<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 33-79544-07
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 22, 1996)
$171,326,000
CORESTATES HOME EQUITY LOAN TRUST 1996-1
CORESTATES HOME EQUITY LOAN CERTIFICATES, SERIES 1996-1
$90,000,000 Class A-1 Certificates, 6.20% Pass-Through Rate
$27,600,000 Class A-2 Certificates, 6.75% Pass-Through Rate
$41,000,000 Class A-3 Certificates, 7.00% Pass-Through Rate
$12,726,000 Class A-4 Certificates, 7.00% Pass-Through Rate
CORESTATES BANK, N.A.
Master Servicer
The CoreStates Home Equity Loan Certificates, Series 1996-1 (the
"Certificates"), will consist of five classes of Certificates designated as the
Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates, Class
A-4 Certificates and Class R Certificates. Only the Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates
(collectively, the "Class A Certificates") are offered hereby. The Certificates
represent fractional undivided interests in a trust fund to be designated as
CoreStates Home Equity Loan Trust 1996-1 (the "Trust" or the "Trust Fund"),
consisting primarily of (i) a pool (the "Mortgage Pool") of fixed-rate,
closed-end, simple interest, home equity mortgage loans (each, a "Mortgage
Loan") secured by mortgages, deeds of trust or other instruments (each, a
"Mortgage") creating a first or junior lien on one- to four-family dwellings
(each, a "Mortgaged Property") to be deposited into the Trust Fund by CoreStates
Bank, N.A. and New Jersey National Bank (collectively, the "Sellers") for the
benefit of the holders of the Certificates (the "Certificateholders"), (ii) all
monies received on the Mortgage Loans on and after the Cut-off Date (as defined
herein), (iii) amounts on deposit in the Collection Account, the Reserve Account
and the Yield Supplement Account and (iv) certain other property. The Mortgage
Loans will be serviced by CoreStates Bank, N.A. (in its capacity as servicer,
the "Master Servicer").
(continues on following page)
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.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT COMMENCING ON PAGE S-11
HEREIN AND IN THE PROSPECTUS.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) SELLERS(2)(3)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Per Class A-1 Certificate 99.9453125% 0.200% 99.7453125%
- ----------------------------------------------------------------------------------------------------------------
Per Class A-2 Certificate 99.9843750% 0.325% 99.6593750%
- ----------------------------------------------------------------------------------------------------------------
Per Class A-3 Certificate 99.0156250% 0.400% 98.6156250%
- ----------------------------------------------------------------------------------------------------------------
Per Class A-4 Certificate 96.7421875% 0.500% 96.2421875%
- ----------------------------------------------------------------------------------------------------------------
Total $170,454,285.78 $309,480.00 $170,144,805.78
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from May 30, 1996.
(2) The underwriting discount only applies to the $58,700,000 aggregate
principal amount of the Class A-1 Certificates, $5,000,000 aggregate
principal amount of the Class A-2 Certificates, $30,550,000 aggregate
principal amount of the Class A-3 Certificates and $10,726,000 aggregate
principal amount of the Class A-4 Certificates offered by the Underwriters.
The remaining Class A Certificates will be sold by CoreStates Bank, N.A.
through CoreStates Capital Markets. See "Underwriting" herein.
(3) Before deducting expenses payable by the Sellers, estimated to be $370,000.
The Class A Certificates are offered by the Underwriters subject to prior sale,
when, as and if issued and accepted by the Underwriters and subject to the
Underwriters' right to reject orders in whole or in part and to approval of
certain legal matters by counsel. It is expected that the Class A Certificates
will be delivered in book-entry form through the facilities of The Depository
Trust Company ("DTC") against payment therefor in immediately available funds on
or about May 30, 1996.
J.P. MORGAN & CO.
CORESTATES CAPITAL MARKETS
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
May 22, 1996
<PAGE> 2
(continuation of cover page)
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be entered into among the
Master Servicer, the Sellers and The First National Bank of Chicago, as trustee
(the "Trustee").
Distributions on the Certificates will be made, to the extent of funds
available therefor, on the 15th day of each month, or, if such day is not a
business day, then on the next business day, commencing on June 17, 1996 (each,
a "Payment Date"). The Final Scheduled Payment Dates for the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A-4
Certificates are the April 2004, December 2005, December 2009 and June 2012
Payment Dates, respectively.
There is currently no secondary market for the Class A Certificates. The
Underwriters intend to make a secondary market in the Class A Certificates, but
are not obligated to do so. There can be no assurance that a secondary market
for the Class A Certificates will develop or, if one does develop, that it will
continue. The Class A Certificates will not be listed on any securities
exchange.
It is a condition to the issuance of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates and Class A-4 Certificates that they each
be rated Aaa by Moody's Investors Service, Inc. and "AAA" by Fitch Investors
Service, L.P.
The Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates
and Class A-4 Certificates initially will each be represented by one or more
certificates registered in the name of Cede & Co., the nominee of DTC. The
interests of owners of the Class A Certificates will be represented by
book-entries on the records of DTC and participating members thereof. See
"Description of Certificates -- Registration of the Class A Certificates"
herein.
As described herein an election will be made to treat certain assets of the
Trust Fund as a "real estate mortgage investment conduit" (a "REMIC") for
federal income tax purposes. The Class A Certificates will constitute "regular
interests" in a REMIC and an interest in the Yield Supplement Account as
described herein. For a description of certain tax consequences of owning the
Class A Certificates, including, without limitation, original issue discount,
see "Certain Federal Income Tax Consequences" herein.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE CLASS A CERTIFICATES. THE CLASS A CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE MASTER SERVICER, THE SELLERS OR ANY OF THEIR AFFILIATES.
THE CERTIFICATES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND NEITHER THE CLASS A
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE MASTER SERVICER, THE SELLERS, OR ANY OF THEIR
AFFILIATES.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS DATED MAY 22, 1996 OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND
WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. PURCHASERS ARE URGED TO READ BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CLASS A
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
ii
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CLASS A
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not 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 by the Sellers
or any Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby by anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement or the Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that the information herein is
correct as of any date since the date of this Prospectus Supplement.
Until August 20, 1996 (90 days after the date of this Prospectus
Supplement), all dealers effecting transactions in the Class A Certificates,
whether or not participating in this distribution, may be required to deliver a
Prospectus and a Prospectus Supplement. This delivery requirement is in addition
to the obligation of dealers to deliver a Prospectus and a Prospectus Supplement
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
<S> <C>
Summary of Terms..................................................................... S-1
Risk Factors......................................................................... S-11
Description of the Mortgage Pool..................................................... S-12
Certain Yield and Prepayment Considerations.......................................... S-18
The Sellers and the Master Servicer -- Foreclosure and Delinquency Experience........ S-23
Description of the Certificates...................................................... S-25
The Trustee.......................................................................... S-34
Certain Federal Income Tax Consequences.............................................. S-34
ERISA Considerations................................................................. S-36
Legal Investment..................................................................... S-37
Use of Proceeds...................................................................... S-37
Underwriting......................................................................... S-37
Ratings.............................................................................. S-38
Legal Matters........................................................................ S-38
PROSPECTUS
Available Information................................................................ 2
Reports to Holders................................................................... 2
Incorporation of Certain Documents by Reference...................................... 2
Summary of Prospectus................................................................ 3
Risk Factors......................................................................... 11
Description of the Mortgage Pools.................................................... 17
Certain Yield and Prepayment Considerations.......................................... 19
The Trusts........................................................................... 21
The Sellers.......................................................................... 21
The Sellers' Home Equity Loan Program................................................ 22
Description of the Certificates...................................................... 26
Certain Legal Aspects of the Mortgage Loans.......................................... 47
Certain Federal Income Tax Consequences.............................................. 52
State and Other Tax Consequences..................................................... 68
ERISA Considerations................................................................. 68
Legal Investment..................................................................... 72
Use of Proceeds...................................................................... 72
Plan of Distribution................................................................. 72
Ratings.............................................................................. 73
Legal Matters........................................................................ 73
</TABLE>
iii
<PAGE> 4
SUMMARY OF TERMS
The following Summary of Terms is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus Supplement and
in the Prospectus. Capitalized terms used but not otherwise defined shall have
the meanings ascribed to such terms in the Prospectus.
Issuer..................... CoreStates Home Equity Loan Trust 1996-1.
Securities Offered......... $90,000,000 aggregate principal amount of 6.20%
CoreStates Home Equity Loan Certificates, Series
1996-1, Class A-1 (the "Class A-1 Certificates"),
$27,600,000 aggregate principal amount of 6.75%
CoreStates Home Equity Loan Certificates, Series
1996-1, Class A-2 (the "Class A-2 Certificates"),
$41,000,000 aggregate principal amount of 7.00%
CoreStates Home Equity Loan Certificates, Series
1996-1, Class A-3 (the "Class A-3 Certificates")
and $12,726,000 aggregate principal amount of
7.00% CoreStates Home Equity Loan Certificates,
Series 1996-1, Class A-4 (the "Class A-4
Certificates" and, together with the Class A-1
Certificates, Class A-2 Certificates and Class
A-3 Certificates, the "Class A Certificates").
Sellers.................... CoreStates Bank, N.A., a national banking
association, and New Jersey National Bank, a
national banking association (collectively, the
"Sellers"), will sell and assign the Mortgage
Loans to the Trust. Each Mortgage Loan will be
serviced by the Master Servicer.
Master Servicer............ CoreStates Bank, N.A. (in its capacity as servicer,
the "Master Servicer") herein.
Trustee.................... The First National Bank of Chicago, a national
banking association having its principal place of
business in the State of Illinois (the
"Trustee"). See "The Trustee" herein.
Cut-off Date............... May 1, 1996 (the "Cut-off Date").
Closing Date............... May 30, 1996 (the "Closing Date").
Payment Date............... The 15th calendar day of each month or, if such day
is not a business day, the first business day
following such 15th calendar day, commencing on
June 17, 1996 (each, a "Payment Date").
Record Date................ The calendar day immediately preceding each Payment
Date (or, if Definitive Certificates are issued,
the first calendar day of the month in which each
such Payment Date occurs) (each, a "Record
Date").
Description of the
Certificates;
The Mortgage Pool........ The CoreStates Home Equity Loan Certificates,
Series 1996-1 (the "Certificates"), represent
interests in a trust fund to be designated as
CoreStates Home Equity Loan Trust 1996-1 (the
"Trust" or the "Trust Fund"), consisting
primarily of (i) a pool (the "Mortgage Pool") of
fixed-rate, closed-end, simple interest, home
equity mortgage loans originated by the Sellers,
and evidenced by promissory notes or other
evidence of indebtedness (the "Mortgage Loans")
secured by mortgages, deeds of trust or other
instruments (each, a "Mortgage") creating a first
or more junior lien on one- to four-family
dwellings, units in condominium developments and
units in planned unit developments (each, a
"Mortgaged Property"), with an aggregate
principal balance of $171,326,953.09 as of the
Cut-off Date, after giving effect to payments
received prior to the Cut-off Date (the
S-1
<PAGE> 5
"Original Pool Principal Balance"), (ii) all
monies received with respect to the Mortgage
Loans on and after the Cut-off Date, (iii)
amounts on deposit in the Collection Account, the
Reserve Account and the Yield Supplement Account
and (iv) certain other property. The Certificates
will be issued pursuant to a Pooling and
Servicing Agreement to be dated as of the Cut-off
Date among the Master Servicer, the Sellers and
the Trustee (the "Pooling and Servicing
Agreement"). See "Description of the
Certificates -- General" herein.
The Certificates will consist of five classes of
Certificates (each, a "Class"), designated as the
Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the
Class A-4 Certificates and the Class R
Certificates (the "Class R Certificates").
Distributions on the Class R Certificates will be
subordinate to distributions on the Class A
Certificates to the extent described herein. Only
the Class A Certificates are offered hereby. See
"Description of the Certificates -- General"
herein.
Unless otherwise specified herein, references
herein to percentages of Mortgage Loans in the
Mortgage Pool refer in each case to the
percentage of the aggregate principal balance of
the Mortgage Loans in the Mortgage Pool as of the
Cut-off Date, giving effect to principal payments
received prior to the Cut-off Date.
The Mortgage Pool consists of fixed-rate,
closed-end, simple interest home equity loans.
All of the Mortgage Loans are payable in
substantially equal monthly installments and are
fully-amortizing. The Mortgage Loans are secured
by first or more junior Mortgages on one- to
four-family residential properties, condominiums
or townhouses. All of the Mortgage Loans were
originated by the Sellers in accordance with the
underwriting standards as described in the
Prospectus under "The Sellers' Home Equity Loan
Program -- Underwriting Procedures." The Mortgage
Loans were selected from home equity loans in the
portfolio of such loans owned by the Sellers (the
"Sellers' Portfolio") based on the criteria
specified in the Pooling and Servicing Agreement
and described herein. See "Description of the
Mortgage Pool".
The Mortgage Loans consist of 3,970 loans secured
by Mortgaged Properties which are located
primarily in the States of Pennsylvania, New
Jersey and Maryland. As of the Cut-off Date, the
average unpaid principal balance of the Mortgage
Loans was $43,155.40, the maximum unpaid
principal balance of any of the Mortgage Loans
was $196,467.46 and the minimum unpaid principal
balance of any of the Mortgage Loans was
$5,139.51. As of the Cut-off Date, the interest
rates borne by the Mortgage Loans (the "Mortgage
Interest Rates") ranged from 6.74% to 11.74% per
annum, and the weighted average Mortgage Interest
Rate of the Mortgage Loans was 8.36% per annum.
As of the Cut-off Date, the weighted average
original term to scheduled maturity of the
Mortgage Loans was 156.92 months and the original
term to scheduled maturity of the Mortgage Loans
ranged from 90 months to 180 months. As of the
Cut-off Date, the weighted average remaining term
to scheduled maturity of the Mortgage Loans was
152.99 months and the remaining terms to
scheduled maturity of the Mortgage Loans ranged
from 84 months to 180 months. All of the
S-2
<PAGE> 6
Mortgage Loans were originated between March 1,
1994 and April 30, 1996.
As of the respective dates of origination of the
Mortgage Loans, the weighted average Combined
Loan-to-Value Ratio of the Mortgage Loans was
approximately 59.85%, and the weighted average
Home Equity Loan-to-Value Ratio of the Mortgage
Loans was approximately 44.66%.
As of the Cut-off Date 55.47% of the Mortgage Loans
were secured by first mortgages, 41.01% were
secured by second mortgages and approximately
3.53% were secured by more junior mortgages. In
the case of the Mortgage Loans secured by second
or more junior Mortgages, the related senior
mortgage loans may not necessarily be included in
the Mortgage Pool. As of the respective dates of
origination of the Mortgage Loans, the weighted
average Home Equity Loan Ratio was 51.82%. The
"Home Equity Loan Ratio" of a Mortgage Loan
secured by a second or more junior Mortgage is
equal to the ratio (expressed as a percentage) of
the original principal balance of such Mortgage
Loan to the sum of (i) the original principal
balance of such Mortgage Loan and (ii) the
principal balance at the time of origination of
the Mortgage Loan of any senior mortgage loan(s).
As of the Cut-off Date, the Mortgage Files for
37.14% (by aggregate principal balance) of the
Mortgage Loans contained information as to
property type. Of such Mortgage Loans 80.00% were
secured by mortgages on single-family dwellings,
10.10% were secured by mortgages on two- to four-
family dwellings, 9.23% were secured by mortgages
on townhouses and 0.67% were secured by mortgages
on condominiums. The Mortgage Loans for which
such information is available do not represent a
statistical sampling and are not expected to be
indicative of such characteristics of the entire
Mortgage Pool.
As of the Cut-off Date, the Mortgage Files for
75.07% (by aggregate principal balance) of the
Mortgage Loans contained information as to
occupancy type. Of such Mortgage Loans 97.83%
were secured by mortgages on properties which are
the related borrower's primary residences, and
2.17% were secured by mortgages on vacation,
second home or investor owned properties. The
Mortgage Loans for which such information is
available do not represent a statistical sampling
and are not expected to be indicative of such
characteristics of the entire Mortgage Pool. See
"The Mortgage Loan Pool -- General" herein.
Denominations.............. The Class A Certificates will be issued in minimum
denominations of $1,000 and integral multiples
thereof. Each Class A Certificate will represent
a percentage interest (a "Percentage Interest")
determined by dividing the original dollar amount
represented by such Certificate by the Original
Class A Certificate Balance.
Registration of the
Class A Certificates..... The Class A Certificates of each Class will
initially be represented by one or more
certificates registered in the name of Cede & Co.
("Cede"), the nominee of The Depository Trust
Company ("DTC"), and will be available only in
the form of book-entries on the records of DTC,
participating members thereof ("Participants")
and other entities, such as banks, brokers,
dealers and trust companies, that clear
S-3
<PAGE> 7
through or maintain custodial relationships with
a Participant, either directly or indirectly
("Indirect Participants"). Certificates
representing the Class A Certificates will be
issued in definitive form only under the limited
circumstances described herein. All references
herein to "holders" or "Certificateholders" shall
reflect the rights of owners of the Class A
Certificates (the "Certificate Owners") as they
may indirectly exercise such rights through DTC
and Participants, except as otherwise specified
herein. See "Special Considerations" and
"Description of the Certificates -- Registration
of the Certificates" in the Prospectus.
Final Scheduled
Payment Dates............ The Final Scheduled Payment Date for each Class of
Class A Certificates is set forth below, although
it is anticipated that the actual final Payment
Date for such Class may occur earlier than its
Final Scheduled Payment Date. See "Certain Yield
and Prepayment Considerations" herein for a
description of the methodology used in
calculating the Final Scheduled Payment Dates.
<TABLE>
<CAPTION>
FINAL
SCHEDULED
PAYMENT DATE
-------------
<S> <C> <C>
Class A-1 Certificates: April 2004
Class A-2 Certificates: December 2005
Class A-3 Certificates: December 2009
Class A-4 Certificates: June 2012
</TABLE>
The Class A Certificates
A. General............... The Class A-1 Certificates will have an aggregate
principal balance of $90,000,000 (the "Original
Class A-1 Certificate Balance") as of the Closing
Date, and will accrue interest at the rate of
6.20% per annum (the "Class A-1 Pass-Through
Rate"). The Class A-2 Certificates will have an
aggregate principal balance of $27,600,000 (the
"Original Class A-2 Certificate Balance") as of
the Closing Date, and will accrue interest at the
rate of 6.75% per annum (the "Class A-2 Pass-
Through Rate"). The Class A-3 Certificates will
have an aggregate principal balance of
$41,000,000 (the "Original Class A-3 Certificate
Balance") as of the Closing Date, and will accrue
interest at the rate of 7.00% per annum (the
"Class A-3 Pass-Through Rate"). The Class A-4
Certificates will have an aggregate principal
balance of $12,726,000 (the "Original Class A-4
Certificate Balance") as of the Closing Date, and
will accrue interest at the rate of 7.00% per
annum (the "Class A-4 Pass-Through Rate"; each of
the Class A-1 Pass-Through Rate, the Class A-2
Pass-Through Rate, the Class A-3 Pass-Through
Rate and the Class A-4 Pass-Through Rate, a
"Pass-Through Rate"). The Class A Certificates
represent an undivided ownership interest in the
Mortgage Pool that is senior to the ownership
interest represented by the Class R Certificates
to the extent described herein.
As more fully described herein, distributions will
be made on the Class A Certificates on each
Payment Date to the extent of available funds,
first, to pay interest on the Class A
Certificates and then to reduce the principal
amount of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates and Class
A-4 Certificates, in that order, until the
principal amount of each such Class is reduced to
zero; provided,
S-4
<PAGE> 8
that if both the balance in the Reserve Account
and the Overcollateralization Amount (as defined
herein) as of any Payment Date have been reduced
to zero, payments of principal on each Class of
Class A Certificates will be made pro rata based
on their respective Certificate Balances.
Interest accrued on the Mortgage Loans, together
with Yield Supplement Deposit Amounts withdrawn
from the Yield Supplement Account (each as
defined herein), are expected to be sufficient to
pay the Class A Interest Remittance Amount
accrued during each Accrual Period. See "Risk
Factors -- Mortgage Loan Interest Rate
Considerations". As described herein, after
payment of such amounts to the Class A
Certificateholders, certain amounts may be
distributed on the Class R Certificates. Any
distributions on the Class A Certificates of any
Class will be made on each Payment Date to
Certificateholders of record of such Class on the
related Record Date in an amount equal to the
product of such Certificateholder's Percentage
Interest and the amount available for
distribution on such Payment Date to the
Certificateholders of such Class in accordance
with the priorities described in "Description of
the Certificates -- Distributions" herein.
On any Payment Date, the amount available for
distribution to Certificateholders for any
Payment Date generally will be the sum of (i) the
Available Payment Amount (as defined below), (ii)
any amount (the "Reserve Account Draw") deposited
in the Collection Account from the Reserve
Account and (iii) any Yield Supplement Deposit
Amount deposited in the Collection Account from
the Yield Supplement Account. The term "Available
Payment Amount" generally means with respect to
any Payment Date, the amount of collections on or
with respect to the Mortgage Loans received by
the Master Servicer during the related Due
Period, net of the related Servicing Fee (defined
below) paid to the Master Servicer and
reimbursements for incurred unpaid Servicing Fees
and certain expenses paid by the Master Servicer.
B. Interest
Distributions......... Interest on the Class A Certificates will accrue
from the 15th calendar day of each month (whether
or not such day is a Business Day), or in the
case of the initial Accrual Period, from May 30,
1996, to, but excluding, the 15th calendar day of
the next succeeding month (whether or not such
day is a Business Day) (each, an "Accrual
Period"). Interest shall accrue on each Class A
Certificate at the related Pass-Through Rate and
shall be distributed, to the extent funds are
available therefor, on each Payment Date.
Interest with respect to the Class A Certificates
will accrue on the basis of a 360-day year
consisting of twelve 30-day months. With respect
to each Payment Date, the aggregate interest
accrued during the related Accrual Period at the
related Pass-Through Rate on the Certificate
Balance (as defined below) outstanding on the
immediately preceding Payment Date (after giving
effect to all payments of principal made on such
preceding Payment Date) of each Class of Class A
Certificates, or, in the case of the initial
Accrual Period, outstanding on May 30, 1996, is
referred to herein as the "Class A Interest
Remittance Amount." See "Description of the
Certificates -- Distributions" herein and in the
Prospectus.
S-5
<PAGE> 9
C. Principal
Distributions......... Holders of the Class A Certificates will be
entitled to receive on each Payment Date, in the
order and priority set forth herein, to the
extent available (but not more than the Class A
Certificate Balance (as defined below) then
outstanding), a distribution allocable to
principal which will generally equal (a) all
amounts received by the Master Servicer from or
on behalf of the related Mortgagors on the
Mortgage Loans during the calendar month
preceding the calendar month in which such
Payment Date occurs (the "Due Period") which, at
the time of receipt, were applied in reduction of
the principal balance of such Mortgage Loans,
including (i) the principal portion of all
scheduled payments ("Monthly Payments") received
on the Mortgage Loans, (ii) any principal
prepayments of any such Mortgage Loans in full
("Principal Prepayments") and partial prepayments
of principal on any such Mortgage Loan that are
not Principal Prepayments (each, a "Curtailment")
and (iii) the principal portion of (A) the
proceeds of any insurance policy relating to a
Mortgage Loan, a Mortgaged Property (as defined
below) or a REO Property (as defined below), net
of proceeds to be applied to the repair of the
Mortgaged Property or released to the Mortgagor
(as defined herein) and net of expenses
reimbursable therefrom ("Insurance Proceeds"),
(B) proceeds received in connection with the
liquidation of any defaulted Mortgage Loans,
whether by trustee's sale, foreclosure sale or
otherwise ("Liquidation Proceeds"), net of fees
and advances reimbursable therefrom ("Net
Liquidation Proceeds") and (C) proceeds received
in connection with a taking of a related
Mortgaged Property by condemnation or the
exercise of eminent domain or in connection with
a release of part of any such Mortgaged Property
from the related lien ("Released Mortgaged
Property Proceeds"), (b) the principal portion of
all amounts paid by the Sellers in connection
with the repurchase of, or the substitution of a
substantially similar mortgage loan for, a
Mortgage Loan as to which there is defective
documentation or a breach of a representation or
warranty contained in the Pooling and Servicing
Agreement, (c) the principal balance of each
defaulted Mortgage Loan or REO Property (as
defined below) as to which the Master Servicer
has determined that all amounts expected to be
recovered have been recovered (each, a
"Liquidated Mortgage Loan") to the extent not
included in the amounts described in clauses (a)
and (b) above (the sum of (a), (b) and (c) above,
the "Basic Principal Amount"), and (d) the
amount, if any, by which (A) the amount required
to be distributed to Class A Certificateholders
as of the preceding Payment Date exceeded (B) the
amount of the actual distribution to Class A
Certificateholders on such preceding Payment
Date, together with interest on such amount at
the applicable Pass-Through Rate from such
immediately preceding Payment Date (the "Class A
Carry-Forward Amount" and, together with the
Basic Principal Amount, the "Class A Principal
Remittance Amount"). In addition, excess amounts
may be released from the Reserve Account and
applied to make distributions in reduction of the
Class A Certificate Balance. See "Description of
the Certificates -- Reserve Account".
S-6
<PAGE> 10
On each Payment Date, the lesser of (i) the Class A
Certificate Balance then outstanding and (ii) the
sum of (A) the Class A Principal Remittance
Amount (which, together with the Class A Interest
Remittance Amount, constitutes the "Class A
Remittance Amount" for such Payment Date) and (B)
amounts released from the Reserve Account, to the
extent described under "Description of the
Certificates -- Reserve Account," is payable to
Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates and Class A-4
Certificates, in that order, until the
Certificate Balance of each such Class is reduced
to zero; provided, that if both the balance in
the Reserve Account and the Overcollateralization
Amount (as defined herein) as of any Payment Date
have been reduced to zero, payments of principal
on each Class of Class A Certificates will be
made pro rata based on their respective
Certificate Balances.
As of any Payment Date, the "Certificate Balance"
of any Class of Class A Certificates will equal
the Original Certificate Balance of such Class,
less all amounts previously distributed on
account of principal to holders of such Class of
Class A Certificates, and the "Class A
Certificate Balance" will equal the aggregate of
the Certificate Balances of the Class A
Certificates.
Reserve Account............ An account or accounts will be maintained by the
Trust (the "Reserve Account") which account shall
be an Eligible Account, as described herein. The
Reserve Account will initially be maintained at
CoreStates Bank, N.A. in its trust department.
Amounts on deposit in the Reserve Account will be
available on each Payment Date to pay the Class A
Remittance Amount, to the extent the Available
Payment Amount on any such Payment Date is
insufficient therefor; provided, that amounts on
deposit in the Reserve Account will not be
available on any Payment Date to the extent the
Yield Supplement Deposit Amount for such Payment
Date exceeds the amount on deposit in the Yield
Supplement Account on such Payment Date. The
Reserve Account will be funded by an initial
deposit from the proceeds of the sale of the
Class A Certificates of $14,991,108.40 (8.75% of
the Original Pool Principal Balance, which is
equal to the initial Reserve Account
Requirement). Thereafter, the Available Payment
Amount, if any, remaining after payment of the
Class A Remittance Amount will be deposited into
the Reserve Account to the extent necessary to
maintain the amount in the Reserve Account at the
Reserve Account Requirement. The Reserve Account
Requirement will generally decline so long as
losses and delinquencies do not exceed the limits
described herein. The Reserve Account Requirement
may be reduced as of any Payment Date, or the
definition thereof may be otherwise modified,
without the consent of the Class A
Certificateholders, provided that the Rating
Agencies confirm in writing that such reduction
or modification will not result in a reduction or
withdrawal in the rating of either Class of the
Class A Certificates.
On each Payment Date all amounts on deposit in the
Reserve Account in excess of the Reserve Account
Requirement will be distributed to the Class A-1
Certificates, Class A-2 Certificates, Class A-3
Certificates and Class A-4 Certificates, in that
order, until the principal amount of each such
Class is reduced to zero, and any remaining
excess will be
S-7
<PAGE> 11
distributed to the Class R Certificates;
provided, that if both the balance in the Reserve
Account and the Overcollateralization Amount (as
defined herein) as of any Payment Date have been
reduced to zero, payments of principal on each
Class of Class A Certificates will be made pro
rata based on their respective Certificate
Balances. See "Description of the
Certificates -- Reserve Account".
The Class R Certificateholders will not be required
to refund any amounts properly distributed to
them, regardless of whether there are sufficient
funds on a subsequent Payment Date to make a full
distribution to Class A Certificateholders of the
amount required to be distributed to such
Certificateholders.
The funding and maintenance of the Reserve Account
is intended to enhance the likelihood of timely
payment to Class A Certificateholders of the
Class A Remittance Amount; however, in certain
circumstances, the Reserve Account could be
depleted and shortfalls could result.
Yield Supplement Account... On the Closing Date, the Yield Supplement Account
will be funded by an initial deposit of
$77,567.54 from the proceeds of the issuance of
the Class A Certificates, which is equal to the
Maximum Yield Supplement Amount as of the Cut-off
Date. The "Maximum Yield Supplement Amount" as of
any date will equal the net present value
(discounted at a rate of 2.5% per annum) of the
aggregate amount by which (x) interest accrued on
the principal balance of each then outstanding
Mortgage Loan having a Mortgage Interest Rate of
less than 7.75% (each, a "Supplemented Mortgage
Loan") for the period commencing on such date and
ending on the scheduled maturity of each such
Mortgage Loan at a rate equal to 7.75% (the sum
of (i) 7.00%, which is both the Class A-3
Pass-Through Rate and the Class A-4 Pass-Through
Rate, and (ii) the Servicing Fee Rate), exceeds
(y) interest on such principal balance at the
applicable Mortgage Interest Rate for the same
period, assuming in each case that payments on
such Mortgage Loans are made as scheduled and no
prepayments are made. The Yield Supplement
Account will initially be maintained at
CoreStates Bank, N.A. in its trust department. On
each Payment Date, the Trustee will transfer to
the Collection Account, from monies on deposit in
the Yield Supplement Account, an amount equal to
the Yield Supplement Deposit Amount (as defined
herein), if any, in respect of the Mortgage Loans
for such Payment Date, which amount shall be
applied to the Class A Interest Remittance Amount
for such Payment Date. See "Description of the
Certificates -- Yield Supplement Account".
Servicing.................. The Master Servicer will be responsible for
servicing, managing and making collections on the
Mortgage Loans. The Master Servicer will receive
a monthly servicing fee (the "Monthly Servicing
Fee"), payable out of the amounts collected by
the Master Servicer, as compensation for acting
as Master Servicer. The Monthly Servicing Fee
will be paid on each Payment Date for the
preceding Due Period, and, as to any Payment
Date, will be equal to one-twelfth of the product
of 0.75% (the "Servicing Fee Rate") and the Pool
Principal Balance as of the preceding Payment
Date or, with respect to the first Payment Date,
the Original Pool Principal Balance, reduced by
any
S-8
<PAGE> 12
amounts set forth in the Pooling and Servicing
Agreement. As part of its servicing
responsibilities, the Master Servicer will be
required to cause to be deposited, in the manner
and at the times described herein, into an
account or accounts (the "Collection Account"),
which must be an Eligible Account, all payments
received on and after the Cut-off Date except
late payment penalties and extension fees, which
will be retained by the Master Servicer as
additional servicing compensation. The Master
Servicer is entitled to receive investment
earnings on amounts in the Collection Account.
See "Description of the Certificates --
Collection Account; Collection on the Mortgage
Loans" and "-- Servicing Compensation".
Ratings.................... It is a condition to the issuance of the Class A
Certificates that each Class of the Class A
Certificates be rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and "AAA" by Fitch
Investors Service, L.P. ("Fitch", each of Moody's
and Fitch, 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. No person is obligated to
maintain any rating on any Class of Class A
Certificates and, accordingly, there can be no
assurance that the rating assigned to any Class
of Class A Certificates upon initial issuance
thereof will not be lowered or withdrawn by a
Rating Agency at any time thereafter. In the
event any rating is revised or withdrawn, the
liquidity of the related Class of Class A
Certificates may be adversely affected. In
general, the ratings address credit risk and do
not represent any assessment of the likelihood or
rate of principal prepayments. See "Special
Considerations -- Liquidity" and "Ratings"
herein.
Optional Termination by
the Master Servicer...... On any Payment Date on or after the date on which
the Pool Principal Balance has declined to less
than 5% of the Original Pool Principal Balance,
the Master Servicer will have the option, subject
to certain conditions set forth in the Pooling
and Servicing Agreement, to purchase all, but not
less than all, of the Mortgage Loans, at the
purchase price described herein. The payment of
such purchase price will effect retirement of the
Certificates which are outstanding on the date of
purchase. See "Description of the
Certificates -- Termination; Retirement of the
Certificates".
Certain Legal Aspects of
the Mortgage Loans....... 44.53% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) are
secured by second or more junior Mortgages which
are subordinate to one or more mortgage liens on
the related Mortgaged Property prior to the lien
of such Mortgage Loan (such senior lien, if any,
a "Senior Lien"). A primary risk with respect to
junior Mortgages is that foreclosure funds
received in connection therewith may not be
sufficient to satisfy fully both the Senior Lien
and the junior Mortgage. See "Special
Considerations" and "Certain Legal Aspects of the
Mortgage Loans" herein.
Certain Federal Income
Tax Consequences......... An election will be made to treat the Trust Fund
(exclusive of the Yield Supplement Account) as a
"real estate mortgage investment conduit" (a
"REMIC") for federal income tax purposes.
S-9
<PAGE> 13
Upon the issuance of the Certificates, Orrick,
Herrington & Sutcliffe, special tax counsel to
the Sellers ("Tax Counsel"), will deliver its
opinion generally to the effect that, assuming
compliance with all provisions of the Pooling and
Servicing Agreement, for federal income tax
purposes the Trust Fund (exclusive of the Yield
Supplement Account) will qualify as a REMIC under
Sections 860A through 860G of the Internal
Revenue Code of 1986 (the "Code").
For federal income tax purposes, the Class R
Certificates will be the sole class of "residual
interest" in the REMIC and the Class A
Certificates will represent ownership of (i)
"regular interests" in the REMIC which generally
will be treated as debt instruments, and (ii)
rights to payments from the Yield Supplement
Account, which generally will be treated as
interests in notional principal contracts.
For further information regarding the federal
income tax consequences of investing in the Class
A Certificates, see "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA Considerations....... See "ERISA Considerations" herein and in the
Prospectus.
Legal Investment........... Although upon their initial issuance each Class of
the Class A Certificates will be rated Aaa by
Moody's and "AAA" by Fitch, the Class A
Certificates will not constitute "mortgage
related securities" under the Secondary Mortgage
Market Enhancement Act of 1984 because the
Mortgage Pool includes Mortgage Loans that are
secured by second and more junior Mortgages.
Investors should consult their own legal advisers
in determining whether and to what extent the
Class A Certificates constitute legal investments
for such investors. See "Legal Investment"
herein.
Use of Proceeds............ Substantially all of the net proceeds to be
received from the sale of the Class A
Certificates will be received by the Sellers.
S-10
<PAGE> 14
RISK FACTORS
Investors should consider, among other things, the matters discussed under
"Risk Factors" in the Prospectus and the following factors in connection with
the purchase of the Class A Certificates:
RISKS OF THE MORTGAGE LOANS
Geographic Concentration. Certain geographic regions of the United States
from time to time will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher rates of loss and
delinquency on mortgage loans generally. Any concentration of the Mortgage Loans
in such a region may present risk considerations in addition to those generally
present for similar mortgage-backed securities without such concentration. In
particular, 63.85% and 35.80% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) are secured by Mortgaged Properties located in
the States of Pennsylvania and New Jersey, respectively. In addition, any
deterioration of the real estate market or weakening of the economy in a region
of the country could result in decreases in the financial strength of borrowers
and decreases in the value of collateral serving as security for loans, which
may be reflected in increases in delinquencies of loans secured by real estate,
slower absorption rates of real estate into the market and lower sales prices
for real estate. See "Description of the Mortgage Pool" herein for further
information regarding the geographic concentration of the Mortgage Loans.
Nature of Security. Approximately 44.53% of the Mortgage Loans (by
aggregate principal balance as of the Cut-off Date) are secured by second or
more junior Mortgages. Although little data is available, the rate of default of
junior mortgage loans may be greater than that of mortgage loans secured by
Senior Liens on comparable properties. See "Risk Factors -- Risks of the
Mortgage Loans -- Nature of Security" in the Prospectus.
As of the Cut-off Date, the Mortgage Files for 75.07% (by aggregate
principal balance) of the Mortgage Loans contained information as to occupancy
type, and 2.17% (by aggregate principal balance) of such Mortgage Loans were
secured by Mortgaged Properties that are vacation, second home or investor owned
properties. It is possible that the rate of delinquencies, foreclosures and
losses on Mortgage Loans secured by non-owner occupied or investor properties
could be higher than the loans secured by the primary residence of the borrower.
Additionally, the Mortgage Loans for which information is available as to
occupancy type do not represent a statistical sampling of all the Mortgage
Loans, and the percentage of total Mortgage Loans secured by Mortgage Properties
that are second home or investor owned properties may be higher (or lower) than
2.17%.
Risk of Early Defaults. 68.59% of the Mortgage Loans in the Mortgage Pool
(by aggregate principal balance as of the Cut-off Date) were originated within
six months prior to the Cut-off Date. The weighted average remaining term to
maturity of the Mortgage Loans in the Mortgage Pool as of the Cut-off Date is
approximately 152.99 months. Although little data is available, defaults on
mortgage loans are generally expected to occur with greater frequency in their
early years.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Class A Certificates will depend on the rate
and timing of payment of principal on the Mortgage Loans in the Mortgage Pool,
including prepayments, liquidations due to defaults and repurchases due to
defective documentation or breaches of representations and warranties. Such
yield may be adversely affected by a higher or lower than anticipated rate of
prepayments on the Mortgage Loans. Prepayments are influenced by a number of
factors, including prevailing mortgage market interest rates, local and regional
economic conditions and homeowner mobility. See "Certain Yield and Prepayment
Considerations" herein and in the Prospectus.
MORTGAGE INTEREST RATE CONSIDERATIONS
The Mortgage Interest Rate on 1.40% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) (each, a "Supplemented Mortgage Loan")
is less than 7.75% (the sum of (i) 7.00%, which is
S-11
<PAGE> 15
both the Class A-3 Pass-Through Rate and the Class A-4 Pass-Through Rate, and
(ii) the Servicing Fee Rate). Amounts withdrawn from the Yield Supplement
Account are expected to be available to fund such difference. The Yield
Supplement Account will be funded by an initial deposit of an amount equal to
the Maximum Yield Supplement Amount as of the Cut-off Date, which is equal to
the net present value (discounted at a rate of 2.5% per annum) of the aggregate
amount by which (x) interest accrued on the principal balance of each
Supplemented Mortgage Loan as of the Cut-off Date for the period commencing with
such date and ending on the scheduled maturity of each such Mortgage Loan at a
rate per annum equal to 7.75%, exceeds (y) interest on such principal balance at
the applicable Mortgage Interest Rate for such period, assuming in each case
that payments on such Mortgage Loans are made as scheduled and no prepayments
are made. Disproportionate rates of prepayments between Mortgage Loans with
higher and lower Mortgage Interest Rates are therefore not expected to
materially affect the yield to Class A Certificateholders.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The description herein of the Mortgage Loans comprising part of the Trust
(the "Mortgage Pool") and of the Mortgaged Properties describes the pool of
Mortgage Loans as it was constituted as of the opening of business on the
Cut-off Date. The Mortgage Pool consists of 3,970 Mortgage Loans and has an
Original Pool Principal Balance of $171,326,953.09 as of the Cut-off Date. The
promissory notes (the "Mortgage Notes") evidencing the Mortgage Loans are
secured by mortgages on one- to four-family residential properties, condominiums
or townhouses which are located primarily in Pennsylvania and New Jersey. Each
Mortgage Loan is a closed-end, fixed-rate, simple interest home equity mortgage
loan. The Mortgage Loans are fully-amortizing (i.e. provide for substantially
equal monthly payments of principal and interest over their terms). None of the
Mortgage Loans are insured or guaranteed by any governmental agency or other
person (except in some cases for title and hazard insurance, which insurance is
required to be obtained by the borrower). The Mortgage Loans were originated by
the Sellers, as described under "The Sellers' Home Equity Loan Program" in the
Prospectus.
Each Mortgage Loan was selected for inclusion in the Mortgage Pool from
among those home equity loans that were not 30 days or more past due and had a
remaining term to scheduled maturity ranging from 85 months to 180 months
(except for two Mortgage Loans whose remaining terms to scheduled maturity were
84 months). The Sellers believe that no adverse selection procedures were
employed in making such selection.
As of the Cut-Off Date, (i) the average principal balance of the Mortgage
Loans was $43,155.40, (ii) no Mortgage Loan had a remaining principal balance of
less than $5,139.51, (iii) each Mortgage Loan had a original term to scheduled
maturity ranging from 90 months to 180 months, (iv) the weighted average
Mortgage Interest Rate was 8.36% per annum, (v) the weighted average original
term to scheduled maturity was 156.92 months, (vi) the weighted average
remaining term to scheduled maturity was 152.99 months, (vii) the original
principal balance of the Mortgage Loans ranged from $5,150.00 to $200,100.00 and
(viii) the average original principal balance was $43,909.64.
Unless otherwise specified herein, references herein to percentages of the
Mortgage Loans refer in each case to the percentage of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date.
Of the Mortgage Loans, 55.47% were secured by first mortgages, 41.01% were
secured by second mortgages, and approximately 3.53% were secured by more junior
mortgages. As of the dates of origination of the Mortgage Loans, the weighted
average Combined Loan-to-Value Ratio (as defined in "Description of the Mortgage
Pools -- General" in the Prospectus) of the Mortgage Loans was 59.85% and the
weighted average Home Equity Loan-to-Value Ratio (as defined in "Description of
the Mortgage Pools -- General" in the Prospectus) of such Mortgage Loans was
44.66%. As of the respective dates of origination of the Mortgage Loans, the
weighted average Home Equity Loan Ratio was 51.82%. The "Home Equity Loan Ratio"
of a Mortgage Loan secured by a second or more junior mortgage is equal to the
ratio (expressed as a percentage) of the original principal balance of such
Mortgage Loan to the sum of (i) the original principal balance of such
S-12
<PAGE> 16
Mortgage Loan and (ii) the principal balance at the time of origination of the
Mortgage Loan of any senior mortgage loan(s).
