As filed with the Securities and Exchange Commission on October 2,
1996 Registration No. 333-4598
Securities and Exchange Commission
Washington, D.C. 20549
----------------------------
Amendment No. 1
to
Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
--------------------------------
Deutsche Mortgage & Asset Receiving Corporation
(Seller)
(Exact name of registrant as specified in governing instruments)
One International Plaza
Room 608
Boston, Massachusetts 02110
(617) 951-7633
(Address, including zip code, and
telephone number, including area
code, of registrant's principal
executive offices)
Corporation Service Company
Delaware 1013 Centre Road 04-3310019
- --------------- Wilmington, ----------
State or other Delaware 19805 I.R.S. Employer
jurisdiction of (302) 998-0595 Identification Number
incorporation -----------------------------
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
-------------------------------
Copies to:
Mitchell S. Dupler, Esq.
Cleary, Gottlieb, Steen & Hamilton
1752 N Street, N.W.
Washington, D.C. 20036
-------------------------------
Approximate date of commencement of proposed sale to the
public:
From time to time after this Registration Statement becomes
effective.
<PAGE>
If the only securities being registered on this Form are being
offered pursuant 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, other than securities offered
only in connection with dividend or interest reinvestment plans,
check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement 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
Proposed Proposed
Title of maximum maximum
securities Amount offering aggregate Amount of
being being price per offering registration
registered registered unit(2) price(2) fee
- ------------ ------------ --------- ------------ ------------
Mortgage and
Asset-Backed
Securities(1) $500,000,000 100% $500,000,000 $172,068.80(3)
(1) The forms of Prospectuses filed herewith contemplate pass
through certificates evidencing beneficial ownership interests in
trust funds consisting primarily of first-, second or more junior
lien mortgages on one- to four-family residential properties and
multi-family real estate properties. Separate forms of
Prospectuses may be filed by post-effective amendment if the
Seller desires to issue securities based on trust funds
consisting primarily of asset-backed securities that are
primarily serviced by the cashflows of discrete pools of
receivables or other financial assets, either fixed or revolving,
that by their terms convert into cash within a finite time period
plus any rights or other assets designed to assure the servicing
or timely distribution of proceeds to the certificateholders.
(2) Estimated solely for purposes of calculating the registration
fee on the basis of the proposed maximum aggregate offering price.
(3) The registration fee paid in connection with the filing of
Amendment No. 1 represents the $172,413.80 registration fee
applicable to $500,000,000 securities, less the $345 fee previously
paid.
-------------------------------
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this 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.
<PAGE>
CROSS REFERENCE SHEET RELATING TO RESIDENTIAL
MORTGAGE PASS-THROUGH CERTIFICATES FURNISHED
PURSUANT TO RULE 404(a)
Items and Location in
Caption Location in Prospectus
in Form S-3 Prospectus Supplement
--------------- ------------- -----------
1. Forepart of Forepart of Outside Front Cover
Registration Registration Page
Statement and Statement; Outside
Outside Front Front Cover Page
Cover Page of
Prospectus
2. Inside Front and Inside Front Cover Inside Front Cover
Outside Back Page Page; Outside Back
Cover Pages of Cover Page
Prospectus
3. Summary Summary of Summary of Terms;
Information, Prospectus; Risk Factors
Risk Factors and Incorporation of
Ratio of Certain Documents by
Earnings to Reference; Risk
Fixed Charges Factors
4. Use of Proceeds Use of Proceeds Summary of Terms
5. Determination of * *
Offering Price
6. Dilution * *
7. Selling Security * *
Holders
8. Plan of Plan of Distribution Plan of Distribution
Distribution
9. Description of Outside Front Cover Outside Front Cover
the Securities Page; Description of Page; Description of
to be Registered the Certificates; the Mortgage Pool
The Trust Fund; and the Mortgaged
Yield, Maturity and Properties;
Weighted Average Description of the
Life Considerations; Certificates; Yield
The Pooling and and Weighted Life
Servicing Agreement; Considerations; The
Federal Income Tax Pooling and
Consequences Servicing Agreement;
Certificate Ratings;
Federal Income Tax
Consequences
10. Interests of * *
Named Experts
and Counsel
11. Material * *
Changes
12. Incorporation Incorporation of *
of Certain Certain Documents by
Information by Reference
Reference
13. Disclosure of The Company *
Commission
Position on
Indemnification
for Securities
Act Liabilities
- -----------------------------
* Answer negative or item inapplicable
<PAGE>
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED OCTOBER 2, 1996
PROSPECTUS
DEUTSCHE MORTGAGE & ASSET RECEIVING CORPORATION
Company
Pass-Through Certificates (Issuable in Series)
Each of the Certificates offered hereby (each, an "Offered
Certificate") will evidence a beneficial ownership interest in
one of a number of trust funds (each, a "Trust Fund") created by
Deutsche Mortgage & Asset Receiving Corporation (the "Company")
from time to time. As specified in the related Prospectus
Supplement, the assets of a Trust Fund may consist of (i) a pool
of mortgage loans secured by first, second and/or more junior
liens on one- to four-family residential properties or
multifamily residential rental properties or cooperatively-owned
properties containing five or more residential units, or
participation interests or stripped interests in such loans (the
"Mortgage Loans") acquired by the Company, (ii) Mortgage-Backed
Securities (as defined herein) issued or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") (which Mortgage-Backed Securities
are referred to herein as the "Agency Securities"), Mortgage-
Backed Securities issued by one or more private entities (which
Mortgage-Backed Securities are referred to herein as "Private
Securities"), or by any combination of such Mortgage-Backed
Securities or (iii) conditional sales contracts and installment
sales or loan agreements or participation interests therein
secured by manufactured housing (the "Contracts"). If specified
in the related Prospectus Supplement, a Trust Fund also may
include one or more of the following: reinvestment income,
reserve accounts and insurance, guarantees or similar instruments
or agreements. It is anticipated that the assets conveyed to the
Trust Fund by the Company will have been acquired by the Company
from Deutsche Bank AG or an affiliate thereof (collectively,
"Deutsche Bank"). The Company is not an affiliate of Deutsche
Bank.
The Offered Certificates may be sold from time to time as part of
one or more Series (each, a "Series") on terms determined at the
time of sale and specified in the Prospectus Supplement relating
to such Series. Each Series of Certificates will be issued in a
single class or in two or more classes. Each class of Offered
Certificates will evidence beneficial ownership of (i) any
distributions in respect of the assets of the Trust Fund that are
allocable to principal of the Offered Certificates in the amount
of the aggregate original principal balance, if any, of such
class of Offered Certificates as specified in the related
Prospectus Supplement and (ii) any distributions in respect of
the assets of the Trust Fund that are allocable to interest on
the principal balance or notional principal balance of such
Offered Certificates at the interest rate, if any, applicable to
such class of Offered Certificates as specified in the related
Prospectus Supplement. One or more classes of Offered
Certificates (i) may be entitled to receive distributions
allocable to principal, principal prepayments, interest or any
combination thereof prior to one or more other classes of
Certificates of the related Series or after the occurrence of
certain events and (ii) may be subordinated in the right to
receive distributions on such Offered Certificates to one or more
senior classes of Certificates, in each case as specified in the
related Prospectus Supplement. Interest on each class of Offered
Certificates entitled to distributions allocable to interest will
accrue at a fixed rate or at a rate that is subject to change
from time to time as specified in the related Prospectus
Supplement on an actual or notional principal amount, may
represent a specified portion of interest received on some or all
of the assets of the Trust Fund or may otherwise be determined as
specified in the related Prospectus Supplement. The Company may
retain or hold for sale from time to time one or more classes of
a Series of Certificates.
(cover continued next page)<PAGE>
Unless otherwise specified in the related Prospectus
Supplement, distributions on the Certificates of a Series will be
made only from the assets of the related Trust Fund, and the
Certificates will not be insured or guaranteed by the Company or
any affiliate thereof or by any governmental entity or by any
other person. The Certificates will not represent an obligation
of or an interest in the Company, Deutsche Bank or any of their
affiliates. Unless otherwise specified in the related Prospectus
Supplement, the Company's only obligations with respect to a
Series of Certificates will consist of its obligations pursuant
to certain representations and warranties, if any, made by it.
Unless otherwise specified in the related Prospectus Supplement,
none of Deutsche Bank or its affiliates or any affiliate of the
Company will have any obligations with respect to the
Certificates or the related Trust Fund.
The yield on each class of Certificates of a Series will be
affected by the rate of payment of principal (including
prepayments) on the assets in the related Trust Fund and the
timing of receipt of such payments as described herein and in the
related Prospectus Supplement. Each Series of Certificates may
be subject to early termination only under the circumstances
described herein and in the related Prospectus Supplement.
If specified in a related Prospectus Supplement, an election
will be made to treat the related Trust Fund as a "real estate
mortgage investment conduit" ("REMIC") for federal income tax
purposes, or multiple REMIC elections may be made with respect to
the related Trust Fund. See "Federal Income Tax Consequences."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE OFFERED CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR
ALL INVESTORS, IN PARTICULAR, NO INVESTOR SHOULD PURCHASE
CERTIFICATES OF ANY CLASS UNLESS THE INVESTOR UNDERSTANDS AND IS
ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND MARKET RISKS
ASSOCIATED WITH THAT CLASS.
The Offered Certificates are complex securities and it is
important that each investor in any Class of Offered Certificates
possess, either alone or together with an investment advisor, the
expertise necessary to evaluate the information contained and
incorporated in this Prospectus and the related Prospectus
Supplement in the context of that investor's financial situation.
The yield of each Class of Certificates will depend upon,
among other things, its purchase price, its sensitivity to the
rate and timing of principal payments (including prepayments,
defaults and liquidations) on the Mortgage Loans and the actual
characteristics of the Mortgage Loans. Mortgage Loan prepayment
rates are likely to fluctuate significantly from time to time.
Investors should consider the associated risks, including:
- Fast Mortgage Loan prepayment rates can reduce the
yields of Classes, including any interest-only
Classes, purchased at a premium over their
principal amounts.
- Slow Mortgage Loan prepayment rates can reduce the
yields of Classes, including any principal-only
Classes, purchased at a discount to their
principal amounts.
- Small differences in the characteristics of the
Mortgages can affect the weighted average lives
and yields of the Classes.
See "Risk Factors" and "Yield Considerations" in this
Prospectus and "Risk Factors" and "Yield, Maturity and Weighted
Average Life Considerations" in the related Prospectus
Supplement.
(cover continued next page)<PAGE>
Offers of the Offered Certificates may be made through one
or more different methods, including offerings through
underwriters, as more fully described under "Plan of
Distribution" herein and in the related Prospectus Supplement.
There will have been no public market for any Series of
Offered Certificates prior to the offering thereof. There can be
no assurance that a secondary market will develop for the Offered
Certificates of any Series or, if it does develop, that such
market will continue.
Retain this Prospectus for future reference. This
Prospectus may not be used to consummate sales of Offered
Certificates unless accompanied by a related Prospectus
Supplement.
The date of this Prospectus is ____________, 199_.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to the Offered
Certificates of a Series being offered hereby will, among other
things, set forth with respect to such Series: (i) information
as to the assets comprising the Trust Fund, including the
characteristics of any Mortgage Loans, Mortgage-Backed
Securities, Contracts or other assets included therein and, if
applicable, the insurance, guarantees or other instruments or
agreements included in the Trust Fund and the amount and source
of any reserve accounts; (ii) the aggregate original principal
balance of each class of Offered Certificates entitled to
distributions allocable to principal and, if a fixed rate of
interest, the interest rate for each class of such Offered
Certificates entitled to distributions allocable to interest;
(iii) information as to any class of Offered Certificates that
has a rate of interest that is subject to change from time to
time and the basis on which such interest rate will be
determined; (iv) information as to any class of Offered
Certificates on which interest will accrue and be added to the
principal balance or, if applicable, the notional principal
balance thereof; (v) information as to the method used to
calculate the amount of interest to be paid on any class of
Offered Certificates entitled to distributions of interest only;
(vi) information as to the nature and extent of subordination
with respect to any class of Offered Certificates that is
subordinate in right of payment to any other class; (vii) the
circumstances, if any, under which the Trust Fund is subject to
early termination; (viii) if applicable, the final distribution
date and the first mandatory principal distribution date of each
class of Offered Certificates; (ix) the method used to calculate
the aggregate amounts of principal and interest required to be
distributed on each distribution date in respect of each class of
Offered Certificates and, with respect to any Series consisting
of more than one class, the basis on which such amounts will be
allocated among the classes of such Series; (x) the distribution
date for each class of the Offered Certificates, the date on
which payments received in respect of the assets included in the
Trust Fund during the related period will be deposited in the
certificate account and, if applicable, the assumed reinvestment
rate applicable to payments received in respect of such assets
and the date on which such payments are assumed to be received
for such Series; (xi) the name of the trustee of the Trust Fund;
(xii) information with respect to the administrator, if any, of
the Trust Fund; (xiii) whether an election will be made to treat
all or a portion of the Trust Fund as a REMIC or a double REMIC
within the Trust Fund and, if applicable, the designation of the
regular interests and residual interests therein;
(xiv) information with respect to the plan of distribution of
such Offered Certificates; and (xv) additional information with
respect to any Credit Enhancement or cash flow agreement relating
to such Series and, if the Certificateholders of such Series will
be materially dependent upon any provider of credit enhancement
or any cash flow agreement counterparty for timely payment of
interest and/or principal on their Certificates, information
(including financial statements) regarding such provider or
counterparty.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") with respect to the Offered Certificates offered hereby and
by the related Prospectus Supplement, and in accordance therewith
files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other
information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained upon written request addressed to
the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration
Statement (the "Registration Statement") under the Securities Act
of 1933, as amended, (the "Securities Act") with respect to the
Offered Certificates. This Prospectus, which forms a part of the
Registration Statement, omits certain information contained in
the Registration Statement pursuant to the rules and regulations
of the Commission. The Registration Statement can be inspected
and copied at prescribed rates at the public reference facilities
maintained by the Commission as described in the preceding
paragraph.
Copies of the Agreement pursuant to which a Series of
Certificates is issued will be provided to each person to whom a
Prospectus and the related Prospectus Supplement are delivered
upon written request directed to the Company c/o JH Management
Corporation, at One International Place, Suite 520, Boston,
Massachusetts 02110 (telephone: (617) 951-7690, Attention:
Treasurer.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act with respect to a
Series of Certificates subsequent to the date of this Prospectus
and the related Prospectus Supplement and prior to the
termination of the offering of the Offered Certificates of such
Series shall be deemed to be incorporated by reference in this
Prospectus as supplemented by the related Prospectus Supplement.
If specified in any such document, such document shall also be
deemed to be incorporated by reference in the Registration
Statement of which this Prospectus forms a part.
Any statement contained herein or in a related Prospectus
Supplement for the Offered Certificates of a Series or in a
document incorporated or deemed to be incorporated by reference
herein or therein shall be deemed to be modified or superseded
for purposes of this Prospectus and such related Prospectus
Supplement to the extent that a statement contained herein or in
such related Prospectus Supplement or in any subsequently filed
document which also is or is deemed to be incorporated by
reference herein or in such related Prospectus Supplement
modifies or supersedes such statement, except to the extent that
such subsequently filed document expressly states otherwise. Any
such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus or the related Prospectus Supplement or, if
applicable, the Registration Statement.
The Company will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus
and the related Prospectus Supplement is delivered, on the
written or oral request of any such person, a copy of any and all
of the documents incorporated herein by reference, except the
exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests
for such copies should be directed to the Company c/o JH Management
Corporation, at One International Place, Suite 520, Boston,
Massachusetts 02110, Attention: Treasurer. Telephone requests
for such copies should be directed to (617) 951-7690.
________
Until 90 days after the date of each related Prospectus
Supplement, all dealers effecting transactions in the Offered
Certificates covered by such related Prospectus Supplement,
whether or not participating in the distribution thereof, may be
required to deliver such related Prospectus Supplement and this
Prospectus. This is in addition to the obligation of dealers to
deliver a related Prospectus Supplement and Prospectus when
acting as underwriters of the Offered Certificates covered by
such related Prospectus Supplement and with respect to their
unsold allotments or subscriptions.
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus and any related Prospectus Supplement with respect
hereto and, if given or made, such information or representations
must not be relied upon as having been authorized. This
Prospectus and any related Prospectus Supplement with respect
hereto do not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the Offered Certificates
offered hereby and thereby nor an offer to sell or a solicitation
of an offer to buy the Offered Certificates to any person in any
state or other jurisdiction in which such offer or solicitation
would be unlawful. Neither the delivery of this Prospectus or
any related Prospectus Supplement with respect hereto nor any
sale made hereunder and thereunder shall, under any
circumstances, create any implication that the information herein
or therein is correct as of any time subsequent to the date of
such information.
________
REPORTS TO CERTIFICATEHOLDERS
The Company will provide to Certificateholders, annually and
with respect to each Distribution Date, reports concerning the
Trust Fund related to such Certificates. See "The Pooling and
Servicing Agreements-Reports to Certificateholders."
________
<PAGE>
TABLE OF CONTENTS
Caption Page
- ------- ----
Prospectus Supplement. . . . . . . . . . . . . . . . . . . . . ii
Available Information. . . . . . . . . . . . . . . . . . . . . ii
Incorporation of Certain Documents by Reference. . . . . . . iii
Reports to Certificateholders. . . . . . . . . . . . . . . . .iii
Summary of Prospectus. . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . 9
General Risks of Real Estate Investments. . . . . . . . . . . 9
Limited Obligation for Distributions on the Offered
Certificates. . . . . . . . . . . . . . . . . . . . . . . . 9
Lack of Established Market. . . . . . . . . . . . . . . . . . 9
Limitations on Credit Enhancement Associated with the Offered
Certificates. . . . . . . . . . . . . . . . . . . . . . . . 9
Risk of Prepayment of Mortgage Loans . . . . . . . . . . . . 10
Limitations on Lenders Imposed by State Laws. . . . . . . . . 10
Risks Associated with Contracts on Manufactured Homes . . . . 11
Environmental Risks Relating to Mortgage Loans. . . . . . . . 11
Early Termination of the Trust Fund . . . . . . . . . . . . . 11
Description of the Certificates. . . . . . . . . . . . . . . . 11
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Classes of Certificates . . . . . . . . . . . . . . . . . . . 14
Distributions of Principal and Interest . . . . . . . . . . . 14
Optional Termination of the Trust Fund. . . . . . . . . . . . 16
Certificate Ratings . . . . . . . . . . . . . . . . . . . . . 16
The Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . 17
The Mortgage Loans. . . . . . . . . . . . . . . . . . . . . . 17
Underwriting and Interim Servicing Standards Applicable to the
Mortgage Loans. . . . . . . . . . . . . . . . . . . . . . . 19
The Agency Securities . . . . . . . . . . . . . . . . . . . . 19
Private Securities. . . . . . . . . . . . . . . . . . . . . . 22
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Credit Enhancement . . . . . . . . . . . . . . . . . . . . . . 22
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Subordination . . . . . . . . . . . . . . . . . . . . . . . . 24
Other Arrangements for Credit Enhancement . . . . . . . . . . 24
Cash Flow Agreement. . . . . . . . . . . . . . . . . . . . . . 29
Yield, Maturity and Weighted Average Life Considerations . . . 30
Servicing of the Mortgage Loans and Contracts. . . . . . . . . 31
Collection and Other Servicing Procedures . . . . . . . . . . 32
Hazard Insurance. . . . . . . . . . . . . . . . . . . . . . . 34
Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Loan Payment Record . . . . . . . . . . . . . . . . . . . . . 36
Servicing and Other Compensation and Payment of Expenses. . . 38
Resignation, Succession and Indemnification of the Servicer
and the Master Servicer . . . . . . . . . . . . . . . . . . 38
The Pooling and Servicing Agreements . . . . . . . . . . . . . 39
Assignment of Assets. . . . . . . . . . . . . . . . . . . . . 39
Repurchase or Substitution. . . . . . . . . . . . . . . . . . 40
Certain Modifications and Refinancings. . . . . . . . . . . . 42
Evidence as to Compliance . . . . . . . . . . . . . . . . . . 42
List of Certificateholders. . . . . . . . . . . . . . . . . . 43
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 42
Administration of the Certificate Account . . . . . . . . . . 43
Reports to Certificateholders . . . . . . . . . . . . . . . . 43
Events of Default . . . . . . . . . . . . . . . . . . . . . . 44
Rights Upon Event of Default. . . . . . . . . . . . . . . . . 44
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Termination . . . . . . . . . . . . . . . . . . . . . . . . . 45
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . 45
Deutsche Bank (AG) . . . . . . . . . . . . . . . . . . . . . . 46
Certain Legal Aspects of the Mortgage Loans and Contracts. . . 46
The Mortgage Loans. . . . . . . . . . . . . . . . . . . . . . 46
General . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Financial Leases. . . . . . . . . . . . . . . . . . . . . . 48
Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . 48
Rights of Mortgagees. . . . . . . . . . . . . . . . . . . . 50
Rights of Redemption. . . . . . . . . . . . . . . . . . . . 51
Junior Mortgages; Rights of Senior Mortgagees . . . . . . . 51
Anti-Deficiency Legislation and Other Limitations
on Lenders . . . . . . . . . . . . . . . . . . . . . . . . 51
Enforceability of Certain Provisions. . . . . . . . . . . . 52
Applicability of Usury Laws . . . . . . . . . . . . . . . . 53
Soldiers' and Sailors' Civil Relief Act . . . . . . . . . . 53
Environmental Considerations. . . . . . . . . . . . . . . . 53
The Contracts . . . . . . . . . . . . . . . . . . . . . . . . 54
General . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Security Interests in the Manufactured Homes. . . . . . . . 54
Enforcement of Security Interests in Manufactured Homes . . 55
Consumer Protection Laws. . . . . . . . . . . . . . . . . . 56
Transfers of Manufactured Homes; Enforceability of
"Due-on-Sale" Clauses. . . . . . . . . . . . . . . . . . . 56
Applicability of Usury Laws . . . . . . . . . . . . . . . . 56
Soldiers' and Sailors' Civil Relief Act . . . . . . . . . . 56
Legal Investment Matters . . . . . . . . . . . . . . . . . . . 57
The Secondary Mortgage Market Enhancement Act . . . . . . . . 57
The Appraisal Regulations . . . . . . . . . . . . . . . . . . 58
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . 58
Federal Income Tax Consequences. . . . . . . . . . . . . . . . 60
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
REMIC Elections . . . . . . . . . . . . . . . . . . . . . . . 60
REMIC Certificates. . . . . . . . . . . . . . . . . . . . . . 60
Non-REMIC Certificates. . . . . . . . . . . . . . . . . . . . 69
Backup Withholding. . . . . . . . . . . . . . . . . . . . . . 72
State Tax Considerations . . . . . . . . . . . . . . . . . . . 72
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . 72
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 73
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . 73
Financial Information. . . . . . . . . . . . . . . . . . . . . 73
Additional Information . . . . . . . . . . . . . . . . . . . . 73
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere in this
Prospectus and by reference to the Prospectus Supplement relating
to the Offered Certificates of a particular Series. Unless
otherwise specified, capitalized terms used and not defined in
this Summary of Prospectus have the meanings given to them in
this Prospectus and in the related Prospectus Supplement.
Title of Securities. . Pass-Through Certificates, issuable in
Series, as described in the Prospectus
Supplement.
The Company. . . . . . Deutsche Mortgage Asset & Receiving
Corporation (the "Company"), a Delaware
corporation. The Company will be the
acquiror of the Mortgage Loans,
Mortgage-Backed Securities or Contracts
included in a Trust Fund.
The Servicer . . . . . The Mortgage Loans or Contracts included
in a Trust Fund will be serviced by the
party or parties identified in the
related Prospectus Supplement (each, a
"Servicer") and, if so indicated in the
related Prospectus Supplement, may be
master serviced by the party identified
therein (the "Master Servicer").
Description of
Securities. . . . . . Each Offered Certificate will represent
a beneficial ownership interest in a
Trust Fund created by the Company from
time to time pursuant to a pooling and
servicing agreement (each, an
"Agreement") between the Company and the
commercial bank or trust company acting
as trustee specified in the related
Prospectus Supplement. The assets of a
Trust Fund may consist of (i) a pool of
mortgage loans secured by first, second
and/or more junior liens on one- to
four-family residential properties or
multifamily properties that are either
rental apartment buildings or projects
containing five or more residential
units, or participation interests or
stripped interests in such loans (the
"Mortgage Loans") acquired by the
Company, (ii) Mortgage-Backed Securities
(as defined herein) issued or guaranteed
by the Government National Mortgage
Association ("GNMA"), the Federal
National Mortgage Association
("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") (which
Mortgage-Backed Securities are referred
to herein as the "Agency Securities"),
Mortgage-Backed Securities issued by one
or more private entities (which
Mortgage-Backed Securities are referred
to herein as "Private Securities"), or
by any combination of such Mortgage-
Backed Securities, or (iii) conditional
sales contracts and installment sales or
loan agreements or participation
interests therein secured by
manufactured housing (the "Contracts").
The portion of any mortgage pool
consisting of Mortgage Loans may include
home equity loans. If specified in the
related Prospectus Supplement, a Trust
Fund may also include one or more of the
following credit enhancements as
described herein: reinvestment income,
reserve accounts and insurance,
guarantees or similar instruments or
agreements intended to decrease the
likelihood that Certificateholders will
experience delays in distributions of
scheduled payments on, or losses in
respect of, the assets in such Trust
Fund. The Certificates of any Series
will be entitled to payment only from
the assets of the related Trust Fund.
The Certificates of any Series may be
issued in a single class or in two or
more classes, as specified in the
related Prospectus Supplement. One or
more classes of Certificates of each
Series (i) may be entitled to receive
distributions allocable only to
principal, only to interest or to any
combination thereof; (ii) may be
entitled to receive distributions only
of prepayments of principal throughout
the lives of the Certificates or during
specified periods;
(iii) may be subordinated in the right
to receive distributions of scheduled
payments of principal, prepayments of
principal, interest or any combination
thereof to one or more other classes of
Certificates of such Series throughout
the lives of the Certificates or during
specified periods; (iv) may be entitled
to receive such distributions only after
the occurrence of events specified in
the related Prospectus Supplement;
(v) may be entitled to receive
distributions in accordance with a
schedule or formula or on the basis of
collections from designated portions of
the assets in the Trust Fund; (vi) as to
Certificates entitled to distributions
allocable to interest, may be entitled
to receive interest at a fixed rate or a
rate that is subject to change from time
to time (each, a "Certificate Interest
Rate"); (vii) as to Certificates
entitled to distributions allocable to
interest, may be entitled to
distributions allocable to interest only
after the occurrence of events specified
in the related Prospectus Supplement and
may accrue interest until such events
occur, in each case as specified in the
related Prospectus Supplement or (viii)
may receive payments of principal and
interest in another manner specified in
the related Prospectus Supplement. The
timing and amounts of such distributions
may vary among classes, over time, or
otherwise as specified in the related
Prospectus Supplement.
The Company may retain or hold for sale
from time to time one or more classes of
a Series of Certificates.
The Prospectus Supplement for the
Offered Certificates of a Series will
indicate whether the Offered
Certificates will be offered in fully
registered form only or through the
book-entry facilities of the Depository
Trust Company or another depository or
otherwise. The Certificates will not be
guaranteed or insured by any
governmental agency or instrumentality
or any other issuer and, except as
described in the related Prospectus
Supplement, the Mortgage Loans,
Mortgage-Backed Securities or Contracts
included in the related Trust Fund will
not be guaranteed or insured by any
governmental agency or instrumentality
or any other person.
Distributions on the
Certificates . . . . . Distributions on the Certificates
entitled thereto will be made monthly,
quarterly, semiannually or at such other
intervals and on the dates specified in
the related Prospectus Supplement solely
out of the payments received in respect
of the assets of the related Trust Fund.
The amount allocable to payments of
principal and interest on any
distribution date will be determined as
specified in the related Prospectus
Supplement. Unless otherwise specified
in the related Prospectus Supplement,
all distributions will be made pro rata
to holders of Certificates
("Certificateholders" or "Holders") of
the class entitled thereto.
The aggregate original principal balance
of the Certificates will equal the
aggregate distributions allocable to
principal that such Certificates will be
entitled to receive. If specified in
the related Prospectus Supplement, the
Certificates will have an aggregate
original principal balance equal to the
aggregate unpaid principal balance of
the Mortgage Loans, Mortgage-Backed
Securities or Contracts as of the first
day of the month of creation of the
Trust Fund and will bear interest in the
aggregate at a rate equal to the
interest rate borne by the underlying
Mortgage Loans, Mortgage-Backed
Securities or Contracts, net of
servicing fees payable to the Servicers
of the Mortgage Loans or Contracts and
the Master Servicer and any other
amounts specified in the related
Prospectus Supplement (as to each
Mortgage Loan, the "Remittance Rate").
If specified in the related Prospectus
Supplement, the aggregate original
principal balance of the Certificates
and interest rates on the classes of
Certificates will be determined based on
the cash flow on the Mortgage Loans,
Mortgage-Backed Securities or Contracts,
as the case may be.
The rate at which interest will be
passed through to Holders of
Certificates entitled thereto may be a
fixed rate or a rate that is subject to
change from time to time from the time
and for the periods, specified in the
related Prospectus Supplement. Any such
rate may be calculated on a
loan-by-loan, weighted average or other
basis, in each case as described in the
related Prospectus Supplement.
Trust Fund Assets. . . The Trust Fund for a Series of
Certificates will include the Mortgage
Loans, Mortgage-Backed Securities and
Contracts, as described herein or in the
related Prospectus Supplement, payments
in respect of such assets and certain
accounts, obligations or agreements, in
each case as specified in the related
Prospectus Supplement.
A. The Mortgage Loans. Unless otherwise specified in the
related Prospectus Supplement, each pool
of Mortgage Loans will consist of
Mortgage Loans acquired by the Company
and secured by first, second and/or more
junior liens on one- to four-family
residential properties or multifamily
residential rental properties or
cooperatively-owned properties
containing five or more residential
units, located in one or more states,
territories or possessions of the United
States or the District of Columbia (the
"Mortgaged Properties"). If specified
in the related Prospectus Supplement,
all or a portion of the Mortgage Loans
in the Trust Fund for a Series of
Certificates may be home equity loans.
If specified in the related Prospectus
Supplement, the Mortgage Loans may
include cooperative apartment loans
secured by security interests in shares
issued by private, non-profit,
cooperative housing corporations
("Cooperatives") and in the related
proprietary leases or occupancy
agreements granting exclusive rights to
occupy specific dwelling units in such
Cooperatives' buildings.
The payment terms of the Mortgage Loans
to be included in a Trust Fund will be
described in the related Prospectus
Supplement and may include any of the
following features or combinations
thereof described in the related
Prospectus Supplement:
(a) Interest may be payable at a fixed
rate, a rate adjustable from time
to time in relation to an index, a
rate that is fixed for a period of
time or under certain circumstances
and is followed by an adjustable
rate, a rate that otherwise varies
from time to time, or a rate that
is convertible from an adjustable
rate to a fixed rate. Changes to
an adjustable rate may be subject
to periodic limitations, maximum
rates, minimum rates or a
combination of such limitations.
Accrued interest may be deferred
and added to the principal of a
loan for such periods and under
such circumstances as may be
specified in the related Prospectus
Supplement. Mortgage Loans may
provide for the payment of interest
at a rate lower than the specified
mortgage rate for a period of time
or for the life of the loan with
the amount of any difference
contributed from funds supplied by
the seller of the mortgaged
property or another source.
(b) Principal may be payable on a level
debt service basis to fully
amortize the loan over its term,
may be calculated on the basis of
an assumed amortization schedule
that is significantly longer than
the original term to maturity or on
an interest rate that is different
from the interest rate on the
Mortgage Loan or may not be
amortized during all or a portion
of the original term. Payment of
all or a substantial portion of the
principal may be due on maturity.
Principal may include interest that
has been deferred and added to the
principal balance of the Mortgage
Loan. In the case of home equity
loans which may be "simple
interest" loans, payments are
applied first to interest accrued
to the date payment is received,
then to principal.
(c) Payments of principal and interest
may be made monthly or at some
other interval, may be fixed for
the life of the loan, may increase
over a specified period of time or
may change from period to period.
Mortgage Loans may include limits
on periodic increases or decreases
in the amount of monthly payments
and may include maximum or minimum
amounts of monthly payments.
(d) Prepayments of principal may be
subject to a prepayment fee, which
may be fixed for the life of the
loan or may decline over time, and
may be prohibited for the life of
the loan or for certain periods
("lockout periods"). Certain loans
may permit prepayments after
expiration of the applicable
lockout period and may require the
payment of a prepayment fee in
connection with any such subsequent
prepayment. Other loans may permit
prepayments without payment of any
prepayment fee and others may
require the payment of a fee if the
prepayment occurs during specified
time periods. The loans may
include "due-on-sale" clauses which
permit the mortgagee to demand
payment of the entire mortgage loan
in connection with the sale or
certain transfers of the related
mortgaged property. Other loans
may be assumable by persons meeting
the then-applicable underwriting
standards of the Servicer or the
Master Servicer or such other
standards as are set forth in the
related Prospectus Supplement.
B. The Agency
Securities. . . . . The Agency Securities evidenced by a
Series of Certificates will consist of
any participation certificates, pass-
through certificates or other
obligations or interests backed directly
or indirectly by mortgage loans
("Mortgage-Backed Securities") issued or
guaranteed by FHLMC ("FHLMC
Securities"), FNMA ("FNMA Securities")
or GNMA ("GNMA Securities"), including
any portion, class or combination of
such FHLMC Securities, FNMA Securities
or GNMA Securities. "FHLMC" is the
Federal Home Loan Mortgage Corporation;
"FNMA" is the Federal National Mortgage
Association and "GNMA" is the Government
National Mortgage Association. Any GNMA
Security securing a Series will be
guaranteed as to full and timely payment
of principal and interest by GNMA, which
guarantee is backed by the full faith
and credit of the United States. Any
FHLMC Security or FNMA Security will not
be backed, directly or indirectly, by
the full faith and credit of the United
States. Agency Securities may be backed
by adjustable, fixed or variable rate
mortgage loans or graduated payment
mortgage loans.
C. Private Securities. "Private Securities" consist of
Mortgage-Backed Securities, including
any portion, class or combination
thereof, issued by one or more private
entities, as more specifically described
in the related Prospectus Supplement.
D. Contracts . . . . . Contracts will consist of conditional
sales contracts and installment sales or
loan agreements or participation
interests therein secured by new or used
Manufactured Homes (as defined herein).
Contracts may be conventional, insured
by the Federal Housing Administration
("FHA") or partially guaranteed by the
Veterans Administration ("VA"), as
specified in the related Prospectus
Supplement. Unless otherwise specified
in the related Prospectus Supplement,
each Contract will be fully amortizing
and will bear interest at a fixed
percentage rate ("APR").
Certificate Account. . With respect to each Trust Fund, the
Servicer or Master Servicer will be
obligated to establish an account or
accounts with the trustee into which it
will be obligated to deposit on the
dates specified in the related
Prospectus Supplement payments received
in respect of the assets in such Trust
Fund. If specified in the related
Prospectus Supplement, such payments
will be invested for the benefit of
Certificateholders for the periods and
in the investments specified in the
related Prospectus Supplement.
Advances . . . . . . . Unless otherwise specified in the
related Prospectus Supplement, the
Servicer or Master Servicer of the
Mortgage Loans or Contracts will be
obligated to advance delinquent
installments of principal and interest
(the latter adjusted as set forth in the
applicable Prospectus Supplement) on the
Mortgage Loans or Contracts in a Trust
Fund. Any such obligation to make
advances may be limited to amounts due
Holders of senior Certificates of the
related Series, to amounts deemed to be
recoverable from late payments or
liquidation proceeds, for specified
periods or any combination thereof, in
each case as specified in the related
Prospectus Supplement. Any such advance
will be recoverable by the Servicer or
Master Servicer as specified in the
related Prospectus Supplement.
Credit Enhancement . . If specified in the related Prospectus
Supplement, the Offered Certificates of
a Series, or certain classes of such
Offered Certificates, may have the
benefit of one or more of the following
types of credit enhancement. The
protection against losses afforded by
any such credit enhancement will be
limited.
A. Subordination . . . A Series of Certificates may include one
or more classes that are subordinate in
the right to receive distributions on
such Certificates to one or more senior
classes of Certificates of the same
Series, but only to the extent described
in the related Prospectus Supplement.
If specified in the related Prospectus
Supplement, subordination may apply only
in the event of certain types of losses
not covered by other forms of credit
enhancement, such as hazard losses not
covered by standard hazard insurance
policies or losses resulting from the
bankruptcy of the borrower.
If specified in the related Prospectus
Supplement, a reserve fund may be
established and maintained by the
deposit therein of distributions
allocable to the Holders of subordinate
Certificates or of any other class of
Certificate designated in the related
Prospectus Supplement until a specified
level is reached. The related
Prospectus Supplement will set forth
information concerning the amount of
subordination of a class or classes of
subordinate Certificates in a Series,
the circumstances in which such
subordination will be applicable, the
manner, if any, in which the amount of
subordination will decrease over time,
the manner of funding the reserve fund,
if any, and the conditions under which
amounts in any such reserve fund will be
used to make distributions to Holders of
senior Certificates or released from the
related Trust Fund.
B. Purchase of
Liquidating Loans . If specified in the related Prospectus
Supplement, a party identified in such
related Prospectus Supplement (the
"Responsible Party") will have a limited
obligation to cover losses due to
defaults with respect to the Mortgage
Loans by purchasing, on terms described
more fully under "Credit Enhancement --
Purchase of Liquidating Loans" herein
and in the related Prospectus
Supplement, any Mortgage Loan (a
"Liquidating Loan") as to which either
(i) liquidation proceedings have been
commenced and any equitable or statutory
right to reinstate such Mortgage Loan
has expired or (ii) the applicable
Servicer or Master Servicer has agreed
to accept a deed in lieu of foreclosure.
C. Limited Guarantee . If specified in the related Prospectus
Supplement, certain deficiencies in
principal or interest payments on the
Mortgage Loans resulting from the
bankruptcy of the related borrower, or
other amounts specified in the related
Agreement, may be covered by a financial
guarantee policy, limited guarantee or
other similar instrument (the "Limited
Guarantee"), limited in scope and
amount, issued by an entity named in the
related Prospectus Supplement (the
"Guarantor"). If so specified, the
Guarantor may be obligated to take one
or more of the following actions in the
event another party identified in the
Agreement fails to do so: make deposits
to the Certificate Account; make
advances; or purchase Liquidating Loans.
Any such Limited Guarantee will be
limited in amount and a portion of the
coverage of any such Limited Guarantee
may be separately allocated to certain
events. The scope, amount and, if
applicable, the allocation of any
Limited Guarantee will be described in
the related Prospectus Supplement.
D. Certificate Guarantee
Insurance . . . . . If specified in the related Prospectus
Supplement, certificate guarantee
insurance, if any, with respect to a
Series of Certificates will be provided
by one or more insurance companies.
Such certificate guarantee insurance
will guarantee, with respect to one or
more classes of Certificates of the
applicable Series, distributions of
principal and/or interest to the extent
and in the manner set forth in the
related Prospectus Supplement. If
specified in the related Prospectus
Supplement, the certificate guarantee
insurance also will guarantee against
any payment made to a Certificateholder
which is subsequently covered as a
"voidable preference" payment under the
Bankruptcy Code.
E. Cross-Support . . . If specified in the related Prospectus
Supplement, the beneficial ownership of
related groups of assets included in a
Trust Fund may be evidenced by separate
classes of the related Series of
Certificates. In such case, and if so
specified, credit enhancement may be
provided by a cross-support feature
which requires that distributions be
made with respect to Certificates
evidencing beneficial ownership of one
or more asset groups prior to
distributions to subordinate
Certificates evidencing a beneficial
ownership interest in other asset groups
within the same Trust Fund.
If specified in the related Prospectus
Supplement, the coverage provided by one
or more forms of credit enhancement may
apply concurrently to two or more
separate Trust Funds. If applicable,
the related Prospectus Supplement will
identify the Trust Funds to which such
credit enhancement relates and the
manner of determining the amount of the
coverage provided thereby and of the
application of such coverage to the
identified Trust Funds.
F. Pool and Special
Hazard Insurance. . In order to decrease the likelihood that
Certificateholders will experience
losses in respect of the Mortgage Loans
or Contracts, if specified in the
related Prospectus Supplement, the
Company may obtain one or more insurance
policies to cover (i) losses by reason
of defaults by borrowers (a "Mortgage
Pool Insurance Policy") and (ii) losses
by reason of hazards not covered under
the standard form of hazard insurance,
in each case up to the amounts, for the
periods and subject to the conditions
specified in the related Prospectus
Supplement. See "Credit Enhancement-
Pool Insurance" herein.
G. Reserve Accounts,
Other Insurance,
Guarantees and
Similar Instruments
and Agreements. . . In order to decrease the likelihood that
Certificateholders will experience
delays in the receipt of scheduled
payments on, and losses in respect of,
the assets in a Trust Fund, if specified
in the related Prospectus Supplement,
such Trust Fund may also include reserve
accounts, other insurance, guarantees
and similar instruments and agreements
entered into with the entities, in the
amounts, for the purposes and subject to
the conditions specified in the related
Prospectus Supplement.
Cash Flow Agreement. . If specified in the related Prospectus
Supplement, the Trust Fund may enter
into or obtain an assignment of a cash
flow agreement or similar agreement
pursuant to which the Trust Fund will
have the right to receive, and may have
the obligation to make, certain payments
of interest (or other payments) as set
forth or determined as described
therein.
Federal Income Tax
Consequences . . . . . The federal income tax consequences to
Certificateholders will depend on, among
other factors, whether an election is
made to treat the Trust Fund or
specified portions thereof as a "real
estate mortgage investment conduit"
("REMIC") under the provisions of the
Internal Revenue Code of 1986, as
amended (the "Code"). In general, in
the event that an election is made to
treat the Trust Fund or specified
portions thereof as a REMIC, the Regular
Certificates in the REMIC will be taxed
as newly originated debt instruments for
federal income tax purposes and an Owner
(as defined under "Federal Income Tax
Consequences") of a Residual Certificate
in the REMIC must report ordinary income
or loss equal to its pro rata share
(based on the portion of all Residual
Certificates it owns) of the taxable
income and net loss of the REMIC. In
general, if a REMIC election is not
made, the Trust Fund will be classified
as a grantor trust. In such a case the
Owner of a Certificate will be treated
as the owner of an undivided interest in
the Mortgage Loans (and any related
assets) included in the Trust Fund. See
"Federal Income Tax Consequences."
ERISA Considerations . A fiduciary of any employee benefit plan
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or a plan subject to
Section 4975 of the Code should
carefully review with its own legal
advisors whether the purchase or holding
of Certificates could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code.
See "ERISA Considerations."
Legal Investment
Matters. . . . . . . . Unless otherwise specified in the
related Prospectus Supplement, the
Offered Certificates will constitute
"mortgage related securities" under the
Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") and, as such, will
be legal investments for certain types
of institutional investors to the extent
provided in SMMEA, subject, in any case,
to any other regulations which may
govern investments by such institutional
investors. If specified in the related
Prospectus Supplement, all or certain
classes of the Offered Certificates may
not constitute "mortgage related
securities" under SMMEA. See "Legal
Investment Matters."
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other
things, the following factors in connection with a purchase of
the Offered Certificates:
General Risks of Real Estate Investments
An investment in Offered Certificates evidencing interest in
Mortgage Loans may be affected, among other things, by a decline
in real estate values or a decline in mortgage market rates. If
relevant residential real estate markets should experience an
overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the
Mortgaged Properties in a particular Mortgage Pool becomes equal
to or greater than the value of the Mortgaged Properties, the
actual rates of delinquencies, foreclosures and losses could be
higher than those otherwise generally experienced in the mortgage
lending industry. To the extent that such losses are not covered
by any applicable credit enhancements, Holders of the Offered
Certificates of a Series evidencing interests in such Mortgage
Pool will bear all risk of loss resulting from default by
borrowers and will have to look primarily to the value of the
Mortgaged Properties for recovery of the outstanding principal
and unpaid interest of the defaulted Mortgage Loans.
An investment in Offered Certificates evidencing interests
in Contracts may be affected by, among other things, a downturn
in regional or local economic conditions. These regional or
local economic conditions are often volatile, and historically
have affected the delinquency, loan loss and repossession
experience of Contracts. To the extent that losses on Contracts
are not covered by any applicable credit enhancements, Holders of
the Offered Certificates of a Series evidencing interests in such
Contracts will bear all risk of loss resulting from default by
obligors and will have to look primarily to the value of the
manufactured homes (which typically decline in value after
original purchase) for recovery of the outstanding principal and
unpaid interest of the defaulted Contracts.
Limited Obligation for Distributions on the Offered Certificates
The Offered Certificates will not represent an interest in
or obligation of the Company, Deutsche Bank, any person that has
made representations and warranties regarding the Mortgage Loans,
the Mortgage-Backed Securities or the Contracts, the Trustee, the
Servicer or Master Servicer or any other person or any of its
affiliates. Unless otherwise specified in the related Prospectus
Supplement, distributions on the Offered Certificates of a Series
will be made only from the assets of the related Trust Fund, and
the Offered Certificates will not be insured or guaranteed by the
Company or any affiliate thereof, any government agency or
instrumentality or any other person. Unless otherwise specified
in the related Prospectus Supplement, all of the Mortgage Loans
will be "non-recourse" loans, as to which the Trustee may look
only to the related Mortgaged Properties for satisfaction of
amounts due under the related Mortgage.
Lack of Established Market
There can be no assurance that a secondary market will
develop for the Offered Certificates of any Series, or, if it
does develop, that it will provide the Holders of Offered
Certificates of such Series with liquidity of investment or that
it will continue for the term of such Series of Certificates.
Limitations on Credit Enhancement Associated with the Offered
Certificates
If credit enhancements are provided with respect to a Series
of Certificates, the credit enhancements will not cover all
contingencies and will cover certain contingencies only to a
limited extent. If losses occur which exceed the amount covered
by credit enhancement or which are not covered by the credit
enhancement, Certificateholders will bear their allocable share
of deficiencies as described below and in more detail under
"Credit Enhancement."
For example, the aggregate distributions in respect of
delinquent payments on the Mortgage Loans or Contracts over the
lives of the Certificates or, at any time, the types of losses
and/or the aggregate amount of losses in respect of defaulted
Mortgage Loans or Contracts which must be borne by any Subordinated
Certificates by virtue of subordination and, therefore, the
amount of the distributions otherwise distributable to such
Subordinated Certificateholders that will be distributable to
Senior Certificateholders on any Distribution Date may be limited
as specified in the related Prospectus Supplement. If types of
losses occur which are not covered by subordination, or if
aggregate distributions in respect of delinquent payments on the
Mortgage Loans or Contracts or aggregate losses in respect of
such Mortgage Loans or Contracts were to exceed the total amounts
payable and available for distribution to Holders of Subordinated
Certificates or, if applicable, were to exceed the specified
maximum amount, Holders of Senior Certificates could experience
losses on the Certificates. Any obligation of a Responsible
Party to purchase Liquidating Loans may be limited to aggregate
losses (measured as the difference between the aggregate payments
made by the Responsible Party into the Certificate Account in
respect of Liquidating Loans and the aggregate net proceeds
received by the Responsible Party from the disposition of such
Loans) in an amount specified in the related Prospectus
Supplement. After this amount is exhausted, no further
Liquidating Loans will be purchased by the Responsible Party,
unless such amount has been restored as described under "Credit
Enhancement -- Other Arrangements for Credit Enhancement --
Purchase of Liquidating Loans." Any obligation of a Guarantor to
make deposits to the Certificate Account, make advances or
purchase Liquidating Loans under a Limited Guarantee will be
limited in amount, and a portion of the coverage of any such
Limited Guarantee may be separately allocated to certain events
such as Liquidating Loans due to special hazards not covered by
standard hazard insurance policies, Liquidating Loans due to the
bankruptcy of a borrower, and other Liquidating Loans.
Similarly, any certificate guarantee insurance policies, pool
insurance policies and special hazard insurance policies will be
subject to certain limitations and conditions described herein
and in the related Prospectus Supplement, which may limit the
amounts received by Certificateholders in case of losses.
Risk of Prepayment of and Defaults on Mortgage Loans
The prepayment experience on the Mortgage Loans or Contracts
or on the mortgage loans underlying the Mortgage-Backed
Securities will affect the average life of some or all of the
Offered Certificates. Prepayments on mortgage loans may be
influenced by a variety of economic, geographic, social and other
factors, including the difference between the interest rates on
mortgage loans and prevailing mortgage rates. In general, if
mortgage interest rates fall below the interest rates on such
mortgage loans, the rate of prepayment is likely to increase.
Conversely, if mortgage interest rates rise above the interest
rates on such mortgage loans, the rate of prepayment is likely to
decrease. Prepayments on any Contracts may be influenced by a
variety of economic, geographic, social and other factors,
including repossessions, aging, seasonality and interest rate
fluctuations. Other factors affecting prepayment of mortgage
loans or Contracts include changes in housing needs, job
transfers, unemployment and servicing decisions. Delays in
liquidations of defaulted Mortgage Loans and modifications
extending the maturity of Mortgage Loans will tend to extend the
payment of principal of the Mortgage Loans. Because the ability
of the Borrower to make a balloon payment typically will depend
upon its ability either to refinance the Mortgage Loan or to sell
the related Mortgaged Property, if a significant number of the
Mortgage Loans underlying a Series of Certificates have balloon
payments due at maturity, there is a risk that a number of such
Mortgage Loans may default at maturity, or that the Servicer or
Servicer, if any, may extend the maturity of a number of such
Mortgage Loans in connection with workouts. No representation or
warranty is made by the Company as to the ability of any of the
related borrowers to make required Mortgage Loan payments on a
full and timely basis, including balloon payments at the maturity
of these Mortgage Loans. In the case of defaults, recovery of
proceeds may be delayed by, among other things, bankruptcy of the
borrower or adverse conditions in the market where the Mortgaged
Property is located. Shortfalls in distributions to
Certificateholders also may result from losses incurred with
respect to Mortgage Loans due to uninsured risks or insufficient
hazard insurance proceeds and from any indemnification of the
Servicer in connection with legal actions relating to the
Agreement or Certificates. See "Yield, Maturity and Weighted
Average Life Considerations."
Limitations on Real Estate Lenders Imposed by State Laws
Many other legal aspects of the Mortgage Loans are governed
by applicable state laws (which may vary substantially). These
laws may affect the ability to foreclose on, and the value of,
the Mortgaged Properties securing the Mortgage Loans. For
example, state law determines what proceedings are required for
foreclosure, whether the borrower and any foreclosed junior
lienors may redeem the property, whether and to what extent
recourse to the borrower is permitted, what rights junior
mortgages have and whether the amount of fees and interest that
lenders may charge is limited. In addition, the laws of some
states may render certain provisions of the Mortgage Loans
unenforceable, such as prepayment provisions, due-on-sale and
acceleration provisions. Installment Contracts and Financial
Leases also may be subject to similar state law requirements.
See "Certain Legal Aspects of the Mortgage Loans and Contracts."
Delays in liquidations of defaulted Mortgage Loans and shortfalls
in amounts realized upon liquidation as a result of the
application of such laws may result in delays and shortfalls in
payments to Certificateholders.
Risks Associated with Contracts on Manufactured Homes
Each Contract is secured by a security interest in a
Manufactured Home. Perfection of security interests in
Manufactured Homes and enforcement of rights to realize upon the
value of Manufactured Homes as collateral for Contracts are
subject to a number of Federal and state laws, including the
Uniform Commercial Code as adopted in each state and each state's
certificate of title statutes. The steps necessary to perfect
the security interest in a Manufactured Home vary from state to
state. In addition, numerous Federal and state consumer
protection laws impose requirements on lending under conditional
sales contracts and installment loan agreements such as
manufactured housing contracts, and the failure by the lender or
seller of goods to comply with such requirements could give rise
to liabilities of assignees for amounts due under such
agreements. In addition, claims by such assignees may be subject
to set-off as a result of such lender's or seller's
noncompliance. These laws would apply to the Trustee as assignee
of the Contracts. Unless otherwise provided in the related
Prospectus Supplement, the seller of Contracts to the Company
will warrant that each Contract complies with all requirements of
law and will make certain warranties relating to the validity,
subsistence, perfection and priority of the security interest in
each Manufactured Home securing a Contract. A breach of any such
warranty that materially adversely affects any Contract would
create an obligation of such seller to repurchase such Contract
unless such breach is cured. If the recovery of amounts due on
Contracts is dependent on repossession and resale of Manufactured
Homes securing Contracts that are in default, certain other
factors may limit the ability of the Certificateholders to
realize upon the Manufactured Homes or may limit the amount
realized to less than the amount due.
Environmental Risks Relating to Mortgage Loans
Under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and under state law
in certain states, a secured party which takes a deed in lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale
or operates a mortgaged property may become liable in certain
circumstances for the costs of remedial action ("Cleanup Costs")
if hazardous wastes or hazardous substances have been released or
disposed of on the property. It is possible that such Cleanup
Costs could reduce the amounts otherwise distributable to the
Certificateholders if the related Trust Fund were deemed to be
liable for such Cleanup Costs and if such Cleanup Costs were
incurred. Moreover, under federal law and the law of certain
states, a lien may be imposed for any Cleanup Costs incurred by
federal or state authorities on the property that is the subject
of such Cleanup Costs. In the latter states, the security
interest of the Trustee in a Mortgaged Property that is subject
to such a lien could be adversely affected. See "Certain Legal
Aspects of the Mortgage Loans and Contracts -- The Mortgage Loans
- --Environmental Considerations."
Early Termination of the Trust Fund
The Trust Fund for a Series of Certificates may be subject
to optional termination by the Company, the Servicer, or Holders
of certain Classes of Certificates under certain circumstances.
In the event of such termination, Holders of the Offered
Certificates would receive some principal payments earlier than
otherwise, which could adversely affect their anticipated yield
to maturity. See "The Pooling and Servicing Agreements --
Termination".
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a
separate pooling and servicing agreement (each, an "Agreement")
entered into between the Company, as seller, one or more
Servicers or the Master Servicer of the Mortgage Loans or
Contracts included in the related Trust Fund, if any (each, a
"Servicer"), and a commercial bank or trust company named in the
related Prospectus Supplement, as trustee (the "Trustee") for the
benefit of Holders of Certificates of that Series. The
provisions of each Agreement will vary depending upon the nature
of the Certificates to be issued thereunder and the nature of the
related Trust Fund. The Agreement will be substantially in the
form filed as an exhibit to the Registration Statement of which
this Prospectus is a part, or in such similar form as will
reflect the terms of the Offered Certificates described in the
related Prospectus Supplement. The following summaries describe
certain provisions which may appear in each Agreement. The
related Prospectus Supplement for the Offered Certificates of a
Series will describe any additional provisions of the Agreement
relating to such Certificates.
Unless otherwise specified in the related Prospectus
Supplement, the Certificates of a Series will be entitled to
payment only from the assets included in the Trust Fund related
to such Series and will not be entitled to payments in respect of
the assets included in any other trust fund established by the
Company. The Certificates will not represent obligations of the
Company, Deutsche Bank or any of their affiliates and will not be
guaranteed by any governmental agency or any other person.
Unless otherwise specified in the related Prospectus Supplement,
the Company's only obligations with respect to the Certificates
will consist of its obligations pursuant to any representations
and warranties, if any, made by it. Unless otherwise specified
in the related Prospectus Supplement, none of Deutsche Bank or
its affiliates or any affiliate of the Company will have any
obligations with respect to the Certificates or the related Trust
Fund.
The Mortgage Loans will not be, and the Contracts may not
be, insured or guaranteed by any governmental entity or, except
as specified in the related Prospectus Supplement, by any other
person. To the extent that delinquent payments on or losses in
respect of defaulted Mortgage Loans or Contracts are not advanced
by the Servicer or Master Servicer or any other entity or paid
from any applicable credit enhancement arrangement, such
delinquencies may result in delays in the distribution of
payments to the Holders of one or more classes of Certificates,
and such losses will be borne by the Holders of one or more
classes of Certificates.
General
The Certificates of each Series will be issued in registered
or book-entry form. The minimum original Certificate Principal
Balance or Notional Principal Balance that may be represented by
each Offered Certificate (the "denomination") will be specified
in the related Prospectus Supplement. The original Certificate
Principal Balance of each Certificate will equal the aggregate
distributions allocable to principal to which such Certificate is
entitled. Unless otherwise specified in the Prospectus
Supplement, distributions allocable to interest on each
Certificate that is not entitled to distributions allocable to
principal will be calculated based on the Notional Principal
Balance of such Certificate. The Notional Principal Balance of a
Certificate will not evidence an interest in or entitlement to
distributions allocable to principal but will be used solely for
convenience in expressing the calculation of interest and for
certain other purposes.
The Certificates of each Series issued in physical form
("Definitive Certificates") will be transferable and exchangeable
on a certificate register (the "Certificate Register") to be
maintained at the corporate trust office of the Trustee or such
other office or agency maintained for such purposes by the
Trustee in New York City. Unless otherwise specified in the
related Prospectus Supplement, under each Agreement, the Trustee
will initially be appointed as the certificate registrar. Unless
otherwise specified in the related Prospectus Supplement, no
service charge will be made for any registration of transfer or
exchange of Certificates, but payment of a sum sufficient to
cover any tax or other governmental charge may be required.
If specified in the related Prospectus Supplement, the
Certificates may be transferable only in book-entry form through
the facilities of The Depository Trust Company or another
depository identified in such Prospectus Supplement. If
specified in the related Prospectus Supplement, arrangements may
be made for clearance and settlement through the Euroclear System
and CEDEL, S.A., if they are participants of the depository.
If the Certificates of a Class are transferable only on the
books of The Depository Trust Company (together with any
successor depository selected by the Company, the "Depository"),
no person acquiring a Certificate that is in book-entry form
(each, a "beneficial owner") will be entitled to receive a
physical certificate representing such Certificate. Instead, the
Certificates will be registered in the name of a nominee of the
Depository, and beneficial interests therein will be held by
investors through the book-entry facilities of the Depository, as
described herein. The Company has been informed by the
Depository that its nominee will be Cede & Co. Accordingly, Cede
& Co. is expected to be the Holder of record of any Certificates
that are in book-entry form.
