<PAGE>
As filed with the Securities and Exchange Commission on September 11, 2000
Registration No. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
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>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<CAPTION>
Title of Amount Proposed Maximum Proposed Maximum Amount of
Securities being Offering Price Aggregate Registration
being Registered Registered Per Unit Offering Price Fee
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Asset-
Backed Pass-
Through
Certificates... $1,000,000(1) 100%(2) $1,000,000 $264
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
(1) $1,642,044,114 remains on Registration Statement No. 333-17801 previously
filed by a predecessor of the Registrant. A registration fee of
$909,090.90 was previously paid in connection with such Registration
Statement.
(2) 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 Registration Statement on Form S-3 (Registration No. 333-17801) previously
filed by a predecessor of the Registrant.
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<PAGE>
Introductory Statement Not Forming Part of Prospectus
On April 7, 2000, Norwest Integrated Structured Assets, Inc. was merged into
and with its affiliate Norwest Asset Securities Corporation. Both Norwest Inte-
grated Structured Assets, Inc. and Norwest Asset Securities Corporation were
direct, wholly-owned subsidiaries of Norwest Mortgage, Inc. and indirect, whol-
ly-owned subsidiaries of Wells Fargo & Company. On April 14, 2000, Norwest
Mortgage, Inc. changed its name to Wells Fargo Home Mortgage, Inc. Both Norwest
Integrated Structured Assets, Inc. and Norwest Asset Securities Corporation
were special purpose corporations incorporated solely to act as depositors for
trusts issuing securities backed by mortgage loans originated or acquired by
Wells Fargo Home Mortgage, Inc.
The purpose of the merger of Norwest Integrated Structured Assets, Inc. into
Norwest Asset Securities Corporation was to consolidate the operations of the
two entities and as a result eliminate the duplication of such operations. As a
result of the merger, Norwest Asset Securities Corporation, as the surviving
entity, acquired all of the assets and assumed all of the liabilities and obli-
gations of Norwest Integrated Structured Assets, Inc.
On April 17, 2000, Norwest Asset Securities Corporation changed its name to
Wells Fargo Asset Securities Corporation.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 solic- +
+iting an offer to buy these securities in any state where the offer or sale +
+is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED SEPTEMBER 11, 2000
PROSPECTUS SUPPLEMENT [LOGO OF WELLS FARGO]
(To Prospectus Dated , 200 )
Wells Fargo Alternative Loan 200 - Trust
Issuer
[LOGO OF WELLS FARGO ASSET SECURITIES CORPORATION]
Seller
$ (Approximate)
Mortgage Asset-Backed Pass-Through Certificates, Series 200 -
Principal and interest payable monthly, commencing in 200 -
You should carefully consider the risk factors beginning on page S-18 of this
prospectus supplement.
Neither the offered certificates nor the underlying mortgage loans are insured
or guaranteed by any governmental agency or instrumentality.
The offered certificates will represent interests in the trust only and will not
represent interests in or obligations of 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.
The Trust will Issue--
. Two groups consisting of fourteen classes of senior Class A Certificates.
. Six classes of Class B Certificates, all of which are subordinated to, and
provide credit enhancement for, the Class A Certificates. Each class of Class
B Certificates is also subordinated to each class of Class B Certificates, if
any, with a lower number.
The classes of offered certificates are listed under the heading "Offered
Certificates" in the table on page S-4.
The Assets of the Trust will Include--
. Two pools of fully amortizing, one-to four-family, residential first mortgage
loans (excluding the fixed retained yield described in this prospectus
supplement), substantially all of which loans have original terms to stated
maturity of approximately years.
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 sales. 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 % of the initial principal balance of the offered Class A
Certificates, approximately % of the initial principal balance of the Class B-1
Certificates, approximately % of the initial principal balance of the Class B-2
Certificates and approximately % of the initial principal balance of the Class
B-3 Certificates before deducting expenses estimated at $ plus accrued interest
from , 200 to , 200 .
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.
[UNDERWRITERS]
The date of this prospectus supplement is , 200 .
<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 Prospectus Supplement Definitions" beginning on page S- in
this document and under the caption "Index of Significant Definitions" begin-
ning 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-5
Risk Factors........................... S-18
Prepayments May Adversely Affect
Yield................................ S-18
Geographic Concentration May Increase
Risk of Loss Because of Adverse
Economic Conditions or Natural
Disasters............................ S-19
Subordination of Class B Certificates
Increases Risk of Loss............... S-19
Class B Certificates Provide
Subordination for Both Certificate
Groups............................... S-19
Underwriting Standards................ S-20
Rights of Beneficial Owners May Be
Limited By Book-Entry System for
Certain Classes of Class A
Certificates......................... S-20
Certificates May Not Be Appropriate
for Individual Investors............. S-20
Forward Looking Statements............. S-21
Description of the Certificates........ S-22
General............................... S-22
Denominations; Form of Certificates... S-22
Distributions......................... S-23
Interest.............................. S-27
Principal (Including Prepayments)..... S-32
Calculation of Amount to be
Distributed on the Certificates..... S-32
Allocation of Amount to be
Distributed on the Class A
Certificates........................ S-39
Cross-Collateralization............... S-41
Additional Rights of the Class I-A-R
Certificateholders................... S-42
Periodic Advances..................... S-42
PMI Advances.......................... S-43
Restrictions on Transfer of the Class
I-A-R and Class B Certificates....... S-43
Reports............................... S-45
Subordination of Class B
Certificates......................... S-45
Allocation of Losses................. S-46
Description of the Mortgage Loans...... S-50
General............................... S-50
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Mortgage Loan Underwriting............ S-50
Group I Mortgage Loan Data............ S-56
Group II Mortgage Loan Data........... S-59
Mandatory Repurchase or Substitution
of Mortgage Loans.................... S-61
Optional Repurchase of Defaulted
Mortgage Loans....................... S-62
Optional Substitution of the Mortgage
Loans................................ S-62
Delinquency and Foreclosure
Experience............................ S-62
Prepayment and Yield Considerations.... S-62
Yield Considerations with Respect to
the Class B-2 and Class B-3
Certificates......................... S-72
Pooling and Servicing Agreement........ S-75
General............................... S-75
Distributions......................... S-75
Voting................................ S-76
Trustee............................... S-76
Master Servicer....................... S-76
Special Servicing Agreements.......... S-76
Optional Termination.................. S-77
Servicing of the Mortgage Loans........ S-77
The Servicers......................... S-78
Servicer Custodial Accounts........... S-78
Unscheduled Principal Receipts........ S-79
Anticipated Changes in Servicing...... S-79
Fixed Retained Yield; Servicing
Compensation and Payment of
Expenses............................. S-80
Servicer Defaults..................... S-81
Material Federal Income Tax
Consequences.......................... S-81
Regular Certificates.................. S-82
Residual Certificates................. S-82
ERISA Considerations................... S-83
Legal Investment....................... S-84
Secondary Market....................... S-85
Underwriting........................... S-85
Recent Developments.................... S-86
Legal Matters.......................... S-86
Use of Proceeds........................ S-86
Ratings................................ S-86
Index of Significant Prospectus
Supplement Definitions................ S-88
</TABLE>
S-3
<PAGE>
THE SERIES 200 -- CERTIFICATES
<TABLE>
<CAPTION>
Initial Pass- Initial 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 I-A-1............. $ % Senior, Sequential Pay Fixed Rate
Class I-A-2............. $ % Senior, Accretion Directed Fixed Rate
Class I-A-3............. $ % Senior, Sequential Pay Fixed Rate
Class I-A-4............. $ % Senior, Lockout Fixed Rate
Class I-A-5............. $ % Senior, Sequential Pay Fixed Rate
Class I-A-6............. $ % Senior, Sequential Pay Fixed Rate
Class I-A-7............. $ % Senior, Sequential Pay Fixed Rate
Class I-A-8............. $ % Senior, Sequential Pay Fixed Rate
Class I-A-9............. $ % Senior, Sequential Pay Fixed Rate
Class I-A-10............ $ % Senior, Sequential Pay Accrual,
Fixed Rate
Class I-A-R............. $ % Senior, Sequential Pay Fixed Rate
Class II-A-1............ $ % Senior, Pass-Through Fixed Rate
Class B-1............... $ % Subordinated Fixed Rate
Class B-2............... $ % Subordinated Fixed Rate
Class B-3............... $ % Subordinated Fixed Rate
Non-Offered Certificates
Class I-A-PO............ $ (4) Senior, Ratio Strip Principal Only
Class II-A-PO........... $ (4) Senior, Ratio Strip Principal Only
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 Informa-
tion" and under "Ratings" in the main text of this prospectus supplement.
(4) The Class I-A-PO and Class II-A-PO Certificates are Principal Only Certifi-
cates 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 Alternative Loan 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., formerly known as Norwest Mortgage, Inc.,
will supervise the servicers of the mortgage 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 for 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 "Rat-
ings" in this prospectus supplement.
DESCRIPTION OF CERTIFICATES
The Mortgage Asset-Backed Pass-Through Certificates, Series 200 - will be is-
sued on the closing date which will be on or about , 200 .
The certificates consist of:
. the fourteen classes of senior Class A Certificates designated as "Senior"
certificates in the table on page S-4. The Class A Certificates will be di-
vided into two certificate groups. The first certificate group will consist
of twelve classes and the second certificate group will consist of two clas-
ses; 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 other than the Class I-A-PO and Class II-A-PO
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
Class I-A-PO, Class II-A-PO, Class B-4, Class B-5 and Class B-6 Certificates
are not being offered by this prospectus sup-
S-5
<PAGE>
plement and the accompanying prospectus, and the seller may retain or sell such
classes.
See page S-4 for more information with respect to each class of certificates.
Principal Balance and Interest Evidenced by the Certificates
The certificates will have an approximate aggregate initial principal balance
of $ . Any difference between the total principal balance of the certifi-
cates as of the date of issuance of the certificates and the approximate aggre-
gate initial principal balance of the certificates as of the date of this pro-
spectus supplement will not exceed 5% of the total initial principal balance of
the certificates. Any difference will be allocated among the various classes of
certificates so as to materially retain the characteristics of the offered cer-
tificates described in this prospectus supplement.
The Class A Certificates in the first certificate group will represent inter-
ests in the mortgage loans in the first loan group. The Class A Certificates in
the second certificate group will represent interests in the mortgage loans in
the second loan group. The Class B Certificates will represent interests in the
mortgage loans of both loan groups.
The Class I-A-PO Certificates represent an interest in a portion of the princi-
pal balance of each discount mortgage loan in the first loan group. The mort-
gage loans which have a mortgage interest rate of less than % after deduct-
ing the master servicing fee rate, the servicing fee rate and any fixed re-
tained yield are discount mortgage loans. The Class II-A-PO Certificates repre-
sent an interest in a portion of the principal balance of each discount mort-
gage loan in the second loan group. The portion of the total principal balance
of the mortgage loans in a loan group not represented by the Class I-A-PO or
Class II-A-PO Certificates is the non PO portion and is represented by the
other Class A Certificates of the related certificate group and the Class B
Certificates.
The following tables set forth the approximate undivided interest in the prin-
cipal balance of the mortgage loans of the applicable loan group(s) that the
seller expects each class or group of classes indicated to evidence as of the
closing date.
<TABLE>
<CAPTION>
Approximate Initial
Undivided Interest
Group I-A Class or in the Group I
Classes Mortgage Loans
--------------------- -------------------
<S> <C> <C>
Group I-A (other than
Class I-A-PO) %
Class I-A-PO %
---------
Group I-A
(all Classes) %
=========
</TABLE>
The Class I-A-PO Certificates represent an approximate % initial interest in
the principal balance of the discount mortgage loans in the first loan group.
<TABLE>
<CAPTION>
Approximate Initial
Undivided Interest
Group II-A Class or in the Group II
Classes Mortgage Loans
------------------------ -------------------
<S> <C> <C>
Group II-A (other than
Class II-A-PO) %
Class II-A-PO %
---------
Group II-A (all Classes) %
=========
</TABLE>
S-6
<PAGE>
The Class II-A-PO Certificates represent an approximate % initial interest in
the principal balance of the discount mortgage loans in the second loan group.
<TABLE>
<CAPTION>
Approximate Initial
Undivided Interest
in the
Class or Classes Mortgage Loans
----------------------- --------------------
<S> <C> <C>
Group I-A (other than
Class I-A-PO) %
Class I-A-PO %
---------
Group I-A (all Classes) %
Group II-A (other than
Class II-A-PO) %
Class II-A-PO %
---------
Group II-A
(all Classes) %
Class B-1 %
Class B-2 %
Class B-3 %
Class B-4, B-5 and B-6 %
----------
Total 100.00%
==========
</TABLE>
The Class I-A-PO and Class II-A-PO Certificates represent approximately % and
%, respectively, initial interests in the total principal balance of the Dis-
count Mortgage Loans.
The following tables set forth for the classes or groups of classes indicated
the approximate undivided interest in the non PO portion of the total principal
balance of the mortgage loans in the related loan group(s) that the seller ex-
pects such classes or groups of classes indicated to evidence as of the closing
date.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Approximate Initial
Undivided Interest
in Pool Balance
(Non-PO Portion)
Class I-A Class or Classes for Loss Group I
------------------------------------- ---------------------
Percentage In dollars
---------- ----------
<S> <C> <C>
Group I-A (other than Class I-A-PO) % $
------
Totals % $
====== ======
------------------------------------------------------------
<CAPTION>
Approximate Initial
Undivided Interest
in Pool Balance
(Non-PO Portion)
Class II-A Class or Classes for Loss Group II
------------------------------------- ---------------------
Percentage In dollars
---------- ----------
<S> <C> <C>
Group II-A (other than Class II-A-PO) % _ $
------
Totals % _ $
====== ======
------------------------------------------------------------
<CAPTION>
Approximate Initial
Undivided Interest in
Total of
Pool Balances
Class or Classes (Non-PO Portion)
------------------------------------- ---------------------
<S> <C> <C>
Group I-A (other than Class I-A-PO) % $
Group II-A (other than Class II-A-PO) % $
Class B % $
------ ------
Totals 100.00% $
====== ======
</TABLE>
--------------------------------------------------------------------------------
The relative interests in the applicable initial non PO portion of the princi-
pal balance of the mortgage loans in a loan group represented by the Class A
Certificates of a certificate group, other than the Class A-PO Certificates of
that certificate group, and the Class B Certificates are subject to change over
time because:
. certain unscheduled principal payments on the mortgage loans in the related
loan
S-7
<PAGE>
group will be disproportionally allocated to the related certificate group of
Class A Certificates, other than the Class A-PO Certificates of that certifi-
cate group, for a specified period;
. certain losses and certain shortfalls on the mortgage loans of the related
loan group 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 related certificate group of Class A Certificates, as discussed in
"Description of the Certificates-- Distributions" and "-- Subordination of
Class B Certificates" in this prospectus supplement; and
. under specific circumstances, certain scheduled and unscheduled principal
payments on the mortgage loans of a particular loan group otherwise distrib-
utable to the Class B Certificates may be disproportionately allocated to the
unrelated certificate group of Class A Certificates, other than the Class A-
PO Certificates of that certificate group, as discussed in "Description of
the Certificates -- Cross-Collateralization" in this prospectus supplement.
Forms of Certificates; Denominations
Your certificates will be issued either in book-entry form or in fully regis-
tered, certificated form. The table under "Description of the Certificates --
Denominations; Form of Certificates" in this prospectus supplement sets forth
the original certificate form, the minimum denomination and the incremental de-
nomination of the offered certificates. The offered certificates are not in-
tended to be directly or indirectly held or beneficially owned by anyone in
amounts lower than these minimum denominations.
MORTGAGE POOL
The mortgage loans, which are the source of distributions to holders of the
certificates, will consist of conventional, fixed interest rate, monthly pay,
fully amortizing one- to four-family, residential first mortgage loans. Some of
the mortgage loans may be loans secured by shares issued by non-profit coopera-
tive housing corporations.
The mortgage loans will be divided into two loan groups.
The mortgage loans in the first loan group will consist of mortgage loans sub-
stantially all of which have original terms to maturity of approximately
years. The mortgage loans in the first loan group will be, except to the extent
of cross-collateralization payments described below, the primary source of dis-
tributions to holders of the Class A Certificates in the first certificate
group and the source of a portion of the distributions to holders of the Class
B Certificates.
The mortgage loans in the second loan group will consist of mortgage loans sub-
stantially all of which have original terms to maturity of approximately
years. The mortgage loans in the second loan group will be, except to the ex-
tent of cross-collateralization payments described below, the source of distri-
butions to holders of the Class A Certificates in the second certificate group
and the source of a portion of the distributions to holders of the Class B
Certificates.
The seller expects the mortgage loans to have the further specifications set
forth in the following tables and under the heading "Description of the Mort-
gage Loans" in this prospectus supplement.
S-8
<PAGE>
--------------------------------------------------------------------------------
GROUP I MORTGAGE LOANS
SELECTED MORTGAGE LOAN DATA
(as of the Cut-Off Date)
(approximate)
<TABLE>
<S> <C> <C>
Cut-Off Date: , 200
Number of Mortgage Loans:
Total Unpaid Principal Balance: $
Range of Unpaid Principal Balances: $ to $
Average 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 Total
Unpaid Principal Balance: [STATES] %
%
Maximum Five-Digit Zip Code Concentration: %
</TABLE>
------------------
Information concerning the discount mortgage loans and the non-discount mort-
gage loans in the first loan group is set forth under "Description of the
Mortgage Loans -- General."
--------------------------------------------------------------------------------
GROUP II MORTGAGE LOANS
SELECTED MORTGAGE LOAN DATA
(as of the Cut-Off Date)
(approximate)
<TABLE>
<S> <C> <C>
Cut-Off Date: , 200
Number of Mortgage Loans:
Total Unpaid Principal Balance: $
Range of Unpaid Principal Balances: $ to $
Average 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 Total
Unpaid Principal Balance: [STATES] %
%
Maximum Five-Digit Zip Code Concentration: %
</TABLE>
------------------
Information concerning the discount mortgage loans and the non-discount mort-
gage loans in the second loan group is set forth under "Description of the
Mortgage Loans -- General."
--------------------------------------------------------------------------------
S-9
<PAGE>
Changes to Mortgage Pools
The seller may remove mortgage loans from a loan group, or may make substitu-
tions for certain mortgage loans, in advance of the closing date.
After the issuance of the certificates, the seller may remove certain mortgage
loans from a loan group through repurchase or, under certain circumstances, may
make substitutions for certain mortgage loans.
See "Description of the Mortgage Loans" in this prospectus supplement.
Optional Termination of the Trust
The seller may, subject to certain conditions including the then-remaining size
of the trust estate, purchase all outstanding mortgage loans in the trust es-
tate and effect early retirement of the certificates. See "Pooling and Servic-
ing Agreement -- Optional Termination" in this prospectus supplement.
Underwriting Standards
Approximately % (by aggregate unpaid principal balance as of the cut-off date)
of the mortgage loans in the first loan group and approximately % (by aggre-
gate unpaid principal balance as of the cut-off date) of the mortgage loans in
the second loan group were generally originated in conformity with Wells Fargo
Home Mortgage Inc.'s general underwriting standards or modified underwriting
standards described in the prospectus under the heading "The Mortgage Loan Pro-
grams --Mortgage Loan Underwriting -- General Standards" and "-- Modified Stan-
dards." In certain instances, Wells Fargo Home Mortgage, Inc. may have granted
exceptions to the underwriting standards.
The remaining approximate % of the mortgage loans in the first loan group and
approximately % of the morgage loans in the second loan group were purchased
by Wells
Fargo Home Mortgage, Inc. in bulk purchase transactions and were underwritten
using underwriting standards which may vary from the general or modified under-
writing standards. However, Wells Fargo Home Mortgage, Inc. has in each case
reviewed the underwriting standards applied to the bulk purchase underwritten
loans and determined that those standards were not materially different than
the general or modified 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
On each distribution date the amount available for distribution on certificates
relating to each loan group, which consists of certain payments, recoveries,
advances and other receipts in respect of the mortgage loans in the loan group,
will be distributed generally in the following order of priority:
. first, pro rata, to the holders of the Class A Certificates of the related
certificate group in respect of interest which they are entitled to receive
on such distribution date;
. second, to the holders of the Class A Certificates of the related certificate
group, 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 I-A-10 Certificates you will not receive
interest distributions with respect to your certificates until either the dis-
tribution date after principal balance of the Class I-A-2 Certificates has been
reduced to zero or the principal balances of the Class B certificates have been
reduced to zero.
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Until then interest which would otherwise be distributed on your Class I-A-10
Certificates will be added to the principal balance of the Class I-A-10 Certif-
icates and will be distributed instead as principal to the holders of the Class
I-A-2 and Class I-A-10 Certificates as specified under "Description of the Cer-
tificates -- Principal (Including Prepayments)" in this prospectus supplement.
In addition, certain payments of principal to which the Class A-PO Certificates
of a certificate group may be 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. These payments of principal represent a reimburse-
ment to the Class A-PO Certificates of a certificate group for certain realized
losses allocated to these certificates on prior distribution dates.
Interest Distributions
The amount of interest which will accrue on your certificates each month is
equal to:
. 1/12th of the pass-through rate for your class of certificates multiplied by
the outstanding principal balance of your 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.
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 of each certificate
group are described under "Description of the Certificates -- Distributions,"
" -- Principal (Including Prepayments)" and "-- Cross-Collateralization" 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 the amounts pay-
able to the Class A-PO Certificates as a reimbursement for realized losses,
and, if necessary, by the right of such more senior holders to receive future
distributions 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 result-
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<PAGE>
ing from the liquidation of defaulted mortgage loans or the bankruptcy of
mortgagors prior to the allocation of such losses to the more senior classes
of certificates, other than certain excess losses arising from special haz-
ards, mortgagor fraud or mortgagor bankruptcy.
See "Description of the Certificates -- Distributions" and "-- Subordination of
Class B Certificates" in this prospectus supplement.
In addition, in order to increase the period during which the principal bal-
ances of the Class B Certificates remain available as credit enhancement to the
Class A Certificates, a disproportionate amount of prepayments and certain
unscheduled recoveries with respect to the mortgage loans of each loan group
will be allocated to the related certificate group of Class A Certificates,
other than the Class A-PO Certificates of such certificate group. This alloca-
tion will accelerate the amortization of the Class A Certificates of the cer-
tificate group, other than the Class A-PO Certificates of that certificate
group while, in the absence of losses due to the liquidation of defaulted mort-
gage loans or losses resulting from the bankruptcy of mortgagors, increasing
the percentage interest in the principal balance of the mortgage loans in the
related loan group 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 in such loan group, will be allocated to the
Class A Certificates of the related certificate group, other than the Class A-
PO Certificates of that certificate group. To the extent such losses
arise with respect to discount mortgage loans, principal losses will be shared
among the Class A Certificates of the related certificate group according to
their respective interests in such mortgage loans. The principal portion of any
losses borne by the Class A Certificates of a certificate group, other than
losses borne by the Class A-PO Certificates of that certificate group, will be
shared pro rata by the classes of Class A Certificates of the certificate group
other than the Class A-PO Certificates of that certificate group, based on
their then-outstanding principal balances, or, in the case of the I-A-10 Cer-
tificates, their initial principal balance, if lower, and the interest portion
of these losses will be shared pro rata by these classes based on interest ac-
crued. See "Description of the Certificates -- Interest" and "-- Subordination
of Class B Certificates -- Allocation of Losses" in this prospectus supplement.
Excess losses on the mortgage loans of a loan group resulting from special haz-
ards, mortgagor fraud and mortgagor bankruptcy will be borne by the Class A
Certificates of the related certificate group and the Class B Certificates as
described in this prospectus supplement under "Description of the Certifi-
cates --Interest" and "Subordination of Class B Certificates -- Allocation of
Losses."
If you are purchasing Class B Certificates, you should be aware that losses
(other than excess losses) from both loan groups will be allocated to your cer-
tificates before being borne by the Class A Certificates of either certificate
group. If you are purchasing Class A Certificates of a certificate group you
should be aware that if the mortgage loans in the unrelated loan group experi-
ence a disproportionate amount of losses, the principal balances of the Class B
Certificates may be reduced to zero sooner than
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<PAGE>
you anticipated, which increases the likelihood that your Class A Certificates
may experience losses.
In addition, if you are purchasing Class B Certificates, you should consider
that under certain circumstances you will not receive any principal distribu-
tions from the mortgage loans of a loan group even if the principal balances of
the related Class A Certificates have been reduced to zero. Instead, such dis-
tributions will be used to pay the Class A Certificates of the unrelated cer-
tificate group, other than the Class A-PO Certificates of that certificate
group. See "Description of the Certificates -- Cross Collateralization" in this
prospectus supplement for a discussion of the circumstances under which this
will occur.
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 of these losses
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 % of the pre-
payment vector described in this prospectus. However, no one can predict the
actual rate of prepayment 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 each certificate group of Class A Certificates, other than the Class A-PO
Certificates of that certificate group, will collectively be more sensitive to
prepayments on the mortgage loans in the related loan group than the Class B
Certificates because such prepayments will be disproportionately allocated to
the Class A Certificates of that certificate group then entitled to principal
distributions during the nine years beginning on the first distribution date.
See "Description of the Certificates -- Principal (Including Prepayments)" and
"Prepayment and Yield Considerations" in this prospectus supplement.
The actual yield on your certificates may not be equal to the yield you antici-
pated at the time of purchase. In addition, even if the actual yield is equal
to the yield you anticipated at the time of purchase, the total return on in-
vestment you expected or the expected weighted average life of your certifi-
cates may not be realized. These effects are summarized below.
Yield
The actual yield on your certificates in relation to the related pass-through
rate will vary
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<PAGE>
depending upon the price you paid for your certificates.
. If you purchase an offered certificate at an amount equal to its unpaid prin-
cipal balance -- that is, at "par" -- your effective yield -- assuming that
there are no interest shortfalls and assuming the full return of your in-
vested 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 -- that is, buy the certificate at a "discount" or "premium," re-
spectively -- then your effective yield -- assuming that there are no inter-
est shortfalls and assuming the full return of your invested principal --
will be higher or lower, respectively, than the pass-through rate on the cer-
tificate, because the 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 are purchasing offered certificates at a discount, you should consider
the risk that a slower than anticipated rate of principal payments on the mort-
gage loans in the related loan group, or both loan groups in the case of the
Class B Certificates, 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 mort-
gage loans in the related loan group, or both loan groups in the case of Class
B Certificates, 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
in the related loan group, or both loan groups in the case of the Class B Cer-
tificates, 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, 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 your expected yield.
You should consider the risk that rapid rates of prepayments on the mortgage
loans in the related loan group, or both loan groups in the case of the Class B
Certificates, may coincide with periods of low prevailing market interest
rates. During periods of low prevailing market interest rates, mortgagors may
be expected to prepay or refinance mortgage loans that carry interest rates
significantly higher than then-current interest rates for mortgage loans. Con-
sequently, the amount of principal distributions available to you for reinvest-
ment at such low prevailing interest rates may be relatively large.
Conversely, slow rates of prepayments on the mortgage loans in the related loan
group, or both loan groups in the case of the Class B Certificates, may coin-
cide with periods of high prevailing market interest rates. During such peri-
ods, it is less likely that mortgagors will elect to prepay or refinance mort-
gage
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<PAGE>
loans and, therefore, the amount of principal distributions available to you
for reinvestment at such high prevailing interest rates may be relatively
small.
Weighted Average Life Volatility
One indication of the impact of varying prepayment speeds on a security is the
change in its weighted average life.
. The "weighted average life" of an offered certificate is the average amount
of time that will elapse between the date of issuance of the certificate and
the date on which each dollar in reduction of the principal balance of the
certificate is distributed to the investor.
Low rates of prepayment on the mortgage loans in the related loan group, or
both loan groups in the case of the Class B Certificates, may result in the ex-
tension 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
prepayment is illustrated in the tables appearing under the heading "Prepayment
and Yield Considerations" in this prospectus supplement. These illustrations
are based on prepayment and other assumptions which are unlikely to match the
actual experience on the mortgage loans. Therefore, your results will vary.
See "Risk Factors -- Prepayments May Adversely Affect Yield" and "Prepayment
and Yield Considerations" 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 I-A-R certificate) and the Class
I-A-PO, Class II-A-PO, Class B-4, Class B-5 and Class B-6 certificates will
constitute "regular interests" in the REMIC. The Class I-A-R certificate will
be the "residual interest" in the REMIC.
The offered certificates, other than the Class I-A-R Certificates, will be
treated as newly-originated debt instruments for most federal income tax pur-
poses. 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 "Material Federal
Income Tax Consequences" 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 origi-
nal issue discount income over the life of your certificate, often well before
such income is distributed in cash to you.
The Class I-A-R Certificate will not be treated as a debt instrument for fed-
eral income tax purposes. Instead, if you are the holder of the Class I-A-R
Certificate, you must include the taxable income or loss of the REMIC in deter-
mining your federal taxable income. All or most of the taxable income of the
REMIC includible by the Class I-A-R Certificateholder will be treated as "ex-
cess 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
I-A-R Certificate may be significantly lower than would be the case if the
Class I-A-R
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<PAGE>
Certificate were taxed as a debt instrument, or may be negative. You may have
to use funds other than distributions on your certificate to meet the tax lia-
bilities resulting from the ownership of a Class I-A-R Certificate.
Additionally, the Class I-A-R Certificate will be considered "non-economic re-
sidual interests" for tax purposes. As a result, certain transfers of the Class
I-A-R Certificate may be disregarded for federal tax purposes, with the trans-
feror continuing to have tax liabilities for the transferred certificates. See
"Description of the Certificates -- Restrictions on Transfer of the Class I-A-R
and Class B Certificates" and "Material Federal Income Tax Considerations" in
this prospectus supplement and "Material 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 Section
3(32) of ERISA, subject to any federal, state or local law which is, to a mate-
rial extent, similar to the foregoing provisions of ERISA or the Internal Reve-
nue Code, you should carefully review with your legal advisors whether the pur-
chase or holding of offered certificates could give rise to a transaction pro-
hibited 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 "De-
scription of the Certificates -- Restrictions on Transfer of the Class I-A-R
and Class B Certificates" in this prospectus supplement.
The Class I-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 I-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 re-
lated securities" under this act .
If your investment activities are subject to legal investment laws and regula-
tions, regulatory capital requirements or review by reg-
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<PAGE>
ulatory authorities you may be subject to restrictions on investment in the of-
fered certificates and should consult your own legal, tax and accounting advi-
sors in determining the suitability of and consequences to you of the purchase,
ownership and disposition 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 de-
scribed 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, to-
gether with certain additional information, available to any interested in-
vestor via the internet and other electronic means described under "Where You
Can Find More Information" in the prospectus.
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<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 in the related loan group, or both loan groups in the case of
the Class B certificates, and the amount and timing of mortgagor defaults re-
sulting in realized losses. Mortgagors are permitted to prepay the mortgage
loans, in whole or in part, at any time. 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 payments 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, or op-
tional purchase by the seller of defaulted mortgage loans; and
. the optional purchase by the seller of all of the mortgage loans in
connection with the termination of the trust estate.
See "Prepayment and Yield Considerations" and "Pooling and Servicing 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 "Prepayment
and Yield Considerations -- Refinancings" in the prospectus.
If you are purchasing offered certificates at a discount, you should consider
the risk that if principal payments on the mortgage loans in the related loan
group, or both loan groups in the case of the Class B Certificates, occur at a
rate slower than you expected, there will be a negative effect on the yield to
maturity on your certificates.
If you are purchasing offered certificates at a premium, you should consider
the risk that if principal payments on the mortgage loans in the related loan
group, or both loan groups in the case of the Class B Certificates, occur at a
rate faster than you expected, there will be a negative effect on the yield to
maturity on your certificates.
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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 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 lower-numbered classes of Class B Certificates, if any. In
addition, realized losses, other than excess losses, will be allocated to the
Class B Certificates in the reverse order in which they are entitled to distri-
butions of principal before being allocated to the Class A Certificates. Ac-
cordingly, if you are purchasing Class B Certificates, you will be more likely
to experience losses as a result of the occurrence of losses or interest
shortfalls on the Mortgage Loans. See "Description of the Certificates -- Sub-
ordination of Class B Certificates."
Class B Certificates Provide Subordination For Both Certificate Groups
Certain limited amounts of losses on the mortgage loans in both loan groups
resulting from special hazards, mortgagor fraud and mortgagor bankruptcy will
be allocated solely to the Class B Certificates. Therefore, in the event mort-
gage loans in one loan group suffer a high level of these losses, the available
coverage for all Class A Certificates will be reduced. In the event mortgage
loans in a loan group suffer these losses after the available coverage has been
ex-hausted, the excess losses above the coverage will be allocated as described
herein under "Description of the Certificates -- Subordination of Class B Cer-
tificates -- Allocation of Losses."
Because the Class B Certificates provide credit support for both loan groups,
the principal balances of the Class B Certificates could be reduced to zero as
a result of disproportionate amount of realized losses on the mortgage loans in
one loan group. Therefore, realized losses on the
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<PAGE>
mortgage loans in one loan group will reduce the subordination provided by the
Class B Certificates to the other certificate group of Class A Certificates and
increase the likelihood that realized losses may be allocated to that other
certificate group of Class A Certificates.
See "Description of the Certificates -- Subordination of Class B Certifi-
cates -- Allocation of Losses" herein.
Under certain circumstances principal otherwise payable to the Class B Cer-
tificates will be paid to the Class A Certificates (other than the Class A-PO
Certificates) as described under "Description of the Certificates -- Cross-
Collateralization" herein. In addition, the Class A-PO Certificates will be en-
titled to reimbursement for certain losses allocated to them from amounts oth-
erwise distributable as principal on the Class B Certificates regardless of the
loan group from which such payments are derived.
Underwriting Standards
Certain of the mortgage loans will have been originated using underwriting
standards that are different from and, in certain respects, less stringent than
the general underwriting policies of Wells Fargo Home Mortgage, Inc. See "The
Mortgage Loan Programs -- Mortgage Loan Underwriting -- Modified Standards" in
the prospectus. For example, certain of the mortgage loans may have been origi-
nated with higher maximum loan-to-value ratios, less restrictive requirements
for investment properties or "equity take out" financings, may be secured by
shares in cooperative housing corporations, "condotels" or unique parcels of
land, or may have been made to foreign nationals. In addition, a substantial
portion of the mortgage loans are No Ratio Loans as described under "The Mort-
gage Loan Programs -- Mortgage Loan Underwriting -- Modified Standards" in the
prospectus for which ratios of the related prospective borrowers' debt service
on the mortgage loan and total debt obligations to income were not required to
be taken into account in making the loan. Accordingly, the mortgage loans may
also experience rates of delinquencies, defaults, foreclosure, bankruptcy and
loss that are higher than those experienced by mortgage loans underwritten to
Wells Fargo Home Mortgage Inc.'s general underwriting standards. See "Prepay-
ment and Yield Considerations" herein.
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 be only 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 gen- eral, 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.
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
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<PAGE>
loans in the related loan group, or both loan groups in the case of the
Class B Certificates;
. 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 in the re-
lated loan group, or both loan groups in the case of the Class B Cer-
tificates, and the priority of principal distributions among the clas-
ses of certificates, and as such the offered certificates may be inap-
propriate investments for you if you require a distribution of a par-
ticular amount of principal on a specific date or an otherwise predict-
able stream of distributions;
. you may not be able to reinvest amounts distributed in respect of prin-
cipal on your certificates (which distributions, in general, are ex-
pected to be greater during periods of relatively low interest rates)
at a rate at least as high as the applicable pass-through rate or your
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 Prepayments on
Mortgage Loans May Adversely Affect Average Lives and Yields on Certificates"
in the prospectus.
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 quali-
fying language and assumptions, are found in the material, including each of
the tables, set forth under "Risk Factors" and "Prepayment and Yield Considera-
tions." 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 impor-
tant factors that could cause the actual results or performance to differ mate-
rially 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 supple-
ment. The Seller expressly disclaims any obligation or undertaking to dissemi-
nate any updates or revisions to such forward-looking statements to reflect any
change in the Seller's expectations with regard thereto or any change in
events, conditions or circumstances on which any forward-looking statement is
based.
S-21
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Wells Fargo Alternative Loan 200 -Trust (the "Trust") will issue Mortgage
Asset-Backed Pass-Through Certificates, Series 200 -(the "Certificates") on or
about , 200
The Certificates will consist of fourteen classes of senior certificates (the
"Class A Certificates") divided into two certificate groups (each may be re-
ferred to as a "Group" and will be called the "Group I-A Certificates" and
"Group II-A Certificates," respectively) and six classes of junior certificates
(the "Class B Certificates" or "Subordinated Certificates". Only the Class A
Certificates (other than the Class I-A-PO and the Class II-A-PO Certificates
(collectively, the "Class A-PO 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 Certificates").
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 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 lim-
ited circumstances described therein, all references to actions taken by
Certificateholders or holders shall, in the case of the Book-Entry Certifi-
cates, refer to actions taken by DTC upon instructions from its DTC Partici-
pants (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 pro-
cedures. See "Description of the Certificates -- Book-Entry Form" in the pro-
spectus.
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 in-
S-22
<PAGE>
tended to be directly or indirectly held or beneficially owned in amounts lower
than such minimum denominations.
FORM AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
Original Certificate Minimum Incremental
Class Form Denomination Denomination(/1/)
----- -------------------- ------------ -----------------
<S> <C> <C> <C>
Classes I-A-1, I-A-2, I-A-
4, I-A-10 and II-A-1..... $ $
Classes I-A-3, I-A-5, I-A-
6, I-A-7, I-A-8 and
I-A-9.................... $ $
Classes I-A-R............. $ N/A
Class B-1, B-2 and B-3.... $ $
</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. Distributions
will be made on each Distribution Date to holders of record 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 holders of the Group I-A
Certificates on each Distribution Date (except to the extent of cross-
collateralization payments) will be the Group I Pool Distribution Amount. The
aggregate amount available for distribution to holders of the Group II-A Cer-
tificates on each Distribution Date (except to the extent of cross-
collateralization payments) will be the Group II Pool Distribution Amount. The
Class B Certificates will be entitled to distributions from the Group I Pool
Distribution Amount and the Group II Pool Distribution Amount. The Group I Pool
Distribution Amount will be determined by reference to amounts received and ex-
penses incurred in connection with the Group I Mortgage Loans and the Group II
Pool Distribution Amount will be determined by reference to amounts received
and expenses incurred in connection with the Group II Mortgage Loans. The
"Group I Pool Distribution Amount" and the "Group II Pool Distribution Amount"
(each, a "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 Group I
Mortgage Loans or Group II Mortgage Loans, as applicable, received by the
Master Servicer, including without limitation any related insurance pro-
ceeds, any proceeds required as a result of a substitution of a Mortgage
Loan and the proceeds of any purchase of a related Group I Mortgage Loan or
Group II Mortgage Loan, as applicable, 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 Group I Mortgage Loan or Group II Mort-
gage Loan, as applicable, on or prior to the Remittance Date in the month
in which such Distribution Date occurs,
S-23
<PAGE>
(ii) all Periodic Advances made with respect to a Group I Mortgage Loan
or Group II Mortgage Loan, as applicable, and
(iii) all other amounts with respect to a Group I Mortgage Loan or Group
II Mortgage Loan, as applicable, (including any insurance proceeds and Com-
pensating Interest) placed in the Certificate Account by any Servicer on or
before the Remittance Date or by the Master Servicer on or before the Dis-
tribution Date pursuant to the Pooling and Servicing Agreement, but exclud-
ing the following:
(a) amounts received as late payments of principal or interest with
respect to Group I Mortgage Loans or Group II Mortgage Loans, as appli-
cable, respecting which one or more unreimbursed Periodic Advances has
been made;
(b) to the extent permitted by the Pooling and Servicing Agreement,
that portion of Liquidation Proceeds with respect to a Group I Mortgage
Loan or a Group II Mortgage Loan, as applicable, that represents any
unreimbursed Periodic Advances of such Servicer;
(c) those portions of each payment of interest on a particular Group
I Mortgage Loan or Group II Mortgage Loan, as applicable, which repre-
sent (i) the Servicing Fee, (ii) the Master Servicing Fee and (iii) the
Fixed Retained Yield, if any;
(d) all amounts with respect to Group I Mortgage Loans or Group II
Mortgage Loans, as applicable, representing scheduled payments of prin-
cipal and interest due after the Due Date occurring in the month in
which such Distribution Date occurs;
(e) all principal prepayments in full, all partial principal prepay-
ments, all proceeds of any Group I Mortgage Loans or Group II Mortgage
Loans, as applicable, or property acquired in respect thereof, or liq-
uidated pursuant to the Pooling and Servicing Agreement, including Net
Partial Liquidation Proceeds and Recoveries and other unscheduled re-
ceipts in respect of principal of the Mortgage Loans other than pro-
ceeds of a repurchase of a Mortgage Loan by the Seller or amounts de-
posited by the Seller in the Certificate Account in connection with the
substitution of a Group I Mortgage Loan or Group II Mortgage Loan, as
applicable, (collectively, "Unscheduled Principal Receipts") that were
received by the Servicers after the Unscheduled Principal Receipt Pe-
riod (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 Group I Mortgage Loans or
Group II Mortgage Loans, as applicable, repurchased by the Seller on or
following the Determination Date in the month in which such Distribu-
tion Date occurs and the excess of the unpaid principal balance of any
Group I Mortgage Loan or Group II Mortgage Loan, as applicable, 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;
S-24
<PAGE>
(g) to the extent permitted by the Pooling and Servicing Agreement,
that portion of Liquidation Proceeds or insurance proceeds with respect
to a Group I Mortgage Loan or Group II Mortgage Loan, as applicable, or
proceeds of any Mortgaged Property that becomes owned by the Trust Es-
tate which represents any unpaid Servicing Fee or Master Servicing Fee
to which such Servicer or the Master Servicer, respectively, is enti-
tled, or which represents unpaid Fixed Retained Yield, and the portion
of net Liquidation Proceeds used to reimburse any unreimbursed Periodic
Advances;
(h) all amounts representing certain expenses reimbursable to the
Master Servicer and other amounts permitted to be retained by the Mas-
ter Servicer or withdrawn by the Master Servicer from the Certificate
Account pursuant to the Pooling and Servicing Agreement;
(i) reinvestment earnings on payments received in respect of the
Group I Mortgage Loans or Group II Mortgage Loans, as applicable, or on
other amounts on deposit in the Certificate Account;
(j) Liquidation Profits in respect of the Group I Mortgage Loans or
Group II Mortgage Loans, as applicable;
(k) Month End Interest in respect of the Group I Mortgage Loans or
Group II Mortgage Loans, as applicable; and
(l) amounts reimbursable to a Servicer for PMI Advances in respect of
the Group I Mortgage Loans or the Group II Mortgage Loans, as applica-
ble.
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 of a Loan Group
that are received by the Master Servicer or are required to be made with the
Master Servicer's own funds. Except as described below under "-- Periodic Ad-
vances," 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.
S-25
<PAGE>
On each Distribution Date, the Pool Distribution Amount for each Loan Group
will be allocated among the Classes of Class A Certificates relating to such
Loan Group and the Class B Certificates and distributed to the holders thereof
of record as of the related Record Date as follows (the "Pool Distribution
Amount Allocation"):
(a) with respect to each Group of Class A Certificates, from the Group I Pool
Distribution Amount or Group II Pool Distribution Amount, as applicable, as
follows:
first, to the Classes of Class A Certificates of a Group, 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; pro-
vided 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 I-A-10 Certificates pursuant to this provision will be distributed in re-
duction of the Principal Balances of the Class I-A-2 and Class I-A-10 Certifi-
cates as set forth below under "-- Principal (Including Prepayments) -- Alloca-
tion of Amount to be Distributed on the Class A Certificates";
second, to the Classes of Class A Certificates of such Group, 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 amount equal to the amount that would other-
wise be distributable in respect of interest shortfalls to the Class I-A-10
Certificates pursuant to this provision will be distributed in reduction of the
Principal Balances of the Class I-A-2 and Class I-A-10 Certificates as set
forth below under "-- Principal (Including Prepayments) -- Allocation of Amount
to be Distributed on the Class A Certificates";
third, concurrently, pro rata to the Class A Certificates of such Group
(other than the Class A-PO Certificates of such Group), based on the Class A
Non-PO Optimal Principal Amount for such Group, and the Class A-PO Certificates
of such Group, based on the Class A-PO Optimal Principal Amount for such Group,
(A) to the Classes of Class A Certificates of such Group, (other than the Class
A-PO Certificates of such Group), in an aggregate amount up to the Class A Non-
PO Optimal Principal Amount for such Group, such distribution to be allocated
among such Classes in accordance with the priorities set forth below under "--
Principal (Including Prepayments) -- Allocation of Amount to be Distributed on
the Class A Certificates" and (B) to the Class A-PO Certificates of such Group
in an amount up to the Class A-PO Optimal Principal Amount for such Group; and
fourth, to the Class A-PO Certificates of such Group in an amount up to the
applicable Class A-PO Deferred Amount, but only from amounts otherwise distrib-
utable (without regard to this priority) to the Classes of Class B Certificates
in reverse order of priority from their respective Class B Principal Distribu-
tion Amounts; provided, however, that in the event amounts otherwise distribut-
able to the Class B Certificates in respect of their Class B Principal Distri-
bution Amounts are insufficient to pay the aggregate of the Class A-PO Deferred
Amounts for the Class A-PO Certificates, such amounts will be distributable to
the Class A-PO Certificates, pro rata, in accordance with their respective
Class A-PO Deferred Amounts; and
(b) to the Class B Certificates, from the Group I Pool Distribution Amount
and Group II Pool Distribution Amount, subject to distributions to the Class A
Certificates described in
S-26
<PAGE>
(a) above and payments described under "-- Cross-Collateralization" below, se-
quentially, 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,
in each case before any Classes of Class B Certificates with higher numerical
designations receive any payments in respect of interest or principal; provid-
ed, however, that the amount distributable to any Class of Class B Certificates
in respect of its Class B Principal Distribution Amount will be reduced by the
amount, if any, otherwise distributable as principal hereunder used to pay the
Class A-PO Deferred Amounts in accordance with clause (a) priority fourth
above.
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 Prin-
cipal 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-
through rate (the "Pass-through Rate") for each Class of Offered Certificates
is the percentage set forth 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 of either Group.
The "Principal Balance" of a Class of Class A Certificates of a Group (other
than the Class A-PO Certificates of such Group) 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 I-A-10 Certificates,
the Class I-A-10 Accrual Distribution Amounts, as described under "Principal
(Including Prepayments)" below, previously added to the Principal Balance of
the Class I-A-10 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 of such
Group (other than the Class A-PO Certificates of such Group) in the manner de-
scribed 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 of a Group (other than the Class A-PO Certificates of such Group)
may be subject to 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 for the related Group as of such Determination Date
without regard to this provision and
S-27
<PAGE>
(b) the difference between (i) the Adjusted Pool Amount for the related Loan
Group for the preceding Distribution Date and (ii) the Adjusted Pool Amount (PO
Portion) for the related Loan Group for the preceding Distribution Date. Any
pro rata allocation among the Classes of Class A Certificates of a Group (other
than the Class A-PO Certificates of such Group) described in this paragraph
will be made among such Classes on the basis of their then-outstanding Princi-
pal Balances or, in the case of the Class I-A-10 Certificates, their initial
Principal Balance, if lower.
The "Principal Balance" of the Class A-PO Certificates of a Group as of any
Determination Date will be the principal balance of such Class on the date of
initial issuance of the Class A Certificates less (i) all amounts previously
distributed to the holders of such Class A-PO Certificates pursuant to clause
(a) priority third clause (B) and clause (a) priority fourth of the Pool Dis-
tribution Amount Allocation and (ii) the principal portion of Excess Losses al-
located 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 of a Group will equal the Adjusted Pool Amount (PO Por-
tion) for the related Loan Group for the preceding Distribution Date.
The "Principal Balance" of a Class of Class B Certificates of a Group as of
any Determination 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
distributed to holders of such Class in reduction of the principal balance
thereof and (ii) the principal portion of Excess Losses allocated through such
Determination Date to the holders of such Class B Certificates of such Group in
the manner described under "-- Subordination of Class B Certificates -- Alloca-
tion of Losses." The Principal Balance of the most subordinate Class of Class B
Certificates of a Group 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 for the related Loan Group as of the preceding
Distribution Date and the sum of (i) the sum of the Principal Balances of the
Class A Certificates of such Group and (ii) the Principal Balances of the Clas-
ses of Class B Certificates of such Group with lower numerical designations,
each as of such Determination Date.