As of the Cut-off Date, the Mortgage Files for 37.14% (by aggregate
principal balance) of the Mortgage Loans contained information as to property
type, and of such Mortgage Loans 80.00% were secured by single family
properties, 10.10% were secured by two- to four-family properties, 9.23% were
secured by townhouses and 0.67% were secured by condominiums. As of the Cut-off
Date, the Mortgage Files for 75.07% (by aggregate principal balance) of the
Mortgage Loans contained information as to the occupancy type, and of such
Mortgage Loans 97.83% were secured by primary residences, and 2.17% were secured
by vacation, second home or investor owned properties. The Mortgage Loans for
which information is available as to property type or occupancy type do not
represent a statistical sampling of all the Mortgage Loans, and the respective
percentages of all the Mortgage Loans secured by the various property types or
occupancy types is expected to differ from the percentages given above.
MORTGAGE POOL STATISTICS
Set forth below is a description of certain additional characteristics of
the Mortgage Pool as of the Cut-off Date, and references to percentages of
Mortgage Loans refer in each case to the percentage of the aggregate principal
balance of the Mortgage Loans in the Mortgage Pool. The percentages set forth in
the table below may not always add to 100% due to rounding.
REMAINING PRINCIPAL BALANCES
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY POOL BY
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
RANGE OF PRINCIPAL BALANCES BALANCE BALANCE LOANS LOANS
- ------------------------------------------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 0 - $ 24,999........................ $ 17,318,221.48 10.11% 931 23.45%
$ 25,000 - $ 49,999........................ 65,699,420.14 38.35 1,795 45.21
$ 50,000 - $ 74,999........................ 51,307,584.62 29.95 852 21.46
$ 75,000 - $ 99,999........................ 27,856,400.52 16.26 318 8.01
$100,000 - $124,999........................ 4,777,658.15 2.79 44 1.11
$125,000 - $149,999........................ 2,850,553.32 1.66 21 0.53
$150,000 - $174,999........................ 945,419.36 0.55 6 0.15
$175,000 - $199,999........................ 571,695.50 0.33 3 0.08
--------------- --------- --------- ---------
Total............................ $171,326,953.09 100.00% 3,970 100.00%
============== ======= ======== ========
</TABLE>
S-13
<PAGE> 17
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY POOL BY
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
RANGE OF MORTGAGE INTEREST RATES BALANCE BALANCE LOANS LOANS
- ------------------------------------------ ---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
6.50 to 6.74%........................... $ 365,456.79 0.21% 8 0.20%
6.75 to 6.99%........................... 71,312.39 0.04 2 0.05
7.00 to 7.24%........................... 107,181.96 0.06 2 0.05
7.25 to 7.49%........................... 1,648,386.52 0.96 41 1.03
7.50 to 7.74%........................... 207,655.88 0.12 7 0.18
7.75 to 7.99%........................... 99,087,164.79 57.84 2,021 50.91
8.00 to 8.24%........................... 107,444.86 0.06 3 0.08
8.25 to 8.49%........................... 21,063,140.95 12.29 459 11.56
8.50 to 8.74%........................... 8,353,088.57 4.88 193 4.86
8.75 to 8.99%........................... 4,083,704.32 2.38 197 4.96
9.00 to 9.24%........................... 16,675,203.50 9.73 510 12.85
9.25 to 9.49%........................... 1,214,070.53 0.71 65 1.64
9.50 to 9.74%........................... 15,501,352.59 9.05 358 9.02
9.75 to 9.99%........................... 112,802.99 0.07 6 0.15
10.00 to 10.24%........................... 1,344,299.13 0.78 56 1.41
10.25 to 10.49%........................... 27,330.26 0.02 1 0.03
10.50 to 10.74%........................... 1,164,809.30 0.68 37 0.93
10.75 to 10.99%........................... 144,838.53 0.08 3 0.08
11.50 to 11.74%........................... 47,709,23 0.03 1 0.03
---------------- --------- --------- ---------
Total........................... $ 171,326,953.09 100.0% 3,970 100.00%
============== ======= ======== ========
</TABLE>
MONTHS TO SCHEDULED MATURITY AT ORIGINATION
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY POOL BY
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
RANGE OF MONTHS PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
TO SCHEDULED MATURITY BALANCE BALANCE LOANS LOANS
----------------------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
84 to 95................................ $ 176,460.42 0.10% 6 0.15%
96 to 107................................ 1,987,210.91 1.16 60 1.51
108 to 119................................ 1,449,452.54 0.85 42 1.06
120 to 131................................ 58,706,324.41 34.27 1,610 40.55
132 to 143................................ 719,353.78 0.42 17 0.43
144 to 155................................ 2,343,651.04 1.37 48 1.21
156 to 167................................ 1,006,890.07 0.59 22 0.55
168 to 179................................ 1,598,662.75 0.93 30 0.76
180 to 191................................ 103,338,947.17 60.32 2,135 53.78
---------------- --------- --------- ---------
Total........................... $ 171,326,953.09 100.00% 3,970 100.00%
============== ======= ======== ========
</TABLE>
S-14
<PAGE> 18
MONTHS REMAINING TO SCHEDULED MATURITY
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY POOL BY
RANGE OF MONTHS AGGREGATE AGGREGATE NUMBER OF NUMBER OF
REMAINING TO PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
SCHEDULED MATURITY BALANCE BALANCE LOANS LOANS
- ------------------------------------------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C>
84 to 95................................. $ 1,750,806.54 1.02% 52 1.31%
96 to 107................................. 1,371,723.27 0.80 44 1.11
108 to 119................................. 51,833,240.35 30.25 1,440 36.27
120 to 131................................. 7,674,758.22 4.48 191 4.81
132 to 143................................. 2,163,817.08 1.26 45 1.13
144 to 155................................. 1,117,323.36 0.65 21 0.53
156 to 167................................. 1,978,008.53 1.15 42 1.06
168 to 179................................. 88,062,513.16 51.40 1,841 46.37
180 to 191................................. 15,374,762.58 8.97 294 7.41
--------------- --------- --------- ---------
Total............................ $171,326,953.09 100.00% 3,970 100.00%
============== ======= ======== ========
</TABLE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY POOL BY
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
STATE BALANCE BALANCE LOANS LOANS
- ------------------------------------------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Delaware................................... $ 135,721.01 0.08% 4 0.10%
Maryland................................... 474,805.21 0.28 6 0.15
New Jersey................................. 61,332,471.54 35.80 1,382 34.81
Pennsylvania............................... 109,383,955.33 63.85 2,578 64.94
--------------- --------- --------- ---------
Total............................ $171,326,953.09 100.00% 3,970 100.00%
============== ======= ======== ========
</TABLE>
- ---------------
(1) Geographic location generally is determined by location of the related
Mortgaged Property; however, with respect to certain Mortgage Loans, geographic
location is determined by Mortgagor mailing address.
S-15
<PAGE> 19
CALENDAR YEAR AND MONTH OF ORIGINATION
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY NUMBER POOL BY
AGGREGATE AGGREGATE OF NUMBER OF
CALENDAR YEAR PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
AND MONTH BALANCE BALANCE LOANS LOANS
- ------------------------------------------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994 - March............................... $ 68,840.26 0.04% 1 0.03%
1994 - April............................... 0 0 0 0
1994 - May................................. 0 0 0 0
1994 - June................................ 0 0 0 0
1994 - July................................ 0 0 0 0
1994 - August.............................. 0 0 0 0
1994 - September........................... 27,327.96 0.02 1 0.03
1994 - October............................. 0 0 0 0
1994 - November............................ 121,153.88 0.07 2 0.05
1994 - December............................ 47,709.23 0.03 1 0.03
1995 - January............................. 0 0 0 0
1995 - February............................ 0 0 0 0
1995 - March............................... 0 0 0 0
1995 - April............................... 1,373,252.26 0.80 43 1.08
1995 - May................................. 7,314,877.59 4.27 204 5.14
1995 - June................................ 7,036,759.73 4.11 196 4.94
1995 - July................................ 5,028,946.22 2.94 144 3.63
1995 - August.............................. 7,318,039.58 4.27 197 4.96
1995 - September........................... 6,689,572.58 3.90 175 4.41
1995 - October............................. 18,778,771.84 10.96 442 11.13
1995 - November............................ 18,289,540.05 10.68 430 10.83
1995 - December............................ 20,509,775.10 11.97 467 11.76
1996 - January............................. 13,486,832.06 7.87 275 6.93
1996 - February............................ 19,576,094.61 11.43 419 10.55
1996 - March............................... 30,047,020.05 17.54 652 16.42
1996 - April............................... 15,612,440.09 9.11 321 8.09
--------------- --------- --------- ---------
Total............................ $171,326,953.09 100.00% 3,970 100.00%
============== ======= ======== ========
</TABLE>
S-16
<PAGE> 20
CALENDAR YEAR OF MATURITY
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY POOL BY
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
CALENDAR YEAR PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
OF MATURITY BALANCE BALANCE LOANS LOANS
- --------------------------------------------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
2003......................................... $ 968,781.57 0.57% 32 0.81%
2004......................................... 1,736,273.17 1.01 50 1.26
2005......................................... 33,125,321.20 19.33 998 25.14
2006......................................... 26,660,614.61 15.56 643 16.20
2007......................................... 1,592,964.45 0.93 35 0.88
2008......................................... 1,585,469.91 0.93 30 0.76
2009......................................... 1,068,448.99 0.62 24 0.60
2010......................................... 52,510,485.11 30.65 1,136 28.61
2011......................................... 52,078,594.08 30.40 1,022 25.74
---------------- --------- --------- ---------
Total.............................. $ 171,326,953.09 100.00% 3,970 100.00%
============== ======= ======== ========
</TABLE>
COMBINED LOAN-TO-VALUE RATIOS
AT ORIGINATION
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY POOL BY
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
RANGE OF CLTV'S BALANCE BALANCE LOANS LOANS
- -------------------------------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
0.01 to 5.00%....................... $ 14,960.66 0.01% 1 0.03%
5.01 to 10.00%...................... 430,253.63 0.25 26 0.65
10.01 to 15.00%...................... 1,490,002.79 0.87 78 1.96
15.01 to 20.00%...................... 3,348,988.74 1.95 112 2.82
20.01 to 25.00%...................... 4,659,198.13 2.72 142 3.58
25.01 to 30.00%...................... 6,679,336.55 3.90 188 4.74
30.01 to 35.00%...................... 8,580,980.33 5.01 217 5.47
35.01 to 40.00%...................... 9,869,911.78 5.76 227 5.72
40.01 to 45.00%...................... 8,978,320.20 5.24 202 5.09
45.01 to 50.00%...................... 11,479,099.00 6.70 258 6.50
50.01 to 55.00%...................... 12,110,126.26 7.07 256 6.45
55.01 to 60.00%...................... 14,406,109.87 8.41 298 7.51
60.01 to 65.00%...................... 12,908,467.77 7.53 260 6.55
65.01 to 70.00%...................... 13,176,642.65 7.69 292 7.36
70.01 to 75.00%...................... 14,632,853.52 8.54 302 7.61
75.01 to 80.00%...................... 16,354,659.41 9.55 344 8.66
80.01 to 85.00%...................... 14,362,298.73 8.38 316 7.96
85.01 to 90.00%...................... 11,739,334.93 6.85 285 7.18
90.01 to 95.00%...................... 3,539,592.53 2.07 94 2.37
95.01 to 100.00%..................... 1,605,628.59 0.94 48 1.21
100.01 to 105.00%..................... 960,187.02 0.56 24 0.60
--------------- ----------- ----------- -----------
Totals...................... $171,326,953.09 100.00% 3,970 100.00%
============== ========= ========= =========
</TABLE>
S-17
<PAGE> 21
HOME EQUITY LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY POOL BY
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
RANGE OF HOME PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
EQUITY LOAN-TO- VALUE RATIOS BALANCE BALANCE LOANS LOANS
- ------------------------------------------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C>
0.01 to 5.00%.......................... $ 152,812.43 0.09% 15 0.38%
5.01 to 10.00%.......................... 3,791,524.20 2.21 195 4.91
10.01 to 15.00%.......................... 8,528,996.55 4.98 370 9.32
15.01 to 20.00%.......................... 13,885,125.34 8.10 458 11.54
20.01 to 25.00%.......................... 14,381,469.65 8.39 417 10.50
25.01 to 30.00%.......................... 13,981,529.38 8.16 355 8.94
30.01 to 35.00%.......................... 13,286,194.23 7.75 311 7.83
35.01 to 40.00%.......................... 13,502,388.77 7.88 283 7.13
40.01 to 45.00%.......................... 10,833,603.26 6.32 223 5.62
45.01 to 50.00%.......................... 11,869,202.57 6.93 234 5.89
50.01 to 55.00%.......................... 10,359,427.20 6.05 184 4.63
55.01 to 60.00%.......................... 10,746,868.56 6.27 194 4.89
60.01 to 65.00%.......................... 9,492,351.88 5.54 154 3.88
65.01 to 70.00%.......................... 7,204,730.00 4.21 122 3.07
70.01 to 75.00%.......................... 8,498,157.94 4.96 129 3.25
75.01 to 80.00%.......................... 8,430,414.94 4.92 130 3.27
80.01 to 85.00%.......................... 6,343,840.41 3.70 95 2.39
85.01 to 90.00%.......................... 4,014,017.04 2.34 67 1.69
90.01 to 95.00%.......................... 1,159,491.58 0.68 19 0.48
95.01 to 100.00%.......................... 573,369.20 0.33 10 0.25
100.01 to 105.00%.......................... 291,437.96 0.17 5 0.13
--------------- --------- --------- ---------
Total............................ $171,326,953.09 100.00% 3,970 100.00%
============== ======= ======== ========
</TABLE>
LIEN PRIORITY
<TABLE>
<CAPTION>
% OF % OF
MORTGAGE MORTGAGE
POOL BY POOL BY
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE MORTGAGE
BALANCE BALANCE LOANS LOANS
--------------- --------- --------- ---------
<S> <C> <C> <C> <C>
1st Mortgage............................... $ 95,027,551.34 55.47% 1,944 48.97%
2nd Mortgage............................... 70,256,144.90 41.01 1,868 47.05
3rd Mortgage............................... 5,543,104.26 3.24 146 3.68
4th Mortgage............................... 500,152.59 0.29 12 0.30
--------------- --------- --------- ---------
Total............................ $171,326,953.09 100.00% 3,970 100.00%
============== ======= ======== ========
</TABLE>
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Class A Certificates, the aggregate
amount of each interest payment on the Class A Certificates and the yield to
maturity of the Class A Certificates are related to the rate and timing of
payments of principal on the Mortgage Loans, which may be in the form of
scheduled and unscheduled payments. In general, when the level of prevailing
interest rates for similar loans significantly
S-18
<PAGE> 22
declines, the rate of prepayment is likely to increase, although the prepayment
rate is influenced by a number of other factors, including general economic
conditions and homeowner mobility. Defaults on mortgage loans are expected to
occur with greater frequency in their early years, although little data is
available with respect to the rate of default on second or more junior mortgage
loans. The rate of default on second and more junior mortgage loans may be
greater than that of mortgage loans secured by first liens on comparable
properties. Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to the related Class A Certificateholders of amounts of
principal which would otherwise be distributed over the remaining terms of the
Mortgage Loans in the Mortgage Pool.
In addition, the Master Servicer may, at its option, purchase from the
Trust all of the outstanding Mortgage Loans and REO Properties, and thus effect
the early retirement of the Class A Certificates, on any Payment Date following
the first date on which the Pool Principal Balance (as defined herein) is less
than 5% of the Original Pool Principal Balance. See "Description of the
Certificates -- Termination; Purchase of Mortgage Loans" herein.
As with fixed rate obligations generally, the rate of prepayment on a pool
of mortgage loans is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
mortgage loans. Depending on prevailing market rates, the future outlook for
market rates and economic conditions generally, some mortgagors may sell or
refinance mortgaged properties in order to realize their equity in the mortgaged
properties, to meet cash flow needs or to make other investments. No
representation is made as to the particular factors that will affect the
prepayment of the Mortgage Loans, as to the relative importance of such factors,
as to the percentage of the principal balance of the Mortgage Loans that will be
paid as of any date or as to the overall rate of prepayment on the Mortgage
Loans.
The Final Scheduled Payment Dates for the Class A Certificates are as
follows:
<TABLE>
<CAPTION>
FINAL SCHEDULED
PAYMENT DATE
---------------
<S> <C>
Class A-1 Certificates...................................... April 2004
Class A-2 Certificates...................................... December 2005
Class A-3 Certificates...................................... December 2009
Class A-4 Certificates...................................... June 2012
</TABLE>
The Final Scheduled Payment Date for each Class of Class A Certificates
(other than the Class A-4 Certificates) is the date on which the Original
Certificate Balance set forth on the cover page hereof for such Class would be
reduced to zero assuming that no Prepayments or Curtailments are received on the
Mortgage Loans, each Monthly Payment of principal of and interest on the
Mortgage Loans is timely received, and no excess amounts from the Reserve
Account are distributed to reduce the Principal Balance of any Class A
Certificate. The Final Scheduled Payment Date for the Class A-4 Certificates is
the Payment Date following the calendar month in which the stated maturity of
the Mortgage Loan having the latest stated maturity occurs, plus one year.
The weighted average life of each Class of the Class A Certificates is
likely to be shorter than would be the case if payments actually made on the
Mortgage Loans conformed to the foregoing assumptions and the date on which the
final payment on any Class of Class A Certificate could occur is significantly
earlier than its respective Final Scheduled Payment Date, because, among other
things, (i) prepayments are likely to occur, (ii) defective Mortgage Loans may
be purchased from the Trust under certain circumstances described herein, (iii)
the Master Servicer may purchase all of the Mortgage Loans when the aggregate
outstanding principal amount of the Mortgage Loans is less than 5% of the
Original Pool Principal Balance and (iv) shortfalls in principal due to losses
on the Mortgage Loans could result in withdrawals from the Reserve Account to
make payments in respect of principal on the Class A Certificates. In addition,
distributions of excess amounts from the Reserve Account will be applied towards
the reduction of the Class A Certificate Balance.
Greater than anticipated prepayments of principal will increase the yield
on Class A Certificates purchased at a price less than par. Greater than
anticipated prepayments of principal will decrease the yield on
S-19
<PAGE> 23
Class A Certificates purchased at a price greater than par. The effect on an
investor's yield due to principal prepayments on the Mortgage Loans occurring at
a rate that is faster (or slower) than the rate anticipated by the investor in
the period immediately following the issuance of the Certificates will not be
entirely offset by a subsequent like reduction (or increase) in the rate of
principal payments. The weighted average life of the Class A Certificates will
also be affected by the amount and timing of delinquencies and defaults on the
Mortgage Loans in the Mortgage Pool and the recoveries, if any, on defaulted
Mortgage Loans and foreclosed properties in the Mortgage Pool.
1.40% of the Mortgage Loans (by aggregate principal balance as of the
Cut-off Date) will be Supplemented Mortgage Loans. Because the Yield Supplement
Account will be funded by an initial deposit of an amount equal to the Maximum
Yield Supplement Amount as of the Cut-off Date (as described in "Description of
the Certificates -- Yield Supplement Account"), disproportionate rates of
prepayments between Mortgage Loans with higher and lower Mortgage Interest Rates
are not expected to materially affect the yield to Class A Certificateholders,
even if Mortgage Loans with higher Mortgage Interest Rates prepay faster than
Mortgage Loans with lower interest Mortgage Interest Rates.
The "weighted average life" of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life of
the Class A Certificates will be influenced by, among other factors, the rate at
which principal payments are made on the Mortgage Loans in the Mortgage Pool.
Prepayments on Mortgage Loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the prepayment assumption (the "Prepayment Assumption"), which represents an
assumed rate of prepayment each month relative to the then outstanding principal
balance of the pool of mortgage loans for the life of such mortgage loans. For
the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and
Class A-4 Certificates, a 100% Prepayment Assumption assumes a conditional
prepayment rate ("CPR") of 5% per annum of the outstanding principal balance of
such Mortgage Loans in the first month of the life of the Mortgage Loans and an
additional 1.182% per annum (precisely 13/11% per annum) in each month
thereafter until the twelfth month; beginning in the twelfth month and in each
month thereafter during the life of such Mortgage Loans, a conditional
prepayment rate of 18% per annum each month is assumed. As used in the table
below, 0% Prepayment Assumption assumes a conditional prepayment rate equal to
0% of the Prepayment Assumption, i.e., no prepayments. Correspondingly, 80%
Prepayment Assumption assumes prepayment rates equal to 80% of the Prepayment
Assumption, and so forth. The Prepayment Assumption does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans. The Sellers believe that no existing statistics of which they
are aware provide a reliable basis for holders of Class A Certificates to
predict the amount or the timing of receipt of prepayments on the Mortgage
Loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Principal Balances outstanding and weighted average lives of
the Class A Certificates set forth in the tables and the distributions of
principal on the Class A Certificates may be made earlier or later than as
indicated in the tables. For example, it is very unlikely that the Mortgage
Loans will prepay at the Prepayment Assumption until maturity or that all of the
Mortgage Loans will prepay at the same level of the Prepayment Assumption.
Moreover, the diverse remaining terms to maturity of the Mortgage Loans could
produce slower or faster principal distributions than indicated in the table
entitled "Percent of Initial Certificate Balance Outstanding at the Following
Percentages of the Prepayment Assumption" at the various constant percentages of
the Prepayment Assumption specified therein, even if the weighted average
remaining term to maturity of the Mortgage Loans is as assumed. Any difference
between such assumptions and the actual characteristics and performance of the
Mortgage Loans, or actual prepayment or loss experience, will affect the
percentages of original Certificate Balances outstanding over time and the
weighted average lives of the Classes of Class A Certificates.
S-20
<PAGE> 24
The tables set forth below have been prepared on the basis of certain
assumptions, including the assumptions that (i) all payments of principal of and
interest on each Mortgage Loan are timely received and no Mortgage Loan is ever
delinquent, (ii) none of the Mortgage Loans are repurchased from the Trust,
(iii) there are no Net Losses on the Mortgage Loans and the Mortgage Loans
prepay at the indicated percentages of the Prepayment Assumption, (iv) the
Servicer does not exercise its right of optional termination as described
herein, (v) distribution of principal and interest on the Certificates will be
made on the 15th day of each calendar month regardless of the day on which the
Payment Date actually occurs, commencing June 15, 1996, (vi) the Servicing Fee
is 0.75% per annum of the aggregate principal balance of the Mortgage Loans at
the beginning of the related Due Period, (vii) all prepayments are prepayments
in full, (viii) the scheduled due date for each of the Mortgage Loans is the
first day of each month, (ix) the Reserve Account Requirement (as described in
"Description of the Certificates -- Reserve Account") is set initially as
specified in the Pooling and Servicing Agreement and decreases in accordance
with the Pooling and Servicing Agreement, (x) as of the date of issuance of the
Class A Certificates, the Mortgage Loans consist of pools of loans with the
weighted average characteristics and amortization methodologies set forth below
and (xi) the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates and Class A-4 Certificates have the respective Pass-Through Rates
and Original Certificate Balances set forth in this Prospectus Supplement.
<TABLE>
<CAPTION>
ASSUMED
ORIGINAL ORIGINAL REMAINING MONTH OF
MORTGAGE AMORTIZATION TERM TO TERM TO INITIAL
AMORTIZATION PRINCIPAL INTEREST TERM MATURITY MATURITY SCHEDULED
METHODOLOGY BALANCE RATE (MONTHS) (MONTHS) (MONTHS) PAYMENTS
- -------------------- --------------- -------- ------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Level Pay........... $ 62,268,508.82 8.409% 119 119 115 5
Level Pay........... $109,058,444.27 8.333% 179 179 175 5
</TABLE>
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each Class of Class A Certificates, and
sets forth the percentages of the initial Certificate Balance of each such Class
of Class A Certificates that would be outstanding after each of the dates shown
at various percentages of CPR.
PERCENT OF INITIAL CERTIFICATE BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES CLASS A-3 CERTIFICATES
------------------------------------- ------------------------------------- -------------------------------
PAYMENT DATE 0% 75% 100% 125% 150% 200% 0% 75% 100% 125% 150% 200% 0% 75% 100% 125% 150%
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date....... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
May 15, 1997....... 76 55 48 41 34 20 100 100 100 100 100 100 100 100 100 100 100
May 15, 1998....... 66 26 14 2 0 0 100 100 100 100 70 4 100 100 100 100 100
May 15, 1999....... 55 1 0 0 0 0 100 100 54 10 0 0 100 100 100 100 81
May 15, 2000....... 43 0 0 0 0 0 100 33 0 0 0 0 100 100 88 59 34
May 15, 2001....... 30 0 0 0 0 0 100 0 0 0 0 0 100 83 50 23 1
May 15, 2002....... 15 0 0 0 0 0 100 0 0 0 0 0 100 50 20 0 0
May 15, 2003....... 0 0 0 0 0 0 100 0 0 0 0 0 100 22 0 0 0
May 15, 2004....... 0 0 0 0 0 0 45 0 0 0 0 0 100 0 0 0 0
May 15, 2005....... 0 0 0 0 0 0 0 0 0 0 0 0 90 0 0 0 0
May 15, 2006....... 0 0 0 0 0 0 0 0 0 0 0 0 57 0 0 0 0
May 15, 2007....... 0 0 0 0 0 0 0 0 0 0 0 0 34 0 0 0 0
May 15, 2008....... 0 0 0 0 0 0 0 0 0 0 0 0 10 0 0 0 0
May 15, 2009....... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
May 15, 2010....... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
May 15, 2011....... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average 3.3 1.3 1.1 0.9 0.8 0.6 7.9 3.8 3.1 2.6 2.2 1.7 10.4 6.1 5.1 4.3 3.7
Life (Years)*.....
<CAPTION>
CLASS A-4 CERTIFICATES
--------------------------------------
PAYMENT DATE 200% 0% 75% 100% 125% 150% 200%
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Closing Date....... 100 100 100 100 100 100 100
May 15, 1997....... 100 100 100 100 100 100 100
May 15, 1998....... 100 100 100 100 100 100 100
May 15, 1999....... 36 100 100 100 100 100 100
May 15, 2000....... 0 100 100 100 100 100 85
May 15, 2001....... 0 100 100 100 100 100 0
May 15, 2002....... 0 100 100 100 88 32 0
May 15, 2003....... 0 100 100 87 26 0 0
May 15, 2004....... 0 100 96 27 0 0 0
May 15, 2005....... 0 100 33 0 0 0 0
May 15, 2006....... 0 100 0 0 0 0 0
May 15, 2007....... 0 100 0 0 0 0 0
May 15, 2008....... 0 100 0 0 0 0 0
May 15, 2009....... 0 46 0 0 0 0 0
May 15, 2010....... 0 0 0 0 0 0 0
May 15, 2011....... 0 0 0 0 0 0 0
Weighted Average 2.8 12.9 8.7 7.6 6.6 5.7 4.4
Life (Years)*.....
</TABLE>
- ---------------
* The weighted average life of a Certificate of any class is determined by (i)
multiplying the amount of each distribution in reduction of the related
Certificate Balance by the number of years from the date of issuance of the
Certificate to the related Payment Date, (ii) adding the results, and (iii)
dividing the sum by the highest related Certificate Balance of the
Certificate.
S-21
<PAGE> 25
The following tables set forth the yields to maturity of the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A-4
Certificates at various assumed prices and percentages of the Prepayment
Assumption. The information is given solely to illustrate the yield to maturity
based on such assumptions and is not a prediction of the actual yield to
maturity of the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates and Class A-4 Certificates.
PRE-TAX YIELD TO MATURITY(1) -- SENSITIVITY OF THE CLASS A-1 CERTIFICATES, CLASS
A-2 CERTIFICATES, CLASS A-3 CERTIFICATES AND CLASS A-4 CERTIFICATES TO
PREPAYMENTS
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
PERCENTAGE OF THE PREPAYMENT ASSUMPTION PERCENTAGE OF THE
PREPAYMENT ASSUMPTION
--------------------------------------------- ---------------------
0% 75% 100% 125% 150% 200% 0% 75% 100%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At a Price of 99.000%(2)... 6.640 7.126 7.295 7.463 7.629 7.952 At a price of 99.000%(2)... 7.015 7.159 7.221
At a Price of 99.200%(2)... 6.568 6.956 7.091 7.225 7.357 7.615 At a price of 99.200%(2)... 6.981 7.096 7.146
At a Price of 99.400%(2)... 6.496 6.786 6.887 6.988 7.086 7.279 At a price of 99.400%(2)... 6.947 7.033 7.070
At a Price of 99.600%(2)... 6.424 6.617 6.684 6.751 6.817 6.945 At a price of 99.600%(2)... 6.913 6.970 6.995
At a Price of 99.800%(2)... 6.352 6.449 6.482 6.516 6.548 6.612 At a price of 99.800%(2)... 6.879 6.908 6.920
At a Price of 6.281 6.281 6.281 6.281 6.281 6.281 At a price of 6.846 6.846 6.846
100.000%(2)............... 100.000%(2)................
<CAPTION>
125% 150% 200%
<S> <<C> <C> <C>
At a Price of 99.000%(2)... 7.287 7.356 7.502
At a Price of 99.200%(2)... 7.198 7.254 7.370
At a Price of 99.400%(2)... 7.110 7.151 7.239
At a Price of 99.600%(2)... 7.022 7.049 7.107
At a Price of 99.800%(2)... 6.934 6.947 6.976
At a Price of 6.846 6.846 6.846
100.000%(2)...............
</TABLE>
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
PERCENTAGE OF THE PREPAYMENT ASSUMPTION PERCENTAGE OF THE
PREPAYMENT ASSUMPTION
--------------------------------------------- ---------------------
0% 75% 100% 125% 150% 200% 0% 75% 100%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At a Price of 98.5%(2)..... 7.315 7.420 7.470 7.526 7.586 7.718 At a Price of 96.0 %(2).... 7.601 7.752 7.822
At a Price of 98.7%(2)..... 7.287 7.377 7.421 7.469 7.521 7.635 At a Price of 96.2%(2)..... 7.576 7.719 7.785
At a Price of 98.9%(2)..... 7.258 7.335 7.371 7.412 7.456 7.553 At a Price of 96.4%(2)..... 7.550 7.686 7.748
At a Price of 99.1%(2)..... 7.230 7.292 7.322 7.356 7.391 7.470 At a Price of 96.6%(2)..... 7.525 7.653 7.711
At a Price of 99.3%(2)..... 7.201 7.250 7.273 7.299 7.327 7.388 At a Price of 96.8%(2)..... 7.499 7.620 7.675
At a Price of 99.5%(2)..... 7.173 7.208 7.225 7.243 7.263 7.307 At a Price of 97.0%(2)..... 7.474 7.587 7.638
<CAPTION>
125% 150% 200%
<S> <<C> <C> <C>
At a Price of 98.5%(2)..... 7.906 8.002 8.221
At a Price of 98.7%(2)..... 7.865 7.956 8.164
At a Price of 98.9%(2)..... 7.824 7.910 8.107
At a Price of 99.1%(2)..... 7.783 7.864 8.050
At a Price of 99.3%(2)..... 7.742 7.818 7.993
At a Price of 99.5%(2)..... 7.701 7.773 7.936
</TABLE>
- ---------------
(1) Represents a corporate bond equivalent.
(2) As a percent of the related Class A Certificate Principal Balance.
These tables have been prepared based on the assumptions described in the second
and fourth paragraph preceding these tables (including the assumptions regarding
the characteristics and performance of the Mortgage Loans, which differ from the
actual characteristics and performance thereof) and should be read in
conjunction therewith.
S-22
<PAGE> 26
THE SELLERS AND THE MASTER SERVICER -- FORECLOSURE
AND DELINQUENCY EXPERIENCE
GENERAL
For a general discussion of the Master Servicer and the Sellers, see the
"Sellers" in the Prospectus.
SERVICING PORTFOLIO
At December 31, 1995 and March 31, 1996, the Master Servicer serviced a
total home equity installment loan portfolio having aggregate unpaid principal
balances of approximately $1,285,513,000 and approximately $1,310,737,000,
respectively.
DELINQUENCY AND LOSS EXPERIENCE
The following tables set forth information relating to the delinquency and
loan loss experience for the home equity loans in the portfolio of such loans
owned by the Sellers (the "Sellers' Portfolio") and all other home equity loans
serviced by the Master Servicer for each of the three prior years in the period
ended December 31 and for the interim periods indicated. The data presented in
the following tables is for illustrative purposes only, and there is no
assurance that future delinquency or loss experience of the Mortgage Loans will
be similar to that set forth below.
THE SELLERS' HOME EQUITY LOAN DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
----------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average Principal Amount
Outstanding(1)...................... $1,297,105 $1,176,049 $1,249,002 $1,029,404 $803,982
Principal Amount Outstanding(2)....... 1,310,737 1,284,681 1,285,513 1,141,943 869,693
Total Delinquent Balances(3).......... 3,576 2,600 5,295 4,158 2,168
Total Delinquencies as a Percentage of
Principal Amount Outstanding........ 0.27% 0.20% 0.41% 0.36% 0.25%
</TABLE>
- ---------------
(1) Through September 1995, this was calculated as the average of the daily
principal balance outstanding in each month during the period, not including
unearned interest. Beginning October 1995, it is calculated as the average
month end principal balance outstanding in each month during the period, not
including unearned interest.
(2) "Principal Amount Outstanding" is the net remaining principal balance, not
including unearned interest, at the end of the related period.
(3) "Total Delinquent Balances" is the net remaining principal balance 30 days
or more contractually past due at the end of the related period.
S-23
<PAGE> 27
THE SELLERS' HOME EQUITY LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
AT MARCH 31, DECEMBER 31,
------------------------- --------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average Principal Amount
Outstanding(1)....................... $1,297,105 $1,176,049 $1,249,002 $1,029,404 $803,982
Principal Amount Outstanding(2)........ 1,310,737 1,284,681 1,285,513 1,141,943 869,693
Total Net Credit Losses(3)............. 243 136 1,166 8,255 802
Net Credit Losses as a Percent of
Average Principal Amount
Outstanding(4)....................... 0.07% 0.05% 0.09% 0.80% 0.10%
</TABLE>
- ---------------
(1) Through September 1995, this was calculated as the average of the daily
principal balance outstanding in each month during the period, not including
unearned interest. Beginning October 1995, it is calculated as the average
month end principal balance outstanding in each month during the period, not
including unearned interest.
(2) "Principal Amount Outstanding" is the net remaining principal balance, not
including unearned interest at the end of the related period.
(3) "Total Net Credit Losses" is the net remaining principal balance, net of any
recoveries received as of the end of the related period. The increase in net
credit losses reported for the year ending December 31, 1994 reflects the
application of the Master Servicer's charge-off policy on the outstanding
balances of the home equity loans in connection with the acquisitions of
Constellation Bank N.A. ("Constellation") and Independence Bancorp, Inc.
("Independence"). These acquisitions accounted for approximately $7.925
million of gross credit losses during 1994, with Constellation accounting
for $4.054 million of gross credit losses during the second quarter of 1994
and Independence accounting for $3.781 million of gross credit losses during
the fourth quarter of 1994.
(4) March 31 percentages are annualized.
The delinquency percentages set forth in the second preceding table are
calculated on the basis of the unpaid principal balances of mortgage loans
included in the Sellers' Portfolio as of the end of the periods indicated. The
charge-off experience percentages set forth above are calculated on the basis of
the average outstanding unpaid principal balance of mortgage loans included in
the Sellers' Portfolio during the periods indicated. However, because the amount
of loans included in the Sellers' Portfolio has increased over these periods as
a result of new originations and acquisitions, the Sellers' Portfolio as of the
end of any indicated period includes many loans that may not have been
outstanding long enough to give rise to some or all of the indicated periods of
delinquency or to have resulted in losses. In the absence of such substantial
and continual additions of newly originated loans to the Sellers' Portfolio, the
delinquency and charge-off percentages indicated above would be higher and could
be substantially higher. The actual delinquency percentages and loss experience
with respect to the Mortgage Loans may be expected to be substantially higher
than the delinquency percentages indicated above because the composition of the
Mortgage Pool will not change.
In addition, any deterioration of the real estate market or weakening of
the economy in a region of the country could result in decreases in the
financial strength of borrowers and decreases in the value of collateral serving
as security for loans, which may be reflected in increases in delinquencies of
loans secured by real estate, slower absorption rates of real estate into the
market and lower sales prices for real estate.
S-24
<PAGE> 28
DESCRIPTION OF THE CERTIFICATES
GENERAL
The CoreStates Home Equity Loan Certificates, Series 1996-1, will consist
of five classes of Certificates, designated as the Class A-1 Certificates (the
"Class A-1 Certificates"), the Class A-2 Certificates (the "Class A-2
Certificates"), the Class A-3 Certificates (the "Class A-3 Certificates"), the
Class A-4 Certificates (the "Class A-4 Certificates," and collectively with the
Class A-1 Certificates, the Class A-2 Certificates, and the Class A-3
Certificates, the "Class A Certificates") and the Class R Certificates (the
"Class R Certificates"). Only the Class A Certificates are offered hereby.
The following summary describes certain terms of the Certificates and the
Pooling and Servicing Agreement. Reference is made to the accompanying
Prospectus for important additional information regarding the terms of the Class
A Certificates and the underlying documents. A form of the Pooling and Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
the Prospectus forms a part. The summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the Certificates and the Pooling and Servicing Agreement. Where particular
provisions or terms used in any of such documents are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
The Certificates represent interests in the Trust created and held pursuant
to the Pooling and Servicing Agreement. The Trust Fund consists primarily of (i)
the Mortgage Loans and all proceeds thereof, (ii) REO Property, (iii) amounts on
deposit in the Collection Account (as defined herein), Reserve Account and Yield
Supplement Account (including all earnings thereon and proceeds thereof) and
(iv) certain other property.
Each Class A Certificate will be issued in minimum denominations of $1,000
and integral multiples thereof. Each Class A Certificate will represent a
percentage interest (a "Percentage Interest") in the applicable Class of Class A
Certificates determined by dividing the original dollar amount represented by
such Class A Certificate by the original aggregate principal amount of all Class
A Certificates of such Class.
The Master Servicer will service the Mortgage Loans either directly or
through subservicers in accordance with the Pooling and Servicing Agreement and
generally in accordance with the first and junior mortgage loan servicing
standards and procedures accepted by prudent mortgage lending institutions. See
"Description of the Certificates -- Servicing Standards" and "-- Use of
Subservicers" in the Prospectus for a further description of the provisions of
the Pooling and Servicing Agreement relating to servicing standards and the use
of subservicers.
THE CLASS A CERTIFICATES
General. The Class A-1 Certificates will have an aggregate principal
balance of $90,000,000 (the "Original Class A-1 Certificate Balance") as of the
Closing Date and will accrue interest at a rate equal to 6.20% per annum (the
"Class A-1 Pass-Through Rate"). The Class A-2 Certificates will have an
aggregate principal balance of $27,600,000 (the "Original Class A-2 Certificate
Balance") as of the Closing Date and will accrue interest at a rate equal to
6.75% per annum (the "Class A-2 Pass-Through Rate"). The Class A-3 Certificates
will have an aggregate principal balance of $41,000,000 (the "Original Class A-3
Certificate Balance") as of the Closing Date and will accrue interest at the
rate of 7.00% per annum (the "Class A-3 Pass-Through Rate"). The Class A-4
Certificates will have an aggregate principal balance of $12,726,000 (the
"Original Class A-4 Certificate Balance," and together with the Original Class
A-1 Certificate Balance, the Original Class A-2 Certificate Balance and the
Original Class A-3 Certificate Balance, the "Original Certificate Balance") as
of the Closing Date and will accrue interest at the rate of 7.00% per annum (the
"Class A-4 Pass-Through Rate"; each of the Class A-1 Pass-Through Rate, the
Class A-2 Pass-Through Rate, the Class A-3 Pass-Through Rate and the Class A-4
Pass-Through Rate, a "Pass-Through Rate").
S-25
<PAGE> 29
The Final Scheduled Payment Dates for the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates and Class A-4 Certificates are the April
2004, December 2005, December 2009 and June 2012 Payment Dates, respectively.
Distributions of Interest. Interest on the Class A Certificates will
accrue from each Payment Date or, in the case of the initial Accrual Period, May
30, 1996, to but excluding the next succeeding Payment Date (each, an "Accrual
Period"). Interest shall accrue on each Class A Certificate during each Accrual
Period at the applicable Pass-Through Rate and shall be distributed, to the
extent of funds available therefor, on each Payment Date. Interest with respect
to the Class A Certificates of each Class will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Interest accrued during each
Accrual Period at the applicable Pass-Through Rate on the Certificate Balance
(as defined below) of each Class of Class A Certificates outstanding on the
immediately preceding Payment Date or, in the case of the initial Accrual
Period, May 30, 1996, is referred to herein as the "Class A Interest Remittance
Amount".
Distributions of Principal. Holders of the Class A Certificates will be
entitled to receive on each Payment Date, in the order and priority set forth
herein to the extent available (but not more than the Certificate Balance then
outstanding of the Class of Class A Certificates then entitled to distributions
of principal), a distribution allocable to principal which will generally
include the Basic Principal Amount plus the sum of (i) the amount, if any, by
which (A) the amount required to be distributed to the Class A
Certificateholders as of the preceding Payment Date exceeded (B) the amount of
the actual distribution to Class A Certificateholders on such preceding Payment
Date and (ii) interest on the interest portion of such amount at the applicable
Pass-Through Rate from such immediately preceding Payment Date (the "Class A
Carry-Forward Amount" and, together with the Basic Principal Amount, the "Class
A Principal Remittance Amount"). In addition, the Additional Class A Principal
Remittance Amount may be released from the Reserve Account and applied to make
distributions in reduction of the Class A Certificate Balance of the Class A
Certificates, in the order and priority set forth herein. See "-- Reserve
Account".
On each Payment Date, the lesser of (i) the Class A Certificate Balance
then outstanding and (ii) the sum of (A) the Class A Principal Remittance Amount
(which, together with the Class A Interest Remittance Amount, constitutes the
"Class A Remittance Amount" for such Payment Date) and (B) the Additional Class
A Principal Remittance Amount for such Payment Date, is payable to the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A-4
Certificates, in that order, until the Certificate Balance of each such Class is
reduced to zero; provided, that if both the balance in the Reserve Account and
the Overcollateralization Amount (as defined herein) as of any Payment Date have
been reduced to zero, payments of principal on each Class of Class A
Certificates will be made pro rata based on their respective Certificate
Balances. In addition, if on any Payment Date the amount on deposit in the
Reserve Account equals or exceeds the Class A Certificate Balance (after giving
effect to the Class A Remittance Amount and any Additional Class A Remittance
Amount for such Payment Date), an amount equal to the Class A Certificate
Balance will be distributed from the Reserve Account to the Class A-4
Certificates.
