covered by
Primary Mortgage Insurance
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/)
Weighted Average Original Loan-
to-Value Ratio of Mortgage Loans
with Original Principal Balance
greater than $600,000(/1/)
Maximum Original Loan-to-Value
Ratio of Mortgage Loans with
Original Principal Balance
greater than $600,000(/1/)
</TABLE>
------------------
(1) Approximate.
S-43
<PAGE>
SELECTED MORTGAGE LOAN DATA (Cont.)
<TABLE>
<CAPTION>
All Premium Discount
Mortgage Loans Mortgage Loans Mortgage Loans
-------------- -------------- --------------
<S> <C> <C> <C>
Geographic Concentration of
Mortgaged Properties securing
Mortgage Loans in Excess of 5%
of the Aggregate Unpaid
Principal Balance(/1/)
[States]
Maximum Five-Digit Zip Code
Concentration(/1/)
Earliest Origination Month
Latest Origination Month
Latest Stated Maturity Date
Number of Buy-Down Loans
Buy-Down Loans as a Percentage of
Aggregate Unpaid Principal
Balance(/1/)
Number of Subsidy Loans
Subsidy Loans as a Percentage of
Aggregate Unpaid Principal
Balance(/1/)
Weighted Average FICO
Score(/1/)(/2/)
</TABLE>
------------------
(1) Approximate.
(2) Does not include the Mortgage Loans for which FICO Scores are not avail-
able.
* Less than 5% of the aggregate unpaid principal balance as of the Cut-Off
Date.
S-44
<PAGE>
Mortgage Loan Data
Set forth below is a description of certain additional expected characteris-
tics of the Mortgage Loans as of the Cut-Off Date (except as otherwise indicat-
ed).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
Percentage
of Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Mortgage Interest Rate Loans Balance Balance
---------------------- --------- --------- ----------
<S> <C> <C> <C>
Total........................................
=== === ===
</TABLE>
MORTGAGE LOAN
DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
Percentage
of Total
Aggregate Aggregate
Number of Unpaid Unpaid
Documentation Mortgage Principal Principal
Level Loans Balance Balance
------------- --------- --------- ----------
<S> <C> <C> <C>
Full Documenta-
tion...........
Income Verifica-
tion...........
Asset Verifica-
tion...........
Preferred
Processing.....
--- --- ---
Total.......
=== === ===
</TABLE>
Documentation levels vary depending upon several factors, including loan
amount, Loan-to-Value Ratio and the type and purpose of the Mortgage Loan. As-
set, income and mortgage verifications were obtained for Mortgage Loans proc-
essed 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 prospec-
tus.
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>
--- --- ---
Total.......
=== === ===
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
Percentage
of Total
Aggregate Aggregate
Number of Unpaid Unpaid
Year of Mortgage Principal Principal
Origination Loans Balance Balance
----------- --------- --------- ----------
<S> <C> <C> <C>
--- --- ---
Total.......
=== === ===
</TABLE>
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.......
Two- to four-
family units...
Condominiums
High-
rise(greater
than four
stories).......
Low-rise(four
stories or
less)..........
Planned unit
developments...
Townhouses......
Cooperative
Units..........
--- --- ---
Total.......
=== === ===
</TABLE>
S-45
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage
of Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Geographic Area Loans Balance Balance
--------------- --------- --------- ----------
<S> <C> <C> <C>
Total.......
=== === ===
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
Percentage
of Total
Range of Aggregate Aggregate
Original Number of Unpaid Unpaid
Loan-to-Value Mortgage Principal Principal
Ratios Loans Balance Balance
------------- --------- --------- ----------
<S> <C> <C> <C>
--- --- ---
Total........................................
=== === ===
</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 origina-
tion and (ii) the sale price for such property. For the purpose of calculating
the Loan-to-Value Ratio of any Mortgage Loan that is the result of the refi-
nancing (including a refinancing for "equity take out" purposes) of an existing
mortgage loan, the appraised value of the related Mortgaged Property is gener-
ally determined by reference to an appraisal obtained in connection with the
origination of the replacement loan. There can be no assurance than such ap-
praisal, 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 Estate--Mortgage Loans" in the
prospectus. No assurance can be given that the values of the Mortgaged Proper-
ties 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.
S-46
<PAGE>
FICO SCORES
<TABLE>
<CAPTION>
Percentage
of Total Weighted
Aggregate Average
Number of Aggregate Unpaid Unpaid Loan-to-
Mortgage Principal Principal Value
Range of FICO Scores Loans Balance Balance Ratio
-------------------- --------- ---------------- ---------- --------
<S> <C> <C> <C> <C>
......................... $ 0 % %
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
--- ---------------- ------ -----
Total/Weighted Average.......... $ % %
=== ================ ====== =====
</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-wor-
thiness. FICO Scores are generated by models developed by a third party and are
made available to lenders through three national credit bureaus. The models
were derived by analyzing data on consumers in order to establish patterns
which are believed to be indicative of the borrower's probability of default.
The FICO Score is based on a borrower's historical credit data, including,
among other things, payment history, delinquencies on accounts, levels of out-
standing indebtedness, length of credit history, types of credit, and bank-
ruptcy 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 statisti-
cally 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 con-
sumer loans in general. Therefore, a FICO Score does not take into considera-
tion the effect of mortgage loan characteristics on the probability of repay-
ment by the borrower. The FICO Scores set forth in the table above were ob-
tained at either the time of origination of the Mortgage Loan or more recently.
Neither the Seller nor WFHM 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 --Mort-
gage Loan Underwriting" in the prospectus.
ORIGINAL MORTGAGE LOAN
PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Percentage
of Total
Range of Aggregate Aggregate
Original Number of Unpaid Unpaid
Mortgage Loan Mortgage Principal Principal
Principal Balances Loans Balance Balance
---------------- --------- --------------- ----------
<S> <C> <C> <C>
............... $ %
-
.......
-
.......
-
.......
-
.......
-
.......
-
.......
-
.......
-
.......
-
.......
-
.......
-
.......
-
.......
-
.......
-
.......
-
.....
..
--- --------------- ------
Total....... %
=== =============== ======
</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>
--- --- ---
Total.......
=== === ===
</TABLE>
It is expected that as of the Cut-Off Date, of the "Other Orignators"
will have accounted for approximately % and %, respectively, of the aggre-
gate 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-47
<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>
--- --- ---
Total.......
=== === ===
</TABLE>
In general, in the case of a Mortgage Loan made for "rate/term" refinance
purpose, substantially all of the proceeds are used to pay in full the princi-
pal balance of a previous mortgage loan of the mortgagor with the 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 purpose, 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 propectus.
OCCUPANCY TYPE
<TABLE>
<CAPTION>
Percentage
of Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Occupancy type Loans Balance Balance
-------------- --------- -------------- ----------
<S> <C> <C> <C>
--- -------------- ------
Total....... 616 $35,069,143.74 100.00%
=== ============== ======
</TABLE>
Mandatory Repurchase or Substitution of Mortgage Loans
The Seller is required, with respect to Mortgage Loans that are found by the
Trustee to have defective documentation, or in respect of which the Seller has
breached a representation or warranty, either to repurchase such Mortgage Loans
or, if within two years of the date of initial issuance of the Certificates, to
substitute new Mortgage Loans therefor. Any Mortgage Loan so substituted must,
among other things, have an unpaid principal balance equal to or less than the
Scheduled Principal Balance of the Mortgage Loan for which it is being
substituted (after giving effect to the scheduled principal payment due in the
month of substitution on the Mortgage Loan for which a new Mortgage Loan is
being substituted), a Loan-to-Value Ratio less than or equal to, and a Mortgage
Interest Rate equal to that of the Mortgage Loan for which it is being
substituted. In the event that the unpaid principal balance of a substitute
Mortgage Loan is less than the Scheduled Principal Balance of the Mortgage Loan
for which it is substituted, the Seller will be required to deposit the
difference into the Certificate Account. 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 rea-
sonably foreseeable and (ii) any Mortgage Loan as to which the originator or
seller of such Mortgage Loan has breached a representation or warranty to WFHM
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 "Pre-
payment and Yield Considerations" herein and "Servicing of the Mortgage
Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mort-
gage Loans" in the prospectus.
S-48
<PAGE>
Optional Substitution of the Mortgage Loans
The Seller may, for any reason and in its sole discretion, during the three
month period beginning with the date of initial issuance of the Certificates,
substitute new Mortgage Loans for any Mortgage Loans originally included in the
Trust Estate. Any substitute Mortgage Loan must meet the criteria set forth
above under " -- Mandatory Repurchase or Substitution of Mortgage Loans." See
"Prepayment and Yield Considerations" herein and "The Pooling and Servicing
Agreement -- Optional Substitutions" in the prospectus.
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 weighted average life and yield to maturity
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
resulting in Realized Losses. Prepayments (which, as used herein, include all
unscheduled payments of principal, including payments as the result of
liquidations, purchases and repurchases) of the Mortgage Loans in the Trust
Estate will result in distributions to Certificateholders then entitled to
distributions in respect of principal in respect of such Mortgage Loans 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
representations and warranties and optional purchases by the Seller of all of
the Mortgage Loans in connection with the termination of the Trust Estate. See
"Description of the Mortgage Loans -- Mandatory Repurchase or Substitution of
Mortgage Loans" and "Pooling and Servicing Agreement -- Optional Termination"
herein and "The 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 Rates on the
Mortgage Loans, the rate of prepayment would generally be expected to increase.
Conversely, if interest rates on similar mortgage loans rise above the Mortgage
Interest Rates on the Mortgage Loans, the rate of prepayment would generally be
expected to decrease. The rate of prepayment on the Mortgage Loans may also be
influenced by programs offered by mortgage loan originators (including WFHM),
servicers (including WFHM) and mortgage loan brokers to encourage refinancing
through such originators, servicers and brokers, including, but not limited to,
general or targeted solicitations (which may be based on characteristics
including, but not
S-49
<PAGE>
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 application of WFHM'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 "Prepayment and Yield Considerations --
Refinancings" in the prospectus. In addition, WFHM or third parties may enter
into agreements with borrowers providing for the bi-weekly payment of principal
and interest on the related mortgage loan, thereby accelerating payment of the
mortgage loan resulting in partial prepayments.
Other factors affecting prepayment of mortgage loans include changes in mort-
gagors' housing needs, job transfers, unemployment or 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 Trustee to have de-
fective documentation or with respect to which the Seller has breached a repre-
sentation or warranty, (ii) a substitute Mortgage Loan has an unpaid principal
balance less than the Mortgage Loan for which it is substituted, (iii) a
Servicer elects to encourage the refinancing of any defaulted Mortgage Loan
rather than to permit an assumption thereof by a mortgagor or (iv) a Servicer
agrees to modify the payment terms of a Mortgage Note rather than foreclose on
the related Mortgage Loan. See "Servicing of the Mortgage Loans -- Enforcement
of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans" in the pro-
spectus.
As described under "Description of the Certificates -- Principal (Including
Prepayments)" herein, all or a disproportionate percentage of principal prepay-
ments on the Mortgage Loans (including liquidations and repurchases of Mortgage
Loans) will be distributed, to the extent of the Non-PO Fraction, to the hold-
ers of the Class A Certificates (other than the Class A-PO Certificates) then
entitled to distributions in respect of principal during the nine years begin-
ning 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 such 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 Class A Certificates
(other than the Class A-PO Certificates)
S-50
<PAGE>
have been reduced to zero, the Class A-5 Certificates will not be entitled to
any distributions of principal payments for five years and during the following
five years the percentage of principal payments (including prepayments) allo-
cated to the Class A-5 Certificates in the aggregate will gradually increase.
The yield to maturity of the Offered Certificates will be sensitive in vary-
ing degrees to the rate and timing of principal payments (including prepay-
ments, which may be made at any time without penalty) on the Mortgage Loans.
Investors in the Offered Certificates should consider the associated risks, in-
cluding, in the case of Offered Certificates purchased at a discount, particu-
larly the Class A-PO Certificates, the risk that a slower than anticipated rate
of payments in respect of principal (including prepayments) on the Mortgage
Loans or, in the case of the Class A-PO Certificates, on the Discount Mortgage
Loans, will have a negative effect on the yield to maturity of such Certifi-
cates and, in the case of Offered Certificates purchased at a premium, the risk
that a faster than anticipated rate of payments in respect of principal (in-
cluding prepayments) on the Mortgage Loans will have a negative effect on the
yield to maturity of such Certificates. Investors purchasing Offered Certifi-
cates at a premium should also consider the risk that a rapid rate of payments
in respect of principal (including prepayments) on the Mortgage Loans could re-
sult in the failure of such investors to fully recover their initial invest-
ments. 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 determina-
tion as to anticipated Mortgage Loan prepayment rates under a variety of
scenarios.
The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
who purchases an Offered Certificate at a price other than par, even if the av-
erage rate of principal payments experienced over time is consistent with such
investor's expectation. In general, the earlier a prepayment of principal on
the underlying Mortgage Loans, the greater the effect on such investor's yield
to maturity. As a result, the effect on such investor's yield of principal pay-
ments occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the Offered
Certificates would not be fully offset by a subsequent like reduction (or in-
crease) in the rate of principal payments.
The yield to maturity on the Classes of Class B Certificates with higher nu-
merical designations will generally be more sensitive to losses than the Clas-
ses 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, de-
linquencies 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 Cer-
tificates against interruptions in distributions due to such unadvanced mortga-
gor 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.
S-51
<PAGE>
The actual yield to maturity experienced by an investor may also be affected
by the occurrence of interest shortfalls resulting from Unscheduled Principal
Receipts to the extent, if any, to which such interest shortfalls are not cov-
ered by Compensating Interest or subordination. See "Description of the Certif-
icates -- Interest" and "Servicing of the Mortgage Loans -- Anticipated Changes
in Servicing" herein.
The yield to maturity on the Offered Certificates and more particularly on
the Class B-1 and Class B-2 Certificates and, especially the Class B-3 Certifi-
cates, may be affected by the geographic concentration of the Mortgaged Proper-
ties securing the Mortgage Loans. In recent periods, California, the New York
metropolitan area, the Washington, D.C. metropolitan area and several other re-
gions in the United States have experienced significant fluctuations in housing
prices. In addition, California and several other regions have experienced nat-
ural 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 other states in which the
Mortgaged Properties are located, and any deterioration of economic conditions
in such states which adversely affects the ability of borrowers to make pay-
ments on the Mortgage Loans, may increase the likelihood of losses on the Mort-
gage Loans. Such losses, if they occur, may have an adverse effect on the yield
to maturity of the Offered Certificates and more particularly on the Class B-1
and Class B-2 Certificates and especially the Class B-3 Certificates.
As to Mortgaged Properties in regions that have recently experienced natural
disasters, neither the Seller nor WFHM has undertaken the physical inspection
of such Mortgaged Properties. As a result, there can be no assurance that mate-
rial 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 sub-
stitute for such Mortgage Loan, as described under "The Mortgage Loan Pro-
grams -- Representations and Warranties" and "The Pooling and Servicing Agree-
ment -- Assignment of Mortgage Loans to the Trustee" in the prospectus. Repur-
chase of any such Mortgage Loan will affect in varying degrees the yields and
weighted average lives of the related Classes of Offered Certificates and could
adversely affect the yield of any related Offered Certificates purchased at a
premium.
No representation is made as to the rate of principal payments on the Mort-
gage Loans or as to the yield to maturity of any 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 princi-
pal balance of the related 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
S-52
<PAGE>
amounts distributed in reduction of the principal balance of such investor's
Offered Certificate may be lower than the applicable Pass-Through Rate or ex-
pected yield. Conversely, slower rates of prepayments on the Mortgage Loans,
and therefore of amounts distributable in reduction of principal balance of the
related Offered Certificates, may coincide with periods of high prevailing in-
terest rates. During such periods, the amount of principal distributions avail-
able to an investor for reinvestment at such high prevailing interest rates may
be relatively small.
Due to the special tax treatment of residual interests, the after-tax return
of the Class A-R Certificate may be significantly lower than would be the case
if the Class A-R Certificate were taxed as a debt instrument, or may be nega-
tive. See "Federal Income Tax Considerations" herein.
As referred to herein, the "weighted average life" of a Class of Offered Cer-
tificates 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 Bal-
ance of such Class is distributed to the investor.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this prospectus supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new mort-
gage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such mort-
gage loans in the first month of the life of the mortgage loans and an addi-
tional 0.2% per annum in each month thereafter until the thirtieth month. Be-
ginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA, i.e., no prepayments. SPA does not purport to be a historical de-
scription of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans.
The tables set forth below have been prepared assuming, among other things,
the following (the "Structuring Assumptions"): (i) the Trust Estate consists of
one "Assumed Discount Mortgage Loan" and one "Assumed Premium Mortgage Loan"
(collectively, the "Assumed Mortgage Loans") with the characteristics set forth
below, (ii) the scheduled payment in each month for each Assumed Mortgage Loan
has been based on its outstanding balance as of the first day of the month
preceding the month of such payment, its Mortgage Interest Rate and its
remaining term to stated maturity, so that such scheduled payments would
amortize the remaining balance 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 200 , (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 200 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
S-53
<PAGE>
, 200 , (vii) distributions to Certificateholders will be made on the
25th day of each month, commencing in 200 , (viii) the Servicing Fee Rate
will be % per annum and the Master Servicing Fee Rate will be % per
annum for each Assumed Mortgage Loan and (ix) the initial Principal Balance of
each Class of Certificates will be as set forth on page S-4 of this prospectus
supplement.
Assumed Mortgage Loan Characteristics
<TABLE>
<CAPTION>
Remaining Term Original Term
Principal Balance as Mortgage to Maturity To Maturity
of the Cut-Off Date Interest Rate (in Months) (in Months)
-------------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Assumed Discount
Mortgage Loan.......... $ %
Assumed Premium Mortgage
Loan................... $ %
</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 dif-
ferences 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 of the Classes of Certificates out-
standing, the actual weighted average lives of the Classes of Certificates and
the date on which the Principal Balance 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 of each such Class of Offered Cer-
tificates that would be outstanding after each of the dates shown at constant
percentages of SPA presented.
S-54
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class A-1 Class A-2
Certificates at the Certificates at the
Following Percentages Following Percentages
of of
SPA SPA
----------------------- -----------------------
Distribution Date % % % % % % % % % %
----------------- --- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (years)(/1/)..............
</TABLE>
<TABLE>
<CAPTION>
Class A-3 Class A-4
Certificates at the Certificates at the
Following Percentages Following Percentages
of of
SPA SPA
----------------------- -----------------------
Distribution Date % % % % % % % % % %
----------------- --- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (years)(/1/)..............
</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.
//dec A1.008 //dec A2.008
//dec A3.008 //dec A4.008
S-55
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class A-5 Class A-R
Certificates at the Certificate at the
Following Percentages Following Percentages
of of
SPA SPA
----------------------- -----------------------
Distribution Date % % % % % % % % % %
----------------- --- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (years)(/1/)..............
</TABLE>
<TABLE>
<CAPTION>
Class B-1, Class B-2
Class A-PO and Class B-3
Certificates at the Certificates at the
Following Percentages Following Percentages
of of
SPA SPA
----------------------- -----------------------
Distribution Date % % % % % % % % % %
----------------- --- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (years)(/1/)..............
</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.
//dec A5.008 //dec AR.008
//dec APO.008 //dec B1.008
S-56
<PAGE>
Interest accrued on the Offered Certificates will be reduced by the amount of
any interest portions of Realized Losses allocated to such Certificates as de-
scribed under "Description of the Certificates -- Interest" herein. The yield
on the Offered Certificates will be less than the yield otherwise produced by
their respective Pass-Through Rates, if any, and the prices at which such Cer-
tificates are purchased because the interest which accrues on the Mortgage
Loans during each month will not be passed through to Certificateholders until
the 25th day of the month following the end of such month (or if such 25th day
is not a business day, the following business day).
The Seller intends to file certain additional yield tables and other computa-
tional materials with respect to one or more Classes of Offered Certificates
with the Securities and Exchange Commission in a Report on Form 8-K. See "In-
corporation Of Certain Information By Reference" in the prospectus. Such tables
and materials will have been prepared by the Underwriter at the request of cer-
tain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such investors. Such tables and assumptions may be
based on assumptions that differ from the Structuring Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for in-
vestors other than those specifically requesting them.
Sensitivity of the Class A-PO Certificates
The yield to an investor in the Class A-PO Certificates will be highly sensi-
tive to the rate and timing of principal payments (including prepayments) on
the Discount Mortgage Loans which rate may fluctuate significantly from time to
time. An investor should fully consider the associated risks, including the
risk that a relatively slow rate of principal payments (including prepayments)
on the Discount Mortgage Loans will have a negative effect on the yield to an
investor in the Class A-PO 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 semi-annual corpo-
rate bond equivalent ("CBE") basis of the Class A-PO Certificates. Such calcu-
lations are based on distributions made in accordance with "Description of the
Certificates" above, on the Structuring Assumptions and on the further assump-
tions that the Class A-PO Certificates will be purchased on , 200 at an
aggregate purchase price equal to % of the initial Principal Balance of
the Class A-PO Certificates.
Sensitivity of the Pre-Tax Yield to Maturity of the Class A-PO Certificates to
Prepayments
<TABLE>
<CAPTION>
Percentages of SPA
------------------------------
% % % % %
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield to Maturity (CBE)................. % % % % %
</TABLE>
The pre-tax yields to maturity set forth in the preceding table were calcu-
lated by (i) determining the monthly discount rates which, when applied to the
assumed streams of cash flows to be paid on the Class A-PO Certificates, would
cause the discounted present value of such assumed streams of cash flows to
equal an assumed purchase price for the Class A-PO Certificates as set forth
above; and (ii) converting such monthly rates to CBE rates. Such calculation
does not take into account the interest rates at which investors may be able to
reinvest funds received by them as distributions on the Class A-PO Certificates
and consequently does not purport to reflect the return on any investment in
the Class A-PO Certificates when such reinvestment rates are considered.
//sens APO.088
S-57
<PAGE>
Notwithstanding the assumed prepayment rates reflected in the preceding
table, it is highly unlikely that the Discount Mortgage Loans will prepay at a
constant rate until maturity, that all of the Discount Mortgage Loans will
prepay at the same rate or that the Discount Mortgage Loans will not experience
any losses. In addition, there will be differences between the characteristics
of the Discount Mortgage Loans ultimately included in the Trust Estate and the
Assumed Discount Mortgage Loan. As a result of these factors, the pre-tax
yields on the Class A-PO Certificates are likely to differ from those shown in
such table, even if all of the Discount Mortgage Loans prepay at the indicated
percentages of SPA.
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 as-
sumption ("SDA"), represents an assumed rate of default each month relative to
the then-outstanding performing principal balance of a pool of new mortgage
loans. A default assumption of 100% SDA assumes constant default rates of 0.02%
per annum of the then-outstanding principal balance of such mortgage loans in
the first month of the life of the mortgage loans and an additional 0.02% per
annum in each month thereafter until the 30th month. Beginning in the 30th
month and in each month thereafter through the 60th month of the life of the
mortgage loans, 100% SDA assumes a constant default rate of 0.60% per annum
each month. Beginning in the 61st month and in each month thereafter through
the 120th month of the life of the mortgage loans, 100% SDA assumes that the
constant default rate declines each month by 0.0095% per annum, and that the
constant default rate remains at 0.03% per annum in each month after the 120th
month. For the purposes of the following tables, it is assumed that there is no
delay between the default and liquidation of the mortgage loans. As used in the
following tables, "0% SDA" assumes default rates equal to 0% of SDA (no de-
faults). SDA does not purport to be a historical description of default experi-
ence or a prediction of the anticipated rate of default of any pool of mortgage
loans, including the Mortgage Loans.
The following tables indicate the sensitivity of the pre-tax yield to matu-
rity on the Class B-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 as-
sumption that no defaults shall have occurred with respect to the Mortgage
Loans) and the additional assumptions that liquidations (other than those sce-
narios indicated as 0% of SDA (no defaults)) occur monthly on the last day of
the preceding month at the percentages of SDA set forth in the table.