If the Certificates of a Class are transferable only on the
books of the Depository, each beneficial owner's ownership of a
Certificate will be recorded on the records of the brokerage
firm, bank, thrift institution or other financial intermediary
(each, a "Financial Intermediary") that maintains the beneficial
owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Certificate will be recorded on
the records of the Depository (or of a participating firm that
acts as agent for the Financial Intermediary, whose interest will
in turn be recorded on the records of the Depository, if the
beneficial owner's Financial Intermediary is not a Depository
participant). Therefore, the beneficial owner must rely on the
foregoing procedures to evidence its beneficial ownership of such
a Certificate. Beneficial ownership of a Certificate may be
transferred only in compliance with the procedures of such
Financial Intermediaries and Depository participants.
The Depository, which is a New York-chartered limited
purpose trust company, performs services for its participants,
some of whom (and/or their representatives) own the Depository.
In accordance with its normal procedure, the Depository is
expected to record the positions held by each Depository
participant in the Certificates, whether held for its own account
or as a nominee for another person. In general, beneficial
ownership of Certificates will be subject to the rules,
regulations and procedures governing the Depository and
Depository participants as are in effect from time to time.
If the Certificates are transferable only on the books of
the Depository, the Depository, or its nominee as record Holder
of the Certificates, will be recognized by the Company and the
Trustee as the owner of the Certificates for all purposes,
including notices and consents. In the event of any solicitation
of consents from or voting by Certificateholders pursuant to the
Agreement, the Trustee may establish a reasonable record date and
give notice of such record date to the Depository. In turn, the
Depository will solicit votes from the beneficial owners in
accordance with its normal procedures, and the beneficial owners
will be required to comply with such procedures in order to
exercise their voting rights through the Depository.
Distributions of principal of and interest on the
Certificates will be made on each Distribution Date to the
Depository or its nominee. The Depository will be responsible
for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the
Depository's normal procedures. Each Depository participant will
be responsible for disbursing such payments to the beneficial
owners for which it is holding Certificates and to each Financial
Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the
beneficial owners of the offered Certificates that it represents.
Under a book-entry format, beneficial owners of the
Certificates may experience some delay in their receipt of
payments, since such payments will be forwarded by the Trustee to
the Depository. Because the Depository can act only on behalf of
Financial Intermediaries, the ability of a beneficial owner to
pledge Certificates to persons or entities that do not
participate in the Depository system, or otherwise take actions
in respect of such Certificates, may be limited due to the lack
of physical certificates for such Certificates. In addition,
issuance of the Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary market since
certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
The Depository has advised the Company and the Trustee that,
unless and until Definitive Certificates are issued, the
Depository will take any action permitted to be taken by a
Certificateholder under the Agreement only at the direction of
one or more Financial Intermediaries to whose Depository accounts
the Certificates are credited. The Depository may take
conflicting actions with respect to other Certificates to the
extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Certificates.
Definitive Certificates will be issued to beneficial owners
of the related Certificates, or their nominees, rather than to
the Depository, only if (a) the Depository or the Company advises
the Trustee in writing that the Depository is no longer willing,
qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the Certificates and the
Company or the Trustee is unable to locate a qualified successor;
(b) the Company, at its sole option, elects to terminate the
book-entry system through the Depository; or (c) after the
occurrence of an Event of Default (as defined below) beneficial
owners of the Certificates aggregating not less than 51% of the
aggregate voting rights allocated thereto advise the Trustee and
the Depository through the Financial Intermediaries in writing
that the continuation of a book-entry system through the
Depository (or a successor thereto) is no longer in the best
interests of beneficial owners of the Certificates.
Upon the occurrence of any of the events described in the
immediately preceding paragraph, the Trustee will be required to
notify all beneficial owners of the occurrence of such event and
the availability through the Depository of Definitive
Certificates. Upon surrender by the Depository of the global
certificate or certificates representing the Certificates and
instructions for re-registration, the Trustee will be required to
issue the Definitive Certificates, and thereafter the Trustee
will be required to recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
Following the issuance of Definitive Certificates, distribution
of principal and interest on the Certificates will be required to
be made by the Trustee directly to holders of Definitive
Certificates in accordance with the procedures set forth in the
Agreement.
The information herein concerning the Depository and its
book-entry system has been obtained from sources believed to be
reliable, but the Company takes no responsibility for the
accuracy of completeness thereof.
In the event a depository other than The Depository Trust
Company is identified in a Prospectus Supplement, information
similar to that set forth above will be provided with respect to
such depository and its book-entry facilities in such Prospectus
Supplement.
Classes of Certificates
Each Series of Certificates will be issued in a single class
or in two or more classes. Each class of Offered Certificates
will evidence beneficial ownership of (i) any distributions in
respect of the assets of the Trust Fund that are allocable to
principal, in the aggregate amount of the original Certificate
Principal Balance, if any, of such class of Offered Certificates
as specified in the related Prospectus Supplement and (ii) any
distributions in respect of the assets of the Trust Fund that are
allocable to interest on the Certificate Principal Balance or
Notional Principal Balance of such Offered Certificates from time
to time at the Certificate Interest Rate (as defined below), if
any, applicable to such class of Offered Certificates as
specified in the related Prospectus Supplement. If specified in
the related Prospectus Supplement, one or more classes of a
Series of Certificates may evidence beneficial ownership
interests in separate groups of assets included in the related
Trust Fund.
If specified in the related Prospectus Supplement, the
Certificates will have an aggregate original Certificate
Principal Balance equal to the aggregate unpaid principal balance
of the Mortgage Loans, Mortgage-Backed Securities or Contracts as
of the close of business on the first day of the month of
creation of the Trust Fund (the "Cut-off Date") after deducting
payments of principal due on or before, and prepayments of
principal received before, the Cut-off Date and will bear
interest equal to the weighted average of the Remittance Rates.
The Remittance Rate will equal the rate of interest payable on
each Mortgage Loan or Contract minus the servicing fee of any
third party servicer of the Mortgage Loans or Contracts and such
other amounts (including fees payable to the Servicer and/or
Master Servicer, if applicable) as are specified in the related
Prospectus Supplement. If specified in the related Prospectus
Supplement, the original Certificate Principal Balances of the
Certificates and the Certificate Interest Rates on the classes of
Certificates will be determined based on the cash flow on the
Mortgage Loans, Mortgage-Backed Securities or Contracts, as the
case may be. The Certificates may have original Certificate
Principal Balances as determined in the manner specified in the
related Prospectus Supplement.
Each class of Offered Certificates that is entitled to
distributions allocable to interest will bear interest at a fixed
rate or a rate that is subject to change from time to time (a) in
accordance with a schedule, (b) in reference to an index, or
(c) otherwise (each, a "Certificate Interest Rate"), in each case
as specified in the related Prospectus Supplement. One or more
classes of Certificates may provide for interest that accrues,
but is not currently payable ("Accrual Certificates"). With
respect to any class of Accrual Certificates, if specified in the
related Prospectus Supplement, any interest that has accrued but
is not paid on a given Distribution Date (as defined below under
"Distributions of Principal and Interest") will be added to the
aggregate Certificate Principal Balance of such class of
Certificates on that Distribution Date.
A Series of Certificates may include one or more classes
entitled only to distributions (i) allocable to interest,
(ii) allocable to principal (and/or allocable as between
scheduled payments of principal and Principal Prepayments, as
defined below) or (iii) allocable to both principal (and/or
allocable as between scheduled payments of principal and
Principal Prepayments) and interest. A Series of Certificates
may consist of one or more classes as to which distributions will
be allocated (i) on the basis of collections from designated
portions of the assets of the Trust Fund, (ii) in accordance with
a schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise, in each case as specified in the
related Prospectus Supplement. The timing and amounts of such
distributions may vary among classes, over time or otherwise, in
each case as specified in the related Prospectus Supplement.
The taking of action with respect to certain matters under
the Agreement, including certain amendments thereto, will require
the consent of the Holders of the Certificates. The voting
rights allocated to each class of Certificates will be specified
in the related Prospectus Supplement. Votes may be allocated in
different proportions among classes of Certificates.
Distributions of Principal and Interest
General. Distributions of principal and/or interest at the
applicable Certificate Interest Rate, if any, on the Offered
Certificates will be made by the Trustee to the extent of funds
available on the dates specified and calculated as described in
the related Prospectus Supplement (each, a "Distribution Date")
or otherwise in accordance with the procedures described in the
related Prospectus Supplement, and may be made monthly,
quarterly, semiannually or at such other intervals as are
specified in the related Prospectus Supplement. Distributions
will be made to the persons in whose names the Certificates are
registered at the close of business on the dates specified in the
related Prospectus Supplement (each, a "Record Date").
Distributions will be made by check or money order mailed to the
person entitled thereto at the address appearing in the
Certificate Register or, if specified in the related Prospectus
Supplement, in the case of Certificates that are of a certain
minimum denomination as specified in the related Prospectus
Supplement, upon written request by the Certificateholder, by
wire transfer or by such other means as are agreed upon with the
person entitled thereto; provided, however, that the final
distribution in retirement of the Certificates will be made only
upon presentation and surrender of the Certificates at the office
or agency of the Trustee specified in the notice to
Certificateholders of such final distribution.
Distributions allocable to principal and interest on the
Certificates will be made by the Trustee out of, and only to the
extent of, funds in a separate account established and maintained
under the Agreement for the benefit of Holders of the
Certificates of the related Series (the "Certificate Account"),
including any funds transferred from any Reserve Account. As
between Certificates of different classes and as between
distributions of principal (and, if applicable, between
distributions of Principal Prepayments and scheduled payments of
principal) and interest, distributions made on any Distribution
Date will be applied as specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus
Supplement, distributions to any class of Offered Certificates
will be made pro rata to all Certificateholders of that class.
If specified in the related Prospectus Supplement, the amounts
received by the Trustee as described below under "The Trust Fund"
will be invested in the eligible investments specified herein and
in the related Prospectus Supplement and all income or other gain
from such investments will be deposited in the Certificate
Account and will be available to make payments on the
Certificates on the next succeeding Distribution Date in the
manner specified in the related Prospectus Supplement.
Distributions of Interest. Unless otherwise specified in
the related Prospectus Supplement, interest will accrue on the
aggregate Certificate Principal Balance (or, in the case of
Certificates entitled only to distributions allocable to
interest, the aggregate Notional Principal Balance) of each class
of Offered Certificates entitled to interest from the date, at
the Certificate Interest Rate and for the periods (each, an
"Interest Accrual Period") specified in the related Prospectus
Supplement. To the extent funds are available therefor, interest
accrued during each Interest Accrual Period on each class of
Certificates entitled to interest (other than a class of Accrual
Certificates) will be distributable on the Distribution Dates
specified in the related Prospectus Supplement until such class
has been retired or otherwise in accordance with the procedures
described in the related Prospectus Supplement. In the case of
Offered Certificates entitled only to distributions allocable to
interest, interest will be distributable thereon until the
aggregate Notional Principal Balance of such Certificates is
reduced to zero or for the period of time determined as specified
in the related Prospectus Supplement. Unless otherwise specified
in the Prospectus Supplement, distributions of interest on each
class of Accrual Certificates will commence only after the
occurrence of the events specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus
Supplement, prior to such time, the aggregate Certificate
Principal Balance of each such class of Accrual Certificates will
increase on each Distribution Date by the amount of interest that
accrued on such class of Accrual Certificates during the
preceding Interest Accrual Period net of the amount of any
principal and interest required to be distributed to such class
on such Distribution Date. Any such class of Accrual
Certificates will thereafter accrue interest on its outstanding
Certificate Principal Balance as so adjusted.
When a Mortgage Loan or Contract prepays in full, the
borrower generally will be required to pay interest on the amount
of prepayment only to the date of prepayment. When a partial
prepayment of principal is made on a Mortgage Loan (other than a
simple interest home equity loan), the borrower generally will
not be required to pay interest on the amount of the partial
prepayment during the month in which such prepayment is made. If
specified in the related Prospectus Supplement, the Servicer will
be obligated to offset any such prepayment interest shortfalls
attributable to full or partial prepayments on Mortgage Loans by
the borrowers to the extent of its servicing compensation for the
related Distribution Date. In addition, unless otherwise
specified in the related Prospectus Supplement, a full or partial
prepayment will not be required to be passed through to
Certificateholders until the month following receipt.
Accordingly, the effect of any principal prepayments, to the
extent that any resulting shortfall exceeds any payments made by
the Servicer from its own funds, will be to reduce or delay the
aggregate amount of interest collected that is available for
distribution to Certificateholders. Any such shortfalls will be
allocated among the Certificates as provided in the related
Prospectus Supplement.
Distributions of Principal. Unless otherwise specified in
the related Prospectus Supplement, the aggregate Certificate
Principal Balance of any class of Certificates entitled to
distributions of principal will be the aggregate original
Certificate Principal Balance of such class of Certificates
specified in the related Prospectus Supplement, reduced by all
distributions to the Holders of such Certificates allocable to
principal, and, in the case of Accrual Certificates, unless
otherwise specified in the related Prospectus Supplement,
increased by all interest accrued but not then distributable on
such Accrual Certificates. The related Prospectus Supplement
will specify the method by which the amount of principal to be
distributed on the Offered Certificates on each Distribution Date
will be calculated and the manner in which such amount will be
allocated among the classes of Offered Certificates entitled to
distributions of principal.
The related Prospectus Supplement for any Series of
Certificates will specify, for any Distribution Date on which the
principal balance of the Mortgage Loans is reduced due to losses,
the priority and manner in which such losses will be allocated.
Losses on Mortgage Loans generally will be allocated after all
proceeds of a defaulted Mortgage Loans have been received, by
reducing the outstanding Certificate Principal Balance of the
most subordinate outstanding Class of Certificates.
If so provided in the related Prospectus Supplement, one or
more classes of senior Certificates will be entitled to receive
all or a disproportionate percentage of the payments or other
recoveries of principal on a Mortgage Loan or Contract or on the
mortgage loans underlying any Mortgage-Backed Security which are
received in advance of their scheduled due dates and not
accompanied by amounts of interest representing scheduled
interest due after the month of such payments ("Principal
Prepayments") in the percentages and under the circumstances or
for the periods specified in the related Prospectus Supplement.
Any such allocation of Principal Prepayments to such class or
classes of Certificateholders will have the effect of
accelerating the amortization of such senior Certificates while
increasing the percentage interests evidenced by the subordinated
Certificates in the Trust Fund. Increasing the interests of the
subordinated Certificates relative to that of the senior
Certificates is intended to preserve the availability of the
subordination provided by the subordinated Certificates. See
"Credit Enhancement - Subordination" herein.
Unscheduled Distributions. If specified in the related
Prospectus Supplement, the Certificates will be subject to
receipt of distributions before the next scheduled Distribution
Date under the circumstances and in the manner described below
and in the related Prospectus Supplement. If applicable, the
Trustee will be required to make such unscheduled distributions
on the day and in the amount specified in the related Prospectus
Supplement if, due to substantial payments of principal
(including Principal Prepayments) on the Mortgage Loans,
Mortgage-Backed Securities or Contracts, low rates then available
for reinvestment of such payments or both, the Trustee
determines, based on the assumptions specified in the Agreement,
that the amount anticipated to be on deposit in the Certificate
Account on the next Distribution Date, together with, if
applicable, any amounts available to be withdrawn from any
Reserve Account, may be insufficient to make required
distributions on the Certificates on such Distribution Date.
Unless otherwise specified in the related Prospectus Supplement,
the amount of any such unscheduled distribution that is allocable
to principal will not exceed the amount that would otherwise have
been required to be distributed as principal on the Certificates
on the next Distribution Date. Unless otherwise specified in the
related Prospectus Supplement, all unscheduled distributions will
include interest at the applicable Certificate Interest Rate (if
any) on the amount of the unscheduled distribution allocable to
principal for the period and to the date specified in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus
Supplement, all distributions allocable to principal in any
unscheduled distribution will be made in the same priority and
manner as distributions of principal on the Certificates would
have been made on the next Distribution Date, and with respect to
Certificates of the same class, unscheduled distributions of
principal will be made on a pro rata basis. Notice of any
unscheduled distribution will be given by the Trustee prior to
the date of such distribution.
Optional Termination of the Trust Fund
If specified in the related Prospectus Supplement, the
Company, the Servicer, the Master Servicer or the Holders of one
or more classes of Certificates specified in the related
Prospectus Supplement may, at its or their option, effect early
termination of the Trust Fund, on any Distribution Date after the
time specified in the related Prospectus Supplement, by
purchasing all of the Certificates or the assets in the Trust
Fund at a price and in accordance with the procedures specified
in the related Prospectus Supplement. The proceeds of such sale
will be applied on such Distribution Date to the distribution in
full of the Certificate Principal Balance of each outstanding
Certificate entitled to distributions allocable to principal and
to accrued interest at the applicable Certificate Interest Rate
to the date specified in the related Prospectus Supplement on
each Certificate entitled to distributions allocable to interest,
or to such other amount as is specified in the related Prospectus
Supplement. Notice of such optional termination will be given by
the Trustee prior to such Distribution Date.
Certificate Ratings
At the time of issuance, it is anticipated that the Offered
Certificates of each Series will be rated "investment grade,"
typically one of the four highest generic rating categories, by
at least one nationally recognized statistical rating
organization at the request of the Company. Each of such rating
organizations specified in the related Prospectus Supplement as
rating the Offered Certificates of the related Series at the
request of the Company is hereinafter referred to as a "Rating
Agency." 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. There can be no
assurance as to whether any rating agency not requested to rate
the Offered Certificates will nonetheless issue a rating and, if
so, what such rating would be. A rating assigned to the Offered
Certificates by a Rating Agency that has not been requested by
the Company to do so may be lower than the rating assigned by a
rating agency pursuant to the Company's request.
THE TRUST FUND
The Trust Fund for a Series of Certificates may consist of
(i) the Mortgage Loans, Mortgage-Backed Securities or Contracts
as described herein or in the related Prospectus Supplement, as
the case may be, subject to the Agreement from time to time (and
subject, if specified in the related Prospectus Supplement, to
certain exclusions); (ii) all payments (subject, if specified in
the related Prospectus Supplement, to certain exclusions) in
respect of such assets adjusted, in the case of interest
payments, to the applicable Remittance Rates; (iii) if specified
in the related Prospectus Supplement, reinvestment income on such
payments; (iv) all property acquired by foreclosure or deed in
lieu of foreclosure with respect to any Mortgage Loan or by
repossession with respect to any Contract; (v) all rights under
any private mortgage insurance policies and any other insurance
policies required to be maintained in respect of the Mortgage
Loans or Contracts; and (vi) if so specified in the related
Prospectus Supplement, one or more of the following: (1) any
Reserve Accounts; (2) any Limited Guarantees (as defined herein);
and (3) any pool insurance, special hazard insurance or other
insurance, guarantee or similar instruments or agreements.
Unless otherwise specified in the related Prospectus
Supplement, the Certificates will be entitled to payment only
from the assets of the Trust Fund and will not be entitled to
payments in respect of the assets of any other trust fund
established by the Company. Unless otherwise specified in the
related Prospectus Supplement, the primary assets of any Trust
Fund will consist of Mortgage Loans, Mortgage-Backed Securities
or Contracts.
The Mortgage Loans, Mortgage-Backed Securities and Contracts
to be included in the Trust Funds will be acquired by the
Company. The following is a brief description of the Mortgage
Loans, Mortgage-Backed Securities, Contracts or other assets
expected to be included in the Trust Funds. If specific
information respecting the Mortgage Loans, Mortgage-Backed
Securities, Contracts and other assets is not known at the time
the related Offered Certificates initially are offered, more
general information of the nature described below will be
provided in the related Prospectus Supplement, and specific
information will be set forth in a report on Form 8-K to be filed
with the Securities and Exchange Commission within fifteen days
after the initial issuance of such Certificates (the "Detailed
Description"). A copy of the Agreement with respect to each
Series of Certificates will be attached to the Form 8-K and will
be available as described under "Available Information." A
schedule of the Mortgage-Backed Securities, Mortgage Loans or
Contracts, as appropriate, relating to such Series, will be
attached to the Agreement delivered to the Trustee upon delivery
of the Certificates.
The Mortgage Loans
Description of the Mortgage Loans. The Mortgage Loans will
be evidenced by promissory notes (the "Mortgage Notes") secured
by mortgages or deeds of trust (the "Mortgages") creating first,
second or more junior liens on residential properties. Such
Mortgage Loans will be within the broad classification of one- to
four-family mortgage loans, defined generally as loans on
residences containing one to four dwelling units, loans on
condominium units, and multifamily residential loans on rental
apartment buildings or cooperatively-owned properties containing
more than five residential units. The Mortgage Loans may include
cooperative apartment loans ("Cooperative Loans") secured by
security interests in shares issued by private, non-profit,
cooperative housing corporations ("Cooperatives") and in the
related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in such
Cooperatives' buildings. The Mortgaged Properties securing the
Mortgage Loans will be located in one or more states, territories
or possessions of the United States or the District of Columbia
and may include investment properties and vacation and second
homes.
If specified in the related Prospectus Supplement, all or a
portion of the Mortgage Loans included in a Trust Fund may be
home equity loans secured by first, second and/or more junior
liens on Mortgaged Properties. Interest on home equity loans
will be calculated on the basis of either a 360-day year or 365-
day year, depending on applicable state law. Unless otherwise
specified in the related Prospectus Supplement, interest with
respect to home equity loans will accrue on a simple interest
basis. Under the simple interest method, regularly scheduled
payments (which are based on the amortization of the loan over a
series of equal monthly payments) and other payments are applied
first to interest accrued to the date payment is received, then
to principal. See "Yield, Maturity and Weighted Average Life
Considerations."
Unless otherwise specified in the related Prospectus
Supplement, principal and interest on the Mortgage Loans (other
than home equity loans that employ the simple interest method)
will be payable on the first day of each month, and interest will
be calculated based on a 360-day year of twelve 30-day months.
When a full payment of principal is made on a Mortgage Loan
during a month, the borrower is charged interest only on the days
of the month actually elapsed up to the date of such prepayment,
at a daily interest rate that is applied to the principal amount
of the loan so prepaid. When a partial prepayment of principal
is made on a Mortgage Loan (other than a home equity loan) during
a month, the borrower generally will not be charged interest on
the amount of the partial prepayment during the month in which
such prepayment is made.
The Company also may acquire "balloon loans." If specified
in the related Prospectus Supplement, the home equity loans may
include balloon loans. Notwithstanding the actual maturity of a
balloon loan, level monthly payments on such a balloon loan would
typically be calculated on an amortization schedule based on a
longer maturity. As a result, upon the maturity of a balloon
loan, the borrower will be required to make a "balloon" payment,
which will be significantly larger than such borrower's previous
monthly payments. The ability of such borrower to repay the
balloon loan at maturity frequently will depend on such
borrower's ability to refinance the loan.
The payment terms of the Mortgage Loans to be included in a
Trust Fund will be described in the related Prospectus Supplement
and may include any of the following features or combinations
thereof or other features described in the related Prospectus
Supplement:
(a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to an index, a rate that
is fixed for a period of time or under certain circumstances and
is followed by an adjustable rate, a rate that otherwise varies
from time to time, or a rate that is convertible from an
adjustable rate to a fixed rate. Changes to an adjustable rate
may be subject to periodic limitations, maximum rates, minimum
rates or a combination of such limitations. Accrued interest may
be deferred and added to the principal of a loan for such periods
and under such circumstances as may be specified in the related
Prospectus Supplement. Mortgage Loans may provide for the
payment of interest at a rate lower than the specified mortgage
rate for a period of time or for the life of the loan with the
amount of any difference contributed from funds supplied by the
seller of the mortgaged property or another source.
(b) Principal may be payable on a level debt service basis
to fully amortize the loan over its term, may be calculated on
the basis of an amortization schedule that is significantly
longer than the original term to maturity or on an interest rate
that is different from the interest rate on the Mortgage Loan or
may not be amortized during all or a portion of the original
term. Payment of all or a substantial portion of the principal
may be due on maturity. Principal may include interest that has
been deferred and added to the principal balance of the Mortgage
Loan. In the case of home equity loans, which may be "simple
interest" loans, payments are applied first to interest accrued
to the date payment is received, then to principal.
(c) Payments of principal and interest may be made monthly
or at some other interval, may be fixed for the life of the loan,
may increase over a specified period of time or may change from
period to period. Mortgage Loans may include limits on periodic
increases or decreases in the amount of monthly payments and may
include maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the loan or may decline
over time, and may be prohibited for the life of the loan or for
certain periods ("lockout periods"). Certain loans may permit
prepayments after expiration of the applicable lockout period and
may require the payment of a prepayment fee in connection with
any such subsequent prepayment. Other loans may permit
prepayments without payment of a fee unless the prepayment occurs
during specified time periods. The loans may include
"due-on-sale" clauses which permit the mortgagee to demand
payment of the entire mortgage loan in connection with the sale
or certain transfers of the related mortgaged property. Other
Mortgage Loans may be assumable by persons meeting the then-
applicable underwriting standards of the Servicer or the Master
Servicer or such other standards as are set forth in the related
Prospectus Supplement.
If specified in the related Prospectus Supplement, the
Mortgage Loans will consist primarily of Mortgage Loans secured
by Mortgaged Properties determined by the originator to be the
primary residences of the borrowers. The basis for such
determination will be the making of a representation at
origination by the borrower that the borrower intends to use the
underlying property as the borrower's primary residence.
The related Prospectus Supplement will contain information
regarding the interest rates (the "Mortgage Rates"), the average
Principal Balance and the aggregate Principal Balance of the
Mortgage Loans as of the related Cut-off Date, the years of
origination and original principal balances and the original
loan-to-value ratios of the Mortgage Loans. The "Principal
Balance" of any Mortgage Loan will be the unpaid principal
balance of such Mortgage Loan as of the Cut-off Date, after
deducting any principal payments due on or before the Cut-off
Date, reduced by all principal payments, including principal
payments advanced pursuant to the Agreement, previously
distributed to Certificateholders with respect to such Mortgage
Loan and reported to them as allocable to principal. The related
Prospectus Supplement will also contain information regarding the
geographic distribution and nature of the Mortgaged Properties
securing the Mortgage Loans.
The loan-to-value ratio of any Mortgage Loan will be
determined as specified in the related Prospectus Supplement.
The "Combined Loan-to-Value Ratio" of a Mortgage Loan is
calculated taking into account the amounts of any related senior
mortgage loans.
There can be no assurance that the original Principal
Balance will reflect actual real estate values during the term of
a Mortgage Loan. If the residential real estate market should
experience an overall decline in property values such that the
outstanding Principal Balances of the Mortgage Loans become equal
to or greater than the values of the Mortgaged Properties, the
actual rates of delinquencies, foreclosures and losses could be
significantly higher than those now generally experienced in the
mortgage lending industry. In addition, adverse economic
conditions (which may or may not affect real estate values) may
affect the timely and ultimate payment by borrowers of scheduled
payments of principal and interest on the Mortgage Loans and,
accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to the Mortgage Loans.
Underwriting and Interim Servicing Standards Applicable to the
Mortgage Loans
The Mortgage Loans underlying the Certificates of a Series
will be acquired, generally by Deutsche Bank, from third parties
and may be newly-originated or seasoned Mortgage Loans. The
origination standards and procedures applicable to such Mortgage
Loans may differ from Series to Series or among the Mortgage
Loans in a given Trust Fund, depending on the identity of the
originator or originators. In the case of seasoned Mortgage
Loans, the procedures by which such Mortgage Loans have been
serviced from their origination to the time of their inclusion in
the related Trust Fund may also differ from Series to Series or
among the Mortgage Loans in a given Trust Fund.
The related Prospectus Supplement for each Series will
provide information as to the origination standards and
procedures applicable to the Mortgage Loans in the related Trust
Fund and, to the extent applicable and material, will provide
information as to the servicing of such Mortgage Loans prior to
their inclusion in the Trust Fund.
The Agency Securities
The Agency Securities generally will be securities
guaranteed by GNMA or issued by FHLMC or FNMA and based on pools
of residential mortgage loans.
Government National Mortgage Association. GNMA is a
wholly-owned corporate instrumentality of the United States
within the United States Department of Housing and Urban
Development ("HUD"). Section 306(g) of Title III of the National
Housing Act of 1934, as amended (the "Housing Act"), authorizes
GNMA to guarantee the timely payment of the principal of and
interest on certificates which represent an interest in a pool of
mortgage loans insured by FHA under the Housing Act, or Title V
of the Housing Act of 1949 ("FHA Loans"), or partially guaranteed
by the VA under the Servicemen's Readjustment Act of 1944, as
amended, or Chapter 37 of Title 38, United States Code ("VA
Loans").
Section 306(g) of the Housing Act provides that "the full
faith and credit of the United States is pledged to the payment
of all amounts which may be required to be paid under any
guarantee under this subsection." In order to meet its
obligations under any such guarantee, GNMA may, under
Section 306(d) of the Housing Act, borrow from the United States
Treasury in an amount which is at any time sufficient to enable
GNMA, with no limitations as to amount, to perform its
obligations under its guarantee.
GNMA Securities. In general, a GNMA Security relating to a
Series (which may be issued under either the GNMA I program or
the GNMA II program) will be a "fully modified pass-through"
mortgage-backed certificate issued and serviced by a mortgage
banking company or other financial concern ("GNMA Issuer")
approved by GNMA or approved by FNMA as a seller-servicer of FHA
Loans and/or VA Loans. The mortgage loans underlying the GNMA
Securities will consist of FHA Loans and/or VA Loans. GNMA will
approve the issuance of each such GNMA Security in accordance
with a guarantee agreement (a "Guaranty Agreement") between GNMA
and the GNMA Issuer. Pursuant to its Guaranty Agreement, a GNMA
Issuer will be required to advance its own funds in order to make
timely payments of all amounts due on each such GNMA Security,
even if the payments received by the GNMA Issuer on the FHA Loans
or VA Loans underlying each such GNMA Security are less than the
amounts due on each such GNMA Security.
The full and timely payment of principal of and interest on
each GNMA Security will be guaranteed by GNMA, which obligation
is backed by the full faith and credit of the United States.
Each such GNMA Security will have an original maturity of not
more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Security will
be based on and backed by a pool of FHA Loans or VA Loans secured
by one- to four-family residential property and will provide for
the payment by or on behalf of the GNMA Issuer to the registered
holder of such GNMA Security of scheduled monthly payments of
principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly
principal and interest payment on each FHA Loan or VA Loan
underlying such GNMA Security, less the applicable servicing and
guarantee fee which together equal the difference between the
interest on the FHA Loan or VA Loan and the pass-through rate on
the GNMA Security. In addition, each payment will include
proportionate pass-through payments of any prepayments of
principal on the FHA Loans or VA Loans underlying such GNMA
Security and liquidation proceeds in the event of a foreclosure
or other disposition of any such FHA Loans or VA Loans.
If a GNMA Issuer is unable to make the payments on a GNMA
Security as it becomes due, it must promptly notify GNMA and
request GNMA to make such payment. Upon notification and
request, GNMA will make such payments directly to the registered
holder of such GNMA Security. In the event no payment is made by
a GNMA Issuer and the GNMA Issuer fails to notify and request
GNMA to make such payment, the holder of such GNMA Security will
have recourse only against GNMA to obtain such payment. The
Trustee or its nominee, as registered holder of the GNMA
Securities relating to a Series, will have the right to proceed
directly against GNMA under the terms of the Guaranty Agreements
relating to such GNMA Security for any amounts that are not paid
when due.
Regular monthly installment payments on each GNMA Security
relating to a Series will be comprised of interest due as
specified on such GNMA Security plus the scheduled principal
payments on the FHA Loans or VA Loans underlying such GNMA
Security due on the first day of the month in which the scheduled
monthly installment on such GNMA Security is due. Such regular
monthly installments on each such GNMA Security are required to
be paid to the Trustee as registered holder by the 15th day of
each month in the case of a GNMA I Security and are required to
be mailed to the Trustee by the 20th day of each month in the
case of a GNMA II Security. Any principal prepayments on any FHA
Loans or VA Loans underlying a GNMA Security relating to a Series
or any other early recovery of principal on such loan will be
passed through to the Trustee as the registered holder of such
GNMA Security.
If specified in the related Prospectus Supplement, GNMA
Securities also may include Mortgage-Backed Securities
representing beneficial ownership interests in REMICs that are
guaranteed as to full and timely payment of principal and
interest by GNMA.
Federal Home Loan Mortgage Corporation. FHLMC is a
corporate instrumentality of the United States created pursuant
to Title III of the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). FHLMC's statutory mission is (i) to
provide stability in the secondary market for residential
mortgages, (ii) to respond appropriately to the private capital
market and (iii) to provide ongoing assistance to the secondary
market for residential mortgages (including activities relating
to mortgages on housing for low- and moderate-income families
involving a reasonable economic return that may be less than the
return earned on other activities) and to promote access to
mortgage credit throughout the United States (including central
cities, rural areas and other underserved areas) by increasing
the liquidity of mortgage investments and improving the
distribution of investment capital available for residential
mortgage financing.
The principal activity of FHLMC consists of the purchase of
first lien, conventional, residential mortgages or participation
interests in such mortgages, and the resale of the mortgages so
purchased in the form of single-class guaranteed mortgaged-
related securities, primarily various types of mortgage
participation certificates ("PCs"). PCs, which represent
undivided interests in pools of mortgages purchased by FHLMC,
provide for monthly payment of interest and pass-through of
principal on the underlying mortgages. FHLMC guarantees to PC
holders payment of interest on and principal of the mortgages.
FHLMC purchases a variety of single-family, fixed-rate and
adjustable-rate mortgages primarily through its Guarantor and
Cash Programs. Under the Guarantor Program, FHLMC purchases
mortgages from sellers in exchange for PCs representing interests
in the mortgages so purchased. Under the Cash Program, FHLMC
purchases mortgages for cash, assembles mortgages purchased from
a number of sellers into pools that are typically larger and more
geographically diverse than those formed under the Guarantor
Program, and sells PCs representing interests in such pools. In
addition, FHLMC issues Giant Mortgage Participation Certificates
("Giant PCs"), which are derivative securities that generally
represent interests in pools consisting of two or more PCs and/or
other Giant PCs.
Multiple class derivative securities issued by FHLMC consist
primarily of Multiclass Mortgage Participation Certificates
("Multiclass PCs"). The Multiclass PCs are issued in Series,
with each Series consisting of two or more classes. Each Series
of Multiclass PCs represents an interest in a pool of mortgages
or mortgage-related assets, typically PCs and Giant PCs.
Treatment as a REMIC under the Internal Revenue Code of 1986 has
been elected for each Multiclass PC pool formed to date by FHLMC.
FHLMC Securities. In general, a FHLMC Security will
represent (i) an undivided interest in a pool of mortgage loans
(which may consist of FHA Loans, VA Loans or loans neither
insured nor guaranteed by any governmental agency ("Conventional
Loans")); (ii) a beneficial ownership interest in one or more
pools of mortgage-backed securities issued by FHLMC, including
but not limited to: Giant PCs, Freddie Mac Gold Mortgage
Participation Securities ("Gold PCs"), Freddie Mac Gold Giant
Mortgage Participation Securities ("Gold Giant PCs") and Freddie
Mac Stripped Giant Mortgage Participation Securities ("Stripped
Giant PCs"); (iii) a beneficial ownership interest in one or more
pools of GNMA Securities or Freddie Mac Giant GNMA-Backed
Securities ("Giant Securities"); or (iv) a beneficial ownership
interest in a REMIC backed by other FHLMC Securities or GNMA
Securities. A Giant PC, Gold PC or Gold Giant PC represents
either an undivided interest in a group of residential mortgages
purchased by FHLMC or a participation therein. A Stripped Giant
PC represents a beneficial ownership interest in the principal
distributions or interest distributions on a newly formed
"Standard Giant PC," which in turn represents a beneficial
ownership interest in one or more pools of Gold PCs and/or Gold
Giant PCs. A Giant Security represents a beneficial ownership
interest in discrete pools of (i) GNMA Securities and/or (ii)
other Giant Securities. Principal and interest on the FHLMC
Securities are distributed on the 15th day of each month or, if
such day is not a business day, on the next succeeding business
day.
FHLMC Guarantees. FHLMC guarantees to each holder of a
FHLMC Security the payment of interest and principal; however,
the specifics of the guarantee differ from program to program.
For example, FHLMC guarantees to each holder of a PC the timely
payment of interest and the ultimate collection of all principal,
without offset or deduction.
FHLMC Securities are not guaranteed by the United States and
do not constitute debts or obligations of the United States. The
obligations of FHLMC under its guarantee are obligations solely
of FHLMC and are not backed by, nor entitled to, the full faith
and credit of the United States.
The FHLMC Securities included in the Trust Fund for a Series
of the Certificates may have characteristics and terms different
from those described above. Any such FHLMC Securities and the
underlying mortgage loans will be described in the related
Prospectus Supplement.
See "Additional Information" herein for the availability of
further information respecting FHLMC and FHLMC Securities.
Federal National Mortgage Association. FNMA is a federally-
chartered and privately-owned corporation organized and existing
under the Federal National Mortgage Association Charter Act, as
amended (the "Charter Act"). FNMA was originally established in
1938 as a United States government agency to provide supplemental
liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by
legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by
purchasing mortgage loans from lenders, thereby replenishing
their funds for additional lending. FNMA acquires funds to
purchase mortgage loans from many capital market investors that
may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating
nationwide, FNMA helps to redistribute mortgage funds from
capital-surplus to capital-short areas.
FNMA Securities. In general, a FNMA Security will be backed
by a pool of mortgage loans which may consist of FHA Loans, VA
Loans or Conventional Loans and may include Fannie Mae Guaranteed
Mortgage Pass-Through Securities ("MBS Securities"), MBS
Securities held in the form of Fannie Mae MBS Pass-Through
Securities ("Mega Securities"), Fannie Mae Stripped Mortgage-
Backed Securities ("SMBS Securities") or Fannie Mae Guaranteed
REMIC Pass-Through Securities ("REMIC Securities"). An MBS
Security represents a beneficial ownership interest in one or
more pools of residential mortgage loans. A Mega Security
represents the beneficial ownership interest in one or more pools
of MBS Securities or GNMA Securities. An SMBS Security
represents the beneficial ownership interest in certain
distributions of principal and/or interest made in respect of
certain MBS Securities or GNMA Securities. A REMIC Security
represents a beneficial ownership interest in a Fannie Mae REMIC,
backed by other FNMA Securities or GNMA Securities.
FNMA Guaranty. FNMA guarantees to each holder of a FNMA
Security the payment of interest and principal; however, the
application of this guaranty differs from program to program.
For example, FNMA guarantees to the holder of an MBS Security the
timely payment of scheduled installments of principal of and
interest on the underlying mortgage loans, whether or not
received, together with the full principal balance of any
foreclosed mortgage loan, whether or not such balance is actually
recovered.
Mortgage Loans. Certain of the mortgage loans underlying
any FHLMC, FNMA or GNMA Security will provide for monthly
payments of principal and interest on a level debt service basis
(that is, equal monthly payments consisting, over the term of
such loans, of decreasing amounts of interest and increasing
amounts of principal), except for (i) graduated payment mortgage
loans (described below), (ii) "buydown" mortgage loans, for which
funds will have been provided (and deposited into escrow
accounts) for application to the payment of a portion of the
borrower's monthly payments during the early years of such
mortgage loan and (iii) certain Agency Securities secured by
multifamily mortgage loans, the amortization characteristics of
which will be described in each Prospectus Supplement relating to
a Series of Certificates backed by such Agency Securities.
Payments due the registered holders of Agency Securities backed
by pools containing "buydown" mortgage loans will be computed in
the same manner as payments derived from non-"buydown" Agency
Securities and will include amounts to be collected from both the
borrower and the related escrow account. Graduated payment
mortgage loans provide for graduated interest payments which,
during the early years of such mortgage loans, will be less than
the amount of stated interest on such mortgage loans. The
portion of the stated interest not paid will be added to the
principal of such graduated payment mortgage loans and, together
with interest thereon, will be paid in subsequent years. Thus,
payments due to registered holders of Agency Securities backed by
pools containing graduated payment mortgage loans ("GPM
Securities") will, in the absence of repayments, increase during
the early years of the underlying graduated payment mortgage
loans. The obligations of FHLMC, FNMA, GNMA and the servicer of
a GNMA Security will be the same irrespective of whether the
Agency Securities backing a Series of Certificates include GPM or
"buydown" Securities.
The related Prospectus Supplement for a Series of
Certificates including FHLMC, FNMA or GNMA Securities will
include information, as of the date of such related Prospectus
Supplement as to (i) the approximate aggregate amount of the
Agency Securities securing such Series consisting of FHLMC, FNMA,
GNMA and GPM Securities, (ii) the approximate weighted average
remaining term to maturity of such Agency Securities and (iii)
the approximate principal amount and the approximate weighted
average remaining term to maturity of the Agency Securities
backing such Series of Certificates that have similar pass-
through rates. The characteristics of the Agency Securities
actually included in the Trust Fund for any such Series of
Certificates will not differ materially from the approximation
set forth in the related Prospectus Supplement.
Private Securities
If specified in the related Prospectus Supplement, the Trust
Fund for a Series of Certificates may include Mortgage-Backed
Securities of one or more private issuers (the "Private
Securities") as described in the related Prospectus Supplement.
To the extent that a Trust Fund consists of Private Securities of
one issuer or related issuers, such Private Securities (i) will
be acquired in bona fide secondary market transactions not from
the Registrant or an affiliate thereof and (ii) (a) if the
primary distribution involved an exempt security, such security
will have been held for at least the holding period provided for
pursuant to Rule 144(k) under the Securities Act or (b) the
security will have been registered under the Securities Act. The
related Prospectus Supplement for each such Series of
Certificates will describe such Private Securities and the
material characteristics of the mortgage loans directly or
indirectly backing such Private Securities, which may include but
are not limited to: the principal balances of, pass-through rates
on and credit-support arrangements for such Private Securities;
the type and geographic distribution of the properties securing
the mortgage loans; and the loan-to-value ratio ranges of,
interest rates on and original and remaining terms to maturity of
the mortgage loans.
Contracts
Each pool of Contracts with respect to a Series of
Certificates (the "Contract Pool") will consist of manufactured
housing conditional sales contracts and installment loan
agreements or participation interests therein (collectively, the
"Contracts") acquired directly or indirectly from one or more
manufactured housing dealers. The Contracts may be conventional
manufactured housing contracts or contracts insured by the FHA or
partially guaranteed by the VA. Each Contract is secured by a
Manufactured Home (as defined below). Unless otherwise specified
in the related Prospectus Supplement, the Contracts will be fully
amortizing and will bear interest at a fixed annual percentage
rate ("APR").
The Manufactured Homes securing the Contracts consist of
manufactured homes within the meaning of 42 United States Code,
Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which, in the
traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three
hundred twenty or more square feet, and which is built on a
permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required
utilities, and includes the plumbing, heating, air-conditioning,
and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of
this paragraph except the size requirements and with respect to
which the manufacturer voluntarily files a certification required
by the Secretary of Housing and Urban Development and complies
with the standards established under this chapter." Moreover, if
an election is made to treat the Trust Fund as a REMIC as
described in "Federal Income Tax Consequences-REMIC
Certificates", Manufactured Homes will have a minimum of 400
square feet of living space and a minimum width in excess of 102
inches.
Unless otherwise specified in the related Prospectus
Supplement, for purposes of calculating the loan-to-value ratio
of a Contract relating to a new Manufactured Home, the
"Collateral Value" is the sum of (i) a fixed percentage of the
list price of the unit actually billed by the manufacturer to the
dealer (exclusive of freight to the dealer site) including
"accessories" identified in the invoice (the "Manufacturer's
Invoice Price"), (ii) the actual cost of any accessories
purchased from the dealer, (iii) a delivery and set-up allowance
depending on the size of the unit and (iv) the cost of state and
local taxes, filing fees and up to three years prepaid hazard
insurance premiums. Unless otherwise specified in the related
Prospectus Supplement, the "Collateral Value" of a used
Manufactured Home is the least of the sales price, the appraised
value, and the National Automobile Dealer's Association book
value, plus prepaid taxes and hazard insurance premiums. The
appraised value of a Manufactured Home is based upon the age and
condition of the manufactured housing unit and the quality and
condition of the mobile home park in which it is situated, if
applicable.
The related Prospectus Supplement will specify for the
Contracts contained in the related Contract Pool, among other
things, the date of origination of the Contracts; the APRs on the
Contracts; the Contract loan-to-value ratios; the minimum and
maximum outstanding principal balances as of the Cut-off Date and
the average outstanding principal balance; the outstanding
principal balances of the Contracts included in the Contract
Pool; and the original maturities of the Contracts and the last
maturity date of any Contract.
CREDIT ENHANCEMENT
General
Credit enhancement may be provided with respect to one or
more classes of a Series of Certificates or with respect to the
assets in the related Trust Fund. Credit enhancement may be in
the form of the subordination of one or more classes of the
Certificates of such Series or other credit enhancement
arrangement or any combination of such arrangements. Unless
otherwise specified in the related Prospectus Supplement, any
credit enhancement will not provide protection against all risks
of loss and will not guarantee repayment of the entire principal
balance of the Offered Certificates and interest thereon. If
losses occur which exceed the amount covered by credit enhancement
or which are not covered by the credit enhancement, Certificate-
holders will bear their allocable share of deficiencies. In
addition, if the Certificateholders of such Series will be
materially dependent upon any provider of Credit Enhancement for
timely payment of interest and/or principal on their
Certificates, the related Prospectus Supplement will include
audited financial statements on a comparative basis for at least
the last two years and any other appropriate financial
information regarding such provider.
Subordination
If specified in the related Prospectus Supplement,
distributions in respect of scheduled principal, Principal
Prepayments, interest or any combination thereof that otherwise
would have been payable to one or more classes of Certificates of
a Series (the "Subordinated Certificates") will instead be
payable to Holders of one or more other classes of such Series
(the "Senior Certificates") under the circumstances and to the
extent specified in the related Prospectus Supplement. If
specified in the related Prospectus Supplement, delays in receipt
of scheduled payments on the Mortgage Loans or Contracts and
losses on defaulted Mortgage Loans or Contracts will be borne
first by the various classes of Subordinated Certificates and
thereafter by the various classes of Senior Certificates, in each
case under the circumstances and subject to the limitations
specified in the related Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Mortgage
Loans or Contracts over the lives of the Certificates or at any
time, the aggregate losses in respect of defaulted Mortgage Loans
or Contracts which must be borne by the Subordinated Certificates
by virtue of subordination and the amount of the distributions
otherwise distributable to the Subordinated Certificateholders
that will be distributable to Senior Certificateholders on any
Distribution Date may be limited as specified in the related
Prospectus Supplement. If aggregate distributions in respect of
delinquent payments on the Mortgage Loans or Contracts or
aggregate losses in respect of such Mortgage Loans or Contracts
were to exceed the total amounts payable and available for
distribution to Holders of Subordinated Certificates or, if
applicable, were to exceed the specified maximum amount, Holders
of Senior Certificates could experience losses on the
Certificates.
In addition to or in lieu of the foregoing, if specified in
the related Prospectus Supplement, all or any portion of
distributions otherwise payable to Holders of Subordinated
Certificates or Certificates of another class on any Distribution
Date may instead be deposited into one or more reserve accounts
(a "Reserve Account") established by the Trustee. If specified
in the related Prospectus Supplement, such deposits may be made
on each Distribution Date, on each Distribution Date for
specified periods or until the balance in the Reserve Account has
reached a specified amount and, following payments from the
Reserve Account to Holders of Senior Certificates or otherwise,
thereafter to the extent necessary to restore the balance in the
Reserve Account to required levels, in each case as specified in
the related Prospectus Supplement. If specified in the related
Prospectus Supplement, amounts on deposit in the Reserve Account
may be released at the times and under the circumstances
specified in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, one or
more classes of Certificates may bear the risk of certain losses
on defaulted Mortgage Loans not covered by other forms of credit
enhancement prior to other classes of Certificates. If specified
in the related Prospectus Supplement, the subordination of a
Class may apply only in the event of (or may be limited to)
certain types of losses not covered by insurance policies or
other credit enhancement, such as losses arising from damage to
property securing a Mortgage Loan not covered by standard hazard
insurance policies. Such subordination may be effected by
reducing the Certificate Principal Balance of the subordinated
Certificates on account of such losses, thereby decreasing the
proportionate share of distributions allocable to such
Certificates, or by another means specified in the related
Prospectus Supplement.
If specified in the related Prospectus Supplement, various
classes of Senior Certificates and Subordinated Certificates may
themselves be subordinate in their right to receive certain
distributions to other classes of Senior and Subordinated
Certificates, respectively, through a cross-support mechanism or
otherwise.
As between classes of Senior Certificates and classes of
Subordinated Certificates, distributions may be allocated among
such classes (i) in the order of their scheduled final
distribution dates, (ii) in accordance with a schedule or
formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the related
Prospectus Supplement. As between classes of Subordinated
Certificates, payments to Holders of Senior Certificates on
account of delinquencies or losses and payments to any Reserve
Account will be allocated as specified in the related Prospectus
Supplement.
Other Arrangements for Credit Enhancement
Purchase of Liquidating Loans. The Servicer of a Mortgage
Loan, the Master Servicer or another party designated in the
related Prospectus Supplement (the "Responsible Party") may be
obligated, if and to the extent described in the related
Prospectus Supplement, to purchase any Mortgage Loan (a
"Liquidating Loan") as to which either (i) liquidation
proceedings have been commenced and any equitable or statutory
right to reinstate such Mortgage Loan has expired or (ii) the
Servicer of such Mortgage Loan or Master Servicer has agreed to
accept a deed in lieu of foreclosure, in each case for a price
equal to 100% of the Principal Balance of such Mortgage Loan
plus, unless otherwise specified in the related Prospectus
Supplement, one month's interest thereon at the applicable
Remittance Rate.
If specified in the related Prospectus Supplement, the
Responsible Party will have the option (but not the obligation)
to purchase any Mortgage Loan as to which the borrower has failed
to make unexcused payment in full of three or more scheduled
payments of principal and interest (a "Delinquent Mortgage
Loan"). Unless otherwise specified in the related Prospectus
Supplement, any such purchase will be for a price equal to 100%
of the Principal Balance of such Mortgage Loan plus interest
thereon at the applicable Remittance Rate from the date on which
interest was last paid to the first day of the month in which
such purchase price is to be distributed, net of any unreimbursed
advances of principal and interest thereon made by the applicable
Servicer or the Master Servicer. The purchase price for any
Delinquent Mortgage Loan will be deposited in the Certificate
Account on the next Deposit Date (as defined under "Servicing of
the Mortgage Loans and Contracts-Loan Payment Record").
The purchase by the Responsible Party of a Delinquent
Mortgage Loan may result in the diminution of the amount of its
obligations to purchase Liquidating Loans, to the extent that net
recoveries upon the liquidation of such Delinquent Mortgage Loan
are, or are estimated by the Responsible Party on the date of
such purchase to be, less than the sum of the purchase price for
such Delinquent Mortgage Loan and any previous unreimbursed
advances of delinquent installments of principal and interest
(adjusted to the related Remittance Rate) made by the Responsible
Party with respect thereto. To the extent that actual
recoveries, net of related expenses, upon the final liquidation
of such Delinquent Mortgage Loan differ from the estimated amount
thereof, the amount of the Responsible Party's remaining
obligation to purchase Liquidating Loans will be adjusted up or
down accordingly. If a Delinquent Mortgage Loan becomes current
after its purchase by the Responsible Party, any related decrease
in the amount of the Responsible Party's obligation to purchase
Liquidating Loans will be reversed in its entirety. Liquidation
proceeds in connection with the liquidation of any Mortgaged
Property may not be deemed for this purpose to include the entire
principal balance of any mortgage loan made by the Responsible
Party to facilitate such sale at a rate less than then prevailing
market rates. In estimating the net amount of proceeds
recoverable upon the liquidation of any Delinquent Mortgage Loan,
the Responsible Party may treat as related liquidation expenses
certain costs associated with the protection of the Mortgaged
Property, property sale expenses and foreclosure or other similar
costs.
Following the purchase by the Responsible Party of any
Liquidating Loan or Delinquent Mortgage Loan as described above,
and the payment by the Responsible Party of the purchase price
therefor, the Responsible Party will be entitled to receive an
assignment by the Trustee of such Mortgage Loan, and the
Responsible Party will thereafter own such Mortgage Loan free of
any further obligation to the Trustee or the Certificateholders
with respect thereto.
Limited Guarantee of the Guarantor. If specified in the
related Prospectus Supplement, certain amounts under the related
Agreement may be covered by a Limited Guarantee, limited in scope
and amount, issued by the Guarantor. If so specified, the
Guarantor may be obligated to take one or more of the following
actions in the event such actions are not taken by another
person: make deposits to the Certificate Account; make advances;
or purchase Liquidating Loans. The scope, amount and, if
applicable, the allocation of any Limited Guarantee and
additional information about the Guarantor will be described in
the related Prospectus Supplement.
If and to the extent that the Guarantor is required to make
payments under any such Limited Guarantee, unless otherwise
specified in the related Prospectus Supplement, the Guarantor,
upon notice from the Trustee, will be obligated to deposit the
amount of such payments in same-day funds in the Certificate
Account on the day after the Deposit Date, all as set forth more
specifically in such Limited Guarantee. If the Guarantor is
required to make any payment under a Limited Guarantee, the
Guarantor will be subrogated, to the extent of such payment, to
the rights of Holders of the Certificates and shall have all
rights of the Company under the related Agreement as described
herein. Any Limited Guarantee issued by the Guarantor will be
limited in amount or duration as specified in the related
Prospectus Supplement and may not guarantee the full extent of
the Company's obligations with respect to which such Limited
Guarantee was issued. As described in the related Prospectus
Supplement, if applicable, the amount of any Limited Guarantee
will be reduced by amounts distributed by the Guarantor, and not
recovered by it, under all Limited Guarantees issued by the
Guarantor with respect to the same Series of Certificates and by
any reduction in the Company's obligations with respect to which
such Limited Guarantee was issued.
Certificate Guarantee Insurance. If specified in the
related Prospectus Supplement, certificate guarantee insurance,
if any, with respect to a Series of Certificates will be provided
by one or more insurance companies. Such certificate guarantee
insurance will guarantee, with respect to one or more Classes of
Certificates of the applicable Series, distributions of principal
and/or interest to the extent and in the manner set forth in the
related Prospectus Supplement. If specified in the related
Prospectus Supplement, the certificate guarantee insurance will
also guarantee against any payment made to a Certificateholder
which is subsequently covered as a "voidable preference" payment
under the Bankruptcy Code. A copy of the certificate guarantee
insurance policy for a Series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be
filed with the Commission within 15 days of issuance of the
Certificates of the applicable Series.
Cross-Support. If specified in the related Prospectus
Supplement, the beneficial ownership of separate groups of assets
included in a Trust Fund may be evidenced by separate classes of
the related Series of Certificates. In such case, credit
enhancement may be provided by a cross-support feature which may
require that distributions be made with respect to Certificates
evidencing beneficial ownership of one or more asset groups prior
to distributions to subordinated Certificates evidencing a
beneficial ownership interest in other asset groups within the
same Trust Fund. The related Prospectus Supplement for a Series
which includes a cross-support feature will describe the manner
and conditions for applying such cross-support feature.
If specified in the related Prospectus Supplement, the
coverage provided by one or more forms of credit enhancement may
apply concurrently to two or more separate Trust Funds. If
applicable, the related Prospectus Supplement will identify the
Trust Funds to which such credit enhancement relates and the
manner of determining the amount of the coverage provided thereby
and of the application of such coverage to the identified Trust
Funds.
Pool Insurance. In order to decrease the likelihood that
Certificateholders will experience losses in respect of the
Mortgage Loans, if specified in the related Prospectus
Supplement, the Company will obtain one or more pool insurance
policies. Such pool insurance policy will, subject to the
limitations described below and in the related Prospectus
Supplement, cover losses by reason of default in payments on the
Mortgage Loans up to the amounts specified in the related
Prospectus Supplement or the Detailed Description and for the
periods specified in the related Prospectus Supplement. Each
Servicer or Master Servicer will agree to use its best reasonable
efforts to maintain in effect any such pool insurance policy and
to present claims thereunder to the pool insurer on behalf of
itself, the Trustee and the Certificateholders. The pool
insurance policy, however, is not a blanket policy against loss,
since claims thereunder may only be made respecting particular
defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below. The pool insurance policy,
if any, will not cover losses due to a failure to pay or denial
of a claim under a primary mortgage insurance policy,
irrespective of the reason therefor. The related Prospectus
Supplement will describe any provisions of a pool insurance
policy that are materially different from those described below.
Any pool insurance policy may provide that no claims may be
validly presented thereunder unless (i) any required primary
mortgage insurance policy is in effect for the defaulted Mortgage
Loan and a claim thereunder has been submitted and settled;
(ii) hazard insurance on the related Mortgaged Property has been
kept in force and real estate taxes and other protection and
preservation expenses have been paid; (iii) if there has been
physical loss or damage to the Mortgaged Property, it has been
restored to its condition (reasonable wear and tear excepted) at
the Cut-off Date; (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and clear of
liens, except certain permitted encumbrances; and (v) the
applicable Servicer or Master Servicer has advanced foreclosure
costs. Upon satisfaction of these conditions, the pool insurer
will have the option either (a) to purchase the Mortgaged
Property at a price equal to the Principal Balance thereof plus
accrued and unpaid interest at the mortgage interest rate to the
date of purchase and certain expenses incurred by the applicable
Servicer or Master Servicer on behalf of the Trustee and the
Certificateholders, or (b) to pay the amount by which the sum of
the Principal Balance of the defaulted Mortgage Loan plus accrued
and unpaid interest at the mortgage interest rate to the date of
payment of the claim and the aforementioned expenses exceeds the
proceeds received from an approved sale of the Mortgaged
Property, in either case net of certain amounts paid or assumed
to have been paid under any related primary mortgage insurance
policy. If any property securing a defaulted Mortgage Loan is
damaged and proceeds, if any, from the related hazard insurance
policy or any applicable special hazard insurance policy are
insufficient to restore the damaged property to a condition
sufficient to permit recovery under the pool insurance policy,
the applicable Servicer or Master Servicer will not be required
to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds
to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the applicable Servicer or the Master Servicer,
as the case may be, for its expenses, and (ii) that such expenses
will be recoverable by it through proceeds of the sale of the
property or proceeds of the pool insurance policy or any primary
mortgage insurance policy.
In general, no pool insurance policy will insure (and many
primary mortgage insurance policies may not insure) against loss
sustained by reason of a default arising from, among other
things, (i) fraud or negligence in the origination or servicing
of a Mortgage Loan, including misrepresentation by the Borrower
or persons involved in the origination thereof, or (ii) failure
to construct a Mortgaged Property in accordance with plans and
specifications. If specified in the related Prospectus
Supplement, a failure of coverage attributable to one of the
foregoing events may result in a breach of a representation of
the Company or another party identified therein and in such event
might give rise to an obligation on the part of such party to
purchase the defaulted Mortgage Loan if the breach materially and
adversely affects the interests of Certificateholders and cannot
be cured by such party.