As of any Payment Date, the "Certificate Balance" of any Class of Class A
Certificates will equal the Original Certificate Balance of such Class, less all
amounts previously distributed on account of principal to holders of such Class
of Class A Certificates, and the Class A Certificate Balance will equal the
aggregate of the Certificate Balances of each Class.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers will make the representations, among others, as to each
Mortgage Loan conveyed by the Sellers as of the Closing Date described under
"Description of the Offered Certificates -- Representations and Warranties of
the Sellers" in the Prospectus and will also represent that:
1. None of the Mortgage Loans are Balloon Loans;
2. As of the Cut-off Date, none of the Mortgage Loans in the Mortgage
Pool were 30 or more days contractually delinquent;
S-26
<PAGE> 30
3. No more than 1.13% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) are secured by Mortgaged Properties located
within any single zip code area; and
4. No Mortgage Loan has a Combined Loan-to-Value Ratio in excess of
103.90% as of its origination.
DISTRIBUTIONS
The Trustee is required to establish the Collection Account (as defined
herein) for the collection and remittance of payments on the Mortgage Loans to
the Certificateholders.
On each Payment Date, commencing on June 17, 1996, the Trustee will
distribute to each person in whose name a Class A Certificate of any Class is
registered (which, as to the Class A Certificates, initially will be only Cede,
the nominee of DTC) on the related Record Date, the portion of the aggregate
distribution to be made to Class A Certificateholders of such Class to which
such holder is entitled, if any, based on the Percentage Interest of the Class A
Certificates of such Class held by such holder. Distributions will be made by
wire transfer of immediately available funds to the account of such
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder owns of record Class A Certificates of such
Class aggregating in excess of $5,000,000, and shall have provided complete
wiring instructions to the Trustee at least five business days prior to the
Record Date, and otherwise by check mailed to the address of the person entitled
thereto as it appears on the Certificate Register. See "Registration of the
Certificates -- Registration and Transfer of the Certificates" in the
Prospectus.
On each Payment Date, the Trustee shall withdraw from the Collection
Account and distribute, based on the information provided in the most recent
Trustee's Remittance Report, the following amounts to the extent available, in
the priority indicated:
(i) first, to the Class A Certificateholders, the Class A Interest
Remittance Amount;
(ii) second, to the Class A-1 Certificateholders, Class A-2
Certificateholders, Class A-3 Certificateholders and Class A-4
Certificateholders, in that order, until the Certificate Balance of each
such Class is reduced to zero, the Class A Principal Remittance Amount and
any Additional Class A Principal Remittance Amount; provided, that if both
the balance in the Reserve Account and the Overcollateralization Amount (as
defined herein) as of any Payment Date have been reduced to zero, payments
of principal on each Class of Class A Certificates will be made pro rata
based on their respective Certificate Balances;
(iii) third, to the Trustee, any amounts then due and owing
representing fees of the Trustee, provided that the Trustee certifies in
writing that such amount is due and owing and has not been paid by the
Master Servicer within 30 days after written demand therefor;
(iv) fourth, to the Master Servicer, an amount equal to the amounts
expended by the Master Servicer and reimbursable thereto under the Pooling
and Servicing Agreement but not previously reimbursed;
(v) fifth, for deposit into the Reserve Account, an amount necessary
to maintain the amount in the Reserve Account at the Reserve Account
Requirement for such Payment Date; and
(vi) sixth, to the Class R Certificateholders, the balance, if any.
The amount available to make the payments described above will generally
equal (i) the Available Payment Amount for the related Due Period, (ii) the
Reserve Account Draw deposited into the Collection Account from the Reserve
Account and (iii) the Yield Supplement Deposit Amount deposited into the
Collection Account from the Yield Supplement Account.
For purposes of the provisions described above, the following terms have
the respective meanings ascribed to them below, each determined as of any
Payment Date.
S-27
<PAGE> 31
"Additional Class A Principal Remittance Amount" means the amount of excess
proceeds released from the Reserve Account for payment to the Class A
Certificateholders as described in "-- Reserve Account."
"Available Payment Amount" generally means the collections on or with
respect to the Mortgage Loans received by the Master Servicer during the related
Due Period, net of the Servicing Fee paid to the Master Servicer during the
related Due Period and reimbursements for accrued unpaid Servicing Fees and for
certain expenses paid by the Master Servicer.
"Basic Principal Amount" generally means (a) all amounts received by the
Master Servicer from or on behalf of the related Mortgagors on the Mortgage
Loans during the preceding Due Period which, at the time of receipt, were
applied in reduction of the principal balance of such Mortgage Loans, including
the (i) the principal portion of each Monthly Payment during the related Due
Period, (ii) all Curtailments and all Principal Prepayments received during such
related Due Period and (iii) the principal portion of all Insurance Proceeds,
Released Mortgaged Property Proceeds and Net Liquidation Proceeds received
during the related Due Period, (b)(i) that portion of the purchase price of any
repurchased Mortgage Loans which represents principal and (ii) any Substitution
Adjustments deposited into the Collection Account as of the related
Determination Date and (c) the Principal Balance of each Mortgage Loan as of the
beginning of the related Due Period which became a Liquidated Mortgage Loan
during the related Due Period (exclusive of any principal payments in respect
thereof described in the preceding clauses (a) and (b)).
"Certificate Balance" means, with respect to any Class of Class A
Certificates, the Original Certificate Balance of such Class reduced by the sum
of all amounts previously distributed to Certificateholders of such Class in
respect of principal on all previous Payment Dates.
"Class A Carry-Forward Amount" means the sum of (i) the amount, if any, by
which (x) the Class A Remittance Amount as of the immediately preceding Payment
Date exceeded (y) the amount of the actual distribution to the Class A
Certificateholders on such preceding Payment Date, and (ii) interest on the
interest portion of such amount at the applicable Pass-Through Rate.
"Class A Interest Remittance Amount" means the interest accruing during the
related Accrual Period at the Pass-Through Rate on the Certificate Balance
outstanding on the immediately preceding Payment Date of each Class of Class A
Certificates (after giving effect to distributions of principal made on such
Payment Date) or, in the case of the initial Accrual Period, outstanding on May
30, 1996.
"Class A Certificate Balance" means the aggregate of the Certificate
Balances of all Classes of Class A Certificates.
"Class A Principal Remittance Amount" means the lesser of (A) the Class A
Certificate Balance as of such Payment Date and (B) the sum of (i) the Basic
Principal Amount for such Payment Date and (ii) the Class A Carry-Forward
Amount. On such Payment Date, any Additional Class A Principal Remittance Amount
will also be distributed to the Class A Certificateholders in reduction of the
Class A Certificate Balance to zero.
"Class A Remittance Amount" means the sum of the Class A Principal
Remittance Amount and the Class A Interest Remittance Amount.
"Mortgage Loan Losses" means, with respect to the Mortgage Loans in the
Mortgage Pool, the aggregate sum of the amount, if any, by which the sum of (i)
the outstanding principal balance of each Mortgage Loan that became a Liquidated
Mortgage Loan during the related Due Period (such principal balance determined
immediately before such Mortgage Loan became a Liquidated Mortgage Loan) and
accrued and unpaid interest thereon at the Mortgage Interest Rate to the date on
which such Mortgage Loan became a Liquidated Mortgage Loan exceeds (ii) the Net
Liquidation Proceeds received during such Due Period in connection with the
liquidation of such Mortgage Loan which have not theretofore been used to reduce
the Principal Balance of such Mortgage Loan.
"Reserve Account Draw" means an amount deposited into the Collection
Account from the Reserve Account equal to the excess of (i) the Class A
Remittance Amount over (ii) the Available Payment Amount (as reduced by any
portion of the Available Payment Amount that has been deposited in the
Collection
S-28
<PAGE> 32
Account but which is prohibited from being withdrawn therefrom pursuant to an
order of a United States bankruptcy court of competent jurisdiction imposing a
stay pursuant to Section 362 of the United States Bankruptcy Code).
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the Class A
Certificates based upon the assumption that the Certificates will be issued in
May 1996.
<TABLE>
<S> <C>
May 1.................... Cut-off Date. The Original Pool Principal Balance will be the
aggregate principal balances of the Mortgage Loans on the Cut-off
Date after application of all payments received prior to the
Cut-off Date.
May 1-May 31............. Due Period. The Master Servicer and any subservicers remit for
deposit into the Collection Account all amounts received on
account of the Mortgage Loans.
June 12.................. Determination Date. The Trustee determines, based on information
provided by the Master Servicer, the amount of principal and
interest that will be distributed to Certificateholders on June
17, 1996.
June 14.................. First Record Date. Distributions on June 17, 1996 will be made to
Certificateholders of record at the close of business on June 14,
1996.
June 17.................. Payment Date. The Trustee or its designee will distribute to
Certificateholders the amounts required to be distributed pursuant
to the Pooling and Servicing Agreement.
</TABLE>
RESERVE ACCOUNT
An account or accounts will be maintained by the Trust (the "Reserve
Account"), which account shall be an Eligible Account. The Reserve Account shall
be initially maintained at CoreStates Bank, N.A. in its trust department.
Amounts on deposit in the Reserve Account will be available on each Payment Date
to pay the Class A Remittance Amount to the extent that the Available Payment
Amount and any Yield Supplement Deposit Amount on any such Payment Date is
insufficient therefor; provided, that amounts on deposit in the Reserve Account
will not be available to the extent the Yield Supplement Deposit Amount for any
Payment Date exceeds the amount on deposit in the Yield Supplement Account on
such Payment Date. An initial deposit of $14,991,108.40 (8.75% of the Original
Pool Principal Balance), which is equal to the initial Reserve Account
Requirement, will be made into the Reserve Account on the Closing Date from the
proceeds of the sale of the Class A Certificates. Thereafter the Available
Payment Amount, if any, remaining after payment of the Class A Remittance Amount
will be deposited into the Reserve Account to the extent necessary to maintain
the amount in the Reserve Account at the Reserve Account Requirement. Subject to
the conditions set forth below, on each Payment Date from June 1996 to March
1997, the Reserve Account Requirement will be reduced by a dollar amount equal
to $1,327,783.89, determined by dividing (i) (A) $14,991,108.40 (8.75% of the
Original Pool Principal Balance), minus (B) $1,713,269.53 (1.00% of the Original
Pool Principal Balance) by (ii) 10; provided, however, that (a) at no time will
the Reserve Account Requirement exceed the Class A Certificate Balance and (b)
subject to the provisions of (a) above, if the sum of (1) the balance in the
Reserve Account and (2) the Overcollateralization Amount (as defined below) is
less than $14,991,108.40 (8.75% of the Original Pool Principal Balance), the
Reserve Account Requirement shall equal $14,991,108.40 (8.75% of the Original
Pool Principal Balance) minus the Overcollateralization Amount. As of the
Closing Date, the Overcollateralization Amount will be equal to $953.09, and as
of any Payment Date, the "Overcollateralization Amount" will be equal to the
excess, if any, of the Pool Principal Balance over the Class A Certificate
Balance (after giving effect to all payments made on such Payment Date other
than any Additional Class A Remittance Amount for such Payment Date).
Notwithstanding the foregoing, no such reduction shall take effect on any
Payment Date if on such Payment Date (i) the Three Month 60-Day Delinquency
Average (as defined below) is greater than 2.00%, or (ii) the Net Losses (as
defined below) incurred from the Cut-off Date to such Payment Date equal or
exceed 2.925% of the Original Pool Principal Balance.
S-29
<PAGE> 33
"Net Losses" as of any date are equal to the sum of (i) the principal
balances of all Mortgage Loans which have become Liquidated Mortgage Loans since
the Cut-Off Date (determined as of the date the related Mortgage Loan became a
Liquidated Mortgage Loan), less Net Liquidation Proceeds with respect to such
Liquidated Mortgage Loans (provided that such total not be below zero), and (ii)
(without duplication) all partial charge-offs incurred on all Mortgage Loans
since the Cut-off Date.
The "Three Month 60-Day Delinquency Average" on any Payment Date is equal
to the average of the 60-Day Delinquency Percentages for the three Due Periods
ending immediately prior to such Payment Date. The "60-Day Delinquency
Percentage" for any Due Period is equal to (i) the sum of (a) the Principal
Balances of all Mortgage Loans which were 60 or more days past due as of the
last day of such Due Period, plus (b) the Principal Balance of each Mortgage
Loan secured by a Mortgaged Property that has become an REO Property (determined
as of the date on which such Mortgaged Property became an REO Property) less any
partial charge-offs taken as of the end of such Due Period, divided by (ii) the
Pool Principal Balance as of the first day of such Due Period, expressed as a
percentage.
Amounts on deposit in the Reserve Account will be invested in Eligible
Investments (as defined in the Pooling and Servicing Agreement), which may
include securities or obligations of the Sellers or their affiliates if they
would otherwise qualify as Eligible Investments. All such Eligible Investments
are required to mature no later than the Business Day prior to each Payment
Date, except that a portion of the amounts on deposit in the Reserve Account may
be invested in Eligible Investments with longer maturities to the extent allowed
by the Rating Agencies. On any Payment Date, interest earned on amounts in the
Reserve Account will be distributed to the Class R Certificateholders.
On any Payment Date (after giving effect to all distributions made on such
Payment Date), all amounts on deposit in the Reserve Account in excess of the
Reserve Account Requirement (the "Additional Class A Principal Remittance
Amount"), if any, will be distributed to the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates and Class A-4 Certificates, in that order,
in reduction of the Certificate Balances thereof to zero, and any remaining
excess will be distributed to the Class R Certificates; provided, that if both
the balance in the Reserve Account and the Overcollateralization Amount as of
any Payment Date have been reduced to zero, payments of principal on each Class
of Class A Certificates will be made pro rata based on their respective
Certificate Balances. The distribution of the Additional Class A Principal
Remittance Amount to the Class A Certificates will increase the
Overcollateralization Amount. In addition, if on any Payment Date the amount on
deposit in the Reserve Account equals or exceeds the Class A Certificate Balance
(after giving effect to the Class A Remittance Amount and any Additional Class A
Remittance Amount for such Payment Date), an amount equal to the Class A
Certificate Balance will be distributed from the Reserve Account to the Class A
Certificates in the order described above.
YIELD SUPPLEMENT ACCOUNT
The Yield Supplement Account will be established solely to retain funds to
be applied by the Trustee to provide payments to the Certificateholders in
respect of Supplemented Mortgage Loans. The Yield Supplement Account will be
funded by an initial deposit of $77,567.54 from the proceeds of the sale of the
Class A Certificates, which is equal to the Maximum Yield Supplement Amount (as
defined below) as of the Cut-off Date.
On each Payment Date the Trustee will transfer to the Collection Account
from monies on deposit in the Yield Supplement Account an amount equal to the
Yield Supplement Deposit Amount (as defined below) in respect of the Mortgage
Loans for such Payment Date. Amounts on deposit on any Payment Date in the Yield
Supplement Account in excess of the Maximum Yield Supplement Amount (as defined
below), after giving effect to all distributions to be made on such Payment
Date, will be paid to the Sellers in accordance with the Pooling and Servicing
Agreement.
The Yield Supplement Account will be initially maintained at CoreStates
Bank, N.A. in its trust department. Amounts on deposit in the Yield Supplement
Account will be invested in Eligible Investments as defined in the Pooling and
Servicing Agreement. All such Eligible Investments are required to mature no
later than the Business Day prior to each Payment Date. All interest and any
other investment earnings on amounts
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on deposit in the Yield Supplement Account in excess of 2.5% per annum will be
distributed to the Sellers on each Payment Date.
The "Yield Supplement Deposit Amount" on any Payment Date will be equal to
30 day's interest (or 15 day's interest for the June 1996 Payment Date) accrued
on each Supplemented Mortgage Loan outstanding on the first day of the preceding
Due Period at a rate per annum equal to the excess of 7.75% (the sum of (i)
7.00%, which is both the Class A-3 Pass-Through Rate and the Class A-4
Pass-Through Rate, and (ii) the Servicing Fee Rate) over the Mortgage Interest
Rate borne by such Mortgage Loan.
The "Maximum Yield Supplement Amount" as of any date will be equal to the
net present value (discounted at a rate of 2.5% per annum) of the aggregate
amount by which (i) interest on the principal balance of each Mortgage Loan
bearing interest at a Mortgage Interest Rate less than 7.75% per annum for the
period commencing on such date and ending with the scheduled maturity of such
Mortgage Loan at a rate equal to 7.75% per annum, exceeds (ii) interest on such
principal balance at the applicable Mortgage Interest Rate, assuming that
payments on such Mortgage Loans are made as scheduled and no prepayments are
made.
COLLECTION ACCOUNT; COLLECTION ON THE MORTGAGE LOANS
The Master Servicer will establish and maintain one or more accounts on
behalf of the Certificateholders, into which all payments made on or with
respect to the Mortgage Loans will be deposited, and from which all
distributions with respect to the Certificates will be made in accordance with
the Pooling and Servicing Agreement (the "Collection Account"), which account
shall be an Eligible Account and part of the Trust. A Principal and Interest
Account is not required to be established, and all references to deposits into
the Principal and Interest Account in the Prospectus shall be deemed to mean
deposits into the Collection Account for purposes of this Prospectus Supplement.
The Collection Account shall initially be maintained at CoreStates Bank, N.A. in
its trust department. Any funds in an Eligible Account must be invested in
Eligible Investments (which may include obligations of the Master Servicer or
affiliates of the Master Servicer if they would otherwise qualify as Eligible
Investments) as defined in the Pooling and Servicing Agreement.
The Master Servicer will be required to deposit all collections on the
Mortgage Loans, except for the Monthly Servicing Fee, into the Collection
Account within two Business Days after receipt; provided, however, if at any
time the unsecured short-term debt obligations of the Master Servicer are rated
at least P-1 by Moody's and at least F-1 by Fitch, the Master Servicer will be
allowed to retain collections on the Mortgage Loans until the Business Day prior
to each Payment Date.
DELIVERY OF THE MORTGAGE FILES
As described in the Prospectus under "Description of the
Certificates -- Assignment of Mortgage Loans," the Sellers will assign the
Mortgage Loans to the Trustee. The Mortgage Files with respect to the Mortgage
Loans underlying Series 1996-1 will be delivered to the Trustee or an
independent custodian on behalf of the Trustee on the Closing Date. If the
long-term senior unsecured debt of CoreStates Bank, N.A. and New Jersey National
Bank is not rated at least A3 by Moody's and at least "A-" by Fitch (or such
lower ratings as are deemed acceptable to Moody's and Fitch in order to maintain
their then current ratings on the Class A Certificates), assignments of the
Mortgages in favor of the Trustee will be required to be recorded (or opinions
of counsel acceptable to the Rating Agencies will be obtained to the effect that
recording is not required to protect the Trust's interest in and to the related
Mortgage Loan). See "Risk Factors -- Creditor's Rights and Insolvency
Considerations -- Creditors' Rights Considerations" in the Prospectus. Each
related Mortgage Note will be endorsed without recourse to the order of the
Trustee or in blank.
SERVICING COMPENSATION
The Master Servicer will be entitled to receive a fee for each Due Period
(the "Monthly Servicing Fee") equal to one twelfth of the product of 0.75% (the
"Servicing Fee Rate") and the Pool Principal Balance as of the preceding Payment
Date or, with respect to the first Due Period, the Original Pool Principal
Balance. In addition, the Master Servicer will retain any benefit from the
investment of funds in the Collection Account and will collect and retain any
late fees, extension fees and other administrative fees or similar charges
allowed by applicable laws with respect to the Mortgage Loans.
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The Monthly Servicing Fee will compensate the Master Servicer for
performing the functions of a third party servicer of the Mortgage Loans,
including collecting and posting all payments, responding to inquiries of
borrowers on the Mortgage Loans, investigating delinquencies, sending coupon
books or past due notices to borrowers, and monitoring the collateral. The
Monthly Servicing Fee also will compensate the Master Servicer for all fees and
expenses payable to any Subservicer and for administering the Mortgage Loans,
including accounting for collections and furnishing monthly and annual
statements to the Trustee with respect to distributions. The Master Servicer
will be required to pay certain taxes, accounting fees, outside auditor fees,
data processing costs and other costs incurred in connection with administering
the Mortgage Loans. The Master Servicer will also be required to pay the fees
and expenses of the Trustee.
AMENDMENT
The Pooling and Servicing Agreement may be amended from time to time by the
Sellers, the Master Servicer and the Trustee without the consent of the
Certificateholders, to cure any ambiguity or error, to correct or supplement any
provision therein which may be inconsistent with any other provision therein, to
evidence a succession to the Master Servicer, or to add any other provisions
with respect to matters or questions arising thereunder which are not
inconsistent with the provisions of the Pooling and Servicing Agreement;
provided that such action will not, in the opinion of counsel satisfactory to
the Trustee, adversely affect in any material respect the interest of any
Certificateholder. The Pooling and Servicing Agreement may also be amended by
the Sellers, the Master Servicer and the Trustee, with the consent of the
Holders of Certificates evidencing not less than 51% of the Class A Certificate
Balance for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Pooling and Servicing Agreement or of
modifying in any manner the rights of holders of the Certificates; provided,
however, that no such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on
Mortgage Loans or distributions that are required to be made on any Certificate
without the consent of the holder of such Certificate or (ii) reduce the
aforesaid percentage required to consent to any such amendment, without the
consent of the holders of all Certificates then outstanding.
The Pooling and Servicing Agreement may also be amended, from time to time,
by the Master Servicer, the Sellers and the Trustee, without consent of the
Certificateholders, to modify, eliminate or add to the provisions of the Pooling
and Servicing Agreement to the extent necessary to (i) maintain the
qualification of the Trust as a REMIC under the Code or avoid, or minimize the
risk of, the imposition of any tax on the Trust under the Code that would be a
claim against the Trust's assets, or (ii) prevent the Trust from entering into
any "prohibited transaction" as defined in the Code.
Notwithstanding the foregoing, no amendment may be made unless the Trustee
shall have received an opinion of counsel to the effect that such amendment will
not cause the Trust to be disqualified as a REMIC, or subject the Trust to
"prohibited transaction" or "prohibited contribution" taxes.
Certificates held by either Seller or any affiliate thereof will not be
counted as outstanding for purposes of the approval of any amendment, waiver or
other consent or vote required by the Pooling and Servicing Agreement.
LIST OF CERTIFICATEHOLDERS
Upon written request of the Master Servicer, the Trustee will provide to
the Master Servicer, within 15 days after receipt of such request, a list of the
names and addresses of all Certificateholders of record as of the most recent
Record Date. Upon written request by three or more Certificateholders who in the
aggregate hold Certificates that evidence not less than 25% of the aggregate
Class A Certificate Balance and such request is accompanied by a copy of the
communication that such Certificateholders propose to transmit, the Trustee or
the Certificate Registrar, at its discretion, will either afford such
Certificateholders access during business hours to the current list of
Certificateholders for purposes of communicating with other Certificateholders
with respect to their rights under the Pooling and Servicing Agreement or the
Trustee will disseminate such communication to all Certificateholders.
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The Pooling and Servicing Agreement will not provide for the holding of any
annual or other meetings of Certificateholders.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The obligations created by the Pooling and Servicing Agreement will
terminate upon the last action required to be taken by the Trustee on the final
Payment Date following the earlier of (i) the final payment or other liquidation
of the principal balance of the last Mortgage Loan remaining in the Trust and
the disposition of all property acquired by foreclosure or deed in lieu of
foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer
from the Trust of all remaining Mortgage Loans and all property acquired in
respect of any Mortgage Loan remaining in the Trust. In no event, however, will
the trust created by the Pooling and Servicing Agreement continue beyond the
expiration of 21 years from the death of the survivor of certain persons named
in the Pooling and Servicing Agreement. Written notice of termination of the
Pooling and Servicing Agreement will be given to each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination.
At its option, the Master Servicer may purchase from the Trust, on any
Payment Date on which such a purchase is permitted as described below, all
remaining Mortgage Loans held by the Trust at a price equal to the greater of
(a) the sum of (x) 100% of the principal balance of each Mortgage Loan (other
than any Mortgage Loan as to which title in the underlying Mortgaged Property
has been acquired and whose fair market value is included pursuant to clause (y)
below) as of the Payment Date upon which the proceeds of any repurchase are to
be distributed, (y) the fair market value of such acquired property (as
determined by the Master Servicer as of the close of business on the third
Business Day next preceding the date upon which notice of any such termination
is furnished to Certificateholders) and (z) interest for the Accrual Period in
which the effective date of the purchase occurs at the applicable Mortgage
Interest Rate on the principal balance of each Mortgage Loan, (b) the aggregate
fair market value (as determined by the Master Servicer as of the close of
business on such third Business Day) of all of the assets of the Trust, plus
interest for the Accrual Period in which the effective date of the purchase
occurs at the applicable Mortgage Interest Rate on the principal balance of each
Mortgage Loan (including any Mortgage Loan as to which title to the underlying
Mortgaged Property has been acquired) or (c) the sum of (i) the Class A
Certificate Balance together with accrued and unpaid interest thereof and (ii)
the Monthly Servicing Fee and any unpaid Monthly Servicing Fee for such Payment
Date. A portion of such purchase price equal to the amounts in clause (c) (i)
will be distributed to holders of the Class A Certificates, thereby affecting
early retirement of the Class A Certificates. The right of the Master Servicer
to make any such purchase is not exercisable until the Payment Date on which,
after giving effect to principal distributions on the Certificates that would
otherwise be made on such Payment Date, the Pool Principal Balance has declined
to less than 5% of the Original Pool Principal Balance. The termination of the
Trust is required to be effected in a manner consistent with applicable federal
income tax regulations and its status as a REMIC.
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<PAGE> 37
THE TRUSTEE
The First National Bank of Chicago, a national banking association
organized under the laws of the United States with its principal place of
business in the State of Illinois, will be named Trustee pursuant to the Pooling
and Servicing Agreement. The Trustee will initially serve as Custodian for the
Mortgage Files.
Pursuant to the Pooling and Servicing Agreement, the Trustee is required at
all times to be a banking association organized and doing business under the
laws of the United States of America or of any State, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, subject to supervision or examination by federal or state
authority. If at any time the Trustee shall cease to be eligible in accordance
with the provisions described in this paragraph, the Trustee shall give notice
of such ineligibility to the Certificateholders and shall resign, upon the
request of the Majority in Aggregate Voting Interest, in the manner and with the
effect specified in the Pooling and Servicing Agreement.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall become effective upon the acceptance of appointment by such
successor trustee.
The Trustee, or any successor trustee or trustees, may resign at any time
by giving written notice to the Master Servicer. Upon receiving notice of
resignation, the Master Servicer is required to promptly appoint a successor
trustee or trustees meeting the eligibility requirements set forth above in the
manner set forth in the Pooling and Servicing Agreement. If no successor trustee
shall have been appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
The Master Servicer may remove the Trustee under the conditions set forth
in the Pooling and Servicing Agreement and appoint a successor trustee in the
manner set forth therein.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
may at the time be located, the Master Servicer and the Trustee acting jointly
shall have the power and shall execute and deliver all instruments to appoint
one or more persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such person or persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to the
provisions of the Pooling and Servicing Agreement, such powers, duties,
obligations, rights and trusts as the Master Servicer and the Trustee may
consider necessary or desirable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Certificates, Orrick, Herrington & Sutcliffe, tax
counsel to the Sellers ("Tax Counsel"), will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, the Trust Fund (exclusive
of the Yield Supplement Account) will qualify as a "real estate mortgage
investment conduit" (a "REMIC") under the Code.
For federal income tax purposes, the Class R Certificates will constitute
the sole class of "residual interest" in the REMIC, and the Class A Certificates
will represent ownership of (i) "regular interests" in the REMIC which generally
will be treated as debt instruments, and (ii) the right to payments from the
Yield Supplement Account, which rights generally will be treated as interests in
notional principal contracts. Each Class A Certificate will be treated as
representing ownership of each of a regular interest and an interest in a
notional principal contract to the extent such Certificate's purchase price is
allocable to each such instrument based on its relative fair market value as of
the date of purchase. For federal income tax reporting purposes, the Master
Servicer intends to treat as de minimis any portion of a Class A-1
Certificateholder's, Class A-2 Certificateholder's, Class A-3
Certificateholder's and Class A-4 Certificateholder's purchase price as
allocable to the related notional principal contract, and to treat all of such
purchase price as allocable to a regular
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interest which will be treated as a debt instrument. Under the OID Regulations,
that allocation will bind a holder of a Class A Certificate who does not
properly report use of a different allocation to the Internal Revenue Service
("IRS") for purposes of determining the Certificate's issue price and amount of
original issue discount for the portion representing ownership of regular
interests. Purchasers of a Class A Certificate similarly will be required to
allocate their purchase price between the underlying regular interests and the
related notional principal contract for purposes of computing any market
discount or premium, as well as gain or loss on disposition. See "Certain
Federal Income Tax Consequences -- REMICS" in the Prospectus and the discussion
relating to treatment of the right to payments from the Yield Supplement Account
below.
For federal income tax reporting purposes, the Master Servicer may treat
the portion of the Class A Certificates treated as regular interests as having
been issued with original issue discount. The prepayment assumption that will be
used in determining the rate of accrual of original issue discount, market
discount and premium, if any, for federal income tax purposes will be based on
the assumption that subsequent to the date of any determination the Mortgage
Loans will prepay at a rate equal to 100% of the Prepayment Assumption (as
defined herein). No representation is made that the Mortgage Loans will prepay
at that rate or at any other rate. See "Certain Federal Income Tax
Consequences -- REMICS -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" in the Prospectus.
The OID Regulations permit the holder of a debt instrument to recognize
original issue discount under a method that differs in certain respects from
that used by the issuer. Accordingly, it is possible for the holder of a
Certificate to recognize original issue discount in amounts different from those
to be reported by the Master Servicer to Certificateholders and the IRS.
Certain Class A Certificates may be treated for federal income tax purposes
as in part a debt instrument issued at a premium. Whether any holder will be so
treated will depend on such Certificateholder's purchase price allocable to
regular interests and the distributions remaining to be made on the
corresponding portion of such Certificate at the time of its acquisition by such
Certificateholder. Holders of such Certificates should consult their own tax
advisors regarding the possibility of making an election to amortize such
premium. See "Certain Federal Income Tax Consequences -- REMICS -- Taxation of
Owners of REMIC Regular Certificates" and "-- Premium" in the Prospectus.
The portion of a Class A Certificate treated as a regular interest will be
treated as "qualifying real property loans" under Section 593(d) of the Code,
assets described in Section 7701(a)(19)(C) of the Code and "real estate assets"
under Section 856(c)(5)(A) of the Code generally in the same proportion that the
assets of the Trust Fund (other than the Yield Supplement Account) would be so
treated. In addition, interest on such portion of the Class A Certificates will
be treated as "interest on obligations secured by mortgages on real property"
under Section 856(c)(3)(B) of the Code generally to the extent that such portion
of the Class A Certificates are treated as "real estate assets" under Section
856(c)(5)(A) of the Code. Moreover, the portion of a Class A Certificate
allocable to regular interests will constitute a "qualified mortgage" within the
meaning of Section 860G(a)(3) of the Code if transferred to another REMIC on its
startup day in exchange for a regular or residual interest therein. See "Certain
Federal Income Tax Consequences -- REMICs -- Characterization of Investments in
REMIC Certificates" in the Prospectus. Any portion of a Class A Certificate
allocable to the right to payments from the Yield Supplement Account and any
payments with respect thereto will not qualify for any of the foregoing
treatments.
Any portion of a purchaser's investment in a Class A Certificate treated by
such purchaser as representing the right to payments from the Yield Supplement
Account would be treated as an interest in a notional principal contract.
Treasury regulations issued under Section 446 of the Code (the "Swap
Regulations") specify rules for accounting for income from and recovery of
purchase price of such investment. Under the Swap Regulations, income in respect
of the right to payments from the Yield Supplement Account would be taken into
account for the taxable period to which it related, which generally would
approximate accrual basis accounting regardless of an investor's usual method of
tax accounting. Such income would be ordinary income.
The Swap Regulations further provide that an investor in a Class A
Certificate would recover any purchase price allocable to the right to payments
from the Yield Supplement Account over the term of that
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<PAGE> 39
right, generally by allocating it to each period in accordance with the prices
of a series of cash-settled option contracts that reflected the specified index
and notional amount (i.e., any excess of the applicable Pass-Through Rate over
the weighted average net Mortgage Interest Rate and the applicable Certificate
Balance, respectively) expiring in each period. Under the Swap Regulations,
straight-line or accelerated amortization generally would be impermissible. The
Swap Regulations also permit a simplified alternative allocation methodology
called the "level payment method," under which the purchase price allocable to
the right to payments from the Yield Supplement Account would be allocated to
each period on the basis of the principal portion of each of a series of equal
payments having a discounted present value equal to such purchase price. There
is no explicit authority with respect to the character of such amortization
deductions, although they are generally regarded as ordinary items.
Class A Certificateholders should be aware that the effect of allocating a
portion of their purchase price to the right to payments from the Yield
Supplement Account would be to increase the amount of original issue discount.
It is expected that an investor's amortization of any portion of its purchase
price allocable to the right to payments from the Yield Supplement Account would
offset such additional original issue discount, but the degree of offset in any
given period would depend upon the applicable amortization methodology and upon
the treatment of such amortization as an ordinary deduction, each as discussed
above. Although dependent upon the applicable discount rate, the annual amount
of offset should be relatively complete in the case of an investor amortizing
purchase price allocable to the right to payments from the Yield Supplement
Account under the "level payment method" described above.
On disposing of a Class A Certificate, a holder will recognize gain or loss
separately with respect to the related regular interest and any right to
payments from the Yield Supplement Account. Gain or loss with respect to each
asset will be the excess of the amount realized in respect of such asset over
its adjusted basis; the amount realized will be allocated between the assets
based on their relative fair market value as of the date of disposition. The
holder's basis in its right to payments from the Yield Supplement Account will
be any initial purchase price allocable thereto (as discussed above), reduced by
amortization of such amount allowable through the date of disposition. Gain or
loss with respect to each asset generally will be capital gain or loss, the term
of which will be based on the period such holder held the Certificate; gain or
loss attributable to the right to payments from the Yield Supplement Account may
be ordinary if recognized by a bank, although the matter is uncertain.
A purchaser of a Class A Certificate who is not a United States Person (as
defined in the Prospectus) and is not subject to federal income tax apart from
its ownership of a Class A Certificate should not be subject to United States
federal income or withholding tax on payments attributable to the right to
payments from the Yield Supplement Account, if such purchaser complies with the
identification requirements described in the Prospectus. However, the
inapplicability of federal income tax withholding to such payments is not
completely clear, and prospective investors should consult their tax advisors.
In the absence of contrary authority, income tax will not be withheld from
amounts paid in respect of the right to payments from the Yield Supplement
Account. See "Certain Federal Income Tax Consequences -- REMICS -- Foreign
Investors in REMIC Certificates" in the Prospectus.
For further information regarding federal income tax consequences of
investing in the Class A Certificates, see "Certain Federal Income Tax
Consequences" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other plan or arrangement
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (a "Plan"), or any insurance company
(whether through its general or separate accounts) or other person investing
"plan assets" of any Plan, should carefully review with its legal advisors
whether the purchase or holding of Class A Certificates could give rise to a
transaction prohibited or not otherwise permissible under ERISA or Section 4975
of the Code. The U.S. Department of Labor has issued virtually identical
exemptions, as described under "ERISA Considerations -- Prohibited Transaction
Exemptions" in the Prospectus, to the Underwriters (the "Exemptions"). The
purchase or holding of the Class A Certificates by, on behalf of or with "plan
assets" of a Plan may qualify for exemptive relief under the Exemptions. The
Exemptions contain a number of other conditions, as described under "ERISA
Considerations -- Prohibited Transaction Exemp-
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<PAGE> 40
tions" in the Prospectus, including the requirement that any such Plan must be
an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, amended.
See "ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT
Although upon their initial issuance the Class A Certificates of each Class
will be rated Aaa by Moody's and "AAA" by Fitch, the Class A Certificates will
not constitute "mortgage related securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") because the Mortgage Pool includes Mortgage
Loans that are secured by second and more junior Mortgages. Investors should
consult their own legal advisers in determining whether and to what extent the
Class A Certificates constitute legal investments for such investors.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Class A Certificates will be received, directly or indirectly, by the Sellers.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Sellers and the Underwriters named
below (collectively the "Underwriters"), the Sellers have agreed to sell to the
Underwriters, and the Underwriters have severally agreed to purchase from the
Sellers, the respective principal amounts of the Class A Certificates set forth
opposite their names below.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITERS CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
------------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
J.P. Morgan Securities Inc.......... $ 19,568,000 $ 1,668,000 $ 10,184,000 $ 3,576,000
Bear, Stearns & Co., Inc. .......... $ 19,566,000 $ 1,666,000 $ 10,183,000 $ 3,575,000
Salomon Brothers Inc................ $ 19,566,000 $ 1,666,000 $ 10,183,000 $ 3,575,000
------------ ------------ ------------ ------------
Totals.................... $ 58,700,000 $ 5,000,000 $ 30,550,000 $ 10,726,000
========== ========== ========== ==========
</TABLE>
In addition, CoreStates Bank, N.A. through CoreStates Capital Markets will
directly offer $31,300,000 aggregate principal amount of the Class A-1
Certificates, $22,600,000 aggregate principal amount of the Class A-2
Certificates, $10,450,000 aggregate principal amount of the Class A-3
Certificates and $2,000,000 aggregate principal amount of the Class A-4
Certificates. CoreStates Bank, N.A. is a Seller and the Master Servicer of the
Mortgage Loans pursuant to the Pooling and Servicing Agreement. CoreStates
Capital Markets will not make a market in any Class of the Class A Certificates.
One or more Underwriters may receive a concession in connection with such sale
of Class A Certificates.
Under the terms of the Underwriting Agreement, the Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Class A Certificates offered to them as described above if any of such
Class A Certificates are purchased.
The Underwriters have advised the Sellers that they propose to offer each
Class of such Class A Certificates to the public at the prices set forth on the
cover page hereof, and to certain dealers at such prices less a concession not
in excess of 0.120% of the principal amount of the Class A-1 Certificates,
0.195% of the principal amount of the Class A-2 Certificates, 0.240% of the
principal amount of Class A-3 Certificates and 0.300% of the principal amount of
the Class A-4 Certificates. The Underwriters may allow and such dealers may
reallow a concession to certain other dealers not in excess of 0.100% of the
principal amount of the Class A-1 Certificates, 0.125% of the principal amount
of the Class A-2 Certificates, 0.150% of the principal amount of the Class A-3
Certificates and 0.200% of the principal amount of the Class A-4 Certificates.
After the initial public offering, the public offering prices and such
concessions may be changed.
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<PAGE> 41
The Underwriting Agreement provides that the Sellers will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, the Underwriters
and/or their respective affiliates have engaged, and may in the future engage,
in investment banking and/or commercial banking transactions with the Sellers,
the Master Servicer and their affiliates.
RATINGS
Each Class of the Class A Certificates will be rated at their initial
issuance Aaa by Moody's and "AAA" by Fitch.
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. No Rating Agency is obligated to maintain the rating on any Class A
Certificate, and, accordingly, there can be no assurance that the ratings
assigned to the Class A Certificates upon initial issuance will not be lowered
or withdrawn by a Rating Agency at any time thereafter. In general, ratings
address credit risk and do not represent any assessment of the likelihood or
rate of principal prepayments.
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the Class
A Certificates and insolvency issues will be passed upon for the Sellers by
Barbara M. Rothenberg, Counsel, CoreStates Financial Corp, and by Drinker Biddle
& Reath, Philadelphia, Pennsylvania, and certain federal income tax consequences
of the issuance of the Class A Certificates will be passed upon for the Sellers
by Orrick, Herrington & Sutcliffe, New York, New York. Certain legal matters
relating to the validity of the issuance of the Class A Certificates will be
passed upon for the Underwriters by Orrick, Herrington & Sutcliffe.
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PROSPECTUS
CORESTATES HOME EQUITY LOAN TRUSTS
HOME EQUITY LOAN CERTIFICATES
(ISSUABLE IN SERIES)
---------------------
CORESTATES BANK, N.A.
MASTER SERVICER
The Home Equity Loan Certificates (the "Certificates") offered hereby may
be sold from time to time in series (each, a "Series") as described in the
related Prospectus Supplement. Each Series of Certificates will be issued by a
separate trust (each, a "Trust").
The assets of each Trust will consist primarily of (i) a pool (a "Mortgage
Pool") of mortgage loans (each, a "Mortgage Loan") secured by mortgages, deeds
of trust or other instruments (each, a "Mortgage") creating a first or junior
lien on one- to four-family dwellings, units in planned unit developments, units
in condominium developments or units in cooperatives (each, a "Mortgaged
Property") to be transferred to such Trust by CoreStates Bank, N.A. and New
Jersey National Bank, as specified in the related Prospectus Supplement
(collectively, the "Sellers") and originated or purchased by the Sellers, (ii)
all monies received on the Mortgage Loans on and after the related Cut-Off Date
(as defined herein), and (iii) certain other property. The Mortgage Loans will
be master serviced by CoreStates Bank, N.A. (in its capacity as servicer, the
"Master Servicer"). The Mortgage Loans and other assets of each Trust as
described herein and in the related Prospectus Supplement will be held for the
benefit of the holders of the related Series of Certificates.
Each Series of Certificate may be issuable in one or more classes (each, a
"Class"), each of which may represent beneficial ownership interests in the
Mortgage Loans held by the related Trust. A Series may include one or more
Classes of Certificates entitled to principal distributions and
disproportionate, nominal or no interest distributions, or to interest
distributions and disproportionate, nominal or no principal distributions. The
rights of one or more Classes of Certificates of a Series may be senior or
subordinate to the rights of one or more of the other Classes of Certificates of
such Series. A Series may include two or more Classes of Certificates which
differ as to the timing, sequential order, priority of payment, interest rate or
amount of distributions of principal or interest or both.
If specified in the related Prospectus Supplement, one or more Classes of
Certificates of a Series may have the benefit of one or more of a letter of
credit, financial guaranty insurance policy, mortgage pool insurance policy,
special hazard insurance policy, reserve fund, spread account, cash collateral
account, overcollateralization or other form of credit enhancement. If specified
in the related Prospectus Supplement, the Mortgage Loans underlying a Series of
Certificates may be insured under one or more of a mortgage pool insurance
policy, bankruptcy bond, special hazard insurance policy or similar credit
enhancement. In addition to or in lieu of any or all of the foregoing, credit
enhancement with respect to one or more Classes of Certificates of a Series may
be provided through subordination. See "Description of Credit Enhancement".