In addition, it was assumed that (i) Realized Losses on liquidations of %
or % 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 , 200 at assumed purchase prices equal to
% and %, respectively, of the Principal Balances thereof plus accrued
interest from , 200 to (but not including) , 200 .
The actual Mortgage Loans ultimately included in the Trust Estate will have
characteristics differing from those assumed in preparing the table and it is
unlikely that they will prepay or liquidate at any of the rates specified. In
addition, it is unlikely that Realized
S-58
<PAGE>
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 calcu-
lated by determining the monthly discount rates which, when applied to the as-
sumed streams of cash flows to be paid on the Class B-2 and Class B-3 Certifi-
cates, would cause the discounted present value of such assumed streams of cash
flows to equal the aggregate assumed purchase prices of the Class B-2 and Class
B-3 Certificates set forth above. In all cases, monthly rates were then con-
verted 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 ac-
count 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 Certifi-
cates. 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 reinvest-
ment rates are considered.
S-59
<PAGE>
Sensitivity of Pre-Tax Yields to Maturity of the Class B-2
Certificates to Prepayments and Realized Losses
<TABLE>
<CAPTION>
Loss Percentages of SPA
Percentage Severity -----------------------
of SDA Percentage % % % % %
---------- ---------- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
Sensitivity of Pre-Tax Yields to Maturity of the Class B-3
Certificates to Prepayments and Realized Losses
<TABLE>
<CAPTION>
Loss Percentages of SPA
Percentage Severity ------------------------
of SDA Percentage % % % % %
---------- ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The following table sets forth the amount of Realized Losses that would be
incurred with respect to the Mortgage Loans under the assumptions used to gen-
erate the pre-tax yields to maturity in the preceding tables, 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 Severity
of SDA Percentage Percentages of SPA
---------- ---------- ------------------------
% % % % %
-------- ---------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
Investors are urged to make their investment decisions based on their determi-
nations as to anticipated rates of prepayment and Realized Losses under a vari-
ety 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.
S-60
<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 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 Mort-
gage Loans," (ii) such assets as from time to time are identified as deposited
in any account held for the benefit of the Certificateholders, (iii) any Mort-
gaged Properties acquired on behalf of the Certificateholders by foreclosure or
by deed in lieu of foreclosure after the date of original issuance of the Cer-
tificates and (iv) the rights of the Trustee to receive the proceeds of all in-
surance policies and performance bonds, if any, required to be maintained pur-
suant 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 distributions will be made on the 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 Trustee specified in the notice of final distribution with re-
spect to the related Class. See "Description of the Certificates -- General" in
the prospectus.
DTC will receive distributions on the Book-Entry Certificates from the
Trustee 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 provid-
ing for the action, consent or approval of the holders of all Certificates evi-
dencing specified Voting Interests in the Trust Estate, holders of each Class
of Certificates will be entitled to a pro rata portion of the Voting Interest
represented by all 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 enti-
tled 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 Certifi-
cates or specified Classes of Certificates, each Certificateholder of a Class
will have a Voting Interest in such Class equal to such holder's Percentage In-
terest 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.
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Trustee
The "Trustee" for the Certificates will be , a national banking
association. The corporate trust office of the Trustee is located at ,
, . See "The Pooling and Servicing Agreement -- The Trustee"
in the prospectus. The Trustee will be required to make Periodic Advances to
the limited extent described herein. See "Description of the Certificates --
Periodic Advances" herein.
Master Servicer
Wells Fargo Bank Minnesota, National Association will act as "Master
Servicer" of the Mortgage Loans and, in that capacity, will supervise the ser-
vicing 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, pro-
vide certain reports to the Trustee regarding the Mortgage Loans and the Cer-
tificates 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 Certifi-
cates which the Master Servicer concludes are ambiguous or unclear will be
binding on Certificateholders. The Master Servicer will be entitled to a "Mas-
ter Servicing Fee" payable monthly equal to the product of (i) 1/12th of %
(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 "Servicing of the Mortgage Loans -- The 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 in-
struct 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 de-
lay 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 ac-
quired by the Trust Estate ("REO Property")) in the Trust Estate plus accrued
and
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unpaid interest. In the event the Trust Estate is liquidated as described
above, holders of the Certificates, to the extent funds are available, will re-
ceive the unpaid principal balance of their Certificates and any accrued and
unpaid interest thereon. The amount, if any, remaining in the Certificate Ac-
count 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 Cer-
tificate. 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 exer-
cise 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) ex-
ercise such option at the direction of such third party or (ii) forbear from
the exercise of such option.
SERVICING OF THE MORTGAGE LOANS
Wells Fargo Home Mortgage, Inc. ("WFHM") and the other servicers listed below
(the "Other Servicers," and collectively with WFHM, the "Servicers") will serv-
ice the Mortgage Loans, each pursuant to a separate servicing agreement (each,
an "Underlying Servicing Agreement"). The rights to enforce the related
Servicer's obligations under each Underlying Servicing Agreement with respect
to the related Mortgage Loans will be assigned to the Trustee for the benefit
of Certificateholders. Among other things, the Servicers are obligated under
certain circumstances to advance delinquent payments of principal and interest
with respect to the Mortgage Loans. See "Servicing of the Mortgage Loans" in
the prospectus.
The Servicers
The Mortgage Loans initially will be serviced by the following entities:
<TABLE>
<CAPTION>
Approximate Percentage of
Aggregate Unpaid
Principal Balance as of
Name of Servicer the Cut-Off Date Serviced
---------------- -------------------------
<S> <C>
WFHM............................................... %
[Other Servicers].................................. %
------
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 WFHM, however, provides that WFHM 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
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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.
Not later than the Remittance Date, the Servicers are obligated to remit to
the Certificate Account all amounts on deposit in the Servicer Custodial Ac-
counts as of the close of business on the business day preceding the Remittance
Date 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 Prin-
cipal Receipts of such type received by the Servicer will be distributed to
Certificateholders on the related Distribution Date. Each Unscheduled Principal
Receipt Period will either be (i) the one month period ending on the last day
of the calendar month preceding the month in which the applicable Remittance
Date occurs (such period a "Prior Month Receipt Period") or (ii) the one month
period ending on the day preceding the Determination Date preceding the appli-
cable Remittance Date (such period a "Mid-Month Receipt Period").
With respect to the Mortgage Loans serviced by WFHM, the Unscheduled Princi-
pal Receipt Period with respect to all types of Unscheduled Principal Receipts
is a Mid-Month Receipt Period. With respect to the Mortgage Loans serviced by
certain Other Servicers, the Unscheduled Principal Receipt Period with respect
to all Unscheduled Principal Receipts is a Prior Month Receipt Period. For cer-
tain 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 Peri-
od.
Anticipated Changes in Servicing
Changes in Timing of Remittances of Unscheduled Principal Receipts in Full
and Elimination of Month End Interest. The Pooling and Servicing Agreement will
provide that the Master Servicer may (but is not required), from time to time
and without the consent of any Certificateholder or the Trustee, require WFHM
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 cur-
rently 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 de-
scribed 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 or the Trustee, require WFHM or any successor thereto under
the applicable Underlying Servicing Agreement to make remittances to the Cer-
tificate Account (other than any remittances which are required to be made
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<PAGE>
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 or the
Trustee, (a) direct WFHM, 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)
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 (ii) below and making any
necessary conforming changes incident thereto. In connection therewith, (i) the
Unscheduled Principal Receipt Period for the Mortgage Loans serviced by WFHM
may be changed to achieve an Unscheduled Principal Receipt Period regime (the
"Target Regime") under which the Unscheduled Principal Receipt Period with re-
spect 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 and (ii) 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 Re-
ceipt. Conversely, changing the applicable Unscheduled Principal Receipt Period
from a Prior Month Receipt Period to a Mid-Month Receipt Period may decrease
the amount of interest shortfalls with respect to the applicable type of
Unscheduled Principal Receipt. See "Description of the Certificates --
Interest." No assurance can be given as to the timing of any change to any
Unscheduled Principal Receipt Period or that any such changes will occur.
Fixed Retained Yield; Servicing Compensation and Payment of Expenses
A fixed percentage of the interest on each Mortgage Loan (the "Fixed Retained
Yield") with a per annum Mortgage Interest Rate greater than (i) the sum of (a)
%, (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 de-
scribed in clause (i). See "Servicing of the Mortgage Loans -- Fixed Retained
Yield, Servicing Compensation and Payment of Expenses" in the prospectus for
further information regarding Fixed Retained Yield.
The primary compensation payable to each of the Servicers is the aggregate of
the Servicing Fees applicable to the related Mortgage Loans. The Servicing Fee
applicable to each Mortgage Loan is expressed as a fixed percentage (the "Ser-
vicing Fee Rate") of the
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<PAGE>
scheduled principal balance (as defined in the Underlying Servicing Agreements)
of such Mortgage Loan as of the first day of each month. The Servicing Fee Rate
for each Mortgage Loan is % per annum. The Servicers also are entitled to ad-
ditional servicing compensation, as described in the prospectus under "Servic-
ing 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 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 REMIC will be al-
located to the holder of the Class A-R 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 Servicing Agreement with the Master Servicer or, at the
Master Servicer's nomination, another servicing institution acceptable to the
Trustee and each Rating Agency; and (ii) the Master Servicer shall assume cer-
tain of the Servicer's servicing obligations under such Underlying Servicing
Agreement, including the obligation to make Periodic Advances (limited as pro-
vided herein under the heading "Description of the Certificates -- Periodic Ad-
vances"), until such time as a successor servicer is appointed. See "Servicing
of the Mortgage Loans --Fixed Retained Yield, Servicing Compensation and Pay-
ment of Expenses" in the prospectus.
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 discus-
sion of various factors affecting delinquencies and foreclosures generally.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the anticipated material federal income tax consequences of the pur-
chase, ownership and disposition of the Offered Certificates.
An election will be made to treat the Trust Estate, and the Trust Estate will
qualify, as a real estate mortgage investment conduit (a "REMIC") for federal
income tax purposes. Each Class of Offered Certificates (other than the Class
A-R Certificate) (collectively, the
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<PAGE>
"Regular Certificates"), together with each Class of Certificates not offered
hereby, will be designated as regular interests in the REMIC, and the Class A-R
Certificate will be designated as the residual interest in the REMIC. The Class
A-R Certificate is a "Residual Certificate" for purposes of the prospectus. The
assets of the REMIC will include the Mortgage Loans (exclusive of Fixed Re-
tained Yield), together with the amounts held by the Master Servicer in a sepa-
rate account in which collections on the Mortgage Loans will be deposited (the
"Certificate Account"), the hazard insurance policies and primary mortgage in-
surance 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 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 Certificate, "qualified 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 re-
quired to report income on such Certificates in accordance with the accrual
method of accounting.
The Class A-2 Certificates will be issued with original issue discount in an
amount equal to the excess of all payments of principal and interest (whether
current or accrued) thereon over their issue price (including accrued
interest). The Class A-PO Certificates will be issued with original issue
discount in an amount equal to the excess of their initial Principal Balance
over their issue price. It is anticipated that the Class , Class , Class
, Class , Class and Class Certificates will be issued with original
issue discount in an amount equal to the excess of their initial Principal
Balances (plus days of interest at the Pass-Through Rate thereon) over their
respective issue prices (including accrued interest). It is also anticipated
that the Class Certificates will be issued with de minimis original issue
discount for federal income tax purposes. Finally, it is anticipated that the
Class B-4, Class B-5 and Class B-6 Certificates, which are not offered hereby,
will be issued with original issue discount for federal income tax purposes.
The Prepayment Assumption (as defined in the prospectus) that the Master
Servicer intends to use in determining the rate of accrual of original issue
discount and whether the original issue discount is considered de minimis, and
that may be used by Beneficial Owners (or holders) to amortize premium, will be
calculated using % SPA. No representation is made as to the actual rate at
which the Mortgage Loans will prepay.
Residual Certificate
The holder of the Class A-R Certificate must include the taxable income or
loss of the REMIC in determining its federal taxable income. The Class A-R Cer-
tificate will remain outstanding for federal income tax purposes until there
are no Certificates of any other Class outstanding. Prospective investors are
cautioned that the Class A-R Certificateholder's REMIC taxable income and the
tax liability thereon may exceed, and may substantially exceed, cash distribu-
tions to such holder during certain periods, in which event, the holder thereof
must have sufficient alternative sources of funds to pay such tax liability.
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Furthermore, it is anticipated that all or a substantial portion of the taxable
income of the REMIC includible by the holder of the Class A-R Certificate will
be treated as "excess inclusion" income, resulting in (i) the inability of such
holder to use net operating losses to offset such income from the REMIC, (ii)
the treatment of such income as "unrelated business taxable income" to certain
holders who are otherwise tax-exempt, and (iii) the treatment of such income as
subject to 30% withholding tax to certain non-U.S. investors, with no exemption
or treaty reduction.
The Class A-R Certificate will be considered a "noneconomic residual
interest," with the result that transfers thereof would be disregarded for
federal income tax purposes if any significant purpose of the transferor was to
impede the assessment or collection of tax. Accordingly, the Class A-R
Certificate is subject to certain restrictions on transfer and any prospective
transferee thereof will be required to furnish to the Trustee an affidavit as
described herein under "Description of the Certificates -- Restrictions on
Transfer of the Class A-R 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 Certificate (whether
such Certificate is held directly or indirectly through certain pass-through
entities) also may have additional gross income with respect to, but may be
subject to limitations on the deductibility of, Servicing Fees on the Mortgage
Loans and other administrative expenses of the REMIC in computing such holder's
regular tax liability, and may not be able to deduct such fees or expenses to
any extent in computing such holder's alternative minimum tax liability. In ad-
dition, some portion of a purchaser's basis, if any, in the Class A-R Certifi-
cate may not be recovered until termination of the REMIC. Furthermore, the fed-
eral income tax consequences of any consideration paid to a transferee on a
transfer of the Class A-R Certificate, including any "safe harbor" payment de-
scribed herein under "Description of the Certificates -- Restrictions on Trans-
fer of the Class A-R and Class B Certificates" and under "Certain Federal In-
come Tax Consequences -- Federal Income Tax Consequences for REMIC Certifi-
cates -- Taxation of Residual Certificates -- Noneconomic Residual Interests"
in the prospectus, are unclear. The preamble to the REMIC Regulations indicates
that the Internal Revenue Service anticipates providing guidance with respect
to the federal tax treatment of such consideration. Any transferee receiving
consideration with respect to the Class A-R Certificate should consult its tax
advisors.
Due to the special tax treatment of residual interests, the effective after-
tax return of the Class A-R Certificate may be significantly lower than would
be the case if the Class A-R Certificate were taxed as a debt instrument, or
may be negative.
See "Certain Federal Income Tax Consequences" in the prospectus.
ERISA CONSIDERATIONS
The Class A-R Certificate may not be purchased by or transferred to a Plan or
a person acting on behalf of or investing the assets of a Plan. See "Descrip-
tion of the Certificates -- Restrictions on Transfer of the Class A-R and Class
B Certificates."
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<PAGE>
In addition, because the Class B Certificates are subordinated to the Class A
Certificates with respect to certain losses, the Class B Certificates may not
be transferred unless the transferee has delivered (i) a representation letter
to the Trustee and Seller stating either (a) that the transferee is not a Plan
and is not acting on behalf of a Plan or using the assets of a Plan to effect
such purchase or (b) subject to the conditions described herein, that the
source of funds used to purchase the Class B Certificates is an "insurance com-
pany 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-R and Class B Certificates."
Accordingly, the following discussion applies to the Class A Certificates
(other than the Class A-R Certificate) and does not purport to discuss the con-
siderations under ERISA, Code Section 4975 or Similar Law with respect to the
purchase, acquisition or resale of the Class A-R 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 Plan. Comparable duties and restrictions may ex-
ist under Similar Law on governmental plans and certain persons who perform
services for governmental plans. For example, unless exempted, investment by 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 in-
vestment by an ERISA Plan in the Class A Certificates, including the individual
administrative exemption described below. For a further discussion of the indi-
vidual administrative exemption, including the necessary conditions to its ap-
plicability, and other important factors to be considered by an ERISA Plan con-
templating investing in the Class A Certificates, see "ERISA Considerations" in
the prospectus.
On , 19 , the DOL issued to (" ") an individual adminis-
trative exemption, Prohibited Transaction Exemption - , Fed. Reg. 42581
(the "Exemption"), from certain of the prohibited transaction rules of ERISA
with respect to the initial purchase, the holding and the subsequent resale by
an ERISA Plan of certificates in pass-through trusts that meet the conditions
and requirements of the Exemption. The Exemption might apply to the acquisi-
tion, holding and resale of the 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 "ac-
credited investor" as defined in Rule 501(a)(1) of Regulation D of the Securi-
ties and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act").
Before purchasing a Class A Certificate, a fiduciary of an ERISA Plan should
make its own determination as to the availability of the exemptive relief pro-
vided in the Exemption or the availability of any other prohibited transaction
exemptions, 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 re-
lief under Similar Law. Any fiduciary of an ERISA Plan considering whether to
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purchase a Class A Certificate should also carefully review with its own legal
advisors the applicability of the fiduciary duty and prohibited transaction
provisions of ERISA and the Code to such investment. See "ERISA Considerations"
in the prospectus.
The DOL has proposed amendments (the "Proposed Amendments") to the Exemption
that, if finalized in current form, generally will be effective as of August
23, 2000. Among other changes, it is anticipated that the amended Exemption
would permit Plans to purchase Subordinated Certificates rated in any of the
four highest ratings categories (provided that all other requirements of the
Exemption are met). It is not certain if and when the Proposed Amendments will
be issued in final form, and it is not certain that the Proposed Amendments, if
finalized, will contain the same relief as is currently proposed. Plan fiducia-
ries should, and other potential investors who may be analyzing the potential
liquidity of their investment may wish to, consult with their advisors regard-
ing the Proposed Amendments.
LEGAL INVESTMENT
The Class A and Class B-1 Certificates constitute "mortgage related securi-
ties" for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA") so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating organiza-
tion. 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 in-
vestment laws and regulations, regulatory capital requirements or review by
regulatory authorities may be subject to restrictions on investment in the Of-
fered Certificates and should consult their own legal, tax and accounting advi-
sors in determining the suitability of and consequences to them of the pur-
chase, ownership and disposition of the Offered Certificates. See "Legal In-
vestment" in the prospectus.
SECONDARY MARKET
There will not be any market for the Offered Certificates prior to the issu-
ance thereof. The Underwriter intends to act as a market maker in the Offered
Certificates, subject to applicable 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 pro-
spectus upon written request to the Trustee at the Corporate Trust Office.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
, 2000 and the terms agreement dated , 200 (together, the "Underwriting
Agreement") among WFHM, the Seller and , as underwriter (the "Underwrit-
er"), the Offered Certificates are being purchased from the Seller by the Un-
derwriter upon issuance thereof. The Underwriter is committed to purchase all
of the Offered Certificates if any such
S-70
<PAGE>
Certificates are purchased. The Underwriter has advised the Seller that it pro-
poses to offer the Offered Certificates, from time to time, for sale in negoti-
ated transactions or otherwise at prices determined at the time of sale. Pro-
ceeds to the Seller from the sale of the Offered Certificates are expected to
be approximately $ plus, accrued interest thereon from , 200 to (but
not including) , 200 , before deducting expenses payable by the Seller es-
timated to be $ . The Underwriter, which is not an affiliate of the Seller,
has advised the Seller that it has not allocated the purchase price paid to the
Seller for the Class A Certificates (other than the Class A-PO Certificates)
among such Classes. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Offered Certificates may be deemed to be
underwriters, and any discounts or commissions received by them and any profit
on the resale of Offered Certificates by them may be deemed to be underwriting
discounts or commissions, under the Securities Act.
The Underwriting Agreement provides that the Seller or WFHM will indemnify
the Underwriter against certain civil liabilities under the Securities Act or
contribute to payments which the Underwriter may be required to make in respect
thereof.
This prospectus supplement and the prospectus may be used by Wells Fargo
Brokerage Services, LLC, an affiliate of the Seller, the Master Servicer and
WFHM, to the extent required, in connection with market making transactions in
the Offered Certificates. Wells Fargo Brokerage Services, LLC may act as
principal or agent in such transactions.
RECENT DEVELOPMENTS
The Seller, the Master Servicer and WFHM are subsidiaries of Wells Fargo &
Company (the former Norwest Corporation), a diversified financial services com-
pany registered under the Bank Holding Company Act of 1956, whose headquarters
are located in San Francisco, California. On November 2, 1998, Norwest Corpora-
tion 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. On April 7, 2000, Norwest Integrated Structured Assets, Inc., an
affiliate of the Seller and WFHM, was merged into and with the Seller. On April
17, 2000, the Seller changed its name from Norwest Asset Securities Corporation
to Wells Fargo Asset Securities Corporation, on April 14, 2000 WFHM changed its
name from Norwest Mortgage, Inc. to Wells Fargo Home Mortgage, Inc. and on July
8, 2000 the Master Servicer changed its name from Norwest Bank Minnesota, Na-
tional Association to Wells Fargo Bank Minnesota, National Association.
The Seller believes that the mergers will not have a material effect on the
ability of the Seller, the Master Servicer or WFHM to perform their respective
obligations under the Pooling and Servicing Agreement or WFHM's Underlying Ser-
vicing 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 Under-
writer by Morgan, Lewis & Bockius LLP, New York, New York.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from WFHM of the Mortgage Loans
underlying the Certificates.
S-71
<PAGE>
RATINGS
It is a condition to the issuance of the Class A Certificates that each such
Class will have been rated " " by (" ") and (" ", and together with
, the "Rating Agencies"). 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
" ," " " and " ," respectively, by . A security rating is not a recommen-
dation to buy, sell or hold securities and may be subject to revision or with-
drawal at any time by the assigning rating agency. Each security rating should
be evaluated independently of any other security rating.
The ratings of on mortgage pass-through certificates address the likeli-
hood of the receipt by certificateholders of timely payments of interest and
the ultimate return of principal. ratings take into consideration the credit
quality of the mortgage pool, including any credit support providers, struc-
tural and legal aspects associated with the certificates, and the extent to
which the payment stream on the mortgage pool is adequate to make payments re-
quired under the certificates. ratings on such certificates do not, however,
constitute a statement regarding frequency of prepayments on the mortgage
loans. ratings do not address the possibility that investors may suffer a
lower than anticipated yield as a result of prepayments of the underlying mort-
gages. 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 on mortgage pass-through certificates address the likeli-
hood of the receipt by certificateholders of all distributions to which such
certificateholders are entitled. rating opinions address the structural and
legal aspects associated with the certificates, including the nature of the un-
derlying mortgage loans. ratings on pass-through certificates do not repre-
sent any assessment of the likelihood or rate of principal prepayments and con-
sequently any adverse effect the timing of such prepayments could have on an
investor's anticipated yield.
The Seller has not requested a rating on the Offered Certificates of any
Class by any rating agency other than and , 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 as-
signed by any other rating agency to the Offered Certificates will be as high
as those assigned by and .