Unless otherwise specified in the related Prospectus
Supplement, the original amount of coverage under any pool
insurance policy will be reduced over the life of the related
Series of Certificates by the aggregate dollar amount of claims
paid less the aggregate of the net amounts realized by the pool
insurer upon disposition of all foreclosed properties. The
amount of claims paid will include certain expenses incurred by
the applicable Servicer or Master Servicer as well as accrued
interest on delinquent Mortgage Loans to the date of payment of
the claim. See "Certain Legal Aspects of the Mortgage Loans-
Foreclosure." Accordingly, if aggregate net claims paid under
any pool insurance policy reach the original policy limit,
coverage under that pool insurance policy will be exhausted and
any further losses will be borne by one or more classes of
Certificateholders unless assumed by the Responsible Party or the
Guarantor under any obligations they may have in respect of
Liquidating Loans or by some other entity, if and to the extent
specified in the related Prospectus Supplement.
Since any mortgage pool insurance policy may require that
the property subject to a defaulted Mortgage Loan be restored to
its original condition prior to claiming against the pool
insurer, such policy may not provide coverage against hazard
losses. As described under "Servicing of the Mortgage Loans and
Contracts-Hazard Insurance," the hazard policies concerning the
Mortgage Loans typically exclude from coverage physical damage
resulting from a number of causes and, even when the damage is
covered, may afford recoveries which are significantly less than
the full replacement cost of such losses. Even if special hazard
insurance is applicable as specified in the related Prospectus
Supplement, no coverage in respect of special hazard losses will
cover all risks, and the amount of any such coverage will be
limited. See "Special Hazard Insurance" below. As a result,
certain hazard risks will not be insured against and will
therefore be borne by Certificateholders, unless otherwise
assumed by the Responsible Party or the Guarantor under any
obligations they may have in respect of Liquidating Loans or by
some other entity, as specified in the related Prospectus
Supplement.
The terms of any pool insurance policy relating to a pool of
Contracts will be described in the related Prospectus Supplement.
Special Hazard Insurance. In order to decrease the
likelihood that Certificateholders will experience losses in
respect of the Mortgage Loans, if specified in the related
Prospectus Supplement, the Company, each Servicer or the Master
Servicer will obtain one or more special hazard insurance
policies with respect to each of the Mortgage Loans. Any such
policies may be in lieu of or in addition to any obligations of
the applicable Servicer or Master Servicer to advance delinquent
payments in respect of the Mortgage Loans. Such a special hazard
insurance policy will, subject to limitations described below and
in the related Prospectus Supplement, protect Holders of
Certificates from (i) loss by reason of damage to Mortgaged
Properties caused by certain hazards (including earthquakes and,
to a limited extent, tidal waves and related water damage) not
covered by the standard form of hazard insurance policy for the
respective states in which the Mortgaged Properties are located
or under flood insurance policies, if any, covering the Mortgaged
Properties and (ii) loss from partial damage caused by reason of
the application of the co-insurance clause contained in hazard
insurance policies. Any special hazard insurance policy may not
cover losses occasioned by war, civil insurrection, certain
governmental actions, errors in design, faulty workmanship or
materials (except under certain circumstances), nuclear reaction,
flood (if the Mortgaged Property is located in a federally
designated flood area), chemical contamination and certain other
risks. Aggregate claims under each special hazard insurance
policy may be limited to a specified percentage of the aggregate
Principal Balance of the Mortgage Loans as of the Cut-off Date.
Any special hazard insurance policy may also provide that no
claim may be paid unless hazard and, if applicable, flood
insurance on the Mortgaged Property has been kept in force and
other protection and preservation expenses have been paid by the
applicable Servicer or Master Servicer.
Subject to the foregoing limitations, any special hazard
insurance policy may provide that, where there has been damage to
property securing a foreclosed Mortgage Loan (title to which has
been acquired by the insured) and to the extent such damage is
not covered by the hazard insurance policy or flood insurance
policy, if any, maintained by the borrower, the applicable
Servicer or the Master Servicer, the special hazard insurer will
pay the lesser of (i) the cost of repair or replacement of such
property or (ii) upon transfer of the property to the special
hazard insurer, the unpaid principal balance of such Mortgage
Loan at the time of acquisition of such property by foreclosure
or deed in lieu of foreclosure, plus accrued interest to the date
of claim settlement and certain expenses incurred by the
applicable Servicer or Master Servicer with respect to such
property. If the unpaid principal balance plus accrued interest
and certain expenses is paid by the insurer, the amount of
further coverage under the related special hazard insurance
policy will be reduced by such amount less any net proceeds from
the sale of the property. Any amount paid as the cost of repair
or replacement of the property will also reduce coverage by such
amount. Restoration of the property with the proceeds described
under clause (i) above will satisfy the condition under any pool
insurance policy that the property be restored before a claim
under such pool insurance policy may be validly presented with
respect to the defaulted Mortgage Loan secured by such property.
The payment described under clause (ii) above will render
unnecessary presentation of a claim in respect of such Mortgage
Loan under the related pool insurance policy. Therefore, so long
as a pool insurance policy remains in effect, the payment by the
insurer under a special hazard insurance policy of the cost of
repair or replacement or the unpaid principal balance of the
Mortgage Loan plus accrued interest and certain expenses will not
affect the total insurance proceeds paid to Certificateholders,
but will affect the relative amounts of coverage remaining under
the related special hazard insurance policy and pool insurance
policy.
The terms of any special hazard policy relating to a pool of
Contracts will be described in the related Prospectus Supplement.
Bankruptcy Bond. In the event of a bankruptcy of a
borrower, the bankruptcy court may establish the value of the
Mortgaged Property securing the related Mortgage Loan at an
amount less than the then outstanding principal balance of such
Mortgage Loan secured by such Mortgaged Property and could reduce
the secured debt to such value. In such case, the holder of such
Mortgage Loan would become an unsecured creditor to the extent of
the difference between the outstanding principal balance of such
Mortgage Loan and such reduced secured debt. In addition,
certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction in
monthly payments required to be made by the borrower. See
"Certain Legal Aspects of the Mortgage Loans and Contracts-The
Mortgage Loans-Enforceability of Certain Provisions." If so
provided in the related Prospectus Supplement, the applicable
Servicer or Master Servicer will obtain a bankruptcy bond or
similar insurance contract (a "bankruptcy bond") for proceedings
with respect to borrowers under the Bankruptcy Code. A
bankruptcy bond will cover certain losses resulting from a
reduction by a bankruptcy court of scheduled payments of
principal of and interest on a Mortgage Loan or a reduction by
such court of the principal amount of a Mortgage Loan and will
cover certain unpaid interest on the amount of such a principal
reduction from the date of the filing of a bankruptcy petition.
A bankruptcy bond will provide coverage in the aggregate
amount specified in the related Prospectus Supplement. Such
amount will be reduced by payments made under such bankruptcy
bond in respect of the related Mortgage Loans, unless otherwise
specified in the related Prospectus Supplement, and will not be
restored.
In lieu of a bankruptcy bond, subordination or another
credit enhancement technique may be used or the Servicer or
Master Servicer may obtain a Limited Guarantee to cover such
bankruptcy-related losses.
The terms of any bankruptcy bond (or subordination or other
credit enhancement technique in lieu thereof) relating to a pool
of Contracts will be described in the related Prospectus
Supplement.
Repurchase Bond. If specified in the related Prospectus
Supplement, a party designated therein will be obligated to
repurchase any Mortgage Loan or Contract (up to an aggregate
dollar amount specified in the related Prospectus Supplement) for
which insurance coverage is denied due to dishonesty,
misrepresentation or fraud in connection with the origination or
sale of such Mortgage Loan or Contract. Such obligation may be
secured by a surety bond or other instrument or mechanism
guaranteeing payment of the amount to be paid by such party.
Guaranteed Investment Contracts. If specified in the
related Prospectus Supplement, on or prior to the date of
issuance of a Series of Certificates, the Trustee will enter into
a guaranteed investment contract (a "GIC") pursuant to which all
amounts deposited in the Certificate Account and, if so
specified, the Reserve Accounts, will be invested by the Trustee
and under which the issuer of the GIC will pay to the Trustee
interest at an agreed rate per annum with respect to the amounts
so invested.
Reserve Accounts. If specified in the related Prospectus
Supplement, cash, U.S. Treasury securities, instruments
evidencing ownership of principal or interest payments thereon,
letters of credit, demand notes, certificates of deposit, other
instruments or obligations or a combination thereof in the
aggregate amount specified in the related Prospectus Supplement
will be deposited by the Company on the Closing Date in one or
more accounts (each, a "Reserve Account") established by the
Trustee. Such cash and the principal and interest payments on
such other instruments will be used to enhance the likelihood of
timely payment of principal of, and interest on, or, if so
specified in the related Prospectus Supplement, to provide
additional protection against losses in respect of, the assets in
the related Trust Fund, to pay the expenses of the Trust Fund or
for such other purposes specified in the related Prospectus
Supplement. Whether or not the Company has any obligation to
make such a deposit, certain amounts to which the Subordinated
Certificateholders, if any, or another class of
Certificateholders would otherwise be entitled may instead be
deposited into the Reserve Account from time to time and in the
amounts as specified in the related Prospectus Supplement. Any
cash in the Reserve Account and the proceeds of any other
instrument upon maturity will be invested in "Eligible
Investments" which, unless otherwise specified in the related
Prospectus Supplement, will include obligations of the United
States and certain agencies thereof, certificates of deposit,
certain commercial paper, time deposits and bankers acceptances
sold by eligible commercial banks and certain repurchase
agreements of United States government securities with eligible
commercial banks. If a letter of credit is deposited with the
Trustee, such letter of credit will be irrevocable. Unless
otherwise specified in the related Prospectus Supplement, any
instrument deposited therein will name the Trustee, in its
capacity as trustee for the Holders of the Offered Certificates,
as beneficiary and will be issued by an entity acceptable to each
Rating Agency. Additional information with respect to such
instruments deposited in the Reserve Accounts will be set forth
in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so
deposited will be available for withdrawal from the Reserve
Accounts for distribution to the Holders of the Offered
Certificates for the purposes, in the manner and at the times
specified in the related Prospectus Supplement.
Other Insurance, Guarantees and Similar Instruments or
Agreements.
If specified in the related Prospectus Supplement, a Trust
Fund may also include insurance, guarantees, letters of credit or
similar arrangements for the purpose of (i) maintaining timely
payments or providing additional protection against losses on the
assets included in such Trust Fund, (ii) paying administrative
expenses or (iii) establishing a minimum reinvestment rate on the
payments made in respect of such assets or principal payment rate
on such assets. Such arrangements may include agreements under
which Certificateholders are entitled to receive amounts
deposited in various accounts held by the Trustee upon the terms
specified in the related Prospectus Supplement. Such
arrangements may be in lieu of any obligation of the applicable
Servicer or Master Servicer to advance delinquent installments in
respect of the Mortgage Loans or Contracts. See "Servicing of
Mortgage Loans and Contracts-Advances."
CASH FLOW AGREEMENT
If specified in the related Prospectus Supplement, the Trust
Fund for a Series of Certificates will enter into or obtain an
assignment of a cash flow agreement pursuant to which the Trust
Fund will have the right to receive, and may have the obligation
to make, certain payments of interest (or other payments) as set
forth or determined as described therein. The Prospectus
Supplement relating to a Series of Certificates having the
benefit of a cash flow agreement will describe the material terms
of such agreement and the particular risks associated with the
cash flow agreement, including market and credit risk, the effect
of counterparty defaults and other risks, if any, addressed by
the rating. The Prospectus Supplement relating to such Series of
Certificates also will set forth certain information relating to
the corporate status, ownership and credit quality of the
counterparty or counterparties to such cash flow agreement. In
addition, if the Certificateholders of such series will be
materially dependent upon any counterparty for timely payment of
interest and/or principal on their Certificates, the related
Prospectus Supplement will include audited financial statements
on a comparative basis for at least the last two years and any
other appropriate financial information regarding such
counterparty. A cash flow agreement may include one or more of
the following types of arrangements, or another arrangement
described in the related Prospectus Supplement:
Interest Rate Swap. In an interest rate swap, the Trust
Fund will exchange the stream of interest payments on the
Mortgage Loans for another stream of interest payments based on a
notional amount, which may be equal to the principal amount of
the Mortgage Loans as it declines over time.
Interest Rate Caps. In an interest rate cap, the Trust Fund
or the counterparty, in exchange for a fee, will agree to
compensate the other if a particular interest rate index rises
above a rate specified in the agreement. The fee for the cap may
be a single up-front payment to or from the Trust Fund, or a
series of payments over time.
Interest Rate Floors. In an interest rate floor, the Trust
Fund or the counterparty, in exchange for a fee, will agree to
compensate the other if a particular interest rate index falls
below a rate specified in the agreement. As with interest rate
caps, the fee may be a single up-front payment or it may be paid
periodically.
Interest Rate Collars. An interest rate collar is a
combination of an interest rate cap and an interest rate floor.
One party agrees to compensate the other if a particular interest
rate index rises above the cap and, in exchange, will be
compensated if the interest rate index falls below the floor.
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
The yields to maturity and weighted average lives of the
Offered Certificates will be affected primarily by, among other
things, the rate and timing of principal payments received on or
in respect of the Mortgage Loans, Mortgage-Backed Securities or
Contracts included in the related Trust Fund. Such principal
payments will include scheduled payments as well as Principal
Prepayments (including refinancings) and prepayments resulting
from foreclosure, condemnation and other dispositions of the
Mortgaged Properties or Manufactured Homes (including amounts
paid by insurers under applicable insurance policies), from
repurchase by the party responsible therefor of any Mortgage Loan
or Contract as to which there has been a material breach of
warranty or defect in documentation (or deposit of certain
amounts in respect of delivery of a substitute Mortgage Loan),
repurchase by the Responsible Party, the Guarantor or any other
entity of any Liquidating Loan or Delinquent Mortgage Loan, if
applicable, and from the repurchase by the party entitled to
effect such repurchase of all of the Certificates or all of the
Mortgage Loans, Mortgage-Backed Securities or Contracts in
certain circumstances and will have the effect of making
available for distribution to Certificateholders amounts of
principal which otherwise would be passed through in amortized
increments over the remaining term of such Mortgage Loan or
mortgage loan, thus shortening the life of the Holder's
Certificate as described more fully below. See "Description of
the Certificates-Optional Termination of Trust Fund." The yield
to maturity and weighted average lives of the Offered
Certificates may also be affected by the amount and timing of
delinquencies and losses on or in respect of the Mortgage Loans,
Mortgage-Backed Securities or Contracts.
A number of social, economic, tax, geographic, demographic,
legal and other factors may influence prepayments, delinquencies
and losses. For a Trust Fund comprised of Mortgage Loans, these
factors may include the age of the Mortgage Loans, the geographic
distribution of the Mortgaged Properties, the payment terms of
the Mortgages, the characteristics of the borrowers, homeowner
mobility, economic conditions generally and in the geographic
area in which the Mortgaged Properties are located,
enforceability of due-on-sale clauses, servicing decisions,
prevailing mortgage market interest rates in relation to the
interest rates on the Mortgage Loans, the availability of
mortgage funds, the use of second or "home equity" mortgage loans
by borrowers, the availability of refinancing opportunities, the
use of the properties as second or vacation homes, the extent of
the borrowers' net equity in the Mortgaged Properties and, where
investment properties are securing the Mortgage Loans,
tax-related considerations and the availability of other
investments. The rate of principal payment may also be subject
to seasonal variations. The prepayment experience on home equity
loans may differ from those of other Mortgage Loans. Similar
types of factors may affect the rate of prepayments,
delinquencies and losses on Contracts.
The rate of principal prepayments on pools of housing loans
has been subject to significant fluctuation over time.
Generally, if prevailing interest rates were to fall
significantly below the interest rates on the Mortgage Loans, the
Mortgage Loans would be expected to prepay at higher rates than
if prevailing rates were to remain at or above the interest rates
on the Mortgage Loans. Conversely, if interest rates were to
rise above the interest rates on the Mortgage Loans, the Mortgage
Loans would be expected to prepay at lower rates than if
prevailing rates were to remain at or below interest rates on the
Mortgage Loans. The timing of changes in the rate of prepayments
may significantly affect a Certificateholder's actual yield to
maturity, even if the average rate of principal payments is
consistent with a Certificateholder's expectation. In general,
the earlier a prepayment of principal the greater the effect on a
Certificateholder's yield to maturity. As a result, the effect
on a Certificateholder's yield of principal payments occurring at
a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of
the related Series of Certificates will not be offset by a
subsequent like reduction (or increase) in the rate of principal
payments.
When a Mortgage Loan or Contract prepays in full, the
borrower generally will be required to pay interest on the amount
of prepayment only to the prepayment date. When a partial
prepayment of principal is made on a Mortgage Loan (other than a
simple interest home equity loan), the borrower generally will
not be required to pay interest on the amount of the partial
prepayment during the month in which such prepayment is made. If
specified in the related Prospectus Supplement, the applicable
Servicer or Master Servicer will be obligated to offset any such
prepayment interest shortfalls attributable to full and partial
prepayments on Mortgage Loans by the borrowers to the extent of
its servicing compensation for the related Distribution Date. In
addition, unless otherwise specified in the related Prospectus
Supplement, a full or partial prepayment will not be required to
be passed through to Certificateholders until the month following
receipt. Accordingly, the effect of any principal prepayments,
to the extent that any resulting shortfall exceeds any payments
made by a Servicer from its own funds, will be to reduce or delay
the aggregate amount of distributions to Certificateholders. Any
such shortfalls will be allocated among the Certificates as
provided in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus
Supplement, interest with respect to home equity loans accrues on
a simple interest basis. Under the simple interest method,
regularly scheduled payments (which are based on the amortization
of the loan over a Series of equal monthly payments) and other
payments are applied first to interest accrued to the date
payment is received and then to reduce the unpaid principal
balance of the related loan. Each regularly scheduled monthly
interest payment is calculated by multiplying the outstanding
principal balance of the loan by the stated interest rate. Such
product is then multiplied by a fraction, the numerator of which
is the number of days elapsed since the preceding payment of
interest was made and the denominator of which is either 365 or
360, depending on applicable state law.
As a result of the payment terms of simple interest home
equity loans, the making of a scheduled payment on, or the
prepayment of, such a home equity loan prior to its scheduled due
date may result in the collection of less than one month's
interest on such home equity loan for the period since the
preceding payment was made. Conversely, if the scheduled payment
on such a home equity loan is made after its scheduled payment
date or the home equity loan is prepaid after the scheduled due
date, the collection of interest on such home equity loan for
such period may be greater than one month's interest on such home
equity loan. In addition, the extent to which simple interest
home equity loans experience early payment or late payment of
scheduled payments will correspondingly change the amount of
principal received during a monthly period and, accordingly, the
amount of principal to be distributed on the related Distribution
Date and the amount of unpaid principal due at the stated
maturity of such home equity loans. To the extent shortfalls
attributable to prepayments or the early receipt of a scheduled
payment on home equity loans are not compensated for by any forms
of credit enhancement described in the related Prospectus
Supplement, the Certificateholders will experience delays or
losses in amounts due them.
If a Borrower pays more than one scheduled installment on a
simple interest home equity loan at a time, the entire amount of
the additional installment will be treated as a principal
prepayment and passed through to Certificateholders in the month
following the month of receipt. In such case, although the
Borrower will not be required to make the next regularly
scheduled installment, interest will continue to accrue on the
Principal Balance of the home equity loan, as reduced by the
application of the early installment. As a result, when the
Borrower pays the next required installment, the installment so
paid may be insufficient to cover the interest that has accrued
since the last payment by the Borrower. Notwithstanding such
insufficiency, the Borrower's home equity loan would be
considered to be current. If specified in the related Prospectus
Supplement, a party specified therein will be required to advance
the amount of such insufficiency. This insufficiency will
continue until the installment payments received are once again
sufficient to cover all accrued interest and to reduce the
Principal Balance of the home equity loan. Depending on the
Principal Balance and interest rate of the related home equity
loan and on the number of installments that were paid early,
there may be extended periods of time during which home equity
loans that are current are not amortizing.
Factors other than those identified herein and in the
related Prospectus Supplement could significantly affect
Principal Prepayments at any time and over the lives of the
Offered Certificates. The relative contribution of the various
factors affecting prepayment may also vary from time to time.
There can be no assurance as to the rate of payment of principal
of the Mortgage Loans, Mortgage-Backed Securities or Contracts at
any time or over the lives of the Offered Certificates.
The Prospectus Supplement relating to the Offered
Certificates of a Series will discuss in greater detail the
effect of the rate and timing of principal payments (including
prepayments), delinquencies and losses on the yield, weighted
average lives and maturities of such Offered Certificates. If a
Series of Certificates is backed by a pool of Mortgage Loans that
includes home equity loans providing for balloon payments at
maturity, the related Prospectus Supplement will contain
information regarding the potential effect of such Mortgage Loans
on the weighted average lives of such Offered Certificates.
SERVICING OF THE MORTGAGE LOANS AND CONTRACTS
Unless otherwise specified in the related Prospectus
Supplement, with respect to each Series of Certificates, the
related Mortgage Loans will be serviced either (i) by an
institution or institutions identified in the related Prospectus
Supplement as servicer or servicers (each, a "Servicer") or
(ii) by another institution identified in the related Prospectus
Supplement as master servicer (the "Master Servicer"). If an
institution acts as Master Servicer with respect to a Series, the
related Agreement may provide either (i) that the Master Servicer
may delegate all or a portion of the servicing duties described
below to other Servicers but shall remain directly liable for all
such servicing duties (a "Direct Master Servicing Arrangement")
or (ii) that certain of the servicing duties described below may
be performed directly by other Servicers, pursuant to servicing
agreements entered into between such Servicers and the Company,
as seller, and assigned to the Trustee, in which event the Master
Servicer will be obligated to supervise such Servicers'
performance but will not itself be obligated to perform such
duties (a "Supervisory Master Servicing Arrangement"). Each
Master Servicer will have the ability to terminate any such other
Servicer upon terms that will be agreed to at or before the time
the related Series of Certificates is issued. Unless otherwise
specified in the related Prospectus Supplement, in the event that
the Master Servicer is no longer acting as such for the Series,
the Trustee or a successor Master Servicer shall succeed to the
Master Servicer's rights under the servicing agreement with the
primary Servicer.
The related Prospectus Supplement for each Series will
identify the institution or institutions that will act as
Servicers or Master Servicer for such Series, and if there is a
Master Servicer, whether the master servicing arrangement is a
Direct Master Servicing Arrangement or a Supervisory Master
Servicing Arrangement. If an institution acts as Servicer for a
Series, or acts as Master Servicer under a Direct Master
Servicing Arrangement, all references in this Section to the
Servicer should be read to refer to each such institution as
Servicer or Master Servicer, as appropriate. If an institution
acts as Master Servicer with respect to a Series under a
Supervisory Master Servicing Arrangement, such references should
be read to refer to the direct Servicers of such Series, acting
under the supervision of such institution as Master Servicer.
Collection and Other Servicing Procedures
Mortgage Loans. The Servicer will be responsible for making
reasonable efforts to collect all payments called for under the
Mortgage Loans and shall, consistent with each Agreement, follow
such collection procedures as it follows with respect to mortgage
loans in its servicing portfolio which are comparable to the
Mortgage Loans. Consistent with the above, the Servicer may, in
its discretion, (i) waive any late payment charge and (ii) if a
default on the related Mortgage Loan has occurred or is
reasonably foreseeable, arrange with the borrower a schedule for
the liquidation of a delinquency in accordance with provisions
described in the related Prospectus Supplement.
The Servicer will be obligated to follow such normal
practices and procedures as it deems necessary or advisable to
realize upon a defaulted Mortgage Loan. In this regard, the
Servicer may (directly or through a local assignee) sell the
property at a foreclosure or trustee's sale, negotiate with the
borrower for a deed in lieu of foreclosure or, in the event a
deficiency judgment is available against the borrower or other
person (see "Certain Legal Aspects of the Mortgage Loans and
Contracts-Anti-Deficiency Legislation and Other Limitations on
Lenders" for a description of the limited availability of
deficiency judgments), foreclose against such property and
proceed for the deficiency against the appropriate person. The
amount of the ultimate net recovery (including the proceeds of
any pool insurance or other guarantee), after reimbursement to
the Servicer of its expenses incurred in connection with the
liquidation of any such defaulted Mortgage Loan and prior
unreimbursed advances of principal and interest with respect
thereto, will be credited to the Loan Payment Record when
realized, and will be distributed to Certificateholders on the
next Distribution Date following the month of receipt. The
Servicer will not be required to expend its own funds in
connection with any foreclosure or towards the restoration of any
Mortgaged Property unless it determines (i) that such restoration
or foreclosure will increase the proceeds of liquidation of the
Mortgaged Loan to Certificateholders after reimbursement to
itself for such expenses and (ii) that such expenses will be
recoverable to it either through liquidation proceeds or
insurance proceeds in respect of the related Mortgage Loan.
If a Mortgage Loan contains a "due-on-sale" clause and the
related Mortgaged Property has been or is about to be conveyed by
the borrower, the Servicer will be obligated to accelerate the
maturity of the Mortgage Loan, unless it reasonably believes it
is unable to enforce the "due-on-sale" clause under applicable
law or such enforcement would adversely affect or jeopardize
coverage under any related primary mortgage insurance policy or
pool insurance policy. If it reasonably believes it may be
restricted by law, for any reason, from enforcing such a
"due-on-sale" clause, the Servicer may enter into an assumption
and modification agreement with the person to whom such property
has been or is about to be conveyed, pursuant to which such
person becomes liable under the Mortgage Note. Any fee collected
by the Servicer for entering into an assumption agreement will be
retained by the Servicer as additional servicing compensation.
For a description of circumstances in which the Servicer may be
unable to enforce "due-on-sale" clauses, see "Certain Legal
Aspects of the Mortgage Loans and Contracts-The Mortgage Loans-
Enforceability of Certain Provisions." In connection with any
such assumption, the mortgage interest rate borne under the
related Mortgage Note may not be decreased.
The Servicer will be required to maintain with one or more
depository institutions one or more accounts into which it will
be required to deposit all payments of taxes, insurance premiums,
assessments or comparable items received for the account of the
borrowers. Withdrawals from such account or accounts may be made
only to effect payment of taxes, insurance premiums, assessments
or comparable items, to reimburse the Servicer out of related
collections for any cost incurred in paying taxes, insurance
premiums and assessments or otherwise preserving or protecting
the value of the Mortgages, to refund to borrowers any amounts
determined to be overages and to pay interest to borrowers on
balances in such account or accounts to the extent required by
law.
Unless otherwise specified in the related Prospectus
Supplement, so long as it acts as servicer of the Mortgage Loans,
the Servicer, and any successor to the Servicer appointed
following an Event of Default, will be required to maintain
certain insurance covering errors and omissions in the
performance of its obligations as servicer and certain fidelity
bond coverage ensuring against losses through wrongdoing of its
officers, employees and agents.
FHA Insurance and VA Guarantees. The Servicer, on behalf of
the Trustee and the Certificateholders, will be required to
present or cause to be presented claims to the FHA and the VA, if
applicable in respect of any FHA insurance or VA guarantee
respecting defaulted Mortgage Loans.
The FHA is responsible for administering various federal
programs, including mortgage insurance, authorized under the
Housing Act, as amended, and the United States Housing Act of
1937, as amended.
The insurance premiums for FHA Loans will be collected by
HUD-approved lenders or by the Servicer and paid to the FHA. The
regulations governing FHA single-family mortgage insurance
programs provide that insurance benefits are payable either upon
foreclosure (or other acquisition of possession) and conveyance
of the mortgaged premises to HUD or upon assignment of the
defaulted Mortgage Loan to HUD. With respect to a defaulted FHA
Loan, the Servicer is limited in its ability to initiate
foreclosure proceedings. When it is determined, by the Servicer
or HUD, that default was caused by circumstances beyond the
mortgagor's control, the Servicer is expected to make an effort
to avoid foreclosure by entering, if feasible, into one of a
number of available forms of forbearance plans with the
mortgagor. Such plans may involve the reduction or suspension of
scheduled payments for a specified period, with such payments to
be made up on or before the maturity date of the Mortgage Note,
or the rescheduling or other adjustment of payments due under the
Mortgage Note up to or beyond the scheduled maturity date. In
addition, when a default caused by such circumstances is
accompanied by certain other criteria, HUD may provide relief by
making payments to the Servicer in partial or full satisfaction
of amounts due under the Mortgage Loan (which payments are to be
repaid by the borrower to HUD) or by accepting assignment of the
Mortgage Loan from the Servicer. With certain exceptions, at
least three full installments must be due and unpaid under the
Mortgage Loan, and HUD must have rejected any request for relief
from the mortgagor before the Servicer may initiate foreclosure
proceedings.
HUD has the option, in most cases, to pay insurance claims
in cash or in debentures issued by HUD. Presently, claims are
being paid in cash, and claims have not been paid in debentures
since 1965. HUD debentures issued in satisfaction of FHA
insurance claims bear interest at the applicable HUD debenture
interest rate. The Servicer of each FHA Loan will be obligated
to purchase any such debenture issued in satisfaction of a
defaulted FHA Loan serviced by it for an amount equal to the
unpaid principal balance of the FHA Loan.
The amount of insurance benefits generally paid by the FHA
is equal to the entire unpaid principal amount of the defaulted
Mortgage Loan adjusted to reimburse the Servicer for certain
costs and expenses and to deduct certain amounts received or
retained by the Servicer after default. When entitlement to
insurance benefits results from foreclosure (or other acquisition
of possession) and conveyance to HUD, the Servicer is compensated
for no more than two-thirds of its foreclosure costs, and is
compensated for interest accrued and unpaid prior to such date
but in general only to the extent it was allowed pursuant to a
forbearance plan approved by HUD. When entitlement to insurance
benefits results from assignment of the Mortgage Loan to HUD, the
insurance payment includes full compensation for interest accrued
and unpaid to the assignment date. The insurance payment itself,
upon foreclosure of an FHA Loan, bears interest from a date 30
days after the borrower's first uncorrected failure to perform
any obligation or make any payment due under the Mortgage Loan
and, upon assignment, from the date of assignment, to the date of
payment of the claim, in each case at the same mortgage rate as
the applicable HUD debenture interest rate as described above.
With respect to a defaulted VA Loan, the Servicer is, absent
exceptional circumstances, authorized to announce its intention
to foreclose only when the default has continued for three
months. Generally, a claim for the guarantee is submitted after
liquidation of the mortgaged property.
The amount payable under the guarantee will be the
percentage of the VA Loan originally guaranteed applied to
indebtedness outstanding as of the applicable date of computation
as specified in the VA regulations. Payments under the guarantee
will equal the unpaid principal amount of the VA Loan, interest
accrued on the unpaid balance of the VA Loan to the appropriate
date of computation and limited expenses of the mortgagee, but in
each case only to the extent that such amounts have not been
recovered through liquidation of the Mortgaged Property. The
amount payable under the guarantee may in no event exceed the
amount of the original guarantee.
The maximum guarantee that may be issued by the VA under a
VA Loan as of July 14, 1993 is the lesser of 40% of the original
principal amount of the VA Loan or $20,000. The liability on the
guarantee is reduced or increased pro rata with any reduction or
increased in the amount of indebtedness, but in no event will the
amount payable on the guarantee exceed the amount of the original
guarantee. The VA may, at its option and without regard to the
guarantee, make full payment to a mortgagee of unsatisfied
indebtedness on a mortgage upon its assignment to VA.
Contracts. Pursuant to the Agreement relating to any Trust
Fund containing Contracts, the Servicer will be required to
service and administer the Contracts assigned to the Trustee as
more fully set forth below. The Servicer will be required to
perform diligently all services and duties specified in each
Agreement, in the same manner as prudent lending institutions
servicing manufactured housing installment sales contracts of the
same type as the Contracts in those jurisdictions where the
related Manufactured Homes are located.
The Agreement will provide that, when any Manufactured Home
securing a Contract is about to be conveyed by the borrower, the
Servicer, to the extent it has knowledge of such prospective
conveyance and prior to the time of the consummation of such
conveyance, may exercise its rights to accelerate the maturity of
such Contract under the applicable "due-on-sale" clause, if any,
unless the Servicer reasonably believes it is unable to enforce
such "due-on-sale" clause under applicable law. In such case,
the Servicer is authorized to take or enter into an assumption
agreement from or with the person to whom such Manufactured Home
has been or is about to be conveyed, pursuant to which such
person becomes liable under the Contract.
Under the Agreement, the Servicer will be required to
repossess or otherwise comparably convert the ownership of
properties securing such of the related Contracts as come into
and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments.
In connection with such repossession or other conversion, the
Servicer will be required to follow such practices and procedures
as it deems necessary or advisable and as shall be normal and
usual in its general servicing activities. The Servicer,
however, will not be required to expend its own funds in
connection with any repossession or towards the restoration of
any property unless it determines (i) that such restoration or
repossession will increase the proceeds of liquidation of the
related Contract to the Certificateholders after reimbursement to
itself for such expenses and (ii) that such expenses will be
recoverable to it either through liquidation proceeds or through
insurance proceeds.
Hazard Insurance
Mortgage Loans. The Servicer will be required to cause to
be maintained for each Mortgaged Property a hazard insurance
policy. The coverage of such policy is required to be in an
amount not less than the maximum insurable value of the
improvements securing the related Mortgage Loan from time to time
or the Principal Balance owing on such Mortgage Loan from time to
time, whichever is less. All amounts collected by the Servicer
under any hazard policy (except for amounts to be applied to the
restoration or repair of property subject to the related Mortgage
or property acquired by foreclosure or amounts released to the
related borrower in accordance with the Servicer's normal
servicing procedures) will be credited to the related Loan
Payment Record and deposited in the applicable Certificate
Account at the times and in the manner described under "Loan
Payment Record" below.
In general, the standard form of fire and extended coverage
policy covers physical damage to or destruction of the
improvements on the property by fire, lightning, explosion,
smoke, windstorm and hail, riot, strike and civil commotion,
subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans
will be underwritten by different insurers and, therefore, will
not contain identical terms and conditions, the basic terms
thereof are dictated by state law. Such policies typically do
not cover any physical damage resulting from the following: war,
revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud
flow), nuclear reactions, pollution, wet or dry rot, vermin,
rodents, insects or domestic animals, theft and, in certain
cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be
all-inclusive. If the property securing a Mortgage Loan is
located in a federally designated flood area, the Agreement will
require that flood insurance be maintained in such amounts as
would be required by the Federal National Mortgage Association in
connection with its mortgage loan purchase program. The Company
may also purchase special hazard insurance against certain of the
uninsured risks described above. See "Credit Enhancement-Special
Hazard Insurance."
Most of the properties securing the Mortgage Loans will be
covered by homeowners' insurance policies, which, in addition to
the standard form of fire and extended coverage, provide coverage
for certain other risks. These homeowners' policies typically
contain a "coinsurance" clause which in effect requires the
insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount
of any partial loss. If the insured's coverage falls below this
specified percentage, then the insurer's liability in the event
of partial loss will not exceed the lesser of (i) the actual cash
value (generally defined as replacement cost at the time and
place of loss, less physical depreciation) of the improvements
damaged or destroyed, or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of
the full replacement cost of such improvements.
Since the amount of hazard insurance the Servicer is
required to cause to be maintained on the improvements securing
the Mortgage Loans declines as the Principal Balances owing
thereon decrease, if the residential properties securing the
Mortgage Loans appreciate in value over time, the effect of
coinsurance in the event of partial loss may be that hazard
insurance proceeds will be insufficient to restore fully the
damaged property.
The Servicer on behalf of the Trustee will be required to
cause to be maintained on any Mortgaged Property acquired upon
foreclosure, or by deed in lieu of foreclosure, hazard insurance
with extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value from time to time
of the improvements which are a part of such property or (ii) the
unpaid Principal Balance of the related Mortgage Loan at the time
of such foreclosure or deed in lieu of foreclosure, plus accrued
interest and the good-faith estimate by the Servicer of related
liquidation expenses to be incurred in connection therewith.
The Servicer may maintain, in lieu of causing individual
hazard insurance policies to be maintained with respect to each
Mortgage Loan, one or more blanket insurance policies covering
hazard losses on the Mortgage Loans. The Servicer will be
required to pay the premium for such policy on the basis
described therein and will be required to pay any deductible
amount with respect to claims under such policy relating to the
Mortgage Loans.
The Servicer will not require that a standard hazard or
flood insurance policy be maintained on the cooperative dwelling
relating to any Cooperative Loan. Generally, the Cooperative
itself is responsible for maintenance of hazard insurance for the
property owned by the Cooperative and the tenant-stockholders of
that Cooperative do not maintain individual hazard insurance
policies. To the extent, however, that a Cooperative and the
related borrower on a Cooperative Loan do not maintain such
insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of damaged property,
any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of
the collateral securing such Cooperative Loan to the extent not
covered by other credit enhancement.
Contracts. The terms of the Agreement will require the
Servicer to cause to be maintained with respect to each Contract
one or more hazard insurance policies which provide, at a
minimum, the same coverage as a standard form fire and extended
coverage insurance policy that is customary for manufactured
housing, issued by a company authorized to issue such policies in
the state in which the Manufactured Home is located, and in an
amount which is not less than the maximum insurable value of such
Manufactured Home or the principal balance due from the borrower
on the related Contract, whichever is less. Unless otherwise
indicated in the related Prospectus Supplement, when a
Manufactured Home's location was, at the time of origination of
the related Contract, within a federally designated special flood
hazard area, the Servicer also will be required to cause such
flood insurance to be maintained in an amount at least equal to
the minimum amount specified in the preceding sentence or such
lesser amount as may be available under the federal flood
insurance program.
The Servicer may maintain, in lieu of causing individual
hazard insurance policies to be maintained with respect to each
Manufactured Home, and shall maintain, to the extent that the
related Contract does not require the borrower to maintain a
hazard insurance policy with respect to the related Manufactured
Home, one or more blanket insurance policies covering losses on
the borrowers' interests in the Contracts resulting from the
absence or insufficiency of individual hazard insurance policies.
The Servicer will be required to pay the premium for such policy
on the basis described therein and will be required to pay any
deductible amount with respect to claims under such policy
relating to the Contracts.
The Servicer, to the extent practicable, will be required to
cause the borrowers to pay all taxes and similar governmental
charges when and as due. If specified in the related Prospectus
Supplement, to the extent that nonpayment of any taxes or charges
would result in the creation of a lien upon any Manufactured Home
having a priority equal or senior to the lien of the related
Contract, the Servicer will be required to pay any such
delinquent tax or charge.
If the Servicer repossesses a Manufactured Home on behalf of
the Trustee, the Servicer will be required to either (i) maintain
at its expense hazard insurance with respect to such Manufactured
Home or (ii) indemnify the Trustee against any damage to such
Manufactured Home prior to resale or other disposition.
Advances
Unless otherwise specified in the related Prospectus
Supplement, in the event that any borrower fails to make any
payment of principal or interest required under the terms of a
Mortgage Loan or Contract, the Servicer or another party
designated in the related Prospectus Supplement will be obligated
to advance the entire amount of such payment adjusted, in the
case of any delinquent interest payment, to the applicable
Remittance Rate. Unless otherwise specified in the related
Prospectus Supplement and except as described above under "Credit
Enhancement-Purchases of Liquidating Loans," this obligation to
advance will be limited to amounts which the Servicer reasonably
believes will be recoverable by it out of liquidation proceeds or
otherwise in respect of such Mortgage Loan or Contract. The
Servicer or other party obligated to make advances will be
entitled to reimbursement for any such advance from related late
payments on the Mortgage Loan or Contract as to which such
advance was made. Furthermore, unless otherwise specified in the
related Prospectus Supplement, the Servicer or other party
obligated to make advances will be entitled to reimbursement for
any such advance (i) from liquidation proceeds or insurance
proceeds received if such Manufactured Home is repossessed or
such Mortgage Loan is foreclosed (and is not purchased by the
Servicer pursuant to any obligation it may have to purchase
Liquidating Loans) prior to any payment to Certificateholders in
respect of the repossession or foreclosure and (ii) from receipts
or recoveries on all other Mortgage Loans or Contracts or from
any other assets of the Trust Fund, for all or any portion of
such advance which the Servicer determines, in good faith, may
not be ultimately recoverable from such liquidation or insurance
proceeds (a "Nonrecoverable Advance"). Any Nonrecoverable
Advance will be reimbursable out of the assets of the Trust Fund.
The amount of any scheduled payment required to be advanced by
the Servicer will not be affected by any agreement between the
Servicer and a borrower providing for the postponement or
modification of the due date or amount of such scheduled payment.
If specified in the related Prospectus Supplement, the Trustee
for the related Series will make advances of delinquent payments
of principal and interest in the event of a failure by the
Servicer to perform such obligation.
If specified in the related Prospectus Supplement, until any
obligation of the Responsible Party to purchase Liquidating Loans
is exhausted, the Responsible Party will advance delinquent
installments of principal and interest (adjusted to the
applicable Remittance Rate) on the Mortgage Loans as described
above in an aggregate amount up to the amount of its remaining
purchase obligation, irrespective of whether the Responsible
Party believes any such advance will be recoverable. The
Servicer's obligation to advance delinquent installments of
principal and interest (adjusted to the applicable Remittance
Rate) on the Mortgage Loans which it deems recoverable will be
unaffected by the exhaustion of any obligation of the Responsible
Party to purchase Liquidating Loans. In the event that the
Servicer has an obligation to purchase Liquidating Loans, any
outstanding unreimbursed advances may be charged against the
amount of such obligation, subject to reinstatement on account of
net recoveries on such Mortgage Loan.
Any such obligation to make advances may be limited to
amounts due Holders of senior Certificates of the related Series
or may be limited to specified periods or otherwise as specified
in the related Prospectus Supplement.
If a Borrower makes a full or partial principal prepayment,
the Borrower generally will be required to pay interest on the
prepayment amount only to the date of prepayment. If and to the
extent described in the related Prospectus Supplement, the
Servicer's servicing fee may be reduced or the Servicer may be
otherwise obligated to advance funds to the extent necessary to
remit interest on any such full or partial prepayment received
from the date of receipt thereof to the next succeeding scheduled
payment date. See "Yield, Maturity and Weighted Average Life
Considerations."
Loan Payment Record
The Agreement will require that the Servicer establish and
maintain a Loan Payment Record to which will be credited the
following payments received by the Servicer with respect to the
Mortgage Loans or Contracts included in the related Trust Fund:
(i) All payments on account of principal, including
Principal Prepayments (other than principal payments due and
payable on or before, and Principal Prepayments received before,
the Cut-off Date), received from borrowers (excluding any amounts
specified in the related Prospectus Supplement);
(ii) All payments (other than those due and payable on or
before the Cut-off Date) on account of interest received from
borrowers (adjusted to the applicable Remittance Rate) and
excluding any other amounts specified in the related Prospectus
Supplement;
(iii) All amounts received by the Servicer in connection
with the liquidation of any Mortgaged Property or Manufactured
Home, and the purchase price including applicable interest
thereon, of any Mortgage Loan or Contract purchased by any person
pursuant to the applicable Agreement or any amount paid in
connection with the substitution of a Mortgage Loan;
(iv) All proceeds received by the Servicer under any
private mortgage insurance or any title, hazard, special hazard,
pool or other insurance policy covering any Mortgage Loan or
Contract, other than proceeds to be applied to the restoration or
repair of the property subject to the related Mortgage or
Contract or released to the borrower in accordance with the
normal servicing procedures of the Servicer; and
(v) All proceeds received in respect of any Mortgaged
Property acquired on behalf of the Trustee.
The Servicer will not be required to credit to the Loan
Payment Record payments on any Mortgage Loan or Contract that has
been previously released from the Trust Fund, amounts
representing fees or late charge penalties payable by borrowers
or amounts received by the Servicer for the account of borrowers
for application towards the payment of taxes, insurance premiums,
assessments and similar items.
Unless otherwise specified in the related Prospectus
Supplement, the Servicer may, from time to time, make debits to
the Loan Payment Record for the following purposes:
(i) To reimburse the Servicer for expenses incurred by it
in connection with the liquidation of any Mortgage Loan or
Manufactured Home, in an amount not to exceed the amount of the
proceeds of any such liquidation credited to the Loan Payment
Record;
(ii) To reimburse the Servicer for certain expenses
relating to the Agreement as to which the Servicer is entitled to
indemnification or reimbursement pursuant to the Agreement;
(iii) To pay to any person amounts received in respect of
any Mortgage Loan or Contract purchased by such person as
required by the Agreement to the extent that the distribution of
any such amounts on the Distribution Date upon which the proceeds
of such purchase are distributed would make the total amount
distributed in respect thereof greater than the Principal Balance
thereof plus, unless otherwise specified in the related
Prospectus Supplement, one month's interest thereon at the
applicable Remittance Rate;
(iv) To reimburse the Servicer (or, if applicable, the
Guarantor or any other entity) for any previous advance of
delinquent installments of principal and interest (adjusted to
the applicable Remittance Rate) in respect of any Mortgage Loan
or Contract to the extent of recoveries, including late payments
and liquidation proceeds, on such Mortgage Loan or Contract;
(v) To make deposits into the Certificate Account;
(vi) To reimburse the Servicer from any borrower payment
of interest or other recovery with respect to a particular
Mortgage Loan, to the extent not previously retained by the
Servicer, for unpaid servicing fees with respect to such Mortgage
Loan, subject to certain limitations; and
(vii) To reimburse the Servicer (or, if applicable, the
Trustee, the Guarantor or any other entity) for any
Nonrecoverable Advance.
On the date or dates specified in the related Prospectus
Supplement (each, a "Deposit Date") prior to each Distribution
Date, unless otherwise specified in the related Prospectus
Supplement, the Servicer will be required to deposit into the
Certificate Account the payments in respect of the Mortgage Loans
or Contracts described above, net of any debits made thereto as
described above, which were received by it after the Cut-off Date
and before the fifth business day next preceding such
Distribution Date (the "Determination Date"), together with any
required advances of delinquent principal and interest payments
to be made by it, except (i) Principal Prepayments received
during the month of such deposit and all related payments of
interest representing interest for the month of deposit or any
portion thereof and (ii) payments which represent early receipt
of scheduled payments of principal and interest due on a date or
dates subsequent to the first day of the month of deposit (such
net amount, the "Available Funds"). Unless otherwise specified
in the related Prospectus Supplement, all deposits by the
Servicer into the Certificate Account will be made in next-day
funds. Unless otherwise specified in the related Prospectus
Supplement, prior to depositing such funds, the Servicer may
commingle payments received in respect of the Mortgage Loans or
Contracts and may invest such payments for its own account.
Income realized on the investment of such payments pending
deposit into the Certificate Account will be retained by the
Servicer as additional servicing compensation.
If specified in the related Prospectus Supplement, the
Servicer may establish, or provide for the establishment of, an
account (the "Collection Account") in lieu of the Loan Payment
Record described above. If so specified, all amounts to be
credited or debited to the Loan Payment Record will instead be
deposited in or withdrawn from the Collection Account.
Servicing and Other Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus
Supplement, the Servicer's primary compensation for its servicing
activities will come from the payment to it, with respect to each
interest payment on a Mortgage Loan or Contract, of all or a
portion of the difference between the Mortgage Rate for such
Mortgage Loan or Contract and the related Remittance Rate. In
addition to the primary compensation, the Servicer will retain
all assumption fees, late payment charges and other miscellaneous
charges, all to the extent collected from borrowers and, unless
otherwise specified in the related Prospectus Supplement, the
investment income described in the second preceding paragraph.
In the event another institution is acting as Master Servicer
under an Agreement, the Master Servicer will receive compensation
with respect to the performance of its activities as Master
Servicer.
Unless otherwise specified in the related Prospectus
Supplement, the Servicer will be responsible for paying all
expenses incurred in connection with the servicing of the
Mortgage Loans or Contracts (subject to limited reimbursement as
described in "Loan Payment Record" above), including, without
limitation, payment of any premium for any Limited Guarantee,
pool insurance policy, special hazard policy, bankruptcy bond,
repurchase bond or other guarantee or surety, payment of the fees
and the disbursements of the Trustee, the Administrator (if
any) and the independent accountants, payment of the compensation
of any direct servicers of the Mortgage Loans, payment of all
fees and expenses in connection with the realization upon
defaulted Mortgage Loans or Contracts and payment of expenses
incurred in connection with distributions and reports to
Certificateholders. Unless otherwise specified in the related
Prospectus Supplement, the Servicer may assign any of its primary
servicing compensation in excess of that amount customarily
retained as servicing compensation for similar assets.
Resignation, Succession and Indemnification of the Servicer and
the Master Servicer
The Agreement will provide that neither the Servicer nor
Master Servicer may resign from its obligations and duties as
servicer or master servicer thereunder, except upon determination
that the Servicer's or Master Servicer's performance of such
duties is no longer permissible under applicable law or as
provided in the last paragraph under this heading. No such
resignation will become effective until the Trustee or a
successor has assumed the Servicer's or Master Servicer's
servicing obligations and duties under such Agreement. The
Guarantor's obligations under any Limited Guarantee will, upon
issuance thereof, be irrevocable, subject to certain limited
rights of assignment as described in the related Prospectus
Supplement, if applicable.
The Agreement will provide that neither the Servicer or
Master Servicer nor, if applicable, the Guarantor, nor any of
their respective directors, officers, employees or agents, shall
be under any liability to the Trust Fund or the
Certificateholders of the related Series for taking any action or
for refraining from taking any action pursuant to such Agreement,
or for errors in judgment; provided, however, that neither the
Servicer or Master Servicer nor, if applicable, the Guarantor,
nor any such person, will be protected against any liability
which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of
duties or by reason of reckless disregard of obligations and
duties thereunder. The Agreement will also provide that the
Servicer or Master Servicer and, if applicable, the Guarantor and
their respective directors, officers, employees and agents are
entitled to indemnification by the related Trust Fund and will be
held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Agreement or the
Certificates, other than any loss, liability or expense related
to any specific Mortgage Loan or Contract (except as otherwise
reimbursable under the Agreement) or incurred by reason of
willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition,
each Agreement will provide that neither the Servicer or Master
Servicer nor, if applicable, the Guarantor is under any
obligation to appear in, prosecute or defend any legal action
which is not incidental to the Servicer's or Master Servicer's
servicing responsibilities under such Agreement or the
Guarantor's payment obligations under any Limited Guarantee,
respectively, and which in its respective opinion may involve it
in any expense or liability. Each of the Servicer or Master
Servicer and, if applicable, the Guarantor may, however, in its
respective discretion undertake any such action which it may deem
necessary or desirable in respect of such 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 Fund, and
the Servicer or Master Servicer and, if applicable, the
Guarantor, will be entitled to be reimbursed therefor from
amounts credited to the Loan Payment Record.
Any corporation into which the Servicer or Master Servicer
may be merged or consolidated or any corporation resulting from
any merger, conversion or consolidation to which the Servicer or
Master Servicer is a party, or any corporation succeeding to the
business of the Servicer or Master Servicer, or any corporation
more than 50% of the voting stock of which is owned, directly or
indirectly, by Deutsche Bank, or any limited partnership, the
sole general partner of which is either the Servicer or Master
Servicer or a corporation more than 50% of the voting stock of
which is owned, directly or indirectly, by Deutsche Bank, which
assumes the obligations of the Servicer or Master Servicer, will
be the successor of the Servicer or Master Servicer, as servicer
or master servicer, under each Agreement.
THE POOLING AND SERVICING AGREEMENTS
The following summaries describe certain provisions of the
Pooling and Servicing Agreements expected to be common to the
Agreements with respect to each Series. However, the Prospectus
Supplement for each Series will describe more fully any
additional characteristics of the Offered Certificates and any
additional provisions of the related Agreement.
Assignment of Assets
Assignment of the Mortgage Loans. At the time of issuance
of a Series of Certificates, the Company, as seller, will assign
the related Mortgage Loans to the Trustee, together with all
principal and interest, subject to exclusions specified in the
related Prospectus Supplement, received on or with respect to
such Mortgage Loans on or after the Cut-off Date other than
principal and interest due and payable on or before, and
Principal Prepayments received before, the Cut-off Date. The
Trustee will, concurrently with such assignment, execute,
countersign and deliver the Certificates to the Company in
exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the
Agreement. Such schedule will include information as to the
Principal Balance of each Mortgage Loan as of the Cut-off Date,
as well as information respecting the mortgage interest rate, the
scheduled monthly payment of principal and interest as of the
Cut-off Date and the maturity date of each Mortgage Note.
In addition, as to each Mortgage Loan, the Company, as
seller, will deliver to the Trustee, unless otherwise specified
in the related Prospectus Supplement, the Mortgage Note and
Mortgage, any assumption and modification agreement, an
assignment of the Mortgage in recordable form, evidence of title
insurance and, if applicable, the certificate of private mortgage
insurance (or copy thereof). In instances where recorded
documents cannot be delivered due to delays in connection with
recording, the Company may deliver copies thereof and deliver the
original recorded documents promptly upon receipt.
Unless otherwise specified in the related Prospectus
Supplement, the Company may refrain from recording the
assignments of the Mortgage Loans prior to the occurrence of
certain events set forth in the related Agreement. Although such
recordation is not necessary to make the assignment of the
Mortgage Loans to the Trustee effective, if the Company were to
make a sale, assignment, satisfaction or discharge of any
Mortgage Loan prior to recording or filing the assignments to the
Trustee, the other parties to such sale, assignment, satisfaction
or discharge might have rights superior to those of the Trustee.
If the Company were to do so without authority under the
Agreement, it would be liable to the related Certificateholders.
Moreover, if insolvency proceedings relating to the Company were
commenced prior to such recording or filing, creditors of the
Company may be able to assert rights in the affected Mortgage
Loans superior to those of the Trustee.
With respect to any Mortgage Loans which are Cooperative
Loans, the Company, as seller, will cause to be delivered to the
Trustee the related original cooperative note endorsed to the
order of the Trustee, the original security agreement, the
proprietary lease or occupancy agreement, the recognition
agreement, an executed financing agreement and the relevant stock
certificate and related blank stock powers. The Company will
file in the appropriate office an assignment and a financing
statement evidencing the Trustee's security interest in each
Cooperative Loan.
With respect to any Mortgage Loans which are financial
leases, the Company, as seller, will cause to be delivered to the
Trustee the related original executed lease agreement and an
assignment of the lease in recordable form. The Company will
file in the appropriate office an assignment and a financing
statement evidencing the Trustee's security interest in each
financial lease.
Unless otherwise specified in the related Prospectus
Supplement, in the Agreement the Company, as seller, or another
person identified in the related Prospectus Supplement generally
will represent and warrant to the Trustee, among other things,
that (i) the information set forth in the schedule of Mortgage
Loans attached thereto is correct in all material respects at the
date or dates respecting which such information is furnished;
(ii) a lender's title insurance policy or binder, or other
assurance of title insurance customary in the relevant
jurisdiction therefor, for each Mortgage Loan subject to the
Agreement was issued on the date of origination thereof and each
such policy or binder assurance is valid and remains in full
force and effect; (iii) at the date of initial issuance of the
Certificates, the Company has good title to the Mortgage Loans
and the Mortgage Loans are free of offsets, defenses or
counterclaims; (iv) at the date of initial issuance of the
Certificates, each Mortgage is a valid first lien on the property
securing the Mortgage Note (subject only to (a) the lien of
current real property taxes and assessments, (b) covenants,
conditions, and restrictions, rights of way, easements and other
matters of public record as of the date of the recording of such
Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally in the area wherein the
property subject to the Mortgage is located or specifically
reflected in the appraisal obtained by the Company, and (c) other
matters to which like properties are commonly subject which do
not materially interfere with the benefits of the security
intended to be provided by such Mortgage) and such property is
free of material damage and is in good repair; (v) at the date of
initial issuance of the Certificates, no Mortgage Loan is 30 or
more days delinquent and there are no delinquent tax or
assessment liens against the property covered by the related
Mortgage; and (vi) each Mortgage Loan at the time it was made
complied in all material respects with applicable state and
federal laws, including, without limitation, usury, equal credit
opportunity and disclosure laws.
The Company may, in lieu of making the representations
described in the preceding paragraph, cause the originator or
other entity from which the Company acquired such Mortgage Loans
to make such representations (other than those regarding the
Company's title to the Mortgage Loans, which will in all events
be made by the Company) in the sales agreement pursuant to which
such Mortgage Loans are acquired or, if such entity is acting as
a servicer, in its servicing agreement. In such event such
representations, and the Company's rights against such entity in
the event of a breach thereof, will be assigned to the Trustee
for the benefit of the Holders of the Certificates of such
Series.
Assignment of Mortgage-Backed Securities. The Company, as
seller, will cause the Mortgage-Backed Securities to be
registered in the name of the Trustee or its nominee, and the
Trustee concurrently will execute, countersign and deliver the
Certificates. Each Mortgage-Backed Security will be identified
in a schedule appearing as an exhibit to the Agreement, which
will specify as to each Mortgage-Backed Security the original
principal amount and outstanding principal balance as of the
Cut-off Date, the annual pass-through rate (if any) and the
maturity date. The Company or another person identified in the
related Prospectus Supplement will represent and warrant to the
Trustee, among other things, that the information contained in
the Mortgage-Backed Securities schedule is true and correct and
that immediately prior to the transfer of the Mortgage-Backed
Securities to the Trustee, the Company had good title to, and was
the sole owner of, each Mortgage-Backed Security.
Assignment of Contracts. The Company, as seller, will cause
the Contracts to be assigned to the Trustee, together with
principal and interest due on or with respect to the Contracts
after the Cut-off Date specified in the related Prospectus
Supplement. Each Contract will be identified in a loan schedule
appearing as an exhibit to the related Agreement. Such loan
schedule will specify, with respect to each Contract, among other
things: the original principal balance and the outstanding
principal balance as of the close of business on the Cut-off
Date; the interest rate; the current scheduled payment of
principal and interest; and the maturity date.
In addition, with respect to each Contract, the Company will
be required to deliver or cause to be delivered to the Trustee,
the original Contract and copies of documents and instruments
related to each Contract and the security interest in the
Manufactured Home securing each Contract. To give notice of the
right, title and interest of the Certificateholders to the
Contracts, the Company will be required to cause a UCC-1
financing statement to be filed identifying the Trustee as the
secured party and identifying all Contracts as collateral.