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 I-A-10 Accrual Distribution Amounts previously added
to the Principal Balance in the case of the Class I-A-10 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 in a Loan Group 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 Classes without a corresponding
decrease in the related Adjusted Pool Amount, the Principal Balance of the most
subordinate corresponding 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.
S-28
<PAGE>
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" for a Group as of any Determination Date will
be equal to the sum of the Principal Balances of the Classes of Class A Certif-
icates of such Group as of such date.
The "Class A Non-PO Principal Balance" for a Group as of any Determination
Date will be equal to the sum of the Principal Balances of the Classes of Class
A Certificates of such Group (other than the Class A-PO Certificates of such
Group) 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 Balances 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 Balances and the Class B Principal Balance
as of such date.
With respect to any Distribution Date and any Loan Group, the "Adjusted Pool
Amount" will equal the aggregate unpaid principal balance of the Mortgage Loans
in such Loan Group as of the Cut-Off Date minus the sum of (i) all amounts in
respect of principal received in respect of the Mortgage Loans in such Loan
Group (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 Mort-
gage Loans in such Loan Group 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 in such Loan Group 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.
With respect to any Distribution Date and any Loan Group, the "Adjusted Pool
Amount (PO Portion)" will equal the sum as to each Mortgage Loan in such Loan
Group 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 re-
ceived in respect of such Mortgage Loan (including amounts received as Periodic
Advances, principal prepayments and Liquidation Proceeds in respect of princi-
pal) 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 in such Loan Group 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.
S-29
<PAGE>
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 of the Scheduled Principal Balances of the Mortgage Loans for
such Distribution Date and (Y) the Available Master Servicing Compensation for
such Distribution Date.
The "Available Master Servicing Compensation" for any Distribution Date will
be equal to the sum of (a) the Master Servicing Fee for such Distribution Date,
(b) interest earned through the business day preceding the applicable Distribu-
tion Date on any Prepayments in Full remitted to the Master Servicer and depos-
ited in the Certificate Account (which amount of interest with respect to Pre-
payments in Full on the Mortgage Loans serviced by 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 Prepay-
ment Interest 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 speci-
fied business day following the receipt thereof. "Month End Interest" of 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 re-
mit 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//\\12\\th of the Servicing Fee Rate and the scheduled principal balance (as
determined
S-30
<PAGE>
in the applicable Underlying Servicing Agreement) of such Mortgage Loan serv-
iced 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 Agree-
ment 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 Compensat-
ing 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 sum of the then-outstanding
Class A Non-PO Principal Balances 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 Princi-
pal Balance. Such allocation of Non-Supported Interest Shortfalls will reduce
the amount of interest due to be distributed to holders of Certificates then
entitled to distributions in respect of interest. Any such reduction in respect
of interest allocated to the Class A or Class B Certificates will be allocated
among such Classes of Class A or Class B Certificates, as the case may be, pro
rata on the basis of their respective Interest Accrual Amounts, without regard
to any reduction pursuant to this paragraph, for such Distribution Date.
Any interest shortfalls arising from Unscheduled Principal Receipts in full
that are not Prepayments in Full and any interest shortfalls resulting from the
timing of the receipt of partial principal prepayments by mortgagors ("Curtail-
ment Interest Shortfalls") or of other partial Unscheduled Principal Receipts
with respect to the Mortgage Loans will not be offset by Compensating Interest,
but instead will be borne first by the Classes of Class B Certificates in re-
verse 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 In-
terest, 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 Class A
Certificates of the related Group and the Class B Certificates pro rata based
on (i) in the case of the Class A Certificates, their respective Interest Ac-
crual Amounts and (ii) in the case of the Class B Certificates, interest ac-
crued on their respective Apportioned Principal Balances, without regard to any
reduction pursuant to this paragraph, for such Distribution 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
S-31
<PAGE>
Class B Certificates in numerical order of the Pool Distribution Amount as de-
scribed above under "-- 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 on 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. Under certain circumstances the unpaid Interest Shortfall Amounts for
a Group of Class A Certificates will be payable from amounts otherwise distrib-
utable as principal on the Class B Certificates in reverse order of priority.
See "-- Cross-Collateralization" below.
Prior to the Accretion Termination Date, interest in an amount equal to the
Interest Accrual Amount for the Class I-A-10 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 I-A-10 Certificates will
be the earlier to occur of (i) the Distribution Date following the Distribution
Date on which the Principal Balance of the Class I-A-2 Certificates has 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 and (ii) in the case of the Class
I-A-R Certificate any additional amounts to which the holder of such Certifi-
cate may be entitled as described below under "-- Additional Rights of the
Class I-A-R Certificateholder") to which the holder thereof is entitled from
the cash flow on the Mortgage Loans at such time, and will decline to the ex-
tent of distributions in reduction of the principal balance of, and allocations
of losses to, such Certificate. The approximate initial Principal Balance of
each Class of Certificates is set forth on page S-4 of this prospectus supple-
ment.
Calculation of Amount to be Distributed on the Certificates
Distributions in reduction of the Principal Balance of each Group of Class A
Certificates (other than the Class A-PO Certificates of such Group) will be
made on each Distribution Date pursuant to the Pool Distribution Amount Alloca-
tion, in an aggregate amount equal to the Class A Non-PO Principal Distribution
Amount for such Group. The "Class A Non-PO Principal Distribution Amount" with
respect to any Group and any Distribution Date will be equal to the sum of (i)
the Class I-A-10 Accrual Distribution Amount, if any, with respect to such Dis-
tribution Date for Group I and (ii) the Class A Non-PO Principal Amount with
respect to such Distribution Date for such Group.
The "Class I-A-10 Accrual Distribution Amount" with respect to any Distribu-
tion Date will be equal to the sum of (i) the current interest allocated but
not distributed to the Class I-A-10
S-32
<PAGE>
Certificates on such Distribution Date in accordance with clause (a) priority
first of the Pool Distribution Amount Allocation and (ii) the unpaid Interest
Shortfall Amount allocated but not distributed to the Class I-A-10 Certificates
on such Distribution Date in accordance with clause (a) priority second of the
Pool Distribution Amount Allocation.
The "Class A Non-PO Principal Amount" with respect to any Group and any Dis-
tribution Date will be equal to the amount distributed pursuant to clause (a)
priorty third clause (A) of the Pool Distribution Amount Allocation, in an ag-
gregate amount up to the Class A Non-PO Optimal Principal Amount for such
Group.
Distributions in reduction of the Principal Balance of the Class A-PO Certif-
icates of a Group will be made on each Distribution Date in an aggregate amount
equal to the Class A-PO Distribution Amount for such Group. The "Class A-PO
Distribution Amount" with respect to any Group and any Distribution Date will
be equal to the sum of (i) the amount distributed with respect to such Group
pursuant to clause (a) priority third clause (B) of the Pool Distribution
Amount Allocation, in an aggregate amount up to the Class A-PO Optimal Princi-
pal Amount for such Group and (ii) the amount distributed with respect to such
Group pursuant to clause (a) priority fourth of the Pool Distribution Amount
Allocation, in an aggregate amount up to the Class A-PO Deferred Amount for
such Group.
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 clause (b) (C) of the Pool Distribution Amount Allo-
cation, 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" for each Group, the "Class B
Loan Group I Optimal Principal Amount" and the "Class B Loan Group II Optimal
Principal Amount" for each Class of Class B Certificates and the "Class A-PO
Optimal Principal Amount" for each Group with respect to each Distribution Date
will be an amount equal to the sum for each outstanding Mortgage Loan in the
related Loan Group (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 Amounts, the
Class B Loan Group I Optimal Principal Amounts and the Class B Loan Group II
Optimal Principal Amounts, the Non-PO Fraction for such Mortgage Loan and (ii)
in the case of the Class A-PO Optimal Principal Amounts, the PO Fraction 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;
S-33
<PAGE>
(ii) the applicable Class Prepayment Percentage of all Unscheduled
Principal Receipts that were received by a Servicer with respect to
such Mortgage Loan during the Unscheduled Principal Receipt Period re-
lating to such Distribution Date for each applicable type of
Unscheduled Principal Receipt;
(iii) the applicable Class Prepayment Percentage of the Scheduled
Principal Balance of such Mortgage Loan which, during the one month pe-
riod ending on the day preceding the Determination Date for such Dis-
tribution Date, was repurchased by the Seller, as described under the
heading "Description of the Mortgage Loans -- Mandatory Repurchase or
Substitution of Mortgage Loans" herein; and
(iv) the applicable Class Percentage of the excess of the unpaid
principal balance of any Mortgage Loan for which a Mortgage Loan was
substituted during the one month period ending on the day preceding the
Determination Date for such Distribution Date occurs over the unpaid
principal balance of such substituted Mortgage Loan, less the amount
allocable to the principal portion of any unreimbursed advances in re-
spect of such defective Mortgage Loan. See "The Pooling and Servicing
Agreement -- Assignment of the Mortgage Loans to the Trustee" and "--
Optional Substitutions" in the prospectus.
The "Class Percentage" will equal (i) the applicable Class A Percentage, in
the case of the calculation of the Class A Non-PO Optimal Principal Amount for
a Group; (ii) the applicable Class B Percentage, in the case of the calculation
of the Class B Loan Group I Optimal Principal Amount and the Class B Loan Group
II 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 for a
Group.
The "Class Prepayment Percentage" will equal (i) the applicable Class A Pre-
payment Percentage, in the case of the calculation of the Class A Non-PO Opti-
mal Principal Amount for a Group; (ii) the applicable Class B Prepayment Per-
centage, in the case of the calculation of the Class B Loan Group I Optimal
Principal Amount and the Class B Loan Group II 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 for a Group.
The "Class B Optimal Principal Amount" for a Class of Class B Certificates is
equal to the sum of the Class B Loan Group I Optimal Principal Amount and the
Class B Loan Group II Optimal Principal Amount for such Class.
The "Class A-PO Deferred Amount" for any Group and 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 such Group
for all prior Distribution Dates exceeds the amounts distributed to the Class
A-PO Certificates of such Group on such prior Distribution Dates pursuant to
clause (a) 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 of such Group as described in
"-- Subordination of Class B Certificates -- Allocation of Losses" below and
(ii) the sum of the product for each Discount Mortgage Loan in the related Loan
Group which became a Liquidated Loan at any time on or prior to the last day of
the applicable Unscheduled Principal Receipt Period for the current Distribu-
tion Date of (a) the PO Fraction for such Discount Mortgage Loan and (b) an
amount equal to the principal portion of
S-34
<PAGE>
Realized Losses (other than Bankruptcy Losses due to Debt Service Reductions)
incurred with respect to such Discount Mortgage Loan other than Excess Losses
and (B) amounts distributed on the Class A-PO Certificates of such Group on
prior Distribution Dates pursuant to clause (a) priority fourth of the Pool
Distribution Amount Allocation. On or after the Cross-Over Date, the Class A-PO
Deferred Amount for each Group will be zero. No interest will accrue on any
Class A-PO Deferred Amount.
The principal distribution to the holders of a Class of Class B Certificates
will be reduced on any Distribution Date on which (i) the Principal Balance of
such Class of Class B Certificates on the following Determination Date would be
reduced to zero as a result of principal distributions or allocation of losses
and (ii) the Principal Balance of any Class A Certificates or any Class of
Class B Certificates with a lower numerical designation, would be subject to
reduction on such Determination Date as a result of allocation of Realized
Losses (other than Excess Losses). The amount of any such reduction in the
principal distributed to the holders of such Class of Class B Certificates will
instead be distributed pro rata to the holders of any Class (other than the
Class A-PO Certificates) senior in priority to receive distributions in accor-
dance with the Pool Distribution Amount Allocation.
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
Distribution Date is equal to the excess, if any, of (i) the unpaid principal
balance of such Liquidated Loan, plus accrued interest thereon at the Net Mort-
gage Interest Rate through the last day of the month preceding the month in
which such Distribution Date occurs, over (ii) net Liquidation Proceeds. For
purposes of calculating the amount of any Liquidated Loan Loss, all net Liqui-
dation Proceeds (after reimbursement of any previously unreimbursed Periodic
Advance) will be applied first to accrued interest and then to the unpaid prin-
cipal balance of the Liquidated Loan. A "Special Hazard Loss" is (A) a Liqui-
dated 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
S-35
<PAGE>
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy, of the types described in the prospectus un-
der "Servicing of the Mortgage Loans -- Insurance Policies" and (ii) any loss
caused by or resulting from (a) normal wear and tear, (b) dishonest acts of the
Trustee, the Master Servicer or the Servicer or (c) errors in design, faulty
workmanship or faulty materials, unless the collapse of the property or a part
thereof ensues or (B) a Liquidated Loan Loss arising from or relating to the
presence or suspected presence of hazardous wastes or substances on a Mortgaged
Property. A "Fraud Loss" is a Liquidated Loan Loss incurred on a Liquidated
Loan as to which there was fraud in the origination of such Mortgage Loan. A
"Bankruptcy Loss" is a loss attributable to certain actions which may be taken
by a bankruptcy court in connection with a Mortgage Loan, including a reduction
by a bankruptcy court of the principal balance of or the interest rate on a
Mortgage Loan or an extension of its maturity. A "Debt Service Reduction" means
a reduction in the amount of monthly payments due to certain bankruptcy pro-
ceedings, but does not include any permanent forgiveness of principal. A "Defi-
cient Valuation" with respect to a Mortgage Loan means a valuation by a court
of the Mortgaged Property in an amount less than the outstanding indebtedness
under the Mortgage Loan or any reduction in the amount of monthly payments that
results in a permanent forgiveness of principal, which valuation or reduction
results from a bankruptcy proceeding.
The "Non-PO Fraction" with respect to any Mortgage Loan will equal the Net
Mortgage Interest Rate for such Mortgage Loan divided by %, but will not be
greater than 1.0.
The "Pool Balance (Non-PO Portion)" for any Loan Group and any Distribution
Date is the sum for each outstanding Mortgage Loan in such Loan Group of the
product of (i) the Non-PO Fraction for such Mortgage Loan and (ii) the Sched-
uled Principal Balance of such Mortgage Loan as of such Distribution Date.
The "PO Faction" with respect to any Group I Mortgage Loan or Group II Mort-
gage Loan with a Net Mortgage Interest Rate less than % (a "Group I Discount
Mortgage Loan" or "Group II Discount Mortgage Loan," as applicable, and each, a
"Discount Mortgage Loan") will equal the difference between 1.0 and the Non-PO
Fraction for such Mortgage Loan. The PO Fraction with respect to each Mortgage
Loan of a Group that is not a Discount Mortgage Loan (a "Group I Premium Mort-
gage Loan" or "Group II Premium Mortgage Loan," as applicable, and each, a
"Premium Mortgage Loan") will be zero.
The "Pool Balance (PO Portion)" for any Loan Group and any Distribution Date
is the sum for each outstanding Mortgage Loan in such Loan Group of the product
of (i) the PO Fraction for such Mortgage Loan and (ii) the Scheduled Principal
Balance of such Mortgage Loan as of such Distribution Date.
The "Class A Percentage" for any Group and any Distribution Date occurring on
or prior to the Cross-Over Date is the percentage (subject to rounding), which
in no event will exceed 100%, obtained by dividing the Class A Non-PO Principal
Balance for such Group as of such date (before taking into account distribu-
tions in reduction of Principal Balance on such date) by the Pool Balance (Non-
PO Portion) for the related Loan Group. The Class A Percentage for the Group I-
A Certificates for the first Distribution Date will be approximately %. The
Class A Percentage for the Group II-A Certificates for the first Distribution
Date will be approximately %. The Class A Percentage for each Group and any
Distribution Date occurring after the Cross-Over Date will be 100%.
S-36
<PAGE>
The "Class A Prepayment Percentage" for each Group and any Distribution Date
will be the percentage indicated below:
<TABLE>
<CAPTION>
Distribution Date Occurring In Class A Prepayment Percentage
------------------------------ --------------------------------------
<S> <C>
through .......................... 100%;
through .......................... the 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; amd
and thereafter......................... the applicable Class A Percentage;
</TABLE>
provided, however, that if on any of the foregoing Distribution Dates the Class
A Percentage for either Group exceeds the related initial Class A Percentage,
the Class A Prepayment Percentage for both Groups for such Distribution Date
will once again equal 100%. See "Prepayment and Yield Considerations" herein
and in the prospectus. Notwithstanding the foregoing, no reduction of the level
of the Class A Prepayment Percentage for either Group will occur on any Distri-
bution 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 in either
Loan Group that were delinquent 60 days or more (including for this purpose any
Mortgage Loans in foreclosure and Mortgage Loans with respect to which the re-
lated Mortgaged Property has been acquired by the Trust Estate) is greater than
or equal to 50% of the applicable Group Subordinate Amount or (ii) for any Dis-
tribution Date, cumulative Realized Losses with respect to the Mortgage Loans
in either Loan Group exceed the percentages of the applicable Group Subordinate
Amount as of the Cut-Off Date (with respect to each Loan Group the "Original
Group Subordinate Amount") indicated below:
<TABLE>
<CAPTION>
Percentage of
Original Group
Subordinate
Distribution Date Occurring In Amount
------------------------------ --------------
<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 of a
Group (other than the Class A-PO Certificates of such Group) of full and par-
tial principal prepayments and other amounts in the percentage required in the
preceding paragraph would reduce the outstanding Class A Non-PO Principal Bal-
ance for such Group below zero, the Class A Prepayment Percent-
S-37
<PAGE>
age with respect to such Group for such Distribution Date will be limited to
the percentage necessary to reduce such Class A Non-PO Principal Balance to ze-
ro. In addition, once the Principal Balances of the Class A Certificates of a
Group (other than the Class A-PO Certificates of such Group) have been reduced
to zero, the Class A Prepayment Percentage for such Group will be 0%. The tests
described in the preceding paragraph will be performed with respect to each
Loan Group even if the Principal Balance of the related Group of Class A Cer-
tificates (other than the Class A-PO Certificates of such Group) has been re-
duced to zero.
This disproportionate allocation of certain unscheduled payments in respect
of principal will have the effect of accelerating the amortization of the Class
A Certificates of a Group (other than the Class A-PO Certificates of such
Group) while, in the absence of Realized Losses, increasing the interest in the
principal balance of the Mortgage Loans in the related Loan Group evidenced by
the Class B Certificates. Increasing the respective interest of the Class B
Certificates in a Loan Group relative to that of the Class A Certificates of
the related Group (other than the Class A-PO Certificates of such Group) is in-
tended to preserve the availability of the subordination provided by the Class
B Certificates. See "-- Subordination of Class B Certificates" below. The "Sub-
ordinated Percentage" for any Loan Group and any Distribution Date will be cal-
culated (i) for Loan Group I, as the difference between 100% and the Class A
Percentage for the Class I-A Certificates for such date and (ii) for Loan Group
II, as the difference between 100% and the Class A Percentage for the Class II-
A Certificates for such date. The "Subordinated Prepayment Percentage" for any
Loan Group and for any Distribution Date will be calculated (i) for Loan Group
I, as the difference between 100% and the Class A Prepayment Percentage for the
Class I-A Certificates for such date and (ii) for Loan Group II, as the differ-
ence between 100% and the Class A Prepayment Percentage for the Class II-A Cer-
tificates for such date.
The "Class B Percentage" and "Class B Prepayment Percentage" for a Class of
Class B Certificates and for any Loan Group and any Distribution Date will
equal that portion of the Subordinated Percentage for such Loan Group and Sub-
ordinated Prepayment Percentage for such Loan Group, as the case may be, repre-
sented by the fraction the numerator of which is the then-outstanding Principal
Balance for such Class of Class B Certificates and the denominator of which is
the sum of the Principal Balances of the Classes of Class B Certificates enti-
tled to principal distributions for such Distribution Date as described below.
In the event that a Class of Class B Certificates is not entitled to principal
distributions for such Distribution Date, the Class B Percentage and Class B
Prepayment Percentage for such Class will both be 0% with respect to such Dis-
tribution 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
S-38
<PAGE>
are subordinate to such Class by the initial Aggregate Non-PO Principal Bal-
ance. 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>
Allocation of Amount to be Distributed on the Class A Certificates
Group I-A Certificates
On each Distribution Date prior to the Cross-Over Date, the Class A Non-PO
Principal Distribution Amount for the Group I-A Certificates will be allocated
among and distributed in reduction of the Principal Balances of the Group I-A
Certificates (other than the Class I-A-PO Certificates) as follows:
[INSERT PAYMENT PRIORITIES]
[TO COME]
S-39
<PAGE>
Group II-A Certificates
On each Distribution Date prior to the Cross-Over Date, the Class A Non-PO
Principal Distribution Amount for the Group II-A Certificates will be distrib-
uted to the Class II-A-1 Certificates until the Principal Balance thereof has
been reduced to zero.
The "Priority Amount" for any Distribution Date means the lesser of (i) the
Principal Balance of the Class I-A-4 Certificates and (ii) the product of (1)
the Priority Percentage, (2) the Shift Percentage and (3) the sum of the Group
I Scheduled Principal Amount and the Group I Unscheduled Principal Amount.
The "Priority Percentage" means the Principal Balance of the Class I-A-4 Cer-
tificates divided by the Class A Non-PO Principal Balance for Loan Group I.
The "Group I Scheduled Principal Amount" means the sum for each outstanding
Mortgage Loan in Loan Group I (including each defaulted Mortgage Loan in such
Loan Group, other than a Liquidated Loan, with respect to which the related
Mortgaged Property has been acquired by the Trust Estate) of the product of (A)
the Non-PO Fraction for such Mortgage Loan and (B) the sum of the amounts 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-33.
The "Group I Unscheduled Principal Amount" means the sum for each outstanding
Mortgage Loan in Loan Group I (including each defaulted Mortgage Loan in such
Loan Group, other than a Liquidated Loan, with respect to which the related
Mortgage Property has been acquired by the Trust Estate) of the product of (A)
the Non-PO Fraction for such Mortgage Loan and (B) the sum of the amounts 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-33.
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%
through ............................................... 30%
through ............................................... 40%
through ............................................... 60%
through ............................................... 80%
and thereafter.............................................. 100%
</TABLE>
S-40
<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 for
Loan Group I will be distributed among the Class I-A Certificates (other than
the Class I-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.
Cross-Collateralization
On each Distribution Date prior to the Cross-Over Date but on or after the
date on which the Principal Balances of the Group I-A Certificates (other than
the Class I-A-PO Certificates) or the Principal Balances of the Group II-A Cer-
tificates (other than the Class II-A-PO Certificates) have been reduced to ze-
ro, amounts otherwise distributable as principal on the Class B Certificates,
in reverse order of priority, from their applicable Apportioned Class B Princi-
pal Distribution Amounts, will be paid as principal to the remaining Class A
Certificates (other than the Class A-PO Certificates of such Group) in accor-
dance with the priorities set forth for such Group under "-- Principal (Includ-
ing Prepayments) -- Allocation of Amount to be Distributed on the Class A Cer-
tificates," provided that on such Distribution Date (a) the Aggregate Subordi-
nate Percentage for such Distribution Date is less than 200% of the Aggregate
Subordinate Percentage as of the Cut-Off Date or (b) the average outstanding
principal balance of the Mortgage Loans in either Loan Group delinquent 60 days
or more over the last six months as a percentage of the related Group Subordi-
nate Amount is greater than or equal to 50%.
With respect to each Class of Class B Certificates and any Distribution Date,
the "Apportioned Class B Principal Distribution Amount" will equal the product
of (i) the applicable Class B Principal Distribution Amount less any amounts
needed to pay any Class A-PO Deferred Amounts and (ii) the applicable Appor-
tionment Fraction.
In the event the Principal Balances of the Class I-A Certificates (other than
the Class I-A-PO Certificates) have been reduced to zero, the "Apportionment
Fraction" for a Class of Class B Certificates will equal a fraction the numera-
tor of which is equal to the applicable Class B Loan Group I Optimal Principal
Amount and the denominator of which is equal to the applicable Class B Optimal
Principal Amount. In the event the Principal Balances of the Class II-A Certif-
icates (other than the Class II-A-PO Certificates) have been reduced to zero,
the "Apportionment Fraction" for a Class of Class B Certificates will equal a
fraction the numerator of which is equal to the applicable Class B Loan Group
II Optimal Principal Amount and the denominator of which is equal to applicable
Class B Optimal Principal Amount.
The "Aggregate Subordinate Percentage" at any time will equal the sum of the
Principal Balances of the Class B Certificates divided by the sum of the Pool
Balances (Non-PO Portion) of the Loan Groups.
In addition, if on any Distribution Date the Class A Non-PO Principal Balance
of the Group I-A Certificates or Group II-A Certificates (after giving effect
to distributions to be made on such Distribution Date) is greater than the Pool
Balance (Non-PO Portion) of the related Loan Group (any such Group, the
"Undercollateralized Group" and any such excess, the
S-41
<PAGE>
"Undercollateralized Amount"), all amounts otherwise distributable as principal
on the Class B Certificates, in reverse order of priority pursuant to clause
(b)(C) of the Pool Distribution Amount Allocation (other than amounts needed to
pay any Class A-PO Deferred Amounts or unpaid Interest Shortfall Amounts as de-
scribed below) will be paid as principal to the Class A Certificates (other
than the Class A-PO Certificates) of the Undercollateralized Group in accor-
dance with the priorities set forth under "-- Principal (Including Prepay-
ment)-- Allocation of Amount to be Distributed on the Class A Certificates,"
until the aggregate Principal Balance of the Class A Certificates (other than
the Class A-PO Certificates) of the Undercollateralized Group equals the Pool
Balance (Non-PO Portion) of the related Loan Group. In addition, the amount of
any unpaid Interest Shortfall Amounts with respect to the Undercollateralized
Group (including any Interest Shortfall Amount for such Distribution Date) will
be paid to the Undercollateralized Group prior to the payment of any
Undercollateralized Amount from amounts otherwise distributable as principal on
the Class B Certificates, in reverse order of priority pursuant to clause
(b)(C) of the Pool Distribution Amount Allocation (other than any amounts
needed to pay any Class A-PO Deferred Amounts); such amount will be paid to the
Undercollateralized Group in accordance with clause (a) priority second of the
Pool Distribution Amount Allocation.
Additional Rights of the Class I-A-R Certificateholder
The Class I-A-R Certificate will remain outstanding for as long as the Trust
Estate shall exist, whether or not either such Class is receiving current dis-
tributions of principal or interest. The holder of the Class I-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 dis-
tributions in respect of any accrued but unpaid interest on the Certificates
and after distributions in reduction of Principal Balance have reduced the
Principal Balances of the Certificates to zero. It is not anticipated that
there will be any material assets remaining in the Trust Estate on the final
Distribution Date following the distributions of interest and in reduction of
Principal Balance made on the Certificates on such date.
In addition, the Class I-A-R Certificateholder will be entitled on each Dis-
tribution Date to receive any Pool Distribution Amounts remaining after all
distributions pursuant to the Pool Distribution Amount Allocation have been
made. It is not anticipated that there will be any material undistributed por-
tion 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. In addition, if
under the terms of the applicable Underlying Servicing Agreement, an Other
Servicer is not obligated to make Periodic Advances
S-42
<PAGE>
while a Mortgage Loan is in liquidation, the Master Servicer will, under cer-
tain circumstances, be required to make such Periodic Advances.
The Underlying Servicing Agreements and the Pooling and Servicing Agreement
provide that any advance of the kind described in the preceding paragraph may
be reimbursed to the related Servicer, the Master Servicer or the 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.
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 I-A-R and Class B Certificates
The Class I-A-R Certificate will be subject to the following restrictions on
transfer, and the Class I-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 I-A-R Certificate to the extent it
has received an affidavit from the owner thereof that such owner is not a Dis-
qualified Organization or a nominee for a Disqualified Organization. The Pool-
ing and Servicing Agreement will provide that no legal or beneficial interest
in the Class I-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 af-
fidavit (or, to the extent acceptable to the Trustee, a representation letter
signed under penalty of per- jury) to the effect that, among other items, such
transferee is not a Disqualified Organization (as defined in the prospectus)
and is not purchasing the Class I-A-R Certificate as an agent for a Disquali-
fied Organization (i.e., as a broker, nominee, or other middleman thereof) and
(ii) the transferor states in writing to the Trustee that it has no actual
knowledge that such affidavit or letter is false. Further, such affidavit or
letter requires the transferee to affirm that it (i) historically has paid its
debts as they have come due and intends to do so in the future, (ii) under-
stands that it may incur tax liabilities with respect to the Class I-A-R Cer-
tificate in excess of cash flows generated thereby, (iii) intends to pay taxes
associated with holding the Class I-A-R
S-43
<PAGE>
Certificate as such taxes become due and (iv) will not transfer the Class I-A-R
Certificate to any person or entity that does not provide a similar affidavit
or letter. The transferor must certify in writing to the Trustee that, as of
the date of the transfer, it had no knowledge or reason to know that the affir-
mations made by the transferee pursuant to the preceding sentence were false.
In addition, the Class I-A-R Certificate may not be purchased by or trans-
ferred to any person that is not a "U.S. Person," unless (i) such person holds
such Class I-A-R Certificate in connection with the conduct of a trade or busi-
ness within the United States and furnishes the transferor and the Trustee with
an effective Internal Revenue Service Form 4224 or (ii) the transferee delivers
to both the transferor and the Trustee an opinion of a nationally recognized
tax counsel to the effect that such transfer is in accordance with the require-
ments of the Code and the regulations promulgated thereunder and that such
transfer of the Class I-A-R Certificate will not be disregarded for federal in-
come 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 partner-
ship, Treasury regulations are adopted that provide otherwise) created or orga-
nized in or under the laws of the United States, any state thereof or the Dis-
trict 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 ad-
ministration of such trust, and one or more such U.S. Persons have the author-
ity to control all substantial decisions of such trust (or, to the extent pro-
vided 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 I-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 I-A-R Certificate. The
holder of the Class I-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 "Ma-
terial Federal Income Tax Consequences -- Federal Income Tax Consequences for
REMIC Certificates -- Taxation of Residual Certificates -- Tax-Related Restric-
tions on Transfer of Residual Certificates" in the prospectus.
The Class I-A-R Certificate may not be purchased by or transferred to any
person which is an employee benefit plan or other retirement plan or arrange-
ment 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 gov-
ernmental 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
S-44
<PAGE>
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. See also
"Material Federal Income Tax Consequences -- Residual Certificates" below, con-
cerning proposed Treasury regulations on a new safe harbor requirement for
transfers of "noneconomic" residual interests.
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 Certifi-
cates will not be made unless the transferee (i) executes a representation let-
ter 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 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 Cer-
tificates 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 Cer-
tificates will contain a legend describing such restrictions on transfer and
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. See "ERISA Considera-
tions" herein and in the prospectus.
Reports
The Master Servicer will include in the Monthly Report delivered to holders
of Class A and Class B Certificates with respect to each Distribution Date the
information specified in the prospectus under "The Pooling and Servicing Agree-
ment -- Reports to Certificateholders," which information will be set forth
with respect to each Loan Group, where applicable.
Copies of the foregoing reports are available upon written request to the
Trustee at its corporate trust office. See "Pooling and Servicing Agreement --
Trustee" herein.
Subordination of Class 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
S-45
<PAGE>
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 Amounts with respect to such date and, if neces-
sary, by the right of such holders to receive future distributions on the Mort-
gage Loans that would otherwise have been payable to the holders of the more
junior Classes of Certificates. Because of the priority in which the Class A
Non-PO Principal Distribution Amount for a Group is allocated among the Class A
Certificates of such Group (other than the Class A-PO Certificates of such
Group), the application of this subordination to cover Realized Losses experi-
enced in periods prior to the periods in which a Class of Class A Certificates
is entitled to distributions in reduction of Principal Balance will decrease
the protection provided by the subordination to any such Class.
Amounts distributed to holders of Subordinated Certificates will not be
available to cover delinquencies or Realized Losses in respect of subsequent
Distribution Dates.
Allocation of Losses
Realized Losses (other than Excess Losses) on the Mortgage Loans in a Loan
Group will not be allocated to the holders of the Class A Certificates of the
related Group 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 Princi-
pal Balance of each such Class has been reduced to zero.
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 Amounts
first to the Class A Certificates and then to the Classes of Class B Certifi-
cates 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 in a Loan Group allocated on or after
the Cross-Over Date will be effected through the adjustment on any Determina-
tion Date of the applicable Class A Non-PO
S-46
<PAGE>
Principal Balance and the Principal Balance of the related Class A-PO Certifi-
cates such that (i) such Class A Non-PO Principal Balance equals the Adjusted
Pool Amount for the related Loan Group less the Adjusted Pool Amount (PO Por-
tion) for such Loan Group as of the preceding Distribution Date and (ii) the
Principal Balance of such Class A-PO Certificates equals the Adjusted Pool
Amount (PO Portion) for such Loan Group as of the preceding Distribution Date.
The principal portion of such Realized Losses allocated to a Group of Class A
Certificates (other than the Class A-PO Certificates of such Group) will be al-
located to such outstanding Classes of Class A Certificates pro rata in accor-
dance with their Principal Balances or, in the case of the Class I-A-10 Certif-
icates, their initial Principal Balance, if lower. The interest portion of any
Realized Loss allocated to a Group on or after the Cross-Over Date will be al-
located among the outstanding Classes of Class A Certificates of such Group pro
rata in accordance with their respective Interest Accrual Amounts, without re-
gard to any reduction pursuant to this sentence. Any such losses will be allo-
cated among the outstanding Class A Certificates within each such Class pro
rata in accordance with their respective Percentage Interests.
If due to losses on the Mortgage Loans in a Loan Group the applicable Pool
Distribution Amount is not sufficient to cover the applicable Class A Non-PO
Optimal Principal Amount on a particular Distribution Date, then the percentage
of principal payments on the Mortgage Loans in such Loan Group to which the
holders of the related Group of Class A Certificates (other than the Class A-PO
Certificates of such Group) will be entitled (i.e., the applicable Class A Per-
centage) on and after the next Distribution Date will be proportionately in-
creased, thereby reducing, as a relative matter, the respective interest of the
Class B Certificates in future payments of principal on the Mortgage Loans in
such Loan Group.
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 on the Mortgage Loans in a Loan Group will be allocated (i)
with respect to the principal portion of such losses (a) to the outstanding
Classes of Class A Certificates of the related Group (other than the Class A-PO
Certificates of such Group) and the Class B Certificates pro rata based on
their outstanding Principal Balances or, in the case of the Class B Certifi-
cates, the applicable Apportioned 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 of the related Group in proportion to the PO Frac-
tion of such losses and (ii) with respect to the interest portion of such loss-
es, to the Class A and Class B Certificates pro rata based on interest accrued
in the case of the Class A Certificates or the interest that would accrue on
the Class B Certificates based on the applicable Apportioned Principal Balance
in the case of the Class B Certificates by reducing their respective Interest
Accrual Amounts. The principal portion of any such losses so allocated to the
Class A Certificates of a Group (other than the Class A-PO Certificates of such
Group) will be allocated to such outstanding Classes of Class A Certificates of
such Group pro rata in accordance with their then-outstanding Principal Bal-
ances or, in the case of the Class I-A-10 Certificates, their initial Principal
Balance, if lower. Any losses allocated to a Class of Certificates will be al-
located among the outstanding Certificates within such Class pro rata in accor-
dance with their respective Percentage Interests.
S-47
<PAGE>
The "Apportioned Principal Balance" of any Class of Class B Certificates for
purposes of allocating Excess Losses on the Mortgage Loans in a Loan Group will
equal the Principal Balance of the Class of Class B Certificates multiplied by
a fraction the numerator of which is the applicable Group Subordinate Amount
and the denominator of which is the sum of the Group Subordinate Amounts. The
"Group Subordinate Amount" with respect to any Loan Group is equal to the ex-
cess of the Pool Balance (Non-PO Portion) for such Loan Group over the Class A
Non-PO Principal Balance of the related Group of Class A Certificates.
Upon initial issuance of the Certificates, the "Special Hazard Loss Amount"
with respect thereto will be equal to approximately 1.00% (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 equal the initial Fraud Loss Amount
minus the aggregate amount of Fraud Losses allocated solely to the Class B Cer-
tificates 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 ag-
gregate 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 Certificates since the most recent anniversary
of the Cut-Off Date through the related Determination Date. On and after the
Cross-Over Date or after the fifth anniversary of the Cut-Off Date, the Fraud
Loss Amount will be zero.
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 Distri-
bution Date on or after the first anniversary of the Cut-Off Date, the Bank-
ruptcy Loss Amount will equal the excess, if any, of (1) the lesser of (a) the
Bankruptcy Loss Amount as of the business day
S-48
<PAGE>
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 Bank-
ruptcy Loss Amount, over (2) the aggregate amount of Bankruptcy Losses allo-
cated 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-49
<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 (the "Mortgage Loans"). The Mortgage Loans will be
divided into two loan groups ("Loan Group I" and "Loan Group II" and each a
"Loan Group"). The Mortgage Loans in Loan Group I are sometimes referred to as
the "Group I Mortgage Loans" and the Mortgage Loans in Loan Group II are some-
times referred to as the "Group II Mortgage Loans." Substantially all of the
Group I Mortgage Loans will have original terms to maturity of approximately
years and substantially all of the Group II Mortgage Loans will have original
terms to maturity of approximately years. 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 characteris-
tics described below and in the prospectus. Wells Fargo Asset Securities Corpo-
ration (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 aggregate unpaid principal balance as of the Cut-Off
Date) of the Group I Mortgage Loans and approximately % (by aggregate un-
paid principal balance as of the Cut-Off Date) of the Group II Mortgage Loans
were originated in conformity with WFHM's general underwriting standards (the
"General Standards") or modified underwriting standards (the "Modified Stan-
dards" and together with the General Standards, the "Underwriting Standards")
described in the prospectus under the heading "The Mortgage Loan Programs --
------------------
(1) The descriptions in this prospectus supplement of the Loan Groups and the
properties securing the Mortgage Loans to be included in the Loan Groups
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 related Loan Group (i)
as a result of principal prepayment thereof in full or (ii) if, as a result
of delinquencies or otherwise, the Seller otherwise deems such exclusion
necessary or desirable. In either event, other Mortgage Loans may be in-
cluded in such Loan Group. 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 related Loan
Groups as it will be constituted at the time the Certificates are issued,
although the aggregate principal balance of the Mortgage Loans included in
each Loan Group as of the Cut-Off Date, the range of Mortgage Interest
Rates and maturities, and certain other characteristics of the Mortgage
Loans in a Loan Group may vary. In the event that any of the characteris-
tics as of the Cut-Off Date of the Mortgage Loans that constitute a Loan
Group on the date of initial issuance of the Certificates vary materially
from those described herein, revised information regarding such Mort-
S-50
<PAGE>
gage 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.
Mortgage Loan Underwriting -- General Standards" and "--Modified Standards" and
as applied by WFHM, or by eligible originators to whom WFHM had delegated all
underwriting functions. In certain instances, exceptions to the Underwriting
Standards may have been granted by WFHM. The remaining approximate % (by
aggregate unpaid principal balance as of the Cut-Off Date) of the Group I Mort-
gage Loans and approximate % (by aggregate unpaid principal balance as of
the Cut-Off Date) of the Group II Mortgage Loans (the "Bulk Purchase Underwrit-
ten Loans") will have been underwritten in connection with bulk purchase trans-
actions under underwriting standards which may vary from the Underwriting Stan-
dards. WFHM will have reviewed the underwriting standards applied by the origi-
nators in connection with Bulk Purchase Underwritten Loans and will have deter-
mined that such standards did not depart materially from the Underwriting Stan-
dards. Neither the Seller nor WFHM has underwritten any of the Bulk Purchase
Underwritten Loans.
S-51
<PAGE>
The following table sets forth certain characteristics of all the Group I
Mortgage Loans, the Group I Premium Mortgage Loans and the Group I Discount
Mortgage Loans.
SELECTED GROUP I MORTGAGE LOAN DATA
(as of , 200 (the "Cut-Off Date"))
<TABLE>
<CAPTION>
All Group I Group I
Group I Premium Discount
Mortgage Mortgage Mortgage
Loans Loans 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 Ra-
tio(/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/)
Number of Mortgage Loans which are Subsidy
Loans
</TABLE>
------------------
(1) Approximate.
S-52
<PAGE>
SELECTED GROUP I MORTGAGE LOAN DATA (Cont.)
<TABLE>
<CAPTION>
All Group I Group I
Group I Premium Discount
Mortgage Mortgage Mortgage
Loans Loans Loans
---------------- ---------------- --------------
<S> <C> <C> <C>
Geographic Concentration of
Mortgage 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/)
Weighted Average FICO
Score(/1/)
</TABLE>
------------------
(1) Approximate.
*Less than 5% of the aggregate unpaid principal balance as of the Cut-Off
Date.
S-53
<PAGE>
The following table sets forth certain characteristics of all the Group II
Mortgage Loans, the Group II Premium Mortgage Loans and the Group II Discount
Mortgage Loans.
SELECTED GROUP II MORTGAGE LOAN DATA
(as of the Cut-Off Date)
<TABLE>
<CAPTION>
All Group II Group II
Group II Premium Discount
Mortgage Mortgage Mortgage
Loans Loans 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 Ra-
tio(/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/)
Number of Mortgage Loans which are Subsidy
Loans
</TABLE>
------------------
(1) Approximate.
S-54
<PAGE>
SELECTED GROUP II MORTGAGE LOAN DATA (Cont.)
<TABLE>
<CAPTION>
All Group II Group II
Group II Premium Discount
Mortgage Mortgage Mortgage
Loans Loans Loans
---------------- ---------------- --------------
<S> <C> <C> <C>
Geographic Concentration of
Mortgage 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/)
Weighted Average FICO
Score(/1/)
</TABLE>
------------------
(1) Approximate.
*Less than 5% of the aggregate unpaid principal balance as of the Cut-Off
Date.
S-55
<PAGE>
Group I Mortgage Loan Data
Set forth below is a description of certain additional expected characteris-
tics of the Group I Mortgage Loans as of the Cut-Off Date (except as otherwise
indicated).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group I Unpaid Unpaid
Mortgage Mortgage Principal Principal
Interest Rate Loans Balance Balance
------------- --------- ---------------- -------------
<S> <C> <C> <C>
----- ---------------- ------
100.00%
===== ================ ======
</TABLE>
GROUP I MORTGAGE LOAN DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group I Unpaid Unpaid
Mortgage Principal Principal
Documentation Level Loans Balance Balance
------------------- --------- --------------- -------------
<S> <C> <C> <C>
Full Documenta-
tion...........
Income Verifica-
tion...........
Asset Verifica-
tion...........
Preferred
Processing.....
----- --------------- ------
Total....... 100.00%
===== =============== ======
</TABLE>
Documentation levels vary depending upon several factors, including loan
amount, Loan-to-Value Ratio and the type and purpose of the Group I Mortgage
Loan. Asset, income and mortgage verifications were obtained for Group I
Mortgage Loans processed with "full documentation." In the case of "preferred
processing," neither asset nor income verifications were obtained. In most
instances, a verification of the borrower's employment was obtained. However,
for all of the Group I Mortgage Loans, a credit report on the borrower and a
property appraisal were obtained. See "The Mortgage Loan Programs -- Mortgage
Loan Underwriting" in the prospectus.
REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group I Unpaid Unpaid
Remaining Stated Mortgage Principal Principal
Term (Months) Loans Balance Balance
---------------- --------- --------------- -------------
<S> <C> <C> <C>
----- --------------- ------
100.00%
===== =============== ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group I Unpaid Unpaid
Mortgage Principal Principal
Year of Origination Loans Balance Balance
------------------- --------- ---------------- -------------
<S> <C> <C> <C>
1996............
1997............
1998............
----- ---------------- ------
Total....... 100.00%
===== ================ ======
</TABLE>
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group I 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....... 100.00%
===== =============== ======
</TABLE>
S-56
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group I Unpaid Unpaid
Mortgage Principal Principal
Geographic Area Loans Balance Balance
--------------- --------- --------------- -------------
<S> <C> <C> <C>
----- --------------- ------
100.00%
===== =============== ======
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Range of Group I Unpaid Unpaid
Original Loan-to- Mortgage Principal Principal
Value Ratio Loans Balance Balance
--------------------------------------- --------- ---------------- -------------
<S> <C> <C> <C>
50% or less............................
50.01- 55.00%..........................
55.01- 60.00%..........................
60.01- 65.00%..........................
65.01- 70.00%..........................
70.01- 75.00%..........................
75.01- 80.00%..........................
80.01- 85.00%..........................
85.01- 90.00%..........................
90.01- 95.00%..........................
----- ---------------- ------
Total.............................. 100.00%
===== ================ ======
</TABLE>
The Loan-to-Value Ratio of a Group I Mortgage Loan is calculated using the
lesser of (i) the appraised value of the related Mortgaged Property, as
established by an appraisal obtained by the originator from an appraiser at the
time of origination and (ii) the sale price for such property. For the purpose
of calculating the Loan-to-Value Ratio of any Group I Mortgage Loan that is the
result of the refinancing (including a refinancing for "equity take out"
purposes) of an existing mortgage loan, the appraised value of the related
Mortgaged Property is generally determined by reference to an appraisal obtained
in connection with the origination of the replacement loan. There can be no
assurance that such appraisal, which is based on the independent judgment of an
appraiser and not an arms-length sales transaction, is an accurate
representation of the market value of a Mortgaged Property. See "The Trust
Estates -- Mortgage Loans" in the prospectus. No assurance can be given that the
values of the Mortgaged Properties securing the Group I Mortgage Loans have
remained or will remain at the levels used in calculating the Loan-to-Value
Ratios shown above. The Seller has taken no action to establish the current
value of any Mortgaged Property. See "Risk Factors --Real Estate Market
Conditions Affect Mortgage Loan Performance" and "--Geographic Concentration May
Increase Rates of Loss and Delinquency" in the prospectus.
FICO SCORES
<TABLE>
<CAPTION>
Percentage of
Number Total Weighted
of Aggregate Aggregate Average
Range of Group I Unpaid Unpaid Loan-To-
FICO Mortgage Principal Principal Value
Scores Loans Balance Balance Ratio
-------- -------- --------------- ------------- --------
<S> <C> <C> <C> <C>
250-300........................
301-350........................
351-400........................
401-450........................
451-500........................
501-550........................
551-600........................
601-650........................
651-700........................
701-750........................
751-800........................
801-850........................
851-900........................
Not Available
----- --------------- ------ -----
Total/ Weighted Average........ 100.00%
===== =============== ====== =====
</TABLE>
"FICO Scores" are statistical credit scores obtained by many mortgage lenders
in connection with the loan application to help assess a borrower's credit-
worthiness. FICO Scores are generated by models developed by a third party and
are made available to lenders through three national credit bureaus. The models
were derived by analyzing data on consumers in order to establish patterns which
are believed to be indicative of the borrower's probability of default. The FICO
Score is based on a borrower's historical credit data, including, among other
things, payment history, delinquencies on accounts, levels of outstanding
indebtedness, length of credit history, types of credit, and bankruptcy
experience. FICO Scores range from approximately 250 to approximately 900, with
higher scores indicating an individual with a more favorable credit history
compared to an individual with a lower score. However, a FICO Score purports
only to be a measurement of the relative degree of risk a borrower represents to
a lender, i.e., that a borrower with a higher score is statistically expected to
be less likely to default in payment than a borrower with a lower score. In
addition, it should be noted that FICO Scores were developed to indicate a level
of default probability over a two-year period which does not correspond to the
life of a mortgage loan. Furthermore, FICO Scores were not developed
specifically for use in connection with mortgage loans, but for consumer loans
in general. Therefore, a FICO Score does not take into consideration the effect
of mortgage loan characteristics on the probability of repayment by the
borrower. The FICO Scores set forth in the table above were obtained at either
the time of origination of the Group I Mortgage Loan or more recently. Neither
the Seller nor WFHM makes any representations or warranties as to the actual
performance of any Group I Mortgage Loan or that a particular FICO Score should
be relied upon as a basis for an expectation that the borrower will repay the
Mortgage Loan according to its terms. See "The Mortgage Loan Programs --
Mortgage Loan Underwriting" in the prospectus."
S-57
<PAGE>
ORIGINAL GROUP I MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Percentage of
Total
Range of Number of Aggregate Aggregate
Original Mortgage Group I Unpaid Unpaid
Loan Principal Mortgage Principal Principal
Balance Loans Balance Balance
---------------- --------- --------------- -------------
<S> <C> <C> <C>
Less than or
equal to
$200,000.......