S-72
<PAGE>
INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Accretion Termination Date................................................. S-27
Adjusted Pool Amount....................................................... S-24
Adjusted Pool Amount (PO Portion).......................................... S-25
Adjustment Amount.......................................................... S-40
Aggregate Non-PO Principal Balance......................................... S-24
Aggregate Principal Balance................................................ S-24
Assumed Discount Mortgage Loan............................................. S-53
Assumed Mortgage Loans..................................................... S-53
Assumed Premium Mortgage Loan.............................................. S-53
Available Master Servicing Compensation.................................... S-25
Bankruptcy Loss............................................................ S-31
Bankruptcy Loss Amount..................................................... S-41
Beneficial Owner........................................................... S-19
Book-Entry Certificates.................................................... S-18
Bulk Purchase Underwritten Loan............................................ S-42
CBE........................................................................ S-57
Cede....................................................................... S-18
Certificate Account........................................................ S-67
Certificateholder.......................................................... S-18
Certificates............................................................... S-18
Class A-2 Accrual Distribution Amount...................................... S-28
Class A Certificates....................................................... S-18
Class A Non-PO Optimal Principal Amount.................................... S-28
Class A Non-PO Principal Amount............................................ S-28
Class A Non-PO Principal Balance........................................... S-24
Class A Non-PO Principal Distribution Amount............................... S-28
Class A Percentage......................................................... S-31
Class A Prepayment Percentage.............................................. S-32
Class A Principal Balance.................................................. S-24
Class A-PO Deferred Amount................................................. S-29
Class A-PO Distribution Amount............................................. S-28
Class A-PO Optimal Principal Amount........................................ S-28
Class B Certificates....................................................... S-18
Class B Optimal Principal Amount........................................... S-28
Class B Percentage......................................................... S-33
Class B Prepayment Percentage.............................................. S-33
</TABLE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Class B Principal Balance.................................................. S-24
Class B Principal Distribution Amount...................................... S-28
Class Percentage........................................................... S-29
Class Prepayment Percentage................................................ S-29
Closing Date............................................................... S-18
Code....................................................................... S-36
Compensating Interest...................................................... S-25
Co-op Shares............................................................... S-42
Cooperatives............................................................... S-42
Cross-Over Date............................................................ S-39
</TABLE>
<TABLE>
<S> <C>
Current Fractional Interest................................................ S-33
Curtailment Interest Shortfalls............................................ S-27
Cut-Off Date............................................................... S-43
Debt Service Reduction..................................................... S-31
Deficient Valuation........................................................ S-31
Definitive Certificates.................................................... S-18
Determination Date......................................................... S-19
Discount Mortgage Loan..................................................... S-31
Distribution Date.......................................................... S-19
DOL........................................................................ S-19
DTC........................................................................ S-18
ERISA...................................................................... S-37
ERISA Plan................................................................. S-37
Excess Bankruptcy Losses................................................... S-40
Excess Fraud Losses........................................................ S-40
Excess Losses.............................................................. S-40
Excess Special Hazard Losses............................................... S-40
Exemption.................................................................. S-69
FICO Scores................................................................ S-47
Fixed Retained Yield....................................................... S-65
Fraud Loss................................................................. S-31
Fraud Loss Amount.......................................................... S-40
holder..................................................................... S-18
Interest Accrual Amount.................................................... S-22
Interest Shortfall Amount.................................................. S-27
Liquidated Loan............................................................ S-30
Liquidated Loan Loss....................................................... S-30
Loss Severity Percentage................................................... S-58
Master Servicer............................................................ S-62
Master Servicing Fee....................................................... S-62
Master Servicing Fee Rate.................................................. S-62
</TABLE>
S-73
<PAGE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Mid-Month Receipt Period................................................... S-64
Month End Interest......................................................... S-25
Mortgage Loans............................................................. S-42
Mortgaged Properties....................................................... S-42
Mortgages.................................................................. S-42
Net Mortgage Interest Rate................................................. S-25
Net Partial Liquidation Proceeds........................................... S-21
Non-Supported Interest Shortfalls.......................................... S-26
Non-PO Fraction............................................................ S-31
Offered Certificates....................................................... S-18
Original Fractional Interest............................................... S-33
Original Subordinated Principal Balance.................................... S-32
Other Servicers............................................................ S-63
Partial Liquidation Proceeds............................................... S-21
Pass-Through Rate.......................................................... S-23
Percentage Interest........................................................ S-22
Periodic Advance........................................................... S-35
Plan....................................................................... S-37
PMI Advance................................................................ S-36
PO Fraction................................................................ S-31
Pool Balance (Non-PO Portion).............................................. S-31
Pool Balance (PO Portion).................................................. S-31
Pool Distribution Amount................................................... S-19
Pool Distribution Amount Allocation........................................ S-21
Pooling and Servicing Agreement............................................ S-61
Premium Mortgage Loan...................................................... S-31
Prepayment Interest Shortfalls............................................. S-25
Prepayment Shift Percentage................................................ S-34
Prepayments in Full........................................................ S-25
Principal Balance.......................................................... S-23
Prior Month Receipt Period................................................. S-64
Priority Amount............................................................ S-34
Priority Percentage........................................................ S-34
Proposed Amendments........................................................ S-70
PTE 95-60.................................................................. S-38
Rating Agencies............................................................ S-72
Realized Loss.............................................................. S-30
Record Date................................................................ S-19
</TABLE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Recovery................................................................... S-24
Regular Certificates....................................................... S-66
REMIC...................................................................... S-66
Remittance Date............................................................ S-21
REO Property............................................................... S-63
Residual Certificate....................................................... S-66
Scheduled Principal Amount................................................. S-34
Scheduled Principal Balance................................................ S-30
SDA........................................................................ S-58
Securities Act............................................................. S-69
Seller..................................................................... S-42
Servicer Custodial Account................................................. S-63
Servicers.................................................................. S-63
Servicing Fee Rate......................................................... S-65
Shift Percentage........................................................... S-34
Similar Law................................................................ S-37
SMMEA...................................................................... S-70
SPA........................................................................ S-53
Special Hazard Loss........................................................ S-31
Special Hazard Loss Amount................................................. S-40
Structuring Assumptions.................................................... S-53
Subordinated Certificates.................................................. S-18
Subordinated Percentage.................................................... S-33
Subordinated Prepayment Percentage......................................... S-33
Target Regime.............................................................. S-65
Trust...................................................................... S-18
Trustee.................................................................... S-62
U.S. Person................................................................ S-37
Underlying Servicing Agreement............................................. S-63
Underwriter................................................................ S-70
Underwriting Agreement..................................................... S-70
Underwriting Standards..................................................... S-42
Unscheduled Principal Amount............................................... S-34
Unscheduled Principal Receipt Period....................................... S-64
Unscheduled Principal Receipts............................................. S-20
weighted average life...................................................... S-53
Wells Fargo................................................................ S-64
WFHM....................................................................... S-63
</TABLE>
S-74
<PAGE>
[LOGO OF WELLS FARGO]
Wells Fargo Mortgage Backed Securities 200 - Trust
Issuer
Seller
$
(Approximate)
Mortgage Pass-Through Certificates, Series 200 -
-----------------
PROSPECTUS SUPPLEMENT
-----------------
[UNDERWRITERS]
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.
, 200
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION OCTOBER 26, 2000
Wells Fargo Asset Securities Corporation
Seller
Mortgage Pass-Through Certificates
(Issuable in Series by separate Trusts)
--------------
You should Each Trust--
carefully
consider . will issue a series of mortgage pass-through certificates,
the risk which will consist of one or more classes of certificates;
factors and
beginning
on page 11 . will own--
of this
prospectus. . a pool or pools of fixed or adjustable interest rate,
conventional mortgage loans which are secured by a first
Neither the lien on a one- to four-family residential property; and
certificates
of any . other assets described in this prospectus and the
series nor accompanying prospectus supplement.
the related
underlying Each Pool of Mortgage Loans--
mortgage
loans will . will be sold to the related trust by the seller, who will
be insured have in turn purchased them from Wells Fargo Home Mortgage,
or Inc., one of its affiliates;
guaranteed
by any . will be underwritten to Wells Fargo Home Mortgage, Inc.'s
governmental standards or such other standards as described in this
agency or prospectus and the accompanying prospectus supplement; and
instrumentality.
. will be serviced by Wells Fargo Home Mortgage, Inc.
The individually or together with other servicers.
certificates
of each Each Series of Certificates--
series will
represent . will represent interests in the related trust;
interests
in the . may provide credit support for certain classes by
related "subordinating" certain classes to other classes of
trust only certificates; any subordinated classes will be entitled to
and will payment subject to the payment of more senior classes and
not may bear losses before more senior classes;
represent
interests . may be entitled to one or more of the other types of credit
in or support described in this prospectus; and
obligations
of the . will be paid only from the assets of the related trust.
seller or
any
affiliate
of the
seller.
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.
--------------
This
prospectus
may be used
to offer
and sell
any series
of
certificates
only if
accompanied
by the
prospectus
supplement
for that
series.
The date of this prospectus is , 200
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospec-
tus supplement is not an offer to sell these securities and it is not solicit-
ing an offer to buy these securities in any state where the offer or sale is
not permitted.
<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 docu-
ments that progressively provide more detail: (a) this prospectus, which pro-
vides 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 certifi-
cates, including:
. the principal balances and/or interest rates of each class;
. 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;
. the ratings for each class; 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 informa-
tion. 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 138 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.................................................... 6
Risk Factors............................................................. 11
Limited Liquidity for Certificates..................................... 11
Limited Assets for Payment of Certificates............................. 11
Credit Enhancement is Limited in Amount and Coverage................... 11
Real Estate Market Conditions Affect Mortgage Loan Performance......... 12
Geographic Concentration May Increase Rates of Loss and Delinquency.... 13
Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives
and Yields on Certificates............................................ 13
Book-Entry Certificates May Experience Decreased Liquidity and Payment
Delay................................................................. 14
Cash Flow Agreements are Subject to Counterparty Risk ................. 14
Consumer Protection Laws May Limit Remedies............................ 15
The Trust Estates........................................................ 15
General................................................................ 15
Mortgage Loans......................................................... 16
Cash Flow Agreements................................................... 21
The Seller............................................................... 21
Wells Fargo Home Mortgage................................................ 21
Wells Fargo Bank......................................................... 22
The Mortgage Loan Programs............................................... 23
Mortgage Loan Production Sources....................................... 23
Acquisition of Mortgage Loans from Correspondents...................... 24
Mortgage Loan Underwriting............................................. 25
WFHM Underwriting.................................................... 25
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Representations and Warranties.......................................... 30
Description of the Certificates........................................... 31
General................................................................. 31
Definitive Form......................................................... 33
Book-Entry Form......................................................... 33
Distributions to Certificateholders..................................... 36
General............................................................... 36
Distributions of Interest............................................. 37
Distributions of Principal............................................ 38
Categories of Classes of Certificates................................... 41
Other Credit Enhancement................................................ 45
Limited Guarantee..................................................... 45
Financial Guaranty Insurance Policy or Surety Bond.................... 45
Letter of Credit...................................................... 46
Pool Insurance Policies............................................... 46
Special Hazard Insurance Policies..................................... 46
Mortgagor Bankruptcy Bond............................................. 46
Reserve Fund.......................................................... 46
Cross Support......................................................... 47
Prepayment and Yield
Considerations........................................................... 47
Pass-Through Rates...................................................... 47
Scheduled Delays in Distributions....................................... 47
Effect of Principal Prepayments......................................... 48
Weighted Average Life of Certificates................................... 48
Refinancings............................................................ 50
Delinquency and Foreclosure
Experience............................................................... 51
Servicing of the Mortgage Loans........................................... 55
The Master Servicer..................................................... 55
The Servicers........................................................... 56
Payments on Mortgage Loans.............................................. 57
Periodic Advances and Limitations Thereon............................... 61
Collection and Other Servicing Procedures............................... 62
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans.................................................................. 62
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Insurance Policies...................................................... 65
Fixed Retained Yield, Servicing Compensation and Payment of Expenses.... 66
Evidence as to Compliance............................................... 68
Certain Matters Regarding the Master Servicer............................. 68
The Pooling and Servicing
Agreement................................................................ 70
Assignment of Mortgage Loans to the Trustee............................. 70
Optional Substitutions.................................................. 72
Optional Purchases...................................................... 72
Reports to Certificateholders........................................... 73
List of Certificateholders.............................................. 74
Events of Default....................................................... 74
Rights Upon Event of Default............................................ 74
Amendment............................................................... 75
Termination; Optional Purchase of Mortgage Loans........................ 77
The Trustee............................................................. 77
Certain Legal Aspects of the
Mortgage Loans........................................................... 78
General................................................................. 78
Foreclosure............................................................. 78
Foreclosure on Shares of Cooperatives................................... 80
Rights of Redemption.................................................... 81
Anti-Deficiency Legislation, the Bankruptcy Code and Other Limitations
on Lenders............................................................. 81
Homeowners Protection Act of 1998....................................... 84
Texas Home Equity Loans................................................. 84
Soldiers' and Sailors' Civil Relief Act and Similar Laws................ 85
Environmental Considerations............................................ 85
"Due-on-Sale" Clauses................................................... 88
Applicability of Usury Laws............................................. 89
Enforceability of Certain Provisions.................................... 90
Certain Federal Income Tax Consequences................................... 90
Federal Income Tax Consequences for REMIC Certificates................... 91
General................................................................. 91
Status of REMIC Certificates............................................ 91
Qualification as a REMIC................................................ 92
Taxation of Regular Certificates........................................ 94
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
General................................................................ 94
Original Issue Discount................................................ 95
Acquisition Premium.................................................... 98
Variable Rate Regular Certificates..................................... 98
Market Discount........................................................ 100
Premium................................................................ 101
Election to Treat All Interest Under the Constant Yield Method......... 101
Treatment of Losses.................................................... 102
Sale or Exchange of Regular Certificates............................... 103
Taxation of Residual Certificates........................................ 103
Taxation of REMIC Income............................................... 103
Basis and Losses....................................................... 105
Treatment of Certain Items of REMIC Income and Expense................. 106
Limitations on Offset or Exemption of REMIC Income..................... 107
Tax-Related Restrictions on Transfer of Residual Certificates.......... 108
Sale or Exchange of a Residual Certificate............................. 112
Mark to Market Regulations............................................. 113
Taxes That May Be Imposed on the REMIC Pool.............................. 113
Prohibited Transactions................................................ 113
Contributions to the REMIC Pool After the Startup Day.................. 113
Net Income from Foreclosure Property................................... 114
Liquidation of the REMIC Pool............................................ 114
Administrative Matters................................................... 114
Limitations on Deduction of Certain Expenses............................. 114
Taxation of Certain Foreign Investors.................................... 115
Regular Certificates................................................... 115
Residual Certificates.................................................. 116
Backup Withholding....................................................... 117
Reporting Requirements................................................... 117
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election Is Made........................................................ 118
General................................................................. 118
Tax Status.............................................................. 119
Premium and Discount.................................................... 119
Premium............................................................... 119
Original Issue Discount............................................... 120
Market Discount....................................................... 120
Recharacterization of Servicing Fees.................................... 120
Sale or Exchange of Certificates........................................ 121
Stripped Certificates................................................... 121
General............................................................... 121
Status of Stripped Certificates....................................... 123
Taxation of Stripped Certificates..................................... 124
Reporting Requirements and Backup Withholding........................... 126
Taxation of Certain Foreign Investors................................... 126
ERISA Considerations...................................................... 126
General................................................................. 126
Certain Requirements Under ERISA........................................ 127
General............................................................... 127
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties in Interest/Disqualified Persons............................... 127
Delegation of Fiduciary Duty........................................... 127
Administrative Exemptions................................................ 128
Individual Administrative Exemptions................................... 128
PTE 83-1............................................................... 130
Exempt Plans............................................................. 131
Unrelated Business Taxable Income--Residual Certificates................. 131
Legal Investment........................................................... 131
Plan of Distribution....................................................... 133
Use of Proceeds............................................................ 135
Legal Matters.............................................................. 135
Rating..................................................................... 135
Reports to Certificateholders.............................................. 135
Where You Can Find More
Information............................................................... 136
</TABLE>
<TABLE>
<S> <C>
Registration Statement and Other Materials Filed With the SEC............ 136
Detailed Information Relating to the Mortgage Loans of a Series.......... 137
Incorporation of Certain Information by Reference.......................... 137
Index of Significant Definitions........................................... 138
</TABLE>
5
<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 certificates will be issued by a separate trust. Each trust will be
formed pursuant to 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, Wells Fargo Asset Securities Corporation will act
as seller to each trust and will acquire the mortgage loans from Wells Fargo
Home Mortgage, Inc. and will transfer the mortgage loans to the trust. The
seller is a direct, wholly-owned subsidiary of Wells Fargo Home Mortgage, Inc.
which is an indirect, wholly-owned subsidiary of Wells Fargo & Company. See
"Recent Developments" in the applicable prospectus supplement.
Master Servicer
Wells Fargo Bank Minnesota, National Association will act as master servicer of
each trust and will supervise the servicers and perform certain other
administrative and reporting duties with respect to each series of
certificates. In addition, the master servicer will generally be required to
make advances with respect to the mortgage loans in each trust to the extent
that the related servicer, other than Wells Fargo Home Mortgage, Inc., fails to
make a required advance.
The master servicer is a direct, wholly-owned subsidiary of Wells Fargo &
Company and an affiliate of the seller.
Servicers
Wells Fargo Home Mortgage, Inc. and, if specified in the applicable prospectus
supplement, one or more other entities 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.
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 Wells Fargo Home Mortgage, Inc.;
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. will have been originated by Wells Fargo Home Mortgage, Inc. or an affiliate
or will have been acquired by Wells Fargo Home Mortgage, Inc. directly or
indirectly from other mortgage loan originators; and
. will have been underwritten either to Wells Fargo Home Mortgage, Inc.
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
Underwriting."
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. A class of cer-
tificates 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
class of certificates. The terms of each class of certificates will be de-
scribed in the related prospectus supplement. See "Description of the Certifi-
cates--Distributions to Certificateholders--Distributions of Interest."
Except as otherwise specified in the applicable prospectus supplement, interest
on each class of certificates of each series will accrue at the pass-through
rate for each class indicated in the applicable prospectus supplement on their
outstanding principal balance or notional amount.
Principal Distributions
With respect to a series of certificates, principal payments (including prepay-
ments) on the related mortgage loans will be passed through to holders of the
related certificates or otherwise applied in accordance with the related pool-
ing and servicing agreement on each distribution date. Distributions in reduc-
tion of principal balance will be allocated among the classes of certificates
of a series in the manner specified in the applicable prospectus supplement.
See "Description of the Certificates--Distributions to Certificateholders--Dis-
tributions of Principal."
Distribution Dates
Distributions on the certificates will be made on each distribution date which
is generally the 25th day of each month, or, if such day is not a business day,
the business day following the 25th day.
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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 the last business day of the month preceding
the month in which such distribution date occurs or another date specified in
the applicable prospectus supplement.
CREDIT ENHANCEMENT
Subordination
A series of certificates may include one or more classes of senior certificates
and one or more classes of subordinated certificates. The rights of the holders
of subordinated certificates of a series to receive distributions will be sub-
ordinated to such rights of the holders of the senior certificates of the same
series to the extent and in the manner specified in the applicable 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 series, may be entitled to the ben-
efits of other types of credit enhancement, including but not limited to:
. limited guarantee . mortgage pool
. financial insurance policy
guaranty
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 servicing
agreement, to make cash advances if the servicer determines that it will be
able to recover such amounts from future payments and collections on the
mortgage loan. A servicer who makes periodic advances will be reimbursed for
these as described in this prospectus and in the applicable prospectus
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supplement. In certain circumstances, the master servicer or trustee will be
required to make these advances upon a servicer default.
In addition, the master servicer may be required to make these advances if the
underlying servicing agreement does not require the servicer to make advances
while a mortgage loan is in the process of being liquidated.
See "Servicing of the Mortgage Loans--Periodic Advances and Limitations
Thereon."
FORMS OF CERTIFICATES
The certificates will be issued either:
. in book-entry form through the facilities of DTC; or
. in fully registered, certificated form.
If you own book-entry certificates, you will not receive a physical certificate
representing your ownership interest in such book-entry certificates, except
under extraordinary circumstances which are discussed in "Description of the
Certificates--Definitive Form" in this prospectus. Instead, DTC will effect
payments and transfers by means of its electronic recordkeeping services, act-
ing through certain participating organizations. This may result in certain de-
lays in your receipt of distributions and may restrict your ability to pledge
your securities. Your rights with respect to book-entry certificates may gener-
ally only be exercised through DTC and its participating organizations.
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 Wells Fargo Home Mortgage, Inc. 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,
Wells Fargo Home Mortgage, Inc. 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 REMIC, any such
purchase will be effected only pursuant to a "qualified liquidation," as de-
fined under Section 860F(a)(4)(A) of the Internal Revenue Code of 1986, as
amended.
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Exercise of the right of purchase will effect the early retirement of the cer-
tificates of that series.
See "Prepayment and Yield Considerations."
ERISA LIMITATIONS
If you are a fiduciary of any employee benefit plan subject to the fiduciary
responsibility or prohibited transaction provisions of ERISA, you should care-
fully review with your own legal advisors whether the purchase or holding of
certificates could give rise to a transaction prohibited or otherwise impermis-
sible under ERISA or other similar rules or regulations.
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 sup-
plement.
RATING
Certificates of any series will not be offered pursuant to this prospectus and
a prospectus supplement unless each offered class is rated in one of the four
highest rating categories by at least one nationally recognized statistical
rating organization.
. 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 antici-
pate 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 illiquidi-
ty, 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 en-
hancement described in the applicable prospectus supplement:
. Mortgage loans included in the related trust estate will be the sole
source of payments on the certificates of a series;
. the certificates of any series will not represent an interest in or
obligation of the seller, Wells Fargo Home Mortgage, Inc., the master
servicer, the trustee or any of their affiliates, except for the
seller's limited obligations with respect to certain breaches of its
representations and warranties, Wells Fargo Home Mortgage, Inc.'s
obligations as servicer and Wells Fargo Bank Minnesota, National
Association'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, Wells Fargo Home Mortgage, Inc., the master
servicer, 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, Well Fargo Home Mortgage, Inc., the master servicer, 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 pro-
vided in limited amounts to cover certain types of losses on the underlying
mortgage loans. Credit enhance-
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ment will be provided in one or more of the forms referred to in this prospec-
tus, including, but not limited to: subordination of other classes of certifi-
cates 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 en-
hancement 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).
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 downgrad-
ing of the obligations of any applicable credit support provider, or as a re-
sult of losses on the related mortgage loans in excess of the levels contem-
plated by such rating agency at the time of its initial rating analysis.
Neither the seller, Wells Fargo Home Mortgage, Inc., the master servicer, 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 repre-
sent interests in pools of residential mortgage loans, may be affected by a de-
cline 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 re-
main 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 con-
tained in a particular trust estate and any secondary financing on the mort-
gaged 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 experi-
enced in Wells Fargo Home Mortgage, Inc.'s or other servicers' servicing
portfolios.
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To the extent that losses on mortgage loans underlying a series are not cov-
ered 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 af-
fected, depending upon whether a particular certificate is purchased at a pre-
mium 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
. 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.
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The rate of prepayments on mortgage loans is influenced by a number of fac-
tors, 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 ser-
vicing fees or other mechanisms specified in the applicable prospectus supple-
ment. 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 certifi-
cates 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 cer-
tificates.
See "Prepayment and Yield Considerations."
Book-Entry Certificates May Experience Decreased Liquidity and Payment Delay
Since transactions in the classes 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 sim-
ilar agreements, which will require the provider of such instrument or
counterparty to make payments to the trust estate under the circumstances de-
scribed in the prospectus supplement. To the extent that payments on the cer-
tificates of the related series depend in part on payments to be received un-
der this type of 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 mech-
anism, such as the payment of "breakage fees," which may exist to facilitate
replacement of a this type of 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 re-
placement agreement.
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Consumer Protection Laws May Limit Remedies
There are various federal and state laws, public policies and principles of
equity that protect consumers. Among other things, these laws, policies and
principles:
. regulate interest rates and other charges;
. require certain disclosures;
. require licensing of mortgage loan originators;
. prohibit discriminatory lending practices;
. regulate the use of consumer credit information; and
. regulate debt collection practices.
Violation of certain provisions of these laws, policies and principles:
. may limit a servicer's ability to collect all or part of the principal of
or interest on the mortgage loans;
. may entitle the borrower to a refund of amounts previously paid; and
. could subject a servicer to damages and administrative sanctions.
In addition, certain of the mortgage loans secured by mortgaged properties
located in Texas may be subject to the provisions of Texas consumer protection
laws which regulate loans other than purchase money loans. See "Certain Legal
Aspect of the Mortgage Loans--Texas Home Equity Loans."
See "Certain Legal Aspect of the Mortgage Loans."