The yield on each Class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including prepayments) on
the Mortgage Loans in the related Trust and the timing of receipt of such
payments. See "Certain Yield and Prepayment Considerations" herein and in the
related Prospectus Supplement. A Trust may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement.
(Continued on next page)
NONE OF THE CERTIFICATES OF ANY SERIES WILL REPRESENT AN INTEREST IN OR
OBLIGATION OF THE SELLERS, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES. THE
CERTIFICATES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS, AND NONE OF THE CERTIFICATES
OF ANY SERIES OR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY EITHER SELLER, THE MASTER SERVICER OR ANY OF THEIR
AFFILIATES.
THESE CERTIFICATES 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.
Prospective investors should consider, among other things, the information
set forth under "Risk Factors" herein and in the related Prospectus Supplement.
Prospective investors should refer to the "Index of Principal Definitions"
herein for the location of the definitions of capitalized terms that appear in
this Prospectus.
May 22, 1996
<PAGE> 43
(Continued from Prospectus Cover)
Offers of the Certificates of a Series may be made through one or more
different methods, including offerings through underwriters, as described under
"Method of Distribution" herein and "Underwriting" in the related Prospectus
Supplement. There will have been no secondary market for the Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Class of Certificates of any Series will develop or, if one does
develop, that it will continue. None of the Certificates will be listed on any
securities exchange.
One or more elections will be made to treat the related Trust or a
designated portion of the assets of the related Trust as one or more "real
estate mortgage investment conduits" (each, a "REMIC") for federal income tax
purposes. For a description of certain tax consequences of owning the
Certificates, including, without limitation, original issue discount, see
"Certain Federal Income Tax Consequences" herein and in the related Prospectus
Supplement.
AVAILABLE INFORMATION
The Sellers have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus, which forms a part
of the Registration Statement, omits certain information contained in such
Registration Statement pursuant to the Rules and Regulations of the Commission.
The Registration Statement and the exhibits thereto may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its Regional Offices located as
follows: Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and New York Regional Office, 7 World Trade Center, 3rd
Floor, New York, New York 10007. Copies of such material may also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
REPORTS TO HOLDERS
Periodic reports concerning the assets of each Trust are required to be
forwarded to holders of the Certificates of the related Series. See "Description
of the Certificates -- Reports to Holders" herein. Any reports forwarded to
holders will not contain financial information that has been examined and
reported upon by, with an opinion expressed by, an independent public or
certified public accountant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Sellers pursuant to Section
13(a), Section 13(c), 14 or 15(d) of the Securities and Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus and prior to the termination
of the offering of the Certificates offered hereby shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Sellers will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any of or all the documents incorporated herein by reference (other
than exhibits to such documents). Requests for such copies should be directed to
Corporate Secretary, CoreStates Financial Corp, Centre Square West, 1500 Market
Street, Philadelphia, Pennsylvania 19102-2116.
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<PAGE> 44
SUMMARY OF PROSPECTUS
The following Summary of Prospectus is qualified in its entirety by
reference to the detailed information appearing elsewhere in this Prospectus and
by reference to the information with respect to each Series of Certificates
contained in the related Prospectus Supplement. Capitalized terms used but not
defined in this Summary of Prospectus shall have the meanings ascribed to such
terms elsewhere in this Prospectus. The Index of Principal Definitions included
in this Prospectus sets forth the pages on which the definitions of certain
principal terms appear.
Sellers.................... CoreStates Bank, N.A., a national banking
association, and/or New Jersey National Bank, a
national banking association (each, a "Seller"
and collectively, the "Sellers"), will sell and
assign the Mortgage Loans to the related Trust.
Each Mortgage Loan will be serviced by the Master
Servicer.
Issuer..................... With respect to each Series of Certificates, a
trust entitled "CoreStates Home Equity Loan
Trust" (the "Trust" or the "Issuer"), with an
additional designation to indicate the Series of
Certificates to which it relates. Each Trust will
be formed pursuant to a Pooling and Servicing
Agreement among the Sellers, the Master Servicer
(defined herein) and the trustee named therein
(the "Trustee").
Master Servicer............ CoreStates Bank, N.A. (in its capacity as servicer,
the "Master Servicer").
Trustee.................... The entity or entities named as trustee in the
related Prospectus Supplement.
Cut-off Date............... The date specified in the related Prospectus
Supplement on and after which payments due or
received on the related Mortgage Loans, as
specified in the related Prospectus Supplement,
are transferred to the related Trust and
available for payment to the holders of the
related Certificates (each, a "Cut-off Date").
Closing Date............... The date on which the Certificates of any Series
are initially issued (each, a "Closing Date") as
specified in the related Prospectus Supplement.
Description of
Certificates............... The Certificates of each Series may be issued in
one or more classes (each, a "Class") and will
represent beneficial interests in a segregated
pool (each, a "Mortgage Pool") of mortgage loans
(the "Mortgage Loans") originated or purchased by
one or more Sellers and certain other property.
See "The Trust Assets".
A Series of Certificates may include one or more
Classes entitled to distributions of principal
and disproportionate, nominal or no interest
distributions or distributions of interest and
disproportionate, nominal or no principal
distributions. The principal amount of any
Certificate may be zero or may be a notional
amount as specified in the related Prospectus
Supplement. A Class of Certificates of a Series
entitled to payments of interest may receive
interest at a specified rate (a "Certificate
Interest Rate") which may be fixed, variable or
adjustable and may differ from other Classes of
the same Series, may receive interest based on
the weighted average interest rate on the
underlying Mortgage Loans or may receive interest
as otherwise determined, all as described in the
related Prospectus Supplement. One or more
Classes of a Series may be Certificates upon
which interest will accrue
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<PAGE> 45
but not be currently paid until certain other
Classes have received principal payments due to
them in full or until the happening of certain
events, as set forth in the related Prospectus
Supplement. One or more Classes of Certificates
of a Series may be entitled to receive principal
payments pursuant to a planned amortization
schedule or may be entitled to receive interest
payments based on a notional principal amount
which reduces in accordance with a planned
amortization schedule. A Series may also include
one or more Classes of Certificates entitled to
payments derived from a specified group or groups
of Mortgage Loans held by the related Trust. The
rights of one or more Classes of Certificates may
be senior or subordinate to the rights of one or
more of the other Classes of Certificates. A
Series may include two or more Classes of
Certificates which differ as to the timing,
sequential order, priority of payment or amount
of distributions of principal or interest or
both.
Payment Date............... The monthly date specified in the related
Prospectus Supplement on which payments will be
made to holders of Certificates (each, a "Payment
Date").
Determination Date......... With respect to each Payment Date the day (each, a
"Determination Date") specified in the related
Prospectus Supplement.
Record Date................ The calendar day (each, a "Record Date") specified
in the related Prospectus Supplement.
Interest................... Unless otherwise specified in the related
Prospectus Supplement, interest on each Class of
Certificates of a Series (other than a Class of
Certificates entitled to receive only principal)
will accrue during each period specified in the
related Prospectus Supplement (each, an "Accrual
Period") at the Certificate Interest Rate for
such Class specified in the related Prospectus
Supplement. Interest accrued on each Class of
Certificates at the applicable Certificate
Interest Rate during each Accrual Period will be
paid, to the extent monies are available
therefor, on each Payment Date, commencing on the
day specified in the related Prospectus
Supplement and will be distributed in the manner
specified in such Prospectus Supplement, except
for any Class of Certificates ("Accrual
Certificates") on which interest is to accrue and
not be paid until the principal of certain other
Classes has been paid in full or until the
occurrence of certain events as specified in such
Prospectus Supplement. If so described in the
related Prospectus Supplement, interest that has
accrued but is not yet payable on any Accrual
Certificates will be added to the principal
balance thereof on each Payment Date and will
thereafter bear interest at the applicable
Certificate Interest Rate. Payments of interest
with respect to any Class of Certificates
entitled to receive interest only or a
disproportionate amount of interest and principal
will be paid in the manner set forth in the
related Prospectus Supplement. Payments of
interest (or accruals of interest, in the case of
Accrual Certificates) with respect to any Series
of Certificates or one or more Classes of
Certificates of such Series, may be reduced to
the extent of interest shortfalls not covered by
Advances (defined herein), if any, or by any
applicable credit enhancement.
4
<PAGE> 46
Principal.................. On each Payment Date, commencing with the Payment
Date specified in the related Prospectus
Supplement, principal with respect to the related
Mortgage Loans during the period specified in the
related Prospectus Supplement (each such period,
a "Due Period") will be paid to holders of the
Certificates of the related Series (other than a
Class of Certificates of such Series entitled to
receive interest only) in the priority, manner
and amount specified in such Prospectus
Supplement, to the extent funds are available
therefor. Unless otherwise specified in the
related Prospectus Supplement, such principal
payments will generally include (i) the principal
portion of all scheduled payments ("Monthly
Payments") received on the related Mortgage Loans
during the related Due Period, (ii) any principal
prepayments of any such Mortgage Loans in full
("Principal Prepayments") and in part
("Curtailments") received during the related Due
Period or such other period (each, a "Prepayment
Period") specified in the related Prospectus
Supplement, (iii) the principal portion of (A)
the proceeds of any insurance policy relating to
a Mortgage Loan, a Mortgaged Property (defined
herein) or a REO Property (defined herein), net
of any amounts applied to the repair of the
Mortgaged Property or released to the Mortgagor
(defined herein) and net of reimbursable expenses
(such net proceeds, "Insurance Proceeds"), (B)
proceeds received in connection with the
liquidation of any defaulted Mortgage Loans
("Liquidation Proceeds"), net of fees and
advances reimbursable therefrom ("Net Liquidation
Proceeds") and (C) proceeds received in
connection with a taking of a related Mortgaged
Property by condemnation or the exercise of
eminent domain or in connection with any partial
release of any such Mortgaged Property from the
related lien ("Released Mortgaged Property
Proceeds"), (iv) the principal portion of all
amounts paid by the Sellers or the Master
Servicer in connection with the purchase of or
substitution for a Mortgage Loan as to which
there is defective documentation or a breach of a
representation or warranty contained in the
related Pooling and Servicing Agreement and (v)
the principal balance of each defaulted Mortgage
Loan or REO Property as to which the Master
Servicer has determined that all amounts expected
to be recovered have been recovered (each, a
"Liquidated Mortgage Loan"), to the extent not
included in the amounts described in clauses (i)
through (iv) above (the aggregate of the amounts
described in clauses (i) through (v), the "Basic
Principal Payment"). Payments of principal with
respect to a Series of Certificates or one or
more Classes of such Series may be reduced to the
extent of delinquencies or losses not covered by
Advances, if any, or any applicable credit
enhancement.
Denominations.............. Each Class of Certificates of a Series will be
issued in the minimum denominations set forth in
the related Prospectus Supplement. Each
Certificate will represent a percentage interest
(a "Percentage Interest") in the Certificates of
the related Class determined by dividing the
original dollar amount (or Notional Principal
Amount (as defined below), in the case of
Certificates entitled to interest only and
assigned a Notional Principal Amount) represented
by such Certificate by the original aggregate
principal balance (or original aggregate Notional
Principal Amount, if applicable). The related
Prospectus Supplement
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<PAGE> 47
will set forth the amount or method of
calculating the Notional Principal Amount with
respect to any Certificate having a Notional
Principal Amount.
Registration of the
Certificates............... Each or any Class of Certificates of a Series may
be issued in definitive form or may initially be
represented by one or more certificates
registered in the name of Cede & Co. ("Cede")
("Book-Entry Certificates"), the nominee of The
Depository Trust Company ("DTC"), and available
only in the form of book-entries on the records
of DTC, participating members thereof
("Participants") and other entities, such as
banks, brokers, dealers and trust companies, that
clear through or maintain custodial relationships
with a Participant, either directly or indirectly
("Indirect Participants"). Certificateholders may
also hold Certificates of a Series through CEDEL
or Euroclear (in Europe), if they are
participants in such systems or indirectly
through organizations that are participants in
such systems. Certificates representing
Book-Entry Certificates will be issued in
definitive form only under the limited
circumstances described herein and in the related
Prospectus Supplement. With respect to the Book-
Entry Certificates, all references herein to
"holders" shall reflect the rights of owners of
the Book-Entry Certificates as they may
indirectly exercise such rights through DTC and
Participants, except as otherwise specified
herein. See "Risk Factors" and "Description of
the Certificates Registration of the
Certificates" herein.
The Trust Property......... Each Class of Certificates of a Series will
represent an interest in or debt secured by
primarily (i) a segregated pool (the "Mortgage
Pool") of fixed-rate mortgage loans originated or
purchased by the Sellers and evidenced by
promissory notes or other evidence of
indebtedness (the "Mortgage Loans") secured by
mortgages, deeds of trust or other instruments
(each, a "Mortgage") creating a first lien or a
junior lien on one- to four-family dwellings,
units in condominium developments, units in
planned unit developments and units in
cooperatives (each, a "Mortgaged Property"), with
the aggregate principal balance as of the Cut-off
Date specified in the related Prospectus
Supplement, after giving effect to payments due
or received, as specified in the related
Prospectus Supplement, on or prior to the Cut-off
Date (the "Original Pool Principal Balance"),
(ii) all monies due or received, as specified in
the related Prospectus Supplement, on or with
respect to the Mortgage Loans on or after the
Cut-off Date, and (iii) certain other property.
One or more Classes of Certificates of any Series
may, if so specified in the related Prospectus
Supplement, have the benefit of one or more of a
letter of credit, financial guaranty insurance
policy, mortgage pool insurance policy, special
hazard insurance policy, spread account, reserve
fund, cash collateral account,
overcollateralization, subordination or other
credit enhancement as described herein under
"Description of Credit Enhancement".
The Prospectus Supplement for each Series of
Certificates will specify certain information
with respect to the related Mortgage Pool
including, without limitation, the number of
Mortgage Loans in the Mortgage Pool, the Original
Pool Principal Balance, the respective
percentages of the Mortgage Loans which are
secured by first Mortgages, second Mortgages and
more junior Mortgages, the minimum
6
<PAGE> 48
and maximum outstanding principal balances of the
Mortgage Loans, the weighted average of the
annual rates of interest on the Mortgage Loans
(each such annual rate of interest hereinafter
referred to as the "Mortgage Interest Rate"), the
weighted average original term to maturity, the
weighted average remaining term to maturity, the
minimum and maximum remaining terms to maturity
and the range of origination dates. If so
specified in the related Prospectus Supplement,
such information may be approximate, based on the
expected Mortgage Pool, in which case the final
information, to the extent of any variances, will
be contained in the Current Report on Form 8-K
referred to below. See "Description of the
Mortgage Pools -- General" herein and
"Description of the Mortgage Pool" in the related
Prospectus Supplement.
A Current Report on Form 8-K will be available to
purchasers or underwriters of the related Series
of Certificates and will generally be filed,
together with the related primary documents, with
the Securities and Exchange Commission within
fifteen days after the related Closing Date.
Optional Termination....... The Master Servicer, the Sellers or the holders of
the Class of Certificates specified in the
related Prospectus Supplement may cause the
Issuer to sell (which may be to the Master
Servicer or the Sellers) all of the Mortgage
Loans and all Mortgaged Properties acquired by
foreclosure or deed in lieu of foreclosure ("REO
Properties") when the Pool Principal Balance
declines to the percentage of the Original Pool
Principal Balance specified in the related
Prospectus Supplement, the proceeds of which will
be applied to retire the related Certificates.
See "Description of the Certificates -- Optional
Disposition of Mortgage Loans" herein.
Mandatory Termination...... If so specified in the related Prospectus
Supplement, the Trustee, the Master Servicer or
such other entities as may be specified in such
Prospectus Supplement, may be required to effect
early retirement of a Series of Certificates by
soliciting competitive bids for the purchase of
the assets of the related Trust or otherwise,
under the circumstances and in the manner
specified under "Description of the
Certificates -- Mandatory Disposition of Mortgage
Loans" herein and in the related Prospectus
Supplement.
Yield and Prepayment
Considerations........... The yield on each Class of Certificates of a Series
will be affected by, among other things, the rate
of payment of principal (including prepayments)
on the Mortgage Loans in the related Trust and
the timing of receipt of such payments. See
"Certain Yield and Prepayment Considerations"
herein and in the related Prospectus Supplement.
The Prospectus Supplement for a Series may
specify certain yield calculations, based upon an
assumed rate or range of prepayment assumptions
on the related Mortgage Loans, for Classes
receiving disproportionate allocations of
principal and interest. A higher level of
principal prepayments on the related Mortgage
Loans than anticipated is likely to have an
adverse effect on the yield of any Class of
Certificates that is purchased at a premium and a
lower level of principal prepayments on the
related Mortgage Loans than anticipated is likely
to have an adverse effect on the yield of any
Class of
7
<PAGE> 49
Certificates that is purchased at a discount from
its principal amount. It is possible under
certain circumstances that holders of
Certificates purchased at a premium (including
Certificates entitled to receive interest only)
could suffer a lower than anticipated yield or
could fail to recoup fully their initial
investment. See "Certain Yield and Prepayment
Considerations" herein and in the related
Prospectus Supplement.
Forward Commitments;
Prefunding............... If so specified in the related Prospectus
Supplement, a portion of the proceeds of the sale
of one or more Classes of Certificates of a
Series may be deposited in a segregated account
(a "Prefunding Account") to be applied to acquire
additional Mortgage Loans from the Sellers. The
times and requirements for the acquisition of
such Mortgage Loans will be set forth in the
related Pooling and Servicing Agreement or other
agreement with the Sellers. Unless otherwise
specified in the related Prospectus Supplement,
monies on deposit in the Prefunding Account and
not applied to acquire such additional Mortgage
Loans within the time set forth in the related
Pooling and Servicing Agreement or other
applicable agreement will be treated as a
principal prepayment and applied in the manner
described in the related Prospectus Supplement.
Credit Enhancement......... If so specified in the related Prospectus
Supplement, credit enhancement may be provided by
any one or a combination of a letter of credit,
financial guaranty insurance policy, mortgage
pool insurance policy, special hazard insurance
policy, reserve fund, spread account, cash
collateral account, overcollateralization or
other type of credit enhancement to provide full
or partial coverage for certain defaults and
losses relating to the underlying Mortgage Loans.
Credit support may also be provided by
subordination. The amount of any credit
enhancement may be limited or have exclusions
from coverage and may decline or be reduced over
time or under certain circumstances, all as
specified in the related Prospectus Supplement.
See "Description of Credit Enhancement" herein.
Advances................... If so specified in the related Prospectus
Supplement, the Master Servicer may be required
(i) to make advances (each, an "Advance") in
respect of (A) interest on the Mortgage Loans
accrued but uncollected as of the end of the
related Due Period (net of the Servicing Fee)
and/or (B) principal on the Mortgage Loans
scheduled to be paid but uncollected as of the
end of the related Due Period or (ii) to withdraw
from any Principal and Interest Account specified
in the related Prospectus Supplement amounts on
deposit therein and held for future distribution.
See "Description of the Certificates -- Advances;
Servicing Advances" herein.
Servicing Fee.............. The Master Servicer will be entitled to receive a
fee for its servicing duties in the amount
specified in the related Prospectus Supplement
(the "Servicing Fee"), payable monthly from all
or a portion of monthly payments on the related
Mortgage Loans (as specified in the related
Prospectus Supplement), Liquidation Proceeds,
Released Mortgaged Property Proceeds and certain
other sources as provided in the related Pooling
and Servicing Agreement.
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<PAGE> 50
Ratings.................... It is a condition to the issuance of each Series of
Certificates that each Class of the Certificates
of such Series be rated by one or more of Moody's
Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P"), Fitch Investors
Service, Inc. ("Fitch") and Duff & Phelps Credit
Rating Co. ("D&P"; and each of D&P, Fitch,
Moody's and S&P, a "Rating Agency") in one of
their four highest rating categories. A security
rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or
withdrawal at any time. No person is obligated to
maintain any rating on any Certificate, and,
accordingly, there can be no assurance that the
ratings assigned to any Class of Certificates
upon initial issuance thereof will not be lowered
or withdrawn by a Rating Agency at any time
thereafter. If a rating of any Class of
Certificates of a Series is revised or withdrawn,
the liquidity of such Class of Certificates may
be adversely affected. In general, the ratings
address credit risk and do not represent any
assessment of the likelihood or rate of principal
prepayments. See "Risk Factors -- Liquidity" and
"Ratings" herein.
Certain Legal Aspects of
the Mortgage Loans......... The Mortgage Loans relating to a Series of
Certificates may be secured by second or more
junior Mortgages which are subordinate to one or
more mortgage liens on the related Mortgaged
Property prior to the lien of such Mortgage Loan
(such senior lien, if any, a "Senior Lien"). A
primary risk with respect to a junior Mortgage is
that funds received in connection with the
foreclosure thereof will not be sufficient to
satisfy fully both the Senior Lien and the junior
Mortgage. See "Risk Factors" and "Certain Legal
Aspects of the Mortgage Loans" herein.
Tax Status of the
Certificates............... One or more elections will be made to treat the
Trust relating to a Series of Certificates or one
or more segregated pools of assets comprising
such a Trust as one or more "real estate mortgage
investment conduits" (each, a "REMIC"). The
Certificates will constitute "regular interests"
in a REMIC or "residual interests" in a REMIC, as
specified in the related Prospectus Supplement.
See "Certain Federal Income Tax Consequences"
herein and in the related Prospectus Supplement.
ERISA Considerations....... A fiduciary of any employee benefit plan or other
plan or arrangement subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code") (a "Plan") or any insurance company
(whether through its general or separate
accounts) or other person investing "plan assets"
of any Plan, should carefully review with its
legal advisors whether the purchase or holding of
any Class of Certificates could give rise to a
transaction prohibited or not otherwise
permissible under ERISA or Section 4975 of the
Code. Certain Classes of Certificates may not be
permitted to be acquired by, on behalf of or with
"plan assets" of any Plan, as specified in the
related Prospectus Supplement. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
Legal Investment........... Unless otherwise specified in the related
Prospectus Supplement, no Class of Certificates
will constitute "mortgage related securities"
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<PAGE> 51
under the Secondary Mortgage Market Enhancement
Act of 1984 because the related Mortgage Pool
will include Mortgage Loans that are secured by
second or more junior mortgages. Investors should
consult their own legal advisers in determining
whether and to what extent the Certificates
constitute legal investments for such investors.
See "Legal Investment" herein and in the related
Prospectus Supplement.
Use of Proceeds............ Substantially all of the net proceeds to be
received from each sale of Certificates will be
received, directly or indirectly, by the Sellers
and will be available to the Sellers for general
corporate purposes.
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<PAGE> 52
RISK FACTORS
Investors should consider, among other things, the following information in
connection with the purchase of Certificates:
CERTIFICATES
Limited Liquidity. There is no assurance that a secondary market for any
of the Certificates will develop or, if one does develop, that it will provide
the holders with liquidity of investment or that it will continue for the life
of such Certificates. None of the Certificates will be listed on any securities
exchange.
It is a condition to the issuance of the Certificates that each Class of
Certificates be rated in one of the four highest rating categories by one or
more of Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps
Credit Rating Co. ("D&P"; and each of Moody's, S&P, Fitch and D&P, a "Rating
Agency"). See "Ratings" herein. A security rating is not a recommendation to
buy, sell or hold securities and may be subject to revision or withdrawal at any
time. No person is obligated to maintain the rating on any Certificate and,
accordingly, there can be no assurance that the ratings assigned to any Class of
Certificates on the date on which such Certificates are initially issued will
not be lowered or withdrawn by a Rating Agency at any time thereafter. In the
event any rating is revised or withdrawn, the liquidity of the related
Certificates may be adversely affected.
Issuance of any of the Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary trading market because investors
may be unwilling to purchase Certificates for which they cannot obtain physical
certificates. See "Description of the Certificates -- Registration of the
Certificates" herein.
Difficulty in Pledging. Because transactions in Certificates of a Series
in book-entry form may be effected only through DTC, Participants and Indirect
Participants, the ability of an Owner to pledge such a Certificate to persons or
entities that do not participate in the DTC system, or otherwise to take actions
in respect of such Certificates, may be limited due to the lack of a physical
certificate representing such Certificate. See "Description of the
Certificates -- Registration of the Certificates" herein.
Potential Delays in Receipt of Payments. Owners of Certificates issued in
book-entry form may experience some delay in their receipt of payments of
interest and principal on the Certificates because such payments will be
forwarded to DTC and DTC will credit such payments to the accounts of its
Participants which will thereafter credit them to the accounts of Owners either
directly or indirectly through Indirect Participants. See "Description of the
Certificates -- Registration of the Certificates" herein.
Limited Obligations. No Class of Certificates of any Series will represent
an interest in or obligation of the Sellers, the Master Servicer or any of their
affiliates. The only obligations of the foregoing entities with respect to any
of the Certificates or the related Mortgage Loans will be the Master Servicer's
servicing obligations under the Pooling and Servicing Agreement and the
obligations of the Sellers to purchase, or substitute substantially similar
mortgage loans for any Mortgage Loans as to which there is defective
documentation or a breach of certain representations and warranties in the
Pooling and Servicing Agreement. The Certificates are not savings accounts or
deposits, and neither the Certificates nor the underlying Mortgage Loans will be
guaranteed or insured by the Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality, or by the Sellers, the Master Servicer
or any of their affiliates.
ERISA Considerations. An investment in a Class of Certificates of any
Series by Plans may give rise to a prohibited transaction under Section 406 of
ERISA and/or be subject to tax under Section 4975 of the Code unless a statutory
or administrative exemption is available. Accordingly, fiduciaries of any
employee benefit plan or other plan or arrangement subject to ERISA or Section
4975 of the Code (a "Plan") or any insurance company (whether through its
general or separate accounts) or other person investing "plan assets" of any
Plan, should consult their counsel before purchasing any Class of Certificates.
Certain Classes of Certificates will not be eligible for purchase by, on behalf
of or with "plan assets" of Plans. See "ERISA Considerations" herein and in the
related Prospectus Supplement.
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Limitations, Reduction and Substitution of Credit Enhancement. Credit
enhancement may be provided with respect to one or more Classes of Certificates
of a Series to cover certain types of losses on the underlying Mortgage Loans.
Credit enhancement may be provided by one or more forms, including but not
limited to subordination of one or more Classes of Certificates of such Series,
letter of credit, financial guaranty insurance policy, mortgage pool insurance
policy, special hazard insurance policy, reserve fund, spread account, cash
collateral account, overcollateralization or other type of credit enhancement.
The coverage of any credit enhancement may be limited or have exclusions from
coverage and may decline over time or under certain circumstances, all as
specified in the related Prospectus Supplement. See "Description of Credit
Enhancement" herein.
Yield and Prepayment Considerations. The yield on certain Classes of
Certificates of a Series may be particularly sensitive to the rate of
prepayments, including voluntary prepayments and prepayments due to
foreclosures, repurchases and losses. Accordingly, to the extent the risks
described herein and in the related Prospectus Supplement with respect to the
characteristics of the Mortgage Loans and of mortgage loans in general result in
prepayments being received at rates greater or less than those assumed by
investors, the yield to the holders of such Class of Certificates will be
adversely affected. See "Certain Yield and Prepayment Considerations" herein and
in the related Prospectus Supplement.
RISKS OF THE MORTGAGE LOANS
General Economic Conditions. General economic conditions have an impact on
the ability of borrowers to repay mortgage loans. Loss of earnings, illness and
other similar factors may lead to an increase in delinquencies and bankruptcy
filings by borrowers. In the event of personal bankruptcy of a borrower under a
Mortgage Loan (a "Mortgagor"), it is possible that the holders of the related
Certificates could experience a loss with respect to such Mortgagor's Mortgage
Loan. In conjunction with a Mortgagor's bankruptcy, a bankruptcy court may
suspend or reduce the payments of principal and interest to be paid with respect
to such Mortgage Loan, thus delaying the amount received by the holders of the
related Certificates with respect to such Mortgage Loan. Moreover, if a
bankruptcy court prevents the transfer of the related Mortgaged Property to the
related Trust, any remaining balance on such Mortgage Loan may not be
recoverable. See "The Sellers' Home Equity Loan Program -- Delinquency and Loss
Experience" herein and "The Sellers and the Master Servicer -- Origination,
Foreclosure and Delinquency Experience" in the related Prospectus Supplement for
further information regarding the rates of delinquency and net losses
experienced on the mortgage loans included in the Seller's servicing portfolio.
Real Estate Market Conditions. An investment in securities such as the
Certificates which are secured by or represent interests in mortgage loans may
be affected by, among other things, a decline in real estate values. No
assurance can be given that values of the Mortgaged Properties will remain at
the levels existing on the dates of origination of the related Mortgage Loans.
If the residential real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans,
together with loans secured by Senior Liens (defined below), if any, on the
Mortgaged Properties, become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry.
See "The Sellers' Home Equity Loan Program -- Delinquency and Loss Experience"
herein and "The Sellers and the Master Servicer -- Origination, Foreclosure and
Delinquency Experience" in the related Prospectus Supplement for further
information regarding the rates of delinquency and net losses experienced on the
mortgage loans included in the Seller's origination and the Master Servicer's
servicing portfolio.
Geographic Concentration. Certain geographic regions of the United States
from time to time will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher rates of loss and
delinquency on mortgage loans generally. Any concentration of the Mortgage Loans
relating to any Series of Certificates in such a region may present risk
considerations in addition to those generally present for similar
mortgage-backed securities without such concentration. See "Description of the
Mortgage Pool" in the related Prospectus Supplement for further information
regarding the geographic concentration of the Mortgage Loans underlying the
Certificates of any Series.
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Nature of Security. Certain of the Mortgage Loans underlying the
Certificates of a Series may be secured by Mortgages junior or subordinate to
one or more other mortgages ("Senior Liens"), and the related Senior Liens will
not be included in the Mortgage Pool. Although little data is available, the
rate of default of second or more junior mortgage loans may be greater than that
of mortgage loans secured by senior liens on comparable properties. A primary
risk to holders of Mortgage Loans secured by junior Mortgages is the possibility
that adequate funds will not be received in connection with a foreclosure of the
related Senior Lien to satisfy fully both the Senior Lien and the Mortgage Loan.
If a holder of the Senior Lien forecloses on a Mortgaged Property, the proceeds
of the foreclosure or similar sale will be applied first to the payment of court
costs and fees in connection with the foreclosure, second to real estate taxes,
third in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the Senior
Liens. The claims of the holder of the Senior Lien will be satisfied in full out
of proceeds of the liquidation of the Mortgage Loan, if such proceeds are
sufficient, before the related Trust as holder of the junior Mortgage receives
any payments in respect of the Mortgage Loan. If the Master Servicer were to
foreclose on any junior Mortgage Loan, it would do so subject to any related
Senior Lien. The debt related to the Mortgage Loan would not be paid in full at
such sale unless a bidder at the foreclosure sale of such Mortgage Loan bids an
amount sufficient to pay off all sums due under the Mortgage Loan and the Senior
Lien or purchases the Mortgaged Property subject to the Senior Lien. If such
proceeds from a foreclosure or similar sale of the related Mortgaged Property
are insufficient to satisfy such loans in the aggregate, the related Trust, as
the holder of the junior Mortgage, and, accordingly, holders of the Certificates
would bear (i) the risk of delay in distributions while a deficiency judgment
against the borrower is obtained and (ii) the risk of loss if the deficiency
judgment is not realized upon. Moreover, deficiency judgments may not be
available in certain jurisdictions. In addition, a junior mortgagee may not
foreclose on the property securing a junior Mortgage unless it forecloses
subject to the Senior Lien. In servicing second Mortgages, the Master Servicer
may, but is not obligated to, advance funds to keep the Senior Lien current in
the event the mortgagor is in default thereunder until such time as the Master
Servicer satisfies the Senior Lien by sale of the mortgaged property, if it
determines such advances will be recoverable from future payments and
collections on that Mortgage Loan or otherwise. The related Trust will have no
source of funds to satisfy any Senior Lien or make payments due to any senior
mortgagee. The junior Mortgages securing the Mortgage Loans are subject and
subordinate to any Senior Liens affecting the related Mortgaged Property,
including limitations and prohibitions which may be contained in such Senior
Liens upon subordinate financing.
Certain Mortgage Loans. Certain of the Mortgage Loans underlying a Series
of Certificates may be delinquent in respect of the payment of principal and
interest. In addition, certain of the Mortgagors under the Mortgage Loans
underlying a Series of Certificates may be subject to personal bankruptcy
proceedings. Such Mortgage Loans may be subject to a greater risk of default.
See "Description of the Mortgage Pools" herein and "Description of the Mortgage
Pool" in the related Prospectus Supplement.
Delays in Liquidating Defaulted Mortgage Loans. Even assuming that the
Mortgaged Properties provide adequate security for the Mortgage Loans underlying
a Series of Certificates, substantial delays could be encountered in connection
with the liquidation of defaulted Mortgage Loans and corresponding delays in the
receipt of related proceeds by the related Trust could occur. An action to
foreclose on a Mortgaged Property securing a Mortgage Loan is regulated by state
statutes and rules and is subject to many of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a Mortgaged
Property. In the event of a default by a Mortgagor, these restrictions, among
other things, may impede the ability of the Master Servicer to foreclose on or
sell the Mortgaged Property or to obtain Net Liquidation Proceeds sufficient to
repay all amounts due on the related Mortgage Loan. In addition, the Master
Servicer will be entitled to deduct from collections received during the
preceding Due Period all expenses reasonably incurred in attempting to recover
amounts due and not yet repaid on Liquidated Mortgage Loans, including payments
to senior lienholders, legal fees and costs of legal action, real estate taxes
and maintenance and preservation expenses, thereby reducing collections
available to the related Trust. See "Certain Legal Aspects of the Mortgage
Loans -- Foreclosure in General," and "-- Rights of Redemption" herein.
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Likelihood of Disproportionate Liquidation Expenses. Liquidation expenses
with respect to defaulted mortgage loans do not vary directly with the
outstanding principal balance of the loan at the time of default. Therefore,
assuming that the Master Servicer took the same steps in realizing upon a
defaulted mortgage loan having a small remaining principal balance as it would
in the case of a defaulted mortgage loan having a large remaining principal
balance, the amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the small mortgage loan than
would be the case with the defaulted mortgage loan having a large remaining
principal balance. Because the average outstanding principal balance of the
Mortgage Loans is small relative to the size of the average outstanding
principal balance of the loans in a typical pool consisting only of conventional
purchase-money mortgage loans, Net Liquidation Proceeds on Liquidated Mortgage
Loans may also be smaller as a percentage of the principal balance of a Mortgage
Loan than would be the case in a typical pool consisting only of conventional
purchase-money mortgage loans.
Risk of Early Defaults. Certain of the Mortgage Loans underlying a Series
of Certificates may be recently originated as of the date of inclusion in the
related Mortgage Pool. Although little data is available, defaults on mortgage
loans are generally expected to occur with greater frequency in their early
years.
Balloon Mortgage Loans. Certain of the Mortgage Loans underlying a Series
of Certificates may provide for the payment of the unamortized principal balance
of the Mortgage Loan in a single payment at the maturity of the Mortgage Loan
that is greater than the preceding monthly payment ("Balloon Loans"). See
"Description of the Mortgage Pools" herein and "Description of the Mortgage
Pool" in the related Prospectus Supplement. Because borrowers under Balloon
Loans are required to make a relatively large single payment upon maturity, it
is possible that the default risk associated with Balloon Loans is greater than
that associated with fully-amortizing mortgage loans. The ability of a Mortgagor
on a Balloon Loan to repay the Mortgage Loan upon maturity frequently depends
upon, among other things, the borrower's ability to refinance the Mortgage Loan,
which will be affected by a number of factors, including, without limitation,
the level of mortgage rates available in the primary mortgage market at the
time, the Mortgagor's equity in the related Mortgaged Property, the financial
condition of the Mortgagor, the condition of the Mortgaged Property, tax law,
general economic conditions and the general willingness of financial
institutions and primary mortgage bankers to extend credit.
Although a low interest rate environment may facilitate the refinancing of
a balloon payment, the receipt and reinvestment by holders of the Certificates
of the proceeds in such an environment may produce a lower return than that
previously received in respect of the related Mortgage Loan. Conversely, a high
interest rate environment may make it more difficult for the Mortgagor to
accomplish a refinancing and may result in delinquencies or defaults.
Legal Considerations. Applicable state laws generally regulate interest
rates and other charges, require certain disclosures and, unless an exemption is
available, require licensing of the originators of home equity loans. In
addition, most states have other laws, public policy and general principles of
equity relating to the protection of consumers, unfair and deceptive practices
and practices which may apply to the origination, servicing and collection of
the Mortgage Loans. Depending on the provisions of the applicable law and the
specific facts and circumstances involved, violations of these laws, policies
and principles may limit the ability of the Master Servicer to collect all or
part of the principal of or interest on the Mortgage Loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could subject
the Master Servicer to damages and administrative sanctions. See "Certain Legal
Aspects of the Mortgage Loans" herein.
The Mortgage Loans are also subject to federal laws, including: (i) the
Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the Mortgagors regarding the terms of the
Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit Protection
Act, in the extension of credit; (iii) the Fair Credit Reporting Act, which
regulates the use and reporting of information related to the Mortgagor's credit
experience; and (iv) certain other laws and regulations.
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Under environmental legislation and case law applicable in certain states,
including the State of California, it is possible that liability for
environmental hazards in respect of real property may be imposed on a holder of
a mortgage note (such as the Trust) secured by real property. See "Certain Legal
Aspects of the Mortgage Loans -- Environmental Legislation" herein.
CREDITORS' RIGHTS AND INSOLVENCY CONSIDERATIONS
Creditors Rights Considerations. Unless otherwise specified in the related
Prospectus Supplement, under the terms of the related Pooling and Servicing
Agreement, during the period that the related Certificates are outstanding and
so long as the ratings of the long-term senior unsecured debt of CoreStates
Bank, N.A. and New Jersey National Bank satisfy the rating conditions set forth
in the related Prospectus Supplement, CoreStates Bank, N.A. will hold the
original documentation relating to each Mortgage Loan, including the related
Mortgage Note and Mortgage (the "Mortgage File"), as custodian and agent for the
Trustee, and will not be required to record assignments of the Mortgages in
favor of the Trustee. Retention of the Mortgage Files by CoreStates Bank, N.A.
as custodian for the Trustee, in most, if not all, states in which the Mortgage
Files will be held, and failure to record assignments of the Mortgages in favor
of the Trustee in many states in which the Mortgaged Properties are located,
will have the result of making the sale thereof potentially ineffective against
(i) any creditors of the Sellers who may have been fraudulently or inadvertently
induced to rely on the Mortgage Loans as assets of the Sellers, or (ii) any
purchaser in the event the Sellers fraudulently or inadvertently sell a Mortgage
Loan to a purchaser who had no notice of the prior sale thereof to the Trust and
such purchaser takes possession of the Mortgage and, as a result, neither the
Trust nor Certificateholders would be entitled to receive the distributions
relating to, or have any other rights with respect to, such Mortgage Loans. If
CoreStates Bank, N.A.'s long-term senior unsecured debt rating does not satisfy
the above-described conditions, or on the related Closing Date if the related
Prospectus Supplement so specifies, the Mortgage Files relating to the Mortgage
Loans sold by CoreStates Bank, N.A. and New Jersey National Bank, or, in the
event New Jersey National Bank's long-term senior unsecured debt rating does not
satisfy the above-described conditions, the Mortgage Files relating to the
Mortgage Loans sold by New Jersey National Bank, will be delivered to the
Trustee and assignments of the Mortgages in favor of the Trustee will be
required to be recorded (or opinions of counsel acceptable to the Rating
Agencies will be obtained to the effect that recording is not required to
protect the Trust's interest in and to the related Mortgage Loan). Prior to the
delivery of a Mortgage File to the Trustee, the related Mortgage Note will not
be endorsed to the Trustee. See "Description of the Certificates -- Assignment
of the Mortgage Loans".
Insolvency Related Matters. The Sellers will warrant in the Pooling and
Servicing Agreement that the transfer of each of the Mortgage Loans to the
related Trust is a sale by each of the Sellers to the Trust and that the
Mortgage Loans will not be part of the assets of a Seller in the event of the
appointment of a conservator or receiver (or similar official) for such Seller
and will not be available to the creditors of such Seller. However, in the event
of an insolvency of a Seller, it is possible that a conservator or receiver (or
similar official) for such Seller or a creditor of such Seller may argue that
the transaction between such Seller and the Trust was a pledge of the Mortgage
Loans in connection with a borrowing by such Seller rather than a true sale. In
addition, so long as CoreStates Bank, N.A., as custodian and agent for the
Trustee, retains in its possession the Mortgage Files, if the transfer of the
Mortgage Loans were to be recharacterized as a borrowing and a pledge, the
Certificateholders could be treated as unsecured creditors of the Sellers. These
positions, if asserted, could prevent timely payments of amounts due on the
related Certificates and, if accepted by the court, would probably result in
reductions in distributions of principal and interest on such Certificates. Even
if the transfer of possession of the Mortgage Files relating to the Mortgage
Loans sold by a Seller is made, such transfer could be set aside in the event of
such recharacterization if such documentation transfer is made (i) when such
Seller is insolvent, (ii) in contemplation of insolvency, (iii) with the intent
to hinder, delay or defraud such Seller, creditors of such Seller or any
conservator or receiver appointed for such Seller or (iv) with a view to the
preference of one creditor of such Seller to another.
At the date of initial issuance of each Series of Certificates, the Sellers
will receive an opinion of counsel to the Sellers to the effect that, although
they have found no directly controlling legal precedent on the issue of whether
the conveyance of the Mortgage Loans is a sale, and the transaction includes
some factors which are consistent with a characterization of the transaction as
a borrowing, in their opinion the transfer of the
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Mortgage Loans to the Trust constitutes a sale under applicable law. Such
opinion will therefore conclude that the Mortgage Loans should not be treated as
property of the Sellers under applicable law in the event of the appointment of
the Federal Deposit Insurance Corporation as receiver or conservator or other
receiver or conservator appointed under state law for a Seller. In such opinion,
counsel for the Sellers will assume, without independent investigation, the
accuracy of all representations made by the parties to the transactions,
including among others, representations made by the parties in the related
Pooling and Servicing Agreement and the related underwriting agreement; the
adequacy of the consideration received by the Sellers for such transfer; the
intent of the parties in entering into the transactions to effect a sale;
certain facts with respect to the economics of the transactions; that each
Seller will mark its records to indicate that the Mortgage Loans and related
Mortgage Files have been sold to the related Trust and are being held by the
Master Servicer; and that each Seller will treat the transaction as a sale for
tax, financial and regulatory accounting purposes. However, such opinion will be
limited to Pennsylvania, New Jersey and federal law and is not binding on any
court.