Unless otherwise specified in the related Prospectus Supplement,
the Contracts will not be stamped or otherwise marked to reflect
their assignment from the Company to the Trustee. Therefore, if a
subsequent purchaser were able to take physical possession of the
Contracts without notice of such assignment, the interest of the
Certificateholders in the Contracts could be defeated. See
"Certain Legal Aspects of the Mortgage Loans and Contracts."
The Company, as seller, or another person identified in the
related Prospectus Supplement will provide limited
representations and warranties to the Trustee concerning the
Contracts. Such representations and warranties will include:
(i) that the information contained in the loan schedule provides
an accurate listing of the Contracts and that the information
respecting such Contracts set forth in such loan schedule is true
and correct in all material respects at the date or dates
respecting which such information is furnished; (ii) that,
immediately prior to the conveyance of the Contracts, the Company
had good title to, and was sole owner of, each such Contract; and
(iii) that there has been no other sale by it of such Contract
and that the Contract is not subject to any lien, charge,
security interest or other encumbrance.
Repurchase or Substitution
The Trustee will review the documents delivered to it with
respect to the assets of the related Trust Fund. Unless
otherwise specified in the related Prospectus Supplement, if any
document is not delivered or is found to be defective in any
material respect and the Company cannot deliver such document or
cure such defect within 60 days after notice thereof (which the
Trustee will undertake to give within 45 days of the delivery of
such documents), the Company will, not later than the first
Distribution Date which is more than ten days after such 60-day
period, (a) remove the affected Mortgage Loan or Contract from
the Trust Fund and substitute one or more other mortgage loans or
contracts therefor or (b) repurchase the Mortgage Loan or
Contract from the Trustee for a price equal to 100% of its
Principal Balance, plus interest thereon at the applicable
Remittance Rate from the date on which interest was last paid to
the first day of the month in which such purchase price is to be
distributed, net of any unreimbursed advances of principal and
interest thereon made by the Servicer or Master Servicer. Such
purchase price will be deposited in the Certificate Account on
the business day preceding such Distribution Date. Unless
otherwise specified in the related Prospectus Supplement, this
repurchase and substitution obligation constitutes the sole
remedy available to Certificateholders or the Trustee on behalf
of Certificateholders against the Company for a material defect
in a document relating to a Mortgage Loan or Contract.
Unless otherwise specified in the related Prospectus
Supplement, the Company will agree to either (a) cure in all
material respects any breach of any representation or warranty
set forth in the related Agreement that materially and adversely
affects the interests of the Certificateholders in a Mortgage
Loan (such Mortgage Loan, a "Defective Mortgage Loan") or
Contract within 60 days of its discovery by the Company or its
receipt of notice thereof from the Trustee, (b) repurchase such
Defective Mortgage Loan or Contract not later than the first
Distribution Date which is more than ten days after such 60-day
period for a price equal to 100% of its Principal Balance, plus
interest thereon at the applicable Remittance Rate from the date
on which interest was last paid to the first day of the month in
which such purchase price is to be distributed, net of any
unreimbursed advances of principal and interest thereon made by
the Servicer or Master Servicer, or (c) remove the affected
Mortgage Loan or Contract from the Trust Fund and substitute one
or more other mortgage loans or contracts therefor. Such
purchase price will be deposited in the Certificate Account on
the business day preceding such Distribution Date. This
repurchase or substitution obligation constitutes the sole remedy
available to Certificateholders or the Trustee on behalf of
Certificateholders for any such breach.
If specified in the related Prospectus Supplement, in lieu
of agreeing to repurchase or substitute Mortgage Loans as
described above, the Company may obtain such an agreement from
the entity which originated or sold such mortgage loans, which
agreement will be assigned to the Trustee for the benefit of the
Holders of the Certificates of such Series. In such event,
unless otherwise specified in the related Prospectus Supplement,
the Company will have no obligation to repurchase or substitute
mortgage loans if such entity defaults in its obligation to do
so.
If a mortgage loan or contract is substituted for another
Mortgage Loan or Contract as described above, the new mortgage
loan or contract will, unless otherwise specified in the related
Prospectus Supplement, (i) have a Principal Balance (together
with any other new mortgage loan or contract so substituted), as
of the first Distribution Date following the month of
substitution, after deduction of all payments due in the month of
substitution, not in excess of the Principal Balance of the
removed Mortgage Loan or Contract as of such Distribution Date
(the amount of any shortfall, plus one month's interest thereon
at the applicable Remittance Rate, to be deposited in the
Certificate Account on the business day prior to the applicable
Distribution Date), (ii) have a mortgage interest rate not less
than, and not more than one percentage point greater than, that
of the removed Mortgage Loan or Contract, (iii) have a Remittance
Rate equal to that of the removed Mortgage Loan or Contract,
(iv) have a remaining term to stated maturity not later than, and
not more than one year less than, the remaining term to stated
maturity of the removed Mortgage Loan or Contract, (v) have a
current loan-to-value ratio not greater than that of the removed
Mortgage Loan or Contract, and (vi) in the reasonable
determination of the Company, be of the same type, quality and
character as the removed Mortgage Loan or Contract (as if the
defect or breach giving rise to the substitution had not
occurred) and be, as of the substitution date, in compliance with
the representations and warranties contained in the Agreement.
If a REMIC election is to be made with respect to all or a
portion of a Trust Fund, any such substitution will occur within
two years after the initial issuance of the related Certificates.
If no REMIC election is made, any substitution will be made
within 90 days after the initial issuance of the related
Certificates.
Certain Modifications and Refinancings
Unless otherwise specified in the related Prospectus
Supplement, the Agreement will permit the applicable Servicer to
modify any Mortgage Loan upon the request of the related
Borrower, provided that such Servicer purchases such Mortgage
Loan from the Trust Fund immediately following such modification.
Any such modification may not be made unless the modification
includes a change in the interest rate on the related Mortgage
Loan to approximately a prevailing market rate. Any such
purchase will be for a price equal to 100% of the Principal
Balance of such Mortgage Loan, plus accrued and unpaid interest
thereon to the date of purchase at the applicable Remittance
Rate, net of any unreimbursed advances of principal and interest
thereon made by the Servicer. The applicable Servicer will be
required to deposit the purchase price in the Certificate Account
on the related Deposit Date. Such purchases may occur when
prevailing interest rates are below the interest rates on the
Mortgage Loans and Borrowers request modifications as an
alternative to refinancings. If a REMIC election is made with
respect to all or a portion of the related Trust Fund, the
applicable Servicer will be required to indemnify the REMIC
against liability for any prohibited transactions taxes and any
related interest, additions or penalties imposed on the REMIC as
a result of any such modification or purchase.
Evidence as to Compliance
The Agreement will provide that a firm of independent public
accountants will furnish to the Trustee on or before [March 31]
of each year, beginning with [March 31] in the year which begins
not less than three months after the date of the initial issue of
Certificates, a statement as to compliance by the Servicer with
certain standards relating to the servicing of the Mortgage
Loans, Mortgage-Backed Securities or Contracts.
The Agreement will also provide for delivery to the Trustee
on or before [March 31] of each year, beginning with [March 31]
in the year which begins not less than three months after the
date of the initial issue of the Certificates, a statement signed
by an officer of each Servicer to the effect that such Servicer
has fulfilled its obligations under the Agreement throughout the
preceding year or, if there has been a default in the fulfillment
of any such obligation, describing each such default.
List of Certificateholders
Upon written request of the Trustee, the certificate
registrar will provide to the Trustee, within fifteen days after
receipt of such request, a list of the names and addresses of all
Certificateholders of record of a particular Series as of the
most recent Record Date for payment of distributions to
Certificateholders of that Series. Upon written request of three
or more Certificateholders of record of a Series of Certificates
for purposes of communicating with other Certificateholders with
respect to their rights under the Agreement for such Series, the
Trustee will be required to afford, within five business days
after the receipt of such request, such Certificateholders access
during business hours to the most recent list of
Certificateholders of that Series held by the Trustee. If such
list is as of a date more than 90 days prior to the date of
receipt of a request from such Certificateholders, the Trustee
shall promptly request from the certificate registrar a current
list and will be required to afford such requesting
Certificateholders access to such list promptly upon receipt.
The Agreement will not provide for the holding of any annual
or other meetings of Certificateholders.
The Trustee
Any commercial bank or trust company serving as Trustee may
have normal banking relationships with the Company. In addition,
the Company and the Trustee acting jointly will have the power
and the responsibility for appointing co-trustees or separate
trustees of all or any part of the Trust Fund relating to a
particular Series of Certificates. In the event of such
appointment, all rights, powers, duties and obligations conferred
or imposed upon the Trustee by the Agreement shall be conferred
or imposed upon the Trustee and such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations
solely at the direction of the Trustee.
The Trustee will make no representations as to the validity
or sufficiency of the Agreement, the Certificates (other than the
signature and countersignature of the Trustee on the
Certificates) or of any Mortgage Loan, Agency Security, Contract
or related document, and will not be accountable for the use or
application by the Company of any funds paid to the Company in
respect of the Certificates or the related assets, or amounts
credited to the Loan Payment Record or deposited into the
Certificate Account. If no Event of Default has occurred, the
Trustee will be required to perform only those duties
specifically required of it under the Agreement. However, upon
receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee will be required to
examine them to determine whether they conform to the
requirements of the Agreement.
The Trustee may resign at any time, and the Company may
remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Agreement, if the Trustee becomes
insolvent or in such other instances, if any, as are set forth in
the Agreement. Following any resignation or removal of the
Trustee, the Company will be obligated to appoint a successor
Trustee, any such successor to be approved by the Guarantor if so
specified in the related Prospectus Supplement in the event that
the Guarantor has issued any Limited Guarantee with respect to
the Certificates. Any resignation or removal of the Trustee and
appointment of a successor Trustee does not become effective
until acceptance of the appointment by the successor Trustee.
Administration of the Certificate Account
The Agreement will require that the Certificate Account be
either (i) maintained with a depository institution the debt
obligations of which are, at the time of any deposit therein,
rated at least "AA" (or the equivalent) by each nationally
recognized statistical rating organization that rated the
Certificates, (ii) an account or accounts the deposits in which
are fully insured by either the Bank Insurance Fund (the
"BIF") of the Federal Deposit Insurance Corporation (the
"FDIC") or the Savings Association Insurance Fund (as successor
to the Federal Savings and Loan Insurance Corporation) ("SAIF")
of the FDIC, (iii) an account or accounts with a depository
institution, the insured deposits in which are insured by the BIF
or SAIF (to the limits established by the FDIC), and the
uninsured deposits in which are invested in United States
government securities or other high quality investments, or are
otherwise secured to the extent required by each Rating Agency
that rates the Certificates such that, as evidenced by an opinion
of counsel, the Holders of the Certificates have a claim with
respect to the funds in the account or a perfected first security
interest against any collateral securing such funds that is
superior to claims of any other depositors or creditors of the
depository institution with which the account is maintained,
(iv) a trust account maintained with the corporate trust
department of a federal or state chartered depository institution
or trust company with trust powers and acting in its fiduciary
capacity for the benefit of the Trustee or (v) such other account
the investment in which will not, as evidenced by a letter from
each Rating Agency, result in the downgrading or withdrawal of
the then-current rating assigned to the Certificates by any of
the Rating Agencies that then rates the Certificates.
Not later than the second business day prior to each
Distribution Date, the Servicer will furnish a separate statement
to the Trustee for the Certificates setting forth, among other
things, the amount to be distributed with respect to the
Certificates on the next succeeding Distribution Date to
Certificateholders, with amounts allocable to principal and to
interest stated separately and, if applicable, information
relating to the amount available for the purchase of Liquidating
Loans.
Reports to Certificateholders
At least two business days before each Distribution Date,
unless otherwise specified in the related Prospectus Supplement,
the Servicer or Master Servicer will be required to furnish to
the Trustee for mailing to Certificateholders on such
Distribution Date, a statement generally setting forth, to the
extent applicable to any Series, among other things:
(i) The aggregate amount of such distribution allocable
to principal, separately identifying the amount allocable to each
class;
(ii) The amount of such distribution allocable to
interest, separately identifying the amount allocable to each
class;
(iii) The amount of servicing compensation received by the
Servicer in respect of the Mortgage Loans during the month
preceding the month of the Distribution Date, and such other
customary information as the Servicer deems necessary or
desirable to enable Certificateholders to prepare their tax
returns;
(iv) The aggregate Certificate Principal Balance (or
Notional Principal Balance) of each class of Certificates after
giving effect to distributions and allocations, if any, of losses
on the Mortgage Loans on such Distribution Date;
(v) The aggregate Certificate Principal Balance of any
class of Accrual Certificates after giving effect to any increase
in such Certificate Principal Balance that results from the
accrual of interest that is not yet distributable thereon;
(vi) If applicable, the amount of the Responsible Party's
remaining obligations with respect to the purchase of Liquidating
Loans, after giving effect to any charges or adjustments thereto
in respect of the Distribution Date, expressed as a percentage of
the amount reported pursuant to clause (iv) and, if applicable,
(v) above;
(vii) If any class of Certificates has priority in the
right to receive Principal Prepayments, the amount of Principal
Prepayments in respect of the Mortgage Loans; and
(viii) The aggregate Principal Balance of Mortgage Loans
which were delinquent as to a total of one, two or three or more
installments of principal and interest or were in foreclosure.
The Servicer or Master Servicer will also be required to
furnish annually customary information deemed necessary for
Certificateholders to prepare their tax returns.
The Servicer or Master Servicer will be required to provide
Certificateholders which are federally insured savings and loan
associations with certain reports and with access to information
and documentation regarding the Mortgage Loans included in the
Trust Fund sufficient to permit such associations to comply with
applicable regulations of the Office of Thrift Supervision.
Events of Default
Events of Default under the Agreement will consist of:
(i) any failure by the Servicer or Master Servicer to deposit
into the Certificate Account any required payment, which failure
continues unremedied for three business days after the giving of
written notice of such failure to the Servicer or Master Servicer
by the Trustee, or to the Servicer or Master Servicer and the
Trustee by the Holders of Certificates evidencing interests
aggregating not less than 25% of each affected class; (ii) any
failure by the Servicer or Master Servicer duly to observe or
perform in any material respect any other of its covenants or
agreements in such Agreement materially affecting the rights of
Certificateholders which continues unremedied for 60 days after
the giving of written notice of such failure to the Servicer or
Master Servicer by the Trustee, or to the Servicer or Master
Servicer and the Trustee by the Holders of Certificates
evidencing interests aggregating not less than 25% of each
affected class; (iii) any failure by the Servicer or Master
Servicer to effect timely payment of the premium for a pool
insurance policy or a special hazard insurance policy or Limited
Guarantee, if any, which continues unremedied for 10 business
days after the giving of written notice of such failure by the
Trustee, or to the Servicer or Master Servicer and the Trustee by
the Holders of Certificates evidencing interests aggregating not
less than 25% of each affected class; and (iv) certain events of
insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings and certain actions by the
Servicer or Master Servicer indicating its insolvency,
reorganization or inability to pay its obligations.
Rights Upon Event of Default
As long as an Event of Default under the Agreement remains
unremedied or under certain other circumstances, if any,
described in the related Prospectus Supplement by the Servicer or
Master Servicer, the Trustee or Holders of Certificates
evidencing interests aggregating not less than 51% of each
affected class, may terminate all of the rights and obligations
of the Servicer or Master Servicer under the Agreement, whereupon
the Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer or Master Servicer under the
Agreement and will be entitled to similar compensation
arrangements; provided that if the Trustee had no obligation
under the Agreement to make advances of delinquent principal and
interest on the Mortgage Loans upon the failure of the Servicer
or Master Servicer to do so, or if the Trustee had such
obligation but is prohibited by law or regulation from making
such advances, the Trustee will not be required to assume such
obligation of the Servicer or Master Servicer. No such
termination will affect in any manner the Guarantor's obligations
under any Limited Guarantee, except that the obligation of the
Servicer or Master Servicer to make advances of delinquent
payments of principal and interest (adjusted to the applicable
Remittance Rate) and, if applicable, to purchase any Liquidating
Loan will become the direct obligations of the Guarantor under
the Limited Guarantee, if applicable, until a new Servicer or
Master Servicer is appointed. In the event that the Trustee is
unwilling or unable so to act, it may appoint, or petition a
court of competent jurisdiction for the appointment of, a housing
and home finance institution with a net worth of at least
$10,000,000 (or an institution meeting such other requirements as
set forth in the related Prospectus Supplement) and, if the
Guarantor has issued any Limited Guarantee with respect to the
Certificates, approved by the Guarantor, to act as successor to
the Servicer or Master Servicer under such Agreement. The
Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than
the compensation to the Servicer or Master Servicer under such
Agreement.
No Holder of Certificates will have any right under the
Agreement to institute any proceeding with respect to the
Agreement, unless such Holder previously has given to the Trustee
written notice of default and unless the Holders of Certificates
of each affected class evidencing, in the aggregate, 25% or more
of the interests in such class have made written request to 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 after receipt of such notice, request
and offer of indemnity has neglected or refused to institute any
such proceedings. However, the Trustee is under no obligation to
exercise any of the trusts or powers vested in it by the
Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, unless such
Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
Amendment
The Agreement may be amended by the Company, as seller, the
Servicer or Master Servicer and the Trustee without
Certificateholder consent, to cure any ambiguity, to correct or
supplement any provision therein which may be inconsistent with
any other provision therein, to take any action necessary to
maintain REMIC status of any Trust Fund as to which a REMIC
election has been made, to avoid or minimize the risk of the
imposition of any tax on the Trust Fund pursuant to the Code or
to make any other provisions with respect to matters or questions
arising under the Agreement which are not materially inconsistent
with the provisions of the Agreement; provided that such action
will not, as evidenced by an opinion of counsel satisfactory to
the Trustee, adversely affect in any material respect the
interests of any Certificateholders of that Series. Unless
otherwise specified in the related Prospectus Supplement, the
Agreement may also be amended by the Company, as seller, the
Servicer or Master Servicer and the Trustee with the consent of
Holders of Certificates evidencing interests aggregating either
not less than 66% of all interests in the related Trust Fund or
not less than 66% of all interests of each Class affected by such
amendment, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of
such Agreement or of modifying in any manner the rights of
Certificateholders of that Series; provided, however, that no
such amendment may (i) reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which
are required to be distributed in respect of any Certificate
without the consent of the Holder of such Certificate,
(ii) adversely affect in any material respect the interests of
the Holders of any class of Certificates in any manner other than
as described in (i), without the consent of the Holders of
Certificates of such class evidencing at least 66% of the
interests of such class or (iii) reduce the aforesaid percentage
of Certificates, the Holders of which are required to consent to
any such amendment, without the consent of the Holders of all
Certificates of such affected class then outstanding.
Termination
The obligations of the Company, as seller, the Servicer or
Master Servicer and the Trustee created by the Agreement will
terminate upon the last action required to be taken by the
Trustee on the final Distribution Date pursuant to the Agreement
after the earlier of (i) the maturity or other liquidation of the
last Mortgage Loan, Mortgage-Backed Security or Contract subject
thereto or the disposition of all property acquired upon
foreclosure of any such Mortgage Loan or Contract or (ii) the
repurchase by the party entitled to effect such repurchase from
the Trust Fund of all the outstanding Certificates or all
remaining assets in the Trust Fund. The Agreement will establish
the repurchase price for the assets in the Trust Fund and the
allocation of such purchase price among the classes of
Certificates. The exercise of such right will effect early
retirement of the Certificates of that Series, but the right of
the party entitled to effect such repurchase will be subject to
the conditions set forth in the related Prospectus Supplement.
If a REMIC election is to be made with respect to all or a
portion of a Trust Fund, there may be additional conditions to
the termination of such Trust Fund which will be described in the
related Prospectus Supplement. In no event, however, will the
trust created by the Agreement continue beyond the expiration of
21 years from the death of the survivor of certain persons named
in the Agreement. The Trustee will be required to give written
notice of termination of the Agreement to each Certificateholder,
and the final distribution will be made only upon surrender and
cancellation of the Certificates at an office or agency of the
Trustee specified in such notice of termination.
If specified in the related Prospectus Supplement, the
Agreement will permit the Trustee to sell the Mortgage Loans,
Mortgage-Backed Securities or Contracts and the other assets of
the Trust Fund in the event that payments in respect thereto are
insufficient to make payments required in the Agreement. The
assets of the Trust Fund will be sold only under the
circumstances and in the manner specified in the related
Prospectus Supplement.
THE COMPANY
The Company is a special purpose corporation incorporated in
the State of Delaware on March 22, 1996, for the purpose of
engaging in the business, among other things, of acquiring and
depositing mortgage assets in trusts in exchange for certificates
evidencing interests in such trusts and selling or otherwise
distributing such certificates. The Company is not an affiliate
of Deutsche Bank AG. The principal executive offices of the
Company are located at One International Place, Room 608, Boston,
Massachusetts 02110. Its telephone number is (617) 951-7690.
The Company's capitalization is nominal. All of the shares of
capital stock of the Company are held by The Deutsche Mortgage &
Asset Receiving Trust, a Massachusetts charitable lead trust (the
"DMARC Trust") formed by J H Management Corporation and J H
Holdings Corporation, both of which are Massachusetts
corporations. J H Holdings Corporation is the trustee of the
DMARC Trust, which holds no assets other than the stock of the
Company. All of the stock of J H Holdings Corporation and of J H
Management Corporation is held by the 1960 Trust, an independent
charitable organization qualified under Section 501(c)(3) of the
Code, and operated for the benefit of a Massachusetts charitable
institution.
None of the Company, J H Management, Deutsche Bank AG nor
any of their respective affiliates will insure or guarantee
distributions on the Certificates of any Series.
DEUTSCHE BANK AG
It is anticipated that the assets conveyed to the Trust Fund
by the Company will have been acquired by the Company from
Deutsche Bank AG or an affiliate thereof. Deutsche Bank AG is
the largest banking institution in the Federal Republic of
Germany and one of the largest in the world. It is the parent
company of a group consisting of commercial banks, investment
banking and fund management companies, mortgage banks and
property finance companies, installment financing and leasing
companies, insurance companies, research and consultancy
companies and other domestic and foreign companies. The Deutsche
Bank group employs over 74,000 staff members at more than 2,400
branches and offices around the world.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal
aspects of mortgage loans and manufactured housing contracts
which are general in nature. Because many of the legal aspects
of mortgage loans and manufactured housing contracts are governed
by applicable state law (which may vary substantially), the
following summaries do not purport to be complete, to reflect the
laws of any particular state, to reflect all the laws applicable
to any particular Mortgage Loan or Contract or to encompass the
laws of all states in which the security for the Mortgage Loans
or Contracts is situated. In the event that the Trust Fund for a
given Series includes Mortgage Loans or Contracts having material
characteristics other than as described below, the related
Prospectus Supplement will set forth additional legal aspects
relating thereto.
The Mortgage Loans
General
Mortgages. The Mortgages will be either first, second or
more junior deeds of trust or mortgages. A mortgage creates a
lien upon the real property encumbered by the mortgage. It is
not prior to the lien for real estate taxes and assessments.
Priority between mortgages depends on their terms and generally
on the order of filing with a state or county office. There are
two parties to a mortgage: the borrower, who is the borrower and
homeowner or the land trustee or the trustee of an inter vivos
revocable trust (as described below), and the mortgagee, who is
the lender. Under the mortgage instrument, the borrower delivers
to the mortgagee a note or bond and the mortgage. In the case of
a land trust, there are three parties because title to the
property is held by a land trustee under a land trust agreement
of which the borrower/homeowner is the beneficiary; at
origination of a mortgage loan, the borrower executes a separate
undertaking to make payments on the mortgage note. In the case
of an inter vivos revocable trust, there are three parties
because title to the property is held by the trustee under the
trust instrument of which the home occupant is the primary
beneficiary; at origination of a mortgage loan, the primary
beneficiary and the trustee execute a mortgage note and the
trustee executes a mortgage or deed of trust, with the primary
beneficiary agreeing to be bound by its terms. Although a deed
of trust is similar to a mortgage, a deed of trust formally has
three parties, the borrower-homeowner called the trustor (similar
to a borrower), a lender (similar to a mortgagee) called the
beneficiary, 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 and generally with a power of
sale, to the trustee to secure payment of the obligation. The
trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by law, the express
provisions of the deed of trust or mortgage and, in some cases,
the directions of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be
Cooperative Loans. The private, non-profit, cooperative
apartment corporation owns all the real property that comprises
the project, including the land, separate dwelling units and all
common areas. The cooperative is directly responsible for
project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket
mortgage on the cooperative apartment building and/or underlying
land, as is generally the case, the cooperative, as project
borrower, is also responsible for meeting these mortgage
obligations. A blanket mortgage is ordinarily incurred by the
cooperative in connection with the construction or purchase of
the cooperative's apartment building. The interest of the
occupant under proprietary leases or occupancy agreements to
which that cooperative is a party are generally subordinate to
the interest of the holder of the blanket mortgage in that
building. If the cooperative is unable to meet the payment
obligations arising under its blanket mortgage, the mortgagee
holding the blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy
agreements. In addition, the blanket mortgage on a cooperative
may provide financing in the form of a mortgage that does not
fully amortize with a significant portion of principal being due
in one lump sum at final maturity. The inability of the
cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by
the mortgagee providing the financing. A foreclosure in either
event by the holder of the blanket mortgage could eliminate or
significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual
tenant-stockholder of cooperative shares or, in the case of a
Trust Fund including Cooperative Loans, the collateral securing
the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through
ownership of stock shares or membership certificates in the
corporation, receive proprietary leases or occupancy agreements
which confer exclusive rights to occupy specific units.
Generally, a tenant-stockholder of a cooperative must make a
monthly payment to the cooperative representing such
tenant-stockholder's pro rata share of the cooperative's payments
for its blanket mortgage, real property taxes, maintenance
expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights is
financed through a cooperative share loan evidenced by a
promissory note and secured by a security interest in the
occupancy agreement or proprietary lease and in the related
cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or
occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the cooperative
shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the
limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the
promissory note, dispose of the collateral at a public or private
sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security
agreement covering the assignment of the proprietary lease or
occupancy agreement and the pledge of cooperative shares.
With respect to Cooperative Loans, any prospective purchaser
will generally have to obtain the approval of the board of
directors of the relevant Cooperative before purchasing the
shares and acquiring rights under the related proprietary lease
or occupancy agreement. This approval is usually based on the
purchaser's income and net worth and numerous other factors.
Although the Cooperative's approval is unlikely to be
unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those
shares and otherwise limit the Trust Fund's ability to sell and
realize the value of those shares.
In general, a "tenant-stockholder" (as defined in Code
Section 216(b)(2)) of a corporation that qualifies as a
"cooperative housing corporation" within the meaning of Code
Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Code
Section 216(a) to the corporation under Code Sections 163 and
164. In order for a corporation to qualify under Code
Section 216(b)(1) for its taxable year in which such items are
allowable as a deduction to the corporation, such
Section requires, among other things, that at least 80% of the
gross income of the corporation be derived from its
tenant-stockholders (as defined in Code Section 216(b)(2)). By
virtue of this requirement, the status of a corporation for
purposes of Code Section 216(b)(1) must be determined on a
year-to-year basis. Consequently, there can be no assurance that
Cooperatives relating to the Cooperative Loans will qualify under
such Section for any particular year. In the event that such a
Cooperative fails to qualify for one or more years, the value of
the collateral securing any related Cooperative Loans could be
significantly impaired because no deduction would be allowable to
tenant-stockholders under Code Section 216(a) with respect to
those years. In view of the significance of the tax benefits
accorded tenant-stockholders of a corporation that qualifies
under Code Section 216(b)(1), the likelihood that such a failure
would be permitted to continue over a period of years appears
remote.
Financial Leases
The Mortgage Loans included in the Mortgage Pool for a
Series also may consist of financial leases. Under a financial
lease on real property, the lessor retains legal title to the
leased property and enters into an agreement with the lessee
(hereinafter referred to in this Section as the "lessee") under
which the lessee makes lease payments approximately equal to the
principal and interest payments that would be required on a
mortgage note for a loan covering the same property. Title to
the real estate typically is conveyed to the lessee at the end of
the lease term for a price approximately equal to the remaining
unfinanced equity, determined by reference to the unpaid
principal amount, market value, or another method specified in
the related agreement. The lessee generally is responsible for
maintaining the property in good condition and for paying real
estate taxes, assessments and hazard insurance premiums
associated with the property during the lease term. The method
of enforcing the rights of the lessor under a financial lease
varies on a state-by-state basis depending upon the extent to
which state courts are willing, or able pursuant to state
statute, to enforce the contract strictly according to its terms.
The terms of financial leases generally provide that upon a
default by the borrower, the lessee loses his or her right to
occupy the property and the lessee's equitable interest in the
property is forfeited. The lessor in such a situation does not
have to foreclose although in some cases an ejectment action may be
necessary to recover possession. In a few states, particularly in
cases of default during the early years of a financial lease, the
courts will permit ejection of the buyer and a forfeiture of his
or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law
protecting borrowers under financial leases from the harsh
consequences of forfeiture. Under such statutes, a judicial or
nonjudicial foreclosure may be required, the lessor may be
required to give notice of default and the lessee may be granted
some grace period during which the contract may be reinstated
upon full payment of the default amount and the lessor may have
post-foreclosure statutory redemption right. In other states,
courts in equity may permit a borrower with significant investment
in the property under a financial lease for the sale of real estate
to share in the proceeds of the property after the indebtedness is
repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally speaking, the lessor procedures for
obtaining possession and clear title under a financial lease for
the sale of real estate in a given state are simpler and less
time-consuming and costly than are the procedures for foreclosing
and obtaining clear title to a mortgage property. The related
Prospectus Supplement will describe the specific legal incidents
of any financial leases that are included in the Mortgage Pool
for a Series.
Foreclosure
Mortgages. Foreclosure of a deed of trust is generally
accomplished by a non-judicial trustee's sale under a specific
provision in the deed of trust that authorizes the trustee to
sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In some
states, the trustee must record a notice of default and send a
copy to the borrower-trustor and any person who has recorded a
request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any
other individual having an interest in the real property,
including any junior lien holders. The borrower, or any other
person having a junior encumbrance on the real estate, may,
during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in
enforcing the obligation. Generally, state law controls the
amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. If the deed of trust
is not reinstated, a notice of sale must be posted in a public
place and, in most states, published for a specific period of
time in one or more newspapers. In addition, some state laws
require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest in the real
property.
Foreclosure of a mortgage is generally accomplished by
judicial action. The action is initiated by the service of legal
pleadings upon all parties having an interest in the real
property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating such necessary
parties. Judicial foreclosure proceedings are often not
protested by any of the defendants. However, when the
mortgagee's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be time consuming.
After the completion of judicial foreclosure, the court generally
issues a judgment of foreclosure and appoints a referee or other
court officer to conduct the sale of the property.
A sale conducted in accordance with the terms of the power
of sale contained in a mortgage or deed of trust is generally
presumed to be conducted regularly and fairly, and a conveyance
of the real property by the referee confers absolute legal title
to the real property to the purchaser, free of all junior
mortgages and free of all other liens and claims subordinate to
the mortgage or deed of trust under which the sale is made (with
the exception of certain governmental liens and any redemption
rights that may be granted to borrowers pursuant to applicable
state law). The purchaser's title is, however, subject to all
senior liens, encumbrances and mortgages. Thus, if the mortgage
or deed of trust being foreclosed is a junior mortgage or deed of
trust, the referee or trustee will convey title to the property
to the purchaser, subject to the underlying first mortgage or
deed of trust and any other prior liens and claims. A
foreclosure under a junior mortgage or deed of trust generally
will have no effect on any senior mortgage or deed of trust, with
the possible exception of triggering the right of a senior
mortgagee or beneficiary to accelerate its indebtedness under a
"due-on-sale" clause or "due on further encumbrance" clause
contained in the senior mortgage.
In case of foreclosure under either a mortgage or a deed of
trust, the sale by the referee or other designated officer or by
the trustee is a public sale. However, because of the difficulty
a potential buyer at the sale would have in determining the exact
status of title and because the physical condition of the
property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the
property at the foreclosure sale. Rather, it is common for the
lender to purchase the property from the trustee or referee for
an amount equal to the principal amount of the mortgage or deed
of trust, accrued and unpaid interest and expenses of
foreclosure. Thereafter, the lender will assume the burdens of
ownership, including obtaining casualty insurance and making such
repairs at its own expense as are necessary to render the
property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission
in connection with the sale of the property. Depending upon
market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property.
Any loss may be reduced by the receipt of any mortgage insurance
proceeds.
Some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process
concerns for adequate notice require that borrowers under deeds
of trust or mortgages receive notices in addition to the
statutorily prescribed minimum. 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.
Cooperative Loans. 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 bylaws, as well as
the proprietary lease or occupancy agreement, and may be canceled
by the cooperative for failure by the tenant-stockholder to pay
rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the
cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement
generally permits the cooperative to terminate such lease or
agreement in the event an obligor fails to make payments or
defaults in the performance of covenants required thereunder.
Typically, the lender and the cooperative enter into a
recognition agreement which establishes the rights and
obligations of both parties in the event of a default by the
tenant-stockholder on its obligations under the proprietary lease
or occupancy agreement. A default by the tenant-stockholder
under the proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between the
lender and the tenant-stockholder.
The recognition agreement generally provides that, in the
event that the tenant-stockholder has defaulted under the
proprietary lease or occupancy agreement, the cooperative will
take no action to terminate such lease or agreement until the
lender has been provided with an opportunity to cure the default.
The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the
cooperative will recognize the lender's lien against proceeds
from a sale of the cooperative apartment, subject, however, to
the cooperative's right to sums due under such proprietary lease
or occupancy agreement. The total amount owed to the cooperative
by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the
collateral below the outstanding principal balance of the
cooperative loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a
foreclosure on a cooperative loan, the lender must obtain the
approval or consent of the cooperative as required by the
proprietary lease before transferring the cooperative shares or
assigning the proprietary lease. Generally, the lender is not
limited in any rights it may have to dispossess the
tenant-stockholders.
In some states, foreclosure on the cooperative shares is
accomplished by a sale in accordance with the provisions of
Article 9 of the Uniform Commercial Code (the "UCC") and the
security agreement relating to those shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially
reasonable" manner. Whether a foreclosure sale has been
conducted in a "commercially reasonable" manner will depend on
the facts in each case. In determining commercial
reasonableness, a court will look to the notice given the debtor
and the method, manner, time, place and terms of the foreclosure.
Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably
conducted.
Article 9 of the UCC provides that the proceeds of the sale
will be applied first to pay the costs and expenses of the sale
and then to satisfy the indebtedness secured by the lender's
security interest. The recognition agreement, however, generally
provides that the lender's right to reimbursement is subject to
the right of the cooperative corporation to receive sums due
under the proprietary lease or occupancy agreement. If there are
proceeds remaining, the lender must account to the
tenant-stockholder for the surplus. Conversely, if a portion of
the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency
Legislation and Other Limitations on Lenders" below.
Rights of Mortgagees
The standard form of the mortgage or deed of trust used by
most institutional lenders confers on the mortgagee or
beneficiary the right under some circumstances both to receive
all proceeds collected under any hazard insurance policy and all
awards made in connection with any condemnation proceedings, and
to apply such proceeds and awards to any indebtedness secured by
the mortgage or deed of trust in such order as the mortgagee or
beneficiary may determine. Thus, in the event improvements on
the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the
mortgagee or beneficiary under any underlying senior mortgages
may have the prior right to collect any insurance proceeds
payable under a hazard insurance policy and any award of damages
in connection with the condemnation and to apply the same to the
indebtedness secured by the senior mortgages or deeds of trust.
In most cases, proceeds in excess of the amount of senior
mortgage indebtedness will be applied to the indebtedness of a
junior mortgage or trust deed.
A common form of mortgage or deed of trust used by
institutional lenders typically contains a "future advance"
clause which provides, in essence, that additional amounts
advanced to or on behalf of the borrower or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or
deed of trust. While such a clause is valid under the laws of
most states, the priority of any advance made under the clause
depends, in some states, on whether the advance was an
"obligatory" or "optional" advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the
advance is entitled to receive the same priority as amounts
initially loaned under the mortgage or deed of trust,
notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the
additional amounts (and, in some jurisdictions, has actual
knowledge of the intervening junior mortgages or deeds of trust
and other liens), the advance will be subordinate to such
intervening junior mortgages or deeds of trust and other liens.
Priority of advances under the clause rests, in many other
states, on state statutes giving priority to all advances made
under the loan agreement to a "credit limit" amount stated in the
recorded mortgage.
Other provisions sometimes included in the form of the
mortgage or deed of trust used by institutional lenders obligate
the borrower or trustor to pay, before delinquency, all taxes and
assessments on the property and, when due, all encumbrances,
charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance
on the property, to maintain and repair the property and not to
commit or permit any waste thereof, and to appear in and defend
any action or proceeding purporting to affect the property or the
rights of the mortgagee or beneficiary under the mortgage or deed
of trust. Upon a failure of the borrower or trustor to perform
any of these obligations, the mortgagee or beneficiary is given
the right under certain mortgages or deeds of trust to perform
the obligation itself, at its election, with the borrower or
trustor agreeing to reimburse the mortgagee or beneficiary for
any sums expended by the mortgagee or beneficiary on behalf of
the borrower or trustor. All sums so expended by the mortgagee
or beneficiary become part of the indebtedness secured by the
mortgage or deed of trust. See "Servicing of the Mortgage Loans
and Contracts-Collection and Other Servicing Procedures" herein.
Rights of Redemption
In approximately one-third of the states, after sale
pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale.
In some states, redemption may occur only upon payment of the
entire principal balance of the loan, accrued interest and
expenses of foreclosure. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums
due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed
property. The rights of redemption would defeat the title of any
purchaser from the lender subsequent to foreclosure or sale under
a deed of trust. Consequently, the practical effect of the post-
foreclosure redemption right is to force the lender to retain the
property and pay the expenses of ownership until the redemption
period has run. Whether the lender has any rights to recover
these expenses from a borrower who redeems the property depends
on the applicable state statute. The related Prospectus
Supplement will contain a description of any statutes that
prohibit recovery of such expenses from a borrower in states
where a substantial number of the Mortgaged Properties for a
particular Series is located.
Junior Mortgages; Rights of Senior Mortgagees
The mortgage pool for a Series may include Mortgage Loans
secured by mortgages or deeds of trust some of which are junior
to other mortgages or deeds of trust, some of which may be held
by other lenders or institutional investors. The rights of the
Trust (and therefore the Certificateholders), as mortgagee under
a junior mortgage or beneficiary under a junior deed of trust,
are subordinate to those of the mortgagee under the senior
mortgage or beneficiary under the senior deed of trust, including
the prior rights of the senior mortgagee to receive hazard
insurance and condemnation proceeds and to cause the property
securing the Mortgage Loan to be sold upon default of the
borrower or trustor, thereby extinguishing the junior mortgagee's
or junior beneficiary's lien unless the junior mortgagee or
junior beneficiary asserts its subordinate interest in the
property in foreclosure litigation and, possibly, satisfies the
defaulted senior mortgage or deed of trust. As discussed more
fully below, a junior mortgagee or junior beneficiary may satisfy
a defaulted senior loan in full and, in some states, may cure
such default and loan. In most states, no notice of default is
required to be given to a junior mortgagee or junior beneficiary
and junior mortgagees or junior beneficiaries are seldom given
notice of defaults on senior mortgages. In order for a
foreclosure action in some states to be effective against a
junior mortgagee or junior beneficiary, the junior mortgagee or
junior beneficiary must be named in any foreclosure action, thus
giving notice to junior lienors.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions that
limit the remedies of a beneficiary under a deed of trust or a
mortgagee under a mortgage. In some states, statutes limit the
right of the beneficiary or mortgagee to obtain a deficiency
judgment against the borrower following foreclosure or sale under
a deed of trust. A deficiency judgment would be a personal
judgment against the former borrower equal in most cases to the
difference between the net amount realized upon the public sale
of the real property and the amount due to the lender. Other
statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by
foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower. Finally, other
statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the
outstanding debt over the fair market value of the property at
the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining
a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including the
federal bankruptcy laws and state laws affording relief to
debtors, may interfere with or affect the ability of the secured
mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal
bankruptcy law, a court with federal bankruptcy jurisdiction may
permit a debtor through his or her Chapter 11 or Chapter 13
rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearages within
a reasonable time period and reinstating the original mortgage
loan payment schedule even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered
in state court (provided no sale of the residence had yet
occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that
effected the curing of a mortgage loan default by paying
arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also
indicated that the terms of a mortgage loan secured by property
of the debtor may be modified. These courts have suggested that
such modifications may include reducing the amount of each
monthly payment, changing the rate of interest, altering the
repayment schedule and reducing the lender's security interest to
the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan.
The Code provides priority to certain tax liens over the
lien of the mortgage. In addition, substantive requirements are
imposed upon mortgage lenders in connection with the origination
and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. These laws include the federal
Truth-in-Lending Act, Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act, their related regulations 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 law. In some cases,
this liability may affect assignees of the mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on
cooperative shares and the related proprietary lease or occupancy
agreement. 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
Cooperative Loan, would be the shares of the cooperative and the
related proprietary lease or occupancy agreement) was conducted
in a commercially reasonable manner.
Enforceability of Certain Provisions
Unless the related Prospectus Supplement indicates
otherwise, all of the Mortgage Loans will contain due-on-sale
clauses. These clauses permit the lender to accelerate the
maturity of a loan if the borrower sells, transfers, or conveys
the property. The enforceability of these clauses was the
subject of legislation or litigation in many states, and in some
cases the enforceability of these clauses was limited or denied.
However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn-St Germain Act") preempts state constitutional,
statutory and case law prohibiting the enforcement of due-on-sale
clauses and permits lenders to enforce these clauses in
accordance with their terms, subject to certain limited
exceptions. The Garn-St Germain Act does "encourage" lenders to
permit assumption of loans at the original rate of interest or at
some other rate less than the average of the original rate and
the market rate.
Due-on-sale clauses contained in mortgage loans originated
by federal savings and loan associations or federal savings banks
are fully enforceable pursuant to regulations of the Office of
Thrift Supervision (the "OTS"), as successor to the Federal Home
Loan Bank Board, which preempt state law restrictions on the
enforcement of due-on-sale clauses.
The Garn-St Germain Act also sets forth nine specific
instances in which a mortgage lender covered by the Garn-St
Germain Act (including federal savings and loan associations and
federal savings banks) may not exercise a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain
transfers by operation of law, leases of fewer than three years
and the creation of a junior encumbrance. Regulations
promulgated under the Garn-St Germain Act by the Federal Home
Loan Bank Board as succeeded by the OTS also prohibit the
imposition of a prepayment penalty upon the acceleration of a
loan pursuant to a due-on-sale clause. If interest rates were to
rise above the interest rates on the Mortgage Loans, then any
inability of the Servicer or Master Servicer to enforce
due-on-sale clauses may result in the Trust Fund including a
greater number of loans bearing below-market interest rates than
would otherwise be the case, since a transferee of the property
underlying a Mortgage Loan would have a greater incentive in such
circumstances to assume the transferor's Mortgage Loan. Any
inability of the Servicer or Master Servicer to enforce
due-on-sale clauses may affect the average life of the Mortgage
Loans and the number of Mortgage Loans that may be outstanding
until maturity. See "Yield, Maturity and Weighted Average Life
Considerations."
Upon foreclosure, courts have imposed general equitable
principles. These equitable principles are generally designed to
relieve the borrower from the legal effect of his defaults under
the loan documents. Examples of judicial remedies that have been
fashioned include 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 that lenders reinstate loans or recast payment schedules
in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have
limited the right of the lender to foreclose if the default under
the mortgage instrument is not monetary, such as the borrower
failing to adequately maintain the property or the borrower
executing a second mortgage or deed of trust affecting the
property.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and
Monetary Control Act of 1980, enacted in March 1980 ("Title V"),
provides that state usury limitations shall not apply to certain
types of residential first mortgage loans originated by certain
lenders after March 31, 1980. The OTS, as successor to the
Federal Home Loan Bank Board, is authorized to issue rules and
regulations and to publish interpretations governing
implementation of Title V. The statute authorized any state to
reimpose interest rate limits by adopting, before April 1, 1983,
a law or constitutional provision which expressly rejects
application of the federal law. In addition, even where Title V
is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage
loans covered by Title V.
The Company or another party designated in the related
Prospectus Supplement will represent and warrant to the Trustee
that the Mortgage Loans have been originated in compliance in all
material respects with applicable state laws, including usury
laws.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended (the "Relief Act"), a
borrower who enters military service after the origination of
such borrower's Mortgage Loan (including a borrower who is a
member of the National Guard or is in reserve status at the time
of the origination of the Mortgage Loan and is later called to
active duty) may not be charged interest above an annual rate of
6% during the period of such borrower's active duty status,
unless a court orders otherwise upon application of the lender.
It is possible that such interest rate limitation could have an
effect, for an indeterminate period of time, on the ability of
the Servicer to collect full amounts of interest on certain of
the Mortgage Loans. In addition, the Relief Act imposes
limitations which would impair the ability of the Servicer to
foreclose on an affected Mortgage Loan during the borrower's
period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default there may be delays and losses
occasioned by the inability to realize upon the Mortgaged
Property in a timely fashion.
Under the applicable Agreement, the Servicer will not be
required to make deposits to the Certificate Account for a Series
of Certificates in respect of any Mortgage Loan as to which the
Relief Act has limited the amount of interest the related
borrower is required to pay each month, and Certificateholders
will bear such loss.
Environmental Considerations
Under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and under state law
in certain states, a secured party which takes a deed in lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale
or operates a mortgaged property may become liable in certain
circumstances for the costs of remedial action ("Cleanup Costs")
if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be
substantial. It is possible that such Cleanup Costs could reduce
the amounts otherwise distributable to the Certificateholders if
the related Trust Fund were deemed to be liable for such Cleanup
Costs and if such Cleanup Costs were incurred. Moreover, under
federal law and the law of certain states, a lien may be imposed
for any Cleanup Costs incurred by federal or state authorities on
the property that is the subject of such Cleanup Costs. All
subsequent liens on such property are subordinated to such lien
and, in several states, even prior recorded liens, including
those of existing mortgages, are subordinated to such liens (a
"Superlien"). In the latter states, the security interest of the
Trustee in a property that is subject to such a Superlien could
be adversely affected.
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. The
Company does not make any representation or warranty or assume
any liability with respect to the absence or effect of hazardous
wastes or hazardous substances on any Mortgaged Property or any
casualty resulting from the presence or effect of hazardous
wastes or hazardous substances.
The Contracts
General
As a result of the Company's assignment of the Contracts to
the Trustee, the Certificateholders will succeed collectively to
all of the rights (including the right to receive payment on the
Contracts) and will assume certain obligations of the Company or
the originator of such Contracts (the "Originator"). Each
Contract evidences both (a) the obligation of the obligor to
repay the loan evidenced thereby, and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such
loan. Certain aspects of both features of the Contracts are
described more fully below.
The Contracts generally are "chattel paper" as defined in
the UCC in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the sale of
chattel paper is treated in a manner similar to perfection of a
security interest in chattel paper. Under the Agreement, the
Company will be required to transfer physical possession of the
Contracts to the Trustee or its custodian. In addition, the
Company will be required to make an appropriate filing of a UCC-1
financing statement in the appropriate states to give notice of
the Trustee's ownership of the Contracts. Unless otherwise
specified in the related Prospectus Supplement, the Contracts
will not be stamped or marked otherwise to reflect their
assignment from the Company to the Trustee. Therefore, if a
subsequent purchaser were able to take physical possession of the
Contracts without notice of such assignment, the Trustee's
interest in the Contracts could be defeated.
Security Interests in the Manufactured Homes
The Manufactured Homes securing the Contracts may be located
in all 50 states and the District of Columbia. Security
interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title
or by delivery of the required documents and payment of a fee to
the state motor vehicle authority, depending on state law. In
some nontitle states, perfection pursuant to the provisions of
the UCC is required. The Company or the Originator may effect
such notation or delivery of the required documents and fees, and
obtain possession of the certificate of title, as appropriate
under the laws of the state in which any manufactured home
securing a manufactured housing conditional sales contract is
registered. In the event the Company or the Originator fails,
due to clerical errors, to effect such notation or delivery, or
files the security interest under the wrong law (for example,
under a motor vehicle title statute rather than under the UCC, in
a few states), the Certificateholders may not have a first
priority security interest in the Manufactured Home securing a
contract. As manufactured homes have become larger and often
have been attached to their sites without any apparent intention
to move them, courts in many states have held that manufactured
homes, under certain circumstances, may become subject to real
estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to
the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a
security interest in a manufactured home under real estate laws,
the holder of the security interest must file either a "fixture
filing" under the provisions of the UCC or a real estate mortgage
under the real estate laws of the state where the home is
located. These filings must be made in the real estate records
office of the county where the home is located. Unless otherwise
indicated in the related Prospectus Supplement, substantially all
of the Contracts will contain provisions prohibiting the borrower
from permanently attaching the Manufactured Home to its site. So
long as the borrower does not violate this agreement, a security
interest in the Manufactured Home will be governed by the
certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a
UCC financing statement will be effective to maintain the
priority of the security interest in the Manufactured Home. If,
however, a Manufactured Home is permanently attached to this
site, other parties could obtain an interest in the Manufactured
Home which is prior to the security interest transferred to the
Trustee. With respect to a Series of Certificates and as
described in the related Prospectus Supplement, the Company or
the Originator may be required to perfect a security interest in
the Manufactured Home under applicable real estate laws. If such
real estate filings are not required and if any of the foregoing
events were to occur, the only recourse of the Certificateholders
would be against the Company or the Originator pursuant to its
repurchase obligation for breach of warranties.
The Originator will assign its security interest in the
Manufactured Homes to the Company, and the Company will assign
its security interest in the Manufactured Homes to the Trustee on
behalf of the Certificateholders. Unless otherwise specified in
the related Prospectus Supplement, neither the Originator, the
Company nor the Trustee will amend the certificates of title to
identify the Company or the Trust Fund as the new secured party.
Accordingly, the Originator or the Company will continue to be
named as the secured party on the certificates of title relating
to the Manufactured Homes. In most states, such assignment is an
effective conveyance of such security interest without amendment
of any lien noted on the related certificate of title and the new
secured party succeeds to the Originator's or the Company's
rights as the secured party. However, in some states there
exists a risk that, in the absence of an amendment to the
certificate of title, such assignment of the security interest
might not be held effective against creditors of the Company or
the Originator.
In the absence of fraud, forgery or permanent affixation of
the Manufactured Home to its site by the Manufactured Home owner,
or administrative error by state recording officials, the
notation of the lien of the Company on the certificate of title
or delivery of the required documents and fees will be sufficient
to protect the Certificateholders against the rights of
subsequent purchasers of a Manufactured Home or subsequent
lenders who take a security interest in the Manufactured Home.
If there are any Manufactured Homes as to which the security
interest assigned to the Company and the Certificateholders is
not perfected, such security interest would be subordinate to,
among others, subsequent purchasers for value of Manufactured
Homes and holders of perfected security interests. There also
exists a risk in not identifying the Certificateholders as the
new secured party on the certificate of title that, through fraud
or negligence, the security interest of the Certificateholders
could be released.
In the event that the owner of a Manufactured Home moves it
to a state other than the state in which such Manufactured Home
initially is registered under the laws of most states the
perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter
only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to
another state and not re-register the Manufactured Home in such
state, and if steps are not taken to re-perfect the Trustee's
security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to
re-register a Manufactured Home; accordingly, the Trustee must
surrender possession if it holds the certificate of title to such
Manufactured Home or, in the case of Manufactured Homes
registered in states which provide for notation of lien, the
Trustee would receive notice of surrender if the security
interest of the Trust Fund in the Manufactured Home is noted on
the certificate of title or if the Originator or the Company
gives notice to the Trustee that it has received a notice of
surrender. In such case, the Trustee would have the opportunity
to re-perfect its security interest in the Manufactured Home in
the state of relocation. In states which do not require a
certificate of title for registration of a manufactured home,
re-registration could defeat perfection. In the ordinary course
of servicing the manufactured housing conditional sales
contracts, the Servicer will be required to take steps to effect
such re-perfection upon receipt of notice of re-registration or
information from the obligor as to relocation. Similarly, when
an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the Trustee must surrender
possession of the certificate of title or will receive notice as
a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related manufactured
housing conditional sales contract before release of the lien.
Under the Agreement the Servicer is obligated to take such steps,
at the Servicer's expense, as are necessary to maintain
perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed
on a Manufactured Home take priority even over a perfected
security interest. The Company or the Originator may represent
to the Trustee that it has no knowledge of any such liens with
respect to any Manufactured Home securing payment on any
Contract. However, such liens could arise at any time during the
term of a Contract. No notice will be given to the Trustee or
Certificateholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes
The Servicer on behalf of the Trustee, to the extent
required by the related Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default
by repossession and resale of the Manufactured Homes securing
such Contracts in default. So long as the Manufactured Home has
not become subject to the real estate law, a creditor can
repossess a Manufactured Home securing a Contract by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e.,
without breach of the peace) or, in the absence of voluntary
surrender and the ability to repossess without breach of the
peace, by judicial process. The holder of a Contract must give
the debtor a number of days' notice, which varies from 10 to 30
days depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including
requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states
also requires that the debtor be given notice of any sale prior
to resale of the unit so that the debtor may redeem at or before
such resale. In the event of such repossession and resale of a
Manufactured Home, the Trustee would be entitled to be paid out
of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of
subsequently perfected security interests or, thereafter, to the
debtor.
Under the laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from a debtor for any
deficiency on repossession and resale of the manufactured home
securing such debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and
state bankruptcy and insolvency laws and general equitable
principles, may limit or delay the ability of a lender to
repossess and resell collateral or enforce a deficiency judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal
Trade Commission is intended to defeat the ability of the
transferor of a consumer credit contract which is the seller of
goods which gave rise to the transaction (and certain related
lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is
to subject the assignee of such a contract to all claims and
defenses which the debtor could assert against the seller of
goods. Liability under this rule is limited to amounts paid
under a Contract; however, the obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a
claim brought by the Trust Fund against such obligor. Numerous
other federal and state consumer protection laws impose
requirements applicable to the origination of and lending
pursuant to the Contracts, including the Truth-in-Lending Act,
the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Equal Credit Opportunity Act,
the Fair Debt Collection Practices Act and the Uniform Consumer
Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the
related Contract.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale"
Clauses
The Contracts, in general, prohibit the sale or transfer of
the related Manufactured Homes without the consent of the
Originator and permit the acceleration of the maturity of the
Contracts by the Originator upon any such sale or transfer that
is not consented to. Unless otherwise specified in the related
Prospectus Supplement, the Company expects that the Originator
will permit most transfers of Manufactured Homes and not
accelerate the maturity of the related Contracts. In certain
cases, the transfer may be made by a delinquent obligor in order
to avoid a repossession proceeding with respect to a Manufactured
Home.
In the case of a transfer of a Manufactured Home after which
the Servicer desires to accelerate the maturity of the related
Contract, the Servicer's ability to do so will depend on the
enforceability under state law of the "due-on-sale" clause. The
Garn-St Germain Act preempts, subject to certain exceptions and
conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes. Consequently, in
some states the Servicer may be prohibited from enforcing a
"due-on-sale" clause in respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V provides that, subject to the following conditions,
state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of manufactured housing.
The Contracts would be covered if they satisfy certain
conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a
30-day notice period prior to instituting any action leading to
repossession of or foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on
interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects
application of the federal law. Fifteen states adopted such a
law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law
to adopt a provision limiting discount points or other charges on
loans covered by Title V. In any state in which application of
Title V was expressly rejected or a provision limiting discount
points or other charges has been adopted, no Contract which
imposes finance charges or provides for discount points or
charges in excess of permitted levels will be included in a Trust
Fund. The Company, or another person identified in the related
Prospectus Supplement, will represent that all of the Contracts
comply with applicable usury law.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Relief Act, a borrower who
enters military service after the origination of such borrower's
Contract (including a borrower who is a member of the National
Guard or is in reserve status at the time of the origination of
the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of
such borrower's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that
such interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Contracts. In
addition, the Relief Act imposes limitations which would impair
the ability of the Servicer to enforce the lien with respect to
an affected Contract during the borrower's period of active duty
status. Thus, in the event that such a Contract goes into
default, there may be delays and losses occasioned by the
inability to enforce the lien with respect to the Manufactured
Home in a timely fashion.
Under the applicable Agreement, the Servicer will not be
required to make deposits to the Certificate Account for a Series
of Certificates in respect of any Contract as to which the Relief
Act has limited the amount of interest the related borrower is
required to pay each month, and Certificateholders will bear such
loss.
LEGAL INVESTMENT MATTERS
The Secondary Mortgage Market Enhancement Act
Unless otherwise specified in the related Prospectus
Supplement, all of the classes of Offered Certificates of a
Series offered thereby will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), so long as they are rated in
one of the two highest rating categories by one or more
nationally recognized statistical rating organizations, and, as
such, are legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities
(including, but not limited to, state-chartered savings banks,
commercial banks, savings and loan associations and insurance
companies, as well as trustees and state government employee
retirement systems) created pursuant to or existing under the
laws of the United States or of any state (including the District
of Columbia and Puerto Rico) whose authorized investments are
subject to state regulation to the same extent that, under
applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such
entities. Pursuant to SMMEA, a number of states enacted
legislation, on or before the October 3, 1991 cut-off for such
enactments, limiting to varying extents the ability of certain
entities (in particular, insurance companies) to invest in
"mortgage related securities," in most cases by requiring the
affected investors to rely solely upon existing state law and not
SMMEA. Accordingly, the investors affected by such legislation
will be authorized to invest in the Offered Certificates only to
the extent provided in such legislation and other applicable law.
SMMEA also amended the legal investment authority of
federally chartered depository institutions as follows: federal
savings and loan associations and federal savings banks may
invest in, sell or otherwise deal with mortgage related
securities without limitation as to the percentage of their
assets represented thereby; federal credit unions may invest in
mortgage related securities; and national banks may purchase
mortgage related securities for their own account without regard
to the limitations generally applicable to investment securities
set forth in 12 U.S.C. Section 24 (Seventh), subject in each case to
such regulations as the applicable federal regulatory authority
may prescribe. In this connection, federal credit unions should
review National Credit Union Administration (the "NCUA") Letter
to Credit Unions No. 96, as modified by Letter to Credit Unions
No. 108, which includes guidelines to assist federal credit
unions in making investment decisions for mortgage related
securities. The NCUA has adopted rules, effective December 2,
1991, which prohibit federal credit unions from investing in
certain mortgage related securities, possibly including certain
classes of Offered Certificates, except under limited
circumstances.