THE TRUST ESTATES
General
The assets underlying each Series of Certificates (each, a "Trust Estate")
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'
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
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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,
WFHM. The Mortgage Loans will have been originated by WFHM or will have been
acquired by WFHM from other affiliated or unaffiliated mortgage loan
originators. Each Mortgage Loan will have been underwritten either to WFHM'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 WFHM or its affiliates and (ii)
purchased by WFHM or its affiliates from unaffiliated mortgage loan originators
through WFHM'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 WFHM'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 WFHM 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.
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The prospectus supplement will set forth the geographic distribution of
Mortgaged Properties and the number and aggregate unpaid principal balances of
the Mortgage Loans by category of Mortgaged Property. The prospectus supplement
for each Series will also set forth the range of original terms to maturity of
the Mortgage Loans in the Trust Estate, the weighted average remaining term to
stated maturity at the Cut-Off Date of such Mortgage Loans, the earliest and
latest months of origination of such Mortgage Loans, the range of Mortgage
Interest Rates borne by such Mortgage Loans, if such Mortgage Loans have
varying Net Mortgage Interest Rates, the weighted average Net Mortgage Interest
Rate at the Cut-Off Date of such Mortgage Loans, the range of Loan-to-Value
Ratios at the time of origination of such Mortgage Loans and the range of
principal balances at origination of such Mortgage Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the prospectus
supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such
cases, information as to the final characteristics of the Mortgage Loans and
Mortgaged Properties will be available in a Current Report on Form 8-K which
the Seller will file with the Commission within 15 days of the initial issuance
of the related Series.
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 appli-
cable 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
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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 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
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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
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consequence of payments under a subsidy agreement is used by WFHM in
determining certain expense-to-income ratios utilized in underwriting a Subsidy
Loan. See "The Mortgage Loan Programs--Mortgage Loan Underwriting."
e. Buy-Down Loans. If so specified in the applicable prospectus supplement, a
Trust Estate may contain Mortgage Loans subject to temporary buy-down plans
("Buy-Down Loans") pursuant to which the monthly payments made by the mortgagor
during the early years of the Mortgage Loan will be less than the scheduled
monthly payments on the Mortgage Loan. The resulting difference in payment will
be compensated for from an amount contributed by the seller of the related
Mortgaged Property or another source, including the originator of the Mortgage
Loan (generally on a present value basis) and, if so specified in the
applicable prospectus supplement, placed in a custodial account (the "Buy-Down
Fund") by the related Servicer. If the mortgagor on a Buy-Down Loan prepays
such Mortgage Loan in its entirety, or defaults on such Mortgage Loan and the
Mortgaged Property is sold in liquidation thereof, during the period when the
mortgagor is not obligated, on account of the buy-down plan, to pay the full
monthly payment otherwise due on such loan, the unpaid principal balance of
such Buy-Down Loan will be reduced by the amounts remaining in the Buy-Down
Fund with respect to such Buy-Down Loan, and such amounts will be deposited in
the Servicer Custodial Account or the Certificate Account, net of any amounts
paid with respect to such Buy-Down Loan by any insurer, guarantor or other
person pursuant to a credit enhancement arrangement described in the applicable
prospectus supplement.
f. Balloon Loans. If so specified in the applicable prospectus supplement, a
Trust Estate may contain Mortgage Loans which are amortized over a fixed period
not exceeding 30 years but which have shorter terms to maturity ("Balloon
Loans") that causes the outstanding principal balance of the related Mortgage
Loan to be due and payable at the end of a certain specified period (the "Bal-
loon 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 re-
lated 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 origi-
nal terms to stated maturity of not more than 30 years which are either (i) se-
cured by a security interest in additional collateral (normally securities)
owned by the borrower or (ii) supported by a third party guarantee (usually a
parent of the borrower) which is in turn secured by a security interest in col-
lateral (usually securities) owned by such guarantor (any such loans, "Pledged
Asset Mortgage Loans," and any such collateral, "Additional Collateral"). Gen-
erally, 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 pre-
determined amount.
A Trust Estate may also include other types of first lien, residential Mort-
gage Loans to the extent set forth in the applicable prospectus supplement.
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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
Wells Fargo Asset Securities Corporation (the "Seller") is a direct, wholly
owned subsidiary of Wells Fargo Home 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 as Norwest Asset Securities Corporation. On April 7,
2000, Norwest Integrated Structured Assets, Inc., an affiliate of the Seller,
was merged into and with the Seller. On April 17, 2000, the Seller changed its
name from Norwest Asset Securities Corporation to Wells Fargo Asset Securities
Corporation.
The limited purposes of the Seller are, in general, to acquire, own and sell
mortgage loans; to issue, acquire, own, hold and sell mortgage pass-through se-
curities and mortgage asset-backed pass-through securities which represent own-
ership 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 Wells Fargo Home Mortgage,
Inc. 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."
WELLS FARGO HOME MORTGAGE
Wells Fargo Home Mortgage, Inc. ("WFHM") was originally incorporated as a
Minnesota corporation on July 1, 1983 under the name Norwest Mortgage, Inc. On
August 30,
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1995, Norwest Mortgage, Inc. and Directors Mortgage Loan Corporation, a Cali-
fornia corporation, completed a statutory merger. As a result of the merger,
Norwest Mortgage, Inc. became a California corporation as of September 1, 1995.
On April 14, 2000, Norwest Mortgage, Inc. changed its name to Wells Fargo Home
Mortgage, Inc. WFHM is engaged principally in the business of (i) originating,
purchasing and selling residential mortgage loans in its own name and through
certain of its affiliates (the "Wells Fargo Affiliates") and (ii) servicing
residential mortgage loans for its own account or for the account of others.
WFHM is a direct, wholly owned subsidiary of Wells Fargo Bank, National Associ-
ation and an indirect, wholly owned subsidiary of Wells Fargo & Company. See
"Recent Developments" in the applicable prospectus supplement. The executive
offices of WFHM are located at 405 Southwest 5th Street, Des Moines, Iowa
50309-4603, and its telephone number is (515) 221-7300.
On May 7, 1996 WFHM and the Wells Fargo Affiliates 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.
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 WFHM. 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.
WFHM is an approved servicer of Fannie Mae, Freddie Mac and the Government
National Mortgage Association. As of December 31, 1999, WFHM had a net worth of
approximately $1,045.7 million.
WELLS FARGO BANK
Wells Fargo Bank Minnesota, National Association ("Wells Fargo Bank") will
act as Master Servicer with respect to each Series. Wells Fargo Bank was for-
merly called Norwest
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Bank Minnesota, National Association. Norwest Bank Minnesota, National Associa-
tion changed its name to Wells Fargo Bank Minnesota, National Association on
July 8, 2000. Wells Fargo Bank is a direct, wholly owned subsidiary of Wells
Fargo & Company. See "Recent Developments" in the prospectus supplement. Wells
Fargo Bank is a national banking association originally chartered in 1872 and
is engaged in a wide range of activities typical of a national bank.
Wells Fargo Bank's principal office is located at Wells Fargo Center, Sixth
and Marquette, Minneapolis, Minnesota 55479. Wells Fargo 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
WFHM conducts a significant portion of its mortgage loan originations through
more than 1,100 loan production offices (the "Loan Stores") located throughout
all 50 states. WFHM also conducts a significant portion of its mortgage loan
originations through centralized production offices located in Frederick, Mary-
land and Minneapolis, Minnesota. At the latter locations, WFHM receives appli-
cations for home mortgage loans on toll-free telephone numbers that can be
called from anywhere in the United States. WFHM also provides information and
accepts applications through the internet at "http://www.wellsfargo.com."
The following are WFHM's primary sources of mortgage loan originations: (i)
direct contact with prospective borrowers (including borrowers with mortgage
loans currently serviced by WFHM or borrowers referred by borrowers with
mortgage loans currently serviced by WFHM), (ii) referrals by realtors, other
real estate professionals and prospective borrowers to the Loan Stores, (iii)
referrals from selected corporate clients, (iv) originations by WFHM's Private
Mortgage Banking division (including referrals from the private banking group
of Wells Fargo 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 WFHM, through its
wholly owned subsidiary, Wells Fargo Ventures, LLC, 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, WFHM 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
WFHM's business, measured by the volume of loans generated, tends to fluctuate
over time.
Wells Fargo Ventures, LLC owns at least a 50% interest in each of the Joint
Ventures, with the remaining ownership interest in each being owned by a
realtor or a banking institution having significant contact with potential
borrowers. Mortgage loans that are originated by Joint Ventures in which WFHM'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 WFHM in accordance with its standard underwriting
criteria.
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Such mortgage loans are then closed by the Joint Ventures in their own names
and subsequently purchased by WFHM or the Wells Fargo Affiliates.
WFHM may directly contact prospective borrowers (including borrowers with
mortgage loans currently serviced by WFHM) 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. WFHM'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 WFHM's corporate clients are companies that sponsor relocation
programs for their employees and in connection with which WFHM 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 WFHM 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 WFHM's
acquisition of mortgage loans from other originators.) Also among WFHM's
corporate clients are various professional associations. These associations, as
well as the other corporate clients, promote the availability of a broad range
of WFHM 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 WFHM'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 WFHM for consistency with WFHM's
underwriting guidelines or the standards of a pool insurer and represent that
each loan was underwritten in accordance with WFHM 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 WFHM 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 WFHM not performing any underwriting functions prior to
acquisition of the loan but instead relying on such originators'
representations, and WFHM's post-purchase reviews of samplings of mortgage
loans acquired from such originators regarding the originators' compliance with
WFHM's underwriting standards. In all instances, however, acceptance by WFHM is
contingent upon the loans being found to satisfy WFHM's program standards or
the standards of a pool insurer. WFHM may also acquire portfolios of loans in
negotiated transactions.
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Mortgage Loan Underwriting
WFHM Underwriting
The following is a summary of WFHM's "general" underwriting standards and the
substantially less restrictive underwriting criteria applicable to WFHM's
"retention program."
General Standards. WFHM's underwriting standards are applied by or on behalf
of WFHM 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 collater-
al. The underwriting standards that guide the determination represent a balanc-
ing 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. WFHM's guidelines for underwriting may vary ac-
cording to the nature of the borrower or the type of loan, since differing
characteristics may be perceived as presenting different levels of risk. With
respect to certain Mortgage Loans, the originators of such loans may have con-
tracted with unaffiliated third parties to perform the underwriting process.
Except as described below, the Mortgage Loans will be underwritten by or on
behalf of WFHM generally in accordance with the standards and procedures de-
scribed herein.
WFHM utilizes various systems of credit scoring as a tool to supplement the
mortgage loan underwriting process. Credit scoring assists WFHM 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
reduced 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 WFHM, WFHM's underwriting
of a mortgage loan may be based on data obtained by parties other than WFHM
that are involved at various stages in the mortgage origination or acquisition
process. This typically occurs
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under circumstances in which loans are subject to an alternative approval
process, as when correspondents, certain mortgage brokers or similar entities
that have been approved by WFHM to process loans on its behalf, or independent
contractors hired by WFHM to perform underwriting services on its behalf
("contract underwriters") make initial determinations as to the consistency of
loans with WFHM underwriting guidelines. The underwriting of mortgage loans
acquired by WFHM pursuant to a Delegated Underwriting arrangement with a
Correspondent is not reviewed prior to acquisition of the mortgage loan by
WFHM although the mortgage loan file is reviewed by WFHM to confirm that
certain documents are included in the file. Instead, WFHM relies on (i) the
Correspondent's representations that such mortgage loan was underwritten in
accordance with WFHM'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 WFHM pursuant to a
Delegated Underwriting arrangement, the originator must meet certain
requirements including, among other things, certain quality, operational and
financial guidelines. See "--Acquisition of Mortgage Loans from
Correspondents" above.
A prospective borrower applying for a mortgage loan is required to complete
a detailed application. The loan application elicits pertinent information
about the applicant, with particular emphasis on the applicant's financial
health (assets, liabilities, income and expenses), the property being financed
and the type of loan desired. A self-employed applicant may be required to
submit his or her most recent signed federal income tax returns. With respect
to every applicant, credit reports are obtained from commercial reporting
services, summarizing the applicant's credit history with merchants and lend-
ers. Generally, significant unfavorable credit information reported by the ap-
plicant or a credit reporting agency must be explained by the applicant. The
credit review process generally is streamlined for borrowers with a qualifying
Credit Score.
Verifications of employment, income, assets or mortgages may be used to
supplement the loan application and the credit report in reaching a
determination as to the applicant's ability to meet his or her monthly
obligations on the proposed mortgage loan, as well as his or her other
mortgage payments (if any), living expenses and financial obligations. A
mortgage verification involves obtaining information regarding the borrower's
payment history with respect to any existing mortgage the applicant may have.
This verification is accomplished by either having the present lender complete
a verification of mortgage form, evaluating the information on the credit
report concerning the applicant's payment history for the existing mortgage,
communicating, either verbally or in writing, with the applicant's present
lender or analyzing cancelled checks provided by the applicant. Verifications
of income, assets or mortgages may be waived under certain programs offered by
WFHM, but WFHM'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 WFHM 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 reduced 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.
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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. WFHM 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/or W-2. Loans underwritten using alternative verification methods are
considered by WFHM to have been underwritten with "full documentation." 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 WFHM'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 WFHM'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 WFHM defines as a
property leased to a third party by its owner (as distinct from a "second
home,"
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which WFHM defines as an owner-occupied, non-rental property that is not the
owner's principal residence), WFHM will include projected rental income net of
certain mortgagor obligations and other assumed expenses or loss from such
property to be included in the applicant's monthly gross income or total
monthly debt in calculating the foregoing ratios. A mortgage loan secured by a
two- to four-family Mortgaged Property is considered to be an owner-occupied
property if the borrower occupies one of the units; rental income on the other
units is generally taken into account in evaluating the borrower's ability to
repay the mortgage loan.
Mortgage Loans will not generally have had at origination a Loan-to-Value
Ratio in excess of 95%. However, if so specified in the applicable prospectus
supplement, Mortgage Loans that had Loan-to-Value Ratios at origination in ex-
cess of 95% may be included in the related Trust Estate. The "Loan-to-Value
Ratio" is the ratio, expressed as a percentage, of the principal amount of the
Mortgage Loan at origination to the lesser of (i) the appraised value of the
related Mortgaged Property, as established by an appraisal obtained by the
originator generally no more than four months prior to origination (or, with
respect to newly constructed properties, no more than twelve months prior to
origination), or (ii) the sale price for such property. In some instances, the
Loan-to-Value Ratio may be based on an appraisal that was obtained by the
originator more than four months prior to origination, provided that (i) a
recertification of the original appraisal is obtained and (ii) the original
appraisal was obtained no more than twelve months prior to origination. For
the purpose of calculating the Loan-to-Value Ratio of any Mortgage Loan that
is the result of the refinancing (including a refinancing for "equity take
out" purposes) of an existing mortgage loan, the appraised value of the re-
lated Mortgaged Property is generally determined by reference to an appraisal
obtained in connection with the origination of the replacement loan. In con-
nection with certain of its mortgage originations, WFHM currently obtains ap-
praisals through Value Information Technology, Inc., an entity jointly owned
by WFHM 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
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now experienced in WFHM'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.
WFHM 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 WFHM may require at origination) will be
covered by primary mortgage insurance (subject to certain standard policy
exclusions for default arising from, among other things, fraud or negligence in
the origination or servicing of a Mortgage Loan, including misrepresentation by
the mortgagor or other persons involved in the origination thereof) 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%. In cases for which such primary mortgage
insurance is not obtained, loans having Loan-to-Value Ratios exceeding 80% are
required to be secured by primary residences or second homes (excluding
cooperatives). Generally, each loan originated without primary mortgage
insurance will have been made at an interest rate that was higher than the rate
would have been had the Loan-to-Value Ratios been 80% or less or had primary
mortgage insurance been 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 or Freddie Mac. 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
WFHM may be eligible for WFHM's retention program. Provided such a borrower is
current in his or her mortgage payment obligations, WFHM may permit a
refinancing of the mortgage loan to a current market interest rate without
applying any significant 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
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certain ratios; WFHM 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. A borrower may
participate in this retention program through a refinancing of his or her
existing mortgage loan by either replacing such loan with a new mortgage loan
at a current market interest rate or by executing a modification agreement
under which the interest rate on the existing mortgage loan is reduced to a
current market rate. 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.
WFHM may also apply the retention program to its existing borrowers who
obtain new purchase money mortgage loans secured by primary residences where
the initial principal balance of the new loan would not exceed 150% of the
original principal balance of the previous loan (up to a maximum new loan
amount of $400,000). Borrowers may be pre-approved under this program if they
have a satisfactory payment history with WFHM as well as a satisfactory FICO
score. WFHM may waive verifications of borrower income and assets under this
program and may not impose any limitation on ratios of a borrower's current
monthly housing debt or total debt obligations in relation to current monthly
income. A new appraisal will be obtained with respect to the residence securing
the new purchase money mortgage loan.
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 WFHM 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 WFHM or the Wells Fargo Affiliates 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,
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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 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 Mort-
gaged 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" be-
low.
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
A separate trust (a "Trust") will issue each series (each, a "Series") of
certificates (the "Certificates"). Each Series of Certificates will include one
or more classes (each, a "Class"). In addition, any Class 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
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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,
Wells Fargo 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.
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 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 of the Certificates of a Series,
including one or more Classes of Subordinated Certificates, in privately
negotiated transactions exempt from
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registration under the Securities Act. Alternatively, if so specified in a
prospectus supplement relating to such Subordinated Certificates, the Seller
may offer one or more Classes of the Subordinated Certificates of a Series by
means of this prospectus and such prospectus supplement.
Definitive Form
Certificates of a Series that are issued in fully registered, certificated
form are referred to herein as "Definitive Certificates." Distributions of
principal of, and interest on, the Definitive Certificates will be made di-
rectly to holders of Definitive Certificates in accordance with the procedures
set forth in the Pooling and Servicing Agreement. The Definitive Certificates
of a Series offered hereby and by means of the applicable prospectus supple-
ments will be transferable and exchangeable at the office or agency maintained
by the Trustee or such other entity for such purpose set forth in the applica-
ble prospectus supplement. No service charge will be made for any transfer or
exchange of Definitive Certificates, but the Trustee or such other entity may
require payment of a sum sufficient to cover any tax or other governmental
charge in connection with such transfer or exchange.
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 of Certificates of a Series issued in book-entry form ("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. 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
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Participants, and all references herein to distributions, notices, reports and
statements to Certificateholders or holders shall, in the case of the Book-
Entry Certificates, refer to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the Book-Entry Certificates, as the
case may be, for distribution to Beneficial Owners in accordance with DTC
procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its participating
organizations ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions among DTC Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers (which
may include any underwriter identified in the prospectus supplement applicable
to any Series), banks, trust companies and clearing corporations. Indirect
access to the DTC system also is available to banks, brokers, dealers, trust
companies and other institutions that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly ("Indirect
DTC Participants").
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry Certificates among DTC Participants on whose behalf it acts with
respect to the Book-Entry Certificates and to receive and transmit
distributions of principal of and interest on the Book-Entry Certificates. DTC
Participants and Indirect DTC Participants with which Beneficial Owners have
accounts with respect to the Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Certificates may do so only through DTC Participants
and Indirect DTC Participants. In addition, Beneficial Owners will receive all
distributions of principal and interest from the Master Servicer, or a Paying
Agent on behalf of the Master Servicer, through DTC Participants. DTC will
forward such distributions to its DTC Participants, which thereafter will
forward them to Indirect DTC Participants or Beneficial Owners. Beneficial
Owners will not be recognized by the Trustee or the Master Servicer or any
paying agent as Certificateholders, as such term is used in the Pooling and
Servicing Agreement, and Beneficial Owners will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its DTC
Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, under a book-entry
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format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Master Servicer, or a Paying Agent on
behalf of the Master Servicer, to Cede, as nominee for DTC.
DTC has advised the Seller that it will take any action permitted to be taken
by a Certificateholder under the Pooling and Servicing Agreement only at the
direction of one or more DTC Participants to whose accounts with DTC the Book-
Entry Certificates are credited. Additionally, DTC has advised the Seller that
it will take such actions with respect to specified Voting Interests only at
the direction of and on behalf of DTC Participants whose holdings of Book-Entry
Certificates evidence such specified Voting Interests. DTC may take conflicting
actions with respect to Voting Interests to the extent that DTC Participants
whose holdings of Book-Entry Certificates evidence such Voting Interests
authorize divergent action.
Neither the Seller, the Master Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held
by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. In the event of the
insolvency of DTC, a DTC Participant or an Indirect DTC Participant in whose
name Book-Entry Certificates are registered, the ability of the Beneficial
Owners of such Book-Entry Certificates to obtain timely payment and, if the
limits of applicable insurance coverage by the Securities Investor Protection
Corporation are exceeded or if such coverage is otherwise unavailable, ultimate
payment, of amounts distributable with respect to such Book-Entry Certificates
may be impaired.
The Book-Entry Certificates will be converted to Definitive Certificates and
reissued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Trustee is advised in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Certificates and the Trustee is unable to locate a
qualified successor, (ii) the Master Servicer, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of a
dismissal or resignation of the Master Servicer under the Pooling and Servicing
Agreement, Beneficial Owners representing not less than 51% of the Voting
Interests of the outstanding Book-Entry Certificates advise the Trustee through
DTC, in writing, that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Beneficial Owners through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the physical certificates representing the Book-Entry Certificates
and receipt of instructions for re-registration, the Trustee will reissue the
Book- Entry Certificates as Definitive Certificates to Beneficial Owners. The
procedures relating to payment on and transfer of Certificates initially issued
as Definitive Certificates will thereafter apply to those Book-Entry
Certificates that have been reissued as Definitive Certificates.
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Distributions to Certificateholders
General
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 25th day) of each
month, commencing with the month specified in the applicable prospectus
supplement (each, a "Distribution Date"). The "Cut-Off Date" for each Series
will be the date specified in the applicable prospectus supplement. 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. Generally, the
undivided percentage interest (the "Percentage Interest") represented by any
Certificate of a Class in distributions to such 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 Class.
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 appli-
cable 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 during the period specified in the applicable
prospectus supplement and all principal prepayments in full, partial
principal
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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 Ser-
vicing Fees, Master Servicing Fee or any Trustee Fee to which the related
Servicer, the Trustee or the Master Servicer, respectively, is entitled and
any unpaid Fixed Retained Yield;
(g) if an election has been made to treat the applicable Trust Estate as
a REMIC, any Liquidation Profits with respect to such Distribution Date;
(h) all amounts representing certain expenses reimbursable to the Master
Servicer or any Servicer and other amounts permitted to be withdrawn by the
Master Servicer from the Certificate Account, in each case pursuant to the
applicable Pooling and Servicing Agreement;
(i) all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees and payments of interest related to principal prepay-
ments received on or after the first day of the month in which a Distribu-
tion Date occurs and prior to the Determination Date in the month of such
Distribution Date which the related Servicer is entitled to retain pursuant
to the applicable Underlying Servicing Agreement;
(j) reinvestment earnings on payments received in respect of the Mortgage
Loans; and
(k) any amounts reimbursable to the related Servicer to cover advances
made with respect to primary mortgage insurance claims as provided in the
related Underlying Servicing Agreement.
The applicable prospectus supplement for a Series will describe any variation
in the calculation of the Pool Distribution Amount for such Series.
"Liquidation Profits" with respect to a Distribution Date and a liquidated
Mortgage Loan will be the amount, if any, by which net Liquidation Proceeds on
such liquidated Mortgage Loan exceed 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 applicable
Servicer 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.
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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 (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.
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 of Certificates generally
represents the maximum specified dollar amount (exclusive of any interest that
may accrue on such Class 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. 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.
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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 Certificates.