$200,001-
$250,000.......
$250,001-
$300,000.......
$300,001-
$350,000.......
$350,001-
$400,000.......
$400,001-
$450,000.......
$450,001-
$500,000.......
$500,001-
$550,000.......
$550,001-
$600,000.......
$600,001-
$650,000.......
$650,001-
$700,000.......
$700,001-
$750,000.......
$750,001-
$800,000.......
$800,001-
$850,000.......
$850,001-
$900,000.......
$950,001-
$1,000,000.....
----- --------------- ------
Total....... 100.00%
===== =============== ======
</TABLE>
ORIGINATORS OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group I Unpaid Unpaid
Mortgage Principal Principal
Originator Loans Balance Balance
---------- --------- --------------- -------------
<S> <C> <C> <C>
WFHM or
Affiliate......
Other
Originators....
----- --------------- ------
Total....... 100.00%
===== =============== ======
</TABLE>
It is expected that as of the Cut-Off Date, two of the "Other Originators"
will have accounted for approximately % and %, respectively, of the aggregate
unpaid principal balance of the Mortgage Loans as of the Cut-Off Date. No other
single "Other Originator" is expected to have accounted for more than % of the
aggregate unpaid principal balance of the Group I Mortgage Loans as of the
Cut-Off Date.
PURPOSES OF GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group I Unpaid Unpaid
Mortgage Principal Principal
Loan Purpose Loans Balance Balance
------------ --------- --------------- -------------
<S> <C> <C> <C>
Purchase........
Equity Take Out
Refinance......
Rate/Term
Refinance......
----- --------------- ------
Total....... 100.00%
===== =============== ======
</TABLE>
In general, in the case of a Group I Mortgage Loan made for "rate/term"
refinance purposes, substantially all of the proceeds are used to pay in full
the principal balance of a previous mortgage loan of the mortgagor with respect
to a Mortgaged Property and to pay origination and closing costs associated with
such refinancing. However, in the case of a Group I Mortgage Loan made for
"equity take out" refinance purposes, all or a portion of the proceeds are
generally retained by the mortgagor for uses unrelated to the Mortgaged
Property. The amount of such proceeds retained by the mortgagor may be
substantial. See "The Mortgage Loan Programs -- Mortgage Loan Underwriting" in
the prospectus.
OCCUPANCY OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group I Unpaid Unpaid
Mortgage Principal Principal
Occupancy Code Loans Balance Balance
-------------- --------- --------------- -------------
<S> <C> <C> <C>
Primary
Residence......
Second Home.....
----- --------------- ------
Total....... 100.00%
===== =============== ======
</TABLE>
S-58
<PAGE>
Group II Mortgage Loan Data
Set forth below is a description of certain additional expected characteris-
tics of the Group II Mortgage Loans as of the Cut-Off Date (except as otherwise
indicated).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group II Unpaid Unpaid
Mortgage Mortgage Principal Principal
Interest Rate Loans Balance Balance
------------- --------- ---------------- -------------
<S> <C> <C> <C>
----- ---------------- ------
100.00%
===== ================ ======
</TABLE>
GROUP II MORTGAGE LOAN DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group II Unpaid Unpaid
Mortgage Principal Principal
Documentation Level Loans Balance Balance
------------------- --------- --------------- -------------
<S> <C> <C> <C>
Full Documenta-
tion...........
Income Verifica-
tion...........
Asset Verifica-
tion...........
Preferred
Processing.....
----- --------------- ------
Total....... 100.00%
===== =============== ======
</TABLE>
Documentation levels vary depending upon several factors, including loan
amount, Loan-to-Value Ratio and the type and purpose of the Group II Mortgage
Loan. Asset, income and mortgage verifications were obtained for Group II
Mortgage Loans processed with "full documentation." In the case of "preferred
processing," neither asset nor income verifications were obtained. In most
instances, a verification of the borrower's employment was obtained. However,
for all of the Group II Mortgage Loans, a credit report on the borrower and a
property appraisal were obtained. See "The Mortgage Loan Programs --Mortgage
Loan Underwriting" in the prospectus.
REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group II Unpaid Unpaid
Remaining Stated Mortgage Principal Principal
Term (Months) Loans Balance Balance
---------------- --------- --------------- -------------
<S> <C> <C> <C>
----- --------------- ------
100.00%
===== =============== ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group II Unpaid Unpaid
Mortgage Principal Principal
Year of Origination Loans Balance Balance
------------------- --------- ---------------- -------------
<S> <C> <C> <C>
1996............
1997............
1998............
----- ---------------- ------
Total....... 100.00%
===== ================ ======
</TABLE>
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group II 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....... 100.00%
===== =============== ======
</TABLE>
S-59
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group II Unpaid Unpaid
Mortgage Principal Principal
Geographic Area Loans Balance Balance
--------------- --------- --------------- -------------
<S> <C> <C> <C>
----- --------------- ------
100.00%
===== =============== ======
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Range of Group II Unpaid Unpaid
Original Loan-to- Mortgage Principal Principal
Value Ratio Loans Balance Balance
--------------------------------------- --------- ---------------- -------------
<S> <C> <C> <C>
50% or less............................
50.01- 55.00%..........................
55.01- 60.00%..........................
60.01- 65.00%..........................
65.01- 70.00%..........................
70.01- 75.00%..........................
75.01- 80.00%..........................
80.01- 85.00%..........................
85.01- 90.00%..........................
90.01- 95.00%..........................
----- ---------------- ------
Total.............................. 100.00%
===== ================ ======
</TABLE>
The Loan-to-Value Ratio of a Group II Mortgage Loan is calculated using the
lesser of (i) the appraised value of the related Mortgaged Property, as
established by an appraisal obtained by the originator from an appraiser at the
time of origination and (ii) the sale price for such property. For the purpose
of calculating the Loan-to-Value Ratio of any Mortgage Loan that is the result
of the refinancing (including a refinancing for "equity take out" purposes) of
an existing mortgage loan, the appraised value of the related Mortgaged Property
is generally determined by reference to an appraisal obtained in connection with
the origination of the replacement loan. There can be no assurance that such
appraisal, which is based on the independent judgment of an appraiser and not an
arms-length sales transaction, is an accurate representation of the market value
of a Mortgaged Property. See "The Trust Estates -- Mortgage Loans" in the
prospectus. No assurance can be given that the values of the Mortgaged
Properties securing the Group II Mortgage Loans have remained or will remain at
the levels used in calculating the Loan-to-Value Ratios shown above. The Seller
has taken no action to establish the current value of any Mortgaged Property.
See "Risk Factors -- Real Estate Market Conditions Affect Mortgage Loan
Performance" and "-- Geographic Concentration May Increase Rates of Loss and
Delinquency" in the prospectus.
FICO SCORES
<TABLE>
<CAPTION>
Percentage of
Number Total Weighted
of Aggregate Aggregate Average
Range of Group II Unpaid Unpaid Loan-To-
FICO Mortgage Principal Principal Value
Scores Loans Balance Balance Ratio
-------- -------- --------------- ------------- --------
<S> <C> <C> <C> <C>
250-300........................
301-350........................
351-400........................
401-450........................
451-500........................
501-550........................
551-600........................
601-650........................
651-700........................
701-750........................
751-800........................
801-850........................
851-900........................
Not Available
----- --------------- ------ -----
Total/ Weighted Average........ 100.00%
===== =============== ====== =====
</TABLE>
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, in-cluding, among other
things, payment history, delinquencies on ac-counts, levels of outstanding
indebtedness, length of credit histo-ry, types of credit, and bankruptcy
experience. FICO Scores range from approximately 250 to approximately 900, with
higher scores indicating an individual with a more favorable credit history
compared to an individual with a lower score. However, a FICO Score purports
only to be a measurement of the relative degree of risk a borrower represents to
a lender, i.e., that a borrower with a higher score is statistically expected to
be less likely to default in payment than a borrower with a lower score. In
addition, it should be noted that FICO Scores were developed to indicate a level
of de-fault probability over a two-year period which does not correspond to the
life of a mortgage loan. Furthermore, FICO Scores were not de-veloped
specifically for use in connection with mortgage loans, but for consumer loans
in general. Therefore, a FICO Score does not take into consideration the effect
of mortgage loan characteristics on the probability of repayment by the
borrower. The FICO Scores set forth in the table above were obtained at either
the time of origination of the Group II Mortgage Loan or more recently. Neither
the Seller nor WFHM makes any representations or warranties as to the actual
performance of any Group II Mortgage Loan or that a particular FICO Score should
be relied upon as a basis for an expectation that the borrower will repay the
Mortgage Loan according to its terms. See "The Mortgage Loan Programs --Mortgage
Loan Underwriting" in the prospectus."
S-60
<PAGE>
ORIGINAL GROUP II MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Percentage of
Total
Range of Number of Aggregate Aggregate
Original Mortgage Group II Unpaid Unpaid
Loan Principal Mortgage Principal Principal
Balance Loans Balance Balance
---------------- --------- --------------- -------------
<S> <C> <C> <C>
Less than or
equal to
$200,000.......
$200,001-
$250,000.......
$250,001-
$300,000.......
$300,001-
$350,000.......
$350,001-
$400,000.......
$400,001-
$450,000.......
$450,001-
$500,000.......
$500,001-
$550,000.......
$550,001-
$600,000.......
$600,001-
$650,000.......
$650,001-
$700,000.......
$700,001-
$750,000.......
$750,001-
$800,000.......
$800,001-
$850,000.......
$850,001-
$900,000.......
$950,001-
$1,000,000.....
----- --------------- ------
Total....... 100.00%
===== =============== ======
</TABLE>
ORIGINATORS OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group II Unpaid Unpaid
Mortgage Principal Principal
Originator Loans Balance Balance
---------- --------- --------------- -------------
<S> <C> <C> <C>
WFHM or
Affiliate......
Other
Originators....
----- --------------- ------
Total....... 100.00%
===== =============== ======
</TABLE>
It is expected that as of the Cut-Off Date, two of the "Other Originators"
will have accounted for approximately % and %, respectively, of the aggregate
unpaid principal balance of the Mortgage Loans as of the Cut-Off Date. No other
single "Other Originator" is expected to have accounted for more than % of the
aggregate unpaid principal balance of the Group II Mortgage Loans as of the
Cut-Off Date.
PURPOSES OF GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group II Unpaid Unpaid
Mortgage Principal Principal
Loan Purpose Loans Balance Balance
------------ --------- --------------- -------------
<S> <C> <C> <C>
Purchase........
Equity Take Out
Refinance......
Rate/Term
Refinance......
----- --------------- ------
Total....... 100.00%
===== =============== ======
</TABLE>
In general, in the case of a Group II Mortgage Loan made for "rate/term"
refinance purposes, substantially all of the proceeds are used to pay in full
the principal balance of a previous mortgage loan of the mortgagor with respect
to a Mortgaged Property and to pay origination and closing costs associated with
such refinancing. However, in the case of a Group II Mortgage Loan made for
"equity take out" refinance purposes, all or a portion of the proceeds are
generally retained by the mortgagor for uses unrelated to the Mortgaged
Property. The amount of such proceeds retained by the mortgagor may be
substantial. See "The Mortgage Loan Programs -- Mortgage Loan Underwriting" in
the prospectus.
OCCUPANCY OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Number of Aggregate Aggregate
Group II Unpaid Unpaid
Mortgage Principal Principal
Occupancy Code Loans Balance Balance
-------------- --------- --------------- -------------
<S> <C> <C> <C>
Primary
Residence......
Second Home.....
----- --------------- ------
Total....... 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.
S-61
<PAGE>
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 Mortgage Loans"
in the prospectus.
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.
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 mortgage as-
set-backed pass-through certificates of the Seller and its predecessor, Norwest
Integrated Structured Assets, Inc., is set forth in the table under "Delin-
quency and Foreclosure Experience" in the prospectus. There can be no assurance
that the delinquency and foreclosure experience set forth in the table with re-
spect to the mortgage loans 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.
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 equal to the rate of payments of principal on the Mortgage
Loans in the related Loan Group, or both Loan Groups in the case of the Class B
Certificates, and the amount and timing of mortgagor defaults resulting in Re-
alized Losses on the Mortgage Loans in the related Loan Group, or both Loan
Groups in the case of the Class B Certificates. 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
a Loan Group
S-62
<PAGE>
will result in distributions to Certificateholders then entitled to distribu-
tions 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 pro-
spectus 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 av-
erage life of, any Class of the Offered Certificates or the aggregate amount of
distributions on any Class of the Offered Certificates.
The rate of principal payments on the Mortgage Loans will be affected by the
amortization schedules of the Mortgage Loans, the rate of principal prepayments
(including partial prepayments and those resulting from refinancing) thereon by
mortgagors, liquidations of defaulted Mortgage Loans, repurchases by the Seller
of Mortgage Loans as a result of defective documentation or breaches of repre-
sentations and warranties and optional purchases by the Seller of all of the
Mortgage Loans in connection with the termination of the Trust Estate. See "De-
scription of the Mortgage Loans--Mandatory Repurchase or Substitution of Mort-
gage 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 Mort-
gage Loans, in whole or in part, at any time. 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. In addition, because the characteristics of the Group I Mortgage
Loans and the Group II Mortgage Loans differ, the Group I Mortgage Loans and
Group II Mortgage Loans as a whole may be expected to prepay at different
rates. The rate of prepayment on the Mortgage Loans may also be influenced by
programs offered by mortgage loan originators (including WFHM), servicers (in-
cluding 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 limited to, the mortgage loan interest rate or payment history and the geo-
graphic location of the Mortgaged Property), reduced origination fees or clos-
ing costs, pre-approved applications, waiver of pre-closing interest accrued
with respect to a refinanced loan prior to the pay-off of such loan, or other
financial incentives. In particular, the application of WFHM's "retention pro-
gram," which enables qualifying mortgagors to refinance at greatly reduced
cost, to its servicing portfolio may substantially affect the rate of prepay-
ment 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.
The rate of defaults on the Mortgage Loans will also affect the rate and tim-
ing of principal payments on the Mortgage Loans. In general, defaults on mort-
gage loans are expected to occur with greater frequency in their early years.
As a result of Mortgage Loans being originated using underwriting standards
that, in certain respects, may be less stringent than the General Standards ap-
plied by WFHM, the Mortgage Loans may experience rates of delinquency, foreclo-
sure, bank-
S-63
<PAGE>
ruptcy and loss that are higher than those experienced by mortgage loans that
satisfy the General Standards applied by WFHM.
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 in a Loan Group (including liquidations and repur-
chases of Mortgage Loans in such Loan Group) will be distributed, to the extent
of the Non-PO Fraction, to the holders of the Class A Certificates of the re-
lated Group (other than the Class A-PO Certificates of such Group) then enti-
tled to distributions in respect of principal during the nine years beginning
on the first Distribution Date, and, to the extent that such principal prepay-
ments are made in respect of a Discount Mortgage Loan in such Loan Group, to
the related Class A-PO Certificates in proportion to the interest of such Class
A-PO Certificates in such Discount Mortgage Loan represented by the PO Frac-
tion.
As described herein under "Description of the Certificates -- Principal (In-
cluding Prepayments) -- Allocation of Amount to be Distributed on the Class A
Certificates" unless the Principal Balances of the other Group I-A Certificates
(other than the Class I-A-PO Certificates) have been reduced to zero, the Class
I-A-4 Certificates will not be entitled to any distributions of principal pay-
ments for five years and during the following five years the percentage of
principal payments (including prepayments) allocated to the Class I-A-4 Certif-
icates 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 in
the related Loan Group, or both Loan
S-64
<PAGE>
Groups in the case of the Class B Certificates. Investors in the Offered Cer-
tificates should consider the associated risks, including, in the case of Of-
fered Certificates purchased at a discount, the risk that a slower than antici-
pated rate of payments in respect of principal (including prepayments) on the
Mortgage Loans in the related Loan Group, or both Loan Groups in the case of
the Class B Certificates, will have a negative effect on the yield to maturity
of such Certificates 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 (including prepayments) on the Mortgage Loans in the related Loan
Group, or both Loan Groups in the case of the Class B Certificates, will have a
negative effect on the yield to maturity of such Certificates. Investors pur-
chasing Offered Certificates at a premium should also consider the risk that a
rapid rate of payments in respect of principal (including prepayments) on the
Mortgage Loans in the related Loan Group could result in the failure of such
investors to fully recover their initial investments. An investor is urged to
make an investment decision with respect to any Class of Offered Certificates
based on the anticipated yield to maturity of such Class resulting from its
purchase price and such investor's own determination as to anticipated Mortgage
Loan prepayment rates under a variety of scenarios.
The timing of changes in the rate of prepayment on the Mortgage Loans in a
Loan Group may significantly affect the actual yield to maturity experienced by
an investor who purchases a Class A Certificate of the related Group or a Class
B Certificate at a price other than par, even if the average rate of principal
payments experienced over time is consistent with such investor's expectation.
In general, the earlier a prepayment of principal on the underlying Mortgage
Loans in a related Loan Group, 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
of the related Group and Classes of Class B Certificates with lower numerical
designations) will be allocable to the Classes of Class B Certificates in re-
verse numerical order, except as provided herein. To the extent not covered by
Periodic Advances, delinquencies on Mortgage Loans in a Loan Group 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 other-
wise distributable to holders of the Class B Certificates will be made avail-
able to protect the holders of the Class A Certificates of the related Group
against interruptions in distributions due to such unadvanced mortgagor delin-
quencies. Such unadvanced delinquencies, even if subsequently cured, may affect
the timing of the receipt of distributions by the holders of the Class B Cer-
tificates.
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
S-65
<PAGE>
which such interest shortfalls are not covered by Compensating Interest or sub-
ordination. See "Description of the Certificates--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 the related Loan Group, or both Loan Groups
in the case of the Class B Certificates. In recent periods, California, the New
York metropolitan area, the Washington, D.C. metropolitan area and several
other regions in the United States have experienced significant fluctuations in
housing prices. In addition, California and several other regions have experi-
enced natural disasters, including earthquakes, fires, floods and hurricanes,
which may adversely affect property values. See "Description of the Mortgage
Loans." Any deterioration in housing prices in the states in which there is a
significant concentration of Mortgaged Properties, as well as 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 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 in a Loan Group, or both Loan Groups in the case of the Class B
Certificates, and therefore of amounts distributable in reduction of principal
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 amounts distributed in
reduction
S-66
<PAGE>
of the principal balance of such investor's Offered Certificate may be lower
than the applicable Pass-Through Rate or expected yield. Conversely, slower
rates of prepayments on the Mortgage Loans in a Loan Group, or both Loan Groups
in the case of the Class B Certificates, and therefore of amounts distributable
in reduction of principal balance of the related Offered Certificates, may co-
incide with periods of high prevailing interest rates. During such periods, the
amount of principal distributions available to an investor for reinvestment at
such high prevailing interest rates may be relatively small.
Due to the special tax treatment of residual interests, the after-tax return
of the Class I-A-R Certificate may be significantly lower than would be the
case if the Class I-A-R Certificate were taxed as a debt instrument, or may be
negative. See "Material Federal Income Tax Consequences" 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 of mortgage loans commonly are measured relative to a prepayment
standard or model. The prepayment model used in this Prospectus Supplement (the
"Prepayment Vector") represents an assumed rate of prepayment each month rela-
tive to the then outstanding principal balance of a pool of mortgage loans. A
100% Prepayment Vector assumes a Constant Prepayment Rate ("CPR") of 4.0% 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 12/11% per an-
num in each month thereafter until the twelfth month. Beginning in the twelfth
month and in each month thereafter during the life of the mortgage loans, a
100% Prepayment Vector assumes a CPR of 16.0% per annum each month. The Prepay-
ment Vector does not purport to be a historical description of prepayment expe-
rience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans in any Loan Group.
The tables set forth below have been prepared assuming, among other things,
the following (the "Structuring Assumptions"): (i) each Loan Group 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 pre-
ceding the month of such payment, its Mortgage Interest Rate and its remaining
term to stated maturity, so that such scheduled payments would amortize the re-
maining balance 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 prepayments
on the Assumed Mortgage Loans representing principal prepayments in full of in-
dividual mortgage loans will be received on the last day of each month commenc-
ing on , 200 at the respective constant percentages of the Prepayment Vec-
tor set forth in the tables and there are no partial principal prepayments or
Prepayment Interest Shortfalls, (vi) the Certificates will be issued on ,
200 , (vii) distributions to Certificateholders will be made on the 25th day of
each month, commencing in 200 , (viii) the Servicing Fee Rate is % per
annum and
S-67
<PAGE>
the Master Servicing Fee Rate is 0.017% per annum for each Assumed Mortgage
Loan, (ix) the initial Principal Balance of each Class of Certificates will be
as set forth on page S-4 of this prospectus supplement and (x) there will be no
use of the cash flows from one Loan Group to pay the Class A Certificates of
the unrelated Group as described herein under "Description of the Certifi-
cates -- Cross-Collateralization."
ASSUMED MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
Principal
Maining Original Balance
Term Term as of the Mortgage
to To Cut-Off Interest
Maturity Maturity Date Rate
-------- -------- --------- --------
(in (in
months) months)
<S> <C> <C> <C> <C>
LOAN GROUP I
Assumed Discount Mortgage Loan............. $ %
Assumed Premium Mortgage Loan.............. $ %
LOAN GROUP II
Assumed Discount Mortgage Loan............. $ %
Assumed Premium Mortgage Loan.............. $ %
</TABLE>
It is highly unlikely that the Mortgage Loans in a Loan Group will prepay at
any constant Prepayment Vector, that all of the Mortgage Loans in a Loan Group
will prepay at the same Prepayment Vector or that the Mortgage Loans in a Loan
Group will not experience any losses. In addition, there will be differences
between the characteristics of the Mortgage Loans ultimately included in each
Loan Group and the characteristics which are assumed in preparing the tables,
as described above. Any difference may have an effect upon the actual percent-
ages of initial Principal Balances of the Classes of Certificates outstanding,
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 the Prepayment Vector presented.
S-68
<PAGE>
Percentage of Initial Principal Balance(/1/) Outstanding For:
<TABLE>
<CAPTION>
Class I-A-1 Class I-A-2
Certificates at the Certificates at the
Following Percentages Following Percentages
of of
the Prepayment Vector the Prepayment Vector
----------------------- -----------------------
Distribution Date 0% % % % % % 0% % % % % %
----------------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (years)(/2/)
</TABLE>
<TABLE>
<CAPTION>
Class I-A-3
Certificates at the Class I-A-4
Following Percentages Certificates at the
of Following Percentages of
the Prepayment Vector the Prepayment Vector
----------------------- ---------------------------
Distribution Date 0% % % % % % 0% % % % % % %
----------------- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (years)(/2/)
</TABLE>
------------------
(1) With respect to the Class A-3 Certificates, percentages are expressed as a
percentage of the Initial Class A-3 Notional Amount.
(2) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of principal bal-
ance or notional amount by the number of years from the date of the issu-
ance of such Certificate to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distribution in reduc-
tion of principal balance or notional amount referred to in clause (i).
S-69
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class I-A-5 Class I-A-6 Class I-A-7
Certificates at the Certificates at the Certificates at the
Following Percentages Following Percentages Following Percentages
of of of
the Prepayment Vector the Prepayment Vector the Prepayment Vector
----------------------- ----------------------- -----------------------
Distribution
Date 0% % % % % % 0% % % % % % 0% % % % % %
------------ --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted
Average Life
(years)(/1/)
</TABLE>
<TABLE>
<CAPTION>
Class I-A-8 Class I-A-9 Class I-A-10
Certificates at the Certificates at the Certificates at the
Following Percentages Following Percentages Following Percentages
of of of
the Prepayment Vector the Prepayment Vector the Prepayment Vector
----------------------- ----------------------- -----------------------
Distribution
Date 0% % % % % % 0% % % % % % 0% % % % % %
------------ --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <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 each distribution in reduction of principal bal-
ance by the number of years from the date of the issuance of such Certifi-
cate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the aggregate distributions in reduction of prin-
cipal balance referred to in clause (i).
S-70
<PAGE>
<TABLE>
<CAPTION>
Class I-A-R
Certificate at the
Following Percentages of
the Prepayment Vector
---------------------------------------------------------------------------
Distribution
Date 0% % % % %
------------ --- --- --- --- ---
<S> <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 each distribution in reduction of principal bal-
ance by the number of years from the date of the issuance of such Certifi-
cate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the aggregate distributions in reduction of prin-
cipal balance referred to in clause (i).
S-71
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class B-1, Class B-2
Class II-A-1 and Class B-3
Certificates at the Certificates at the
Following Percentage Following Percentages
of the Prepayment of
Vector SPA
---------------------------- ----------------------------
Distribution
Date 0% % % % % 0% % % % %
------------ --- --- --- --- --- --- --- --- --- ---
<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 each distribution in reduction of principal bal-
ance by the number of years from the date of the issuance of such Certifi-
cate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the aggregate distributions in reduction of prin-
cipal balance referred to in clause (i).
Interest accrued on the Offered Certificates will be reduced by the amount of
any interest portions of Realized Losses allocated to such Certificates as de-
scribed under "Description of the Certificates--Interest" herein. The yield on
the Offered Certificates will be less than the yield otherwise produced by
their respective Pass-Through Rates and the prices at which such Certificates
are purchased because the interest which accrues on the Mortgage Loans in the
related Loan Group, or both Loan Groups in the case of the Class B Certifi-
cates, 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.
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"),
S-72
<PAGE>
represents an assumed rate of default each month relative to the then-outstand-
ing performing principal balance of a pool of new mortgage loans. A default as-
sumption of 100% SDA assumes constant default rates of 0.02% per annum of the
then-outstanding principal balance of such mortgage loans in the first month of
the life of the mortgage loans and an additional 0.02% per annum in each month
thereafter until the 30th month. Beginning in the 30th month and in each month
thereafter through the 60th month of the life of the mortgage loans, 100% SDA
assumes a constant default rate of 0.60% per annum each month. Beginning in the
61st month and in each month thereafter through the 120th month of the life of
the mortgage loans, 100% SDA assumes that the constant default rate declines
each month by 0.0095% per annum, and that the constant default rate remains at
0.03% per annum in each month after the 120th month. For the purposes of the
following tables, it is assumed that there is no delay between the default and
liquidation of the mortgage loans. As used in the following tables, "0% SDA"
assumes default rates equal to 0% of SDA (no defaults). SDA does not purport to
be a historical description of default experience or a prediction of the antic-
ipated 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-
sumptions that (i) no defaults shall have occurred with respect to the Mortgage
Loans and (ii) there will be no use of the cash flows from one Loan Group of
Mortgage Loans to pay the Class A Certificates of the unrelated Group) and the
additional assumptions that liquidations (other than those scenarios indicated
as 0% of SDA (no defaults)) occur monthly on the last day of the preceding
month at the percentages of SDA set forth in the table.
In addition, it was assumed that (i) Realized Losses on liquidations of % 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 Certif-
icates 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 each Loan Group 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 Losses will be incurred according to any
one particular pattern. The assumed percentages of SDA and the Prepayment Vec-
tor 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 expe-
rience of the Mortgage Loans will in any way correspond to any of the assump-
tions 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 ma-
turity shown below in the tables.
S-73
<PAGE>
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 converted to the semi-annual corporate bond
equivalent yields shown below. Implicit in the use of any discounted present
value or internal rate of return calculations such as these is the assumption
that intermediate cash flows are reinvested at the discount rate or internal
rate of return. Thus, these calculations do not take into account the different
interest rates at which investors may be able to reinvest funds received by
them as distributions on the Class B-2 and Class B-3 Certificates. Consequent-
ly, these yields do not purport to reflect the total return on any investment
in the Class B-2 and Class B-3 Certificates when such reinvestment rates are
considered.
Sensitivity of Pre-Tax Yields to Maturity of the Class B-2 Certificates to
Prepayments and Realized Losses
<TABLE>
<CAPTION>
Loss Percentage of SPA
Percentage Severity -------------------
of SDA Percentage % % % % %
------------------------------------------------ ---------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
0%............................................
50%............................................
50%............................................
75%............................................
75%............................................
100%............................................
100%............................................
150%............................................
150%............................................
Sensitivity of Pre-Tax Yields to Maturity of the Class B-3
Certificates to Prepayments and Realized Losses
<CAPTION>
Loss Percentage of SPA
Percentage Severity -------------------
of SDA Percentage % % % % %
------------------------------------------------ ---------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
0%............................................
50%............................................
50%............................................
75%............................................
75%............................................
100%............................................
100%............................................
150%............................................
150%............................................
</TABLE>
Investors are urged to make their investment decisions based on their deter-
minations as to anticipated rates of prepayment and Realized Losses under a va-
riety of scenarios. Investors in Class B-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-74
<PAGE>
Aggregate Realized Losses
<TABLE>
<CAPTION>
Loss Percentage of SPA
Percentage Severity -------------------
of SDA Percentage % % % % %
------------------------------------------------ ---------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
50%............................................
50%............................................
75%............................................
75%............................................
100%............................................
100%............................................
150%............................................
150%............................................
</TABLE>
Investors are urged to make their investment decisions based on their deter-
minations as to anticipated rates of prepayment and Realized Losses under a va-
riety of scenarios. Investors in Class B-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.
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 "Pool-
ing and Servicing Agreement") among the Seller, the Master Servicer and the
Trustee. Reference is made to the prospectus for important additional informa-
tion 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 participants for distribution to Beneficial Owners
or their nominees.
S-75
<PAGE>
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 Participants.
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 lim-
ited extent described herein. See "Description of the Certificates -- Periodic
Advances."
Master Servicer
Wells Fargo Bank Minnesota, National Association ("Wells Fargo Bank") will
act as "Master Servicer" of the Mortgage Loans and, in that capacity, will su-
pervise the servicing of the Mortgage Loans, cause the Mortgage Loans to be
serviced in the event a Servicer is terminated and a successor servicer is not
appointed, provide certain reports to the Trustee regarding the Mortgage Loans
and the Certificates and make Periodic Advances to the limited extent described
herein. See "Description of the Certificates -- Periodic Advances" herein. Un-
der the Pooling and Servicing Agreement, any good faith interpretation of the
Master Servicer of any provisions of the Pooling and Servicing Agreement relat-
ing to the distributions to be made on or the allocation of any losses to the
Certificates which the Master Servicer concludes are ambiguous or unclear will
be binding on Certificateholders. The Master Servicer will be entitled to a
"Master Servicing Fee" payable monthly equal to the product of (i) 1/12th of
0.017% (the "Master Servicing Fee Rate") and (ii) the aggregate Scheduled Prin-
cipal 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 sub-
ject 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-
S-76
<PAGE>
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
interest. In the event the Trust Estate is liquidated as described above, hold-
ers of the Certificates, to the extent funds are available, will receive the
unpaid principal balance of their Certificates and any accrued and unpaid in-
terest thereon. The amount, if any, remaining in the Certificate Account after
the payment of all principal and interest on the Certificates and expenses of
the REMIC will be distributed to the holder of the Class I-A-R Certificate. See
"Description of the Certificates -- Additional Rights of the Class I-A-R
Certificateholder" herein and "The Pooling and Servicing Agreement -- Termina-
tion; Optional Purchase of Mortgage Loans" in the prospectus. The exercise of
the foregoing option will be in the Seller's sole discretion. Without limita-
tion, the Seller may enter into agreements with third parties to (i) exercise
such option at the direction of such third party or (ii) forbear from the exer-
cise 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.
S-77
<PAGE>
The Servicers
The Group I Mortgage Loans initially will be serviced by the following enti-
ties:
<TABLE>
<CAPTION>
Approximate Percentage of
Aggregate Unpaid Principal Balance
Name of Servicer as of the Cut-Off Date Serviced
---------------- ----------------------------------
<S> <C>
WFHM..................................... %
[OTHER SERVICERS]
------
Total.................................. 100.00%
======
</TABLE>
The Group II Mortgage Loans initially will be serviced by the following enti-
ties:
<TABLE>
<CAPTION>
Approximate Percentage of
Aggregate Unpaid Principal Balance
Name of Servicer as of 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 in-
terest (net of Servicing Fees) on any Mortgage Loan that such Servicer servic-
es, 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 repre-
sentation 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 Agree-
ment 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 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 Certif-
icate 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."
S-78
<PAGE>
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 certain Mortgage Loans serviced by WFHM ("Wells Fargo
Type 1 Loans"), the Unscheduled Principal Receipt Period with respect to all
types of Unscheduled Principal Receipts is a Mid-Month Receipt Period. With re-
spect to the certain other Mortgage Loans serviced by WFHM ("Wells Fargo Type 2
Loans") and the Mortgage Loans serviced by certain Other Servicers, the
Unscheduled Principal Receipt Period with respect to all types of Unscheduled
Principal Receipts is a Prior Month Receipt Period. For certain Other
Servicers, the Unscheduled Principal Receipt Period with respect to partial
Unscheduled Principal Receipts is a Prior Month Receipt Period and with respect
to Unscheduled Principal Receipts in full is a Mid-Month Receipt Period. Ap-
proximately % and % of the aggregate unpaid principal balance of the Group I
Mortgage Loans as of the Cut-Off Date were Wells Fargo Type 1 Loans and Wells
Fargo Type 2 Loans, respectively. All of the Group II Mortgage Loans serviced
by WFHM are Wells Fargo Type 1 Loans.
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 dai-
ly) 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.
S-79
<PAGE>
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),
(ii) and (iii) below or (b) with respect to any Other Servicer, enter into an
amendment to any applicable Underlying Servicing Agreement for the purpose of
changing the Unscheduled Principal Receipt Period applicable to any type of
Unscheduled Principal Receipt within the parameters described in (iv) below and
making any necessary conforming changes incident thereto. In connection there-
with, (i) the Unscheduled Principal Receipt Period for the Wells Fargo Type 2
Loans may be changed (to achieve consistency with the Wells Fargo Type 1 Loans)
to a Mid-Month Receipt Period with respect to all types of Unscheduled Princi-
pal Receipts; (ii) the Unscheduled Principal Receipt Period for the Wells Fargo
Type 2 Loans may be changed to achieve an Unscheduled Principal Receipt Period
regime (the "Target Regime") under which the Unscheduled Principal Receipt Pe-
riod with respect to partial Unscheduled Principal Receipts would be a Prior
Month Receipt Period and the Unscheduled Principal Receipt Period with respect
to Unscheduled Principal Receipts in full would be a Mid-Month Receipt Period;
(iii) the Unscheduled Principal Receipt Period for the Wells Fargo Type 1 Loans
may be changed to the Target Regime and (iv) the Unscheduled Principal Receipt
Periods for the Mortgage Loans serviced by Other Servicers which do not cur-
rently 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 -- Inter-
est." 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
S-80
<PAGE>
Loan is expressed as a fixed percentage (the "Servicing Fee Rate") of the
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 will be a fixed percentage rate per annum. The Servicing
Fee Rate for each Mortgage Loan is % per annum. The Servicers also are enti-
tled to additional servicing compensation, including any prepayment premiums,
as described in the prospectus under "Servicing of the Mortgage Loans -- Fixed
Retained Yield, Servicing Compensation and Payment of Expenses."
The Master Servicer will pay all routine expenses, including fees of the
Trustee 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 I-A-R Certificate. See "Material Federal In-
come Tax Consequences" herein and "Material Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC Certificates -- Limitations on De-
duction 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.
MATERIAL 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 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
I-A-R Certificate) (collectively, the "Regular Certificates"), together with
each Class of Certificates not offered hereby, will be designated as regular
interests in the REMIC, and the Class I-A-R Certificate will be designated as
the residual interest in the REMIC. The Class I-A-R Certificate is a "Residual
Certificate" for purposes of the prospectus. The assets of the REMIC will in-
clude the Mortgage Loans (exclusive of Fixed Retained Yield), together with the
amounts held by the Master Servicer in a separate account in which collections
on the Mortgage Loans will be deposited (the "Certificate Account"), the hazard
insurance policies and primary mortgage insurance policies, if any, relating to
the Mortgage Loans and any property that secured a Mortgage Loan that is ac-
quired by foreclosure or deed in lieu of foreclosure.
S-81
<PAGE>
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 I-A-R Certificate, "qualified mortgages"
for a REMIC and "permitted assets" for a financial asset securitization invest-
ment 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 Certificates will be issued with original issue discount in an
amount equal to all payments of principal and interest (whether current or ac-
crued) thereon over their issue price (including accrued interest). It is an-
ticipated that the Class Certificates will be issued with original issue
discount in an amount equal to the excess of their initial Principal Balances
(plus three days of interest at the Pass-Through Rate thereon) over their re-
spective issue prices (including accrued interest). It is also anticipated that
the Class Certificates will be issued at a premium and that the Class
Certificates will be issued with de minimis original issue discount for federal
income tax purposes. It is further anticipated that the Class I-A-PO, Class II-
A-PO, 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 pur-
poses.
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 assuming that each Loan Group will prepay at % of the Prepayment
Vector. No representation is made as to the actual rate at which the Mortgage
Loans will prepay.
Residual Certificates
The holder of the Class I-A-R Certificate must include the taxable income or
loss of the REMIC in determining its federal taxable income. The Class I-A-R
Certificate 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 I-A-R Certificateholder's REMIC taxable income and the
tax liability thereon may exceed, and may substantially exceed, cash distribu-
tions to such holder during certain periods, in which event, the holder thereof
must have sufficient alternative sources of funds to pay such tax liability.
Furthermore, it is anticipated that all or a substantial portion of the taxable
income of the REMIC includible by the holder of the Class I-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 I-A-R Certificate will be considered a "noneconomic residual inter-
est," with the result that transfers thereof would be disregarded for federal
income tax purposes if any
S-82
<PAGE>
significant purpose of the transferor was to impede the assessment or collec-
tion of tax. Accordingly, the Class I-A-R Certificate is subject to certain re-
strictions 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 I-A-R and Class B
Certificates." See "Material 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 Re-
strictions on Transfer of Residual Certificates -- Noneconomic Residual Inter-
ests" in the prospectus.
An individual, trust or estate that holds the Class I-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 ex-
penses to any extent in computing such holder's alternative minimum tax liabil-
ity. In addition, some portion of a purchaser's basis, if any, in the Class I-
A-R Certificate may not be recovered until termination of the REMIC. Further-
more, the federal income tax consequences of any consideration paid to a trans-
feree on a transfer of the Class I-A-R Certificate, including any "safe harbor"
payment described under "Certain Federal Income Tax Consequences -- Federal In-
come Tax Consequences for REMIC Certificates -- Taxation of Residual Certifi-
cates -- Tax-Related Restrictions on Transfer of Residual Certificates -- Non-
Economic 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 considera-
tion. Any transferee receiving consideration with respect to the Class I-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 I-A-R Certificate may be significantly lower than would
be the case if the Class I-A-R Certificate were taxed as a debt instrument, or
may be negative.
See "Material Federal Income Tax Consequences" in the prospectus.
ERISA CONSIDERATIONS
The Class I-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 "De-
scription of the Certificates -- Restrictions on Transfer of the Class I-A-R
and Class B Certificates."
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 I-A-R and Class B Certificates."
Accordingly, the following discussion applies to the Class A Certificates
(other than the Class I-A-R Certificate) offered hereby and does not purport to
discuss the considerations under ERISA, Code Section 4975 or Similar Law with
respect to the purchase, acquisition or resale of the Class I-A-R or Class B
Certificates.
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<PAGE>
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 the DOL issued to an individual administrative exemption, Pro-
hibited Transaction Exemption , Fed. Reg. (the "Exemption"), from cer-
tain of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by an ERISA Plan of certifi-
cates in pass-through trusts that meet the conditions and requirements of the
Exemption. The Exemption might apply to the acquisition, holding and resale of
the Class A Certificates by an ERISA Plan, provided that specified conditions
are met.
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by an ERISA Plan of the Class A Certificates is the
condition that the ERISA Plan investing in the Class A Certificates be an "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
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.
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.
S-84
<PAGE>
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 "De-
scription of the Certificates -- Reports" herein and "The Pooling and Servicing
Agreement -- Reports to Certificateholders" in the prospectus upon written re-
quest to the Trustee at the Corporate Trust Office.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
and the terms agreement dated (together, the "Underwriting Agreement")
among WFHM, the Seller and (the "Underwriter"), the Offered Certificates
are being purchased from the Seller by the Underwriter upon issuance thereof.
The Underwriter is committed to purchase all of the Offered Certificates if any
Offered Certificates are purchased. The Underwriter has advised the Seller that
it proposes to offer the Offered Certificates, from time to time, for sale in
negotiated transactions or otherwise at prices determined at the time of sale.
Proceeds to the Seller from the sale of the Offered Certificates are expected
to be approximately 97.91% of the aggregate initial Principal Balance of the
Class A Certificates offered hereby, approximately 93.19% of the aggregate ini-
tial Principal Balance of the Class B-1 Certificates, approximately 91.69% of
the aggregate initial Principal Balance of the Class B-2 Certificates and ap-
proximately 88.50% of the aggregate initial Principal Balance of the Class B-3
Certificates plus, in each case, accrued interest thereon, at the rate of
% per annum from 1, 200 to (but not including) , 200 ,
before deducting expenses payable by the Seller estimated 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 being offered hereby among such Class A Certificates. The Under-
writer and any dealers that participate with the Underwriter in the distribu-
tion of the Offered Certificates may be deemed to be underwriters, and any dis-
counts or commissions received by them and any profit on the resale of Offered
Certificates by them may be deemed to be underwriting discounts or commissions,
under the Securities Act.
The Underwriting Agreement provides that the Seller or 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 Bro-
kerage 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.
S-85
<PAGE>
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.
LEGAL MATTERS
The validity of the Offered Certificates and certain tax matters with respect
thereto will be passed upon for the Seller by Cadwalader, Wickersham & Taft,
New York, New York. Certain legal matters will be passed upon for the Under-
writer by Brown & Wood LLP, New York, New York.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from WFHM of the Mortgage Loans
underlying the Certificates.
RATINGS
It is a condition to the issuance of the Class A Certificates (other than the
Class I-A-R Certificate) offered hereby that each such Class will have been
rated " " by and " " by and together with , the "Rating Agencies".
It is a condition to the issuance of the Class I-A-R, 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 recommendation to
buy, sell or hold securities and may be subject to revision or withdrawal at
any time by the assigning rating agency. Each security rating should be evalu-
ated independently of any other security rating.
The ratings of on mortgage pass-through certificates address the likeli-
hood of the receipt by certificateholders of all distributions of principal and
interest to which such certificateholders are entitled. rating opinions ad-
dress the structural, legal and issuer aspects associated with the certifi-
cates, including the nature of the underlying mortgage loans and the credit
quality of the credit support provider, if any. ratings on pass-through
certificates do not represent any assessment of the likelihood that principal
prepayments may differ from those originally anticipated and consequently any
adverse effect the timing of such prepayments could have on an investor's an-
ticipated yield.
S-86
<PAGE>
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. Fitch's ratings on pass-through certificates do not
represent any assessment of the likelihood or rate of principal prepayments and
consequently any adverse effect the timing of such prepayments could have on an
investor's anticipated yield.
The Seller has not requested a rating on the Offered Certificates of any
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-87
<PAGE>
INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Accretion Termination Date............ S-32
Adjusted Pool Amount.................. S-29
Adjusted Pool Amount (PO Portion)..... S-29
Adjustment Amount..................... S-48
Aggregate Non-PO Principal
Balance............................. S-29
Aggregate Principal Balance........... S-29
Aggregate Subordinate Percentage...... S-41
Apportioned Class B Principal
Distribution Amount.................. S-41
Apportioned Principal Balance......... S-48
Apportionment Fraction................ S-41
Assumed Discount Mortgage Loans....... S-67
Assumed Mortgage Loans................ S-67
Assumed Premium Mortgage Loans........ S-67
Available Master Servicing
Compensation......................... S-30
Bankruptcy Loss....................... S-36
Bankruptcy Loss Amount................ S-48
Beneficial Owner...................... S-22
Book-Entry Certificates............... S-22
Bulk Purchase Underwritten Loans...... S-51
Cede.................................. S-22
Certificate Account................... S-81
Certificateholder..................... S-22
Certificates.......................... S-22
Class I-A-10 Accrual Distribution
Amount............................... S-32
Class A Certificates.................. S-22
Class A Non-PO Optimal Principal
Amount............................... S-33
Class A Non-PO Principal Amount....... S-33
Class A Non-PO Principal Balance...... S-29
Class A Non-PO Principal Distribution
Amount............................... S-32
Class A Percentage.................... S-36
Class A Prepayment Percentage......... S-37
Class A Principal Balance............. S-29
Class A-PO Certificates............... S-22
Class A-PO Deferred Amount............ S-34
Class A-PO Distribution
Amount.............................. S-33
Class A-PO Optimal
Principal Amount.................... S-33
Class B Certificates................. S-22
Class B Loan Group I
Optimal Principal
Amount.............................. S-33
Class B Loan Group II
Optimal Principal
Amount.............................. S-33
Class B Optimal
Principal Amount.................... S-34
Class B Percentage................... S-38
Class B Prepayment
Percentage.......................... S-38
Class B Principal
Balance............................. S-29
Class B Principal
Distribution Amount................. S-33
Class Percentage..................... S-34
Class Prepayment
Percentage.......................... S-34
Closing Date......................... S-22
Code................................. S-43
Compensating Interest................ S-30
CPR.................................. S-67
Cross-Over Date...................... S-46
Current Fractional
Interest............................ S-39
Curtailment Interest
Shortfalls.......................... S-31
Cut-Off Date......................... S-52
Debt Service Reduction............... S-36
Deficient Valuation.................. S-36
Definitive
Certificates........................ S-22
Determination Date................... S-23
Discount Mortgage Loan............... S-36
Distribution Date.................... S-23
DOL.................................. S-84
DTC.................................. S-22
ERISA................................ S-44
ERISA Plan........................... S-44
Excess Bankruptcy
Losses.............................. S-47
Excess Fraud Losses.................. S-47
Excess Losses........................ S-47
Excess Special Hazard
Losses.............................. S-47
Exemption............................ S-84
FICO Scores.......................... S-57
</TABLE>
S-88
<PAGE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Fixed Retained Yield................ S-80
Fraud Loss.......................... S-36
Fraud Loss Amount................... S-48
General Standards................... S-50
Group............................... S-22
Group I-A Certificates.............. S-22
Group I Discount Mortgage Loan...... S-36
Group I Mortgage Loans.............. S-50
Group I Pool Distribution Amount.... S-23
Group I Premium Mortgage Loan....... S-36
Group I Scheduled Principal Amount.. S-40
Group I Unscheduled Principal
Amount............................. S-40
Group II-A Certificates............. S-22
Group II Discount Mortgage
Loan............................... S-36
Group II Mortgage Loans............. S-50
Group II Pool Distribution Amount... S-23
Group II Premium Mortgage Loan...... S-36
Group Subordinate Amount............ S-48
Holder.............................. S-22
Interest Accrual Amount............. S-27
Interest Shortfall Amount........... S-32
Liquidated Loan..................... S-35
Liquidated Loan Loss................ S-35
Loan Group.......................... S-50
Loan Group I........................ S-50
Loan Group II....................... S-50
Loss Severity Percentage............ S-73
Master Servicer..................... S-76
Master Servicing Fee................ S-76
Master Servicing Fee Rate........... S-76
Mid-Month Receipt Period............ S-79
Modified Standards.................. S-50
Month End Interest.................. S-30
Mortgage Loans...................... S-50
Mortgaged Properties................ S-50
Mortgages........................... S-50
Net Mortgage Interest Rate.......... S-30
Net Partial Liquidation Proceeds.... S-25
Non-PO Fraction..................... S-36
Offered Certificates................ S-22
Original Fractional Interest........ S-38
Original Group Subordinate Amount... S-37
Other Servicers..................... S-77
Partial Liquidation Proceeds........ S-25
Pass-Through Rate................... S-27
Percentage Interest................. S-27
Periodic Advance.................... S-42
Plan................................ S-45
PMI Advances........................ S-43
PO Fraction......................... S-36
Pool Balance (Non-PO Portion)....... S-36
Pool Balance (PO Portion)........... S-36
Pool Distribution Amount............ S-23
Pool Distribution Amount Allocation. S-26
Pooling and Servicing Agreement..... S-75
Premium Mortgage Loan............... S-36
Prepayment Interest Shortfalls...... S-30
Prepayment Vector................... S-67
Prepayments in Full................. S-30
Principal Balance................... S-27
Prior Month Receipt Period.......... S-79
Priority Amount..................... S-40
Priority Percentage................. S-40
PTE 95-60........................... S-45
Rating Agencies..................... S-86
Realized Loss....................... S-35
Record Date......................... S-23
Recovery............................ S-29
Regular Certificates................ S-81
REMIC............................... S-81
Remittance Date..................... S-25
REO Property........................ S-77
Residual Certificate................ S-81
Scheduled Principal Balance......... S-35
SDA................................. S-72
Securities Act...................... S-84
Seller.............................. S-50
Servicer Custodial Account.......... S-78
Servicers........................... S-77
Servicing Fee Rate.................. S-81
Shift Percentage.................... S-40
</TABLE>
S-89
<PAGE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Similar Law......................... S-44
SMMEA............................... S-84
Special Hazard Loss................. S-35
Special Hazard Loss Amount.......... S-48
Structuring Assumptions............. S-67
Subordinated Certificates........... S-22
Subordinated Percentage............. S-38
Subordinated Prepayment Percentage.. S-38
Target Regime....................... S-80
Trust............................... S-22
Trustee............................. S-76
U.S. Person......................... S-44
Undercollateralized Amount.......... S-42
Undercollateralized Group........... S-41
Underlying Servicing Agreement...... S-77
Underwriter......................... S-85
Underwriting Agreement.............. S-85
Underwriting Standards.............. S-50
Unscheduled Principal Receipt Period S-79
Unscheduled Principal Receipts...... S-24
weighted average life............... S-67
Wells Fargo......................... S-78
Wells Fargo Bank.................... S-76
Wells Fargo Type 1 Loans............ S-79
Wells Fargo Type 2 Loans............ S-79
WFHM................................ S-77
</TABLE>
S-90
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the Se- +
+curities and Exchange Commission is effective. This prospectus is not an of- +
+fer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED SEPTEMBER 11, 2000
PROSPECTUS
Wells Fargo Asset Securities Corporation
Seller
Mortgage Asset-Backed Pass-Through Certificates
(Issuable in Series by separate Trusts)
--------------
You should Each Trust--
carefully
consider . will issue a series of mortgage asset-backed pass-through
the risk certificates, which will consist of one or more classes of
factors certificates; 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 or have in turn purchased them from Wells Fargo Home Mortgage,
guaranteed Inc., one of its affiliates;
by any
governmental . will be underwritten to Wells Fargo Home Mortgage, Inc.'s
agency or standards or such other standards as described in this
instrumentality. prospectus and the accompanying prospectus supplement; and
The . will be serviced by Wells Fargo Home Mortgage, Inc.
certificates individually or together with other servicers.
of each
series will Each Series of Certificates--
represent
interests . will represent interests in the related trust;
in the
related . may provide credit support for certain classes by
trust only "subordinating" certain classes to other classes of
and will not certificates; any subordinated classes will be entitled to
represent payment subject to the payment of more senior classes and
interests may bear losses before more senior classes;
in or
obligations . may be entitled to one or more of the other types of credit
of the seller support described in this prospectus; and
or any
affiliate . will be paid only from the assets of the related trust.
of the seller.