If specified in the related Prospectus Supplement, one or
more classes of Offered Certificates of a Series will not
constitute "mortgage related securities" for purposes of SMMEA.
In such event, persons whose investments are subject to state or
federal regulation may not be legally authorized to invest in
such classes of Offered Certificates.
All depository institutions considering an investment in the
Offered Certificates should review the "Supervisory Policy
Statement on Securities Activities" dated January 28, 1992 (the
"Policy Statement") of the Federal Financial Institutions
Examination Council. The Policy Statement, which has been
adopted by the Board of Governors of the Federal Reserve System,
the FDIC, the Comptroller of the Currency and the Office of
Thrift Supervision, effective February 10, 1992, and by the NCUA
(with certain modifications) effective June 26, 1992, prohibits
depository institutions from investing in certain "high-risk
mortgage securities" (including securities such as certain Series
and classes of the Offered Certificates), except under limited
circumstances, and sets forth certain investment practices deemed
to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to
regulation by federal or state authorities should review rules,
policies and guidelines adopted from time to time by such
authorities before purchasing the Certificates, as certain Series
or classes thereof may be deemed unsuitable investments, or may
otherwise be restricted, under such rules, policies or
guidelines, in certain instances irrespective of SMMEA.
The foregoing does not take into consideration the
applicability of statutes, rules, regulations, orders, guidelines
or agreements generally governing investments made by a
particular investor, including, but not limited to, "prudent
investor" provisions, percentage-of-assets limits, provisions
which may restrict or prohibit investments in securities which
are not "interest-bearing" or "income-paying," and, with regard
to any Offered Certificates issued in book-entry form, provisions
which may restrict or prohibit investments in securities which
are issued in book-entry form.
The Appraisal Regulations
Pursuant to Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), the Board of
Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency, the Federal Deposit Insurance
Corporation and the OTS have adopted regulations (the "Appraisal
Regulations") applicable to bank holding companies and their non-
bank subsidiaries, state-chartered banks that are members of the
Federal Reserve System, national banks, state-chartered banks
that are not members of the Federal Reserve System and savings
associations, respectively. The Appraisal Regulations, which are
substantially similar, although not identical, for each agency,
generally require the affected institutions and entities to
obtain appraisals performed by state-certified or state-licensed
appraisers (each, a "FIRREA Appraisal") in connection with a wide
range of real estate-related transactions, including the purchase
of interests in loans secured by real estate in the form of
mortgage-backed securities, unless an exemption applies. With
respect to purchases of mortgage-backed securities, the Appraisal
Regulations provide for an exemption from the requirement of
obtaining new FIRREA Appraisals for the properties securing the
underlying loans so long as at the time of origination each such
loan was the subject of either a FIRREA Appraisal, or, if a
FIRREA Appraisal was not required, met the appraisal requirements
of the appropriate regulator.
No assurance can be given that each of the underlying
Mortgage Loans or Contracts in a Trust Fund will have been the
subject of a FIRREA Appraisal or, if a FIRREA Appraisal was not
required, an appraisal that conformed to the requirements of the
appropriate regulator at origination. To the extent available,
information will be provided in the related Prospectus Supplement
with respect to appraisals on the Mortgage Loans or Contracts
underlying each Series of Certificates. However, such
information may not be available on every Mortgage Loan or
Contract. Prospective investors that may be subject to the
Appraisal Regulations are advised to consult with their legal
advisors and/or the appropriate regulators with respect to the
effect of such regulations on their ability to invest in
particular Offered Certificates.
Investors should consult their own legal advisors in
determining whether and to what extent the Offered Certificates
constitute legal investments for such investors.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended, ("ERISA") and the Code impose requirements on employee
benefit plans (and on certain other retirement plans and
arrangements, including individual retirement accounts and
annuities, Keogh plans and collective investment funds and
separate accounts in which such plans, accounts or arrangements
are invested) subject to ERISA or the Code (collectively,
"Plans") and on persons who are fiduciaries with respect to such
Plans. Among other things, ERISA requires that the assets of a
Plan subject to ERISA be held in trust and that the trustee, or
other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plan. ERISA
also imposes certain duties on persons who are fiduciaries with
respect to a Plan. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of
the assets of a Plan generally is considered to be a fiduciary of
such Plan. In addition to the imposition by ERISA of general
fiduciary standards of investment prudence and diversification,
ERISA and Section 4975 of the Code prohibit a broad range of
transactions involving Plan assets and persons ("Parties in
Interest") having certain specified relationships to a Plan and
impose additional prohibitions where Parties in Interest are
fiduciaries with respect to such Plan.
The United States Department of Labor (the "DOL") has issued
regulations concerning the definition of what constitutes the
assets of a Plan (DOL Reg. Section 2510.3-101). Under this
regulation, the underlying assets and properties of corporations,
partnerships and certain other entities in which a Plan makes an
"equity" investment could be deemed for purposes of ERISA and
Section 4975 of the Code to be assets of the investing Plan in
certain circumstances. In such a case, the fiduciary making such
an investment for the Plan could be deemed to have delegated his
or her asset management responsibility, the underlying assets and
properties could be subject to ERISA's reporting and disclosure
requirements, and transactions involving the underlying assets
and properties could be subject to the fiduciary responsibility
requirements of ERISA and Section 4975 of the Code. Certain
exceptions to the regulation may apply in the case of a Plan's
investment in the Offered Certificates, but the Company cannot
predict in advance whether such exceptions will apply due to the
factual nature of the conditions to be met. Accordingly, because
the Mortgage Loans, Mortgage-Backed Securities or Contracts may
be deemed Plan assets of each Plan that purchases Offered
Certificates, an investment in the Offered Certificates by a Plan
might give rise to a prohibited transaction under ERISA
Sections 406 or 407 and be subject to an excise tax under Code
Section 4975 unless a statutory or administrative exemption
applies.
DOL Prohibited Transaction Class Exemption 83-1 ("PTE 83-1")
exempts from the prohibited transaction rules of ERISA and
Section 4975 of the Code certain transactions relating to the
operation of residential mortgage pool investment trusts and the
purchase, sale and holding of "mortgage pool pass-through
certificates" in the initial issuance of such certificates.
PTE 83-1 permits, subject to certain conditions, transactions
which might otherwise be prohibited between Plans and Parties in
Interest with respect to those Plans involving the origination,
maintenance and termination of mortgage pools consisting of
mortgage loans secured by first or second mortgages or deeds of
trust on single-family residential property, and the acquisition
and holding of certain mortgage pool pass-through certificates
representing an interest in such mortgage pools by Plans.
PTE 83-1 sets forth three general conditions which must be
satisfied for any transaction to be eligible for
exemption: (i) the maintenance of a system of insurance or other
protection for the pooled mortgage loans and property securing
such loans, and for indemnifying certificateholders against
reductions in pass-through payments due to property damage or
defaults in loan payments in an amount not less than the greater
of one percent of the aggregate principal balance of all covered
pooled mortgage loans or the principal balance of the largest
covered pooled mortgage loan; (ii) the existence of a pool
trustee who is not an affiliate of the pool sponsor; and (iii) a
limitation on the amount of the payments retained by the pool
sponsor, together with other funds inuring to its benefit, to not
more than adequate consideration for selling the mortgage loans
plus reasonable compensation for services provided by the pool
sponsor to the mortgage pool.
Although the Trustee for any Series of Certificates will be
unaffiliated with the Company, there can be no assurance that the
system of insurance or subordination will meet the general or
specific conditions referred to above. In addition, the nature
of a Trust Fund's assets or the characteristics of one or more
classes of Offered Certificates may not be included within the
scope of PTE 83-1 or any other class exemption under ERISA. The
related Prospectus Supplement will provide additional information
with respect to the application of ERISA and the Code to the
related Offered Certificates.
Several underwriters of mortgage-backed securities have
applied for and obtained individual prohibited transaction
exemptions which are in some respects broader than PTE 83-1.
Such exemptions only apply to mortgage-backed securities which,
in addition to satisfying 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 exemption might be applicable to the Offered
Certificates of a Series, the related Prospectus Supplement will
refer to such possibility.
Each Plan fiduciary who is responsible for making the
investment decisions whether to purchase or commit to purchase
and to hold Offered Certificates must make its own determination
as to whether the general and the specific conditions of PTE 83-1
have been satisfied, or as to the availability of any other
prohibited transaction exemptions. Each Plan fiduciary should
also determine whether, under the general fiduciary standards of
investment prudence and diversification, an investment in the
Offered Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
Unless otherwise specified in the related Prospectus
Supplement, the Agreement will provide that the Residual
Certificates of any Series of Certificates with respect to which
a REMIC election has been made may not be acquired by a Plan.
Any Plan proposing to invest in the Offered Certificates
should consult with its counsel to confirm that such investment
will not result in a prohibited transaction and will satisfy the
other requirements of ERISA and the Code.
FEDERAL INCOME TAX CONSEQUENCES
General
The following generally describes the anticipated material
federal income tax consequences of purchasing, owning and
disposing of the Offered Certificates. It does not address
special rules which may apply to particular types of investors.
The authorities on which this discussion is based are subject to
change or differing interpretations, and any such change or
interpretation could apply retroactively. Investors should
consult their own tax advisors regarding the specific tax
consequences to such investors of owning Offered Certificates.
For purposes of this discussion, unless otherwise specified,
the term "Mortgage Loans" will be used to refer to Mortgage
Loans, Mortgaged-Backed Securities and Contracts, and the term
"Owner" will refer to the beneficial owner of an Offered
Certificate.
REMIC Elections
Under the Internal Revenue Code of 1986 (the "Code"), an
election may be made to treat the Trust Fund related to each
Series of Certificates (or segregated pools of assets within the
Trust Fund) as a "real estate mortgage investment conduit"
("REMIC") within the meaning of Section 860D(a) of the Code. If
one or more REMIC elections are made, the Certificates of any
Class will be either "regular interests" in a REMIC within the
meaning of Section 860G(a)(1) of the Code ("Regular
Certificates") or "residual interests" in a REMIC within the
meaning of Section 860G(a)(2) of the Code ("Residual
Certificates"). The related Prospectus Supplement for each
Series of Certificates will indicate whether an election will be
made to treat the Trust Fund as one or more REMICs, and if so,
which Certificates will be Regular Certificates and which will be
Residual Certificates.
If a REMIC election is made, the Trust Fund, or each portion
thereof that is treated as a separate REMIC, will be referred to
as a "REMIC Pool". If the Trust Fund is comprised of two REMIC
Pools, one will be an "Upper-Tier REMIC" and one a "Lower-Tier
REMIC". The assets of the Lower-Tier REMIC will consist of the
Mortgage Loans and related Trust Fund assets. The assets of the
Upper-Tier REMIC will consist of all of the regular interests
issued by the Lower-Tier REMIC.
The discussion below under the heading "REMIC Certificates"
considers Series for which a REMIC election will be made. Series
for which no such election will be made are addressed under
"Non-REMIC Certificates".
REMIC Certificates
The discussion in this section applies only to a Series of
Certificates for which a REMIC election is made.
Tax Opinion.
Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each Series of
Certificates for which a REMIC election is made, Cleary,
Gottlieb, Steen & Hamilton or another law firm identified in the
related Prospectus Supplement, counsel to the Company, will
deliver its opinion generally to the effect that, with respect to
each such Series of Certificates, under then existing law and
assuming compliance by the Company, the Servicer or Master
Servicer and the Trustee for such Series with all of the
provisions of the related Agreement (and such other agreements
and representations as may be referred to in such opinion), each
REMIC Pool will be a REMIC, and the Certificates of such Series
will be treated as either Regular Certificates or Residual
Certificates. This opinion will be filed as an Exhibit to the
Form 8-K relating to such Series of Certificates.
Status of Certificates.
The Certificates will be:
- "qualifying real property loans" under Code Section
593(d)(1);
- assets described in Code Section 7701(a)(19)(C); and
"real estate assets" under Code Section 856(c)(5)(A),
to the extent the assets of the related REMIC Pool are so
treated. Interest on the Regular Certificates will be "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 the income of the REMIC
Pool is so treated. If at all times 95% or more of the assets or
income of the REMIC Pool qualifies under the foregoing Code
sections, the Certificates (and income thereon) will so qualify
in their entirety.
In the event the assets of the related REMIC Pool include
buy-down Mortgage Loans, it is unclear whether the related
buy-down funds would qualify under the foregoing Code sections.
Also, Contracts may be considered to qualify under the foregoing
sections only if the Manufactured Homes securing such Contracts
are considered to be "permanently fixed" or "permanently
installed". Contracts may limit the ability of a borrower to
permanently attach a Manufactured Home to its site.
The rules described in the two preceding paragraphs will be
applied to a Trust Fund consisting of two REMIC Pools as if the
Trust Fund were a single REMIC holding the assets of the
Lower-Tier REMIC.
Income from Regular Certificates.
General. Except as otherwise provided in this tax
discussion, Regular Certificates will be taxed as newly
originated debt instruments for federal income tax purposes.
Interest, original issue discount and market discount accrued on
a Regular Certificate will be ordinary income to the Owner. All
Owners must account for interest income under the accrual method
of accounting, which may result in the inclusion of amounts in
income that are not currently distributed in cash.
Original Issue Discount. Certain Regular Certificates may
have "original issue discount." An Owner must include original
issue discount in income as it accrues, without regard to the
timing of payments.
The total amount of original issue discount on a Regular
Certificate is the excess of its "stated redemption price at
maturity" over its "issue price." The issue price for any
Regular Certificate is the price (including any accrued interest)
at which a substantial portion of the Class of Certificates
including such Regular Certificate are first sold to the public.
In general, the stated redemption price at maturity is the sum of
all payments made on the Regular Certificate, other than payments
of interest that (i) are actually payable at least annually over
the entire life of the Certificates and (ii) are based on a
single fixed rate or variable rate (or certain combinations of
fixed and variable rates). The stated redemption price at
maturity of a Regular Certificate always includes its original
principal amount, but generally does not include distributions of
stated interest, except in the case of Accrual Certificates, and,
as discussed below, Interest Only Certificates. An "Interest
Only Certificate" is a Certificate entitled to receive
distributions of some or all of the interest on the Mortgage
Loans or other assets in a REMIC Pool and that has either a
notional or nominal principal amount. Special rules for Regular
Certificates that provide for interest based on a variable rate
are discussed below in "Income from Regular Certificates-Variable
Rate Regular Certificates".
With respect to an Interest Only Certificate, the stated
redemption price at maturity is likely to be the sum of all
payments thereon, determined in accordance with the Prepayment
Assumption (as defined below). In that event, Interest Only
Certificates would always have original issue discount.
Alternatively, in the case of an Interest Only Certificate with
some principal amount, the stated redemption price at maturity
might be determined under the general rules described in the
preceding paragraph. If, applying those rules, the stated
redemption price at maturity were considered to equal the
principal amount of such Certificate, then the rules described
below under "Premium" would apply. The Prepayment Assumption is
the assumed rate of prepayment of the Mortgage Loans used in
pricing the Regular Certificates. The Prepayment Assumption will
be set forth in the related Supplement.
Under a de minimis rule, original issue discount on a
Regular Certificate will be considered zero if it is less than
0.25% of the Certificate's stated redemption price at maturity
multiplied by the Certificate's weighted average maturity. The
weighted average maturity of a Regular Certificate is computed
based on the number of full years (i.e., rounding down partial
years) each distribution of principal (or other amount included
in the stated redemption price at maturity) is scheduled to be
outstanding. The schedule of such distributions likely should be
determined in accordance with the Prepayment Assumption.
The Owner of a Regular Certificate generally must include in
income the original issue discount that accrues for each day on
which the Owner holds such Certificate, including the date of
purchase, but excluding the date of disposition. The original
issue discount accruing in any period equals:
PV End + Dist = PV Beg
Where:
PV End = present value of all remaining distributions to be
made as of the end of the period;
Dist = distributions made during the period includible in
the stated redemption price at maturity; and
PV Beg = present value of all remaining distributions as of
the beginning of the period.
The present value of the remaining distributions is calculated
based on (i) the original yield to maturity of the Regular
Certificate, (ii) events (including actual prepayments) that have
occurred prior to the end of the period and (iii) the Prepayment
Assumption. For these purposes, the original yield to maturity
of a Regular Certificate will be calculated based on its issue
price, assuming that the Certificate will be prepaid in all
periods in accordance with the Prepayment Assumption, and with
compounding at the end of each accrual period used in the
formula.
Assuming the Regular Certificates have monthly Distribution
Dates, discount would be computed under the formula generally for
the one-month periods (or shorter initial period) ending on each
Distribution Date. The original issue discount accruing during
any accrual period is divided by the number of days in the period
to determine the daily portion of original issue discount for
each day.
The daily portions of original issue discount generally will
increase if prepayments on the underlying Mortgage Loans exceed
the Prepayment Assumption and decrease if prepayments are slower
than the Prepayment Assumption (changes in the rate of
prepayments having the opposite effect in the case of an Interest
Only Certificate). If the relative principal payment priorities
of the Classes of Regular Certificates of a Series change, any
increase or decrease in the present value of the remaining
payments to be made on any such Class will affect the computation
of original issue discount for the period in which the change in
payment priority occurs.
If original issue discount computed as described above is
negative for any period, the Owner generally will not be allowed
a current deduction for the negative amount but instead will be
entitled to offset such amount only against future positive
original issue discount from such Certificate. However, while
not free from doubt, such an Owner may be entitled to deduct
"negative original issue discount" to the extent the Owner's
adjusted basis (as defined in "Sale or Exchange of Certificates"
below) in the Certificate remaining after such deduction is not
less than the principal amount of the Certificate.
Acquisition Premium. If an Owner of a Regular Certificate
acquires such Certificate at a price greater than its "adjusted
issue price," but less than its remaining stated redemption price
at maturity, the daily portion for any day (as computed above) is
reduced by an amount equal to the product of (i) such daily
portion and (ii) a fraction, the numerator of which is the amount
by which the price exceeds the adjusted issue price and the
denominator of which is the sum of the daily portions for such
Regular Certificate for all days on and after the date of
purchase. The adjusted issue price of a Regular Certificate on
any given day is its issue price, increased by all original issue
discount that has accrued on such Certificate and reduced by the
amount of all previous distributions on such Certificate of
amounts included in its stated redemption price at maturity.
Market Discount. A Regular Certificate may have market
discount (as defined in the Code). Market discount equals the
excess of the adjusted issue price of a Certificate over the
Owner's adjusted basis in the Certificate. The Owner of a
Certificate with market discount must report ordinary interest
income, as the Owner receives distributions on the Certificate of
principal or other amounts included in its stated redemption
price at maturity, equal to the lesser of (a) the excess of the
amount of those distributions over the amount, if any, of accrued
original issue discount on the Certificate or (b) the portion of
the market discount that has accrued and not previously been
included in income. Also, such Owner must treat gain from the
disposition of the Certificate as ordinary income to the extent
of any accrued, but unrecognized, market discount.
Alternatively, an Owner may elect in any taxable year to include
market discount in income currently as it accrues on all market
discount instruments acquired by the Owner in that year or
thereafter. An Owner may revoke such an election only with the
consent of the Internal Revenue Service.
In general terms, market discount on a Regular Certificate
may be treated, at the Owner's election, as accruing either (a)
on the basis of a constant yield (similar to the method described
above for accruing original issue discount) or (b) alternatively,
either (i) in the case of a Regular Certificate issued without
original issue discount, in the ratio of stated interest
distributable in the relevant period to the total stated interest
remaining to be distributed from the beginning of such period
(computed taking into account the Prepayment Assumption) or (ii)
in the case of a Regular Certificate issued with original issue
discount, in the ratio of the amount of original issue discount
accruing in the relevant period to the total remaining original
issue discount at the beginning of such period. An election to
accrue market discount on a Regular Certificate on a constant
yield basis is irrevocable with respect to that Certificate.
An Owner may be required to defer a portion of the deduction
for interest expense on any indebtedness that the Owner incurs or
maintains in order to purchase or carry a Regular Certificate
that has market discount. The deferred amount would not exceed
the market discount that has accrued but not been taken into
income. Any such deferred interest expense is, in general,
allowed as a deduction not later than the year in which the
related market discount income is recognized.
Market discount with respect to a Regular Certificate will
be considered to be zero if such market discount is de minimis
under a rule similar to that described above in the fourth
paragraph under "Original Issue Discount". Owners should consult
their own tax advisors regarding the application of the market
discount rules as well as the advisability of making any election
with respect to market discount.
Discount on a Regular Certificate that is neither original
issue discount nor market discount, as defined above, must be
allocated ratably among the principal payments on the Certificate
and included in income (as gain from the sale or exchange of the
Certificate) as the related principal payments are made (whether
as scheduled payments or prepayments).
Premium. A Regular Certificate, other than an Accrual
Certificate or, as discussed above under "Original Issue
Discount", an Interest Only Certificate, purchased at a cost (net
of accrued interest) greater than its principal amount generally
is considered to be purchased at a premium. The Owner may elect
under Code Section 171 to amortize such premium under the
constant yield method, using the Prepayment Assumption. To the
extent the amortized premium is allocable to interest income from
the Regular Certificate, it is treated as an offset to such
interest rather than as a separate deduction. An election made
by an Owner would generally apply to all its debt instruments and
may not be revoked without the consent of the Internal Revenue
Service.
Special Election to Apply OID Rules. In lieu of the rules
described above with respect to de minimis discount, acquisition
premium, market discount and premium, an Owner of a Regular
Certificate may elect to accrue such discount, or adjust for such
premium, by applying the principles of the OID rules described
above. The election is only available for debt instruments
acquired on or after April 4, 1994. An election made by a
taxpayer with respect to one obligation can affect other
obligations it holds. Owners should consult with their tax
advisors regarding the merits of making this election.
Retail Regular Certificates. For purposes of the original
issue and market discount rules, a repayment in full of a Retail
Certificate that is subject to payment in units or other
increments, rather than on a pro rata basis with other Retail
Certificates, will be treated in the same manner as any other
prepayment.
Variable Rate Regular Certificates. The Regular
Certificates may provide for interest that varies based on an
interest rate index. The OID Regulations provide special rules
for calculating income from certain "variable rate debt
instruments" or "VRDIs." A debt instrument must meet certain
technical requirements to qualify as a VRDI, which are outlined
in the next paragraph. Under the regulations, income on a VRDI
is calculated by (1) creating a hypothetical debt instrument that
pays fixed interest at rates equivalent to the variable interest,
(2) applying the original issue discount rules of the Code to
that fixed rate instrument, and (3) adjusting the income accruing
in any accrual period by the difference between the assumed fixed
interest amount and the actual amount for the period. In
general, where a variable rate on a debt instrument is based on
an interest rate index (such as LIBOR), a fixed rate equivalent
to a variable rate is determined based on the value of the index
as of the issue date of the debt instrument. In cases where
rates are reset at different intervals over the life of a VRDI,
adjustments are made to ensure that the equivalent fixed rate for
each accrual period is based on the same reset interval.
A debt instrument must meet a number of requirements in
order to qualify as a VRDI. A VRDI cannot be issued at a premium
above its principal amount that exceeds a specified percentage of
its principal amount (15%, or if less 1.5% times its weighted
average life). As a result, Interest Only Certificates will
never be VRDIs. Also, a debt instrument that pays interest based
on a multiple of an interest rate index is not a VRDI if the
multiple is less than zero or greater than 1.35, unless, in
general, interest is paid based on a single formula that lasts
over the life of the instrument. A debt instrument is not a VRDI
if it is subject to caps and floors, unless they remain the same
over the life of the instrument or are not expected to change
significantly the yield on the instrument. Variable rate Regular
Certificates other than Interest Only Certificates may or may not
qualify as VRDIs depending on their terms.
In a case where a variable rate Regular Certificate does not
qualify as a VRDI, it will be treated under the OID Regulations
as a contingent payment debt instrument. Proposed regulations
addressing contingent payment debt instruments were issued on
December 16, 1994, but such regulations are not applicable by
their terms to Regular Certificates. Until further guidance is
forthcoming, one method of calculating income on such a Regular
Certificate that appears to be reasonable would be to apply the
principles governing VRDIs outlined above.
Subordinated Certificates. Certain Series of Certificates
may contain one or more Classes of subordinated Certificates. In
the event there are defaults or delinquencies on the related
Mortgage Loans, amounts that otherwise would be distributed on a
Class of subordinated Certificates may instead be distributed on
other more senior Classes of Certificates. Since Owners of
Regular Certificates are required to report income under an
accrual method, Owners of subordinated Certificates will be
required to report income without giving effect to delays and
reductions in distributions on such Certificates attributable to
defaults or delinquencies on the Mortgage Loans, except to the
extent that it can be established that amounts are uncollectible.
As a result, the amount of income reported by an Owner of a
subordinated Certificate in any period could significantly exceed
the amount of cash distributed to such Owner in that period. The
Owner will eventually be allowed a loss (or be allowed to report
a lesser amount of income) to the extent that the aggregate
amount of distributions on the subordinated Certificate is
reduced as a result of defaults and delinquencies on the Mortgage
Loans. Such a loss could in some circumstances be a capital
loss. Also, the timing and amount of such losses or reductions
in income are uncertain. Owners of subordinated Certificates
should consult their tax advisors on these points.
Income from Residual Certificates.
Taxation of REMIC Income. Generally, Owners of Residual
Certificates in a REMIC Pool ("Residual Owners") must report
ordinary income or loss equal to their pro rata shares (based on
the portion of all Residual Certificates they own) of the taxable
income or net loss of the REMIC. Such income must be reported
regardless of the timing or amounts of distributions on the
Residual Certificates.
The taxable income of a REMIC Pool is generally determined
under the accrual method of accounting in the same manner as the
taxable income of an individual taxpayer. Taxable income is
generally gross income, including interest and original issue
discount income, if any, on the assets of the REMIC Pool and
income from the amortization of any premium on Regular
Certificates, minus deductions. Market discount (as defined in
the Code) with respect to Mortgage Loans held by a REMIC Pool is
recognized in the same fashion as if it were original issue
discount. Deductions include interest and original issue
discount expense on the Regular Certificates, reasonable
servicing fees attributable to the REMIC Pool, other
administrative expenses and amortization of any premium on assets
of the REMIC Pool. As previously discussed, the timing of
recognition of "negative original issue discount," if any, on a
Regular Certificate is uncertain; as a result, the timing of
recognition of the corresponding income to the REMIC Pool is also
uncertain.
If the Trust Fund consists of an Upper-Tier REMIC and a
Lower-Tier REMIC, the regular interests issued by the Lower-Tier
REMIC to the Upper- Tier REMIC will be treated as a single debt
instrument for purposes of the original issue discount
provisions.
A Residual Owner may not amortize the cost of its Residual
Certificate. Taxable income of the REMIC Pool, however, will not
include cash received by the REMIC Pool that represents a
recovery of the REMIC Pool's initial basis in its assets, and
such basis will include the issue price of the Residual
Certificates (assuming the issue price is positive). Such
recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Certificate over
its life. The period of time over which such issue price is
effectively amortized, however, may be longer than the economic
life of the Residual Certificate. The issue price of a Residual
Certificate is the price at which a substantial portion of the
Class of Certificates including the Residual Certificate are
first sold to the public (or if the Residual Certificate is not
publicly offered, the price paid by the first buyer).
A subsequent Residual Owner must report the same amounts of
taxable income or net loss attributable to the REMIC Pool as an
original Owner. No adjustments are made to reflect the purchase
price.
Losses. A Residual Owner that is allocated a net loss of
the REMIC Pool may not deduct such loss currently to the extent
it exceeds the Owner's adjusted basis (as defined in "Sale or
Exchange of Certificates" below) in its Residual Certificate. A
Residual Owner that is a U.S. person (as defined below in
"Taxation of Certain Foreign Investors"), however, may carry over
any disallowed loss to offset any taxable income generated by the
same REMIC Pool.
Excess Inclusions. A portion of the taxable income
allocated to a Residual Certificate is subject to special tax
rules. That portion, referred to as an "excess inclusion," is
calculated for each calendar quarter and equals the excess of
such taxable income for the quarter over the daily accruals for
the quarter. The daily accruals equal the product of (i) 120% of
the federal long-term rate under Code Section 1274(d) for the
month which includes the Closing Date (determined on the basis of
quarterly compounding and properly adjusted for the length of the
quarter) and (ii) the adjusted issue price of the Certificate at
the beginning of such quarter. The adjusted issue price of a
Residual Certificate at the beginning of a quarter is the issue
price of the Certificate, plus the amount of daily accruals on
the Certificate for all prior quarters, decreased (but not below
zero) by any prior distributions on the Certificate. If the
aggregate value of the Residual Certificates is not considered to
be "significant," then to the extent provided in Treasury
regulations, a Residual Owner's entire share of REMIC taxable
income will be treated as an excess inclusion. The regulations
that have been adopted under Code Sections 860A through 86OG (the
"REMIC Regulations") do not contain such a rule.
Excess inclusions generally may not be offset by unrelated
losses or loss carryforwards or carrybacks of a Residual Owner.
An Owner that is a thrift institution, however, is generally
permitted to use losses to offset excess inclusions from a
Residual Certificate if such Certificate has "significant value."
The REMIC Regulations provide that a REMIC residual interest has
significant value if (i) the issue price of such interest equals
at least 2% of the aggregate of the issue prices of all interests
in the REMIC and (ii) the anticipated weighted average life of
such REMIC residual interest is at least 20% of the anticipated
weighted average life of the REMIC.
Excess inclusions are treated as unrelated business taxable
income for an organization subject to the tax on unrelated
business income. In addition, under Treasury regulations yet to
be issued, if a real estate investment trust, regulated
investment company or certain other pass-through entities are
Residual Owners, a portion of the distributions made by such
entities may be treated as excess inclusions.
Distributions. Distributions on a Residual Certificate
(whether at their scheduled times or as a result of prepayments)
generally will not result in any taxable income or loss to the
Residual Owner. If the amount of any distribution exceeds a
Residual Owner's adjusted basis in its Residual Certificate,
however, the Residual Owner will recognize gain (treated as gain
from the sale or exchange of its Residual Certificate) to the
extent of such excess. See "Sale or Exchange of Certificates"
below.
Prohibited Transactions; Special Taxes. Net income
recognized by a REMIC Pool from "prohibited transactions" is
subject to a 100% tax and is disregarded in calculating the REMIC
Pool's taxable income. In addition, a REMIC Pool is subject to
federal income tax at the highest corporate rate on "net income
from foreclosure property" (which has a technical definition). A
100% tax also applies to certain contributions to a REMIC Pool
made after it is formed. It is not anticipated that any REMIC
Pool will (i) engage in prohibited transactions in which it
recognizes a significant amount of net income, (ii) receive
contributions of property that are subject to tax, or
(iii) derive a significant amount of net income from foreclosure
property that is subject to tax.
Negative Value Residual Certificates. The federal income
tax treatment of any consideration paid to a transferee on a
transfer of a Residual Certificate is unclear. Such a transferee
should consult its tax advisor. The preamble to the REMIC
Regulations indicates that the Internal Revenue Service may issue
future guidance on the tax treatment of such payments.
Securities Dealers. On December 28, 1993, the Internal
Revenue Service released temporary regulations under Code Section
475 (the "Temporary Section 475 Regulations") relating to the
requirement that a dealer in securities mark certain securities
to market. On January 3, 1995, the Internal Revenue Service
released proposed regulations containing additional guidance on
section 475 (the "Proposed Section 475 Regulations").
In general, the Temporary Section 475 Regulations provide
that a REMIC residual interest that has negative value when
acquired is not a "security" for purposes of Code Section 475.
Whether a residual interest has negative value is determined
under a present value formula described in the Temporary Section
475 Regulations. The Temporary Section 475 Regulations apply to
taxable years ending on or after December 31, 1993. Furthermore,
the Temporary Section 475 Regulations provide the Internal
Revenue Service with the authority to treat any interest or
arrangement having substantially the same economic effect as a
"negative value" residual interest as a "negative value" residual
interest.
The Proposed Section 475 Regulations provide that any
residual interest (regardless of whether it has negative value as
described in the preceding paragraph), and any arrangement having
substantially the same economic effect, that is acquired on or
after January 4, 1995 is not a "security" for the purposes of
Code Section 475. Under the Proposed Section 475 Regulations,
residual interests acquired before January 4, 1995 would be
subject to the rules in the Temporary Section 475 Regulations
relating to negative value residual interests.
Prospective purchasers of a Residual Certificate should
consult their tax advisors regarding the possible application of
the Temporary Section 475 Regulations and the Proposed Section
475 Regulations.
The method of taxation of Residual Certificates described in
this section can produce a significantly less favorable after-tax
return for a Residual Certificate than would be the case if the
Certificate were taxable as a debt instrument. Also, a Residual
Owner's return may be adversely affected by the excess inclusions
rules described above. In certain periods, taxable income and
the resulting tax liability for a Residual Owner may exceed any
distributions it receives. In addition, a substantial tax may be
imposed on certain transferors of a Residual Certificate and
certain Residual Owners that are "pass-thru" entities. See
"Transfers of Residual Certificates" below. Investors should
consult their tax advisors before purchasing a Residual
Certificate.
Sale or Exchange of Certificates.
An Owner generally will recognize gain or loss upon sale or
exchange of a Regular or Residual Certificate equal to the
difference between the amount realized and the Owner's adjusted
basis in the Certificate. The adjusted basis in a Certificate
generally will equal the cost of the Certificate, increased by
income previously recognized, and reduced (but not below zero) by
previous distributions, and by any amortized premium in the case
of a Regular Certificate, or net losses allowed as a deduction in
the case of a Residual Certificate.
Except as described below, any gain or loss on the sale or
exchange of a Certificate held as a capital asset will be capital
gain or loss and will be long-term or short-term depending on
whether the Certificate has been held for more than one year.
Such gain or loss will be ordinary income or loss (i) for a bank
or thrift institution, and (ii) in the case of a Regular
Certificate, (a) to the extent of any accrued, but unrecognized,
market discount, or (b) to the extent income recognized by the
Owner is less than the income that would have been recognized if
the yield on such Certificate were 110% of the applicable federal
rate under Code Section 1274(d).
A Residual Owner should be allowed a loss upon termination
of the REMIC Pool equal to the amount of the Owner's remaining
adjusted basis in its Residual Certificates. Whether the
termination will be treated as a sale or exchange (resulting in a
capital loss) is unclear.
Except as provided in Treasury regulations, the wash sale
rules of Code Section 1091 will apply to dispositions of a
Residual Certificate where the seller of the interest, during the
period beginning six months before the sale or disposition of the
interest 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 REMIC residual
interest, or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a
residual interest.
Taxation of Certain Foreign Investors.
Regular Certificates. A Regular Certificate held by an
Owner that is a non-U.S. person (as defined below), and that has
no connection with the United States other than owning the
Certificate, will not be subject to U.S. withholding or income
tax with respect to the Certificate provided such Owner (i) is
not a "10-percent shareholder" within the meaning of Code Section
871(h)(3)(B) or a controlled foreign corporation described in
Code Section 881(c)(3)(C), and (ii) provides an appropriate
statement, signed under penalties of perjury, identifying the
Owner and stating, among other things, that the Owner is a
non-U.S. person. If these conditions are not met, a 30%
withholding tax will apply to interest (including original issue
discount) unless an income tax treaty reduces or eliminates such
tax or unless the interest is effectively connected with the
conduct of a trade or business within the United States by such
Owner. In the latter case, such Owner will be subject to United
States federal income tax with respect to all income from the
Certificate at regular rates then applicable to U.S. taxpayers
(and in the case of a corporation, possibly also the branch
profits tax).
The term "non-U.S. person" means any person other than a
U.S. person. A U.S. person is a citizen or resident of the
United States, a corporation, partnership or other entity created
or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust that is
subject to U.S. federal income tax regardless of the source of
its income.
Residual Certificates. A Residual Owner that is a non-U.S.
person, and that has no connection with the United States other
than owning a Residual Certificate, will not be subject to U.S.
withholding or income tax with respect to the Certificate (other
than with respect to excess inclusions) provided that (i) the
conditions described in the second preceding paragraph with
respect to Regular Certificates are met and (ii) in the case of a
Residual Certificate in a REMIC Pool holding Mortgage Loans, the
Mortgage Loans were originated after July 18, 1984. Excess
inclusions are subject to a 30% withholding tax in all events
(notwithstanding any contrary tax treaty provisions) when
distributed to the Residual Owner (or when the Residual
Certificate is disposed of). The Code grants the Treasury
Department authority to issue regulations requiring excess
inclusions to be taken into account earlier if necessary to
prevent avoidance of tax. The REMIC Regulations do not contain
such a rule. The preamble thereto states that the Internal
Revenue Service is considering issuing regulations concerning
withholding on distributions to foreign holders of residual
interests to satisfy accrued tax liability due to excess
inclusions.
With respect to a Residual Certificate that has been held at
any time by a non-U.S. person, the Trustee (or its agent) will be
entitled to withhold (and to pay to the Internal Revenue Service)
any portion of any payment on such Residual Certificate that the
Trustee reasonably determines is required to be withheld. If the
Trustee (or its agent) reasonably determines that a more accurate
determination of the amount required to be withheld from a
distribution can be made within a reasonable period after the
scheduled date for such distribution, it may hold such
distribution in trust for the Residual Owner until such
determination can be made.
Special tax rules and restrictions that apply to transfers
of Residual Certificates to and from non-U.S. persons are
discussed in the next section.
Transfers of Residual Certificates.
Special tax rules and restrictions apply to transfers of
Residual Certificates to disqualified organizations or foreign
investors, and to transfers of noneconomic Residual Certificates.
Disqualified Organizations. In order to comply with the
REMIC rules of the Code, the Agreement will provide that no legal
or beneficial interest in a Residual Certificate may be
transferred to, or registered in the name of, any person unless
(i) the proposed purchaser provides to the Trustee an "affidavit"
(within the meaning of the REMIC Regulations) to the effect that,
among other items, such transferee is not a "disqualified
organization" (as defined below), is not purchasing a Residual
Certificate as an agent for a disqualified organization (i.e., as
a broker, nominee, or other middleman) and is not an entity (a
"Book-Entry Nominee") that holds REMIC residual securities as
nominee to facilitate the clearance and settlement of such
securities through electronic book-entry changes in accounts of
participating organizations and (ii) the transferor states in
writing to the Trustee that it has no actual knowledge that such
affidavit is false.
If despite these restrictions a Residual Certificate is
transferred to a disqualified organization, the transfer may
result in a tax equal to the product of (i) the present value of
the total anticipated future excess inclusions with respect to
such Certificate and (ii) the highest corporate marginal federal
income tax rate. Such a tax generally is imposed on the
transferor, except that if the transfer is through an agent for a
disqualified organization, the agent is liable for the tax. A
transferor is not liable for such tax if the transferee furnishes
to the transferor an affidavit that the transferee is not a
disqualified organization and, as of the time of the transfer,
the transferor does not have actual knowledge that the affidavit
is false.
A disqualified organization may hold an interest in a REMIC
Certificate through a "pass-thru entity" (as defined below). In
that event, the pass-thru entity is subject to tax (at the
highest corporate marginal federal income tax rate) on excess
inclusions allocable to the disqualified organization. However,
such tax will not apply to the extent the pass-thru entity
receives affidavits from record holders of interests in the
entity stating that they are not disqualified organizations and
the entity does not have actual knowledge that the affidavits are
false.
For these purposes, (i) "disqualified organization" means
the United States, any state or political subdivision thereof,
any foreign government, any international organization, any
agency or instrumentality of any of the foregoing, certain
organizations that are exempt from taxation under the Code
(including tax on excess inclusions) and certain corporations
operating on a cooperative basis, and (ii) "pass-thru entity"
means any regulated investment company, real estate investment
trust, common trust fund, partnership, trust or estate and
certain corporations operating on a cooperative basis. Except as
may be provided in Treasury regulations, any person holding an
interest in a pass-thru entity as a nominee for another will,
with respect to that interest, be treated as a pass-thru entity.
Foreign Investors. Under the REMIC Regulations, a transfer
of a Residual Certificate to a non-U.S. person that will not hold
the Certificate in connection with a U.S. trade or business will
be disregarded for all federal tax purposes if the Certificate
has "tax avoidance potential." A Residual Certificate has tax
avoidance potential unless, at the time of transfer, the
transferor reasonably expects that:
(i) for each excess inclusion, the REMIC will distribute to
the transferee residual interest holder an amount that will equal
at least 30 percent of the excess inclusion, and
(ii) each such amount will be distributed at or after the
time at which the excess inclusion accrues and not later than the
close of the calendar year following the calendar year of
accrual.
A transferor has such reasonable expectation if the above test
would be met assuming that the REMIC's Mortgage Loans will prepay
at each rate between 50 percent and 200 percent of the Prepayment
Assumption.
The REMIC Regulations also provide that a transfer of a
Residual Certificate from a non-U.S. person to a U.S. person (or
to a non-U.S. person that will hold the Certificate in connection
with a U.S. trade or business) is disregarded if the transfer has
"the effect of allowing the transferor to avoid tax on accrued
excess inclusions."
In light of these provisions, the Agreement provides that a
Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. person, unless (i) such person
holds the Certificate in connection with the conduct of a trade
or business within the United States and furnishes the transferor
and the Trustee with an effective Internal Revenue Service
Form 4224, or (ii) the transferee delivers to both the transferor
and the Trustee an opinion of nationally recognized tax counsel
to the effect that such transfer is in accordance with the
requirements of the Code and the regulations promulgated
thereunder and that such transfer will not be disregarded for
federal income tax purposes.
Noneconomic Residual Certificates. Under the REMIC
Regulations, a transfer of a "noneconomic" Residual Certificate
will be disregarded for all federal income tax purposes if a
significant purpose of the transfer is to impede the assessment
or collection of tax. Such a purpose 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 transferor is
presumed to lack such knowledge if:
(i) the transferor conducted, at the time of the transfer,
a reasonable investigation of the financial condition of the
transferee and found that the transferee had historically paid
its debts as they came due and found no significant evidence to
indicate that the transferee will not continue to pay its debts
as they become due, and
(ii) the transferee represents to the transferor that it
understands that, as the holder of the noneconomic residual
interest, it may incur tax liabilities in excess of any cash
flows generated by the interest and that it intends to pay taxes
associated with holding the residual interest as they become due.
A Residual Certificate (including a Certificate with significant
value at issuance) is noneconomic unless, at the time of the
transfer, (i) the present value of the expected future
distributions on the Certificate at least equals the product of
the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which
the transfer occurs, and (ii) the transferor reasonably expects
that the transferee will receive distributions on the
Certificate, at or after the time at which taxes accrue, in an
amount sufficient to pay the taxes.
The Agreement will provide that no legal or beneficial
interest in a Residual Certificate may be transferred to, or
registered in the name of, any person unless the transferor
represents to the Trustee that it has conducted the investigation
of the transferee, and made the findings, described in the
preceding paragraph, and the proposed transferee provides to the
Trustee the transferee representations described in the preceding
paragraph, and agrees that it will not transfer the Certificate
to any person unless that person agrees to comply with the same
restrictions on future transfers.
Pending Legislation.
Legislation has been proposed which would provide that,
effective for taxable years beginning after December 31, 1986,
alternative minimum taxable income of a Residual Owner cannot be
less than the Owner's excess inclusions. Legislation has also
been proposed which would, effective for taxable years beginning
after December 31, 1995, eliminate the exception to the excess
inclusion rules for thrift institutions that hold residual
interests with significant value. No prediction can be made
whether any such proposed legislation will be enacted.
Servicing Compensation and Other REMIC Pool Expenses.
Under Code Section 67, an individual, estate or trust is
allowed certain itemized deductions only to the extent that such
deductions, in the aggregate, exceed 2% of the Owner's adjusted
gross income, and such a person is not allowed such deductions to
any extent in computing its alterative minimum tax liability.
Under Treasury regulations, if such a person is an Owner of a
REMIC Certificate, the REMIC Pool is required to allocate to such
a person its share of the servicing fees and administrative
expenses paid by a REMIC together with an equal amount of income.
Those fees and expenses are deductible as an offset to the
additional income, but subject to the 2% floor.
In the case of a REMIC Pool that has multiple classes of
Regular Certificates with staggered maturities, fees and expenses
of the REMIC Pool would be allocated entirely to the Owners of
Residual Certificates. However, if the REMIC Pool were a
"single-class REMIC" as defined in applicable Treasury
regulations, such deductions would be allocated proportionately
among the Regular and Residual Certificates.
Reporting and Administrative Matters.
Annual reports will be made to the Internal Revenue Service,
and to Holders of record of Regular Certificates, and Owners of
Regular Certificates holding through a broker, nominee or other
middleman, that are not excepted from the reporting requirements,
of accrued interest, original issue discount, information
necessary to compute accruals of market discount, information
regarding the percentage of the REMIC Pool's assets meeting the
qualified assets tests described above under "Status of
Certificates" and, where relevant, allocated amounts of servicing
fees and other Code Section 67 expenses. Holders not receiving
such reports may obtain such information from the related REMIC
by contacting the person designated in IRS Publication 938.
Quarterly reports will be made to Residual Holders showing their
allocable shares of income or loss from the REMIC Pool, excess
inclusions, and Code Section 67 expenses.
The Trustee will sign and file federal income tax returns
for each REMIC Pool. To the extent allowable, the Company will
act as the tax matters person for each REMIC Pool. Each Owner of
a Residual Certificate, by the acceptance of its Residual
Certificate, agrees that the Company will act as the Owner's
agent in the performance of any duties required of the Owner in
the event that the Owner is the tax matters person.
An Owner of a Residual Certificate is required to treat
items on its federal income tax return consistently with the
treatment of the items on the REMIC Pool's return, unless the
Owner owns 100% of the Residual Certificate for the entire
calendar year or the Owner either files a statement identifying
the inconsistency or establishes that the inconsistency resulted
from incorrect information received from the REMIC Pool. The
Internal Revenue Service may assess a deficiency resulting from a
failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC level. Any
person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC Pool, in a manner to
be provided in Treasury regulations, the name and address of such
other person and other information.
Non-REMIC Certificates
The discussion in this Section applies only to a Series of
Certificates for which no REMIC election is made.
Trust Fund as Grantor Trust.
Upon issuance of each Series of Certificates, Cleary,
Gottlieb, Steen & Hamilton or another law firm identified in the
related Prospectus Supplement, counsel to the Company, will
deliver its opinion to the effect that, under then current law,
assuming compliance by the Company, the Servicer or Master
Servicer and the Trustee with all the provisions of the Agreement
(and such other agreements and representations as may be referred
to in the opinion), the Trust Fund will be classified for federal
income tax purposes as a grantor trust and not as an association
taxable as a corporation. This opinion will be filed as an
Exhibit to the Form 8-K relating to such Series of Certificates.
Under the grantor trust rules of the Code, each Owner of a
Certificate will be treated for federal income tax purposes as
the owner of an undivided interest in the Mortgage Loans (and any
related assets) included in the Trust Fund. The Owner will
include in its gross income, gross income from the portion of the
Mortgage Loans allocable to the Certificate, and may deduct its
share of the expenses paid by the Trust Fund that are allocable
to the Certificate, at the same time and to the same extent as if
it had directly purchased and held such interest in the Mortgage
Loans and had directly received payments thereon and paid such
expenses. If an Owner is an individual, trust or estate, the
Owner will be allowed deductions for its share of Trust Fund
expenses (including reasonable servicing fees) only to the extent
that the sum of those expenses and the Owner's other
miscellaneous itemized deductions exceeds 2% of adjusted gross
income, and will not be allowed to deduct such expenses for
purposes of the alternative minimum tax. Distributions on a
Certificate will not be taxable to the Owner, and the timing or
amount of distributions will not affect the timing or amount of
income or deductions relating to a Certificate.
Status of the Certificates.
The Offered Certificates, other than Interest Only
Certificates, will be:
- "qualifying real property loans" under Code Section
593(d);
- "real estate assets" under Code Section 856(c)(5)(A);
and
- assets described in Section 7701(a)(19)(C) of the Code,
to the extent the assets of the Trust Fund are so treated.
Interest income from such Certificates will be "interest on
obligations secured by mortgages on real property" under Code
Section 856(c)(3)(B) to the extent the income of the Trust Fund
qualifies under that section. An "Interest Only Certificate" is
a Certificate which is entitled to receive distributions of some
or all of the interest on the Mortgage Loans or other assets in a
REMIC Pool and that has either a notional or nominal principal
amount. Although not certain, Certificates that are Interest
Only Certificates should qualify under the foregoing Code
sections to the same extent as other Certificates.
Possible Application of Stripped Bond Rules.
The federal income tax treatment of Certificates will depend
on whether they are subject to the "stripped bond" rules of Code
Section 1286. In general, Certificates will be subject to those
rules in the hands of an Owner if (i) the Company (or anyone
else) retains rights to receive more than 100 basis points of
interest on any Mortgage Loans assigned to the Trust Fund
(disregarding rights to reasonable servicing compensation, but
including rights to fees in excess of reasonable compensation),
or (ii) Certificates are issued in two or more Classes
representing rights to non-pro rata shares of interest and
principal payments on the Mortgage Loans.
Notwithstanding the foregoing, a Certificate will not be
subject to the stripped bond rules in the hands of an Owner
unless, viewing the Certificate as a debt instrument issued by
the Trust Fund, it would have original issue discount. In
general, a Certificate will not have original issue discount if
it pays interest at a fixed rate, or a single variable rate,
monthly over its entire life, is issued within one month of the
first Distribution Date, and is issued with no more than a de
minimis amount of discount below its principal amount. Discount
is de minimis if the Certificate has an issue price (generally
the initial offering price at which a substantial amount of
Certificates are sold) that is not less than its principal amount
by more than .25% times the weighted average life of the
Certificate (calculated by rounding down the number of years to
each principal payment to the next lowest number). For a more
detailed discussion of the definition of original issue discount,
see "REMIC Certificates-Income from Regular Certificates-Original
Issue Discount" above.
Taxation of Certificates if Stripped Bond Rules Do Not Apply.
If the stripped bond rules do not apply to a Certificate,
then the Owner will be required to include in income its share of
the interest payments on the Mortgage Loans held by the Trust
Fund in accordance with its tax accounting method. The Owner
must also account for discount or premium on the Mortgage Loans
if it is considered to have purchased its interest in the
Mortgage Loans at a discount or premium. An Owner will be
considered to have purchased an interest in each Mortgage Loan at
a price determined by allocating its purchase price for the
Certificate among the Mortgage Loans in proportion to their fair
market values at the time of purchase. It is likely that
discount would be considered to accrue and premium would be
amortized, as described below, based on an assumption that there
will be no future prepayments of the Mortgage Loans, and not
based on a reasonable prepayment assumption.
Discount. The treatment of any discount relating to a
Mortgage Loan will depend on whether the discount is original
issue discount or market discount. Discount at which a Mortgage
Loan is purchased will be original issue discount only if the
Mortgage Loan itself has original issue discount; the issuance of
Certificates is not considered a new issuance of a debt
instrument that can give rise to original issue discount. A
Mortgage Loan generally will be considered to have original issue
discount if the greater of the amount of points charged to the
borrower, or the amount of any interest foregone during any
initial teaser period, exceeds .167% of the principal amount of
the Mortgage Loan times the number of full years to maturity
(i.e., 5% of the principal amount for a 30 year loan), or if
interest is not paid at a fixed rate or a single variable rate
(disregarding any initial teaser rate) over the life of the
Mortgage Loan. It is not anticipated that the amount of original
issue discount, if any, accruing on the Mortgage Loans in each
month will be significant relative to the interest paid currently
on the Mortgage Loans, but there can be no assurance that this
will be the case.
In the case of a Mortgage Loan that is considered to have
been purchased with market discount that exceeds a de minimis
amount (generally, .167% of the principal amount times the number
of whole years to maturity remaining at the time of purchase),
the Owner will be required to include in income in each month the
amount of such discount that has accrued through such month and
not previously been included in income, but limited to the amount
of principal on the Mortgage Loan that is received by the Trust
Fund in that month. Because the Mortgage Loans will provide for
monthly principal payments, such discount may be required to be
included in income at a rate that is not significantly slower
than the rate at which such discount accrues. Any market
discount that has not previously been included in income will be
recognized as ordinary income if and when the Mortgage Loan is
prepaid in full. For a more detailed discussion of the market
discount rules of the Code, see "REMIC Certificates-Income from
Regular Certificates-Market Discount" above.
In the case of market discount that does not exceed a de
minimis amount, the Owner generally will be required to allocate
ratably the portion of such discount that is allocable to a
Mortgage Loan among the principal payments on the Mortgage Loan
and to include the discount in ordinary income as the related
principal payments are made (whether as scheduled payments or
prepayments).
Premium. In the event that a Mortgage Loan is purchased at
a premium, the Owner may elect under Section 171 of the Code to
amortize such premium under a constant yield method based on the
yield of the Mortgage Loan to such Owner, provided that such
Mortgage Loan was originated after September 27, 1985. Premium
allocable to a Mortgage Loan originated on or before that date
should be allocated among the principal payments on the Mortgage
Loan and allowed as an ordinary deduction as principal payments
are made (whether as scheduled payments or prepayments).
Taxation of Certificates if Stripped Bond Rules Apply.
If the stripped bond rules apply to a Certificate, income on
the Certificate will be treated as original issue discount and
will be included in income as it accrues under a constant yield
method. More specifically, for purposes of applying the original
issue discount rules of the Code, the Owner will likely be taxed
as if it had purchased a newly issued, single debt instrument
providing for payments equal to the payments on the interests in
the Mortgage Loans allocable to the Certificate, and having
original issue discount equal to the excess of the sum of such
payments over the Owner's purchase price for the Certificate
(which would be treated as the issue price). The amount of
original issue discount income accruing in any taxable year will
be computed generally as described above under "REMIC
Certificates-Income from Regular Certificates-Original Issue
Discount". It is possible, however, that the calculation must be
made using as the Prepayment Assumption an assumption of zero
prepayments. If the calculation is made assuming no future
prepayments, then the Owner should be allowed to deduct currently
any negative amount of original issue discount produced by the
accrual formula.
Different approaches could be applied in calculating income
under the stripped bond rules. For example, a Certificate could
be viewed as a collection of separate debt instruments (one for
each payment allocable to the Certificate) rather than a single
debt instrument. Also, in the case of an Interest-Only
Certificate, it could be argued that certain proposed regulations
governing contingent payment debt obligations apply. Owners
should consult their own tax advisors regarding the calculation
of income under the stripped bond rules.
Sales of Certificates.
A Certificateholder that sells a Certificate will recognize
gain or loss equal to the difference between the amount realized
in the sale and its adjusted tax basis in the Certificate. In
general, such 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
(but not below zero) by the amount of any distributions received
thereon, the amount of any losses previously allowable to such
Owner with respect to such Certificate and any premium
amortization thereon. Any such gain or loss would be capital
gain or loss if the Certificate was held as a capital asset,
subject to the potential treatment of gain as ordinary income to
the extent of any accrued but unrecognized market discount under
the market discount rules of the Code, if applicable.
Foreign Investors.
Except as described in the following paragraph, an Owner
that is not a U. S. person (as defined under "REMIC Certificates-
Taxation of Certain Foreign Investors" above) and that is not
subject to federal income tax as a result of any direct or
indirect connection to the United States in addition to its
ownership of a Certificate will not be subject to United States
income or withholding tax in respect of a Certificate (assuming
the underlying Mortgage Loans were originated after July 18,
1984), if the Owner provides an appropriate statement, signed
under penalties of perjury, identifying the Owner and stating,
among other things, that the Owner is not a U.S. person. If
these conditions are not met, a 30% withholding tax will apply to
interest (including original issue discount) unless an income tax
treaty reduces or eliminates such tax or unless the interest is
effectively connected with the conduct of a trade or business
within the United States by such Owner. Income effectively
connected with a U.S. trade or business will be subject to United
States federal income tax at regular rates then applicable to
U.S. taxpayers (and in the case of a corporation, possibly also
the branch profits tax).
In the event the Trust Fund acquires ownership of real
property located in the United States in connection with a
default on a Mortgage Loan, then any rental income from such
property allocable to an Owner that is not a U.S. person
generally will be subject to a 30% withholding tax. In addition,
any gain from the disposition of such real property allocable to
an Owner that is not a U.S. person may be treated as income that
is effectively connected with a U.S. trade or business under
special rules governing United States real property interests.
The Trust Fund may be required to withhold tax on gain realized
upon a disposition of such real property by the Trust Fund at a
35% rate.
Reporting.
Tax information will be reported annually to the Internal
Revenue Service and to Holders of Certificates that are not
excluded from the reporting requirements.
Backup Withholding
Distributions made on a Certificate and proceeds from the
sale of a Certificate to or through certain brokers may be
subject to a "backup" withholding tax of 31% unless, in general,
the Owner of the Certificate complies with certain procedures or
is a corporation or other person exempt from such withholding.
Any amounts so withheld from distributions on the Certificates
would be refunded by the Internal Revenue Service or allowed as a
credit against the Owner's federal income tax.
STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described
in "Federal Income Tax Consequences," potential investors should
consider the state income tax consequences of the acquisition,
ownership, and disposition of the Offered Certificates. State
income tax law may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential
investors should consult their own tax advisors with respect to
the various state tax consequences of an investment in the
Offered Certificates.
PLAN OF DISTRIBUTION
The Offered Certificates are being offered hereby in Series
through one or more of the various methods described below. The
related Prospectus Supplement will describe the method of
offering being utilized for the Offered Certificates of each
Series and will state the public offering or purchase price of
each class of Offered Certificates of such Series being offered
thereby or the method by which such price will be determined and
the net proceeds to the Company from the sale of each such class.
The Offered Certificates of each Series will be offered
through the following methods from time to time, and offerings
may be made concurrently through more than one of these methods
and an offering of the Offered Certificates of a particular
Series may be made through a combination of two or more of these
methods. Such methods are as follows:
1. By negotiated firm commitment underwriting and public
reoffering by underwriters;
2. By placements by the Company with institutional
investors through dealers or agents; and
3. By direct placements by the Company with institutional
investors.
If underwriters are used in a sale of any Offered
Certificates, such Offered Certificates will be acquired by the
underwriters for their own account and may be resold from time to
time in one or more transactions including negotiated
transactions, at fixed public offering prices or at varying
prices to be determined at the time of sale or at the time of
commitment therefor. The managing underwriter or underwriters
with respect to the offer and sale of the Offered Certificates of
a particular Series will be set forth on the cover of the
Prospectus Supplement relating to such Series and the members of
the underwriting syndicate, if any, will be named in such related
Prospectus Supplement.