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
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a Mortgage Loan, including a reduction by a bankruptcy court of the principal
balance of or the interest rate on a Mortgage Loan or an extension of its
maturity. Special Hazard Losses in excess of the amount specified in the
applicable prospectus supplement (the "Special Hazard Loss Amount") are "Excess
Special Hazard Losses." Fraud Losses in excess of the amount specified in the
applicable prospectus supplement (the "Fraud Loss Amount") are "Excess Fraud
Losses." Bankruptcy losses in excess of the amount specified in the applicable
prospectus supplement (the "Bankruptcy Loss Amount") are "Excess Bankruptcy
Losses." Any Excess Special Hazard Losses, Excess Fraud Losses or Excess
Bankruptcy Losses with respect to a Series will be allocated on a pro rata
basis among the related Classes of Senior and Subordinated Certificates. An
allocation of a loss on a "pro rata basis" among two or more Classes of
Certificates means an allocation on a pro rata basis to each such Class of
Certificates on the basis of their then-outstanding principal balances in the
case of the principal portion of a loss or based on the accrued interest
thereon in the case of an interest portion of a loss.
Since the amounts of the Special Hazard Loss Amount, Fraud Loss Amount and
Bankruptcy Loss Amount for a Series of Certificates are each expected to be
less than the amount of principal payments on the Mortgage Loans to which the
holders of the Subordinated Certificates of such Series are initially entitled
(such amount being subject to reduction, as described above, as a result of
allocation of losses on liquidated Mortgage Loans that are not Special Hazard
Losses, Fraud Losses or Bankruptcy Losses), the holders of Subordinated
Certificates of such Series will bear the risk of Special Hazard Losses, Fraud
Losses and Bankruptcy Losses to a lesser extent than they will bear other
losses on liquidated Mortgage Loans.
Although the subordination feature described above is intended to enhance the
likelihood of timely payment of principal and interest to the holders of Senior
Certificates, shortfalls could result in certain circumstances. For example, a
shortfall in the payment of principal otherwise due the holders of Senior
Certificates could occur if losses realized on the Mortgage Loans in a Trust
Estate were exceptionally high and were concentrated in a particular month.
The holders of Subordinated Certificates will not be required to refund any
amounts previously properly distributed to them, regardless of whether there
are sufficient funds on a subsequent Distribution Date to make a full distribu-
tion to holders of each Class of Senior Certificates of the same Series.
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Categories of Classes of Certificates
The Certificates of any Series may be comprised of one or more Classes. Such
Classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
prospectus supplement for a Series of Certificates may identify the Classes
which comprise such Series by reference to the following categories or another
category specified in the applicable prospectus supplement.
Categories Of Classes Definition
PRINCIPAL TYPES
Accretion Directed
Certificates............. A Class of Certificates that receives principal
payments from amounts that would otherwise be
distributed as interest on specified Accrual
Certificates. 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 Certificates
(also sometimes
referred to as a
"Support
Certificates").......... A Class of Certificates that is entitled to receive
principal payments on any Distribution Date only if
scheduled payments have been made on specified
Planned Amortization Certificates, Targeted
Amortization Certificates and/or Scheduled
Amortization Certificates.
Component Certificates... A Class of Certificates 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.
Lockout Certificates..... A Class of Senior Certificates 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 Classes of
Senior Certificates 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 Certificates
as a group. A Class of Lockout Certificates will
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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
Certificates. Lockout Certificates are designed to
minimize weighted average life volatility during
the lockout period.
Notional Amount
Certificates............. A Class of Certificates having no principal balance
and bearing interest on the related notional
amount. The notional amount is a hypothetical
amount used for calculating interest distributions.
Pass-Through
Certificates............. 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 Class of Sequential Pay
Certificates.
Planned Amortization
Certificates (also
sometimes referred to
as "PAC
Certificates").......... A Class of Certificates 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 Class of Planned
Amortization Certificates. The Planned Amortization
Certificates in any Series may be subdivided into
different categories (e.g., Planned Amortization
Certificates I ("PAC I") Planned Amortization
Certificates II ("PAC II") and so forth) derived
using different structuring ranges. A Class of PAC
Certificates is designed to provide protection
against volatility of weighted average life if
prepayments occur at a constant rate within the
structuring range.
Ratio Strip
Certificates............. A Class of Certificates that is entitled to receive
a constant proportion, or "ratio strip," of the
principal payments on the underlying Mortgage
Loans.
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Scheduled Amortization
Certificates
(also sometimes referred
to as "Scheduled
Certificates")........... A Class of Certificates that is designed to receive
principal payments using a predetermined principal
balance schedule but is not designated as a Class
of Planned Amortization Certificates or Targeted
Amortization Certificates. 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 Certificates
and such range generally is narrower than that for
a Class of Planned Amortization Certificates.
Typically, the Support Certificates for the
applicable Series of Certificates generally will
represent a smaller percentage of the Class of
Scheduled Amortization Certificates than Support
Certificates generally would represent in relation
to a Class of Planned Amortization Certificates or
Targeted Amortization Certificates. A Class of
Scheduled Amortization Certificates is generally
less sensitive to weighted average life volatility
as a result of prepayments than a Class of Support
Certificates but more sensitive than a Class of
Planned Amortization Certificates or Targeted
Amortization Certificates.
Senior Certificates...... A Class of Certificates that is entitled to receive
payments of principal and interest on each
Distribution Date prior to the Classes of
Subordinated Certificates.
Sequential Pay
Certificates............. A Class of Certificates 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. A Class of
Sequential Pay Certificates may receive principal
payments concurrently with one or more other
Classes of 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 Class of
Sequential Pay Certificates.
Subordinated
Certificates............ A Class of Certificates that is entitled to receive
payments of principal and interest on each
Distribution Date only after the Senior
Certificates and Classes of Subordinated
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Certificates with higher priority of distributions,
if any have received their full principal and
interest entitlements.
Super Senior
Certificates............ A Class of Senior Certificates that will not bear
its share of certain losses after the Classes of
Subordinated Certificates are no longer outstanding
for so long as one or more other specified Classes
of Senior Certificates are outstanding.
Super Senior Support
Certificates............ A Class of Senior Certificates that bears certain
losses allocated to one or more Classes of Super
Senior Certificates after the Classes of
Subordinated Certificates are no longer
outstanding.
Targeted Amortization
Certificates
(also sometimes
referred to as "TAC
Certificates").......... A Class of Certificates 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 Class of TAC Certificates 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 of Certificates.
INTEREST TYPES
Accrual Certificates..... A Class of Certificates 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 Certificates are retired.
Fixed Rate
Certificates............. A Class of Certificates with an interest rate that
is fixed throughout the life of the Class.
Floating Rate
Certificates............. A Class of Certificates with an interest rate that
resets periodically based upon a designated index
and that varies directly with changes in such
index.
Interest Only
Certificates............. A Class of Certificates that is entitled to receive
some or all of the interest payments made on the
Mortgage Loans and little or no principal. Interest
Only Certificates have either a nominal principal
balance or a notional amount. A nominal
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principal balance represents actual principal that
will be paid on the Certificates. 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 a Class of Interest Only Certificates that
is not entitled to any distributions in respect of
principal.
Inverse Floating Rate
Certificates............. A Class of Certificates 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 Class of Floating Rate Certificates.
Principal Only
Certificates............. A Class of Certificates that does not bear interest
and is entitled to receive only distributions in
respect of principal.
Step Coupon
Certificates............. A Class of Certificates 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
Certificates............. A Class of Certificates with an interest rate that
resets periodically and is calculated by reference
to the rate or rates of interest applicable to the
Mortgage Loans.
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 Cer-
tificates credit enhancement may be provided in the form of a financial guar-
anty insurance policy or a surety bond issued by an insurer named therein.
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Letter of Credit
Alternative credit support with respect to a Series of Certificates may be
provided by the issuance of a letter of credit by the bank or financial
institution specified in the applicable prospectus supplement. The coverage,
amount and frequency of any reduction in coverage provided by a letter of
credit issued with respect to a Series of Certificates will be set forth in the
prospectus supplement relating to such Series.
Pool Insurance Policies
If so specified in the prospectus supplement relating to a Series of
Certificates, the Seller will obtain a pool insurance policy for the Mortgage
Loans in the related Trust Estate. The pool insurance policy will cover any
loss (subject to the limitations described in the applicable prospectus
supplement) by reason of default to the extent a related Mortgage Loan is not
covered by any primary mortgage insurance policy. The amount and principal
terms of any such coverage will be set forth in the prospectus supplement.
Special Hazard Insurance Policies
If so specified in the applicable prospectus supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Seller will
also obtain a special hazard insurance policy for the related Trust Estate in
the amount set forth in such prospectus supplement. The special hazard
insurance policy will, subject to the limitations described in the applicable
prospectus supplement, protect against loss by reason of damage to Mortgaged
Properties caused by certain hazards not insured against under the standard
form of hazard insurance policy for the respective states in which the
Mortgaged Properties are located. The amount and principal terms of any such
coverage will be set forth in the prospectus supplement.
Mortgagor Bankruptcy Bond
If so specified in the applicable prospectus supplement, losses resulting
from a bankruptcy proceeding relating to a mortgagor affecting the Mortgage
Loans in a Trust Estate with respect to a Series of Certificates will be
covered under a mortgagor bankruptcy bond (or any other instrument that will
not result in a downgrading of the rating of the Certificates of a Series by
the Rating Agency or Rating Agencies that rated such Series). Any mortgagor
bankruptcy bond or such other instrument will provide for coverage in an amount
meeting the criteria of the Rating Agency or Rating Agencies rating the
Certificates of the related Series, which amount will be set forth in the
applicable prospectus supplement. The amount and principal terms of any such
coverage will be set forth in the prospectus supplement.
Reserve Fund
If so specified in the applicable prospectus supplement, credit enhancement
with respect to a Series of Certificates may be provided by the establishment
of one or more reserve funds (each, a "Reserve Fund") for such Series.
The Reserve Fund for a Series may be funded (i) by the deposit therein of
cash, U.S. Treasury securities or instruments evidencing ownership of principal
or interest payments thereon, letters of credit, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the
applicable prospectus supplement, (ii) by the deposit therein
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from time to time of certain amounts, as specified in the applicable prospectus
supplement, to which the certain Classes of Certificates would otherwise be en-
titled or (iii) in such other manner as may be specified in the applicable pro-
spectus 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
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yield otherwise produced by the applicable Pass-Through Rate because the
distribution of principal and interest which is due on each Due Date will not
be made until the 25th day (or, if such day is not a business day, the first
business day following the 25th day) of the month in which such Due Date occurs
(or until such other Distribution Date specified in the applicable prospectus
supplement).
Effect of Principal Prepayments
When a Mortgage Loan is prepaid in full, the mortgagor pays interest on the
amount prepaid only to the date of prepayment and not thereafter. Liquidation
Proceeds (as defined herein) and amounts received in settlement of insurance
claims are also likely to include interest only to the time of payment or
settlement. When a Mortgage Loan is prepaid in full or in part, an interest
shortfall may result depending on the timing of the receipt of the prepayment
and the timing of when those prepayments are passed through to
Certificateholders. To partially mitigate this reduction in yield, the
Underlying Servicing Agreements relating to a Series may provide, to the extent
specified in the applicable prospectus supplement, that with respect to certain
principal prepayments received, the Master Servicer will be obligated, on or
before each Distribution Date, to pay an amount equal to the lesser of (i) the
aggregate interest shortfall with respect to such Distribution Date resulting
from principal prepayments in full by mortgagors and (ii) the portion of the
Master Servicer's master servicing compensation for such Distribution Date
specified in the applicable prospectus supplement. No comparable interest
shortfall coverage will be provided by the Master Servicer with respect to
liquidations of any Mortgage Loans or partial principal payments. Any interest
shortfall arising from prepayments not so covered or from liquidations will be
covered by means of the subordination of the rights of Subordinated
Certificateholders or any other credit support arrangements.
A lower rate of principal prepayments than anticipated would negatively
affect the total return to investors in any Certificates of a Series that are
offered at a discount to their principal amount and a higher rate of principal
prepayments than anticipated 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
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one or more such prepayment standards or models and contain tables setting
forth the weighted average life of each Class and the percentage of the
original aggregate principal balance of each Class that would be outstanding on
specified Distribution Dates for such Series and the projected yields to
maturity on certain Classes thereof, in each case based on the assumptions
stated in such prospectus supplement, including assumptions that prepayments on
the Mortgage Loans are made at rates corresponding to various percentages of
the prepayment standard or model specified in such prospectus supplement.
There is no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to any level of the prepayment standard or
model specified in the applicable prospectus supplement. A number of factors,
including but not limited to homeowner mobility, economic conditions, natural
disasters, changes in mortgagors' housing needs, job transfers, unemployment
or, in the case of borrowers relying on commission income and self-employed
borrowers, significant fluctuations in income or adverse economic conditions,
mortgagors' net equity in the properties securing the mortgage loans, including
the use of second or "home equity" mortgage loans by mortgagors or the use of
the properties as second or vacation homes, servicing decisions, enforceability
of due-on-sale clauses, mortgage market interest rates, mortgage recording
taxes, competition among mortgage loan originators resulting in reduced
refinancing costs, reduction in documentation requirements and willingness to
accept higher loan-to-value ratios, and the availability of mortgage funds, may
affect prepayment experience. In general, however, if prevailing mortgage
interest rates fall below the Mortgage Interest Rates borne by the Mortgage
Loans underlying a Series of Certificates, the prepayment rates of such
Mortgage Loans are likely to be higher than if prevailing rates remain at or
above the rates borne by such Mortgage Loans. Conversely, if prevailing
mortgage interest rates rise above the Mortgage Interest Rates borne by the
Mortgage Loans, the Mortgage Loans are likely to experience a lower prepayment
rate than if prevailing rates remain at or below such Mortgage Interest Rates.
However, there can be no assurance that prepayments will rise or fall according
to such changes in mortgage interest rates. It should be noted that
Certificates of a Series may evidence an interest in a Trust Estate with
different Mortgage Interest Rates. Accordingly, the prepayment experience of
such Certificates will to some extent be a function of the mix of interest
rates of the Mortgage Loans. In addition, the terms of the Underlying Servicing
Agreements will require the related Servicer to enforce any due-on-sale clause
to the extent it has knowledge of the conveyance or the proposed conveyance of
the underlying Mortgaged Property; provided, however, that any enforcement
action that the Servicer determines would jeopardize any recovery under any
related primary mortgage insurance policy will not be required and provided,
further, that the Servicer may permit the assumption of defaulted Mortgage
Loans. See "Servicing of the Mortgage Loans--Enforcement of Due-on-Sale
Clauses; Realization Upon Defaulted Mortgage Loans" and "Certain Legal Aspects
of the Mortgage Loans--Due-On-Sale Clauses" for a description of certain
provisions of each Pooling and Servicing Agreement and certain legal
developments that may affect the prepayment experience on the Mortgage Loans.
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.
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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 WFHM, 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.
WFHM 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, WFHM may agree to refinance the mortgage loan in
order to reduce the borrower's mortgage interest rate, through the extension of
a replacement loan or the execution of a modification agreement, without the
application of any significant new borrower credit or property underwriting
standards. Any such refinancing will have the same effect as a prepayment in
full of the related Mortgage Loan. See "The Mortgage Loan Programs--Mortgage
Loan Underwriting; Retention Program Standards." 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
50
<PAGE>
benefits of refinancing may also result in a significant increase in the rate
of prepayments on the Mortgage Loans. In addition, the success of WFHM 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 WFHM and of various non-participant 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 WFHM'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
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<PAGE>
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.
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, 1998 December 31, 1999 June 30, 2000
-------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Loans............. 63,401 $19,608,657 85,722 $27,493,110 85,551 $27,232,363
====== =========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 243 $ 67,456 366 $ 106,430 370 $ 108,971
60 to 89 days.......... 35 11,467 54 14,669 64 18,862
90 days or more........ 31 8,375 51 14,408 55 15,271
------ ----------- ------ ----------- ------ -----------
Total Delinquent Loans.. 309 $ 87,298 471 $ 135,507 489 $ 143,104
====== =========== ====== =========== ====== ===========
Percent of Total Loans.. 0.49% 0.45% 0.55% 0.49% 0.57% 0.53%
<CAPTION>
As of As of As of
December 31, 1998 December 31, 1999 June 30, 2000
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $11,620 $13,113 $12,748
Foreclosure Ratio(3).... 0.06% 0.05% 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, 1998 December 31, 1999 June 30, 2000
-------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total 30-Year Loans..... 53,991 $16,719,824 73,100 $23,580,723 72,923 $23,411,134
====== =========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 219 $ 62,351 334 $ 98,478 334 $ 100,004
60 to 89 days.......... 33 10,793 53 14,469 61 17,866
90 days or more........ 29 7,668 48 13,464 54 15,034
------ ----------- ------ ----------- ------ -----------
Total Delinquent Loans.. 281 $ 80,812 435 $ 126,411 449 $ 132,904
====== =========== ====== =========== ====== ===========
Percent of 30-Year
Loans.................. 0.52% 0.48% 0.60% 0.54% 0.62% 0.57%
<CAPTION>
As of As of As of
December 31, 1998 December 31, 1999 June 30, 2000
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $11,532 $11,735 $12,234
Foreclosure Ratio(3).... 0.07% 0.05% 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 proceed-
ings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceed-
ings had been instituted or with respect to which the related property had
been acquired as of the dates indicated.
(3) Foreclosure as a percentage of total loans in the applicable portfolio at
the end of each period.
52
<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, 1998 December 31, 1999 June 30, 2000
-------------------- --------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Non-Relocation
Loans.................. 51,466 $15,896,090 71,765 $23,028,897 71,952 $22,890,913
====== =========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 219 $ 60,350 338 $ 97,881 337 $ 99,342
60 to 89 days.......... 35 11,467 45 11,481 62 17,838
90 days or more........ 31 8,375 50 14,117 54 14,904
------ ----------- ------ ----------- ------ -----------
Total Delinquent Loans.. 285 $ 80,192 433 $ 123,479 453 $ 132,084
====== =========== ====== =========== ====== ===========
Percent of Total Non-
Relocation Loans....... 0.55% 0.50% 0.60% 0.54% 0.63% 0.58%
<CAPTION>
As of As of As of
December 31, 1998 December 31, 1999 June 30, 2000
-------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $11,620 $13,113 $12,748
Foreclosure Ratio(3).... 0.07% 0.06% 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, 1998 December 31, 1999 June 30, 2000
-------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total 30-Year Non-
Relocation Loans....... 42,577 $13,161,188 59,757 $19,301,690 59,926 $19,248,516
====== =========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 195 $ 55,245 306 $ 89,928 301 $ 90,374
60 to 89 days.......... 33 10,793 44 11,281 59 16,842
90 days or more........ 29 7,668 47 13,174 53 14,667
------ ----------- ------ ----------- ------ -----------
Total Delinquent Loans.. 257 $ 73,706 397 $ 114,383 413 $ 121,883
====== =========== ====== =========== ====== ===========
Percent of Total 30-Year
Non-Relocation Loans... 0.60% 0.56% 0.66% 0.59% 0.69% 0.63%
<CAPTION>
As of As of As of
December 31, 1998 December 31, 1999 June 30, 2000
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $11,532 $11,735 $12,234
Foreclosure Ratio(3).... 0.09% 0.06% 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 proceed-
ings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceed-
ings had been instituted or with respect to which the related property had
been acquired as of the dates indicated.
(3) Foreclosure as a percentage of total loans in the applicable portfolio at
the end of each period.
53
<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, 1998 December 31, 1999 June 30, 2000
------------------- ------------------- -------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total 15-Year Loans..... 9,410 $2,888,833 12,622 $3,912,388 12,628 $3,821,229
===== ========== ====== ========== ====== ==========
Period of Delinquency(1)
30 to 59 days.......... 24 $ 5,105 32 $ 7,953 36 $ 8,967
60 to 89 days.......... 2 674 1 199 3 996
90 days or more........ 2 708 3 944 1 237
----- ---------- ------ ---------- ------ ----------
Total Delinquent Loans.. 28 $ 6,487 36 $ 9,096 40 $ 10,200
===== ========== ====== ========== ====== ==========
Percent of Total 15-Year
Loans.................. 0.30% 0.22% 0.29% 0.23% 0.32% 0.27%
<CAPTION>
As of As of As of
December 31, 1998 December 31, 1999 June 30, 2000
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $88 $1,378 $514
Foreclosure Ratio(3).... 0.00% 0.04% 0.01%
</TABLE>
---------------------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure proceed-
ings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceed-
ings had been instituted or with respect to which the related property had
been acquired as of the dates indicated.
(3) 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 Mortgaged 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.
54
<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 (the "Master Servicer") with respect to each Series of
Certificates will be Wells Fargo Bank. See "Wells Fargo 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 WFHM). The Master Servicer will also perform
additional duties as described in the applicable Pooling and Servicing
Agreement. The Master Servicer will be entitled to receive a portion of the
interest payments on the Mortgage Loans included in the Trust Estate for such a
Series to cover its fees as Master Servicer. The Master Servicer will be
entitled to retain Liquidation Profits as additional master servicing
compensation to the extent a Servicer is not entitled to retain such amounts as
additional servicing compensation under the applicable Underlying Servicing
Agreement. The Master Servicer may subcontract with WFHM 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,
55
<PAGE>
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, WFHM and, if specified in the applicable prospectus
supplement, one or more other servicers (each, a "Servicer") will provide
certain customary servicing functions with respect to Mortgage Loans pursuant
to separate servicing agreements with the Seller or an affiliate thereof (each,
an "Underlying Servicing Agreement"). 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 Fannie Mae or Freddie Mac 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.
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
56
<PAGE>
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 WFHM) 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 WFHM 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 Wells Fargo 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 Wells Fargo 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, WFHM 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
57
<PAGE>
guarantee of WFHM'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.
Each Servicer will be required to deposit in the Certificate Account for each
Series of Certificates on the first Remittance Date 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 in-
terest;
(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
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<PAGE>
(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 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
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Pooling and Servicing Agreement (and, in the case of Servicer reimbursements by
the Master Servicer, only to the extent funds in the respective Servicer
Custodial Account are not sufficient therefor):
(i) to reimburse the Master Servicer, the Trustee or any Servicer for Ad-
vances;
(ii) to reimburse any Servicer for liquidation expenses and for amounts
expended by itself or any Servicer, as applicable, in connection with the
restoration of damaged property;
(iii) to pay to itself the applicable Master Servicing Fee and any other
amounts constituting additional master servicing compensation, to pay the
Trustee the applicable Trustee Fee, to pay any other fees described in the
applicable prospectus supplement; and to pay to the owner thereof any Fixed
Retained Yield;
(iv) to reimburse itself or any Servicer for certain expenses (including
taxes paid on behalf of the Trust Estate) incurred by and recoverable by or
reimbursable to itself or the Servicer, as applicable;
(v) to pay to the Seller, a Servicer or itself with respect to each Mort-
gage Loan or property acquired in respect thereof that has been repurchased
by the Seller or purchased by a Servicer or the Master Servicer all amounts
received thereon and not distributed as of the date as of which the pur-
chase price of such Mortgage Loan was determined;
(vi) to pay to itself any interest earned on or investment income earned
with respect to funds in the Certificate Account (all such interest or
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 distri-
bution to Certificateholders in trust for the benefit of Certificateholders
until such amounts are
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distributed to Certificateholders or otherwise disposed of as provided in
the applicable Pooling and Servicing Agreement;
(2) give the Trustee notice of any default by the Master Servicer in the
making of such deposit; and
(3) at any time during the continuance of any such default, upon written
request to the Trustee, forthwith pay to the Trustee all amounts held in
trust by such Paying Agent.
Periodic Advances and Limitations Thereon
Generally each Servicer will be required to make (i) advances to cover
delinquent payments of principal and interest (a "Periodic Advance") 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
WFHM, the Master Servicer may, and upon default by WFHM 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
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Master Servicer or the Trustee, as the case may be, will be entitled to
reimbursement from funds in the Certificate Account prior to the distribution
of payments to the Certificateholders to the extent provided in the Pooling and
Servicing Agreement.