This
prospectus
may be used
to offer and
sell any series
of certificates
only if
accompanied by
the prospectus
supplement for
that series.
Neither the SEC nor any state securities commission has approved the
certificates or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
--------------
The date of this prospectus is , 200
<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 and/or
subclass;
.the timing and priority of interest and principal payments;
.statistical and other information about the mortgage loans;
.information about credit enhancement, if any, for each class or subclass;
.the ratings for each class or subclass; and
.the method for selling the certificates.
If the terms of a particular series of certificates vary between this pro-
spectus 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 pro-
spectus 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 pro-
spectus are defined under the caption "Index of Significant Definitions" begin-
ning on page 131 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>
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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
Underwriting Standards................................................. 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
Consumer Protection Laws May Limit Remedies............................ 14
The Trust Estates........................................................ 15
General................................................................ 15
Mortgage Loans......................................................... 15
The Seller............................................................... 20
Wells Fargo Home Mortgage................................................ 20
Wells Fargo Bank......................................................... 21
The Mortgage Loan Programs............................................... 22
Mortgage Loan Production Sources....................................... 22
Acquisition of Mortgage Loans from Correspondents...................... 23
Mortgage Loan Underwriting............................................. 23
General Standards................................................... 24
Modified Standards.................................................. 29
Pool Certification Underwriting..................................... 30
Representations and Warranties......................................... 31
</TABLE>
<TABLE>
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<S> <C>
Description of the Certificates........................................... 33
General................................................................. 33
Definitive Form......................................................... 34
Book-Entry Form......................................................... 34
Distributions to Certificateholders..................................... 36
General.............................................................. 36
Distributions of Interest............................................ 38
Distributions of Principal........................................... 39
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
Overcollateralization................................................ 47
Prepayment and Yield Considerations....................................... 47
Pass-Through Rates...................................................... 47
Effects of Defaults..................................................... 48
Scheduled Delays in Distributions....................................... 48
Effect of Principal Prepayments......................................... 48
Weighted Average Life of Certificates................................... 49
Refinancings............................................................ 50
Delinquency and Foreclosure Experience.................................... 51
Servicing of the Mortgage Loans........................................... 53
The Master Servicer..................................................... 53
The Servicers........................................................... 54
Payments on Mortgage Loans.............................................. 55
Periodic Advances and Limitations Thereon............................... 59
Collection and Other Servicing Procedures............................... 60
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans.................................................................. 61
</TABLE>
3
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<TABLE>
<CAPTION>
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<S> <C>
Insurance Policies..................................................... 63
Fixed Retained Yield, Servicing Compensation and Payment of Expenses... 64
Evidence as to Compliance.............................................. 66
Certain Matters Regarding the Master Servicer............................ 67
The Pooling and Servicing Agreement...................................... 68
Assignment of Mortgage Loans to the Trustee............................ 68
Optional Purchases..................................................... 70
Optional Substitutions................................................. 70
Reports to Certificateholders.......................................... 70
List of Certificateholders............................................. 72
Events of Default...................................................... 72
Rights Upon Event of Default........................................... 72
Amendment.............................................................. 73
Termination; Optional Purchase of Mortgage Loans....................... 74
The Trustee............................................................ 75
Certain Legal Aspects of the Mortgage Loans.............................. 76
General................................................................ 76
Foreclosure............................................................ 76
Foreclosure on Shares of Cooperatives.................................. 77
Rights of Redemption................................................... 78
Anti-Deficiency Legislation, the Bankruptcy Code and Other Limitations
on Lenders............................................................ 78
Homeowners Protection Act of 1998...................................... 81
Texas Home Equity Loans................................................ 81
Soldiers' and Sailors' Civil Relief Act and Similar Laws............... 82
Environmental Considerations........................................... 82
"Due-on-Sale" Clauses.................................................. 85
Applicability of Usury Laws............................................ 86
Enforceability of Certain Provisions................................... 86
Material Federal Income Tax
Consequences............................................................ 87
Federal Income Tax Consequences for REMIC Certificates................... 87
General................................................................ 87
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Status of REMIC Certificates............................................. 88
Qualification as a REMIC................................................. 89
Taxation of Regular Certificates......................................... 91
General............................................................... 91
Original Issue Discount............................................... 91
Acquisition Premium................................................... 94
Variable Rate Regular Certificates.................................... 94
Market Discount....................................................... 95
Premium............................................................... 96
Election to Treat All Interest Under the Constant Yield Method........ 97
Treatment of Losses................................................... 97
Sale or Exchange of Regular Certificates.............................. 98
Taxation of Residual Certificates........................................ 99
Taxation of REMIC Income.............................................. 99
Basis and Losses...................................................... 100
Treatment of Certain Items of REMIC Income and Expense................ 101
Limitations on Offset or Exemption of REMIC Income.................... 102
Tax-Related Restrictions on Transfer of Residual Certificates......... 103
Sale or Exchange of a Residual Certificate............................ 106
Mark to Market Regulations............................................ 107
Taxes That May Be Imposed on the REMIC Pool.............................. 107
Prohibited Transactions............................................... 107
Contributions to the REMIC Pool After the Startup Day................. 108
Net Income from Foreclosure Property.................................. 108
Liquidation of the REMIC Pool............................................ 108
Administrative Matters................................................... 108
Limitations on Deduction of Certain Expenses............................. 109
Taxation of Certain Foreign Investors.................................... 109
Regular Certificates.................................................. 109
Residual Certificates................................................. 110
Backup Withholding....................................................... 111
Reporting Requirements................................................... 111
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election Is Made........................................................ 112
General................................................................ 112
Tax Status............................................................. 112
Premium and Discount................................................... 113
Premium............................................................. 113
Original Issue Discount............................................. 113
Market Discount..................................................... 114
Recharacterization of Servicing Fees................................... 114
Sale or Exchange of Certificates....................................... 115
Stripped Certificates.................................................. 115
General............................................................. 115
Status of Stripped Certificates..................................... 117
Taxation of Stripped Certificates................................... 117
Reporting Requirements and Backup Withholding.......................... 119
Taxation of Certain Foreign Investors.................................. 119
ERISA Considerations..................................................... 120
General................................................................ 120
Certain Requirements Under ERISA....................................... 120
General............................................................. 120
Parties in Interest/Disqualified Persons............................ 120
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Delegation of Fiduciary Duty.......................................... 121
Administrative Exemptions................................................ 121
Individual Administrative Exemptions.................................. 121
PTE 83-1.............................................................. 123
Exempt Plans............................................................. 124
Unrelated Business Taxable Income --Residual Certificates................ 124
Legal Investment........................................................... 124
Plan of Distribution....................................................... 126
Use of Proceeds............................................................ 127
Legal Matters.............................................................. 127
Rating..................................................................... 128
Reports to Certificateholders.............................................. 128
Where You Can Find More Information........................................ 129
Registration Statement and Other Materials Filed With the SEC............ 129
Detailed Information Relating to the Mortgage Loans of a Series.......... 129
Incorporation of Certain Information by Reference.......................... 130
Index of Significant Definitions........................................... 131
</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 in-
vestment decision. To understand all of the terms of a series of certifi-
cates, please read this entire document and the accompanying prospectus sup-
plement 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 sup-
plement.
RELEVANT PARTIES FOR EACH SERIES OF CERTIFICATES
Issuer
Each series of 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 supple-
ment.
Seller
With respect to each trust, Wells Fargo Asset Securities Corporation will ac-
quire the mortgage loans from Wells Fargo Home Mortgage, Inc., and will trans-
fer the mortgage loans to the trust. The seller is a direct, wholly-owned sub-
sidiary of Wells Fargo Home Mortgage, Inc. which is an indirect, wholly-owned
subsidiary of Wells Fargo & Company. See "Recent Developments" in the applica-
ble prospectus supplement.
Master Servicer
Wells Fargo Bank Minnesota, National Association 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 se-
cured by first liens on one-to four-family residential properties;
. will have been acquired by the seller from Wells Fargo Home Mortgage, Inc.;
. 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 in-
directly from other mortgage loan originators; and
6
<PAGE>
. will have been underwritten either to Wells Fargo Home Mortgage Inc.'s gen-
eral or modified standards or, to the extent specified in the applicable pro-
spectus 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, any of which may
be divided into one or more subclasses. A class or subclass of certificates
will be entitled, to the extent of funds available, to one of the following:
. principal and interest payments in respect of the related mortgage loans;
. principal distributions, with no interest distributions;
. interest distributions, with no principal distributions; or
. such other distributions as are described in the applicable prospectus sup-
plement.
Interest Distributions
With respect to each series of certificates, interest on the related mortgage
loans at the weighted average of their mortgage interest rates after deducting
servicing 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
Certificates -- Distributions of Certificateholders -- Distributions of Inter-
est."
Except as otherwise specified in the applicable prospectus supplement, interest
on each class and subclass of certificates of each series will accrue at the
pass-through rate for each class and subclass indicated in the applicable pro-
spectus 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 and subclasses of
certificates of a series in the manner specified in the applicable prospectus
supplement. See "Description of the Certificates -- Distributions to
Certificateholders -- Distributions of Principal."
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.
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.
7
<PAGE>
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 . mortgage
guarantee pool
. financial insurance
guaranty policy
insurance . reserve
policy fund
. surety bond . cross-
. letter of support
credit . overcollateralization
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 mort-
gage loan. A servicer who makes periodic advances will be reimbursed for these
as described in this prospectus and in the applicable prospectus 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
8
<PAGE>
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 rea-
sonably 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 ap-
plicable 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.
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
9
<PAGE>
rise to a transaction prohibited or otherwise impermissible under ERISA or
other comparable 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 Investments" in this prospectus and in the applicable prospectus
supplement.
RATING
Certificates of any series will not be offered pursuant to this prospectus and
a prospectus supplement unless each offered class or subclass is rated in one
of the four highest rating categories by at least one nationally recognized
statistical rating organization.
. A security rating is not a recommendation to buy, sell or hold the certifi-
cates 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.
10
<PAGE>
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 cer-
tificates, but no underwriter will be obligated to do so; and
. unless specified in the applicable prospectus supplement, the certifi-
cates 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 cer-
tificates. Although any class of certificates may experience illiquidity, it is
more likely that classes of certificates that are more sensitive to prepayment,
credit or interest rate risk will experience illiquidity.
Limited Assets for Payment of Certificates
Except for any related insurance policies and any reserve fund or credit 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 ob-
ligation of the seller, Wells Fargo Home Mortgage, Inc., the master
servicer, the trustee or any of their affiliates, except for the sell-
er's limited obligations with respect to certain breaches of its repre-
sentations and warranties, Wells Fargo Home Mortgage, Inc.'s obligations
as servicer and Wells Fargo Bank Minnesota, National Association's obli-
gations 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 instrumen-
tality, 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, Wells 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 enhancement will be provided in one or more of the forms
referred to in this prospectus, including, but not limited to; subordination of
the classes of certificates of the same series; a limited guarantee; a finan-
cial guaranty insurance policy; a surety bond; a letter of credit; a pool in-
surance policy; a special hazard insurance policy; a mortgagor bankruptcy bond;
a reserve fund; cross-support;
11
<PAGE>
overcollateralization; and any combination of the preceding types of credit en-
hancement. 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 formu-
la;
. 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 certifi-
cates will generally be permitted to be reduced, terminated or substi-
tuted for, in the sole discretion of the master servicer, if each appli-
cable 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 port-
folios.
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 Underwrit-
ing."
12
<PAGE>
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 -- Insur-
ance Policies," no mortgaged properties will otherwise be required to be in-
sured against earthquake damage or any other loss not covered by standard haz-
ard 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 indus-
tries, or affecting particular segments of the borrowing community (such as
mortgagors relying on commission income and self-employed mortgagors). Such oc-
currences may accordingly affect the actual rates of delinquencies, foreclo-
sures and losses with respect to any trust estate.
The mortgage loans underlying certain series of certificates may be concen-
trated in certain regions. Such concentration may present risk considerations
in addition to those generally present for similar mortgage asset-backed secu-
rities without such concentration. See "The Mortgage Loan Programs -- Mortgage
Loan Underwriting" and "Prepayment and Yield Considerations --Weighted Average
Life of Certificates."
Underwriting Standards
The mortgage loans, including certain loans made to foreign nationals, may
have been originated using underwriting standards that are different from and,
in certain respects, less stringent than the general underwriting policies of
Wells Fargo Home Mortgage, Inc. See "The Mortgage Loan Programs -- Mortgage
Loan Underwriting -- Modified Standards." For example, certain of the mortgage
loans may have been originated with higher maximum loan-to-value ratios, less
restrictive requirements for investment properties or "equity take out"
financings, and may have been secured by shares in cooperative housing corpora-
tions, condotels or unique parcels of land. In addition, ratios of a prospec-
tive borrower's debt service on the mortgage loan and total debt obligations to
income may not be required to be taken into account in making the loan. Such
mortgage loans may experience rates of delinquencies, defaults, foreclosure,
bankruptcy and loss that are higher than those experienced by mortgage loans
underwritten to Wells Fargo Home Mortgage, Inc.'s general underwriting stan-
dards.
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 prepay-
ments on the related mortgage loans; and
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. the yield on certain classes of certificates may be relatively more sen-
sitive to the rate of prepayment of specified Mortgage Loans than other
classes of certificates.
The rate of prepayments on mortgage loans is influenced by a number of 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 certif-
icates.
See "Prepayment and Yield Considerations."
Book-Entry Certificates May Experience Decreased Liquidity and Payment Delay
Since transactions in the classes and subclasses of book-entry certificates
of any series generally can be effected only through DTC, DTC participants and
indirect DTC participants:
. your ability to pledge book-entry certificates to someone who does not
participate in the DTC system, or to otherwise act with respect to such
book-entry certificates, may be limited due to the lack of a physical
certificate;
. you may experience delays in your receipt of payments on book-entry cer-
tificates 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."
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;
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. may entitle the borrower to a refund of amounts previously paid; and
. could subject a servicer to damages and administrative sanctions.
. neither the certificates of any series nor the related mortgage loans
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 Aspects 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 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 types of property (as so se-
cured, the "Mortgaged Properties"), to the extent set forth in the applicable
prospectus supplement: (i) one- to four-family detached residences, (ii) town-
houses, (iii) condominium units including, those where features of the property
may include maid service, a front desk or resident manager, rental pools and up
to 20% of commercial space ("condotels"), (iv) units within planned unit devel-
opments, (v) long-term leases with respect to any of the foregoing, (vi) shares
issued by private non-profit housing corporations ("cooperatives") and the re-
lated proprietary leases or occupancy agreements granting exclusive rights to
occupy specified units in such cooperatives' buildings, and (vii) manufactured
homes. 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 insur-
ance 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 and (v) if applicable, and to the extent set forth in the appli-
cable prospectus supplement, contractual obligations of any person to make pay-
ments in respect of any form of credit enhancement or any interest subsidy
agreement. The Trust Estate will not include the portion of interest on the
Mortgage Loans which constitutes the Fixed Retained Yield, if any. See "Servic-
ing 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 origina-
tors. Each Mortgage Loan will have been underwritten either to WHFM's general
standards or modified standards, to the extent specified in the applicable pro-
spectus supplement, to the standards of certain unaffiliated originators or of
a Pool Insurer. 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 Mort-
gage Loans (i) originated by WFHM or its
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<PAGE>
affiliate and (ii) purchased by WFHM or its affiliates from unaffiliated mort-
gage loan originators through WHFM's mortgage loan purchase programs.
Each of the Mortgage Loans will be secured by a Mortgage on a Mortgaged Prop-
erty located in any of the 50 states or the District of Columbia. Generally,
the land underlying a Mortgaged Property will consist of five acres or less but
may consist of greater acreage in WHFM's discretion. The borrowers for each of
the Mortgage Loans will be natural persons or, under certain conditions, bor-
rowers 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 se-
curity for mortgage loans is customary in the area, (ii) the lease is not sub-
ject 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 ar-
rangements provide the holder of the Mortgage with substantially similar
protections. No lease will contain provisions which (i) provide for termination
upon the lessee's default without the holder of the Mortgage being entitled to
receive written notice of, and opportunity to cure, such default, (ii) provide
for termination in the event of damage or destruction as long as the Mortgage
is in existence or (iii) prohibit the holder of the Mortgage from being insured
under the hazard insurance policy or policies related to the premises.
The prospectus supplement will set forth the geographic distribution of Mort-
gaged Properties and the number and aggregate unpaid principal balances of the
Mortgage Loans by category of Mortgaged Property. The prospectus supplement for
each Series will also set forth the range of original terms to maturity of the
Mortgage Loans in the Trust Estate, the weighted average remaining term to
stated maturity at the Cut-Off Date of such Mortgage Loans, the earliest and
latest months of origination of such Mortgage Loans, the range of Mortgage In-
terest Rates borne by such Mortgage Loans, if such Mortgage Loans have varying
Net Mortgage Interest Rates, the weighted average Net Mortgage Interest Rate at
the Cut-Off Date of such Mortgage Loans, the range of Loan-to-Value Ratios at
the time of origination of such Mortgage Loans and the range of principal bal-
ances at origination of such Mortgage Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the prospectus
supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such
cases, information as to the final characteristics of the Mortgage Loans and
Mortgaged Properties will be available in a Current Report on Form 8-K which
the Seller will file with the Commission within 15 days of the initial issuance
of the related Series.
The Mortgage Loans in a Trust Estate will generally have monthly payments due
on the first of each month (each, a "Due Date") but may, if so specified in the
applicable prospectus supple-
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ment, 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 provid-
ing for level monthly payments of principal and interest and terms at origina-
tion 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 sat-
isfaction of other conditions specified in the applicable prospectus supple-
ment. 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 prospec-
tus 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 sup-
plement, 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 mar-
gin with respect to the adjustable rate mortgage loans in the related Trust Es-
tate. The applicable prospectus supplement will also indicate any periodic or
lifetime limitations on changes in any per annum Mortgage Rate at the time of
any adjustment.
If specified in the applicable prospectus supplement, adjustable rates on
certain Mortgage Loans may be converted to fixed rates after origination of
such Mortgage Loans and upon the satisfaction of the conditions specified in
the applicable prospectus supplement. If specified in the applicable prospectus
supplement, the Seller or another party will generally be required to repur-
chase each such converted Mortgage Loan at the price set forth in the applica-
ble prospectus supplement. A Trust Estate containing adjustable-rate Mortgage
Loans may contain convertible Mortgage Loans which have converted from a fixed
interest rate prior to the formation of the Trust Estate.
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 pay-
ment may be subject to certain limitations as specified in the applicable pro-
spectus supplement. If the adjustments made to monthly payments for an adjust-
able rate Mortgage Loan are made at intervals different from the intervals at
which the Mortgage Interest Rate is adjusted "negative amortization" of princi-
pal 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 cur-
rent scheduled monthly payment on such mortgage loan. The resulting amount of
interest that has secured but is not then payable ("Deferred Interest") will be
added to the principal balance of such Mortgage Loan.
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<PAGE>
c. Graduated Payment Loans. If so specified in the applicable prospectus sup-
plement, a Trust Estate may contain fixed-rate, graduated payment Mortgage
Loans having original or modified terms to maturity of not more than 30 years
with monthly payments during the first year calculated on the basis of an as-
sumed interest rate which is a specified percentage below the Mortgage Rate on
such Mortgage Loan. Such monthly payments increase at the beginning of the sec-
ond year by a specified percentage of the monthly payment during the preceding
year and each year specified thereafter to the extent necessary to amortize the
Mortgage Loan over the remainder of its term or other shorter period. Mortgage
Loans incorporating such graduated payment features may include (i) "Graduated
Pay Mortgage Loans," pursuant to which amounts constituting Deferred Interest
are added to the principal balances of such mortgage loans, (ii) "Tiered Pay-
ment Mortgage Loans," pursuant to which, if the amount of interest accrued in
any month exceeds the current scheduled payment for such month, such excess
amounts are paid from a subsidy account (usually funded by a home builder or
family member) established at closing and (iii) "Growing Equity Mortgage
Loans," for which the monthly payments increase at a rate which has the effect
of amortizing the loan over a period shorter than the stated term.
d. Subsidy Loans. If so specified in the applicable prospectus supplement, a
Trust Estate may contain Mortgage Loans subject to temporary interest subsidy
agreements ("Subsidy Loans") pursuant to which the monthly payments made by the
related mortgagors will be less than the scheduled monthly payments on such
Mortgage Loans with the present value of the resulting difference in payment
("Subsidy Payments") being provided by the employer of the mortgagor, generally
on an annual basis. Subsidy Payments will generally be placed in a custodial
account ("Subsidy Account") by the related Servicer. Despite the existence of a
subsidy program, a mortgagor remains primarily liable for making all scheduled
payments on a Subsidy Loan and for all other obligations provided for in the
related Mortgage Note and Mortgage Loan.
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 generally range from one to ten years. The subsidy
agreements relating to Subsidy Loans made under a graduated program generally
will provide for subsidy payments that result in effective subsidized interest
rates between three percentage points (3%) and five percentage points (5%) be-
low 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 Mort-
gage Interest Rate in year one, the subsidized rate will increase to four per-
centage 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 per-
centage 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 agree-
ments 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
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<PAGE>
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 in-
terest on mortgage loans similar to a Subsidy Loan are less than the Mortgage
Interest Rate of such Subsidy Loan, the employer may request that the 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 sched-
uled payments, if any. The mortgagor's reduced monthly housing expense as a
consequence of payments under a subsidy agreement is used by WFHM in determin-
ing 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 applica-
ble 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 Mort-
gage 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 pay-
ment 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 Cus-
todial 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 supple-
ment.
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."
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<PAGE>
g. Pledged Asset Mortgage Loans. If so specified in the applicable prospectus
supplement, a Trust Estate may contain fixed rate mortgage loans having origi-
nal terms to stated maturity of not more than 30 years which are either (i) se-
cured by a security interest in additional collateral (normally securities)
owned by the borrower or (ii) supported by a third party guarantee (usually a
parent of the borrower); which is in turn secured by a security interest in
collateral (usually securities) owned by such guarantor (any such loans,
"Pledged Asset Mortgage Loans," and any such collateral, "Additional Collater-
al"). Generally, the amount of such Additional Collateral will not exceed 30%
of the amount of such loan, and the requirement to maintain Additional Collat-
eral will terminate when the principal amount of the Mortgage Loan is paid down
to a predetermined amount.
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 ap-
plicable 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 the Seller. On April 17, 2000, the Seller changed its name from
Norwest Asset Securities Corporation to Wells Fargo Asset Securities Corpora-
tion.
The limited purposes of the Seller are, in general, to acquire, own and sell
mortgage loans; to issue, acquire, own, hold and sell mortgage asset-backed
pass-through securities which represent ownership interests in mortgage loans,
collections thereon and related properties; and to engage in any acts which are
incidental to, or necessary, suitable or convenient to accomplish, the forego-
ing.
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 WFHM. 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 Mort-
gage 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, 1995, Norwest Mortgage, Inc. and Directors Mortgage Loan Corpora-
tion, a California corporation, completed a statutory merger. As a result of
the merger, Norwest Mortgage, Inc. became a California corporation as of Sep-
tember 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 and purchasing residential mortgage loans in its own name and
through certain of its affiliates (the "Wells Fargo Affiliates") and (ii) ser-
vicing 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
Association and an indirect, wholly owned subsidiary of Wells Fargo &
20
<PAGE>
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 mort-
gage origination, servicing and secondary marketing operations of The Pruden-
tial Home Mortgage Company, Inc. ("PHMC"), an indirect, wholly owned subsidiary
of The Prudential Insurance Company of America, and purchased certain mortgage
loans from PHMC and a substantial portion of PHMC's mortgage servicing portfo-
lio.
On January 7, 1997, a complaint was served on PHMC with respect to an indi-
vidual and purported class action filed by The Capitol Life Insurance Company
("Capitol Life") in the Superior Court of New Jersey against PHMC, The Pruden-
tial Home Mortgage Securities Company, Inc. ("PHMSC") and certain of their af-
filiates and 100 unnamed "Doe defendants". 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 plain-
tiff in the actions. As amended, the complaint asserts claims against PHMC,
PHMSC, certain of their present and former affiliates and certain former em-
ployees as well as Merrill Lynch & Co., Kidder, Peabody & Co. Incorporated,
Lehman Brothers Inc. and Salomon Brothers Inc. As amended, the complaint alleg-
es, among other things, that the defendants made false and misleading state-
ments 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 de-
fend 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 Bank Minnesota, National Association. Norwest Bank Minne-
sota, National Association changed its name to Wells Fargo Bank Minnesota, Na-
tional Association on July 8, 2000. Wells Fargo Bank is a direct, wholly owned
subsidiary of Wells Fargo & Company. See "Recent Developments" in the applica-
ble prospectus supplement. Wells Fargo Bank is a national banking association
originally chartered in 1872 and is engaged in a wide range of activities typi-
cal 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 mas-
ter servicing and securities administration services at its offices in Colum-
bia, Maryland. Its address there is 11000 Broken Land Parkway, Columbia, Mary-
land 21044-3662 and its telephone number is (410) 884-2000.
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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.
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 mort-
gage loans currently serviced by WFHM), (ii) referrals by realtors, other real
estate professionals and prospective borrowers to the Loan Stores, (iii) refer-
rals from selected corporate clients, (iv) originations by WFHM's private mort-
gage 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 mort-
gage brokers and similar entities. In addition to its own mortgage loan origi-
nations, WFHM acquires qualifying mortgage loans from other unaffiliated origi-
nators ("Correspondents"). See "-- Acquisition of Mortgage Loans from Corre-
spondents" 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 real-
tor or a banking institution having significant contact with potential borrow-
ers. Mortgage loans that are originated by Joint Ventures in which WFHM's part-
ners are realtors are generally made to finance the acquisition of properties
marketed by such Joint Venture partners. Applications for mortgage loans origi-
nated through Joint Ventures are generally taken by Joint Venture employees and
under written by WFHM in accordance with its standard underwriting criteria.
Such mortgage loans are then closed by the Joint Ventures in their own names
and subsequently purchased by 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 solici-
tations. Such solicitations are made through direct mailings, mortgage loan
statement inserts and television, radio and print advertisements and by tele-
phone. WFHM's targeted solicitations may be based on characteristics such as
the borrower's mortgage loan interest rate or payment history and the geo-
graphic location of the mortgaged property. See "Prepayment and Yield Consider-
ations."
A majority of WFHM's corporate clients are companies that sponsor relocation
programs for their employees and in connection with which WFHM provides mort-
gage financing. Eligibility for a relocation loan is based, in general, on an
employer's providing financial assistance to the relocating employee in connec-
tion with a job-required move. Although Subsidy Loans are typically generated
through such corporate-sponsored programs, the assistance extended by the em-
ployer need not necessarily take the form of a loan subsidy. (Not all reloca-
tion loans are generated by WFHM through referrals from its corporate clients;
some relocation loans are generated as a result of
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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 as-
sociations, as well as the other corporate clients, promote the availability of
a broad range of WFHM mortgage products to their members or employees, includ-
ing 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 pro-
grams, lending institutions must (i) meet and maintain certain net worth and
other financial standards, (ii) demonstrate experience in originating residen-
tial mortgage loans and (iii) meet certain criteria (as described in the fol-
lowing paragraph).
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 certain Correspondents may also involve the dele-
gation of all underwriting functions to such Correspondents ("Delegated Under-
writing"), which will result in WFHM not performing any underwriting functions
prior to acquisition of the loan but instead relying on such originators' rep-
resentations, and WFHM's post-purchase reviews of samplings of mortgage loans
acquired from such originators regarding the originators' compliance with
WFHM's underwriting standards. WFHM will require Correspondents participating
in Delegated Underwriting to meet some or all of the following requirements:
(i) such Correspondent must have a net worth of at least $500,000, (ii) if such
Correspondent is a depository institution, its capital requirement ratio must
be in compliance with federal requirements, (iii) such Correspondent must gen-
erally have a two year history, although for younger companies the experience
level of key management personnel may be taken into consideration, (iv) such
Correspondent must maintain fidelity bond insurance and errors and omission in-
surance, in each case in an amount of $300,000 or more and (v) such Correspon-
dent must be Fannie Mae/Freddie Mac approved. In addition, in connection with
the approval of any Correspondent's participation in Delegated Underwriting,
WFHM will review such Correspondent's financial statements, along with those of
its parent company, if applicable, for indications of general business health
as well as net worth. WFHM will also review delinquency ratios with respect to
such Correspondent.
Certain institutional conduit Correspondents may be permitted to utilize
their own underwriting criteria based upon a comparison of such criteria by
WFHM to the general and modified criteria of WFHM described under "-- Mortgage
Loan Underwriting" below and a determination by WFHM of the materiality of
variances therefrom and the underwriting policies of these Correspondents may
vary from WFHM's underwriting standards. WFHM may also acquire portfolios of
seasoned loans in negotiated transactions.
Mortgage Loan Underwriting
The Trust Estate for each Series of Certificates will include Mortgage Loans
which have been underwritten in accordance with one or more of the following:
(i) WFHM's general underwriting standards, (ii) WFHM's "retention program,"
(iii) WFHM's modified underwriting standards that have been applied in the un-
derwriting of mortgage loans under WFHM's "alternative" mortgage loan under-
writing program, (iv) the underwriting standards of a Pool Insurer and (v) the
underwriting standards of certain institutional conduit Correspondents.
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General Standards
WFHM's underwriting standards are applied by or on behalf of WFHM or by Cor-
respondents 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 col-
lateral. The underwriting standards that guide the determination represent a
balancing of several factors that may affect the ultimate recovery of the loan
amount, including, among others, the amount of the loan, the ratio of the loan
amount to the property value (i.e., the lower of the appraised value of the
mortgaged property and the purchase price), the borrower's means of support and
the borrower's credit history. 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. In ad-
dition, where compensating factors exist with respect to a prospective appli-
cant, the underwriting standards described below may be permitted to vary. With
respect to certain Mortgage Loans, the originators of such loans may have con-
tracted with unaffiliated third parties to perform the underwriting process.
WFHM utilizes various systems of credit scoring as a tool to supplement the
mortgage loan underwriting process. The most comprehensive credit scoring ap-
plied by WFHM utilizes consistent, objective measures of borrower credit his-
tory (the "FICO Score") described in the following paragraph, and also consid-
ers specific loan attributes, including, but not limited to, loan-to-value ra-
tio, principal balance, loan purpose and property type. Such objective measures
and attributes are used to evaluate loan applications and assign each applica-
tion a "Credit Score."
The portion of the Credit Score related to borrower credit history is gener-
ally based on computer models developed by a third party. These models evaluate
information available from three major credit reporting bureaus regarding his-
torical 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 by WFHM to determine the type of underwriting proc-
ess and which level of underwriter will review the loan file. For transactions
which are determined to be low-risk transactions, based upon the Credit Score
and other parameters (including the mortgage loan production source), the low-
est underwriting authority is generally required. Features leading to the char-
acterization of a transaction as low-risk may include, for example (relative to
moderate- or high-risk transactions), a lower Loan-to-Value Ratio, a lower
principal balance (in each case, relative to Mortgage Loans having otherwise
similar characteristics), a standard loan purpose and/or a traditional property
type. For moderate and higher risk transactions, higher level underwriters and
a full review of the mortgage file are generally required. Features leading to
the characterization of a transaction as moderate- or high-risk may include,
for example (relative to low-risk transactions), a higher Loan-to-Value Ratio,
higher principal balance (in each case, relative to Mortgage Loans having oth-
erwise similar characteristics), nonstandard loan purpose and/or a
nontraditional property type. 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 vari-
ous elements of the underwriting assessments). Such borrowers may also be eli-
gible 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
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various stages in the mortgage origination or acquisition process. This typi-
cally occurs under circumstances in which loans are subject to an alternate ap-
proval process, as when correspondents, certain mortgage brokers or similar en-
tities that have been approved by WFHM to process loans on its behalf, or inde-
pendent contractors hired by WFHM to perform underwriting services on its be-
half ("Contract Underwriters") make initial determinations as to the consis-
tency 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 Correspon-
dent's representations that such mortgage loan was underwritten in accordance
with WFHM's underwriting standards and (ii) a post-purchase review of a sam-
pling of all mortgage loans acquired from such originator. In addition, in or-
der to be eligible to sell mortgage loans to WFHM pursuant to a Delegated Un-
derwriting arrangement, the originator must meet certain requirements includ-
ing, 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 ap-
plicant, credit reports are obtained from commercial reporting services, summa-
rizing the applicant's credit history with merchants and lenders. Generally,
significant unfavorable credit information reported by the applicant or a
credit reporting agency must be explained by the applicant. The credit review
process generally is streamlined for borrowers with a qualifying Credit Score.
Verifications of employment, income, assets or mortgages may be used to sup-
plement the loan application and the credit report in reaching a determination
as to the applicant's ability to meet his or her monthly obligations on the
proposed mortgage loan, as well as his or her other mortgage payments (if any),
living expenses and financial obligations. A mortgage verification involves ob-
taining 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 pay-
ment history for the existing mortgage, communicating, either verbally or in
writing, with the applicant's present lender or analyzing cancelled checks pro-
vided by the applicant. Verifications of income, assets or mortgages may be
waived under certain programs offered by WFHM, but WFHM's underwriting guide-
lines require, in most instances, a verbal or written verification of employ-
ment 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 depart-
ments or other state agencies. In addition, the loan applicant may be eligible
for a loan approval process permitting reduced documentation. The above refer-
enced reduced documentation options and waivers limit the amount of documenta-
tion required for an underwriting decision and have the effect of increasing
the relative importance of the credit report and the appraisal. Documentation
requirements vary based upon a number of factors, including the purpose of the
loan, the amount of the loan, the ratio of the loan amount to the property
value and the mortgage loan production source. WFHM accepts alternative methods
of verification, in those instances where verifications are part of the under-
writing decision; for example, salaried income may be substantiated either by
means of a
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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 al-
ternative verification methods are considered by WFHM to have been underwritten
with "full documentation." In cases where two or more persons have jointly ap-
plied for a mortgage loan, the gross incomes and expenses of all of the appli-
cants, including nonoccupant co-mortgagors, are combined and considered as a
unit.
In general, except for borrowers meeting certain standards who apply for
loans with certain qualifying characteristics under WFHM's "retention program"
applicable to then-current borrowers, borrowers applying for loans must demon-
strate that the ratio of their total monthly housing debt to their monthly
gross income, and the ratio of their total monthly debt to their monthly gross
income do not exceed certain maximum levels. Applicants for mortgage loans with
respect to which the Loan-to-Value Ratio is less than or equal to 75% generally
must demonstrate a 33% total monthly housing debt-to-monthly gross income ratio
and a 38% total monthly debt-to-monthly gross income ratio. Applicants for
mortgage loans with Loan-to-Value Ratios in excess of 75% generally must demon-
strate a 28% total monthly housing debt-to-monthly gross income ratio and a 36%
total monthly debt-to-monthly gross income ratio. These ratios may be exceeded,
in the judgment of WFHM, based on the presence of other factors such as an ap-
plicant's good credit history, significant other assets, ability to accumulate
assets, potential for continued employment advancement or income growth, or a
lower (relative to Mortgage Loans having otherwise similar characteristics)
Loan-to-Value Ratio. Under the "retention program," however, such maximum lev-
els may not be applied, depending on a number of factors including Loan-to-
Value Ratio, a borrower's credit history, a borrower's liquid net worth, the
potential of a borrower for continued employment advancement or income growth,
the ability of the borrower to accumulate assets or to devote a greater portion
of income to basic needs such as housing expense, a borrower's Credit Score and
the type of loan for which the borrower is applying. The debt-to-income ratio
calculations described above are based on the amortization schedule and the in-
terest 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 applica-
ble margin. In evaluating applications for Subsidy Loans and Buy-Down Loans,
such ratios are determined by including in the applicant's total monthly hous-
ing expense and total monthly debt the proposed monthly mortgage payment re-
duced 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 pay-
ment 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." Secondary financing is permitted on mortgage loans under certain cir-
cumstances. In those cases, the payment obligations under both primary and sec-
ondary 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 dis-
tinct from a "second home," which WFHM defines as an owner-occupied, non-rental
property that is not the owner's principal residence), WFHM will include pro-
jected rental income net of certain mortgagor
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<PAGE>
obligations and other assumed expenses or loss from such property to be in-
cluded in the applicant's monthly gross income or total monthly debt in calcu-
lating the foregoing ratios. A mortgage loan secured by a two- to four-family
Mortgaged Property is considered to be an owner-occupied property if the bor-
rower occupies one of the units; rental income on the other units is generally
taken into account in evaluating the borrower's ability to repay the mortgage
loan.
Mortgage Loans will not generally have had at origination a Loan-to-Value Ra-
tio in excess of 95%. However, if so specified in the applicable prospectus
supplement, Mortgage Loans that had Loan-to-Value Ratios at origination in ex-
cess of 95% may be included in the related Trust Estate. The "Loan-to-Value Ra-
tio" is the ratio, expressed as a percentage, of the principal amount of the
Mortgage Loan at origination to the lesser of (i) the appraised value of the
related Mortgaged Property, as established by an appraisal obtained by the
originator generally no more than four months prior to origination (or, with
respect to newly constructed properties, no more than twelve months prior to
origination), or (ii) the sale price for such property. In some instances, the
Loan-to-Value Ratio may be based on an appraisal that was obtained by the orig-
inator more than four months prior to origination, provided that (i) a
recertification of the original appraisal is obtained and (ii) the original ap-
praisal 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" pur-
poses) of an existing mortgage loan, the appraised value of the related Mort-
gaged Property is generally determined by reference to an appraisal obtained in
connection with the origination of the replacement loan. In connection with
certain of its mortgage originations, WFHM currently obtains appraisals through
Value Information Technology, Inc. an entity jointly owned by WFHM and an unaf-
filiated third party.
No assurance can be given that values of the Mortgaged Properties have re-
mained or will remain at the levels which existed on the dates of appraisal
(or, where applicable, recertification of value) of the related Mortgage Loans.
The appraisal of any Mortgaged Property reflects the individual 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 re-
placement 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 ap-
praised 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 resi-
dential real estate values generally or in particular geographic areas decline
such that the outstanding balances of the Mortgage Loans and any secondary fi-
nancing on the Mortgaged Properties in a particular Trust Estate become equal
to or greater than the values of the related Mortgaged Properties, the actual
rates of delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry and those now experi-
enced in WFHM's servicing portfolios. In addition, adverse economic conditions
generally, in particular geographic areas or industries, or affecting particu-
lar segments of the borrowing community (such as mortgagors relying on commis-
sion 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
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Loans and, accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to any Trust Estate. See "Prepayment and Yield Considera-
tions -- Weighted Average Life of Certificates." To the extent that such losses
are not covered by the methods of credit support or the insurance policies de-
scribed herein under "Description of the Certificates -- Other Credit
Enhancement" and "Servicing of the Mortgage Loans -- Insurance Policies", 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 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 origina-
tion or servicing of a Mortgage Loan, including misrepresentation by the mort-
gagor 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 Ratio 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 Certif-
icates with Loan-to-Value Ratios at origination in excess of 80% which were
originated without primary mortgage insurance.
Except as described below, Mortgage Loans will generally be covered by an ap-
propriate standard form American Land Title Association ("ALTA") title insur-
ance policy, or a substantially similar policy or form of insurance acceptable
to 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 Mort-
gage 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."
Where permitted by law, WFHM generally requires that a borrower include in
each monthly payment a portion of the real estate taxes, assessments, primary
mortgage insurance (if applicable), and hazard insurance premiums and other
similar items with respect to the related mortgage loan. WFHM may, however, on
a case-by-case basis, in its discretion not require such advance payments for
certain Mortgage Loans, based on an evaluation of the borrowers' ability to pay
such taxes and charges as they become due.
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 refinanc-
ing 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 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
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<PAGE>
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 pro-
gram through a refinancing of his or her existing mortgage loan by either re-
placing 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 ex-
isting mortgage loan is reduced to a current market rate. Mortgage Loans ini-
tially 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 Consider-
ations" 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 ob-
tain 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 preapproved under this program if they have a sat-
isfactory 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 ap-
praisal will be obtained with respect to the residence securing the new
purchase money mortgage loan.
Modified Standards
In comparison to WFHM's "general" underwriting standards described above, the
underwriting standards applicable to mortgage loans under WFHM's "alternative"
mortgage loan underwriting program permit different underwriting criteria, ad-
ditional types of mortgaged properties or categories of borrowers such as "for-
eign nationals" without a FICO Score who hold certain types of visas and have
acceptable credit references (such Mortgage Loans, "Foreign National Loans"),
and include certain other less restrictive parameters. Generally, relative to
the "general" underwriting standards, these standards include higher loan
amounts, higher maximum Loan-to-Value Ratios, higher maximum "combined" Loan-
to-Value Ratios (in each case, relative to Mortgage Loans with otherwise simi-
lar characteristics) in cases of simultaneous primary and secondary financings,
less restrictive requirements for "equity take out" refinancings, the removal
of limitations on the number of permissible mortgage loans that may be extended
to one borrower and the ability to originate mortgage loans with Loan-to-Value
Ratios in excess of 80% without the requirement to obtain primary mortgage in-
surance if such loans are secured by cooperatives or investment properties. Un-
der a program available to eligible borrowers who meet certain underwriting
criteria and for which program a minimum downpayment of only 3% is required,
mortgage loans may be originated with Loan-to-Value Ratios between 95.01% and
97% with the application of less restrictive maximum qualifying ratios of bor-
rower monthly housing debt or total monthly debt obligations to borrower
monthly income and reduced minimum requirements for primary mortgage insurance
coverage ("3% Solution Loans").
With respect to mortgaged property types, mortgage loans may be secured by
shares in cooperative housing corporations, "manufactured homes", investment
properties permitted under less stringent guidelines, condotels (features of
which may include maid service, a front desk or resident
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<PAGE>
manager, rental pools and up to 20% of commercial space), and the mortgaged
properties may represent an unusually high percentage of land vs. structure or
have other unique characteristics.
In addition, borrowers who satisfy certain guidelines regarding credit his-
tory and current assets may have been approved under a "No Ratio" program (such
Mortgage Loans, "No Ratio Loans"). For such cases, the borrower's income would
not have been verified nor would there have been the calculation of any ratios,
as part of the loan underwriting decision, of the borrower's expected monthly
housing debt or total monthly debt obligations to the borrower's monthly in-
come. In connection with such No Ratio program, the borrower's assets would
have been verified and certain minimum "cash reserves" required.
Pool Certification Underwriting
If specified in the applicable prospectus supplement, certain of the Mortgage
Loans will have been reviewed by General Electric Mortgage Insurance Corpora-
tion ("GEMICO"), United Guaranty Residential Insurance Company ("UGRIC") or a
similar entity (collectively, the "Pool Insurers") to determine conformity, in
the aggregate, with such company's respective credit, appraisal and underwrit-
ing guidelines. WFHM will not have underwritten such Mortgage Loans. Neither
GEMICO nor UGRIC have underwritten any of the Mortgage Loans for compliance
with any investor guidelines.
Based on information provided by the relevant company, as a condition to eli-
gibility of a Mortgage Loan for inclusion in a mortgage pool to be insured by
GEMICO or UGRIC, the loan originator generally will be required to comply with
the following procedures, although exceptions may be made if permitted by such
company.
Initially, a prospective borrower must fill out a detailed application pro-
viding pertinent credit information. The loan originator obtains a credit re-
port, which summarizes the prospective borrower's credit history with merchants
and lenders and any record of bankruptcy, or other pertinent legal history. In
addition, a verification of employment for the last two years is made from ei-
ther the applicant's employer or a Form W-2 for the most recent two years and
the applicant's most recent pay stub. If an applicant is self-employed, such
applicant submits copies of signed tax returns with all schedules for the prior
two years together with a current year-to-date profit and loss statement and
any other documentation deemed necessary. Rental income used to qualify the ap-
plicant is verified either by lease agreements or by the borrower's tax re-
turns. In the case of refinancings, the loan originator must require, among
other things, that there has not been more than one delinquency in the prior 12
months nor, in the case of mortgage loans reviewed by GEMICO, any delinquency
in the past 90 days on the prior mortgage loan.
In determining the adequacy of the Mortgaged Property as collateral, an inde-
pendent appraisal must be made of each property considered for financing. Each
appraiser must be selected in accordance with predetermined guidelines estab-
lished for appraisers. The appraiser is required to inspect the property and
verify that it is in good condition and that construction, if new, has been
completed. The appraisal is based on the market value of comparable homes. No
appraisal more than six months old will be accepted by GEMICO and no appraisal
more than 120 days old will be accepted by UGRIC.
Once all applicable employment, credit and property information is received,
a determination must be made by the loan originator (and confirmed on review by
GEMICO or UGRIC) as to whether the prospective borrower has sufficient monthly
income to meet (i) the monthly payment obligations on the proposed mortgage
loan (including principal and interest payments, real estate
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<PAGE>
taxes, insurance on the subject property, and homeowners' association dues and
secondary financing, if any), and (ii) the aggregate of the foregoing and all
other financial obligations not expected to be fully repaid within the next 10
months. As a general rule, UGRIC permits a maximum ratio of a prospective bor-
rower's debt, as described in clauses (i) and (ii) above, to such borrower's
income to be 33% and 38%, respectively for fixed rate, fixed payment loans and
for adjustable rate loans with Loan-to-Value Ratios of 75% or less. Maximum ra-
tios of 28% and 33%, respectively, are permitted for adjustable rate loans with
Loan-to-Value Ratios above 75%. These general rules may be varied, and higher
debt-to-income ratios may be permitted, in appropriate cases characterized by
lower Loan-to-Value Ratios or other favorable factors. GEMICO's underwriting
process relies on a combination of its own proprietary credit scoring model
(which includes factors related to a borrower's credit history as well as spe-
cific loan attributes) and the consideration of borrower debt-to-income ratios.