In connection with the sale of the Offered Certificates,
underwriters may receive compensation from the Company or from
purchasers of the Offered Certificates in the form of discounts,
concessions or commissions. Underwriters and dealers
participating in the distribution of the Offered Certificates may
be deemed to be underwriters in connection with such Offered
Certificates, and any discounts or commissions received by them
from the Company and any profit on the resale of Offered
Certificates by them may be deemed to be underwriting discounts
and commissions under the Securities Act. The related Prospectus
Supplement will describe any such compensation paid by the
Company.
It is anticipated that the underwriting agreement pertaining
to the sale of the Offered Certificates of any Series will
provide that the obligations of the underwriters will be subject
to certain conditions precedent, that the underwriters will be
obligated to purchase all such Offered Certificates if any are
purchased and that the Company will indemnify the underwriters
against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments required to be
made in respect thereof.
With respect to Offered Certificates offered other than
through underwriters, the related Prospectus Supplement will
contain information regarding the nature of such offering and any
agreements to be entered into between the Company and purchasers
of such Offered Certificates.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus
Supplement, the Company intends to use the net proceeds of sales
of Certificates for the acquisition of Mortgage Loans, Mortgage-
Backed Securities, Contracts and servicing rights.
LEGAL MATTERS
Certain legal matters in connection with the Offered
Certificates offered hereby will be passed upon for the Company
by Cleary, Gottlieb, Steen & Hamilton or by another law firm
identified in the related Prospectus Supplement. Certain federal
income tax matters will be passed upon for the Company by Cleary,
Gottlieb, Steen & Hamilton or by another law firm identified in
the related Prospectus Supplement.
FINANCIAL INFORMATION
A Trust Fund will be formed with respect to each Series of
Certificates. No Trust Fund will have any assets or obligations
prior to the issuance of the related Series of Certificates. No
Trust Fund will engage in any activities other than those
described herein or in the related Prospectus Supplement.
Accordingly, no financial statement with respect to any Trust
Fund is included in this Prospectus or will be included in the
related Prospectus Supplement.
ADDITIONAL INFORMATION
Copies of FHLMC's most recent Offering Circulars for FHLMC
Securities, FHLMC's Information Statement and most recent
Supplement to such Information Statement and any quarterly report
made available by FHLMC can be obtained by writing or calling the
Investor Inquiry Department at 8200 Jones Branch Drive, McLean,
Virginia 22102, (703) 903-2581. The Company makes no
representations as to the accuracy or completeness of the
information set forth in FHLMC's Offering Circulars, Information
Statements, Information Statement Supplements or other reports or
statements.
Copies of FNMA's most recent Prospectuses for FNMA
Securities and FNMA's annual and quarterly reports as well as
other financial information are available from the Vice President
for Investor Relations of FNMA, 3900 Wisconsin Avenue, N.W.,
Washington, D.C. 20016, (202) 752-7115. The Company makes no
representations as to the accuracy or completeness of the
information set forth in FNMA's Prospectuses, annual reports or
other reports or statements.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS SUPPLEMENT
DATED OCTOBER 2, 1996
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 199_
DEUTSCHE MORTGAGE & ASSET RECEIVING CORPORATION
(Company)
[ ]
(Servicer)
$(Approximate)
[REMIC Multi-Class] [Mortgage] Pass-Through Certificates, Series
199 -
Principal and interest payable on the 25th day of each month
beginning in 199 .
_________
Class Certificate
Principal Balance
[or Notional [Scheduled Final
Classes of Principal Certificate Distribution
Certificates Balance] (1) Interest Rate Date (2)
- ------------ ----------------- ------------- ----------------
Class __
Certificates [3]
[Class IO
Certificates]
Class __
Certificates
[Class PO
Certificates]
Class R
Certificates
____________________
(1) Approximate, subject to adjustment as described herein.
(2) Determined on the basis of the assumptions set forth under"Yield,
Maturity and Weighted Average Life Considerations-Final Payment
Considerations [and Scheduled Final Distribution Dates of the
Certificates]."
[(3) The Class __ Certificates shall bear interest at a per annum
Certificate Interest Rate of __% during the first Interest Accrual
period. Thereafter, such Class shall bear interest during each
succeeding Interest Accrual Period at a per annum Certificate Interest
Rate (not greater than __%) equal to the Index plus __%.]
The [REMIC Multi-Class] [Mortgage] Pass-Through Certificates,
Series 199 - (collectively, the "Certificates") will consist of
______ Classes: the Class __, Class __, Class __, Class __,
[Class IO,] [Class PO,] and Class R Certificates. Only the Class __,
Class __, [Class IO,] [Class PO,] and Class R Certificates (the
"Offered Certificates") are offered hereby.
The risks associated with the Offered Certificates may make them
unsuitable for some investors. See Risk Factors" beginning on
page S-[12] herein and beginning on page [9] of the Prospectus.
The Certificates evidence beneficial ownership interests in a
trust fund (the "Trust Fund"). The assets of the Trust Fund will
consist primarily of a pool (the "Mortgage Pool") of fixed-rate,
[first]-lien, fully-amortizing, conventional, one- to four-family
mortgage loans having original terms to maturity of to
years (the "Mortgage Loans"). See "Description of the Mortgage
Pool and the Mortgaged Properties."
The Offered Certificates will be issued in the classes (each, a
"Class") and with the characteristics set forth above. Interest
will accrue on each Class of Offered Certificates at the
respective Certificate Interest Rates set forth above. Principal
and interest will be distributable on Offered Certificates on
each Distribution Date (as defined herein) commencing in
199 . On each Distribution Date, to the extent funds are
available therefor, the amount of interest distributable on each
Offered Certificate will equal 30 days of interest at the
applicable Certificate Interest Rate on the Certificate Principal
Balance thereof immediately prior to such Distribution Date, less
such Certificate's share of any Interest Shortfalls [and the
interest portion of any Realized Losses] (each as defined herein)
with respect to the Mortgage Loans. Principal of the Offered
Certificates will be distributable monthly on each Distribution
Date to the extent and in the manner described herein. [The
Class R Certificate[s] also will be entitled to receive certain
other amounts, if any, in respect of the Trust Fund. See
"Description of the Certificates-Additional Rights of the
Residual Certificateholder[s]."
(cover continued next page)
[Description of any subordination of Classes.]
_________
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST
IN THE COMPANY, DEUTSCHE BANK OR ANY OF THEIR AFFILIATES.
NEITHER THE CERTIFICATES NOR
THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[Description of material transfer restrictions, if any, on
certain Classes of Offered Certificates.] [The Class R
Certificate[s] ("the Residual Certificate[s]") may not be
purchased by or transferred to (i) a Disqualified Organization or
Book-Entry Nominee (as defined in the Prospectus), (ii) except
under limited circumstances, a person who is not a U. S. person
(as defined in the Prospectus), (iii) a Plan (as defined herein)
or (iv) any person or entity who the transferor has reason to
believe intends to impede the assessment or collection of any
federal, state or local taxes legally required to be paid with
respect thereto. See "ERISA Considerations" herein and in the
Prospectus and "Description of the Certificates-Restrictions on
Transfer of the Residual Certificate[s]" herein.]
The Certificates will represent beneficial ownership interests
solely in the assets of the Trust Fund and will not represent an
interest in or an obligation of the Company, Deutsche Bank or any
of their affiliates, the Trustee, the Servicer or any other
person. [The Company's only obligations with respect to the
Certificates will consist of its obligations pursuant to certain
representations and warranties made by it.] The Agreement
provides that the Holders of the Certificates will have no rights
or remedies against the Company for any losses or other claims in
connection with the Certificates or the Mortgage Loans [other
than the Company's obligation to repurchase or replace any
Mortgage Loan as to which there has been a material breach of
warranty or defect in documentation. See "The Pooling and
Servicing Agreements - Repurchase or Substitution" in the
Prospectus].
The yield of each Class of Offered Certificates will depend upon,
among other things, its sensitivity to the rate and timing of
principal payments (including prepayments, defaults and
liquidations) on the Mortgage Loans and the actual
characteristics of the Mortgage Loans. Investors should consider
the associated risks, including:
- Slow Mortgage Loan prepayment rates can reduce the
yields of [the Class PO Certificates and other] Classes
purchased at a discount to their principal amounts.
- Fast Mortgage Loan prepayment rates can reduce the
yields of [the Class IO Certificates and other] Classes
purchased at a premium to their principal amounts.
- Small differences in the characteristics of the
Mortgages can affect the weighted average lives and
yields of the Classes.
[- Low levels of [applicable index] can reduce the yield
of any Floating Rate Class.]
See "Risk Factors" and "Yield Considerations" in the Prospectus
and "Yield, Maturity and Weighted Average Life Considerations"
(cover continued next page)
herein for a discussion of certain significant matters affecting
investments in the Offered Certificates.
There is currently no secondary market for the Offered
Certificates and there can be no assurance that such a market
will develop. Deutsche Morgan Grenfell Inc. (the "Underwriter")
has indicated its intention to make a secondary market in the
Offered Certificates, but it is not obligated to do so. There
is no assurance that any such market, if established, will
continue.] See "Summary of Terms-Liquidity Considerations."
[The Offered Certificates will be purchased by the Underwriter
from the Company and are being offered by the Underwriter from
time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale.
See "Plan of Distribution." Proceeds to the Company from the
sale of the Offered Certificates will be % of the aggregate
Scheduled Principal Balance (as defined herein) of the Mortgage
Loans as of the Cut-off Date, plus accrued interest thereon from
the Cut-off Date, before deducting issuance expenses payable by
the Company.]
[The Offered Certificates are offered by the Underwriter, as
specified herein, subject to receipt and acceptance thereof and
subject to its right to reject any order in whole or in part. It
is expected that delivery of the Offered Certificates [(other
than the Class Certificates)] will be made through the
book-entry facilities of [The Depository Trust Company], and that
delivery of the Class Certificates in definitive,
fully-registered form will be made at the offices of the
Underwriter, New York, New York, on or about , 199 .]
DEUTSCHE MORGAN GRENFELL
The date of this Prospectus Supplement is , 199_.
<PAGE>
[Beneficial interests in the Offered Certificates other than the
Residual Certificate[s]] will be held by investors only through
the book-entry facilities of the Depository (as defined herein).
Distributions on such Classes of Certificates, and transfers of
beneficial interests therein, will be made as described herein.
No person will be entitled to receive a physical certificate
representing such Certificates except under the limited
circumstances described herein. See "Description of the
Certificates-Book-Entry Certificates."]
_________
[For federal income tax purposes, an election will be made to
treat the Trust Fund as a "real estate mortgage investment
conduit" (a "REMIC"). Each Class of the Certificates other than
the Residual Certificate[s] (the "Regular Certificates") will be
designated as regular interests in the REMIC and generally will
be treated as debt instruments for federal income tax purposes.
The Residual Certificate[s] will be designated as the residual
interests in the REMIC. Prospective investors are cautioned that
the Residual Certificateholder[s]'s REMIC taxable income and the
tax liability thereon may exceed cash distributions to such
Holder[s] during certain periods, in which event such Holder[s]
must have sufficient alternative sources of funds to pay such tax
liability. See "Summary of Terms-Federal Income Tax
Consequences" and "Federal Income Tax Consequences" herein and
"Federal Income Tax Consequences" in the Prospectus.]
_________
The Offered Certificates constitute a part of a series of
Pass-Through Certificates being offered by the Company from time
to time pursuant to its Prospectus dated , 199_ (the
"Prospectus") of which this Prospectus Supplement is a part.
This Prospectus Supplement does not contain complete information
about the offering of the Offered Certificates. Additional
information is contained in the Prospectus and purchasers are
urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Offered Certificates may not be
consummated unless the purchaser has received both this
Prospectus Supplement and the Prospectus.
_________
Until 90 days after the date of this Prospectus Supplement, all
dealers effecting transactions in the Offered Certificates,
whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and the Prospectus to
which it relates. This is in addition to the obligation of
dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference
to the detailed information appearing elsewhere herein and in the
Prospectus. Capitalized terms used herein and not otherwise
defined have the meanings assigned in the Prospectus.
Title of Securities [REMIC Multi-Class] [Mortgage]
Pass-Through Certificates, Series 199 -
(the "Certificates"), evidencing the
beneficial ownership interest in a trust
fund (the "Trust Fund"). The
Certificates will consist of ___ classes
(each, a "Class"); the Class __, Class
__, Class __, Class __, [Class PO],
[Class IO], and Class R Certificates.
The assets of the Trust Fund will
consist primarily of a pool (the
"Mortgage Pool") of fixed-rate,
[first]-lien, fully-amortizing,
conventional, one- to four-family
mortgage loans (the "Mortgage Loans").
The aggregate Scheduled Principal
Balance (as defined herein) of the
Mortgage Loans underlying the
Certificates (the "Mortgage Loans") will
be approximately $ as of the
Cut-off Date (subject to a permitted
upward or downward variance of up to
%).
Offered Certificates The Certificates offered hereby
(collectively, the "Offered
Certificates") will be issued in the
Classes and aggregate original
Certificate Principal Balances (each, a
"Class Certificate Principal Balance")
set forth on the cover hereof, subject
to adjustment as described herein.
[The Classes of Offered Certificates
each will be registered as a single
certificate held by a nominee of [The
Depository Trust Company] (the
"Depository"), and beneficial interests
therein will be held by investors
through the book-entry facilities of the
Depository, as described herein, in
minimum denominations in Certificate
Principal Balance of [$25,000] and
integral multiples of $[1,000] in excess
thereof.] [The Residual Certificate[s]
will be issued in certificated form as a
single Certificate representing the
entire Class Certificate Principal
Balance thereof.] Notwithstanding the
minimum denominations described above,
one Certificate of each Class of the
Offered Certificates may be issued in a
smaller amount.
Senior Certificates [Classes of Senior Certificates]
Subordinate
Certificates [Classes of Subordinate Certificates]
The Company Deutsche Mortgage & Asset Receiving
Corporation, a Delaware corporation (the
"Company"). See "The Company" in the
Prospectus.
Servicer [Identification of Servicer] (the
"Servicer"). See "The Pooling and
Servicing Agreement-Collection and Other
Servicing Procedures."
Trustee [Identification of Trustee] (the
"Trustee"). See "The Pooling and
Servicing Agreement-Trustee."
Cut-off Date [1], 199 .
Closing Date On or about , 199 .
Description of the
Certificates The Certificates will be issued pursuant
to a Pooling and Servicing Agreement
(the "Agreement"), to be dated as of
the Cut-off Date, between the Company,
the Servicer and the Trustee. To the
extent funds are available therefor in
the Certificate Account (as defined
herein), distributions on the
Certificates will be made on the 25th
day of each month or, if such 25th day
is not a business day, on the succeeding
business day (each, a "Distribution
Date"), commencing in 199 , to
Holders of record on the close of
business on the last business day of the
month preceding the month of such
Distribution Date (the "Record Date").
Mortgage Pool The Mortgage Pool will consist of fixed-
rate, fully amortizing, [conventional]
mortgage loans that are secured by
[first] liens on one- to four-family
residential properties (the "Mortgaged
Properties") and sold by the Company.
The Mortgage Loans will have original
terms to maturity of to years.
[Description of proportion, if any, of
home equity loans included in Mortgage
Pool.] See "Description of the Mortgage
Pool and the Mortgaged Properties."
Distributions on the
Certificates Interest. On each Distribution Date,
interest will be distributable on each
Class of the Certificates [other than
the Class PO Certificates)] from the
Available Funds (as defined herein) for
such Distribution Date in an aggregate
amount equal to the Accrued Certificate
Interest for such Class on such
Distribution Date, plus any Accrued
Certificate Interest thereon remaining
undistributed from previous Distribution
Dates. Interest will accrue on the
Offered Certificates [other than the
Class PO Certificates] at the respective
Certificate Interest Rates set forth on
the cover hereof during each one-month
period ending on the last day of the
month preceding the month in which each
Distribution Date occurs (each, a[n]
"[Fixed] Interest Accrual Period").
[Interest will accrue on the Class __
and [Class IO] Certificates at the
applicable floating Certificate Interest
Rate described below during the one-
month period commencing on the 25th day
of the month preceding the month in
which the Distribution Date occurs and
ending on the 24th day of the following
month (each, a "Floating Interest
Accrual Period").]
The "Accrued Certificate Interest" for
any Certificate [(other than the Class
PO Certificates)] for any Distribution
Date will equal the interest accrued
during the related [Fixed] Interest
Accrual Period [or Floating Interest
Accrual Period (each, an "Interest
Accrual Period")] at the applicable
Certificate Interest Rate on the
Certificate Principal Balance [(or, in
the case of a [Class IO] Certificate,
the Notional Principal Balance)] of such
Certificate immediately prior to such
Distribution Date, less such
Certificate's share of any Interest
Shortfalls (as defined herein) [and the
interest portion of any Realized
Losses]. Such shortfalls or losses will
be allocated among the Certificates in
proportion to the amount of Accrued
Certificate Interest that, in the
absence of such shortfalls or losses,
would have been allocated thereto.
Interest will be calculated on the
Certificates on the basis of a 360-day
year consisting of twelve 30-day months.
[Description of calculation of floating
interest rate, if applicable.] [The
Class PO Certificates will receive no
distributions in respect of interest.]
See "Description of the Certificates-
Distributions on the Certificates-
Interest."
Principal. Principal will be
distributable monthly on the
Certificates [(other than the Class IO
Certificates)] on each Distribution Date
in an aggregate amount (the "Principal
Distribution Amount") equal to the
Available Funds remaining in the
Certificate Account after the
distribution of Interest on the
Certificates on such Distribution Date.
Subject to such limitation, the
Principal Distribution Amount will be
allocated among the Classes of
Certificates in the manner described
herein. Distributions of principal on a
Class of Certificates [(other than the
Class IO Certificates)] on a Class of
Certificates will be made on a pro rata
basis among all outstanding Certificates
of such Class. See "Description of the
Certificates- Distributions on the
Certificates-- Principal."
[Description of any Classes with special
payment features, such as "planned amor-
tization" or "targeted amortization"
Classes.]
[Additional Rights
of the Residual
Certificateholder[s] In addition to distributions of
principal and interest payable out of
the Available Funds, the Holders of the
Class R Certificate[s] will be entitled
to receive (i) the amounts, if any, of
Available Funds remaining in the
Certificate Account on any Distribution
Date after distributions of principal
and interest on the Certificates on such
date and (ii) the proceeds, if any, of
the assets of the Trust Fund remaining
in the REMIC after the Class Certificate
Principal Balances of all Classes of the
Certificates have been reduced to zero.
It is not anticipated that any material
assets will be remaining at any such
time. See "Description of the
Certificates- Additional Rights of the
Residual Certificateholder[s]."]
[Advances The Servicer will be obligated to
advance delinquent installments of
principal and interest (net of the
related Servicing Fees) on the Mortgage
Loans included in the Mortgage Pool
under certain circumstances. See "The
Pooling and Servicing Agreement-
Advances."]
Credit Enhancement Credit enhancement will be provided in
order to enhance the likelihood of
regular receipt by Certificateholders of
the scheduled amounts due them and to
afford such Certificates limited
protection against losses. See "The
Pooling and Servicing Agreement--Credit
Enhancement."
The rights of the Holders of the
Subordinate Certificates to receive
distributions with respect to the
Mortgage Loans are subordinated to the
rights of Holders of the Senior
Certificates only to the limited extent
described herein. Such subordination is
intended to increase the likelihood of
receipt by the Senior Certificateholders
(to the extent of the subordination
provided by the Subordinate
Certificates) of the maximum amount to
which they are entitled on any
Distribution Date and to provide such
Holders protection against losses
resulting from Liquidated Loans to the
extent described herein. See
["Description of the Certificates--
Distributions on the Certificates--
Allocation of Realized Losses" and]
"Credit Enhancement--Subordination of
Subordinate Certificates."
[Description of any other applicable
credit enhancement.]
[The amount of coverage under the
foregoing forms of credit enhancement is
limited, and payment thereunder is
subject to certain conditions and
limitations. In the event losses occur
which are not covered by such credit
enhancement, or losses occur in amounts
exceeding the coverage provided thereby,
shortfalls in distributions to
Certificateholders will occur.]
Prepayment and Yield
Considerations The rate of principal payments on the
Offered Certificates, the aggregate
amount of each interest payment on such
Certificates and the yield to maturity
of such Certificates are related to the
rate of principal payments on or in
respect of the Mortgage Loans. Mortgage
principal payments may be in the form of
scheduled principal payments, voluntary
prepayments by the mortgagors (such as,
for example, prepayments in full due to
refinancings or prepayments in
connection with biweekly payment
programs) and prepayments resulting from
default, foreclosure, casualty, or
condemnation and similar events and
certain repurchases by [the Company] or
[the Servicer] of the Mortgage Loans
under the circumstances described
herein. Borrowers are permitted to
prepay the Mortgage Loans, in whole or
in part, at any time without penalty.
Mortgage prepayment rates are likely to
fluctuate significantly. In general,
when prevailing mortgage interest rates
decline significantly below the interest
rates on the mortgage loans in a
mortgage pool, the prepayment rate on
the mortgage loans is likely to
increase, and when prevailing mortgage
interest rates rise significantly above
the interest rates on the mortgage loans
in a mortgage pool, the prepayment rate
on such mortgage loans is likely to
decrease, although other economic,
geographic and social factors also may
influence the prepayment rate. See
"Yield, Maturity and Weighted Average
Life Considerations-Prepayments."
Full and partial prepayments and other
unscheduled recoveries of principal will
reduce the amount of interest available
for distribution to Certificateholders
in the following month from the amount
which would have been available in the
absence of such prepayments or
recoveries. Any shortfalls in interest
as a result of such early receipt of
principal generally will produce a lower
yield on the Offered Certificates than
otherwise would be the case. [The
interest distributable on the Offered
Certificates also will be reduced by the
interest portion of any Realized
Losses.]
The yields to investors will be
sensitive in varying degrees to the rate
and timing of Mortgage Loan prepayments
(including unscheduled recoveries of
principal). The extent to which the
yield to maturity of a Certificate is
sensitive to prepayments and other
unscheduled receipts of principal will
depend upon the degree to which it is
purchased at a discount or premium. In
the case of Offered Certificates
purchased at a premium, faster than
anticipated rates of principal payments
on the Mortgage Loans could result in
actual yields to such investors that are
lower than the anticipated yields. In
the case of Offered Certificates
purchased at a discount, slower than
anticipated rates of principal payments
could result in actual yields to
investors that are lower than the
anticipated yields.
Rapid rates of prepayments on the
Mortgage Loans are likely to coincide
with periods of low prevailing interest
rates. During such periods, the yields
at which an investor in the Offered
Certificates may be able to reinvest
amounts received as payments on the
investor's Certificates may be lower
than the yield on such Certificates.
Conversely, slow rates of prepayments on
the Mortgage Loans are likely to
coincide with periods of high prevailing
interest rates. During such periods,
the amount of payments available to an
investor for reinvestment at such high
rates may be relatively low.
The Certificates were structured on the
basis of, among other things, a
prepayment assumption of % of the
Prepayment Assumption (as defined
herein) and corresponding weighted
average lives as described herein. The
weighted average lives of the Offered
Certificates at % of the Prepayment
Assumption, based on the assumptions
described under "Yield, Maturity and
Weighted Average Life Considerations-
Weighted Average Lives of the
Certificates-Table of Certificate
Principal Balances" are set forth in
such tables. The Mortgage Loans are not
likely to prepay at a constant rate of
% of the Prepayment Assumption or any
other constant rate, and the actual
weighted average lives of the Offered
Certificates are likely to differ from
those shown in such tables.
The prepayment, yield and other
assumptions to be used for pricing
purposes for the respective Classes of
the Offered Certificates may vary as
determined at the time of sale. Each
prospective investor is urged to make an
investment decision with respect to the
Certificates proposed to be purchased by
such investor based upon a comparison of
the desired yield to the anticipated
yield on such Certificates resulting
from the price to be paid by such
investor for such Certificates and such
investor's own determination as to the
anticipated rate of prepayments on the
Mortgage Loans.
[Principal distributions on the Class
Certificates will be made by reference
to principal balance schedules, as
described herein.] The weighted average
lives of all Classes of the Certificates
will be affected in part by the
prepayment experience of the Mortgage
Loans and the resulting allocation of
principal payments on the Certificates.
[The yield on certain Classes of the
Certificates also may be affected by any
repurchase by [the Company] or [the
Servicer] of the Mortgage Loans in the
Trust Fund as described under "The
Pooling and Servicing Agreement-
Termination."
[Optional Termination [The Company] or [the Servicer] may, at
its option, repurchase from the Trust
Fund all of the Mortgage Loans remaining
in the Trust Fund, and thereby effect
the early retirement of the
Certificates, on any Distribution Date
if the aggregate Scheduled Principal
Balance of the Mortgage Loans in the
Trust Fund is less than 10% of the
aggregate Scheduled Principal Balance
thereof as of the Cut-off Date. See
"The Pooling and Servicing Agreement-
Termination."
[Scheduled Final
Distribution Dates The rate of payment of principal of the
Certificates will depend on the rate of
payment of principal of the Mortgage
Loans which, in turn, will depend on the
characteristics of such Mortgage Loans,
the level of prevailing interest rates
and other economic, geographic and
social factors. No assurance can be
given as to the actual payment
experience of the Mortgage Loans. The
Scheduled Final Distribution Date for
each Class of the Offered Certificates
is the date __ months after the date on
which the Class Certificate Principal
Balance thereof would be reduced to
zero, based on certain assumptions
regarding the characteristics of the
Mortgage Loans and other assumptions
described herein. Because certain
Mortgage Loans will have remaining terms
to maturity that are shorter and
Mortgage Rates (as defined herein) that
are lower than those assumed in
calculating the Scheduled Final
Distribution Dates of such Certificates,
the Class Certificate Principal Balances
of the Offered Certificates may be
reduced to zero prior to their
respective Scheduled Final Distribution
Dates. In addition, delinquencies could
result in distributions after the
respective Scheduled Final Distribution
Dates except to the extent offset by any
advances made by the Servicer and the
forms of credit enhancement described
herein. As a result, the Class
Certificate Principal Balance of each
Class of Offered Certificates may be
reduced to zero significantly earlier or
later than its respective Scheduled
Final Distribution Date.]
Federal Income
Tax Consequences [The Certificates other than the Class R
Certificate[s] (the "Regular
Certificates") will be treated as
regular interests in the REMIC and
generally will be treated as debt
instruments issued by such REMIC for
federal income tax purposes. Certain
Classes of the Regular Certificates may
be issued with original issue discount.
The prepayment assumption that will be
used in determining the rate of accrual
of any original issue discount on the
Regular Certificates for federal income
tax purposes (and whether such original
issue discount is de minimis), and that
may be used by a Holder of a Regular
Certificate to amortize premium, will be
% of the Prepayment Assumption. No
representation is made that the Mortgage
Loans will prepay at such rate or at any
other rate.] The Holder[s] of the
Residual Certificate[s] will be subject
to special federal income tax rules that
may significantly reduce the after-tax
yield of such Certificate[s]. Further,
significant restrictions apply to the
transfer of the Residual Certificate[s].
See "Description of the Certificates-
Restrictions on Transfer of the Residual
Certificate[s]."
See "Federal Income Tax Consequences"
herein and "Federal Income Tax
Consequences-REMIC Certificates" in the
Prospectus.]
Legal Investment
Matters [The Offered Certificates will
constitute "mortgage related securities"
for purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA"). However, institutions whose
investment activities are subject to
legal investment laws and regulations or
review by certain regulatory authorities
may be subject to restrictions on
investment in the Offered Certificates.]
See "Legal Investment Matters" herein
and in the Prospectus.
ERISA Considerations Fiduciaries of employee benefit plans
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA") or plans subject to
Section 4975 of the Internal Revenue
Code of 1986 (the "Code") (collectively,
"Plans") should carefully review with
their legal advisors whether the
purchase or holding of the Offered
Certificates could give rise to a
transaction prohibited or not otherwise
permissible under ERISA or the Code.
The Residual Certificate[s] may not be
acquired by a Plan and transfer thereof
is subject to the restrictions described
herein. See "ERISA Considerations"
herein and in the Prospectus.
Certificate Ratings It is a condition of issuance of the
Certificates that the Offered
Certificates be rated " " by [and "
" by ] (each, a "Rating Agency").
The ratings of the Offered Certificates
should be evaluated independently from
similar ratings on other types of
securities. 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. The
ratings do not address the possibility
that Certificateholders may suffer a
lower than anticipated yield. See
"Certificate Ratings."
Liquidity
Considerations There is currently no secondary market
for the Offered Certificates, and there
can be no assurance that such a market
will develop. The Underwriter has
indicated its intention to make a
secondary market in the Offered
Certificates, but it is not obligated to
do so. There can be no assurance that a
secondary market for such Certificates
will develop, or if it does develop,
will continue for the life of the
Offered Certificates or provide
investors with liquidity of investment.
In addition, there can be no assurance
that an investor in an Offered
Certificate will be able to sell such
Certificate at a price that is equal to
or greater than the price at which such
investor purchased such Certificate.
Information available to investors that
desire to sell their Offered
Certificates in the secondary market may
be limited. In particular, price
quotations regarding specific Classes of
the Offered Certificates are not
currently available in any newspaper or
other source that is widely available to
investors.
[The Company believes that a number of
dealers which engage in the
mortgage-backed securities markets
currently offer price quotations for the
Company's mortgage pass-through
certificates to investors that desire to
buy or sell such certificates. However,
there is no assurance that such dealers
will continue to provide such a service
or that any such dealer will offer a
price quotation for any particular
series or class of the Company's
certificates. In addition, there is no
assurance that any such dealer will
offer a price quotation to any
particular investor, and
non-institutional investors in
particular may not have access to such
quotations. The lack of availability of
price information concerning the Offered
Certificates may affect their
liquidity.]
Use of Proceeds The net proceeds from the sale of the
Offered Certificates will be used for
general corporate purposes, including
the acquisition of residential mortgage
loans.
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other
things, the following factors in connection with a purchase of
the Offered Certificates:
General Risks of Real Estate Investments
An investment in Offered Certificates may be affected, among
other things, by a decline in real estate values or a decline in
mortgage market rates. If relevant residential real estate
markets should experience an overall decline in property values
such that the outstanding balances of the Mortgage Loans and any
secondary financing on the Mortgaged Properties in a particular
Mortgage Pool becomes equal to or greater than the value of the
Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those otherwise
generally experienced in the mortgage lending industry. To the
extent that such losses are not covered by any applicable credit
enhancements, Holders of the Offered Certificates of a Series
evidencing interests in such Mortgage Pool will bear all risk of
loss resulting from default by borrowers and will have to look
primarily to the value of the Mortgaged Properties for recovery
of the outstanding principal and unpaid interest of the defaulted
Mortgage Loans.
Limited Obligation for Distributions on the Offered Certificates
The Offered Certificates will not represent an interest in
or obligation of the Company, Deutsche Bank, any person that has
made representations and warranties regarding the Mortgage Loans,
the Trustee, the Servicer or Master Servicer or any other person
or any of its affiliates. Distributions on the Offered
Certificates of a Series will be made only from the assets of the
related Trust Fund, and the Offered Certificates will not be
insured or guaranteed by the Company or any affiliate thereof,
any government agency or instrumentality or any other person.
All of the Mortgage Loans are "non-recourse" loans, as to which
the Trustee may look only to the related Mortgaged Properties for
satisfaction of amounts due under the related Mortgage.
Lack of Established Market
There can be no assurance that a secondary market will
develop for the Offered Certificates or, if it does develop,
that it will provide the Holders of Offered Certificates of such
Series with liquidity of investment or that it will continue for
the term of the Offered Certificates.
[Limitations on Credit Enhancement Associated with the Offered
Certificates
The credit enhancements described herein will not cover all
contingencies and will cover certain contingencies only to a
limited extent. [Add description of limitations relating to
specific types of Credit Enhancement.] [While the subordination
feature is intended to enhance the likelihood of timely payment
of principal and interest to senior Certificateholders, the
available subordination amount may be limited, as described
herein, and shortfalls could result.] See "Credit
Enhancement."]
Risk of Prepayment of and Defaults on Mortgage Loans
The prepayment experience on the Mortgage Loans will affect
the average life of some or all of the Offered Certificates.
Prepayments on mortgage loans may be influenced by a variety of
economic, geographic, social and other factors, including the
difference between the interest rates on mortgage loans and
prevailing mortgage rates. In general, if mortgage interest
rates fall below the interest rates on such mortgage loans, the
rate of prepayment is likely to increase. Conversely, if
mortgage interest rates rise above the interest rates on such
mortgage loans, the rate of prepayment is likely to decrease.
Other factors affecting prepayment of mortgage loans include
changes in housing needs, job transfers, unemployment and
servicing decisions. Delays in liquidations of defaulted
Mortgage Loans and modifications extending the maturity of
Mortgage Loans will tend to extend the payment of principal of
the Mortgage Loans. In the case of defaults, recovery of
proceeds may be delayed by, among other things, bankruptcy of the
Borrower or adverse conditions in the market where the Mortgaged
Property is located. Shortfalls in distributions to
Certificateholders also may result from losses incurred with
respect to Mortgage Loans due to uninsured risks or insufficient
hazard insurance proceeds and from any indemnification of the
Servicer in connection with legal actions relating to the
Agreement or Certificates. See "Yield, Maturity and Weighted
Average Life Considerations."
Early Termination of the Trust Fund
The Trust Fund for a Series of Certificates may be subject
to optional termination by the [Company] or [the Servicer] under
certain circumstances. In the event of such termination, Holders
of the Offered Certificates would receive some principal payments
earlier than otherwise, which could adversely affect their
anticipated yield to maturity. See "The Pooling and Servicing
Agreement --Termination" herein.
Federal Income Tax Consequences
The Class __ Certificates will, and the Class __
Certificates may, be treated for federal income tax reporting
purposes as having been issued with original issue discount. A
Certificateholder must include original issue discount in income
as it accrues, without regard to the timing of payments. The
prepayment assumption that will be used in determining the rate
of accrual of market discount, original issue discount and
premium for federal income tax purposes will be a __% constant
prepayment rate (as discussed under "Yield Maturity and Weighted
Average Life Considerations" herein). No representation is made
that the Mortgage Loans will prepay at that rate or at any other
rate. See "Federal Income Tax Consequences" herein and in the
Prospectus.
[A Holder of a Class R Certificate will be required to
include the taxable income or loss of the applicable REMIC in
determining its federal taxable income. It is anticipated that
all or a portion of the income derived from a Class R Certificate
will be "excess inclusion" income, which is treated as unrelated
business taxable income to Certificateholders that are tax-exempt
entities and is not subject to exemption from or reduction in
withholding in the case of Certificateholders that are foreign
persons. Holders of Class R Certificates, including thrift
institutions, will not be entitled to use other deductions or
losses, including net operating losses, to offset such income.
See "Federal Income Tax Consequences" herein and in the
Prospectus.
DESCRIPTION OF THE MORTGAGE POOL AND THE MORTGAGED PROPERTIES
General
The Certificates will represent the entire
beneficial ownership interest in a trust fund (the "Trust Fund").
The Trust Fund will consist primarily of a pool (the "Mortgage
Pool") of [conventional], fixed-rate, fully-amortizing mortgage
loans (the "Mortgage Loans") acquired by the Company from
Deutsche Bank A. G. [and certain of its affiliates]
(collectively, "Deutsche Bank"). See "Deutsche Bank" in the
Prospectus. The Mortgage Loans [were originated by [ ]
(the "Originator") and] are secured by mortgages, deeds of trust
or other security instruments (each, a "Mortgage") creating
[first] liens on one- to four-family residential properties (the
"Mortgaged Properties").
[Description of the Originator.]
[Description of the Originator's underwriting standards and
procedures applicable to the Mortgage Loans] [The Mortgage Loans
generally were originated in accordance with standards that
conformed to the underwriting criteria applied by recognized
mortgage pool insurance companies at the times of origination of
the Mortgage Loans.]
In the event that there has been a decline in value of the
mortgaged properties with respect to mortgage loans originated on
the basis of original appraisals, the use of such original
appraisals in calculating the loan-to-value ratios of such
mortgage loans may result in substantially lower loan-to-value
ratios than would be the case if appraisals were obtained at the
time of refinancing and used to calculate such loan-to-value
ratios. This may be particularly true in geographic areas where
there has been a substantial decline in property values since the
date of origination of the mortgage loans being refinanced.
Each Mortgage Loan is required to be covered by a standard
hazard insurance policy. See "Servicing of the Mortgage Loans
and Contracts-Hazard Insurance" in the Prospectus.
[Description of any particular types of mortgage loans
included in the Mortgage Pool, such as home equity loans or
"relocation loans."]
The Mortgage Loans
Certain data with respect to the Mortgage Loans is set forth
below. A detailed description of the Mortgage Pool on a Current
Report on Form 8-K (the "Detailed Description") will be available
to purchasers of the Offered Certificates at or before, and will
be filed with the Securities and Exchange Commission within
fifteen days after, the initial delivery of the Offered
Certificates. The Detailed Description will specify the precise
aggregate Scheduled Principal Balance (as defined herein) of the
Mortgage Loans as of the Cut-off Date and also will include the
following information regarding the Mortgage Loans: the years of
origination, the mortgage interest rates borne by the Mortgage
Loans (the "Mortgage Rates"), the original loan-to-value ratios,
the types of properties securing the Mortgage Loans and the
geographical distribution of the Mortgage Loans by state. The
Detailed Description also will specify the original
Class Certificate Principal Balance [(or, in the case of the
[Class IO] Certificates, the Notional Principal Balance)] of each
Class of Certificates on the date of issuance of the
Certificates[, and information regarding exact amount of any
forms of credit enhancement]. The Agreement (as defined herein)
and its exhibits will be filed as an exhibit to the Detailed
Description.
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 to such Mortgage Loan (before any adjustment to
such schedule by reason of bankruptcy or similar proceeding or
any moratorium or similar waiver or grace period) as of the
[first] day of the month preceding the month of such Distribution
Date, after giving effect to any previously applied partial
principal prepayments, the payment of principal due on such
[first] day of the month and any previous Deficient Valuation (as
defined herein), irrespective of any delinquency in payment by
the related borrower (the "Borrower"). The "Pool Scheduled
Principal Balance" as of any Distribution Date is the aggregate
Scheduled Principal Balance of all of the Mortgage Loans in the
Mortgage Pool that were Outstanding Mortgage Loans on the [first]
day of the month preceding the month of such Distribution Date
(or such other date as is specified). An "Outstanding Mortgage
Loan" is any Mortgage Loan which has not been prepaid in full,
has not become a Liquidated Loan (as defined herein) and has not
been repurchased or replaced.
The Mortgage Loans will have an aggregate Scheduled
Principal Balance as of the Cut-off Date, after deducting
payments of principal due on or before such date, of
approximately $ . This amount is subject to a permitted
upward or downward variance of up to %.
The Mortgage Rates borne by the Mortgage Loans are expected
to range from % to % per annum, and the weighted
average Mortgage Rate as of the Cut-off Date of such Mortgage
Loans is expected to be between % and % per annum. The
original Principal Balances of the Mortgage Loans are expected to
range from $ to $ and, as of the Cut-off Date, the
average Scheduled Principal Balance of the Mortgage Loans is not
expected to exceed $ , after application of payments due
on or before the Cut-off Date. It is expected that the month and
year of the earliest origination date of any Mortgage Loan will
be , and the month and year of the latest scheduled
maturity date of any Mortgage Loan will be . All of
the Mortgage Loans will have original terms to maturity of to
years, and it is expected that the weighted average scheduled
remaining term to maturity of the Mortgage Loans will be between
and months as of the Cut-off Date.
The Mortgage Loans are expected to have the following
additional characteristics (by Pool Scheduled Principal Balance)
as of the Cut-off Date:
No more than % of such Mortgage Loans will be Mortgage
Loans each having a Scheduled Principal Balance of more than $
.
No more than % of such Mortgage Loans will have a
[combined] loan-to-value ratio at origination in excess of %,
no more than % of such Mortgage Loans will have a [combined]
loan-to-value ratio at origination in excess of %, and none of
such Mortgage Loans will have a [combined] loan-to-value ratio at
origination in excess of %. As of the Cut-off Date, the
weighted average [combined] loan-to-value ratio at origination of
such Mortgage Loans is expected to be between % and %.
No more than % of such Mortgage Loans had a [combined]
loan-to-value ratio at origination calculated based on an
appraisal conducted more than one year before the origination
date thereof.
[The proceeds of at least % of such Mortgage Loans will
have been used to acquire the related Mortgaged Property. The
proceeds of the remainder of such Mortgage Loans will have been
used to refinance existing loans. No more than % of such
Mortgage Loans will have been the subject of "cash-out"
refinancings.]
[No more than % of such Mortgage Loans will be temporary
buy-down Mortgage Loans. The portion of the interest rate paid
by the related Borrower will not increase by more than one
percentage point for each six month period. No Mortgage Rate may
exceed the "bought down" rate by more than percentage points,
and no buy-down period will exceed years.]
[No more than % of such Mortgage Loans will constitute
relocation loans.]
[No more than __% of such Mortgage Loans will constitute
home equity loans.]
No more than % of such Mortgage Loans will be secured by
Mortgaged Properties located in any one postal zip code area.
Between % and % of such Mortgage Loans will be secured by
Mortgaged Properties located in . The majority of
the Mortgage Loans will be secured by Mortgaged Properties
located in , , and
. No more than % of such Mortgage Loans will be secured by
Mortgaged Properties located in any one state except
.
At least % of such Mortgage Loans will be secured by
Mortgaged Properties determined by the Originator to be the
primary residence of the Borrower. The basis for such
determination will be the making of a representation by the
Borrower at origination that the underlying property will be used
as the Borrower's primary residence.
At least % of such Mortgage Loans will be secured by
single family, detached residences.
[No more than % of such Mortgage Loans will be secured by
condominiums.]
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Agreement") to be dated as of the
Cut-off Date, between the Company, as seller, the Servicer, and
the Trustee. Reference is made to the Prospectus for important
additional information regarding the terms and conditions of the
Agreement and the Certificates. The Certificates will be issued
in the aggregate original Certificate Principal Balance of
approximately $ , subject to a permitted upward or
downward variance in the aggregate of up to % [and, as to any
particular Class, of up to %]. Any such variance will be
allocated so that the approximate characteristics of the Classes
of the Offered Certificates as of the Cut-off Date will not vary
materially from those described herein.
[As described below, [each Class of] the Offered
Certificates will be issued in book-entry form, and beneficial
interests therein will be held by investors through the
book-entry facilities of the Depository (as defined below), in
minimum denominations of $[25,000] and in integral multiples of
[$1,000] in excess thereof.] [The Class R Certificate (the
"Residual Certificate") will be issued in certificated form as a
single Certificate representing the entire Class Certificate
Principal Balance thereof.] Notwithstanding the minimum
denominations of the Certificates described herein, one
Certificate of each Class [other than the Residual Certificate]
may be issued in a lower amount. [In addition, one Certificate
of each Class issued in book-entry form may be issued in
certificated form to the extent that the aggregate Certificate
Principal Balance of such Class does not equal a denomination
accepted by the Depository.]
[Book-Entry Certificates
Each Class of the Offered Certificates (collectively, the
"Book-Entry Certificates") will be registered as a single
certificate held by a nominee of The Depository Trust Company
(together with any successor depository selected by the Company,
the "Depository"). Beneficial interests in the Book-Entry
Certificates will be held by investors through the book-entry
facilities of the Depository, as described herein. The Company
has been informed by the Depository that its nominee will be Cede
& Co. ("Cede"). Accordingly, Cede is expected to be the Holder of
record of the Book-Entry Certificates. Except as described
below, no person acquiring a Book-Entry Certificate (each, a
"beneficial owner") will be entitled to receive a physical
certificate representing such Certificate (a "Definitive
Certificate").
The beneficial owner's ownership of a Book-Entry Certificate
will be recorded on the records of the brokerage firm, bank,
thrift institution or other financial intermediary (each, a
"Financial Intermediary") that maintains the beneficial owner's
account for such purpose. In turn, the Financial Intermediary's
ownership of such Book-Entry Certificate will be recorded on the
records of the Depository (or of a participating firm that acts
as agent for the Financial Intermediary, whose interest will in
turn be recorded on the records of the Depository, if the
beneficial owner's Financial Intermediary is not a Depository
participant). Therefore, the beneficial owner must rely on the
foregoing procedures to evidence its beneficial ownership of a
Book-Entry Certificate. Beneficial ownership of a Book-Entry
Certificate may only be transferred by compliance with the
procedures of such Financial Intermediaries and Depository
participants. Arrangements may be made for clearance and
settlement through the Euroclear System and CEDEL, S.A., if they
are participants of the Depository.
The Depository, which is a New York-chartered limited
purpose trust company, performs services for its participants,
some of which (and/or their representatives) own the Depository.
In accordance with its normal procedures, the Depository is
expected to record the positions held by each Depository
participant in the Book-Entry Certificates, whether held for its
own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject
to the rules, regulations and procedures governing the Depository
and Depository participants as in effect from time to time.
Distributions of principal of and interest on the Book-Entry
Certificates entitled thereto will be made on each Distribution
Date by the Trustee to the Depository. The Depository will be
responsible for crediting the amount of such payments to the
accounts of the applicable Depository participants in accordance
with the Depository's normal procedures. Each Depository
participant will be responsible for disbursing such payments to
the beneficial owners of the Book-Entry Certificates that it
represents and to each Financial Intermediary for which it acts
as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the beneficial owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, beneficial owners of the
Book-Entry Certificates may experience some delay in their
receipt of payments, since such payments will be forwarded by the
Trustee to the Depository. Because the Depository can only act
on behalf of Financial Intermediaries, the ability of a
beneficial owner to pledge Book-Entry Certificates to persons or
entities that do not participate in the Depository system, or
otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical
certificates for such Book-Entry Certificates. In addition,
issuance of the Book-Entry Certificates in book-entry form may
reduce the liquidity of such Certificates in the secondary market
since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
The Depository has advised the Company and the Trustee that,
unless and until Definitive Certificates are issued, the
Depository will take any action permitted to be taken by a
Certificateholder under the Agreement only at the direction of
one or more Financial Intermediaries to whose Depository accounts
the Book-Entry Certificates are credited. The Depository may
take conflicting actions with respect to other Book-Entry
Certificates to the extent that such actions are taken on behalf
of Financial Intermediaries whose holdings include such
Book-Entry Certificates.
Definitive Certificates will be issued to beneficial owners
of the related Book-Entry Certificates, or their nominees, rather
than to the Depository, only if (a) the Depository or the Company
advises the Trustee in writing that the Depository is no longer
willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the
Certificates and the Company or the Trustee is unable to locate a
qualified successor; (b) the Company, at its sole option, elects
to terminate the book-entry system through the Depository; or
(c) after the occurrence of an Event of Default (as described in
the accompanying Prospectus) beneficial owners of the Book-Entry
Certificates aggregating not less than 51% of the aggregate
voting rights allocated thereto advise the Trustee and the
Depository through the Financial Intermediaries in writing that
the continuation of a book-entry system through the Depository
(or a successor thereto) is no longer in the best interests of
beneficial owners of the Certificates.
Upon the occurrence of any of the events described in the
immediately preceding paragraph, the Trustee will be required to
notify all beneficial owners of the occurrence of such event and
the availability through the Depository of Definitive
Certificates. Upon surrender by the Depository of the global
certificate or certificates representing the Certificates and
instructions for re-registration, the Trustee will issue the
Definitive Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement. Following the issuance of
Definitive Certificates, distribution of principal and interest
on the Certificates will be made by the Trustee directly to
holders of Definitive Certificates in accordance with the
procedures set forth in the Agreement.]
[The Non-Book-Entry Certificate[s]
The Residual Certificate[s] will be issued in
fully-registered, certificated form. The Residual Certificate[s]
will be transferable and exchangeable on a Certificate Register
to be maintained at the corporate trust office in the city in
which the Trustee is located or such other office or agency
maintained for such purposes by the Trustee in New York City.
Under the Agreement, the Trustee initially will be appointed as
the certificate registrar (the "Certificate Registrar"). No
service charge will be made for any registration of transfer or
exchange of the Residual Certificate[s], but payment of a sum
sufficient to cover any tax or other governmental charge may be
required by the Trustee. See "--Restrictions on Transfer of the
Residual Certificate[s]."
Distributions of principal and interest, if any, on each
Distribution Date on the Residual Certificate[s] will be made to
the person[s] in whose name[s] the Residual Certificate[s] [is]
[are] registered at the close of business on the last business
day of the month immediately preceding the month of such
Distribution Date. Distributions will be made by check or money
order mailed to the person entitled thereto at the address
appearing in the Certificate Register or, upon written request by
the Certificateholder to the Trustee, by wire transfer to a
United States depository institution designated by such
Certificateholder and acceptable to the Trustee or by such other
means of payment as such Certificateholder and the Trustee may
agree; provided, however, that the final distribution in
retirement of the Residual Certificate[s] will be made only upon
presentation and surrender of the Residual Certificate[s] at the
office or agency of the Trustee specified in the notice to the
Certificateholder[s] thereof of such final distribution.]
Available Funds
The amount of funds ("Available Funds") in respect of the
Mortgage Pool that will be available for distribution to Holders
of the Certificates on each Distribution Date is described in the
Prospectus under "Servicing of the Mortgage Loans and Contracts-
Loan Payment Record."
Distributions on the Certificates
Interest. Interest will accrue on the Offered Certificates
[other than the Class PO Certificates] at the respective fixed
Certificate Interest Rates set forth on the cover hereof during
each one-month period ending on the last day of the month
preceding the month in which each Distribution Date occurs (each,
a "[Fixed] Interest Accrual Period"). [Interest will accrue on
the Class __ and [Class IQ] Certificates at the applicable
floating Certificate Interest Rates described below during the
one-month period commencing on the [25th] day of the month
preceding the month in which such Distribution Date occurs and
ending on the [24th] day of the following month (each, a
"Floating Interest Accrual Period").] Interest will be calculated
on the basis of a 360-day year consisting of twelve 30-day
months.
[Description of calculation of Certificate Interest Rate on
any floating rate Certificates.]
The "Accrued Certificate Interest" for any Certificate for
any Distribution Date will equal the interest accrued during the
related [Fixed] Interest Accrual Period [or Floating Interest
Accrual Period (each, an "Interest Accrual Period")] at the
applicable Certificate Interest Rate on the Certificate Principal
Balance (or, in the case of a [Class IO] Certificate, the
Notional Principal Balance) of such Certificate immediately prior
to such Distribution Date, less such Certificate's share of any
allocable Interest Shortfalls (as defined below) [and the
interest portion of any Realized Losses] with respect to such
Distribution Date.
The "Certificate Principal Balance" of any Certificate
[(other than the Class IO Certificates)] as of any Distribution
Date will equal such Certificate's Certificate Principal Balance
on the Closing Date as reduced by (a) all amounts distributed on
previous Distribution Dates on such Certificate on account of
principal and (b) the principal portion of all Realized Losses
previously allocated to such Certificate.
An "Interest Shortfall" may result from (i) certain
prepayments or other unscheduled recoveries of principal of
Mortgage Loans or (ii) a reduction in the interest rate on a
Mortgage Loan due to the application of the Soldiers' and
Sailors' Civil Relief Act of 1940 whereby, in general, members of
the Armed Forces who entered into mortgages prior to the
commencement of military service may have the interest rates on
those mortgage loans reduced for the duration of their active
military service. See "Certain Legal Aspects of the Mortgage
Loans and Contracts-The Mortgage Loans-Soldiers' and Sailors'
Civil Relief Act" in the Prospectus. As to any Distribution Date
and any Mortgage Loan with respect to which a prepayment or other
unscheduled recovery of principal in full has occurred during the
preceding month, the resulting "Interest Shortfall" generally
will equal the excess of (a) one month's interest at the Mortgage
Rate net of the applicable Servicing Fee (as defined herein) (the
"Remittance Rate") on the Scheduled Principal Balance of such
Mortgage Loan, over (b) the amount of interest at the Remittance
Rate actually received with respect to such Mortgage Loan. In
the case of a partial prepayment, the resulting Interest
Shortfall will equal one month's interest at the applicable
Remittance Rate on the amount of such prepayment.
Interest Shortfalls [and the interest portion of any
Realized Losses (see "--Allocation of Realized Losses")] in
respect of the Mortgage Loans will, on each Distribution Date, be
allocated among all the Certificates in proportion to the amount
of Accrued Certificate Interest that, in the absence of such
shortfalls and losses, would have been allocated thereto.
[If the Available Funds are insufficient on any Distribution
Date to distribute the aggregate Accrued Certificate Interest on
the Certificates to such Certificateholders, any shortfall in
available amounts will be allocated among the Classes of
Certificates in proportion to the amounts of Accrued Certificate
Interest otherwise distributable thereon. The amount of any such
undistributed Accrued Certificate Interest will be added to the
amount to be distributed in respect of interest on the
Certificates on subsequent Distribution Dates. No interest will
accrue on any Accrued Certificate Interest remaining
undistributed from previous Distribution Dates.]
Principal. Distributions in reduction of the Class
Certificate Principal Balance of each Certificate will be made
monthly on each Distribution Date in the manner described below,
in an aggregate amount equal to the Available Funds remaining in
the Certificate Account after the payment of interest on the
Certificates on such Distribution Date (the "Principal
Distribution Amount").
[Description of the manner of allocation of principal among
the Classes of Offered Certificates.]
[Allocation of Realized Losses. A "Realized Loss" with
respect to a Mortgage Loan is (i) a Bankruptcy Loss (as defined
below) or (ii) as to any Liquidated Loan, the unpaid principal
balance thereof plus accrued and unpaid interest thereon at the
Remittance Rate through the last day of the month of liquidation
less the net proceeds from the liquidation of, and any insurance
proceeds from, such Mortgage Loan and the related Mortgaged
Property. A "Liquidated Loan" is any defaulted Mortgage Loan as
to which the Servicer has determined that all amounts which it
expects to recover from or on account of such Mortgage Loan have
been recovered.
In the event of a personal bankruptcy of a Borrower, the
bankruptcy court may establish the value of the Mortgaged
Property at an amount less than the then outstanding principal
balance of the Mortgage Loan secured by such Mortgaged Property
and could reduce the secured debt to such value. In such case,
the holder of such Mortgage Loan would become an unsecured
creditor to the extent of the difference between the outstanding
principal balance of such Mortgage Loan and such reduced secured
debt (a "Deficient Valuation"). In addition, certain other
modifications of the terms of a Mortgage Loan can result from a
bankruptcy proceeding, including the reduction of the amount of
the monthly payment on the related Mortgage Loan (a "Debt Service
Reduction"). A "Bankruptcy Loss" with respect to any Mortgage
Loan is a Deficient Valuation or Debt Service Reduction.
[Description of allocation of losses among the Classes of
Offered Certificates.]
All allocations of Realized Losses with respect to the
Mortgage Loans will be accomplished on a Distribution Date by
reducing the applicable Class Certificate Principal Balance by
the appropriate pro rata share of any such losses occurring
during the month preceding the month of such Distribution Date
and, accordingly, will be taken into account in determining the
distributions of principal on the Certificates commencing on the
following Distribution Date. The interest portion of all
Realized Losses in respect of the Mortgage Loans will be
allocated among the outstanding Classes of Offered Certificates
to the extent described under "--Interest" above.
Credit Enhancement. [Description of any subordination of
Classes or other applicable credit enhancement] See "The Pooling
and Servicing Agreement--Credit Enhancement."
[Additional Rights of the Residual Certificateholder[s]
The Residual Certificate[s] will remain outstanding for so
long as the Trust Fund exists, whether or not [it is] [they are]
receiving current distributions of principal or interest. In
addition to distributions of principal and interest distributable
as described under "--Distributions on the Certificates," the
Holder[s] of the Class R Certificate[s] will be entitled to
receive (i) the amounts, if any, of Available Funds remaining in
the Certificate Account on any Distribution Date after
distributions of principal and interest on the Certificates on
such date and (ii) the proceeds of the assets of the Trust Fund,
if any, remaining in the REMIC on the final Distribution Date for
the Certificates, after distributions in respect of any accrued
and unpaid interest on such Certificates, and after distributions
in respect of principal have reduced the Class Certificate
Principal Balances of the Certificates to zero. It is not
anticipated that there will be any material assets remaining in
the Trust Fund at any such time. See "Federal Income Tax
Consequences-Residual Certificate[s]."]
Example of Distributions
The following chart sets forth an example of hypothetical
distributions on the Certificates assuming such Certificates are
issued during April 199 .
April 1 Cut-off Date. The initial
principal balance of the Mortgage
Pool will be the aggregate of the
Principal Balances of the related
Mortgage Loans on April 1, 199 ,
after deducting principal payments
due on or before such date. Those
principal payments due on April 1
and the accompanying interest
payments, which represent interest
on March 1 Principal Balances, are
not part of the Trust Fund and will
be retained by the Company when
received.
April 1-30 The Servicer receives any Principal
Prepayments in full and interest
thereon to the date of prepayment.
Any partial prepayments will be
applied to principal as of the
first day of the month of receipt
and will be passed through to the
related Certificateholders on May
25, 199 . Accordingly, interest
does not accrue on the amount of
any partial prepayment during the
month in which such partial
prepayment is received. Full
prepayments and partial prepayments
may be received at any time during
April 1-30 and will be credited to
the applicable Loan Payment Record
and deposited into the Certificate
Account on May 24 for distribution
to the related Certificateholders
on May 25.
April 30 Record Date. Distributions on
May 25, 199 will be made to
Certificateholders of record at the
close of business on the last
business day of the month
immediately preceding the month of
distribution.
May 1-19 The Servicer receives interest on
April 1 Principal Balances plus
principal due May 1. Payments due
on May 1 from Borrowers will be
credited to the applicable Loan
Payment Record as received. Such
payments will include the scheduled
principal payments received, plus
one month's interest on the April 1
Principal Balances, less interest
to the extent described above on
the prepaid amount of any Mortgage
Loan prepaid during March.
Payments received from Borrowers
after May 15 will be subject to a
late charge in accordance with the
terms of the related mortgage
instruments (with such late charges
being retained by the Servicer as
additional servicing compensation).
May 20 Determination Date. On the fifth
business day preceding the
Distribution Date the Servicer
determines the aggregate amount of
distributions to be made on the
Certificates on the following
Distribution Date.
May 23 The Servicer gives notice of
distribution amounts to the Trustee
on the second business day
preceding the Distribution Date.
May 24 Servicer Remittance Date. On the
business day preceding the
Distribution Date the Servicer
deposits amounts to be distributed
to Certificateholders in the
Certificate Account.
May 25 Distribution Date. On May 25, the
Trustee will distribute to
Certificateholders the aggregate
amounts set forth in the
appropriate notice it received from
the Servicer on May 23. If a
payment due May 1 is received from
a Borrower on or after the
Determination Date and the Servicer
has advanced funds in the amount of
such payment to the related
Certificateholders, such late
payment will be paid to the
Servicer. If no such advance has
been made, such late payment will
be passed through to such
Certificateholders at the time of
the next distribution.