Any Periodic Advances made by a Servicer, the Master Servicer or the Trustee
with respect to Mortgage Loans included in the Trust Estate for any Series are
intended to enable the Trustee to make timely payment of the scheduled distri-
butions of principal and interest on the Certificates of such Series. However,
neither the Master Servicer, the Trustee, any Servicer nor any other person
will, except as otherwise specified in the applicable prospectus supplement,
insure or guarantee the Certificates of any Series or the Mortgage Loans
included in the Trust Estate for any Certificates.
Collection and Other Servicing Procedures
Each Servicer will be required by the related Underlying Servicing Agreement
to make reasonable efforts to collect all payments called for under the
Mortgage Loans and, consistent with the applicable Underlying Servicing
Agreement and any applicable agreement governing any form of credit
enhancement, to follow such collection procedures as it follows with respect to
mortgage loans serviced by it that are comparable to the Mortgage Loans.
Consistent with the above, the Servicer may, in its discretion, (i) waive any
prepayment charge, assumption fee, late payment charge or any other charge in
connection with the prepayment of a Mortgage Loan and (ii) arrange with a
mortgagor a schedule for the liquidation of deficiencies running for not more
than 180 days (or such longer period to which the Master Servicer and any
applicable pool insurer or primary mortgage insurer have consented) after the
applicable Due Date.
Under each Underlying Servicing Agreement, each Servicer, to the extent
permitted by law, will establish and maintain one or more escrow accounts (each
such account, a "Servicing Account") in which each such Servicer will be
required to deposit any payments made by mortgagors in advance for taxes,
assessments, primary mortgage (if applicable) and hazard insurance premiums and
other similar items. Withdrawals from the Servicing Account may be made to
effect timely payment of taxes, assessments, mortgage and hazard insurance, to
refund to mortgagors amounts determined to be overages, to pay interest to
mortgagors on balances in the Servicing Account, if required, and to clear and
terminate such account. Each Servicer will be responsible for the
administration of its Servicing Account. A Servicer will be obligated to
advance certain amounts which are not timely paid by the mortgagors, to the
extent that it determines, in good faith, that they will be recoverable out of
insurance proceeds, liquidation proceeds, or otherwise. Alternatively, in lieu
of establishing a Servicing Account, a Servicer may procure a performance bond
or other form of insurance coverage, in an amount acceptable to the Master
Servicer and each Rating Agency rating the related Series of Certificates,
covering loss occasioned by the failure to escrow such amounts.
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
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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 WFHM'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
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Mortgage Loans, including Mortgage Loans that would permit creditworthy
borrowers to assume the outstanding indebtedness. In connection with the
decision of the Servicer regarding the foreclosure or assumption of a Mortgage
Loan, the modification of the related Mortgage Note or any other action to be
taken with respect to a defaulted Mortgage Loan, the Servicer is expressly
permitted by the Underlying Servicing Agreement to take into account the
interests of the borrower.
In the case of foreclosure or of damage to a Mortgaged Property from an
uninsured cause, the Servicer will not be required to expend its own funds to
foreclose or restore any damaged property, unless it reasonably determines (i)
that such foreclosure or restoration will increase the proceeds to
Certificateholders of such Series of liquidation of the Mortgage Loan after
reimbursement to the related Servicer for its expenses and (ii) that such
expenses will be recoverable to it through Liquidation Proceeds or any
applicable insurance policy in respect of such Mortgage Loan. In the event that
Servicer has expended its own funds for foreclosure or to restore damaged
property, it will be entitled to be reimbursed from the Certificate Account for
such Series an amount equal to all costs and expenses incurred by it.
WFHM 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
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Underlying Servicing Agreement) unless the Trustee (a) receives an opinion of
counsel to the effect that the holding of the Mortgaged Property by the Trust
Estate will not cause the Trust Estate to be subject to the tax on "prohibited
transactions" imposed by Code Section 860F(a)(1) or cause the Trust Estate (or
any segregated pool of assets therein as to which one or more REMIC elections
have been made or will be made) to fail to qualify as a REMIC or (b) applies
for and is granted an extension of the applicable period in the manner
contemplated by Code Section 856(e)(3). The Servicer also will be required to
administer the Mortgaged Property in a manner which does not cause the
Mortgaged Property to fail to qualify as "foreclosure property" within the
meaning of Code Section 860G(a)(8) or result in the receipt by the Trust Estate
of any "net income from foreclosure property" within the meaning of Code
Section 860G(c)(2), respectively. In general, this would preclude the holding
of the Mortgaged Property by a party acting as a dealer in such property or the
receipt of rental income based on the profits of the lessee of such property.
See "Certain Federal Income Tax Consequences."
Insurance Policies
Each Underlying Servicing Agreement will require the related Servicer to
cause to be maintained for each Mortgage Loan a standard hazard insurance
policy issued by a generally acceptable insurer insuring the improvements on
the Mortgaged Property underlying such Mortgage Loan against loss by fire, with
extended coverage (a "Standard Hazard Insurance Policy"). The Underlying
Servicing Agreements will require that such Standard Hazard Insurance Policy be
in an amount at least equal to the lesser of 100% of the insurable value of the
improvements on the Mortgaged Property or the principal balance of such
Mortgage Loan; provided, however, that such insurance may not be less than the
minimum amount required to fully compensate for any damage or loss on a
replacement cost basis. Each Servicer will also maintain on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, a
Standard Hazard Insurance Policy in an amount that is at least equal to the
lesser of 100% of the insurable value of the improvements which are a part of
such property or the principal balance of such Mortgage Loan plus accrued
interest and liquidation expenses; provided, however, that such insurance may
not be less than the minimum amount required to fully compensate for any damage
or loss on a replacement cost basis. Any amounts collected under any such
policies (other than amounts to be applied to the restoration or repair of the
Mortgaged Property or released to the borrower in accordance with normal
servicing procedures) will be deposited in the Servicer Custodial Account for
remittance to the Certificate Account by a Servicer.
The Standard Hazard Insurance Policies covering the Mortgage Loans generally
will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Because the Standard Hazard Insurance
Policies relating to such Mortgage Loans will be underwritten by different
insurers and will cover Mortgaged Properties located in various states, such
policies will not contain identical terms and conditions. The most significant
terms thereof, however, generally will be determined by state law and generally
will be similar. Most such policies typically will not cover any physical
damage resulting from the following: war, revolution,
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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. WFHM 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 sub-
stances) or insufficient hazard insurance proceeds will adversely affect dis-
tributions to the Certificateholders.
Fixed Retained Yield, Servicing Compensation and Payment of Expenses
Fixed Retained Yield with respect to any Mortgage Loan is that portion, if
any, of interest at the Mortgage Interest Rate that is not included in the
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. WFHM 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 WFHM. In the case of any Fixed Retained Yield with respect to
Mortgage Loans serviced by a Servicer other than WFHM, the Master Servicer will
make withdrawals from the Certificate Account for the purpose of remittances to
WFHM as owner of the Fixed Retained Yield. Notwithstanding the
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foregoing, with respect to any payment of interest received by WFHM as Servicer
relating to a Mortgage Loan (whether paid by the mortgagor or received as
Liquidation Proceeds, insurance proceeds or otherwise) which is less than the
full amount of interest then due with respect to such Mortgage Loan, the owner
of the Fixed Retained Yield with respect to such Mortgage Loan will bear a
ratable share of such interest shortfall.
For each Series of Certificates, each Servicer will be entitled to be paid
the Servicing Fee on the related Mortgage Loans serviced by such Servicer until
termination of the applicable Underlying Servicing Agreement. A Servicer, at
its election, will pay itself the Servicing Fee for a Series with respect to
each Mortgage Loan by (a) withholding the Servicing Fee from any scheduled
payment of interest prior to deposit of such payment in the Servicer Custodial
Account for such Series or (b) withdrawing the Servicing Fee from the Servicer
Custodial Account after the entire interest payment has been deposited in such
account. A Servicer may also pay itself out of the Liquidation Proceeds of a
Mortgage Loan or other recoveries with respect thereto, or withdraw from the
Servicer Custodial Account or request the Master Servicer to withdraw from the
Certificate Account for remittance to the Servicer such amounts after the
deposit thereof in such accounts, 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 Liquidation
Profits or otherwise will be retained by the Servicers, to the extent specified
in the Underlying Servicing Agreement.
Generally, 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, 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) or for certain property inspection expenses
for defaulted Mortgage Loans or Mortgaged Properties owned by the Trust 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.
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Evidence as to Compliance
Each Servicer will deliver annually to the Trustee or Master Servicer, as
applicable, on or before the date specified in the applicable Underlying
Servicing Agreement, an Officer's Certificate stating that (i) a review of the
activities of such Servicer during the preceding calendar year and of
performance under the applicable Underlying Servicing Agreement has been made
under the supervision of such officer, and (ii) to the best of such officer's
knowledge, based on such review, such Servicer has fulfilled all its
obligations under the applicable Underlying Servicing Agreement throughout such
year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof. Such Officer's Certificate shall be accompanied by a
statement of a firm of independent public accountants to the effect that, on
the basis of an examination of certain documents and records relating to a
random sample of the mortgage loans being serviced by such Servicer pursuant to
such Underlying Servicing Agreement and/or other similar agreements, conducted
substantially in compliance with the Uniform Single Audit Program for Mortgage
Bankers, the servicing of such mortgage loans was conducted in compliance with
the provisions of the applicable Underlying Servicing Agreement and other
similar agreements, except for (i) such exceptions as such firm believes to be
immaterial and (ii) such other exceptions as are set forth in such statement.
The Master Servicer will deliver annually to the Trustee, on or before the
date specified in the applicable Pooling and Servicing Agreement, an Officer's
Certificate stating that such officer has received, with respect to each
Servicer, the Officer's Certificate and accountant's statement described in the
preceding paragraph, and, that on the basis of such officer's review of such
information, each Servicer has fulfilled all its obligations under the
applicable Underlying Servicing Agreement throughout such year, or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default known to such officer and the nature and status thereof.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement for each Series without the consent of the
Trustee, except upon its determination that its duties thereunder are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature carried on by it.
No such resignation will become effective until the Trustee for such Series or
a successor master servicer has assumed the Master Servicer's obligations and
duties under the Pooling and Servicing Agreement. If the Master Servicer
resigns for any of the foregoing reasons and the Trustee is unable or unwilling
to assume responsibility for its duties under the Pooling and Servicing
Agreement, it may appoint another institution to so act as described under "The
Pooling and Servicing Agreement--Rights Upon Event of Default."
The Pooling and Servicing Agreement will also provide that neither the Master
Servicer nor any subcontractor, nor any partner, director, officer, employee or
agent of any of them, will be under any liability to the Trust Estate or the
Certificateholders, for the taking of any action or for refraining from the
taking of any action in good faith pursuant to the Pooling
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and Servicing Agreement, or for errors in judgment; provided, however, that
neither the Master Servicer, any subcontractor, nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of his or
its duties or by reason of reckless disregard of his or its obligations and
duties thereunder. The Pooling and Servicing Agreement will further provide
that the Master Servicer, any subcontractor, and any partner, director,
officer, employee or agent of either of them shall be entitled to
indemnification by the Trust Estate and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Pooling and Servicing Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence in the performance of his or its duties thereunder or by
reason of reckless disregard of his or its obligations and duties thereunder.
In addition, the Pooling and Servicing Agreement will provide that the Master
Servicer will not be under any obligation to appear in, prosecute or defend any
legal action that is not incidental to its duties under the Pooling and
Servicing Agreement and that in its opinion may involve it in any expense or
liability. The Master Servicer may, however, in its discretion, undertake any
such action deemed by it necessary or desirable with respect to the Pooling and
Servicing Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Trust Estate and the Master Servicer
will be entitled to be reimbursed therefor out of the Certificate Account, and
any loss to the Trust Estate arising from such right of reimbursement will be
allocated first to the Subordinated Certificate of a Series before being
allocated to the related Senior Certificates, or if such Series does not
contain Subordinated Certificates, pro rata among the various Classes of
Certificates unless otherwise specified in the applicable Pooling and Servicing
Agreement.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger, conversion or consolidation to which the
Master Servicer is a party, or any person succeeding to the business through
the transfer of substantially all of its assets or all assets relating to such
business, or otherwise, of the Master Servicer will be the successor of the
Master Servicer under the Pooling and Servicing Agreement for each Series pro-
vided that such successor or resulting entity has a net worth of not less than
$15,000,000 and is qualified to service mortgage loans for Fannie Mae or Fred-
die Mac.
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 Fannie Mae or Freddie Mac, (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
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from and after the date of such agreement; and (iii) each applicable Rating
Agency's rating of any Certificates for such Series in effect immediately prior
to such assignment, sale or transfer would not be qualified, downgraded or
withdrawn as a result of such assignment, sale or transfer and the Certificates
would not be placed on credit review status by any such Rating Agency. The
Master Servicer will be released from its obligations under the Pooling and
Servicing Agreement upon any such assignment and delegation, except that the
Master Servicer will remain liable for all liabilities and obligations incurred
by it prior to the time that the conditions contained in clauses (i), (ii) and
(iii) above are met.
THE POOLING AND SERVICING AGREEMENT
Assignment of Mortgage Loans to the Trustee
The Seller will have acquired the Mortgage Loans included in each Trust
Estate from WFHM pursuant to an agreement (the "WFHM Sale Agreement"). In
connection with the conveyance of the Mortgage Loans to the Seller, WFHM 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 WFHM; 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 WFHM 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 WFHM 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,
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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
as to which the Trustee has received an opinion of counsel acceptable to it
that such recording is not required to make the assignment effective against
the parties to the Mortgage or subsequent purchasers or encumbrancers of the
Mortgaged Property.
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 Master Servicer 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 Mort-
gage Loan on the records of MERS for purposes of the system of recording trans-
fers 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 45 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 (other than certain breaches
with respect to the principal balance of a Mortgage Loan) materially and
adversely affects the interests of the Certificateholders in a Mortgage Loan,
and the Seller cannot deliver such document or cure such defect or breach
within 60 days after written notice thereof, the Seller will, within 60 days of
such notice, either repurchase the related Mortgage Loan from the Trustee at a
price equal to the then unpaid principal balance thereof, plus accrued and
unpaid interest at the applicable Mortgage Interest Rate (minus any Fixed
Retained Yield) through the last day of the month in which such repurchase
takes place, or (in the case of a Series for which one or more REMIC elections
have been or will be made, unless the maximum period as may be provided by the
Code or applicable regulations of the Department of the Treasury ("Treasury
Regulations") shall have elapsed since the execution of the applicable Pooling
and Servicing Agreement) substitute for such Mortgage Loan a new mortgage loan
having characteristics such that the representations and warranties of the
Seller made pursuant to the applicable Pooling and Servicing Agreement (except
for representations and warranties as to the correctness of the applicable
schedule of mortgage loans) would not have been incorrect had such substitute
Mortgage Loan originally been a Mortgage Loan. In the case of a repurchased
Mortgage Loan, the purchase price will be deposited by the Seller in the
related Certificate Account. In the case of a substitute Mortgage Loan, the
mortgage file relating thereto will be delivered to the Trustee or the
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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 different 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 Substitutions
To the extent specified in the related prospectus supplement and subject to
the provisions of the applicable Pooling and Servicing Agreement, the Seller
may, for any reason and at its option, during the three month period beginning
with the date of initial issuance of the Certificates of a Series, substitute
new Mortgage Loans for any Mortgage Loans originally included in the related
Trust Estate. Any such substitution will be made in accordance with the
criteria set forth above under "--Assignment of Mortgage Loans to the Trustee."
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
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or warranty to WFHM 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 Se-
ries 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;
(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.
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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 Fannie Mae and Freddie Mac (unless remedied within 90
days).
Rights Upon Event of Default
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series or holders of
Certificates of such Series evidencing not less than 66 2/3% of the Voting
Interests in the Trust Estate for such Series may terminate all of the rights
and obligations of the Master Servicer under the Pooling and Servicing
Agreement and in and to the Mortgage Loans (other than the Master Servicer's
right to recovery of the aggregate Master Servicing Fees due prior to the date
of termination, and other expenses and amounts advanced pursuant to the terms
of the Pooling and Servicing Agreement, which rights the Master Servicer will
retain under all circumstances),
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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
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ambiguity or mistake, (ii) to correct or supplement any provision therein that
may be inconsistent with any other provision therein or in the related
prospectus supplement, (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, (v) to add to, modify or eliminate any
provisions therein restricting transfers of Residual Certificates to certain
disqualified organizations described below under "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Residual Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates," (vi) to make certain provisions with respect to the
denominations of, and the manner of payments on, certain Classes 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. Notwithstanding the foregoing, such
action described in clause (iv) or (vii) will not be considered to adversely
affect in any material respect the interest of Certificateholders and no
opinion of counsel to that effect will be required if each Rating Agency rating
the Certificates states in writing that such action would not result in the
downgrading or withdrawal of the ratings then assigned to the Certificates. 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 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 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 (iii) reduce the aforesaid percentage of Certificates of any Class,
the holders of which are required to consent to such amendment, without the
consent of the holders of all Certificates of such Class 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
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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, WFHM 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 mort-
gage loans which are general in nature. Because such legal aspects are governed
by applicable state law (which laws may differ substantially), the summaries do
not purport to be complete or to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans.
General
The Mortgage Loans will, in general, be secured by either first mortgages or
first deeds of trust, depending upon the prevailing practice in the state in
which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower (or, in the case of a Mortgage Loan secured
by a property that has been conveyed to an inter vivos revocable trust, the
settlor of such trust); and the mortgagee, who is the lender. In a mortgage
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
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from difficulties in locating necessary parties defendant. When the mortgagee's
right of foreclosure is contested, the legal proceedings necessary to resolve
the issue can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place and,
in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at the
foreclosure sale. Rather, it is common for the lender to purchase the 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.
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Foreclosure on Shares of Cooperatives
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and By-laws, as well as
in the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such tenant-
stockholder. The proprietary lease or occupancy agreement generally permits the
cooperative to terminate such lease or agreement in the event an obligor fails
to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the cooperative enter into a recognition
agreement which establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder on its obligations under the
proprietary lease or occupancy agreement. A default by the tenant-stockholder
under the proprietary lease or occupancy agreement will usually constitute a
default under the security agreement between the lender and the tenant-
stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited by the agreement in any rights it may have to dispossess the
tenant-stockholders.
Foreclosure on the cooperative shares is accomplished by a sale in accordance
with the provisions of Article 9 of the Uniform Commercial Code (the "UCC") and
the security agreement relating to those shares. Article 9 of the UCC requires
that a sale be conducted in a "commercially reasonable" manner. Whether a
foreclosure sale has been conducted in a "commercially reasonable" manner will
depend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according to
the usual practice of banks selling similar collateral will be considered
reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the
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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.
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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.
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
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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 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.
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 Con-
gress, and more such proposed legislation may be considered in the future. No
assurance can be given that any
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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 mort-
gage.
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.
Homeowners Protection Act of 1998
The Homeowners Protection Act of 1998 ("HOPA") provides for certain
disclosure and termination requirements for primary mortgage insurance ("PMI").
The termination provisions of HOPA apply only to mortgage loans relating to
single-family primary residences originated on or after July 29, 1999. Such
termination provisions govern when a mortgagor may cancel the requirement to
maintain PMI and when the requirement to maintain PMI is automatically
terminated. In general, voluntary termination is permitted and automatic
termination occurs when the principal balance of the mortgage loan is reduced
to 80% or 78%, respectively, of the original property value. The disclosure
requirements of HOPA vary depending on whether the mortgage loan was originated
before or after July 29, 1999. Such disclosure requirements include
notification of the circumstances whereby a mortgagor may cancel PMI, the date
when PMI automatically terminates and servicer contact information. In
addition, HOPA provides that no later than 30 days after cancellation or
termination of PMI, the servicer shall provide written notification that such
PMI is terminated and no further payments are due or payable. Any servicer,
mortgagee or mortgage insurer that violates provisions of HOPA is subject to
possible liability which includes, but is not limited to, actual damages,
statutory damages and reasonable attorney's fees.
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
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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 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 Lia-
bility Act, as amended ("CERCLA"), and under state law in certain states, a se-
cured party which
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takes a deed in lieu of foreclosure, purchases a mortgaged property at a fore-
closure sale, operates a mortgaged property or undertakes certain types of ac-
tivities 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 dis-
posed of on the property. Such Cleanup Costs may be substantial and could ex-
ceed the value of the property and the aggregate assets of the owner or opera-
tor. CERCLA imposes strict, as well as joint and several liability for environ-
mental remediation and/or damage costs on several classes of "potentially re-
sponsible parties," including current "owners and/or operators" of property,
irrespective of whether those owners or operators caused or contributed to con-
tamination on the property. In addition, owners and operators of properties
that generate hazardous substances that are disposed of at other "off-site" lo-
cations may held strictly, jointly and severally liable for environmental
remediation and/or damages at those off-site locations. Many states also have
laws that are similar to CERCLA. Liability under CERCLA or under similar state
law could exceed the value of the property itself as well as the aggregate as-
sets of the property owner.
The law is unclear as to whether and under what precise circumstances cleanup
costs, or the obligation to take remedial actions, could be imposed on a
secured lender such as the Trust Estate. Under the laws of some states and
under CERCLA, a lender may be liable as an "owner or operator" for costs of
addressing releases or threatened releases of hazardous substances on a
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
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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,
WFHM nor the Wells Fargo Affiliates have made such evaluations prior to the
origination of the Mortgage Loans, nor does WFHM or the Wells Fargo Affiliates
require that such evaluations be made by originators who have sold the Mortgage
Loans to WFHM. Neither the Seller nor WFHM is required to undertake any such
evaluations prior to foreclosure or accepting a deed-in-lieu of foreclosure.
Neither the Seller nor the Master Servicer makes any representations or
warranties or assumes any liability with respect to: the environmental
condition of such Mortgaged Property; the absence, presence or effect of
hazardous wastes or hazardous substances on any Mortgaged Property; any
casualty resulting from the presence or effect of hazardous wastes or hazardous
substances on, near or emanating from such Mortgaged Property; the impact on
Certificateholders of any environmental condition or presence of any substance
on or near such Mortgaged Property; or the compliance of any Mortgaged Property
with any environmental laws, nor is any agent, person or entity otherwise
affiliated with the Seller authorized or able to make any such representation,
warranty or assumption of liability relative to any such Mortgaged Property.
See "Mortgage Loan Programs--Representations and Warranties" and "Servicing of
the Mortgage Loans--Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Mortgage Loans" above.
"Due-on-Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of
the maturity of a loan if the borrower transfers its interest in the property.
In recent years, court decisions and legislative actions placed substantial
restrictions on the right of lenders to enforce such clauses in many states.
However, effective October 15, 1982, Congress enacted the Garn-St Germain
Depository Institutions Act of 1982 (the "Garn Act") which purports to preempt
state laws which prohibit the enforcement of "due-on-sale" clauses by providing
among other matters, that "due-on-sale" clauses in certain loans (which loans
may include the Mortgage Loans) made after the effective date of the Garn Act
are enforceable, within certain limitations as set forth in the Garn Act and
the regulations promulgated thereunder. "Due-on-sale" clauses contained in
mortgage loans originated by federal savings and loan associations or federal
savings banks are fully enforceable pursuant to regulations of the Office of
Thrift Supervision ("OTS"), as successor to the Federal Home Loan Bank Board
("FHLBB"), which preempt state law restrictions on the enforcement of such
clauses. Similarly, "due-on-sale" clauses in mortgage loans made by national
banks and federal credit unions are now fully enforceable pursuant to
preemptive regulations of the Comptroller of the Currency and the National
Credit Union Administration, respectively.
The Garn Act created a limited exemption from its general rule of
enforceability for "due-on-sale" clauses in certain mortgage loans ("Window
Period Loans") which were originated by non-federal lenders and made or assumed
in certain states ("Window Period States") during the period, prior to October
15, 1982, in which that state prohibited the enforcement of "due-on-sale"
clauses by constitutional provision, statute or statewide court decision (the
"Window Period"). Though neither the Garn Act nor the OTS regulations actually
names the Window Period States, Freddie Mac has taken the position, in
prescribing
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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
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compliance with applicable state laws, including usury laws. See "The Pooling
and Servicing Agreement--Assignment of Mortgage Loans to the Trustee."