No assurance can be given that a filing of a petition for relief in
bankruptcy by or against the Sellers, CoreStates or any Trust will not be made
under the federal bankruptcy or other applicable laws while the Certificates are
outstanding.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of each Class of Certificates of a Series will depend
on the rate and timing of payment of principal on the related Mortgage Loans,
including prepayments, liquidations due to defaults and repurchases due to
defective documentation or breaches of representations and warranties. Such
yield may be adversely affected by a higher or lower than anticipated rate of
prepayments on the Mortgage Loans. Prepayments are influenced by a number of
factors, including prevailing mortgage market interest rates, local and regional
economic conditions and homeowner mobility. The yield to maturity of certain
Classes of Certificates identified in the related Prospectus Supplement may be
particularly sensitive to the rate and timing of principal payments (including
prepayments, liquidations and repurchases) of the related Mortgage Loans, which
may fluctuate significantly from time to time. Investors in a Class of
Certificates offered at a discount from the principal amount thereof or with no
stated principal amount should fully consider the associated risks, including
the risk that an extremely rapid rate of principal payments could result in the
failure of such investors to recoup their initial investments. See "Certain
Yield and Prepayment Considerations" herein and in the related Prospectus
Supplement.
LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a Mortgagor who enters military service
after the origination of such Mortgagor's Mortgage Loan (including a Mortgagor
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 (including fees and charges) above an annual rate of 6% during
the period of such Mortgagor's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that such action could
have an effect, for an indeterminate period of time, on the ability of the
Master Servicer to collect full amounts of interest on certain of the Mortgage
Loans underlying a Series of Certificates. In addition, the Relief Act imposes
limitations which would impair the ability of the Master Servicer to foreclose
on an affected Mortgage Loan during the Mortgagor'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 related
Mortgaged Property in a timely fashion.
ORIGINAL ISSUE DISCOUNT
Certain Classes of Certificates of a Series may be treated as having been
issued with original issue discount for federal income tax purposes. As a
result, holders of such Certificates will be required to include amounts in
income without the receipt of cash corresponding to that income. See "Federal
Income Tax Consequences -- Original Issue Discount" herein and, if applicable,
in the related Prospectus Supplement.
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DESCRIPTION OF THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist of Mortgage Loans having the aggregate
principal balance outstanding as of the related Cut-off Date, after giving
effect to payments due or received prior to such date, specified in the related
Prospectus Supplement (the "Original Pool Principal Balance"). Unless otherwise
specified in the related Prospectus Supplement, each Mortgage Pool will consist
of fixed-rate Mortgage Loans (including both fully amortizing Mortgage Loans and
Balloon Loans) originated and underwritten by or purchased and, if specified in
the related Prospectus Supplement, re-underwritten by, the respective Seller.
This subsection describes generally certain characteristics of the Mortgage
Loans.
The related Prospectus Supplement will describe certain characteristics of
the related Mortgage Loans, including without limitation (i) the range of dates
of origination and the latest scheduled maturity date, (ii) the minimum
remaining term to maturity, the weighted average original term to maturity and
the weighted average remaining term to maturity, (iii) the range of Mortgage
Interest Rates and the weighted average Mortgage Interest Rate, (iv) the range
of principal balances outstanding, the range of original principal balances and
the weighted average outstanding principal balance, (v) the percentages of
Mortgage Loans secured by first Mortgages, second Mortgages and more junior
Mortgages, respectively, (vi) the maximum Combined Loan-to-Value Ratio at
origination (defined below), the weighted average Combined Loan-to-Value Ratio,
the maximum Home Equity Loan-to-Value Ratio (defined below) at origination and
the weighted average Home Equity Loan-to-Value Ratio, (vii) the percentage of
Mortgage Loans secured by fee simple interests in single-family dwelling units,
attached or detached two- to four-family dwelling units, units in planned unit
developments and condominiums, respectively, the percentage of Mortgage Loans
secured by leasehold interests and the percentage of Mortgage Loans secured by
units in cooperatives, (viii) the percentage of Mortgage Loans as to which the
related Mortgagor represented at the time of origination that the related
Mortgaged Property would be occupied by such Mortgagor as a primary or secondary
residence, (ix) certain summary information relating to the geographic
concentration of the Mortgaged Properties securing the Mortgage Loans, (x) the
percentage of Mortgage Loans which are Balloon Loans and the dates after
origination the balloon payment is due, and (xi) the percentage of Mortgage
Loans which are Bankruptcy Mortgage Loans (defined below), the percentage of
Bankruptcy Loans which are 30 days or more contractually delinquent and the
percentages of Mortgage Loans other than Bankruptcy Mortgage Loans which are 30
days and 60 days or more contractually delinquent, respectively. If so specified
in the related Prospectus Supplement, the characteristics of the Mortgage Loans
described in items (v) through (ix) above, inclusive, may be based on a random
sample of Mortgage Loans included in the related initial Mortgage Pool or
expected to be included in the related Mortgage Pool following the addition of
any subsequently acquired Mortgage Loans (a "Sample Pool"). No assurance can be
given, however, that the characteristics of a Sample Pool are representative of
the characteristics of the initial Mortgage Pool or will be representative of
the Mortgage Pool after the addition of any subsequently acquired Mortgage
Loans. In addition, if so specified in the related Prospectus Supplement, such
information may be approximate based on the expected characteristics of the
Mortgage Loans to be included in the related Mortgage Pool and any significant
variations therefrom provided on the related Current Report on Form 8-K, as
described below.
For purposes of the foregoing, the "Combined Loan-to-Value Ratio" of any
Mortgage Loan is the ratio (expressed as a percentage) of (i) the sum of (a) the
original principal balance of such Mortgage Loan at the date of origination
(which, if specified in the related Prospectus Supplement, may include certain
financed fees and insurance premiums) plus (b) the outstanding balance of the
Senior Lien, if any, divided by (ii) the lesser of (a) the value of the related
Mortgaged Property, based upon the appraisal, if any, or drive-by evaluation or
other method approved by the Office of the Comptroller of the Currency made at
the time of origination of the Mortgage Loan and (b) the purchase price of the
Mortgaged Property if the Mortgage Loan proceeds were used to purchase the
Mortgaged Property. For Mortgage Loans having an original principal balance of
less than $25,000, the Combined Loan-to-Value Ratios of the Mortgage Loans will
reflect certain judgments of the Seller's underwriters with respect to the value
of the Mortgaged Property made at the time the Mortgage Loans were originated or
acquired. See "The Sellers' Home Equity Loan Program --
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Underwriting Procedures" herein. The "Home Equity Loan-to-Value Ratio" of any
Mortgage Loan is the ratio (expressed as a percentage) of (i) the original
principal balance of such Mortgage Loan at the date of origination (which, if
specified in the related Prospectus Supplement, may include certain financial
fees and insurance premiums) divided by (ii) the lesser of (a) the value of the
related Mortgaged Property, based upon the appraisal, if any, or drive-by
evaluation or other method approved by the Office of the Comptroller of the
Currency made at the time of origination of the Mortgage Loan and (b) the
purchase price of the Mortgaged Property if the Mortgage Loan proceeds were used
to purchase the Mortgaged Property. For Mortgage Loans secured by a first
Mortgage, the Combined Loan-to-Value Ratio and the Home Equity Loan-to-Value
Ratio will be the same.
A Bankruptcy Mortgage Loan is a Mortgage Loan on which the related
Mortgagor is making payments pursuant to a personal bankruptcy plan or
proceeding (each, a "Bankruptcy Plan"). The entire principal balance and the
right to receive interest accrued after the Cut-off Date with respect to each
Bankruptcy Mortgage Loan will generally be included in the assets of the related
Trust, while the right to interest accrued but unpaid prior to the related
Cut-off Date under each Bankruptcy Mortgage Loan will generally be retained by
the Sellers. The Sellers' right to collect interest accrued on a Bankruptcy
Mortgage Loan prior to the date of the related Bankruptcy Plan filing will
generally be subordinate to the related Trust's right to receive timely payments
of principal and interest with respect to such Bankruptcy Mortgage Loan.
In addition, the related Prospectus Supplement or, if so specified therein,
the Current Report on Form 8-K to be filed within fifteen days after the
delivery of a Series of Certificates, will set forth in tabular form certain
more detailed information relating to the characteristics of the related
Mortgage Loans by number and outstanding principal balance and by percentage of
the Mortgage Pool including, without limitation, the outstanding principal
balances of the Mortgage Loans, the geographic distribution of the related
Mortgaged Properties (by state), the Combined Loan-to-Value Ratios, the Home
Equity Loan-to-Value Ratios, the Mortgage Interest Rates, the remaining months
to stated maturity and the number of months since origination, in each case
(except for geographic distribution) within the ranges specified therein. If so
specified in the related Prospectus Supplement, some or all of this information
may be based on a Sample Pool.
PAYMENTS ON THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, a
substantial portion of the Mortgage Loans underlying a Series of Certificates
will provide for payments that are allocated to principal and interest according
to the daily simple interest method (a "Simple Interest Mortgage Loan"). The
remainder of the Mortgage Loans will provide for payments in level monthly
installments (except, in the case of Balloon Mortgage Loans, the final payment)
consisting of interest equal to one-twelfth of the applicable Mortgage Interest
Rate times the unpaid principal balance, with the remainder of such payment
applied to principal (an "Actuarial Mortgage Loan") or for payments that are
allocated to principal and interest according to the "sum of the digits" or
"Rule of 78s" method (a "Rule of 78s Mortgage Loan"). Unless otherwise specified
in the related Prospectus Supplement, no Mortgage Loan will provide for deferred
interest or negative amortization. See "The Sellers' Home Equity Loan
Program -- Terms of the Home Equity Loans".
A Simple Interest Mortgage Loan provides for the amortization of the amount
financed under the Mortgage Loan over a series of equal monthly payments
(except, in the case of a Balloon Loan, the final payment). Each monthly payment
consists of an installment of interest which is calculated on the basis of the
outstanding principal balance of the Mortgage Loan multiplied by the stated
Mortgage Interest Rate and further multiplied by a fraction, the numerator of
which is the number of days in the period elapsed since the preceding payment of
interest was made and the denominator of which is the number of days in the
annual period for which interest accrues on such Mortgage Loan. As payments are
received under a Simple Interest Mortgage Loan, the amount received is applied
first to interest accrued to the date of payment and the balance is applied to
reduce the unpaid principal balance. Accordingly, if a borrower pays a fixed
monthly installment on a Simple Interest Mortgage Loan before its scheduled due
date, the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the payment
been made as scheduled, and the portion of the payment applied to reduce the
unpaid principal
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balance will be correspondingly greater. However, the next succeeding payment
will result in an allocation of a greater amount to interest if such payment is
made on its scheduled due date.
Conversely, if a borrower pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the remaining portion, if any,
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. If each scheduled payment under a Simple Interest Mortgage
Loan is made on or prior to its scheduled due date, the principal balance of the
Mortgage Loan will amortize in the manner described in the preceding paragraph.
However, if the borrower consistently makes scheduled payments after the
scheduled due date the Mortgage Loan will amortize more slowly than scheduled.
If a Simple Interest Mortgage Loan is prepaid, the borrower is required to pay
interest only to the date of prepayment.
A Rule of 78s Mortgage Loan provides for the payment by the borrower of a
specified total amount of payments, payable in equal monthly installments on
each due date, which total represents the amount financed and add-on interest in
an amount calculated on the basis of the stated note rate for the term of the
Mortgage Loan. The rate at which such amount of add-on interest is earned and,
correspondingly, the portion of each fixed monthly payment allocated to
reduction of the outstanding principal balance are calculated in accordance with
the "sum of the digits" or "Rule of 78s". Under a Rule of 78s Mortgage Loan, the
portion of a payment allocable to interest is determined by multiplying the
total amount of add-on interest payable over the term of the Mortgage Loan by a
fraction derived as described herein. The fraction used in the calculation of
add-on interest earned each month under a Rule of 78s Mortgage Loan has as its
denominator a number equal to the sum of a series of numbers beginning with one
and ending with the number of monthly payments due under the Mortgage Loan. For
example, for a Mortgage Loan providing for twelve scheduled payments, the
denominator of each month's fraction would be 78, the sum of the series of
numbers from one to twelve. The numerator of the fraction for a given month
would be the number of payments remaining before giving effect to the payment to
which the fraction is being applied. Accordingly, in the case of such Mortgage
Loan, the fraction for the first payment would be 12/78, for the second payment,
11/78, for the third payment, 10/78, and so on through the final payment, for
which the fraction would be 1/78. The applicable fraction is then multiplied by
the total add-on interest payable over the term of the Mortgage Loan to
determine the amount of interest "earned" that month. The difference between the
amount of the monthly payment made by the borrower and the amount of earned
add-on interest calculated for the month is applied to principal reduction. As a
result, the rate at which interest is earned in the initial months of a Rule of
78s Mortgage Loan is somewhat higher than the interest computed for a Mortgage
Loan computed on an actuarial basis, and the rate at which interest is earned at
the end of the Mortgage Loan is somewhat less than that computed under an
actuarial basis.
Payments to holders of the related Certificates and the Servicing Fee with
respect to Rule of 78s Mortgage Loans will be computed as if such Mortgage Loans
were Simple Interest Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, amounts received upon prepayment in full of a Rule of 78s
Mortgage Loan in excess of (i) the then outstanding principal balance of such
Mortgage Loan (computed on a daily simple interest amortization basis) and (ii)
accrued interest computed on a daily simple interest basis at the Mortgage
Interest Rate, plus servicing compensation exclusive of Servicing Fees, will not
be available to make required payments of principal and interest to holders of
the related Certificates and will not be treated as collected principal for
purposes of computing the amount to be distributed.
In the event of the prepayment in full (voluntarily or by acceleration) of
a Rule of 78s Mortgage Loan, under the terms of the Mortgage Loan the entire
remaining amount of payments is due but a "refund" or "rebate" will be made to
the borrower of the portion of the total amount of the scheduled payments
remaining under the Mortgage Loan immediately prior to such prepayment which is
allocable to "unearned" add-on interest. Such rebate will be calculated in
accordance with the Rule of 78s method.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on each Class of Certificates of a Series
entitled to principal, the aggregate amount of each interest payment on each
Class of Certificates of a Series entitled to interest and the yield to
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maturity of each Class of Certificates of a Series will be related to the rate
and timing of payments of principal on the related Mortgage Loans, which may be
in the form of scheduled and unscheduled payments. The rate of prepayment on a
pool of mortgage loans is affected by prevailing market rates for mortgage loans
of a comparable term and risk level. In general, when the level of prevailing
interest rates for similar loans significantly declines, the rate of prepayment
is likely to increase, although the prepayment rate is influenced by a number of
other factors, including general economic conditions and homeowner mobility.
Defaults on mortgage loans are expected to occur with greater frequency in their
early years, although little data is available with respect to the rate of
default on second mortgage loans. The rate of default on second or more junior
mortgage loans may be greater than that of mortgage loans secured by first liens
on comparable properties. Prepayments, liquidations and purchases of the
Mortgage Loans will result in distributions to the holders of amounts of
principal which would otherwise be distributed over the remaining terms of the
Mortgage Loans.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer, the Sellers or the holders of the Class of
Certificates of any Series specified in the related Prospectus Supplement may,
at their option, cause the related Trust to sell all of the outstanding Mortgage
Loans and REO Properties underlying the related Series of Certificates, and thus
effect the early retirement of the related Certificates, after the date on which
the Pool Principal Balance (as defined herein) is less than the percentage of
the Original Pool Principal Balance specified in the related Prospectus
Supplement. See "Description of the Certificates -- Optional Disposition of
Mortgage Loans" herein. Further, if so specified in the related Prospectus
Supplement, the Master Servicer or such other entities as may be specified in
such Prospectus Supplement may be required to effect early retirement of a
Series of Certificates by soliciting competitive bids for the purchase of the
assets of the related Trust or otherwise. See "Description of the
Certificates -- Mandatory Disposition of Mortgage Loans" herein.
If the Pooling and Servicing Agreement for a Series of Certificates
provides for a Prefunding Account or other means of funding the transfer of
additional Mortgage Loans to the related Trust, as described under "Description
of the Certificates -- Forward Commitments; Prefunding" herein, and the Trust is
unable to acquire such additional Mortgage Loans within any applicable time
limit, the amounts set aside for such purpose may be required to effect the
retirement of all or a portion of one or more Classes of Certificates of such
Series.
As described above, the rate of prepayment on a pool of mortgage loans is
affected by prevailing market rates for comparable mortgage loans. When the
market interest rate is below the mortgage coupon, mortgagors may have an
increased incentive to refinance their mortgage loans. Depending on prevailing
market rates, the future outlook for market rates and economic conditions
generally, some mortgagors may sell or refinance mortgaged properties in order
to realize their equity in the mortgaged properties, to meet cash flow needs or
to make other investments. No representation is made as to the particular
factors that will affect the prepayment of the Mortgage Loans underlying any
Series of Certificates, as to the relative importance of such factors, as to the
percentage of the principal balance of the Mortgage Loans that will be paid as
of any date or as to the overall rate of prepayment on the related Mortgage
Loans.
The yield to maturity of certain Classes of Certificates of a Series may be
particularly sensitive to the rate and timing of principal payments (including
prepayments) of the Mortgage Loans, which may fluctuate significantly from time
to time. The Prospectus Supplement relating to such Certificates will provide
certain additional information with respect to the effect of such payments on
the yield to maturity of such Certificates under varying rates of prepayment,
including the rate of prepayment, if any, which would reduce the holder's yield
to zero.
Greater than anticipated prepayments of principal will increase the yield
on Certificates purchased at a price less than par. Conversely, greater than
anticipated prepayments of principal will decrease the yield on Certificates
purchased at a price greater than par. The effect on an investor's yield due to
principal prepayments on the Mortgage Loans occurring at a rate that is faster
(or slower) than the rate anticipated by the investor in the period immediately
following the issuance of the Certificates will not be entirely offset by a
subsequent like reduction (or increase) in the rate of principal payments. The
weighted average life of each
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Class of Certificates of a Series will also be affected by the amount and timing
of delinquencies and defaults on the related Mortgage Loans and the recoveries,
if any, on defaulted Mortgage Loans and foreclosed properties in the related
Mortgage Pool.
The "weighted average life" of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life of
each Class of Certificates of a Series will be influenced by, among other
factors, the rate at which principal payments are made on the Mortgage Loans,
including final payments made upon the maturity of Balloon Loans.
THE TRUSTS
Each Trust will be formed under a Pooling and Servicing Agreement (a
"Pooling and Servicing Agreement") among one or both of the Sellers, the Master
Servicer and the Trustee named therein (a "Trustee"). The property of each Trust
will include: (i) the related Mortgage Loans as from time to time are subject to
the related Pooling and Servicing Agreement and all proceeds thereof, (ii) such
assets as from time to time are identified as REO Property or are deposited in
the Collection Account (defined herein), any Principal and Interest Account
(defined herein), or other accounts established under any of the documents
governing the Trust or the related Certificates, including amounts on deposit in
such accounts and invested in Permitted Instruments, (iii) the Trustee's rights
under all insurance policies with respect to the Mortgage Loans required to be
maintained pursuant to the Pooling and Servicing Agreement and any Insurance
Proceeds, (iv) Liquidation Proceeds, (v) Released Mortgaged Property Proceeds,
and (vi) certain other property.
The Master Servicer will service the Mortgage Loans either directly or
through Subservicers in accordance with the Pooling and Servicing Agreement and
generally in accordance with the first and second mortgage loan servicing
standards and procedures accepted by prudent mortgage lending institutions. See
"The Sellers' Home Equity Loan Program -- Servicing" and "Description of the
Certificates -- Servicing Standards" and "-- Use of Subservicers" below for a
further description of the Master Servicer's servicing procedures and provisions
of the Pooling and Servicing Agreement relating to servicing standards and the
use of Subservicers.
THE SELLERS
CoreStates Bank, N.A. is a national banking association organized under the
laws of the United States. The principal executive offices of CoreStates Bank,
N.A. are located at Broad and Chestnut Streets, Philadelphia, Pennsylvania
19107. Its telephone number is (215) 973-3100.
New Jersey National Bank is a national banking association organized under
the laws of the United States. The principal executive offices of New Jersey
National Bank are located at 370 Scotch Road, West Trenton, New Jersey 08628.
Its telephone number is (609) 771-5700.
Each of the Sellers is, directly or indirectly, a wholly-owned subsidiary
of CoreStates Financial Corp ("CoreStates"), a bank holding company
headquartered in Philadelphia, Pennsylvania and registered under the Bank
Holding Company Act of 1956, as amended. CoreStates, through the Sellers and its
other subsidiaries, provides diversified financial services in the mid-Atlantic
states and selected products and services worldwide. These services include, in
addition to consumer finance, commercial finance, trust services, factoring,
check processing, cash management, consumer electronic transactions, merchant
banking and investment banking.
Each of the Sellers is licensed, to the extent required, to make consumer
loans, including second mortgage loans, in the states in which the mortgaged
properties are located. The Sellers will sell and assign the Mortgage Loans to
the Trust in exchange for the related Certificates. Each Mortgage Loan will be
serviced by the Master Servicer. The Master Servicer will be entitled to receive
the Servicing Fee. Neither the Master Servicer or the Sellers nor any of their
affiliates will insure or guarantee the Certificates. The Certificates are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
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THE SELLERS' HOME EQUITY LOAN PROGRAM
GENERAL
As part of its banking business, each Seller makes home equity loans to
individuals. In most instances, these home equity loans are secured by
non-purchase money first mortgages or second mortgages on owner-occupied one- to
four-family residences, condominiums and townhouses. In some cases, the home
equity loans are secured by a more junior mortgage, but only on an exception
basis. Also, on an exception basis, home equity loans are secured by first or
second mortgages on residential rental properties or vacation properties. All
the home equity loans are mortgage loans. However, in a few cases, there may be
additional collateral required. The "home equity loans" originated or acquired
by the Sellers are both (i) loans which are secured by residential real
property, the proceeds of which are used to make improvements to the real
property securing the loan, and (ii) loans which are secured by residential real
property, the proceeds of which are used for some purpose other than purchasing
or making improvements on such real property (e.g., consolidating other debt).
The Sellers have originated closed-end, fixed-rate home equity loans for
many years and to a significant extent since 1988. Additionally, the Sellers
have, and expect to continue, to acquire home equity loans from other
institutions primarily in connection with the acquisition or merger of such
institutions by or with CoreStates or the Sellers.
UNDERWRITING PROCEDURES
The following is a description of the underwriting policies customarily
employed by the Sellers with respect to home equity loans secured by mortgages
on one- to four-family residences, condominiums and townhouses. The underwriting
procedures described herein are substantially similar to the underwriting
procedures employed by the originators of those home equity loans acquired by
the Sellers from predecessor institutions. The underwriting process is intended
to assess the applicant's credit standing and repayment ability, and the value
and adequacy of the real property security as collateral for the proposed loan.
The Sellers consider themselves to be credit lenders as opposed to equity
lenders, focusing primarily on the borrower's ability to repay and only
secondarily on the potential value of the collateral upon foreclosure, in
determining whether or not to make a mortgage loan.
Exceptions to the Seller's underwriting policies may be made by a senior
credit officer or his designee. The factors considered when determining if an
exception to the general underwriting standards should be made include quality
and value of the property, how long the borrower has owned the property, amount
of disposable income, type of employment, credit history, current and pending
debt obligations, payment habits and status of past and currently existing
mortgages.
Each home equity loan funded by the Sellers is subject to an automated
"credit scoring" which assists in the evaluation of applications for consumer
credit. Information listing the applicant's assets, liabilities, income, credit
and employment history and other demographic and personal information are input
onto CoreStates' Loan Application Processing System ("LAPS"), whereby the credit
score is automatically calculated. CoreStates' credit scoring system is a
product of the correlation of projected scoring results to CoreStates'
acceptable risk levels. The result is an established "cut-off" score against
which consumer credit application scores are measured and recommended for
approval or denial. While the credit score is considered an integral part of the
evaluation process, decisions by a lender(s) with respect to all home equity
loan requests are judgmental (depending on their credit limits). The action
recommended by the credit scoring system may be overridden upon approval from a
senior lending officer. Override activity is tracked separately via the use of
override codes. Override codes are used for approvals where the lender has
information not considered in the scoring process or, in their judgment, the
credit bureau data is not accurate or is mitigated based on other facts of the
application.
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Subsequent to the calculation of a credit score, the loan officer will
conduct a further credit investigation of the applicant. This investigation
includes obtaining and reviewing an independent credit bureau report on the
credit history of the applicant in order to evaluate the applicant's ability and
willingness to repay. The credit report typically contains information relating
to such matters as credit history with local merchants and lenders, installment
debt payments and any record of defaults, bankruptcy, collateral repossessions,
suits or judgments. Any adverse information contained in the credit report must
be acceptable (and if requested, explained) to the loan officer.
The Sellers also review the applicant's debt-to-income ratio and employment
history and obtain an employment verification which provides the applicant's
current wages and length of employment, from either the applicant's employer, or
from recent pay stubs and current W-2 forms which are supplied by the applicant.
Income tax returns may also be obtained and reviewed. Self-employed borrowers
are required to have been in business for at least two years and must provide
signed federal income tax returns, including all schedules thereto for the past
two tax years. Although the Sellers review the debt-to-income ratios and
otherwise comply with the Seller's underwriting policies for applicants who are
their employees, such debt-to-income ratios are not preserved on the LAPS
system.
If there is a senior mortgage on the property to be used as security for
the home equity loan, an employee also evaluates the length of time the
applicant has been in the home, the type and outstanding balance of the senior
mortgage loan and its payment history. The Sellers obtain a credit reference on
the senior mortgage by using either credit bureau information, telephone
verification, or the year-end senior mortgage statement. In connection with the
refinancing of a loan secured by a mortgage senior to a home equity loan, the
Sellers will accept requests for the subordination of such home equity loan if
the borrower and the mortgage company requesting the subordination submit a
title search, a new appraisal and the amount which is to be financed. The
Sellers will obtain credit bureau information and evaluate the current equity
and lien position. As long as the equity and lien positions remain within
underwriting standards, the subordination will be permitted.
Appraisals determined on the basis of a Seller-approved, independent
third-party, fee-based appraisal completed on forms approved by FNMA or FHLMC
are generally performed on all home equity loans which at origination have a
principal balance greater than $100,000. Prior to May 1994, for loans which have
at origination a principal balance greater than $25,000 and less than or equal
to $100,000, a drive-by evaluation is generally completed by a state licensed,
independent third-party, professional appraiser on forms approved by FHLMC. The
drive-by evaluation is an exterior examination of the premises by the appraiser
and photographs of the front, rear and street view of the property may be
included in the submitted evaluation. For loans which have at origination a
principal balance of $25,000 or less, no appraisal or drive-by evaluation is
generally performed. In such cases, property valuations are made at the
discretion of the Seller based on its knowledge of the area in which the related
Mortgaged Property is located. If the Seller is uncertain as to the valuation of
such Mortgaged Property, a drive-by evaluation may be performed. Beginning May
1994, such a drive-by evaluation is generally completed for all loans. Beginning
May 1995, each loan with a principal balance of up to $50,000 is evaluated based
on a tax assessment, a multiplier of the original purchase price, an existing
appraisal, the original consideration or comparable sales data for the related
Mortgaged Property. Such an evaluation of any Mortgaged Property may be waived
at a senior loan officer's discretion. Evaluations using comparable sales data
are required for each new loan with a principal balance of between $50,000 and
$100,000. This method of evaluation may be substituted with one of the other
methods listed above with the approval of a senior loan officer. Independent,
third-party, fee-based appraisals completed on FNMA forms are obtained on all
loans with principal balances greater than $100,000 at origination.
After obtaining all applicable employment, credit and property information,
the Sellers determine whether sufficient unencumbered equity in the property
exists and whether the prospective borrower has sufficient monthly income
available to support the payments of principal and interest on the home equity
loan in addition to any senior mortgage loan payments (including any escrows for
property taxes and hazard insurance premiums) and other monthly credit
obligations. The Sellers currently use a debt-to-gross income ratio, which is
the ratio of the prospective borrower's total monthly payments on all
outstanding debt (including the new loan) to the borrower's gross monthly income
(with certain adjustments made for non-taxable income). In April 1996, the
Sellers revised their policy with regard to debt-to-income ratios so that
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generally the debt-to-gross income ratio for any borrower may not exceed 40%.
Previously, the Sellers permitted a debt-to-net income ratio of 45% or, if a
Borrower's monthly disposable income was greater than $1,000, 50%. If the
borrower has an open-ended credit obligation, the debt payment is calculated at
the maximum available credit limit. Exceptions to the debt-to-gross income ratio
requirement may be made with the approval of a senior loan officer.
With respect to the home equity loans originated by the Sellers prior to
March 1992 and secured by mortgages on one- to four-family residences,
condominiums and townhouses, the Sellers' underwriting guidelines permitted a
maximum Combined Loan-to-Value Ratio of up to 80% or such higher ratio if
approved on an exception basis for such home equity loans. The maximum Combined
Loan-to-Value Ratios for such home equity loans originated by the Sellers
beginning in March 1992 and prior to May 1994 are 70% if the appraised value is
up to $250,000; 62.5% if the appraised value is from $250,000 to $500,000; and
50% (or such higher ratio if approved on an exception basis) if the appraised
value is over $500,000. With respect to the home equity loans originated by the
Sellers beginning in May 1994 and prior to February 1996, the maximum Combined
Loan-to-Value Ratio is 70% if the appraised value is up to $250,000 and 60% if
the appraised value is greater than $250,000. Since February 1996, the maximum
permitted Combined Loan-to-Value Ratio is 80% of the applicable appraised value
up to $250,000 and 60% of the amount by which the appraisal value exceeds
$250,000.
The Sellers frequently finance certain fees and insurance premiums at the
time of loan origination, but do not include such amounts in the principal
amount of the home equity loan when making Combined Loan-to-Value Ratio
computations for loan approval purposes. However, the information contained in
each Prospectus Supplement regarding Combined Loan-to-Ratio-Value Ratios and
Home Equity Loan-to-Value Ratios for the Mortgage Pool relating to each Trust
may include financed fees and insurance premiums, if any, in the original
principal amount of the Mortgage Loans and such financed fees and insurance
premiums, if any, will be included as part of the principal balances of the
Mortgage Loans sold to the Trust.
Some of the home equity loans are secured by two or more mortgaged
properties owned by the borrower (a "Cross-Collateralized Loan"). When
considering an application for such a loan, the Sellers consider the combined
appraised value of the properties and the total indebtedness of the borrower
secured by the properties. A Cross-Collateralized Loan is subject to previously
stated maximum Combined Loan-to-Value Ratios.
It is each Seller's policy to require a title search before it makes a home
equity loan. In addition, if the mortgage loan has an original principal balance
greater than $100,000, each Seller requires that the borrower obtain a lender's
title insurance policy, or other assurance of title customary in the relevant
jurisdiction.
When an application is approved, a home equity loan is completed by signing
loan documents, including a promissory note, rescission statement, and mortgage
which will secure the repayment of principal of and interest on the related home
equity loan. The original mortgage is then recorded in the appropriate office.
Following the three business day rescission period required by the federal
Truth-in-Lending Act, a home equity loan is fully funded. Scheduled repayment of
principal and interest on such loan on a fully-amortizing basis generally begins
one month from the date interest starts to accrue.
If any Mortgage Loans are acquired from another originating institution,
including, but not limited to, as a result of the acquisition of or merger with
such an institution, the related Prospectus Supplement will set forth any
relevant information with respect to the underwriting procedures of such
institution and the terms of such Mortgage Loans.
TERMS OF THE HOME EQUITY LOANS
The Sellers originate and acquire fixed-rate, closed-end home equity loans.
A simple interest loan provides for the amortization of the amount financed
under the loan over a series of equal monthly payments. Each monthly payment
includes an installment of interest which is calculated on the basis of the
outstanding principal balance of the loan multiplied by the stated Mortgage
Interest Rate and further multiplied by a
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fraction, of which the numerator is the number of days in the period elapsed
since the preceding payment of interest was made and the denominator is the
number of days in the annual period for which interest accrues on such loan. As
payments are received under a simple interest loan, the amount received is
applied first to interest accrued to the date of payment and the balance is
applied to reduce the unpaid principal balance. Accordingly, if a borrower pays
a fixed monthly installment on a simple interest loan before its scheduled due
date, the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the payment
been made as scheduled, and the portion of the payment applied to reduce the
unpaid principal balance will be correspondingly greater. The home equity loans
originated by the Sellers typically have original terms to maturity ranging from
85 to 180 months and provide for monthly payments of principal and interest in
substantially equal installments for the contractual term of the related
mortgage note in sufficient amounts to fully amortize the principal thereof by
maturity. Payments on the home equity loans in the form of late payment charges,
or other miscellaneous administrative charges, to the extent collected from
borrowers, will be retained by the Master Servicer as additional servicing
compensation. See "Description of the Certificates -- Servicing Compensation"
and "-- Payment of Expenses."
None of the home equity loans is insured by the Federal Housing
Administration, guaranteed by the Veterans Administration or otherwise insured
or guaranteed in any manner (except in some cases for title and hazard
insurance, which insurance is required to be obtained by the borrower).
SERVICING
The Master Servicer has established standard policies for servicing and
collection of the home equity loans. Servicing includes, but is not limited to,
post-origination loan processing, customer service, collections, remittance
processing and liquidations.
The Master Servicer sends a payment coupon book to each borrower upon the
origination of a home equity loan, unless the borrower elects automatic payment
from his checking account. If the borrower's payment is within $10 of the
payment amount due, the system will automatically consider the loan current. If
timely payment is not received, the collection process is initiated on the
fifteenth day past the due date. The Master Servicer will attempt to contact the
borrower to make payment arrangements.
All delinquencies are classified at the end of each month. Except as
provided below, on the first day of each month, all loans for which a borrower
has missed the monthly payment due in the prior month are considered 15-29 days
past due. If a borrower misses two consecutive monthly payments, the loan is
considered 30-59 days past due on the first day of the month following the
second missed payment and if a borrower misses three consecutive monthly
payments, the loan is considered 60-89 days past due on the first day of the
month following the third missed payment.
Notwithstanding the foregoing, if a borrower remits multiple monthly
payments in any month, the Sellers generally do not require the borrower to
remit an additional payment for a period of time equal to the number of months
for which payments are received. Consequently, on the Payment Dates following
the Due Periods for which no monthly payments are required to be made on any
such Mortgage Loan, although interest has accrued on such Mortgage Loans, there
may be insufficient collections on the Mortgage Loans to make distributions on
the Certificates. Such insufficiency, to the extent not covered by amounts
otherwise payable in respect of the Mortgage Loans or any Reserve Account,
Spread Account or similar account, could result in delays in payments to
Certificateholders until such time as future monthly payments are made on such
Mortgage Loans sufficient to cover any unpaid interest shortfall.
If arrangements have not been made to cure the delinquency prior to the
date when the loan is considered 60-89 days past due, the Master Servicer
initiates a process of investigation and evaluation leading to foreclosure if
the collateral value is sufficient to protect the interest of the Seller. All
foreclosures are handled by the Master Servicer and are initiated only at the
direction of a collection manager, consumer risk manager or senior consumer
lender and only if attempts to negotiate payment terms with the borrower have
failed. When foreclosure proceedings are initiated, a third party appraiser
inspects the property, completes a drive-by evaluation and obtains comparable
sales prices and listings in the area. In addition, homeowner's insurance is
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verified and the status of senior mortgages and property taxes is checked.
Subject to applicable state law, all legal expenses are assessed to the account
and become the responsibility of the borrower.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, the Master Servicer's business
judgment, changes in the portfolio and applicable laws and regulations. Current
charge-off policy is 120-days contractual delinquency for the full outstanding
balance. Any realization from the sale of foreclosed property is taken as
recovery. After a Seller acquires title to a mortgaged property by foreclosure
or deed in lieu of foreclosure and 90 days have passed during which the property
has not been sold, the Master Servicer requires a full appraisal of the
property. The mortgaged property is then written down, if necessary, to its fair
market value as determined by such new appraisal.
The Master Servicer may not foreclose on the property securing a junior
home equity loan unless it forecloses subject to all senior mortgages, in which
case the Seller generally pays the entire amount due on any senior mortgage to
the senior mortgagee at or prior to the foreclosure sale. If any senior mortgage
loan is in default after the Master Servicer has initiated its foreclosure
action, the Seller may advance funds to keep such senior mortgage loan current
until such time as the Seller satisfies such senior mortgage loan. Such amounts
are added to the balance of the home equity loan. In the event that foreclosure
proceedings have been instituted on any senior mortgage prior to the initiation
of the Master Servicer's foreclosure action, the Seller will either satisfy the
senior mortgage loan at the time of the foreclosure sale or take other action to
protect its interest in the related property.
DELINQUENCY AND LOSS EXPERIENCE
The related Prospectus Supplement will set forth information relating to
the delinquency and loan loss experience for home equity loans serviced by the
Master Servicer (including home equity loans owned by the Sellers) (the "Primary
Servicing Portfolio") for each of the four prior years. In addition, with
respect to any Mortgage Loans acquired from an originator other than the
Sellers, including as a result of the acquisition of or merger with such
originator, the related Prospectus Supplement will set forth any relevant
delinquency and loan loss experience with respect to home equity loans serviced
or owned by such originator. The data so presented is for illustrative purposes
only, and there is no assurance that future delinquency or loss experience of
the related Mortgage Loans will be similar to that set forth in the related
Prospectus Supplement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The following summary describes certain terms of the Certificates, common
to each Pooling and Servicing Agreement. A form of the Pooling and Servicing
Agreement has been filed as an Exhibit to the Registration Statement of which
this Prospectus forms a part. The summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the Certificates, the Pooling and Servicing Agreement and the related Prospectus
Supplement. Where particular provisions or terms used in any of such documents
are referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries.
The Certificates will represent beneficial interests in the assets of the
related Trust, including (i) the Mortgage Loans and all proceeds thereof, (ii)
REO Property, (iii) amounts on deposit in the funds and accounts established
with respect to the related Trust, including all investments of amounts on
deposit therein, and (iv) certain other property, as described in the related
Prospectus Supplement. If specified in the related Prospectus Supplement, one or
more Classes of Certificates of a Series may have the benefit of one or more of
a letter of credit, financial guaranty insurance policy, mortgage pool insurance
policy, special hazard insurance policy, reserve fund, spread account, cash
collateral account, overcollateralization or other form of credit enhancement.
If so specified in the related Prospectus Supplement, a Series of Certificates
may have the benefit of one or more of a mortgage pool insurance policy,
bankruptcy bond, special hazard insurance policy of similar credit enhancement.
Any such credit enhancement may be included in the assets of the related Trust.
See "Description of Credit Enhancement" herein.
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A Series of Certificates may include one or more Classes entitled to
distributions of principal and disproportionate, nominal or no interest
distributions or distributions of interest and disproportionate, nominal or no
principal distributions. The principal amount of any Certificate may be zero or
may be a notional amount as specified in the related Prospectus Supplement. A
Class of Certificates of a Series entitled to payments of interest may receive
interest at a specified rate (a "Certificate Interest Rate") which may be fixed,
variable or adjustable and may differ from other Classes of the same Series, may
receive interest based on the weighted average Mortgage Interest Rate on the
related Mortgage Loans, or may receive interest as otherwise determined, all as
described in the related Prospectus Supplement. One or more Classes of a Series
may be Certificates upon which interest will accrue but not be currently paid
until certain other Classes have received principal payments due to them in full
or until the occurrence of certain events, as set forth in the related
Prospectus Supplement. One or more Classes of Certificates of a Series may be
entitled to receive principal payments pursuant to a planned amortization
schedule or may be entitled to receive interest payments based on a notional
principal amount which reduces in accordance with a planned amortization
schedule. A Series may also include one or more Classes of Certificates entitled
to payments derived from a specified group or groups of Mortgage Loans held by
the related Trust. The rights of one or more Classes of Certificates may be
senior or subordinate to the rights of one or more of the other Classes of
Certificates. A Series may include two or more Classes of Certificates which
differ as to the timing, sequential order, priority of payment or amount of
distributions of principal or interest or both.
Each Class of Certificates of a Series will be issued in the denominations
specified in the related Prospectus Supplement. Each Certificate will represent
a percentage interest (a "Percentage Interest") in the Certificates of the
respective Class, determined by dividing the original dollar amount (or Notional
Principal Amount (as defined below), in the case of certain Certificates
entitled to receive interest only) represented by such Certificate by the
Original Principal Balance of such Class. The related Prospectus Supplement will
set forth the amount or method of calculating the Notional Principal Amount with
respect to any Certificate.
One or more Classes of Certificates of a Series may be issuable in the form
of fully registered definitive certificates or, if so specified in the related
Prospectus Supplement, one or more Classes of Certificates of a Series (the
"Book-Entry Certificates") may initially be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), the nominee of The
Depository Trust Company ("DTC"), and available only in the form of book-entries
on the records of DTC, participating members thereof ("Participants") and other
entities, such as banks, brokers, dealers and trust companies, that clear
through or maintain custodial relationships with a Participant, either directly
or indirectly ("Indirect Participants"). Certificateholders may also hold
Certificates of a Series through CEDEL or Euroclear (in Europe), if they are
participants in such systems or indirectly through organizations that are
participants in such systems. Certificates representing the Book-Entry
Certificates will be issued in definitive form only under the limited
circumstances described herein and in the related Prospectus Supplement. With
respect to Book-Entry Certificates, all references herein to "holders" of
Certificates shall reflect the rights of owners of the Book-Entry Certificates,
as they may indirectly exercise such rights through DTC and Participants, except
as otherwise specified herein. See "-- Registration of Certificates" herein.
Unless otherwise specified in the related Prospectus Supplement, on each
Payment Date there shall be paid to each person in whose name a Certificate is
registered on the related Record Date (which in case of the Book-Entry
Certificates initially will be only Cede, as nominee of DTC), the portion of the
aggregate payment to be made to holders of such Class to which such holder is
entitled, if any, based on the Percentage Interest, held by such holder of such
Class.
INTEREST
Unless otherwise specified in the related Prospectus Supplement, interest
will accrue on each Class of Certificates of a Series (other than a Class of
Certificates entitled to receive only principal) during each period specified in
the related Prospectus Supplement (each, an "Accrual Period") at the Certificate
Interest Rate for such Class specified in the related Prospectus Supplement.