Depending upon the credit score, GEMICO will permit maximum ratios, as de-
scribed in clauses (i) and (ii) above, of 40% and 50%, respectively.
In some special cases, GEMICO and UGRIC may underwrite loans under a "limited
documentation" program. With respect to such loans, limited investigation into
the borrower's credit history and income profile is undertaken by the origina-
tor and such loans may be underwritten primarily on the basis of an appraisal
of the mortgaged property and Loan-to-Value Ratio on origination. Thus, if the
Loan-to-Value Ratio is less than the percentage required under standard guide-
lines, the originator may forego certain aspects of the review relating to
monthly income, and, in the case of mortgage loans reviewed by GEMICO, tradi-
tional ratios of monthly or total expenses to gross income may not be applied.
At a minimum, a limited documentation program must require a loan application,
a credit report, an appraisal acceptable to Fannie Mae/Freddie Mac performed by
an independent appraiser, and a verification of downpayment or three months of
bank statements. The maximum Loan-to-Value Ratio allowed under any limited doc-
umentation program underwritten by GEMICO and UGRIC is 70%. UGRIC's "limited
documentation" program is limited exclusively to self-employed borrowers.
For any rate or term refinance of a mortgage loan, or conversion of an ad-
justable rate mortgage loan, where GEMICO or UGRIC has already insured the
prior loan, GEMICO or UGRIC may have determined a loan's insurability without
reviewing updated credit or collateral information. In the case of seasoned
loans, GEMICO or UGRIC may have determined a loan's insurability by performing
a more limited credit and collateral review.
The foregoing should not be taken as a full and complete discussion of all of
the procedures undertaken in connection with a particular underwriting. Both
GEMICO and UGRIC consider various other factors including, but not limited to,
reviewing sales contracts, verifying deposits and other assets and examining
additional supporting documentation in certain instances such as divorce de-
crees and separation agreements. Investors should consult the particular Pool
Insurer's underwriting guidelines for more specific and complete requirements
regarding underwriting standards. Furthermore, the underwriting process often
results in certain compensating factors being considered to offset the exist-
ence of other negative factors in a loan file.
The use of pool certification underwriting by a Pool Insurer in no way indi-
cates that the related Certificates or Mortgage Loans are insured or guaranteed
under a mortgage pool insurance policy unless the applicable prospectus supple-
ment so specifies.
GEMICO may be contacted at 640 Freedom Business Center, King of Prussia,
Pennsylvania 19406, Attention: Compliance Underwriting; (800) 288-4364. UGRIC
may be contacted at 1815
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South Meyers Road, Suite 430 Oakbrook Terrace, Illinois 60181, Attention: Pool
Department; (800) 323-7324.
Representations and Warranties
In connection with the transfer of the Mortgage Loans related to any Series
by the Seller to the Trust Estate, the Seller will generally make certain rep-
resentations and warranties regarding the Mortgage Loans. In certain cases
where the Seller acquired some or all of the Mortgage Loans related to a Series
from a Correspondent, if so indicated in the applicable prospectus supplement,
the Seller may, rather than itself making representations and warranties, cause
the representations and warranties made by the Correspondent in connection with
its sale of Mortgage Loans to 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 applica-
ble 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 Servic-
ing Agreement is correct in all material respects at the date or dates respect-
ing which such information is furnished as specified therein; (2) immediately
prior to the transfer and assignment contemplated by the Pooling and Servicing
Agreement, the Seller is the sole owner and holder of the Mortgage Loan, free
and clear of any and all liens, pledges, charges or security interests of any
nature and has full right and authority to sell and assign the same; (iii) no
Mortgage Note or Mortgage is subject to any right of rescission, set-off, coun-
terclaim 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 lo-
cated 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, sub-
sisting 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 undam-
aged 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 lo-
cal law with respect to the origination of the Mortgage Loans including, with-
out limitation, usury, truth-in-lending, real estate settlement procedures,
consumer credit protection, equal credit opportunity or disclosure laws appli-
cable 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"
below.
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DESCRIPTION OF THE CERTIFICATES
General
A separate trust (a "Trust") will issue each series (each a "Series") of cer-
tificates (the "Certificates"). Each Series of Certificates will include one or
more classes (each, a "Class"), each of which may be divided into two or more
subclasses (each, a "Subclass"). Any references herein to the characteristics
of a Class of Certificates may also describe the characteristics of a Subclass
of Certificates. In addition, any Class or Subclass of Certificates may consist
of two or more non-severable components, each of which may exhibit any of the
principal or interest payment characteristics described herein with respect to
a Class of Certificates. A Series may include one or more Classes of Certifi-
cates entitled, to the extent of funds available, to (i) principal and interest
distributions in respect of the related Mortgage Loans, (ii) principal distri-
butions, 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 Servic-
ing 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 pro-
spectus is a part. The following summaries describe certain provisions common
to the Certificates and to each Pooling and Servicing Agreement. The summaries
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Pooling and Servicing
Agreement for each Series of Certificates and the applicable prospectus supple-
ment. Wherever particular sections or defined terms of the Pooling and Servic-
ing Agreement are referred to, such sections or defined terms are thereby in-
corporated herein by reference from the form of Pooling and Servicing Agreement
filed as an exhibit to the registration statement.
Unless otherwise specified in the applicable prospectus supplement, distribu-
tions to Certificateholders of all Series (other than the final distribution in
retirement of the Certificates) will be made by check mailed to the address of
the person entitled thereto (which in the case of Book-Entry Certificates will
be 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 presen-
tation and surrender of the Certificates at the office or agency maintained by
the Trustee or other entity for such purpose, as specified in the final distri-
bution notice to Certificateholders.
Each Series of Certificates will represent ownership interests in the related
Trust Estate. An election may be made to treat the Trust Estate (or one or more
segregated pools of assets therein) with respect to a Series of Certificates as
a REMIC. If such an election is made, such Series will consist of one or more
Classes of Certificates that will represent "regular interests" within the
meaning of Code Section 860G(a)(1) (such Class or Classes collectively referred
to as the "Regular Certificates") and one Class or Subclass of Certificates
with respect to each REMIC that will be designated as the "residual interest"
within the meaning of Code Section 860G(a)(2) (the
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"Residual Certificates") representing the right to receive distributions as
specified in the prospectus supplement for such Series. See "Material Federal
Income Tax Consequences."
The Seller may sell certain Classes or Subclasses of the Certificates of a
Series, including one or more Classes of Subordinated Certificates, in pri-
vately negotiated transactions exempt from registration under the Securities
Act. Alternatively, if so specified in a prospectus supplement relating to such
Subordinated Certificates, the Seller may offer one or more Classes of the Sub-
ordinated Certificates of a Series by means of this prospectus and such pro-
spectus supplement.
Definitive Form
Certificates of a Series that are issued in fully registered, certificated
form are referred to herein as "Definitive Certificates." Distributions of
principal of, and interest on, the Definitive Certificates will be made di-
rectly to holders of Definitive Certificates in accordance with the procedures
set forth in the Pooling and Servicing Agreement. The Definitive Certificates
of a Series offered hereby and by means of the applicable prospectus supple-
ments will be transferable and exchangeable at the office or agency maintained
by the Trustee or such other entity for such purpose set forth in the applica-
ble prospectus supplement. No service charge will be made for any transfer or
exchange of Definitive Certificates, but the Trustee or such other entity may
require payment of a sum sufficient to cover any tax or other governmental
charge in connection with such transfer or exchange.
In the event that an election is made to treat the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC, the "residual interest"
thereof will be issued as a Definitive Certificate. No legal or beneficial in-
terest in all or any portion of any "residual interest" may be transferred
without the receipt by the transferor and the Trustee of an affidavit signed by
the transferee stating, among other things, that the transferee (i) is not a
disqualified organization within the meaning of Code Section 860E(e) or an
agent (including a broker, nominee, or middleman) thereof and (ii) understands
that it may incur tax liabilities in excess of any cash flows generated by the
residual interest. Further, the transferee must state in the affidavit that it
(x) historically has paid its debts as they have come due, (y) intends to pay
its debts as they come due in the future and (z) intends to pay taxes associ-
ated with holding the residual interest as they become due. The transferor must
certify to the Trustee that, as of the time of the transfer, it has no actual
knowledge that any of the statements made in the transferee affidavit are false
and no reason to know that the statements made by the transferee pursuant to
clauses (x), (y) and (z) of the preceding sentence are false. See "Material
Federal Income Tax Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Tax-Related Restrictions
on Transfer of Residual Certificates."
Book-Entry Form
Each Class or Subclass of Certificates of a Series issued in book-entry form
("Book-Entry Certificates") initially will be represented by one or more physi-
cal 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
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limited circumstances described below in this section, all references to ac-
tions taken by Certificateholders or holders shall, in the case of the Book-En-
try Certificates, refer to actions taken by DTC upon instructions from its DTC
Participants, and all references herein to distributions, notices, reports and
statements to Certificateholders or holders shall, in the case of the Book-En-
try 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 pro-
cedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its participating or-
ganizations ("DTC Participants") and to facilitate the clearance and settlement
of securities transactions among DTC Participants through electronic book-en-
tries, thereby eliminating the need for physical movement of certificates. DTC
Participants include securities brokers and dealers (which may include any un-
derwriter identified in the prospectus supplement applicable to any Series),
banks, trust companies and clearing corporations. Indirect access to the DTC
system also is available to banks, brokers, dealers, trust companies and other
institutions that clear 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 re-
spect to the Book-Entry Certificates and to receive and transmit distributions
of principal of and interest on the Book-Entry Certificates. DTC Participants
and Indirect DTC Participants with which Beneficial Owners have accounts with
respect to the Book-Entry Certificates similarly are required to make book-en-
try transfers and receive and transmit such payments on behalf of their respec-
tive Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other in-
terests in, Book-Entry Certificates may do so only through DTC Participants and
Indirect DTC Participants. In addition, Beneficial Owners will receive all dis-
tributions of principal and interest from the Master Servicer, or a Paying
Agent on behalf of the Master Servicer, through DTC Participants. DTC will for-
ward such distributions to its DTC Participants, which thereafter will forward
them to Indirect DTC Participants or Beneficial Owners. Beneficial Owners will
not be recognized by the Trustee or the Master Servicer or any paying agent as
Certificateholders, as such term is used in the Pooling and Servicing Agree-
ment, and Beneficial Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a Benefi-
cial Owner to pledge Book-Entry Certificates to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such Book-
Entry Certificates, may be limited due to the lack of a physical certificate
for such Book-Entry Certificates. In addition, under a book-entry format, Bene-
ficial Owners may experience delays in their receipt of payments, since distri-
butions will be made by the Master Servicer, or a paying agent on behalf of the
Master Servicer, to Cede, as nominee for DTC.
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DTC has advised the Seller that it will take any action permitted to be taken
by a Certificateholder under the Pooling and Servicing Agreement only at the
direction of one or more DTC Participants to whose accounts with DTC the Book-
Entry Certificates are credited. Additionally, DTC has advised the Seller that
it will take such actions with respect to specified Voting Interests only at
the direction of and on behalf of DTC Participants whose holdings of Book-Entry
Certificates evidence such specified Voting Interests. DTC may take conflicting
actions with respect to Voting Interests to the extent that DTC Participants
whose holdings of Book-Entry Certificates evidence such Voting Interests autho-
rize divergent action.
Neither the Seller, the Master Servicer nor the Trustee will have any respon-
sibility for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the Book-Entry Certificates held by Cede,
as nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. In the event of the insolvency
of DTC, a DTC Participant or an Indirect DTC Participant in whose name Book-En-
try Certificates are registered, the ability of the Beneficial Owners of such
Book-Entry Certificates to obtain timely payment and, if the limits of applica-
ble insurance coverage by the Securities Investor Protection Corporation are
exceeded or if such coverage is otherwise unavailable, ultimate payment, of
amounts distributable with respect to such Book-Entry Certificates may be im-
paired.
The Book-Entry Certificates will be converted to Definitive Certificates and
reissued to Beneficial Owners or their nominees, rather than to DTC or its nom-
inee, only if (i) the Trustee is advised in writing that DTC is no longer will-
ing or able to discharge properly its responsibilities as depository with re-
spect to the Book-Entry Certificates and the Trustee is unable to locate a
qualified successor, (ii) the Master Servicer, at its option, elects to termi-
nate the book-entry system through DTC or (iii) after the occurrence of a dis-
missal or resignation of the Master Servicer under the Pooling and Servicing
Agreement, Beneficial Owners representing not less than 51% of the Voting In-
terests of the outstanding Book-Entry Certificates advise the Trustee through
DTC, 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 para-
graph, the Trustee will be required to notify all Beneficial Owners through DTC
Participants of the availability of Definitive Certificates. Upon surrender by
DTC of the physical certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the Book-
Entry Certificates as Definitive Certificates to Beneficial Owners. The proce-
dures relating to payment on and transfer of Certificates initially issued as
Definitive Certificates will thereafter apply to those Book-Entry Certificates
that have been reissued as Definitive Certificates.
Distributions to Certificateholders
General
Distributions on the Certificates will generally be made on the 25th day (or,
if such day is not a business day, the business day following the 25th day) of
each month, commencing with the month following the month in which the applica-
ble Cut-Off Date occurs (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 en-
titled to receive its Certificate's Percentage Interest of the portion of the
Pool Distribution Amount allocated to such Class. Generally the undivided per-
centage interest (the "Percentage Interest")
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represented by any Certificate of a Subclass or any Class in distributions to
such Subclass or Class will be equal to the percentage obtained by dividing the
initial principal balance (or notional amount) of such Certificate by the ag-
gregate initial principal balance (or notional amount) of all Certificates of
such Subclass or Class, as the case may be.
In general, the funds available for distribution to Certificateholders of a
Series of Certificates with respect to each Distribution Date for such Series
(the "Pool Distribution Amount") will be the sum of all previously undistrib-
uted payments or other receipts on account of principal (including principal
prepayments and Liquidation Proceeds, if any) and interest on or in respect of
the related Mortgage Loans received by the related Servicer after the Cut-Off
Date (except for amounts due on or prior to the Cut-Off Date), or received by
the related Servicer on or prior to the Cut-Off Date but due after the Cut-Off
Date, in either case received on or prior to the business day preceding the De-
termination Date in the month in which such Distribution Date occurs, plus all
Periodic Advances with respect to payments due to be received on the Mortgage
Loans on the Due Date preceding such Distribution Date, but excluding the fol-
lowing:
(a) amounts received as late payments of principal or interest respecting
which one or more unreimbursed Periodic Advances has been made;
(b) that portion of Liquidation Proceeds with respect to a Mortgage Loan
which represents any unreimbursed Periodic Advances;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent (i) the Fixed Retained Yield, if any, (ii) the appli-
cable Servicing Fee, (iii) the applicable Master Servicing Fee, (iv) the
Trustee's fee and (v) any other amounts described in the applicable pro-
spectus supplement;
(d) all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such Distribution
Date occurs;
(e) all proceeds (including Liquidation Proceeds other than, in certain
cases as specified in the applicable prospectus supplement, Liquidation
Proceeds which were received prior to the related Servicer's determination
that no further recoveries on a defaulted Mortgage Loan will be forthcoming
("Partial Liquidation Proceeds")) of any Mortgage Loans, or property ac-
quired in respect thereof, that were liquidated, foreclosed, purchased or
repurchased pursuant to the applicable Pooling and Servicing Agreement,
which proceeds were received during the period specified in the applicable
prospectus supplement and all principal prepayments in full, partial prin-
cipal prepayments and Partial Liquidation Proceeds received by the related
Servicer on or after the Determination Date (or, with respect to any such
amount and in certain cases as specified in the applicable prospectus sup-
plement, 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;
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(h) all amounts representing certain expenses reimbursable to the Master
Servicer or any Servicer and other amounts permitted to be withdrawn by the
Master Servicer from the Certificate Account, in each case pursuant to the
applicable Pooling and Servicing Agreement;
(i) all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees and payments of interest related to principal 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
the 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 per annum 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 pay-
able to the Trustee (the "Trustee Fee") and any related expenses specified in
the applicable prospectus supplement.
Interest will accrue on the principal balance (or notional amount, as de-
scribed below) of each Class of Certificates entitled to interest at the pass-
through rate (the "Pass-Through Rate") for such Class indicated in the applica-
ble 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 in-
terest (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 dis-
tributions allocable to principal but will be solely for convenience in ex-
pressing the calculation of interest and for certain other purposes.
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With respect to any Class of Accrual Certificates, any interest that has ac-
crued but is not paid on a given Distribution Date will be added to the princi-
pal balance of such Class of Certificates on that Distribution Date. Distribu-
tions of interest on each Class of Accrual Certificates will commence only af-
ter 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 distrib-
uted to such Class on such Distribution Date. Any such Class of Accrual Certif-
icates 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 Se-
ries of Certificates representing interests in a Trust Estate containing ad-
justable-rate Mortgage Loans, increased by any Deferred Interest allocable to
such Class. The principal balance of a Class or Subclass of Certificates gener-
ally represents the maximum specified dollar amount (exclusive of any interest
that may accrue on such Class or Subclass to which the holder thereof is enti-
tled from the cash flow on the related Mortgage Loans at such time) and will
decline to the extent of distributions in reduction of the principal balance
of, and allocations of losses to such Class or Subclass. Certificates with no
principal balance will not receive distributions in respect of principal. The
applicable prospectus supplement will specify the method by which the amount of
principal to be distributed on the Certificates on each Distribution Date will
be calculated and the manner in which such amount will be allocated among the
Classes of Certificates entitled to distributions of principal.
If so provided in the applicable prospectus supplement, one or more Classes
of Senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments of principal that are received from borrowers in ad-
vance of their scheduled due dates and are not accompanied by amounts repre-
senting scheduled interest due after the months of such payments or of other
unscheduled principal receipts or recoveries in the percentages and under the
circumstances or for the periods specified in such prospectus supplement. Any
such allocation of principal prepayments or other unscheduled receipts or re-
coveries in respect of principal to such Class or Classes of Senior Certifi-
cates will have the effect of accelerating the amortization of such Senior Cer-
tificates while increasing the interests evidenced by the Subordinated Certifi-
cates in the Trust Estate. Increasing the interests of the Subordinated Certif-
icates 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 hold-
ers of the Subordinated Certificates of a Series of Certificates for which
credit enhancement is provided through subordination to receive distributions
with respect to the Mortgage Loans in the related Trust Estate will be subordi-
nated to such rights of the holders of the Senior Certificates of the same Se-
ries to the extent described below, except as otherwise set forth in such pro-
spectus supplement. This subordination is intended to enhance the likelihood of
regular receipt by holders of Senior
39
<PAGE>
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 Se-
nior Certificates against losses due to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series of
Certificates for which credit enhancement is provided through subordination by
the subordination feature described above will be effected by (i) the preferen-
tial right of such holders to receive, prior to any distribution being made in
respect of the related Subordinated Certificates on each Distribution Date,
current distributions on the related Mortgage Loans of principal and interest
due them on 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 other-
wise have been payable to the holders of Subordinated Certificates and/or (iii)
by the prior allocation to the Subordinated Certificates of all or a portion of
losses realized on the related Mortgage Loans.
Losses realized on liquidated Mortgage Loans (other than Excess Special Haz-
ard Losses, Excess Fraud Losses and Excess Bankruptcy Losses as described be-
low) will be allocated to the holders of Subordinated Certificates through a
reduction of the amount of principal payments on the Mortgage Loans to which
such holders are entitled before any corresponding reduction is made in 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 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 al-
location of losses on liquidated Mortgage Loans that are not Special Hazard
Losses, Fraud Losses or Bankruptcy Losses), the holders of Subordinated Certif-
icates of such Series will
40
<PAGE>
bear the risk of Special Hazard Losses, Fraud Losses and Bankruptcy Losses to a
lesser extent than they will bear other losses on liquidated Mortgage Loans.
Although the subordination feature described above is intended to enhance the
likelihood of timely payment of principal and interest to the holders of Senior
Certificates, shortfalls could result in certain circumstances. For example, a
shortfall in the payment of principal otherwise due the holders of Senior Cer-
tificates could occur if losses realized on the Mortgage Loans in a Trust Es-
tate were exceptionally high and were concentrated in a particular month.
The holders of Subordinated Certificates will not be required to refund any
amounts previously properly distributed to them, regardless of whether there
are sufficient funds on a subsequent Distribution Date to make a full distribu-
tion to holders of each Class of Senior Certificates of the same Series.
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 iden-
tifies and generally defines certain of the more typical categories. The pro-
spectus supplement for a Series of Certificates may identify the Classes which
comprise such Series by reference to the following categories or another cate-
gory specified in the applicable prospectus supplement.
<TABLE>
<CAPTION>
Categories of Classes Definition
PRINCIPAL TYPES
<C> <S>
Accretion Directed Certificates..... A Class of Certificates that receives
principal payments from amounts that
would otherwise be distributed as inter-
est on specified Accrual Certificates.
Such principal payments may be in lieu of
or in addition to principal receipts on
the Mortgage Loans for the related Se-
ries.
Companion Certificates
(also sometimes referred to as
"Support Certificates")............ A Class of Certificates that is entitled
to receive principal payments on any Dis-
tribution Date only if scheduled payments
have been made on specified Planned Amor-
tization Certificates, Targeted Amortiza-
tion Certificates and/or Scheduled Amor-
tization Certificates.
Component Certificates.............. A Class of Certificates consisting of two
or more specified components (each, a
"Component") as described in the applica-
ble prospectus supplement. The Components
of a Class of Component Certificates may
have different principal and/or interest
payment characteristics but together con-
stitute a single class and do not repre-
sent 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.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Categories of Classes Definition
PRINCIPAL TYPES
<C> <S>
Lockout Certificates................ A Class of Senior Certificates that is
designed not to participate in or to par-
ticipate to a limited extent in (i.e., to
be "locked out" of), for a specified pe-
riod, the receipt of (1) principal pre-
payments on the Mortgage Loans that are
allocated disproportionately to the Clas-
ses of Senior Classes of such Series as a
group pursuant to a "shifting interest"
structure and/or (2) scheduled principal
payments on the Mortgage Loans that are
allocated to the Senior Certificates as a
group. A Class of Lockout Certificates
will typically not be entitled to re-
ceive, or will be entitled to receive
only a restricted portion of, distribu-
tions of principal prepayments and/or
scheduled principal payments, as applica-
ble, for a period of several years, dur-
ing which time all or a portion of such
principal payments that it would other-
wise be entitled to receive in the ab-
sence of a "lockout" structure will be
distributed in reduction of the Principal
Balances of other Senior Certificates.
Lockout Certificates are designed to min-
imize weighted average life volatility
during the lockout period.
Notional Amount Certificates........ A Class of Certificates having no princi-
pal 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 percent-
age of the principal payments that are
distributable to the Senior Certificates
or applicable group of Senior Certifi-
cates (other than any Ratio Strip Certif-
icates) in the aggregate on a Distribu-
tion Date and that is not designated as a
Class of Sequential Pay Certificates.
Planned Amortization Certificates
(also sometimes referred to as a
"PAC Certificates")................ A Class of Certificates that is designed
to receive principal payments using a
predetermined principal balance schedule
derived by assuming two constant prepay-
ment 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 Amorti-
zation Certificates II ("PAC II") and so
forth) derived using different structur-
ing ranges. A Class of PAC Certificates
is designed to provide protection
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Categories of Classes Definition
PRINCIPAL TYPES
<C> <S>
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 "ra-
tio strip," of the principal payments on
the underlying Mortgage Loans.
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 under-
lying Mortgage Loans. In the former case,
the two rates are the endpoints for the
"structuring range" for the Scheduled Am-
ortization Certificates and such range
generally is narrower than that for a
Class of Planned Amortization Certifi-
cates. Typically, the Support Certifi-
cates for the applicable Series of Cer-
tificates generally will represent a
smaller percentage of the Class of Sched-
uled Amortization Certificates than Sup-
port Certificates generally would repre-
sent in relation to a Class of Planned
Amortization Certificates or Targeted Am-
ortization Certificates. A Class of
Scheduled Amortization Certificates is
generally less sensitive to weighted av-
erage life volatility as a result of pre-
payments than a Class of Support Certifi-
cates but more sensitive than a Class of
Planned Amortization Certificates or
Targeted Amortization Certificates.
Senior Certificates................. Class of Certificates that is entitled to
receive payments of principal and inter-
est on each Distribution Date prior to
the Classes of Subordinated Certificates.
Sequential Pay Certificates......... Class of Certificates that is entitled to
receive principal payments in a pre-
scribed sequence, that does not have a
predetermined principal balance schedule
and that, in most cases, is entitled to
receive payments of principal continu-
ously from the first Distribution Date on
which it receives principal until it is
retired. A Class of Sequential Pay Cer-
tificates may receive principal payments
concurrently with one or more other Clas-
ses of Sequential Pay Certificates. A
single Class that is entitled to receive
principal payments before or after other
Classes in the same Series of Certifi-
cates may be identified as a Class of Se-
quential Pay Certificates.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Categories of Classes Definition
PRINCIPAL TYPES
<C> <S>
Subordinated Certificates........... Class of Certificates that is entitled to
receive payments of principal and inter-
est on each Distribution Date only after
the Senior Certificates and Classes of
Subordinated Certificates with higher
priority of distributions have received
their full principal and interest enti-
tlements.
Super Senior Certificates........... Class of Senior Certificates that will
not bear its share of certain losses af-
ter the Classes of Subordinated Certifi-
cates are no longer outstanding for so
long as one or more other specified Clas-
ses of Senior Certificates are outstand-
ing.
Super Senior Support Certificates... A Class of Senior Certificates that bears
certain losses allocated to one or more
Super Senior Certificates after the Clas-
ses 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 Mort-
gage Loans. A Class of TAC Certificates
is designed to provide some protection
against shortening of weighted average
life if prepayments occur at a rate ex-
ceeding the assumed constant prepayment
rate used to derive the principal bal-
ances schedule of such Class of Certifi-
cates.
<CAPTION>
INTEREST TYPES
<C> <S>
Accrual Certificates................ Class of Certificates that accretes the
amount of accrued interest otherwise dis-
tributable on such Class, which amount
will be added as principal to the princi-
pal balance of such Class on each appli-
cable Distribution Date. Such accretion
may continue until some specified event
has occurred or until such Accrual Cer-
tificates are retired.
Fixed Rate Certificates............. 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 di-
rectly 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 prin-
cipal balance or a notional amount. A
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Categories of Classes Definition
INTEREST TYPES
<C> <S>
nominal principal balance represents ac-
tual principal that will be paid on the
Certificates. It is referred to as nomi-
nal since it is extremely small compared
to other Classes. A notional amount is
the amount used as a reference to calcu-
late the amount of interest due on 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 in-
versely with changes in such index and
with changes in the interest rate payable
on the related Class of Floating Rate
Certificates.
Principal Only Certificates......... 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 in-
terest rate that is reduced to a lower
fixed rate after a specific period of
time. The difference between the initial
interest rate and the lower interest rate
will be supported by a reserve fund es-
tablished on the Closing Date.
Variable Rate Certificates.......... Class of Certificates with an interest
rate that resets periodically and is cal-
culated by reference to the rate or rates
of interest applicable to the Mortgage
Loans.
</TABLE>
Other Credit Enhancement
In addition to, or in substitution for, the subordination discussed under
"Distributions to Certificateholders -- Distributions of Principal" above,
credit enhancement may be provided with respect to any Series of Certificates
in any other manner which may be described in the applicable prospectus supple-
ment, including, but not limited to, credit enhancement through an alternative
form of subordination and/or one or more of the methods described below.
Limited Guarantee
If so specified in the prospectus supplement with respect to a Series of Cer-
tificates, credit enhancement may be provided in the form of a limited guaran-
tee issued by a guarantor named therein.
Financial Guaranty Insurance Policy or Surety Bond
If so specified in the prospectus supplement with respect to a Series of Cer-
tificates credit enhancement may be provided in the form of a financial guar-
anty insurance policy or a surety bond issued by an insurer named therein.
45
<PAGE>
Letter of Credit
Alternative credit support with respect to a Series of Certificates may be
provided by the issuance of a letter of credit by the bank or financial insti-
tution specified in the applicable prospectus supplement. The coverage, amount
and frequency of any reduction in coverage provided by a letter of credit is-
sued with respect to a Series of Certificates will be set forth in the prospec-
tus supplement relating to such Series.
Pool Insurance Policies
If so specified in the prospectus supplement relating to a Series of Certifi-
cates, the Seller will obtain a pool insurance policy for the Mortgage Loans in
the related Trust Estate. The pool insurance policy will cover any loss (sub-
ject to the limitations described in the applicable prospectus supplement) by
reason of default to the extent a related Mortgage Loan is not covered by any
primary mortgage insurance policy. The amount and principal terms of any such
coverage will be set forth in the prospectus supplement.
Special Hazard Insurance Policies
If so specified in the applicable prospectus supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Seller will
also obtain a special hazard insurance policy for the related Trust Estate in
the amount set forth in such prospectus supplement. The special hazard insur-
ance policy will, subject to the limitations described in the applicable pro-
spectus supplement, protect against loss by reason of damage to Mortgaged Prop-
erties caused by certain hazards not insured against under the standard form of
hazard insurance policy for the respective states in which the Mortgaged Prop-
erties are located. The amount and principal terms of any such coverage will be
set forth in the prospectus supplement.
Mortgagor Bankruptcy Bond
If so specified in the applicable prospectus supplement, losses resulting
from a bankruptcy proceeding relating to a mortgagor affecting the Mortgage
Loans in a Trust Estate with respect to a Series of Certificates will be cov-
ered under a mortgagor bankruptcy bond (or any other instrument that will not
result in a downgrading of the rating of the Certificates of a Series by the
Rating Agency or Rating Agencies that rated such Series). Any mortgagor bank-
ruptcy bond or such other instrument will provide for coverage in an amount
meeting the criteria of the Rating Agency or Rating Agencies rating the Certif-
icates of the related Series, which amount will be set forth in the applicable
prospectus supplement. The amount and principal terms of any such coverage will
be set forth in the prospectus supplement.
Reserve Fund
If so specified in the applicable prospectus supplement, credit enhancement
with respect to a Series of Certificates may be provided by the establishment
of one or more reserve funds (each, a "Reserve Fund") for such Series.
The Reserve Fund for a Series may be funded (i) by the deposit therein of
cash, U.S. Treasury securities or instruments evidencing ownership of principal
or interest payments thereon, letters of credit, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the ap-
plicable prospectus supplement, (ii) by the deposit therein from time to time
of certain amounts, as specified in the applicable prospectus supplement, to
which the certain
46
<PAGE>
Classes of Certificates would otherwise be entitled or (iii) in such other man-
ner as may be specified in the applicable prospectus supplement.
Cross Support
If specified in the applicable prospectus supplement, the beneficial owner-
ship of separate groups of Mortgage Loans included in a Trust Estate may be ev-
idenced by separate Classes of Certificates. In such case, credit support may
be provided by a cross support feature which requires that distributions be
made with respect to certain Classes from mortgage loan payments that would
otherwise be distributed to Subordinated Certificates evidencing a beneficial
ownership interest in other loan groups within the same Trust Estate. The ap-
plicable prospectus supplement for a Series that includes a cross support fea-
ture will describe the specific operation of any such cross support feature.
Overcollateralization
If specified in the applicable prospectus supplement, credit enhancement with
respect to a Series of Certificates may be provided through
"overcollateralization." Overcollateralization can occur by the initial deposit
to the Trust Estate of Mortgage Loans which have an outstanding principal bal-
ance that exceeds the initial principal balance of the Certificates.
Overcollateralization can also occur when interest collections on the Mortgage
Loans (less any Fixed Retained Yield, Master Servicing Fee and Servicing Fee)
exceed interest payments on the Certificates for the related Distribution Date
and such excess interest is applied as principal payments on the Certificates
thereby reducing the principal balance of the Certificates relative to the out-
standing principal balance of the Mortgage Loans.
PREPAYMENT AND YIELD CONSIDERATIONS
Pass-Through Rates
Any Class of Certificates of a Series may have a fixed Pass-Through Rate, or
a Pass-Through Rate which varies based on changes in an index or based on
changes with respect to the underlying Mortgage Loans (such as, for example,
varying on the basis of changes in the weighted average Net Mortgage Interest
Rate of the underlying Mortgage Loans).
The prospectus supplement for each Series will specify the range and the
weighted average of the Mortgage Interest Rates and, if applicable, Net Mort-
gage Interest Rates for the Mortgage Loans underlying such Series as of the
Cut-Off Date. If the Trust Estate includes adjustable-rate Mortgage Loans or
includes Mortgage Loans with different Net Mortgage Interest Rates, the
weighted average Net Mortgage Interest Rate may vary from time to time as set
forth below. See "The Trust Estates." The prospectus supplement for a Series
will also specify the initial weighted average Pass-Through Rate for each Class
of Certificates of such Series and will specify whether each such Pass-Through
Rate is fixed or is variable.
The Net Mortgage Interest Rate for any adjustable-rate Mortgage Loan will
change with any changes in the index specified in the applicable prospectus
supplement on which such Mortgage Interest Rate adjustments are based, subject
to any applicable periodic or aggregate caps or floors on the related Mortgage
Interest Rate. The weighted average Net Mortgage Interest Rate with respect to
any Series may vary due to changes in the Net Mortgage Interest Rates of ad-
justable-rate Mortgage Loans, to the timing of the Mortgage Interest Rate read-
justments of such Mortgage
47
<PAGE>
Loans and to different rates of payment of principal of fixed- or adjustable-
rate Mortgage Loans bearing different Mortgage Interest Rates.
Effects of Defaults
The rate of defaults on the Mortgage Loans will also affect the rate and tim-
ing of principal payments on the Mortgage Loans. In general, defaults on mort-
gage loans are expected to occur with greater frequency in their early years.
The rate of default on Mortgage Loans that are secured by non-owner occupied
properties, Mortgage Loans with higher Loan-to-Value Ratios and Mortgage Loans
made to borrowers with higher debt-to-income ratios or borrowers approved under
a No Ratio program, may be higher than for other types of Mortgage Loans. As a
result of the Mortgage Loans being originated using "alternative" underwriting
standards that, in certain respects, may be less stringent than the "general"
standards applied by WFHM, the Mortgage Loans may experience rates of delin-
quency, foreclosure, bankruptcy and loss that are higher than those experienced
by mortgage loans that satisfy the standards generally applied by WFHM.
Scheduled Delays in Distributions
At the date of initial issuance of the Certificates of each Series offered
hereby, the initial purchasers of a Class of Certificates may be required to
pay accrued interest at the applicable Pass-Through Rate for such Class from
the Cut-Off Date for such Series to, but not including, the date of issuance.
The effective yield to Certificateholders will be below the yield otherwise
produced by the applicable Pass-Through Rate because the distribution of prin-
cipal and interest which is due on each Due Date will not be made until the
25th day (or if such day is not a business day, the first business day follow-
ing 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 under "Servicing of the Mortgage Loans -- Payments
on Mortgage Loans") 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 miti-
gate this reduction in yield, the Underlying Servicing Agreements relating to a
Series may provide, to the extent specified in the applicable prospectus sup-
plement, that with respect to certain principal prepayments received on or, 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 re-
spect to such Distribution Date resulting from principal prepayments in full by
mortgagors and (ii) the portion of the Master Servicer's master servicing com-
pensation 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 cov-
ered or from liquidations will be covered by means of the subordination of the
rights of Subordinated Certificateholders or any other credit support arrange-
ments.
48
<PAGE>
A lower rate of principal prepayments than anticipated would negatively af-
fect the total return to investors in any Certificates of a Series that are of-
fered at a discount to their principal amount and a higher rate of principal
prepayments than anticipated would negatively affect the total return to in-
vestors in the Certificates of a Series that are offered at a premium to their
principal amount. The yield on Certificates that are entitled solely or dispro-
portionately to distributions of principal or interest may be particularly sen-
sitive to prepayment rates, and further information with respect to yield on
such Certificates will be included in the applicable prospectus supplement.
Weighted Average Life of Certificates
The Mortgage Loans may be prepaid in full or in part at any time. Mortgage
Loan generally will not provide for a prepayment penalty but may so provide if
indicated in the related prospectus supplement. Fixed rate Mortgage Loans gen-
erally will contain due-on-sale clauses permitting the mortgagee to accelerate
the maturities of the Mortgage Loans upon conveyance of the related Mortgaged
Properties, and adjustable-rate Mortgage Loans generally will permit credit-
worthy borrowers to assume the then-outstanding indebtedness on the Mortgage
Loans.
Prepayments on Mortgage Loans are commonly measured relative to a prepayment
standard or model. The prospectus supplement for each Series of Certificates
may describe one or more such prepayment standards or models and contain tables
setting forth the weighted average life of each Class and the percentage of the
original aggregate principal balance of each Class that would be outstanding on
specified Distribution Dates for such Series and the projected yields to matu-
rity on certain Classes thereof, in each case based on the assumptions stated
in such prospectus supplement, including assumptions that prepayments on the
Mortgage Loans are made at rates corresponding to various percentages of the
prepayment standard or model specified in such prospectus supplement.
There is no assurance that prepayment of the Mortgage Loans underlying a Se-
ries of Certificates will conform to any level of the prepayment standard or
model specified in the applicable prospectus supplement. A number of factors,
including but not limited to homeowner mobility, economic conditions, natural
disasters, changes in mortgagors' housing needs, job transfers, unemployment
or, in the case of borrowers relying on commission income and self-employed
borrowers, significant fluctuations in income or adverse economic conditions,
mortgagors' net equity in the properties securing the 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 tax-
es, competition among mortgage loan originators resulting in reduced refinanc-
ing 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 under-
lying 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 as-
surance that prepayments will rise or fall according to such changes in mort-
gage interest rates. It should be noted that Certificates of a Series may evi-
dence an interest in a Trust Estate with
49
<PAGE>
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 ac-
tion that the Servicer determines would jeopardize any recovery under any re-
lated primary mortgage insurance policy will not be required and provided, fur-
ther, that the Servicer may permit the assumption of defaulted Mortgage Loans.
See "Servicing of the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Re-
alization 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 pro-
spectus supplement to repurchase or purchase certain or all of the Mortgage
Loans under certain circumstances. The Seller will be obligated, under certain
circumstances, to repurchase certain of the Mortgage Loans. In addition, if
specified in the applicable prospectus supplement, the Pooling and Servicing
Agreement will permit, but not require, the Seller, and the terms of certain
insurance policies relating to the Mortgage Loans may permit the applicable in-
surer, 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 ap-
plicable 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 pro-
spectus 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 pur-
suant 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 refi-
nancing 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 in-
debtedness.
50
<PAGE>
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 mort-
gage payment obligations, WFHM may agree to refinance the mortgage loan in or-
der to reduce the borrower's mortgage interest rate, through the extension of a
replacement loan or the execution of a modification agreement, without the ap-
plication of any significant new borrower credit or property underwriting stan-
dards. Any such refinancing will have the same effect as a prepayment in full
on the related Mortgage Loan. See "The Mortgage Loan Programs -- Mortgage Loan
Underwriting -- Retention Program Standards" in this prospectus. The stream-
lined procedures, minimal borrower cost and the absence of significant under-
writing standards associated with this retention program may result in an in-
crease 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 re-
financing is practical and economic for the borrower. These factors, together
with increased borrower sophistication in general regarding the benefits of re-
financing 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 table sets forth certain information concerning recent delin-
quency and foreclosure experience as reported to the Master Servicer by the ap-
plicable Servicers of such mortgage loans on the conventional fixed-rate mort-
gage loans included in various mortgage pools underlying all Series of Mortgage
Asset-Backed Pass-Through Certificates of the Seller and the Seller's predeces-
sor, Norwest Integrated Structured Assets, Inc. There can be no assurance that
the delinquency and foreclosure experience set forth in the following table,
which includes mortgage loans with various terms to stated maturity 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. According-
ly, because WFHM has only originated mortgage loans under its "alternative" un-
derwriting program since 1997 and because substantially all the mortgage loans
underlying the Seller's Mortgage Asset-Backed 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 origina-
tions and acquisitions under its "alternative" underwriting program does not
continue to grow at the rate experienced in recent years, resulting in a de-
crease in growth in the number of mortgage loans included in the mortgage pools
underlying the Seller's Mortgage Asset-Backed Pass-Through Certificates, the
levels of delinquencies and foreclosures as percentages of the portfolio of
mortgage loans covered by the following table could rise significantly above
the rates indicated in such tables.
51
<PAGE>
<TABLE>
<CAPTION>
As of December
31, 1999
-----------------
By No. By Dollar
of Amount of
Loans Loans
------ ---------
(Dollar Amounts
in Thousands)
<S> <C> <C>
Total Loans................................................ 7,177 $984,402
===== ========
Period of delinquency(1)...................................
30 to 59 days............................................. 54 $ 6,638
60 to 89 days............................................. 8 $ 1,256
90 days or more........................................... 8 $ 812
----- --------
Total delinquent loans..................................... 70 8,706
===== ========
Percent of Total Loans..................................... 0.98% 0.88%
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------
<S> <C>
Foreclosures(2)............................................ $925
Foreclosure ratio(3)....................................... 0.09%
</TABLE>
------------------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure proceed-
ings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceed-
ings had been instituted or with respect to which the related property had
been acquired as of the dates indicated.
(3) Foreclosures as a percentage of total loans in the applicable portfolio at
the end of each period.
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, includ-
ing, but not limited to, unemployment or change in employment (or in the case
of self-employed mortgagors or mortgagors relying on commission income, fluctu-
ations 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 eco-
nomic conditions (including declining real estate values) may particularly af-
fect delinquency and foreclosure experience on mortgage loans to the extent
that mortgaged properties are concentrated in certain geographic areas. Fur-
thermore, the level of foreclosures reported is affected by the length of time
legally required to complete the foreclosure process and take title to the re-
lated property, which varies from jurisdiction to jurisdiction. The changes in
the delinquency and foreclosure experience on the mortgage loans underlying the
Seller's Mortgage Asset-Backed Pass-Through Certificates during the periods set
forth in the preceding tables may be attributable to factors such as those de-
scribed 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 delin-
quency and foreclosure experience on the mortgage loans underlying the Seller's
Mortgage Asset-Backed Pass-Through Certificates may be particularly affected to
the
52
<PAGE>
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.
SERVICING OF THE MORTGAGE LOANS
The following is a summary of certain provisions of the forms of the Under-
lying Servicing Agreement and the Pooling and Servicing Agreement that have
been filed as exhibits to the registration statement of which this prospectus
forms a part. The summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Pooling and Servicing Agreement and Underlying Servicing Agreements for
each Series of Certificates and the applicable prospectus supplement.
The Master Servicer
The master servicer (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 responsibili-
ties under the Underlying Servicing Agreements, (ii) oversight of payments re-
ceived 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) prepara-
tion of federal and applicable state and local tax and information returns;
(vii) preparation of reports, if any, required under the Securities and Ex-
change 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 bank-
ruptcy 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 delin-
quent payments of principal and interest on the Mortgage Loans to the limited
extent described below under "-- 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 re-
ceive a portion of the interest payments on the Mortgage Loans included in the
Trust Estate for such a Series to cover its fees as Master Servicer. The Master
Servicer 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 con-
tractor'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 disburse-
ments of the Trustee and any custodian, fees due to the independent
53
<PAGE>
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 supple-
ment, one or more other servicers (each, a "Servicer") will provide certain
customary servicing functions with respect to Mortgage Loans pursuant to sepa-
rate 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 (di-
rectly or indirectly) to the Trustee for such Series. The Servicers may be en-
titled 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 de-
termining whether to approve a Servicer, the Master Servicer will review the
credit of the Servicer, including capitalization ratios, liquidity, profitabil-
ity and other similar items that indicate financial ability to perform its ob-
ligations. In addition, the Master Servicer's mortgage servicing personnel will
review the Servicer's servicing record and evaluate the ability of the Servicer
to conform with required servicing procedures. Once a Servicer is approved, the
Master Servicer will continue to monitor on an annual basis the financial posi-
tion and servicing performance of the Servicer.
The duties to be performed by each Servicer include collection and remittance
of principal and interest payments on the Mortgage Loans, administration of
mortgage escrow accounts, collection of insurance claims, foreclosure proce-
dures, and, if necessary, the advance of funds to the extent certain payments
are not made by the mortgagor and have not been determined by the Servicer to
be not recoverable under the applicable insurance policies with respect to such
Series, from proceeds of liquidation of such Mortgage Loans or otherwise. Each
Servicer also will provide such accounting and reporting services as are neces-
sary to enable the Master Servicer to provide required information to the
Trustee with respect to the Mortgage Loans included in the Trust Estate for
such Series. Each Servicer is entitled to a periodic Servicing Fee equal to a
specified percentage of the outstanding principal balance of each Mortgage Loan
serviced by such Servicer. With the consent of the Master Servicer, any of the
servicing obligations of a Servicer may be delegated to another person approved
by the Master Servicer. In addition, certain limited duties of a Servicer may
be delegated without consent.
The Trustee, or if so provided in the applicable Pooling and Servicing Agree-
ment, the Master Servicer, may terminate a Servicer who has failed to comply
with its covenants or breached one of its representations contained in the Un-
derlying Servicing Agreement or in certain other circumstances. Upon termina-
tion of a Servicer by the Master Servicer, the Master Servicer will assume cer-
tain 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
54
<PAGE>
(ii) with respect to a default by WFHM as Servicer, advance payments of princi-
pal 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 Ac-
count at any time exceeds the limit of insurance coverage established by the
Federal Deposit Insurance Corporation (the "FDIC"), such excess will be subject
to loss in the event of the failure of the Depository. Such insurance coverage
will be based on the number of holders of Certificates, rather than the number
of underlying mortgagors. Holders of the Subordinated Certificates of a Series
will bear any such loss up to the amount of principal payments on the related
Mortgage Loans to which such holders are entitled.
Pursuant to the applicable Underlying Servicing Agreements with respect to a
Series, each Servicer will be required to establish and maintain one or more
accounts (collectively, the "Servicer Custodial Account") into which the
Servicer will be required to deposit on a daily basis amounts received with re-
spect to Mortgage Loans serviced by such Servicer included in the Trust Estate
for such Series, as more fully described below. Each Servicer Custodial Account
must be a separate custodial account insured to the available limits by the
FDIC and limited to funds held with respect to a particular Series, unless the
Underlying Servicing Agreement specifies that a Servicer may establish an ac-
count which is an eligible account meeting the requirements of the applicable
Rating Agencies (an "Eligible Custodial Account") to serve as a unitary
Servicer Custodial Account both for such Series and for other Series of Certif-
icates for which 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 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
55
<PAGE>
interest on the Mortgage Loans serviced by such Servicer due after the applica-
ble Cut-Off Date but received on or prior thereto, and except as specified in
the applicable Pooling and Servicing Agreement or Underlying Servicing Agree-
ment, will deposit in the Servicer Custodial Account on receipt and, thereaf-
ter, 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 re-
spect to the Mortgage Loans serviced by such Servicer subsequent to the appli-
cable 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 ex-
penses reimbursable to the Servicer, (d) amounts representing reimbursements
for Periodic Advances made by the Servicer, (e) amounts representing additional
servicing compensation and (f) any other amounts permitted to be retained by
the Servicer pursuant to the applicable Underlying Servicing Agreement):
(i) all payments on account of principal, including prepayments, and
interest;
(ii) all amounts received by the Servicer in connection with the liq-
uidation of defaulted Mortgage Loans or property acquired in respect there-
of, 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 pro-
ceeds 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 Ser-
vicing Agreement or the Underlying Servicing Agreement; and
(vii) all other amounts required to be deposited therein pursuant to
the applicable Pooling and Servicing Agreement or the Underlying Servicing
Agreement.
Notwithstanding the foregoing, if at any time the sums in (x) any Servicer
Custodial Account, other than any Eligible Custodial Account, exceed $100,000
or (y) any such Servicer Custodial Account, in certain circumstances, exceed
such amount less than $100,000 as shall have been specified by the Master
Servicer, the Servicer will be required within one business day to withdraw
such excess funds from such account and remit such amounts to the Certificate
Account. Notwithstanding the foregoing, each Servicer will be entitled, at its
election, either (a) to withhold and pay itself the applicable Servicing Fee
from any payment or other recovery on account of interest as received and prior
to deposit in the Servicer Custodial Account or (b) to withdraw
56
<PAGE>
from the Servicer Custodial Account the applicable Servicing Fee after the en-
tire payment or recovery has been deposited in such account.