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan
is prepaid. Under the Pooling and Servicing Agreement, late charges and
prepayment fees (to the extent permitted by law and not waived by the Servicer)
will be retained by the Servicer as additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary, such
as the borrower failing to adequately maintain the property or the borrower
executing a second mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue of whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under the deeds of trust receive notices in addition to
the statutorily-prescribed minimum requirements. For the most part, these cases
have upheld the notice provisions as being reasonable or have found that the
sale by a trustee under a deed of trust or under a mortgage having a power of
sale does not involve sufficient state action to afford constitutional
protections to the borrower.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following 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.
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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 real estate mortgage investment conduits (each, a "REMIC") within
the meaning of Section 860D of the Internal Revenue Code of 1986, as amended
(the "Code"). A Trust Estate or a portion or portions thereof as to which one
or more REMIC elections will be made will be referred to as a "REMIC Pool." For
purposes of this discussion, Certificates of a Series as to which one or more
REMIC elections are made are referred to as "REMIC Certificates" and will
consist of one or more Classes of "Regular Certificates" and one Class of
"Residual Certificates" in the case of each REMIC Pool. Qualification as a
REMIC requires ongoing compliance with certain conditions. With respect to each
Series of REMIC Certificates, Cadwalader, Wickersham & Taft, counsel to the
Seller, has advised the Seller that in the firm's opinion, assuming (i) the
making of an appropriate election, (ii) compliance with the Pooling and
Servicing Agreement, and (iii) compliance with any changes in the law,
including any amendments to the Code or applicable Treasury regulations
thereunder, each REMIC Pool will qualify as a REMIC. In such case, the Regular
Certificates will be considered to be "regular interests" in the REMIC Pool and
generally will be treated for federal income tax purposes as if they were newly
originated debt instruments, and the Residual Certificates will be considered
to be "residual interests" in the REMIC Pool. The prospectus supplement for
each Series of Certificates will indicate whether one or more REMIC elections
with respect to the related Trust Estate will be made, in which event
references to "REMIC" or "REMIC Pool" herein shall be deemed to refer to each
such REMIC Pool.
Status of REMIC Certificates
REMIC Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the
REMIC Pool would be treated as "loans . . . secured by an interest in real
property which is . . . residential real property" within the meaning of Code
Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C). REMIC Certificates held by a real estate investment trust will
constitute "real estate assets" within the meaning of Code Section
856(c)(4)(A), and interest on the Regular Certificates and income with respect
to Residual Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B) in the same proportion that, for both purposes,
the assets of the REMIC Pool would be so treated. If at all times 95% or
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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.
Regular Certificates held by a financial asset securitization investment trust
(a "FASIT") will be "permitted assets" within the meaning of Code Section
860L(a).
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
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applicable tax information to transferors or agents that violate this
requirement. See "--Taxation of Residual Certificates--Tax-Related Restrictions
on Transfer of Residual Certificates--Disqualified Organizations."
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and, generally, certificates of beneficial interest in a grantor trust that
holds mortgage loans and regular interests in another REMIC, such as lower-tier
regular interests in a tiered REMIC. The REMIC Regulations specify that loans
secured by timeshare interests and shares held by a tenant stockholder in a
cooperative housing corporation can be qualified mortgages. A qualified
mortgage includes a qualified replacement mortgage, which is any property that
would have been treated as a qualified mortgage if it were transferred to the
REMIC Pool on the Startup Day and that is received either (i) in exchange for
any qualified mortgage within a three-month period thereafter or (ii) in
exchange for a "defective obligation" within a two-year period thereafter. A
"defective obligation" includes (i) a mortgage in default or as to which
default is reasonably foreseeable, (ii) a mortgage as to which a customary
representation or warranty made at the time of transfer to the REMIC Pool has
been breached, (iii) a mortgage that was fraudulently procured by the
mortgagor, and (iv) a mortgage that was not in fact principally secured by real
property (but only if such mortgage is disposed of within 90 days of
discovery). A Mortgage Loan that is "defective" as described in clause (iv)
that is not sold or, if within two years of the Startup Day, exchanged, within
90 days of discovery, ceases to be a qualified mortgage after such 90-day
period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC
Pool. A qualified reserve asset is any intangible property held for investment
that is part of any reasonably required reserve maintained by the REMIC Pool to
provide for payments of expenses of the REMIC Pool or amounts due on the
regular or residual interests in the event of defaults (including
delinquencies) on the qualified mortgages, lower than expected reinvestment
returns, prepayment interest shortfalls and certain other contingencies. The
reserve fund will be disqualified if more than 30% of the gross income from the
assets in such fund for the year is derived from the sale or other disposition
of property held for less than three months, unless required to prevent a
default on the regular interests caused by a default on one or more qualified
mortgages. A reserve fund must be reduced "promptly and appropriately" as
payments on the Mortgage Loans are received. Foreclosure property is real
property acquired by the REMIC Pool in connection with the default or imminent
default of a qualified mortgage and generally 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
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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") 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
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accounting with regard to Regular Certificates, regardless of the method of
accounting otherwise used by such Regular Certificateholders.
Original Issue Discount
Accrual 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 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
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include distributions of interest if such distributions constitute "qualified
stated interest." Under the OID Regulations, qualified stated interest
generally means interest payable at a single fixed rate or a qualified variable
rate (as described below) provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the Regular Certificate. Because there is no penalty or default remedy in
the case of nonpayment of interest with respect to a Regular Certificate, it is
possible that no interest on any Class of Regular Certificates will be treated
as qualified stated interest. However, except as provided in the following
three sentences or in the applicable prospectus supplement, because the
underlying Mortgage Loans provide for remedies in the event of default, the
Seller intends to treat interest with respect to the Regular Certificates as
qualified stated interest. Distributions of interest on a Compound Interest
Certificate, or on other Regular Certificates with respect to which deferred
interest will accrue, will not constitute qualified stated interest, in which
case the stated redemption price at maturity of such Regular Certificates
includes all distributions of interest as well as principal thereon. Likewise,
the Seller intends to treat an interest-only Class or a Class on which interest
is substantially disproportionate to its principal amount (a so-called "super-
premium" Class) as having no qualified stated interest. Where the interval
between the issue date and the first Distribution Date on a Regular Certificate
is shorter than the interval between subsequent Distribution Dates, the
interest attributable to the additional days will be included in the stated
redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is
computed as the sum of the amounts determined by multiplying the number of full
years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled
to be made by a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at maturity of the Regular
Certificate and the denominator of which is the stated redemption price at
maturity of the Regular Certificate. The Conference Committee Report to the
1986 Act provides that the schedule of such distributions should be determined
in accordance with the assumed rate of prepayment of the Mortgage Loans (the
"Prepayment Assumption") and the anticipated reinvestment rate, if any,
relating to the Regular Certificates. The Prepayment Assumption with respect to
a Series of Regular Certificates will be set forth in the applicable prospectus
supplement. Holders generally must report de minimis original issue discount
pro rata as principal payments are received, and such income will be capital
gain if the Regular Certificate is held as a capital asset. Under the OID
Regulations, however, Regular Certificateholders may elect to accrue all de
minimis original issue discount as well as market discount and market premium,
under the constant yield method. See "--Election to Treat All Interest Under
the Constant Yield Method."
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
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Regular Certificate, including the date of purchase but excluding the date of
disposition. The Seller will treat the monthly period ending on the day before
each Distribution Date as the accrual period. With respect to each Regular
Certificate, a calculation will be made of the original issue discount that
accrues during each successive full accrual period (or shorter period from the
date of original issue) that ends on the day before the related Distribution
Date on the Regular Certificate. The Conference Committee Report to the 1986
Act states that the rate of accrual of original issue discount is intended to
be based on the Prepayment Assumption. Other than as discussed below with
respect to a Non-Pro Rata Certificate, the original issue discount accruing in
a full accrual period would be the excess, if any, of (i) the sum of (a) the
present value of all of the remaining distributions to be made on the Regular
Certificate as of the end of that accrual period, and (b) the distributions
made on the Regular Certificate during the accrual period that are included in
the Regular Certificate's stated redemption price at maturity, over (ii) the
adjusted issue price of the Regular Certificate at the beginning of the accrual
period. The present value of the remaining distributions referred to in the
preceding sentence is calculated based on (i) the yield to maturity of the
Regular Certificate at the issue date, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period, and
(iii) the Prepayment Assumption. For these purposes, the adjusted issue price
of a Regular Certificate at the beginning of any accrual period equals the
issue price of the Regular Certificate, increased by the aggregate amount of
original issue discount with respect to the Regular Certificate that accrued in
all prior accrual periods and reduced by the amount of distributions included
in the Regular Certificate's stated redemption price at maturity that were made
on the Regular Certificate in such prior periods. The original issue discount
accruing during any accrual period (as determined in this paragraph) will then
be divided by the number of days in the period to determine the daily portion
of original issue discount for each day in the period. With respect to an
initial accrual period shorter than a full accrual period, the daily portions
of original issue discount must be determined according to an appropriate
allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Non-Pro Rata Certificate, the Seller intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Non-Pro Rata Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of
the entire unpaid principal balance of any Non-Pro Rata Certificate (or portion
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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
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it is considered significantly "front-loaded" or "back-loaded" within the
meaning of the OID Regulations. It is possible that such a Class may be
considered to bear "contingent interest" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to Regular Certificates. However,
if final regulations dealing with contingent interest with respect to Regular
Certificates apply the same principles as the OID Regulations, such regulations
may lead to different timing of income inclusion than would be the case under
the OID Regulations for non-contingent debt instruments. Furthermore,
application of such principles could lead to the characterization of gain on
the sale of contingent interest Regular Certificates as ordinary income.
Investors should consult their tax advisors regarding the appropriate treatment
of any Regular Certificate that does not pay interest at a fixed rate or
variable rate as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates, including a rate based on the average cost of funds of one or
more financial institutions), or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans, including such
a rate that is subject to one or more caps or floors, or (ii) bearing one or
more such variable rates for one or more periods, or one or more fixed rates
for one or more periods, and a different variable rate or fixed rate for other
periods, qualifies as a regular interest in a REMIC. Accordingly, unless
otherwise indicated in the applicable prospectus supplement, the Seller intends
to treat Regular Certificates that qualify as regular interests under this rule
in the same manner as obligations bearing a variable rate for original issue
discount reporting purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "--Original Issue Discount," with the yield to maturity and future
payments on such Regular Certificate generally to be determined by assuming
that interest will be payable for the life of the Regular Certificate based on
the initial rate (or, if different, the value of the applicable variable rate
as of the pricing date) for the relevant Class. Unless required otherwise by
applicable final regulations, the Seller intends to treat such variable
interest as qualified stated interest, other than variable interest on an
interest-only or super-premium Class, which will be treated as non-qualified
stated interest includible in the stated redemption price at maturity. Ordinary
income reportable for any period will be adjusted based on subsequent changes
in the applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, the Seller intends to treat Regular Certificates
bearing an interest rate that is a weighted average of the net interest rates
on Mortgage Loans as having qualified stated interest, except to the extent
that initial "teaser" rates cause sufficiently "back-loaded" interest to create
more than de minimis original issue discount. The yield on such Regular
Certificates for purposes of accruing original issue discount will be a
hypothetical fixed rate based on the fixed rates, in the case of fixed-rate
Mortgage Loans, and initial "teaser rates" followed by fully indexed rates, in
the case of adjustable-rate Mortgage Loans. In the case of
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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. A 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. A
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 the interest expense in any taxable year generally will not exceed
the accrued market discount on the Regular Certificate for such year. Any such
deferred interest expense is, in general, allowed as a deduction not later than
the year in which the related market discount income is recognized or the
Regular Certificate is disposed of. As an alternative to the inclusion of
market discount in income on the foregoing basis, the Regular Certificateholder
may elect to include market discount in income currently as it accrues on all
market discount instruments acquired by such Regular Certificateholder in that
taxable year or thereafter, in which case the interest deferral rule will not
apply. See "--Election to Treat All Interest Under the Constant Yield Method"
below regarding an alternative manner in which such election may be deemed to
be made.
By analogy to the OID Regulations, market discount with respect to a Regular
Certificate will be considered to be zero if the market discount is less than
0.25% of the
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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 this
election with respect to a debt instrument with amortizable bond premium or
with market discount, the holder is deemed to
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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 this 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. Under Code Section 166, 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 the time
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
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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.
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
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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
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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 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. This 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 this type of
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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 its 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 the Trustee 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 their unpaid principal balances, the REMIC Pool will be considered to
have acquired such Mortgage Loans at a premium equal to the amount of such
excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the fair
market value of the Mortgage Loans, based on the aggregate of the issue prices
of the regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the
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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
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losses of its shareholders, would constitute unrelated business taxable income
for tax-exempt shareholders, and would be ineligible for reduction of
withholding to certain persons who are not U.S. Persons. The SBJPA of 1996 has
eliminated the special rule permitting Section 593 institutions ("thrift
institutions") to use net operating losses and other allowable deductions to
offset their excess inclusion income from Residual Certificates that have
"significant value" within the meaning of the REMIC Regulations, effective for
taxable years beginning after December 31, 1995, except with respect to
Residual Certificates continuously held by a thrift institution since November
1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Holder. First, alternative minimum taxable income for a Residual
Holder is determined without regard to the special rule, discussed above, that
taxable income cannot be less than excess inclusions. Second, a Residual
Holder's alternative minimum taxable income for a taxable year cannot be less
than the excess inclusions for the year. Third, the amount of any alternative
minimum tax net operating loss deduction must be computed without regard to any
excess inclusions. These rules are effective for taxable years beginning after
December 31, 1986, unless a Residual Holder elects to have such rules apply
only to taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a Residual
Certificate is transferred to a Disqualified Organization (as defined below), a
tax would be imposed in an amount equal to the product of (i) the present value
of the total anticipated excess inclusions with respect to such Residual
Certificate for periods after the transfer and (ii) the highest marginal
federal income tax rate applicable to corporations. The REMIC Regulations
provide that the anticipated excess inclusions are based on actual prepayment
experience to the date of the transfer and projected payments based on the
Prepayment Assumption. The present value rate equals the applicable federal
rate under Code Section 1274(d) as of the date of the transfer for a term
ending with the last calendar quarter in which excess inclusions are expected
to accrue. Such rate is applied to the anticipated excess inclusions from the
end of the remaining calendar quarters in which they arise to the date of the
transfer. Such a tax generally would be imposed on the transferor of the
Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit stating that the transferee is not a Disqualified Organization and,
as of the time of the transfer, the transferor does not have actual knowledge
that such affidavit is false. The tax also may be waived by the Internal
Revenue Service if the Disqualified Organization promptly disposes of the
Residual Certificate and the transferor pays income tax at the highest
corporate rate on the excess inclusion for the period the Residual Certificate
is actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization
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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
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these transfer restrictions will be null and void and will vest no rights in
any purported transferee. Each Residual Certificate with respect to a Series
will bear a legend referring to such restrictions on transfer, and each
Residual Holder will be deemed to have agreed, as a condition of ownership
thereof, to any amendments to the related Pooling and Servicing Agreement
required under the Code or applicable Treasury regulations to effectuate the
foregoing restrictions. Information necessary to compute an applicable excise
tax must be furnished to the Internal Revenue Service and to the requesting
party within 60 days of the request, and the Seller or the Trustee may charge a
fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard certain
transfers of Residual Certificates, in which case the transferor would continue
to be treated as the owner of the Residual Certificates and thus would continue
to be subject to tax on its allocable portion of the net income of the REMIC
Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Holder (other than a Residual Holder
who is not a U.S. Person, as defined below under "--Foreign Investors") is
disregarded for all federal income tax purposes if a significant purpose of the
transferor is to impede the assessment or collection of tax. A residual
interest in a REMIC (including a residual interest with a positive value at
issuance) is a "noneconomic residual interest" unless, at the time of the
transfer, (i) the present value of the expected future distributions on the
residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes on each excess
inclusion. The anticipated excess inclusions and the present value rate are
determined in the same manner as set forth above under "--Disqualified
Organizations." The REMIC Regulations explain that a significant purpose to
impede the assessment or collection of tax exists if the transferor, at the
time of the transfer, either knew or should have known that the transferee
would be unwilling or unable to pay taxes due on its share of the taxable
income of the REMIC. A safe harbor is provided if (i) the transferor conducted,
at the time of the transfer, a reasonable investigation of the financial
condition of the transferee and found that the transferee historically had paid
its debts as they came due and found no significant evidence to indicate that
the transferee would not continue to pay its debts as they came due in the
future, and (ii) the transferee represents to the transferor that it
understands that, as the holder of the non-economic residual interest, the
transferee may incur tax liabilities in excess of any cash flows generated by
the interest and that the transferee intends to pay taxes associated with
holding the residual interest as they become due. The Pooling and Servicing
Agreement with respect to each Series of Certificates will require the
transferee of a Residual Certificate to certify to the matters in the preceding
sentence as part of the affidavit described above under the heading "--
Disqualified Organizations."
In addition to the two conditions set forth above for the transferor of a
noneconomic residual interest to be presumed not to have knowledge that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC,
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recently proposed Treasury regulations would add a third condition for the
transferor to be presumed to lack such knowledge. This third condition would
require that the present value of the anticipated tax liabilities associated
with holding the noneconomic residual interest not exceed the sum of:
(i) the present value of any consideration given to the transferee to
acquire the interest;
(ii) the present value of the expected future distributions on the
interest; and
(iii) the present value of the anticipated tax savings associated with
holding the interest as the REMIC generates losses.
For purposes of the computations under this third condition, the transferee is
assumed to pay tax at the highest corporate rate of tax specified in
Section 11(b)(1) of the Code (currently 35%). Further, present values generally
are computed using a discount rate equal to the applicable Federal rate set
forth in Section 1274(d) of the Code compounded semiannually. However, a lower
rate may be used if the transferee can demonstrate that it regularly borrows,
in the course of its trade or business, substantial funds at such lower rate
from unrelated third parties. In some situations, to satisfy this third
condition, the transferor of a noneconomic residual interest may have to pay
more consideration to the transferee than would otherwise be the case if the
proposed regulations were not applicable. If adopted, the proposed regulations
would apply to the transfer of a noneconomic residual interest made on or after
February 4, 2000. Prospective investors should consult their own tax advisors
as to the applicability and effect of the proposed regulations.
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
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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 elect to be
treated as U.S. Persons).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual Holder will
recognize gain or loss equal to the excess, if any, of the amount realized over
the adjusted basis (as described above under "--Basis and Losses") of such
Residual Holder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Holder will have taxable income to the extent that any cash
distribution to it from the REMIC Pool exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual Holder's
Residual Certificate, in which case, if the Residual Holder has an adjusted
basis in its Residual Certificate remaining when its interest in the REMIC Pool
terminates, and if it holds such Residual Certificate as a capital asset under
Code Section 1221, then it will recognize a capital loss at that time in the
amount of such remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of property that was held as a part of such transaction or (ii) in
the case of a non-corporate taxpayer, to the extent such taxpayer has made an
election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate or termination of the REMIC
Pool by certain banks or thrift institutions will be treated as ordinary income
or loss pursuant to Code Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
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Mark to Market Regulations
The Internal Revenue Service has issued final regulations (the "Mark to
Market Regulations") under Code Section 475 relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark to market requirement applies to all securities of a dealer, except to the
extent that the dealer has specifically identified a security as held for
investment. The Mark to Market Regulations provide that, for purposes of this
mark to market requirement, a Residual Certificate is not treated as a security
and thus may not be marked to market. The Mark to Market Regulations apply to
all Residual Certificates acquired on or after January 4, 1995.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Holders, but rather will be taxed
directly to the REMIC Pool at a 100% rate. Prohibited transactions generally
include (i) the disposition of a qualified mortgage other than for (a)
substitution within two years of the Startup Day for a defective (including a
defaulted) obligation (or repurchase in lieu of substitution of a defective
(including a defaulted) obligation at any time) or for any qualified mortgage
within three months of the Startup Day, (b) foreclosure, default, or imminent
default of a qualified mortgage, (c) bankruptcy or insolvency of the REMIC
Pool, or (d) a qualified (complete) liquidation, (ii) the receipt of income
from assets that are not the type of mortgages or investments that the REMIC
Pool is permitted to hold, (iii) the receipt of compensation for services, or
(iv) the receipt of gain from disposition of cash flow investments other than
pursuant to a qualified liquidation. Notwithstanding (i) and (iv), it is not a
prohibited transaction to sell REMIC Pool property to prevent a default on
Regular Certificates as a result of a default on qualified mortgages or to
facilitate a clean-up call (generally, an optional termination to save
administrative costs when no more than a small percentage of the Certificates
is outstanding). The REMIC Regulations indicate that the modification of a
Mortgage Loan generally will not be treated as a disposition if it is
occasioned by a default or reasonably foreseeable default, an assumption of the
Mortgage Loan, the waiver of a due-on-sale or due-on-encumbrance clause, or the
conversion of an interest rate by a mortgagor pursuant to the terms of a
convertible adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during the
three months following the Startup Day, (ii) made to a qualified reserve fund
by a Residual Holder, (iii) in the nature of a guarantee, (iv) made to
facilitate a qualified liquidation or clean-up call, and (v) as otherwise
permitted in Treasury regulations yet to be issued. It is not anticipated that
there will be any contributions to the REMIC Pool after the Startup Day.
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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
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excess, if any, of adjusted gross income over $128,950 for 2000 ($64,475 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 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
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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 has issued final regulations (the "New Regulations") which provide
alternative methods of satisfying the beneficial ownership certification
requirement described above. The New Regulations will be effective January 1,
2001. The new series of withholding certificates may be used currently and must
be used for payments after December 31, 2000. The New Regulations require, in
the case of Regular Certificates held by a foreign partnership, that (x) the
certification described above be provided by the partners rather than by the
foreign partnership and (y) the partnership provide certain information,
including a United States taxpayer identification number. A look-through rule
would apply in the case of tiered partnerships. Non-U.S. Persons should consult
their own tax advisors concerning the application of the certification
requirements in the New Regulations.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Holders who are Non-U.S. Persons generally should be treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Holders may qualify as "portfolio interest," subject to the conditions
described in "--Regular Certificates" above, but only to the extent that (i)
the Mortgage Loans were issued after July 18, 1984 and (ii) the Trust Estate or
segregated pool of assets therein (as to which a separate REMIC election will
be made), to which the Residual Certificate relates, consists of obligations
issued in "registered form" within the meaning of Code Section 163(f)(1).
Generally, Mortgage Loans will not be, but regular interests in another REMIC
Pool will be, considered obligations issued in registered form. Furthermore, a
Residual Holder will not be entitled to any exemption from the 30% withholding
tax (or lower treaty rate) to the extent of that portion of REMIC taxable
income that constitutes an "excess inclusion." See "--Taxation of Residual
Certificates--Limitations on Offset or Exemption of REMIC Income." If the
amounts paid to Residual Holders who are Non-U.S. Persons are effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Persons, 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such Non-U.S. Persons will be subject to United
States federal income tax at regular rates. If 30% (or lower treaty rate)
withholding is applicable, such amounts generally will be taken into account
for purposes of withholding only when paid or otherwise distributed (or when
the Residual Certificate is disposed of) under rules similar to withholding
upon disposition of debt instruments that have original issue discount. See "--
Taxation of Residual Certificates--Tax-Related Restrictions on Transfer of
Residual Certificates--Foreign Investors" above concerning the disregard of
certain transfers having "tax avoidance potential." Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning Residual Certificates.
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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."
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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 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 "--Characterization
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 $128,950 for 2000
($64,475 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.
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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 FASIT will be considered to represent
"permitted assets" within the meaning of Code Section 860L(c) to the extent
the assets of the Trust Estate consist of "debt instruments" or other
permitted assets within the meaning of Code Section 860L(c).