Interest accrued on each Class of Certificates at the applicable Certificate
Interest Rate during each Accrual Period will be paid, to the extent monies are
available therefor, on each Payment Date, commencing on the day specified in the
related Prospectus
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Supplement and will be distributed in the manner specified in such Prospectus
Supplement, except for any Class of Certificates ("Accrual Certificates") on
which interest is to accrue and not be paid until the principal of certain other
Classes has been paid in full or the occurrence of certain events as specified
in such Prospectus Supplement. If so described in the related Prospectus
Supplement, interest that has accrued but is not yet payable on any Accrual
Certificates will be added to the principal balance thereof on each Payment Date
and will thereafter bear interest at the applicable Certificate Interest Rate.
Payments of interest with respect to any Class of Certificates entitled to
receive interest only or a disproportionate amount of interest and principal
will be paid in the manner set forth in the related Prospectus Supplement.
Payments of interest (or accruals of interest, in the case of Accrual
Certificates) with respect to any Series of Certificates or one or more Classes
of Certificates of such Series, may be reduced to the extent of interest
shortfalls not covered by Advances, if any, or by any applicable credit
enhancement.
PRINCIPAL
On each Payment Date, commencing with the Payment Date specified in the
related Prospectus Supplement, principal with respect to the related Mortgage
Loans during the period specified in the related Prospectus Supplement (each
such period, a "Due Period") will be paid to holders of the Certificates of the
related Series (other than a Class of Certificates of such Series entitled to
receive interest only) in the priority, manner and amount specified in such
Prospectus Supplement, to the extent funds are available therefor. Unless
otherwise specified in the related Prospectus Supplement, such principal
payments will generally include (i) the principal portion of all scheduled
payments ("Monthly Payments") received on the related Mortgage Loans during the
related Due Period, (ii) any principal prepayments of any such Mortgage Loans in
full ("Principal Prepayments") and in part ("Curtailments") received during the
related Due Period or such other period (each, a "Prepayment Period") specified
in the related Prospectus Supplement, (iii) the principal portion of (A) the
proceeds of any insurance policy relating to a Mortgage Loan, a Mortgaged
Property (defined herein) or a REO Property (defined herein), net of any amounts
applied to the repair of the Mortgaged Property or released to the Mortgagor
(defined herein) and net of reimbursable expenses ("Insurance Proceeds"), (B)
proceeds received in connection with the liquidation of any defaulted Mortgage
Loans ("Liquidation Proceeds"), net of fees and advances reimbursable therefrom
("Net Liquidation Proceeds") and (C) proceeds received in connection with a
taking of a related Mortgaged Property by condemnation or the exercise of
eminent domain or in connection with any partial release of any such Mortgaged
Property from the related lien ("Released Mortgaged Property Proceeds"), (iv)
the principal portion of all amounts paid by the Sellers in connection with the
purchase of or substitution for a Mortgage Loan as to which there is defective
documentation or a breach of a representation or warranty contained in the
related Pooling and Servicing Agreement and (v) the principal balance of each
defaulted Mortgage Loan or REO Property as to which the Master Servicer has
determined that all amounts expected to be recovered have been recovered (each,
a "Liquidated Mortgage Loan"), to the extent not included in the amounts
described in clauses (i) through (iv) above (the aggregate of the amounts
described in clauses (i) through (v), the "Basic Principal Payment"). Payments
of principal with respect to a Series of Certificates or one or more Classes of
such Series may be reduced to the extent of delinquencies or losses not covered
by advances or any applicable credit enhancement.
ASSIGNMENT OF THE MORTGAGE LOANS
At the time of issuance of a Series of Certificates, the Sellers will
assign the Mortgage Loans to the Trust pursuant to a Pooling and Servicing
Agreement together with all principal and interest received on or with respect
to the Mortgage Loans, other than principal and interest due or received on or
before the related Cut-off Date, to the extent specified in the related
Prospectus Supplement.
Each Mortgage Loan will be identified in a schedule included as an exhibit
to the related Pooling and Servicing Agreement (the "Mortgage Loan Schedule").
The Mortgage Loan Schedule will set forth certain information with respect to
each Mortgage Loan, including, among other things, the principal balance as of
the Cut-off Date, the Mortgage Interest Rate, the scheduled monthly payment of
principal and interest, the
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maturity of the Mortgage Note, the Combined Loan-to-Value Ratio at origination
and, as applicable, the Home Equity Loan-to-Value Ratio at origination.
Unless otherwise specified in the related Prospectus Supplement, under the
terms of each Pooling and Servicing Agreement, during the period that the
related Certificates are outstanding and so long as the ratings of the long-term
senior unsecured debt of CoreStates Bank, N.A. and New Jersey National Bank
satisfy the rating conditions set forth in the related Prospectus Supplement,
CoreStates Bank, N.A. will hold the original documentation relating to each
Mortgage Loan, including the related Mortgage Note and Mortgage (such original
documentation, the "Mortgage File"), as custodian and agent for the Trustee and
will not be required to record assignments of the Mortgages in favor of the
Trustee. If CoreStates Bank, N.A.'s long-term senior unsecured debt rating does
not satisfy the above-described conditions, the Mortgage Files relating to the
Mortgage Loans sold by both Sellers, or, if New Jersey National Bank's long-term
senior unsecured debt rating does not satisfy such conditions, or on the related
Closing Date if the related Prospectus Supplement so specifies, the Mortgage
Files relating to Mortgage Loans sold by New Jersey National Bank, will be
delivered to the Trustee or an independent custodian on behalf of the Trustee
within 90 days of the date such conditions are not satisfied, and assignments of
the Mortgages in favor of the Trustee will be required to be recorded (or
opinions of counsel acceptable to the Rating Agencies will be obtained to the
effect that recording is not required to protect the Trust's interest in and to
the related Mortgage Loan). Under the Pooling and Servicing Agreement, the
Trustee is appointed attorney-in-fact for each Seller with power to prepare,
execute and record assignments of the Mortgages in the event that the Sellers
fail to do so on a timely basis. Prior to the delivery of a Mortgage File to the
Trustee, the related Mortgage Note will not be endorsed to the Trustee. See
"Risk Factors -- Creditors' Rights and Insolvency Considerations".
If Mortgage Files are delivered to the Trustee or a custodian on behalf of
the Trustee, the Trustee (or such custodian) will review such Mortgage Files,
and if any document required to be included in the Mortgage File is found to be
defective in any material respect and such defect is not cured within 30 days
following written notification thereof to the Master Servicer by the Trustee,
the related Seller will be required to repurchase the related Mortgage Loan in
the manner set forth below.
If Mortgage Files are required to be delivered to the Trustee, the Trustee
will be authorized to appoint a custodian, which custodian shall not be an
affiliate of the Master Servicer and shall meet certain other criteria set forth
in the Pooling and Servicing Agreement, to maintain possession of and review the
documents with respect to the Mortgage Loans, as the agent of the Trustee. Any
such Custodian will be required to release the Mortgage Files to the Master
Servicer or to any Subservicers in connection with its servicing activities or
for review by licensing authorities. Any such Custodial Agreement will be on
such terms as the Trustee, the Master Servicer and the Custodian shall agree.
Since the Mortgage Files may be retained by CoreStates Bank, N.A., as
custodian for the Trustee, and assignments by the Sellers to the Trustee of the
Mortgages will not be recorded, it might be possible for a Seller to transfer
the Mortgage Loans to bona fide purchasers for value without notice,
notwithstanding and in derogation of the rights of the Trustee. See "Special
Considerations".
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Seller will represent, among other things, that as to each Mortgage Loan
conveyed by any Seller as of the related Closing Date:
1. The information set forth in the Mortgage Loan Schedule regarding
such Mortgage Loan was true and correct at the date or dates respecting
which such information is furnished.
2. Such Mortgage Loan was originated or acquired by the Seller, and
the related Mortgage is a valid lien on the related Mortgaged Property
securing the amount owed by the Mortgagor under the related Mortgage Note
subject only to (i) the lien of current real property taxes and
assessments, (ii) the lien of any related first or second mortgage or deed
of trust (as to any Mortgage Loan that is not secured by a first priority
lien), (iii) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of
such Mortgage, such exceptions appearing of record being
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acceptable to mortgage lending institutions generally in the area wherein
the related Mortgaged Property is located or specifically reflected in the
appraisal or title policy obtained in connection with the origination of
the related Mortgage Loan obtained by the Seller and (iv) 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.
3. Each Mortgaged Property consists of one- to four-family residential
real property, a condominium, townhouse or, if and to the extent specified
in the related Prospectus Supplement, cooperatives, located in the United
States. No Mortgaged Property consists solely of raw land, an apartment
building having more than four units, or a cooperative apartment which is
not considered to be realty under applicable law.
4. Immediately prior to the sale and assignment by the Seller to the
Trustee, the Seller had good title to such Mortgage Loan, free of any
interest of any other Person, and the Seller has transferred all of its
right, title and interest in and to such Mortgage Loan to the related
Trust.
5. For each Mortgage Loan having an original principal balance in
excess of $100,000, a lender's title insurance policy or binder, or other
assurance of title customary in the relevant jurisdiction therefor, was
obtained on or as of the date of the recording of the related Mortgage
Loan, and each such policy, binder or assurance is valid and remains in
full force and effect.
6. Each original Mortgage was recorded, or is in the process of being
recorded, and all subsequent assignments of the original Mortgage have been
recorded, or are in the process of being recorded, in the appropriate
jurisdictions wherein such recordation is necessary to perfect the lien
thereof as against creditors of the Seller or as against creditors of the
Seller's predecessors in title.
7. To the best knowledge of the Seller, there is no mechanics' lien or
claim for work, labor or material affecting the premises subject to the
related Mortgage which is or may be a lien prior to, or equal or coordinate
with, the lien of such Mortgage, except those which are insured against by
the title insurance policy referred to in 5. above.
8. To the best knowledge of the Seller, there is no delinquent tax or
assessment lien against any Mortgaged Property. There is no valid offset,
defense or counterclaim to the related Mortgage Note or Mortgage.
9. The Seller has possession of such Mortgage Loan and the Mortgage
Files, and there are and there will be no custodial agreements in effect
materially and adversely affecting the rights of the Seller to make, or
cause to be made, any delivery of such Mortgage Loan or Mortgage Files as
required hereunder.
10. Such Mortgage Loan is a mortgage loan principally secured by an
interest in real property for purposes of the REMIC provisions of the Code
and is secured by a first or more junior priority Mortgage.
11. The credit underwriting guidelines applicable to such Mortgage
Loan conformed in all material respects to the description thereof set
forth in the Prospectus and in the related Prospectus Supplement. Such
Mortgage Loan conforms, and all Mortgage Loans in the aggregate conform, to
the description thereof set forth in the Prospectus and in the related
Prospectus Supplement.
12. Such Mortgage Loan was not selected from among the Seller's assets
in a manner which would cause them to be adversely selected as to credit
risk from the pool of home equity loans owned by the Seller.
Such Seller will also make representations in the related Prospectus
Supplement as to the percentage of all of the Mortgage Loans or of the Mortgage
Loans in the Sample Pool which are secured by an owner-occupied Mortgaged
Property, the percentage of Mortgage Loans which are Balloon Loans, the
percentage of Mortgage Loans secured by Mortgaged Properties located within any
single zip code area and the percentage of the Mortgage Loans which were 30 or
more days contractually delinquent.
In addition, each Seller will, with respect to each Bankruptcy Mortgage
Loan, make certain representations regarding (i) the number of payments made
under the related Bankruptcy Plan and (ii) the ratio of
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(a) the outstanding principal balance of the Bankruptcy Mortgage Loan (plus the
outstanding principal balance of any Senior Lien) divided by (b) the current
appraised value of the related Mortgaged Property, as determined within 30 days
after the Closing Date. If there is a breach of these representations as to any
Bankruptcy Mortgage Loan which is not waived by the Trustee or any Credit
Provider, the Sellers may, as described below, be required to repurchase such
Bankruptcy Mortgage Loan. Such repurchases would have the effect of increasing
the rate of prepayment of the Mortgage Loans.
Upon the discovery by any of the Sellers, the Master Servicer, any
Subservicer, the Custodian, if any, the Credit Provider, if any, the Trustee or
any other party specified in the Pooling and Servicing Agreement that any of the
representations and warranties described above have been breached in any
material respect as of the Closing Date, with the result that the interests of
the holders of the related Certificates in the related Mortgage Loan or the
interests of any Credit Provider or any other party specified in such Pooling
and Servicing Agreement are materially and adversely affected, the party
discovering such breach is required to give prompt written notice to the other
parties. Within 60 days (or such other period as may be specified in the related
Prospectus Supplement) of the earlier to occur of its discovery or its receipt
of notice of any such breach, the Master Servicer is required to (i) cure or
cause the respective Seller to cure such breach in all material respects, (ii)
unless otherwise specified in the related Prospectus Supplement, remove each
Mortgage Loan which has given rise to the requirement for action, or cause the
respective Seller to substitute one or more mortgage loans that meet certain
criteria set forth in the related Pooling and Servicing Agreement (each a
"Qualified Substitute Mortgage Loan") and, if the outstanding principal balance
of such Qualified Substitute Mortgage Loans plus accrued and unpaid interest
thereon as of the date of such substitution is less than the outstanding
principal balance, plus accrued and unpaid interest thereon and any unreimbursed
Servicing Advances, of the replaced Mortgage Loans as of the date of
substitution, deliver or cause to be delivered to the Master Servicer, the
amount of any such shortfall (a "Substitution Adjustment"), to become part of
the amount remitted by the Master Servicer to the Trustee on the related Payment
Date, or (iii) purchase or cause the respective Seller to purchase such Mortgage
Loan at a price equal to the outstanding principal balance of such Mortgage Loan
as of the date of purchase plus all accrued and unpaid interest on such
outstanding principal balance computed at the Mortgage Interest Rate, and
deposit such purchase price into the Principal and Interest Account or
Collection Account (as specified in the related Prospectus Supplement) on the
next succeeding Determination Date or other date specified in the related
Pooling and Servicing Agreement; provided, however, that no such purchase or
substitution may be made if such Mortgage Loan is not in default or no default
as to such Mortgage Loan is imminent and no substitution may be made more than
two years after the Closing Date, in each case unless there shall have been
delivered to the Trustee an opinion of counsel knowledgeable in federal income
tax matters which states that such a purchase or substitution would not
constitute a prohibited transaction under the REMIC Provisions (defined herein)
or cause the Trust to otherwise incur a tax liability or to fail to qualify as a
REMIC at any time the related Certificates are outstanding. The obligation of
the Sellers or the Master Servicer to cure, substitute or purchase any Mortgage
Loan as described above will constitute the sole remedy respecting a material
breach of any such representation or warranty to the holders of the related
Certificates or the Trustee.
PAYMENTS ON THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Master Servicer to cause to be
established and maintained an account (the "Principal and Interest Account") at
an institution (which may be a Seller) meeting certain ratings and other
criteria set forth in the Pooling and Servicing Agreement (an "Eligible
Account"), into which it is required to deposit certain payments received in
respect of the Mortgage Loans, as more fully described below. Unless otherwise
specified in the related Prospectus Supplement, all funds in the Principal and
Interest Account are required to be held (i) uninvested, either in trust or
insured by the Federal Deposit Insurance Corporation up to the limits provided
by law, (ii) invested in certain permitted investments, which are generally
limited to United States government securities and other high-quality
investments and repurchase agreements or similar arrangements with respect to
such investments or (iii) invested in certain asset management accounts
maintained by the Trustee (collectively, "Permitted Instruments"). Unless
otherwise specified in the related Prospectus
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Supplement, any investment earnings on funds held in the Principal and Interest
Account will be for the account of the Master Servicer.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer is required to use its reasonable efforts to deposit into the Principal
and Interest Account within one business day of receipt (and in any event to
deposit within two business days of receipt) all Monthly Payments received on or
after the related Cut-off Date (unless the related Prospectus Supplement
otherwise specifies, other than amounts received on or after the Cut-off Date)
in respect of interest accrued on the Mortgage Loans prior to the Cut-off Date
and all Principal Prepayments and Curtailments collected on or after the Cut-off
Date (net of the Servicing Fee with respect to each Mortgage Loan and other
servicing compensation payable to the Master Servicer as permitted by the
Pooling and Servicing Agreement), all Net Liquidation Proceeds, Insurance
Proceeds, Released Mortgaged Property Proceeds, any amounts paid in connection
with the repurchase of any Mortgage Loan, the amount of any Substitution
Adjustments, the amount of any losses incurred in connection with investments in
Permitted Instruments and certain amounts relating to insufficient insurance
policies and REO Property. If the related Prospectus Supplement provides that
there will be no Principal and Interest Account, all of such payments will be
deposited directly in the Collection Account, as specified therein.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer may make withdrawals from the Principal and Interest Account only for
the following purposes:
(i) for deposit to the Collection Account no later than the business
day preceding each Payment Date, the Excess Spread (defined below), if any,
and the Available Payment Amount for the related Due Period. "Excess
Spread" means generally the aggregate excess, if any, of interest accrued
on the related Mortgage Loans during the Due Period over interest accrued
on the related Certificates at the applicable Certificate Interest Rates on
the related Payment Date.
(ii) to reimburse itself for any accrued unpaid Servicing Fees and
unreimbursed Servicing Advances to the extent provided in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer's right to reimburse itself for unpaid
Servicing Fees and unreimbursed Servicing Advances will be limited to late
collections on the related Mortgage Loan, including Liquidation Proceeds,
Released Mortgaged Property Proceeds, Insurance Proceeds and such other
amounts as may be collected by the Master Servicer from the related
Mortgagor or otherwise relating to the Mortgage Loan in respect of which
such unreimbursed amounts are owed;
The Master Servicer's rights to such reimbursement will be prior to
the rights of holders of the related Certificates unless CoreStates Bank,
N.A. is the Master Servicer and a Seller is required to purchase or
substitute a Mortgage Loan pursuant to the Pooling and Servicing Agreement,
in which case the Master Servicer's right to such reimbursement shall be
junior to the payment to such holders of the purchase price or Substitution
Adjustment;
(iii) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court having competent
jurisdiction;
(iv) to make investments in Permitted Instruments and, after effecting
the remittance described in clause (i) above, to pay itself interest earned
in respect of Permitted Instruments or on funds deposited in the Principal
and Interest Account;
(v) to withdraw any funds deposited in the Principal and Interest
Account that were not required to be deposited therein (such as servicing
compensation) or were deposited therein in error;
(vi) to pay itself the Servicing Fee and any other permitted servicing
compensation to the extent not previously retained or paid;
(vii) to withdraw funds necessary for the conservation and disposition
of REO Property;
(viii) to make Servicing Advances, as more fully described below; and
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(ix) with respect to a Bankruptcy Loan, to remit to the applicable
Seller certain payments, as provided in the Pooling and Servicing
Agreement; and
(x) to clear and terminate the Principal and Interest Account upon the
termination of the Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer is required to wire transfer to the Collection Account the amount
described in clause (i) above no later than the business day preceding each
Payment Date.
ADVANCES; SERVICING ADVANCES
If so specified in the related Prospectus Supplement, not later than the
close of business on the business day prior to each Payment Date, the Master
Servicer may be required to withdraw from amounts on deposit in any Principal
and Interest Account and held for future distribution or, if so specified in the
related Prospectus Supplement, to pay from its own funds, and remit for deposit
in the Collection Account an amount (each, an "Advance"), to be distributed on
the related Payment Date, equal to (x) the sum of the interest portions of the
aggregate amount of Monthly Payments (net of the Servicing Fee and if so
specified in the related Pooling and Servicing Agreement, the Excess Spread)
accrued during the related Due Period, but uncollected as of the close of
business on the last day of the related Due Period and/or (y) principal portion
of the aggregate amount of Monthly Payments due during the related Due Period
but uncollected as of the close of business on the last day of the related Due
Period. Unless so specified in the related Prospectus Supplement, the Master
Servicer shall not be required to make such Advance from its own funds or be
liable for the recovery thereof from collections on the related Mortgage Loans
or otherwise.
In the course of performing its servicing obligations, the Master Servicer
will pay all reasonable and customary "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations ("Servicing Advances"),
including, but not limited to, the cost of (i) maintaining REO Properties; (ii)
any enforcement or judicial proceedings, including foreclosures; and (iii) the
management and liquidation of Mortgaged Property acquired in satisfaction of the
related Mortgage. To the extent provided in the related Pooling and Servicing
Agreement, the Master Servicer may pay all or a portion of any Servicing Advance
out of excess amounts on deposit in any Principal and Interest Account and held
for future distribution on the date on which such Servicing Advance is made. Any
such excess amounts so used will be required to be replaced by the Master
Servicer by deposit to any Principal and Interest Account no later than the date
specified in the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer may recover Servicing Advances to the extent permitted by the Mortgage
Loans or, if not theretofore recovered from the Mortgagor on whose behalf such
Servicing Advance was made, from late collections on the related Mortgage Loan,
including Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance
Proceeds and such other amounts as may be collected by the Master Servicer from
the Mortgagor or otherwise relating to the Mortgage Loan. If, so provided in the
related Pooling and Servicing Agreement, to the extent the Master Servicer, in
its good faith business judgment, determines that certain Servicing Advances
will not be ultimately recoverable from late collections, Insurance Proceeds,
Liquidation Proceeds on the related Mortgage Loans or otherwise ("Nonrecoverable
Advances"), the Master Servicer may reimburse itself from the amounts available
after distributions to the holders of Certificates and payment of certain other
fees and expenses.
The Master Servicer is not required to make any Servicing Advance which it
determines would be a Nonrecoverable Advance.
DISTRIBUTIONS
The Trustee is required to establish a trust account (referred to herein as
the "Collection Account", but which may have such other designation as is set
forth in the related Prospectus Supplement) into which there shall be deposited
amounts transferred by the Master Servicer from the Principal and Interest
Account or, if
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so specified in the related Prospectus Supplement, collections of Mortgage Loans
deposited by the Master Servicer into the Collection Account directly. The
Collection Account is required to be maintained as an Eligible Account. Amounts
on deposit in the Collection Account may be invested in Permitted Instruments
and other investments specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, on each
Payment Date the Trustee is required to withdraw from the Collection Account and
distribute the amounts set forth in the related Prospectus Supplement, to the
extent available, in the priority set forth therein, which generally will
include (in no particular order of priority):
(i) deposits into any account established for the purpose of paying
credit enhancement fees and premiums;
(ii) if a Spread Account, Reserve Account or similar account is
established with respect to a Series of Certificates, deposits into such
fund or account of the Excess Spread or other amounts required to be
deposited therein;
(iii) payments to the holders of the Certificates on account of
interest and principal, in the order and manner set forth in the related
Prospectus Supplement;
(iv) reimbursement of the Master Servicer for amounts expended by the
Master Servicer and reimbursable thereto under the related Pooling and
Servicing Agreement but not previously reimbursed;
(v) payments to the Master Servicer of an amount equal to
Nonrecoverable Advances previously made by the Master Servicer and not
previously reimbursed; and
(vi) after the payments and deposits described above and in the
related Prospectus Supplement, the balance, if any, to the persons
specified in the related Prospectus Supplement.
The amount available to make the payments described above will generally
equal (a) the sum of (i) the Available Payment Amount for the related Due Period
and (ii) the amount available under any credit enhancement, including amounts
withdrawn from any Spread Account or Reserve Account, less (b) the amount of the
premiums or fees payable to the Credit Provider, if any, during the related Due
Period.
Generally, to the extent a Credit Provider makes payments to holders of
Certificates, such Credit Provider will be subrogated to the rights of such
holders with respect to such payments and shall be deemed, to the extent of the
payments so made, to be a registered holder of such Certificates.
For purposes of the provisions described above, the following terms have
the respective meanings ascribed to them below, each determined as of any
Payment Date.
"Available Payment Amount" generally means the result of (a) collections on
or with respect to the Mortgage Loans received by the Master Servicer during the
related Due Period, net of the Servicing Fee paid to the Master Servicer during
the related Due Period and reimbursements for accrued unpaid Servicing Fees and
for certain expenses paid by the Master Servicer, plus (b) the amount of
Advances, if any, less, if so specified in the related Prospectus Supplement,
(c) the Excess Spread or other amounts specified in such Prospectus Supplement.
"Basic Principal Amount" means generally the sum of (i) the principal
portion of each Monthly Payment received by the Master Servicer or any
Subservicer during the related Due Period, (ii) all Curtailments and all
Principal Prepayments received during such Due Period (or the Prepayment Period
specified in the related Prospectus Supplement), (iii) the principal portion of
all Insurance Proceeds, Released Mortgaged Property Proceeds and Net Liquidation
Proceeds received during the related Due Period, (iv)(a) that portion of the
purchase price of any purchased Mortgage Loans which represents principal and
(b) any Substitution Adjustments deposited into the Collection Account as of the
related Determination Date and (v) the Principal Balance of each Mortgage Loan
as of the beginning of the related Due Period which became a Liquidated Mortgage
Loan during such Due Period (exclusive of any principal payments in respect
thereof described in the preceding clauses (i) through (iv)).
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"Mortgage Loan Losses" means, for Mortgage Loans that become Liquidated
Mortgage Loans during the related Due Period, the amount, if any, by which (i)
the sum of the outstanding principal balance of each such Mortgage Loan
(determined immediately before such Mortgage Loan became a Liquidated Mortgage
Loan) and accrued and unpaid interest thereon at the Mortgage Interest Rate to
the date on which such Mortgage Loan became a Liquidated Mortgage Loan exceeds
(ii) the Net Liquidation Proceeds received during such Due Period in connection
with the liquidation of such Mortgage Loan which have not theretofore been used
to reduce the Principal Balance of such Mortgage Loan.
"Payment Date" means the monthly date specified in the related Prospectus
Supplement on which payments will be made to holders of the related
Certificates.
OPTIONAL DISPOSITION OF MORTGAGE LOANS
If so specified in the related Prospectus Supplement, the Master Servicer,
the Sellers or the holders of the Class of Certificates or such other person
specified in such Prospectus Supplement may cause the Trust to sell all of the
Mortgage Loans and all REO Properties (which sale may be to the Master Servicer
or the Sellers) when the Pool Principal Balance declines to the percentage of
the Original Pool Principal Balance specified in the related Prospectus
Supplement, when the outstanding principal balance of a Class of Certificates
specified in the related Prospectus Supplement declines to the percentage of the
original principal balance of such Class specified in the related Prospectus
Supplement or at such other time as is specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement, the
related Pooling and Servicing Agreement will establish a minimum price at which
such Mortgage Loans and REO Properties may be sold generally equal to the
principal amount thereof plus accrued interest thereon. Such minimum price may
include certain expenses and other amounts or such party as is specified in the
related Prospectus Supplement may be required to pay all or a portion of such
expenses or other amounts at the time of sale. Unless otherwise specified in the
related Prospectus Supplement, the proceeds of any such sale will be distributed
to holders of the Certificates on the Payment Date next following the date of
disposition.
MANDATORY DISPOSITION OF MORTGAGE LOANS
If so specified in the related Prospectus Supplement, the Master Servicer,
the Sellers or such other entities as may be specified in such Prospectus
Supplement may be required to effect early retirement of a Series of
Certificates by soliciting competitive bids for the purchase of the assets of
the related Trust or otherwise, under the circumstances set forth in such
Prospectus Supplement. The procedures for the solicitation of such bids will be
described in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer and any Underwriter
(defined herein) will be permitted to submit bids. If so specified in the
related Prospectus Supplement, a minimum bid or reserve price may be
established. If so specified in the related Prospectus Supplement, the
Underwriter or such other entity specified in such Prospectus Supplement will be
required to confirm that the accepted bid will result in the sale of the assets
of the Trust at their fair market value.
FORWARD COMMITMENTS; PREFUNDING
If so specified in the related Prospectus Supplement, a Pooling and
Servicing Agreement or other agreement may provide for the transfer by the
Sellers of additional Mortgage Loans to the related Trust after the Closing Date
for the related Certificates. Such additional Mortgage Loans will be required to
conform to the requirements set forth in the related Pooling and Servicing
Agreement or other agreement providing for such transfer. As specified in the
related Prospectus Supplement, such transfer may be funded by the establishment
of a Prefunding Account (a "Prefunding Account"). If a Prefunding Account is
established, all or a portion of the proceeds of the sale of one or more Classes
of Certificates of the related Series will be deposited in such account to be
released as additional Mortgage Loans are transferred. Unless otherwise
specified in the related Prospectus Supplement, a Prefunding Account will be
required to be maintained as an Eligible Account. The related Pooling and
Servicing Agreement or other agreement providing for the transfer of additional
Mortgage Loans will generally establish a specified period of time within which
such transfers must be made. Unless otherwise specified in the related
Prospectus Supplement, amounts set aside to fund
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such transfers (whether in a Prefunding Account or otherwise) and not so applied
within the required period of time will be deemed to be principal prepayments
and applied in the manner set forth in such Prospectus Supplement.
REPORTS TO HOLDERS
On each Payment Date, there will be forwarded to each holder a statement
setting forth, among other things, the information as to such Payment Date
required by the related Pooling and Servicing Agreement, which generally will
include, except as otherwise provided therein, if applicable:
(i) the Available Payment Amount (and any portion of the Available
Payment Amount that has been deposited in the Collection Account but may
not be withdrawn therefrom pursuant to an order of a United States
bankruptcy court of competent jurisdiction imposing a stay pursuant to
Section 362 of the United States Bankruptcy Code);
(ii) the principal balance of each class of Certificates as reported
in the report for the immediately preceding Payment Date, or, with respect
to the first Payment Date for a Series of Certificates, the Original
Principal Balance of such Class;
(iii) the principal portion of all Monthly Payments received during
the related Due Period;
(iv) the amount of interest received on the Mortgage Loans during the
related Due Period;
(v) the aggregate amount of the Advances, if any, to be made with
respect to the Payment Date;
(vi) certain delinquency and foreclosure information as described more
fully in the related Pooling and Servicing Agreement, and the amount of
Mortgage Loan Losses during the related Due Period;
(vii) the amount of interest and principal due to the holders of each
Class of Certificates of such Series on such Payment Date;
(viii) the amount then available in any Spread Account or Reserve
Account;
(ix) the amount of the payments, if any, to be made from any credit
enhancement on the Payment Date;
(x) the amount to be distributed to the holders of any subordinated or
residual securities on the Payment Date;
(xi) the principal balance of each Class of Certificates of such
Series after giving effect to the payments to be made on the Payment Date;
(xii) with respect to the Mortgage Pool, the weighted average maturity
and the weighted average Mortgage Interest Rate of the Mortgage Loans as of
the last day of the related Due Period;
(xiii) the amount of all payments or reimbursements to the Master
Servicer for accrued unpaid Servicing Fees, unreimbursed Servicing Advances
and interest in respect of Permitted Instruments or funds on deposit in the
Principal and Interest Account and certain other amounts during the related
Due Period;
(xiv) the Pool Principal Balance as of the immediately preceding
Payment Date, the Pool Principal Balance after giving effect to payments
received and Mortgage Loan Losses incurred during the related Due Period
and the ratio of the Pool Principal Balance to the Original Pool Principal
Balance. As of any Payment Date, the "Pool Principal Balance" equals the
aggregate outstanding principal balance of all Mortgage Loans, as reduced
by the aggregate Mortgage Loan Losses, at the end of the related Due
Period;
(xv) certain information with respect to the funding, availability and
release of monies from any Spread Account or Reserve Account;
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(xvi) the number of Mortgage Loans outstanding at the beginning and at
the end of the related Due Period;
(xvii) the amounts that are reimbursable to the Master Servicer or the
Sellers, as appropriate; and
(xviii) such other information as the holders reasonably require.
The Master Servicer will also be required to furnish to any holder upon
request (i) annual audited financial statements of CoreStates (which include on
a consolidated basis the Master Servicer) for one or more of the most recently
completed three fiscal years for which such statements are available, and (ii)
interim unaudited financial statements of CoreStates (which include on a
consolidated basis the Master Servicer) relating to periods subsequent to the
most recent annual audited period.
DESCRIPTION OF CREDIT ENHANCEMENT
To the extent specified in the related Prospectus Supplement, credit
enhancement for one or more Classes of a Series of Certificates may be provided
by one or more of a letter of credit, financial guaranty insurance policy,
mortgage pool insurance policy, special hazard insurance policy, reserve fund,
spread account, cash collateral account, overcollateralization, subordination or
other type of credit enhancement. Credit enhancement may also be provided by
subordination of one or more Classes of Certificates of a Series to one or more
other Classes of Certificates of such Series. Any credit enhancement will be
limited in amount and scope of coverage. Unless otherwise specified in the
related Prospectus Supplement, credit enhancement for a Series of Certificates
will not be available for losses incurred with respect to any other Series of
Certificates. To the extent credit enhancement for any Series of Certificates is
exhausted, or losses are incurred which are not covered by such credit
enhancement, the holders of the Certificates will bear all further risk of loss.
The amounts and types of credit enhancement, as well as the provider
thereof (the "Credit Provider"), if applicable, with respect to each Series of
Certificates will be set forth in the related Prospectus Supplement. To the
extent provided in the applicable Prospectus Supplement and the related Pooling
and Servicing Agreement, any credit enhancement may be periodically modified,
reduced or substituted for as the aggregate principal balance of the related
Mortgage Pool decreases, upon the occurrence of certain events or otherwise.
Unless otherwise specified in the related Prospectus Supplement, to the extent
permitted by the applicable Rating Agencies and provided that the then current
rating of the affected Certificates is not reduced or withdrawn as a result
thereof, any credit enhancement may be cancelled, reduced or modified in amount
or scope of coverage or both.
The descriptions of credit enhancement arrangements included in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of governing documents, copies of which will be available upon
request.
Financial Guaranty Insurance Policy. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond (a
"Certificate Insurance Policy") may be obtained and maintained for a Class or
Series of Certificates. The issuer of the Certificate Insurance Policy (the
"Insurer") will be described in the related Prospectus Supplement and a copy of
the form of Certificate Insurance Policy will be filed with the related Current
Report on Form 8-K.
Unless otherwise specified in the related Prospectus Supplement, a
Certificate Insurance Policy will be unconditional and irrevocable and will
guarantee to holders of the applicable Certificates that an amount equal to the
full amount of distributions due to such holders will be received by the Trustee
or its agent on behalf of such holders for distribution on each Payment Date.
The specific terms of any Certificate Insurance Policy will be set forth in the
related Prospectus Supplement. A Certificate Insurance Policy may have
limitations and generally will not insure the obligation of the Sellers or the
Master Servicer to purchase or substitute for a defective Mortgage Loan and will
not guarantee any specific rate of principal prepayments. Unless otherwise
specified in the related Prospectus Supplement, the Insurer will be subrogated
to the rights of each holder to the extent the Insurer makes payments under the
Certificate Insurance Policy.
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Letter of Credit. If so specified in the related Prospectus Supplement,
all or a component of credit enhancement for a Class or a Series of Certificates
may be provided by a letter of credit (a "Letter of Credit") issued by a bank or
other financial institution (a "Letter of Credit Issuer") identified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, each Letter of Credit will be irrevocable. A Letter of
Credit may provide coverage with respect to one or more Classes of Certificates
or the underlying Mortgage Loans or, if specified in the related Prospectus
Supplement, may support a specified obligation or be provided in lieu of the
funding with cash of a Reserve Account or Spread Account (each as defined
below). The amount available, conditions to drawing, if any, and right to
reimbursement with respect to a Letter of Credit will be specified in the
related Prospectus Supplement. A Letter of Credit will expire on the date
specified in the related Prospectus Supplement, unless earlier terminated or
extended in accordance with its terms.
Mortgage Pool Insurance Policy. If so specified in the related Prospectus
Supplement, credit enhancement with respect to a Series of Certificates may be
provided by a mortgage pool insurance policy (a "Pool Insurance Policy") issued
by the insurer (a "Pool Insurer") specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
each Pool Insurance Policy will, subject to limitations described in such
Prospectus Supplement, insure against losses due to defaults in the payment of
principal or interest on the underlying Mortgage Loans up to the amount
specified in such Prospectus Supplement (or in a Current Report on Form 8-K).
The Pooling and Servicing Agreement with respect to any Series of Certificates
for which a Pool Insurance Policy is provided will require the Master Servicer
or other party specified therein to use reasonable efforts to maintain the Pool
Insurance Policy and to present claims to the Pool Insurer in the manner
required thereby. No Pool Insurance Policy will be a blanket policy against loss
and will be subject to the limitations and conditions precedent described in the
related Prospectus Supplement.
Special Hazard Insurance Policy. If so specified in the related Prospectus
Supplement, credit enhancement with respect to a Series of Certificates may be
provided in part by an insurance policy (a "Special Hazard Policy") covering
losses due to physical damage to a Mortgaged Property other than a loss of the
type covered by a standard hazard insurance policy or flood insurance policy or
losses resulting from the application of co-insurance clauses contained in
standard hazard insurance policies. The Prospectus Supplement relating to a
Series of Certificates for which a Special Hazard Policy is provided will
identify the issuer of such policy and any limitations on coverage. No Special
Hazard Policy will cover extraordinary losses such as those due to war, civil
insurrection, governmental action, errors in design or workmanship, chemical
contamination or similar causes. Each Special Hazard Policy will contain an
aggregate limit on claims specified in the related Prospectus Supplement. No
claim will be paid under any Special Hazard Policy unless hazard insurance on
the Mortgaged Property is in force and protection and preservation expenses have
been paid.
Spread Account and Reserve Account. If so specified in the related
Prospectus Supplement, all or any component of credit enhancement for a Series
of Certificates may be provided by a reserve account (a "Reserve Account") or a
spread account (a "Spread Account"). A Reserve Account or Spread Account may be
funded by a combination of cash, one or more letters of credit or one or more
Permitted Instruments provided by the Sellers or other party identified in the
related Prospectus Supplement, amounts otherwise distributable to one or more
Classes of Certificates subordinated to one or more other Classes of
Certificates or all or any portion of Excess Spread. If so specified in the
related Prospectus Supplement, a Reserve Account for a Series of Certificates
may be funded in whole or in part on the applicable Closing Date. If so
specified in the related Prospectus Supplement, cash deposited in a Reserve
Account or a Spread Account may be withdrawn and replaced with one or more
letters of credit or Permitted Instruments. A Reserve Account or Spread Account
may be pledged or otherwise made available to a Credit Provider. If so specified
in the related Prospectus Supplement, a Reserve Account or Spread Account may
not be deemed part of the assets of the related Trust or the related REMIC or
may be deemed to be pledged or provided by one or more of the Sellers, the
holders of the Class of Certificates otherwise entitled to the amounts deposited
in such account or such other party as is identified in such Prospectus
Supplement. If so specified in the related Prospectus Supplement, a Spread
Account or Reserve Account may also include an account (a "Yield Supplement
Account"). Funds on deposit in the Yield Supplement Account for any Series may
be applied to supplement
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interest payable on the related Mortgage Loans if necessary to pay interest to
holders of one or more classes of Certificates of such Series at the applicable
Pass-Through Rate.
Cash Collateral Account. If so specified in the related Prospectus
Supplement, all or any portion of credit enhancement for a Series of
Certificates may be provided by the establishment of a cash collateral account
(a "Cash Collateral Account"). A Cash Collateral Account will be similar to a
Reserve Account or Spread Account except that generally a Cash Collateral
Account is funded initially by a loan from a cash collateral lender (the "Cash
Collateral Lender"), the proceeds of which are invested with the Cash Collateral
Lender or other eligible institution. Unless otherwise specified in the related
Prospectus Supplement, the Cash Collateral Account will be required to be
maintained as an Eligible Account. The loan from the Cash Collateral Lender will
be repaid from Excess Spread, if any, or such other amounts as are specified in
the related Prospectus Supplement. Amounts on deposit in the Cash Collateral
Account will be available in generally the same manner described above with
respect to a Spread Account or Reserve Account. As specified in the related
Prospectus Supplement, a Cash Collateral Account may be deemed to be part of the
assets of the related Trust, may be deemed to be part of the assets of a
separate cash collateral trust or may be deemed to be property of the party
specified in the related Prospectus Supplement and pledged for the benefit of
the holders of one or more Classes of Certificates of a Series.
Subordination. If so specified in the related Prospectus Supplement,
distributions of scheduled principal, Principal Prepayments, Curtailments,
interest or any combination thereof otherwise payable to one or more Classes of
Certificates of a Series ("Subordinated Certificates") may instead be payable to
holders of one or more other Classes of Certificates of such Series ("Senior
Certificates") under the circumstances and to the extent specified in such
Prospectus Supplement. A Class of Certificates may be subordinated to one or
more Classes of Certificates and senior to one or more other Classes of
Certificates of a Series. If so specified in the related Prospectus Supplement,
delays in receipt of scheduled payments on the Mortgage Loans and losses on
defaulted Mortgage Loans 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 such Prospectus Supplement. The aggregate losses in
respect of defaulted Mortgage Loans which must be borne by the Subordinated
Certificates by virtue of subordination and the amount of the distributions
otherwise distributable to the Subordinated Certificates that will be
distributable to Senior Certificates on any Payment Date may be limited as
specified in the related Prospectus Supplement or the availability of
subordination may otherwise be limited as specified in the related Prospectus
Supplement. If losses or delinquencies were to exceed the amounts payable and
available to holders of Subordinated Certificates of a Series or if such amounts
were to exceed any limitation on the amount of subordination available, holders
of Senior Certificates of such Series could experience losses.
In addition, if so specified in the related Prospectus Supplement, amounts
otherwise payable to holders of Subordinated Certificates on any Payment Date
may be deposited in a Reserve Account or Spread Account, as described above.
Such deposits may be made on each Payment Date, on each Payment Date for a
specified period or to the extent necessary to cause the balance in such account
to reach or maintain a specified amount, as specified in the related Prospectus
Supplement, and thereafter, amounts may be released from such Reserve Account or
Spread Account in the amounts and under the circumstances specified in such
Prospectus Supplement.
Distributions may be allocated as among Classes of Senior Certificates and
as among Classes of Subordinated Certificates in order of their final scheduled
payment dates, in accordance with a schedule or formula or otherwise, 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 deposits to any Reserve Account or Spread Account
will be allocated as specified in the related Prospectus Supplement. Principal
Prepayments and Curtailments may be paid disproportionately to Classes of Senior
Certificates pursuant to a "shifting interest" structure or otherwise, as
specified in the related Prospectus Supplement.
Other Credit Enhancement. Credit enhancement may also be provided for a
Series of Certificates in the form of overcollateralization, surety bond,
insurance policy or other type of credit enhancement approved by the applicable
Rating Agencies to cover one or more risks with respect to the Mortgage Loans or
the Certificates, as specified in the related Prospectus Supplement. In
addition, if so specified in the related
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Prospectus Supplement, the form or amount of credit enhancement may be changed
after the issuance of the related Certificates with the approval of the
applicable Rating Agencies.