The Master Servicer or Trustee will deposit in the Certificate Account any
Periodic Advances made by the Master Servicer or Trustee in the event of a
Servicer default not later than the Distribution Date on which such amounts are
required to be distributed. All other amounts will be deposited in the Certifi-
cate Account not later than the business day next following the day of receipt
and posting by the Master Servicer. On or before each Distribution Date, the
Master Servicer will withdraw from the Certificate Account and remit to the
Trustee for distribution to Certificateholders all amounts allocable to the
Pool Distribution Amount for such Distribution Date.
If a Servicer, the Master Servicer or the Trustee deposits in the Certificate
Account for a Series any amount not required to be deposited therein, the Mas-
ter Servicer may at any time withdraw such amount from such account for itself
or for remittance to such Servicer or the Trustee, as applicable. Funds on de-
posit in the Certificate Account may be invested in certain investments accept-
able to the Rating Agencies ("Eligible Investments") maturing in general not
later than the business day preceding the next Distribution Date, including the
following:
(i) obligations of the United States of America or any agency thereof,
provided such obligations are backed by the full faith and credit of the
United States of America;
(ii) general obligations of or obligations guaranteed by any state of
the United States of America or the District of Columbia receiving the
highest short-term or highest long-term rating of each Rating Agency, or
such lower rating as would not result in the downgrading or withdrawal of
the rating then assigned to any of the Certificates by any Rating Agency or
result in any of such rated Certificates being placed on credit review sta-
tus (other than for possible upgrading) by any Rating Agency;
(iii) commercial or finance company paper which is then rated in the
highest long-term commercial or finance company paper rating category of
each Rating Agency or the highest short-term rating category of each Rating
Agency, or such lower rating category as would not result in the downgrad-
ing or withdrawal of the rating then assigned to any of the Certificates by
either Rating Agency or result in any of such rated Certificates being
placed on credit review status (other than for possible upgrading) by any
Rating Agency;
(iv) certificates of deposit, demand or time deposits, federal funds
or banker's acceptances issued by any depository institution or trust com-
pany incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or state
banking authorities, provided that the commercial paper and/or debt obliga-
tions of such depository institution or trust company (or in the case of
the principal depository institution in a holding company system, the com-
mercial paper or debt obligations of such holding company) are then rated
in the highest short-term or the highest long-term rating category for such
securities of each of the Rating Agencies, or such lower rating categories
as would not result in the downgrading or withdrawal of the rating then as-
signed to any of the Certificates by any Rating Agency or result in any of
such rated Certificates being placed on credit review status (other than
for possible upgrading) by any Rating Agency;
(v) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation acceptable to each Rating Agency at the time
of the issuance of such agreements;
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<PAGE>
(vi) repurchase agreements on obligations with respect to any security
described in clauses (i) or (ii) above or any other security issued or
guaranteed by an agency or instrumentality of the United States of America,
in either case entered into with a depository institution or trust company
(acting as principal) described in (iv) above;
(vii) securities (other than stripped bonds or stripped coupon secu-
rities) bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States of America or any state
thereof which, at the time of such investment or contractual commitment
providing for such investment, are then rated in the highest short-term or
the highest long-term rating category by each Rating Agency, or in such
lower rating category as would not result in the downgrading or withdrawal
of the rating then assigned to any of the Certificates by any Rating Agency
or result in any of such rated Certificates being placed on credit review
status (other than for possible upgrading) by any Rating Agency; and
(viii) such other investments acceptable to each Rating Agency as
would not result in the downgrading of the rating then assigned to the Cer-
tificates by any Rating Agency or result in any of such rated Certificates
being placed on credit review status (other than for possible upgrading) by
any Rating Agency.
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 Es-
tate (or any segregated pool of assets) to fail to qualify as a REMIC while any
Certificates of the Series are outstanding. Except as otherwise specified in
the applicable prospectus supplement, all income and gain realized from any
such investment will be for the account of the Master Servicer as additional
compensation and all losses from any such investment will be deposited by the
Master Servicer out of its own funds to the Certificate Account immediately as
realized.
The Master Servicer is permitted, from time to time, to make withdrawals from
the Certificate Account for the following purposes, to the extent permitted in
the applicable Pooling and Servicing Agreement (and, in the case of Servicer
reimbursements by the Master Servicer, only to the extent funds in the respec-
tive Servicer Custodial Account are not sufficient therefor):
(i) to reimburse the Master Servicer, the Trustee or any Servicer for
Advances;
(ii) to reimburse any Servicer for liquidation expenses and for
amounts expended by itself or any Servicer, as applicable, in connection
with the restoration of damaged property;
(iii) to pay to itself the applicable Master Servicing Fee and any
other amounts constituting additional master servicing compensation, to pay
the Trustee the applicable Trustee Fee, to pay any other fees described in
the applicable prospectus supplement; and to pay to the owner thereof any
Fixed Retained Yield;
(iv) to reimburse itself or any Servicer for certain expenses (includ-
ing taxes paid on behalf of the Trust Estate) incurred by and recoverable
by or reimbursable to itself or the Servicer, as applicable;
58
<PAGE>
(v) to pay to the Seller, a Servicer or itself with respect to each
Mortgage Loan or property acquired in respect thereof that has been repur-
chased by the Seller or purchased by a Servicer or the Master Servicer all
amounts received thereon and not distributed as of the date as of which the
purchase price of such Mortgage Loan was determined;
(vi) to pay to itself any interest earned on or investment income
earned with respect to funds in the Certificate Account (all such interest
or income to be withdrawn not later than the next Distribution Date);
(vii) to pay to itself, the Servicer and the Trustee from net Liqui-
dation Proceeds allocable to interest, the amount of any unpaid Master Ser-
vicing Fee, Servicing Fees or Trustee Fees and any unpaid assumption fees,
late payment charges or other mortgagor charges on the related Mortgage
Loan;
(viii) to withdraw from the Certificate Account any amount deposited
in such account that was not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account.
The Master Servicer will be authorized to appoint a paying agent (the "Paying
Agent") to make distributions, as agent for the Master Servicer, to
Certificateholders of a Series. If the Paying Agent for a Series is the Trustee
of such Series, such Paying Agent will be authorized to make withdrawals from
the Certificate Account in order to make distributions to Certificateholders.
If the Paying Agent for a Series is not the Trustee for such Series, the Master
Servicer will, on each Distribution Date, deposit in immediately available
funds in an account designated by any such Paying Agent the amount required to
be distributed to the Certificateholders on such Distribution Date.
The Master Servicer will cause any Paying Agent that is not the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
agrees with the Trustee that such Paying Agent will:
(1) hold all amounts deposited with it by the Master Servicer for distri-
bution to Certificateholders in trust for the benefit of Certificateholders
until such amounts are distributed to Certificateholders or otherwise dis-
posed of as provided in the applicable Pooling and Servicing Agreement;
(2) give the Trustee notice of any default by the Master Servicer in the
making of such deposit; and
(3) at any time during the continuance of any such default, upon written
request to the Trustee, forthwith pay to the Trustee all amounts held in
trust by such Paying Agent.
Periodic Advances and Limitations Thereon
Generally each Servicer will be required to make (i) advances to cover delin-
quent payments of principal and interest (a "Periodic Advance") on a Mortgage
Loan and (ii) other advances of cash ("Other Advances" and, collectively with
Periodic Advances, "Advances") to cover (x) delinquent payments of taxes, in-
surance 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 fail-
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ure of the Servicer to make any required Periodic Advances or Other Advances
under an Underlying Servicing Agreement constitutes a default under such agree-
ment 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 re-
quired to make Periodic Advances to the extent necessary to make required dis-
tributions on certain Certificates or certain Other Advances, provided that the
Master Servicer or Trustee, as applicable, determines that funds will ulti-
mately be available to reimburse it. In addition, if under the terms of an Un-
derlying 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 ob-
tain 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 mort-
gagor fails to make such payment and the Master Servicer or Trustee fails to
make a required advance.
The advance obligation of the Master Servicer and Trustee may be further lim-
ited to an amount specified by the Rating Agency rating the Certificates. Any
such Periodic Advances by the Servicers or the Master Servicer or Trustee, as
the case may be, must be deposited into the applicable Servicer Custodial Ac-
count or the Certificate Account and will be due no later than the business day
before the Distribution Date to which such delinquent payment relates. Advances
by the Servicers or the Master Servicer or Trustee, as the case may be, will be
reimbursable out of insurance proceeds or Liquidation Proceeds of, or, except
for Other Advances, future payments on, the Mortgage Loans for which such
amounts were advanced. If an Advance made by a Servicer, the Master Servicer or
the Trustee later proves, or is deemed by the Master Servicer or the Trustee,
to be unrecoverable, such Servicer, the Master Servicer or the Trustee, as the
case may be, will be entitled to reimbursement from funds in the Certificate
Account prior to the distribution of payments to the Certificateholders to the
extent provided in the Pooling and Servicing Agreement.
Any Periodic Advances made by a Servicer, the Master Servicer or the Trustee
with respect to Mortgage Loans included in the Trust Estate for any Series are
intended to enable the Trustee to make timely payment of the scheduled distri-
butions of principal and interest on the Certificates of such Series. However,
neither the Master Servicer, the Trustee, any Servicer nor any other person
will, except as otherwise specified in the applicable prospectus supplement,
insure or guarantee the Certificates of any Series or the Mortgage Loans in-
cluded in the Trust Estate for any Certificates.
Collection and Other Servicing Procedures
Each Servicer will be required by the related Underlying Servicing Agreement
to make reasonable efforts to collect all payments called for under the Mort-
gage Loans and, consistent with the applicable Underlying Servicing Agreement
and any applicable agreement governing any form of credit enhancement, to fol-
low such collection procedures as it follows with respect to mortgage loans
serviced by it that are comparable to the Mortgage Loans. Consistent with the
above, the Servicer may, in its discretion, (i) waive any prepayment charge,
assumption fee, late payment charge or any other charge in connection with the
prepayment of a Mortgage Loan and
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(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 con-
sented) after the applicable Due Date.
Under each Underlying Servicing Agreement, each Servicer, to the extent per-
mitted by law, will establish and maintain one or more escrow accounts (each
such account, a "Servicing Account") in which each such Servicer will be re-
quired to deposit any payments made by mortgagors in advance for taxes, assess-
ments, primary mortgage (if applicable) and hazard insurance premiums and other
similar items. Withdrawals from the Servicing Account may be made to effect
timely payment of taxes, assessments, mortgage and hazard insurance, to refund
to mortgagors amounts determined to be overages, to pay interest to mortgagors
on balances in the Servicing Account, if required, and to clear and terminate
such account. Each Servicer will be responsible for the administration of its
Servicing Account. A Servicer will be obligated to advance certain amounts
which are not timely paid by the mortgagors, to the extent that it determines,
in good faith, that they will be recoverable out of insurance proceeds, liqui-
dation proceeds, or otherwise. Alternatively, in lieu of establishing a Servic-
ing Account, a Servicer may procure a performance bond or other form of insur-
ance coverage, in an amount acceptable to the Master Servicer and each Rating
Agency rating the related Series of Certificates, covering loss occasioned by
the failure to escrow such amounts.
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans
With respect to each Mortgage Loan having a fixed interest rate, the applica-
ble Underlying Servicing Agreement will generally provide that, when any Mort-
gaged Property is about to be conveyed by the mortgagor, the Servicer will, to
the extent it has knowledge of such prospective conveyance, exercise its rights
to accelerate the maturity of such Mortgage Loan under the "due-on-sale" clause
applicable thereto, if any, unless it is not exercisable under applicable law
or if such exercise would result in loss of insurance coverage with respect to
such Mortgage Loan or would, in the Servicer's judgment, be reasonably likely
to result in litigation by the mortgagor and such Servicer has not obtained the
Master Servicer's consent to such exercise. In either case, the Servicer is au-
thorized to take or enter into an assumption and modification agreement from or
with the person to whom such Mortgaged Property has been or is about to be con-
veyed, pursuant to which such person becomes liable under the Mortgage Note
and, unless prohibited by applicable state law, the mortgagor remains liable
thereon, provided that the Mortgage Loan will continue to be covered by any
pool insurance policy and any related primary mortgage insurance policy and the
Mortgage Interest Rate with respect to such Mortgage Loan and the payment terms
shall remain unchanged. The Servicer will also be authorized, with the prior
approval of the pool insurer and the primary mortgage insurer, if any, to enter
into a substitution of liability agreement with such person, pursuant to which
the original mortgagor is released from liability and such person is substi-
tuted as mortgagor and becomes liable under the Mortgage Note.
Each Underlying Servicing Agreement and Pooling and Servicing Agreement with
respect to a Series will require the Servicer or the Master Servicer, as the
case may be, to present claims to the insurer under any insurance policy appli-
cable to the Mortgage Loans included in the Trust Estate for such Series and to
take such reasonable steps as are necessary to permit recovery under such in-
surance policies with respect to defaulted Mortgage Loans, or losses on the
Mortgaged Property securing the Mortgage Loans.
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Each Servicer is obligated under the applicable Underlying Servicing Agree-
ment for each Series to realize upon defaulted Mortgage Loans in accordance
with its normal servicing practices, which will conform generally to those of
prudent mortgage lending institutions which service mortgage loans of the same
type in the same jurisdictions. Notwithstanding the foregoing, the Servicer is
authorized under the applicable Underlying Servicing Agreement to permit the
assumption of a defaulted Mortgage Loan rather than to foreclose or accept a
deed-in-lieu of foreclosure if, in the Servicer's judgment, the default is un-
likely to be cured and the assuming borrower meets WFHM's applicable underwrit-
ing 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 prin-
cipal owing under such Mortgage Loan or permanently reduce the interest rate on
such Mortgage Loan. Any such modification will be made only upon the determina-
tion 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 Agree-
ment -- Optional Purchases," above, with respect to the Seller's right to re-
purchase Mortgage Loans that are in default, or as to which default is reasona-
bly foreseeable. Further, a Servicer may encourage the refinancing of such de-
faulted Mortgage Loans, including Mortgage Loans that would permit creditworthy
borrowers to assume the outstanding indebtedness. In connection with the deci-
sion 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 per-
mitted 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 unin-
sured cause, the Servicer will not be required to expend its own funds to fore-
close or restore any damaged property, unless it reasonably determines (i) that
such foreclosure or restoration will increase the proceeds to
Certificateholders of such Series of liquidation of the Mortgage Loan after re-
imbursement to the related Servicer for its expenses and (ii) that such ex-
penses will be recoverable to it through Liquidation Proceeds or any applicable
insurance policy in respect of such Mortgage Loan. In the 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 Mort-
gaged Property which it believes may be contaminated with or affected by haz-
ardous wastes or hazardous substances. See "Certain Legal Aspects of the Mort-
gage Loans -- Environmental Considerations." If a Servicer does not foreclose
on a Mortgaged Property, the Certificateholders of the related Series may expe-
rience 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 con-
tamination or effect exists, the Servicer forecloses on a Mortgaged Property
and takes title to such Mortgaged Property, and thereafter such Mortgaged Prop-
erty is determined to be so contaminated or affected.
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The Servicer may foreclose against property securing a defaulted Mortgage
Loan either by foreclosure, by sale or by strict foreclosure and in the event a
deficiency judgment is available against the mortgagor or other person (see
"Certain Legal Aspects of the Mortgage Loans -- Anti-Deficiency Legislation and
Other Limitations on Lenders" for a discussion of the availability of defi-
ciency judgments), may proceed for the deficiency. It is anticipated that in
most cases the Servicer will not seek deficiency judgments, and will not be re-
quired under the applicable Underlying Servicing Agreement to seek deficiency
judgments. In lieu of foreclosure, each Servicer may arrange for the sale by
the borrower of the Mortgaged Property related to a defaulted Mortgage Loan to
a third party, rather than foreclosing upon and selling such Mortgaged Proper-
ty.
With respect to a Trust Estate (or any segregated pool of assets therein) as
to which a REMIC election has been made, if the Trustee acquires ownership of
any Mortgaged Property as a result of a default or reasonably foreseeable de-
fault of any Mortgage Loan secured by such Mortgaged Property, the Trustee or
Master Servicer will be required to dispose of such property prior to the close
of the third calendar year following the year the Trust Estate acquired such
property (or such shorter period as provided in the applicable Underlying Ser-
vicing 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), respec-
tively. 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 "Material Federal In-
come Tax Consequences."
Insurance Policies
Each Underlying Servicing Agreement will require the related Servicer to
cause to be maintained for each Mortgage Loan a standard hazard insurance pol-
icy issued by a generally acceptable insurer insuring the improvements on the
Mortgaged Property underlying such Mortgage Loan against loss by fire, with ex-
tended coverage (a "Standard Hazard Insurance Policy"). The Underlying Servic-
ing Agreements will require that such Standard Hazard Insurance Policy be in an
amount at least equal to the lesser of 100% of the insurable value of the im-
provements on the Mortgaged Property or the principal balance of such Mortgage
Loan; provided, however, that such insurance may not be less than the minimum
amount required to fully compensate for any damage or loss on a replacement
cost basis. Each Servicer will also maintain on property acquired upon foreclo-
sure, 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 liquida-
tion 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 re-
placement cost basis. Any amounts collected under any such policies (other than
amounts to be
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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 Mort-
gaged Property caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions par-
ticularized in each policy. Because the Standard Hazard Insurance Policies re-
lating to such Mortgage Loans will be underwritten by different insurers and
will cover Mortgaged Properties located in various states, such policies will
not contain identical terms and conditions. The most significant terms thereof,
however, generally will be determined by state law and generally will be simi-
lar. Most such policies typically will not cover any physical damage resulting
from the following: war, revolution, governmental actions, floods and other wa-
ter-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or domes-
tic animals, hazardous wastes or hazardous substances, theft and, in certain
cases, vandalism. The foregoing list is merely indicative of certain kinds of
uninsured risks and is not all-inclusive.
In general, if the improvements on a Mortgaged Property are located in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available) each Underlying Servicing Agreement will require the related
Servicer to cause to be maintained a flood insurance policy meeting the re-
quirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable insurance carrier. Generally, the Underlying Ser-
vicing Agreement will require that such flood insurance be in an amount not
less than the least of (i) the outstanding principal balance of the Mortgage
Loan, (ii) the full insurable value of the improvements, or (iii) the maximum
amount of insurance which is available under the Flood Disaster Protection Act
of 1973, as amended. WFHM does not provide financing for flood zone properties
located in communities not participating in the National Flood Insurance Pro-
gram 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 re-
lated Trust Estate. The prospectus supplement for a Series will specify whether
there is any Fixed Retained Yield with respect to the Mortgage Loans of such
Series. If so, the Fixed Retained Yield will be established on a loan-by-loan
basis and will be specified in the schedule of Mortgage Loans attached as an
exhibit to the
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applicable Pooling and Servicing Agreement. WFHM as Servicer may deduct the
Fixed Retained Yield from mortgagor payments as received or deposit such pay-
ments 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 foregoing, with respect to any pay-
ment 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 pay-
ment of interest prior to deposit of such payment in the Servicer Custodial Ac-
count for such Series or (b) withdrawing the Servicing Fee from the Servicer
Custodial Account after the entire interest payment has been deposited in such
account. A Servicer may also pay itself out of the Liquidation Proceeds of a
Mortgage Loan or other recoveries with respect thereto, or withdraw from the
Servicer Custodial Account or request the Master Servicer to withdraw from the
Certificate Account for remittance to the Servicer such amounts after the de-
posit thereof in such accounts, or if such Liquidation Proceeds or other recov-
eries are insufficient, from Liquidation Profits with respect to the related
Distribution Date the Servicing Fee in respect of such Mortgage Loan to the ex-
tent provided in the applicable Pooling and Servicing Agreement. The Servicing
Fee or the range of Servicing Fees with respect to the Mortgage Loans under-
lying the Certificates of a Series will be specified in the applicable prospec-
tus supplement. Additional servicing compensation in the form of prepayment
charges, assumption fees, late payment charges, Liquidation Profits or other-
wise will be retained by the Servicers, to the extent specified in the related
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 Se-
ries, including, without limitation, payment of the hazard insurance policy
premiums. The Servicer will be entitled, in certain circumstances, to reim-
bursement from the Certificate Account of Periodic Advances, of Other Advances
made by it to pay taxes, insurance premiums and similar items with respect to
any Mortgaged Property or for expenditures incurred by it in connection with
the restoration, foreclosure or liquidation of any Mortgaged Property (to the
extent of Liquidation Proceeds or insurance policy proceeds in respect of such
Mortgaged Property) 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 reim-
bursement for certain expenses incurred by it, and payment of additional fees
for certain extraordinary services rendered by it (provided that such fees do
not exceed those which would be charged by third parties for similar services)
in connection with the liquidation of defaulted Mortgage Loans and related
Mortgaged Properties. In the event that claims are either not made or are not
fully paid
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from any applicable form of credit enhancement, the related Trust Estate will
suffer a loss to the extent that Liquidation Proceeds, after reimbursement of
the Servicing Fee and the expenses of the Servicer, are less than the principal
balance of the related Mortgage Loan.
Evidence as to Compliance
Each Servicer will deliver annually to the Trustee or Master Servicer, as ap-
plicable, on or before the date specified in the applicable Underlying Servic-
ing Agreement, an Officer's Certificate stating that (i) a review of the activ-
ities of such Servicer during the preceding calendar year and of performance
under the applicable Underlying Servicing Agreement has been made under the su-
pervision of such officer, and (ii) to the best of such officer's knowledge,
based on such review, 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 Of-
ficer's Certificate shall be accompanied by a statement of a firm of indepen-
dent 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 mort-
gage 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 ex-
ceptions as are set forth in such statement.
The Master Servicer will deliver annually to the Trustee, on or before the
date specified in the applicable Pooling and Servicing Agreement, an Officer's
Certificate stating that such officer has received, with respect to each
Servicer, the Officer's Certificate and accountant's statement described in the
preceding paragraph, and, that on the basis of such officer's review of such
information, each Servicer has fulfilled all its obligations under the applica-
ble Underlying Servicing Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such de-
fault known to such officer and the nature and status thereof.
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CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement for each Series without the consent of the
Trustee, except upon its determination that its duties thereunder are no longer
permissible under applicable law or are in material conflict by reason of ap-
plicable law with any other activities of a type and nature carried on by it.
No such resignation will become effective until the Trustee for such Series or
a successor master servicer has assumed the Master Servicer's obligations and
duties under the Pooling and Servicing Agreement. If the Master Servicer re-
signs for any of the foregoing reasons and the Trustee is unable or unwilling
to assume responsibility for its duties under the Pooling and Servicing Agree-
ment, it may appoint another institution to so act as described under "The
Pooling and Servicing Agreement -- Rights Upon Event of Default" below.
The Pooling and Servicing Agreement will also provide that neither the Master
Servicer nor any subcontractor, nor any partner, director, officer, employee or
agent of any of them, will be under any liability to the Trust Estate or the
Certificateholders, for the taking of any action or for refraining from the
taking of any action in good faith pursuant to the Pooling and Servicing Agree-
ment, or for errors in judgment; provided, however, that neither the Master
Servicer, any subcontractor, nor any such person will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of his or its duties or by reason
of reckless disregard of his or its obligations and duties thereunder. The
Pooling and Servicing Agreement will further provide that the Master Servicer,
any subcontractor, and any partner, director, officer, employee or agent of ei-
ther of them shall be entitled to indemnification by the Trust Estate and will
be held harmless against any loss, liability or expense incurred in connection
with any legal action relating to the Pooling and Servicing Agreement or the
Certificates, other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of his or
its duties thereunder or by reason of reckless disregard of his or its obliga-
tions and duties thereunder. In addition, the Pooling and Servicing Agreement
will provide that the Master Servicer will not be under any obligation to ap-
pear in, prosecute or defend any legal action that is not incidental to its du-
ties under the Pooling and Servicing Agreement and that in its opinion may in-
volve it in any expense or liability. The Master Servicer may, however, in its
discretion, undertake any such action deemed by it necessary or desirable with
respect to the Pooling and Servicing Agreement and the rights and duties of the
parties thereto and the interests of the Certificateholders thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust Estate and the
Master Servicer will be entitled to be reimbursed therefor out of the Certifi-
cate Account, and any loss to the Trust Estate arising from such right of reim-
bursement 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 Ser-
vicing 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
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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 Freddie 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 Se-
ries; provided that, if the Master Servicer desires to be released from its ob-
ligations under the Pooling and Servicing Agreement, (i) the purchaser or
transferee accepting such assignment or delegation is qualified to service
mortgage loans for Fannie Mae or Freddie Mac, (ii) the purchaser is satisfac-
tory to the Trustee for such Series, in the reasonable exercise of its judg-
ment, and executes and delivers to the Trustee an agreement, in form and sub-
stance reasonably satisfactory to the Trustee, which contains an assumption by
such purchaser or transferee of the due and punctual performance and observance
of each covenant and condition to be performed or observed by the Master
Servicer under the Pooling and Servicing Agreement from and after the date of
such agreement; and (iii) each applicable Rating Agency's rating of any Certif-
icates 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 Es-
tate from WFHM pursuant to an agreement (the "Wells Fargo Mortgage Sale Agree-
ment"). 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 de-
fective 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 materi-
ally and adversely affects the interests of the Certificateholders in the re-
lated 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" above.
At the time of issuance of each Series of Certificates, the Mortgage Loans in
the related Trust Estate will, pursuant to the applicable Pooling and Servicing
Agreement, be assigned to the Trustee, together with all principal and interest
received on or with respect to such Mortgage Loans after the applicable Cut-Off
Date other than principal and interest due and payable on or before such Cut-
Off Date and interest attributable to the Fixed Retained Yield on such Mortgage
Loans, if any. See "Servicing of the Mortgage Loans -- Fixed Retained Yield,
Servicing Compensation and Payment of Expenses." The Trustee or its agent will,
concurrently with such assign-
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ment, authenticate and deliver the Certificates evidencing such Series to the
Seller in exchange for the Mortgage Loans. Each Mortgage Loan will be identi-
fied in a schedule appearing as an exhibit to the applicable Pooling and Ser-
vicing Agreement. Each such schedule will include, among other things, the un-
paid principal balance as of the close of business on the applicable Cut-Off
Date, the maturity date and the Mortgage Interest Rate for each Mortgage Loan
in the related Trust Estate.
In addition, with respect to each Mortgage Loan in a Trust Estate, the mort-
gage or other promissory note, any assumption, modification or conversion to
fixed interest rate agreement, a mortgage assignment in recordable form and the
recorded Mortgage (or other documents as are required under applicable law to
create perfected security interest in the Mortgaged Property in favor of the
Trustee) will be delivered to the Trustee or, if indicated in the applicable
prospectus supplement, to a custodian; provided that, in instances where re-
corded documents cannot be delivered due to delays in connection with record-
ing, copies thereof, certified by the Seller to be true and complete copies of
such documents sent for recording, may be delivered and the original recorded
documents will be delivered promptly upon receipt. The assignment of each Mort-
gage will be recorded promptly after the initial issuance of Certificates for
the related Trust Estate, except in states 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 de-
fective 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 ad-
versely 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 no-
tice, either repurchase the related Mortgage Loan from the Trustee at a price
equal to the then unpaid principal balance thereof, plus accrued and unpaid in-
terest 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 ap-
plicable 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 charac-
teristics such that the representations and warranties of the Seller made pur-
suant to the applicable Pooling and Servicing Agreement (except for representa-
tions and warranties as to the correctness of the applicable schedule of mort-
gage loans) would not have been incorrect had such substitute Mortgage Loan
originally been a Mortgage
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Loan. In the case of a repurchased Mortgage Loan, the purchase price will be
deposited by the Seller in the related Certificate Account. In the case of a
substitute Mortgage Loan, the mortgage file relating thereto will be delivered
to the Trustee or the custodian and the Seller will deposit in the Certificate
Account, an amount equal to the excess of (i) the unpaid principal balance of
the Mortgage Loan which is substituted for, over (ii) the unpaid principal bal-
ance of the substitute Mortgage Loan, together with interest on such excess at
the Mortgage Interest Rate (minus any Fixed Retained Yield) to the next sched-
uled 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 docu-
ments relating to the Mortgage Loans and to conduct the review of such docu-
ments described above. Any custodian so appointed will keep and review such
documents as the Trustee's agent under a custodial agreement.
Optional Purchases
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 rep-
resentation or warranty to WFHM regarding the characteristics of such Mortgage
Loan, at a price equal to the unpaid principal balance thereof plus accrued in-
terest thereon and under the conditions set forth in the applicable prospectus
supplement.
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 crite-
ria set forth above under " -- Assignment of Mortgage Loans to the Trustee."
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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 in-
terest on the related Mortgage Loans and the aggregate unpaid principal balance
of the Mortgage Loans evidenced by each Class after giving effect to the prin-
cipal 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 Mas-
ter 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 un-
der 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 en-
hancement and the balance in any such Reserve Fund, after giving effect to
any payments thereunder and other amounts charged thereto on the Distribu-
tion Date;
(vi) in the case of a Series of Certificates with a variable Pass-Through
Rate, such Pass-Through Rate;
(vii) the aggregate principal balance of the Mortgage Loans and the percent-
age interest, if any, of such aggregate principal balance represented by such
class;
(viii) the book value of any collateral acquired by the Trust Estate through
foreclosure or otherwise ("REO Property");
(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 contami-
nated with or affected by hazardous wastes or hazardous substances;
(x) the number and aggregate principal amount of Mortgage Loans one month,
two months and three or more months delinquent;
(xi) the number and aggregate principal balance of Mortgage Loans in foreclo-
sure;
(xii) the number and aggregate principal balance of Mortgage Loans with re-
spect to which the related mortgaged property has become REO Property;
(xiii) the amount of realized losses as a result of bankruptcy or the liqui-
dation of REO Property; and
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(xiv) the amount of the remaining Special Hazard Loss Amount, Fraud Loss
Amount and Bankruptcy Loss Amount as of the close of business on such Distribu-
tion Date.
In addition, within a reasonable period of time after the end of each calen-
dar year, the Master Servicer will furnish either directly, or through the
Trustee, a report to each Certificateholder of record at any time during such
calendar year such information as required by the Code and applicable regula-
tions thereunder to enable Certificateholders to prepare their tax returns. In
the event that an election has been made to treat the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC, the Trustee will be re-
quired to sign the federal and applicable state and local income tax returns of
the REMIC (which will be prepared by the Master Servicer). See "Material Fed-
eral Income Tax Consequences -- Federal Income Tax Consequences for REMIC Cer-
tificates -- Administrative Matters."
List of Certificateholders
The Pooling and Servicing Agreement for each Series will require the Trustee
to provide access to the most current list of names and addresses of
Certificateholders of such Series to any group of five or more
Certificateholders who advise the Trustee in writing that they desire to commu-
nicate with other Certificateholders with respect to their rights under the
Pooling and Servicing Agreement or under the Certificates.
Events of Default
Events of Default under the Pooling and Servicing Agreement for each Series
include (i) any failure by the Master Servicer to make a required deposit which
continues unremedied for three business days after the giving of written notice
of such failure to the Master Servicer by the Trustee for such Series, or to
the Master Servicer and the Trustee by the holders of Certificates of such Se-
ries having voting rights allocated to such Certificates ("Voting Interests")
aggregating not less than 25% of the Voting Interests allocated to all Certifi-
cates for such Series; (ii) any failure by the Master Servicer duly to observe
or perform in any material respect any other of its covenants or agreements in
the Pooling and Servicing Agreement which continues unremedied for 60 days (or
30 days in the case of a failure to maintain any pool insurance policy required
to be maintained pursuant to the Pooling and Servicing Agreement) after the
giving of written notice of such failure to the Master Servicer by the Trustee,
or to the Master Servicer and the Trustee by the holders of Certificates aggre-
gating not less than 25% of the Voting Interests; (iii) certain events of in-
solvency, readjustment of debt, marshaling of assets and liabilities or similar
proceedings and certain action by the Master Servicer indicating its insolven-
cy, reorganization or inability to pay its obligations and (iv) it and any
subservicer appointed by it becoming ineligible to service for both 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 Ser-
vicing Agreement for a Series, the Trustee for such Series or holders of Cer-
tificates of such Series evidencing not less than 66 2/3% of the Voting Inter-
ests in the Trust Estate for such Series may terminate all of the rights and
obligations of the Master Servicer under the Pooling and Servicing Agreement
and in and to the Mortgage Loans (other than the Master Servicer's right to re-
covery of the aggregate Master Servicing Fees due prior to the date of termina-
tion, and other expenses and amounts advanced pursuant to the terms of the
Pooling and Servicing Agreement, which rights the Master Servicer will retain
under all circumstances), whereupon the Trustee will succeed to all the respon-
sibilities, duties and liabilities of the Master Servicer under the Pooling and
Servic-
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ing 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 as-
sumed the responsibilities, duties and liabilities of the Master Servicer under
the Pooling and Servicing Agreement, the Trustee shall continue as the succes-
sor 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 Servic-
ing Agreement for a Series, the Trustee for such Series will have the right to
take action to enforce its rights and remedies and to protect and enforce the
rights and remedies of the Certificateholders of such Series, and holders of
Certificates evidencing not less than 25% of the Voting Interests for such Se-
ries may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred upon
the Trustee. However, the Trustee will not be under any obligation to pursue
any such remedy or to exercise any of such trusts or powers unless such
Certificateholders have offered the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the Trustee
thereby. Also, the Trustee may decline to follow any such direction if the
Trustee determines that the action or proceeding so directed may not lawfully
be taken or would involve it in personal liability or be unjustly prejudicial
to the non-assenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's status as
a Certificateholder, will have any right under the Pooling and Servicing Agree-
ment for such Series to institute any proceeding with respect to the Pooling
and Servicing Agreement, unless such holder previously has given to the Trustee
for such Series written notice of default and unless the holders of Certifi-
cates evidencing not less than 25% of the Voting Interests for such Series have
made written request upon the Trustee to institute such proceeding in its own
name as Trustee thereunder and have offered to the Trustee reasonable indemnity
and the Trustee for 60 days has neglected or refused to institute any such pro-
ceeding.
Amendment
Each Pooling and Servicing Agreement may be amended by the Seller, the Master
Servicer and the Trustee without the consent of the Certificateholders, (i) to
cure any ambiguity or mistake, (ii) to correct or supplement any provision
therein that may be inconsistent with any other provision therein or the re-
lated 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 mini-
mize 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
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such qualification or to avoid or minimize the risk of the imposition of any
such tax and such action will not, as evidenced by such opinion of counsel, ad-
versely affect in any material respect the interests of any Certificateholder,
(iv) to change the timing and/or nature of deposits into the Certificate Ac-
count, provided that such change will not, as evidenced by an opinion of coun-
sel, adversely affect in any material respect the interests of any
Certificateholder and that such change will not adversely affect the then cur-
rent rating assigned to any Certificates, as evidenced by a letter from each
Rating Agency to such effect, (v) to add to, modify or eliminate any provisions
therein restricting transfers of Residual Certificates to certain disqualified
organizations described below under "Material Federal Income Tax Conse-
quences -- 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 denomina-
tions of, and the manner of payments on, certain Classes or Subclasses of Cer-
tificates 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 the 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 evi-
dencing interests aggregating not less than 66 2/3% of the Voting Interests ev-
idenced by the Certificates of each Class or Subclass affected thereby, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Pooling and Servicing Agreement or of modifying
in any manner the rights of the Certificateholders; provided, however, that no
such amendment may (i) reduce in any manner the amount of, or delay the timing
of, any payments received on or with respect to Mortgage Loans that are re-
quired to be distributed on any Certificates, without the consent of the holder
of such Certificate, (ii) adversely affect in any material respect the inter-
ests of the holders of a Class or Subclass of Certificates of a Series in a
manner other than that set forth in (i) above without the consent of the hold-
ers of Certificates aggregating not less than 66 2/3% of the Voting Interests
evidenced by such Class or Subclass, or (iii) reduce the aforesaid percentage
of Certificates of any Class or Subclass, the holders of which are required to
consent to such amendment, without the consent of the holders of all Certifi-
cates of such Class or Subclass affected then outstanding. Notwithstanding the
foregoing, the Trustee will not consent to any such amendment if such amendment
would subject the Trust Estate (or any segregated pool of assets therein) to
tax or cause the Trust Estate (or any segregated pool of assets therein) to
fail to qualify as a REMIC.
Termination; Optional Purchase of Mortgage Loans
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate on the Distribution Date following the final
payment or other liquidation of the last Mortgage Loan subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan. In no event, however, will the trust created by the Pooling and Servicing
Agreement continue beyond the expiration of 21 years from the death of the last
survivor of certain persons named in such Pooling and Servicing Agreement. For
each Series of Certificates, the Trustee will give written notice of termina-
tion of the Pooling and Servicing Agreement to
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each Certificateholder, and the final distribution will be made only upon sur-
render and cancellation of the Certificates at an office or agency appointed by
the Seller and specified in the notice of termination.
If so provided in the applicable prospectus supplement, the Pooling and Ser-
vicing Agreement for each Series of Certificates will permit, but not require,
the Seller, WFHM or such other party as is specified in the applicable prospec-
tus 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 princi-
pal 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 prospec-
tus 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 Certifi-
cates, a trust administrator will perform certain duties and functions normally
performed by the Trustee. Any trust administrator will be a party to the Pool-
ing and Servicing Agreement and will be named in the applicable prospectus sup-
plement. 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 re-
move the Trustee if the Trustee ceases to be eligible to act as Trustee under
the Pooling and Servicing Agreement, if the Trustee becomes insolvent or in or-
der to change the situs of the Trust Estate for state tax reasons. Upon becom-
ing aware of such circumstances, the Master Servicer will become obligated to
appoint a successor trustee. The Trustee may also be removed at any time by the
holders of Certificates evidencing not less than 51% of the Voting Interests in
the Trust Estate, except that, any Certificate registered in the name of the
Seller, the Master Servicer or any affiliate thereof will not be taken into ac-
count in determining whether the requisite Voting Interest in the Trust Estate
necessary to effect any such removal has been obtained. Any resignation and re-
moval of the Trustee, and the appointment of a successor trustee, will not be-
come effective until acceptance of such appointment by the successor trustee.
The Trustee, and any successor trustee, will have a combined capital and sur-
plus of at least $50,000,000, or will be a member of a bank holding system, the
aggregate combined capital and surplus of which is at least $50,000,000, pro-
vided that the Trustee's and any such successor trustee's separate capital and
surplus shall at all times be at
least the amount specified in Section 310(a)(2) of the Trust Indenture Act of
1939, and will be subject to supervision or examination by federal or state au-
thorities.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of mort-
gage loans which are general in nature. Because such legal aspects are governed
by applicable state law (which laws may differ substantially), the summaries do
not purport to be complete or to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans.
General
The Mortgage Loans will, in general, be secured by either first mortgages or
first deeds of trust, depending upon the prevailing practice in the state in
which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower (or, in the case of a Mortgage Loan secured
by a property that has been conveyed to an inter vivos revocable trust, the
settlor of such trust); and the mortgagee, who is the lender. In a mortgage in-
strument state, the mortgagor delivers to the mortgagee a note or bond evidenc-
ing the loan and the mortgage. Although a deed of trust is similar to a mort-
gage, a deed of trust has three parties: a borrower called the trustor (similar
to a mortgagor), a lender called the beneficiary (similar to a mortgagee), and
a third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the loan. The trust-
ee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by the express provisions of the deed of trust or mort-
gage, applicable law, and, in some cases, with respect to the deed of trust,
the directions of the beneficiary.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action. Gen-
erally, the action is initiated by the service of legal pleadings upon all par-
ties having an interest of record in the real property. Delays in completion of
the foreclosure occasionally may result from difficulties in 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 ad-
vertisement, 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 bor-
rower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In ad-
dition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in
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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 in-
terest 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 es-
tate, may, during a reinstatement period, cure the default by paying the entire
amount in arrears plus the costs and expenses incurred in enforcing the obliga-
tion. Certain state laws control the amount of foreclosure expenses and costs,
including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condi-
tion of the property may have deteriorated during the foreclosure proceedings,
it is uncommon for a third party to purchase the property at the foreclosure
sale. Rather, it is common for the lender to purchase the property from the
trustee or receiver for an amount equal to the unpaid principal amount of the
note, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender commonly
will obtain the services of a real estate broker and pay the broker a commis-
sion in connection with the sale of the property. Depending upon market condi-
tions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss may be reduced by the receipt of
mortgage insurance proceeds, if any, or by judicial action against the borrower
for the deficiency, if such action is permitted by law. See "-- Anti-Deficiency
Legislation and Other Limitations on Lenders" below.
Foreclosure on Shares of Cooperatives
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and By-laws, as well as
in the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other obliga-
tions or charges owed by such tenant-stockholder, including mechanics' liens
against the cooperative apartment building incurred by such tenant-stockholder.
The proprietary lease or occupancy agreement generally permits the cooperative
to terminate such lease or agreement in the event an obligor fails to make pay-
ments or defaults in the performance of covenants required thereunder. Typical-
ly, the lender and the cooperative enter into a recognition agreement which es-
tablishes the rights and obligations of both parties in the event of a default
by the tenant-stockholder on its obligations under the proprietary lease or oc-
cupancy agreement. A default by the tenant-stockholder under the proprietary
lease or occupancy agreement will usually constitute a default under the secu-
rity agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the ten-
ant-stockholder has defaulted under the proprietary lease or occupancy agree-
ment, the cooperative will take no action to terminate such lease or agreement
until the lender has been provided an opportunity to cure the default. The rec-
ognition agreement typically provides that if the proprietary lease or occu-
pancy agreement is terminated, the cooperative will recognize the lender's lien
against proceeds from a sale of the cooperative apartment, subject, however, to
the cooperative's right to
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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 cooper-
ative as required by the proprietary lease before transferring the cooperative
shares or assigning the proprietary lease. Generally, the lender is not limited
by the agreement in any rights it may have to dispossess the tenant-stockhold-
ers.
Foreclosure on the cooperative shares is accomplished by a sale in accordance
with the provisions of Article 9 of the Uniform Commercial Code (the "UCC") and
the security agreement relating to those shares. Article 9 of the UCC requires
that a sale be conducted in a 'commercially reasonable' manner. Whether a fore-
closure sale has been conducted in a 'commercially reasonable' manner will de-
pend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according to
the usual practice of banks selling similar collateral will be considered rea-
sonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the indebt-
edness secured by the lender's security interest. The recognition agreement,
however, generally provides that the lender's right to reimbursement is subject
to the right of the cooperative corporation to receive sums due under the pro-
prietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See "-- Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
Rights of Redemption
In some states, after sale pursuant to a deed of trust and/or foreclosure of
a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a right of redemption is to delay the ability of the lender to sell the fore-
closed property. The exercise of a right of redemption would defeat the title
of any purchaser at a foreclosure sale, or of any purchaser from the lender
subsequent to judicial foreclosure or sale under a deed of trust. Consequently,
the practical effect of the redemption right is to force the lender to maintain
the property and pay the expenses of ownership until the redemption period has
run.
Anti-Deficiency Legislation, 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 se-
curity 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
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borrower. Finally, other statutory provisions limit any deficiency judgment
against the former borrower following a judicial sale to the excess of the out-
standing 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 bor-
rower as a result of low or no bids at the judicial sale.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares and
the related proprietary lease or occupancy agreement and foreclosure on the
beneficial interest in a land trust. Some courts have interpreted Section 9-504
of the UCC to prohibit a deficiency award unless the creditor establishes that
the sale of the collateral (which, in the case of a Mortgage Loan secured by
shares of a cooperative, would be such shares and the related proprietary lease
or occupancy agreement) was conducted in a commercially reasonable manner.
A Servicer generally will not be required under the applicable Underlying
Servicing Agreement to pursue deficiency judgments on the Mortgage Loans even
if permitted by law.
In addition to anti-deficiency and related legislation, numerous other fed-
eral and state statutory provisions, including the United States Bankruptcy
Code, 11 U.S.C Sections 101 et seq. (the "Bankruptcy Code"), and state laws af-
fording 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 collat-
eral and/or enforce a deficiency judgment. For example, under the Bankruptcy
Code, virtually all actions (including foreclosure actions and deficiency judg-
ment proceedings) are automatically stayed upon the filing of a bankruptcy pe-
tition, 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. Al-
so, 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. Alterna-
tively, 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 re-
ferred to as the "wage earner chapter" or "consumer chapter" because most indi-
viduals 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 dis-
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charged in full upon payment of a substantially reduced amount. Other modifica-
tions to a mortgage loan may include a reduction in the amount of each sched-
uled payment, which reduction may result from a reduction in the rate of inter-
est, an alteration of the repayment schedule, an extension of the final matu-
rity 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 Chap-
ter 13 of the Bankruptcy Code may each allow a debtor to cure a default with
respect to a mortgage loan on such debtor's residence by paying arrearages over
a period of time and to deaccelerate and reinstate the original mortgage loan
payment schedule, even though the lender accelerated the loan and a final judg-
ment 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 accom-
plished 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 reorga-
nization 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 princi-
pal residence and the property is the lender's only collateral. Certain courts
have allowed modifications when the mortgage loan is secured both by the debt-
or'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 inter-
pretation in view of the language of the applicable statutory provision. If
this interpretation is adopted by a court considering the treatment in a Chap-
ter 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 restructur-
ing 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 par-
ticular 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
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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 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 Op-
portunity 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 disclo-
sure 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 termina-
tion 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%, re-
spectively, 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 circum-
stances 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 pay-
ments are due or payable. Any servicer, mortgagee or mortgage insurer that vio-
lates 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) se-
cured 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 dis-
closure 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
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types of mortgage loans in Texas, delays and increased losses may result in
connection with foreclosures of such loans. If a court were to find that any
requirement of the Texas Home Equity Laws was not complied with, the court
could refuse to allow foreclosure to proceed, declare the lien on the Mortgaged
Property to be invalid, and/or require the originating lender or the holder of
the note to forfeit some or all principal and interest of the related Mortgage
Loan. Title insurance generally available on such Mortgage Loans may exclude
coverage for some of the risks described in this paragraph.
Soldiers' and Sailors' Civil Relief Act and Similar Laws
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), a borrower who enters military service af-
ter the origination of such borrower's Mortgage Loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrow-
er's active duty status, unless a court orders otherwise upon application of
the lender. It is possible that such action could have an effect, for an inde-
terminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Mortgage Loans in a Trust Estate. Any
shortfall in interest collections resulting from the application of the Relief
Act could result in losses to the holders of the Certificates of the related
Series. Further, the Relief Act imposes limitations which would impair the
ability of the Servicer to foreclose on an affected Mortgage Loan during the
borrower's period of active duty status. Thus, in the event that such a Mort-
gage Loan goes into default, there may be delays and losses occasioned by the
inability to realize upon the Mortgaged Property in a timely fashion. Certain
states have enacted comparable legislation which may interfere with or affect
the ability of the Servicer to timely collect payments of principal and inter-
est on, or to foreclose on, Mortgage Loans of borrowers in such states who are
active or reserve members of the armed services.
Environmental Considerations
A lender may be subject to unforeseen environmental risks when taking a secu-
rity interest in real or personal property. Property subject to such a security
interest may be subject to federal, state, and local laws and regulations re-
lating to environmental protection. Such laws may regulate, among other things:
emissions of air pollutants; discharges of wastewater or storm water; genera-
tion, transport, storage or disposal of hazardous waste or hazardous sub-
stances; operation, closure and removal of underground storage tanks; removal
and disposal of asbestos-containing materials; management of electrical or
other equipment containing polychlorinated biphenyls ("PCBS"). Failure to com-
ply with such laws and regulations may result in significant penalties, includ-
ing civil and criminal fines. Under the laws of certain states, environmental
contamination on a property may give rise to a lien on the property to ensure
the availability and/or reimbursement of cleanup costs. Generally all subse-
quent liens on such property are subordinated to such a lien and, in some
states, even prior recorded liens are subordinated to such liens
("Superliens"). In the latter states, the security interest of the Trustee in a
property that is subject to such a Superlien could be adversely affected.