Succeeding months follow the above, except for the Cut-off
Date.
[Restrictions on Transfer of the Residual Certificate[s]
The Residual Certificate[s] will be subject to the
restrictions on transfer described in the Prospectus under
"Federal Income Tax Consequences-REMIC Certificates-Transfers of
Residual Certificates-Disqualified Organizations," "-Foreign
Investors" and "-Noneconomic Residual Interests." In addition,
the Agreement provides that the Residual Certificate[s] may not
be acquired by a Plan. The Residual Certificate[s] will contain
a legend describing the foregoing restrictions.]
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
Yield
The effective yield on the Offered Certificates will
depend on, among other things, the price at which such
Certificates are purchased and the rate and timing of payments of
principal (including both scheduled and unscheduled payments) of
the Mortgage Loans underlying such Certificates.
The yields to investors will be sensitive in varying
degrees to the rate of prepayments on the Mortgage Loans. The
extent to which the yield to maturity of a Certificate is
sensitive to prepayments will depend upon the degree to which it
is purchased at a discount or premium. In the case of [the Class
IO Certificates and other] Certificates purchased at a premium,
faster than anticipated rates of principal payments on the
Mortgage Loans could result in actual yields to investors that
are lower than the anticipated yields. In the case of [the Class
PO Certificates and other] Certificates purchased at a discount,
slower than anticipated rates of principal payments on the
Mortgage Loans could result in actual yields to investors that
are lower than the anticipated yields.
Rapid rates of prepayments on the Mortgage Loans are
likely to coincide with periods of low prevailing interest rates.
During such periods, the yields at which an investor in the
Offered Certificates may be able to reinvest amounts received as
payments on the investor's Certificates may be lower than the
yield on such Certificates. Conversely, slow rates of
prepayments on the Mortgage Loans are likely to coincide with
periods of high rates. During such periods, the amount of
payments available to an investor for reinvestment at such high
rates may be relatively low.
The Mortgage Loans will not prepay at any constant rate,
nor will all of the Mortgage Loans prepay at the same rate at any
one time. The timing of changes in the rate of prepayments may
affect the actual yield to an investor, even if the average rate
of principal prepayments is consistent with the investor's
expectation. In general, the earlier a prepayment of principal
on the Mortgage Loans, the greater the effect on the yield to an
investor in the Certificates. As a result, the effect on the
yield of principal prepayments on the Mortgage Loans occurring at
a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of
the Certificates is not likely to be offset by a later equivalent
reduction (or increase) in the rate of principal prepayments.
[The Mortgage Loans will bear interest at fixed Mortgage
Rates, payable in arrears. Each monthly interest payment on a
Mortgage Loan is calculated as 1/12th of the applicable Mortgage
Rate times the outstanding principal balance of such Mortgage
Loan on the first day of the month.]
The effective yield to Holders of the Offered Certificates
[other than the Class PO Certificates] will be lower than the
yield otherwise produced by the applicable Certificate Interest
Rate and the applicable purchase prices thereof because, while
interest will accrue from the first day of each month, the
distribution of such interest will not be made until the 25th day
(or if such day is not a business day, the immediately following
business day) of the month following the month of accrual. In
addition, the effective yield on the Certificates will be
affected by any Interest Shortfalls. See "Description of the
Certificates--Distributions on the Certificates."
Prepayments
The rate of payment of principal of the Offered
Certificates [other than the Class IO Certificates] will be
affected primarily by the amount and timing of principal payments
received on or in respect of the Mortgage Loans. Such principal
payments will include scheduled payments as well as voluntary
prepayments by borrowers (such as, for example, prepayments in
full due to refinancings or prepayments in connection with
biweekly payment programs) and prepayments resulting from
foreclosure, condemnation and other dispositions of the Mortgaged
Properties, from repurchase by [the Company] of any Mortgage Loan
as to which there has been a material breach of warranty or
defect in documentation (or deposit of certain amounts in respect
of delivery of a substitute Mortgage Loan therefor), [from a
repurchase by [the Servicer] of certain Mortgage Loans modified
at the request of the Borrower, from an exercise by [the
Servicer] of its option to repurchase a Defaulted Mortgage Loan]
and from the repurchase by [the Company] or [the Servicer] of the
Mortgage Loans in the Trust Fund as described under "The Pooling
and Servicing Agreement--Termination" herein]. Borrowers are
permitted to prepay the Mortgage Loans, in whole or in part, at
any time without penalty.
A number of social, economic, tax, geographic,
demographic, legal and other factors may influence prepayments of
the Mortgage Loans. These factors may include the age of such
Mortgage Loans, the geographic distribution of the Mortgaged
Properties, the payment terms of such Mortgage Loans, the
characteristics of the borrowers, homeowner mobility, economic
conditions generally and in the geographic area in which the
Mortgaged Properties are located, enforceability of due-on-sale
clauses, prevailing interest rates in relation to the interest
rates on such Mortgage Loans, the availability of mortgage funds,
the use of second or "home equity" mortgage loans by mortgagors,
the use of the properties as second or vacation homes, the extent
of the mortgagors' net equity in the Mortgaged Properties,
tax-related considerations and, where investment properties are
securing such Mortgage Loans, the availability of other
investments. The rate of principal payment also may be subject
to seasonal variations.
The rate of principal prepayments on pools of conventional
mortgage loans has fluctuated significantly in recent years.
Generally, if prevailing interest rates were to fall
significantly below the interest rates on the Mortgage Loans, the
Mortgage Loans would be expected to prepay at higher rates than
if prevailing rates were to remain at or above the interest rates
on the Mortgage Loans. Conversely, if interest rates were to
rise significantly above the interest rates on the Mortgage
Loans, the Mortgage Loans would be expected to prepay at lower
rates than if prevailing rates were to remain at or below the
interest rates on the Mortgage Loans.
Full or partial prepayments of principal on the Mortgage
Loans are passed through to the Certificateholders in the month
following the month of receipt. Any prepayment of a Mortgage
Loan or liquidation of a Mortgage Loan (by foreclosure
proceedings or by virtue of the purchase of a Mortgage Loan in
advance of its stated maturity as required or permitted by the
Agreement) will have the effect of passing through to the related
Certificateholders principal amounts [(or, in the case of the
[Class IO] Certificates, reducing the Notional Principal Balance
thereof)] which would otherwise be passed through [(or reduced)]
in amortized increments over the remaining term of such Mortgage
Loan.
When a claim is paid under certain insurance policies,
accrued interest is paid only to the date of payment of the
claim, without regard to timing of distribution thereof to
Certificateholders. When a full prepayment is made on a Mortgage
Loan during a month, the Borrower is charged interest on the days
in the month actually elapsed up to the date of such prepayment,
at a daily interest rate (determined by dividing the Mortgage
Rate by 360) which is applied to the principal amount of the loan
so prepaid. In either case, and in other cases where an
unscheduled recovery of principal is received in respect of any
Mortgage Loan, the amount of interest to be distributed to
Certificateholders in respect of the Mortgage Pool will be less
than the amount which would have been distributed in the absence
of such occurrences. Such shortfalls will be borne by
Certificateholders to the extent described herein. [[The
Servicer's] purchase of certain modified Mortgage Loans from the
Trust Fund may similarly reduce the amount of interest to be
distributed to the Certificateholders.]
Any partial prepayment will be applied to the balance of
the related Mortgage Loan as of the first day of the month of
receipt, will be passed through to the Certificateholders in the
following month and will reduce the aggregate amount of interest
distributed to the Certificateholders in such month in an amount
equal to 30 days of interest at the related Certificate Interest
Rate on the amount of such prepayment.
[Discussion of yield considerations relating to any home
equity loans.]
[Description of yield sensitivity of any floating rate or
inverse floating rate Classes of Offered Certificates.]
[The yield on certain Classes of the Certificates also may
be affected by any repurchase by [the Company] or [the Servicer]
of the Mortgage Loans as described under "The Pooling and
Servicing Agreement-Termination."]
Final Payment Considerations [and Scheduled Final Distribution
Dates of the Certificates]
The rate of payment of principal of the Offered
Certificates will depend on the rate of payment of principal of
the Mortgage Loans (including prepayments, defaults,
delinquencies and liquidations) which, in turn, will depend on
the characteristics of such Mortgage Loans, the level of
prevailing interest rates and other economic, geographic, social
and other factors, and no assurance can be given as to the actual
payment experience. The hypothetical scenario discussed below
includes assumptions about the characteristics of the Mortgage
Loans which will differ from the actual characteristics thereof.
[The Scheduled Final Distribution Date for each Class of
the Offered Certificates is the date which is months
after the date on which the Class Certificate Principal Balance
thereof would be reduced to zero on the basis of the assumptions
in clauses (i), (iii) through (vi), (viii) and (ix) of the
Modeling Assumptions (as defined below), and the additional
assumptions that (i) each Mortgage Loan has an original and
remaining term to maturity of 360 months, (ii) each such Mortgage
Loan has a Mortgage Rate of % and Remittance Rate of %, and
(iii) no prepayments of the Mortgage Loans occur.
Notwithstanding the foregoing, the Scheduled Final Distribution
Date for the Class R Certificate[s] is the latest Scheduled Final
Distribution Date of the other Classes of Certificates. Because
certain Mortgage Loans will have remaining terms to stated
maturity that are shorter and Mortgage Rates that are lower than
those assumed in calculating the Scheduled Final Distribution
Dates of the Offered Certificates, the Class Certificate
Principal Balances thereof may be reduced to zero prior to their
Scheduled Final Distribution Dates. In addition, to the extent
delinquencies and defaults are not offset by any advances made by
the Servicer and the forms of credit enhancement described
herein, delinquencies and defaults could result in distributions
after the respective Scheduled Final Distribution Dates of the
Offered Certificates. As a result, the Class Certificate
Principal Balance of each Class of the Offered Certificates may
be reduced to zero significantly earlier or later than its
respective Scheduled Final Distribution Date.]
Weighted Average Lives of the Certificates
The weighted average life of a Certificate is determined
by (a) multiplying the reduction, if any, in the Certificate
Principal Balance thereof on each Distribution Date by the number
of years from the date of issuance to such Distribution Date, (b)
summing the results and (c) dividing the sum by the initial
Certificate Principal Balance [or, in the case of the [Class IO]
Certificates, the Notional Principal Balance] of such
Certificate.
The weighted average lives of the Offered Certificates
will be affected, to varying degrees, by the rate of principal
payments on the Mortgage Loans, the timing of changes in such
rate of payments and the priority sequence of distributions of
principal of such Certificates. The interaction of the foregoing
factors may have different effects on the various Classes of the
Certificates and the effects on any Class may vary at different
times during the life of such Class. Further, to the extent the
price of a Class of Certificates represents a discount or premium
to its original Class Certificate Principal Balance, variability
in the weighted average life of such Class of Certificates could
result in variability in the related yield to maturity.
Prepayments on mortgage loans are commonly measured
relative to a prepayment standard or model. The model used in
this Prospectus Supplement (the "Prepayment Assumption")
represents an assumed rate of prepayment each month relative to
the then-outstanding principal balance of a pool of mortgage
loans. The Prepayment Assumption does not purport to be either a
historical description of the prepayment experience of any pool
of mortgage loans or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage
Loans in the Mortgage Pool. [A prepayment assumption of 100% of
the Prepayment Assumption assumes prepayment rates of 0.2% per
annum of the then outstanding principal balance of such mortgage
loans in the first month of the life of the mortgage loans and
increasing by 0.2% per annum in each month thereafter until the
thirtieth month. Beginning in the thirtieth month and in each
month thereafter during the life of the mortgage loans, 100% of
the Prepayment Assumption assumes a constant prepayment rate of
6.0% per annum.]
[Discussion of yield considerations relating to any
planned amortization class or other scheduled balance Classes.]
Table of Certificate Principal Balances. The following
table sets forth the percentages of the initial Class Certificate
Principal Balance of each Class of Offered Certificates that
would be outstanding after each of the dates shown at the
specified constant percentages of the Prepayment Assumption and
the corresponding weighted average life of each such Class of
Certificates. For purposes of calculations under the columns at
the indicated percentages of the Prepayment Assumption [(other
than 0% of the Prepayment Assumption)] set forth in the table,
the following assumptions (the "Modeling Assumptions") are made
with respect to the Mortgage Loans: [(i) the distributions in
respect of the Certificates are made and received in cash on the
25th day of each month commencing in 199 , (ii) the
Mortgage Loans prepay at the specified constant percentages of
the Prepayment Assumption, (iii) the aggregate outstanding
principal balance of the Mortgage Loans as of the Cut-off Date is
$ , (iv) no defaults or delinquencies in the payment by
Borrowers of principal of and interest on the Mortgage Loans are
experienced and [the Company] or [the Servicer] does not
repurchase any the Mortgage Loans as permitted or required by the
Agreement, (v) [the Company] or [the Servicer] does not exercise
its option to repurchase all the Mortgage Loans in the Trust Fund
as described under the caption "The Pooling and Servicing
Agreement-Termination," (vi) scheduled monthly payments on the
Mortgage Loans are received on the first day of each month
commencing in 199 , and are computed prior to giving
effect to prepayments received in the prior month,
(vii) prepayments representing payment in full of individual
Mortgage Loans are received on the last day of each month
(commencing , 199 ) and include 30 days' interest
thereon, (viii) the scheduled monthly payment for each Mortgage
Loan has been calculated based on its outstanding balance,
interest rate and remaining term to maturity such that such
Mortgage Loan will amortize in amounts sufficient to repay the
remaining balance of such Mortgage Loan by its remaining term to
maturity and (ix) the initial Class Certificate Principal Balance
and Certificate Interest Rate for each Class of Offered
Certificates are as indicated on the cover page hereof].
[The information under the columns set forth in the table at
0% of the Prepayment Assumption was calculated on the basis of
the assumptions set forth in clauses (i), (iii) through (vi),
(viii) and (ix) of the preceding sentence and the additional
assumptions that (a) each Mortgage Loan has an original and
remaining term to maturity of months, (b) each such Mortgage
Loan bears interest at a rate of % per annum, and (c) no
prepayments are experienced on the Mortgage Loans.]
It is not likely that the Mortgage Loans will prepay at a
constant level of the Prepayment Assumption. In addition,
because certain of the Mortgage Loans will have remaining terms
to maturity and will bear interest at rates that are different
from those assumed, the actual Class Certificate Principal
Balance of each Class of Offered Certificates outstanding at any
time and the actual weighted average life of each Class of such
Certificates may differ from the corresponding information in the
table for each indicated percentage of the Prepayment Assumption.
Furthermore, even if all the Mortgage Loans prepaid at the
indicated percentages of the Prepayment Assumption and the
weighted average mortgage interest rate and weighted average
remaining term to maturity of the Mortgage Loans were equal to
the weighted average mortgage interest rate and weighted average
remaining term to maturity assumed, due to the actual
distribution of remaining terms to maturity and interest rates
among the Mortgage Loans, the actual Class Certificate Principal
Balance of each Class of Offered Certificates outstanding at any
time and the actual weighted average life of each Class of such
Certificates would differ (which difference could be material)
from the corresponding information set forth in the following
table.
Percent of Original Class Certificate Principal Balance
of the Offered Certificates Outstanding
Class
Prepayment Assumption
Distribution Date 0% % % % %
Initial Percentage 100 100 100 100 100
[Annual Distribution Dates]
Weighted Average Life
(in years)(1)
Class
Prepayment Assumption
Distribution Date 0% % % % %
Initial Percentage 100 100 100 100 100
[Annual Distribution Dates]
Weighted Average Life
(in years)(1)
Class
Prepayment Assumption
Distribution Date 0% % % % %
Initial Percentage 100 100 100 100 100
[Annual Distribution Dates]
Weighted Average Life
(in years)(1)
Class
Prepayment Assumption
Distribution Date 0% % % % %
Initial Percentage 100 100 100 100 100
[Annual Distribution Dates]
Weighted Average Life
(in years)(1)
(1) The weighted average life of a Certificate is determined by
(a) multiplying the reduction, if any, in the Certificate
Principal Balance [or in the case of the [Class IO
Certificates], the Notional Principal Balance] thereof on
each Distribution Date by the number of years from the date
of issuance to such Distribution Date, (b) summing the
results and (c) dividing the sum by the initial Certificate
Principal Balance of such Certificate.
[Discussion of prepayment factors affecting home equity loans, if
applicable.]
<PAGE>
THE SERVICER
[Description of the Servicer]
[DELINQUENCY AND FORECLOSURE EXPERIENCE
[Description of any available delinquency and foreclosure
experience with respect to the Servicer]
The delinquency and foreclosure experience set forth above
is historical and is based on mortgage loans that may not be
representative of the Mortgage Loans in the Mortgage Pool.
Consequently, there can be no assurance that the delinquency and
foreclosure experience on the Mortgage Loans in the Mortgage Pool
will be consistent with the data set forth above. The mortgage
loans serviced by the Servicer (collectively, the "Servicer's
Mortgage Portfolio"), for example, include mortgage loans having
a wide variety of payment characteristics (e.g., fixed-rate
mortgage loans, adjustable rate mortgage loans and graduated
payment mortgage loans) and mortgage loans secured by mortgaged
properties in geographic locations that may not be representative
of the geographic locations of the Mortgage Loans in the Mortgage
Pool. The Servicer's Mortgage Portfolio also includes mortgage
loans originated in accordance with [the Servicer's] then-
applicable underwriting policies as well as mortgage loans not
originated in accordance with such policies but which [the
Servicer] acquired.
The size of the Servicer's Mortgage Portfolio has increased
over the periods indicated and, consequently, the Servicer's
Mortgage Portfolio includes many mortgage loans which have not
been outstanding long enough to have seasoned to a point where
delinquencies would be fully reflected. In the absence of such
substantial continuous additions of servicing for recently
originated mortgage loans to the Servicer's Mortgage Portfolio,
it is possible that the delinquency and foreclosure percentages
experienced in the future could be significantly higher than
those indicated in the table above.]
THE POOLING AND SERVICING AGREEMENT
The Certificates will be issued pursuant to the Agreement.
The following summaries describe certain provisions of the
Agreement. See "The Pooling and Servicing Agreements" in the
Prospectus for summaries of certain other provisions of the
Agreement. The summaries below do not purport to be complete
descriptions and are subject to, and qualified in their entirety
by reference to, the provisions of the Agreement. Where
particular provisions or terms used in the Agreement are referred
to, such provisions or terms are as specified in the Agreement.
Assignment of Mortgage Loans
At the time of issuance of the Certificates, the Company
will assign the Mortgage Loans to the Trustee, together with all
principal and interest received on or with respect to such
Mortgage Loans on or after the Cut-off Date other than principal
and interest due and payable on or before the Cut-off Date. The
Trustee will, concurrently with such assignment, execute,
countersign and deliver the Certificates to the Company in
exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the
Agreement. Any substitute Mortgage Loan will be identified in an
amended schedule maintained by the Trustee. See "The Pooling and
Servicing Agreements-Repurchase or Substitution" in the
Prospectus.
[In addition, at the time of issuance of the Certificates,
the Company will deliver to the Trustee, as to each Mortgage
Loan, the related Mortgage Note and Mortgage, any related
assumption and modification agreement and an assignment of
Mortgage to the Trustee in recordable form (other than in respect
of unavailable recording information). The Company also will
deliver originals of the recorded Mortgages, any intervening
assignments of the Mortgages and title insurance policies with
respect to the Mortgage Loans as promptly as practicable, and in
any case promptly after receiving all such documents for the
Mortgage Pool from the applicable recording offices and title
insurance companies. Pending such delivery, the Company will
retain and furnish to the Trustee upon request copies of the
Mortgages and intervening assignments of Mortgage delivered for
recording and the evidence of title insurance issued at
origination of the Mortgage Loans. The Company will retain and
furnish to the Trustee upon request any applicable evidence of
primary mortgage insurance (any policy with respect to such
insurance being referred to herein as a "Primary Mortgage
Insurance Policy") so long as such insurance remains in force.]
[The Company may refrain from recording the assignments of
Mortgages to the Trustee unless the Company or the Trustee
obtains actual notice or knowledge that the long-term senior
unsecured rating of the [Servicer] [Company] is downgraded by
[or ] below
[their] two highest long-term rating categories or such rating is
withdrawn (such event is referred to herein as a "Trigger
Event"); provided, however, that such recording will not be
required if the Company delivers to the Trustee a letter from
each Rating Agency that originally rated any Class of the
Certificates to the effect that the failure to take such action
would not cause such Rating Agency to withdraw or reduce its then
current ratings of any such Class of Certificates. For purposes
of the foregoing, the Company will be deemed to have knowledge of
any such downgrading if, in the exercise of reasonable diligence,
the Company has or should have had knowledge thereof. If a
Trigger Event occurs, the Company also will furnish promptly to
the Trustee the documents retained by the Company as described in
the preceding paragraph.]
Although recordation of the assignments of Mortgage to the
Trustee is not necessary to make the assignment of the Mortgage
Loans to the Trustee effective, if the Company were to make a
sale, assignment, satisfaction or discharge of any Mortgage Loan
prior to recording or filing the assignments to the Trustee, the
other parties to such sale, assignment, satisfaction or discharge
might have rights superior to those of the Trustee. If the
Company were to do so without authority under the Agreement, it
would be liable to the Certificateholders. Moreover, if
insolvency proceedings relating to the Company were commenced
prior to such recording or filing, creditors of the
trustee-in-bankruptcy may be able to assert rights in the
affected Mortgage Loans superior to those of the Trustee.
Representations and Warranties
[The Originator has made the representations and warranties
described in the Prospectus to the Company regarding the Mortgage
Loans. On the Closing Date, the Company will assign its rights
under such representations and warranties to the Trustee for the
benefit of the Certificateholders.] [On the Closing Date, the
Company will make the representations and warranties described in
the Prospectus regarding the Mortgage Loans.] Upon the discovery
or notice of a breach of any of such representations or
warranties that adversely and materially affects the interests of
Certificateholders, then within 90 days of the [Company's]
[Originator's] discovery of such breach or its receipt of notice
of such breach, the [Company] [Originator] is required to either
(1) cure such breach in all material respects, (2) repurchase the
related Mortgage Loan which is the subject of such breach or (3)
during the two years following the Closing Date, and subject to
approval of the Rating Agencies [and to certain restrictions to
ensure that the tax status of the REMIC is not jeopardized],
replace such Mortgage Loan with another Mortgage Loan that, under
the Agreement, has substantially the same terms as such Mortgage
Loan being replaced.
[Collection and Other Servicing Procedures
[Description of any servicing arrangements that differ from
those described in the Prospectus.]]
Collection Account
[The Agreement provides that if the Servicer or the Trustee
obtains actual notice or knowledge of the occurrence of a Trigger
Event, the Servicer will, in lieu of each Loan Payment Record
described under the caption "Servicing of the Mortgage Loans and
Contracts-Loan Payment Record" in the Prospectus, establish and
maintain or cause to be established and maintained a separate
account (the "Collection Account") for the Certificates for the
collection of payments on the Mortgage Loans; provided, however,
that such action will not be required if the Servicer delivers to
the Trustee a letter from each Rating Agency that originally
rated the Certificates to the effect that the failure to take
such action would not cause such Rating Agency to withdraw or
reduce its then current rating of any Class of Certificates. If
established, such Collection Account would be (i) maintained with
a depository institution the debt obligations of which have been
rated by each Rating Agency at least "AA" (or the equivalent),
(ii) an account or accounts the deposits in which are fully
insured by either the Bank Insurance Fund (the "BIF") of the
Federal Deposit Insurance Corporation (the "FDIC") or the Savings
Association Insurance Fund (as successor to the Federal Savings
and Loan Insurance Corporation) of the FDIC (the "SAIF"),
(iii) an account or accounts with a depository institution, the
insured deposits in which are insured by the BIF or SAIF (to the
limits established by the FDIC), and the uninsured deposits in
which are invested either in United States government securities
or certain other high quality investments, or are otherwise
secured to the extent required by each Rating Agency such that,
as evidenced by an opinion of counsel, the Holders of the
Certificates have a claim with respect to the funds in the
account or a perfected first security interest against any
collateral securing such funds that is superior to claims of any
other depositors or creditors of the depository institution with
which the account is maintained, (iv) a trust account maintained
with the corporate trust department of a federal or state
chartered depository institution or trust company with trust
powers and acting in its fiduciary capacity for the benefit of
the Trustee or (v) such other account the investment in which, as
evidenced in writing by each Rating Agency, will not result in
the downgrading or withdrawal of the then-current rating assigned
to any Class of the Certificates. If a Collection Account is
established for the Certificates, all amounts credited or debited
to the related Loan Payment Record in the manner described under
the caption "Servicing of the Mortgage Loans and Contracts-Loan
Payment Record" will instead be deposited or withdrawn from the
related Collection Account. See "Servicing of the Mortgage Loans
and Contracts-Loan Payment Record" in the Prospectus.]
[Advances
In the event that any Borrower fails to make any payment of
principal or interest required under the terms of a Mortgage
Loan, the Servicer will advance the entire amount of such
payment, net of the applicable Servicing Fee, less the amount of
any such payment that the Servicer reasonably believes will not
be recoverable out of liquidation proceeds or otherwise. The
amount of any scheduled payment required to be advanced by the
Servicer will not be affected by any agreement between the
Servicer and a Borrower providing for the postponement or
modification of the due date or amount of such scheduled payment.
The Servicer will be entitled to reimbursement for any such
advance from related late payments on the Mortgage Loan as to
which such advance was made. Furthermore, in the event that any
Mortgage Loan as to which an advance has been made is foreclosed
while in the Trust Fund, the Servicer will be entitled to
reimbursement for such advance from related liquidation proceeds
or insurance proceeds prior to payment to Certificateholders of
the Scheduled Principal Balance of such Mortgage Loan plus
accrued interest at the Mortgage Rate, net of the Servicing Fee.
If the Servicer makes a good faith judgment that all or any
portion of any advance made by it with respect to any Mortgage
Loan may not ultimately be recoverable from related liquidation
proceeds (a "Nonrecoverable Advance"), the Servicer will so
notify the Trustee, and the Servicer will be entitled to
reimbursement for such Nonrecoverable Advance from recoveries on
all other unrelated Mortgage Loans included in the Mortgage Pool.
The Servicer's judgment that it has made a Nonrecoverable Advance
with respect to any Mortgage Loan will be based upon its
assessment of the value of the related Mortgaged Property and
such other facts and circumstances as it may deem appropriate in
evaluating the likelihood of receiving liquidation proceeds, net
of expenses, equal to or greater than the aggregate amount of
unreimbursed advances made with respect to such Mortgage Loan.]
[As a result of the subordination of the Subordinate
Certificates, the effect of reimbursements to the Servicer of
previous advances from liquidation or insurance proceeds and of
Nonrecoverable Advances will generally be borne by the Holders of
the Subordinate Certificates (to the extent then outstanding)
before they are borne by Holders of the Senior Certificates.]
[The Trustee will make advances of delinquent principal and
interest payments in the event of a failure by the Servicer to
perform its obligation to do so; provided that the Trustee will
not make such advance to the extent that it reasonably believes
the payment will not be recoverable to it out of related
liquidation proceeds or otherwise. The Trustee will be entitled
to reimbursement for such advances in a manner similar to the
Servicer's entitlement.]
[Purchases of Defaulted Mortgage Loans
Under the Agreement, [____________] will have the option
(but not the obligation) to purchase any Mortgage Loan as to
which the Borrower has failed to make unexcused payment in full
of three or more scheduled payments of principal and interest (a
"Defaulted Mortgage Loan"). Any such purchase will be for a
price equal to 100% of the outstanding Principal Balance of such
Mortgage Loan, plus accrued and unpaid interest thereon at the
Remittance Rate (less any amounts representing previously
unreimbursed advances). The purchase price for any Defaulted
Mortgage Loan will be deposited in the Certificate Account on the
business day prior to the Distribution Date on which the proceeds
of such purchase are to be distributed to the
Certificateholders.]
Servicing Compensation and Payment of Expenses
The Servicer's primary compensation for its servicing
activities will come from the payment to it, with respect to each
interest payment on any Mortgage Loan, of the "Servicing Fee" at
the rate described below. As to each Mortgage Loan, the
Servicing Fee will be a fixed rate per annum of the outstanding
principal balance of such Mortgage Loan, expected to range from
% to %, with an anticipated initial weighted average rate
of between approximately % and %. [The aggregate servicing
compensation to the Servicer could vary depending on the
prepayment experience of the related Mortgage Loans.]
The Servicer will pay expenses incurred in connection with
its responsibilities under the Agreement, subject to limited
reimbursement as described herein and in the Prospectus. See
"Servicing of the Mortgage Loans and Contracts-Servicing and
Other Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the
Servicer.
Trustee
The Trustee for the Certificates offered hereby will be
. The Corporate Trust Office of the
Trustee is located at .
[Termination
[The Company] or [the Servicer] may, at its option,
repurchase all of the Mortgage Loans underlying the Certificates,
and thereby effect the early retirement of the Certificates and
cause the termination of the Trust Fund [and the REMIC
constituted by the Trust Fund], if on any Distribution Date the
Pool Scheduled Principal Balance is less than 10% of the Pool
Scheduled Principal Balance as of the Cut-off Date. [The
Company] or [the Servicer] may not exercise the foregoing option
unless the Trustee has received an opinion of counsel that the
exercise of such option will not subject the Trust Fund to a tax
on prohibited transactions or result in the failure of such Trust
Fund to qualify as a REMIC.]
Any such repurchase by [the Company] or [the Servicer] of
the assets included in the Trust Fund will be at a price equal to
the sum of (a) 100% of the unpaid principal balance of each
Mortgage Loan in the Trust Fund (other than a Mortgage Loan
described in clause (b)) as of such date, plus accrued and unpaid
interest thereon at the related Remittance Rate (less any amounts
representing previously unreimbursed advances) and (b) the
appraised value of any property acquired in respect of a related
Mortgage Loan [(less any amounts representing previously
unreimbursed advances in respect thereof and a good faith
estimate of liquidation expenses)]. If the related Available
Funds on the final Distribution Date is less than the aggregate
Certificate Principal Balance of all outstanding Certificates
plus accrued and unpaid interest thereon, then such shortfall
will be allocated on the final Distribution Date to each Class of
Certificates in accordance with the priorities described under
"Description of the Certificates-Distributions on the
Certificates."
In no event will the Trust Fund created by the Agreement
continue beyond the expiration of 21 years from the death of the
last survivor of a certain person named in such Agreement.
[Voting Rights
The Class Certificates will be allocated % of the
votes, and the other Classes of Certificates in the aggregate
will be allocated % of the votes, eligible to be cast in
connection with any vote of all Certificateholders under the
Agreement. Votes allocated to the Certificates other than the
Class Certificates will be allocated among such Classes (and
among the Certificates within each such Class) in proportion to
their Class Certificate Principal Balances (or Certificate
Principal Balances, as the case may be). [Votes allocated to the
[Class IO] Certificates will be allocated among such Certificates
in proportion to their Notional Principal Balances.]]
Credit Enhancement
Credit enhancement will be provided in order to enhance the
likelihood of regular receipt by Certificateholders of the
scheduled amounts due them and to afford such Certificates
limited protection against losses.
The rights of the Holders of the Subordinate Certificates to
receive distributions with respect to the Mortgage Loans are
subordinated to the rights of Holders of the Senior Certificates
only to the limited extent described herein. Such subordination
is intended to increase the likelihood of receipt by the Senior
Certificateholders (to the extent of the combined subordination
provided by the Subordinate Certificates) of the maximum amount
to which they are entitled on any Distribution Date [and to
provide such Holders protection against losses resulting from
Liquidated Loans (as defined herein) to the extent described
herein. See "Description of the Certificates--Distributions on
the Certificates-Allocation of Realized Losses."
CREDIT ENHANCEMENT
[If Credit Enhancement is provided with respect to a Series,
or the related Mortgage Loans, include a description of (a) the
amount payable under such Credit Enhancement, (b) any conditions
to payment thereunder not otherwise described herein, (c) the
conditions (if any) under which the amount payable under such
Credit Enhancement may be reduced and under which such Credit
Enhancement may be terminated or replaced and (d) the material
provisions of any agreement relating to such Credit Enhancement.
Additionally, set forth certain information with respect to the
issuer of any third-party Credit Enhancement, including (i) a
brief description of its principal business activities, (ii) its
principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do
business, (iii) if applicable, the identity of regulatory
agencies which exercise primary jurisdiction over the conduct of
its business and (iv) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified
in such Prospectus Supplement.]
FEDERAL INCOME TAX CONSEQUENCES
[An election will be made to treat the Trust Fund as a REMIC
for federal income tax purposes.
The Certificates, other than the Class R Certificate[s],
will be designated as the "regular interests" in the REMIC and
the Class R Certificate[s] will be designated as the "residual
interests" in the REMIC.
Regular Certificates. The Regular Certificates generally
will be treated as debt instruments issued by a REMIC for federal
income tax purposes. Income on Regular Certificates must be
reported under an accrual method of accounting. Certain Classes
of Regular Certificates may be issued with original issue
discount in an amount equal to the excess of their initial
respective Class Certificate Principal Balances (plus accrued
interest from the last day preceding the issue date corresponding
to a Distribution Date through the issue date) over their issue
prices (including all accrued interest). The Prepayment
Assumption that is to be used 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 a
Holder of a Regular Certificate to amortize premium, will be %
of the Prepayment Assumption. No representation is made as to
the actual rate at which the Mortgage Loans will prepay. See
"Federal Income Tax Consequences-REMIC Certificates-Income from
Regular Certificates" in the accompanying Prospectus.
Residual Certificate[s]. The Holder[s] of the Class R
Certificate[s] must include the taxable income of the REMIC in
[its] [their] federal taxable income. The resulting tax
liability of the Holder[s] may exceed cash distributions to such
holder[s] during certain periods. All or a portion of the
taxable income from a Residual Certificate recognized by a holder
may be treated as "excess inclusion" income, which with limited
exceptions is subject to U.S. federal income tax in all events.
[Under Treasury regulations, the Class R Certificate[s] will
not have "significant value." As a result, thrift institutions
will not be permitted to offset their net operating losses
against such excess inclusion income. In addition, under those
regulations, the Class R Certificate[s] may be considered to be a
"noneconomic residual interest," with the result that transfers
thereof will be disregarded in certain circumstances for federal
income tax purposes.]
Prospective purchasers of a Residual Certificate should
consider carefully the tax consequences of an investment in
Residual Certificates discussed in the Prospectus and should
consult their own tax advisors with respect to those
consequences. See "Federal Income Tax Consequences-REMIC
Certificates-Income from Residual Certificates; -Taxation of
Certain Foreign Investors; -Transfers of Residual Certificates; -
Servicing Compensation and Other REMIC Pool Expenses" in the
Prospectus.]
ERISA CONSIDERATIONS
As described in the Prospectus under "ERISA Considerations,"
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain duties and restrictions on
any person which is an employee benefit plan within the meaning
of Section 3(3) of ERISA or a plan subject to Section 4975 of the
Code or any person utilizing the assets of such employee benefit
plan or other plan (collectively, "Plans") and certain persons
who perform services for Plans. For example, unless exempted, an
investment by an ERISA Plan in the Offered Certificates may
constitute or give rise to a prohibited transaction under ERISA
or Section 4975 of the Code. The United States Department of
Labor (the "DOL") has issued certain such exemptions from these
prohibitions which might be applicable in connection with a
Plan's purchase of certain of the Offered Certificates, including
Prohibited Transaction Class Exemption 83-1 ("PTE 83-1"). [In
particular, the exemptive relief provided by PTE 83-1 may be
available with respect to the initial acquisition and holding of
certain Classes of Offered Certificates, provided that the
conditions specified in PTE 83-1 are satisfied.] See "ERISA
Considerations" in the Prospectus.
[The DOL has issued to the Underwriter an individual
administrative exemption, Prohibited Transaction Exemption
( Fed. Reg. , , ), as amended (the
"Exemption"), from certain of the prohibited transaction
provisions of ERISA with respect to the initial purchase, the
holding, and the subsequent resale by a Plan of certificates in
pass-through trusts that meet the conditions and requirements of
the Exemption. The Exemption might apply to the acquisition,
holding and resale of the Offered Certificates by a 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 a Plan of the
Offered Certificates are the following: (i) the Underwriter is
the sole underwriter or the manager or co-manager of the
underwriting syndicate for such Offered Certificates, (ii) the
Offered Certificates are rated in one of the three highest
generic rating categories by
or at the time of the acquisition of
such Certificates by the Plan, (iii) the Offered Certificates
represent a beneficial ownership interest in, among other things,
obligations that bear interest or are purchased at a discount and
which are secured by single-family residential, multifamily
residential or commercial real property (including obligations
secured by leasehold interests on commercial real property), or
fractional undivided interests in such obligations, (iv) the
Offered Certificates are not subordinated to other certificates
issued by the Trust Fund in respect of the Mortgage Pool, (v) the
Plan investing in such Offered Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of
1933, (vi) the acquisition of the Offered Certificates is on
terms that are at least as favorable to the Plan as they would be
in an arm's length transaction with an unrelated third party,
(vii) the Trustee is not an affiliate of any member of the
"Restricted Group" (as defined below) and (viii) the compensation
to the Underwriter represents not more than reasonable
compensation for underwriting the Offered Certificates, the
proceeds to the Company pursuant to the assignment of the related
Mortgage Loans (or interests therein) to the Trustee represent
not more than the fair market value of such Mortgage Loans (or
interests) and the sum of all payments made to and retained by
the Servicer represents not more than reasonable compensation for
the Servicer's services under the Agreement and reimbursement of
the Servicer's reasonable expenses in connection therewith.]
[In addition, if certain additional conditions specified in
the Exemption are satisfied, the Exemption may provide an
exemption from the prohibited transaction provisions of ERISA
relating to possible self-dealing transactions by fiduciaries who
have discretionary authority, or render investment advice, with
respect to Plan assets used to purchase the Offered Certificates
if the fiduciary (or its affiliate) is an obligor on any of the
Mortgage Loans.]
[The Exemption would not be available with respect to Plans
sponsored by any of the following entities (or any affiliate of
any such entity): (i) the Company, (ii) the Underwriter,
(iii) the Trustee, (iv) any entity that provides insurance or
other credit enhancement to the Trust Fund in respect of the
Mortgage Pool or (v) any obligor with respect to Mortgage Loans
constituting more than five percent of the aggregate unamortized
principal balance of the assets in the Mortgage Pool (the
"Restricted Group").]
[Before purchasing any Offered Certificate, a fiduciary of a
Plan should make its own determination as to the availability of
the exemptive relief provided in the Exemption or the
availability of any other prohibited transaction exemptions, and
whether the conditions of any such exemption will be applicable
to such Certificate.]
Any fiduciary of an ERISA Plan considering whether to
purchase any Offered Certificate should not only consider the
applicability of exemptive relief, but 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.
A qualified pension plan or other entity that is exempt from
federal income taxation pursuant to Section 501 of the Code (a
"Tax-Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated
business taxable income" within the meaning of Section 512 of the
Code. The Residual Certificate[s] constitute[s] the residual
interest in the REMIC constituted by the Trust Fund, and all
"excess inclusions" allocated to the Residual Certificate[s], if
held by a Tax-Exempt Investor, will be considered "unrelated
business taxable income" and thus will be subject to federal
income tax. See "Federal Income Tax Consequences-Residual
Certificate[s]" herein and "Federal Income Tax Consequences-
Federal Income Tax Consequences for REMIC Certificates-Taxation
of Residual Certificates" in the Prospectus.
The Agreement provides that the Residual Certificate[s] may
not be acquired by a Plan. See "Description of the Certificates-
Restrictions on Transfer of the Residual Certificate[s]" herein.
LEGAL INVESTMENT MATTERS
[The Offered Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), and, as such, are legal
investments for certain entities to the extent provided in SMMEA.
However, institutions subject to the jurisdiction of the Office
of the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National
Credit Union Administration or state banking or insurance
authorities should review applicable rules, supervisory policies
and guidelines of these agencies before purchasing any of the
Offered Certificates, as certain Classes may be deemed to be
unsuitable investments under one or more of these rules, policies
and guidelines and certain restrictions may apply to investments
in other Classes. It should also be noted that certain states
have enacted legislation limiting to varying extents the ability
of certain entities (in particular insurance companies) to invest
in mortgage related securities. Investors should consult with
their own legal advisors in determining whether and to what
extent the Offered Certificates constitute legal investments for
such investors.] See "Legal Investment Matters" in the
Prospectus.
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in the
Underwriting Agreement dated _______, 199_ between the
Company and Deutsche Morgan Grenfell Inc. (the "Underwriter"),
the Class __, Class __, [Class PO,] [Class IO,] and
Class R Certificates (the "Offered Certificates") are being
purchased from the Company by the Underwriter upon issuance.
Distribution of the Offered Certificates will be made by the
Underwriter from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale.
Proceeds to the Company from the sale of the Offered Certificates
will be % of the aggregate initial Principal Balance of
the Mortgage Loans as of the Cut-off Date, plus accrued interest
thereon from the Cut-off Date to the Closing Date, but before
deducting issuance expenses payable by the Company. In
connection with the purchase and sale of the Offered
Certificates, the Underwriter may be deemed to have received
compensation from the Company in the form of underwriting
discounts.
The Company has agreed to indemnify the Underwriter against,
or make contributions to the Underwriter with respect to, certain
liabilities, including liabilities under the Securities Act.]
[ has entered into an agreement with the Company to
purchase the Subordinate Certificates simultaneously with the
purchase of the Offered Certificates, subject to certain
conditions.]
CERTIFICATE RATINGS
It is a condition of issuance of the Certificates that the
Offered Certificates be rated " " by [and " " by
].
[Description of rating criteria of each Rating Agency.]
The ratings of the Offered Certificates should be evaluated
independently from similar ratings on other types of securities.
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. There can be no assurance
as to whether any rating agency not requested to rate the Offered
Certificates will nonetheless issue a rating and, if so, what
such rating would be.
LEGAL MATTERS
Certain legal matters in respect of the Offered Certificates
will be passed upon for the Company by [Cleary, Gottlieb, Steen &
Hamilton] and for the Underwriter by __________________________.
<PAGE>
INDEX OF CERTAIN PROSPECTUS SUPPLEMENT DEFINITIONS
Defined Term Page
Accrued Certificate Interest . . . . . . . . . . . . . . . . . .
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Funds. . . . . . . . . . . . . . . . . . . . . . . . .
Bankruptcy Loss. . . . . . . . . . . . . . . . . . . . . . . . .
beneficial owner . . . . . . . . . . . . . . . . . . . . . . . .
BIF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book-Entry Certificates. . . . . . . . . . . . . . . . . . . . .
Certificate Account. . . . . . . . . . . . . . . . . . . . . . .
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificate Principal Balance. . . . . . . . . . . . . . . . . .
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .
Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class Certificate Principal Balance. . . . . . . . . . . . . . .
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collection Account . . . . . . . . . . . . . . . . . . . . . . .
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Service Reduction . . . . . . . . . . . . . . . . . . . . .
Defaulted Mortgage Loan. . . . . . . . . . . . . . . . . . . . .
Deficient Valuation. . . . . . . . . . . . . . . . . . . . . . .
Definitive Certificate . . . . . . . . . . . . . . . . . . . . .
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . .
Detailed Description . . . . . . . . . . . . . . . . . . . . . .
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . .
DOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Intermediary . . . . . . . . . . . . . . . . . . . . .
[Fixed Interest Accrual Period]. . . . . . . . . . . . . . . . .
[Floating Interest Accrual Period] . . . . . . . . . . . . . . .
[home equity loans]. . . . . . . . . . . . . . . . . . . . . . .
Interest Accrual Period. . . . . . . . . . . . . . . . . . . . .
Interest Shortfall . . . . . . . . . . . . . . . . . . . . . . .
Liquidated Loan. . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Rates . . . . . . . . . . . . . . . . . . . . . . . . .
mortgage related securities. . . . . . . . . . . . . . . . . . .
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . .
Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . .
[Notional Principal Balance] . . . . . . . . . . . . . . . . . .
Outstanding Mortgage Loan. . . . . . . . . . . . . . . . . . . .
Plan
Pool Scheduled Principal Balance . . . . . . . . . . . . . . . .
Prepayment Assumption. . . . . . . . . . . . . . . . . . . . . .
Primary Mortgage Insurance Policy. . . . . . . . . . . . . . . .
Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . .
[Regular Certificates] . . . . . . . . . . . . . . . . . . . . .
[regular interests]. . . . . . . . . . . . . . . . . . . . . . .
[REMIC]. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remittance Rate. . . . . . . . . . . . . . . . . . . . . . . . .
[Residual Certificate[s]]. . . . . . . . . . . . . . . . . . . .
[residual interests] . . . . . . . . . . . . . . . . . . . . . .
[Restricted Group] . . . . . . . . . . . . . . . . . . . . . . .
SAIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scheduled Principal Balance. . . . . . . . . . . . . . . . . . .
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . .
SMMEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trigger Event. . . . . . . . . . . . . . . . . . . . . . . . . .
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
[Back cover page]
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus Supplement or the Prospectus and, if given or made,
such information or representations must not be relied upon as
having been authorized. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or the solicitation
of an offer to buy any securities other than the securities
described in this Prospectus Supplement or an offer to sell or
the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus Supplement or the
Prospectus nor any sale made thereunder shall, under any
circumstances, create any implication that the information
contained herein or therein is correct as of any time subsequent
to the date of such information.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . S-4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . S-12
Description of the Mortgage Pool and the Mortgaged PropertiesS-13
Description of the Certificates. . . . . . . . . . . . . . . S-15
Yield, Maturity and Weighted Average Life Considerations . . S-21
The Servicer . . . . . . . . . . . . . . . . . . . . . . . . S-26
[Delinquency and Foreclosure Experience] . . . . . . . . . . S-26
The Pooling and Servicing Agreement. . . . . . . . . . . . . S-26
Credit Enhancement . . . . . . . . . . . . . . . . . . . . . S-30
Federal Income Tax Consequences. . . . . . . . . . . . . . . S-30
ERISA Considerations . . . . . . . . . . . . . . . . . . . . S-31
Legal Investment Matters . . . . . . . . . . . . . . . . . . S-32
Plan of Distribution . . . . . . . . . . . . . . . . . . . . S-33
Certificate Ratings. . . . . . . . . . . . . . . . . . . . . S-33
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . S-33
Index of Certain Prospectus Supplement Definitions . . . . . S-34
PROSPECTUS
Prospectus Supplement. . . . . . . . . . . . . . . . . . . . . ii
Available Information. . . . . . . . . . . . . . . . . . . . . ii
Incorporation of Certain Documents by Reference. . . . . . . .iii
Reports to Certificateholders. . . . . . . . . . . . . . . . iii
Summary of Prospectus. . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . 9
Description of the Certificates. . . . . . . . . . . . . . . . 11
The Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . 17
Credit Enhancement . . . . . . . . . . . . . . . . . . . . . . 23
Cash Flow Agreement. . . . . . . . . . . . . . . . . . . . . . 29
Yield, Maturity and Weighted Average Life Considerations . . . 30
Servicing of the Mortgage Loans and Contracts. . . . . . . . . 31
The Pooling and Servicing Agreements . . . . . . . . . . . . . 39
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . 46
Deutsche Bank. . . . . . . . . . . . . . . . . . . . . . . . . 46
Certain Legal Aspects of the Mortgage Loans and Contracts. . . 46
Legal Investment Matters . . . . . . . . . . . . . . . . . . . 57
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . 58
Federal Income Tax Consequences. . . . . . . . . . . . . . . . 60
State Tax Considerations . . . . . . . . . . . . . . . . . . . 72
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . 72
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 73
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . 73
Financial Information. . . . . . . . . . . . . . . . . . . . . 73
Additional Information . . . . . . . . . . . . . . . . . . . . 73
<PAGE>
Until 90 days after the date of this Prospectus Supplement,
all dealers effecting transactions in the Offered Certificates,
whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and the Prospectus to
which it relates. This is in addition to the obligation of
dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold
allotments or subscriptions.
[ ]
(Company)
[ ]
(Servicer)
$
(Approximate)
[REMIC Multi-Class][Mortgage]
Pass-Through Certificates,
Series 199 -
_______
PROSPECTUS SUPPLEMENT
_______
DEUTSCHE MORGAN GRENFELL
, 199_
<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 distribution of the securities being registered,
other than underwriting compensation, are as set forth below.
All such expenses, except for the filing fee, are estimated.
SEC Registration Fee (actual) . . $172,413.80
Legal Fees and Expenses . . 60,000.00
Accounting Fees and Expenses 40,000.00
Trustee's Fees and Expenses 20,000.00
Printing and Engraving. . . 40,000.00
Rating Agency Fees. . . . 150,000.00
Miscellaneous . . . . . . . 25,000.00
Total. . . . . . . . . . . . $507,413.80
Item 15. Indemnification of Directors and Officers
The certificate of incorporation of the Registrant provides
that the Registrant shall, to the maximum extent permitted from
time to time under the law of the State of Delaware, indemnify
each director and officer of the Registrant against expenses
(including attorney's fees and expenses), judgments, fines,
penalties and amounts paid in settlement incurred in connection
with the investigation, preparation to defend or defense of any
threatened, pending or completed action, suit, proceeding or
claim to which such director or officer is or was a party in his
capacity as director or officer, except in connection with any
such action, suit, proceeding or claim brought by or on behalf of
such director or officer.
Each Pooling and Servicing Agreement will provide that no
director, officer, employee or agent of the Registrant is liable
to the related Trust Fund or to the Certificateholders, except
for such person's own willful malfeasance, bad faith, gross
negligence in the performance of duties or reckless disregard of
obligations and duties. Each Pooling and Servicing Agreement
will further provide that, with the exceptions stated above, a
director, officer, employee or agent of the Registrant is
entitled to be indemnified against any loss, liability or expense
incurred in connection with legal action relating to such Pooling
and Servicing Agreement and related Certificates other than such
expenses related to particular Mortgage Loans.
Each underwriter who executes an Underwriting Agreement in
the form filed as Exhibit 1.1 to this Registration Statement will
agree to indemnify the Registrant's directors and its officers
who signed this Registration Statement against certain
liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on
behalf of such indemnifying party.
It is anticipated that the Registrant will enter into
an Indemnification Agreement with Deutsche Bank North America
Holding Corp., a Delaware corporation, pursuant to which Deutsche
Bank North America Holding Corp. will be obligated to indemnify
the Registrant and each officer, director or employee of the
Registrant and certain others against certain liabilities under
the Securities Act of 1933 or the Securities Exchange Act of 1934
or other laws, to the extent such liabilities arise in connection
with the issuance of securities under this Registration
Statement.
Subsection (a) of Section 145 of the General Corporation
Law of Delaware empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that he is or was a director, employee or agent of
the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
Subsection (b) of Section 145 empowers a corporation to
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that such person acted in any
of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit
if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation
and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director,
officer, employee or agent of a corporation has been successful
in the defense of any action, suit or proceeding referred to in
subsections (a) and (b), or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification or advancement
of expenses provided for by Section 145 shall not be deemed
exclusive or any other rights to which the indemnified party may
be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against
him or incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the
power to indemnify him against such liability under Section 145.
The By-Laws of the Registrant provide, in effect, that to
the extent and under the circumstances permitted by subsections
(a) and (b) of Section 145 of the General Corporation Law of the
State of Delaware, the Registrant (i) shall indemnify and hold
harmless each person who was or is a party or is threatened to be
made a party to any action, suit or proceeding described in
subsections (a) and (b) by reason of the fact that he is or was a
director or officer, or his testator or intestate is or was a
director or officer of the Registrant, against expenses,
judgments, fines and amounts paid in settlement, and (ii) shall
indemnify and hold harmless each person who was or is a party or
is threatened to be made a party to any such action, suit or
proceeding if such person is or was serving at the request of the
Registrant as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise.
<PAGE>
Item 16. Exhibits.
1.1 - Form of Underwriting Agreement
*3.1 - Certificate of Incorporation of Deutsche
Mortgage & Asset Receiving Corporation
*3.2 - Bylaws of Deutsche Mortgage & Asset Receiving
Corporation
*4.1 - Form of Pooling and Servicing Agreement
5.1 - Opinion of Cleary, Gottlieb, Steen &
Hamilton as to legality
**8.1 - Opinion of Cleary, Gottlieb, Steen & Hamilton as
to tax matters
**23.1 - Consent of Cleary, Gottlieb, Steen &
Hamilton (incorporated in Exhibit 5.1; to be
incorporated in Exhibit 8.1)
24.1 - Power of Attorney (set forth on page II-4)
_______________
* Previously filed.
** Opinions as to tax matters and related consents for each
Series of Certificates offered hereby will be filed on
Forms 8-K.
Item 17. Undertakings.
A. 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 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant 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 director, officer or controlling
person in connection with the securities 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 of whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, (ii) to reflect in the
prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in
the Registration Statement, and (iii) to include any material
information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any
material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
C. Undertaking pursuant to Item 512(b) of Regulation S-K
The undersigned registrant hereby undertakes that, for
purposes of determining any liability 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 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to 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.
<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 the requirements for filing on Form
S-3, reasonably believes that the security rating requirement
contained in Transaction Requirement B.5 of Form S-3 will be met
by the time of the sale of the securities hereunder and has duly
caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, The Commonwealth of
Massachusetts, on the 27th day of September, 1996.
Deutsche Mortgage & Asset Receiving
Corporation
By: /s/ Nancy D. Smith
Nancy D. Smith
Director (President)
Pursuant to the requirements of the Securities Act of
1933, this Amendment No. 1 to the Registration Statement and
this Power of Attorney have been signed below by the following
persons in the capacities and on the dates indicated:
Signature Title Date
/s/ Nancy D. Smith
- -----------------------
Nancy D. Smith Director (President and September 27, 1996
Chief Executive Officer)
/s/ Douglas Donaldson
- -----------------------
Douglas Donaldson (Treasurer and Chief September 27, 1996
Financial Officer)
/s/ Louise E. Colby
- -----------------------
Louise E. Colby Director September 27, 1996
* By: N/A
---------------------
Attorney-in-Fact
EXHIBIT INDEX
Exhibit No. Exhibit Page
1.1 - Form of Underwriting Agreement _______
*3.1 - Certificate of Incorporation of Deutsche
Mortgage & Asset Receiving Corporation _______
*3.2 - Bylaws of Deutsche Mortgage & Asset
Receiving Corporation _______
*4.1 - Form of Pooling and Servicing Agreement _______
5.1 - Opinion of Cleary, Gottlieb,
Steen & Hamilton as to legality _______
**8. - Opinion of Cleary, Gottlieb, Steen
& Hamilton as to tax matters _______
23.1 - Consent of Cleary, Gottlieb, Steen &
Hamilton (incorporated in Exhibit 5.1; to be
incorporated in Exhibit and 8.1) _______
24.1 - Power of Attorney (set forth on page II-4) _______
___________________
* Previously filed.
** Opinions as to tax matters and related consents for each
Series of Certificates offered hereby will be filed on Forms
8-K.
EXHIBIT 1.1
Form Of Underwriting
Agreement
DEUTSCHE MORTGAGE & ASSET RECEIVING CORPORATION
Mortgage Pass-Through Certificates
Series
UNDERWRITING AGREEMENT
, 19
[Lead Underwriter's name and address]
Ladies and Gentlemen:
Deutsche Mortgage & Asset Receiving Corporation, a
Delaware corporation (the "Company"), proposes, subject to the
terms and conditions stated herein, to sell to the underwriters
named in Schedule I hereto (the "Underwriters"; provided,
however, that if you are the only underwriter named in
Schedule I, then the terms "Underwriter" and "Underwriters" shall
refer solely to you) its Mortgage Pass-Through Certificates,
Series , as specified in Schedule II hereto (the "Offered
Certificates"), to be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be dated as
of 1, 19 (the "Cut-off Date"), among the Company,
as seller, __________________________ as servicer (the
"Servicer")[, _______________, as master servicer (the "Master
Servicer")] and , as trustee (the "Trustee").
The Offered Certificates will be issued in classes (each, a
"Class"). The Offered Certificates will evidence undivided
interests in the Upper Tier REMIC (as defined in the Pooling and
Servicing Agreement). The Upper Tier REMIC will consist
primarily of classes of interests (the "Lower Tier
Interests") evidencing beneficial ownership in the Lower Tier
REMIC (as defined in the Pooling and Servicing Agreement and,
together with the Upper Tier REMIC, the "Trust Funds")
established pursuant to the Pooling and Servicing Agreement. The
Lower Tier REMIC will consist primarily of a pool (the "Pool") of
- ---------------
1 This form of Underwriting Agreement contemplates a two-tier
REMIC structure, but a single-tier REMIC or a non-REMIC
grantor trust may be used instead for a particular series of
certificates.<PAGE>
[mortgage loans] (the "[Mortgage Loans]") sold by the Company to
the Lower Tier REMIC and listed in an attachment to the Pooling
and Servicing Agreement. Elections will be made to treat each of
the Trust Funds as a real estate mortgage investment conduit (a
"REMIC"). The Class __ Certificates and Class ___ Certificates
are also to be issued pursuant to the Pooling and Servicing
Agreement but do not form a part of this offering. The Offered
Certificates are described more fully in the Basic Prospectus and
the Prospectus Supplement (each of which terms is defined below)
which the Company is furnishing to you.
1. Representations and Warranties. The Company
represents and warrants to, and agrees with, each Underwriter
that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement
(No. 333-4598) on Form S-3 for the registration under the
Securities Act of 1933, as amended (the "Act"), with respect to
the Offered Certificates, which registration statement has become
effective and copies of which have heretofore been delivered to
you. Such registration statement meets the requirements set
forth in Rule 415(a)(1) under the Act and complies in all other
material respects with such Rule. The Company proposes to file
with the Commission pursuant to Rule 424 under the Act a
supplement, dated the date specified in Schedule II hereto, to
the prospectus, dated the date specified in Schedule II hereto,
relating to the Offered Certificates and the method of
distribution thereof and has previously advised you of all
further information (financial and other) with respect to the
Offered Certificates set forth therein. Such registration
statement, including the exhibits thereto, as amended at the date
hereof is hereinafter called the "Registration Statement"; such
prospectus, in the form in which it will be filed with the
Commission pursuant to Rule 424 under the Act, is hereinafter
called the "Basic Prospectus"; such supplement to the Basic
Prospectus, in the form in which it will be filed with the
Commission pursuant to Rule 424 of the Act, is hereinafter called
the "Prospectus Supplement"; and the Basic Prospectus and the
Prospectus Supplement together are hereinafter called the
"Prospectus". Any preliminary form of the Prospectus Supplement
which has heretofore been filed pursuant to Rule 402(a) or
Rule 424 is hereinafter called a "Preliminary Prospectus
Supplement". The Company will not, without your prior consent,
file any other amendment to the Registration Statement or make
any change in the Basic Prospectus or the Prospectus Supplement
until after the period in which a prospectus is required to be
delivered to purchasers of the Offered Certificates under the
Act. The Company, as seller with respect to the Lower Tier REMIC
and as depositor with respect to the Upper Tier REMIC, will file
with the Commission within fifteen days of the issuance of the
Offered Certificates a report on Form 8-K setting forth specific
information concerning the Offered Certificates (the "Form 8-K").