An issue arises as to whether Buy-Down Loans may be characterized in their
entirety under the Code provisions cited in clauses 1 and 2 of the immediately
preceding paragraph. There is indirect authority supporting treatment of an
investment in a Buy-Down Loan as entirely secured by real property if the fair
market value of the real property securing the loan exceeds the principal
amount of the loan at the time of issuance or acquisition, as the case may be.
There is no assurance that the treatment described above is proper.
Accordingly, Certificateholders are urged to consult their own tax advisors
concerning the effects of such arrangements on the characterization of such
Certificateholder's investment for federal income tax purposes.
Premium and Discount
Certificateholders are advised to consult with their tax advisors as to the
federal income tax treatment of premium and discount arising either upon
initial acquisition of Certificates or thereafter.
Premium
The treatment of premium incurred upon the purchase of a Certificate will be
determined generally as described above under "--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Residual Certificates--
Treatment of Certain Items of REMIC Income and Expense--Premium."
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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
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that such amount would exceed reasonable servicing compensation as to some of
the Mortgage Loans would be increased. Recently issued Internal Revenue Service
guidance indicates that a servicing fee in excess of reasonable compensation
("excess servicing") will cause the Mortgage Loans to be treated under the
"stripped bond" rules. Such guidance provides safe harbors for servicing deemed
to be reasonable and requires taxpayers to demonstrate that the value of
servicing fees in excess of such amounts is not greater than the value of the
services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a Servicer
who receives a servicing fee in excess of such amounts would be viewed as
retaining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from the right to receive some or all of the principal payments on
the obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds." Subject to the de minimis rule discussed below
under "--Stripped Certificates," each stripped bond or stripped coupon could be
considered for this purpose as a non-interest bearing obligation issued on the
date of issue of the Certificates, and the original issue discount rules of the
Code would apply to the holder thereof. While Certificateholders would still be
treated as owners of beneficial interests in a grantor trust for federal income
tax purposes, the corpus of such trust could be viewed as excluding the portion
of the Mortgage Loans the ownership of which is attributed to the Servicer, or
as including such portion as a second class of equitable interest. Applicable
Treasury regulations treat such an arrangement as a fixed investment trust,
since the multiple classes of trust interests should be treated as merely
facilitating direct investments in the trust assets and the existence of
multiple classes of ownership interests is incidental to that purpose. In
general, such a recharacterization should not have any significant effect upon
the timing or amount of income reported by a Certificateholder, except that the
income reported by a cash method holder may be slightly accelerated. See
"Stripped Certificates" below for a further description of the federal income
tax treatment of stripped bonds and stripped coupons.
Sale or Exchange of Certificates
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale
and its aggregate adjusted basis in the Mortgage Loans and other assets
represented by the Certificate. In general, the aggregate adjusted basis will
equal the Certificateholder's cost for the Certificate, increased by the amount
of any income previously reported with respect to the Certificate and decreased
by the amount of any losses previously reported with respect to the Certificate
and the amount of any distributions received thereon. Except as provided above
with respect to market discount on any Mortgage Loans, and except for certain
financial institutions subject to the provisions of Code Section 582(c), any
such gain or loss generally would be capital gain or loss if the Certificate
was held as a capital asset. However, gain on the sale of a Certificate will be
treated as ordinary income (i) if a Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the Certificateholder's net investment
in the conversion transaction at 120% of the appropriate applicable Federal
rate in effect at the time the taxpayer entered into the transaction minus any
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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 representing the right to
non-pro-rata percentages of the interest and principal payments on the Mortgage
Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with respect
to its pro rata share of all or a portion of the interest payments on each
Mortgage Loan, including the Stripped Certificate's allocable share of the
servicing fees paid to a Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See the discussion above under
"--Recharacterization of Servicing Fees." Although not free from doubt, for
purposes of reporting to Stripped Certificateholders, the servicing fees will
be allocated to the Stripped Certificates in proportion to the respective
entitlements to distributions of each Class 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
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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
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Loans and interest on such Mortgage Loans qualify for such treatment. The
application of such Code provisions to Buy-Down Loans is uncertain. See "--Tax
Status" above.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "--General," each
Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into account
the compounding of interest, which may be prior to the receipt of the cash
attributable to the related 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.
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Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Regular Certificates--Sale or Exchange of Regular Certificates." To the
extent that a subsequent purchaser's purchase price is exceeded by the
remaining payments on the Stripped Certificates, such subsequent purchaser will
be required for federal income tax purposes to accrue and report such excess as
if it were original issue discount in the manner described above. It is not
clear for this purpose whether the assumed prepayment rate that is to be used
in the case of a Stripped Certificateholder other than an original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on
the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. When an investor
purchases more than one Class of Stripped Certificates, it is currently unclear
whether for federal income tax purposes such Classes of Stripped Certificates
should be treated separately or aggregated for purposes of the rules described
above.
Possible Alternative Characterizations. The characterizations of the Stripped
Certificates discussed above are not the only possible interpretations of the
applicable Code provisions. For example, the Stripped Certificateholder may be
treated as the owner of (i) one installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to principal
on each Mortgage Loan and a second installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to interest
on each Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there
are scheduled payments of principal and/or interest on each Mortgage Loan, or
(iii) a separate installment obligation for each Mortgage Loan, representing
the Stripped Certificate's pro rata share of payments of principal and/or
interest to be made with respect thereto. Alternatively, the holder of one or
more Classes of Stripped Certificates may be treated as the owner of a pro rata
fractional undivided interest in each Mortgage Loan to the extent that such
Stripped Certificate, or Classes of Stripped Certificates in the aggregate,
represent the same pro rata portion of principal and interest on each such
Mortgage Loan, and a stripped bond or stripped coupon (as the case may be),
treated as an installment obligation or contingent payment obligation, as to
the remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they are
premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for
aggregating stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped Certificates
and the resultant differing treatment of income recognition, Stripped
Certificateholders are urged to consult their own tax advisors regarding the
proper treatment of Stripped Certificates for federal income tax purposes.
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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.
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Before purchasing any Certificates, a Plan fiduciary should consult with its
counsel and determine whether there exists any prohibition to such purchase
under the requirements of ERISA, whether 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.
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
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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.
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") or Fitch, Inc. ("Fitch");
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(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 or Fitch
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").
It should be noted that in promulgating the Underwriter's Exemptions, the
Department may not have had under its consideration interests in mortgage pools
of the exact nature of some of the Certificates in the applicable Series.
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
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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 may not have had under its
consideration interests in mortgage pools of the exact nature of some of the
Certificates in the applicable Series.
Exempt Plans
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA), and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements and assets of such plans may be
invested in Certificates without regard to the ERISA considerations described
above, but such plans may be subject to the provisions of other applicable
federal and state law.
Unrelated Business Taxable Income--Residual Certificates
The purchase of a Residual Certificate by any employee benefit plan qualified
under Code Section 401(a) and exempt from taxation under Code Section 501(a),
including most varieties of ERISA Plans, may give rise to "unrelated business
taxable income" as described in Code Sections 511-515 and 860E. Further, prior
to the purchase of Residual Certificates, a prospective transferee may be
required to provide an affidavit to a transferor that it is not, nor is it
purchasing a Residual Certificate on behalf of, a "Disqualified Organization,"
which term as defined above includes certain tax-exempt entities not subject to
Code Section 511, such as certain governmental plans, as discussed above under
the caption "Certain Federal Income Tax Consequences-- Federal Income Tax
Consequences for REMIC Certificates--Taxation of Residual Certificates--Tax-
Related Restrictions on Transfer of Residual Certificates--Disqualified
Organizations."
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is particularly important that
potential investors who are Plan fiduciaries consult with their counsel
regarding the consequences under ERISA of their acquisition and ownership of
Certificates.
The sale of Certificates to a Plan is in no respect a representation by the
Seller or the applicable underwriter that this investment meets all relevant
legal requirements with respect to investments by Plans generally or any
particular Plan, or that this investment is appropriate for Plans generally or
any particular Plan.
LEGAL INVESTMENT
As will be specified in the applicable prospectus supplement, certain Classes
of Certificates will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA"), so
long as (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
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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
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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 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 the 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
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of a particular Series of Certificates may be made through a combination of two
or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters specified in the applicable prospectus supplement;
2. By placements by the Seller with investors through dealers; and
3. By direct placements by the Seller with investors.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Firm
commitment underwriting and public reoffering by underwriters may be done
through underwriting syndicates or through one or more firms acting alone. The
specific managing underwriter or underwriters, if any, with respect to the
offer and sale of a particular Series of Certificates will be set forth on the
cover of the prospectus supplement applicable to such Series and the members of
the underwriting syndicate, if any, will be named in such prospectus
supplement. The prospectus supplement will describe any discounts and
commissions to be allowed or paid by the Seller to the underwriters, any other
items constituting underwriting compensation and any discounts and commissions
to be allowed or paid to the dealers. The obligations of the underwriters will
be subject to certain conditions precedent. The underwriters with respect to a
sale of any Class of Certificates will be obligated to purchase all such
Certificates if any are purchased. The Seller, and, if specified in the
applicable prospectus supplement, WFHM, 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 manner 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
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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 WFHM. It is expected that WFHM 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 nationally recognized
statistical rating organization (a "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.
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, facsimile and CD-ROM through SecuritiesLink(R)
Investor Information
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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 Wells Fargo Asset
Securities Corporation, 7485 New Horizon Way, Frederick, Maryland 21703,
telephone number (301) 846-8130.
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 Wells Fargo 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 Securities and Exchange Commission ("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 the name of the Seller was changed in April 2000 in connection
with the merger described in the applicable prospectus supplement under "Recent
Developments." See "The Seller." 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
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to whom a prospectus is delivered upon written or oral request directed to
Wells Fargo 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
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, 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 SecuritiesLink(R) at 7485 New Horizon Way, Frederick,
Maryland 21703, telephone number (301) 846-8130.
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) 815-6323.
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INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
15-Year Loans.............................................................. 51
30-Year Loans.............................................................. 51
30-Year Non-Relocation Loans............................................... 51
1986 Act................................................................... 94
1998 Policy Statement...................................................... 132
Accretion Directed Certificates............................................ 41
Accrual Certificates....................................................... 38
Additional Collateral...................................................... 20
Advances................................................................... 61
ALTA....................................................................... 29
Asset Conservation Act..................................................... 87
Balloon Loans.............................................................. 20
Balloon Period............................................................. 20
Bankruptcy Code............................................................ 82
Bankruptcy Loss............................................................ 39
Bankruptcy Loss Amount..................................................... 40
Beneficial Owner........................................................... 33
Book-Entry Certificates.................................................... 33
Buy-Down Fund.............................................................. 20
Buy-Down Loans............................................................. 20
Capitol Life............................................................... 22
Cash Flow Agreement........................................................ 21
Cede....................................................................... 33
CERCLA..................................................................... 85
Certificate Account........................................................ 57
Certificateholder.......................................................... 33
Certificates............................................................... 31
Class...................................................................... 31
Cleanup Costs.............................................................. 86
Code....................................................................... 91
Commission................................................................. 136
Companion Certificates..................................................... 41
Component.................................................................. 41
Component Certificates..................................................... 41
contract underwriters...................................................... 26
cooperatives............................................................... 15
Correspondents............................................................. 23
Credit Score............................................................... 25
Cut-Off Date............................................................... 36
Deferred Interest.......................................................... 18
Definitive Certificates.................................................... 33
Delegated Underwriting..................................................... 24
</TABLE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Department................................................................. 128
Depository................................................................. 57
Detailed Information....................................................... 137
Disqualified Organization.................................................. 109
Distribution Date.......................................................... 36
DTC........................................................................ 33
DTC Participants........................................................... 34
Due Date................................................................... 17
EDGAR...................................................................... 136
electing large partnership................................................. 109
Eligible Custodial Account................................................. 57
Eligible Investments....................................................... 59
ERISA...................................................................... 126
Excess Bankruptcy Losses................................................... 40
Excess Fraud Losses........................................................ 40
Excess Special Hazard Losses............................................... 40
FASIT...................................................................... 92
FDIC....................................................................... 57
FFIEC...................................................................... 132
FHLBB...................................................................... 88
FICO Score................................................................. 25
Fitch...................................................................... 128
Fixed Rate Certificates.................................................... 44
Fixed Retained Yield....................................................... 37
Floating Rate Certificates................................................. 44
Fraud Loss................................................................. 39
Fraud Loss Amount.......................................................... 40
Garn Act................................................................... 88
Government securities...................................................... 92
Graduated Pay Mortgage Loans............................................... 18
Growing Equity Mortgage Loans.............................................. 18
Holder..................................................................... 91
HOPA....................................................................... 84
Indirect DTC Participants.................................................. 34
Interest Only Certificates................................................. 44
Inverse Floating Rate Certificates......................................... 45
IRA........................................................................ 126
Joint Ventures............................................................. 23
Liquidation Proceeds....................................................... 58
Liquidation Profits........................................................ 37
Loan Stores................................................................ 23
Loan-to-Value Ratio........................................................ 28
</TABLE>
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<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Lockout Certificates....................................................... 41
Mark to Market Regulations................................................. 113
Master Servicer............................................................ 55
Master Servicing Fee....................................................... 37
MERS....................................................................... 71
Monthly Reports............................................................ 135
Moody's.................................................................... 128
Mortgage Interest Rate..................................................... 37
Mortgage Loans............................................................. 15
Mortgage Notes............................................................. 15
Mortgaged Properties....................................................... 15
Mortgages.................................................................. 15
NCUA....................................................................... 132
Net Mortgage Interest Rate................................................. 37
New Regulations............................................................ 116
noneconomic residual interest.............................................. 110
Non-Pro Rata Certificate................................................... 95
Non-U.S. Person............................................................ 116
Notional Amount Certificates............................................... 42
OCC........................................................................ 132
OID Regulations............................................................ 95
Other Advances............................................................. 61
OTS........................................................................ 88
PAC Certificates........................................................... 42
PAC I...................................................................... 42
PAC II..................................................................... 42
Partial Liquidation Proceeds............................................... 36
Pass-Through Certificates.................................................. 42
Pass-Through Rate.......................................................... 38
Pass-Through Entity........................................................ 109
Paying Agent............................................................... 60
PCBs....................................................................... 85
Percentage Interest........................................................ 36
Periodic Advances.......................................................... 61
PHMC....................................................................... 22
PHMSC...................................................................... 22
Planned Amortization Certificates.......................................... 42
Plans...................................................................... 126
Pledged Asset Mortgage Loans............................................... 20
PMI........................................................................ 84
Pool Distribution Amount................................................... 36
Pooling and Servicing Agreement............................................ 32
Prepayment Assumption...................................................... 96
Principal Only Certificates................................................ 45
</TABLE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
PTE 83-1................................................................... 130
Rating Agency.............................................................. 135
Ratio Strip Certificates................................................... 42
RCRA....................................................................... 86
Regular Certificateholder.................................................. 94
Regular Certificates....................................................... 32
Regulations................................................................ 128
Relief Act................................................................. 85
Relocation Mortgage Loans.................................................. 51
REMIC...................................................................... 91
REMIC Certificates......................................................... 91
REMIC Pool................................................................. 91
REMIC Regulations.......................................................... 90
Remittance Date............................................................ 58
Reserve Fund............................................................... 46
Residual Certificates...................................................... 32
Residual Holders........................................................... 104
Restricted Group........................................................... 130
retention program.......................................................... 25
Rules...................................................................... 34
S&P........................................................................ 128
SBJPA of 1996.............................................................. 92
Scheduled Amortization Certificates........................................ 43
Scheduled Certificates..................................................... 43
Scheduled Principal Balance................................................ 72
SEC........................................................................ 136
Securities Act............................................................. 129
SecuritiesLink(R).......................................................... 136
Seller..................................................................... 21
Senior Certificates........................................................ 43
Sequential Pay Certificates................................................ 43
Series..................................................................... 31
Servicer................................................................... 56
Servicer Custodial Account................................................. 57
Servicing Account.......................................................... 62
Servicing Fee.............................................................. 37
SMMEA...................................................................... 131
Special Hazard Loss........................................................ 39
Special Hazard Loss Amount................................................. 40
Standard Hazard Insurance Policy........................................... 65
Startup Day................................................................ 92
Step Coupon Certificates................................................... 45
Stripped Certificateholder................................................. 124
Stripped Certificates...................................................... 122
</TABLE>
139
<PAGE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Subordinated Certificates.................................................. 43
Subsidy Account............................................................ 19
Subsidy Loans.............................................................. 18
Subsidy Payments........................................................... 18
Superliens................................................................. 85
Super Senior Certificates.................................................. 44
Super Senior Support Certificates.......................................... 44
Support Certificates....................................................... 41
TAC Certificates........................................................... 44
Targeted Amortization Certificates......................................... 44
Texas Home Equity Laws..................................................... 84
Tiered Payment Mortgage Loans.............................................. 18
Title V.................................................................... 89
Total Loans................................................................ 51
Total Non-Relocation Loans................................................. 51
Treasury Regulations....................................................... 71
Trust...................................................................... 31
Trust Estate............................................................... 15
</TABLE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Trustee.................................................................... 77
Trustee Fee................................................................ 37
U.S. Person................................................................ 111
UCC........................................................................ 80
Underlying Servicing Agreement............................................. 56
Underwriter's Exemption.................................................... 128
UST........................................................................ 86
Variable Rate Certificates................................................. 45
Voting Interests........................................................... 74
Wells Fargo................................................................ 58
Wells Fargo Affiliates..................................................... 21
Wells Fargo Bank........................................................... 22
WFHM....................................................................... 21
WFHM Sale Agreement........................................................ 70
Window Period.............................................................. 88
Window Period Loans........................................................ 88
Window Period States....................................................... 88
</TABLE>
140
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses expected to be incurred in connection with the issuance and dis-
tribution of the securities being registered, other than underwriting compensa-
tion, are as set forth below. All such expenses except for the registration
fees are estimated.
<TABLE>
<S> <C>
SEC Registration Fee.................................................. $ *
Legal Fees and Expenses............................................... *
Accounting Fees and Expenses.......................................... *
Trustee's Fees and Expenses (including counsel fees).................. *
Printing and Engraving Fees........................................... *
Rating Agency Fees.................................................... *
Miscellaneous......................................................... *
---
Total............................................................... $*
===
</TABLE>
-------------------
*To be provided by amendment.
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers and directors, who
are made, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal, adminis-
trative or investigative (other than an action by or in the right of such cor-
poration), by reason of the fact that such person is or was an officer or di-
rector of such corporation, or is or was serving at the request of such corpo-
ration as a director, officer, employee or agent of another corporation or en-
terprise. The indemnity may include expenses (including attorneys' fees), judg-
ments, fines and amounts paid in settlement actually and reasonably incurred by
such person in connection with such action, suit or proceeding, provided such
officer or director acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests and, for criminal
proceedings, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify officers and directors in an action by or in
the right of the corporation under the same conditions, except that no indemni-
fication is permitted without judicial approval if the officer or director is
adjudged to be liable to the corporation. Where an officer or director is suc-
cessful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such offi-
cer or director actually and reasonably incurred.
The By-laws of Wells Fargo Asset Securities Corporation provide for indemni-
fication of officers and directors to the full extent permitted by the Delaware
General Corporation Law.
The Pooling and Servicing Agreements for each Series of Certificates provide
either that the Registrant and the partners, directors, officers, employees and
agents of the Registrant, or that the Master Servicer and the partners, direc-
tors, officers, employees and agents of the Master Servicer, will be entitled
to indemnification by the Trust Estate and will be held harmless against any
loss, liability or expense incurred in connection with any legal
II-1
<PAGE>
action relating to the Pooling and Servicing Agreement or the Certificates,
other than any loss, liability or expense incurred by reason of willful misfea-
sance, 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 du-
ties thereunder.
The directors and officers of the Registrant are covered by a directors' and
officers' liability insurance policy maintained by Wells Fargo & Company for
the benefit of all of its subsidiaries.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement incorporated by reference from
Exhibit 1.1 to the Registration Statement on Form S-3 (File No. 333-
02209).
3.1 Certificate of Incorporation of Wells Fargo Asset Securities
Corporation incorporated by reference from Exhibit 3.1 to the
Registration Statement on Form S-3 (File No. 333-02209).
3.1(a) Amendment to Certificate of Incorporation of Wells Fargo Asset
Securities Corporation Incorporated by reference from Exhibit 3.1(a)
to the Registration Statement on Form S-3 (File No. 333-45578).
3.2 By-laws of Wells Fargo Asset Securities Corporation incorporated by
reference from Exhibit 3.2 to the Registration Statement on Form S-3
(File No. 333-02209).
4.1 Form of Pooling and Servicing Agreement incorporated by reference
from Exhibit 4.1 to the Registration Statement or Form S-3 (File No.
333-65481).
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain
matters involving the Certificates.
8.1 Opinion of Cadwalader, Wickersham & Taft as to tax matters.
10.1 Form of Servicing Agreement incorporated by reference from Exhibit
10.1 to the Registration Statement on Form S-3 (File No. 333-02209).
23.1 Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibits 5.1 and 8.1).
24.1 Power of Attorney (contained on page II-5 of this Registration
Statement).
</TABLE>
Item 17. Undertakings.
(a) Undertaking pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
II-2
<PAGE>
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Undertaking in connection with incorporation by reference of certain
filings under the Securities Exchange Act of 1934.
The Registrant hereby undertakes that, for purposes of determining any lia-
bility under the Securities Act of 1933, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for in-
demnification against such liabilities (other than the payment by the Regis-
trant of expenses incurred or paid by a director, officer or controlling person
of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such officer or controlling person in connection with the secu-
rities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
p
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 (including the requirement that the
securities be rated investment grade at the time of sale) and has duly caused
this Form S-3 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Saint Louis, State of
Missouri on October 20, 2000.
s/s Thomas Neary
By: _____________________________________
Name: Thomas Neary
Title: Executive Vice President
p
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<PAGE>
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears be-
low constitutes and appoints James Strother, Robert K. Chapman, Thomas Neary
and Douglas K. Johnson, and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for and in his
name, place and stead, in any and all capacities to sign any or all amendments
(including post-effective amendments) to this Registration Statement and any or
all other documents in connection therewith, and to file the same, with all ex-
hibits thereto, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act, and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Form S-3
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
<TABLE>
<CAPTION>
<S> <C>
s/s James Strother President, Chief October 20,
----------------------------------- Executive 2000
James Strother Officer,
Secretary and
Director
s/s Robert K. Chapman Executive Vice October 20,
----------------------------------- President, Chief 2000
Robert K. Chapman Financial Officer
and Chief
Accounting
Officer
s/s Thomas Neary Executive Vice October 20,
----------------------------------- President and 2000
Thomas Neary Director
s/s Douglas K. Johnson Director October 20,
----------------------------------- 2000
Douglas K. Johnson
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
1.1............ Form of Underwriting Agreement incorporated by reference from
Exhibit 1.1 to the Registration Statement on Form S-3 (File
No. 333-02209).
3.1............ Certificate of Incorporation of Wells Fargo Asset Securities
Corporation incorporated by reference from Exhibit 3.1 to the
Registration Statement on Form S-3 (File No. 333-02209).
3.1(a)......... Amendment to Certificate of Incorporation of Wells Fargo Asset
Securities Corporation Incorporated by reference from Exhibit
3.1(a) to the Registration Statement on Form S-3 (File No.
333-45578).
3.2............ By-laws of Wells Fargo Asset Securities Corporation
incorporated by reference from Exhibit 3.2 to the Registration
Statement on Form S-3 (File No. 333-02209).
4.1............ Form of Pooling and Servicing Agreement incorporated by
reference from Exhibit 4.1 to the Registration Statement of
Form S-3 (File No. 333-65481).
5.1............ Opinion of Cadwalader, Wickersham & Taft with respect to
certain matters involving the Certificates.
8.1............ Opinion of Cadwalader, Wickersham & Taft as to tax matters.
10.1............ Form of Servicing Agreement incorporated by reference from
Exhibit 10.1 to the Registration Statement on Form S-3 (File
No. 333-02209).
23.1............ Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibits 5.1 and 8.1).
24.1............ Power of Attorney (contained on page II-5 of this Registration
Statement).
</TABLE>
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