Under the federal Comprehensive Environmental Response, Compensation and Lia-
bility Act, as amended ("CERCLA"), and under state law in certain states, a se-
cured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, operates a mortgaged property or undertakes
certain types of activities that may constitute management of
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the mortgaged property may become liable in certain circumstances for the costs
of remedial action ("Cleanup Costs") if hazardous wastes or hazardous sub-
stances have been released or disposed of on the property. Such Cleanup Costs
may be substantial and could exceed the value of the property and the aggregate
assets of the owner or operator. CERCLA imposes strict, as well as joint and
several liability for environmental remediation and/or damage costs on several
classes of "potentially responsible parties," including current "owners and/or
operators" of property, irrespective of whether those owners or operators
caused or contributed to contamination on the property. In addition, owners and
operators of properties that generate hazardous substances that are disposed of
at other "off-site" locations may held strictly, jointly and severally liable
for environmental remediation and/or damages at those off-site locations. Many
states also have laws that are similar to CERCLA. Liability under CERCLA or un-
der similar state law could exceed the value of the property itself as well as
the aggregate assets of the property owner.
The law is unclear as to whether and under what precise circumstances cleanup
costs, or the obligation to take remedial actions, could be imposed on a se-
cured lender such as the Trust Estate. Under the laws of some states and under
CERCLA, a lender may be liable as an "owner or operator" for costs of address-
ing releases or threatened releases of hazardous substances on a mortgaged
property if such lender or its agents or employees have "participated in the
management" of the operations of the borrower, even though the environmental
damage or threat was caused by a prior owner or current owner or operator or
other third party. Excluded from CERCLA's definition of "owner or operator," is
a person "'who without participating in the management of . . . [the] facility,
holds indicia of ownership primarily to protect his security interest" (the
"secured-creditor exemption"). This exemption for holders of a security inter-
est such as a secured lender applies only to the extent that a lender seeks to
protect its security interest in the contaminated facility or property. Thus,
if a lender's activities begin to encroach on the actual management of such fa-
cility or property, the lender faces potential liability as an 'owner or opera-
tor' under CERCLA. Similarly, when a lender forecloses and takes title to a
contaminated facility or property, the lender may incur potential CERCLA lia-
bility in various circumstances including, among others, when it holds the fa-
cility or property as an investment (including leasing the facility or property
to a third party), fails to market the property in a timely fashion or fails to
properly address environmental conditions at the property or facility.
The Resource Conservation and Recovery Act, as amended ("RCRA"), contains a
similar secured-creditor exemption for those lenders who hold a security inter-
est in a petroleum underground storage tank ("UST") or in real estate contain-
ing 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-credi-
tor exemption may be deemed to be unavailable.
A decision in May 1990 of the United States Court of Appeals for the Eleventh
Circuit in United States v. Fleet Factors Corp. very narrowly construed
CERCLA's secured-creditor exemption. The court's opinion suggested that a
lender need not have involved itself in the day-to-day operations of the facil-
ity or participated in decisions relating to hazardous waste to be liable under
CERCLA; rather, liability could attach to a lender if its involvement with the
management of the facility were broad enough to support the inference that the
lender had the capacity to influence the borrower's treatment of hazardous
waste. The court added that a lender's capacity to
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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., ap-
parently disagreeing with, but not expressly contradicting, the Fleet Factors
court, held that a secured lender had no liability absent 'some actual manage-
ment 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 guid-
ance to lenders on the scope of activities that would trigger CERCLA and/or
RCRA liability. Until recently, these efforts have failed to provide substan-
tial guidance.
On September 30, 1996 the President signed into law, the Asset Conservation,
Lender Liability and Deposit Insurance Protection Act of 1996 (the "Asset Con-
servation Act"). The Asset Conservation Act was intended to clarify the scope
of the secured creditor exemption under both CERCLA and RCRA. The Asset Conser-
vation 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 protec-
tion against liability under CERCLA in the event of foreclosure and authorized
certain regulatory clarifications of the scope of the secured-creditor exemp-
tion 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 li-
ability on "owners or operators" but do not incorporate the secured-creditor
exemption.
Traditionally, residential mortgage lenders have not taken steps to evaluate
whether hazardous wastes or hazardous substances are present with respect to
any mortgaged property prior to the origination of the mortgage loan or prior
to foreclosure or accepting a deed-in-lieu of foreclosure. Accordingly, neither
the Seller, WFHM nor the Wells Fargo Affiliates has made such evaluations prior
to the origination of the Mortgage Loans, nor does WFHM or the Wells Fargo Af-
filiates 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 fore-
closure. Neither the Seller nor the Master Servicer makes any representations
or warranties or assumes any liability with respect to: the environmental con-
dition of such Mortgaged Property; the absence, presence or effect of hazardous
wastes or hazardous substances on any Mortgaged Property; any casualty result-
ing from the presence or effect of hazardous wastes or hazardous substances on,
near or emanating from such Mortgaged
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Property; the impact on Certificateholders of any environmental condition or
presence of any substance on or near such Mortgaged Property; or the compliance
of any Mortgaged Property with any environmental laws, nor is any agent, person
or entity otherwise affiliated with the Seller authorized or able to make any
such representation, warranty or assumption of liability relative to any such
Mortgaged Property. See "'The 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 Mort-
gage Loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the borrower transfers its interest in the property. In
recent years, court decisions and legislative actions placed substantial re-
strictions on the right of lenders to enforce such clauses in many states. How-
ever, effective October 15, 1982, Congress enacted the Garn-St Germain Deposi-
tory Institutions Act of 1982 (the "Garn Act") which purports to preempt state
laws which prohibit the enforcement of "due-on-sale" clauses by providing among
other matters, that "due-on-sale" clauses in certain loans (which loans may in-
clude the Mortgage Loans) made after the effective date of the Garn Act are en-
forceable, within certain limitations as set forth in the Garn Act and the reg-
ulations promulgated thereunder. "Due-on-sale" clauses contained in mortgage
loans originated by federal savings and loan associations or federal savings
banks are fully enforceable pursuant to regulations of the Office of Thrift Su-
pervision ("OTS"), as successor to the Federal Home Loan Bank Board ("FHLBB"),
which preempt state law restrictions on the enforcement of such clauses. Simi-
larly, "due-on-sale" clauses in mortgage loans made by national banks and fed-
eral credit unions are now fully enforceable pursuant to preemptive regulations
of the Comptroller of the Currency and the National Credit Union Administra-
tion, respectively.
The Garn Act created a limited exemption from its general rule of enforce-
ability for "due-on-sale" clauses in certain mortgage loans ("Window Period
Loans") which were originated by non-federal lenders and made or assumed in
certain states ("Window Period States") during the period, prior to October 15,
1982, in which that state prohibited the enforcement of "due-on-sale" clauses
by constitutional provision, statute or statewide court decision (the "Window
Period"). Though neither the Garn Act nor the OTS regulations actually names
the Window Period States, Freddie Mac has taken the position, in prescribing
mortgage loan servicing standards with respect to mortgage loans which it has
purchased, that the Window Period States were: Arizona, Arkansas, California,
Colorado, Georgia, Iowa, Michigan, Minnesota, New Mexico, Utah and Washington.
Under the Garn Act, unless a Window Period State took action by October 15,
1985, the end of the Window Period, to further regulate enforcement of "due-on-
sale" clauses in Window Period Loans, "due-on-sale" clauses would become en-
forceable even in Window Period Loans. Five of the Window Period States (Arizo-
na, Minnesota, Michigan, New Mexico and Utah) have taken actions which restrict
the enforceability of "due-on-sale" clauses in Window Period Loans beyond Octo-
ber 15, 1985. The actions taken vary among such states.
By virtue of the Garn Act, a Servicer may generally be permitted to acceler-
ate any conventional Mortgage Loan which contains a "due-on-sale" clause upon
transfer of an interest in the property subject to the mortgage or deed of
trust. With respect to any Mortgage Loan secured by a residence occupied or to
be occupied by the borrower, this ability to accelerate will not apply to cer-
tain types of transfers, including (i) the granting of a leasehold interest
which has a term of three years or less and which does not contain an option to
purchase, (ii) a transfer to a relative
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resulting from the death of a borrower, or a transfer where the spouse or chil-
dren 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 crea-
tion of a lien or other encumbrance subordinate to the lender's security in-
strument 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 Mort-
gage 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 limita-
tions shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The OTS as successor to the
FHLBB is authorized to issue rules and regulations and to publish interpreta-
tions governing implementation of Title V. The statute authorized any state to
reimpose interest rate limits by adopting before April 1, 1983, a law or con-
stitutional provision which expressly rejects application of the federal law.
Fifteen states have adopted laws reimposing or reserving the right to reimpose
interest rate limits. In addition, even where Title V is not so rejected, any
state is authorized to adopt a provision limiting certain other loan charges.
The Seller will represent and warrant in the Pooling and Servicing Agreement
to the Trustee for the benefit of Certificateholders that all Mortgage Loans
are originated in full compliance with applicable state laws, including usury
laws. See "The Pooling and Servicing Agreement -- Assignment of Mortgage Loans
to the Trustee."
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain provi-
sions obligating the borrower to pay a late charge if payments are not timely
made and in some circumstances may provide for prepayment fees or penalties if
the obligation is paid prior to maturity. In certain states, there are or may
be specific limitations upon late charges which a lender may collect from a
borrower for delinquent payments. Certain states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is pre-
paid. Under the Pooling and Servicing Agreement, late charges and prepayment
fees (to the extent permitted by law and not waived by the Servicer) will be
retained by the Servicer as additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These eq-
uitable principles are generally designed to relieve the borrower from the le-
gal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have substituted their judgment for the lender's
judgment and have required lenders to reinstate loans or recast payment sched-
ules to accommodate borrowers who are suffering from
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temporary financial disability. In some cases, courts have limited the right of
lenders to foreclose if the default under the mortgage instrument is not mone-
tary, 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 addi-
tion 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.
MATERIAL 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 pur-
chase, 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 Inter-
nal Revenue Code of 1986, as amended (the "Code"), as well as regulations (the
"REMIC Regulations") promulgated by the U.S. Department of the Treasury. In-
vestors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Certificates.
For purposes of this discussion, where the applicable prospectus supplement
provides for a Fixed Retained Yield with respect to the Mortgage Loans of a Se-
ries of Certificates, references to the Mortgage Loans will be deemed to refer
to that portion of the Mortgage Loans held by the Trust Estate that does not
include the Fixed Retained Yield. References to a "holder" or
"Certificateholder" in this discussion generally mean the beneficial owner of a
Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
General
With respect to a particular Series of Certificates, an election may be made
to treat the Trust Estate or one or more segregated pools of assets therein as
one or more "real estate mortgage investment conduits" (each, a "REMIC") within
the meaning of Code Section 860D. A Trust Estate or a portion or portions
thereof as to which one or more REMIC elections will be made will be referred
to as a "REMIC Pool." For purposes of this discussion, Certificates of a Series
as to which one or more REMIC elections are made are referred to as "REMIC Cer-
tificates" and will consist of one or more Classes of "Regular Certificates"
and one Class of "Residual Certificates" in the case of each REMIC Pool. Quali-
fication 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, as-
suming (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
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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 con-
stitute "a regular or residual interest in a REMIC" within the meaning of Code
Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the REMIC
Pool would be treated as "loans . . . secured by an interest in real property
which is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v) or as other assets described in Code Section 7701(a)(19)(C).
REMIC Certificates held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(4)(A), and interest on
the Regular Certificates and income with respect to Residual Certificates will
be considered "interest on obligations secured by mortgages on real property or
on interests in real property" within the meaning of Code Section 856(c)(3)(B)
in the same proportion that, for both purposes, the assets of the REMIC Pool
would be so treated. If at all times 95% or more of the assets of the REMIC
Pool qualify for each of the foregoing treatments, the REMIC Certificates will
qualify for the corresponding status in their entirety. For purposes of Code
Section 856(c)(4)(A), payments of principal and interest on the Mortgage Loans
that are reinvested pending distribution to holders of REMIC Certificates qual-
ify for such treatment. Where two REMIC Pools are a part of a tiered structure
they will be treated as one REMIC for purposes of the tests described above re-
specting asset ownership of more or less than 95%. In addition, if the assets
of the REMIC include Buy-Down Loans, it is possible that the percentage of such
assets constituting "loans . . . secured by an interest in real property which
is . . . residential real property" for purposes of Code Section
7701(a)(19)(C)(v) may be required to be reduced by the amount of the related
Buy-Down Funds. 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 in-
vestment 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 as-
set 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 exist-
ing 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.
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Qualification as a REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing com-
pliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must 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 pursu-
ant to which the de minimis requirement will be met if at all times the aggre-
gate 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 "reason-
able arrangements" to prevent its residual interests from being held by "dis-
qualified organizations" or agents thereof and must furnish applicable tax in-
formation to transferors or agents that violate this requirement. See "-- Taxa-
tion of Residual Certificates -- Tax-Related Restrictions on Transfer of Resid-
ual Certificates -- Disqualified Organizations."
A qualified mortgage is any obligation that is principally secured by an in-
terest in real property and that is either transferred to the REMIC Pool on the
Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and, generally, certificates of beneficial interest in a grantor trust that
holds mortgage loans and regular interests in another REMIC, such as lower-tier
regular interests in a tiered REMIC. The REMIC Regulations specify that loans
secured by timeshare interests and shares held by a tenant stockholder in a co-
operative housing corporation can be qualified mortgages. A qualified mortgage
includes a qualified replacement mortgage, which is any property that would
have been treated as a qualified mortgage if it were transferred to the REMIC
Pool on the Startup Day and that is received either (i) in exchange for any
qualified mortgage within a three-month period thereafter or (ii) in exchange
for a "defective obligation" within a two-year period thereafter. A "defective
obligation" includes (i) a mortgage in default or as to which default is rea-
sonably foreseeable, (ii) a mortgage as to which a customary representation or
warranty made at the time of transfer to the REMIC Pool has been breached,
(iii) a mortgage that was fraudulently procured by the mortgagor, and (iv) a
mortgage that was not in fact principally secured by real property (but only if
such mortgage is disposed of within 90 days of discovery). A Mortgage Loan that
is "defective" as described in clause (iv) that is not sold or, if within two
years of the Startup Day, exchanged, within 90 days of discovery, ceases to be
a qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified reserve as-
sets, and foreclosure property. A cash flow investment is an investment, earn-
ing a return in the nature of interest, of amounts received on or with respect
to qualified mortgages for a temporary period, not exceeding 13 months, until
the next scheduled distribution to holders of interests in the REMIC Pool. A
qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC Pool to provide
for payments of expenses of the REMIC Pool or amounts due on the regular or re-
sidual interests in the event of defaults (including delinquencies) on the
qualified mortgages, lower than expected reinvestment returns, prepayment in-
terest shortfalls and certain other contingencies. The reserve fund will be
disqualified if
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more than 30% of the gross income from the assets in such fund for the year is
derived from the sale or other disposition of property held for less than three
months, unless required to prevent a default on the regular interests caused by
a default on one or more qualified mortgages. A reserve fund must be reduced
"promptly and appropriately" as payments on the Mortgage Loans are received.
Foreclosure property is real property acquired by the REMIC Pool in connection
with the default or imminent default of a qualified mortgage and generally not
held beyond the close of the third calendar year following the year in which
such property is acquired with an extension that may be granted by the Internal
Revenue Service.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests
or (ii) a single class of residual interests on which distributions, if any,
are made pro rata. A regular interest is an interest in a REMIC Pool that is
issued on the Startup Day with fixed terms, is designated as a regular inter-
est, and unconditionally entitles the holder to receive a specified principal
amount (or other similar amount), and provides that interest payments (or other
similar amounts), if any, at or before maturity either are payable based on a
fixed rate or a qualified variable rate, or consist of a specified, nonvarying
portion of the interest payments on qualified mortgages. Such a specified por-
tion may consist of a fixed number of basis points, a fixed percentage of the
total interest, or a qualified variable rate, inverse variable rate or differ-
ence between two fixed or qualified variable rates on some or all of the quali-
fied mortgages. The specified principal amount of a regular interest that pro-
vides for interest payments consisting of a specified, nonvarying portion of
interest payments on qualified mortgages may be zero. A residual interest is an
interest in a REMIC Pool other than a regular interest that is issued on the
Startup Day and that is designated as a residual interest. An interest in a
REMIC Pool may be treated as a regular interest even if payments of principal
with respect to such interest are subordinated to payments on other regular in-
terests or the residual interest in the REMIC Pool, and are dependent on the
absence of defaults or delinquencies on qualified mortgages or permitted in-
vestments, lower than reasonably expected returns on permitted investments, un-
anticipated expenses incurred by the REMIC Pool or prepayment interest
shortfalls. Accordingly, 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 con-
stitute a single class of residual interests on which distributions are made
pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of the
ongoing requirements of the Code for REMIC status during any taxable year, the
Code provides that the entity will not be treated as a REMIC for such year and
thereafter. In this event, an entity with multiple classes of ownership inter-
ests may be treated as a separate association taxable as a corporation under
Treasury regulations, and the Regular Certificates may be treated as equity in-
terests therein. The Code, however, authorizes the Treasury Department to issue
regulations that address situations where failure to meet one or more of the
requirements for REMIC status occurs inadvertently and in good faith, and dis-
qualification of the REMIC Pool would occur absent regulatory relief. Investors
should be aware, however, that the Conference Committee Report to the Tax Re-
form Act of 1986 (the "1986 Act") indicates that the relief may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion of
the REMIC Pool's income for the period of time in which the requirements for
REMIC status are not satisfied.
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Taxation of Regular Certificates
General
In general, interest, original issue discount, and market discount on a Regu-
lar Certificate will be treated as ordinary income to a holder of the Regular
Certificate (the "Regular Certificateholder"), and principal payments on a Reg-
ular Certificate will be treated as a return of capital to the extent of the
Regular Certificateholder's basis in the Regular Certificate allocable thereto.
Regular Certificateholders must use the accrual method of accounting with re-
gard to Regular Certificates, regardless of the method of accounting otherwise
used by such Regular Certificateholders.
Original Issue Discount
Compound Interest Certificates will be, and other classes of Regular Certifi-
cates may be, issued with "original issue discount" within the meaning of Code
Section 1273(a). Holders of any Class or Subclass of Regular Certificates hav-
ing original issue discount generally must include original issue discount in
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of in-
terest, in advance of receipt of the cash attributable to such income. The fol-
lowing discussion is based in part on temporary and final Treasury regulations
issued on February 2, 1994, as amended on June 14, 1996, (the "OID Regula-
tions") under Code Sections 1271 through 1273 and 1275 and in part on the pro-
visions of the 1986 Act. Regular Certificateholders should be aware, however,
that the OID Regulations do not adequately address certain issues relevant to
prepayable securities, such as the Regular Certificates. To the extent such is-
sues 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 Regu-
lations. Moreover, the OID Regulations include an anti-abuse rule allowing the
Internal Revenue Service to apply or depart from the OID Regulations where nec-
essary or appropriate to ensure a reasonable tax result in light of the appli-
cable 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 report-
ing interest and original issue discount with respect to the Regular Certifi-
cates.
Each Regular Certificate (except to the extent described below with respect
to a Regular Certificate on which principal is distributed in a single install-
ment or by lots of specified principal amounts upon the request of a
Certificateholder or by random lot (a "Non-Pro Rata Certificate")) will be
treated as a single installment obligation for purposes of determining the
original issue discount includible in a Regular Certificateholder's income. The
total amount of original issue discount on a Regular Certificate is the excess
of the "stated redemption price at maturity" of the Regular Certificate over
its "issue price." The issue price of a Class of Regular Certificates offered
pursuant to this prospectus generally is the first price at which a substantial
amount of such Class is sold to the public (excluding bond houses, brokers and
underwriters). Although unclear under the OID Regulations, the Seller intends
to treat the issue price of a Class as to which there is no substantial sale as
of the issue date or that is retained by the Seller as the fair market value of
that Class as of the issue date. The issue price of a Regular Certificate also
includes any amount paid by an initial Regular Certificateholder for accrued
interest that relates to
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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 in-
cludes the original principal amount of the Regular Certificate, but generally
will not include distributions of interest if such distributions constitute
"qualified stated interest." Under the OID Regulations, qualified stated inter-
est generally means interest payable at a single fixed rate or a qualified
variable rate (as described below) provided that such interest payments are un-
conditionally 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 under-
lying 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 distri-
butions of interest as well as principal thereon. Likewise, the Seller intends
to treat an interest-only Class or a Class on which interest is substantially
disproportionate to its principal amount (a so-called "super-premium" Class) as
having no qualified stated interest. Where the interval between the issue date
and the first Distribution Date on a Regular Certificate is shorter than the
interval between subsequent Distribution Dates, the interest attributable to
the additional days will be included in the stated redemption price at maturi-
ty.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is com-
puted as the sum of the amounts determined by multiplying the number of full
years (i.e., rounding down partial years) from the issue date until each dis-
tribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribu-
tion included in the stated redemption price at maturity of the Regular Certif-
icate 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 accor-
dance with the assumed rate of prepayment of the Mortgage Loans (the "Prepay-
ment 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, how-
ever, Regular Certificateholders may elect to accrue all de minimis original
issue discount as well as market discount and market premium, under the con-
stant yield method. See "-- Election to Treat All Interest Under the Constant
Yield Method."
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Certificate accrued during an accrual period for
each day on which it holds the Regular Certifi-
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cate, 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 calcu-
lation will be made of the original issue discount that accrues during each
successive full accrual period (or shorter period from the date of original is-
sue) 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 Pre-
payment 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 Certifi-
cate 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 calcu-
lated based on (i) the yield to maturity of the Regular Certificate at the is-
sue 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 begin-
ning 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 re-
demption price at maturity that were made on the Regular Certificate in such
prior periods. The original issue discount accruing during any accrual period
(as determined in this paragraph) will then be divided by the number of days in
the period to determine the daily portion of original issue discount for each
day in the period. With respect to an initial accrual period shorter than a
full accrual period, the daily portions of original issue discount must be de-
termined according to an appropriate allocation under any reasonable method.
Under the method described above, the daily portions of original issue dis-
count required to be included in income by a Regular Certificateholder gener-
ally will increase to take into account prepayments on the Regular Certificates
as a result of prepayments on the Mortgage Loans that exceed the Prepayment As-
sumption, and generally will decrease (but not below zero for any period) if
the prepayments are slower than the Prepayment Assumption. An increase in pre-
payments on the Mortgage Loans with respect to a Series of Regular Certificates
can result in both a change in the priority of principal payments with respect
to certain Classes of Regular Certificates and either an increase or decrease
in the daily portions of original issue discount with respect to such Regular
Certificates.
In the case of a Non-Pro Rata Certificate, the Seller intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Non-Pro Rata Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of
the entire unpaid principal balance of any Non-Pro Rata Certificate (or portion
of such unpaid principal balance), (a) the remaining unaccrued original issue
discount allocable to such Certificate (or to such portion) will accrue at the
time of such distribution, and (b) the accrual of original issue discount allo-
cable to each remaining Certificate of such Class (or the remaining unpaid
principal balance of a partially re-
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deemed Non-Pro Rata Certificate after a distribution of principal has been re-
ceived) will be adjusted by reducing the present value of the remaining pay-
ments 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 As-
sumption for the Class as a whole. Investors are advised to consult their tax
advisors as to this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted is-
sue price but less than its stated redemption price at maturity will be re-
quired to include in gross income the daily portions of the original issue dis-
count on the Regular Certificate reduced pro rata by a fraction, the numerator
of which is the excess of its purchase price over such adjusted issue price and
the denominator of which is the excess of the remaining stated redemption price
at maturity over the adjusted issue price. Alternatively, such a subsequent
purchaser may elect to treat all such acquisition premium under the constant
yield method, as described below under the heading "-- Election to Treat All
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, gen-
erally, (i) the issue price does not exceed the original principal balance by
more than a specified amount and (ii) the interest compounds or is payable at
least annually at current values of (a) one or more "qualified floating rates,"
(b) a single fixed rate and one or more qualified floating rates, (c) a single
"objective rate," or (d) a single fixed rate and a single objective rate that
is a "qualified inverse floating rate." A floating rate is a qualified floating
rate if variations in the rate can reasonably be expected to measure contempo-
raneous variations in the cost of newly borrowed funds, where such rate is sub-
ject to a fixed multiple that is greater than 0.65 but not more than 1.35. Such
rate may also be increased or decreased by a fixed spread or subject to a fixed
cap or floor, or a cap or floor that is not reasonably expected as of the issue
date to affect the yield of the instrument significantly. An objective rate is
any rate (other than a qualified floating rate) that is determined using a sin-
gle fixed formula and that is based on objective financial or economic informa-
tion, provided that such information is not (i) within the control of the is-
suer or a related party or (ii) unique to the circumstances of the issuer or a
related party. A qualified inverse floating rate is a rate equal to a fixed
rate minus a qualified floating rate that inversely reflects contemporaneous
variations in the cost of newly borrowed funds; an inverse floating rate that
is not a qualified inverse floating rate may nevertheless be an objective rate.
A Class of Regular Certificates may be issued under this prospectus that does
not have a variable rate under the foregoing rules, for example, a Class that
bears different rates at different times during the period it is outstanding
such that it is considered significantly "front-loaded" or "back-loaded" within
the meaning of the OID Regulations. It is possible that such a Class may be
considered to bear "contingent interest" within the meaning of the OID Regula-
tions. The OID Regulations, as they relate to the treatment of contingent in-
terest, are by their terms not applicable to Regular Certificates. However, if
final regulations dealing with contingent interest with respect to Regular Cer-
tificates apply the same principles as the OID 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, applica-
tion of such principles could lead to the characterization of gain
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on the sale of contingent interest Regular Certificates as ordinary income. In-
vestors should consult their tax advisors regarding the appropriate treatment
of any Regular Certificate that does not pay interest at a fixed rate or vari-
able rate as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates, including a rate based on the average cost of funds of one or
more financial institutions), or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans, including such
a rate that is subject to one or more caps or floors, or (ii) bearing one or
more such variable rates for one or more periods, or one or more fixed rates
for one or more periods, and a different variable rate or fixed rate for other
periods, qualifies as a regular interest in a REMIC. Accordingly, unless other-
wise indicated in the applicable prospectus supplement, the Seller intends to
treat Regular Certificates that qualify as regular interests under this rule in
the same manner as obligations bearing a variable rate for original issue dis-
count reporting purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "-- Original Issue Discount," with the yield to maturity and future pay-
ments on such Regular Certificate generally to be determined by assuming that
interest will be payable for the life of the Regular Certificate based on the
initial rate (or, if different, the value of the applicable variable rate as of
the pricing date) for the relevant Class. Unless required otherwise by applica-
ble final regulations, the Seller intends to treat such variable interest as
qualified stated interest, other than variable interest on an interest-only or
super-premium Class, which will be treated as non-qualified stated interest in-
cludible in the stated redemption price at maturity. Ordinary income reportable
for any period will be adjusted based on subsequent changes in the applicable
interest rate index.
Although unclear under the OID Regulations, unless required otherwise by ap-
plicable final regulations, the Seller intends to treat Regular Certificates
bearing an interest rate that is a weighted average of the net interest rates
on Mortgage Loans as having qualified stated interest, except to the extent
that initial "teaser" rates cause sufficiently "back-loaded" interest to create
more than de minimis original issue discount. The yield on such Regular Certif-
icates for purposes of accruing original issue discount will be a hypothetical
fixed rate based on the fixed rates, in the case of fixed-rate Mortgage Loans,
and initial "teaser rates" followed by fully indexed rates, in the case of ad-
justable-rate Mortgage Loans. In the case of adjustable-rate Mortgage Loans,
the applicable index used to compute interest on the Mortgage Loans in effect
on the pricing date (or possibly the issue date) will be deemed to be in effect
beginning with the period in which the first weighted average adjustment date
occurring after the issue date occurs. Adjustments will be made in each accrual
period either increasing or decreasing the amount of ordinary income reportable
to reflect the actual Pass-Through Rate on the Regular Certificates.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market dis-
count rules of Code Sections 1276 through 1278. Under these sections and the
principles applied by the OID Regulations in the context of original issue dis-
count, "market discount" is the amount by which the purchaser's original basis
in the Regular Certificate (i) is exceeded by the then-current principal amount
of the Regular Certificate, or (ii) in the case of a Regular Certificate having
original
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issue discount, is exceeded by the adjusted issue price of such Regular Certif-
icate at the time of purchase. Such purchaser generally will be required to
recognize ordinary income to the extent of accrued market discount on such Reg-
ular Certificate as distributions includible in the stated redemption price at
maturity thereof are received, in an amount not exceeding any such distribu-
tion. Such market discount would accrue in a manner to be provided in Treasury
regulations and should take into account the Prepayment Assumption. The Confer-
ence Committee Report to the 1986 Act provides that until such regulations are
issued, such market discount would accrue either (i) on the basis of a constant
interest rate, or (ii) in the ratio of stated interest allocable to the rele-
vant period to the sum of the interest for such period plus the remaining in-
terest as of the end of such period, or in the case of a Regular Certificate
issued with original issue discount, in the ratio of original issue discount
accrued for the relevant period to the sum of the original issue discount ac-
crued for such period plus the remaining original issue discount as of the end
of such period. 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 re-
ported as ordinary income as partial distributions in reduction of the stated
redemption price at maturity were received. A purchaser will be required to de-
fer deduction of a portion of the excess of the interest paid or accrued on in-
debtedness incurred to purchase or carry a Regular Certificate over the inter-
est distributable thereon. The deferred portion of the interest expense in any
taxable year generally will not exceed the accrued market discount on the Regu-
lar Certificate for such year. Any such deferred interest expense is, in gener-
al, 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 ba-
sis, the Regular Certificateholder may elect to include market discount in in-
come 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 remaining stated redemption price at maturity of such Regular Cer-
tificate multiplied by the weighted average maturity of the Regular Certificate
(determined as described above in the third paragraph under "-- Original Issue
Discount") remaining after the date of purchase. It appears that de minimis
market discount would be reported in a manner similar to de minimis original
issue discount. See "-- Original Issue Discount" above. Treasury regulations
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 mar-
ket discount on the basis of the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining stated
redemption price at maturity generally is considered to be purchased at a pre-
mium. If the Regular Certificateholder holds such Regular Certificate as a
"capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium un-
der the constant yield method. Such election will apply to all debt obligations
acquired by the Regular
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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 Con-
ference Committee Report to the 1986 Act indicates a Congressional intent that
the same rules that apply to the accrual of market discount on installment ob-
ligations will also apply to amortizing bond premium under Code Section 171 on
installment obligations such as the Regular Certificates, although it is un-
clear 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 is-
sued on the holder's acquisition date in the amount of the holder's adjusted
basis immediately after acquisition. It is unclear whether, for this purpose,
the initial Prepayment Assumption would continue to apply or if a new prepay-
ment assumption as of the date of the holder's acquisition would apply. A
holder generally may make such an election on an instrument by instrument basis
or for a class or group of debt instruments. However, if the holder makes this
election with respect to a debt instrument with amortizable bond premium or
with market discount, the holder is deemed to have made elections to amortize
bond premium or to report market discount income currently as it accrues under
the constant yield method, respectively, for all premium bonds held or market
discount bonds acquired by the holder in the same taxable year or thereafter.
The election is made on the holder's federal income tax return for the year in
which the debt instrument is acquired and is irrevocable except with the ap-
proval of the Internal Revenue Service. Investors should consult their own tax
advisors regarding the advisability of making 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 delinquen-
cies on the Mortgage Loans, except to the extent it can be established that
such losses are uncollectible. Accordingly, the holder of a Regular Certifi-
cate, particularly a Subordinated Certificate, may have income, or may incur a
diminution in cash flow as a result of a default or delinquency, but may not be
able to take a deduction (subject to the discussion below) for the correspond-
ing loss until a subsequent taxable year. In this regard, investors are cau-
tioned that while they may generally cease to accrue interest income if it rea-
sonably appears that the interest will be uncollectible, the Internal Revenue
Service may take the position that original issue discount must continue to be
accrued in spite of its uncollectibility until the debt instrument is disposed
of in a taxable transaction or becomes worthless in accordance with the rules
of Code Section 166. Under Code Section 166, it appears that Regular
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Certificateholders that are corporations or that otherwise hold the Regular
Certificates in connection with a trade or business should in general be al-
lowed to deduct as an ordinary loss such loss with respect to principal sus-
tained during the taxable year on account of any such Regular Certificates be-
coming wholly or partially worthless, and that, in general, Regular
Certificateholders that are not corporations and do not hold the Regular Cer-
tificates 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. Al-
though the matter is not free from doubt, such non-corporate Regular
Certificateholders should be allowed a bad debt deduction at the time the prin-
cipal balance of such Regular Certificates is reduced to reflect losses result-
ing 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 Cer-
tificates 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 Reve-
nue Service may take the position that losses attributable to accrued original
issue discount may only be deducted as capital losses in the case of non-corpo-
rate holders who do not hold the Regular Certificates in connection with a
trade or business. Special loss rules are applicable to banks and thrift insti-
tutions, including rules regarding reserves for bad debts. Such taxpayers are
advised to consult their tax advisors regarding the treatment of losses on Reg-
ular Certificates.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate, the
Regular Certificateholder will recognize gain or loss equal to the difference,
if any, between the amount received and its adjusted basis in the Regular Cer-
tificate. The adjusted basis of a Regular Certificate generally will equal the
cost of the Regular Certificate to the seller, increased by any original issue
discount or market discount previously included in the seller's gross income
with respect to the Regular Certificate and reduced by amounts included in the
stated redemption price at maturity of the Regular Certificate that were previ-
ously received by the seller, by any amortized premium and by any recognized
losses.
Except as described above with respect to market discount, and except as pro-
vided in this paragraph, any gain or loss on the sale or exchange of a Regular
Certificate realized by an investor who holds the Regular Certificate as a cap-
ital asset will be capital gain or loss and will be long-term or short-term de-
pending on whether the Regular Certificate has been held for the related capi-
tal 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
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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 ordi-
nary 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 in-
come 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 sub-
ject 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 in-
come and capital gains.
Taxation of Residual Certificates
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable income
of holders of Residual Certificates ("Residual Holders"), and will not be taxed
separately to the REMIC Pool. The daily portions of REMIC taxable income or net
loss of a Residual Holder are determined by allocating the REMIC Pool's taxable
income or net loss for each calendar quarter ratably to each day in such quar-
ter and by allocating such daily portion among the Residual Holders in propor-
tion to their respective holdings of Residual Certificates in the REMIC Pool on
such day. REMIC taxable income is generally determined in the same manner as
the taxable income of an individual using the accrual method of accounting, ex-
cept that (i) the limitations on deductibility of investment interest expense
and expenses for the production of income do not apply, (ii) all bad loans will
be deductible as business bad debts and (iii) the limitation on the deductibil-
ity of interest and expenses related to tax-exempt income will apply. The REMIC
Pool's gross income includes interest, original issue discount income and mar-
ket discount income, if any, on the Mortgage Loans, reduced by amortization of
any premium on the Mortgage Loans, plus income from amortization of issue pre-
mium, if any, on the Regular Certificates, plus income on reinvestment of cash
flows and reserve assets, plus any cancellation of indebtedness income upon al-
location of realized losses to the Regular Certificates. The REMIC Pool's de-
ductions include interest and original issue discount expense on the Regular
Certificates, servicing fees on the Mortgage Loans, other administrative ex-
penses of the REMIC Pool and realized losses on the Mortgage Loans. The re-
quirement that Residual Holders report their pro rata share of taxable income
or net loss of the REMIC Pool will continue until there are no Certificates of
any class of the related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market discount income
or amortization of premium with respect to the Mortgage Loans, on the one hand,
and the timing of deductions for interest (including original issue discount)
or income from amortization of issue premium on the Regular Certificates, on
the other hand. In the event that an interest in the Mortgage Loans is acquired
by the REMIC Pool at a discount, and one or more of such Mortgage Loans is pre-
paid, the Residual Holder may recognize
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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 distribu-
tions in reduction of principal on the Regular Certificates and (ii) the dis-
count on the Mortgage Loans which is includible in income may exceed the deduc-
tion allowed upon such distributions on those Regular Certificates on account
of any unaccrued original issue discount relating to those Regular Certifi-
cates. When there is more than one Class of Regular Certificates that distrib-
ute principal sequentially, this mismatching of income and deductions is par-
ticularly likely to occur in the early years following issuance of the Regular
Certificates when distributions in reduction of principal are being made in re-
spect of earlier Classes of Regular Certificates to the extent that such Clas-
ses are not issued with substantial discount or are issued at a premium. If
taxable income attributable to such a mismatching is realized, in general,
losses would be allowed in later years as distributions on the later maturing
Classes of Regular Certificates are made. Taxable income may also be greater in
earlier years than in later years as a result of the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of
such a Series of Regular Certificates, may increase over time as distributions
in reduction of principal are made on the lower yielding Classes of Regular
Certificates, whereas, to the extent the REMIC Pool consists of fixed-rate
Mortgage Loans, interest income with respect to any given Mortgage Loan will
remain constant over time as a percentage of the outstanding principal amount
of that loan. Consequently, Residual Holders must have sufficient other sources
of cash to pay any federal, state, or local income taxes due as a result of
such mismatching or unrelated deductions against which to offset such income,
subject to the discussion of "excess inclusions" below under "-- Limitations on
Offset or Exemption of REMIC Income." The timing of such mismatching of income
and deductions described in this paragraph, if present with respect to a Series
of Certificates, may have a significant adverse effect upon a Residual Holder's
after-tax rate of return. In addition, a Residual Holder's taxable income dur-
ing certain periods may exceed the income reflected by such Residual Holder for
such periods in accordance with generally accepted accounting principles. In-
vestors should consult their own accountants concerning the accounting treat-
ment of their investment in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual Certif-
icate as of the close of the quarter (or time of disposition of the Residual
Certificate if earlier), determined without taking into account the net loss
for the quarter. The initial adjusted basis of a purchaser of a Residual Cer-
tificate is the amount paid for such Residual Certificate. Such adjusted basis
will be increased by the amount of taxable income of the REMIC Pool reportable
by the Residual Holder and will be decreased (but not below zero), first, by a
cash distribution from the REMIC Pool and, second, by 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 Re-
sidual 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 re-
lated REMIC Pool. However, that taxable income will not include cash received
by the REMIC Pool that represents a recovery of the REMIC Pool's basis in its
assets. This recovery of basis by the REMIC Pool will have the effect of amor-
tization of the issue price of the Residual Certificates over their life. How-
ever, in
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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 is-
sue 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 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 Re-
sidual 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 Mort-
gage Loans to the REMIC Pool and "-- Sale or Exchange of a Residual Certifi-
cate" below regarding possible treatment of a loss upon termination of the
REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Seller intends to compute REMIC income and expense in accordance
with the Code and applicable regulations, the authorities regarding the deter-
mination of specific items of income and expense are subject to differing in-
terpretations. The Seller makes no representation as to the specific method
that the Trustee will use for reporting income with respect to the Mortgage
Loans and expenses with respect to the Regular Certificates and different meth-
ods 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 Cer-
tificates -- Market Discount."
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Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans ex-
ceeds 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 ex-
cess. As stated above, the REMIC Pool's basis in Mortgage Loans is the fair
market value of the Mortgage Loans, based on the aggregate of the issue prices
of the regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "-- Taxation of Regular Certificates -- Premium," a person that
holds a Mortgage Loan as a capital asset under Code Section 1221 may elect un-
der Code Section 171 to amortize premium on Mortgage Loans originated after
September 27, 1985 under the constant yield method. Amortizable bond premium
will be treated as an offset to interest income on the Mortgage Loans, rather
than as a separate deduction item. Because substantially all of the mortgagors
on the Mortgage Loans are expected to be individuals, Code Section 171 will not
be available for premium on Mortgage Loans originated on or prior to September
27, 1985. Premium with respect to such Mortgage Loans may be deductible in ac-
cordance with a reasonable method regularly employed by the holder thereof. The
allocation of such premium pro rata among principal payments should be consid-
ered a reasonable method; however, the Internal Revenue Service may argue that
such premium should be allocated in a different manner, such as allocating such
premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion (or all) of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Holder will be subject to special
treatment. That portion, referred to as the "excess inclusion," is equal to the
excess of REMIC taxable income for the calendar quarter allocable to a Residual
Certificate over the daily accruals for such quarterly period of (i) 120% of
the long-term applicable federal rate that would have applied to the Residual
Certificate (if it were a debt instrument) on the Startup Day under Code Sec-
tion 1274(d), multiplied by (ii) the adjusted issue price of such Residual Cer-
tificate at the beginning of such quarterly period. For this purpose, the ad-
justed issue price of a Residual Certificate at the beginning of a quarter is
the issue price of the Residual Certificate, plus the amount of such daily
accruals of REMIC income described in this paragraph for all prior quarters,
decreased by any distributions made with respect to such Residual Certificate
prior to the beginning of such quarterly period. Accordingly, the portion of
the REMIC Pool's taxable income that will be treated as excess inclusions will
be a larger portion of such income as the adjusted issue price of the Residual
Certificates diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of the ex-
cess inclusions generally may not be offset by other deductions, including net
operating loss carryforwards, on such Residual Holder's return. However, net
operating loss carryovers are determined without regard to excess inclusion in-
come. Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the Residual Holder's
excess inclusions will be treated as unrelated business taxable income of such
Residual Holder for purposes of Code Section 511. In addition, REMIC taxable
income is subject to 30% withholding tax with respect to certain persons who
are not U.S. Persons (as defined below under "-- Tax-Related Restrictions on
Transfer of Residual Certificates -- Foreign Investors"), and the portion
thereof attributable to excess inclusions is not eligible for any reduction in
the rate of withholding tax (by treaty or otherwise). See "-- Taxation of Cer-
tain Foreign Investors -- Residual Certificates" below. Finally, if a real es-
tate investment trust or a regulated investment company owns a Residual Certif-
icate, a portion (allocated under Treasury regulations yet to be issued) of
dividends
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paid by the real estate investment trust or regulated investment company could
not be offset by net operating losses of its shareholders, would constitute un-
related business taxable income for tax-exempt shareholders, and would be inel-
igible for reduction of withholding to certain persons who are not U.S. Per-
sons. The SBJPA of 1996 has eliminated the special rule permitting Section 593
institutions ("thrift institutions") to use net operating losses and other al-
lowable deductions to offset their excess inclusion income from Residual Cer-
tificates that have "significant value" within the meaning of the REMIC Regula-
tions, effective for taxable years beginning after December 31, 1995, except
with respect to Residual Certificates continuously held by a thrift institution
since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the ef-
fect of excess inclusions on the alternative minimum taxable income of a Resid-
ual Holder. First, alternative minimum taxable income for a Residual Holder is
determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Holder's al-
ternative minimum taxable income for a taxable year cannot be less than the ex-
cess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess in-
clusions. These rules are effective for taxable years beginning after December
31, 1986, unless a Residual Holder elects to have such rules apply only to tax-
able years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a Residual
Certificate is transferred to a Disqualified Organization (as defined below), a
tax would be imposed in an amount equal to the product of (i) the present value
of the total anticipated excess inclusions with respect to such Residual Cer-
tificate for periods after the transfer and (ii) the highest marginal federal
income tax rate applicable to corporations. The REMIC Regulations provide that
the anticipated excess inclusions are based on actual prepayment experience to
the date of the transfer and projected payments based on the Prepayment Assump-
tion. The present value rate equals the applicable federal rate under Code Sec-
tion 1274(d) as of the date of the transfer for a term ending with the last
calendar quarter in which excess inclusions are expected to accrue. Such rate
is applied to the anticipated excess inclusions from the end of the remaining
calendar quarters in which they arise to the date of the transfer. Such a tax
generally would be imposed on the transferor of the Residual Certificate, ex-
cept that where such transfer is through an agent (including a broker, nominee
or other middleman) for a Disqualified Organization, the tax would instead be
imposed on such agent. However, a transferor of a Residual Certificate would in
no event be liable for such tax with respect to a transfer if the transferee
furnishes to the transferor an affidavit stating that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may
be waived by the Internal Revenue Service if the Disqualified Organization
promptly disposes of the 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 inclu-
sion income with respect to a Residual Certificate during a taxable year and a
Disqualified Organization is the record holder of an equity interest in such
entity, then a tax is imposed on such entity equal to the product of (i) the
amount of excess inclusions that are allocable to the interest in the Pass-
Through Entity during the period such interest is held by such Disqualified Or-
ganization, and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the
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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 af-
fidavit 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 pur-
poses 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 en-
tity 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 inter-
national organization, any agency or instrumentality of any of the foregoing
(provided, that such term does not include an instrumentality if all of its ac-
tivities are subject to tax and a majority of its board of directors is not se-
lected by any such governmental entity), any cooperative organization furnish-
ing electric energy or providing telephone service to persons in rural areas as
described in Code Section 1381(a)(2)(C), and any organization (other than a
farmers' cooperative described in Code Section 521) that is exempt from taxa-
tion under the Code unless such organization is subject to the tax on unrelated
business income imposed by Code Section 511, (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 co-
operative 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 mem-
bers 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 trans-
ferred or registered unless (i) the proposed transferee furnishes to the Seller
and the Trustee an affidavit providing its taxpayer identification number and
stating that such transferee is the beneficial owner of the Residual Certifi-
cate and is not a Disqualified Organization and is not purchasing such Residual
Certificate on behalf of a Disqualified Organization (i.e., as a broker, nomi-
nee or middleman thereof) and (ii) the transferor provides a statement in writ-
ing to the Seller and the Trustee that it has no actual knowledge that such af-
fidavit is false. Moreover, the Pooling and Servicing Agreement will provide
that any attempted or purported transfer in violation of these transfer re-
strictions will be null and void and will vest no rights in any purported
transferee. Each Residual Certificate with respect to a Series will bear a leg-
end referring to such restrictions on transfer, and each Residual Holder will
be deemed to have agreed, as a condition of ownership thereof, to any amend-
ments to the related Pooling and Servicing Agreement required under the Code or
applicable Treasury regulations to effectuate the foregoing restrictions. In-
formation necessary to compute an applicable excise tax must be furnished to
the Internal Revenue Service and to the requesting party within 60 days of the
request, and the Seller or the Trustee may charge a fee for computing and pro-
viding such information.
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Noneconomic Residual Interests. The REMIC Regulations would disregard certain
transfers of Residual Certificates, in which case the transferor would continue
to be treated as the owner of the Residual Certificates and thus would continue
to be subject to tax on its allocable portion of the net income of the REMIC
Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual inter-
est" (as defined below) to a Residual Holder (other than a Residual Holder who
is not a U.S. Person, as defined below under "-- Foreign Investors") is disre-
garded for all federal income tax purposes if a significant purpose of the
transferor is to impede the assessment or collection of tax. A residual inter-
est in a REMIC (including a residual interest with a positive value at issu-
ance) is a "noneconomic residual interest" unless, at the time of the transfer,
(i) the present value of the expected future distributions on the residual in-
terest at least equals the product of the present value of the anticipated ex-
cess 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 antici-
pated excess inclusions and the present value rate are determined in the same
manner as set forth above under "-- Disqualified Organizations." The REMIC Reg-
ulations explain that a significant purpose to impede the assessment or collec-
tion 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 rea-
sonable 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 repre-
sents to the transferor that it understands that, as the holder of the non-eco-
nomic 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, recently proposed Treasury regulations would add a
third condition for the transferor to be presumed to lack such knowledge. The
third condition would require that the present value of the anticipated tax li-
abilities associated with holding the noneconomic residual interest not exceed
the sum of:
(i) the present value of any consideration given to the transferee to ac-
quire the interest;
(ii) the present value of the expected future distributions on the inter-
est; 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 un-
related third parties. In some situa-
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tions, to satisfy this third condition, the transferor of a noneconomic resid-
ual 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 Re-
sidual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person' (as defined below), unless
such transferee's income is effectively connected with the conduct of a trade
or business within the United States. A Residual Certificate is deemed to have
tax avoidance potential unless, at the time of the transfer, (i) the future
value of expected distributions equals at least 30% of the anticipated excess
inclusions after the transfer, and (ii) the transferor reasonably expects that
the transferee will receive sufficient distributions from the REMIC Pool at or
after the time at which the excess inclusions accrue and prior to the end of
the next succeeding taxable year for the accumulated withholding tax liability
to be paid. If the non-U.S. Person transfers the Residual Certificate back to a
U.S. Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The prospectus supplement relating to the Certificates of a Series may pro-
vide that a Residual Certificate may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and restric-
tions pursuant to which such a transfer may be made. The term "U.S. Person"
means a citizen or resident of the United States, a corporation 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 es-
tate whose income is subject to U.S. federal income tax regardless of its
source, or a trust if a court within the United States is able to exercise pri-
mary supervision over the administration of such trust, and one or more such
U.S. Persons have the authority to control all substantial decisions of such
trust (or, to the extent provided in 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 Re-
sidual 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 Cer-
tificate. 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.