(b) As of the date hereof, when the Registration
Statement became effective, when the Prospectus Supplement is
first filed pursuant to Rule 424 under the Act, when, prior to
the Closing Date, any other amendment to the Registration
Statement becomes effective, and when any supplement to the
Prospectus Supplement is filed with the Commission, and at the
Closing Date, (i) the Registration Statement, as amended as of
any such time, and the Prospectus, as amended or supplemented as
of any such time, complied or will comply in all material
respects with the applicable requirements of the Act and the
rules thereunder and (ii) the Registration Statement, as amended
as of any such time, did not and will not contain any untrue
statement of a material fact and did not and will not omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading and the
Prospectus, as amended or supplemented as of any such time, did
not and will not contain an untrue statement of a material fact
and did not and will not omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or
warranties as to (A) the information contained in or omitted from
the Registration Statement or the Prospectus or any amendment
thereof or supplement thereto in reliance upon and in conformity
with written information furnished to the Company by you, or by
any Underwriter through you, specifically for use in the
preparation thereof, or (B) the information contained in or
omitted from any Current Report (as defined in Section 5(b)
hereof), or any amendment thereof or supplement thereto,
incorporated by reference in the Registration Statement or the
Prospectus (or any amendment thereof or supplement thereto).
(c) The Company is a corporation, duly organized,
validly existing and in good standing under the laws of the State
of Delaware with full power and authority (corporate and other)
to own its properties and conduct its business, as described in
the Prospectus, and to enter into and perform its obligations
under this Agreement and the Pooling and Servicing Agreement, and
is conducting its business so as to comply in all material
respects with all applicable statutes, ordinances, rules and
regulations of the jurisdictions in which it is conducting
business.
(d) The Company is not aware of (i) any request by the
Commission for any further amendment of the Registration
Statement or the Prospectus or for any additional information,
(ii) the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose or
(iii) any notification with respect to the suspension of the
qualification of the Offered Certificates for sale in any
jurisdiction or the initiation or threatening of any proceeding
for such purpose.
(e) At or prior to the Closing Date the Company will
have entered into the Pooling and Servicing Agreement; this
Agreement has been duly authorized, executed and delivered by the
Company, and the Pooling and Servicing Agreement, when delivered
by the Company, will have been duly authorized, executed and
delivered by the Company, and this Agreement and the Pooling and
Servicing Agreement will constitute valid and binding agreements
of the Company, enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by
(i) bankruptcy, insolvency, liquidation, moratorium,
receivership, reorganization or similar laws affecting the rights
of creditors generally, (ii) general principles of equity,
whether enforcement is sought in a proceeding in equity or at
law, and (iii) public policy considerations underlying the
securities laws, to the extent that such public policy
considerations limit the enforceability of any provisions of this
Agreement which purport to provide indemnification from
securities law liabilities.
(f) The Offered Certificates and the Pooling and
Servicing Agreement conform in all material respects to the
descriptions thereof contained in the Prospectus; the Offered
Certificates [are "mortgage related securities" as such term is
defined in Section 3(a)(41) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and] have been duly and
validly authorized by the Company, and will, when duly and
validly executed and authenticated by the Trustee and delivered
to and paid for by the Underwriters in accordance with this
Agreement and the Pooling and Servicing Agreement, be entitled to
the benefits of the Pooling and Servicing Agreement.
(g) As of the Closing Date, the representations and
warranties of the Company set forth in Section _______ of the
Pooling and Servicing Agreement will be true and correct.
(h) Neither the issuance and sale of the Offered
Certificates, nor the consummation of any other of the
transactions contemplated herein, nor the fulfillment of any of
the terms of the Pooling and Servicing Agreement or this
Agreement, will result in the breach of any term or provision of
the certificate of incorporation or by-laws of the Company or
conflict with, result in a material breach, violation or
acceleration of or constitute a default under, the terms of any
indenture or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which it is bound, or
any statute, order or regulation applicable to the Company or any
of its subsidiaries of any court, regulatory body, administrative
agency or governmental body having jurisdiction over the Company
or any of its subsidiaries. Neither the Company nor any of its
subsidiaries is a party to, bound by or in breach or violation of
any indenture or other agreement or instrument, or subject to or
in violation of any statute, order or regulation of any court,
regulatory body, administrative agency or governmental body
having jurisdiction over it, which materially and adversely
affects the ability of the Company to perform its obligations
under this Agreement and the Pooling and Servicing Agreement.
(i) There are no actions or proceedings against, or
investigations of, the Company pending, or, to the knowledge of
the Company, threatened, before any court, administrative agency
or other tribunal (i) asserting the invalidity of this Agreement,
the Pooling and Servicing Agreement or the Offered Certificates,
(ii) seeking to prevent the issuance of the Offered Certificates
or the consummation of any of the transactions contemplated by
this Agreement or the Pooling and Servicing Agreement,
(iii) which might materially and adversely affect the performance
by the Company of its obligations under, or the validity or
enforceability of, this Agreement, the Pooling and Servicing
Agreement or the Offered Certificates or (iv) seeking to affect
adversely the federal income tax attributes of the Offered
Certificates described in the Prospectus.
(j) There has not been any material adverse change in
the business, operations, financial condition, properties or
assets of the Company since the date of its latest audited
financial statements which would have a material adverse effect
on the ability of the Company to perform its obligations under
the Pooling and Servicing Agreement.
(k) Any taxes, fees and other governmental charges in
connection with the execution and delivery of this Agreement and
the Pooling and Servicing Agreement and the execution, delivery
and sale of the Offered Certificates have been or will be paid at
or prior to the Closing Date.
2. Purchase and Sale. Subject to the terms and
conditions and in reliance upon the representations and
warranties herein set forth, the Company agrees to sell to each
Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company, the percentage of [each
Class of] the Offered Certificates set forth opposite each such
Underwriter's name in Schedule I hereto.
The purchase price for [each Class of the Offered
Certificates as a percentage of the aggregate principal (or
notional principal) balance thereof] as of the Closing Date (as
defined below) is set forth in Schedule II hereto. There will be
added to the purchase price of the Offered Certificates interest
in respect of [each Class of] the Offered Certificates at the
interest rate applicable [to such Class] from the Cut-off Date to
but not including the Closing Date.
3. Delivery and Payment. Delivery of and payment for
the Offered Certificates shall be made at the date, location and
time of delivery set forth in Schedule II hereto, or such later
date as the Underwriters shall designate, which date and time may
be postponed by agreement between the Underwriters and the
Company or as provided in Section 10 hereof (such date, location
and time of delivery and payment for the Offered Certificates
being herein called the "Closing Date"). Delivery of the Offered
Certificates shall be made to the several Underwriters against
payment by the several Underwriters of the purchase price thereof
to or upon the order of the Company by check or checks payable in
New York Clearing House (next day) funds or immediately available
funds as specified in Schedule II hereto. The Offered
Certificates shall be registered in such names and in such
denominations as the Underwriters may request not less than three
full business days in advance of the Closing Date.
The Company agrees to have the Offered Certificates
available for inspection, checking and packaging by the
Underwriters in New York, New York, not later than 1:00 p.m. on
the business day prior to the Closing Date.
4. Offering by Underwriters. It is understood that
the several Underwriters propose to offer the Offered
Certificates for sale to the public as set forth in the
Prospectus.
5. Agreements. The Company agrees with the several
Underwriters that:
(a) The Company will promptly advise the Underwriters
(i) when any amendment to the Registration Statement shall have
become effective, (ii) of any request by the Commission for any
amendment to the Registration Statement or the Prospectus or for
any additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement affecting the Offered Certificates or the
institution or threatening of any proceeding for that purpose and
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Offered
Certificates for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company will
not file any amendment to the Registration Statement or
supplement to the Prospectus unless the Company has furnished you
a copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object
until after the period in which a prospectus is required to be
delivered to purchasers of the Offered Certificates under the
Act. Subject to the foregoing sentence, the Company will cause
the Prospectus Supplement to be mailed to the Commission for
filing pursuant to Rule 424 under the Act by first-class
certified or registered mail or to be filed with the Commission
in another manner pursuant to said Rule. The Company will use
its best efforts to prevent the issuance of any such stop order
and, if issued, to obtain as soon as possible the withdrawal
thereof.
(b) The Company will cause any Computational Materials
and any Structural Term Sheets (each as defined in Section 9
below) with respect to the Offered Certificates of a Series that
are delivered by an Underwriter to the Company pursuant to
Section 9 to be filed with the Commission on a Current Report on
Form 8-K (a "Current Report") pursuant to Rule 13a-11 under the
Exchange Act on the business day immediately following the later
of (i) the day on which such Computational Materials and
Structural Term Sheets are delivered to counsel for the Company
by an Underwriter prior to 10:30 a.m. and (ii) the date on which
this Agreement is executed and delivered. The Company will cause
one Collateral Term Sheet (as defined in Section 10 below) with
respect to the Offered Certificates of a Series that is delivered
by the Underwriters to the Company in accordance with the
provisions of Section 10 to be filed with the Commission on a
Current Report pursuant to Rule 13a-11 under the Exchange Act on
the business day immediately following the day on which such
Collateral Term Sheet is delivered to counsel for the Company by
the Underwriters prior to 10:30 a.m. In addition, if at any time
prior to the availability of the Prospectus Supplement, the
Underwriters have delivered to any prospective investor a
subsequent Collateral Term Sheet that reflects, in the reasonable
judgment of the Underwriters and the Company, a material change
in the characteristics of the Mortgage Loans for the Series from
those on which a Collateral Term Sheet with respect to the Series
previously filed with the Commission was based, the Company will
cause any such Collateral Term Sheet that is delivered by the
Underwriters to the Company in accordance with the provisions of
Section 10 to be filed with the Commission on a Current Report on
the business day immediately following the day on which such
Collateral Term Sheet is delivered to counsel for the Company by
the Underwriters prior to 10:30 a.m. In each case, the Company
will promptly advise the Underwriters when such Current Report
has been so filed. Each such Current Report shall be
incorporated by reference in the Prospectus and the Registration
Statement. Notwithstanding the five preceding sentences, the
Company shall have no obligation to file any materials provided
by the Underwriters pursuant to Section 9 and 10 which, in the
reasonable determination of the Company, are not required to be
filed pursuant to the Kidder Letters or the PSA Letter (each as
defined in Section 9 below), or contain erroneous information or
contain any untrue statement of a material fact or, when read in
conjunction with the Prospectus and Prospectus Supplement, omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; it being
understood, however, that the Company shall have no obligation to
review or pass upon the accuracy or adequacy of, or to correct,
any Computational Materials, Structural Term Sheets or Collateral
Term Sheets provided by the Underwriters to the Company pursuant
to Section 9 or Section 10 hereof. The Company shall give notice
to the Underwriters of its determination not to file any
materials pursuant to clause (i) of the preceding sentence and
agrees to file such materials if the Underwriters reasonably
object to such determination within one business day after
receipt of such notice.
(c) If, at any time when a prospectus relating to the
Offered Certificates is required to be delivered under the Act,
any event occurs as a result of which the Prospectus as then
amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to
make the statements therein in the light of the circumstances
under which they were made not misleading, or if it shall be
necessary to amend or supplement the Prospectus to comply with
the Act or the rules under the Act, the Company promptly will
prepare and file with the Commission, subject to paragraph (a) of
this Section 5, an amendment or supplement that will correct such
statement or omission or an amendment that will effect such
compliance and, if such amendment or supplement is required to be
contained in a post-effective amendment to the Registration
Statement, will use its best efforts to cause such amendment of
the Registration Statement to be made effective as soon as
possible; provided,however, that the Company will not be required
to file any such amendment or supplement with respect to any
Computational Materials, Structural Term Sheets or Collateral
Term Sheets incorporated by reference in the Prospectus other
than any amendments or supplements of such Computational
Materials, Structural Term Sheets or Collateral Term Sheets that
are furnished to the Company pursuant to Section 9(e) hereof
which the Company determines to file in accordance therewith.
(d) The Company will furnish to the Underwriters and
counsel for the Underwriters, without charge, signed copies of
the Registration Statement (including exhibits thereto) and to
each other Underwriter a copy of the Registration Statement
(without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the
Act, as many copies of the Basic Prospectus, the Preliminary
Prospectus Supplement, if any, and the Prospectus Supplement and
any amendments and supplements thereto as the Underwriters may
reasonably request.
[(e) The Company agrees that, so long as the Offered
Certificates shall be outstanding, it will cause the Trustee to
deliver to the Underwriters the annual statement as to compliance
and the annual statement[s] of a firm of independent public
accountants, furnished to the Trustee by the Master Servicer
pursuant to Section[s] ____________ of the Pooling and Servicing
Agreement, as soon as such statements are furnished to the
Trustee.]
(f) The Company will furnish such information, execute
such instruments and take such action, if any, as may be required
to qualify the Offered Certificates for sale under the laws of
such jurisdictions as the Underwriters may designate and will
maintain such qualification in effect so long as required for the
distribution of the Offered Certificates; provided, however, that
the Company shall not be required to qualify to do business in
any jurisdiction where it is not now so qualified or to take any
action that would subject it to general or unlimited service of
process in any jurisdiction where it is not now so subject.
[(g) The Company will pay all costs and expenses in
connection with the transactions contemplated hereby, including,
but not limited to, the fees and disbursements of its counsel;
the costs and expenses of printing (or otherwise reproducing) and
delivering the Pooling and Servicing Agreement and the Offered
Certificates; accounting fees and disbursements; the costs and
expenses in connection with the qualification or exemption of the
Offered Certificates under state securities or blue sky laws,
including filing fees and reasonable fees and disbursements of
counsel in connection therewith, in connection with the
preparation of any Blue Sky Survey and in connection with any
determination of the eligibility of the Offered Certificates for
investment by institutional investors and the preparation of any
Legal Investment Survey; the expenses of printing any such Blue
Sky Survey and Legal Investment Survey; the costs and expenses in
connection with the preparation, printing and filing of the
Registration Statement (including exhibits thereto), the Basic
Prospectus, the Preliminary Prospectus Supplement, if any, and
the Prospectus Supplement, the preparation and printing of this
Agreement, the furnishing to the Underwriters of such copies of
each Preliminary Prospectus Supplement, if any, and Prospectus
Supplement as the Underwriters may reasonably request and the
fees of rating agencies. [Except as provided in Section 7
hereof,] the Underwriters shall be responsible for paying all
costs and expenses incurred by them in connection with their
purchase and sale of the Offered Certificates, including the fees
of counsel to any Underwriter.]
6. Conditions to the Obligations to the Underwriters.
The obligations of the Underwriters to purchase the Offered
Certificates as provided in this Agreement shall be subject to
the accuracy of the representations and warranties on the part of
the Company contained herein as of the date hereof and the
Closing Date, to the accuracy of the statements of the Company
made in any certificates pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder and
to the following additional conditions with respect to the
Offered Certificates:
(a) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings
for that purpose shall have been instituted or threatened; and
the Prospectus Supplement shall have been filed with the
Commission within the time period prescribed by the Commission.
(b) The Company shall have delivered to you a
certificate, dated the Closing Date, of any of [list applicable
executives] of the Company to the effect that the signer of such
certificate has carefully examined this Agreement and the
Prospectus and that: (i) the representations and warranties of
the Company in this Agreement are true and correct in all
material respects at and as of the Closing Date with the same
effect as if made on the Closing Date, (ii) the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to the
Closing Date, (iii) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for
that purpose have been instituted or, to the Company's knowledge,
threatened, and (iv) nothing has come to his attention that would
lead him to believe that the Prospectus contains any untrue
statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(c) The Underwriters shall have received from [Cleary,
Gottlieb, Steen & Hamilton], counsel for the Company, a favorable
opinion, dated the Closing Date and satisfactory in form and
substance to counsel for the Underwriters, to the effect that:
(i) Each of this Agreement and the Pooling and
Servicing Agreement has been duly executed and
delivered by the Company under the law of the State of
New York;
(ii) Each of this Agreement and the Pooling and
Servicing Agreement is a legal, valid and binding
agreement of the Company enforceable against the
Company in accordance with its terms;
(iii) The Offered Certificates, when duly
executed, authenticated and delivered in accordance
with the Pooling and Servicing Agreement, will be
validly issued and outstanding and entitled to the
benefits of such Pooling and Servicing Agreement;
(iv) The Pooling and Servicing Agreement is not
required to be qualified under the Trust Indenture Act
of 1939, as amended, and the trust created thereunder
is not required to be registered under the Investment
Company Act of 1940, as amended;
(v) Such counsel confirms that [(based solely
upon telephonic confirmation from a representative of
the Commission)] the Registration Statement is
effective under the Act and, to the best of such
counsel's knowledge, no stop order with respect thereto
has been issued, and no proceeding for that purpose has
been instituted or threatened by the Commission under
the Act; such Registration Statement (except the
financial statements and schedules and other financial
and statistical data included therein and the documents
incorporated by reference therein, as to which such
counsel need express no view), at the time it became
effective and the Prospectus (except the financial
statements and schedules and the other financial and
statistical data included therein and the documents
incorporated by reference therein as to which such
counsel need express no view), as of the date of the
Prospectus Supplement, appeared on their face to be
appropriately responsive in all material respect to the
requirements of the Act and the rules and regulations
thereunder;
(vi) The statements set forth under the heading
"Description of the Offered Certificates" in the
Prospectus, insofar as such statements purport to
summarize certain provisions of the Pooling and
Servicing Agreement and the Offered Certificates,
provide a fair summary of such provisions;
(vii) the statements set forth in the Prospectus
under the headings "Certain Legal Aspects of the
Mortgage Loans and Contracts -- The Mortgage Loans",
"Federal Income Tax Consequences" (insofar as they
relate specifically to the purchase, ownership and
disposition of the Offered Certificates) and "ERISA
Considerations" (insofar as they relate specifically to
the purchase, ownership and disposition of such Offered
Certificates), to the extent that they constitute
matters of law or legal conclusions, provide a fair
summary of such law or conclusions; and
(viii) assuming compliance with all provisions of
the Pooling and Servicing Agreement, for federal income
tax purposes, the Trust Fund (other than any such
excluded assets) will qualify as one or more REMICs
pursuant to Section 860D of the Internal Revenue Code
of 1986, as amended (the "Code"), each Class of
Certificates of the Series, other than the Residual
Class or Classes, will constitute a class of "regular
interests" in a REMIC within the meaning of the Code,
and each Class of such Certificates specified in the
Prospectus as a Class of Residual Certificates will
constitute the "residual interest" in a REMIC within
the meaning of the Code.
Such opinion (a) may express its reliance as to factual
matters on certificates of government and agency officials and
the representations and warranties made by, and on certificates
or other documents furnished by officers of, the parties to this
Agreement and the Pooling and Servicing Agreement, (b) may assume
the due authorization, execution and delivery of the instruments
and documents referred to therein by the parties thereto other
than the Company, and (c) may be qualified as an opinion only on
the law of the State of New York, the federal law of the United
States of America and the General Corporation Law of the State of
Delaware.
Based on such counsel's participation in conferences
with officers and other representatives of the Company, the
Servicer, [the Master Servicer,] Underwriters' counsel,
representatives of the Trustee and the Underwriters at which the
contents of the Registration Statement and the Prospectus were
discussed and, although such counsel need not pass upon or assume
responsibility for the actual accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus (except as stated in paragraph [(vii)] above) and need
not make an independent check or verification thereof for the
purpose of rendering this opinion, on the basis of the foregoing,
such counsel shall also confirm that nothing has come to the
attention of such counsel that would lead such counsel to believe
that the Registration Statement (which for purposes of such
opinion shall not be deemed to include any exhibits filed
therewith or documents incorporated by reference therein), at the
time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus, as of the date of the
Prospectus Supplement and at the Closing Date, contained or
contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading (other than financial statements, schedules
and other numerical, financial and statistical data and the
documents incorporated therein and the information included under
the caption "Plan of Distribution" contained in the Registration
Statement, any amendment thereof and the Prospectus, as to which
such counsel need express no opinion). Insofar as questions of
materiality are involved in the foregoing opinion, such counsel
may as to factual matters necessary to the determination of
materiality rely upon certificates and other information provided
by officers and other representatives to the Company and as to
determinations of materiality, may seek in the first instance and
rely where such counsel concludes such reliance is justifiable,
on the view of officers and other representatives of the Company.
(d) The Underwriters shall have received from
____________________________________ a favorable opinion, dated
the Closing Date and satisfactory in form and substance to
counsel for the Underwriters, to the effect that:
(i) The Company is a corporation, duly organized,
validly existing and in good standing under the laws of
the State of Delaware and has the corporate power and
authority to own its properties and conduct its
business as described in the Prospectus, to enter into
and perform its obligations under this Agreement and
the Pooling and Servicing Agreement and to consummate
the transactions contemplated hereby and thereby, and
is conducting its business so as to comply in all
material respects with all applicable statutes,
ordinances, rules and regulations of the jurisdictions
in which it is conducting business.
(ii) Neither the offer, sale and issuance of the
Offered Certificates nor the consummation of any other
of the transactions contemplated in this Agreement or
the Pooling and Servicing Agreement will conflict with
or result in a breach or violation of any term or
provision of, or constitute a default (or an event
which with the passing of time or notification, or
both, would constitute a default), under the
certificate of incorporation or by-laws of the Company
or, to the knowledge of such counsel, any indenture or
other agreement or instrument to which the Company is a
partner or by which it is bound, or any State of New
York, State of Delaware, Commonwealth of Massachusetts
or federal statute or regulation applicable to the
Company or, to the knowledge of such counsel, any order
of any State of New York, State of Delaware,
Commonwealth of Massachusetts or federal court,
regulatory body, administrative agency or governmental
body having jurisdiction over the Company.
(iii) To the knowledge of such counsel, there are
no material contracts, indentures or other documents of
the Company required to be described or referred to in
the Registration Statement or to be filed as exhibits
thereto other than those described or referred to
therein or filed or incorporated by reference as
exhibits thereto.
(iv) There is no pending or, to the best
knowledge of such counsel, threatened action, suit or
proceeding before any court or governmental agency,
authority or body or any arbitrator involving the
Company of a character required to be disclosed in the
Registration Statement which is not adequately
disclosed in the Prospectus, and there is no franchise,
contract or other document of a character required to
be described in the Registration Statement or
Prospectus, or to be filed as an exhibit, which is not
described or filed as required.
(v) No consent, approval, authorization or order
of any State of New York, State of Delaware,
Commonwealth of Massachusetts or federal court or
governmental agency or body is required for the
consummation by the Company of the transactions
contemplated by this Agreement and the Pooling and
Servicing Agreement, except (i) such as have been
obtained under the Act and (ii) such as may be required
under the blue sky laws of any jurisdiction in
connection with the purchase and the offer and sale of
the Offered Certificates by any Underwriter, as to
which such counsel need express no opinion.
Such opinion (a) may express counsel's reliance as to
factual matters on certificates of government and agency
officials and the representations and warranties made by, and on
certificates or other documents furnished by officers of, the
parties to this Agreement and the Pooling and Servicing Agreement
and (b) may be qualified as an opinion only on the law of the
State of New York, the General Corporate Law of the State of
Delaware, the law of The Commonwealth of Massachusetts and the
federal law of the United States of America.
(e) The Underwriters shall have received from counsel
for [each of] the Servicer [and Master Servicer] [a] favorable
opinion[s], dated the Closing Date and satisfactory in form and
substance to counsel for the Underwriters, to the effect that:
(i) The Servicer [or Master Servicer, as the case
may be,] has been duly organized as a corporation and
is validly existing and in good standing under the laws
of the State[s] of _______ [or _______, as the case may
be] and has corporate power and authority (corporate
and other) to own its properties and conduct its
business as described in the Prospectus, to enter into
and perform its obligations under the Pooling and
Servicing Agreement and to consummate the transactions
contemplated thereby, is duly qualified as a foreign
corporation in good standing in all jurisdictions in
which the ownership or leasing of property or the
conduct of its business requires such qualification,
owns or possesses or has obtained all material
governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to lease,
own or license, as the case may be, and to operate, its
properties and to carry on its business as described in
the Prospectus, and is conducting its business so as to
comply in all material respects with all applicable
statutes, ordinances, rules and regulations of the
jurisdictions in which it is conducting business.
(ii) The execution and delivery of the Pooling and
Servicing Agreement has been duly authorized by the
Servicer [or Master Servicer, as the case may be,] and
the Pooling and Servicing Agreement has been duly
executed and delivered by it and constitutes its valid
and binding agreement, enforceable against it in
accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency, liquidation, receivership, moratorium,
reorganization or similar laws affecting the
enforcement of rights of creditors generally and to
general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or at
law.
(iii) Neither the execution nor the delivery of
the Pooling and Servicing Agreement, nor the
consummation of any other of the transactions
contemplated therein, nor the fulfillment of the terms
of the Pooling and Servicing Agreement will conflict
with, result in a breach or violation of any term or
provision of, or constitute a default (or an event
which with the passage of time or notification, or
both, would constitute a default) under the
[certificate] [articles] of incorporation or by-laws of
the Servicer [or Master Servicer, as the case may be],
any statute currently applicable to it or any order, or
regulation currently applicable to it of any court,
regulatory body, administrative agency or governmental
body having jurisdiction over it or the terms of any
indenture or other agreement or instrument known to
such counsel to which it is a party or by which it or
any of its properties are bound.
(iv) There is no pending or, to the best
knowledge of such counsel, threatened action, suit or
proceeding before any court or governmental agency,
authority or body or any arbitrator involving the
Servicer [or Master Servicer, as the case may be,] of a
character required to be disclosed in the Registration
Statement which is not adequately disclosed in the
Prospectus, and there is no franchise, contract or
other document of a character required to be described
in the Registration Statement or Prospectus, or to be
filed as an exhibit, which is not described or filed as
required.
(v) No approval, authorization, consent or order,
registration, filing, qualification, license or permit
of or with any court or government agency or body is
required for the consummation by the Master Servicer or
Servicer, as the case may be, of the transaction
contemplated in the Pooling and Servicing Agreement.
Each of such opinions (a) may express counsel's
reliance as to factual matters on the representations and
warranties made by, and on certificates or other documents
furnished by officers of, the parties to this Agreement and the
Pooling and Servicing Agreement, (b) may assume the due
authorization, execution and delivery of the Pooling and
Servicing Agreement and the instruments and documents referred to
therein by the parties thereto other than the Servicer [or the
Master Servicer, as the case may be,] and (c) may be qualified as
an opinion only on the law of ________ [or _______, as the case
may be,] and the federal law of the United States of America.
(f) The Underwriters shall have received from
, counsel for the Underwriters, a favorable opinion,
dated the Closing Date and satisfactory in form and substance to
the Underwriters.
(g) The Underwriters shall have received from
________________ certified public accountants, a letter dated the
Closing Date and satisfactory in form and substance to the
Underwriters and counsel for the Underwriters stating in effect
that [using the assumptions and methodology used by the Company,
all of which shall be described in such letter, they have
recalculated such numbers and percentages set forth in the
Prospectus as the Underwriters may reasonably request and as are
agreed to by _________________, compared the results of their
calculations to the corresponding items in the Prospectus, and
found each such number and percentage set forth in the Prospectus
to be in agreement with the results of such calculations]. To
the extent historical financial information with respect to the
Company and/or historical financial, delinquency or related
information with respect to one or more servicers is included in
the Prospectus, such letter or letters shall also relate to such
information.
(h) The Offered Certificates listed on Schedule III
hereto shall have been rated as indicated on such Schedule by the
rating agency or agencies indicated.
(i) All proceedings in connection with the
transactions contemplated by this Agreement, and all documents
incident hereto and thereto, shall be satisfactory in form and
substance to the Underwriters and counsel for the Underwriters,
and the Underwriters and counsel for the Underwriters shall have
received such additional information, certificates and documents
as they may reasonably request.
If any of the conditions specified in this Section 6
shall not have been fulfilled in all material respects when and
as provided by this Agreement, or if any of the opinions and
certificates mentioned above or elsewhere in this Agreement shall
not be in all material respects reasonably satisfactory in form
and substances to the Underwriters and counsel for the
Underwriters, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior
to, the Closing Date by the Underwriters. Notice of such
cancellation shall be given to the Company in writing, or by
telephone or by either telegraph or telecopier confirmed in
writing.
[7. Reimbursement of Underwriters' Expenses. If the
sale of any Offered Certificates provided for herein is not
consummated because any condition to the obligations of the
Underwriters set forth in Section 6 hereof is not satisfied or
because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or therein or comply with
any provision hereof or thereof, other than by reason of a
default by any of the Underwriters, the Company will reimburse
the Underwriters severally upon demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the
proposed purchase and sale of such Offered Certificates.]
8. Indemnification and Contribution. (a) The Company
agrees to indemnify and hold harmless each Underwriter and each
person who controls any Underwriter within the meaning of the Act
or the Exchange Act against claims, damages, or liabilities,
joint or several, to which such Underwriter may become subject,
under the Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any part
of the Registration Statement when such part became effective, or
in the Registration Statement, any Preliminary Prospectus
Supplement, the Prospectus, or any amendment or supplement
thereto, or any preliminary prospectus supplement, or arise out
of or are based upon the omission or alleged omission (in the
case of any Computational Materials or ABS Term Sheets (as
defined in Section 9 below) in respect of which the Company
agrees to indemnify any Underwriter or any such controlling
person, as set forth below, where such are made in conjunction
with the Prospectus) to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter and each such
controlling person for any legal or other expenses reasonably
incurred by it in connection with investigating or defending
against such loss, claim, damage, liability, or action; provided,
however, (i) that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made
therein (A) in reliance upon and in conformity with written
information furnished to the Company by any Underwriter directly
or through another Underwriter specifically for use in the
preparation thereof or (B) in any Current Report or any amendment
or supplement thereof, except to the extent that any untrue
statement or alleged untrue statement therein or omission
therefrom results (or is alleged to have resulted) directly from
an error (a "Mortgage Pool Error") in the information concerning
the characteristics of the Mortgage Loans furnished by the
Company to an Underwriter in writing or by electronic
transmission that was used in the preparation of either (x) any
Computational Materials or ABS Term Sheets (or amendments or
supplements thereof) or (y) any written or electronic materials
furnished to prospective investors on which the Computational
Materials (or amendments or supplements) were based, (ii) such
indemnity with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter (or any person
controlling any Underwriter) from whom the person asserting any
such loss, claim, damage or liability purchased the Offered
Certificates which are the subject thereof if such person did not
receive a copy of the Prospectus (or the Prospectus as amended or
supplemented) at or prior to the confirmation of the sale of such
Certificates to such person in any case where such delivery is
required by the Act and the untrue statement or omission of a
material fact contained in such preliminary prospectus was
corrected in the Prospectus (or the Prospectus as amended or
supplemented) and (iii) such indemnity with respect to any
Mortgage Pool Error shall not inure to the benefit of any
Underwriter (or any person controlling any Underwriter) from whom
the person asserting any loss, claim, damage or liability
received any Computational Materials or ABS Term Sheets (or any
written or electronic materials on which the Computational
Materials or ABS Term Sheets are based) that were prepared on the
basis of such Mortgage Pool Error, if, prior to the time of
confirmation of the sale of the applicable Offered Certificates
to such person, the Company notified such Underwriter in writing
of the Mortgage Pool Error or provided in written or electronic
form information superseding or correcting such Mortgage Pool
Error (in any such case, a "Corrected Mortgage Pool Error"), and
such Underwriter failed to notify such person thereof or to
deliver to such person corrected Computational Materials (or
underlying written or electronic materials) or ABS Term Sheets.
This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, each of its
directors, each of its officers who signs the Registration
Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent
as the foregoing indemnity from the Company to each Underwriter,
but only with reference to (A) written information relating to
such Underwriter furnished to the Company by an Underwriter
directly or through another Underwriter specifically for use in
the preparation of the documents referred to in the foregoing
indemnity, or (B) any Computational Materials or ABS Term Sheets
(or amendments or supplements thereof) delivered to prospective
investors by such Underwriter and furnished to the Company by
such Underwriter pursuant to or as contemplated by Section 9 and
incorporated by reference in the Registration Statement or the
Prospectus or any amendment or supplement thereof (except that no
such indemnity shall be available for any losses, claims, damages
or liabilities, or actions in respect thereof, resulting from any
Mortgage Pool Error, other than a Corrected Mortgage Pool Error).
This indemnity agreement will be in addition to any liability
which any Underwriter may otherwise have. The Company
acknowledges that [the statements set forth in the last paragraph
of the cover page and under the heading "Underwriting" or "Plan
of Distribution" in any Preliminary Prospectus Supplement or the
Prospectus] constitute the only information furnished in writing
by or on behalf of the several Underwriters for inclusion in the
documents referred to in the foregoing indemnity (other than any
Computational Materials or ABS Term Sheets furnished to the
Company by any Underwriter, and you confirm that such statements
are correct. [Any Computational Materials or ABS Term Sheets (or
amendments or supplements thereof) furnished to the Company by a
particular Underwriter shall relate exclusively to and be the
several responsibility of such Underwriter and no other
Underwriter.]
(c) Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action,
such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 8,
notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 8. In case
any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and
to the extent that it may elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense
thereof, with counsel satisfactory to such indemnified party
(which may be counsel representing the indemnifying party);
provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there
may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available
to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate
counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence (it
being understood, however, that the indemnifying party shall not
be liable for the expenses of more than one separate counsel,
approved by the Underwriters in the case of paragraph (a) of this
Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action), (ii) the
indemnifying party shall not have employed counsel satisfactory
to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of
the indemnifying party; and except that, if clause (i) or (iii)
is applicable, such liability shall be only in respect of the
counsel referred to in such clause (i) or (iii).
(d) If the indemnification provided for in this
Section 8 is unavailable or insufficient to hold harmless an
indemnified party under paragraph (a) or (b) above, then each
indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of the losses, claims,
damages, or liabilities referred to in paragraph (a) or (b) above
as follows:
(i) in the case of any losses, claims, damages
and liabilities (or actions in respect thereof) which
do not arise out of or are not based upon any untrue
statement or omission of a material fact in any
Computational Materials or ABS Term Sheets (or any
amendments or supplements thereof) in such proportion
so that the Underwriters are responsible for that
portion represented by the percentage that the
underwriting discount bears to the sum of such discount
and the purchase price of the Offered Certificates
specified in Schedule I hereto and the Company is
responsible for the balance; provided, however, that in
no case shall any Underwriter (except as may be
provided in any agreement among underwriters relating
to the offering of the Offered Certificates) be
responsible under this subparagraph (i) for any amount
in excess of the underwriting discount applicable to
the Offered Certificates purchased by such Underwriter
hereunder; and
(ii) in the case of any losses, claims, damages
and liabilities (or actions in respect thereof) which
arise out of or are based upon any untrue statement or
omission of a material fact in any Computational
Materials or ABS Terms Sheets (or any amendments or
supplements thereof) or in any written or electronic
materials on which the Computational Materials are
based, in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the
statement or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect
thereof) as well as any other relevant equitable
considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact
in such Computational Materials or ABS Term Sheets (or
any amendments or supplements thereof or such written
or electronic materials) results from information
prepared by the Company on the one hand or Underwriters
on the other and the parties' relative intent,
knowledge, access to information and opportunity to
correct or prevent such statement or omission.
Notwithstanding anything to the contrary in this
paragraph (d), no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section
8, each person who controls an Underwriter within the meaning of
the Act shall have the same rights to contribution as such
Underwriter, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, each officer of
the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the
preceding sentence of this paragraph (d). Any party entitled to
contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against
another party or parties under this paragraph (d), notify such
party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the
party or parties from whom contribution may be sought from any
other obligation it or they may have hereunder or otherwise than
under this paragraph (d).
9. Computational Materials and Structural Term
Sheets. (a) Not later than 10:30 a.m., New York time, on the
business day before the date on which the Current Report relating
to the Offered Certificates of a Series is required to be filed
by the Company with the Commission pursuant to Section 5(b)
hereof, the Underwriters shall deliver to the Company five
complete copies of all materials provided by the Underwriters to
prospective investors in such Offered Certificates which
constitute (i) "Computational Materials" within the meaning of
the no-action letter dated May 20, 1994 issued by the Division of
Corporation Finance of the Commission to Kidder, Peabody
Acceptance Corporation I, Kidder, Peabody & Co. Incorporated, and
Kidder Structured Asset Corporation and the no-action letter
dated May 27, 1994 issued by the Division of Corporation Finance
of the Commission to the Public Securities Association (together,
the "Kidder Letters") and the filing of such material is a
condition of the relief granted in such letter (such materials
being the "Computational Materials"), and (ii) "Structural Term
Sheets" within the meaning of the no-action letter dated February
17, 1995 issued by the Division of Corporation Finance of the
Commission to the Public Securities Association (the "PSA
Letter") and the filing of such material is a condition of the
relief granted in such letter (such materials being the
"Structural Term Sheets"). Each delivery of Computational
Materials and Structural Term Sheets to the Company pursuant to
this paragraph (a) shall be effected by delivering four copies of
such materials to counsel for the Company on behalf of the
Company at the address specified in Section 13 hereof and one
copy of such materials to the Company.
(b) Each Underwriter represents and warrants to and
agrees with the Company, as of the date hereof and as of the
Closing Date, that:
(i) if the Underwriters have provided any
Collateral Term Sheets to potential investors in the
Offered Certificates prior to the date hereof and if
the filing of such materials with the Commission is a
condition of the relief granted in the PSA Letter, then
in each such case the Underwriters delivered four
copies of such materials to counsel for the Company on
behalf of the Company at the address specified in
Section 13 hereof and one copy of such materials to the
Company no later than 10:30 a.m., New York City time,
on the first business day following the date on which
such materials were initially provided to a potential
investor;
(ii) the Computational Materials furnished to the
Company by such Underwriter pursuant to Section 9(a)
constitute (either in original, aggregated or
consolidated form) all of the materials furnished to
prospective investors by such Underwriter prior to the
time of delivery thereof to the Company that are
required to be filed with the Commission with respect
to the Offered Certificates in accordance with the
Kidder Letters, and such Computational Materials comply
with the requirements of the Kidder Letters;
(iii) the Structural Term Sheets furnished to the
Company by such Underwriter pursuant to Section 9(a)
constitute all of the materials furnished to
prospective investors by such Underwriter prior to the
time of delivery thereof to the Company that are
required to be filed with the Commission as "Structural
Term Sheets" with respect to the Offered Certificates
in accordance with the PSA Letter, and such Structural
Term Sheets comply with the requirements of the PSA
Letter;
(iv) on the date any such Computational Materials
or Structural Term Sheets with respect to such Offered
Certificates (or any written or electronic materials
furnished to prospective investors on which the
Computational Materials are based) were last furnished
to each prospective investor by such Underwriter and on
the date of delivery thereof to the Company pursuant to
Section 9(a) and on the Closing Date, such
Computational Materials (or such other materials) or
Structural Term Sheets did not and will not include any
untrue statement of a material fact or, when read in
conjunction with the Prospectus and Prospectus
Supplement, omit to state a material fact required to
be stated therein or necessary to make the statements
therein not misleading; and
(v) at the time any Computational Materials or
Structural Term Sheets with respect to the Offered
Certificates were furnished to a prospective investor
and on the date hereof, the Underwriters possessed, and
on the date of delivery of such materials to the
Company pursuant to or as contemplated by this Section
9 and on the Closing Date, the Underwriters will
possess, the capability, knowledge, expertise,
resources and systems of internal control necessary to
ensure that such Computational Materials or Structural
Term Sheets conform to the representations and
warranties of the Underwriters contained in
subparagraphs (ii)-(iv) above of this paragraph (b);
(iv) all Computational Materials (or underlying
materials distributed to prospective investors on which
the Computational Materials were based) delivered to
prospective investors by such Underwriter and all
Structural Term Sheets delivered to prospective
investors by such Underwriter contained and will
contain a legend, prominently displayed on the first
page thereof, stating that the Computational Materials
or Structural Term Sheets are being produced and
provided exclusively by the Underwriter and that the
Underwriter is acting as an underwriter and not acting
as an agent of the Company in connection with the
securities described herein, and otherwise in form and
substance satisfactory to the Company.
Notwithstanding the foregoing, each Underwriter makes no
representation or warranty as to whether any Computational
Materials or Structural Term Sheets (or any written or electronic
materials on which the Computational Materials are based)
included or will include any untrue statement resulting directly
from any Mortgage Pool Error (except any Corrected Mortgage Pool
Error, with respect to materials prepared after the receipt by
such Underwriter from the Company of notice of such Corrected
Mortgage Pool Error or materials superseding or correcting such
Corrected Mortgage Pool Error).
(c) The Underwriters shall cause a firm of public
accountants to furnish to the Company a letter, dated as of the
date on which the Underwriters deliver any Computational
Materials (which term shall be deemed to include, for purposes of
this paragraph (c), calculated statistical information delivered
to prospective investors in the form of a Structural Term Sheet)
to the Company pursuant to Section 9(a), in form and substance
satisfactory to the Company, stating in effect that they have
verified the mathematical accuracy of any calculations performed
by each Underwriter and set forth in such Computational
Materials.
(d) Each Underwriter acknowledges and agrees that the
Company has not authorized and will not authorize the
distribution of any Computational Materials (or any written or
electronic materials on which the Computational Materials are
based) or Structural Term Sheets to any prospective investor, and
agrees that any Computational Materials or Structural Term Sheets
with respect to any Series of Certificates furnished to
prospective investors shall include a disclaimer in the form
described in paragraph (b)(iv) above.
Each Underwriter agrees that it will not represent to prospective
investors that any Computational Materials or Structural Term
Sheets were prepared or disseminated on behalf of the Company.
(e) If, at any time when a prospectus relating to the
Offered Certificates of a Series is required to be delivered
under the Act, it shall be necessary to amend or supplement the
Prospectus as a result of an untrue statement of a material fact
contained in any Computational Materials or Structural Term
Sheets provided by any Underwriter pursuant to this Section 9 or
the omission to state therein a material fact required, when
considered in conjunction with the Prospectus and Prospectus
Supplement, to be stated therein or necessary to make the
statements therein, when read in conjunction with the Prospectus
and Prospectus Supplement, not misleading, or if it shall be
necessary to amend or supplement any Current Report relating to
any Computational Materials or Structural Term Sheets to comply
with the Act or the rules thereunder, such Underwriter promptly
will prepare and furnish to the Company for filing with the
Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance. Each Underwriter represents and warrants to the
Company, as of the date of delivery by it of such amendment or
supplement to the Company, that such amendment or supplement will
not include any untrue statement of a material fact or, when read
in conjunction with the Prospectus and Prospectus Supplement,
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, however, that each such Underwriter makes no
representation or warranty as to whether any such amendment or
supplement will include any untrue statement resulting directly
from any Mortgage Pool Error (except any Corrected Mortgage Pool
Error, with respect to any such amendment or supplement prepared
after the receipt by such Underwriter from the Company of notice
of such Corrected Mortgage Pool Error or materials superseding or
correcting such Corrected Mortgage Pool Error). The Company
shall have no obligation to file such amendment or supplement if
(i) the Company determines that such amendment or supplement
contains any untrue statement of a material fact or, when read in
conjunction with the Prospectus and Prospectus Supplement, omits
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; it being
understood, however, that the Company shall have no obligation to
review or pass upon the accuracy or adequacy of, or to correct,
any such amendment or supplement provided by any Underwriter to
the Company pursuant to this paragraph (e) or (ii) the Company
reasonably determined that such filing is not required under the
Act and the Underwriters do not object as provided below. The
Company shall give notice to the Underwriters of its
determination not to file an amendment or supplement pursuant to
clause (ii) of the preceding sentence and agrees to file such
amendment or supplement if the Underwriters reasonably object to
such determination within one business day after receipt of such
notice.
10. Collateral Term Sheets. (a) Prior to the
delivery of any "Collateral Term Sheet" within the meaning of the
PSA Letter, the filing of which is a condition of the relief
granted in such letter (such material being the "Collateral Term
Sheets"), to a prospective investor in the Offered Certificates,
the Underwriters shall notify the Company and its counsel by
telephone of their intention to deliver such materials and the
approximate date on which the first such delivery of such
materials is expected to occur. Not later than 10:30 a.m., New
York time, on the business day immediately following the date on
which any Collateral Term Sheet was first delivered to a
prospective investor in the Offered Certificates, the
Underwriters shall deliver to the Company five complete copies of
all materials provide by the Underwriters to prospective
investors in such Offered Certificates which constitute
"Collateral Term Sheets." Each delivery of a Collateral Term
Sheet to the Company pursuant to this paragraph (a) shall be
effected by delivering four copies of such materials to counsel
for the Company on behalf of the Company at the address specified
in Section 14 hereof and one copy of such materials to the
Company. (Collateral Term Sheets and Structural Term Sheets are,
together, referred to herein as "ABS Term Sheets.") At the time
of each such delivery, the Underwriter making such delivery shall
indicate in writing that the materials being delivered constitute
Collateral Term Sheets, and, if there has been any prior such
delivery shall indicate whether such materials differ in any
material respect from any Collateral Term Sheets previously
delivered to the Company with respect to such Series pursuant to
this Section 10(a) as a result of the occurrence of a material
change in the characteristics of the Mortgage Loans.
(b) Each Underwriter represents and warrants to and
agrees with the Company as of the date hereof and as of the
Closing Date, that:
(i) The Collateral Term Sheets furnished to the
Company by such Underwriter pursuant to Section 10(a)
constitute all of the materials furnished to prospective
investors by such Underwriter prior to time of delivery
thereof to the Company that are required to be filed with
the Commission as "Collateral Term Sheets" with respect to
the Offered Certificates in accordance with the PSA Letter,
and such Collateral Term Sheets comply with the requirements
of the PSA Letter;
(ii) On the date any such Collateral Term Sheets
with respect to such Offered Certificates were last
furnished to each prospective investor by such Underwriter
and on the date of delivery thereof to the Company pursuant
to Section 10(a) and on the Closing Date, such Collateral
Term Sheets did not and will not include any untrue
statement of a material fact or, when read in conjunction
with the Prospectus and Prospectus Supplement, omit to state
a material fact required to be stated therein or necessary
to make the statements therein not misleading; and
(iii) such Underwriter has not represented to
any prospective investor that any Collateral Term Sheets
with respect to any Series were prepared or disseminated on
behalf of the Company, and, except as otherwise disclosed by
such Underwriter to the Company in writing prior to the date
hereof, all Collateral Term Sheets previously furnished to
prospective investors included a disclaimer to the effect
set forth in Section 10(c).
Notwithstanding the foregoing, each Underwriter makes no
representation or warranty as to whether any Collateral Term
Sheet included or will include any untrue statement or material
omission resulting directly from any Mortgage Pool Error (except
any Corrected Mortgage Pool Error, with respect to materials
prepared after the receipt by such Underwriter from the Company
of notice of such Corrected Mortgage Pool Error or materials
superseding or correcting such Corrected Mortgage Pool Error).
(c) Each Underwriter acknowledges and agrees that any
Collateral Term Sheets with respect to any Series of Certificates
furnished to prospective investors from and after the date hereof
shall include a disclaimer in form satisfactory to the Company to
the effect set forth in Section 9(d) hereof, and to the effect
that the information contained in such materials supersedes
information contained in any prior Collateral Term Sheet with
respect to such Series of Offered Certificates and will be
superseded by the description of the Mortgage Loans in the
Prospectus Supplement and in the detailed description relating to
such Prospectus Supplement to be filed under cover of Form 8-K.
Each Underwriter agrees that it will not represent to prospective
investors that any Collateral Term Sheets were prepared or
disseminated on behalf of the Company.
(d) If, at any time when a prospectus relating to the
Offered Certificates of a Series is required to be delivered
under the Act, it shall be necessary to amend or supplement the
Prospectus as a result of an untrue statement of a material fact
contained in any Collateral Term Sheets provided by any
Underwriter pursuant to this Section 10 or the omission to state
therein a material fact required, when considered in conjunction
with the Prospectus and Prospectus Supplement, to be stated
therein or necessary to make the statements therein, when read in
conjunction with the Prospectus and Prospectus Supplement, not
misleading, or if it shall be necessary to amend or supplement
any Current Report relating to any Collateral Term Sheets to
comply with the Act or the rules thereunder, such Underwriter
promptly will prepare and furnish to the Company for filing with
the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance. Each Underwriter represents and warrants to the
Company, as of the date of delivery of such amendment or
supplement to the Company, that such amendment or supplement will
not include any untrue statement of a material fact or, when read
in conjunction with the Prospectus and Prospectus Supplement,
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, however, each such Underwriter makes no representation
or warranty as to whether any such amendment or supplement will
include any untrue statement resulting directly from any Mortgage
Pool Error (except any Corrected Mortgage Pool Error, with
respect to any such amendment or supplement prepared after the
receipt by such Underwriter from the Company of notice of such
Corrected Mortgage Pool Error or materials superseding or
correcting such Corrected Mortgage Pool Error). The Company
shall have no obligation to file such amendment or supplement if
the Company determines that (i) such amendment or supplement
contains any untrue statement of a material fact or, when read in
conjunction with the Prospectus and Prospectus Supplement, omits
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; it being
understood, however, that the Company shall have no obligation to
review or pass upon the accuracy or adequacy of, or to correct,
any such amendment or supplement provided by any Underwriter to
the Company pursuant to this paragraph (d) or (ii) such filing is
not required under the Act.
11. Substitution of Underwriters. (a) If any
Underwriter shall fail to take up and pay for the amount of the
Offered Certificates agreed by such Underwriter to be purchased
under this Agreement, upon tender of such Offered Certificates in
accordance with the terms hereof, and the amount of the Offered
Certificates not purchased does not aggregate more than 10% of
the total amount of the Offered Certificates set forth in
Schedule I hereof, the remaining Underwriters shall be obligated
to take up and pay for the Offered Certificates that the
withdrawing or defaulting Underwriter agreed but failed to
purchase.
(b) If any Underwriter shall fail to take up and pay
for the amount of the Offered Certificates agreed by such
Underwriter to be purchased under this Agreement (such
Underwriter being a "Defaulting Underwriter"), upon tender of
such Certificates in accordance with the terms hereof and
thereof, and the amount of the Offered Certificates not purchased
aggregates more than 10% of the total amount of the Offered
Certificates set forth in Schedule I hereto, and arrangements
satisfactory to the remaining Underwriters and the Company for
the purchase of such Certificates by other persons are not made
within 36 hours thereafter, this Agreement shall terminate. In
the event of any such termination the Company shall not be under
any liability to any Underwriter (except to the extent provided
in Section 5(f) and Section 8 hereof) nor shall any Underwriter
(other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the
amount of the Offered Certificates such Underwriter agreed to
purchase hereunder) be under any liability to the Company (except
to the extent provided in Sections 8, 9 and 10 hereof). Nothing
herein shall be deemed to relieve any Defaulting Underwriter from
any liability it may have to the Company or any other Underwriter
by reason of its failure to take up and pay for Certificates as
agreed by such Defaulting Underwriter.
12. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Underwriters by
notice given to the Company prior to delivery of and payment for
all Offered Certificates if prior to such time [(i) trading in
securities of the Company or any affiliate on the New York Stock
Exchange shall have been suspended or limited, or minimum prices
shall have been established on such Exchange, (ii) a banking
moratorium shall have been declared by either federal or New York
State authorities,] or (iii) there shall have occurred any
outbreak or material escalation of hostilities or other calamity
or crisis, the effect of which on the financial markets of the
United States is such as to make it, in the reasonable judgment
of the Underwriters, impractical to market the Offered
Certificates.
13. Representations and Indemnities to Survive. The
respective agreements, representations, warranties, indemnities
and other statements of the Company or its officers and the
Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in
Section 8 hereof, and will survive delivery of and payment for
the Offered Certificates. The provisions of Sections 7, 8, 9 and
10 hereof shall survive the termination or cancellation of this
Agreement.
14. Notices. All communications hereunder will be in
writing and effective only on receipt, and, if sent to the
Underwriters, will be mailed, delivered or either telegraphed or
transmitted by telecopier and confirmed to them at the addresses
set forth on Schedule I hereto; or, if sent to the Company will
be mailed, delivered or either telegraphed or transmitted by
telecopier and confirmed to it at One International Place, Room
608, Boston, Massachusetts 02110, Attention: R. Douglas
Donaldson, Treasurer, with a copy to [Cleary, Gottlieb, Steen &
Hamilton, 1752 N Street, N.W., Washington, D.C. 20036, Attention
Mitchell S. Dupler, Esq].
15. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their
respective successors and the officers and directors and
controlling persons referred to in Section 8 hereof, and their
successors and assigns, and no other person will have any right
or obligation hereunder.
16. Applicable Law; Counterparts. This Agreement will
be governed by and construed in accordance with the laws of the
State of New York without giving effect to the provisions thereof
concerning conflict of laws. This Agreement may be executed in
any number of counterparts, each of which shall for all purposes
be deemed to be an original and all of which shall together
constitute but one and the same instrument.
17. Performance under Pooling and Servicing Agreement.
You agree to perform the obligations and exercise the rights of
the Company, all on behalf of the Company, under Sections
________ of the Pooling and Servicing Agreement, and you agree to
perform, on behalf of the Company, the obligation described in
the definition of [Rating Agency] in the Pooling and Servicing
Agreement to designate a successor [Rating Agency] under the
circumstances contemplated therein.
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to us a
counterpart hereof, whereupon this letter and your acceptance
shall represent a binding agreement among the Company and the
several Underwriters.
Very truly yours,
DEUTSCHE MORTGAGE & ASSET
RECEIVING CORPORATION
By:
Name:
Title:
Accepted at New York, New York
as of the date first written
above.
[NAME OF LEAD UNDERWRITER]
By:
Name:
Title:
DCD02E71
<PAGE>
SCHEDULE I
Percentage of
Series , Class _
and Class ___
Certificates to
Underwriter be Purchased
(and address)
<PAGE>
SCHEDULE II
Registration Statement No.
Basic Prospectus dated , 19
Prospectus Supplement dated , 19
Title of Certificates: Mortgage Pass-Through
Certificates, Series ,
Multiclass REMIC Certificates
Amount of Certificates
(approximate; subject to
a variance of plus
or minus 5%):
Pass-Through Rates:
Purchase Price Percentage: % (plus accrued interest)
Cut-off Date: , 19
Closing: [A.M. P.M.] , 19 at the
offices of [Cleary, Gottlieb,
Steen & Hamilton
One Liberty Plaza
New York, New York 10006]
Manner of payment of
Certificate Purchase Price:
Office for delivery of
non-book entry
Certificates:
Office for payment for
Certificates or wire transfer information:
Office for checking
non-book entry
Certificates:
Denominations: $_______ and integral
multiples of $______ in excess
thereof, provided that one
certificate [of each Class]
may represent a different
amount.
<PAGE>
Modification of representations and warranties contained in
Section 1 of the Underwriting Agreement:
None
Modification of opinion of counsel delivered pursuant to
Section 6(c) of the Underwriting Agreement:
None
Modification of items to be covered by the letter from ________
__________ delivered pursuant to Section 6(g) of the Underwriting
Agreement:
None
Modification of items to be covered by the letter from __________
__________ delivered pursuant to Section 6(h) of the Underwriting
Agreement:
None
DCD02E71
EXHIBIT 5.1
Opinion
as to Legality
October 2, 1996
Deutsche Mortgage & Asset Receiving Corporation
One International Place
Room 608
Boston, Massachusetts 02110
Re: Deutsche Mortgage & Asset Receiving Corporation
Registration Statement on Form S-3 (No. 333-4598)
Ladies and Gentlemen:
We have acted as your counsel in connection with the
above Registration Statement (the "Registration Statement") filed
on May 3, 1996 and amended on October 2, 1996, with the Securities
and Exchange Commission pursuant to the Securities Act of 1933,
as amended (the "Act"), in respect of Mortgage Pass-Through
Certificates ("Certificates") which you plan to offer in series,
each series to be issued under a separate pooling and servicing
agreement (a "Pooling and Servicing Agreement"), in all material
respects relevant hereto substantially in the form of Exhibit 4.1
to the Registration Statement (a "Pooling and Servicing
Agreement"), between Deutsche Mortgage & Asset Receiving
Corporation (the "Company") and a trustee to be identified in the
prospectus supplement for such series of Certificates (the
"Trustee" for such series).
We have reviewed the originals or copies certified or
otherwise identified to our satisfaction of such documents and
records of the Company and such other instruments and other
certificates of public officials, officers and representatives of
the Company and such other persons, and we have made such
investigations of law, as we have deemed appropriate as a basis
for the opinions expressed below.
Based on the foregoing, and subject to the further
assumptions and qualifications set forth below, it is our opinion
that:
1. When, in respect of a series of Certificates,
a Pooling and Servicing Agreement has been duly
authorized by all necessary action and duly executed
and delivered by the Company and the Trustee for such
series, such Pooling and Servicing Agreement will be a
legal and valid obligation of the Company; and
2. When a Pooling and Servicing Agreement for a
series of Certificates has been duly authorized by all
necessary action and duly executed and delivered by the
Company and the Trustee for such series, and when the
Certificates of such series of Certificates have been
duly executed, countersigned, issued and sold as
contemplated in the Registration Statement and the
prospectus delivered pursuant to Section 5 of the Act
in connection therewith, such Certificates will be
legally and validly issued, fully paid and
nonassessable, and the holders of such Certificates
will be entitled to the benefits of such Pooling and
Servicing Agreement.
The form of Pooling and Servicing Agreement indicates
that it is governed by the law of the State of New York. The
foregoing opinions are limited to the law of the State of New
York, the federal law of the United States of America, and the
General Corporation Law of the State of Delaware.
The opinions expressed above are subject to applicable
bankruptcy, insolvency and similar laws affecting creditors'
rights generally to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity.
We hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement and to the reference to
this firm in the Registration Statement and the related
prospectus under the heading "Legal Matters," without admitting
that we are "experts" within the meaning of the Act or the rules
and regulations of the Securities and Exchange Commission issued
thereunder with respect to any part of the Registration Statement
including this Exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By: /s/ Mitchell S. Dupler
-----------------------------
Mitchell S. Dupler, a Partner