PAYMENT OF CERTAIN EXPENSES
If so specified in the related Prospectus Supplement, in order to provide
for the payment of the fees of the Credit Provider, if any, the Trustee may be
required to establish a credit enhancement account and to deposit therein on the
dates specified in the related Prospectus Supplement, from amounts on deposit in
the Collection Account, in the priority indicated, an amount that is sufficient
to pay the premiums or fees due to the Credit Provider.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Master Servicer to pay to the
Trustee from time to time its fees and the reasonable expenses, disbursements
and advances incurred or made by them. The Trustee will be permitted under the
Pooling and Servicing Agreement on each Payment Date to pay, from amounts on
deposit in the Collection Account and after making any required distributions to
holders, any amounts then due and owing representing fees of the Trustee that
have not been paid by the Master Servicer after written demand therefor.
SERVICING COMPENSATION
As compensation for servicing and administering the Mortgage Loans, the
Master Servicer is entitled to a fee in the amount specified in the related
Prospectus Supplement (the "Servicing Fee"), payable monthly from all or a
portion of monthly payments on the related Mortgage Loans, Liquidation Proceeds,
Released Mortgaged Property Proceeds, Insurance Proceeds and certain other late
collections on the related Mortgage Loans, as specified in the related
Prospectus Supplement. In addition to the Servicing Fee, the Master Servicer
will generally be entitled under the related Pooling and Servicing Agreement to
retain as additional servicing compensation any assumption and other
administrative fees (including bad check charges, late payment fees and similar
fees), the excess of any Net Liquidation Proceeds over the outstanding principal
balance of a Liquidated Mortgage Loan, to the extent not otherwise required to
be remitted to the Trustee for deposit into the Collection Account, and interest
paid on funds on deposit in the Principal and Interest Account.
SERVICING STANDARDS
General Servicing Standards. The Master Servicer will agree to service the
Mortgage Loans in accordance with the Pooling and Servicing Agreement and, in
servicing and administering the Mortgage Loans, to employ or cause to be
employed procedures, including collection, foreclosure and REO Property
management procedures, and exercise the same care it customarily employs and
exercises in servicing and administering mortgage loans for its own account, in
accordance with accepted first and junior mortgage servicing practices of
prudent lending institutions and giving due consideration to the holders', and
any Credit Provider's reliance on the Master Servicer. The interests of the
holders of each Class of Certificates of any Series and the Credit Provider, if
any, may differ with respect to servicing decisions which may affect the rate at
which prepayments are received. For example, holders of certain Classes of
Certificates may prefer that "due-on-sale" clauses be waived in the event of a
sale of the underlying Mortgaged Property, that delinquent Mortgagors be granted
extensions or other accommodations and that liquidations of Mortgage Loans be
deferred, if an increase in the rate of principal prepayments would have an
adverse effect on the yield to investors in such Certificates. Depending on the
timing of such prepayments, holders of other classes of Certificates may prefer
that "due-on-sale" clauses be enforced or that other actions be taken which
would increase prepayments. No holder of a Certificate will have the right to
make any decisions with respect to the underlying Mortgage Loans. The Master
Servicer will have the right and obligation to make such decisions in accordance
with its normal servicing procedures and the standards set forth in the related
Pooling and Servicing Agreement. In certain cases, the consent or approval of
the Credit Provider, if any, may be permitted or required. The interests of the
Credit Provider, if any, with respect to, among other things, matters which
affect the timing of payments and prepayments may not be the same as those of
the holders of each Class of Certificates of such Series.
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Hazard Insurance. The Master Servicer will exercise its best reasonable
efforts to cause to be maintained fire and hazard insurance with extended
coverage (sometimes referred to as "standard hazard insurance") customary in the
area where the Mortgaged Property is located, in an amount which is at least
equal to the lesser of (i) the outstanding Principal Balance owing on the
Mortgage Loan plus the outstanding balances of each Senior Lien, if any, and
(ii) the full insurable value of the premises securing the Mortgage Loan, but in
no event less than the amount necessary to prevent the Mortgagor from becoming a
coinsurer thereunder. Generally, if the Mortgaged Property is in an area
identified in the Federal Register by the Flood Emergency Management Agency as
Flood Zone "A", the Mortgage Note requires the Mortgagor to maintain a flood
insurance policy with a generally acceptable insurance carrier in an amount
representing coverage not less than that required under guidelines promulgated
by the Federal National Mortgage Association. The Master Servicer will also be
required to maintain on REO Property, to the extent such insurance is available,
fire and hazard insurance in the applicable amounts described above, liability
insurance and, to the extent required and available under the National Flood
Insurance Act of 1968, as amended, and the Master Servicer determines that such
insurance is necessary in accordance with accepted first and junior mortgage
servicing practices of prudent lending institutions, flood insurance in an
amount equal to that required above. Any amounts collected by the Master
Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the Mortgaged Property, or to be released to the
Mortgagor in accordance with customary mortgage servicing procedures) will be
deposited in the Principal and Interest Account, subject to retention by the
Master Servicer to the extent such amounts constitute servicing compensation or
to withdrawal pursuant to the related Pooling and Servicing Agreement.
If the Master Servicer obtains and maintains a blanket policy insuring
against fire and hazards of extended coverage on all of the Mortgage Loans,
then, to the extent such policy names the Master Servicer as loss payee and
provides coverage in an amount equal to the aggregate outstanding principal
balance on the Mortgage Loans without co-insurance, the Master Servicer will be
deemed conclusively to have satisfied its obligations with respect to fire and
hazard insurance coverage.
In general, the standard hazard insurance policy covers physical damage to
or destruction of the improvements on the property by fire, lightning,
explosion, smoke, windstorm and hail, and riot, strike and civil commotion,
subject to the conditions and exclusions specified in each policy. Although the
policies relating to Mortgage Loans will be underwritten by different insurers
under different state laws in accordance with different applicable state forms
and therefore will not contain identical terms and conditions, the basic terms
thereof are dictated by respective state laws, and most such policies typically
do not cover any physical damage resulting from war, revolution, governmental
actions, floods and other water related causes, earth movement (including
earthquakes, landslides, and mudflows), nuclear reactions, wet or dry rot,
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. No other insurance coverage (other than
title insurance as specified herein) is required under the Mortgage Loan or the
Pooling and Servicing Agreement.
The Mortgagors under some of the Mortgage Loans may obtain credit life or
disability insurance policies. Such policies require the insurers to make
payments on the related Mortgage Loans in the event of death or certain events
of disability of the Mortgagor. To the extent such policies are obtained, the
proceeds thereof will constitute assets of the related Trust. No Mortgagor is
required to obtain credit life or disability insurance. If requested by the
Mortgagor, the Sellers will finance the cost of credit life or disability
insurance and the Principal Balances of the Mortgage Loans may include the
amount of the insurance premium being financed. Any adjustments to the Principal
Balances of the Mortgage Loans on account of adjustments in such insurance
premiums will be paid by reducing the Servicing Fee or, to the extent the
Servicing Fee is insufficient therefor, by CoreStates Bank, N.A.
Since, as a general matter, the cost of construction of residential
properties has increased in recent years, if the amount of hazard insurance
maintained on the improvements securing a Mortgage Loan were to decline as its
principal balance decreased, hazard insurance proceeds could be insufficient to
restore fully the damaged property in the event of a loss. The insurance
coverage of the Mortgage Loans herein described is in accordance with the
Sellers' customary practices, and the Sellers believe such coverage is adequate.
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Enforcement of Due on Sale Clauses. When a Mortgaged Property has been or
is about to be conveyed by the Mortgagor, the Master Servicer, on behalf of the
Trustee, is required, to the extent it has knowledge of such conveyance or
prospective conveyance, to enforce the rights of the Trustee as the mortgagee of
record to accelerate the maturity of the related Mortgage Loan under any
"due-on-sale" clause contained in the related Mortgage or Mortgage Note;
provided, however, that the Master Servicer will not be permitted to exercise
any such right if the "due-on-sale" clause, in the reasonable belief of the
Master Servicer, is not enforceable under applicable law. In such event, the
Master Servicer will be required to 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
and, unless prohibited by applicable law or the Mortgage Note or Mortgage, the
Mortgagor remains liable thereon. The Master Servicer will also be authorized
(with the prior approval of any Credit Provider, if required) to enter into a
substitution of liability agreement with such person, pursuant to which the
original Mortgagor is released from liability and such person is substituted as
Mortgagor and becomes liable under the Mortgage Note.
Realization Upon Defaulted Mortgage Loans. The Master Servicer is required
to foreclose upon or otherwise comparably effect the ownership in the name of
the Trustee on behalf of the holders of the related Certificates of Mortgaged
Properties relating to defaulted Mortgage Loans as to which no satisfactory
arrangements can be made for collection of delinquent payments; provided,
however, that the Master Servicer will not be required to foreclose if it
determines that foreclosure would not be in the best interests of the holders or
any Credit Provider. In connection with such foreclosure or other conversion,
the Master Servicer is required to exercise collection and foreclosure
procedures with the same degree of care and skill in its exercise or use as it
would exercise or use under the circumstances in the conduct of its own affairs.
Collection of Mortgage Loan Payments. Each Pooling and Servicing Agreement
will require the Master Servicer to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans.
Consistent with the foregoing, the Master Servicer may at its own discretion
waive any late payment charge, assumption fee or any penalty interest in
connection with the prepayment of a Mortgage Loan or any other fee or charge
which the Master Servicer would be entitled to retain as servicing compensation
and may waive, vary or modify any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any matter grant
indulgence to any Mortgagor, subject to the limitations set forth in the related
Pooling and Servicing Agreement.
USE OF SUBSERVICERS
The Master Servicer will be permitted under each Pooling and Servicing
Agreement to enter into subservicing agreements ("Subservicing Agreements") for
any servicing and administration of Mortgage Loans with any institution (each, a
"Subservicer") which is in compliance with the laws of each state necessary to
enable it to perform its obligations under such Subservicing Agreement. If so
specified in the related Prospectus Supplement, such Subservicer shall be either
(i) designated by Federal National Mortgage Association ("FNMA") or the Federal
Home Loan Mortgage Corporation ("FHLMC") as an approved Seller-Master Servicer
for first and second mortgage loans or (ii) an affiliate or a wholly owned
subsidiary of the Master Servicer.
Notwithstanding any Subservicing Agreement, unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will not be relieved of
its obligations under a Pooling and Servicing Agreement, and the Master Servicer
shall be obligated to the same extent and under the same terms and conditions as
if it alone were servicing and administering the Mortgage Loans. The Master
Servicer will be entitled to enter into any agreement with a Subservicer for
indemnification of the Master Servicer by such Subservicer and nothing contained
in any Pooling and Servicing Agreement shall be deemed to limit or modify such
indemnification.
SERVICING CERTIFICATES AND AUDITS
The Master Servicer is required to deliver, not later than the last day of
the fourth month following the end of the Master Servicer's fiscal year,
commencing in the year specified in the related Pooling and Servicing Agreement,
an officers' certificate stating that (i) the Master Servicer has fully complied
with the provisions of the Pooling and Servicing Agreement which relate to the
servicing and administration of the Mortgage
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Loans, (ii) a review of the activities of the Master Servicer during such
preceding year and of performance under the Pooling and Servicing Agreement has
been made under such officers' supervision, and (iii) to the best of such
officers' knowledge, based on such review, the Master Servicer has fulfilled all
its obligations under the Pooling and Servicing Agreement for such year, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officers and the nature and status thereof
including the steps being taken by the Master Servicer to remedy such default.
The Master Servicer is required to cause to be delivered, not later than
the last day of the fourth month following the end of the Master Servicer's
fiscal year, commencing in the year set forth in the related Pooling and
Servicing Agreement, a letter or letters of a firm of independent certified
public accountants reasonably acceptable to the Trustee stating that such firm
has, with respect to the Master Servicer's overall servicing operations,
examined such operations in accordance with the requirements of the Uniform
Single Audit Program for Mortgage Bankers (to the extent such procedures are
applicable), and stating such firm's conclusions relating thereto.
LIMITATIONS ON LIABILITY OF THE MASTER SERVICER AND ITS AGENTS
Each Pooling and Servicing Agreement will provide that the Master Servicer
and any director, officer, employee or agent of the Master Servicer may rely on
any document of any kind that is reasonably and in good faith believed to be
genuine and adopted or signed by the proper authorities respecting any matters
arising under the Pooling and Servicing Agreement. In addition, the Master
Servicer will not be required to appear with respect to, prosecute or defend any
legal action that is not incidental to the Master Servicer's duty to service the
Mortgage Loans in accordance with the related Pooling and Servicing Agreement,
other than certain claims made by third parties with respect to such Pooling and
Servicing Agreement.
REMOVAL AND RESIGNATION OF MASTER SERVICER
Unless otherwise specified in the related Prospectus Supplement, any Credit
Provider or either the Trustee or the holders of Certificates of a Series
representing a majority in principal amount of Certificates of such Series,
voting as a single class (a "Majority in Aggregate Voting Interest"), with the
consent of any Credit Provider, may, pursuant to the related Pooling and
Servicing Agreement, remove the Master Servicer upon the occurrence and
continuation beyond the applicable cure period of any of the following events
(each a "Master Servicer Termination Event"):
(i) Any failure by the Master Servicer to deliver to the Trustee for
distribution to Certificateholders any proceeds or payment required to be
so delivered under the terms of the Certificates and the Pooling and
Servicing Agreement that shall continue unremedied for a period of five
Business Days (an "Event of Nonpayment"); or
(ii) Failure on the part of the Master Servicer duly to observe or to
perform in any material respect any other covenants or agreements of the
Master Servicer set forth in the Certificates or in the Pooling and
Servicing Agreement which failure materially and adversely affects the
rights of Certificateholders and which failure shall continue unremedied
for a period of 60 days after the date on which written notice of such
failure requiring the same to be remedied shall have been given to the
Master Servicer by the Trustee, or to the Master Servicer and to the
Trustee by the Holders of Certificates evidencing not less than 33 1/3% of
the aggregate principal amount of Certificates of such Series; or
(iii) The Master Servicer shall file a petition commencing a voluntary
case under any chapter of the federal bankruptcy laws, or the Master
Servicer shall file a petition or answer or consent seeking reorganization,
arrangement, adjustment or composition under any other similar applicable
federal law, or shall consent to the filing of any such petition, answer or
consent, or the Master Servicer shall appoint, or consent to the
appointment of, a custodian, receiver, liquidator, trustee, assignee,
sequestrator or other similar official in bankruptcy or insolvency, of it
or of any substantial part of its property, or shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay
its debts generally as they become due; or
(iv) Any order for relief against the Master Servicer shall have been
entered by a court having jurisdiction in the premises under any chapter of
the federal bankruptcy laws, and such order shall have
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continued undischarged or unstayed for a period of 120 days, or a decree or
order by a court having jurisdiction in the premises shall have been
entered approving as properly filed a petition seeking reorganization,
arrangement, adjustment, or composition of the Master Servicer under any
other similar applicable federal law, and such decree or order shall have
continued undischarged or unstayed for a period of 120 days, or a decree or
order of a court having jurisdiction in the premises for the appointment of
a custodian, receiver, liquidator, trustee, assignee, sequestrator or other
similar official in bankruptcy or insolvency of the Master Servicer or of
any substantial part of its property, or for the winding up or liquidation
of its affairs, shall have been entered, and such decree or order shall
have remained in force undischarged or unstayed for a period of 120 days;
To the extent specified in the related Prospectus Supplement, the Seller or
Sellers may, with the consent of any Credit Provider and holders representing a
majority in aggregate Percentage Interest of each Class of Certificates of a
Series, remove the Master Servicer upon 90 days' prior written notice. No such
removal shall be effective until the appointment and acceptance of a successor
Master Servicer other than the Trustee (unless the Trustee agrees to serve)
meeting the requirements described below and otherwise acceptable to any Credit
Provider and majority in Percentage Interest of each Class of Certificates of
such Series.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer may not assign the related Pooling and Servicing Agreement nor resign
from the obligations and duties thereby imposed on it except by mutual consent
of the Master Servicer, any Credit Provider, the Trustee, the Seller and the
Majority in Aggregate Voting Interest or upon the determination that the Master
Servicer's duties thereunder are no longer permissible under applicable law and
such incapacity cannot be cured by the Master Servicer. No such resignation
shall become effective until a successor has assumed the Master Servicer's
responsibilities and obligations in accordance with the Pooling and Servicing
Agreement.
Unless otherwise specified in the related Prospectus Supplement, upon
removal or resignation of the Master Servicer other than as described in the
second preceding paragraph, the Trustee will be the successor servicer (the
"Successor Master Servicer"). The Trustee, as Successor Master Servicer, is
obligated to make any Servicing Advances and certain other advances unless it
determines reasonably and in good faith that such advances would not be
recoverable. If, however, the Trustee is unwilling or unable to act as Successor
Master Servicer, or if any Credit Provider so requests in writing, the Trustee
may appoint, or petition a court of competent jurisdiction to appoint, any
established mortgage loan servicing institution acceptable to such Credit
Provider having a net worth of not less than the amount set forth in the related
Pooling and Servicing Agreement whose regular business includes the servicing of
home equity loans (which portfolio of home equity loans shall have a principal
balance of not less than $100,000,000) as the Successor Master Servicer in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer.
The Trustee and any other Successor Master Servicer in such capacity is
entitled to the same reimbursement for advances and other Servicing Compensation
as the Master Servicer. See "Servicing Compensation" above.
REGISTRATION AND TRANSFER OF THE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes
of Certificates of a Series will be issued in definitive certificated form and
will be transferable and exchangeable at the office of the registrar identified
in the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, no service charge will be made for any such registration
or transfer of such Certificates, but the owner may be required to pay a sum
sufficient to cover any tax or other governmental charge.
If so specified in the related Prospectus Supplement, one or more Classes
of Certificates of a Series ("Book-Entry Certificates") may be initially
represented by one or more certificates registered in the name of The Depository
Trust Company ("DTC") or other securities depository and be available only in
the form of book-entries. Any Book-Entry Certificates will initially be
registered in the name of Cede, the nominee of DTC. Certificateholders may also
hold Certificates of a Series through CEDEL or Euroclear (in Europe), if they
are participants in such systems or indirectly through organizations that are
participants in such systems. CEDEL and Euroclear will hold omnibus positions on
behalf of their participants through customers'
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certificates accounts in CEDEL's and Euroclear's names on the books of their
respective Depositaries which in turn will hold such positions in customers'
certificates accounts in the Depositaries' names on the books of DTC. Citibank,
N.A. ("Citibank"), will act as depositary for CEDEL and Chemical Bank, New York
("Chemical"), will act as depositary for Euroclear (in such capacities, the
"Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules an procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving certificates in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of certificates received in CEDEL
or Euroclear as a result of a transaction with a DTC participant will be made
during subsequent certificates settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
certificates settled during such processing will be reported to the relevant
Euroclear or CEDEL participant on such business day. Cash received in CEDEL or
Euroclear as a result of sales of certificates by or through a CEDEL Participant
or a Euroclear Participant to a DTC Participant will be received with value on
the DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Certificates, see "Certain Federal Income Tax Consequences -- Taxation of
Certain Foreign Investors" herein.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Certificates Exchange Act of 1934, as amended. DTC accepts securities for
deposit from its participating organizations ("Participants") and facilitates
the clearance and settlement of securities transactions between Participants in
such securities through electronic book-entry changes in accounts of
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Beneficial owners ("Owners") that are not Participants but desire to
purchase, sell or otherwise transfer ownership of Book-Entry Certificates may do
so only through Participants (unless and until Definitive Certificates, as
defined below, are issued). In addition, Owners will receive all distributions
of principal of, and interest on, the Book-Entry Certificates from the Trustee
or any Trustee, as the case may be, through DTC and Participants. Owners will
not receive or be entitled to receive certificates representing their respective
interests in the Book-Entry Certificates, except under the limited circumstances
described below.
Unless and until Definitive Certificates (as defined below) are issued, it
is anticipated that the only "holder" of Book-Entry Certificates of any Series
will be Cede, as nominee of DTC. Owners will only permitted to exercise the
rights of holders indirectly through Participants and DTC.
While any Book-Entry Certificates of a Series are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the
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"Rules"), DTC is required to make book-entry transfers among Participants on
whose behalf it acts with respect to the Book-Entry Certificates and is required
to receive and transmit distributions of principal of, and interest on, the
Book-Entry Certificates. Participants with whom Owners have accounts with
respect to Book-Entry Certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Owners. Accordingly, although Owners will not possess certificates,
the Rules provide a mechanism by which Owners will receive distributions and
will be able to transfer their interests.
Unless and until Definitive Certificates are issued, Owners who are not
Participants may transfer ownership of Book-Entry Certificates of a Series only
through Participants by instructing such Participants to transfer Book-Entry
Certificates, by book-entry transfer, through DTC for the account of the
purchasers of such Book-Entry Certificates, which account is maintained with
their respective Participants. Under the Rules and in accordance with DTC's
normal procedures, transfers of ownership of Book-Entry Certificates will be
executed through DTC and the accounts of the respective Participants at DTC will
be debited and credited. Similarly, the respective Participants will make debits
or credits, as the case may be, on their records on behalf of the selling and
purchasing Owners.
Book-Entry Certificates of a Series will be issued in registered form to
Owners, or their nominees, rather than to DTC (such Book-Entry Certificates
being referred to herein as "Definitive Certificates") only under the
circumstances provided in the related Pooling and Servicing Agreement, which
generally will include, except if otherwise provided therein, if (i) DTC or the
Master Servicer advises the Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as nominee and depository with
respect to the Book-Entry Certificates of such Series and the Master Servicer is
unable to locate a qualified successor, (ii) the Master Servicer, at its sole
option, elects to terminate the book-entry system through DTC or (iii) after the
occurrence of a Master Servicer Termination Event, a majority of the aggregate
Percentage Interest of any Class of Certificates of such Series advises DTC in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) to the exclusion of any physical certificates being issued to Owners is
no longer in the best interests of Owners of such Class of Certificates. Upon
issuance of Definitive Certificates of a Series to Owners, such Book-Entry
Certificates will be transferable directly (and not exclusively on a book-entry
basis) and registered holders will deal directly with the Trustee with respect
to transfers, notices and distributions.
DTC has advised the Master Servicer and the Sellers that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by a holder only at the direction of one or more Participants to whose DTC
accounts the Certificates are credited. DTC has advised the Master Servicer and
the Sellers that DTC will take such action with respect to any Percentage
Interests of the Book-Entry Certificates of a Series only at the direction of
and on behalf of such Participants with respect to such Percentage Interests of
the Book-Entry Certificates. DTC may take actions, at the direction of the
related Participants, with respect to some Book-Entry Certificates which
conflict with actions taken with respect to other Book-Entry Certificates.
Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") is incorporated
under the laws of Luxembourg as a professional depository. CEDEL holds
securities for its participating organizations ("CEDEL Participants") and
facilitates the clearance and settlement of securities transactions between
CEDEL Participants through electronic book-entry changes in accounts of CEDEL
Participants, thereby eliminating the need for physical movement of securities.
Transactions may be settled in CEDEL in any of 28 currencies, including United
States dollars. CEDEL provides to its Participants, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. CEDEL interfaces with
domestic markets in several countries. As a professional depository, CEDEL is
subject to regulation by the Luxembourg Monetary Institute. CEDEL Participants
are recognized financial institutions around the world including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include any underwriters, agents or
dealers with respect to a Series of Certificates offered hereby. Indirect access
to CEDEL is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
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The Euroclear System ("Euroclear") was created in 1968 to hold securities
for participants of the Euroclear System ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 27
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator"), under contract with Euroclear
Clearance System S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers with respect to
a Series of Certificates offered hereby. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Certificates clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of Euroclear and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in the
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant systems' rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Consequences." CEDEL or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by a
Certificateholder under the Pooling and Servicing Agreement or the relevant
Supplement on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state laws (which laws may differ substantially
from one another), the summaries do not purport to be complete nor to reflect
the laws of any particular state nor to encompass the laws of all states in
which the Mortgaged Properties may be situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans.
GENERAL
The Mortgage Loans will be secured by either deeds of trust or mortgages,
depending upon the prevailing practice in the state in which the Mortgaged
Property subject to a Mortgage Loan is located. A mortgage conveys legal title
to or creates a lien upon the property to the mortgagee subject to a condition
subsequent, i.e., the payment of the indebtedness secured thereby. There are two
parties to a mortgage, the mortgagor, who
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is the borrower and homeowner, and the mortgagee, who is the lender. Under the
mortgage instrument, the mortgagor delivers to the mortgagee a note or bond and
the mortgage. Although a deed of trust is similar to a mortgage, a deed of trust
has three parties, the borrower-homeowner called the trustor (similar to a
mortgagor), a lender called the beneficiary (similar to a mortgagee), and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the 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. Some states use
a security deed or deed to secure debt which is similar to a deed of trust
except that it has only two parties: a grantor (similar to a mortgagor) and a
grantee (similar to a mortgagee). Mortgages, deeds of trust and deeds to secure
debt are not prior to liens for real estate taxes and assessments and other
charges imposed under governmental police powers. Priority between mortgages,
deeds of trust and deeds to secure debt and other encumbrances depends on their
terms in some cases and generally on the order of recordation of the mortgage,
deed of trust or the deed to secure debt in the appropriate recording office.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
include loans on units in cooperatives ("Cooperative Loans"). Cooperative Loans
are evidenced by notes secured by security interests in shares issued by
cooperatives, which are corporations entitled to be treated as housing
cooperatives under federal tax law, and in the related proprietary leases or
occupancy agreements granting rights to occupy specific dwelling units within
the cooperative buildings. The security agreement will create a lien upon or
grant a title interest in the property which it covers, the priority of which
lien will depend on the terms of the agreement and the order of recordation in
the appropriate recording office. Ownership of a unit in a cooperative is held
through the ownership of stock in the corporation, together with the related
proprietary lease or occupancy agreement. Such ownership interest is generally
financed through a cooperative share loan evidenced by a promissory note and
secured by an assignment of and a security interest in the proprietary lease or
occupancy agreement and a security interest in the related cooperative shares.
Each cooperative owns in fee or has a leasehold interest in the real
property and improvements, including all separate dwelling units therein. The
cooperative is responsible for property management and generally for the payment
of real estate taxes, insurance and similar charges, the cost of which is shared
by the owners. The cooperative building or underlying land may be subject to one
or more mortgages (generally incurred in connection with the construction or
purchase of the building) for which the cooperative is responsible. The interest
of an occupant under proprietary leases or occupancy agreements is generally
subordinate to that of the holder of such a mortgage or land lease. If the
cooperative is unable to meet the payment obligations under such mortgage or any
land lease, the holder of such mortgage or land lease could foreclose the
mortgage or terminate the land lease, which may have the effect of terminating
all proprietary leases or occupancy agreements. In the event of such foreclosure
or termination, the value of any collateral held by a lender which financed the
purchase by a tenant/shareholder of cooperative shares or, in the case of the
Mortgage Loans, the collateral securing the Cooperative Loans could be
eliminated or significantly reduced.
FORECLOSURE IN GENERAL
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 necessary parties defendant.
Judicial foreclosure proceedings are often not contested by any of the parties
defendant.
Foreclosure of a deed of trust or a security deed is generally accomplished
by a non-judicial trustee's sale under a specific provision in the deed of trust
or security deed which authorizes the sale of the property to a third party upon
any default by the borrower under the terms of the note, deed of trust or
security deed. In some states, the trustee must record a notice of default and
send a copy to the borrower-trustor and to any person who has recorded a request
for a copy of a notice of default and notice of sale. In addition, the trustee
must provide notice in some states to any other individual having an interest in
the real property, including any junior lienholders. 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
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expenses incurred in enforcing the obligations. Generally, 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.
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 often a public
sale. 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 subject to the lien of the mortgage or the deed of trust may have
deteriorated during the foreclosure proceedings, a third party may be unwilling
to purchase the property at a foreclosure sale. Potential buyers may further
question the prudence of purchasing property at a foreclosure sale as a result
of several court decisions permitting such a sale to be rescinded as a
fraudulent conveyance, including the 1980 decision of the United States Court of
Appeals for the Fifth Circuit in Durrett v. Washington National Insurance
Company. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under section 67d of the
former Bankruptcy Act (section 548 of the current United States Bankruptcy Code)
and, therefore, could be rescinded in favor of the bankrupt's estate, if (i) the
foreclosure sale was held while the debtor was insolvent and not more than one
year prior to the filing of the bankruptcy petition, and (ii) the price paid for
the foreclosed property did not represent "fair consideration" ("reasonably
equivalent value" under the United States Bankruptcy Code).
For these reasons, 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
indebtedness secured by the mortgage or deed of trust, accrued and unpaid
interest and the expenses of foreclosure. The lender thereby assumes the burdens
of ownership, including the obligation to pay taxes, obtain casualty insurance
and to make such repairs at its own expense as are necessary to render the
property suitable for sale. In some states there is a statutory minimum purchase
price which the lender may offer for the property. 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.
Under the Pooling and Servicing Agreement (and the REMIC Provisions of the
Code), the Master Servicer may hire an independent contractor to operate any REO
Property. The costs of such operation may be significantly greater than the cost
of direct operation by the Master Servicer.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See
"Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by second or more junior
mortgages or deeds of trust, which are subordinate to first or more senior
mortgages or deeds of trust held by other lenders. The rights of the holders, as
the holders of a junior deed of trust or a junior mortgage, are subordinate in
lien and in payment to those of the holder of the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive and apply hazard insurance and condemnation proceeds and, upon default
of the mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage the junior
mortgagee's or junior beneficiary's lien will be extinguished unless the junior
mortgagee satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See "Foreclosure in General"
herein.
Furthermore, the terms of the second or more junior mortgage or deed of
trust are subordinate to the terms of the first or senior mortgage or deed of
trust. In the event of a conflict between the terms of the senior mortgage or
deed of trust and the junior mortgage or deed of trust, the terms of the senior
mortgage deed of trust will govern generally. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or beneficiary,
subject to the terms of the senior mortgage or deed of trust, may have the right
to perform the obligation itself. Generally, all sums so expended by the
mortgagee or beneficiary become part of the indebtedness secured by the mortgage
or deed of trust. To the extent a senior mortgagee expends such sums, such sums
will generally have priority over all sums due under the junior mortgage. See
"Special
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Considerations -- Risks of the Mortgages -- Nature of Security" for a further
discussion of certain risks associated with junior mortgage loans.
RIGHTS OF REDEMPTION
In some 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 redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has expired.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of 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 allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt 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. Generally, however, the terms of a mortgage
loan secured only by a mortgage on real property that is the debtor's principal
residence may not be modified pursuant to a plan confirmed pursuant to Chapter
13 except with respect to mortgage payment arrearages, which may be cured within
a reasonable time period.
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
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Billing Act, Fair Credit Reporting Act, and related statutes. These federal laws
impose specific statutory liabilities upon lenders who originate mortgage loans
and who fail to comply with the provisions of the applicable laws. In some
cases, this liability may affect assignees of the Mortgage Loans.
ENFORCEABILITY OF CERTAIN PROVISIONS
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans will include a debt-acceleration clause, which permits the lender
to accelerate the debt upon a monetary default of the borrower, after the
applicable cure period. The courts of all states will enforce clauses providing
for acceleration in the event of a material payment default. However, courts of
any state, exercising equity jurisdiction, may refuse to allow a lender to
foreclose a mortgage or deed of trust when an acceleration of the indebtedness
would be inequitable or unjust and the circumstances would render the
acceleration unconscionable.
Some courts have imposed general equitable principles to limit the remedies
available in connection with foreclosure. These equitable principles are
generally designed to relieve the borrower from the legal effect of his defaults
under the loan documents. For example, some courts have required 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 lenders' 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 lenders to foreclose if the default under the mortgage instrument or deed of
trust is not monetary, such as the borrower's failure to maintain adequately the
property or the borrower's execution of a second mortgage or deed of trust
affecting the property. Finally, some courts have been willing to relieve a
borrower from the consequences of the default if the borrower has not received
adequate notice of the default.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans will generally contain due-on-sale clauses, which permit the
lender to accelerate the maturity of the Mortgage Loan if the borrower sells,
transfers, or conveys the related Mortgaged Property. The enforceability of
these clauses has been the subject of legislation or litigation in many states.
Some jurisdictions automatically enforce such clauses, while others require a
showing of reasonableness and hold, on a case-by-case basis, that a "due on
sale" clause may be invoked only where a sale threatens the legitimate security
interests of the lender.
The Garn-St. Germain Depository Institutions Act of 1982 purports to
preempt state laws which prohibit the enforcement of "due-on-sale" provisions in
certain loans made after October 15, 1982. The Master Servicer may thus be able
to accelerate the Mortgage Loans that were originated after that date and
contain a "due-on-sale" provision, upon transfer of an interest in the related
Mortgaged Property, regardless of its ability to demonstrate that a sale
threatens its legitimate security interest. Each Pooling and Servicing Agreement
will provide that the Master Servicer, on behalf of the Trustee, will enforce
any right of the Trustee as the mortgagee of record to accelerate a Mortgage
Loan in the event of a sale or other transfer of the related Mortgaged Property
unless, in the Master Servicer's reasonable judgment, doing so would materially
increase the risk of default or delinquency on, or materially impair the
security for, such Mortgage Loan.
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. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. 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.
Certain states have taken action to reimpose interest rate limits and/or to
limit discount points or other charges. The Sellers will represent and warrant
in each Pooling and Servicing Agreement that each related Mortgage Loan was
originated in compliance with applicable state law in all material respects.
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ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and possibly under state law in a number of states, a secured party
which takes a deed in lieu of foreclosure, acquires a mortgaged property at a
foreclosure sale or which has been involved in decisions which may lead to
contamination of a property may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a secured lender (such as the related Trust).
The Pooling and Servicing Agreement requires that the Master Servicer, in making
a determination to foreclose on or otherwise acquire a Mortgaged Property, take
into account (and the Master Servicer is not required to foreclose or otherwise
acquire a Mortgaged Property in the case of) the existence of hazardous wastes
or hazardous substances on such Mortgaged Property. If title to a Mortgaged
Property securing a Mortgage Loan is acquired by a Trust and cleanup costs are
incurred in respect of the Mortgaged Property, the holders of the Certificates
might incur a loss if such costs were required to be paid by the Trust and
sufficient funds were not available from any Reserve Account, Spread Account or
similar account or from collections on the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Certificates offered hereunder. This discussion is directed solely to
Certificateholders that hold the Certificates as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986 (the "Code") and
does not purport to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which (such as banks,
insurance companies and foreign investors) may be subject to special rules.
Further, the authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing interpretations, which could
apply retroactively. Taxpayers and preparers of tax returns (including those
filed by any REMIC or other issuer) should be aware that under applicable
Treasury regulations a provider of advice on specific issues of law is not
considered an income tax return preparer unless the advice (i) is given with
respect to events that have occurred at the time the advice is rendered and is
not given with respect to the consequences of contemplated actions, and (ii) is
directly relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. In addition to the federal
income tax consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase, ownership and
disposition of the Certificates. See "State and Other Tax Consequences."
Certificateholders are advised to consult their own tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of the Certificates offered hereunder.
The following discussion addresses securities ("REMIC Certificates")
representing interests in a Trust, or a portion thereof, which the Master
Servicer will covenant to elect to have treated as a REMIC under Sections 860A
through 860G (the "REMIC Provisions") of the Code. The Prospectus Supplement for
each series of Certificates will indicate whether a REMIC election (or
elections) will be made for the related Trust and, if such an election is to be
made, will identify all "regular interests" and "residual interests" in the
REMIC. For purposes of this tax discussion, references to a "Certificateholder"
or a "holder" are to the beneficial owner of a Certificate.
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Sections 1271-1273 and 1275 of the Code and
in the Treasury regulations issued thereunder (the "OID Regulations"), and in
part upon the REMIC Provisions and the Treasury regulations issued thereunder
(the
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"REMIC Regulations"). The OID Regulations, which are effective with respect to
debt instruments issued on or after April 4, 1994, do not adequately address
certain issues relevant to, and in some instances provide that they are not
applicable to, securities such as the Certificates.
REMICS
CLASSIFICATION OF REMICS
Upon the issuance of each series of REMIC Certificates, the special tax
counsel to the Sellers identified in the related Prospectus Supplement ("Tax
Counsel"), will deliver their opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the related Trust (or each applicable portion thereof) will qualify as a REMIC
and the REMIC Certificates offered with respect thereto will be considered to
evidence ownership of "regular interests" ("REMIC Regular Certificates") or
"residual interests" ("REMIC Residual Certificates") in that REMIC within the
meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a separate
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
Trust's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust as a REMIC
will be terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES
In general, the REMIC Certificates will be "qualifying real property loans"
within the meaning of Section 593(d) of the Code, "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code in the same proportion that the assets of the REMIC
underlying such Certificates would be so treated. Moreover, if 95% or more of
the assets of the REMIC qualify for any of the foregoing treatments at all times
during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest
(including original issue discount) on the REMIC Regular Certificates and income
allocated to the class of REMIC Residual Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. In addition, the REMIC Regular Certificates will be "qualified
mortgages" within the meaning of Section 860G(a)(3)(C) of the Code if
transferred to another REMIC on its startup day in exchange for regular or
residual interests therein. The determination as to the percentage of the
REMIC's assets that constitute assets described in the foregoing sections of the
Code will be made with respect to each calendar quarter based on the average
adjusted basis of each category of the assets held by the REMIC during such
calendar quarter. The Master Servicer will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and property acquired by foreclosure held pending sale, and may include amounts
in reserve accounts. It is unclear whether property acquired by foreclosure held
pending sale and amounts in reserve accounts would be considered to be part of
the Mortgage Loans, or whether such assets (to the extent not invested in assets
described in the foregoing sections) otherwise would receive the same treatment
as the Mortgage Loans for purposes of all of the foregoing sections. In
addition, in some instances Mortgage Loans may not be treated entirely as assets
described in the foregoing sections. If so, the related Prospectus Supplement
will describe the Mortgage Loans that may not be so treated. The REMIC
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Regulations do provide, however, that payments on Mortgage Loans held pending
distribution are considered part of the Mortgage Loans for purposes of Sections
593(d) and 856(c)(5)(A) of the Code.
TIERED REMIC STRUCTURES
For certain series of REMIC Certificates, two or more separate elections
may be made to treat designated portions of the related Trust as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of REMIC Certificates, Tax Counsel will deliver their opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the Tiered REMICs will each qualify as a REMIC and the
REMIC Certificates issued by the Tiered REMICs, respectively, will be considered
to evidence ownership of REMIC Regular Certificates or REMIC Residual
Certificates in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and "loans
secured by an interest in real property" under Section 7701(a)(19)(C) of the
Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
GENERAL
Except as otherwise stated in this discussion, REMIC Regular Certificates
will be treated for federal income tax purposes as debt instruments issued by
the REMIC and not as ownership interests in the REMIC or its assets. Moreover,
holders of REMIC Regular Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect to REMIC
Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Section 1273(a) of the Code. Any holders of
REMIC Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with the method described below, in advance of the receipt of the
cash attributable to such income. In addition, Section 1272(a)(6) of the Code
provides special rules applicable to REMIC Regular Certificates and certain
other debt instruments issued with original issue discount. Regulations have not
been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Mortgage Loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Committee Report indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption used by the Master Servicer in reporting
original issue discount for each series of REMIC Regular Certificates (the
"Prepayment Assumption") will be consistent with this standard and will be
disclosed in the related Prospectus Supplement. However, neither the Sellers nor
the Master Servicer will make any representation that the Mortgage Loans will in
fact prepay at a rate conforming to the Prepayment Assumption or at any other
rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a
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particular class of REMIC Regular Certificates is sold for cash on or prior to
the date of their initial issuance (the "Closing Date"), the issue price for
such class will be treated as the fair market value of such class on the Closing
Date. Under the OID Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on such Certificate
other than "qualified stated interest." "Qualified stated interest" includes
interest that is unconditionally payable at least annually at a single fixed
rate, or in the case of a variable rate debt instrument, at a "qualified
floating rate," an "objective rate," a combination of a single fixed rate and
one or more "qualified floating rates" or one "qualified inverse floating rate,"
or a combination of "qualified floating rates" that generally does not operate
in a manner that accelerates or defers interest payments on such REMIC Regular
Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. Generally, an adjustable rate instrument that
is determined to have original issue discount is converted to a fixed rate
instrument for which a schedule of hypothetical accruals is determined. Original
issue discount on the adjustable rate instrument is accrued in accordance with
that schedule with adjustments in each period to account for the divergence of
the actual interest rate on the instrument from the interest rate for that
period assumed in the preparation of the hypothetical schedule.
Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on a
Payment Date, in some cases, as a consequence of this "long first accrual
period," some or all interest payments may be required to be included in the
stated redemption price of the REMIC Regular Certificate and accounted for as
original issue discount. Because interest on REMIC Regular Certificates must in
any event be accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion in income of
the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Payment Date
is computed with respect to a period that begins prior to the Closing Date, a
portion of the purchase price paid for a REMIC Regular Certificate will reflect
such accrued interest. In such cases, information returns to the
Certificateholders and the IRS will be based on the position that the portion of
the purchase price paid for the interest accrued with respect to periods prior
to the Closing Date is treated as part of the overall cost of such REMIC Regular
Certificate (and not as a separate asset the cost of which is recovered entirely
out of interest received on the next Payment Date) and that portion of the
interest paid on the first Payment Date in excess of interest accrued for a
number of days corresponding to the number of days from the Closing Date to the
first Payment Date should be included in the stated redemption price of such
REMIC Regular Certificate. However, the OID Regulations state that all or some
portion of such accrued interest may be treated as a separate asset the cost of
which is recovered entirely out of interest paid on the first Payment Date. It
is unclear how an election to do so would be made under the OID Regulations and
whether such an election could be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the
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numerator of which is the amount of such principal payment and the denominator
of which is the outstanding stated principal amount of the REMIC Regular
Certificate. The OID Regulations also would permit a Certificateholder to elect
to accrue de minimis original issue discount into income currently based on a
constant yield method. See "Taxation of Owners of REMIC Regular
Certificates -- Market Discount" for a description of such election under the
OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to a Payment Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of original issue
discount that accrues in any accrual period will equal the excess, if any, of
(i) the sum of (A) the present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the REMIC Regular Certificate,
if any, in future periods and (B) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included in the stated
redemption price, over (ii) the adjusted issue price of such REMIC Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
(i) assuming that distributions on the REMIC Regular Certificate will be
received in future periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these purposes, the original
yield to maturity of the Certificate will be calculated based on its issue price
and assuming that distributions on the Certificate will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount that
accrued with respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular Certificate in
prior accrual periods of amounts included in its stated redemption price. The
original issue discount accruing during any accrual period, computed as
described above, will be allocated ratably to each day during the accrual period
to determine the daily portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price," in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
MARKET DISCOUNT
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, in the case of a REMIC Regular Certificate issued without
original issue discount, at a purchase price less than its remaining stated
principal amount, or in the case of a REMIC Regular Certificate issued with
original issue discount, at a purchase price less than its adjusted issue price
will recognize income upon receipt of each distribution representing stated
redemption price. In particular, under Section 1276 of the Code such a
Certificateholder generally will be required to allocate the portion of each
such distribution representing stated redemption price first to accrued market
discount not previously included in income, and to recognize ordinary
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income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election were
made with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a Certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "Taxation of Owners of REMIC
Regular Certificates -- Premium." Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method or
as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount." Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Conference Committee Report (the "Committee Report")
apply. The Committee Report indicates that in each accrual period market
discount on REMIC Regular Certificates should accrue, at the Certificateholder's
option: (i) on the basis of a constant yield method, (ii) in the case of a REMIC
Regular Certificate issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total amount of stated interest
remaining to be paid on the REMIC Regular Certificate as of the beginning of the
accrual period, or (iii) in the case of a REMIC Regular Certificate issued with
original issue discount, in an amount that bears the same ratio to the total
remaining market discount as the original issue discount accrued in the accrual
period bears to the total original issue discount remaining on the REMIC Regular
Certificate at the beginning of the accrual period. Moreover, the Prepayment
Assumption used in calculating the accrual of original issue discount is to be
used in calculating the accrual of market discount. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a REMIC
Regular Certificate purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includable in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or
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continued to purchase or carry a REMIC Regular Certificate purchased with market
discount. For these purposes, the de minimis rule referred to above applies. Any
such deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includable in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
PREMIUM
A REMIC Regular Certificate purchased at a cost (excluding any portion of
such cost attributable to accrued qualified stated interest) greater than its
remaining stated redemption price will be considered to be purchased at a
premium. The holder of such a REMIC Regular Certificate may elect under Section
171 of the Code to amortize such premium under the constant yield method over
the life of the Certificate. If made, such an election will apply to all debt
instruments having amortizable bond premium that the holder owns or subsequently
acquires. Amortizable premium will be treated as an offset to interest income on
the related REMIC Regular Certificate, rather than as a separate interest
deduction. The OID Regulations also permit Certificateholders to elect to
include all interest, discount and premium in income based on a constant yield
method, further treating the Certificateholder as having made the election to
amortize premium generally. See "Taxation of Owners of REMIC Regular
Certificates -- Market Discount." The Committee Report states that the same
rules that apply to accrual of market discount (which rules will require use of
a Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Section 171 of
the Code.
REALIZED LOSSES
Under Section 166 of the Code, both corporate holders of the REMIC Regular
Certificates and noncorporate holders of the REMIC Regular Certificates that
acquire such Certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their Certificates become wholly or partially worthless as the
result of one or more realized losses on the Mortgage Loans. However, it appears
that a noncorporate holder that does not acquire a REMIC Regular Certificate in
connection with a trade or business will not be entitled to deduct a loss under
Section 166 of the Code until such holder's Certificate becomes wholly worthless
(i.e., until its outstanding principal balance has been reduced to zero) and
that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a realized
loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL
As residual interests, the REMIC Residual Certificates will be subject to
tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Mortgage Loans or as debt instruments issued by the
REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the
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taxable income or net loss of the REMIC will be allocated to each day in the
calendar quarter ratably using a "30 days per month/90 days per quarter/360 days
per year" convention unless otherwise disclosed in the related Prospectus
Supplement. The daily amounts will then be allocated among the REMIC Residual
Certificateholders in proportion to their respective ownership interests on such
day. Any amount included in the gross income or allowed as a loss of any REMIC
Residual Certificateholder by virtue of this allocation will be treated as
ordinary income or loss. The taxable income of the REMIC will be determined
under the rules described below in "Taxable Income of the REMIC" and will be
taxable to the REMIC Residual Certificateholders without regard to the timing or
amount of cash distributions by the REMIC. Ordinary income derived from REMIC
Residual Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to limitations under Section 469 of the Code on the
deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily portion of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. These daily portions generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise, to reduce (or increase) the income or loss of a holder
of a REMIC Residual Certificateholder that purchased such REMIC Residual
Certificate from a prior holder of such Certificate at a price greater than (or
less than) the adjusted basis (as defined below) such REMIC Residual Certificate
would have had in the hands of an original holder of such Certificate. The REMIC
Regulations, however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includable
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions,"
residual interests without "significant value" and "noneconomic" residual
interests discussed below. The fact that the tax liability associated with the
income allocated to REMIC Residual Certificateholders may exceed the cash
distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return.
TAXABLE INCOME OF THE REMIC
The taxable income of the REMIC will equal the income from the Mortgage
Loans and other assets of the REMIC plus any cancellation of indebtedness income
due to the allocation of realized losses to REMIC Regular Certificates, less the
deductions allowed to the REMIC for interest (including original issue discount
and reduced by the amortization of any premium received on issuance) on the
REMIC Regular Certificates (and any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered hereby), amortization
of any premium on the Mortgage Loans, bad debt deductions with respect to the
Mortgage Loans and, except as described below, for servicing, administrative and
other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to their fair market value
immediately after their transfer to the REMIC. For this purpose, the Master
Servicer intends to treat the fair market value of the Mortgage Loans as being
equal to the aggregate issue prices of the REMIC Regular Certificates and REMIC
Residual Certificates. Such aggregate basis will
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be allocated among the Mortgage Loans collectively and the other assets of the
REMIC in proportion to their respective fair market values. The issue price of
any REMIC Certificates offered hereby will be determined in the manner described
above under "-- Taxation of Owners of REMIC Regular Certificates -- Original
Issue Discount." Accordingly, if one or more classes of REMIC Certificates are
retained initially rather than sold, the Master Servicer may be required to
estimate the fair market value of such interests in order to determine the basis
of the REMIC in the Mortgage Loans and other property held by the REMIC.
Subject to the possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method of accruing original issue discount income for REMIC Regular
Certificateholders (that is, under the constant yield method taking into account
the Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such discount in income currently, as it accrues, on a
constant interest basis. See "-- Taxation of Owners of REMIC Regular
Certificates" above, which describes a method of accruing discount income that
is analogous to that required to be used by a REMIC as to Mortgage Loans with
market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includable in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption.
The REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "-- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount," except that the de minimis rule and
the adjustments for subsequent holders of REMIC Regular Certificates (including
any other class of Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess, "Issue Premium"), the
REMIC will have an additional item of income in each taxable year in an amount
equal to the portion of the Issue Premium that is considered to be amortized or
repaid in that year. Although the matter is not entirely certain, it is likely
that Issue Premium would be amortized under a constant yield method in a manner
analogous to the method of accruing original issue discount described above
under "-- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount."
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "-- Prohibited Transactions and Other Possible REMIC
Taxes" below. Further, the limitation on miscellaneous itemized deductions
imposed on individuals by Section 67 of the Code (which allows such deductions
only to the extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the REMIC
will be allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be allocated
as a separate item to the holders of REMIC Certificates, subject to the
limitation of Section 67 of the Code. See "-- Possible Pass-Through of
Miscellaneous Itemized Deductions." If the deductions allowed to the REMIC
exceed its gross income for a calendar quarter, such excess will be the net loss
for the REMIC for that calendar quarter.
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BASIS RULES, NET LOSSES AND DISTRIBUTIONS
The adjusted basis of a REMIC Residual Certificate will be equal to the
amount paid for such REMIC Residual Certificate, increased by amounts included
in the income of the REMIC Residual Certificateholder and decreased (but not
below zero) by distributions made, and by net losses allocated, to such REMIC
Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the Trust. However, such basis increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a Residual Certificateholder may not
amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of its share of any net
losses of the REMIC or upon the sale of its REMIC Residual Certificate. See
"-- Sales of REMIC Certificates." For a discussion of possible modifications of
these rules that may require adjustments to income of a holder of a REMIC
Residual Certificate other than an original holder in order to reflect any
difference between the cost of such REMIC Residual Certificate to such holder
and the adjusted basis such REMIC Residual Certificate would have had in the
hands of the original holder, see "-- Taxation of Owners of REMIC Residual
Certificates -- General."
EXCESS INCLUSIONS
Any "excess inclusions" with respect to a REMIC Residual Certificate will,
with an exception discussed below for certain REMIC Residual Certificates held
by thrift institutions, be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the sum
of the daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The "daily accruals" of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate,
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increased by the sum of the daily accruals for all prior quarters and decreased
(but not below zero) by any distributions made with respect to such REMIC
Residual Certificate before the beginning of such quarter. The issue price of a
REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is an average of
current yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "-- Foreign
Investors in REMIC Certificates," below.
As an exception to the general rules described above, thrift institutions
are allowed to offset their excess inclusions with unrelated deductions, losses
or loss carryovers, but only if the REMIC Residual Certificates are considered
to have "significant value." The REMIC Regulations provide that in order to be
treated as having significant value, the REMIC Residual Certificates must have
an aggregate issue price at least equal to two percent of the aggregate issue
prices of all of the related REMIC's Regular and Residual Certificates. In
addition, based on the Prepayment Assumption, the anticipated weighted average
life of the REMIC Residual Certificates must equal or exceed 20 percent of the
anticipated weighted average life of the REMIC, based on the Prepayment
Assumption and on any required or permitted clean up calls or required qualified
liquidation provided for in the REMIC's organizational documents. Although it
has not done so, the Treasury also has authority to issue regulations that would
treat the entire amount of income accruing on a REMIC Residual Certificate as an
excess inclusion if the REMIC Residual Certificates are considered not to have
"significant value." The related Prospectus Supplement will disclose whether
offered REMIC Residual Certificates may be considered to have "significant
value" under the REMIC Regulations; provided, however, that any disclosure that
a REMIC Residual Certificate will have "significant value" will be based upon
certain assumptions, and the Sellers will make no representation that a REMIC
Residual Certificate will have "significant value" for purposes of the
above-described rules. The above-described exception for thrift institutions
applies only to those residual interests held directly by, and deductions,
losses and loss carryovers incurred by, such institutions (and not by other
members of an affiliated group of corporations filing a consolidated income tax
return) or by certain wholly-owned direct subsidiaries of such institutions
formed or operated exclusively in connection with the organization and operation
of one or more REMICs.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, based on the
Prepayment Assumption and on any required or permitted clean up calls, or
required qualified liquidation provided for in the REMIC's organizational
documents, (1) the present value of the expected future distributions
(discounted using the "applicable Federal rate" for obligations whose term ends
on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the
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REMIC Residual Certificate, which rate is computed and published monthly by the
IRS) on the REMIC Residual Certificate equals at least the present value of the
expected tax on the anticipated excess inclusions, and (2) the transferor
reasonably expects that the transferee will receive distributions with respect
to the REMIC Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. Accordingly, all transfers of REMIC Residual Certificates that may
constitute noneconomic residual interests will be subject to certain
restrictions under the terms of the related Pooling and Servicing Agreement that
are intended to reduce the possibility of any such transfer being disregarded.
Such restrictions will require each party to a transfer to provide an affidavit
that no purpose of such transfer is to impede the assessment or collection of
tax, including certain representations as to the financial condition of the
prospective transferee, as to which the transferor also is required to make a
reasonable investigation to determine such transferee's historic payment of its
debts and ability to continue to pay its debts as they come due in the future.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers should
consider the possibility that a purported transfer of such REMIC Residual
Certificate by such a purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules which would result in
the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Sellers will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "-- Foreign Investors in REMIC Certificates -- REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
MARK-TO-MARKET RULES
On January 4, 1995, the IRS released proposed regulations (the
"Mark-to-Market Regulations") relating to the requirement that a securities
dealer mark to market securities held for sale to customers. This mark-to-market
requirement applies to all securities owned by a dealer, except to the extent
that the dealer has specifically identified a security as held for investment.
The Mark-to-Market Regulations provide that for purposes of this mark-to-market
requirement, a REMIC Residual Certificate issued after January 4, 1995 would not
be treated as a security and thus generally could not be marked to market.
Prospective purchasers of a REMIC Residual Certificate should consult their tax
advisors regarding the possible application of the mark-to-market requirement to
REMIC Residual Certificates.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS
Fees and expenses of a REMIC generally will be allocated to the holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
the holders of the related REMIC Regular Certificates. Unless otherwise stated
in the related Prospectus Supplement, such fees and expenses will be allocated
to holders of the related REMIC Residual Certificates in their entirety and not
to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate two percent of a taxpayer's adjusted gross
income. In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
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amount of additional taxable income reportable by REMIC Certificateholders that
are subject to the limitations of either Section 67 or Section 68 of the Code
may be substantial. Furthermore, in determining the alternative minimum taxable
income of such a holder of a REMIC Certificate that is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should consult
carefully with their tax advisors prior to making an investment in such
Certificates.
SALES OF REMIC CERTIFICATES
If a REMIC Certificate is sold, the selling Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the REMIC Certificate. The adjusted basis of
a REMIC Regular Certificate generally will equal the cost of such REMIC Regular
Certificate to such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate (including
original issue discount and market discount income) and reduced (but not below
zero) by distributions on such REMIC Regular Certificate received by such
Certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under "-- Taxation of
Owners of REMIC Residual Certificates -- Basis Rules, Net Losses and
Distributions." Except as described below, any such gain or loss generally will
be capital gain or loss. The Code as of the date of this Prospectus provides for
a top marginal tax rate of 39.6% for individuals and a maximum marginal rate for
long-term capital gains of individuals of 28%. No such rate differential exists
for corporations. In addition, the distinction between a capital gain or loss
and ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includable in
the seller's income with respect to such REMIC Regular Certificate had income
accrued thereon at a rate equal to 110% of the "applicable Federal rate"
(generally, a rate based on an average of current yields on Treasury securities
having a maturity comparable to that of the Certificate, which rate is computed
and published monthly by the IRS), determined as of the date of purchase of such
REMIC Regular Certificate, over (ii) the amount of ordinary income actually
includable in the seller's income prior to such sale. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
such REMIC Regular Certificate at a market discount will be taxable as ordinary
income to the extent of any accrued and previously unrecognized market discount
that accrued during the period the Certificate was held. See "-- Taxation of
Owners of REMIC Regular Certificates -- Market Discount."
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in Certificates or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
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Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the limitation on the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if a
person who sells or otherwise disposes of a REMIC Residual Certificate
reacquires the Certificate, any other residual interest in a REMIC or any
similar interest in a "taxable mortgage pool" (as defined in Section 7701(i) of
the Code) within six months of the date of such sale, the sale will be subject
to the "wash sale" rules of Section 1091 of the Code. In that event, any loss
realized by the REMIC Residual Certificateholder on the sale will not be
deductible, but instead will be added to such REMIC Residual Certificateholder's
adjusted basis in the newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (a "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions a prohibited transaction means the
disposition of a Mortgage Loan, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or Trustee in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by the
Master Servicer or the Trustee will be payable out of the related Trust
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO CERTAIN
ORGANIZATIONS
If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the Certificate, which rate is computed and published
monthly by the IRS) of the total anticipated excess inclusions with respect to
such
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REMIC Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The anticipated
excess inclusions must be determined as of the date that the REMIC Residual
Certificate is transferred and must be based on events that have occurred up to
the time of such transfer, the Prepayment Assumption and any required or
permitted clean up calls or required liquidation provided for in the REMIC's
organizational documents. Such a tax generally would be imposed on the
transferor of the REMIC Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax would instead be
imposed on such agent. However, a transferor of a REMIC Residual Certificate
would in no event be liable for such tax with respect to a transfer if the
transferee furnishes to the transferor an affidavit that the transferee is not a
disqualified organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. Moreover, an entity
will not qualify as a REMIC unless there are reasonable arrangements designed to
ensure that (i) residual interests in such entity are not held by disqualified
organizations and (ii) information necessary for the application of the tax
described herein will be made available. Restrictions on the transfer of REMIC
Residual Certificates and certain other provisions that are intended to meet
this requirement will be included in the Pooling and Servicing Agreement, and
will be discussed more fully in any Prospectus Supplement relating to the
offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
TERMINATION
A REMIC will terminate immediately after the Payment Date following receipt
by the REMIC of the final payment in respect of the Mortgage Loans or upon a
sale of the REMIC's assets following the adoption by the REMIC of a plan of
complete liquidation. The last distribution on a REMIC Regular Certificate will
be treated as a payment in retirement of a debt instrument. In the case of a
REMIC Residual Certificate, if the last distribution on such REMIC Residual
Certificate is less than the REMIC Residual Certificateholder's adjusted basis
in such Certificate, such REMIC Residual Certificateholder should be treated as
realizing a loss equal to the amount of such difference. The character of any
such loss as ordinary or capital is uncertain. Further, any such loss may be
subject to the "wash sale" rules of Section 1091 of the Code. See "-- Sales of
REMIC Certificates."
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Solely for purposes of the administrative provisions of the Code, the REMIC
will be treated as a partnership and Residual Certificateholders will be treated
as partners. Unless otherwise stated in the related
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Prospectus Supplement, the Master Servicer will file REMIC federal income tax
returns on behalf of the related REMIC, will be designated as and will act as
the "tax matters person" with respect to the REMIC in all respects, and
generally will hold at least a nominal amount of REMIC Residual Certificates.
As the tax matters person, the Master Servicer will, subject to certain
notice requirements and various restrictions and limitations, generally have the
authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders will generally be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the Master Servicer, as tax matters person, and the IRS concerning any
such REMIC item. Adjustments made to the REMIC tax return may require a REMIC
Residual Certificateholder to make corresponding adjustments on its return, and
an audit of the REMIC's tax return, or the adjustments resulting from such an
audit, could result in an audit of a REMIC Residual Certificateholder's return.
No REMIC will be registered as a tax shelter pursuant to Section 6111 of the
Code because it is not anticipated that any REMIC will have a net loss for any
of the first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
to the related REMIC, in a manner to be provided in Treasury regulations, the
name and address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other non-individuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face certain information including the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to the REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method requires information relating to the holder's purchase
price that the Master Servicer will not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount."
The responsibility for complying with the foregoing reporting rules will be
borne by the Master Servicer. Certificateholders may request any information
with respect to the returns described in Section 1.6049-7(e)(2) of the Treasury
regulations. Such request should be directed to the Master Servicer at
CoreStates Bank, N.A., c/o Corporate Secretary, CoreStates Financial Corp,
Centre Square West, 1500 Market Street, Philadelphia, Pennsylvania 19102-2116.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES
Payments of interest and principal, as well as payments of proceeds from
the sale of REMIC Certificates, may be subject to the "backup withholding tax"
under Section 3406 of the Code at a rate of 31% if recipients of such payments
fail to furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax.
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Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the
proper manner.
FOREIGN INVESTORS IN REMIC CERTIFICATES
A REMIC Regular Certificateholder that is not a "United States person" (as
defined below) and 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 REMIC Regular Certificate will not be subject to United States federal
income or withholding tax in respect of a distribution on a REMIC Regular
Certificate, provided that the holder complies to the extent necessary with
certain identification requirements (including delivery of a statement, signed
by the Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a United States person and providing the name and
address of such Certificateholder). For these purposes, "United States person"
means 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 whose income from
sources without the United States is includable in gross income for United
States federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States. It is possible that the IRS may
assert that the foregoing tax exemption should not apply with respect to a REMIC
Regular Certificate held by a REMIC Residual Certificateholder that owns
directly or indirectly a 10% or greater interest in the REMIC Residual
Certificates. If the holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue discount,
to such holder may be subject to a tax rate of 30%, subject to reduction under
any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non-resident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are non-resident
alien individuals should consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences", potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Certificates offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the certificates
offered hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain fiduciary and prohibited transaction restrictions on employee
pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section 4975
of the Code imposes similar prohibited transaction restrictions on tax-qualified
retirement or annuity plans described in Section 401(a) or 403(a) of the Code
("Qualified Plans") and on individual retirement accounts ("IRAs") described in
Section 408 of the Code (collectively, "Tax-Favored Plans"). Generally, any
person who has discretionary authority or control respecting the management or
disposition of "plan assets" of any ERISA Plan or Tax-Favored Plan
(collectively, "Plans"), and any person who provides investment advice with
respect to such assets for a fee, is a fiduciary of the Plan involved.
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Any fiduciary or other Plan investor considering whether to purchase any
Certificates on behalf of or with "plan assets" of any Plan should consult with
its counsel and refer to the applicable Prospectus Supplement for guidance
regarding the ERISA Considerations applicable to the Certificates offered
thereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA), are not subject to the requirements of ERISA or Section 4975 of the
Code. Accordingly, assets of such plans may be invested in the Certificates
without regard to the ERISA considerations described herein and in the
applicable Prospectus Supplement, subject to the provisions of other applicable
federal and state law. However, any such plan that is a Qualified Plan and
exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503(b) of the Code.
In addition to imposing general fiduciary requirements, including those of
investment prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan, Section
406 of ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving "plan assets" of Plans and persons (referred to as "parties in
interest" in ERISA or "disqualified persons" in Section 4975 of the Code) who
have certain specified relationships to the Plans, unless a statutory or
administrative exemption is available. Certain "parties in interest" (or
"disqualified persons") that participate in a prohibited transaction may be
subject to a penalty or an excise tax imposed pursuant to Section 502 of ERISA
or Section 4975 of the Code, unless a statutory or administrative exemption is
available.
PLAN ASSET REGULATION
An investment of Plan Assets (as defined below) in Certificates may cause
the Mortgage Loans and other assets of the related Trust to be deemed "plan
assets" of all Plans involved. Section 2510.3-101 of the U.S. Department of
Labor (the "DOL") regulations (the "DOL Regulation") addresses whether or not a
Plan's assets would be deemed to include an interest in the underlying assets of
an entity (such as a Trust), for purposes of applying the general fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code, when a Plan acquires an "equity interest"
(such as a Certificate) in such entity. Because of the indefinite nature of
certain of the rules set forth in the DOL Regulation, the assets of a Plan which
acquires Certificates of any Class may be deemed to include merely its interest
in the Certificates or both such interest and an undivided interest in the
assets of the related Trust. Therefore, Plan Assets should not be used to
acquire or hold Certificates in reliance upon the availability of any exception
under the DOL Regulation. For purposes of the sections of this Prospectus and
any Prospectus Supplement headed "ERISA Considerations," the terms "Plan Assets"
and "assets of a Plan" have the meaning specified in the DOL Regulation and
include an undivided interest in the underlying assets of certain entities in
which a Plan invests.
The prohibited transaction provisions of Section 406 of ERISA and Section
4975 of the Code may apply to a Trust and cause the Sellers, the Master
Servicer, any Subservicer, the Trustee, the obligor under any credit enhancement
mechanism and certain affiliates thereof, to be considered or become "parties in
interest" (or "disqualified persons") with respect to the assets of any Plan
that are invested in Certificates issued by the Trust. If so, the acquisition or
holding of Certificates by or on behalf of a Plan or with Plan Assets could also
give rise to a prohibited transaction under ERISA and Section 4975 of the Code,
unless a statutory or administrative exemption is available. Certificates
acquired by a Plan would be assets of that Plan. Under the DOL Regulation, the
Trust, including the Mortgage Loans and other assets held in the Trust, may also
be deemed to be assets of each Plan that acquires Certificates. Special caution
should be exercised before Plan Assets are used to acquire a Certificate in such
circumstances, especially if, with respect to such Plan Assets, a Seller, the
Master Servicer, a Subservicer, the Trustee, the obligor under any credit
enhancement mechanism or an affiliate thereof either (1) has investment
discretion with respect to the investment of Plan Assets, or (2) has authority
or responsibility to give (or regularly gives) investment advice with respect to
Plan Assets for a fee pursuant to an agreement or understanding that such advice
will serve as a primary basis for investment decisions with respect thereto.
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Any person who has discretionary authority or control with respect to the
management or disposition of the assets of a Plan, and any person who provides
investment advice with respect to such assets for a fee (in the manner described
above), is a fiduciary with respect to such Plan. If the Mortgage Loans and
other Trust assets were deemed to be Plan Assets, any party exercising
management or discretionary control regarding those assets may be deemed to be a
"fiduciary" with respect to all Plans involved and, therefore, subject to the
fiduciary requirements of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code with respect to such Plans. In addition, if
the Mortgage Loans and other Trusts assets were deemed to be Plan Assets, the
acquisition or holding of Certificates by or on behalf of a Plan or with Plan
Assets, as well as the normal operations of the Trust, may constitute or result
in a prohibited transaction under ERISA and Section 4975 of the Code.
PROHIBITED TRANSACTION EXEMPTIONS
Underwriters' Exemptions. The DOL has issued individual exemptions (each,
an "Exemption"), to a large number of investment banking firms, broker-dealers
and banks or their affiliates (each, an "Underwriter"), which generally exempt
from the application of the prohibited transaction provisions of Section 406 of
ERISA, and the excise taxes imposed on prohibited transactions pursuant to
Section 4975(a) and (b) of the Code, certain transactions (among others)
relating to the servicing and operation of mortgage pools and the purchase, sale
and holding of mortgage pass-through certificates issued by a trust as to which
an Underwriter to whom the DOL has issued an Exemption (or any of its
affiliates) is the sole underwriter or the manager or co-manager of the
underwriting syndicate, or a selling or placement agent, with respect to such
certificates, provided that certain conditions set forth in the applicable
Exemption are satisfied. The Prospectus Supplement for each Series will state
(in the section headed "ERISA Considerations") whether or not the DOL has issued
an Exemption to an Underwriter with respect that Series and identify the Classes
of Certificates of that Series to which any such Exemption may apply.
General Conditions. Each Exemption sets forth six general conditions which
must be satisfied for a transaction involving the purchase, sale and holding of
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of Certificates with Plan Assets must be on terms that are at least
as favorable to the Plans involved as they would be in an arm's-length
transaction with an unrelated party. Second, an Exemption only applies to
Certificates evidencing rights and interests that are not subordinated to the
rights and interests evidenced by the other Certificates of the same Trust.
Third, the Certificates, at the time of their acquisition with Plan Assets, must
be rated in one of the three highest generic rating categories by S&P, Moody's,
D&P or Fitch. Fourth, the Trustee cannot be an affiliate of any member of the
"Restricted Group," which consists of any Underwriter, the Sellers, the Master
Servicer, any Subservicer and any mortgagor with respect to Mortgage Loans
constituting more than 5% of the aggregate unamortized principal balance of the
Mortgage Loans held in the related Trust as of the date of initial issuance of
the Certificates. Fifth, the sum of all payments made to and retained by the
Underwriters must represent not more than reasonable compensation for
underwriting or placing the Certificates; the sum of all payments made to and
retained by the Sellers pursuant to the assignment of the Mortgage Loans and
other Trust assets to the related Trust must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Master Servicer and any Subservicers must represent not more
than reasonable compensation for such persons' services under the related
Pooling and Servicing Agreement and reimbursement of such persons' reasonable
expenses in connection therewith. Sixth, each Exemption states that the
investing Plan must be an accredited investor as defined in Rule 501(a)(1) of
Regulation D of the Securities and Exchange Commission under the Securities Act
of 1933, as amended.
A Plan fiduciary or other investor of Plan Assets contemplating purchasing
a Certificate must make its own determination that the general conditions
described above will be satisfied with respect to such Certificate.
If the general conditions of an applicable Exemption are satisfied, the
Exemption may provide exemptive relief from the restrictions imposed by Section
406(a) of ERISA, and the excise taxes imposed by Section 4975(a) and (b) by
reason of Section 4975(c)(1)(A) through (D) of the Code, in connection with the
direct or indirect sale, exchange, transfer, holding or the direct or indirect
acquisition or disposition in the secondary
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market of Certificates by a Plan or with Plan Assets. However, no exemption is
provided from the restrictions of Section 406(a)(1)(E) and (2) of ERISA for the
acquisition or holding of a Certificate by or with Plan Assets of an Excluded
Plan by any person who has discretionary authority or renders investment advice
with respect to Plan Assets of such Excluded Plan. For purposes of the sections
of this Prospectus and any Prospectus Supplement headed "ERISA Considerations,"
the term "Excluded Plan" means a Plan sponsored by any member of the Restricted
Group (as defined above).
Specific Conditions. If certain specific conditions of an applicable
Exemption are also satisfied, the Exemption may provide exemptive relief from
the restrictions imposed by Section 406(b)(1) and (2) of ERISA, and the excise
taxes imposed by Section 4975(a) and (b) by reason of Section 4975(c)(1)(E) of
the Code, in connection with (1) the direct or indirect sale, exchange or
transfer of Certificates, in the initial issuance of Certificates between a
Seller or an Underwriter and an investor of Plan Assets, when the person who has
discretionary authority or renders investment advice with respect to the
investment of the relevant Plan Assets in the Certificates is a mortgagor with
respect to 5% or less of the fair market value of the Mortgage Loans or other
assets held in the Trust (or an affiliate of such a person), and (2) the direct
or indirect acquisition or disposition in the secondary market and holding of
Certificates by a Plan or with Plan Assets.
Further, if certain specific conditions of an applicable Exemption are
satisfied, the Exemption may provide exemptive relief from the restrictions
imposed by Section 406(a) and (b) of ERISA, and the excise taxes imposed by
Section 4975(a) and (b) by reason of Section 4975(c) of the Code, for
transactions in connection with the servicing, management and operation of the
Mortgage Pools. The Sellers expect that those specific conditions of an
applicable Exemption will be satisfied with respect to the Certificates so that
the Exemption would provide exemptive relief from those restrictions and excise
taxes for transactions in connection with the servicing, management and
operation of the Mortgage Pools, provided that the general conditions of the
Exemption are satisfied.
An applicable Exemption also may provide exemptive relief from the
restrictions imposed by Section 406(a) of ERISA, and the excise taxes imposed by
Section 4975(a) and (b) by reason of Section 4975(e)(1)(A) through (D) of the
Code, if such restrictions are otherwise deemed to apply merely because a person
is deemed to be a "party in interest" (within the meaning of Section 3(14) of
ERISA) or a "disqualified person" (within the meaning of Section 4975(e)(2) of
the Code) with respect to a Plan by virtue of providing services to the Plan(s)
involved, or by virtue of having certain specified relationships to such a
person, solely as a result of the ownership of Certificates by a Plan or with
Plan Assets.
Advance Determinations. Before purchasing any Class of Certificates of any
Series, a Plan fiduciary or other investor of Plan Assets should itself
determine that (1) the DOL has issued an Exemption to an Underwriter with
respect to that Series, (2) the Exemption applies to Certificates of that Class,
(3) the Certificates constitute "certificates" as defined in the Exemption, and
(4) the specific and general conditions and any other requirements set forth in
the Exemption would be satisfied. In addition to making its own determination as
to the availability of the exemptive relief provided by an applicable Exemption,
the Plan fiduciary or other investor of Plan Assets should consider its general
fiduciary obligations under ERISA in determining whether to purchase any
Certificates with Plan Assets.
Any Plan fiduciary or other of Plan Assets investor who proposes to
purchase Certificates with Plan Assets should consult with its counsel with
respect to the potential applicability of ERISA and Section 4975 of the Code to
such investment and the availability of exemptive relief under an Exemption or
any other prohibited transaction exemption in connection therewith. In
particular, in connection with a contemplated purchase of Certificates
representing a beneficial ownership interest in a pool of single-family
residential mortgage loans, any fiduciary or other Plan investor should consider
the availability of an Exemption or Prohibited Transaction Class Exemption 83-1
("PTCE 83-1") for certain transactions involving mortgage pool investment
trusts. The Prospectus Supplement for any Series of Certificates may contain
additional information regarding the application of an Exemption, PTCE 83-1 or
any other prohibited transaction exemption with respect to the Certificates
offered thereby. However, PTCE 83-1 does not provide exemptive relief with
respect to Certificates evidencing interests in Trusts which include Cooperative
Loans.
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TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section
501(a) 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" ("UBTI") (within the meaning of Section 512 of the Code). All
"excess inclusions" of a REMIC allocated to a REMIC Residual Certificate held by
a Tax-Exempt Investor will be considered UBTI and, therefore, will be subject to
federal income tax. See "Certain Federal Income Tax Consequences -- Taxation of
Owners of REMIC Residual Interests."
CONSULTATION WITH COUNSEL
Any Plan fiduciary or other investor of Plan Assets who proposes to acquire
or hold Certificates on behalf of or with Plan Assets of any Plan should consult
with its counsel with respect to the potential applicability of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code to the proposed investment and the
availability of exemptive relief under an Exemption, PTCE 83-1 or any other
prohibited transaction exemption.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, no Class
of Certificates of a Series will constitute "mortgage related securities" under
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") because the
related Mortgage Pool will include Mortgage Loans that are secured by second or
more junior Mortgages. Investors should consult their own legal advisers in
determining whether and to what extent any Class of Certificates of a Series
constitutes legal investments for such investors.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from each sale of the
Series of Certificates will be received, directly or indirectly, by the Sellers
and will be available for general corporate purposes.
PLAN OF DISTRIBUTION
The Certificates of each Series may be sold to or through Underwriters
(which may include any of the Sellers or their respective affiliates) by a
negotiated firm commitment underwriting and public reoffering by the
Underwriters or such other underwriting arrangement as may be specified in the
related Prospectus Supplement or may be offered or placed either directly or
through agents. The Sellers intend that Certificates will be offered through
such various methods from time to time and that offerings may be made
concurrently through more than one of such methods or that an offering of a
particular Series of Certificates may be made through a combination of such
methods.
The distribution of Certificates may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.
In connection with the sale of the Certificates, Underwriters or agents may
receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell Certificates to certain dealers at prices less a
concession. Underwriters may allow and such dealers may reallow a concession to
certain other dealers. Underwriters, dealers and agents that participate in the
distribution of the Certificates of a Series may be deemed to be underwriters
and any discounts or commissions received by them from the Sellers or the
related Trust and any profit on the resale of the Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933. Any such Underwriters or agents will be identified, and any such
compensation received from the Sellers or the related Trust will be described,
in the related Prospectus Supplement.
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Under agreements which may be entered into by the Sellers, Underwriters and
agents who participate in the distribution of the Certificates may be entitled
to indemnification by the Sellers against certain liabilities, including
liabilities under the Securities Act of 1933.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any such market, if established, will continue.
RATINGS
Each Class of Certificates of a Series will be rated at their initial
issuance in one of the four highest categories by at least one 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. No person is obligated to maintain the rating on any Certificate, and,
accordingly, there can be no assurance that the ratings assigned to a
Certificate upon initial issuance will not be lowered or withdrawn by a Rating
Agency at any time thereafter. In general, ratings address credit risk and do
not represent any assessment of the likelihood or rate of principal prepayments.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Sellers by Barbara M. Rothenberg, Counsel, CoreStates Financial Corp and
certain federal income tax consequences of the issuance of the Certificates will
be passed upon by the tax counsel ("Tax Counsel") identified in the related
Prospectus Supplement.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
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<S> <C>
Accrual Period.................................................................. 4, 27
Accrual Certificates............................................................ 4, 27
Actuarial Mortgage Loan......................................................... 18
Advance......................................................................... 8, 32
Available Payment Amount........................................................ 34
backup withholding tax.......................................................... 67
Bankruptcy Mortgage Loan........................................................ 18
Bankruptcy Plan................................................................. 18
Balloon Loans................................................................... 14
Basic Principal Amount.......................................................... 34
Basic Principal Payment......................................................... 5, 28
Book-Entry Certificates......................................................... 6, 27
Cash Collateral Account......................................................... 38
Cash Collateral Lender.......................................................... 38
Cede............................................................................ 6, 27
CEDEL........................................................................... 46
CEDEL Participant............................................................... 46
Certificate Insurance Policy.................................................... 37
Certificate Interest Rate....................................................... 3, 26
Certificates.................................................................... 1
Citibank........................................................................ 44
Class........................................................................... 1, 3, 14
Closing Date.................................................................... 3, 54
Code............................................................................ 9, 52
Collection Account.............................................................. 33
Combined Loan-to-Value Ratio.................................................... 17
Commission...................................................................... 2
Contributions Tax............................................................... 65
conversion transaction.......................................................... 64
Committee Report................................................................ 57
Cooperative..................................................................... 46
Cooperative Loans............................................................... 47
CoreStates...................................................................... 21
Credit Provider................................................................. 37
Cross Collateralized Loan....................................................... 24
Curtailments.................................................................... 5, 28
Cut-off Date.................................................................... 3
daily accruals.................................................................. 61
debt-to-net income ratio........................................................ 23
Definitive Certificates......................................................... 45
Determination Date.............................................................. 4
Depositaries.................................................................... 44
disqualified organization....................................................... 66
disqualified person............................................................. 69
DOL............................................................................. 69
DOL Regulations................................................................. 69
D&P............................................................................. 9, 11
DTC............................................................................. 6, 27, 44
Due Period...................................................................... 5, 27
</TABLE>
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<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------- ----------
<S> <C>
Eligible Account................................................................ 31
ERISA........................................................................... 9, 68
ERISA Plans..................................................................... 68
Euroclear....................................................................... 46
Euroclear Operator.............................................................. 46
Euroclear Participant........................................................... 46
Event of Nonpayment............................................................. 43
excess inclusion................................................................ 61, 71
Excess Spread................................................................... 32
Exchange Act.................................................................... 3
Excluded Plan................................................................... 70
Exemption....................................................................... 69
FHLMC........................................................................... 42
fiduciary....................................................................... 69
Fitch........................................................................... 9, 11
FNMA............................................................................ 42
Holders......................................................................... 27
Home Equity Loan-to-Value Ratio................................................. 17
Indirect Participants........................................................... 6, 27, 45
Insurance Proceeds.............................................................. 5, 28
Insurer......................................................................... 37
IRAs............................................................................ 68
IRS............................................................................. 54
Issue Premium................................................................... 60
Issuer.......................................................................... 3
LAPS............................................................................ 22
Letter of Credit................................................................ 37
Letter of Credit Issuer......................................................... 37
Liquidated Mortgage Loan........................................................ 5, 28
Liquidation Proceeds............................................................ 5, 28
Majority in Aggregate Voting Interest........................................... 43
Mark-to-Market Regulations...................................................... 63
Master Servicer................................................................. 1, 3
Master Servicer Termination Event............................................... 42
Monthly Payments................................................................ 5, 28
Moody's......................................................................... 9, 11
Morgan.......................................................................... 44
Mortgage........................................................................ 1, 6
Mortgage File................................................................... 15, 28
Mortgage Interest Rate.......................................................... 7
Mortgage Loan................................................................... 1, 3, 6
Mortgage Loan Losses............................................................ 34
Mortgage Loan Schedule.......................................................... 28
Mortgage Pool................................................................... 1, 3, 6
Mortgaged Property.............................................................. 1, 6
Mortgagor....................................................................... 12
net income from foreclosure property............................................ 65
Net Liquidation Proceeds........................................................ 5, 28
noneconomic..................................................................... 62
Nonrecoverable Advances......................................................... 33
Notional Principal Amount....................................................... 5
</TABLE>
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<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------- ----------
<S> <C>
OID Regulation.................................................................. 52
original issue discount......................................................... 54
Original Pool Principal Balance................................................. 6, 17
Owner........................................................................... 45
Participants.................................................................... 6, 27, 45
party in interest............................................................... 68, 71
pass-through entity............................................................. 66
Payment Date.................................................................... 4, 34
Percentage Interest............................................................. 5, 27
Permitted Instruments........................................................... 31
Plan............................................................................ 9, 11, 68
Plan Assets..................................................................... 69
Pooling and Servicing Agreement................................................. 21
Pool Insurance Policy........................................................... 37
Pool Insurer.................................................................... 37
Pool Principal Balance.......................................................... 36
portfolio income................................................................ 58
Prefunding Account.............................................................. 8, 35
Prepayment Assumption........................................................... 54
Prepayment Period............................................................... 5, 28
Primary Servicing Portfolio..................................................... 26
Principal and Interest Account.................................................. 31
Principal Prepayments........................................................... 5, 28
Prohibited Transactions Tax..................................................... 64
Prospectus...................................................................... 1
Prospectus Supplement........................................................... 1
PTCE 83-1....................................................................... 71
qualified mortgages............................................................. 53
Qualified Plans................................................................. 68
qualified stated interest....................................................... 54
Qualified Substitute Mortgage Loan.............................................. 31
qualifying real property loans.................................................. 53
Rating Agency................................................................... 9, 11
real estate assets.............................................................. 53
Record Date..................................................................... 4
Released Mortgaged Property Proceeds............................................ 5, 28
Relief Act...................................................................... 16
REMIC........................................................................... 1, 9
REMIC Certificates.............................................................. 52
REMIC Provisions................................................................ 52
REMIC Regular Certificate(holder)............................................... 52
REMIC Regulations............................................................... 52
REMIC Residual Certificate(holder).............................................. 52
REO Properties.................................................................. 7
Reserve Account................................................................. 38
Restricted Group................................................................ 70
Rule of 78s..................................................................... 19
Rule of 78s Mortgage Loan....................................................... 18
Rules........................................................................... 45
Sample Pool..................................................................... 17
Seller.......................................................................... 1, 3
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------- ----------
<S> <C>
Senior Lien..................................................................... 9, 13
Senior Certificates............................................................. 38
Series.......................................................................... 1
Servicing Advances.............................................................. 33
Servicing Fee................................................................... 8, 39
significant value............................................................... 61
Simple Interest Mortgage Loan................................................... 18
SMMEA........................................................................... 72
S&P............................................................................. 9, 11
Special Hazard Policy........................................................... 38
Spread Account.................................................................. 38
standard hazard insurance....................................................... 40
Subordinated Certificates....................................................... 38
Subservicer..................................................................... 42
Subservicing Agreement.......................................................... 42
Substitution Adjustment......................................................... 31
Successor Master Servicer....................................................... 44
sum of the digits............................................................... 19
Tax Counsel..................................................................... 52, 73
Tax-Exempt Investor............................................................. 71
Tax Favored Plans............................................................... 68
taxable mortgage pool........................................................... 64
Terms and Conditions............................................................ 47
Tiered REMICS................................................................... 53
Title V......................................................................... 51
Trust........................................................................... 1, 3
Trustee......................................................................... 3, 21
Underwriter..................................................................... 69
UBTI............................................................................ 71
United States Person............................................................ 67
Weighted Average Life........................................................... 21
Yield Supplement Account........................................................ 38
</TABLE>
iv