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Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion transac-
tion" as defined in Code Section 1258(c), up to the amount of interest that
would have accrued on the Residual Certificateholder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as a part of such transaction or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. In addition, gain or loss recognized from the sale of a
Residual Certificate 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 pro-
vided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months be-
fore the sale or disposition of the Residual Certificate and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any residual interest in
any REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC
owner trust) that is economically comparable to a Residual Certificate.
Mark to Market Regulations
The Internal Revenue Service has issued final regulations (the "Mark to Mar-
ket Regulations") under Code Section 475 relating to the requirement that a se-
curities 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 ex-
tent that the dealer has specifically identified a security as held for invest-
ment. The Mark to Market Regulations provide that, for purposes of this mark to
market requirement, a Residual Certificate is not treated as a security and
thus may not be marked to market. The Mark to Market Regulations apply to all
Residual Certificates acquired on or after January 4, 1995.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited trans-
actions, will not be part of the calculation of income or loss includible in
the federal income tax returns of Residual Holders, but rather will be taxed
directly to the REMIC Pool at a 100% rate. Prohibited transactions generally
include (i) the disposition of a qualified mortgage other than for (a) substi-
tution within two years of the Startup Day for a defective (including a de-
faulted) obligation (or repurchase in lieu of substitution of a defective (in-
cluding a defaulted) obligation at any time) or for any qualified mortgage
within three months of the Startup Day, (b) foreclosure, default, or imminent
default of a qualified mortgage, (c) bankruptcy or insolvency of the REMIC
Pool, or (d) a qualified (complete) liquidation, (ii) the receipt of income
from assets that are not the type of mortgages or investments that the REMIC
Pool is permitted to hold, (iii) the receipt of compensation for services, or
(iv) the receipt of gain from disposition of cash flow investments other than
pursuant to a qualified liquidation. Notwithstanding (i) and (iv), it is not a
prohibited transaction to sell REMIC Pool property to prevent a default on Reg-
ular Certificates as a result of a default on qualified mortgages or to facili-
tate a clean-up call (generally, an optional termination to save
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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 occa-
sioned 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 con-
vertible adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day. Ex-
ceptions are provided for cash contributions to the REMIC Pool (i) during the
three months following the Startup Day, (ii) made to a qualified reserve fund
by a Residual Holder, (iii) in the nature of a guarantee, (iv) made to facili-
tate a qualified liquidation or clean-up call, and (v) as otherwise permitted
in Treasury regulations yet to be issued. It is not anticipated that there will
be any contributions to the REMIC Pool after the Startup Day.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest corporate
rate on "net income from foreclosure property," determined by reference to the
rules applicable to real estate investment trusts. Generally, property acquired
by deed in lieu of foreclosure would be treated as "foreclosure property" for a
period 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 in-
come from foreclosure property generally means gain from the sale of a foreclo-
sure property that is inventory property and gross income from foreclosure
property other than qualifying rents and other qualifying income for a real es-
tate investment trust. It is not anticipated that the REMIC Pool will have any
taxable net income from foreclosure property.
Liquidation of the REMIC Pool
If a REMIC Pool adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC Pool's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC Pool will not be subject to the prohibited transaction
rules on the sale of its assets, provided that the REMIC Pool credits or dis-
tributes in liquidation all of the sale proceeds plus its cash (other than
amounts retained to meet claims) to holders of Regular Certificates and Resid-
ual Holders within the 90-day period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar year ba-
sis and to file federal income tax returns for federal income tax purposes in a
manner similar to a partnership. The form for such income tax return is Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign the REMIC Pool's returns. Treasury regulations
provide that, except where there is a single Residual Holder for an entire tax-
able year, the REMIC Pool will be subject to the procedural and administrative
rules of the Code applicable to partnerships, including the determination by
the Internal Revenue Service of any adjustments to, among other things, items
of REMIC income, gain, loss, deduction, or credit in a unified administrative
proceeding. The Master Servicer will be obligated to act as "tax matters per-
son," as defined in applicable Treasury regulations, with respect to the REMIC
Pool, in its capacity as either Residual Holder or agent of the Residual Hold-
ers. If the Code or applicable Treasury
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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 regu-
lations will be required to act as tax matters person.
Limitations on Deduction of Certain Expenses
An investor who is an individual, estate, or trust will be subject to limita-
tion with respect to certain itemized deductions described in Code Section 67,
to the extent that such itemized 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 individ-
ual 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) (subject to adjustment for inflation for
each year thereafter), or (ii) 80% of the amount of itemized deductions other-
wise 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 admin-
istrative and other expenses relating to the REMIC Pool, or any similar ex-
penses allocated to the REMIC Pool with respect to a regular interest it holds
in another REMIC. Such investors who hold REMIC Certificates either directly or
indirectly through certain pass-through entities may have their pro rata share
of such expenses allocated to them as additional gross income, but may be sub-
ject to such limitation on deductions. In addition, such expenses are not de-
ductible at all for purposes of computing the alternative minimum tax, and may
cause such investors to be subject to significant additional tax liability.
Temporary Treasury regulations provide that the additional gross income and
corresponding amount of expenses generally are to be allocated entirely to the
holders of Residual Certificates in the case of a REMIC Pool that would not
qualify as a fixed investment trust in the absence of a REMIC election. Howev-
er, such additional gross income and limitation on deductions will apply to the
allocable portion of such expenses to holders of Regular Certificates, as well
as holders of Residual Certificates, where such Regular Certificates are issued
in a manner that is similar to pass-through certificates in a fixed investment
trust. Unless indicated otherwise in the applicable prospectus supplement, all
such expenses will be allocable to the Residual Certificates. In general, such
allocable portion will be determined based on the ratio that a REMIC
Certificateholder's income, determined on a daily basis, bears to the income of
all holders of Regular Certificates and Residual Certificates with respect to a
REMIC Pool. As a result, individuals, estates or trusts holding REMIC Certifi-
cates (either directly or indirectly through a grantor trust, partnership, S
corporation, REMIC or certain other pass-through entities described in the
foregoing temporary Treasury regulations) may have taxable income in excess of
the interest income at the pass-through rate on Regular Certificates that are
issued in a single class or otherwise consistently with fixed investment trust
status or in excess of cash distributions for the related period on Residual
Certificates.
Taxation of Certain Foreign Investors
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign corpo-
ration described in Code Section 881(c)(3)(C) and (ii) provides the Trustee, or
the person who would otherwise be re-
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quired 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 inter-
est on the Regular Certificate is effectively connected with the conduct of a
trade or business within the United States by such Non-U.S. Person. In the lat-
ter case, such Non-U.S. Person will be subject to United States federal income
tax at regular rates. Investors who are Non-U.S. Persons should consult their
own tax advisors regarding the specific tax consequences to them of owning a
Regular Certificate. The term "Non-U.S. Person" means any person who is not a
U.S. Person.
The IRS recently issued final regulations (the "New Regulations") which would
provide alternative methods of satisfying the beneficial ownership certifica-
tion requirement described above. The New Regulations will be effective January
1, 2001. Current withholding certificates will remain valid until the earlier
of December 31, 2000 or the date of expiration of the certificate under the
rules as currently in effect. The New Regulations would require, in the case of
Regular Certificates held by a foreign partnership, that (x) the certification
described above be provided by the partners rather than by the foreign partner-
ship 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 ad-
visors 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 in-
terest 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 "reg-
istered 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, consid-
ered 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) un-
der rules similar to withholding upon disposition of debt instruments that have
original issue discount. See "-- Taxation of Residual Certificates -- Tax-Re-
lated Restrictions on Transfer of Residual Certificates -- Foreign Investors"
above concerning the disregard of certain transfers having "tax avoidance po-
tential." Investors who are Non-U.S. Persons should consult their own tax advi-
sors regarding the specific tax consequences to them of owning Residual Certif-
icates.
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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 pay-
ments" (including interest distributions, original issue discount, and, under
certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification proce-
dures, including the provision of its taxpayer identification number to the
Trustee, its agent or the broker who effected the sale of the Regular Certifi-
cate, or such Certificateholder is otherwise an exempt recipient under applica-
ble provisions of the Code. Any amounts to be withheld from distribution on the
Regular Certificates would be refunded by the Internal Revenue Service or al-
lowed as a credit against the Regular Certificateholder's federal income tax
liability. The New Regulations change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding. Non-U.S. Persons are urged to contact their own tax advisors re-
garding the application to them of backup withholding and information report-
ing.
Reporting Requirements
Reports of accrued interest, original issue discount and information neces-
sary to compute the accrual of market discount will be made annually to the In-
ternal Revenue Service and to individuals, estates, non-exempt and non-charita-
ble trusts, and partnerships who are either holders of record of Regular Cer-
tificates 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 tax-
payers, securities or commodities dealers, real estate investment trusts, in-
vestment companies, common trust funds, thrift institutions and charitable
trusts) may request such information for any calendar quarter by telephone or
in writing by contacting the person designated in Internal Revenue Service Pub-
lication 938 with respect to a particular Series of Regular Certificates. Hold-
ers through nominees must request such information from the nominee.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Holder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under pro-
posed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing requirements,
information must be furnished quarterly to Residual Holders, furnished annual-
ly, if applicable, to holders of Regular Certificates, and filed annually with
the Internal Revenue Service concerning Code Section 67 expenses (see "Limita-
tions on Deduction of Certain Expenses" above) allocable to such holders. Fur-
thermore, 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 segre-
gated 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 Re-
tained Yield with respect to the Mortgage Loans underlying the Certificates of
a Series, and where such Certificates are not designated as "Stripped Certifi-
cates," 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 consid-
ered the beneficial owner of a pro rata undivided interest in each of the Mort-
gage Loans, subject to the discussion below under "-- Recharacterization of
Servicing Fees." Accordingly, the holder of a Certificate of a particular Se-
ries 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 Certifi-
cate, 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 ad-
justed 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 Certifi-
cates, directly or indirectly through a pass-through entity, may have aggregate
taxable income in excess of the aggregate amount of cash received on such Cer-
tificates with respect to interest at the pass-through rate or as discount in-
come on such Certificates. In addition, such expenses are not deductible at all
for purposes of computing the alternative minimum tax, and may cause such in-
vestors to be subject to significant additional tax liability. Moreover, where
there is Fixed Retained Yield with respect to the Mortgage Loans underlying a
Series of Certificates or where the servicing fees are in excess of reasonable
servicing compensation, the transaction will be subject to the application of
the "stripped bond" and "stripped coupon" rules of the Code, as described below
under "-- Stripped Certificates" and "-- Recharacterization of Servicing Fees,"
respectively.
Tax Status
In the opinion of Cadwalader, Wickersham & Taft, except as described below
with respect to Stripped Certificates:
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1. 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 "obli-
gation (including any participation or certificate of beneficial ownership
therein) which is principally secured by an interest in real property" within
the meaning of Code Section 860G(a)(3)(A) to the extent that the assets of the
related Trust Estate consist of "qualified mortgages" within the meaning of
Code Section 860G(a)(3).
4. A Certificate owned by a "financial asset securitization investment trust"
within the meaning of Code Section 860L(c) will be considered to represent
"permitted assets" within the meaning of Code Section 860L(c) to the extent
that the assets of the Trust Estate consist of "debt instruments" or other
permitted assets within the meaning of Code Section 860L(c).
An issue arises as to whether Buy-Down Loans may be characterized in their
entirety under the Code provisions cited in clauses 1 and 2 of the immediately
preceding paragraph. There is indirect authority supporting treatment of an
investment in a Buy-Down Loan as entirely secured by real property if the fair
market value of the real property securing the loan exceeds the principal amount
of the loan at the time of issuance or acquisition, as the case may be. There is
no assurance that the treatment described above is proper. Accordingly,
Certificateholders are urged to consult their own tax advisors concerning the
effects of such arrangements on the characterization of such Certificateholder's
investment for federal income tax purposes.
Premium and Discount
Certificateholders are advised to consult with their tax advisors as to the
federal income tax treatment of premium and discount arising either upon initial
acquisition of Certificates or thereafter.
Premium
The treatment of premium incurred upon the purchase of a Certificate will be
determined generally as described above under "-- Federal Income Tax
Consequences for REMIC Certificates -- Taxation of Residual Certificates --
Treatment of Certain Items of REMIC Income and Expense -- Premium."
Original Issue Discount
The original issue discount rules of Code Sections 1271 through 1275 will be
applicable to a Certificateholder's interest in those Mortgage Loans as to which
the conditions for the application of those sections are met. Rules regarding
periodic inclusion of original issue discount income are applicable to mortgages
of corporations originated after May 27, 1969, mortgages of noncorporate
mortgagors (other than individuals) originated after July 1, 1982, and mortgages
of individuals originated after March 2, 1984. Under the OID Regulations, such
original issue discount could arise by the charging of points by the originator
of the mortgages in an amount greater than the
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statutory de minimis exception, including a payment of points that is currently
deductible by the borrower under applicable Code provisions or, under certain
circumstances, by the presence of "teaser" rates on the Mortgage Loans. See "--
Stripped Certificates" below regarding original issue discount on Stripped
Certificates.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the com-
pounding of interest, in advance of the cash attributable to such income. Un-
less indicated otherwise in the applicable prospectus supplement, no prepayment
assumption will be assumed for purposes of such accrual. However, Code Section
1272 provides for a reduction in the amount of original issue discount includ-
ible in the income of a holder of an obligation that acquires the obligation
after its initial issuance at a price greater than the sum of the original is-
sue price and the previously accrued original issue discount, less prior pay-
ments of principal. Accordingly, if such Mortgage Loans acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Loans, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Loans (i.e., points) will be includible by such holder.
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 ordi-
nary income generally in the manner described above under "Federal Income Tax
Consequences for REMIC Certificates -- Taxation of Regular Certificates -- Mar-
ket 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 as-
sumption will be assumed for purposes of such accrual.
Recharacterization of Servicing Fees
If the servicing fees paid to a Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would represent neither in-
come nor a deduction to Certificateholders. In this regard, there are no au-
thoritative guidelines for federal income tax purposes as to either the maximum
amount of servicing compensation that may be considered reasonable in the con-
text of this or similar transactions or whether, in the case of the Certifi-
cate, the reasonableness of servicing compensation should be determined on a
weighted average or loan-by-loan basis. If a loan-by-loan basis is appropriate,
the likelihood that such amount would exceed reasonable servicing compensation
as to some of the Mortgage Loans would be increased. Recently issued Internal
Revenue Service guidance indicates that a servicing fee in excess of reasonable
compensation ("excess servicing") will cause the Mortgage Loans to be treated
under the "stripped bond" rules. Such guidance provides safe harbors for ser-
vicing deemed to be reasonable and requires taxpayers to demonstrate that the
value of servicing fees in excess of such amounts is not greater than the value
of the services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a Servicer
who receives a servicing fee in excess of such amounts would be viewed as re-
taining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of owner-
ship of the right to receive some or all of the interest payments on an obliga-
tion from the right to receive some or all of the principal payments on the ob-
ligation would
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result in treatment of such Mortgage Loans as "stripped coupons" and "stripped
bonds." Subject to the de minimis rule discussed below under "-- Stripped Cer-
tificates," 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 regu-
lations treat such an arrangement as a fixed investment trust, since the multi-
ple classes of trust interests should be treated as merely facilitating direct
investments in the trust assets and the existence of multiple classes of owner-
ship interests is incidental to that purpose. In general, such a
recharacterization should not have any significant effect upon the timing or
amount of income reported by a Certificateholder, except that the income re-
ported by a cash method holder may be slightly accelerated. See "Stripped Cer-
tificates" below for a further description of the federal income tax treatment
of stripped bonds and stripped coupons.
Sale or Exchange of Certificates
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale
and its aggregate adjusted basis in the Mortgage Loans and other assets repre-
sented by the Certificate. In general, the aggregate adjusted basis will equal
the Certificateholder's cost for the Certificate, increased by the amount of
any income previously reported with respect to the Certificate and decreased by
the amount of any losses previously reported with respect to the Certificate
and the amount of any distributions received thereon. Except as provided above
with respect to market discount on any Mortgage Loans, and except for certain
financial institutions subject to the provisions of Code Section 582(c), 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 "conver-
sion transaction" as defined in Code Section 1258(c), up to the amount of in-
terest that would have accrued on the Certificateholder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as a part of such transaction or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. Capital gains of certain noncorporate taxpayers gener-
ally 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 cap-
ital 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."
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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 reason-
able consideration for servicing the Mortgage Loans (see "-- Recharacterization
of Servicing Fees" above), and (iii) a Class of Certificates are issued in two
or more Classes or Subclasses representing the right to non-pro-rata percent-
ages of the interest and principal payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with respect
to its pro rata share of all or a portion of the interest payments on each
Mortgage Loan, including the Stripped Certificate's allocable share of the ser-
vicing fees paid to a Servicer, to the extent that such fees represent reason-
able compensation for services rendered. See the discussion above under "--
Recharacterization of Servicing Fees." Although not free from doubt, for pur-
poses of reporting to Stripped Certificateholders, the servicing fees will be
allocated to the Stripped Certificates in proportion to the respective entitle-
ments to distributions of each Class (or Subclass) of Stripped Certificates for
the related period or periods. The holder of a Stripped Certificate generally
will be entitled to a deduction each year in respect of the servicing fees, as
described above under "-- General," subject to the limitation described there-
in.
Code Section 1286 treats a stripped bond or a stripped coupon generally as an
obligation issued at an original issue discount on the date that such stripped
interest is purchased. Although the treatment of Stripped Certificates for fed-
eral income tax purposes is not clear in certain respects at this time, partic-
ularly where such Stripped Certificates are issued with respect to a Mortgage
Pool containing variable-rate Mortgage Loans, in the opinion of Cadwalader,
Wickersham & Taft, (i) the Trust Estate will be treated as a grantor trust un-
der 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 dis-
count and gain or loss on disposition. This treatment is based on the interre-
lationship 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 "-- Taxa-
tion of Stripped Certificates-- Possible Alternative Characterizations," the
OID Regulations state, in general, that two or more debt instruments issued by
a single issuer to a single investor in a single transaction should be treated
as a single debt instrument. Accordingly, for OID purposes, all payments on any
Stripped Certificates should be aggregated and treated as though they were made
on a single debt instrument. The Pooling and Servicing Agreement will require
that the Trustee make and report all computations described below using this
aggregate approach, unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for treat-
ment of a Stripped Certificate as a single debt instrument issued on the date
it is purchased for purposes of calculating any original issue discount. In ad-
dition, under these regulations, a Stripped Certificate that represents a right
to payments of both interest and principal may be viewed either as issued with
original issue discount or market discount (as described below), at a de
minimis original issue discount, or, presumably, at a premium. This treatment
indicates that the interest component
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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 pur-
chaser of such a Stripped Certificate will be required to account for any dis-
count 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 mar-
ket discount would be reportable as described above under "Federal Income Tax
Consequences for REMIC Certificates -- Taxation of Regular Certificates -- Mar-
ket 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 appli-
cable 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 dis-
count) income attributable to Stripped Certificates should be considered to
represent "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B), provided that in each case the
Mortgage Loans and interest on such Mortgage Loans qualify for such treatment.
The application of such Code provisions to Buy-Down Loans is uncertain. See "--
Tax Status" above.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "-- General," each
Stripped Certificate will be considered to have been issued at an original is-
sue discount for federal income tax purposes. Original issue discount with re-
spect to a Stripped Certificate must be included in ordinary income as it ac-
crues, in accordance with a constant interest method that takes into account
the compounding of interest, which may be prior to the receipt of the cash at-
tributable to 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 in-
come of a holder of a Stripped Certificate (referred to in this discussion as a
"Stripped Certificateholder") in any taxable year likely will be computed gen-
erally 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 excep-
tion 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 redemp-
tion 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 un-
der the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either
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accelerated or decelerated and the amount of such original issue discount will
be either increased or decreased depending on the relative interests in princi-
pal 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 recog-
nize a loss (which may be a capital loss) equal to such portion of unrecover-
able basis.
As an alternative to the method described above, the fact that some or all of
the interest payments with respect to the Stripped Certificates will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID Regula-
tions. The OID Regulations, as they relate to the treatment of contingent in-
terest, are by their terms not applicable to prepayable securities such as the
Stripped Certificates. However, if final regulations dealing with contingent
interest with respect to the Stripped Certificates apply the same principles as
the OID Regulations, such regulations may lead to different timing of income
inclusion than would be the case under the OID Regulations for non-contingent
debt instruments. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Stripped Certifi-
cates as ordinary income. Investors should consult their tax advisors regarding
the appropriate tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the dif-
ference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "-- Federal Income Tax Consequences for REMIC Certificates -- Taxa-
tion of Regular Certificates -- Sale or Exchange of Regular Certificates." To
the extent that a subsequent purchaser's purchase price is exceeded by the re-
maining payments on the Stripped Certificates, such subsequent purchaser will
be required for federal income tax purposes to accrue and report such excess as
if it were original issue discount in the manner described above. It is not
clear for this purpose whether the assumed prepayment rate that is to be used
in the case of a Stripped Certificateholder other than an original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on
the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. When an investor
purchases more than one Class of Stripped Certificates, it is currently unclear
whether for federal income tax purposes such Classes of Stripped Certificates
should be treated separately or aggregated for purposes of the rules described
above.
Possible Alternative Characterizations. The characterizations of the Stripped
Certificates discussed above are not the only possible interpretations of the
applicable Code provisions. For example, the Stripped Certificateholder may be
treated as the owner of (i) one installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to principal
on each Mortgage Loan and a second installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to interest
on each Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there
are scheduled payments of principal and/or interest on each Mortgage Loan, or
(iii) a separate installment obligation for each Mortgage Loan, representing
the Stripped Certificate's pro rata share of payments of principal and/or in-
terest to be made with respect thereto. Alternatively, the holder of one or
more Classes of Stripped Certificates may be treated as the owner of a pro rata
fractional undivided interest in each Mortgage Loan to the
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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 interpreta-
tions less likely to be applicable. The preamble to those regulations states
that they are premised on the assumption that an aggregation approach is appro-
priate for determining whether original issue discount on a stripped bond or
stripped coupon is de minimis, and solicits comments on appropriate rules for
aggregating stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped Certificates
and the resultant differing treatment of income recognition, Stripped
Certificateholders are urged to consult their own tax advisors regarding the
proper treatment of Stripped Certificates for federal income tax purposes.
Reporting Requirements and Backup Withholding
The Master Servicer will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as is necessary to enable such Certificateholders to prepare their fed-
eral income tax returns. Such information will include the amount of original
issue discount accrued on Certificates held by persons other than
Certificateholders exempted from the reporting requirements. The amount re-
quired to be reported by the Master Servicer may not be equal to the proper
amount of original issue discount required to be reported as taxable income by
a Certificateholder, other than an original Certificateholder that purchased at
the issue price. In particular, in the case of Stripped Certificates, unless
provided otherwise in the applicable prospectus supplement, such reporting will
be based upon a representative initial offering price of each Class of Stripped
Certificates. The Master Servicer will also file such original issue discount
information with the Internal Revenue Service. If a Certificateholder fails to
supply an accurate taxpayer identification number or if the Secretary of the
Treasury determines that a Certificateholder has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "-- Federal Income Tax Consequences for REMIC Certifi-
cates -- Backup Withholding."
Taxation of Certain Foreign Investors
To the extent that a Certificate evidences ownership in Mortgage Loans that
are issued on or before July 18, 1984, interest or original issue discount paid
by the person required to withhold tax under Code Section 1441 or 1442 to Non-
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 owner-
ship 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 In-
come Tax Consequences for REMIC Certificates -- Taxation of Certain Foreign In-
vestors --Regular Certificates."
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ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on those employee benefit plans to which it ap-
plies ("Plans") and on those persons who are fiduciaries with respect to such
Plans. The following is a general discussion of such requirements, and certain
applicable exceptions to and administrative exemptions from such requirements.
For purposes of this discussion, a person investing on behalf of an individual
retirement account established under Code Section 408 (an "IRA") is regarded as
a fiduciary and the IRA as a Plan.
Before purchasing any Certificates, a Plan fiduciary should consult with its
counsel and determine whether there exists any prohibition to such purchase un-
der the requirements of ERISA, whether prohibited transaction exemptions such
as PTE 83-1 or any individual administrative exemption (as described below) ap-
plies, including whether the appropriate conditions set forth therein would be
met, or whether any statutory prohibited transaction exemption is applicable,
and further should consult the applicable prospectus supplement relating to
such Series of Certificates.
Certain Requirements Under ERISA
General
In accordance with ERISA's general fiduciary standards, before investing in a
Certificate a Plan fiduciary should determine whether to do so is permitted un-
der 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 cer-
tain 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 hold-
ing 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 un-
less 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 ei-
ther: (a) has investment discretion with respect to the investment of such as-
sets 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.
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Delegation of Fiduciary Duty
Further, if the assets included in a Trust Estate were deemed to constitute
Plan assets, it is possible that a Plan's investment in the Certificates might
be deemed to constitute a delegation, under ERISA, of the duty to manage Plan
assets by the fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Estate might be deemed to
constitute prohibited transactions under ERISA and the Code. Neither ERISA nor
the Code define the term "plan assets."
The U.S. Department of Labor (the "Department") has issued regulations (the
"Regulations") concerning whether or not a Plan's assets would be deemed to in-
clude an interest in the underlying assets of an entity (such as a Trust Es-
tate) for purposes of the reporting and disclosure and general fiduciary re-
sponsibility provisions of ERISA, as well as for the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an "equity interest"
(such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the Certifi-
cates instead of being deemed to include an interest in the assets of a Trust
Estate. However, it cannot be predicted in advance nor can there be any contin-
uing assurance whether such exceptions may be met, because of the factual na-
ture 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 en-
tity will not be considered "plan assets" if less than 25% of the value of all
classes of equity interests are held by "benefit plan investors," which are de-
fined as Plans, IRAs, and employee benefit plans not subject to ERISA (for ex-
ample, 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 ob-
tained ERISA prohibited transaction exemptions (each, an "Underwriter's Exemp-
tion") which are in some respects broader than Prohibited Transaction Class Ex-
emption 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 Serv-
ice, 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 Re-
stricted Group (as defined below);
(5) The sum of all payments made to and retained by the underwriter in
connection with the distribution of Certificates represents not more than
reasonable compensation for underwriting the Certificates. The sum of all
payments made to and retained by the Seller pursuant to the assignment of
the Mortgage Loans to the Trust Estate represents not more than the fair
market value of such Mortgage Loans. The sum of all payments made to and
retained by the Servicer (and any other servicer) represents not more than
reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses
in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Commission under the Secu-
rities 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 Certifi-
cates by Plans would be exempt from the prohibited transaction provisions of
ERISA and the Code.
Moreover, an Underwriter's Exemption can provide relief from certain self-
dealing/conflict of interest prohibited transactions that may occur if a Plan
fiduciary causes a Plan to acquire Certificates in a Trust Estate in which the
fiduciary (or its affiliate) is an obligor on the Mortgage Loans held in the
Trust Estate provided that, among other requirements: (i) in the case of an ac-
quisition in connection with the initial issuance of Certificates, at least
fifty percent of each class of Certificates in which Plans have invested is ac-
quired by persons independent of the Restricted Group and at least fifty per-
cent of the aggregate interest in the Trust Estate is acquired by persons inde-
pendent of the Restricted Group (as defined below); (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent or less of the fair mar-
ket value of the Mortgage Loans contained in the Trust Estate; (iii) the Plan's
investment in Certificates of any Class does not exceed twenty-five percent of
all of the Certificates of that Class outstanding at the time of the acquisi-
tion and (iv) immediately after the acquisition no more than twenty-five per-
cent of the assets of 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.
An Underwriter's Exemption does not apply to Plans sponsored by the Seller,
the underwriter specified in the applicable prospectus supplement, the Master
Servicer, the Trustee, the Servicer, any obligor with respect to Mortgage Loans
included in the Trust Estate constituting
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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 De-
partment 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 Involv-
ing 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 de-
ductions) and a specified percentage of future principal payments on a Trust
Estate.
However, it appears that PTE 83-1 does not or might not apply to the purchase
and holding of (a) Certificates that evidence the beneficial ownership only of
a specified percentage of future interest payments (after permitted deductions)
on a Trust Estate or only of a specified percentage of future principal pay-
ments on a Trust Estate, (b) Residual Certificates, (c) Certificates evidencing
ownership interests in a Trust Estate which includes Mortgage Loans secured by
multifamily residential properties or shares issued by cooperative housing cor-
porations, or (d) Certificates which are subordinated to other Classes of Cer-
tificates of such Series. Accordingly, unless exemptive relief other than PTE
83-1 applies, Plans should not purchase any such Certificates.
PTE 83-1 sets forth "general conditions" and "specific conditions" to its ap-
plicability. Section II of PTE 83-1 sets forth the following general conditions
to the application of the exemption: (i) the maintenance of a system of insur-
ance 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 re-
sult of the administration of the mortgage pool, must represent not more than
adequate consideration for selling the mortgage loans plus reasonable compensa-
tion for services provided by the pool sponsor to the pool. The system of in-
surance or protection referred to in clause (i) above must provide such protec-
tion and indemnification up to an amount not less than the greater of one per-
cent 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 Depart-
ment may not have had under its consideration interests in mortgage pools of
the exact nature as some of the Certificates in the applicable Series.
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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
under "-- General," "-- Certain Requirements under ERISA" and "-- Administra-
tive Exemptions" 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 re-
quired to provide an affidavit to a transferor that it is not, nor is it pur-
chasing a Residual Certificate on behalf of, a "Disqualified Organization,"
which term, as defined under "Material Federal Income Tax Consequences -- Taxa-
tion of Residual Certificates -- Tax-Related Restrictions on the Transfer of
Residual Certificates" above, includes certain tax-exempt entities not subject
to Code Section 511 such as certain governmental plans, as discussed above un-
der the caption "Material 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 imposes upon persons
involved in prohibited transactions, it is particularly important that poten-
tial investors who are plan fiduciaries consult with their counsel regarding
the consequences under ERISA of their acquisition and ownership of certifi-
cates.
The sale of Certificates to a plan is in no respect a representation by the
seller or the applicable underwriter that this investment meets all relevant
legal requirements with respect to investments by plans generally or any par-
ticular plan, or that this investment is appropriate for plans generally or any
particular plan.
LEGAL INVESTMENT
As will be specified in the applicable prospectus supplement, certain Classes
of Certificates will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA"), so
long as (i) they are rated in one of the two highest rating categories by at
least one Rating Agency, and (ii) are part of a Series representing interests
in a Trust Estate consisting of Mortgage Loans originated by certain types of
originators specified in SMMEA and secured by first liens on real estate. As
"mortgage related securities," such Classes will constitute legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including but not limited to depository institutions,
insurance companies and pension funds) created pursuant to or existing under
the laws of the United States or of any state (including the District of Colum-
bia and Puerto Rico) whose authorized investments are subject to state regula-
tion, 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. Pursu-
ant to SMMEA, a number of states enacted legislation, on or before the October
3, 1991 cut-off for
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such enactments, limiting to varying extents the ability of certain entities
(in particular, insurance companies) to invest in "mortgage related securi-
ties," in most cases by requiring the affected investors to rely solely upon
existing state law, and not SMMEA. Accordingly, the investors affected by such
legislation will be authorized to invest in the Certificates only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered de-
pository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national
banks may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12
U.S.C. ss. 24 (Seventh), subject in each case to such regulations as the appli-
cable federal regulatory authority may prescribe. In this connection, the Of-
fice 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, with-
out limitation as to a percentage of the bank's capital and surplus (but sub-
ject to compliance with certain general standards in 12 C.F.R. ss. 1.5 concern-
ing "safety and soundness" and retention of credit information), certain "Type
IV securities," defined in 12 C.F.R. ss. 1.2(1) to include certain "residential
mortgage-related securities." As so defined, "residential mortgage-related se-
curity" 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. ss. 703.140. The OTS has is-
sued Thrift Bulletin 13a (December 1, 1998), "Management of Interest Rate Risk,
Investment Securities, and Derivative Activities," which thrift institutions
subject to jurisdiction of the OTS should consider before investing in any of
the Certificates.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the Federal
Financial Institutions Examination Council ("FFIEC"), which has been adopted by
the Board of Governors of the Federal Reserve System, the Federal Deposit In-
surance 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 fol-
low in managing risks (including market, credit, liquidity, operational (trans-
action), 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).
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<PAGE>
The foregoing does not take into consideration the applicability of statutes,
rules, regulations, orders, guidelines or agreements generally governing in-
vestments made by a particular investor, including, but not limited to, "pru-
dent investor" provisions, percentage-of-assets limits, provisions which may
restrict or prohibit investment in securities which are not "interest-bearing"
or "income-paying," and, with regard to any Certificates issued in book-entry
form, provisions which may restrict or prohibit investments in securities which
are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage re-
lated securities," no representation is made as to the proper characterization
of the Certificates for legal investment purposes, financial institution regu-
latory purposes, or other purposes, or as to the ability of particular invest-
ors to purchase Certificates under applicable legal investment restrictions.
The uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Certificates) may adversely affect the liquidity of the Certificates.
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 in-
vestments 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 Se-
ries will describe the method of offering being utilized for that Series and
will state the public offering or purchase price of each Class of Certificates
of such Series, or the method by which such price is to be determined, and the
net proceeds to the Seller from such sale.
The Certificates will be offered through the following methods from time to
time and offerings may be made concurrently through more than one of these
methods or an offering of a particular Series of Certificates may be made
through a combination of two or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters specified in the applicable prospectus supplement;
2. By placements by the Seller with investors through dealers; and
3. By direct placements by the Seller with investors.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated transac-
tions, at a fixed public offering price or at varying prices to be determined
at the time of sale or at the time of commitment therefor. Firm commitment un-
derwriting and public reoffering by underwriters may be done through underwrit-
ing syndicates or through one or more firms acting alone. The specific managing
underwriter or underwriters, if any, with respect to the offer and sale of a
particular Series of Certificates will be set forth on the cover of the pro-
spectus supplement applicable to such Series and the members of the underwrit-
ing syndicate, if any, will be named in such prospectus supplement. The pro-
spectus supplement will describe any discounts and commissions to be allowed or
paid by the Seller to the underwriters, any other items constituting underwrit-
ing compensation and any discounts and commissions
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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 Cer-
tificates 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 Certifi-
cates, the Seller or any affiliate thereof may purchase some or all of one or
more Classes of Certificates of such Series from the underwriter or underwrit-
ers at a price specified or described in such prospectus supplement. Such pur-
chaser may thereafter from time to time offer and sell, pursuant to this pro-
spectus, some or all of such Certificates so purchased directly, through one or
more underwriters to be designated at the time of the offering of such Certifi-
cates or through dealers acting as agent and/or principal. Such offering may be
restricted in the manner specified in such prospectus supplement. Such transac-
tions may be effected at market prices prevailing at the time of sale, at nego-
tiated prices or at fixed prices. The underwriters and dealers participating in
such purchaser's offering of such Certificates may receive compensation in the
form of underwriting discounts or commissions from such purchaser and such
dealers may receive commissions from the investors purchasing such Certificates
for whom they may act as agent (which discounts or commissions will not exceed
those customary in those types of transactions involved). Any dealer that par-
ticipates in the distribution of such Certificates may be deemed to be an "un-
derwriter" within the meaning of the Securities Act, and any commissions and
discounts received by such dealer and any profit on the resale of such Certifi-
cates by such dealer might be deemed to be underwriting discounts and commis-
sions under the Securities Act.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates will be used by
the Seller for the purchase of the Mortgage Loans represented by the Certifi-
cates of such Series from WFHM. It is expected that WFHM will use the proceeds
from the sale of the Mortgage Loans to the Seller for its general business pur-
poses, including, without limitation, the origination or acquisition of new
mortgage loans and the repayment of borrowings incurred to finance the origina-
tion 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, New
York.
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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 sta-
tistical rating organization (a "Rating Agency").
Generally, a security rating addresses the likelihood of the receipt by hold-
ers of Certificates of all distributions to which such holders are entitled. 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 ap-
pointed for each Series by the Master Servicer will forward to the
Certificateholders of each Series, statements containing information with re-
spect to principal and interest payments and the related Trust Estate, as de-
scribed herein and in the applicable prospectus supplement for such Series (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, computer modem and CD-ROM through
SecuritiesLink(R) Investor Information Services ("SecuritiesLink(R)"). On occa-
sion, 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 ad-
ditional information not contained in the Monthly Reports, including loss se-
verity 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,
Inc., 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 Se-
ries), 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.
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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 pro-
spectus is part of the registration statement, but the registration statement
includes additional information.
Copies of the registration statement may be obtained from the Public Refer-
ence Section of the Commission, Washington, D.C. 20549 upon payment of the pre-
scribed 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, Illi-
nois 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 Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system. The
Seller has filed the registration statement, including all exhibits, through
the EDGAR system and therefore such materials should be available by logging
onto the Commission's Web site. In this regard, you should be aware that it is
anticipated that the name of the Seller will be changed in 2000 in connection
with the merger described in the applicable prospectus supplement under "Recent
Developments." The Commission maintains computer terminals providing access to
the EDGAR system at each of the offices referred to above. Copies of any docu-
ments incorporated to this prospectus by reference will be provided to each
person to whom a prospectus is delivered upon written or oral request directed
to 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) de-
tailed mortgage loan information in machine readable format updated on a
monthly basis (the "Detailed Information") with respect to each outstanding Se-
ries 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 sub-
scribers. 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 informa-
tion regarding the Detailed Information and subscriptions thereto, please con-
tact the Seller at 7485 New Horizon Way, Frederick, Maryland 21703, telephone
number (301) 846-8130.
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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 refer-
ence is considered to be part of this prospectus. Information that the Seller
files later with the SEC will automatically update the information in this pro-
spectus. In all cases, you should rely on the later information rather than on
any different information included in this prospectus or the accompanying pro-
spectus supplement. The Seller incorporates by reference any future annual,
monthly and special SEC reports filed by or on behalf of the Trust until termi-
nation 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>
3% Solution Loans.......................................................... 29
1986 Act................................................................... 90
1998 Policy Statement...................................................... 125
Accretion Directed Certificates............................................ 41
Accrual Certificates....................................................... 38
Additional Collateral...................................................... 20
Advances................................................................... 59
ALTA....................................................................... 28
Asset Conservation Act..................................................... 84
Balloon Loans.............................................................. 19
Balloon Period............................................................. 19
Bankruptcy Code............................................................ 79
Bankruptcy Loss............................................................ 40
Bankruptcy Loss Amount..................................................... 40
Beneficial Owner........................................................... 34
Book-Entry Certificates.................................................... 34
Buy-Down Fund.............................................................. 19
Buy-Down Loans............................................................. 19
Capitol Life............................................................... 21
Cede....................................................................... 34
CERCLA..................................................................... 82
Certificate Account........................................................ 55
Certificateholder.......................................................... 34
Certificates............................................................... 33
Class...................................................................... 33
Cleanup Costs.............................................................. 83
Code....................................................................... 87
Commission................................................................. 129
Companion Certificate...................................................... 41
Component.................................................................. 41
Component Certificates..................................................... 41
condotels.................................................................. 15
Contract Underwriters...................................................... 25
cooperatives............................................................... 15
Correspondents............................................................. 22
Credit Score............................................................... 24
Cut-Off Date............................................................... 36
Deferred Interest.......................................................... 17
Definitive Certificates.................................................... 34
Delegated Underwriting..................................................... 23
Department................................................................. 121
Depository................................................................. 55
Detailed Information....................................................... 129
</TABLE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Disqualified Organization.................................................. 104
Distribution Date.......................................................... 36
DTC........................................................................ 34
DTC Participants........................................................... 35
Due Date................................................................... 16
EDGAR...................................................................... 129
electing large partnership................................................. 104
Eligible Custodial Account................................................. 55
Eligible Investments....................................................... 57
ERISA...................................................................... 120
Excess Bankruptcy Losses................................................... 40
Excess Fraud Losses........................................................ 40
Excess Special Hazard Losses............................................... 40
FDIC....................................................................... 55
FFIEC...................................................................... 125
FHLBB...................................................................... 85
FICO Score................................................................. 24
Fitch...................................................................... 121
Fixed Rate Certificates.................................................... 44
Fixed Retained Yield....................................................... 38
Floating Rate Certificates................................................. 44
Foreign National Loans..................................................... 29
Fraud Loss................................................................. 40
Fraud Loss Amount.......................................................... 40
Garn Act................................................................... 85
GEMICO..................................................................... 30
Government securities...................................................... 88
Graduated Pay Mortgage Loans............................................... 18
Growing Equity Mortgage Loans.............................................. 18
holder..................................................................... 34
HOPA....................................................................... 81
Indirect DTC Participants.................................................. 35
Interest Only Certificates................................................. 44
Inverse Floating Rate Certificates......................................... 45
IRA........................................................................ 120
Joint Ventures............................................................. 22
Liquidation Proceeds....................................................... 56
Liquidation Profits........................................................ 38
Loan Stores................................................................ 22
Loan-to-Value Ratio........................................................ 27
Lockout Certificates....................................................... 42
Mark to Market Regulations................................................. 107
Master Servicer............................................................ 53
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Master Servicing Fee....................................................... 38
MERS....................................................................... 69
Monthly Reports............................................................ 128
Moody's.................................................................... 121
Mortgage Interest Rate..................................................... 38
Mortgage Loans............................................................. 15
Mortgage Notes............................................................. 15
Mortgaged Properties....................................................... 15
Mortgages.................................................................. 15
NCUA....................................................................... 125
Net Mortgage Interest Rate................................................. 38
New Regulations............................................................ 110
No Ratio................................................................... 30
No Ratio Loans............................................................. 30
noneconomic residual interest.............................................. 105
Non-Pro Rata Certificate................................................... 91
Non-U.S. Person............................................................ 110
Notional Amount Certificates............................................... 42
OCC........................................................................ 125
OID Regulations............................................................ 91
Other Advances............................................................. 59
OTS........................................................................ 85
PAC Certificates........................................................... 42
PAC I...................................................................... 42
PAC II..................................................................... 42
Partial Liquidation Proceeds............................................... 37
Pass-Through Certificates.................................................. 42
Pass-Through Entity........................................................ 104
Pass-Through Rate.......................................................... 38
Paying Agent............................................................... 59
PCBs....................................................................... 82
Percentage Interest........................................................ 36
Periodic Advances.......................................................... 59
PHMC....................................................................... 21
PHMSC...................................................................... 21
Planned Amortization Certificates.......................................... 42
Plans...................................................................... 120
Pledged Asset Mortgage Loans............................................... 20
PMI........................................................................ 81
Pool Distribution Amount................................................... 37
Pool Insurers.............................................................. 30
Pooling and Servicing Agreement............................................ 33
Prepayment Assumption...................................................... 92
Principal Only Certificates................................................ 45
PTE 83-1................................................................... 123
</TABLE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Rating Agency.............................................................. 128
Ratio Strip Certificates................................................... 43
RCRA....................................................................... 83
Regular Certificateholder.................................................. 91
Regular Certificates....................................................... 33
Regulations................................................................ 121
Relief Act................................................................. 82
REMIC...................................................................... 87
REMIC Certificates......................................................... 87
REMIC Pool................................................................. 87
REMIC Regulations.......................................................... 87
Remittance Date............................................................ 56
REO Property............................................................... 71
Reserve Fund............................................................... 46
Residual Certificates...................................................... 34
Residual Holders........................................................... 99
Restricted Group........................................................... 123
retention program.......................................................... 23
Rules...................................................................... 35
S&P........................................................................ 121
SBJPA of 1996.............................................................. 88
Scheduled Amortization Certificates........................................ 43
Scheduled Certificates..................................................... 43
Scheduled Principal Balance................................................ 70
SEC........................................................................ 129
Securities Act............................................................. 122
Securities Link(R)......................................................... 128
Seller..................................................................... 20
Senior Certificates........................................................ 43
Sequential Pay Certificates................................................ 43
Series..................................................................... 33
Servicer................................................................... 54
Servicer Custodial Account................................................. 55
Servicing Account.......................................................... 61
Servicing Fee.............................................................. 38
SMMEA...................................................................... 124
Special Hazard Loss........................................................ 40
Special Hazard Loss Amount................................................. 40
Standard Hazard Insurance Policy........................................... 63
Startup Day................................................................ 89
Step Coupon Certificates................................................... 45
Stripped Certificateholder................................................. 117
Stripped Certificates...................................................... 115
Subclass................................................................... 33
Subordinated Certificates.................................................. 44
</TABLE>
132
<PAGE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Subsidy Account............................................................ 18
Subsidy Loans.............................................................. 18
Subsidy Payments........................................................... 18
Superliens................................................................. 82
Super Senior Certificates.................................................. 44
Super Senior Support Certificates.......................................... 44
Support Certificates....................................................... 41
TAC Certificates........................................................... 44
Targeted Amortizations Certificates........................................ 44
Texas Home Equity Laws..................................................... 81
Tiered Payment Mortgage Loans.............................................. 18
Title V.................................................................... 86
Treasury Regulations....................................................... 69
Trust...................................................................... 33
Trust Estate............................................................... 15
Trustee.................................................................... 75
Trustee Fee................................................................ 38
</TABLE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
U.S. Person................................................................ 106
UCC........................................................................ 78
UGRIC...................................................................... 30
Underlying Servicing Agreement............................................. 54
Underwriter's Exemption.................................................... 121
UST........................................................................ 83
Variable Rate Certificates................................................. 45
Voting Interests........................................................... 72
Wells Fargo................................................................ 55
Wells Fargo Affiliates..................................................... 20
Wells Fargo Bank........................................................... 21
Wells Fargo Mortgage Sale Agreement........................................ 68
WFHM....................................................................... 20
Window Period.............................................................. 85
Window Period Loans........................................................ 85
Window Period States....................................................... 85
</TABLE>
133
<PAGE>
[Logo of Wells Fargo]
Wells Fargo Alternative Loan 200 - Trust
Issuer
[LOGO OF WELLS FARGO ASSET SECURITIES CORPORATION]
Seller
$
(Approximate)
Mortgage Asset-Backed 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>
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.............................................. $ 264
Legal Fees and Expenses........................................... 357
Accounting Fees and Expenses...................................... 60
Trustee's Fees and Expenses (including counsel fees).............. 25
Printing and Engraving Fees....................................... 158
Rating Agency Fees................................................ 500
Miscellaneous..................................................... 0
------
Total........................................................... $1,364
======
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers and directors, who
are made, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal, adminis-
trative or investigative (other than an action by or in the right of such cor-
poration), by reason of the fact that such person is or was an officer or di-
rector of such corporation, or is or was serving at the request of such 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 action relat-
ing to the Pooling and Servicing Agreement or the Certificates, other than any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of his or its duties thereunder or by
reason of reckless disregard of his or its obligations and duties thereunder.
The directors and officers of the Registrant are covered by a directors' and
officers' liability insurance policy maintained by Wells Fargo & Company for
the benefit of all of its subsidiaries.
II-1
<PAGE>
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement incorporated by reference from
Exhibit 1.1 to the Registration Statement on Form S-3 (File No. 333-
17801).
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.
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 on Form S-3 (File No.
333-17801).
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. 333-17801).
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 Se-
curities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggre-
gate, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) that, for the purpose of determining any liability under the Securi-
ties Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termina-
tion of the offering.
(b) Undertaking in connection with incorporation by reference of certain fil-
ings 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.
II-2
<PAGE>
(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.
II-3
<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 September 11, 2000.
By: /s/ Thomas Neary
--------------------------------------
Name: Thomas Neary
Title: Executive Vice President
II-4
<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 Reg-
istration Statement has been signed below by the following persons in the ca-
pacities and on the dates indicated.
Signature Title Date
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ James Strother President, Chief September 11, 2000
-------------------------------- Executive
James Strother Officer,
Secretary and
Director
/s/ Robert K. Chapman Executive Vice September 11, 2000
-------------------------------- President, Chief
Robert K. Chapman Financial Officer
and Chief
Accounting
Officer
/s/ Thomas Neary Executive Vice September 11, 2000
-------------------------------- President and
Thomas Neary Director
/s/ Douglas K. Johnson Director September 11, 2000
--------------------------------
Douglas K. Johnson
</TABLE>
II-5
<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. 333-17801).
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.
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 on
Form S-3 (File No. 333-17801).
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. 333-17801).
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>
II-6
